How To Write A Startup Business Plan

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Intro

Let’s start with- Why Do You Need A Business Plan?There are several reasons. Writing a plan dramatically increases your chances of success as an entrepreneur. Writing a formal plan increases your chances of success by 16%. (quicksprout.com)Here are just a few reasons you would want to write a business plan.

1. Evaluating initial startup costs.

2. Determining what it will take to make a profit.

3. Analyzing your competition and its success and failures (which you can capitalize on)

4. Well defined rolls of all people involved in the company.

5. Investigating your market and developing a strategy.

6. Anticipating problems before they occur.

7. Defining a clear goal and exit strategy for your business.

8. Convincing investors to fund your business

Some may scoff at all of the parts of a business plan, but remember that you are undertaking this endeavor to make money, not to just produce a product or service. Most businesses fail because they are hit by unforeseen expenses — or situations — that they should have anticipated ahead of times.

To give yourself the best chance of success, do your homework ahead of time and you’ll be way ahead of most people.

Plan Your Work, Work Your Plan

A business plan is not a document set in stone, and you will probably change it in the future as your business develops. When you are stuck on an issue, refer back to your business plan and remember what your initial goals were and whether the situation has changed significantly enough that the plan needs to be reworked.

Planning your work is when you write your plan, but you can’t just stop there. You must work the plan and stick to it as you move forward in order to meet your exit strategy or other goals for the company.

A business model canvas mirrors a business plan. It is a fast, iterative way to consistently look at your business and how it’s grown.

The Business Model Canvas allows the executive team to understand how the 9 building blocks relate to each other and the different ways these relationships can be changed to increase efficiency or effectiveness. An opportunity or innovation can be spotted through the use of this tool. The tool allows for easy, visual representation for decision makers to ponder upon. The tool provides a neat breakdown of the major considerations impacting the business and also makes clear the direction the organization is taking through its business model. (cleverism.com)

Element 1: Defining Your Product Or Service

Business Plan: Defining Your Product Or Service

The first step to writing your business plan is defining exactly what your product or service is. This is what you will approach a potential customer with.

How would you explain your product or service to a potential client?

What would you tell them about it?

How would your product or service relate to other businesses?

Describing your product or service should fit within 1 paragraph with supporting paragraphs underneath it. Most people, when dealing with something innovative or something that is identical to a competitor, try to cop out of this and say “it’s just too complex for my product to be described”. That’s hogwash.

Every product or service can be defined. If your product or service is so innovative that it can’t be defined then the chance of it succeeding is very low.

Here are a few examples.

* Google was simply “a better search engine that works”

* Apple was simply “a computer that can fit on a desk”

* Microsoft was “an operating system that can be mass distributed”

* Amazon.com was “a mail order bookstore with an online front end”

Describing your product is not a hard thing to do. Implementing a strategy to sell, distribute or market your product in the long run has the most impact on whether your business will succeed.

The equivalent section in the Business Model Canvas is the Value Proposition Section.

According to the authors of the Business Model Generation; “The value proposition is the reason why customers turn to one company over another. It solves the customer problem or satisfies a customer need…some value propositions may be innovative and represent a new or disruptive offer. Others may be similar offers, but with added features and attributes.” 1 hour to complete (coursera.org)

Business Model Canvas: Value Propositions

What value do we deliver to our customers?
Which customer needs are we satisfying?
Which customer problems are we helping to solve?
What bundles of products and services are we offering to each customer segment?CharacteristicsBrand/ statusCustomizationDesign“Getting the Job Done”NewnessPerformance

Element 2: Identify your target market

Business Plan: Who Are Your Customers?

Defining your target market may be a little difficult if you think anyone can use your product, but it can be done. Simply putting “everyone on Earth” is not a practical target market.

Whether everyone can use your product or service is not the key, it’s who can afford and needs your product.

Is it small businesses? Does it fit the consumer market that cooks a lot? Is it Internet users who are looking for dolls?

