Writing a business plan

When undertaking any form of business, there are risks. Risks may be severe or minor, but regardless they need to be considered. The following are examples of various risks:

Strategic Risk

When a company does not operate according to its business model, its strategy becomes less effective over time, and it may struggle to reach its defined goals. For example, business and sole trader.

Compliance Risk

Primarily arises in industries and sectors that are highly regulated. For example, breaches in law and legislation

Operational Risk

This risk arises from within the corporation, especially when the day-to-day operations of a company fail to perform. For example, internet outages and equipment failures

Reputational Risk

Any time a company's reputation is ruined, either by an event resulting from a previous business risk or by a different occurrence, it risks losing customers and its brand loyalty suffering. For example, production issues ( the product is not delivering to customer demand and expectations or the product has been falsely advertised).

You may have heard of a risk matrix before. If you haven’t, a risk matrix is a tool that is used to assess the level of risk by factoring the probability or likelihood and the severity of the consequence of a potential risk.

Risk matrixes can be used in various occupational fields. All decisions we make come with risk. Using the risk matrix can help us identify how likely the risk will occur and its impact based on our decisions.

In business, a risk matrix should be used to determine the likelihood of a decision benefitting or negatively impact the business.

The following is a graphic of a risk matrix.

Matrix descriptions

The following table provides you with a description of each likelihood and impact/consequence.

(Adapted from source: Risk matrix – likelihood and consequence tool | Waka Kotahi NZ Transport Agency (nzta.govt.nz)

Likelihood definitions

As the diagramme indicates, a section is allocated for the likelihood of the risk. But what do each of these mean? Click on each of the following headings to learn more.

Risk mitigation is creating a contingency plan for certain scenarios. Simply put, it is mapping out possible variables that could affect your business negatively and assigning them a statistical probability for them to happen. A risk, or “exposure,” is a factor(s) that will lower its profits or lead it to fail. Anything threatening a company's ability to achieve its financial goals is considered a business risk.”

But how can we calculate the probability of something that has not happened yet? There are various tools that we can use:

Extrapolation of Information with Historical Data

Extrapolation can be used only when the database is reliable (from good sources), homogeneous (The essence of it hasn’t changed, and the parameters are the same) and constant (it has been repeating itself over the years). Example: If we know that people use water annually (X amount). And the growth of the population in New Zealand, according to the registers, is increasing by 10% annually. We can assume that the consumption of water in New Zealand in the upcoming year will increase by 10% (Making this X+0.1X + X.1) 

Expert estimations with reliable information

Sometimes, the information we are seeking already exists. Usually, they are from people who do their diligence while studying. You can use graduates' theses and expert opinions to support an estimation. Try using Industry Reports, News and Publications, Government and Regulatory entities reports, Financial Statements, or Industry conferences.

Machine Learning Predictive Models

How to use Excel for risk mitigation example: We are about to try and find out with 3 possible scenarios how a created eSport product could do in future sales with the following mitigation scenarios: Conservative, optimistic and pessimistic. Which values will be stated accordingly to research market numbers from the industry? After finding all possible brute sales, we will average them with the possibility of each scenario. Giving us a more realistic number of what to expect from our sales. How to find revenue with projections:

1. What is your product or service
2. What is the revenue recorded for that genre (latest one you can find)
3. Seek relevant Data: Audience Growth, Revenue Growth, Revenue Streams,
4. Find out the % Increase or decrease to extrapolate and generate an accurate projection
5. Bring that Data to Excel
6. Generate projections for the upcoming years with the 3 models (Pesimistic, Conversation, Optimistic)
7. Average the Revenue projection from the 3 different Models

Risk mitigation strategies

Risk mitigation is the practice of reducing the impact of potential risks by developing a plan to manage, eliminate, or limit setbacks as much as possible. There are four common risk mitigation strategies. These typically include avoidance, reduction, transference, and acceptance.

Avoidance

This strategy doesn’t mean ignoring the risk. To avoid the risk by you could spend part of your budget to help avoid e.g. the team is lacking in skills to create an engaging advertisement. The team could hire an external source to avoid the risk of loss.

Reduction

With this mitigation approach, once you’ve completed your risk analysis, you would take steps to reduce the likelihood of a risk happening or the impact should it occur.

Transference

Transferring risks involves passing the risk consequence to a third party. That might involve paying an insurance company to cover certain risks for many businesses.

