Supporting Information

In Attitude Adjustment, looking at the principles of the plan-as-you-go business plan, I suggested separating the supporting information from the plan. The plan doesn't necessarily include the supporting information that everybody assumes is part of the traditional formal business plan.

And now we're looking at that supporting information, including market analysis, industry analysis, and descriptions and explanations that you make and include for outsiders, but not for a plan you're going to implement by yourself.

Market Research on the Web

For market research, as with business industry research, you go very quickly back to the Web. Here are some starting points: -- is a commercial site aggregating published market research. -- Hill Research Library, an excellent nonprofit library resource, offers market research at accessible rates. -- This is the U.S. government hub site for market research. -- ClickZ Network offers up-to-date statistics on Web usage. -- The U.S. government statistical site. -- is a marketing information site. -- American Marketing Association (AMA) main market information site. -- Hoovers is a database of American companies. -- Offers a wealth of links for additional information sites. -- The Bureau of Economic Analysis is part of the U.S. Department of Commerce, offering business statistics.

Simple and Practical Market Research

Market research doesn't have to be expensive to be credible. True, there are research companies out there that do custom research for larger companies for thousands of dollars. You can buy expensive research reports for some markets, generally high-growth markets of special interest to companies that can afford to buy expensive research reports. You may have budget for that, but you don't have to spend that much money. Most of the best research is research you do yourself.

Do Your Homework

Search for quotes. Magazines, blogs, books, and market research companies publish highlights and snippets with some key numbers from research reports. They really have to, it's part of their normal business. Gartner Group or IDC or NPD Intelect publish market reports that are expensive, but to develop leads they have to give highlights away in press releases. The key here is the search terms you use. Do the Web search first. If you have access to one or more of the powerful literature and published works search engines, like or, or competitors, use them. Check the blog for updates on this topic, these search facilities change often. And don't forget that the key is searching the major search engines, such as Google and Yahoo!, directly.

Look at existing, similar businesses. This is a very good first step. If you are planning a retail shoe store, for example, spend some time looking at existing retail shoe stores. Park across the street and count the customers that go into the store. Note how long they stay inside, and how many come out with boxes that look like purchased shoes. You can probably even count how many pairs of shoes each customer buys. Browse the store and look at prices. Look at several stores, including the discount shoe stores and department store shoe departments.

Find a similar business in another place. If you are planning a local business, find a similar business far enough away that you won't compete. For the shoe store example, you would identify shoe stores in similar towns in other states. Call the owner, explain your purpose truthfully, and ask about the business.

Scan local newspapers for people selling a similar business.Contact the broker and ask for as much information as possible. If you are thinking of creating a shoe store and you find one for sale, you should consider yourself a prospective buyer. Maybe buying the existing store is the best thing. Even if you don't buy, the information you gain will be very valuable. Why is the owner selling? Is there something wrong with the business? You can probably get detailed financial information.

Always shop the competition. If you're in the restaurant business, patronize your competition once a month, rotating through different restaurants. If you own a shoe store, shop your competition once a month, and visit different stores.

Talk to Customers

If you're considering starting a new business, talk to potential customers. In the shoe store example, talk to people coming out of the stores. Talk to your neighbors, talk to your friends, talk to your relatives. Ask them how often they buy shoes, what sizes, where, at what price, and whatever else you can think of. If you're starting a restaurant, landscape architecture business, butcher shop, bakery, or whatever, talk to customers.

At most business schools, when they teach business planning, students have to do a market survey as part of the plan. The plan isn't complete unless they go out and ask a credible number of people what they want, why, where they get it, how much they pay, and so forth. Although you may not go through the formality of a customer survey for your business, this information is vital. At Palo Alto Software, we frequently put a customer survey on two of our websites. People who are browsing the Internet looking for materials and information on business plans can visit us at or

One of those sites does no selling. Instead, it provides free information, including free downloadable sample plans, outlines, and discussions, including answers to several hundred specific questions about details of developing a business plan. We sometimes ask people stopping by our websites to answer a few quick questions that concern us. The invitation promises just a few questions, and promises also that we won't ask for names or e-mail addresses, and we won't follow up with sales information. When we run one of these surveys we get about 300 responses a month, which provides us with valuable information about the concerns people have as they consider writing a business plan.

