What should I have in my Business Plan?


8

I am looking to start a business, however I have no capitol of my own, no prospects of friends or colleagues to help with financing and no idea how to find investors.

My plan is to focus on my business plan and try to have meetings with various potential investors to try and sell them on the idea, and hopefully find a partner.

The things I am unsure to address in my plan are:

  • My product is quite technical. I feel
    when I dumb it down, it becomes
    indistinguishable from other products
    on the market, when in fact it is
    quite unique. How technical should it
    be, and how can I separate my product
    as revolutionary without going into
    technical details?
  • Lack of competition.There are really
    no products like what I want to sell
    on the market at present. There are a
    few open source implementations which
    are similar, but do not have any of
    the advantages of the product I want
    to sell. The closest commercial
    products are not close at all,
    really.

    Should I still mention them as
    competition, or just ignore them?

  • Financial projections. I have no idea
    how to do this, partly because of the
    lack of competition. Assuming that
    the company will grow, how can I
    estimate sales and growth? I have no
    record to go by and nothing similar
    to compare against. Should I just
    keep numbers very vague?
  • How many references? I have many
    references from experts, various
    articles, studies and such that all
    show the need for my product. How
    many of these should I include, just
    enough to sell my point or as many as
    possible?
  • Finally, I don't have a set company
    structure proposed as I was wanting
    to leave it open, depending on what
    the investor may want. Should I
    propose something concrete now, or is
    it still better to leave it open?

Business Plan

asked Jun 10 '11 at 00:26
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Sonny Ordell
197 points
  • If you can't explain to an investor the difference between yourself and other products in a similar market without resorting to highly technical difference I suspect they and presumably your customers will see them as your competitors. Likewise if there is a free equivalent it is still competing for your customers and market share. – Tim Nash 9 years ago
  • @Tim I can explain without having to go into technical details by giving examples and showing the capability and showing what the closest products cannot do that mine can. Is that what I should include in my plan? The OSS products are very obscure and considered complex to use, while mine will be very simple to use and available to be far more widespread – Sonny Ordell 9 years ago

6 Answers


4

No one writes business plans for investors anymore. That's how it used to work with the first dot-com bubble, in 2000. Don't follow any advice online that relates to that period.

It is useful for you to find the answers to those questions (financial projections, corporate structure, etc.). That's step 1: you need to know which way to go.

Step 2 is to start implementing something: a prototype, a mockup, whatever it takes to show progress.

You'll be amazed how far step 2 can stretch. Investors and money will show up, hopefully, once step 2 is well on its way.

answered Jun 10 '11 at 01:18
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Alain Raynaud
10,927 points
  • I have yet to talk to a venture firm or a serious Angle that would invest without seeing a plan. I think though the sentiment that there is criticism of plans because they don't have the test of reality is warranted but the whole no business plan is more then exaggerated. +1 for prototyping. – John Bogrand 9 years ago
  • John: really? An actual 20-50 page document, that angels or investors will read? I have not seen that done in the last 7 years for seed stage. Round B, sure. – Alain Raynaud 9 years ago
  • Honestly I've never met an investor who asked for a business plan. Admittedly, I've talked with no more than 10 investors. – Filippo Diotalevi 9 years ago
  • @John I've spoken to 50+ investors in the last month, and only one of them asked for a business plan. – Alex Cook 9 years ago
  • @Alain, why would a prototype or mockup be after working out financial projections or corporate structure? I have no idea where to start to determine either of those things... – Sonny Ordell 9 years ago
  • @Alex Cook So the 50+ are they investors friends and family, investors angels, or investors venture fund? Did they provide funds or just had preliminary discussions? I really don't see how you can operate a business without a plan. I get Alain's point about a large business plan for seed funding but power point is a great presentation tool and is often used to snag that interest while showing what can be planned at the beginning. 1st year budget, idea of market, planned operation approach, prospects that have shown interest. – John Bogrand 9 years ago

3

If you are just an idea -- and have no personal financial capacity to launch the business, prototyping, alpha, proof-of-concept or anything you are in an extraordinarily challenging position.

What do you do?

Step one: Re-asses whether you really don't have any direct or indirect resources to develop any type of proof of concept. It will make the world of difference if you can.

