And read these articles - both really rather good.
One from Serial entrepreneur Adam Baker, who has raised both angel and venture capital, who gives us a true masterclass in business planning when he suggests that the key structure of a business plan should be:
• What is it?
• What purpose/inefficiency does it solve?
• Market opportunity
• Key business objectives/milestones
• Product differentiation
• Market conditions
• Competitors
• Customer universe
• Revenue models
• Marketing and PR
• Key people and headcount
• Top line three-year P&L numbers
And adds his extra steps when he crafts a business plan:
1. I always start with an elevator statement. I need to articulate my entire proposition in a single sentence so it is clear and obvious what we do, to everyone.
2. Next I use a single page to highlight key milestones for the next three years: engagement/users and revenue/number of customers I expect to have, ie a snapshot of your P&L.
3. Create an executive summary. This is typically one A4 page which starts with your elevator statement and highlights every facet of the business. The important points to cover are: business purpose, market opportunity, key business drivers and milestones, revenue, and P&L.
4. Detailed piece on your vision. What does your business look like today, next year and by year five? How big can the business be? How will you realise your vision?
5. Your product/service. What are your competitive advantages? What IP have you created or proprietary technology developed? List the five key features of your product or service that will win adoption for you.
6. Marketing & PR. How will you/are you taking the product/service to market? Demonstrate how you can get traction, what channels you will use and what your customer and user acquisition strategy involves. How will marketing support your monetisation strategy? PR is also important and is required for building and maintaining relationships and growth.
7. Revenue. How will you make money? What are your revenue streams? Don’t fudge this. Plug in numbers that will challenge you but you are genuinely confident of delivering. Never forecast based on what you think investors want to see. That is a sure-fire way to kill your business.
8. Management/founding team. Investors will almost always be sold on you and your founding team before they buy in to your business idea. A concise, well-articulated, detailed business plan with accurate revenue projections is the first step to demonstrating you are intelligent and understand your business and marketplace. However, a one-pager on you and key members of the team is important. Cover off work history/education but don’t make this boring. You all have personalities, show this off too.
9. Exit. Finish on how you think you’ll get a return on investment for investors, when it’s likely to happen and what it looks like (in terms of return) when you do. Remember, investors do not like lifestyle businesses. They want a return, usually with a multiple of at least 10 times what they commit. Show them how they can achieve this.
10. P&L. This isn’t a business plan, but a budget. Formulate a three to five-year budget outlining your income and expenditure forecasts in granular detail. This should also cover cashflow based on you receiving investment too, so an investor can clearly see when you break even, or run out of cash. Be realistic with it and attach this to the business plan.
Is this the formula to a winning business plan? That depends on you. No matter how great a business plan is, investors buy people. A solid, defensible business plan helps and should be used as your manual and point of reference when executing the strategy.
I love all this especially the bits about great marketing - as this is what I do. But my day was made even better with this article by Garry Tan.
Which starts with a great quote from Google founder and CEO Larry Page who said this:
"Even if you fail at your ambitious thing, it's very hard to fail completely. That's the thing that people don't get."
I've found that all too often, founders overlook this. The start-up landscape is littered with examples of less ambitious things people don't want. That's why on the first day of entering Y Combinator's start-up incubator program, each entrepreneur accepted is given a simple gray t-shirt that says: "Make something people want."
An even better mantra for start-up entrepreneurs, I propose, would be: "Make something a lot of people want a lot."
If you're going to create a product or service, consider these two simple things:
1. The severity of need addressed by your product or service.
2. The number of people who have that need.
The best—and often the most successful—ideas service a huge need for a huge number of people. These are highly profitable as Internet treasures. They practically sell themselves—and grow customers organically. They're viral because everyone who encounters them tells everyone else about this great new thing that makes your life better. The cost to acquire users can often be very low. Most of roaring wealth-engines we associate with consumer technology fit this scenario. VCs and angels jump out of bed in the morning with the thought that these ideas are out there to be funded.
The next-best sort of start-up ideas service a huge need for a smaller number of people. These types of ideas can be highly profitable as enterprise businesses. Because there are far fewer people who need this thing, you'll need to spend more time tracking down the people who need it.
This means having a sales force, with prices high enough to justify that sales force.
The next-best ideas service a smaller need, but serve a huge number of people.
These are profitable, and will likely throw off enough cash to be an awesome lifestyle business. Since they're less essential to customers, though, it can be tougher to make money running one. For most founders, this is still pretty phenomenal outcome, and one that can spawn further innovation that kicks a company into the best scenario above.
For investors, unless there's a clear way the small need now could become a much bigger need later, these types of ideas can be some of the toughest calls in the game.
The yet next-best ideas service a small need for a small number of people. Not to bear the bad news, but there just isn't enough firewood around to light this kind of blaze.
Often founders who tackle these types of ideas likely don't believe in their own skills enough to tackle something larger, so they try to go after something that is "manageable."
Paradoxically, these ideas can sometimes be absolutely filled with competitors, since everyone else tries to do these too.
The worst ideas are the ones that don't solve a problem, or create more problems than they solve. People neither want it nor need it. Zero times zero equals zero.
Many arrive on this path when they've focused too much on capabilities (i.e. "wouldn't it be cool if?") or what they want (i.e. to be rich, admired, successful), rather than what other people actually need or want. This is fixable, though. Just think about problems people have instead of cool tech or outcomes!
No matter what your assessment of the situation might be prior to launching your product or service, the tale of the tape will be determined during the course of execution: building it and getting users. Remember that your grand idea is worthless without it being manifest in the world. As CDBaby founder Derek Sivers said, ideas are a multiplier on execution. Should you find yourself with a low, zero, or negative multiplier on the idea side, the fix is simple. Change the problem you're solving. Address a different, bigger need that more people have.
It may seem obvious, but too many would-be founders embark upon the journey into the wilderness without this simple yardstick. Well, here it is: Go forth.
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