Defining your exact target market is key to setting up a proper marketing strategy. Without knowing who your potential customers are, you will cast your line into a vast ocean rather than a stocked pond.

Another part of this is determining if your target market can afford your product and will they purchase it from you.

If your product can only be used by boys age 14-18 and the price of your product is $1000 your market will probably be tiny.

This is all part of the plan, don’t be discouraged if you find that upon doing research your product or service makes little sense. It’s better to evaluate things now and scrap the whole thing than to accept money from investors and finding out later that your business doesn’t stand a chance.

The business model canvas provides the same insights under Customer Segments section.

Business Model Canvas: Customer Segments

For whom are we creating value?
Who are our most important customers?DiversifiedMass marketMulti-sided platformNiche marketSegmented

Customer PersonasA persona represents the customer that you would expect to buy your product. Assuming you did some customer interviews, begin with the customers who are the best fit for your solution. Close your eyes, give them a name, and imagine their face, home, salary range, and everything else you can about them. Once you’ve fully imagined who this person is, you can research their behavior. You might even conduct more focused interviews with people from that specific demographic to help refine your problem and solution statements. (gusto.com)

Element 3: Analyze your competition

Business Plan: Analyze your competition

Who is your competition? How will you reach your target customer or client? These are all questions that need to be defined.

Find two or three competitors and evaluate them. Where are they successful? Where is their main revenue coming from? What things have they tried and failed? What things do they lack you will provide?

Analyzing the competitive landscape is an important part of determining if you can succeed. You may even realize other areas that your product or service needs to focus on having a chance of succeeding.

There is no formal section for this in the Business Model Canvas. When creating the Value proposition, that could be a time where the competition is considered and mentioned in that document. This is an opportunity to review your potential partners for you product or service. This is covered in the Partners section of the Business Model canvas.Business Model Canvas: Partners

Who are our significant partners?
Who are our significant suppliers?
What critical activities do our partners perform?
What important resources are we acquiring from our suppliers?Value-add from partnershipsAcquisition of specialized resources and activitiesOptimization and economyReduction of risk and uncertainty

Element 4: Market Strategy

Business Plan: Market Strategy

How are you going to reach your customer? Will it be through catalogs? Advertising in the local paper? Word of Mouth? Direct sales?

Investigate the costs of implementing a strategy of reaching your customer and client base.

If you are selling a product, how much will it cost to get your products on shelves or to set up a e-commerce website?

What are the costs involved to place advertisements?

Simply having a product or service and not having people even knowing that it exists is a certain road to failure from the start.

Business model canvas sections Customer Relationships and Channels covers the Market Strategy section from the business plan.

Business Model Canvas: Customer Relationships

What type of relationships do each of our primary customer segments expect us to build and maintain with them?
Which ones have we established?
How are they integrated with the rest of our business model?
How costly are they?ExamplesAutomated servicesCo-creationCommunitiesDedicated personal assistancePersonal assistanceSelf-service

Channels are a critical element of the business model. They are how a company communicates with and reaches its customer segments. Channels are typically direct or indirect and has five phases: awareness, evaluation, purchase, delivery, and after sales. Customer relationships can range from highly personal to automated. Either way, the objective is to develop authentic relationships that lead to trust and customer loyalty. (coursera.org)

Business Model Canvas: Channels

Through which channels do our primary customer segments want to be reached?
How are we reaching them now?
How are our channels integrated?
Which channels work best?
Which channels are most cost-efficient?
How are we integrating them with customer routines?Channel phasesAwareness How do we raise awareness about our company’s products and services?Evaluation How do we help customers evaluate our organizations value propositions?Purchase How do we allow customers to purchase specific products and services?Delivery How do we deliver a value proposition to our primary customer segments?After sales How do we provide post-purchase customer support?

