How to write a simple startup business plan
More than half of all startups fail. Some say more than 90%. It’s kind of scary number, partly because from my consulting experience startups are predominantly launched by smart and ambitious people. While there are many reasons why startups do not succeed, lack of proper preparation and forward thinking is one them.
After consulting many startups, private investors and launching startups myself I came to the conclusion that many startupers (including myself) did not do their homework properly before launching their business.
What might help is a short business plan. It should not be more than 20 pages PPT presentation.
When I worked for KPMG we prepared lengthy business plans for big corporate clients. When I pitched my first vc fund with my ecommerce startup, I prepared a sophisticated 5 year financial model. Nobody looked at it.
So keep it simple.
A business plan is a product itself and the first question to ask is who is the final consumer of this product. This could be:
1. Startup founders
2. Investors
- Professional vc or business angels
3. Debtors (financial institutions or business angels)
4. Customers and/or suppliers
5. Employees
First, write this plan to startup founders, i.e. yourselves! Then, use this document to prepare an investor pitch, sales pitch for business customers etc.
I will take some slides from well-known startups’ pitch decks for the illustration purposes. I like the Airbnb early pitch, so I will take many examples from there.
https://www.slideshare.net/Pitch...
Here we go:
Product
Section 1: what product/service (“product” further) you are going to sell?
Do not describe endless characteristics of your product. Figure out the following:
1. what problem are you going to solve for your client?
2. how are you going to solve this problem?
See Airbnb example for this:
3. What is the value proposition of your product?
Here is a great article on how to build a great value proposition.
https://www.forbes.com/sites/mic...
If you have time you may want to take a bit longer road and apply wonderful Blue Ocean Strategy approach and in particular Strategy Canvas and and Eliminate-Reduce-Raise-Create Grid (slide 15 below)
https://www.slideshare.net/ymike...
What is good about this approach, that it among other things incorporates competitive analysis into your product development.
Key questions to ask:
Which product features will be the differentiantion points?
Which product features will be sacrified compared to those of competitors?
Customers
Now you have a product. Time to decide:
Who are my clients?
Here, your revisit your first question: what problem are you trying to solve?
Ask the next question. Who are people that face such a problem?
One way to tackle this question is to profile your customer. For example, see how Tinder did this:
The full pitch deck is here: https://www.slideshare.net/ryang....
To have a picture is great! Gender, age, some behavior characteristics are portrayed here. We understand what type of personality he is.
You may want to go a bit further and segment your customer base. Even if you want to target a broader audience, by segmenting you will figure out which segment you will target first, second etc. See a brief instruction how to approach segmenting your customers.
http://www.segmentationstudyguid...
Revenue model
People sometimes confuse a revenue model with the business model. See definitions below to understand the difference.
A revenue model is a strategy of managing a company’s revenue streams and the resources required for each revenue stream.
A business model is the structure comprised of all aspects of a company, including revenue model, and describes how they all work together.
There are many different ways you can earn money from your customers. See some of the examples of the most popular revenue models below:
https://fi.co/posts/the-10-most-...
Many startups do not plan to make money from the very start and concentrate on user acquisition first in order to monetize this traffic later. Facebook, Instragram, Quora etc are good examples of such strategy.
Even if you do not monetize your business from Day 1, it’s good to think about possible ways to do that in the future. Obviously, this is one of the questions that will pop up in your discussion with investors.
Here is a good example how the revenue model for Airbnb is described:
Macro environment and future trends
While there is no magic crystal ball, it is worth asking how future trends may affect your startup in a positive or negative way.
One of the frameworks to use is PESTEL where you define all major macro factors that may affect your startup:
More info on PESTEL analysis here: https://www.professionalacademy....
Key questions to answer:
1. How will PESTEL factors affect my startup in the future?
2. What are opportunities and threats for my startup?
3. How should I improve my product after PESTEL analysis?
Competition
The sad news is that if you had not started exploring this section before you dived into your product, most likely you will have to revisit your value proposition section. Most likely investigating your competitive landscape will surprise you in a negative way. You will understand that your underestimated your competitors. To avoid that analyze your competition BEFORE you work on your product.
Key questions to answer:
How is competitor’s product is different than ours?
One way to approach it is to use Strategy Canvas discussed in the Section value proposition.
What capacities does your competitor have to deliver the product to the market?
What is the competitors’ business (including revenue model) model to date?
What is the competitor’s traction to date?
What are the market shares of key competitors?
Market
Key question to answer:
The size of the market and your market share?
One of the ways to gauge the size of your market multiply the price of the product by the number of users. If your technology is disruptive and you are first on the market then you own 100% of the market. If you are trying to bite some share from an existing market, then take analytics from an existing source (e.g. market research report) and try to figure your market share. Again, here is a good example from Airbnb pitch:
or Linkedin
http://startupsecretshare.com/20...
Go to Market Strategy
The good news is that big part of your marketing strategy is already finished if you already prepared your value proposition. It means you are almost done with your marketing message.
Now it’s time to build a story around your product and its value proposition. Make people laugh, cry and post it on facebook while still in tears.
Go to market strategy is the final step of your marketing strategy where you list practical steps how to acquire your users. See an example of the Airbnb initial market adoption strategy:
The article below is good place to start thinking about your marketing strategy:
https://medium.com/swlh/how-to-d...
Startup Core Competence and Capabilities
After you understand what product your market to which customers, it’s time to identify what capabalities you should develop inside your team to deliver declared value to your clients.
One of the ways to do that is to develop a value chain, described by famous Michael Porter. Here is an example how it was done for Starbucks.
http://www.investopedia.com/arti...
Key questions to answer here:
1. What capabilities do we have inside our company right now?
2. What are primary capabilities that we need to develop to beat the competition?
3. Which capabilities do we want to outsource?
In part, the answer to these questions depends on the answers to the following questions from the section above:
Which product features will be your differentiation points?
Which product features will be scarified compared to those of competitors?
People
Usually, startupers ignore this part because they are too busy with other stuff: product, marketing, investors etc.
Well, ignoring people may fire back in the future.
When I was an MBA student at Kellogg School of Management I asked of the top execs after his presentation:”Which Kellogg class do you think was the most valuable for your career?.” To my surprise, his answer was:”Organizational behavior”.
So, key questions to answer here:
- What functional capabilities should we have inhouse?
- Which soft skills are critical for our business?
- What are founders’ responsibilities?
- What is our culture?
A good example how a startup develops its HR principles can be found here. Roman Kirsch from a German startup Lesara discusses how quantifying company culture helped him in achieving his company goals.
https://www.linkedin.com/pulse/s...
Metrics and financial model
See my post here for some thoughts on financial planning.
Closing remarks:
- Depending on your startup some sections might be added or removed. For example, if your product is highly technological, more space should be provided to discuss the technology, patents etc. Again, do not go into much detail.
- Business plan should be revisited as often as major changes occur in your business
- A business plan is a foundation for other strategic documents such marketing plan, financial model, organization structure etc.
Read the full article here: How to write a Business Plan for a StartUp?! — StartupSecretShare
It has some additional information and useful links.
