Why do you need a business plan?
A business plan can be thought of as a roadmap that guides you towards the right decisions. The aim of a business plan is to lay out a strategy for your business and it will spawn 4 essential documents without which it will be hard to make progress: The Business Plan itself; A full financial forecast for a minimum of 3 years but ideally 4 or 5 (the highlights of which appear in the Business plan and Executive Summary); An Executive Summary (the first 5 to 10 pages of your Business plan which can be sent separately); Pitch deck which is in essence a PowerPoint version of the Executive Summary (but lots of images and bullet points and few words) and finally a one or two page teaser - a very short version of the Exec Sum. Examples of all of these and help in pulling them together - go to Startup-Gurus.
Startups with business plans also tend to perform better according to research.
It is a crucial step for entrepreneurs, as it will help check the viability of your startup before you invest time and money into it. It will also help keep you on the right track and focussed on delivering key objectives for your business. Not only does it help you out, but it is also the key document that investors will want to read carefully, so if you don’t have one, don’t expect much success when pitching to investors. It is also important to note that as your startup evolves, so should your business plan.
Now that you know why you can’t skip this step, let’s have a look at what you need to include.
What goes in a business plan?
Usually, a business plan always has the following elements:
Executive summary
Company description
Market research
Competitor Analysis
Description of products and/or services
Management, operational structure and current ownership
Marketing and sales strategy
Financial Pack
Let’s get into what goes in each section.
Executive summary
Writing a good executive summary is crucial for your business plan, as it’s the first thing that people will read. However, it is generally written once all the other sections have been approved by the rest of your team.
So write in a clear and concise manner, summarising everything that you've detailed in the plan.
Keep it short. This is a summary, and its purpose is to excite investors into reading the rest of the plan, so 5-10 pages would be enough. The length of an executive summary varies from business plan to business plan, but as a rule of thumb, it should be 20% or less of the entire document.
Company description
Introduce your company, your team, and why it sets itself apart from the rest. Lay out some key goals that you want your startup to achieve - bring out you Vision and Mission Statement. Keep this section fairly short, no more than 3-4 paragraphs.
Market research
This might not be the most exciting task, but it is extremely important. You’ll need to determine what your target market is and how big it is. To do so, segment your audience based on geographic, demographic, psychographic and behavioural criteria.
Start with the broader criteria and then narrow it down. Where does your target audience live? How large is the group? Is it growing or shrinking? How old are they? How much do they earn? What are their attitudes? What sort of behaviour patterns do they follow?
Example of a target audience:
Women and men (demographic)
Between the ages of 18-27 (demographic)
Living in London (geographic)
Earning between £45k and £60k per annum (demographic)
Who believe that climate change is a pressing issue (psychographic)
And who never buy products that have non-recyclable packaging (behavioural).
Make sure you show how you arrived at this target market, is it based on research? If it’s not then you should probably just start over. You need to be able to justify why this is the audience you’ve targeted.
Another component of market research is competitive analysis. Who are your competitors? If you can’t find any then you need to look a little harder.
Once you’ve gathered information on the competition, explain how you are different - and hopefully better - than other players in your market. Are you going to be selling your product for less? Will you be using more premium materials than your competitors? Is your aftercare service superior to others?
Competitor Analysis
Sometimes seen as a component of market research but in itself, absolutely crucial and often poorly executed is competitor analysis. Who are your competitors? If you can’t find any then you need to look a little harder.
Once you’ve gathered information on the competition, explain how you are different - and hopefully better - than other players in your market. Are you going to be selling your product for less? Will you be using more premium materials than your competitors? Is your aftercare service superior to others?
Describe your idea in detail, how it’s made, why it will be made that way, what its key features are and why people will want to use it. Make sure you’re clear in your description and not using any jargon that might be confusing to non-experts. Explore the concept of making in-house vs using third parties and evaluate supply chain.
To run a successful startup, you need to have a clear structure explaining the way you operate. Who is in charge of who, who has the power to make executive decisions, etc.. Startups are generally run by young people. This means huge enthusiasm, massive energy, exciting ideas, BUT lacking experience. This is a concern to investors - fix this by having a good Advisory Board and Non Executive Directors. Look for people with sector and industry experience and crucially networks that can help your business - Startup-Gurus can provide exactly the right people and very often they will invest too!
Description of product/service
Describe your idea in detail, how it’s made, why it will be made that way, what its key features are and why people will want to use it. Make sure you’re clear in your description and not using any jargon that might be confusing to non-experts.
Management and operational structure
To run a successful startup, you need to have a clear hierarchical structure of the way you operate. Who is in charge of who, who has the power to make executive decisions, etc..
This will let investors know how the company will operate regarding investors and board members. It will also eliminate any sort of confusion in terms of who does what or who reports to who, helping your startup run as smoothly and efficiently as possible.
Marketing and sales strategy
If no one hears about your amazing product/service, no one’s going to buy it. You need to have a marketing strategy to deliver your brand/product/message out to your target audience, and you can’t just say “I’ll whack up some billboards along the highway”. You need to determine what your best marketing strategy is going to be in terms of ROI (return on investment) of your budget.
A basic marketing strategy will generally include a website, active social media channels, email subscriber lists, customer retention and/or loyalty programs. This varies from startup to startup, so it’s all about finding the right combination for you and your target audience.
As with any plan, you’ll want to set some marketing objectives that you intend to achieve. Your objectives should be SMART - Specific, Measurable, Attainable, Relevant and Timely.
In terms of your sales strategy, you’ll also need to think about the most effective and profitable way to sell to your customers. You might be thinking about selling straight through your website, through retailers, or through a combination of both.
Financial Pack
You’ll need to calculate how much it will cost you to launch and run your startup, otherwise how are you even going to know how much money you need to ask investors for? You need to include a lot in this section which can take a lot of time and skill to put together, so it's a good idea to seek professional help.
Organising a budget will reduce your risk of failing due to lack of funds. Think of all the costs you might incur when setting up your startup. Things like:
cost of equipment
property (buying or leasing)
legal fees
payroll
insurance
inventory
marketing
R&D costs
production costs
It can be hard to predict exactly how much everything is going to cost, but you can always make a good estimate with thorough research. If you’re still unsure, estimate on the higher end to play it safe. It’s better if something ends up costing less than you initially planned for.
If your startup isn’t fully operational, it’s unlikely that you’ll have any cash flow reports or balance sheets. So you’ll have to make projections based on the size of your target market, what percentage of that market you’ll be able to secure combined with other factors (i.e. if your product is seasonal, you’ll have to take that into account in your projections).
Most business plan readers will want to see a Breakeven Analysis, which will show that you have a solid understanding of your startup's financial situation and also clearly lays out when your startup can be expected to turn a profit.
End note
Writing a business plan might seem demanding and rather overwhelming, but it will save you a lot of trouble down the road and help you get investments, so you can’t afford to skip it.
Make sure you lay everything out clearly, concisely and in a logical manner. Check for spelling mistakes and any use of confusing jargon. Once you’ve done that and made sure you’ve included everything you need, you’re done!
If you are struggling with your business plan, reach out to us on LinkedIn or via email at info@startup-gurus.com, we’d be more than happy to help.
See you in the next chapter!