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Why Design Thinking Works

• Jeanne Liedtka

While we know a lot about practices that stimulate new ideas, innovation teams often struggle to apply them. Why? Because people’s biases and entrenched behaviors get in the way. In this article a Darden professor explains how design thinking helps people overcome this problem and unleash their creativity.

Though ostensibly geared to understanding and molding the experiences of customers, design thinking also profoundly reshapes the experiences of the innovators themselves. For example, immersive customer research helps them set aside their own views and recognize needs customers haven’t expressed. Carefully planned dialogues help teams build on their diverse ideas, not just negotiate compromises when differences arise. And experiments with new solutions reduce all stakeholders’ fear of change.

At every phase—customer discovery, idea generation, and testing—a clear structure makes people more comfortable trying new things, and processes increase collaboration. Because it combines practical tools and human insight, design thinking is a social technology —one that the author predicts will have an impact as large as an earlier social technology: total quality management.

It addresses the biases and behaviors that hamper innovation.

Idea in Brief

The problem.

While we know a lot about what practices stimulate new ideas and creative solutions, most innovation teams struggle to realize their benefits.

People’s intrinsic biases and behavioral habits inhibit the exercise of the imagination and protect unspoken assumptions about what will or will not work.

The Solution

Design thinking provides a structured process that helps innovators break free of counterproductive tendencies that thwart innovation. Like TQM, it is a social technology that blends practical tools with insights into human nature.

Occasionally, a new way of organizing work leads to extraordinary improvements. Total quality management did that in manufacturing in the 1980s by combining a set of tools—kanban cards, quality circles, and so on—with the insight that people on the shop floor could do much higher level work than they usually were asked to. That blend of tools and insight, applied to a work process, can be thought of as a social technology.

• JL Jeanne Liedtka is a professor of business administration at the University of Virginia’s Darden School of Business.

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More than a feeling: Ten design practices to deliver business value

Amazon Prime. The Apple iPhone. Netflix. Tesla. For those companies that get design right, the prizes are rich. The S&P 500 companies that invested most into design processes, capabilities, and leadership over the past decade, including design stalwarts such as Disney, Nike, and P&G, outperformed the rest of the index by 211 percent. 1 1. “The value of design,” Design Management Institute, dmi.org.

The importance of design is only increasing (see sidebar, “What is design?”). Consumers have instant access to global marketplaces and ever-higher expectations of service. They no longer distinguish between physical and digital experiences. This makes it increasingly difficult to make your product or service stand out from the crowd. As a result, design has become a CEO-level topic for many executives.

But while the concept of “design thinking” emerged as far back as 1969, and while many companies have tried to adopt its principles, relatively few have made true shifts in growth and profitability through design. Fewer still have been able to prove concretely the exact value of the design actions they’ve taken.

We have begun to explore the underlying design practices that allow some firms to succeed above others. Our research into global companies across multiple industries aims to uncover the connections between business value and design . Our early findings, presented in this article, are not yet statistically significant; we will continue to expand our data set in 2018 to reach that goal. But already some trends are evident. We see ten design actions across three themes that appear to correlate with improved financial performance.

First, for these firms, design is more than a department . Design-led companies are structured in ways that encourage all functions to focus on their customers. This generally means that design is not a single department; rather, design experts are everywhere, working within small, cross-functional teams with shared incentives and regular customer interaction.

What is design?

Second, design is more than a phase . Good design-led companies use quantitative and qualitative research during early product development, combining techniques such as warranty-data analysis, social-media scraping, focus groups, and ethnographic research to better understand their customers’ needs. However, the best companies continue listening and iterating long after the initial conceptual phase, remaining invested in improving customer experiences postlaunch.

Finally, successful design-led companies don’t act on gut alone. For them, design is more than a feeling . They measure and manage design as rigorously as they do cost, quality, and time. Design strength is a C-level metric, and the head of design stands shoulder to shoulder with the heads of sales, operations, and finance.

More than a department

1) From departmental silos to cross-functional teams.

Companies with a central, siloed design department (sometimes subsumed into marketing or R&D) generally performed less well financially than those that let designers off the leash and distributed design experts into cross-functional product-focused teams . This was equally true where design expertise is brought in from external agencies—the business itself is still responsible for integrating these partners into one customer-obsessed development team.

One major European furniture manufacturer experimented by setting up both a central design department and smaller, independent design teams, embedded within different product groups. It found that the distributed teams were much more successful: they had clearer focus on their customers; better cross-functional partnerships, resulting in 10 percent faster time to launch; and a 30 percent higher success rate for getting concepts to market.

2) From narrow experts to interdisciplinary designers.

Whether you are developing a new vehicle, a medical device, or a banking service— physical, digital, and service designs are converging . Companies increasingly recognize that such distinctions aren’t meaningful to customers. As a result, we saw improved financial performance in those companies that broke down barriers and cross-trained designers in skills such as industrial and user-interface design, compared with those that maintained historical divisions with little cross-fertilization.

For the ecobee3 smart thermostat, design firm LUNAR 2 2. LUNAR has subsequently become a McKinsey & Company subsidiary. needed to develop interfaces for the customer to operate the physical product and to control it through a mobile app or PC. Asking the customer to learn three different interfaces was out of the question. The solution was a single team of digital and physical designers creating a common visual identity. Harmonizing product experience and aesthetics across the discipline divide produced an intuitive system that was the highest-rated smart thermostat by customers on Amazon and Apple in the months after launch , despite little in the way of marketing or promotion.

3) From cubicles to garages.

In a Silicon Valley “garage,” there are no departments, titles, or assigned offices. Everyone is focused on making a great product that meets a customer need. The environment is more like a workshop than an office, designed to encourage collaborative focus on building a great product together.

A global consumer-packaged-goods player recently created a new design studio down the street from its main innovation center. A single open-air space with a concrete floor, it was a stark contrast to the more formal innovation offices. The designers, marketers, and engineers started making decisions in real time together, rather than waiting for formal meetings. For example, if the product changed shape, the packaging team was aware so that it could adapt right away. These small changes in decision making and collaboration added up to big improvements in time to market and employee-satisfaction scores, and to a set of products whose return on investment is considerably higher than that of products historically developed at the innovation center.

More than a phase

4) From a design stage to continuous design.

A design-led approach to product creation means that design happens throughout development, not just at the early concept phase. From laying out a product road map, through preparations for production and launch, and all the way to in-service support, design should keep the team true to customer needs for the life of the product.

Nespresso, for example, involves designers throughout its products’ life cycles and throughout the business system. Designers observe customer reactions both in store and online and have evolved a museum-like retail experience, mobile ordering and two-hour delivery, a loyalty club, an online magazine, and much more.

Sometimes keeping designers involved throughout the process requires a novel approach. For example, submarine architects write two product specifications. The first one covers core functionality, such as size and speed, and is frozen early on. The second specification, for electronics and communications equipment, is left open to allow designers to prototype and iterate with the customer over the course of the build as well as to incorporate advances in technology. It should come as no surprise that car manufacturers have started following a similar approach, updating vehicle software remotely postsales based on designers’ and engineers’ continuing review of driver data.

5) From qualitative to full-spectrum research.

Qualitative research through user groups, interviews, and field observation is a powerful tool to understand consumer desires and motivations. Augmenting this with quantitative analytics, such as harvesting online reviews or analyzing warranty service, can detect underlying behaviors and lay a deeper foundation on which to build winning design concepts. Companies that used both forms of customer research created products that were more highly rated than those from companies that used qualitative research alone.

One US healthcare provider, for example, scoured multiple sources of patient and operational data, from interviews to medical records to motion-tracking cameras. As a result, it redesigned the way care was delivered, reconfiguring hospital layout to minimize cross-infection and reduce length of stay by 10 percent.

6) From prototype once to prototype often.

Most R&D stage-gate processes begin with a product description and business model. Design-led companies begin with a prototype that answers a customer need, backed up with a business case. Design is inherently iterative, and companies that emphasize prototyping early rather than perfectly move more quickly toward products that customers love. This notion is core to the agile process pioneered by software companies, as is the use of minimum viable products, which gives teams the ability to quickly test and improve concepts and then test them again.

The design team at a major fast-moving consumer-goods company might have benefited from these ideas. Unwilling to present early mock-ups to leadership, it held off on multiregion research until molded parts could be produced. When a basic design feature of these prototypes was rejected by consumers, the time and cost sunk into tooling meant the entire project had to be scrapped. For one of its next products, the design team made many more prototypes at every stage of development, resulting in a dramatic drop in production-line issues normally associated with the launch of a new product, and a reduction in time to market of almost 15 percent.

More than a feeling

7) From middle management to the C-suite.

The customer-centric culture needed to drive design impact throughout a business must start at the C-suite, with design leaders who are also credible business leaders. They must strive to remain aware of what their customers love about their products and defend what customers hold dear through the tortuous path to market.

Aston Martin and Burberry are widely regarded as two of the most valuable brands in the world and are regularly featured in rankings of top brands. Both have placed design leaders as company directors, to ensure that the voice of the customer and the importance of product quality are never far from the top management team.

8) From perspectives to metrics.

The key to connecting design with commercial success is the ability of leaders to eschew subjective opinions or personal preferences and instead make decisions based on a factual understanding of the customer. Design metrics—such as customer-satisfaction scores and human-factors risk calculations—give leadership hard data on which to base crucial decisions. Some companies have developed design metrics that allow them to measure design during product development as rigorously as they measure quality, cost, and delivery.

For one medical-device maker developing a new flagship product, that meant introducing design metrics based on conjoint analysis: a technique to test the relative importance of different features with hundreds of physicians. This enabled rapid iteration and quantification of the market value of proposed design features, allowing the product director to request and invest development resources based on firm evidence rather than gut feel. Furthermore, it highlighted the one genuinely game-changing design feature, which it subsequently included in the final design.

9) From financial to customer-based incentives.

The best-performing companies we investigated measured the long-term commercial impact of customer satisfaction. They tied senior-management bonuses to customer satisfaction in addition to revenue- and profit-based measures. This included indirect measures such as design awards and reviews as well as direct measures such as user scores.

One consumer-goods manufacturer saw an above-forecast increase in both sales and customer satisfaction after linking management and development-staff pay to user ratings for launched products, much the way that financial institutions do for hitting commercial targets.

10) From incremental to brave.

Design-led companies create products in response to customers’ needs and desires, but they aren’t afraid to bring their own vision to the market. They are willing to put long-term brand strength ahead of short-term turnover, and they aren’t shy about sharing resources and opinions with design thinkers outside their organization to strengthen their offer to customers.

The business value of design

How do the best design performers increase their revenues and shareholder returns at nearly twice the rate of their industry counterparts? We’ve refreshed our research on the business value of design for 2018, with insights on the most effective actions highlighted in our new article.

When faced with an escalating technological arms race in gaming consoles, Nintendo chose to throw its weight behind a different and more inclusive gaming environment. Harnessing existing technology in new ways led to the Wii, a design that was inferior to its competitors with respect to raw performance—but outsold them by up to 6:1 at launch and introduced new customers to gaming.

How can your company harness the value of design?

None of the companies we’ve assessed so far exhibited mastery of all ten design actions. However, those that implemented several showed both improved financial performance and increased customer loyalty, in a time when many companies are suffering from falling customer satisfaction.

Consider Disney. Throughout its storied history, Disney has put customers at the center of everything it does. And when customer satisfaction at its theme parks began to sag, because of long lines and high costs, it again focused on the customer—and deployed several of the actions described in this article. It created cross-functional teams to “reinvent the vacation experience.” 3 3. Austin Carr, “The messy business of reinventing happiness: Inside Disney’s radical plan to modernize its cherished theme parks,” Fast Company , April 15, 2015, fastcompany.com. It studied what customers actually did in the park, using both ethnographic interviews and quantitative tools such as mapping family journeys around the park. It built a “garage,” called the ideation lab, to prototype the “MagicBand,” a digital device that it thought could solve the problems. The first prototype was made from materials picked up at Home Depot, and more than 40 prototypes followed. The company brought in outside design and technology firms to help. Top executives at Disney championed the effort at every step. Missteps along the way were accepted and mostly overcome. In 2014, Disney World rolled out the MagicBand across the park. Customer satisfaction soared, as digitally monitored wait times fell, digital diversions made wait times feel shorter, and preordered food magically appeared as guests entered restaurants. The new technology does not yet do everything the company hoped—but it is already making a big difference.

Is your company harnessing the value of design ? Are your competitors capturing market share by more forceful use of the ten actions? Design is more than a feeling: it is a CEO-level priority for growth and long-term performance. Take the following survey (Exhibit ) to find out where your company is getting design right, and where it is only feeling its way along.

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John Edson is a LUNAR partner in San Francisco; Garen Kouyoumjian is a consultant in McKinsey’s London office, where Benedict Sheppard is a partner.

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A complete guide to the design thinking process

Learn the five stages of the design thinking process, get practical tips to apply them, and get templates to seamlessly run design thinking exercises.

How many projects have you worked on that stalled because your team couldn’t align on the best path forward? How many more got shelved because they didn’t meet user needs or expectations? And how many got delayed in rounds and rounds of never-ending feedback? 

Thankfully, you don’t have to keep repeating those experiences month after month. The (not so) secret weapon: design thinking .

Design thinking gives teams a new way to approach their projects and overcome some of those well-known challenges. It can help teams understand their users' needs and challenges, then apply those learnings to solve problems in a creative, innovative way. Understanding design thinking can transform your team’s problem-solving approach — and how you work together.

What is design thinking?

Design thinking is an iterative process where teams seek to understand user needs, challenge assumptions, define complex problems to solve, and develop innovative solutions to prototype and test. The goal of design thinking is to come up with user-focused solutions tailored to the particular problem at hand.

While often used in product design, service design, and customer experience, you can use design thinking in virtually any situation, industry, or organization to create user-centric solutions to specific problems.

Design thinking process 101: Definitions and approaches

The design thinking process puts customers’ and users’ needs at the center and aims to solve challenges from their perspective.

Design thinking typically follows five distinct stages:

Empathize stage

The first stage of design thinking lays the foundation for the rest of the process because it focuses on the needs of the real people using your product. At this stage, you want to get familiar with the people experiencing the problems you’re trying to solve, understanding their point of view, and learning about their user experience. You want to understand their challenges and what they need from your product or company to address them.

The goal of this stage is for your team to develop a user-centered vision of the core problem you need to solve. The idea is to challenge any assumptions or biases teams have, instead using their customer perspective as a guiding source. This is important because it aligns the team on what needs to be considered during the rest of the design thinking process. 

To help you get a solid understanding of the problems you’re solving, you can ask a lot of questions to build empathy with your users. These will invite people to share their experiences and observations to help your team better understand the problem. Then, you can move on to some specific exercises for the empathy stage of the process.

As you build up your understanding of your users, it's helpful to visualize their experience. A common way to do this is to assemble a customer journey map . This helps identify areas of friction and understand customer preferences.

Learn more: 7 types of questions to build empathy for design thinking

Ideate stage

Your priority here is to think outside the box and source as many ideas as possible from all areas of the business. Bring in people from different departments so you benefit from a wider range of experiences and perspectives during ideation sessions. Don’t worry about coming up with concrete solutions or how to implement each one — you’ll build on that later. The goal is to explore new and creative ideas rather than come up with an actual plan.

Key steps in the ideation phase:

• Define your problem : Creating a problem statement ensures that your team can focus on solving the right problem and staying aligned with your end-user or customer’s problem
• Start ideating : Choose a brainstorming technique to help organize team participation that fits your goal (More on that in the next section.)
• Prioritize your ideas : Once you have several ideas, prioritize them based on how well they take into account the customer’s needs‍ ‍
• Choose the best solution : Choose the best ideas to move forward to either the define stage or the prototype stage

Learn more: The ideation stage of design thinking: What you need to know

Your priority here is to generate as many ideas as possible, without judging or evaluating them. This step encourages designers to think creatively and push the boundaries of what's possible. We’ve put together a list of different brainstorming techniques to help your teams come up with creative new ideas. 

Put it into practice: How to facilitate a brainstorming session

Prototyping stage

At this stage, your team’s goal is to remove uncertainty around your proposed solutions. This is where you start thinking about them in more detail, including how you’ll bring them to life. Your prototypes should help the team understand if the design or solution will work as it’s intended to. 

Here, the focus is on speed and efficiency — you don’t want to invest a ton of time or resources into these solutions yet because you’re not sure they’re the best ones for the problem you’re trying to solve. You just need a functional, interactive prototype that can prove your concept. These are learning opportunities to help you spot any issues or opportunities before you take it any further.

Learn more: A guide to prototyping: the 4th stage of design thinking

Testing stage

The testing stage is normally one of the last stages of the design thinking process. After you’ve developed a concept or prototype, you need to test it in the real-world to understand its viability and usability. It’s where your product, design, or development teams evaluate the creative solutions they’ve come up with, to see how real users interact with them. 

Testing your concepts and observing how people interact with them helps you understand whether or not the prototype solves real problems and meets their needs, before you invest in it fully.

However, design thinking is an iterative process: You may go through the ideation, prototyping, and testing phases multiple times to improve and refine your solutions as you learn more from your users.

Read the guide: Testing: A guide to the 5th stage of design thinking

The relationship between human-centered design and design thinking

These two terms are often used together, because they complement one another. However, they’re two different things, so understanding their differences is important. 

Simply put, design thinking is a working process, while human-centered design is a mindset or approach.

The first step in finding success with design thinking is to foster a culture of human-centered design within your team. This is because design thinking focuses so heavily on the users and customers — the people using your product or service.

To inspire your team, we’ve put together four human-centered design examples — and explain why they work so well.

Benefits of design thinking

For organizations who’ve never run a design thinking workshop before, it can feel like a big change in how you approach the design process. But it can offer many benefits for your business.

Foster a true design culture within your organization

Design thinking is an iterative process — it’s not something you do once and call it done. The more you do it, the more you’ll see a design-focused culture emerge within your organization, which is much more effective than going to one-off creative retreats or setting up expensive innovation centers that no one ever uses.

This mindset and cultural shift can help scale design thinking within the business. But it’s important to know how to avoid  some of the pitfalls companies can face when trying to create a design culture internally.

Learn more: How to use the LUMA System of Innovation for everyday design thinking

Encourage collaboration across departments

Design thinking isn’t just for the designers on the team. The earlier stages of the process — Empathize, Define, and Ideate — are perfect for bringing in people from across the business. In fact, bringing in varied viewpoints and perspectives can help you come up with more creative or effective solutions.

You can use the design thinking process to get more people involved, and help everyone contribute ideas.

Improve understanding of user needs

So many companies say they’re “customer focused,” but lack a clear understanding of what really matters most to their customers in the context of their product or service. Design thinking puts the user front and center, with the Empathize stage dedicated to understanding and discovering user needs.

Learn more: How to identify user needs and pain points

Skills and behaviors needed for successful design thinking

To get the most out of a design thinking exercise, you’ll need a collaborative and creative mindset within your team. The team needs to be willing to explore new ideas, and laser-focused on customer or user needs. 

Here are some specific skills to help your design thinking process run smoothly.

Divergent and convergent thinking

Divergence and convergence is a human-centered design approach to problem-solving. It switches between expansive and focused thinking, giving you a process that balances understanding people’s problems and developing solutions. 

