The Importance of Business Planning for New Ideas
Some would argue that creating a business plan at the stage where you have just conceived your idea for a new product is premature. So much is unknown at this early stage. However, I would argue that even at this early stage creating a business plan is essential, to ensure you do not waste limited resources developing or protecting an idea having no commercial merit. A good idea does not make a good business.
A business plan covers what you intend to do with your business and how it will be done. The process of writing down what is involved in bringing your idea to reality requires dealing with the why, what, who, how, where, when, and how much of your venture. Writing a business plan forces you to take a deep look at your idea and how you will turn it into a business. Doing so helps you recognize areas that need rethinking or support.
A good business plan follows generally accepted guidelines for both form and content. There are three primary parts to a business plan:
- The first is the business concept, where issues like industry, business structure, particular technology, product or service, and different strategies to make the business a success are discussed.
- The second is the marketplace section, which describes and analyzes potential customers – who and where they are, what makes them buy and so on. Here competition and product positioning are also described.
- Finally, the financial section contains the income and cash flow statement, balance sheet and other financial ratios, such as break-even analyses.
A good business plan provides a host of benefits, not least of which is convincing the inventor organisation that the idea is worth developing and then helping to procure funding from potential investors. It provides an organised outlook to the business proposition which increases the chance of obtaining venture capital and bank loans. It also helps identify and mitigate potential problems as it should address all areas of risk in starting and running the business.
As information is researched about the different aspects of the business plan, one may learn that suppositions initially made about development costs and timelines, marketing budgets, cost of materials, licensing and permitting, labour costs, real estate or leases and other critical business aspects are incorrect. Learning this before sinking time into further development is a no-brainer.
A business plan should also provide a strategic intellectual property plan. The IP component of the business plan assists in a number of distinct ways. It should set out the various ways in which the competitive advantages described in the business plan might be sustained long term using IP as a barrier to entry. It should also address one of the key risks in any new business venture, which is whether the business has “freedom to operate” – that is, can it execute the plan without infringing third party rights? For a start-up company seeking early funding, showing potential investors that you have at least thought of these issues may be the difference between ending up in the “investigate further” pile rather than the “no” pile on the first review. The plan should specify key IP deliverables and propose a schedule for their completion. In this regard, the business plan provides an objective standard by which the activities of the business may be judged. It may also facilitate budgeting by identifying projected costs.
An effective strategic intellectual property plan will therefore prompt the development, acquisition, maintenance, and exploitation of intellectual property assets. Each piece of intellectual property should be viewed as something that furthers company goals and confers value to its owner.
Without understanding how any new idea translates into a viable scalable business, investing in further research and development, or in IP protection, may be premature.
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