If you have an ongoing business, the process of developing a plan should include talking to customers. Take a step away from the routine, dial up some of your customers, and ask them about your business. How are you doing? Why do they buy? How do they feel about your competitors? It is a good idea to take a customer to lunch once a month, just to keep yourself in touch.

Count Potential Customers

Most business plans contain an analysis of potential customers. As an essential first step, you should have a good idea of how many potential customers there are. The way you find that out depends on your type of business. For example, a retail shoe store needs to know about individuals living in a local area, a graphic design firm needs to know about local businesses, and a national catalog needs to know about households and companies in an entire nation.

What constitutes good sources depends on what you need. Government and commercial statistics are usually more than enough, but for some plans you may end up purchasing information from professional publishers or contract researchers.

For general demographic data about a local area, if you have no easier source, ask the reference desk at a local library. A local university library is even better, particularly a business library. Chambers of Commerce usually have general information about a local market. In the United States, there is the federal government's U.S. Census Bureau. Nowadays the quickest route to the census bureau is its website at

Before the Internet became so ubiquitous, I frequently turned to vendors of mailing lists for general information about people and types of business. The mailing list vendors often have catalogs listing total numbers of types of people and types of business. For example, to find out how many attorneys or CPA offices there are in the United States, I might look at the lists for sale at a list broker.

Magazines provide another good source of demographics. If you're selling to computer stores, for example, call Computer Retail Week and Computer Reseller News and ask both publications for a media kit. The media kit is intended to sell pages of advertising to potential advertisers. They are frequently full of demographics on the readers. For information on any specific type of business, get the media kits for the magazines that cater to those types of businesses as readers.

Just browsing the Census Bureau website while preparing this draft, it took me about 10 minutes to discover that my home county has 378 general contractors, of which 360 have fewer than 20 employees and the remaining 18 have between 20 and 100. There are 238 legal businesses in my county, of which only 12 have more than 20 employees. Also, following the shoe store example, there are 32 shoe stores in the county, none of them having more than 20 employees. There are 111,000 households in the county, 61 percent of them owner occupied, and an average of 2.49 people per household. Some 22 percent of adults in the county are college graduates, and the median household income is $26,000. All of this information was available for free at the census website.

Know Your Customers

Aside from just counting the customers, you also want to know what they need, what they want, and what makes them buy. The more you know about them, the better. For individuals as customers, you probably want to know their average age, income levels, family size, media preferences, buying patterns, and as much else as you can find out that relates to your business. If you can, you want to divide them into groups according to useful classifications, such as income, age, buying habits, social behavior, values, or whatever other factors are important. For the shoe store example, shoe size is good, but you might also want activity preferences and even — if you can find it — psychographics.

Psychographics divides customers into cultural groups, value groups, social sets, motivator sets, or other interesting categories that might be useful for classifying customers. For example, in literature intended for potential retailers, First Colony Mall of Sugarland, Texas, describes its local area psychographics as including:

  • 25 percent kids and cul-de-sacs (upscale suburban families, affluent)
  • 5.4 percent winner's circle (suburban executives, wealthy)
  • 19.2 percent boomers and babies (young white-collar suburban, upper middle income)
  • 7 percent country squires (elite ex-urban, wealthy).

Going into more detail, it calls the kids and cul-de-sacs group "a noisy medley of bikes, dogs, carpools, rock music and sports." The winner's circle customers are "well-educated, mobile, executives and professionals with teen-aged families. Big producers, prolific spenders, and global travelers." The country squires are "where the wealthy have escaped urban stress to live in rustic luxury. Number four in affluence, big bucks in the boondocks."

Know Your Industry

A standard business plan should explain the general state of the industry and the nature of the business. You might be able to skip this for an internal plan because most of the target readers already know the industry, but even in this case, taking a step away and taking a fresh look can be valuable.

Whether you're a service business, manufacturer, retailer, or some other type of business, you should do an industry analysis, describing

  • industry participants.
  • distribution patterns.
  • competition.

There is plenty of information available -- too much, in fact; your hardest task is sifting through it all. There are websites for business analysis, financial statistics, demographics, trade associations, and just about everything you'll need for a complete business plan.