Acceptance

This means accepting the risk as it stands. Sometimes the possibility of reward outweighs the risk, and taking the chance is more beneficial in the long run.

We do not have the capacity to overlook everything when mitigating risks, but we can try. As long as we are conservative with our projections and estimates, we can be ready for anything that could happen. And the chances of a risk taking us by storm are slim to none.

“Product proposals break down product features, potential, and potential revenue. To construct a successful product proposal, you should outline your key features, prepare product visuals, and ensure your market data projects' profitability. A good project proposal gives people a reason to care and invest in your idea.” – beautiful.ai

You’ve put in all the hard work, from developing your idea to analysing the competition and developing a prototype! Time to put all of that in a well-formatted document to give to potential clients, First as a Word document, then translate that into a side deck/presentation.

During a business pitch, two kinds of documents must be presented:

A detailed Business plan

A compilation of information based on the research and results of your business idea. This documentation will be organised with an Index that will include all the information used for your pitch idea, including references/bibliography (Places where you took your information from) *This will be used only after your idea is attractive enough for possible investors. It is a big document filled with several pages describing your business idea in detail.

A pitch deck

In summary It should be presented in no more than 2 pages (It can be one) as in infographics *Investors will use this during the business pitch. This document will be read by potential clients from around the world, be sure to double check the grammar and the document is formatted correctly.

Steps for writing a business plan

Step 1: Identify a Market Opportunity

With observation, we can identify a need to be fulfilled. With analysis we can deduce how to tackle the problem, and with creativity, we can find a solution for it An opportunity may come when there is a:

• Existence of a product or service
• A possibility for improvement or a new product or service.

Finding an opportunity in the market involves breaking down products or services that exist in order to identify what's potentially missing and why it would be missing. Try arguing to justify your thought process. You can base your logic in intuition, perception, examples or studies.

Step 2: Find Information that backs your Hypothesis

To back any business deal you want objectivity, and for it the best kind of information is the one coming from reliable sources. Take your time to search for information that backs your hypothesis. Make sure that this information comes from reliable sources.

Use relevant numeric information:

Try to link this information to your hypothesis and organise your information to create a sequence to it.

• Size of the market
• Market share
• Sales
• Revenue
• Market growth
• Market projections
• Any other quantitative information.

Step 3: Identify key points that support your hypothesis from the research information

Point and describe how your hypothesis aligns with the research done. Point this out by putting emphasis only in the points that back your hypothesis and your logic.

Step 4: Describe the service or product in detail

When describing a product during a business pitch, it is essential to focus on key aspects that will capture your audience attention and convey they value of your product or service. Here are some key points to keep in mind:

• Problem Solution Fit: Start by outlining the problem that the product silves.
• Unique Selling Proposition: Highlight what makes your product unique and better than existing.
• Features and Benefits: Describe the key features of your product and how they translate into benefits for costumer.
• Target Audience: Define your target audience and their demographics.
• Market Opportunity: Present data or insights about the size of the market.
• Competitive Analysis: briefly mention your competitors and explain how tour product compares favourably to them.

Step 5: Name your product and create a logo for it

• Name of product and reason behind the name
• PNG logo and brief explanation of thought behind the creation of the logo.

Step 6: Describe the Marketing mix (4Ps)

• Product strategy chosen
• Price strategy chosen
• Place strategy chosen
• Promotion strategy chosen

Step 7: Project the approximate cost per unit and retail price per unit

Estimate cost per unit breaking down in materials using other products as example to support your estimate.

Step 8: Projected sales and market growth backed with reliable data

Use researched information from good sources of information related to:

• Market Share (Market % owned by each competitor and the market percentage expected for your product)
• Market Capacity (Total amount of money in the market)

Try to be conservative with your expectations. Market share is not something easy to breach.

Project the budget for your sales revenue on these year estimates

• Term
• Cost per unit
• Units
• Production cost
• Price
• Price per Unit
• Sale
• Total sales
• Expenses
• Cost
• Fixed Expenses (Needs)
• Fixed Expenses (Needs)
• Tax
• GST
• Profit before taxes
• Profit after taxes
• Revenue

Your product/service SWOT matrix analysis

Provide the SWOT analysis conducted

Do a risk mitigation matrix for your pitch

Provide the risk mitigation you carried out for the business plan/pitch

Close statements

• Reiterate the value of your product
• Highlight important Promising projections
• Leave a memorable statement that encapsulates your vision as a product/service developer
• Thank your audience

Knowledge Check Activity