What are good questions to answer for business plans?

Tim Berry , Founder , Palo Alto Software

3 Sep 2013

This is my answer on Quora to ‘what are good questions to answer in a business plan?’

Congrats on your question. Basing your planning on what questions to answer, as you suggest, is a really good way to do it. Everything in business planning is case by case, and every plan is unique, so you’re on the right track.

First answer these core fundamental questions:

• Who wants what I’m selling?
• Why do they want it? What pain points does it solve? How much to they want it?
• What are the alternatives they can use to solve this problem or fill the need? What do they do now?
• How many people are there who have this problem?

Don’t think your answers to these questions are just numbers. They are stories. Can you tell the story of somebody having a problem, finding your business, and solving it? Numbers are nice, but numbers without credible stories are not really answers.

Then answer three strategy questions: 

• What is my unique identity? Meaning how am I different, what are my strengths and weaknesses, etc. What does your business do best?
• Who/what is my target market? Often the most important answer is who isn’t in your target market and why. Narrow it down. Focus. The secret to failure is trying to please everybody.
• What is my business offering? Is it narrow and focused to apply to your target market? Is there a pain point, a need? Do you offer something your market will want to pay more.

Then answer basic number questions: 

• How much can I realistically sell, month by month over the next 12 months, and then annually for a couple of years. This is usually (but not always) units and price per unit with units x price = sales.
• What are the underlying drivers for those sales? Identify assumptions such as web traffic, foot traffic, marketing spend for pay per click or social media or old-fashioned marketing, the sales funnel and salesforce if you’re doing a b-to-b direct sales model, whatever applies.
• What does it cost me in direct cost for each unit of sales? Given that assumption, what are my direct costs for each month and year of my sales projection?
• What personnel do I need to make my sales forecast realistic? How much will those people cost me, month by month, year by year?
• What running expenses (alias fixed costs) to I need to support those people and the sales growth? That will be an estimate of rent, utilities, Internet, phones, office expenses, insurance, etc.
• What discretionary expenses will it take to support my sales forecast? That will be your list from point 2 above, marketing and sales expenses tied to the sales forecast.
• What expenses do I need to incur before I start? (such as legal, signage, design, prototype, etc.). These are part of your starting costs.
• What assets do I need to buy before I start, and as I operate the business? These are important and don’t show up in profits or losses, because they are not deductible.
• How much money do I need to cover the expenses and assets in point 7 and 8 and any running deficits during the early months if spending is greater than what I receive in sales?

The answers to these questions end up being most convenient in the form of projected profit and loss, balance sheet, and cash flow. Once you’ve answered all of them, you have all the information you need to do that.

Then answer the what-who-when-how-much questions

• What key milestones/tasks need to occur? These vary by type of business, but every business has its moments, like launch, opening, new versions, releases, office space, etc.
• When should they occur? When to the key tasks start, when should they be finished?
• Who is responsible for completing each key milestones/tasks?
• How much will specific necessary milestones/tasks cost in expenses?
• What resources will you need for specific milestones/tasks?

In all of these, focus on the major milestones. Don’t try to project in a lot of detail into the future. That doesn’t work. Humans need to focus, summarize, and plan the most important elements, not everything.

And when you’re done answering these questions…

… you should review results at least once a month, and, as results come in, adjust your answers regularly. That’s called management.

Only if you have to, answer these questions for outsiders

I believe business planning is for running the company, building the business, for you, the entrepreneur; and that every entrepreneur deserves the help of a simple business plan. However, there are what I call “business plan events,” such as raising investment or applying for a loan, and for those specific uses, you dress up your plan to answer the questions those outsiders might have, including:

• How much and what kind of experience does your management team have?
• What do you have that is proprietary and defensible? Momentum, trade secrets, reputation, intellectual property? (Think barriers to entry, and stories)
• What is the competitive environment?
• What is the general industry outlook for this type of business? =
• How did your company start? Why? How has it done so far? What milestones has it already met?

So do this last bit only when you have to.

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