It focuses on understanding a user's needs, behaviors, and motivations, to help you develop empathy for their problems. Then, it encourages experimentation and iteration to help you effectively design solutions to meet those needs.

Collaborative working

Design thinking isn’t a solo activity. You’ll bring in people from different teams or business areas. To get the most out of the process, everyone needs to collaborate and communicate effectively. Teams that are good at collaborating drive the best outcomes, while also making it an enjoyable experience working together.

There are several core collaboration skills your team needs to succeed:

• Open-mindedness
• Communication
• Adaptability
• Organization
• Time management

Learn more about why these skills are so important and how you can improve them individually or as a team: 7 collaboration skills your team needs to succeed

Participatory or collaborative design

For many design teams and creative folks, the idea of designing something with other people can be enough to make them shudder. “Design by committee” is their idea of a nightmare. But the design thinking process isn’t about “making the logo 10% bigger” or “using a different shade of blue.” It’s user- and solution-focused.

You’ll get the best outcomes if you bring insights, perspectives, and expertise from multiple stakeholders. That includes at the Prototype and Test stages, as everyone will have ideas to contribute to help you bring solutions to life.

Learn more: What is co-design? A primer on participatory design

Common challenges in design thinking

If your team hasn’t mastered or fully committed to each one of the design thinking steps, you may encounter problems that make it harder to reap the benefits of design thinking.

Here are 4 common challenges that teams face when implementing design thinking practices.

• A company culture that doesn't foster collaboration
• An inability to adjust to non-linear processes
• A lack of in-depth user research
• Getting too invested in a single idea

Learn how to address these in Mural's guide on design thinking challenges .

Design thinking tools and templates to help you get started

Using mural for design thinking.

There are lots of tools you can use to run design thinking workshops — including Mural. We help designers work as effectively as possible, so they can get to better solutions quicker. We’ve incorporated some design thinking shortcuts and “hidden” features into our application, making it perfect for in-person or remote (or even asynchronous) collaborative sessions. These include:

• Use the C-key shortcut to quickly connect ideas with arrows
• Seamlessly import existing information from spreadsheets
• Duplicate elements you already created for faster visualization
• Fit your canvas to your screen and zoom in
• Get even more options using the right-click menu

And to help you get started, we’ve hand-picked some Mural templates relevant to each stage of the design process below.

Templates for the Empathy stage

The empathy map template helps you visualize the thoughts, feelings, and actions of your customersto help you develop a better understanding of the their experiences. The map is divided into four quadrants, where you record the following:

• Thoughts: the customer’s internal dialogue and beliefs
• Feelings: the customer’s emotional responses
• Actions: the customer’s actions and behaviors
• Observations: what the customer is seeing and hearing.

Try Mural’s empathy map template

Templates for the Define stage

This exercise helps you understand a situation or problem by identifying what’s working, what’s not, and areas for improvement. You start by listing out the problem, then identifying the positive aspects (the rose), negatives (thorn), and possible solutions for improvement (the buds).

You can use this template to run the exercise individually or in groups. It gives you a way to gather new ideas and perspectives on the problem you’re solving in real-time.

Try Mural’s Rose, thorn, bud template

Templates for the Ideate stage

The round robin brainstorming exercise is a collaborative session where every person contributes multiple ideas. This is a great way to come up with lots of different ideas and solutions in the ideation stage of design thinking, where you’re focusing on quantity and creativity. 

Bringing in ideas from every team member encourages people to share their unique perspectives, and can also help you avoid groupthink. 

Try Mural’s Round robin template

Templates for the Prototype stage

This template helps you map out how an idea will work in practice, as a functional system. Schematic diagramming is very flexible, so it can be used in many types of projects to make sure your idea is  structurally sound. It can help you map out workflows and identify any decisions you need to make to bring your idea to life.

Try Mural’s Schematic diagramming template

Templates for the Test stage

In think aloud testing, users test out a product or prototype and talk through the relevant tasks as they complete them. You can use this template to record the feedback, insights, and experiences of your testers, and identify the success and failure points in your proposed solution.

Try Mural’s Think aloud testing template

Design thinking examples: What it looks like in practice

Design thinking is a very flexible approach that works for companies of any size, from large enterprises to small startups. 

Here are some examples of how companies use design thinking, for many types of creative projects.

IBM uses design thinking to design at scale

IBM was traditionally an engineering-led organization, but now it's shifting its focus onto design, working to spread a design culture throughout the business. One of the main ways of doing that is by launching IBM Design Camps.

These camps are comprehensive educational programs that help people understand the concept of design thinking and how it specifically works at IBM. 

Learn more about how IBM runs design thinking workshops with remote or distributed teams .

Somersault Innovation uses design thinking to transform its sales process

Somersault Innovation has used design thinking methods to help their sales team co-create solutions with their customers. It’s helped sellers become more customer-centric. 

Now, their sellers can create mutual success plans with their prospects, making it easier for them to find a path forward together.

Mural uses design thinking to drive growth

At Mural, our marketing team is constantly following new trends, evaluating metrics, and working to deliver the best experiences for our customers. Design thinking helps us adopt a customer-centric approach by ensuring that we're focused on the right problems. This helps us have the biggest impact on the company’s long-term growth while creating the most value for our users.

David J. Bland planned a book using the design thinking methodology

It’s not just visual creative projects that can benefit from the design thinking process. Founder, speaker, and author David J. Bland used the methodology to plan out his book and collaborate with other team members in the process. In addition to helping him refine and adjust the structure, Bland also used it to gather feedback from early readers and target audiences, which helped get the final product just right.

Support design thinking with tools that facilitate creative collaboration

While we’ve covered some of the skills and behaviors you need to successfully run design thinking exercises, having the right tools can help a lot, too. A collaborative platform helps teams communicate, share ideas, and turn those ideas into solutions together.

Mural helps teams visualize their ideas in a collaboration platform that unlocks teamwork . This helps everyone stay on the same page, while giving them the ability to add their own ideas freely and easily. Mural facilitates effective collaboration both in person and remotely, making it ideal for design thinking workshops for co-located and distributed teams. Plus, it has tons of ready-to-use templates (like the ones we listed above) to help you get started.

Ready to give it a try? Start your Free Forever account today, and run your next design thinking workshop in Mural.

About the authors

Bryan Kitch

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Ideas Made to Matter

Design thinking, explained

Rebecca Linke

Sep 14, 2017

What is design thinking?

Design thinking is an innovative problem-solving process rooted in a set of skills.The approach has been around for decades, but it only started gaining traction outside of the design community after the 2008 Harvard Business Review article [subscription required] titled “Design Thinking” by Tim Brown, CEO and president of design company IDEO.

Since then, the design thinking process has been applied to developing new products and services, and to a whole range of problems, from creating a business model for selling solar panels in Africa to the operation of Airbnb .

At a high level, the steps involved in the design thinking process are simple: first, fully understand the problem; second, explore a wide range of possible solutions; third, iterate extensively through prototyping and testing; and finally, implement through the customary deployment mechanisms. 

The skills associated with these steps help people apply creativity to effectively solve real-world problems better than they otherwise would. They can be readily learned, but take effort. For instance, when trying to understand a problem, setting aside your own preconceptions is vital, but it’s hard.

Creative brainstorming is necessary for developing possible solutions, but many people don’t do it particularly well. And throughout the process it is critical to engage in modeling, analysis, prototyping, and testing, and to really learn from these many iterations.

Once you master the skills central to the design thinking approach, they can be applied to solve problems in daily life and any industry.

Here’s what you need to know to get started.

Understand the problem 

The first step in design thinking is to understand the problem you are trying to solve before searching for solutions. Sometimes, the problem you need to address is not the one you originally set out to tackle.

“Most people don’t make much of an effort to explore the problem space before exploring the solution space,” said MIT Sloan professor Steve Eppinger. The mistake they make is to try and empathize, connecting the stated problem only to their own experiences. This falsely leads to the belief that you completely understand the situation. But the actual problem is always broader, more nuanced, or different than people originally assume.

Take the example of a meal delivery service in Holstebro, Denmark. When a team first began looking at the problem of poor nutrition and malnourishment among the elderly in the city, many of whom received meals from the service, it thought that simply updating the menu options would be a sufficient solution. But after closer observation, the team realized the scope of the problem was much larger , and that they would need to redesign the entire experience, not only for those receiving the meals, but for those preparing the meals as well. While the company changed almost everything about itself, including rebranding as The Good Kitchen, the most important change the company made when rethinking its business model was shifting how employees viewed themselves and their work. That, in turn, helped them create better meals (which were also drastically changed), yielding happier, better nourished customers.

Involve users

Imagine you are designing a new walker for rehabilitation patients and the elderly, but you have never used one. Could you fully understand what customers need? Certainly not, if you haven’t extensively observed and spoken with real customers. There is a reason that design thinking is often referred to as human-centered design.

“You have to immerse yourself in the problem,” Eppinger said.

How do you start to understand how to build a better walker? When a team from MIT’s Integrated Design and Management program together with the design firm Altitude took on that task, they met with walker users to interview them, observe them, and understand their experiences.  

“We center the design process on human beings by understanding their needs at the beginning, and then include them throughout the development and testing process,” Eppinger said.

Central to the design thinking process is prototyping and testing (more on that later) which allows designers to try, to fail, and to learn what works. Testing also involves customers, and that continued involvement provides essential user feedback on potential designs and use cases. If the MIT-Altitude team studying walkers had ended user involvement after its initial interviews, it would likely have ended up with a walker that didn’t work very well for customers. 

It is also important to interview and understand other stakeholders, like people selling the product, or those who are supporting the users throughout the product life cycle.

The second phase of design thinking is developing solutions to the problem (which you now fully understand). This begins with what most people know as brainstorming.

Hold nothing back during brainstorming sessions — except criticism. Infeasible ideas can generate useful solutions, but you’d never get there if you shoot down every impractical idea from the start.

“One of the key principles of brainstorming is to suspend judgment,” Eppinger said. “When we're exploring the solution space, we first broaden the search and generate lots of possibilities, including the wild and crazy ideas. Of course, the only way we're going to build on the wild and crazy ideas is if we consider them in the first place.”

That doesn’t mean you never judge the ideas, Eppinger said. That part comes later, in downselection. “But if we want 100 ideas to choose from, we can’t be very critical.”

In the case of The Good Kitchen, the kitchen employees were given new uniforms. Why? Uniforms don’t directly affect the competence of the cooks or the taste of the food.

But during interviews conducted with kitchen employees, designers realized that morale was low, in part because employees were bored preparing the same dishes over and over again, in part because they felt that others had a poor perception of them. The new, chef-style uniforms gave the cooks a greater sense of pride. It was only part of the solution, but if the idea had been rejected outright, or perhaps not even suggested, the company would have missed an important aspect of the solution.

Prototype and test. Repeat.

You’ve defined the problem. You’ve spoken to customers. You’ve brainstormed, come up with all sorts of ideas, and worked with your team to boil those ideas down to the ones you think may actually solve the problem you’ve defined.

“We don’t develop a good solution just by thinking about a list of ideas, bullet points and rough sketches,” Eppinger said. “We explore potential solutions through modeling and prototyping. We design, we build, we test, and repeat — this design iteration process is absolutely critical to effective design thinking.”

Repeating this loop of prototyping, testing, and gathering user feedback is crucial for making sure the design is right — that is, it works for customers, you can build it, and you can support it.

“After several iterations, we might get something that works, we validate it with real customers, and we often find that what we thought was a great solution is actually only just OK. But then we can make it a lot better through even just a few more iterations,” Eppinger said.

Implementation

The goal of all the steps that come before this is to have the best possible solution before you move into implementing the design. Your team will spend most of its time, its money, and its energy on this stage.

“Implementation involves detailed design, training, tooling, and ramping up. It is a huge amount of effort, so get it right before you expend that effort,” said Eppinger.

Design thinking isn’t just for “things.” If you are only applying the approach to physical products, you aren’t getting the most out of it. Design thinking can be applied to any problem that needs a creative solution. When Eppinger ran into a primary school educator who told him design thinking was big in his school, Eppinger thought he meant that they were teaching students the tenets of design thinking.

“It turns out they meant they were using design thinking in running their operations and improving the school programs. It’s being applied everywhere these days,” Eppinger said.

In another example from the education field, Peruvian entrepreneur Carlos Rodriguez-Pastor hired design consulting firm IDEO to redesign every aspect of the learning experience in a network of schools in Peru. The ultimate goal? To elevate Peru’s middle class.

As you’d expect, many large corporations have also adopted design thinking. IBM has adopted it at a company-wide level, training many of its nearly 400,000 employees in design thinking principles .

What can design thinking do for your business?

The impact of all the buzz around design thinking today is that people are realizing that “anybody who has a challenge that needs creative problem solving could benefit from this approach,” Eppinger said. That means that managers can use it, not only to design a new product or service, “but anytime they’ve got a challenge, a problem to solve.”

Applying design thinking techniques to business problems can help executives across industries rethink their product offerings, grow their markets, offer greater value to customers, or innovate and stay relevant. “I don’t know industries that can’t use design thinking,” said Eppinger.

Ready to go deeper?

Read “ The Designful Company ” by Marty Neumeier, a book that focuses on how businesses can benefit from design thinking, and “ Product Design and Development ,” co-authored by Eppinger, to better understand the detailed methods.

Register for an MIT Sloan Executive Education course:

Systematic Innovation of Products, Processes, and Services , a five-day course taught by Eppinger and other MIT professors.

• Leadership by Design: Innovation Process and Culture , a two-day course taught by MIT Integrated Design and Management director Matthew Kressy.
• Managing Complex Technical Projects , a two-day course taught by Eppinger.
• Apply for M astering Design Thinking , a 3-month online certificate course taught by Eppinger and MIT Sloan senior lecturers Renée Richardson Gosline and David Robertson.

Steve Eppinger is a professor of management science and innovation at MIT Sloan. He holds the General Motors Leaders for Global Operations Chair and has a PhD from MIT in engineering. He is the faculty co-director of MIT's System Design and Management program and Integrated Design and Management program, both master’s degrees joint between the MIT Sloan and Engineering schools. His research focuses on product development and technical project management, and has been applied to improving complex engineering processes in many industries.

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What is design thinking?

Discover what is design thinking and why it’s important, including the five stages of design thinking. Deep dive into a few case studies and learn how to apply design thinking.

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Design thinking is a mindset that breeds innovation. While it’s based on the design process, anyone in any profession can use it when they’re trying to come up with creative solutions to a problem. 

In this guide, we’ll walk you through what design thinking is and why it’s important, including the five stages of design thinking. Then we’ll present a couple of design thinking case studies and wrap up with a primer on how to apply design thinking. And don’t worry, this guide is broken down into easily digestible chunks, as follows:

Let’s get started!

What is design thinking? A definition

Design thinking is an approach used for problem-solving. Both practical and creative, it’s anchored by human-centred design.

Design thinking is extremely user-centric in that it focuses on your users before it focuses on things like technology or business metrics. 

Design thinking is also solution-based, looking for effective solutions to problems, not problem-based, which looks at the problem itself and tends to focus on limitations. 

Design thinking is all about getting hands-on with solutions. The aim is to quickly turn your ideas into testable products so you can see what works and what doesn’t.

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Why is design thinking important? 

Design thinking is important because it challenges assumptions and fosters innovation. While many ways of thinking rely on the habits and experiences we’ve formed, they can limit us when it comes to thinking of design solutions. Design thinking, however, encourages us to explore new ideas. 

It’s an actionable technique that allows us to tackle “wicked problems,” or problems that are ill-defined. For example, achieving sustainable growth or maintaining your competitive edge in business count as wicked problems, and on a broader scale, poverty and climate change are wicked problems too. Design thinking uses empathy and human-centred thinking to tackle these kinds of problems.

Who uses design thinking?

The short answer? Everyone! Design thinking can help you in whatever your role or industry. People in business, government, entertainment, health care, and every other industry can benefit from using design thinking to come up with innovative solutions. 

The most important thing design thinking does is help people focus on their customers or end users. Instead of focusing on problems to fix, design thinking keeps things user-centric, which boosts customer engagement. 

What are the 5 stages of design thinking?

According to the Hasso Plattner Institute of Design at Stanford University (known as d-school), the five stages of design thinking are: 

Although these stages appear to be linear, following one after the other, design thinking isn’t a linear process. Stages are often run in parallel or out of order, or repeated when necessary.

Phase 1: Empathise 

Your goal here is to research your users’ needs to gain an empathic understanding of the problems they face. You’ll get to know your users and their wants and needs so you can make sure your solutions put them front and centre. This means setting aside your own assumptions and getting to know your users on a psychological and emotional level. You’ll observe, engage, watch and listen. 

Phase 2: Define

Here you state your users’ needs by compiling the information you gathered during the Empathise phase and then analysing it until you can define the core problem your team has identified. 

You do this by asking questions like: what patterns do you see in the data? What user issues need to be resolved? The conclusion of this phase comes when you’ve figured out a clear problem statement that is defined by the users’ needs. For example, “Bank customers in Glasgow need…”

You can learn more about how to write a problem statement in this guide.

Phase 3: Ideate

In this phase, you’ll generate ideas and solutions. You and your team will hold ideation sessions where you can come up with as many ideas as possible. No idea is too silly for this stage. The important thing is getting all ideas out on the table. There are a variety of techniques you can use, like brainstorming and mind mapping, to come up with solutions. This phase ends when you’ve managed to narrow down your ideas to just a few of the best ones.

Phase 4: Prototype

Your goal in this phase is to find the best solution to the problem by prototyping —that is, producing scaled down versions of the product or its features found in the previous phase. You’ll put each solution to the test by improving, redesigning, accepting, or rejecting it.

Phase 5: Test

Here you’ll try out the solutions you arrived at in the previous phases by user testing them. However, while this is the final stage of design thinking in theory, it’s rarely the final stage in reality. Design thinking often includes going back to previous phases to find other solutions or to further iterate or refine your existing solution.

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Design thinking examples and case studies

Now that you understand the theory and process of design thinking, let’s look at some examples in action where design thinking had a real-world impact.

Case Study 1: American Family Insurance’s Moonrise App

American Family Insurance, a company that offers life, business, auto, and home insurance, came to design company IDEO with the goal of innovating in a way that would help working families. 

Stages 1 & 2: Empathise and Define

While American Family thought their customers might benefit from budgeting tools, IDEO found from their research in the Empathise phase that, actually, people needed a way to build up their savings against unforeseen needs.

They noticed a lot of people had meticulously planned budgets, which made budgeting tools a moot point. But they were living just within their means and an extra expense, like a doctor’s visit or kid’s basketball uniform, could throw their budget off. These people didn’t want to take on debt though, they wanted extra work so they could have a cushion.

Stages 3 & 4: Ideate and Prototype

IDEO took that idea and ran with it, creating Moonrise, an app that matches people looking for work with extra hours and income. Today’s businesses depend on on-demand work but the temp agencies they work with tend to want permanent placements. Moonrise does things differently. It enables companies to find people who are already employed elsewhere for short-term work through a simple text message interface. The employers can list shifts on the platform and workers are paid as soon as they finish their shifts.

Stage 5: Test

To test the app, 11 Moonrisers, six employers, and a team of designers and programmers were assembled for a one week period to work out the kinks in the platform. 

