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!
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