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Diary of Social Venture Start-up: The Business Plan

Our business columnist is back to explain why you totally need a business plan (even though they're a pain in the ass to make). He'll...

Our business columnist is back to explain why you totally need a business plan (even though they're a pain in the ass to make). He'll be here every two weeks to share his successes, failures, and to answer your questions.

There are a lot of conflicting opinions about the utility of business plans. If you ask me, though, I'll tell you that business plans are incredibly important-you just need to learn how to use them.

Constructing a successful plan is all about recognizing limitations-understanding what a business plan will and will not do for you. First thing's first. Repeat after me: "My business plan will have very little to do with my actual business."

Congratulations. You're over the first hump. I've yet to meet any business owner whose original plan plays any role in what they do now, because no matter how solid your idea is, it's going to change along the way. Also, your plan is going to contain all sorts of projections (revenue, production, costs, etc.), and "projections" is really just a fancy word for "completely blind, shot-in-the-dark guesses." Your guesses will be based on analysis. But at the end of the day, they're still just guesses.

So, then, why bother taking the time to pump out those 20 or 30 pages? Because there's a lot that a business plan will do for you. For instance:

Information gathering: To craft your plan, you'll need to become an expert. You're going to learn more than you thought was possible about your industry. You'll evaluate your competition, talk to prospective customers, and calculate whether you can make it work financially. It's this research that will ultimately tell you if your idea has the juice to become a business.

Funding: Unless your uncle runs a VC, you're going to have to raise money. And pretty much anyone who's going to consider writing you a check is going to want to see that you've done your homework (that is, your business plan). Does Nicholas Negroponte need a business plan for his next project? Probably not. Do you? Yes.

Perfecting your pitch: This is perhaps the most valuable thing that writing a business plan will do for you. All that research is going to make you a pitching demon. You'll rattle off statistics. You'll exude confidence in your ideas. You'll anticipate questions before they're asked. You will be ready for every meeting.

But what goes into the plan? Truth is, there's really no set rule. You'll get a different answer from everyone. Personally, I like Guy Kawasaki's take. For him, a good plan includes: an Executive Summary; the problem you're going to solve; how you're going to solve it; your business model; how your business works; marketing and sales plans; your competition; your team; projections; status and timeline; and a conclusion.

That's a pretty good list. Of course, this isn't just any venture you're starting-it's a social venture, which means we're missing something. That's right: The whole "helping people" thing.

You're going to need to figure out your Social Return on Investment. Saying you're going to change the world isn't enough; you'll need numbers. How many acres of woodland can you save? How many sanitation centers can you erect? By how much can you improve literacy rates? You get the idea. It's worth noting, though, that SROI is complicated and contentious. (There is an interesting and ongoing debate surrounding its practical application here.) Nonetheless, the fact remains: You can't just claim that you're going to do good; you'll need to prove it.

If you're a first-time social entrepreneur, developing a business plan is a great way to see if your idea has the potential to be something more. The hard work, the research, the feedback you'll receive-it all pays off. The process will test your assumptions, expand your knowledge, and help get you to a point where you can convince others to believe in your dream. So while writing your plan almost certainly won't teach you how to run a business, it might well get you to a place where you have a business to run.

The Takeaway:
Kickstart your company by writing a business plan-but always keep in mind its true purpose. To help get started, download a sample business plan from the nonprofit technology network, NPower.

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