4 years ago I was at the University of Maryland in Baltimore County, studying as hard as I could but also learning about a certain hotspot ‘fishbowl’ …the Thursday night destination for most new UMBC students and Iguana cantina, the place to be if you were quite keen on poaching the pretty freshman girls around Baltimore colleges. A few mates and I were very interested in maximizing our chances and not wasting $5-$15 constantly. So what did we do? we drew up a booklet (an e-book), called fishbowl/iguana 101 (reprints still available at the right price!!). Just like our classes at the time, we were just being broken in as far as college life was concerned so it was appropriate to label it as ‘101’.
Most new entrepreneurs know what a business plan is, but majority have not seen one let alone write it. As you must have come to realize now, a business plan is vital whenever you want to start a venture, not just for the fact that it is your visa to securing ‘trips to the pitch-rooms of VCs’, but it helps you set a plan of attack that you should try to follow to achieve your dreams for that business. I have written several business plans in the past 2 years, some for myself but majority for others. In this time one thing has become apparent, business plans vary from industry to industry and the quality of the plan always gets better with time. I was recently at a startup event in Fairfax, VA and for about 15 minutes the topic of discussion was ‘what makes a business plan solid?’We ended up exchanging ideas and thoughts even after the event was over. The truth is that most new entrepreneurs are lost when it comes to this subject matter and I think it’s necessary for me to share my concept of it. I can certainly say I am not the Zeus of business Plan County, but I do have enough experience with it.
What is a business plan? Very simply put, a business plan is a concisely written statement showing how one intends to start, operate, manage and grow a venture. Business plans are not required to be a specific length before they are taken seriously. I have seen a 100 page business plan(not including the appendix) and I have also seen a 15 page business plan that secured a lot of money in VC funding. I just want to quickly rebut that belief that a plan must be a specific length or whatever before it carries any weight.
Typically, most plans I have written have ranged from 15 – 35pages (excluding appendix) depending on what the business is. The most important things about a business plan however is that it is cohesive and you say what you need to say.
What’s the purpose of the plan? Like I mentioned earlier, a business plan shouldn’t just be a “fund seeking tool”, but it must be a carefully thought out route of how you intend to take your business to the top. You know how Rafa Benitez of Liverpool puts out his tactics ahead of champions league games? Yes your own ‘tactics’ is your business plan; it’s how you intend to beat competitors and win ‘games’.
I have found that a lot of people write plans just for the sole purpose of securing funds and this is not a good look. You should write your business plan as a guideline for you intend to make your business successful. It’s just like trying to get into med school, you study hard so you know the material and understand how to apply the skills when you get into med school, you don’t study so you get the scholarship into med school…only to lose it later for sucking. So get your priorities straight before opening up a new page on Microsoft word.
What major sections must my plan have? Typically, a business plan must cover certain specific areas, but it is up to you to decide if you need to add more information or not. But whatever you do, remember that a cumbersome business plan is never as attractive to anyone(including investors) as one that’s straight to the point and lets the reader know what exactly he/she wants to know.
Most plans that I have written and read have followed this pattern:
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Front Page/Cover: Pretty self explanatory. It should have the name of your company, your contact information and perhaps a website
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Table of content
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Executive Summary: Just in case you didn’t know before, this section here makes or breaks your chances for the most part, so it must be good. I have even had situations where the VC, angel didn’t want to see my entire plan, only wanted my executive summary. So make sure you do this when you’ve completed your entire plan, and do it well!
The Executive summary must be written to capture the reader’s mind such that they would want to dive into the other sections and keep reading. The basic elements of your plan must be reflected here. These include:
- A brief company description
- What is the problem? what product/service are you putting forward to solve the problem? How does it solve the problem?
- What does your market look like? who’s your competition? why will you beat them?
- What does the management team look like?
- How much are you asking for? In exchange for what?
- How do you plan on spending the funds?
- How will you make profit? And how much?
- What is your exit strategy
- The Offer: How much are you asking for and what are you offering the investor in return for this funding? This is where you must be careful…a great negotiating mind should be called into play here.You never want to offer too much or offer too little. so think before you dive.
- Business Description: This is where you will go into details of what your company will produce or what services it will offer. You must clearly state what the problem is, the solution and how your company is the right way to go. You must clearly explain your ‘modus operandi’, how the business will be run and from where.
- Market Analysis: If you go into business without examining the market, it is similar to crossing a major road intersection in NYC with a blindfold around your eyes. You must know if the market is such that you will easily make profit, you must make sure that you know everything there is to know about the competition you will be facing and how you will overcome the threat they pose. This is vital, alot of failed businesses I know about have failed because they couldn’t handle the competition. Be wise!
- Management Team: A solid, reputable management team will drive any business far. Here you must clearly specify the leaders of the company and their job descriptions.
- Operations: How will the company operate. If it’s a web 2.0 company, how will you build the website? In what language will the code be written? How will it be designed? Over what period of time? You must also answer the questions of how the company will spend its 8a.m. to 5p.m. from monday to friday.
- A marketing plan: This section of the plan will describe how you will market and promote your business. You will indicate here if you intend to use TV, Radio, Newspaper ads as a means of getting the word out, or if you will be using other means like internet marketing.
- Financial Plan: This is the bread and butter right here. Any investor wants to know how and when he will make his money back. He/she wants to understand why you even need all that money from him in the first place. You must do a concise financial projection using Microsoft excel of how you intend to make bank over the next 5 years(typically). I found this book very useful: The small business start-up kit, plus it has a CD-rom that gets you started on your capital flow, profit & loss tables e.t.c. definitely worth the cost.
The purpose of this section is to convince the investor and yourself that the venture makes sense from a financial standpoint. The financial section should include actual performance data for at least the preceding 3 to 5 years. If the company has no operating history, then this section will deal only with financial projections. For existing and new companies, this section will include the following:
· First year financial projections by month
· Five year financial forecast
· Breakeven analysis
· Ratio analysis
- Appendix: This section is where you provide additional documentation that complements your business plan. It should contain all your references and other documents you used in coming up with projections of your plan, including the excel spreadsheets. It may also contain the following:
- Copies of patents, trademarks and copyrights relating to your venture
- Market analysis, polls, test experiments e.t.c. you used in coming up with your marketing assumptions
- Resumes of the management team members
- List of competitors and key observations
Once you have completely touched on all of these briefly but clearly, you are on your way. But remember , this is the last part of the plan you want to write.
The above are only what I would consider the core elements of a good business plan, but it is up to you as the ‘sailor of your own ship’ to decide what else needs to be added or not.
