OE1-4.3 The Business Plan

What this is and why it exists

Two documents in this topic look similar and do opposite jobs, and doing them in the wrong order wastes months.

A feasibility study asks whether this can work. A business plan argues that it will. Asking the first question after writing the second is how people end up making a persuasive case for something unworkable.

The vocabulary

• Feasibility study — an investigation that may conclude the venture should not proceed.
• Business plan — a document setting out the venture and arguing for it.
• Business Model Canvas — a one-page layout of nine elements of a business model.
• Technical analysis — whether the thing can actually be built, and how.
• Financial analysis — whether it makes money, and when.
• Cash flow — money actually moving in and out, as opposed to profit on paper.
• Runway — how long the venture can continue before it runs out of cash.
• Market analysis — who buys it, why, and instead of what.
• Executive summary — the standalone summary that gets read first and written last.

The mental model

The plan's first purpose is thinking, not persuading. Writing it forces you to state what you believe and to notice which parts you cannot state. The version shown to an investor comes later, and it is a different document with a different job.

The one-page canvas is the faster way in, and it belongs before any long document. Nine boxes on one page. Who the customers are, what value they get, how you reach and keep them. Where revenue comes from, what resources and activities are needed, who the partners are, and what it costs.

The value of it is what it exposes. An empty box is usually the real problem, and a long document lets you write around an empty box for thirty pages without noticing.

Technical analysis is the section an engineer is best placed to write, which makes honesty there both easier and more tempting to abandon. Can this be built with available components? What is unproven? How long would the hard part actually take? An optimistic technical section is the one failure the reader cannot check and you can.

Financial analysis is where most student plans fail, and the failure has a shape. Revenue is assumed rather than evidenced, and the time to reach it is underestimated. Costs are more predictable and more complete than revenue in any plan.

The distinction that matters most is between profit and cash. A venture can be profitable and fail, because profit is recorded when a sale is made and cash arrives when the customer pays. Between those two moments you are paying wages and suppliers from money you have. Running out of cash while profitable is common, and it is what the payment terms in the previous topic cause. Runway is the number to know: how long you can continue at the current rate before the money is gone.

Market analysis is the section engineering founders most often write badly, and the failure is consistent. They describe the product instead of the customer.

The questions the section must answer are about people. Who has this problem, specifically enough to name? What do they do now, since they are managing somehow? What would make them change, given that changing costs them effort? What would they pay, and who says so? Answers come from talking to people, and a section written without having done that is a guess dressed as analysis.

The competition part deserves the same treatment. Every business has competition, and if none is visible then the alternative is doing nothing, which is a formidable competitor because it is free.

The feasibility study comes first and its defining property is that it can conclude no. A study that cannot reach that conclusion is not a study. Deciding early not to proceed is a success of the process, not a failure of it, and it is much cheaper than deciding late.

The executive summary is the part that gets read. It is written last, placed first, and must stand alone. The problem, the solution, the market, the model, the team, and what is being asked for. There is a test in it too. If it cannot be written clearly, the plan underneath it is not clear either, and the difficulty is in the thinking rather than the wording.

What you should now be able to explain or do

Say which document comes first and why the order matters. Fill a nine-box canvas and use the empty box as a signal. Write a technical section honestly and say why that is your responsibility. Separate profit from cash and compute a runway. Write a market section about customers rather than the product, and treat doing nothing as a competitor.

Check yourself