Based on the test’s success, American Family Insurance now owns the startup Moonrise, which launched in Chicago in 2018 and has since expanded to additional states. In 2018, over 7,000 shifts have been fulfilled and over $500,000 has been earned by people on the app.

Case Study 2: GE Healthcare’s Scanning Tools

GE Healthcare has cutting-edge diagnostic imaging tools at its disposal, but for kids they’re an unpleasant experience. 

“The room itself is kind of dark and has those flickering fluorescent lights…. That machine that I had designed basically looked like a brick with a hole in it,” explained Doug Dietz , a designer who worked for GE. How could they make the experience better for kids?

The team at GE began by observing and gaining empathy for children at a daycare centre and talking to specialists who knew what paediatric patients went through. The team then recruited experts from a children’s museum and doctors from two hospitals. This gave them a lot of insight into what children went through when they had to sit for these procedures and what could be done to lessen the children’s stress.

Stages 3, 4 & 5: Ideate, Prototype, and Test

The first prototype of the new and improved “Adventure Series” scanner was invented. Through research and pilot programs, the redesign made imaging machines more child-friendly, making sure they have other things to focus on than the scary looks and sounds of the machine. For example, the Coral City Adventure in the emergency room gives children an underwater experience where they get into a yellow submarine and listen to the sound of harps while their procedure takes place.

Patient satisfaction scores increased to 90% and children no longer suffer such anxiety about their scans. The children hold still for their procedures more easily, making repeats of the scans unnecessary. There’s also less need for anesthesiologists, which improved the bottom line for those hospitals that used the scanning machines because more patients could get scanned each day.

How to apply design thinking 

If you want to apply design thinking in your own work, follow these steps and best practices:

• Improve design thinking skills. Use training to explain, improve, and practically implement the phases of design thinking. You can do this in several ways such as workshops, online courses, or case studies shared with your team.
• Identify the correct problem. Listen to users and ask them unbiased questions in order to understand their perspectives. Engage with everyone and stay open-minded, so you can identify the correct problem, not the problem you or your organisation thinks users are having. 
• Have more debriefs. Be open about what went right and what went wrong in your process. Openly discuss why things succeeded or failed and why. View failure as learning, not as an excuse to give up.
• Iterate and iterate some more. The goal of design thinking is finding the best answer possible—and that probably won’t come in the first round of iteration. You’ll need to test and iterate as much as possible with new ways to solve the problem.

Design thinking is so popular—and so effective—because it places the user’s needs front and centre. For more user-centric design tips, learn how to incorporate user feedback in product design , get to grips with user research ethics , and learn how to conduct effective user interviews .

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The 5 Stages in the Design Thinking Process

Design thinking is a methodology which provides a solution-based approach to solving problems. It’s extremely useful when used to tackle complex problems that are ill-defined or unknown—because it serves to understand the human needs involved, reframe the problem in human-centric ways, create numerous ideas in brainstorming sessions and adopt a hands-on approach to prototyping and testing. When you know how to apply the five stages of design thinking you will be impowered because you can apply the methodology to solve complex problems that occur in our companies, our countries, and across the world.

Design thinking is a non-linear, iterative process that can have anywhere from three to seven phases, depending on whom you talk to. We focus on the five-stage design thinking model proposed by the Hasso Plattner Institute of Design at Stanford (the d.school) because they are world-renowned for the way they teach and apply design thinking.

What are the 5 Stages of the Design Thinking Process

The five stages of design thinking, according to the d.school, are:

Empathize : research your users' needs .

Define : state your users' needs and problems.

Ideate : challenge assumptions and create ideas.

Prototype : start to create solutions.

Test : try your solutions out.

Let’s dive into each stage of the design thinking process.

• Transcript loading…

Hasso-Platner Institute Panorama

Ludwig Wilhelm Wall, CC BY-SA 3.0 <https://creativecommons.org/licenses/by-sa/3.0>, via Wikimedia Commons

Stage 1: Empathize—Research Your Users' Needs

Empathize: the first phase of design thinking, where you gain real insight into users and their needs.

© Teo Yu Siang and the Interaction Design Foundation, CC BY-NC-SA 3.0.

The first stage of the design thinking process focuses on user-centric research . You want to gain an empathic understanding of the problem you are trying to solve. Consult experts to find out more about the area of concern and conduct observations to engage and empathize with your users. You may also want to immerse yourself in your users’ physical environment to gain a deeper, personal understanding of the issues involved—as well as their experiences and motivations . Empathy is crucial to problem solving and a human-centered design process as it allows design thinkers to set aside their own assumptions about the world and gain real insight into users and their needs.

Depending on time constraints, you will gather a substantial amount of information to use during the next stage. The main aim of the Empathize stage is to develop the best possible understanding of your users, their needs and the problems that underlie the development of the product or service you want to create.

Stage 2: Define—State Your Users' Needs and Problems

Define: the second phase of design thinking, where you define the problem statement in a human-centered manner.

In the Define stage, you will organize the information you have gathered during the Empathize stage. You’ll analyze your observations to define the core problems you and your team have identified up to this point. Defining the problem and problem statement must be done in a human-centered manner .

For example, you should not define the problem as your own wish or need of the company: “We need to increase our food-product market share among young teenage girls by 5%.”

You should pitch the problem statement from your perception of the users’ needs: “Teenage girls need to eat nutritious food in order to thrive, be healthy and grow.”

The Define stage will help the design team collect great ideas to establish features, functions and other elements to solve the problem at hand—or, at the very least, allow real users to resolve issues themselves with minimal difficulty. In this stage, you will start to progress to the third stage, the ideation phase, where you ask questions to help you look for solutions: “How might we encourage teenage girls to perform an action that benefits them and also involves your company’s food-related product or service?” for instance.

Stage 3: Ideate—Challenge Assumptions and Create Ideas

Ideate: the third phase of design thinking, where you identify innovative solutions to the problem statement you’ve created.

During the third stage of the design thinking process, designers are ready to generate ideas. You’ve grown to understand your users and their needs in the Empathize stage, and you’ve analyzed your observations in the Define stage to create a user centric problem statement. With this solid background, you and your team members can start to look at the problem from different perspectives and ideate innovative solutions to your problem statement .

There are hundreds of ideation techniques you can use—such as Brainstorm, Brainwrite , Worst Possible Idea and SCAMPER . Brainstorm and Worst Possible Idea techniques are typically used at the start of the ideation stage to stimulate free thinking and expand the problem space. This allows you to generate as many ideas as possible at the start of ideation. You should pick other ideation techniques towards the end of this stage to help you investigate and test your ideas, and choose the best ones to move forward with—either because they seem to solve the problem or provide the elements required to circumvent it.

Stage 4: Prototype—Start to Create Solutions

Prototype: the fourth phase of design thinking, where you identify the best possible solution.

The design team will now produce a number of inexpensive, scaled down versions of the product (or specific features found within the product) to investigate the key solutions generated in the ideation phase. These prototypes can be shared and tested within the team itself, in other departments or on a small group of people outside the design team.

This is an experimental phase, and the aim is to identify the best possible solution for each of the problems identified during the first three stages . The solutions are implemented within the prototypes and, one by one, they are investigated and then accepted, improved or rejected based on the users’ experiences.

By the end of the Prototype stage, the design team will have a better idea of the product’s limitations and the problems it faces. They’ll also have a clearer view of how real users would behave, think and feel when they interact with the end product.

Stage 5: Test—Try Your Solutions Out

Test: the fifth and final phase of the design thinking process, where you test solutions to derive a deep understanding of the product and its users.

Designers or evaluators rigorously test the complete product using the best solutions identified in the Prototype stage. This is the final stage of the five-stage model; however, in an iterative process such as design thinking, the results generated are often used to redefine one or more further problems. This increased level of understanding may help you investigate the conditions of use and how people think, behave and feel towards the product, and even lead you to loop back to a previous stage in the design thinking process. You can then proceed with further iterations and make alterations and refinements to rule out alternative solutions. The ultimate goal is to get as deep an understanding of the product and its users as possible.

Did You Know Design Thinking is a Non-Linear Process?

We’ve outlined a direct and linear design thinking process here, in which one stage seemingly leads to the next with a logical conclusion at user testing . However, in practice, the process is carried out in a more flexible and non-linear fashion . For example, different groups within the design team may conduct more than one stage concurrently, or designers may collect information and prototype throughout each stage of the project to bring their ideas to life and visualize the problem solutions as they go. What’s more, results from the Test stage may reveal new insights about users which lead to another brainstorming session (Ideate) or the development of new prototypes (Prototype).

It is important to note the five stages of design thinking are not always sequential. They do not have to follow a specific order, and they can often occur in parallel or be repeated iteratively. The stages should be understood as different modes which contribute to the entire design project, rather than sequential steps.

The design thinking process should not be seen as a concrete and inflexible approach to design; the component stages identified should serve as a guide to the activities you carry out. The stages might be switched, conducted concurrently or repeated several times to gain the most informative insights about your users, expand the solution space and hone in on innovative solutions.

This is one of the main benefits of the five-stage model. Knowledge acquired in the latter stages of the process can inform repeats of earlier stages . Information is continually used to inform the understanding of the problem and solution spaces, and to redefine the problem itself. This creates a perpetual loop, in which the designers continue to gain new insights, develop new ways to view the product (or service) and its possible uses and develop a far more profound understanding of their real users and the problems they face.

The Take Away

Design thinking is an iterative, non-linear process which focuses on a collaboration between designers and users. It brings innovative solutions to life based on how real users think, feel and behave.

This human-centered design process consists of five core stages Empathize, Define, Ideate, Prototype and Test.

It’s important to note that these stages are a guide. The iterative, non-linear nature of design thinking means you and your design team can carry these stages out simultaneously, repeat them and even circle back to previous stages at any point in the design thinking process.

References & Where to Learn More

Take our Design Thinking course which is the ultimate guide when you want to learn how to you can apply design thinking methods throughout a design thinking process. Herbert Simon, The Sciences of the Artificial (3rd Edition), 1996.

d.school, An Introduction to Design Thinking PROCESS GUIDE , 2010.

Gerd Waloszek, Introduction to Design Thinking , 2012.

Hero Image: © the Interaction Design Foundation, CC BY-NC-SA 3.0.

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How to solve problems using the design thinking process

The design thinking process is a problem-solving design methodology that helps you develop solutions in a human-focused way. Initially designed at Stanford’s d.school, the five stage design thinking method can help solve ambiguous questions, or more open-ended problems. Learn how these five steps can help your team create innovative solutions to complex problems.

As humans, we’re approached with problems every single day. But how often do we come up with solutions to everyday problems that put the needs of individual humans first?

This is how the design thinking process started.

What is the design thinking process?

The design thinking process is a problem-solving design methodology that helps you tackle complex problems by framing the issue in a human-centric way. The design thinking process works especially well for problems that are not clearly defined or have a more ambiguous goal.

One of the first individuals to write about design thinking was John E. Arnold, a mechanical engineering professor at Stanford. Arnold wrote about four major areas of design thinking in his book, “Creative Engineering” in 1959. His work was later taught at Stanford’s Hasso-Plattner Institute of Design (also known as d.school), a design institute that pioneered the design thinking process. 

This eventually led Nobel Prize laureate Herbert Simon to outline one of the first iterations of the design thinking process in his 1969 book, “The Sciences of the Artificial.” While there are many different variations of design thinking, “The Sciences of the Artificial” is often credited as the basis. 

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A non-linear design thinking approach

Design thinking is not a linear process. It’s important to understand that each stage of the process can (and should) inform the other steps. For example, when you’re going through user testing, you may learn about a new problem that didn’t come up during any of the previous stages. You may learn more about your target personas during the final testing phase, or discover that your initial problem statement can actually help solve even more problems, so you need to redefine the statement to include those as well. 

Why use the design thinking process

The design thinking process is not the most intuitive way to solve a problem, but the results that come from it are worth the effort. Here are a few other reasons why implementing the design thinking process for your team is worth it.

Focus on problem solving

As human beings, we often don’t go out of our way to find problems. Since there’s always an abundance of problems to solve, we’re used to solving problems as they occur. The design thinking process forces you to look at problems from many different points of view. 

The design thinking process requires focusing on human needs and behaviors, and how to create a solution to match those needs. This focus on problem solving can help your design team come up with creative solutions for complex problems. 

Encourages collaboration and teamwork

The design thinking process cannot happen in a silo. It requires many different viewpoints from designers, future customers, and other stakeholders . Brainstorming sessions and collaboration are the backbone of the design thinking process.

Foster innovation

The design thinking process focuses on finding creative solutions that cater to human needs. This means your team is looking to find creative solutions for hyper specific and complex problems. If they’re solving unique problems, then the solutions they’re creating must be equally unique.

The iterative process of the design thinking process means that the innovation doesn’t have to end—your team can continue to update the usability of your product to ensure that your target audience’s problems are effectively solved. 

The 5 stages of design thinking

Currently, one of the more popular models of design thinking is the model proposed by the Hasso-Plattner Institute of Design (or d.school) at Stanford. The main reason for its popularity is because of the success this process had in successful companies like Google, Apple, Toyota, and Nike. Here are the five steps designated by the d.school model that have helped many companies succeed.

1. Empathize stage

The first stage of the design thinking process is to look at the problem you’re trying to solve in an empathetic manner. To get an accurate representation of how the problem affects people, actively look for people who encountered this problem previously. Asking them how they would have liked to have the issue resolved is a good place to start, especially because of the human-centric nature of the design thinking process. 

Empathy is an incredibly important aspect of the design thinking process.  The design thinking process requires the designers to put aside any assumptions and unconscious biases they may have about the situation and put themselves in someone else’s shoes. 

For example, if your team is looking to fix the employee onboarding process at your company, you may interview recent new hires to see how their onboarding experience went. Another option is to have a more tenured team member go through the onboarding process so they can experience exactly what a new hire experiences.

2. Define stage

Sometimes a designer will encounter a situation when there’s a general issue, but not a specific problem that needs to be solved. One way to help designers clearly define and outline a problem is to create human-centric problem statements. 

A problem statement helps frame a problem in a way that provides relevant context in an easy to comprehend way. The main goal of a problem statement is to guide designers working on possible solutions for this problem. A problem statement frames the problem in a way that easily highlights the gap between the current state of things and the end goal. 

Tip: Problem statements are best framed as a need for a specific individual. The more specific you are with your problem statement, the better designers can create a human-centric solution to the problem. 

Examples of good problem statements:

We need to decrease the number of clicks a potential customer takes to go through the sign-up process.

We need to decrease the new subscriber unsubscribe rate by 10%. 

We need to increase the Android app adoption rate by 20%.

3. Ideate stage

This is the stage where designers create potential solutions to solve the problem outlined in the problem statement. Use brainstorming techniques with your team to identify the human-centric solution to the problem defined in step two. 

Here are a few brainstorming strategies you can use with your team to come up with a solution:

Standard brainstorm session: Your team gathers together and verbally discusses different ideas out loud.

Brainwrite: Everyone writes their ideas down on a piece of paper or a sticky note and each team member puts their ideas up on the whiteboard. 

Worst possible idea: The inverse of your end goal. Your team produces the most goofy idea so nobody will look silly. This takes out the rigidity of other brainstorming techniques. This technique also helps you identify areas that you can improve upon in your actual solution by looking at the worst parts of an absurd solution. 

It’s important that you don’t discount any ideas during the ideation phase of brainstorming. You want to have as many potential solutions as possible, as new ideas can help trigger even better ideas. Sometimes the most creative solution to a problem is the combination of many different ideas put together.

4. Prototype stage

During the prototype phase, you and your team design a few different variations of inexpensive or scaled down versions of the potential solution to the problem. Having different versions of the prototype gives your team opportunities to test out the solution and make any refinements. 

Prototypes are often tested by other designers, team members outside of the initial design department, and trusted customers or members of the target audience. Having multiple versions of the product gives your team the opportunity to tweak and refine the design before testing with real users. During this process, it’s important to document the testers using the end product. This will give you valuable information as to what parts of the solution are good, and which require more changes.

After testing different prototypes out with teasers, your team should have different solutions for how your product can be improved. The testing and prototyping phase is an iterative process—so much so that it’s possible that some design projects never end.

After designers take the time to test, reiterate, and redesign new products, they may find new problems, different solutions, and gain an overall better understanding of the end-user. The design thinking framework is flexible and non-linear, so it’s totally normal for the process itself to influence the end design. 

Tips for incorporating the design thinking process into your team

If you want your team to start using the design thinking process, but you’re unsure of how to start, here are a few tips to help you out. 

Start small: Similar to how you would test a prototype on a small group of people, you want to test out the design thinking process with a smaller team to see how your team functions. Give this test team some small projects to work on so you can see how this team reacts. If it works out, you can slowly start rolling this process out to other teams.

Incorporate cross-functional team members : The design thinking process works best when your team members collaborate and brainstorm together. Identify who your designer’s key stakeholders are and ensure they’re included in the small test team. 

Organize work in a collaborative project management software : Keep important design project documents such as user research, wireframes, and brainstorms in a collaborative tool like Asana . This way, team members will have one central source of truth for anything relating to the project they’re working on.

Foster collaborative design thinking with Asana

The design thinking process works best when your team works collaboratively. You don’t want something as simple as miscommunication to hinder your projects. Instead, compile all of the information your team needs about a design project in one place with Asana. 

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Design thinking in business strategy: get more with less

In business, time is always money. We want to release the best project powered by the latest tech in the shortest time for the lowest cost. It’s a given. 

Another given is that there is always a pressing need for compromise. Perhaps the tech stack doesn’t have to be quite that powerful. Or it’s better to lay back on animated illustrations because buying stock photos is easier. Or you can choose to cut back on user tests because you just know people are going to love what you have to offer. 

Design Thinking is a strategy that helps you get the product just right without sacrificing any of its original value and save quite a few zeros in the process. We’re going to look into how Design Thinking can help any company – not only a unicorn startup – meet its core business goals faster .

Design Thinking in a nutshell

Don’t want to spend your entire lunch break digging for details? Here’s what you need to know: 

• Products created with Design Thinking in mind are desirable , feasible , and viable ; thus they cover every aspect of your strategy. 
• By enhancing your corporate strategy with Design Thinking principles you can create a product that is actually needed, cut down the development costs , increase your revenue , and win over more loyal customers . 
• Implement the Design Thinking process into your business strategy by following these 5 simple steps: empathise with the customer, define their challenge, ideate the solution to that challenge, build a prototype , and test the outcome.

We’ve completed more than 250 projects by following the Design Thinking approach, so we know it works.

And now it’s time to jump into the specifics. 

What is design thinking in business strategy: a quick recap

Steve Jobs claimed that design isn’t how something looks, but how it works. Design thinkers take it a step further and say that design is not only how something looks, but also how it works and how much it costs. 

At its core, Design Thinking comes down to 5 distinct stages that bring together a problem-solution approach and the most suitable tech for the best cost. Tim Brown, IDEO

In theory, by following the Design Thinking methodology you create a product that is desirable for customers, feasible in terms of technology, and viable from a business perspective. 

Why does the traditional approach to strategy fail?

Traditional approaches to business strategy are not enough in today’s world because they are often based on past performance. However, with the advent of new technologies and changing consumer behaviours, they should no longer be relied upon to predict the future.