Industry Participants

You can't easily describe a type of business without describing the nature of the participants. There is a huge difference, for example, between an industry like long-distance telephone services, in which there are only a few huge companies in any one country, and one like dry cleaning, in which there are tens of thousands of smaller participants.

This can make a big difference to a business and a business plan. The restaurant industry, for example, is what we call pulverized, which, like the dry cleaning industry, is made up of many small participants. The fast-food business, on the other hand, is composed of a few national brands participating in thousands of branded outlets, many of them franchised.

Economists talk of consolidation in an industry as a time when many small participants tend to disappear and a few large players emerge. In accounting, for example, there are a few large international firms whose names are well known and tens of thousands of smaller firms. The automobile business is composed of a few national brands participating in thousands of branded dealerships. In computer manufacturing, for example, there are a few large international firms whose names are well known, and thousands of smaller firms.

Prove Your Market

In the Heart of the Plan section we discussed knowing your market. Proving your market goes beyond knowing it. This is for when you need to show your business to outsiders, whether that's for investors, a business plan contest, a bank, partners, potential partners. Sometimes you need to talk about your market to close friends, team members. Sometimes it's a matter of really taking that fresh look we discussed in the Heart of the Plan.

There are no simple rules for what factors actually work to prove a market. Like so many things with business planning, it's going to be different for every different business.

What I can tell you though, is things I've seen in business plans that worked.

  1. Get some credible numbers. How many buyers are out there like your ideal target customer? A lot of times you do this with census numbers, or trade data. Given the state of the web these days, it's not too hard to find general census data (at on people in the U.S. by county, age, gender, economic status, employment, and so on. It's also not hard to find the numbers of types of businesses in your county. The blog addition to this book has a generally up to date listing of good market research links to get you started. We have more on getting market numbers in the following pages.
  2. Develop a credible segmentation scheme. We have more on that in a few pages.
  3. Cut and create. Innovate with segmentation, with market needs and wants. Come up with a new view of the market, or an interesting and creative view of a new market. What does that mean? It's hard to lay down definitions of creativity, but sometimes people discover new markets. A few years ago, for example, people concerned with fair trade in coffee were a new market that somebody discovered. that was a matter of segmenting. Once the definitions were laid down, the market was convincing. That can be a new spin on the product, the pricing, the delivery method, or whatever. It's up to you.
  4. Show how distribution will work. These days the most common and obvious distribution is based on the web. You're going to take orders, and deliver information on line, or products via physical shipping, or some other variation on direct. But that's to ignore business that runs through channels of distribution. That's a huge portion of commerce. Channels are full of gatekeepers and standard margins and commissions and percentages. Your market isn't proven if it doesn't include distribution.
  5. Demonstrate sales. The key question here is whether or not people will buy what you're selling. There's nothing better than actual sales. No market research is more credible. Here are our initial sales. We were able to sell this many units in this much time to that many buyers.

Think about sources. Brand names are credible. Third-party buyers, channel gatekeepers, and well-known experts are credible. Your brother in law, or partner, or next-door neighbor or advisor isn't as credible. Quotes are great. When you can find an expert, a known market research brand, or a magazine going on record about growth in your market, or the need for what you're selling, use that. Highlight it in summaries and presentations.

Explanations and Descriptions

As the following table shows, there are lots of sections in the formal plan document that are basically describing and explaining your business to outsiders. I'd like to go back to the general plan outline from the first section, and look this time at the kind of descriptions and explanations you'll need to add as supporting information for a formal business plan document.

Section Notes and comments
1.0 Executive Summary1.1 Objectives1.2 Mission1.3 Keys to Success These are pretty much in the Heart of the Plan. Jump ahead to the next Section, Dress it As Needed, to look at the Executive Summary. talked about objectives and mission and keys to success in the Heart of the plan.
2.0 Company Summary
2.1 Company Ownership
2.2 Start-up Plan (for new companies) or Company History (for ongoing companies)
2.3 Company Locations and Facilities
The formal plan should include basic summaries to get people up to speed with your company formation, history (if it has history), locations, facilities, intellectual property, and so on.This is where you put your startup costs if you're a startup, or the past performance information if you're an existing and ongoing company.
3.0 Products and Services
3.1 Product and Service Description
3.2 Competitive Comparison
3.3 Sales Literature
3.4 Sourcing
3.5 Technology
3.6 Future Products and Services
You've gone through this in the Heart of the Plan, but now we're talking about descriptions and explanations. Keep it simple. Remember, though, that this is a lot about credibility. You're proving that you have an interesting business offering, usually to outsiders. Proof -- designs, patents, quotes, and illustrations -- is very important.One of the mistakes a lot of people make in a formal business plan document is explaining too much about the technology. A business plan is about the business. Leave the technical explanations for the appendices. Use the team backgrounds and patent information (if you have it) to make the technology credible.
4.0 Market Analysis Summary
4.1 Market Segmentation
4.2 Target Market Segment Strategy