Step two: Develop the executive summary (2-4 pages) of a business plan -- supported by a "white paper on the technical solution" the white paper should address the value to the customer and how it is done technically. The executive summary of the business plan should emphasize a staged approach where an true angle will cover their risk by puting money in benchmarked against specific deliverables which validate the technology behind the whitepaper, and then the assumptions about market demand.

There are lots of resources to help you do that executive summary and white paper. Your local SCORE chapter, the local business school, or even the government-supported Start-up America Partnership might provide you connections with the direct resources you need. (Of course this board will be a good source to specific questions as well)

In specific answer to your five specific questions:

My product is quite technical. I feel
when I dumb it down, it becomes
indistinguishable from other products
on the market, when in fact it is
quite unique. How technical should it
be, and how can I separate my product
as revolutionary without going into
technical details?

A supporting technical whitepaper that explains it in technical terms and can be used as a support addendum will address this issue. For the prospective investor you will need to be able to explain it in one sentence. As the inventor you will feel like this is bastardizing your idea. It is. Get over it. One way people do this is to anchor the new against something know -- like "It is Groupon meets Dairy Queen delivered like Red Box"

Lack of competition. . . . .
Should I still mention them as
competition, or just ignore them?

Every product has competition. Period. Stop thinking about it from the perspective of the product-- and think about it from the perspective of the customer. How does the customer address the need your problem addresses now.

People are very reluctant to invest in product/services that address unknown or not-felt needs. You may know why you are going to "kick-their-tail" and differentiate yourself from them-- but include the closest competitors you can think of no matter what. It proves market opportunity.

The person pitching the first car had no "product competitors" -- but their competitors were all the people selling other modes of transportation -- like horses. The B2B sales person that was first pitching a computer based spreadsheet could say they had no competitors -- except that people were meeting their accounting needs somehow -- with green ledger paper. If people are not trying to meet the need your product solves -- when then you will need to have significant support for the idea that they will want to.

Financial projections..... Should I just keep numbers
very vague?

I would propose you are not ready for company financials. When you are further along you will have more. A prospective investor will simply need the size of the market to gauge a relative business opportunity. And then a phased use of funds -- maybe 2 or three phases out that show the costs associated with getting to a place where true market viability and value can be assessed.

How many references? .....just enough
to sell my point or as many as
possible?

Provide the best possible three you can in your executive summary, and start to build a "book" of the references so that you can pull them out and cite them.

Finally, I don't have a set
company structure proposed .... or is
it still better to leave it open?

The only "there-there" at the moment is an idea -- leave it open and when someone is willing to invest in the idea/you then you can put together the right company structure.
answered Jun 10 '11 at 04:54
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Joseph Barisonzi
12,141 points
  • Yeah, that is pretty much what I was going to say. – Robin Vessey 9 years ago
  • thanks for your answer...just one question with finance stuff, how would I gauge the size of the market? Also, as a non US citizen it seems like I would not have access to things like SCORE – Sonny Ordell 9 years ago

2

"...If you build it, they will come..."

I worked for a 1999 startup where investors poured "buckets of cash" on our heads for having an "idea". Those times are over. In today's economy, if you're not a famous entrepreneur who "did it before" and have connections with VC's - you won't see a penny for an idea.

You may see a penny and much more than that when you can prove user traction, revenue and growth. So, just like that old Kevin Costner movie - If you want them to come -- you have to build it.

This is what I'm doing with my own startup. I have a wonderful idea and I'd love to have someone pour $700K at my feet so that I can hire people, get offices and quit my current day job so that I can concentrate on running my startup instead of working nights and weekends and have black bags under my eyes. Not going to happen. Money will come to me if I can prove my idea works. I intend to do just that.

answered Jun 10 '11 at 01:37
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Ron M.
4,224 points

1

@Sonny, there seems to be some seriously opposing views on this topic, "don't bother with a business plan" VS "you need one".

Personally I think you need a business plan but it doesn't need to be 1000 pages and cover everything. It should pretty much be a formilised set of working notes for what your going to build, how your going to address the market and what you see it is going to take to get you there.