Element 5: Financing And Capital

You need to have all your numbers in order when you’re writing a business plan, especially if you’re planning on securing investment funding. Figure out exactly how much money you need to start the business and stay operational; otherwise, you’ll run out of money. Running out of cash is one of the most common reasons why startup companies fail. Taking the time to sort your budget out before you launch will minimize that risk. (quicksprout.com)

Business Plan: Identify your goals and financial projections

What are your initial expenses for starting your business?

You need to analyze all costs for beginning your business and how much capital you will need to keep the business running. If there is payroll involved, you will need to factor in payroll taxes and salaries. You need to know how much in legal costs you will incur incorporating and for lawyer and accounting services.

If you are providing a product, what is the cost of having it produced and an inventory for it?

Letterheads, logo’s, business equipment, software and business cards all fit in this category.

There is no hard and fast rule for how much capital you will initially need in terms of months in advance. Most businesses underestimate how much initial expenses and ongoing monthly expenses they have.

How will you fulfill orders? If via mail, you will need to factor in packaging and shipping expenses.

If you are stocking a store with your item, you will need to factor in delivery charges and expenses.

Once you have determined both your ongoing monthly expenses and initial expenses, then you can evaluate how much initial capital you will need and where you intend to get it.

Will your financing come as angel investors, venture capital, self financed or friends and family? Securing this financing could have expenses you have not counted on, be sure to include these expenses as well.

The business model canvas does not really cover the financial projections portion of the business. They look it at as a Resource. The business model canvas covers a part of the finance in the Cost Structure Section.Business Model Canvas: Cost Structure

Which costs are most critical our business structure?
What primary resources are the most expensive?
What primary activities are the most expensive?Is your business more . . .Cost driven (leanest cost structure, low price value proposition, maximum automation, extensive outsourcing)Value driven (focused on value creation, premium value proposition)Sample characteristicsEconomies of scaleEconomies of scopeFixed costs (salaries, rents, utilities)Variable costsBusiness Model Canvas: ResourcesWhat significant resources do our value propositions require?Which significant resources do our distribution channels require?What significant resources do our customer relationships require?Which significant resources do our revenue streams require?Types of resourcesFinancialHumanIntellectual (patents, copyrights, data, etc.)Physical

Element 6: Operations

Business Plan: Operations

You need to define the operations of your business and how your product or service will reach a customer from development all the way to end user. If you are providing a product, you will need to define the whole flow.

Here’s a few questions for a product based company.

How will the product be produced?

How will it be stored?

How will it be delivered?

How will customers place an order?

How will an order be processed?

How will a customer get a receipt?

Where will fulfillment take place?

How will money change hands?

When will the customer receive their product?

How will customer service be handled?

For a service based company, most of the above questions have their equivalent.

These questions need to be answered. It shows that you have thought ahead on how your business will operate. The Business Model Canvas covers this in their Activities section.Business Model Canvas: Activities

What significant activities do our value propositions require?
Which activities are the primary drivers of customer relationship?
Where does our distribution channel provide value-add?
What are the revenue streams for each channel?CategoriesProduction activitiesProblem-solving activitiesPlatform/ network

Element 7: Revenue Streams

Business Plan: Revenue Streams

Your Business Plan should have how your company is going to make money. The Business Model Canvas does a good job at helping you determine your revenue streams. Use the questions below to determine your revenue streams as well.

According to the authors of the Business Model Generation; “If customers comprise the heart of a business model, revenue streams are its arteries.” A business model typically has two different types of revenue streams–transactional and recurring. Key resources represent the most important assets required to make a business model work. The resources fall into several categories including physical, intellectual, human, and financial. (coursera.org)

Business Model Canvas: Revenue Streams

For what value are our customers willing to pay?
For what value do they currently pay?
How are they currently paying?
What method would they prefer to use for paying?
How much does each revenue stream contribute to overall revenues?TypesAdvertisingAsset saleBrokerage feesLending/ renting/ leasingLicensingSubscription feesUsage feeFixed pricingCustomer segment dependentList priceProduct feature dependentVolume dependentDynamic pricingNegotiating (bargaining)Real-time marketYield management

Element 8: Write your business plan

Business Plan: Putting It All TogetherOnce you have analyzed your product, your customers, your competition, market strategy and financing it’s time to put it all together in a document known as a business plan.

