Your top sales tool is a business plan.  But take care.  The vast majority of such plans end up in the bin, most of them deservedly so.  But sometimes the business plan of a sound business concept ends up in the same place.  That is sad – and unnecessary.

To avoid that fate, make sure that every word and every number on every page is geared towards the requirements of your backer.

They’ll be looking for loads of things in your plan – your resources, management, operations, financials – the works.  But some aspects of your business plan can be fixed.  If your backer doesn’t rate the manager you plan to hire or the premises you plan to move to, you can find alternatives.

Not so with your business strategy. If that isn’t convincing, your backer will walk away.  Strategy is the foundation of your business plan.  It needs to be robust, able to withstand heavy investor scrutiny. It needs to be a winning business strategy.

So what is strategy? Isn’t that the preserve of business school academics or overpaid consultants?  No.  Strategy is what you need to do to get your business from where it is today to where you want it to be in three to five years’ time.

And it need not be that complex.  Sure, if you work in a company with many different businesses operating in many different sectors and countries, strategy would be complex.  But yours is a start-up and strategy need not be complex.

In my book Strategy Plain and Simple: 3 Steps to Building a Successful Strategy for Your Start-up or Growing Business, I set out three plain and simple steps in building a winning business strategy:

·         Understand your market

·         Gain a competitive advantage

·         Manage business risk

Let us look briefly at each in turn.

1. Understand your market

For a business strategy to be successful without a thorough understanding of the market is possible: it is called luck. For those who don’t want to rely on that, time spent in researching all aspects of the market will be well spent.

On the demand side, how big is your addressable market?  Is it growing? How fast? What is driving that growth? Will those drivers change? On the supply side, who are your competitors? Who are your indirect competitors? Are there too many of you?

What barriers are there to more coming in? Balancing demand with supply, is market pricing going to rise or be squeezed in the next few years?

Knowing the market is different from knowing your business.  Your business is just one player and you need to know everything about the game you are playing in.  If you can’t answer questions on key market trends and issues, your backer will be unimpressed.

The above understanding of the market applies to any business, large or small, new or established.  But this understanding become even more critical in a start-up, especially if you are addressing what you perceive to be a new market or a new segment within a market.

You’ll need to demonstrate to your backer that a market for your product or service exists and that people will buy your offering at the price point you will be pitching at.

If you have spotted a gap in the market which you are setting out to fill, you must show that there is a market in the gap.

You may need to do some test marketing to provide evidence that such a market exists. Which kind you should do depends on whether yours is a business-to-business (B2B) or a business-to-consumer (B2C) proposition.

If yours is B2B, get on the phone and set up meetings with prospective business buyers. Explore the customer’s needs, then gently steer the discussion towards a perceived gap in the market, where the customer’s needs are not being fully met.  Then pounce.  Explain how your offering is designed to bridge that very gap.

If yours is a B2C product or service, test it on the high street. Get out your clipboard, stand outside an Asda or a Waitrose, depending on your target customer, and talk to people. If you’re offering a product, show them. If it’s a service, explain lucidly but swiftly its benefits.

Whether B2B or B2C, ask interviewees if they would buy your offering.  Then compute the results.

Your backer will be impressed by your test marketing, especially if it comes over as well analysed and well written up as an annexe to your business plan.

2. Gain a competitive advantage

Step two in building a robust business strategy is to convince your backer that you have or will have a strong competitive position within that market. You have a competitive advantage that can last.

You have a product or service that is either highly differentiated from the other players or one that can be delivered at lower cost. Or, if you focus exclusively on one niche segment of your market, you have a product that is both differentiated and low cost.

How to differentiate, you may ask. Well that depends to an extent on the business, but your product may have a quality or features or functionality others don’t have, you may have a distinctive range of services, or a critical expertise in, say, R&D or marketing, or a special and defensible route to market.

Whatever the differentiation, you need to convince your backer that it is both valid in the marketplace and defensible.

As a start-up, what evidence can you display confirming this advantage?  If yours is a B2B business, do you have testimonials, even letters of intent, from potential customers?  If yours is B2C, did your test marketing come to a highly positive conclusion?

3. Manage business risk

The third step is to look at your strategy objectively and anticipate your backer’s concerns.  What risks are likely to most weigh on their minds, be they market demand, competitive, strategic or operational? How can you mitigate those risks?

Of those that cannot be mitigated, how can you demonstrate that they are of little significance and well outshone by the manifold opportunities waiting to be grasped by your business?

Do not, as so many business plans do, attempt to sweep risk under the carpet.  Your backer will find you out – and walk away.

That is start-up business strategy in three plain and simple steps. Develop it, test it, subject it to rigorous cross-examination before approaching a backer. Then wow them with your coherent, credible and convincing business strategy.

Vaughan Evans is an independent consultant specialising in strategy and business planning.