How to Write An Effective Business Plan

How to Write An Effective Business Plan

Writing a business plan is often a crucial first step to getting your start-up off the ground. A good plan can help you raise money, recruit members of your management team, set your marketing strategy and, perhaps best of all, refine your thinking. VCs will generally only request a full business plan after we have received the summary and would like to investigate further. Not all business plans need to follow this exact format or contain all of these segments – the business plan must fit the business and each business is unique. These are however the common modules to have at least considered when submitting a business plan:

Make sure to include: YOUR COMPANY NAME: Address, city, state, zip Tel/ Fax/ Email/ Website/ Contact person

1. Business Description: Please be clear about what the actual business concept entails – it won’t help to have a paragraph full of buzz phrases like “delivering end to end solutions” or “we aim to be the leader in delivering a cutting edge solution with maximum profitability”. Simply tell us what you will provide, to whom, in what environment. Explain what problem your solution solves – we really don’t care that you can make a widget for under a dollar that allows users to put all their data on the end of a pencil – do they need it there? Is that solving a need? What is the market opportunity?

An example could be as simple as: we will sell cold ice cream to sweaty, hungry people on hot beaches. You can explain later what types of ice cream, how you will keep it cold, pricing, distribution, marketing, competitive advantages etc. Many plans fail to clearly explain exactly what the business will actually do – if you can make this part clear you are ahead of most.

2. Background: What can you tell us about the general environment that leads you to think that this plan is workable? What are the basic trends and how is your team qualified to understand exactly how to benefit from them to create a successful business.

3. Technology/Product Description: While we are much more technical than most we still like to start out with basic technology or product descriptions – explain the core benefits before going into the dozen variants or scenarios where it would work differently etc. Compare your technology to the nearest/best competitor and not just to an old solution that has already been beaten by new products. Be clear about what portion of the product is your value added contribution and what portion is off the shelf standard kit.

4. Proprietary Information: While not every business plan can be based on half a dozen new patents explain what if anything about your technology is defensible and can be protected from competition. Explain how many patents you have, have filed for, or could file for as well as any other unfair advantage you many have.

Also keep in mind that the majority of VC’s do not sign any form of NDA. Our reputation means everything and we are very careful about any type of disclosure. We really do believe that it takes a great management team over and above great technology – brilliant technology is nice and sometimes even patentable, but great execution is everything.

5. Market Size: VC’s love data and we are no exception to the rule. Speaking of rules they are as follows: Be relevant – Don’t tell me the size of the entire automobile market if you only sell fuzzy dice or tires. Explain the trends – growing at what pace and for what reason? If it’s a new market explain why you feel the market will someday exist (don’t forget to explain why it doesn’t exist yet) and take a stab at how large it could be and why etc.

Finally – source your data – when and where was it created? Recent data is best but 1-2 year old data is better than nothing. Keep in mind the typical variation in large markets rarely makes or breaks a company – your startup likely wouldn’t do anything different if the market size is 2 billion vs. 2.3 or 1.8 billion. Accuracy in market sizing increases in importance as addressable market size decreases.

6. Target Customers: Explain who your customers would be – both those that would purchase the product or service from you as well as those that would ultimately use the product or service if relevant. Do you know how to segment and define your target customers? What makes them similar and in what ways are they different? Not everyone will be a potential customer – there is no product or service that “everyone” needs. (Not even water – I have friends who live on cola and beer and wouldn’t dream of drinking that clear water stuff – bottled or tap)

7. Competition: Important rule – everyone has competition. Do not even think about saying that you have no competition – even if nobody else offers what you offer you’ll still have competition for the time and money your customers have. Even apathy is competition – a lazy customer that doesn’t bother to accept your solution means you just lost a sale to whatever else they decided to do – TV, play station or napping etc. What would they do if your product or service didn’t exist? Would they fill the need or ignore it? What other companies could become competition overnight?

8. Financial/ Business Model/ Revenue source: Simply put – how do you plan to make money– Direct/Indirect sale? Your sales team vs. VAR/Partner sales team? Licensing? Revenue sharing? and how much over 1-3 years?

9. Funding history: Formal and informal sources of funds so far – Angels? VC’s? Your bank account? Grandma’s pension? How much has been raised and/or spent in pursuit of the startup’s goals – cash vs. deferred compensation etc. (FYI – don’t worry – we won’t tell your spouse how much you’ve really spent so far – we have a vested interest in keeping our entrepreneurs alive)

10. Development Status/Major Milestones Roadmap: What have you accomplished and what are the next major items that need to be developed to get to market? We are looking both to see that you have an understanding of how to plan and assess the work at hand as well as the timing aspect.

11. Management Team: Your basic management bio’s here – who you are and what you’ve done in past lives. We’ll be looking for a team that has relevant experience and some history of success (as well as the ability to learn from failures).and is coachable.

12. Advisory Board: This is where you prove that you know the industry and they know and respect you. Advisors that are experts in your industry and can offer proper guidance; advice and contacts are worth their weight in gold.

13. Funding Request: How much money do you think you’ll need to reach your next major milestones? Will the funding you want get you to proof of concept? Beta trials? General acceptance with a real customer? Profitability? It’s great to see detailed financials if you have them but we wouldn’t expect the very early stage companies to have much of this yet.

14. Use of Funds: It is important to understand specifically what you will spend the money on as well as what that actually buys you (what milestones will you achieve with X funds etc.) Do intend to pay back deferred salaries for the development team? Are there any broker fee’s to consider?

I hope that this outline is useful in explaining the areas of a business plan that investors generally need to consider. Wishing you all the best!

Geoffrey Nevine — IT Services and IT Consulting

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