There is no single format for writing a business plan. The best way to write a business plan is to study business plans. You can find some business plans on the web to study.

Here is a basic overview of the things you should provide in a business plan.

1. Cover Sheet

2. Statement of Purpose

Part 1: Business Analysis

a. Description of the Business

b. Marketing Strategy

c. Competitive Landscape

d. Operating Flow

e. Management and Personnel

f. Exit Strategy

g. Insurance Information

Part 2: Financial Information

It can be important to prepare detailed financial projections for the business, for the following reasons:

To determine whether the business will ultimately be profitable

To determine your cash “burn” before you get cash flow profitable, showing how much startup capital you will need

To lay out your key financial assumptions (price per product, cost of developing the product, marketing expenses, employee expenses, rent and overhead, gross margins, and much more) so that you and others can test the reasonableness of the assumptions

To have those projections ready and credible when investors inevitably ask for them

Financial projections will typically be for a 3-5 year period and will include:

Profit and loss statement

Cash flow statement

Detailed categories of income and expenses

Balance sheet

Underlying assumptions

Of course, your financial projections will not be perfectly matched with your actual results, but your financial projections can be revised as you move through the stages of your business.

Source: forbes.com

a. Equipment, Supply List and Assets

b. Balance Sheet

c. Break-even Analysis

d. Pro-forma Projections Including

i. 3 year summary

ii. Detailed projection by month of the first year

iii.Detailed quarterly projects for year 2 and 3

iv.Assumptions or how you reached your projections

e. Pro-forma Cash Flow

Part 3: Supporting Documentation

a. Tax returns of the principals involved in the business for the last 3 years

b. Franchise contracts, proposed leases and purchase agreements

c. Any licenses or legal documents the business needs

d. Resumes of all the principals involved in the business

e. Letters of intent from suppliers and other services

Business Model Canvas: Putting it All TogetherLink up the building blocks: every value proposition needs a customer segment and a revenue stream! When everything is on the board, take a step back. Have a short break. Did you miss anything? Forget something? (businessmodelsinc.com)

Once you have answered all the questions from each of the sections of the business model canvas, you are done. This can be repeated as many times as you like.

Business Model Canvas – Download the Official Template Source: (strategyzer.com)

Download the business model canvas template and start planning a business model straight away! Download the pdf template for free | Strategyzer Tools

Clearly define the power structureYour business plan should also cover the organizational structure of your startup. If it’s a small company with just you and maybe one or two business partners, this should be easy.

But depending on how you’re planning to scale the company, it’s best to get this sorted out sooner rather than later.

It’s really important to have this hierarchy in place before you get started. That way, there’s no debate over who reports to which position. It’s clear who is in charge of specific people and departments.

Don’t get too complex with this.

If you put too many layers of managers, directors, and supervisors between the top of the chart and the bottom of the chart, things can get confusing.

You don’t want any instructions or assignments to get lost in translation between levels. You also don’t want anyone to be confused about who is in charge.

This is an opportunity for you to outline how your company will operate in terms of board members and investors. Who has the final say in decisions?

While I understand you may need to give up some equity in your startup to get off the ground, I recommend keeping the power in your hands.

Source: quicksprout.com

Final Thoughts

Remember that not all of these things need to be included right off the bat. If you are not going to have proposed leases at this time while you are starting your plan, it can go on your task list of things to do.

The most important part is getting started on your business plan so that you can spot the things you need to get done to complete it.

Most investors are not going to just hand you money without a pretty solid business plan though, so if you’re not too good at doing the financials you better get to work on learning how to project pro-forma cash flow and projections.

Once you have your business plan, you are well on your way to creating a successful startup!