4.2.1 Market Needs
4.2.2 Market Trends
4.2.3 Market Growth
4.3 Industry Analysis

4.3.1 Industry Participants
4.3.2 Distribution Patterns
4.3.3 Competition and Buying Patterns
4.3.4 Main Competitors
This is mainly the market proof you've been doing in this section. Write it out, explain it, make it credible, and give it numbers.
5.0 Strategy and Implementation Summary
5.1 Strategy Pyramids
5.2 Value Proposition
5.3 Competitive Edge
5.4 Marketing Strategy

5.4.1 Positioning Statements
5.4.2 Pricing Strategy
5.4.3 Promotion Strategy
5.4.4 Distribution Patterns
5.4.5 Marketing Programs
5.5 Sales Strategy

5.5.1 Sales Forecast
5.5.2 Sales Programs
5.6 Strategic Alliances
5.7 Milestones
You've thought it through. You have the heart of your plan. This is where you explain it in text, preferably simple easy to read text, full of bullet points.The good news is that you do know your marketing strategy, sales strategy, and the rest of it. The bad news is that as we get into this as supporting information, you have to take the time to explain and describe it.

The complete plan requires textual explanation of the key numbers and tables you had in your organic plan-as-you-go plan. That includes explaining the assumptions behind the sales forecast, and the business activities in the milestones table. Add simple text, with lots of bullets instead of long paragraphs.

6.0 Management Summary
6.1 Organizational Structure
6.2 Management Team
6.3 Management Team Gaps
6.4 Personnel Plan
For a plan for investment, the description of the management team is often the single most important section. Professional investors usually look to the management team as the best way to reduce risk. They want to see backgrounds, track records, and successes. Angel investors follow the same pattern, and that's also true with business plans for business venture contests.You did a personnel plan in numbers in the expense budgets, and you linked that into the full financial forecast profit and loss. This is where to put that table into the plan.The organizational structure is the underlying logic of the who does what part of your plan in flesh and bones. Most standard plans include an organization chart at this point.

The section on management team gaps builds credibility for high-profile plans. If you're taking a plan to investors or to a business plan contest, your readers will probably see those gaps. Don't ignore them. Acknowledge the gaps and show that you're intending to fill them.

7.0 Financial Plan
7.1 Important Assumptions
7.2 Key Financial Indicators
7.3 Break-even Analysis
7.4 Projected Profit and Loss
7.5 Projected Cash Flow
7.6 Projected Balance Sheet
7.7 Business Ratios
7.8 Long-term Plan
Usually the formal complete plan starts this chapter with a simple summary explanation of the underlying financial strategy. That would be a reference to growing through investment, planning for multiple rounds of investment, for example. Or it could be financing growth with loans, whether SBA guaranteed or not. Or it might be simple bootstrapping (although those businesses aren't as likely to need the formal business plan document).Then most of the rest of this chapter is a matter of showing the financial projections we've discussed in this book. One very important addition, skipped in too many plans, is to offer basic explanations in text. Highlight the growth rates, and key points, in the tables.

As a general rule, I recommend including just annual projections in the tables embedded in the text of a plan, along with a heavy dose of business charts. Leave the monthly tables for the appendices.


If your new business is going to distribute products in the U.S. retail market, that means what people call "the channel." Also known as channels of distribution, or retail channels. As in stores. Big stores or little stores. Macy's, Office Depot, Staples, Safeway, whatever. I see too many business plans that underestimate the effort, resources, and problems involved in selling things through channels.

So you know, my experience with channels started in 1993 and has been almost entirely in stores and chains selling packaged computer software. I've talked to a lot of people dealing in other kinds of channels, and it seems to be quite the same. So that's a disclaimer.

