Serving as a judge in a space business plan competition this year allowed me to combine my interests in space development with my interests in space economics. Evaluating the space business plans that were submitted to the contest was quite educational given the diverse nature of the markets and products the various businesses were pitching.
While not at liberty to speak about the business plans that were submitted to this year’s contest or about how I voted on these plans, I can speak about the process I used in evaluating the business plans I was expected to judge.
Before receiving the plans, I had decided that the best way to begin the judging process would be to write an outline describing what a good business plan would consist of and how I would weigh the various factors. This allowed me to establish a judging criteria in advance of having seen any of the plans I would be judging.
A second aspect of how I approached the business plan evaluation process was to imagine myself as a potential investor in the business with the business plan serving as the sales pitch to convince me to invest. Combining these two judging criteria – judging based on the quality of the report and judging based on the financial practicalities and attractiveness of the business being proposed – provided the opportunity for a not-so-well-written business plan proposing a good idea to triumph over an excellently written business plan proposing a poor idea.
With respect to judging, upon receiving the business plans I was to judge, I was provided with the contest’s judging rubric. Broadly, the judging of the plans were to be based on the business plan’s design, comprehensiveness, financial realism, technical feasibility, business feasibility, and fundability (the likelihood of attracting the investments needed to fund the project). There were also some additional metrics that were specific to this particular contest that are not relevant to this article.
In writing about the approach I have taken to judging the space business plans, it is my hope that other teams entering similar competitions in the future will be able to use the information presented here to analyze their own plans before submitting them to a contest.
One aspect of the business plans that I will briefly touch on, as it did play a role in my evaluation, is that of text formatting, graphic design, and grammar. Aspects like readability, the use of white space, formatting consistency, and the establishment of a clear visual hierarchy, all play a role in the creation of a document that is easy to scan, easy to read, and is visually appealing. On the subject of reading, make sure that your business plan has been through at least one round of proof reading as grammatical mistakes can be quite a turn off.
What is a Business Plan
In brief, a business plan is a planning document that identifies the business, the business’s goals, its strategies to achieve those goals, the market in which it will be operating, the associated costs, the expected revenues, and the tactics that will be used to achieve the desired outcome(s). In short, it can be thought of as a battle plan for the business.
With respect to battle plans, it was the Prussian field marshal Helmuth von Moltke who wrote that:
“No plan of operations extends with any certainty beyond the first encounter with the main enemy forces”
In the case of a business plan, that enemy can be thought of as consisting of a mix of the market, the competition for that market, and the business’s own potential investors who must be convinced of the viability of the plan. Despite Moltke’s admonition, having a well thought out plan is the first step towards success. As an expansion on Moltke’s quote, there is the quote attributed to American General Dwight D. Eisenhower:
I always remember the observation of a very successful soldier who said, “Peace-time plans are of no particular value, but peace-time planning is indispensable.”
A business plan is divided into multiple sections, each of which addresses a specific part of the complete plan. One thing to be aware of is that while there are certain sections that are seen as being universal, like the Executive Summary, there are other sections that may or may not appear on a list of sections to include in a business plan. This is because not every business is identical in its structure, history, product, market, environment, etc. Also, this article focuses on the traditional business plan. There is a newer format known as the lean startup business plan which is not as detailed as the traditional business plan and which contains a different sectional organization.
A Business Plan’s Executive Summary
The Executive Summary is generally regarded as being the most important section since this will likely be the first thing that a potential investor reads. A well structured and well written Executive Summary can be thought of as being the marketing pitch for the business plan itself.
With respect to content, I would look for a succinct summary that touches on the highlights or the key points of all the sections contained in the business plan. Questions I would hope to see addressed include:
- What is the product?
- What is the number one selling point for the product?
- What is the market-space for the product?
- What do you think it will cost to reach minimum viable product?
- How much money do you need in order to proceed with your plans?
- How long will it be before you are ready to go to market?
- Why do you think your endeavor will succeed?
A Business Plan’s Company Description
This section is the opportunity for the business to introduce itself. For a company with a history, this provides an excellent opportunity to highlight past successes. For a company without a history, this should be seen as the opportunity to introduce relevant positives about the company. Positives would include the business history of the company’s principals and key personnel, the company’s current financial strength, any intellectual property rights the company owns, etc.
A Business Plan’s Company Organization and Management
This section describes how the company is structured legally (LLC, C Corporation, etc.) and operationally. This is where the company’s management structure is explained. For a simpler business structure, it may be better to omit this section from the report and incorporate its content into the Company Description section.
A Business Plan’s Product/Service Analysis
This section details the nature of the product or the service that the business intends to sell and how the customer will benefit by purchasing the product/service. The types of questions that I would like to see answered in this section include:
- What makes your product unique or better than that of your competition?
- What is your unit cost of production and how does unit cost scale with volume?
- What is your expected selling price?
- What is your product’s value proposition?
- What is your product’s lifespan?
- Does your product use a subscription model?
