We’re going to play with some business/building analogies here, so get ready.
You wouldn’t start building a house without first drafting a blue print. You might have sketched out a pretty little drawing of the house that gives a nice general picture, but what about the infrastructure of plumbing, heat, electricity? Coming up with the idea of a business is easy, and even figuring out who your customers are and how you’re going to create your product might be simple enough, but there are infinite things inbetween those pillars. For a business plan, the journey is almost more important than the destination. Taking the time (and it will take time) to ask all the tough question and give competent researched answers will be a painful practice in the short term but an invaluable practice as you are tasked with running and later raising funds for your business.
While there are some general outlines for what should be in a business plan, business plans themselves vary wildly from how in-depth they are to how they are arranged. You can find some additional resources for this, here and from the Australian government here. If you can manage to get your hands on copies of fellow startup’s business plan documents, it can be really valuable to analyze although some people can be touchy about you poking through their financial info.
So, let’s look at some of the elements you should attack in the business plan
•Executive summary
This is a short snap shot of what your business is, and if you are seeking funding, what you want. In the beginning this one-page document may just help you refine who you are and what your quick pitch is, but this summary may need to be altered slightly depending on who you are presenting to. You can also give a little history of the company, when and where it was formed, how it is registered or organized, and successes it has had.
•Market analysis
This is where you do research into your industry and find where your business is filling a need. Find out who your top competitors are, their financials, how you are different, how large your market is, how much money they spend on your type of service. If there are trends you are capitalizing on such as the rise of 3G phone use or number of baby boomers, show this. You may even want to include copies of news stories about your industry. This is a good practice for you as the business owner to clarify what makes you unique and what problems still need to be solved for consumers, but when your present your plan to investors or lenders it can really help them quickly see the importance of your concept.
•Operations plan
This is some very factual, nitty gritty information. What will be the management organization, where will you office, are there any regulations or registrations you need to meet, is there equipment you have or need is there a place you need to source any services or good? If you are seeking funding, you may want to divide this into what you currently have and what you need or are seeking. You can read more about creating an operations plan here.
•Marketing plan
So you have a great product, now how are you going to get people to buy it? Marketing may seem like an afterthought, but it doesn’t matter how great your product is if no one knows about it and why they should use it. Do some investigation as to where your audience can be found (online, TV, periodicals, billboards), how much it will cost for you to advertise there and for how long. What is your strategy for getting press writing about you business, how will you search engine optimize? For more help on this, you can find additional information here.
•Biographies of the management team
This isn’t so important in your in ital plan for your own purposes of building an infrastructure for your business, but when it comes to visiting with lenders and investors it is a must have. Both are more likely to hand over their money if they know they know the people they are handing it over to have a track record of success. This can be accomplished with a simple headshot, name, title and then one paragraph work history of the team member with focus on experience relevant to their new role.
•Financial Plan
This is where it’s time to employ some excel skills and some educated guesses. In general, this section will be divided into three pieces with accompanying explanation: your income, your cash flow projections and a balance sheet. Create financial projections for about a year and then add and change things as you hit new landmarks. How much will you spend on development, salary, marketing and then what does your final product need to cost to recoup these and how much/many to you need to sell? If you will need to borrow money, where will that spent, how much will it increase your profits? Be aware here that you need to be honest with yourself, overly optimistic expectations will only impair you in the long run and disappoint investors. You can find more on making this section of your business plan here.
I think that one of the greatest challenges that startup companies face is that they are not willing to spend money / time to get to know their market so they enter the market with a weaker understanding than what is necessary to really determine whether there is any money in what they are about to do.
If you solve this problem, and you work out what in your business is actually going to drive your profitability then you will have a greater chance of success.
We start up tons of businesses in Australia and also specialise in writing business plans so have some authority on the subject. In our experience, structure is important.
However, more important is ensuring the four base elements of the plan (research, analysis, writing and financials) all come together in a coherent document that makes a compelling case for funding.
Seldom do we see a start up founder able to professionally put all four elements together. At least in a decent time frame.
On the issue of time the Small Business Administration in the States estimates it takes a business founder about 400 hours to write a business plan. And even then the results may not be ideal.
For me I believe these are the most essential things you must find in your business plan:
1. The Marketing Plan
2. The Human Resources
3. The Operational Plan
4. The Financial Plan
5. The Exit Plan
This is awesome. I wish him the best of luck. I’m doing something similar - I’m building my own business with nothing but my time and a little of my own capital. With luck and hard work it will be a viable business soon enough. We’re getting there.
I don’t think it’s ridiculous at all, I’ve seen business plans ranging from retail sites to full-scale airlines and this is the basic formula. As I said, it’s going to vary from company to company depending on a lot of factors, but this is a document that contains all the elements that make your business. It’s absolutely what you will need to have prepared if you’re looking for investment whether it be from an angel or a bank. Trust me, they WILL want to know the projections of how large your customer base is, who else is playing in that space, how much of that customer base you need to own to make profit, how the hell you are going to reach them, how you are going to hire the right people to do that. Some of the stuff I’ve included here is really targeted at those putting together a document to show to an investor (you don’t need to put news clippings in if it’s for your own use or bios of the team), but I think all of it is worthwhile investigation to do for anyone as they start their own business. If you’re seeking funding (again, whether it be from a lender or an angel) you’re going to have to have a financial plan that shows how that money is going to be spent and how it is going to grow your revenue enough to pay back your lender, with interest. I’d be interested to know what parts you find so unrealistic, I’ve read over it again and I stand by it.
Seriously? I don’t think I know one successful tech/high tech startup that has written a business plan like this.