Business Planning 101
Updated: Sep 9, 2020
I have spent much of my career working with startups and venture capitalists (VCs). During that time I learned about the basics that every business plan should contain. MBA programs may teach different structures for a plan than I write about but I come from a “been there, done that” perspective. With the loss of so many jobs due to the current economy, many of you may be thinking a starting your own business. I thought you might find it helpful to have a basic plan to work from.
1) Executive Summary
I am always amazed at how many business plans don’t include this essential beginning. Particularly if you plan to look for outside funding you need an executive summary as that is the first thing a VC will evaluate. Often, you will be asked to send only the executive summary before a VC will commit to a meeting where you will need to have a PowerPoint version of your business plan. The executive summary should be no more than two pages.
2) Market Overview
The market overview should be a detailed analysis of exactly what market you are targeting, its size and business model. You should include an example of a similar brand to yours to demonstrate that you are following a proven, successful model.
3) Target Audience
This section of the plan should include more detail on your audience demographic and psychographics than you have outlined in the market overview. Most importantly, you need to show how you will capture a lucrative share of buyers.
4) Product Overview
If you are building a technical product, this section can be quite long and detailed. You will need this if you are pitching a VC that typically invests in highly technical products. Regardless you need to thoroughly explain how your product or service will work. With your first round of capitalization you should conduct primary market research to confirm your idea before you begin building your proof-of-concept.
5) Competition
You need to thoroughly understand who the competitors are in the space, their market share, why they have been successful and their vulnerabilities. You should have some primary research to back up your conclusions and it is worth paying for this data. Remember, VC’s pay for outside data plus they have market researchers in-house. They will most likely have better data than you so they can easily challenge any assumption.
6) Competitive Advantage
You need to demonstrate how your product competes against the other products in your category. Typically, you will show this information in some type of chart or diagram that clearly demonstrates your product’s strengths against all the competitors. You should also include any potential competitors that could move into the space. Often large companies won’t bother with a space until the smaller companies build it into a lucrative market segment and then they will swoop in and buy a competitor and put their market power behind it. Your strategy may be to position yourself as the company they buy. This is where your strategic thinking needs to shine through.
7) Marketing Strategy
The depth of this section will depend on what stage of development your company is in. If you are seeking a Series A round, this section will usually discuss the need to hire a director of marketing that can manage the development of all the initial marketing component such as positioning and messaging, company and product brands and perhaps some basic sales materials necessary for landing the critical first clients. For a Series B round, this section will be much more detailed regarding the product launch strategy.
8) Management Team
This section should include the roles of the executives and their bios. I can’t tell you how many times I have looked at this section and only seen males, primarily white. This will not benefit you particularly if you are based in California or seeking money from VCs in that state as they expect to see a diversified management team. These is where you should look for the best people, not just people you know and like or think you can work with. Analyze the strength and weaknesses of each team member so you know what skill sets you will need to add to your team. Trust me, this is where VCs get very picky as they are good at determining a weak management team and that can be the primary reason for not funding your idea.
9) Financial Summary
The last section is a spreadsheet that generally lays out your expenses and expected revenue over the next five years and shows exactly how much you need and what percentage of the company the requested amount will buy. I typically bring in a financial specialist to develop this section because it is critical and the section the VC will understand best. They will want to see when you expect to reach profitability.