The business plan

The past few years we have seen a surge in investment and the development of many new businesses. The trend is still continuing today and many entrepreneurs – domestic and foreign – are in the process identifying new business opportunities and looking for profitable ways to invest in Ethiopia.
The authorities have created favourable conditions for investors and the fact that we see so many new initiatives would indicate that the business environment is conducive indeed. At the same time we are witnessing some worrying trends which show that the business environment is not that stable and that investors face some real risks. The current electricity crisis for example – whatever the cause of it may be - affects everybody at the moment and results in a domino effect of consequences. Business owners are forced to look for alternative sources of energy, adding substantially to their running costs. Smaller businesses, without generator back up are rescheduling their working hours and I see them operating into the late evening hours to make up for lost time. While it is possible for those who can afford it to install a generator to continue having electricity, things become more complicated with the frequent interruption of the telephone services. The telephone services are affected by the electricity crisis as well as ETC seems to lack sufficient generator capacity for itself to continue providing uninterrupted services. I wonder if that would have been the case, if the sector were to be privatised but that is another issue altogether. The access to the internet is seriously affected as a result, in its turn making running a business highly ineffective. Add to this the soaring inflation that we are experiencing and one should come to the conclusion that the business environment is not all that conducive at the moment, to put it mildly, and it could take some time before the situation will improve again.
Nevertheless investors continue to look for opportunities and ways to get support in financing their ideas. Having a solid business plan is therefore essential. Here follow a few hints so that writing a business plan develops understanding and provides a focus on the essentials. It may seem a time consuming, even painful exercise, but the returns could well be worth the effort.
The business plan summarizes a project in a way that makes it understandable and attractive to potential financiers, business partners or employees. It should contain a clear message for the reader and has the following three objectives:
· To give a clear, understandable description of the business opportunity.
· To provide convincing arguments that makes the opportunity credible.
· To formulate a direct request to investors, strategic partners or potential employees.
Keep in mind that the first review of a business plan is an elimination process, rather than a selection process. The challenge is to stimulate readers’ curiosity and allow them to read the plan easily.
The business plan should start with a clear value proposition. What matters to the reader is the value your business will create. Answer therefore the following questions:
1. What kind of business are you in?
2. What do you provide and how?
3.Who are your target customers?
The plan should clearly identify the problem the business is going to address, not only the solution. A good understanding of a particular problem or need will lead to success. First confirm the need, then build the product. Show you understand the problem and your solution will be more convincing.
Next, be focussed. Avoid the description of the entire industrial sector and focus on the business instead. Define the target market and provide a relevant description, with figures that show the size of the market.
Next, highlight the “So what.” For readers to reach your conclusions, rather than their own, you need to guide them. It is not enough to describe facts as different readers may draw different conclusions. For example, the fact that some people don’t wear shoes doesn’t indicate whether there is a huge potential market for shoes or no market at all.
Show evidence of marker acceptance, in particular with a new product or concept. Consumer behaviour is hard to predict. A common pitfall is to assume that customers will behave in the way you expect. Reality is different and common sense is the least accurate way to predict consumer behaviour.
Now describe the implementation approach. A good idea is unlikely to be unique. If it is good, expect a few other people to be thinking about it. If it’s really good, you may find others working on it already. The difference is in implementation. This is the real challenge. Even if the idea is not unique, you can make a difference in the way you carry it out. And that is what investors are looking for.
Finally, be coherent with figures. There will never be accurate figures until the business is underway and even then some pieces may be missing. It is always possible however to use comparisons, benchmarks and reference points. Use them to estimate market size, market share and profit margins. Readers of your business plan will in the first instance not be able to double check the figures. They would rather look at the coherence of figures and check that they are consistent with the strategy.

(Next week we will look more into some details of the business plan.)