In addition, traditional approaches to strategy development often focus on the business’s internal capabilities rather than the user’s needs and preferences. This can lead to solutions that could be more user-friendly and fail to meet the needs of the target audience.

On the other hand, design thinking focuses on the user and seeks to understand their needs and pain points before developing solutions. This approach is more agile and responsive to changes in the market and can lead to innovative solutions that meet the user’s needs.

By using design thinking in product strategy, companies can create user-centred solutions that meet their target audience’s expectations. 

How can design thinking help your business in the long term? 

After all, releasing a product is not all there is to it. So much more is happening behind the scenes: market research, budget estimation, marketing campaigns, post-release PR, customer support, app maintenance , and so on. 

And you might be surprised to learn that Design Thinking can prove to be just as useful at any of these stages as it is during product development . 

But before we jump in, I’d like to underline one more time that Design Thinking is NOT about the product design itself. Instead, think of it as yet another methodology for work organisation and strategic planning. 

Business value of design thinking

I am going to skip the obvious “you will have a visually stunning digital product running on a powerful technology”. You can learn more about the product design services we offer once your business strategy is settled. 

Here, I want to bring your attention to the “corporate” side of Design Thinking. As it turns out, it can bring quite a few benefits when it comes to your business strategy and long-term plans.

Success is achieved through 5 equally important factors: design, technology, value, time-to-market, and resources invested. Here’s a quick example of how it may look: 

Faster revenue growth

When it comes to long-term business planning, nothing matters quite as much as potential revenue. There are two ways in which Design Thinking helps you earn more with less:

• You are far more likely to succeed if you try to address your challenges one at a time instead of producing a holistic non-negotiable 3-year plan as an ultimate remedy for all your problems 
• It is impossible to separate the actual usability of the product from the Design Thinking process. And as the research shows, design-centric companies’ ROI grows faster.

Design Thinking encourages you to put users first. That means a lot of things, like rapid changes in the social environment or a shift of the general public’s interest. Design Thinking allows you to react, rather than sit and wonder what is going to happen to your business strategy now that the world is burning. 

Such a proactive approach is exactly what causes the numbers to rise and your profits to multiply. 

Reduced expenses

Another one of the most serious benefits of applying the Design Thinking approach to your business strategy is that it can help you significantly cut costs. 

This is mainly achieved thanks to the same problem-solution model that allows you to generate higher revenue. Instead of searching (and paying) for a one-size-fits-all solution, Design Thinking motivates you to break your main challenge into several smaller ones and address them individually.  

As a result, you don’t have to pay for the features, technologies, marketing strategies, or industry-leading reports that just don’t apply in your unique case. It’s one of the reasons why we are so dedicated to custom app development here at Miquido. Every product is unique because every challenge is unique. That’s why the solutions need to be unique as well. 

More loyal customers

User retention can be a big problem for some businesses. There are numerous strategies on how to increase your user retention rates, but at the end of the day they all come down to one common variable: you need to give people something they actually need.

While having an engaging app with a modern design, a powerful engine, and an intuitive interface would definitely help your case, Design Thinking allows you to really dig into the core of your clients’ desires.

As McKinsey’s report shows, investing in design-centred solutions once again pays off here. A returning customer is a happy customer. And a happy customer is likely to recommend your app, purchase another product from the same vendor, or, eventually, to even become your partner. 

So how does Design Thinking help you make your clients a little bit happier? For starters, this framework makes their best interests your top priority . Before you do as much as think of the colours you’d like for your future digital product, you must carefully analyse your target audience, pinpoint their daily struggles, and put your entire mental effort into providing a solution. 

That’s Design Thinking 101: 

The product comes as a response to an existing issue.

What lies in the roots of your idea? Why did you come up with it? If the answer is anywhere near “to make a large profit” – I’m afraid you may not be ready for a Design-Thinking-powered business strategy. 

But as long as your solution comes from a goal to help, improve, or support – you’ve got yourself a recipe that will get your customers to come back again and again.  

How to use design thinking in business

There are 5 steps to every Design Thinking process: 

It’s proven to be so successful that since 2011 numerous software development companies, branding agencies, and advertising firms have adopted Design Thinking as their go-to project management methodology. 

But how does it translate into strategic planning, when the time comes for achieving business models and goals and ensuring stakeholder satisfaction? Frankly, there are hundreds of ways you could approach it.

Here are some examples of the core differences between Design Thinking as a project management methodology and Design Thinking as a business strategy: 

How do you create a Design Strategy?

Design thinking provides an alternative approach to strategy development that is more responsive to change. This approach is based on a human-centred design process that seeks to understand the needs and preferences of users before developing solutions.

Design thinking in product strategy involves several steps that build on each other to create a successful plan. 

Step 1: Dialogue

The first step in using design thinking to create a product strategy is to engage in dialogue with users. This involves understanding their needs and desires and any challenges or pain points they are experiencing. In this phase, asking open-ended questions and engaging in active listening is essential. This will help you to gain a deep understanding of the user’s perspective and will allow you to identify areas where your product can provide value.

Step 2: Vision

Once you have a deep understanding of the user’s needs, it is crucial to create a vision for the product. This involves envisioning how the product will meet the user’s needs uniquely and innovatively. Engaging in divergent thinking and generating a wide range of ideas is crucial. It is also essential to consider the competitive landscape and how your product can differentiate itself from existing solutions.

Step 3: Explore

The next step is to explore potential solutions in greater detail. This involves prototyping and testing to validate ideas and identify potential issues or challenges. It is worth engaging in rapid prototyping and iterating quickly, using user feedback to refine and improve the product.

Step 4: Create

Once you have identified a solution that meets the user’s needs, it is time to create the product. This involves developing a detailed plan for implementation, including timelines, resource allocation, and budget. Remember to engage in collaborative problem-solving and engage with all stakeholders to ensure that everyone is aligned with the vision and objectives of the product.

Step 5: Implement

The final step in the process is to implement the product strategy. This involves launching the product, monitoring its performance, and making adjustments as necessary. Engaging in ongoing feedback loops with users and stakeholders is vital to ensure that the product continues to meet their needs over time.

Strategy Design use cases

Design thinking is a powerful approach that can be used to create innovative and user-centred solutions across a wide range of industries. It’s all about understanding people’s needs, behaviours, and emotions to create products and experiences that truly resonate with them.

One great example of design thinking in action is the iPhone. Apple revolutionised the mobile phone industry by creating an intuitive, user-friendly, and visually stunning device. From the touchscreen interface to the app store, every aspect of the iPhone was designed with the user in mind, resulting in a product that millions of people love and use every day.

Another example of design thinking at work is IDEO’s redesign of the hospital gown. The traditional hospital gown was uncomfortable, unflattering, and provided little dignity for patients. IDEO used empathy and creativity to create a new gown that was comfortable, functional, and even stylish. The new design includes pockets for personal items, openings for medical equipment, and an overall look and feel that helps preserve the patient’s dignity.

Airbnb is another excellent example of design thinking in action. By focusing on the needs of both hosts and guests, the company created a platform that disrupted the traditional hotel industry. By understanding the needs of travellers and homeowners, Airbnb developed a user-friendly platform that provided value to both parties, resulting in a successful and innovative business model.

Warby Parker

Warby Parker is a company that disrupted the traditional eyewear industry by creating a customer-centric experience. They understood that people want affordable, stylish glasses that fit well and are easy to order. By creating a try-at-home program, Warby Parker was able to provide customers with a hassle-free way to find the perfect pair of glasses.

These examples demonstrate how design thinking can create solutions that resonate with people, improving their experiences and lives. Companies can develop products and services that make a difference by prioritising empathy, creativity, and a user-centred approach.

Design Thinking in business: what’s next? 

If you’re still not sold on the whole “use Design Thinking in your business strategy” gig, you should at least now be certain of how effective it tends to be in product development. And if there is just one takeaway you could get from this approach, let it be this:

Always put your user first and the revenue will follow

Whether it is because of the engaging app design or because your entire enterprise strategy is built around satisfying ordinary customers. Technology may replace humans one day, but today it helps to make our lives better. So make sure you do too! 

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What Is Ideation in Design Thinking? 2024 Ideation Techniques Guide

What is ideation, and where does it fit into the Design Thinking process?

User experience designers are responsible for solving real user problems. To do this, they need to empathize with their users, understand their needs, and come up with creative, innovative solutions.

Ideation is how designers continuously generate fresh ideas.

As part of the Design Thinking process, ideation sessions help you to challenge assumptions, think outside the box, and explore uncharted territory. In this guide, we’ll go deeper into an explanation of ideation, why it’s so important to your work as a designer, and how you can prepare for productive ideation sessions. We’ll also introduce some of the most important ideation techniques.

Want to skip ahead? Just click on the links below to navigate your way through the guide.

• What is ideation?
• Why is the ideation phase crucial?
• How to prepare for an ideation session
• What are some of the most important ideation techniques?
• Ideation in Design Thinking: What next?

1. What is ideation?

Ideation is the third phase of the Design Thinking process , and it’s all about generating ideas.

Before we explore ideation in more detail, let’s briefly recap on the five stages of Design Thinking: Empathise , Define , Ideate , Prototype , and Test .

Now, it’s important to remember that Design Thinking is not a strictly linear process. However, the insights and outcomes that come from the Empathise and Define stages (getting to know your users and setting out a clear problem statement) will guide and inform a productive ideation session.

The Nielsen Norman Group defines ideation as “the process of generating a broad set of ideas on a given topic, with no attempt to judge or evaluate them.”

In the ideation phase , you’ll explore and come up with as many ideas as possible. Some of these ideas will go on to be potential solutions to your design challenge; some will end up on the reject pile.

At this stage, the focus is on the number of ideas rather than quality. The main aim of an ideation session is to uncover and explore new angles and avenues—to think outside the box.

For the sake of innovation and creativity, it is essential that the ideation phase is a judgment-free zone.

Ideation comes in many different shapes and sizes. We’ll take a look at some of the most popular ideation techniques used by designers a little later on.

2. Why is the ideation phase crucial?

The ideation phase represents a key transitional step from learning about your users and the problem to coming up with solutions.

If carried out properly, an ideation session is where innovation thrives; it should help you stumble upon that groundbreaking solution that your users have been missing!

As Don Norman explains in “ Rethinking Design Thinking” , ideation is crucial in getting us to question the obvious, challenge the norm, and come up with new ideas.

“It is by questioning the obvious that we make great progress. This is where breakthroughs come from. We need to question the obvious, to reformulate our beliefs, and to redefine existing solutions, approaches, and beliefs,” he writes.

As a designer, the ideation phase is your safe space in which to come up with novel, perhaps unconventional, ideas. It doesn’t matter if these ideas turn out to be plausible or not; what’s important is that you venture beyond the obvious, already-been-done solutions.

Ideation sessions will help you to focus on your users (as any good designer should!); to accumulate the unique perspectives and creativity of different people, ensure diversity of ideas. And ultimately, to innovate in ways that you never thought possible.

3. How to prepare for an ideation session

If you’re planning an ideation session or workshop , it’s important to set the right tone. Before we delve into specific ideation techniques, let’s consider how you can prepare for a successful ideation session. You’ll also find some useful tips in the below video showing you how to run a design thinking workshop.

Introduce a change of scenery

To encourage outside-the-box thinking, it’s important to take yourself—and your team—quite literally outside of the box. It might seem like a minor detail, but the physical space in which you hold your ideation session can have a major impact.

Move away from the usual setting, be it the boardroom or your desk, and hold your session somewhere completely new. A new environment introduces new stimuli, which in turn can help to trigger fresh ways of thinking.

Create a relaxed environment

Both distractions from the problem and a relaxed state of mind have been proven to get the creative juices flowing .

The best ideation sessions are those where the participants feel at ease. The ideation phase should be a safe space—but most people will need some coaxing before they feel comfortable sharing their wildest ideas.

Prepare ice-breakers  to bring the group together, relieve any tension, and get people warmed up.

Use what you’ve learned from the Empathise and Define stages: Prepare a list of “How might we…?” questions

While ideation is all about generating as many ideas as possible, it’s important to steer this process in the right direction. This is where stages one and two of the Design Thinking process come in: Empathise and Define .

Throughout these two phases, you’ll have painted a clear picture of your users and their needs. You’ll also have constructed a meaningful problem statement—i.e. the challenge you need to address in your ideation sessions.

In preparation for ideation, you can create a list of “how might we” questions related to your problem statement. The “how might we” methodology breaks your problem statement down into actionable segments, framing it as an opportunity rather than an obstacle. How so?

Well, consider the wording “how might we…”; it suggests that a solution is possible, but doesn’t give any hints as to what that solution might be. You have enough of a focal point to guide your ideas, but plenty of freedom to think laterally and innovatively.

Visit designkit.org for clear, step-by-step guidelines on how to formulate effective “how might we” questions.

4. Key ideation techniques

Now you have everything in place for your ideation session, there’s just one thing left to do: Choose which ideation techniques you’re going to use.

Here are some of the most common ideation techniques used by designers:

By definition, an analogy is “a cognitive process of transferring information or meaning from a particular subject to another.”

An analogy provides a comparison between one thing and another, serving as a means of explanation or clarification. What does this have to do with ideation and design? The analogy technique compares your situation—or design challenge—to something you are familiar with, enabling you to look at the problem in a new light and consider possible solutions.

You can learn how to apply the analogy technique in this handy guide .

Bodystorming

The bodystorming technique gets you to physically experience a situation in order to spark new ideas.

If you’re struggling to get close to the problem, bodystorming is a great way to generate genuine user empathy . How does it work? You set up a physical experience resembling the problem you are trying to solve, using people, props, or a digital prototype.

Based on your own interactions with, and reactions to, this environment, it may be easier to come up with ideas.

Brainstorming

Brainstorming is one of the oldest tricks in the book when it comes to generating new ideas as a group. In a brainstorming session, you verbally bounce ideas off of each other in the hopes of finding a blended solution.

Brainwriting

An alternative to traditional brainstorming is brainwriting.

Instead of verbally sharing ideas, participants write down their ideas before passing them on to someone else. The next person reads these ideas and adds their own, and so the process continues until each person’s ideas have done a full rotation.

All ideas are then collected and placed in front of the group for discussion.

Brainwalking

This is the more dynamic, physical version of brainwriting.

Instead of passing pieces of paper around the room, the designers themselves move between different “ideation stations”. Just like brainwriting, they’ll add their own ideas before moving on to the next station.

Challenging Assumptions

As we know, challenging assumptions is crucial to breaking conventional thought patterns and coming up with new ideas.

A popular ideation technique is to come up with a number of assumptions that are inherent to your design challenge. As a group, you’ll then go through these assumptions and discuss whether they are really true, or if they’re simply there because they’ve never been questioned.

In putting these assumptions to the test, you can determine what characteristics are really necessary, or which solutions could be used instead.

Gamestorming

Gamestorming is the gamification of brainstorming, and a popular technique for both ideation and problem-solving.

Gamifying classic ideation methods adds an extra element of engagement and interactivity—and helps to suspend some of the normal “rules” of everyday life. You can find tips and tools for gamestorming here .

Mindmapping

Developed by Tony Buzan in 1972, mindmapping is a visual ideation technique that encourages you to draw connections between different sets of ideas or information.

You’ll start by writing a keyword in the middle of the page (normally related to your problem statement). On the same piece of paper, you then surround this word with any and all ideas that come to mind.

Finally, you’ll think about how these ideas are connected, depicting said connections with lines and curves—resulting in a visual map.

Reverse Thinking

Reverse thinking can be a fun way to flip the problem on its head and come up with new ideas.

The question “how might we make our online courses more accessible?” could be changed to “how can we make it as difficult as possible for users to take our online courses?” The solutions you come up with for the reverse challenge can help you to envision what the opposite might be, leading you closer to the solution you really need.

SCAMPER is an action-packed checklist that helps you to come up with new ideas for a particular product or design challenge.

SCAMPER prompts the designer to:

• Substitute the topic with an equivalent or similar topic
• Combine the original topic with additional information
• Adjust the problem by coming up with alternative ways of constructing it
• Creatively modify the topic
• Put it to other uses by identifying possible scenarios where this topic can be used
• Eliminate any ideas or characteristics that are not valuable
• Reverse and rearrange the problem in order to come up with a brand-new concept

If you’d like to learn more about how to employ this technique and where it came from, check out our in-depth SCAMPER guide .

Storyboarding

Storyboarding is an excellent technique for bringing a design challenge to life and exploring different avenues in a visual way.

Start by drawing out your user personas —as defined in the empathize and research stages—using images and quotes to paint a vivid picture. From there, you can draw out various storylines and outcomes, visualizing how the user feels throughout.

You can learn more about storyboarding in more detail in our full guide .

Worst Possible Idea

Similar to reverse thinking, the worst possible idea technique is great for putting the group at ease and removing creative blocks .

Even if the ideation session has been declared a judgement-free zone, there is inevitably a certain amount of pressure to find a viable solution that your peers will like. Going in search of the worst possible idea takes away this pressure.

Not only that: Reflecting on what’s so terrible about these ideas can reveal valuable insights into what a good idea might look like.

These techniques are just the tip of the ideation iceberg. Here are some further ideation methods you might like to explore:

• Creative pause
• Cheatstorming
• Crowdstorming
• Daydreaming
• Provocation
• Forced relationships
• Visualization
• Sketching and sketchstorming

When deciding which ideation techniques to use, think about the nature of your design problem, as well as the people taking part in the ideation session.

It’s important to choose techniques that are suitable for the group size. At the same time, consider which methods are most likely to put your participants at ease and elicit the best response among this particular group of people.

5. Ideation in Design Thinking: What next?

It may take several ideation sessions to pinpoint and refine the idea (or ideas) with which you want to move forward.

Once you’ve completed the ideation phase, you will move on to prototyping and user testing . This is where you’ll put your ideas to the test and highlight any kinks that need to be ironed out.

As already mentioned, the Design Thinking process is not linear; the prototyping and testing stages may prove your ideas to be implausible after all, taking you back to the ideation phase—or possibly right back to defining the problem.

When it comes to the ideation phase, just remember: Have fun, experiment with different techniques, and don’t be afraid to think outside the box!

Want to learn more about design thinking and the UX design process? Check out these guides:

• User flows vs. wireframes: What’s the difference?
• UX resources for beginners
• What is an empathy map?

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5 Design Thinking Skills for Business Professionals

• 11 Jan 2022

What do companies such as Apple, Moderna, IBM, T-Mobile, Ford, Barclays, and Nike have in common? Each has embraced the concept of design thinking in their development of new products and services—and been rewarded for doing so.

Design thinking is a powerful tool all professionals can benefit from. By developing design thinking skills, you can become a more creative problem-solver, regardless of your role. This, in turn, can empower you to embrace and facilitate innovation within your organization to effect real, lasting change.

Here’s a look at what design thinking is, design thinking skills you should develop to advance your career, and the types of professionals who can benefit most from those skills.

Access your free e-book today.

What Is Design Thinking?

Design thinking is an approach to problem-solving in which the practitioner seeks to understand a potential product or service’s end user, including their goals, challenges, and aspirations. They then use that knowledge to conceive solutions.

As a methodology, design thinking is meant to be iterative. It constantly forces the practitioner to challenge their assumptions about the problem, the user, and the solution as a means of verifying they’re correct—or forcing innovation to find a more accurate answer.

