List of items that investors want to see in business plans

Market analysis should be detailed without assuming some facts are common knowledge. PHOTO | FILE 

By SCOTT BELLOWS

Last week, Business Talk kicked off a multi-week series covering how to write a business plan by covering the executive summary section.

Remember that investor and entrepreneurship guru Paul Hudnut delineates seven components integral to the success of any business plan that include the executive summary, market analysis, marketing plan, management team, operations plan and strategies, value creation and financial projections, and the funding plan.

READ: A simple and clear business plan is all you need

Following last week’s article, some Business Daily readers wrote to ask how long a period should a business plan cover. The consensus ranges from a three-year period to five years.

Investors often laugh at five-year plans as pure fiction since no one can reasonably predict so far in advance. Nonetheless, some stakeholders still like to see what you hope and plan for a whole five year period. So, the middle road that many business owners now take are detailed analysis and projections for three years, and then skeleton data with clearly delineated assumptions for the next two years, thus comprising the entire five year timeframe.

So today, let us investigate market analysis in detail. Kenyan business plans often lack sufficient market analysis depth. Entrepreneurs often assume that their readers “already know the market”. However, as a business owner, you need to identify all aspects of your market qualitatively and then try to narrow down specifics into quantitative possibilities.

Many commentators advocate for business plans to place their SWOT analysis in the market analysis: strengths, weaknesses, opportunities, and threats. Others believe a separate section on the company should contain SWOT. It really does not matter where you put the analysis, as long as your business plan contains it.

SWOT is a common analysis tool taught in every credible institution and available widely by searching online. While often of negligible value, investors have grown accustomed to frequently seeing SWOT in every business plan. So, if you fail to include it, you may put off your readers.

Just remember that the strengths and weaknesses exist as internal to your firm while opportunities and threats listed should include only those external to your firm. Also, each weakness or threat should also contain a mitigant underneath each item. A mitigant shows you have thought about the problems and present a brief solution for dealing with them. Many business owners fear to list all the weaknesses and threats facing their business.

However, investors and other stakeholders typically did not reach their positions by accident. As smart individuals, they will likely already identify some of your weaknesses and threats because of their knowledge of running a business or your industry specifically. So if you fail to include something, you may seem disingenuous or aloof and therefore fall out of favour to partner with them.

Some business plan experts also advise business owners to write their SWOT analysis in light of the also generally used tool referred to as PESTEL, an acronym for political, economic, social, technological, environmental, and legal issues. While fairly self explanatory and easily found by searching for PESTEL in any search engine, the tool should be used to help you develop your best case, likely case, and worst case scenarios.

As an example, if a catastrophic collapse occurred in the value of the Kenyan shilling against other major currencies during the business plan period as an economic shock, then how would such a worst case scenario affect your business and what probability does such an event have of happening.

The most difficult part of the market analysis and most frequently subpar in Kenya is the business owner taking the time to, what Prof Hudnut advises, effectively analyse market attractiveness, size, growth, and competitive environment.

One may make use of Kenya National Bureau of Statistics data, IMF, World Bank, academic published research, media house surveys, published industry reports, and NGO reports to assess.

If you operate an entertainment company and desire to sell a television show concept that may prove popular with urban upper middle class 30-somethings Kenyans, then you must quantify the customer segment.