A Business Plan’s Market Analysis
For a business, it is crucial to know and understand the market in which it is competing. The Market Analysis is the business’s opportunity to demonstrate that it has both researched its market and understands its market.
Examples of questions that this section should answer are
- What is the size of the market?
- Who else is competing for that market?
- How are market shares distributed across competitors?
- What are the growth prospects for the market?
- How do industry trends favor this market?
- How easy or hard is it for new competitors to enter the market?
- Are there complementary goods that could increase the value of the market for your product and what are they?
- Are there substitute goods that could decrease the value of the market for your product and what are they?
A Business Plan’s Marketing and SalesStrategy
The Marketing and Sales Strategy section serves to outline how the company will promote its product to the market. Questions I would hope to see answered in this section are:
- How do you plan to deliver your product to market?
- Who will you be marketing your product to?
- How will you market your product to your intended audience?
A Business Plan’s Financial Projections
The Financial Projections section details the financial components of the business’s operation. Questions I would expect to be answered in this section include:
- What are your capital requirements?
- What are your revenue expectations?
- What are your expense / cost of doing business projections?
- What are your cash flow projections?
- What do you expect your gross profit margin to be?
- How long will it take for the business to become profitable?
A business plan may or may not have additional sections depending on the nature of the business and the need to separately address issues that don’t fit into one of the aforementioned categories. Examples of possible additional sections:
- Mission / Vision Statement: self-explanatory
- Operations Plan: describes how the company will operate
- Financial Backing: addresses fundraising needs
- Funding Request: synonymous with Financial Backing
- Budgeting: detailing where and how money is to be spent
- Appendices: for the inclusion of any supporting documents
The Use of Business Analysis Frameworks
In designing and composing a business plan, it can be useful to perform an analysis using one or more of the business analysis frameworks. A favorite model of mine is Porter’s Five Forces Model created by Michael Porter. This framework analyzes an industry based on the degree of industry rivalry, the nature of barriers to entry for new businesses, the nature of substitute and complementary goods and services, the power of the industry’s suppliers to dictate terms, and the power of the market’s buyers to influence prices and terms. These last two forces will influence the slope of the product’s supply and demand curve.
A Value Chain Analysis can also be useful. A Value Chain Analysis examines the chain of activities and process that constitute the product creation process with a focus on understanding how value is added to a product. The objective is to maximize the value that is added at each step of the productive process. This tool was created by none other than Michael Porter, the same person who created Porter’s Five Forces Model. Professor Porter introduced this concept in his book The Competitive Advantage: Creating and Sustaining Superior Performance.
Another useful framework is that of the PESTEL Analysis which analyzes macro forces that are external to the industry in question but which impact the environment in which the industry exists. The six forces which form the acronym from which the term PESTEL is derived are Political, Economic, Social, Technological, Environmental, Legal.
Yet another framework is that of the SWOT Analysis which is meant to characterize a business’s areas of Strength, Weakness, Opportunity, and Threats.
Lastly, there is the Ansoff Matrix, sometimes referred to as a Product/Market Expansion Grid. This framework is used to analyze growth strategies and, like a SWOT Analysis, it uses a 2×2 matrix but in this case the four components are market penetration, market development, product development, and diversification.
And yes there are even more frameworks available but Porter’s Five Forces Model, Value Chain Analysis, PESTEL Analysis, SWOT Analysis, and the Ansoff Matrix are arguably the most useful and most widely used of the business analysis frameworks.
A ChatGPT Generated Space Station Business Plan
For one take on a business plan, I decided to ask ChatGPT to write a business plan for a commercial space station project. I went with a space station business plan as I had just given a presentation titled “The Challenge of Commercial Space Stations.” While business plans were not a part of that presentation, applying Porter’s Five Forces Model and performing a PESTEL Analysis for commercial space station projects did represent a significant part of the presentation.
Following is the business plan offered up by ChatGPT. Evaluating someone else’s business plan is helpful when it comes to writing your own business plan. Before proceeding to evaluate ChatGPT’s business plan, I suggest first reading the following Investopedia, Small Business Administration, and National Federation of Independent Business articles:
- Business Plan: What It Is, What’s Included, and How To Write One
- SBA: Write your business plan
- NFIB: Parts of a Business Plan: 7 Essential Sections
Note that the only change made here to the response generated by ChatGPT was to change the business name from “SpaceStationX” to “Space Station X”. All else is exactly as output by ChatGPT.
Space Business Plans Closing Thoughts
ChatGPT’s business plan for a commercial space station is quite rudimentary and I don’t agree with its ordering of the sections. Nor do I see the value of a section on Exit Strategy as that makes it sound like failure is an option.
There are many, many websites with tutorials on how to write business plans and many websites providing business plan templates. In fact, if you have the time you may want to consider 2-3 of the online, template based business plan generators using each to produce competing plans for you to analyze, merging the best aspects of the individual templates into a single document.
In closing, my advice is to collect your document planning input from multiple reputable sources, like the three I reference above (Investopedia, the Small Business Administration, and the National Federation of Independent Business) and beware the outliers.