How to Write a Startup Business Plan
You may have heard some experts say that a startup entrepreneur doesn’t need a business plan to start a company. That’s just not so. A well-thought-out and well-written business plan is the cornerstone of every new venture.
A business plan is a definite requirement for any type of fund-raising–whether grant, a loan, or equity capital.
The non-financial sections of the business plan become the basis for recruiting conversations with key hires, for discussions with strategic partners, and for introductory calls with potential customers and early adopters. Explanations of markets and competition are great input for branding initiatives. The entire plan is invaluable to legal counsel.
What Should a Startup Business Plan Include?
To grow a great business, you need a great plan. Organize the business plan to anticipate and answer the questions that investors will have.
- Product: What problem does the product solve?
- Market: What is the market opportunity? What is the path to customers?
- Business: What is your business model and how will you make money?
- Team: Who is on the management team; what is their experience in the industry?
- Capital: How will you fund the company now and in the future?
Focus on milestones in each of these key areas. Include all the industry-specific and customer data that you have collected. Reflect your intent, rationale, conclusions, assumptions and expectations for the next five years.
Six Elements of an Effective Startup Business Plan
The first step is to select a business plan template that works for your company. There are many good business plans and tools available suits you best, and then build these 6 elements into the finished business plan.
1. Executive Summary
Grab the attention of investors and compel them to read the entire plan by starting with a compelling executive summary that follows the same format as the full business plan. This two to three-page detachable document hits the high points of the complete business plan.
Angel investors and venture capitalists receive business plans almost every day. There’s plenty of deal flow competition. A captivating executive summary can make your plan stand out.
Lead with your elevator pitch. The elevator pitch comes from the idea that it can be delivered during the time between the closing of an elevator door and when the car reaches the next floor.
This is the same carefully constructed statement that you will use to verbally describe what your startup does and how it will make money. It’s about 60 seconds long—that’s about three written lines. Write and rewrite the elevator pitch until it is perfect and easily understood by anyone. Use the following example as a template:
[business name] solves [problem] by doing/providing [unique competitive advantage], to help [target audience] accomplish [target’s goal]. We profit by charging [target audience] to receive [product/service].
If you can’t describe your business to a stranger (who doesn’t understand technology) in a few simple sentences, you are not ready to raise funds.
Give an overview of the company’s accomplishments. Highlight milestones, strategic relationships and partnerships, as well as short-term plans to paint a clear picture of your team’s direction and foresight.
The following sections of the business plan provide the detailed information and data that supports the highlights contained in the executive summary.
2. Product: Product Validation and Product Building
Early validation makes concept stage companies fundable. The heart of the business plan is the proof that the company’s unique solution solves a high-value problem for customers in the very large markets you plan to serve. This evidence is based on your direct engagement with potential customers and asking a lot of questions to deeply understand the nuances of customers’ problems to determine if they see enough value in the solution that you envision to pay for it.
Use customer insights and other market research to explain how your product or service will solve the high-value problem that the people you talked with have. What is the value proposition from a customer perspective? From the startup’s perspective why would customers pay for your solution rather than another product in the marketplace? Would they be willing to change current processes or operations to take advantage of the solution you are creating?
Nothing gains an investor’s attention more than proof that an entrepreneur has continuously met and listened to customers in the markets the company is targeting.
Once you communicate the process of market validation, move on to a discussion about actual product and technology innovations. Keep things simple by covering only the most important aspects of the product. Don’t go overboard! include any diagrams to help an investor understand how the technology works.
If a friend who isn’t a tech-head can’t understand this section of the business plan, then rewrite it until everything is clearly understood.
Discuss how the startup will create a sustainable competitive barrier, including information about intellectual property (IP). Investors want to know how IP is protected and if it is patented, licensed, or trademarked.
3. Market: Marketing and Sales
Investors search for companies that have credibly identified large, reachable market opportunities with the potential to generate significantly better than average returns. They measure and evaluate business plans based on the size and potential of these types of markets that the startup can capture.