Design thinking is typically broken out into four key phases:

• Clarify: In this phase, the practitioner narrows down the focus of the design thinking process. They identify the problem that will be explored to ensure the best possible outcome.
• Ideate: In this phase, the practitioner generates ideas for solutions. They should regularly challenge their assumptions to overcome biases and think of truly unique and innovative ideas.
• Develop: In this phase, the practitioner experiments with the solutions they conceived in the ideate phase. Prototypes should not be expensive or considered “final,” but rather as tools to test and learn from.
• Implement: Finally, the practitioner must test each prototype. The goal is to learn and collect as much data as possible and use it to further iterate on potential solutions.

While the four phases feed into each other, the implement phase is not meant to be the end of the line; instead, it’s a trigger to revisit the earlier phases and iterate on both the problem and solution.

Design Thinking Skills

1. emotional intelligence.

Emotional intelligence is a core skill for anyone interested in design thinking. This is because design thinking requires the practitioner to empathize with the end user and understand their dreams, goals, desires, and challenges on an intimate, personal level. Without the willingness to empathize, none of the other phases in the design thinking process can be completed.

In addition to empathy, other important emotional intelligence skills you should develop to connect with your ideal users include self-awareness, self-regulation, and motivation.

2. Consensus Building

In the early phases of the design thinking process, it’s important for all team members to come to a consensus on the challenge being addressed. Who’s the ideal buyer or end user of the product or solution? What’s the problem being solved for? How will you define success? Without agreement around these questions, the entire process can break down and be stalled by inaction.

By becoming skilled in consensus building, you can ensure your project is always moving forward. That doesn’t mean your team will always be right just because they agree on something or that you shouldn’t challenge assumptions. Even failure can provide data you can use to improve the next iteration of a solution.

Problem framing is a tool often used in design thinking when a team doesn’t agree on a solution. It requires team members to take a step back and reframe the problem they’re trying to solve. This simple act can give everyone clarity and help build consensus around a solution while ruling out those that don’t address the problem.

3. User Research

User research is the act of understanding a product or service’s end user to get a better sense of the problems they face, their goals, and the unique criteria they’ll use to identify a solution. It’s through user research that you can begin to empathize with your end user, define and frame the problem, and ideate.

There are many methods you can use to complete this research. Some of the most effective include:

• User surveys: Surveys can be an extremely valuable way to collect a large amount of user data that informs your process. In designing user surveys, it’s critical to avoid mistakes that could adversely affect your results.
• User interviews: In a user interview , you speak with someone you consider your product or service’s ideal customer or end user. You then ask them questions that reveal key details about their needs and wants.
• Direct observation: Direct observation involves finding someone you consider to be your ideal end user, then observing them as they complete a task. For example, you might ask them to use your product or solve a problem.

With user research, practice makes perfect. The more you perform, the more comfortable you become—helping you be more effective the next time you’re tasked with it.

4. Journey Mapping

Journey mapping is the process of charting your target customer or end user’s journey as they choose a solution to their problem. What are they seeing, feeling, and thinking?

A journey map typically has three stages:

• Awareness of a problem or need: The individual becomes aware of the symptoms of a problem, challenge, or opportunity but doesn’t yet know how to define it.
• Consideration of possible solutions: The individual has defined their problem or opportunity and is now considering different options for moving forward.
• Deciding how best to proceed: The individual has narrowed down their options and is now making their final decision.

These stages aren’t necessarily linear. One person can, for example, spend years being aware of a problem or goal, then rapidly consider options and make a final decision. Another person might move back and forth between the first two stages but never move into the final one. Someone might also proceed through all three stages, only to realize they were solving the wrong problem, prompting them to return to the awareness stage.

Journey mapping is a crucial skill for anyone interested in design thinking. It should be informed by user research and will itself inform ideation and prototyping.

5. Brainstorming

In the ideation phase of design thinking, your primary task is to take all the information you’ve gathered—through user research, journey mapping, and empathizing—and use it to think of possible solutions to your end user’s problem. Having the ability to brainstorm potential solutions in a free and creative way is vital.

Some brainstorming methods commonly leveraged in design thinking include:

• Mindmapping: A method for organizing information about a central topic or idea in a nonlinear way to show unique connections
• Storyboarding: A method of walking through the user’s journey leading up to the point where they select a solution and continue to leverage it
• Crowdstorming: Collaborative brainstorming between a large number of people (in a way, reminiscent of crowdsourcing information)
• Prototyping: The process of creating solution prototypes to gauge how they perform and address the user’s problem.

Throughout brainstorming, you and your team should challenge assumptions—about your end user, their challenges, and what a solution might look like—to keep ideas flowing.

Developing Your Design Thinking Skills

Design thinking is a powerful tool for anyone involved in identifying business opportunities, finding market needs, or designing products and services. The following professionals, in particular, can benefit from developing design thinking skills:

• Current or aspiring innovation managers: Design thinking is, at its heart, a framework for innovation. As such, anyone tasked with making their organization more innovative can benefit from learning its methods.
• Product managers and developers: Design thinking empowers professionals to think about their products and services through end users’ eyes, which can lead to innovative developments.
• Marketers: To effectively market a product or service, marketers must intimately understand end users' goals and challenges, as well as the unique differentiators of their solution. Design thinking allows them to do exactly that.
• Entrepreneurs: The frameworks and techniques embraced in design thinking can be directly applied to launching and scaling a new business, which is critical for entrepreneurs.

One of the most effective ways to hone your design thinking skills is to put them into action on the job—but that takes time.

Another option is to complete an online course or workshop that teaches the tenets of design thinking. This is an especially effective path if you want to rapidly improve your design thinking skills, or if you benefit from a more structured learning environment.

Are you ready to develop your design thinking skills and become more effective at innovating within your organization? Explore Design Thinking and Innovation —one of our online entrepreneurship and innovation courses —and learn how to use design thinking strategies and frameworks in your career.

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How to Write a Business Plan in 9 Steps (+ Template and Examples)

Every successful business has one thing in common, a good and well-executed business plan. A business plan is more than a document, it is a complete guide that outlines the goals your business wants to achieve, including its financial goals . It helps you analyze results, make strategic decisions, show your business operations and growth.

If you want to start a business or already have one and need to pitch it to investors for funding, writing a good business plan improves your chances of attracting financiers. As a startup, if you want to secure loans from financial institutions, part of the requirements involve submitting your business plan.

Writing a business plan does not have to be a complicated or time-consuming process. In this article, you will learn the step-by-step process for writing a successful business plan.

You will also learn what you need a business plan for, tips and strategies for writing a convincing business plan, business plan examples and templates that will save you tons of time, and the alternatives to the traditional business plan.

Let’s get started.

What Do You Need A Business Plan For?

Businesses create business plans for different purposes such as to secure funds, monitor business growth, measure your marketing strategies, and measure your business success.

1. Secure Funds

One of the primary reasons for writing a business plan is to secure funds, either from financial institutions/agencies or investors.

For you to effectively acquire funds, your business plan must contain the key elements of your business plan . For example, your business plan should include your growth plans, goals you want to achieve, and milestones you have recorded.

A business plan can also attract new business partners that are willing to contribute financially and intellectually. If you are writing a business plan to a bank, your project must show your traction , that is, the proof that you can pay back any loan borrowed.

Also, if you are writing to an investor, your plan must contain evidence that you can effectively utilize the funds you want them to invest in your business. Here, you are using your business plan to persuade a group or an individual that your business is a source of a good investment.

2. Monitor Business Growth

A business plan can help you track cash flows in your business. It steers your business to greater heights. A business plan capable of tracking business growth should contain:

• The business goals
• Methods to achieve the goals
• Time-frame for attaining those goals

A good business plan should guide you through every step in achieving your goals. It can also track the allocation of assets to every aspect of the business. You can tell when you are spending more than you should on a project.

You can compare a business plan to a written GPS. It helps you manage your business and hints at the right time to expand your business.

3. Measure Business Success

A business plan can help you measure your business success rate. Some small-scale businesses are thriving better than more prominent companies because of their track record of success.

Right from the onset of your business operation, set goals and work towards them. Write a plan to guide you through your procedures. Use your plan to measure how much you have achieved and how much is left to attain.

You can also weigh your success by monitoring the position of your brand relative to competitors. On the other hand, a business plan can also show you why you have not achieved a goal. It can tell if you have elapsed the time frame you set to attain a goal.

4. Document Your Marketing Strategies

You can use a business plan to document your marketing plans. Every business should have an effective marketing plan.

Competition mandates every business owner to go the extraordinary mile to remain relevant in the market. Your business plan should contain your marketing strategies that work. You can measure the success rate of your marketing plans.

In your business plan, your marketing strategy must answer the questions:

• How do you want to reach your target audience?
• How do you plan to retain your customers?
• What is/are your pricing plans?
• What is your budget for marketing?

How to Write a Business Plan Step-by-Step

1. create your executive summary.

The executive summary is a snapshot of your business or a high-level overview of your business purposes and plans . Although the executive summary is the first section in your business plan, most people write it last. The length of the executive summary is not more than two pages.

Generally, there are nine sections in a business plan, the executive summary should condense essential ideas from the other eight sections.

A good executive summary should do the following:

• A Snapshot of Growth Potential. Briefly inform the reader about your company and why it will be successful)
• Contain your Mission Statement which explains what the main objective or focus of your business is.
• Product Description and Differentiation. Brief description of your products or services and why it is different from other solutions in the market.
• The Team. Basic information about your company’s leadership team and employees
• Business Concept. A solid description of what your business does.
• Target Market. The customers you plan to sell to.
• Marketing Strategy. Your plans on reaching and selling to your customers
• Current Financial State. Brief information about what revenue your business currently generates.
• Projected Financial State. Brief information about what you foresee your business revenue to be in the future.

The executive summary is the make-or-break section of your business plan. If your summary cannot in less than two pages cannot clearly describe how your business will solve a particular problem of your target audience and make a profit, your business plan is set on a faulty foundation.

Avoid using the executive summary to hype your business, instead, focus on helping the reader understand the what and how of your plan.

View the executive summary as an opportunity to introduce your vision for your company. You know your executive summary is powerful when it can answer these key questions:

• Who is your target audience?
• What sector or industry are you in?
• What are your products and services?
• What is the future of your industry?
• Is your company scaleable?
• Who are the owners and leaders of your company? What are their backgrounds and experience levels?
• What is the motivation for starting your company?
• What are the next steps?

Writing the executive summary last although it is the most important section of your business plan is an excellent idea. The reason why is because it is a high-level overview of your business plan. It is the section that determines whether potential investors and lenders will read further or not.

The executive summary can be a stand-alone document that covers everything in your business plan. It is not uncommon for investors to request only the executive summary when evaluating your business. If the information in the executive summary impresses them, they will ask for the complete business plan.

If you are writing your business plan for your planning purposes, you do not need to write the executive summary.

2. Add Your Company Overview

The company overview or description is the next section in your business plan after the executive summary. It describes what your business does.

Adding your company overview can be tricky especially when your business is still in the planning stages. Existing businesses can easily summarize their current operations but may encounter difficulties trying to explain what they plan to become.

Your company overview should contain the following:

• What products and services you will provide
• Geographical markets and locations your company have a presence
• What you need to run your business
• Who your target audience or customers are
• Who will service your customers
• Your company’s purpose, mission, and vision
• Information about your company’s founders
• Who the founders are
• Notable achievements of your company so far

When creating a company overview, you have to focus on three basics: identifying your industry, identifying your customer, and explaining the problem you solve.

If you are stuck when creating your company overview, try to answer some of these questions that pertain to you.

• Who are you targeting? (The answer is not everyone)
• What pain point does your product or service solve for your customers that they will be willing to spend money on resolving?
• How does your product or service overcome that pain point?
• Where is the location of your business?
• What products, equipment, and services do you need to run your business?
• How is your company’s product or service different from your competition in the eyes of your customers?
• How many employees do you need and what skills do you require them to have?

After answering some or all of these questions, you will get more than enough information you need to write your company overview or description section. When writing this section, describe what your company does for your customers.

The company description or overview section contains three elements: mission statement, history, and objectives.

• Mission Statement

The mission statement refers to the reason why your business or company is existing. It goes beyond what you do or sell, it is about the ‘why’. A good mission statement should be emotional and inspirational.

Your mission statement should follow the KISS rule (Keep It Simple, Stupid). For example, Shopify’s mission statement is “Make commerce better for everyone.”

When describing your company’s history, make it simple and avoid the temptation of tying it to a defensive narrative. Write it in the manner you would a profile. Your company’s history should include the following information:

• Founding Date
• Major Milestones
• Location(s)
• Flagship Products or Services
• Number of Employees
• Executive Leadership Roles

When you fill in this information, you use it to write one or two paragraphs about your company’s history.

Business Objectives

Your business objective must be SMART (specific, measurable, achievable, realistic, and time-bound.) Failure to clearly identify your business objectives does not inspire confidence and makes it hard for your team members to work towards a common purpose.

3. Perform Market and Competitive Analyses to Proof a Big Enough Business Opportunity

The third step in writing a business plan is the market and competitive analysis section. Every business, no matter the size, needs to perform comprehensive market and competitive analyses before it enters into a market.

Performing market and competitive analyses are critical for the success of your business. It helps you avoid entering the right market with the wrong product, or vice versa. Anyone reading your business plans, especially financiers and financial institutions will want to see proof that there is a big enough business opportunity you are targeting.

This section is where you describe the market and industry you want to operate in and show the big opportunities in the market that your business can leverage to make a profit. If you noticed any unique trends when doing your research, show them in this section.

Market analysis alone is not enough, you have to add competitive analysis to strengthen this section. There are already businesses in the industry or market, how do you plan to take a share of the market from them?

You have to clearly illustrate the competitive landscape in your business plan. Are there areas your competitors are doing well? Are there areas where they are not doing so well? Show it.

Make it clear in this section why you are moving into the industry and what weaknesses are present there that you plan to explain. How are your competitors going to react to your market entry? How do you plan to get customers? Do you plan on taking your competitors' competitors, tap into other sources for customers, or both?

Illustrate the competitive landscape as well. What are your competitors doing well and not so well?

Answering these questions and thoughts will aid your market and competitive analysis of the opportunities in your space. Depending on how sophisticated your industry is, or the expectations of your financiers, you may need to carry out a more comprehensive market and competitive analysis to prove that big business opportunity.

Instead of looking at the market and competitive analyses as one entity, separating them will make the research even more comprehensive.

Market Analysis

Market analysis, boarding speaking, refers to research a business carried out on its industry, market, and competitors. It helps businesses gain a good understanding of their target market and the outlook of their industry. Before starting a company, it is vital to carry out market research to find out if the market is viable.

The market analysis section is a key part of the business plan. It is the section where you identify who your best clients or customers are. You cannot omit this section, without it your business plan is incomplete.

A good market analysis will tell your readers how you fit into the existing market and what makes you stand out. This section requires in-depth research, it will probably be the most time-consuming part of the business plan to write.

• Market Research

To create a compelling market analysis that will win over investors and financial institutions, you have to carry out thorough market research . Your market research should be targeted at your primary target market for your products or services. Here is what you want to find out about your target market.

• Your target market’s needs or pain points
• The existing solutions for their pain points
• Geographic Location
• Demographics

The purpose of carrying out a marketing analysis is to get all the information you need to show that you have a solid and thorough understanding of your target audience.

Only after you have fully understood the people you plan to sell your products or services to, can you evaluate correctly if your target market will be interested in your products or services.

You can easily convince interested parties to invest in your business if you can show them you thoroughly understand the market and show them that there is a market for your products or services.

How to Quantify Your Target Market

One of the goals of your marketing research is to understand who your ideal customers are and their purchasing power. To quantify your target market, you have to determine the following:

• Your Potential Customers: They are the people you plan to target. For example, if you sell accounting software for small businesses , then anyone who runs an enterprise or large business is unlikely to be your customers. Also, individuals who do not have a business will most likely not be interested in your product.
• Total Households: If you are selling household products such as heating and air conditioning systems, determining the number of total households is more important than finding out the total population in the area you want to sell to. The logic is simple, people buy the product but it is the household that uses it.
• Median Income: You need to know the median income of your target market. If you target a market that cannot afford to buy your products and services, your business will not last long.
• Income by Demographics: If your potential customers belong to a certain age group or gender, determining income levels by demographics is necessary. For example, if you sell men's clothes, your target audience is men.

What Does a Good Market Analysis Entail?

Your business does not exist on its own, it can only flourish within an industry and alongside competitors. Market analysis takes into consideration your industry, target market, and competitors. Understanding these three entities will drastically improve your company’s chances of success.

You can view your market analysis as an examination of the market you want to break into and an education on the emerging trends and themes in that market. Good market analyses include the following:

• Industry Description. You find out about the history of your industry, the current and future market size, and who the largest players/companies are in your industry.
• Overview of Target Market. You research your target market and its characteristics. Who are you targeting? Note, it cannot be everyone, it has to be a specific group. You also have to find out all information possible about your customers that can help you understand how and why they make buying decisions.
• Size of Target Market: You need to know the size of your target market, how frequently they buy, and the expected quantity they buy so you do not risk overproducing and having lots of bad inventory. Researching the size of your target market will help you determine if it is big enough for sustained business or not.
• Growth Potential: Before picking a target market, you want to be sure there are lots of potential for future growth. You want to avoid going for an industry that is declining slowly or rapidly with almost zero growth potential.
• Market Share Potential: Does your business stand a good chance of taking a good share of the market?
• Market Pricing and Promotional Strategies: Your market analysis should give you an idea of the price point you can expect to charge for your products and services. Researching your target market will also give you ideas of pricing strategies you can implement to break into the market or to enjoy maximum profits.
• Potential Barriers to Entry: One of the biggest benefits of conducting market analysis is that it shows you every potential barrier to entry your business will likely encounter. It is a good idea to discuss potential barriers to entry such as changing technology. It informs readers of your business plan that you understand the market.
• Research on Competitors: You need to know the strengths and weaknesses of your competitors and how you can exploit them for the benefit of your business. Find patterns and trends among your competitors that make them successful, discover what works and what doesn’t, and see what you can do better.

The market analysis section is not just for talking about your target market, industry, and competitors. You also have to explain how your company can fill the hole you have identified in the market.

Here are some questions you can answer that can help you position your product or service in a positive light to your readers.

• Is your product or service of superior quality?
• What additional features do you offer that your competitors do not offer?
• Are you targeting a ‘new’ market?

Basically, your market analysis should include an analysis of what already exists in the market and an explanation of how your company fits into the market.

Competitive Analysis

In the competitive analysis section, y ou have to understand who your direct and indirect competitions are, and how successful they are in the marketplace. It is the section where you assess the strengths and weaknesses of your competitors, the advantage(s) they possess in the market and show the unique features or qualities that make you different from your competitors.

Many businesses do market analysis and competitive analysis together. However, to fully understand what the competitive analysis entails, it is essential to separate it from the market analysis.

Competitive analysis for your business can also include analysis on how to overcome barriers to entry in your target market.

The primary goal of conducting a competitive analysis is to distinguish your business from your competitors. A strong competitive analysis is essential if you want to convince potential funding sources to invest in your business. You have to show potential investors and lenders that your business has what it takes to compete in the marketplace successfully.

Competitive analysis will s how you what the strengths of your competition are and what they are doing to maintain that advantage.