Personally I rewrite our companies business plan every two years, it comes in around 20 pages, which I then distill down into 2-3, which then go down into the elevator pitch ... the 20 pages is only ever read by the other business partners (sometimes) ... really its for me to know I have my head around the issue, the spreadsheet with incomings and outgoings for good, average and bad senarios ... This helps me enourmasly to say

  • Are we on track?
  • What is the plan?
  • Should we be targeting X?
  • How many clients is too many in the next 6 months ... sounds strange but for my business any more than 10-15 will drown us and we won't be able to supply the quality.

In the last 2 years I have started writing most of it as an internal blog so that everyone understands the goals and direction we want to head ... along with the WHY.

You may not even end up showing the investors but you sound far more convincing and comfortable in yourself when you easily answer the tricky questions around costs, needs of the business, market and competition.

As for your points:

  • Product : You have a unique approach or something cool, that is good but its market perception of your product that will count ... if you can't explain it to those who will buy it ... they won't buy it and it will be another amazing technology that sits on the shelf. (I have several from my early days doing this).
  • Lack of competition. @Joseph has the real answer here. Competition isn't a direct feature for feature comparison its the competition for the dollar ... who are your prospective market going to give their money to ... and why.
  • Financial projections. Yeah these usually end up looking like total BS. Really you need to know your key scaling factors and your break even ...
    • How many new staff (Sales, Marketing, Technical, support) do you need per X clients. Thus X*10 more clients how much is this going to cost you, does the income from them cover it?
    • Other costs on scale. Advertising clients per $1000 you spend. Travel and trade shows, press releases, tooling for support, development etc. Infrastructure, how many clients per server? Is it cloud based? how much as you scale up?
    • Value per customer. If it takes you $100 to get a customer through advertising and you only make $40 out of them in a year ... you have the math wrong ... what is the actual answers. Do your customers come back, pay continuously or per transaction etc. WHERE IS THE MONEY COMING FROM?
    • Realistic volume of customers in 2 years, then broken down backwards to today ... if you want 1 million customers in 2 years, then ... 1 million / 24 = how many customers a month ... is this realistic > how many staff.
  • References. More the merrier, but just link to the majority ... have a few key ones that say "the world is crying out for this and every person on the planet will be happy to pay $20 a month" ... that one goes in ... the rest can be gone through as part of the investors due diligence should they feel the need.
  • Company structure should be fairly basic to start with. Perhaps have a plan for "it might grow into this" ... but really you have no idea about it so be upfront about it.

If you don't know this how much are you going to ask an investor for? How will they know what they are in for?

answered Jun 12 '11 at 18:28
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Robin Vessey
8,394 points
  • would you have any tips for approaching or finding investors at this stage with such an abstract business plan or presentation? – Sonny Ordell 9 years ago

0

You should not bother to write a complete business plan until someone actually asks it from you. Instead, focus on a presentation that explains the value proposition of your idea. Then, spread the message and seek people to join (not only investors, you probably need some partners as well).

answered Jun 12 '11 at 16:31
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Taat
1 point

0

Before you ask "do you need a business plan" ask yourself "do you need investors". If all you have is an idea, no one will care, everyone has ideas. How much did you pay for the last idea you heard? Nothing, people pay for the execution of the idea.

If you also have the business skills, financial backing, etc to run the business, then you wouldn't need to ask this question here, so I'll skip these possibilities.

To make this successful, you will likely be doing the technical work yourself, and you don't need investors for that. If it's software, then get writing. If it's a web site, then register the domain and put it out there. None of these should cost you more than your time, and perhaps one less over priced coffee. Just don't quit your day job, but do double check your IP rights in your employee agreement. If, after you build it, you still need funding for marketing or bringing on more staff, then you have something to show the investors.

Now, that being said, yes, you still need a business plan, but not for investors. You need to think through more than just the technical challenges, for yourself. How will the business make money? How will you handle the threats from competition? How will you handle things should the business fail? Make realistic assumptions, and then double/half them in the direction of pessimism. If you realistically think it will take 6 months to build, plan for 1 year. If you think you'll get 100 customers in the first year, plan on no more than 50. If you think customers will be willing to pay $10k for this, then plan on not seeing more than $5k. If the business still makes sense, then get working on it.

answered Jun 12 '11 at 22:23
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B Mitch
1,342 points

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