  1. Understand tiers. Most of the major retail channels in the U.S. involve two-tiered distribution.
  2. The big retailers, who tend to be chains with hundreds of stores, want to buy from distributors, not from you. No offense intended. It's just that buying from distributors makes their life simple. One bill, one payment, easier administration.
  3. Distributors are tough gatekeepers to get through. They aren't looking for new vendors. New vendors mean more work. And more risk. So they aren't anxious to change the status quo. Of course there are exceptions, but that's the rule.
  4. Retailers are also tough gatekeepers, for the same reason. There too, there are exceptions, but it's hard to be one.
  5. Both tiers are much happier about new products when they come from existing vendors. Those major companies that are already selling into the channel have it easier.
  6. Packaging is really important for everybody in the channel, and more so for new companies. Obviously this is a matter of different products and different industries, but through retail, buyers make choices based on what they see. We vendors would like them to read reviews and make more informed decisions, but most of the time they decide based on what they see.
  7. Channels take a big cut of your money. How much varies by industry, but if you are planning a new business and you don't know, find out. The distributors take a smaller cut but they take forever to pay you. The retailers take a larger cut, and they don't have to pay you, because they bought from the distributors. Both tiers take cuts of the money for co-marketing and things like that. You get a much smaller revenue per unit, and it comes several months after you make the sale.
  8. Most channels will insist on being able to send unsold goods back to you the vendor, and have you purchase them back from them at the same price they paid you, without any allowance for all the co-marketing commissions. This makes financial analysis hard.

One of the things I learned early and hard about channels. They don't care about your problems. If you're hard to deal with, they'll find somebody else to sell into the same segment.

So if you can sell direct, count your blessings. Channels offer volume, and branding, and that's attractive. But direct sales have some very attractive advantages too.

And in the context of developing the formal business plan, for outsiders to read, unless distribution is completely direct and painfully obvious you should include a discussion of distribution in the marketing section of your plan.

Explain how distribution works in your industry. Is this an industry in which retailers are supported by regional distributors, as is the case for computer products, magazines, or auto parts? Does this industry depend on direct sales to large company customers? Do manufacturers generally support their own direct sales forces, or do they work with product representatives?

Then explain how your specific distribution strategy works. There are almost always variations on the industry norm. In many product categories there are several alternatives, and distribution choices are strategic. Encyclopedias and vacuum cleaners were traditionally sold door-to-door but are now also sold in stores and direct from manufacturer to consumer through radio, television, newspaper, and of course Web ads.

Technology can change the patterns of distribution in an industry or product category. The Internet, for example, changed the options for software distribution, books, music, and other products. Look what it's done to video and video rental. Look what cable distribution is doing to video and video rental as well.

This topic may not apply to most service companies, because distribution is normally about physical distribution of specific physical products. If you are a restaurant owner, graphic artist, architect, or some other service that doesn't involve distribution, just leave this topic out of your plan.

For a few services, distribution may still be relevant. A phone service, cable provider, or Internet provider might describe distribution related to physical infrastructure. Some publishers may prefer to treat their business as a service rather than a manufacturing company, and in that case distribution may also be relevant.

Crossword Puzzle Information Gathering

I was in Mexico City in the 1970s, working for Business International mostly and also for Business Week, Financial Times, and other business publications.

I usually couldn't get the information I wanted. Or needed. There was no Internet back then, or at least not anything available to anybody normal. And we were in a developing country, with scarce resources, much more worried about having enough jobs and schools than about providing information for business writers.

So I built conceptual crossword puzzles. Connected dots. I'd have one source of government information give me an overall growth rate for a related industry, then find a large company whose annual report gave me information on their particular segment, then an analysis somewhere telling me that the industry leader had 60% of the market, and I'd be able, sometimes, to generate an estimate of something I needed to know.

You can do that today. Find available statistics here and there, look for snippets quoting experts in published materials, find the annual report of a publicly traded company, and look for data to mine.

What can your new coffee house sell? You can use the reverse telephone tree technique to ask people, get an educated guess. Shouldn't you also be able to find out how much an average Starbucks location sells. How is yours going to be different from Starbucks? Estimate from what you know, and jump from there to what you don't know.

That's what I call crossword puzzle information gathering.