When doing your competitive research, you first have to identify your competitor and then get all the information you can about them. The idea of spending time to identify your competitor and learn everything about them may seem daunting but it is well worth it.

Find answers to the following questions after you have identified who your competitors are.

• What are your successful competitors doing?
• Why is what they are doing working?
• Can your business do it better?
• What are the weaknesses of your successful competitors?
• What are they not doing well?
• Can your business turn its weaknesses into strengths?
• How good is your competitors’ customer service?
• Where do your competitors invest in advertising?
• What sales and pricing strategies are they using?
• What marketing strategies are they using?
• What kind of press coverage do they get?
• What are their customers saying about your competitors (both the positive and negative)?

If your competitors have a website, it is a good idea to visit their websites for more competitors’ research. Check their “About Us” page for more information.

If you are presenting your business plan to investors, you need to clearly distinguish yourself from your competitors. Investors can easily tell when you have not properly researched your competitors.

Take time to think about what unique qualities or features set you apart from your competitors. If you do not have any direct competition offering your product to the market, it does not mean you leave out the competitor analysis section blank. Instead research on other companies that are providing a similar product, or whose product is solving the problem your product solves.

The next step is to create a table listing the top competitors you want to include in your business plan. Ensure you list your business as the last and on the right. What you just created is known as the competitor analysis table.

Direct vs Indirect Competition

You cannot know if your product or service will be a fit for your target market if you have not understood your business and the competitive landscape.

There is no market you want to target where you will not encounter competition, even if your product is innovative. Including competitive analysis in your business plan is essential.

If you are entering an established market, you need to explain how you plan to differentiate your products from the available options in the market. Also, include a list of few companies that you view as your direct competitors The competition you face in an established market is your direct competition.

In situations where you are entering a market with no direct competition, it does not mean there is no competition there. Consider your indirect competition that offers substitutes for the products or services you offer.

For example, if you sell an innovative SaaS product, let us say a project management software , a company offering time management software is your indirect competition.

There is an easy way to find out who your indirect competitors are in the absence of no direct competitors. You simply have to research how your potential customers are solving the problems that your product or service seeks to solve. That is your direct competition.

Factors that Differentiate Your Business from the Competition

There are three main factors that any business can use to differentiate itself from its competition. They are cost leadership, product differentiation, and market segmentation.

1. Cost Leadership

A strategy you can impose to maximize your profits and gain an edge over your competitors. It involves offering lower prices than what the majority of your competitors are offering.

A common practice among businesses looking to enter into a market where there are dominant players is to use free trials or pricing to attract as many customers as possible to their offer.

2. Product Differentiation

Your product or service should have a unique selling proposition (USP) that your competitors do not have or do not stress in their marketing.

Part of the marketing strategy should involve making your products unique and different from your competitors. It does not have to be different from your competitors, it can be the addition to a feature or benefit that your competitors do not currently have.

3. Market Segmentation

As a new business seeking to break into an industry, you will gain more success from focusing on a specific niche or target market, and not the whole industry.

If your competitors are focused on a general need or target market, you can differentiate yourself from them by having a small and hyper-targeted audience. For example, if your competitors are selling men’s clothes in their online stores , you can sell hoodies for men.

4. Define Your Business and Management Structure

The next step in your business plan is your business and management structure. It is the section where you describe the legal structure of your business and the team running it.

Your business is only as good as the management team that runs it, while the management team can only strive when there is a proper business and management structure in place.

If your company is a sole proprietor or a limited liability company (LLC), a general or limited partnership, or a C or an S corporation, state it clearly in this section.

Use an organizational chart to show the management structure in your business. Clearly show who is in charge of what area in your company. It is where you show how each key manager or team leader’s unique experience can contribute immensely to the success of your company. You can also opt to add the resumes and CVs of the key players in your company.

The business and management structure section should show who the owner is, and other owners of the businesses (if the business has other owners). For businesses or companies with multiple owners, include the percent ownership of the various owners and clearly show the extent of each others’ involvement in the company.

Investors want to know who is behind the company and the team running it to determine if it has the right management to achieve its set goals.

Management Team

The management team section is where you show that you have the right team in place to successfully execute the business operations and ideas. Take time to create the management structure for your business. Think about all the important roles and responsibilities that you need managers for to grow your business.

Include brief bios of each key team member and ensure you highlight only the relevant information that is needed. If your team members have background industry experience or have held top positions for other companies and achieved success while filling that role, highlight it in this section.

A common mistake that many startups make is assigning C-level titles such as (CMO and CEO) to everyone on their team. It is unrealistic for a small business to have those titles. While it may look good on paper for the ego of your team members, it can prevent investors from investing in your business.

Instead of building an unrealistic management structure that does not fit your business reality, it is best to allow business titles to grow as the business grows. Starting everyone at the top leaves no room for future change or growth, which is bad for productivity.

Your management team does not have to be complete before you start writing your business plan. You can have a complete business plan even when there are managerial positions that are empty and need filling.

If you have management gaps in your team, simply show the gaps and indicate you are searching for the right candidates for the role(s). Investors do not expect you to have a full management team when you are just starting your business.

Key Questions to Answer When Structuring Your Management Team

• Who are the key leaders?
• What experiences, skills, and educational backgrounds do you expect your key leaders to have?
• Do your key leaders have industry experience?
• What positions will they fill and what duties will they perform in those positions?
• What level of authority do the key leaders have and what are their responsibilities?
• What is the salary for the various management positions that will attract the ideal candidates?

Additional Tips for Writing the Management Structure Section

1. Avoid Adding ‘Ghost’ Names to Your Management Team

There is always that temptation to include a ‘ghost’ name to your management team to attract and influence investors to invest in your business. Although the presence of these celebrity management team members may attract the attention of investors, it can cause your business to lose any credibility if you get found out.

Seasoned investors will investigate further the members of your management team before committing fully to your business If they find out that the celebrity name used does not play any actual role in your business, they will not invest and may write you off as dishonest.

2. Focus on Credentials But Pay Extra Attention to the Roles

Investors want to know the experience that your key team members have to determine if they can successfully reach the company’s growth and financial goals.

While it is an excellent boost for your key management team to have the right credentials, you also want to pay extra attention to the roles they will play in your company.

Organizational Chart

Adding an organizational chart in this section of your business plan is not necessary, you can do it in your business plan’s appendix.

If you are exploring funding options, it is not uncommon to get asked for your organizational chart. The function of an organizational chart goes beyond raising money, you can also use it as a useful planning tool for your business.

An organizational chart can help you identify how best to structure your management team for maximum productivity and point you towards key roles you need to fill in the future.

You can use the organizational chart to show your company’s internal management structure such as the roles and responsibilities of your management team, and relationships that exist between them.

5. Describe Your Product and Service Offering

In your business plan, you have to describe what you sell or the service you plan to offer. It is the next step after defining your business and management structure. The products and services section is where you sell the benefits of your business.

Here you have to explain how your product or service will benefit your customers and describe your product lifecycle. It is also the section where you write down your plans for intellectual property like patent filings and copyrighting.

The research and development that you are undertaking for your product or service need to be explained in detail in this section. However, do not get too technical, sell the general idea and its benefits.

If you have any diagrams or intricate designs of your product or service, do not include them in the products and services section. Instead, leave them for the addendum page. Also, if you are leaving out diagrams or designs for the addendum, ensure you add this phrase “For more detail, visit the addendum Page #.”

Your product and service section in your business plan should include the following:

• A detailed explanation that clearly shows how your product or service works.
• The pricing model for your product or service.
• Your business’ sales and distribution strategy.
• The ideal customers that want your product or service.
• The benefits of your products and services.
• Reason(s) why your product or service is a better alternative to what your competitors are currently offering in the market.
• Plans for filling the orders you receive
• If you have current or pending patents, copyrights, and trademarks for your product or service, you can also discuss them in this section.

What to Focus On When Describing the Benefits, Lifecycle, and Production Process of Your Products or Services

In the products and services section, you have to distill the benefits, lifecycle, and production process of your products and services.

When describing the benefits of your products or services, here are some key factors to focus on.

• Unique features
• Translating the unique features into benefits
• The emotional, psychological, and practical payoffs to attract customers
• Intellectual property rights or any patents

When describing the product life cycle of your products or services, here are some key factors to focus on.

• Upsells, cross-sells, and down-sells
• Time between purchases
• Plans for research and development.

When describing the production process for your products or services, you need to think about the following:

• The creation of new or existing products and services.
• The sources for the raw materials or components you need for production.
• Assembling the products
• Maintaining quality control
• Supply-chain logistics (receiving the raw materials and delivering the finished products)
• The day-to-day management of the production processes, bookkeeping, and inventory.

Tips for Writing the Products or Services Section of Your Business Plan

1. Avoid Technical Descriptions and Industry Buzzwords

The products and services section of your business plan should clearly describe the products and services that your company provides. However, it is not a section to include technical jargons that anyone outside your industry will not understand.

A good practice is to remove highly detailed or technical descriptions in favor of simple terms. Industry buzzwords are not necessary, if there are simpler terms you can use, then use them. If you plan to use your business plan to source funds, making the product or service section so technical will do you no favors.

2. Describe How Your Products or Services Differ from Your Competitors

When potential investors look at your business plan, they want to know how the products and services you are offering differ from that of your competition. Differentiating your products or services from your competition in a way that makes your solution more attractive is critical.

If you are going the innovative path and there is no market currently for your product or service, you need to describe in this section why the market needs your product or service.

For example, overnight delivery was a niche business that only a few companies were participating in. Federal Express (FedEx) had to show in its business plan that there was a large opportunity for that service and they justified why the market needed that service.

3. Long or Short Products or Services Section

Should your products or services section be short? Does the long products or services section attract more investors?

There are no straightforward answers to these questions. Whether your products or services section should be long or relatively short depends on the nature of your business.

If your business is product-focused, then automatically you need to use more space to describe the details of your products. However, if the product your business sells is a commodity item that relies on competitive pricing or other pricing strategies, you do not have to use up so much space to provide significant details about the product.

Likewise, if you are selling a commodity that is available in numerous outlets, then you do not have to spend time on writing a long products or services section.

The key to the success of your business is most likely the effectiveness of your marketing strategies compared to your competitors. Use more space to address that section.

If you are creating a new product or service that the market does not know about, your products or services section can be lengthy. The reason why is because you need to explain everything about the product or service such as the nature of the product, its use case, and values.

A short products or services section for an innovative product or service will not give the readers enough information to properly evaluate your business.

4. Describe Your Relationships with Vendors or Suppliers

Your business will rely on vendors or suppliers to supply raw materials or the components needed to make your products. In your products and services section, describe your relationships with your vendors and suppliers fully.

Avoid the mistake of relying on only one supplier or vendor. If that supplier or vendor fails to supply or goes out of business, you can easily face supply problems and struggle to meet your demands. Plan to set up multiple vendor or supplier relationships for better business stability.

5. Your Primary Goal Is to Convince Your Readers

The primary goal of your business plan is to convince your readers that your business is viable and to create a guide for your business to follow. It applies to the products and services section.

When drafting this section, think like the reader. See your reader as someone who has no idea about your products and services. You are using the products and services section to provide the needed information to help your reader understand your products and services. As a result, you have to be clear and to the point.

While you want to educate your readers about your products or services, you also do not want to bore them with lots of technical details. Show your products and services and not your fancy choice of words.

Your products and services section should provide the answer to the “what” question for your business. You and your management team may run the business, but it is your products and services that are the lifeblood of the business.

Key Questions to Answer When Writing your Products and Services Section

Answering these questions can help you write your products and services section quickly and in a way that will appeal to your readers.

• Are your products existing on the market or are they still in the development stage?
• What is your timeline for adding new products and services to the market?
• What are the positives that make your products and services different from your competitors?
• Do your products and services have any competitive advantage that your competitors’ products and services do not currently have?
• Do your products or services have any competitive disadvantages that you need to overcome to compete with your competitors? If your answer is yes, state how you plan to overcome them,
• How much does it cost to produce your products or services? How much do you plan to sell it for?
• What is the price for your products and services compared to your competitors? Is pricing an issue?
• What are your operating costs and will it be low enough for you to compete with your competitors and still take home a reasonable profit margin?
• What is your plan for acquiring your products? Are you involved in the production of your products or services?
• Are you the manufacturer and produce all the components you need to create your products? Do you assemble your products by using components supplied by other manufacturers? Do you purchase your products directly from suppliers or wholesalers?
• Do you have a steady supply of products that you need to start your business? (If your business is yet to kick-off)
• How do you plan to distribute your products or services to the market?

You can also hint at the marketing or promotion plans you have for your products or services such as how you plan to build awareness or retain customers. The next section is where you can go fully into details about your business’s marketing and sales plan.

6. Show and Explain Your Marketing and Sales Plan

Providing great products and services is wonderful, but it means nothing if you do not have a marketing and sales plan to inform your customers about them. Your marketing and sales plan is critical to the success of your business.

The sales and marketing section is where you show and offer a detailed explanation of your marketing and sales plan and how you plan to execute it. It covers your pricing plan, proposed advertising and promotion activities, activities and partnerships you need to make your business a success, and the benefits of your products and services.

There are several ways you can approach your marketing and sales strategy. Ideally, your marketing and sales strategy has to fit the unique needs of your business.

In this section, you describe how the plans your business has for attracting and retaining customers, and the exact process for making a sale happen. It is essential to thoroughly describe your complete marketing and sales plans because you are still going to reference this section when you are making financial projections for your business.

Outline Your Business’ Unique Selling Proposition (USP)

The sales and marketing section is where you outline your business’s unique selling proposition (USP). When you are developing your unique selling proposition, think about the strongest reasons why people should buy from you over your competition. That reason(s) is most likely a good fit to serve as your unique selling proposition (USP).

Target Market and Target Audience

Plans on how to get your products or services to your target market and how to get your target audience to buy them go into this section. You also highlight the strengths of your business here, particularly what sets them apart from your competition.

Before you start writing your marketing and sales plan, you need to have properly defined your target audience and fleshed out your buyer persona. If you do not first understand the individual you are marketing to, your marketing and sales plan will lack any substance and easily fall.

Creating a Smart Marketing and Sales Plan

Marketing your products and services is an investment that requires you to spend money. Like any other investment, you have to generate a good return on investment (ROI) to justify using that marketing and sales plan. Good marketing and sales plans bring in high sales and profits to your company.

Avoid spending money on unproductive marketing channels. Do your research and find out the best marketing and sales plan that works best for your company.

Your marketing and sales plan can be broken into different parts: your positioning statement, pricing, promotion, packaging, advertising, public relations, content marketing, social media, and strategic alliances.

Your Positioning Statement

Your positioning statement is the first part of your marketing and sales plan. It refers to the way you present your company to your customers.

Are you the premium solution, the low-price solution, or are you the intermediary between the two extremes in the market? What do you offer that your competitors do not that can give you leverage in the market?

Before you start writing your positioning statement, you need to spend some time evaluating the current market conditions. Here are some questions that can help you to evaluate the market

• What are the unique features or benefits that you offer that your competitors lack?
• What are your customers’ primary needs and wants?
• Why should a customer choose you over your competition? How do you plan to differentiate yourself from the competition?
• How does your company’s solution compare with other solutions in the market?

After answering these questions, then you can start writing your positioning statement. Your positioning statement does not have to be in-depth or too long.

All you need to explain with your positioning statement are two focus areas. The first is the position of your company within the competitive landscape. The other focus area is the core value proposition that sets your company apart from other alternatives that your ideal customer might consider.

Here is a simple template you can use to develop a positioning statement.

For [description of target market] who [need of target market], [product or service] [how it meets the need]. Unlike [top competition], it [most essential distinguishing feature].

For example, let’s create the positioning statement for fictional accounting software and QuickBooks alternative , TBooks.

“For small business owners who need accounting services, TBooks is an accounting software that helps small businesses handle their small business bookkeeping basics quickly and easily. Unlike Wave, TBooks gives small businesses access to live sessions with top accountants.”

You can edit this positioning statement sample and fill it with your business details.

After writing your positioning statement, the next step is the pricing of your offerings. The overall positioning strategy you set in your positioning statement will often determine how you price your products or services.

Pricing is a powerful tool that sends a strong message to your customers. Failure to get your pricing strategy right can make or mar your business. If you are targeting a low-income audience, setting a premium price can result in low sales.

You can use pricing to communicate your positioning to your customers. For example, if you are offering a product at a premium price, you are sending a message to your customers that the product belongs to the premium category.

Basic Rules to Follow When Pricing Your Offering

Setting a price for your offering involves more than just putting a price tag on it. Deciding on the right pricing for your offering requires following some basic rules. They include covering your costs, primary and secondary profit center pricing, and matching the market rate.

• Covering Your Costs: The price you set for your products or service should be more than it costs you to produce and deliver them. Every business has the same goal, to make a profit. Depending on the strategy you want to use, there are exceptions to this rule. However, the vast majority of businesses follow this rule.
• Primary and Secondary Profit Center Pricing: When a company sets its price above the cost of production, it is making that product its primary profit center. A company can also decide not to make its initial price its primary profit center by selling below or at even with its production cost. It rather depends on the support product or even maintenance that is associated with the initial purchase to make its profit. The initial price thus became its secondary profit center.
• Matching the Market Rate: A good rule to follow when pricing your products or services is to match your pricing with consumer demand and expectations. If you price your products or services beyond the price your customer perceives as the ideal price range, you may end up with no customers. Pricing your products too low below what your customer perceives as the ideal price range may lead to them undervaluing your offering.

Pricing Strategy

Your pricing strategy influences the price of your offering. There are several pricing strategies available for you to choose from when examining the right pricing strategy for your business. They include cost-plus pricing, market-based pricing, value pricing, and more.

• Cost-plus Pricing: This strategy is one of the simplest and oldest pricing strategies. Here you consider the cost of producing a unit of your product and then add a profit to it to arrive at your market price. It is an effective pricing strategy for manufacturers because it helps them cover their initial costs. Another name for the cost-plus pricing strategy is the markup pricing strategy.
• Market-based Pricing: This pricing strategy analyses the market including competitors’ pricing and then sets a price based on what the market is expecting. With this pricing strategy, you can either set your price at the low-end or high-end of the market.
• Value Pricing: This pricing strategy involves setting a price based on the value you are providing to your customer. When adopting a value-based pricing strategy, you have to set a price that your customers are willing to pay. Service-based businesses such as small business insurance providers , luxury goods sellers, and the fashion industry use this pricing strategy.

After carefully sorting out your positioning statement and pricing, the next item to look at is your promotional strategy. Your promotional strategy explains how you plan on communicating with your customers and prospects.

As a business, you must measure all your costs, including the cost of your promotions. You also want to measure how much sales your promotions bring for your business to determine its usefulness. Promotional strategies or programs that do not lead to profit need to be removed.

There are different types of promotional strategies you can adopt for your business, they include advertising, public relations, and content marketing.

Advertising

Your business plan should include your advertising plan which can be found in the marketing and sales plan section. You need to include an overview of your advertising plans such as the areas you plan to spend money on to advertise your business and offers.

Ensure that you make it clear in this section if your business will be advertising online or using the more traditional offline media, or the combination of both online and offline media. You can also include the advertising medium you want to use to raise awareness about your business and offers.