Demonstrate market demand with a quantified assessment of target customers and how much they will pay for your product. Narrow up available markets to the subset you intend to serve. Cite research from current trade journals, periodicals, and existing market studies, including target market growth and trends as well as any specific interest from customers or strategic business partners.
Most startups are not trying to invent a new market. Sources will sell you data, but there’s also a lot of information to gain at no charge, just by doing the legwork.
Identify early market niches and early adopters—innovative customers who need their problem solved immediately and will likely take a risk by purchasing your solution sooner as opposed to later.
Articulate the company’s marketing, sales, and partnership strategies. Is the plan to develop an in-house sales team? If so, share training and sales support initiatives. Will the company follow a distributor model, selling through other sales or product companies? If so, describe why such channels would want to partner with your company. Include a chart of sales milestones for the next 24 months.
4. Business: Business Model and Corporate Governance
Explain your pricing strategies and business model. Is the business based on a software as a service (SaaS) model? Are you charging customers by the month, the year? Is there a base price with add-ons or tier pricing aimed at a variety of specific markets? Is it a one-time purchase with the opportunity to add features or licenses s later? How do competitors price their products or services?
Startup companies face five types of risk during each stage of business development: business model risk, product/technology risk, market risk, execution risk and finance risk.
Call out the risks and then focus on describing your strategy to overcome those risks. If there are areas where you need additional help, mention those.
Every investor knows there is risk in every startup’s business plan. They want to know that you know it, as well.
Of course, even if you identify risk and ways to combat each potential hurdle, those predictions will be far from perfect. You will run into other surprises along the way. Rest assured that experienced investors know all about these surprises, too.
Depending on the stage of the business, there may not yet be a board of directors. If your company has an advisory board, include information about those individuals and their ability to advise and connect the startup, especially if advisors have industry experience and/or connections to key strategic partners.
5. Team: Management, Building Corporate Culture, Hiring
Investors invest in people first, and then technology—not the other way around. Showcase the team’s expertise and experience. List each key executive and a short paragraph of their relevant skills and experience. Emphasize key relationships that each team member has with suppliers or potential customers.
Technologists create innovative products and technologies. Business people turn technologies into successful companies.
Explain how each team member fits into the future of the startup. If there are limitations, express this, too. Investors know that you and your team can’t accomplish it all, so don’t pretend. Show that you are honest and realistic about staff needs and that future funding could be required to satisfy talent demands. Summarize key hires needs immediately, over the next 12 months, two years, and then longer term
6. Capital: Capital Access Planning, Sources of Capital, Raising Money
The business plan financials are driven by marketing strategies and milestones. Clearly state every assumption and tie them to each milestone within the business plan. Be completely transparent. Supply three to five years of financials; including an up-to-date income statement, balance sheet, and quarterly cash flows. You may find planning the financials challenging; if so, request outside help.
Relate capital requirements to milestones that will advance your business plan.
If the company needs multiple rounds of funding, be clear about the funding amounts, the milestones that drive the need, and the timing. Include these details:
- Investment opportunity details
- Funds sought
- Form of investment
- Pre/Post money valuation
- Ownership percentage
- Subsequent funding required
- Use of funds, exist strategy, return on investment (ROI)
No matter how thorough the work, these initial financial projections will be wrong. Investors know that. They are looking for indications that you recognize how important it is to manage cash flow and costs while driving the business toward breaking even.
The Most Effective Startup Business Plan Begins with You
A thoroughly researched and well-written business plan can be the make or break opportunity to demonstrate to investors that your team understands the market and offers a solution that solves a big problem for customers in large markets.
Writing the business plan is not a task you can delegate.
Choose a template that works for you. Seek advice and review. Talk to other entrepreneurs about the process. But do not ask or hire someone else to write the business plan for the company you are building. This is something you must do for yourself.
Once written, the business plan becomes a living document. The company will pivot. The financials will change. There will be surprises, good and bad. Revise the business plan accordingly. It is the basis for your investor pitch; it becomes an invaluable communication tool with advisors, investors, and the .
Rev1 supplies a series of tools, including this one to help you write a business plan that succeeds.