Some common online advertising mediums you can use include social media ads, landing pages, sales pages, SEO, Pay-Per-Click, emails, Google Ads, and others. Some common traditional and offline advertising mediums include word of mouth, radios, direct mail, televisions, flyers, billboards, posters, and others.

A key component of your advertising strategy is how you plan to measure the effectiveness and success of your advertising campaign. There is no point in sticking with an advertising plan or medium that does not produce results for your business in the long run.

Public Relations

A great way to reach your customers is to get the media to cover your business or product. Publicity, especially good ones, should be a part of your marketing and sales plan. In this section, show your plans for getting prominent reviews of your product from reputable publications and sources.

Your business needs that exposure to grow. If public relations is a crucial part of your promotional strategy, provide details about your public relations plan here.

Content Marketing

Content marketing is a popular promotional strategy used by businesses to inform and attract their customers. It is about teaching and educating your prospects on various topics of interest in your niche, it does not just involve informing them about the benefits and features of the products and services you have,

Businesses publish content usually for free where they provide useful information, tips, and advice so that their target market can be made aware of the importance of their products and services. Content marketing strategies seek to nurture prospects into buyers over time by simply providing value.

Your company can create a blog where it will be publishing content for its target market. You will need to use the best website builder such as Wix and Squarespace and the best web hosting services such as Bluehost, Hostinger, and other Bluehost alternatives to create a functional blog or website.

If content marketing is a crucial part of your promotional strategy (as it should be), detail your plans under promotions.

Including high-quality images of the packaging of your product in your business plan is a lovely idea. You can add the images of the packaging of that product in the marketing and sales plan section. If you are not selling a product, then you do not need to include any worry about the physical packaging of your product.

When organizing the packaging section of your business plan, you can answer the following questions to make maximum use of this section.

• Is your choice of packaging consistent with your positioning strategy?
• What key value proposition does your packaging communicate? (It should reflect the key value proposition of your business)
• How does your packaging compare to that of your competitors?

Social Media

Your 21st-century business needs to have a good social media presence. Not having one is leaving out opportunities for growth and reaching out to your prospect.

You do not have to join the thousands of social media platforms out there. What you need to do is join the ones that your customers are active on and be active there.

Businesses use social media to provide information about their products such as promotions, discounts, the benefits of their products, and content on their blogs.

Social media is also a platform for engaging with your customers and getting feedback about your products or services. Make no mistake, more and more of your prospects are using social media channels to find more information about companies.

You need to consider the social media channels you want to prioritize your business (prioritize the ones your customers are active in) and your branding plans in this section.

Strategic Alliances

If your company plans to work closely with other companies as part of your sales and marketing plan, include it in this section. Prove details about those partnerships in your business plan if you have already established them.

Strategic alliances can be beneficial for all parties involved including your company. Working closely with another company in the form of a partnership can provide access to a different target market segment for your company.

The company you are partnering with may also gain access to your target market or simply offer a new product or service (that of your company) to its customers.

Mutually beneficial partnerships can cover the weaknesses of one company with the strength of another. You should consider strategic alliances with companies that sell complimentary products to yours. For example, if you provide printers, you can partner with a company that produces ink since the customers that buy printers from you will also need inks for printing.

Steps Involved in Creating a Marketing and Sales Plan

1. Focus on Your Target Market

Identify who your customers are, the market you want to target. Then determine the best ways to get your products or services to your potential customers.

2. Evaluate Your Competition

One of the goals of having a marketing plan is to distinguish yourself from your competition. You cannot stand out from them without first knowing them in and out.

You can know your competitors by gathering information about their products, pricing, service, and advertising campaigns.

These questions can help you know your competition.

• What makes your competition successful?
• What are their weaknesses?
• What are customers saying about your competition?

3. Consider Your Brand

Customers' perception of your brand has a strong impact on your sales. Your marketing and sales plan should seek to bolster the image of your brand. Before you start marketing your business, think about the message you want to pass across about your business and your products and services.

4. Focus on Benefits

The majority of your customers do not view your product in terms of features, what they want to know is the benefits and solutions your product offers. Think about the problems your product solves and the benefits it delivers, and use it to create the right sales and marketing message.

Your marketing plan should focus on what you want your customer to get instead of what you provide. Identify those benefits in your marketing and sales plan.

5. Focus on Differentiation

Your marketing and sales plan should look for a unique angle they can take that differentiates your business from the competition, even if the products offered are similar. Some good areas of differentiation you can use are your benefits, pricing, and features.

Key Questions to Answer When Writing Your Marketing and Sales Plan

• What is your company’s budget for sales and marketing campaigns?
• What key metrics will you use to determine if your marketing plans are successful?
• What are your alternatives if your initial marketing efforts do not succeed?
• Who are the sales representatives you need to promote your products or services?
• What are the marketing and sales channels you plan to use? How do you plan to get your products in front of your ideal customers?
• Where will you sell your products?

You may want to include samples of marketing materials you plan to use such as print ads, website descriptions, and social media ads. While it is not compulsory to include these samples, it can help you better communicate your marketing and sales plan and objectives.

The purpose of the marketing and sales section is to answer this question “How will you reach your customers?” If you cannot convincingly provide an answer to this question, you need to rework your marketing and sales section.

7. Clearly Show Your Funding Request

If you are writing your business plan to ask for funding from investors or financial institutions, the funding request section is where you will outline your funding requirements. The funding request section should answer the question ‘How much money will your business need in the near future (3 to 5 years)?’

A good funding request section will clearly outline and explain the amount of funding your business needs over the next five years. You need to know the amount of money your business needs to make an accurate funding request.

Also, when writing your funding request, provide details of how the funds will be used over the period. Specify if you want to use the funds to buy raw materials or machinery, pay salaries, pay for advertisements, and cover specific bills such as rent and electricity.

In addition to explaining what you want to use the funds requested for, you need to clearly state the projected return on investment (ROI) . Investors and creditors want to know if your business can generate profit for them if they put funds into it.

Ensure you do not inflate the figures and stay as realistic as possible. Investors and financial institutions you are seeking funds from will do their research before investing money in your business.

If you are not sure of an exact number to request from, you can use some range of numbers as rough estimates. Add a best-case scenario and a work-case scenario to your funding request. Also, include a description of your strategic future financial plans such as selling your business or paying off debts.

Funding Request: Debt or Equity?

When making your funding request, specify the type of funding you want. Do you want debt or equity? Draw out the terms that will be applicable for the funding, and the length of time the funding request will cover.

Case for Equity

If your new business has not yet started generating profits, you are most likely preparing to sell equity in your business to raise capital at the early stage. Equity here refers to ownership. In this case, you are selling a portion of your company to raise capital.

Although this method of raising capital for your business does not put your business in debt, keep in mind that an equity owner may expect to play a key role in company decisions even if he does not hold a major stake in the company.

Most equity sales for startups are usually private transactions . If you are making a funding request by offering equity in exchange for funding, let the investor know that they will be paid a dividend (a share of the company’s profit). Also, let the investor know the process for selling their equity in your business.

Case for Debt

You may decide not to offer equity in exchange for funds, instead, you make a funding request with the promise to pay back the money borrowed at the agreed time frame.

When making a funding request with an agreement to pay back, note that you will have to repay your creditors both the principal amount borrowed and the interest on it. Financial institutions offer this type of funding for businesses.

Large companies combine both equity and debt in their capital structure. When drafting your business plan, decide if you want to offer both or one over the other.

Before you sell equity in exchange for funding in your business, consider if you are willing to accept not being in total control of your business. Also, before you seek loans in your funding request section, ensure that the terms of repayment are favorable.

You should set a clear timeline in your funding request so that potential investors and creditors can know what you are expecting. Some investors and creditors may agree to your funding request and then delay payment for longer than 30 days, meanwhile, your business needs an immediate cash injection to operate efficiently.

Additional Tips for Writing the Funding Request Section of your Business Plan

The funding request section is not necessary for every business, it is only needed by businesses who plan to use their business plan to secure funding.

If you are adding the funding request section to your business plan, provide an itemized summary of how you plan to use the funds requested. Hiring a lawyer, accountant, or other professionals may be necessary for the proper development of this section.

You should also gather and use financial statements that add credibility and support to your funding requests. Ensure that the financial statements you use should include your projected financial data such as projected cash flows, forecast statements, and expenditure budgets.

If you are an existing business, include all historical financial statements such as cash flow statements, balance sheets and income statements .

Provide monthly and quarterly financial statements for a year. If your business has records that date back beyond the one-year mark, add the yearly statements of those years. These documents are for the appendix section of your business plan.

8. Detail Your Financial Plan, Metrics, and Projections

If you used the funding request section in your business plan, supplement it with a financial plan, metrics, and projections. This section paints a picture of the past performance of your business and then goes ahead to make an informed projection about its future.

The goal of this section is to convince readers that your business is going to be a financial success. It outlines your business plan to generate enough profit to repay the loan (with interest if applicable) and to generate a decent return on investment for investors.

If you have an existing business already in operation, use this section to demonstrate stability through finance. This section should include your cash flow statements, balance sheets, and income statements covering the last three to five years. If your business has some acceptable collateral that you can use to acquire loans, list it in the financial plan, metrics, and projection section.

Apart from current financial statements, this section should also contain a prospective financial outlook that spans the next five years. Include forecasted income statements, cash flow statements, balance sheets, and capital expenditure budget.

If your business is new and is not yet generating profit, use clear and realistic projections to show the potentials of your business.

When drafting this section, research industry norms and the performance of comparable businesses. Your financial projections should cover at least five years. State the logic behind your financial projections. Remember you can always make adjustments to this section as the variables change.

The financial plan, metrics, and projection section create a baseline which your business can either exceed or fail to reach. If your business fails to reach your projections in this section, you need to understand why it failed.

Investors and loan managers spend a lot of time going through the financial plan, metrics, and projection section compared to other parts of the business plan. Ensure you spend time creating credible financial analyses for your business in this section.

Many entrepreneurs find this section daunting to write. You do not need a business degree to create a solid financial forecast for your business. Business finances, especially for startups, are not as complicated as they seem. There are several online tools and templates that make writing this section so much easier.

Use Graphs and Charts

The financial plan, metrics, and projection section is a great place to use graphs and charts to tell the financial story of your business. Charts and images make it easier to communicate your finances.

Accuracy in this section is key, ensure you carefully analyze your past financial statements properly before making financial projects.

Address the Risk Factors and Show Realistic Financial Projections

Keep your financial plan, metrics, and projection realistic. It is okay to be optimistic in your financial projection, however, you have to justify it.

You should also address the various risk factors associated with your business in this section. Investors want to know the potential risks involved, show them. You should also show your plans for mitigating those risks.

What You Should In The Financial Plan, Metrics, and Projection Section of Your Business Plan

The financial plan, metrics, and projection section of your business plan should have monthly sales and revenue forecasts for the first year. It should also include annual projections that cover 3 to 5 years.

A three-year projection is a basic requirement to have in your business plan. However, some investors may request a five-year forecast.

Your business plan should include the following financial statements: sales forecast, personnel plan, income statement, income statement, cash flow statement, balance sheet, and an exit strategy.

1. Sales Forecast

Sales forecast refers to your projections about the number of sales your business is going to record over the next few years. It is typically broken into several rows, with each row assigned to a core product or service that your business is offering.

One common mistake people make in their business plan is to break down the sales forecast section into long details. A sales forecast should forecast the high-level details.

For example, if you are forecasting sales for a payroll software provider, you could break down your forecast into target market segments or subscription categories.

Your sales forecast section should also have a corresponding row for each sales row to cover the direct cost or Cost of Goods Sold (COGS). The objective of these rows is to show the expenses that your business incurs in making and delivering your product or service.

Note that your Cost of Goods Sold (COGS) should only cover those direct costs incurred when making your products. Other indirect expenses such as insurance, salaries, payroll tax, and rent should not be included.

For example, the Cost of Goods Sold (COGS) for a restaurant is the cost of ingredients while for a consulting company it will be the cost of paper and other presentation materials.

2. Personnel Plan

The personnel plan section is where you provide details about the payment plan for your employees. For a small business, you can easily list every position in your company and how much you plan to pay in the personnel plan.

However, for larger businesses, you have to break the personnel plan into functional groups such as sales and marketing.

The personnel plan will also include the cost of an employee beyond salary, commonly referred to as the employee burden. These costs include insurance, payroll taxes , and other essential costs incurred monthly as a result of having employees on your payroll.

3. Income Statement

The income statement section shows if your business is making a profit or taking a loss. Another name for the income statement is the profit and loss (P&L). It takes data from your sales forecast and personnel plan and adds other ongoing expenses you incur while running your business.

Every business plan should have an income statement. It subtracts your business expenses from its earnings to show if your business is generating profit or incurring losses.

The income statement has the following items: sales, Cost of Goods Sold (COGS), gross margin, operating expenses, total operating expenses, operating income , total expenses, and net profit.

• Sales refer to the revenue your business generates from selling its products or services. Other names for sales are income or revenue.
• Cost of Goods Sold (COGS) refers to the total cost of selling your products. Other names for COGS are direct costs or cost of sales. Manufacturing businesses use the Costs of Goods Manufactured (COGM) .
• Gross Margin is the figure you get when you subtract your COGS from your sales. In your income statement, you can express it as a percentage of total sales (Gross margin / Sales = Gross Margin Percent).
• Operating Expenses refer to all the expenses you incur from running your business. It exempts the COGS because it stands alone as a core part of your income statement. You also have to exclude taxes, depreciation, and amortization. Your operating expenses include salaries, marketing expenses, research and development (R&D) expenses, and other expenses.
• Total Operating Expenses refers to the sum of all your operating expenses including those exemptions named above under operating expenses.
• Operating Income refers to earnings before interest, taxes, depreciation, and amortization. It is simply known as the acronym EBITDA (earnings before interest, taxes, depreciation, and amortization). Calculating your operating income is simple, all you need to do is to subtract your COGS and total operating expenses from your sales.
• Total Expenses refer to the sum of your operating expenses and your business’ interest, taxes, depreciation, and amortization.
• Net profit shows whether your business has made a profit or taken a loss during a given timeframe.

4. Cash Flow Statement

The cash flow statement tracks the money you have in the bank at any given point. It is often confused with the income statement or the profit and loss statement. They are both different types of financial statements. The income statement calculates your profits and losses while the cash flow statement shows you how much you have in the bank.

5. Balance Sheet

The balance sheet is a financial statement that provides an overview of the financial health of your business. It contains information about the assets and liabilities of your company, and owner’s or shareholders’ equity.

You can get the net worth of your company by subtracting your company’s liabilities from its assets.

6. Exit Strategy

The exit strategy refers to a probable plan for selling your business either to the public in an IPO or to another company. It is the last thing you include in the financial plan, metrics, and projection section.

You can choose to omit the exit strategy from your business plan if you plan to maintain full ownership of your business and do not plan on seeking angel investment or virtual capitalist (VC) funding.

Investors may want to know what your exit plan is. They invest in your business to get a good return on investment.

Your exit strategy does not have to include long and boring details. Ensure you identify some interested parties who may be interested in buying the company if it becomes a success.

Key Questions to Answer with Your Financial Plan, Metrics, and Projection

Your financial plan, metrics, and projection section helps investors, creditors, or your internal managers to understand what your expenses are, the amount of cash you need, and what it takes to make your company profitable. It also shows what you will be doing with any funding.

You do not need to show actual financial data if you do not have one. Adding forecasts and projections to your financial statements is added proof that your strategy is feasible and shows investors you have planned properly.

Here are some key questions to answer to help you develop this section.

• What is your sales forecast for the next year?
• When will your company achieve a positive cash flow?
• What are the core expenses you need to operate?
• How much money do you need upfront to operate or grow your company?
• How will you use the loans or investments?

9. Add an Appendix to Your Business Plan

Adding an appendix to your business plan is optional. It is a useful place to put any charts, tables, legal notes, definitions, permits, résumés, and other critical information that do not fit into other sections of your business plan.

The appendix section is where you would want to include details of a patent or patent-pending if you have one. You can always add illustrations or images of your products here. It is the last section of your business plan.

When writing your business plan, there are details you cut short or remove to prevent the entire section from becoming too lengthy. There are also details you want to include in the business plan but are not a good fit for any of the previous sections. You can add that additional information to the appendix section.

Businesses also use the appendix section to include supporting documents or other materials specially requested by investors or lenders.

You can include just about any information that supports the assumptions and statements you made in the business plan under the appendix. It is the one place in the business plan where unrelated data and information can coexist amicably.

If your appendix section is lengthy, try organizing it by adding a table of contents at the beginning of the appendix section. It is also advisable to group similar information to make it easier for the reader to access them.

A well-organized appendix section makes it easier to share your information clearly and concisely. Add footnotes throughout the rest of the business plan or make references in the plan to the documents in the appendix.

The appendix section is usually only necessary if you are seeking funding from investors or lenders, or hoping to attract partners.

People reading business plans do not want to spend time going through a heap of backup information, numbers, and charts. Keep these documents or information in the Appendix section in case the reader wants to dig deeper.

Common Items to Include in the Appendix Section of Your Business Plan

The appendix section includes documents that supplement or support the information or claims given in other sections of the business plans. Common items you can include in the appendix section include:

• Additional data about the process of manufacturing or creation
• Additional description of products or services such as product schematics
• Additional financial documents or projections
• Articles of incorporation and status
• Backup for market research or competitive analysis
• Bank statements
• Business registries
• Client testimonials (if your business is already running)
• Copies of insurances
• Credit histories (personal or/and business)
• Deeds and permits
• Equipment leases
• Examples of marketing and advertising collateral
• Industry associations and memberships
• Images of product
• Intellectual property
• Key customer contracts
• Legal documents and other contracts
• Letters of reference
• Links to references
• Market research data
• Organizational charts
• Photographs of potential facilities
• Professional licenses pertaining to your legal structure or type of business
• Purchase orders
• Resumes of the founder(s) and key managers
• State and federal identification numbers or codes
• Trademarks or patents’ registrations

Avoid using the appendix section as a place to dump any document or information you feel like adding. Only add documents or information that you support or increase the credibility of your business plan.

Tips and Strategies for Writing a Convincing Business Plan

To achieve a perfect business plan, you need to consider some key tips and strategies. These tips will raise the efficiency of your business plan above average.

1. Know Your Audience

When writing a business plan, you need to know your audience . Business owners write business plans for different reasons. Your business plan has to be specific. For example, you can write business plans to potential investors, banks, and even fellow board members of the company.

The audience you are writing to determines the structure of the business plan. As a business owner, you have to know your audience. Not everyone will be your audience. Knowing your audience will help you to narrow the scope of your business plan.

Consider what your audience wants to see in your projects, the likely questions they might ask, and what interests them.

• A business plan used to address a company's board members will center on its employment schemes, internal affairs, projects, stakeholders, etc.
• A business plan for financial institutions will talk about the size of your market and the chances for you to pay back any loans you demand.
• A business plan for investors will show proof that you can return the investment capital within a specific time. In addition, it discusses your financial projections, tractions, and market size.

2. Get Inspiration from People

Writing a business plan from scratch as an entrepreneur can be daunting. That is why you need the right inspiration to push you to write one. You can gain inspiration from the successful business plans of other businesses. Look at their business plans, the style they use, the structure of the project, etc.

To make your business plan easier to create, search companies related to your business to get an exact copy of what you need to create an effective business plan. You can also make references while citing examples in your business plans.

When drafting your business plan, get as much help from others as you possibly can. By getting inspiration from people, you can create something better than what they have.

3. Avoid Being Over Optimistic

Many business owners make use of strong adjectives to qualify their content. One of the big mistakes entrepreneurs make when preparing a business plan is promising too much.

The use of superlatives and over-optimistic claims can prepare the audience for more than you can offer. In the end, you disappoint the confidence they have in you.

In most cases, the best option is to be realistic with your claims and statistics. Most of the investors can sense a bit of incompetency from the overuse of superlatives. As a new entrepreneur, do not be tempted to over-promise to get the interests of investors.

The concept of entrepreneurship centers on risks, nothing is certain when you make future analyses. What separates the best is the ability to do careful research and work towards achieving that, not promising more than you can achieve.

To make an excellent first impression as an entrepreneur, replace superlatives with compelling data-driven content. In this way, you are more specific than someone promising a huge ROI from an investment.

4. Keep it Simple and Short

When writing business plans, ensure you keep them simple throughout. Irrespective of the purpose of the business plan, your goal is to convince the audience.

One way to achieve this goal is to make them understand your proposal. Therefore, it would be best if you avoid the use of complex grammar to express yourself. It would be a huge turn-off if the people you want to convince are not familiar with your use of words.

Another thing to note is the length of your business plan. It would be best if you made it as brief as possible.

You hardly see investors or agencies that read through an extremely long document. In that case, if your first few pages can’t convince them, then you have lost it. The more pages you write, the higher the chances of you derailing from the essential contents.

To ensure your business plan has a high conversion rate, you need to dispose of every unnecessary information. For example, if you have a strategy that you are not sure of, it would be best to leave it out of the plan.

5. Make an Outline and Follow Through

A perfect business plan must have touched every part needed to convince the audience. Business owners get easily tempted to concentrate more on their products than on other sections. Doing this can be detrimental to the efficiency of the business plan.

For example, imagine you talking about a product but omitting or providing very little information about the target audience. You will leave your clients confused.

To ensure that your business plan communicates your full business model to readers, you have to input all the necessary information in it. One of the best ways to achieve this is to design a structure and stick to it.

This structure is what guides you throughout the writing. To make your work easier, you can assign an estimated word count or page limit to every section to avoid making it too bulky for easy reading. As a guide, the necessary things your business plan must contain are:

• Table of contents
• Introduction
• Product or service description
• Target audience
• Market size
• Competition analysis
• Financial projections

Some specific businesses can include some other essential sections, but these are the key sections that must be in every business plan.

6. Ask a Professional to Proofread

When writing a business plan, you must tie all loose ends to get a perfect result. When you are done with writing, call a professional to go through the document for you. You are bound to make mistakes, and the way to correct them is to get external help.

You should get a professional in your field who can relate to every section of your business plan. It would be easier for the professional to notice the inner flaws in the document than an editor with no knowledge of your business.

In addition to getting a professional to proofread, get an editor to proofread and edit your document. The editor will help you identify grammatical errors, spelling mistakes, and inappropriate writing styles.

Writing a business plan can be daunting, but you can surmount that obstacle and get the best out of it with these tips.

Business Plan Examples and Templates That’ll Save You Tons of Time

1. hubspot's one-page business plan.

The one-page business plan template by HubSpot is the perfect guide for businesses of any size, irrespective of their business strategy. Although the template is condensed into a page, your final business plan should not be a page long! The template is designed to ask helpful questions that can help you develop your business plan.

Hubspot’s one-page business plan template is divided into nine fields:

• Business opportunity
• Company description
• Industry analysis
• Target market
• Implementation timeline
• Marketing plan
• Financial summary
• Funding required

2. Bplan’s Free Business Plan Template

Bplans' free business plan template is investor-approved. It is a rich template used by prestigious educational institutions such as Babson College and Princeton University to teach entrepreneurs how to create a business plan.

The template has six sections: the executive summary, opportunity, execution, company, financial plan, and appendix. There is a step-by-step guide for writing every little detail in the business plan. Follow the instructions each step of the way and you will create a business plan that impresses investors or lenders easily.

3. HubSpot's Downloadable Business Plan Template

HubSpot’s downloadable business plan template is a more comprehensive option compared to the one-page business template by HubSpot. This free and downloadable business plan template is designed for entrepreneurs.

The template is a comprehensive guide and checklist for business owners just starting their businesses. It tells you everything you need to fill in each section of the business plan and how to do it.

There are nine sections in this business plan template: an executive summary, company and business description, product and services line, market analysis, marketing plan, sales plan, legal notes, financial considerations, and appendix.

4. Business Plan by My Own Business Institute

My Own Business Institute (MOBI) which is a part of Santa Clara University's Center for Innovation and Entrepreneurship offers a free business plan template. You can either copy the free business template from the link provided above or download it as a Word document.

The comprehensive template consists of a whopping 15 sections.

• The Business Profile
• The Vision and the People
• Home-Based Business and Freelance Business Opportunities
• Organization
• Licenses and Permits
• Business Insurance
• Communication Tools
• Acquisitions
• Location and Leasing
• Accounting and Cash Flow
• Opening and Marketing
• Managing Employees
• Expanding and Handling Problems

There are lots of helpful tips on how to fill each section in the free business plan template by MOBI.

5. Score's Business Plan Template for Startups

Score is an American nonprofit organization that helps entrepreneurs build successful companies. This business plan template for startups by Score is available for free download. The business plan template asks a whooping 150 generic questions that help entrepreneurs from different fields to set up the perfect business plan.

The business plan template for startups contains clear instructions and worksheets, all you have to do is answer the questions and fill the worksheets.

There are nine sections in the business plan template: executive summary, company description, products and services, marketing plan, operational plan, management and organization, startup expenses and capitalization, financial plan, and appendices.

The ‘refining the plan’ resource contains instructions that help you modify your business plan to suit your specific needs, industry, and target audience. After you have completed Score’s business plan template, you can work with a SCORE mentor for expert advice in business planning.

6. Minimalist Architecture Business Plan Template by Venngage

The minimalist architecture business plan template is a simple template by Venngage that you can customize to suit your business needs .

There are five sections in the template: an executive summary, statement of problem, approach and methodology, qualifications, and schedule and benchmark. The business plan template has instructions that guide users on what to fill in each section.

7. Small Business Administration Free Business Plan Template

The Small Business Administration (SBA) offers two free business plan templates, filled with practical real-life examples that you can model to create your business plan. Both free business plan templates are written by fictional business owners: Rebecca who owns a consulting firm, and Andrew who owns a toy company.

There are five sections in the two SBA’s free business plan templates.

• Executive Summary
• Company Description
• Service Line
• Marketing and Sales

8. The $100 Startup's One-Page Business Plan

The one-page business plan by the $100 startup is a simple business plan template for entrepreneurs who do not want to create a long and complicated plan . You can include more details in the appendices for funders who want more information beyond what you can put in the one-page business plan.

There are five sections in the one-page business plan such as overview, ka-ching, hustling, success, and obstacles or challenges or open questions. You can answer all the questions using one or two sentences.

9. PandaDoc’s Free Business Plan Template

The free business plan template by PandaDoc is a comprehensive 15-page document that describes the information you should include in every section.

There are 11 sections in PandaDoc’s free business plan template.

• Executive summary
• Business description
• Products and services
• Operations plan
• Management organization
• Financial plan
• Conclusion / Call to action
• Confidentiality statement

You have to sign up for its 14-day free trial to access the template. You will find different business plan templates on PandaDoc once you sign up (including templates for general businesses and specific businesses such as bakeries, startups, restaurants, salons, hotels, and coffee shops)

PandaDoc allows you to customize its business plan templates to fit the needs of your business. After editing the template, you can send it to interested parties and track opens and views through PandaDoc.

10. Invoiceberry Templates for Word, Open Office, Excel, or PPT

InvoiceBerry is a U.K based online invoicing and tracking platform that offers free business plan templates in .docx, .odt, .xlsx, and .pptx formats for freelancers and small businesses.

Before you can download the free business plan template, it will ask you to give it your email address. After you complete the little task, it will send the download link to your inbox for you to download. It also provides a business plan checklist in .xlsx file format that ensures you add the right information to the business plan.

Alternatives to the Traditional Business Plan

A business plan is very important in mapping out how one expects their business to grow over a set number of years, particularly when they need external investment in their business. However, many investors do not have the time to watch you present your business plan. It is a long and boring read.

Luckily, there are three alternatives to the traditional business plan (the Business Model Canvas, Lean Canvas, and Startup Pitch Deck). These alternatives are less laborious and easier and quicker to present to investors.

Business Model Canvas (BMC)

The business model canvas is a business tool used to present all the important components of setting up a business, such as customers, route to market, value proposition, and finance in a single sheet. It provides a very focused blueprint that defines your business initially which you can later expand on if needed.

The sheet is divided mainly into company, industry, and consumer models that are interconnected in how they find problems and proffer solutions.

Segments of the Business Model Canvas

The business model canvas was developed by founder Alexander Osterwalder to answer important business questions. It contains nine segments.

• Key Partners: Who will be occupying important executive positions in your business? What do they bring to the table? Will there be a third party involved with the company?
• Key Activities: What important activities will production entail? What activities will be carried out to ensure the smooth running of the company?
• The Product’s Value Propositions: What does your product do? How will it be different from other products?
• Customer Segments: What demography of consumers are you targeting? What are the habits of these consumers? Who are the MVPs of your target consumers?
• Customer Relationships: How will the team support and work with its customer base? How do you intend to build and maintain trust with the customer?
• Key Resources: What type of personnel and tools will be needed? What size of the budget will they need access to?
• Channels: How do you plan to create awareness of your products? How do you intend to transport your product to the customer?
• Cost Structure: What is the estimated cost of production? How much will distribution cost?
• Revenue Streams: For what value are customers willing to pay? How do they prefer to pay for the product? Are there any external revenues attached apart from the main source? How do the revenue streams contribute to the overall revenue?

Lean Canvas

The lean canvas is a problem-oriented alternative to the standard business model canvas. It was proposed by Ash Maurya, creator of Lean Stack as a development of the business model generation. It uses a more problem-focused approach and it majorly targets entrepreneurs and startup businesses.

Lean Canvas uses the same 9 blocks concept as the business model canvas, however, they have been modified slightly to suit the needs and purpose of a small startup. The key partners, key activities, customer relationships, and key resources are replaced by new segments which are:

• Problem: Simple and straightforward number of problems you have identified, ideally three.
• Solution: The solutions to each problem.
• Unfair Advantage: Something you possess that can't be easily bought or replicated.
• Key Metrics: Important numbers that will tell how your business is doing.

Startup Pitch Deck

While the business model canvas compresses into a factual sheet, startup pitch decks expand flamboyantly.

Pitch decks, through slides, convey your business plan, often through graphs and images used to emphasize estimations and observations in your presentation. Entrepreneurs often use pitch decks to fully convince their target audience of their plans before discussing funding arrangements.

Considering the likelihood of it being used in a small time frame, a good startup pitch deck should ideally contain 20 slides or less to have enough time to answer questions from the audience.

Unlike the standard and lean business model canvases, a pitch deck doesn't have a set template on how to present your business plan but there are still important components to it. These components often mirror those of the business model canvas except that they are in slide form and contain more details.

Using Airbnb (one of the most successful start-ups in recent history) for reference, the important components of a good slide are listed below.

• Cover/Introduction Slide: Here, you should include your company's name and mission statement. Your mission statement should be a very catchy tagline. Also, include personal information and contact details to provide an easy link for potential investors.
• Problem Slide: This slide requires you to create a connection with the audience or the investor that you are pitching. For example in their pitch, Airbnb summarized the most important problems it would solve in three brief points – pricing of hotels, disconnection from city culture, and connection problems for local bookings.
• Solution Slide: This slide includes your core value proposition. List simple and direct solutions to the problems you have mentioned
• Customer Analysis: Here you will provide information on the customers you will be offering your service to. The identity of your customers plays an important part in fundraising as well as the long-run viability of the business.
• Market Validation: Use competitive analysis to show numbers that prove the presence of a market for your product, industry behavior in the present and the long run, as well as the percentage of the market you aim to attract. It shows that you understand your competitors and customers and convinces investors of the opportunities presented in the market.
• Business Model: Your business model is the hook of your presentation. It may vary in complexity but it should generally include a pricing system informed by your market analysis. The goal of the slide is to confirm your business model is easy to implement.
• Marketing Strategy: This slide should summarize a few customer acquisition methods that you plan to use to grow the business.
• Competitive Advantage: What this slide will do is provide information on what will set you apart and make you a more attractive option to customers. It could be the possession of technology that is not widely known in the market.
• Team Slide: Here you will give a brief description of your team. Include your key management personnel here and their specific roles in the company. Include their educational background, job history, and skillsets. Also, talk about their accomplishments in their careers so far to build investors' confidence in members of your team.
• Traction Slide: This validates the company’s business model by showing growth through early sales and support. The slide aims to reduce any lingering fears in potential investors by showing realistic periodic milestones and profit margins. It can include current sales, growth, valuable customers, pre-orders, or data from surveys outlining current consumer interest.
• Funding Slide: This slide is popularly referred to as ‘the ask'. Here you will include important details like how much is needed to get your business off the ground and how the funding will be spent to help the company reach its goals.
• Appendix Slides: Your pitch deck appendix should always be included alongside a standard pitch presentation. It consists of additional slides you could not show in the pitch deck but you need to complement your presentation.

It is important to support your calculations with pictorial renditions. Infographics, such as pie charts or bar graphs, will be more effective in presenting the information than just listing numbers. For example, a six-month graph that shows rising profit margins will easily look more impressive than merely writing it.

Lastly, since a pitch deck is primarily used to secure meetings and you may be sharing your pitch with several investors, it is advisable to keep a separate public version that doesn't include financials. Only disclose the one with projections once you have secured a link with an investor.

Advantages of the Business Model Canvas, Lean Canvas, and Startup Pitch Deck over the Traditional Business Plan

• Time-Saving: Writing a detailed traditional business plan could take weeks or months. On the other hand, all three alternatives can be done in a few days or even one night of brainstorming if you have a comprehensive understanding of your business.
• Easier to Understand: Since the information presented is almost entirely factual, it puts focus on what is most important in running the business. They cut away the excess pages of fillers in a traditional business plan and allow investors to see what is driving the business and what is getting in the way.
• Easy to Update: Businesses typically present their business plans to many potential investors before they secure funding. What this means is that you may regularly have to amend your presentation to update statistics or adjust to audience-specific needs. For a traditional business plan, this could mean rewriting a whole section of your plan. For the three alternatives, updating is much easier because they are not voluminous.
• Guide for a More In-depth Business Plan: All three alternatives have the added benefit of being able to double as a sketch of your business plan if the need to create one arises in the future.

Business Plan FAQ

Business plans are important for any entrepreneur who is looking for a framework to run their company over some time or seeking external support. Although they are essential for new businesses, every company should ideally have a business plan to track their growth from time to time.  They can be used by startups seeking investments or loans to convey their business ideas or an employee to convince his boss of the feasibility of starting a new project. They can also be used by companies seeking to recruit high-profile employee targets into key positions or trying to secure partnerships with other firms.

Business plans often vary depending on your target audience, the scope, and the goals for the plan. Startup plans are the most common among the different types of business plans.  A start-up plan is used by a new business to present all the necessary information to help get the business up and running. They are usually used by entrepreneurs who are seeking funding from investors or bank loans. The established company alternative to a start-up plan is a feasibility plan. A feasibility plan is often used by an established company looking for new business opportunities. They are used to show the upsides of creating a new product for a consumer base. Because the audience is usually company people, it requires less company analysis. The third type of business plan is the lean business plan. A lean business plan is a brief, straight-to-the-point breakdown of your ideas and analysis for your business. It does not contain details of your proposal and can be written on one page. Finally, you have the what-if plan. As it implies, a what-if plan is a preparation for the worst-case scenario. You must always be prepared for the possibility of your original plan being rejected. A good what-if plan will serve as a good plan B to the original.

A good business plan has 10 key components. They include an executive plan, product analysis, desired customer base, company analysis, industry analysis, marketing strategy, sales strategy, financial projection, funding, and appendix. Executive Plan Your business should begin with your executive plan. An executive plan will provide early insight into what you are planning to achieve with your business. It should include your mission statement and highlight some of the important points which you will explain later. Product Analysis The next component of your business plan is your product analysis. A key part of this section is explaining the type of item or service you are going to offer as well as the market problems your product will solve. Desired Consumer Base Your product analysis should be supplemented with a detailed breakdown of your desired consumer base. Investors are always interested in knowing the economic power of your market as well as potential MVP customers. Company Analysis The next component of your business plan is your company analysis. Here, you explain how you want to run your business. It will include your operational strategy, an insight into the workforce needed to keep the company running, and important executive positions. It will also provide a calculation of expected operational costs.  Industry Analysis A good business plan should also contain well laid out industry analysis. It is important to convince potential investors you know the companies you will be competing with, as well as your plans to gain an edge on the competition. Marketing Strategy Your business plan should also include your marketing strategy. This is how you intend to spread awareness of your product. It should include a detailed explanation of the company brand as well as your advertising methods. Sales Strategy Your sales strategy comes after the market strategy. Here you give an overview of your company's pricing strategy and how you aim to maximize profits. You can also explain how your prices will adapt to market behaviors. Financial Projection The financial projection is the next component of your business plan. It explains your company's expected running cost and revenue earned during the tenure of the business plan. Financial projection gives a clear idea of how your company will develop in the future. Funding The next component of your business plan is funding. You have to detail how much external investment you need to get your business idea off the ground here. Appendix The last component of your plan is the appendix. This is where you put licenses, graphs, or key information that does not fit in any of the other components.

The business model canvas is a business management tool used to quickly define your business idea and model. It is often used when investors need you to pitch your business idea during a brief window.

A pitch deck is similar to a business model canvas except that it makes use of slides in its presentation. A pitch is not primarily used to secure funding, rather its main purpose is to entice potential investors by selling a very optimistic outlook on the business.

Business plan competitions help you evaluate the strength of your business plan. By participating in business plan competitions, you are improving your experience. The experience provides you with a degree of validation while practicing important skills. The main motivation for entering into the competitions is often to secure funding by finishing in podium positions. There is also the chance that you may catch the eye of a casual observer outside of the competition. These competitions also provide good networking opportunities. You could meet mentors who will take a keen interest in guiding you in your business journey. You also have the opportunity to meet other entrepreneurs whose ideas can complement yours.

Exlore Further

• 12 Key Elements of a Business Plan (Top Components Explained)
• 13 Sources of Business Finance For Companies & Sole Traders
• 5 Common Types of Business Structures (+ Pros & Cons)
• How to Buy a Business in 8 Steps (+ Due Diligence Checklist)

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Martin luenendonk.

Martin loves entrepreneurship and has helped dozens of entrepreneurs by validating the business idea, finding scalable customer acquisition channels, and building a data-driven organization. During his time working in investment banking, tech startups, and industry-leading companies he gained extensive knowledge in using different software tools to optimize business processes.

This insights and his love for researching SaaS products enables him to provide in-depth, fact-based software reviews to enable software buyers make better decisions.