Creating a Business Plan for Your App: A Template
A plan is simply a guess you wrote down — Jason Fried, Founder & CEO at Basecamp
New app startups usually write business plans for one of two reasons. Either:
- They think it would be beneficial for aligning the founding team around a shared strategy (plus it’s what they were taught to do in school).
- They want to raise funding from a venture capital firm or angel investor.
If you’re in the first camp, this post is just for you.
The good news is that we actually recommend not spending a lot of time writing out a formal business plan. Instead, consider creating a business model canvas.
A business model canvas is a more focused and agile form of the traditional business plan. One of its advantages is that it can more easily adapt to the pivots and iterations that have become very common in modern tech startups.
1. Executive Summary
This is the first and most important part of your business plan. Your executive summary will be the first thing any investor reads, so it’s crucial that you’re clear and concise; less is more.
1.1 — Problem
A problem is a difficulty a consumer has that either has no current solution or the available solution has shortcomings. Successful businesses identify these gaps in the market and fill them with their products.
- What is your target customer dissatisfied with regarding the status quo?
- How big of a problem is this for your target customers?
- What are they currently doing to solve this problem?
1.2 — Solution
The solution is where you introduce your app. Don’t go into feature details on how your app works, instead, stay true to the problem that you just identified. List exactly how your product solves the problems you identified.
- What does my app allow people to do that they couldn’t before?
- How will my app change the status quo people are dissatisfied with? (identified above)
1.3 — Unique Value Proposition
Your unique value proposition is the factor that differentiates your company from other companies. Ideally, your company should be the only company in the world that can claim it.
You should not claim that you are simply “better” than the existing competition. To be better than everyone else you will need lots of money and time, resources you may not have a lot of.
Example: Dollar Shave Club ships amazing razors and world-class grooming products for just a few bucks.
1.4 — Objectives
This section is where the investor will check to see if their portfolio goals align with your goals. There are two things you should include here:
Success Definition: What metric or accomplishment would let you know that you succeeded? For example, this could be a revenue target or a number of customers. (Keep this to a shorter time frame [1–3 years])
Exit Plan: What is the end goal of building up your company? This could be an IPO, acquisition, or a personal cash flow.
For some investors, the company section of your business plan is the most important. It’s often the case that what you are writing about now will not be what your business eventually becomes. This is why accelerators like Y-Combinator base most of their decisions on the founding team and company potential.
2.1 — Company Overview
This first section is where you should answer the key facts about the current structure of your company (legal and otherwise).
What kind of entity is your company?
- Are you an LLC, C-Corp, or another corporate entity?
- What state was your company formed in?
- When did you form your company?
Where is your team working from?
- Are you in a startup hub like Silicon Valley or New York City?
- Do you have a remote team?
- Are you working from an apartment, office, or coworking space?
- How many employees are on your team so far?
2.2 — Company History
This is your opportunity to explain the history of your company. Talk briefly about the idea that motivated you to start the business. Then go on to explain what you have been doing since you came up with the idea. List key milestones in your progress such as major pivots, early hires, changes in location, product launches, or anything else relevant to your experience.
2.3 — Management Team
This is often the most important part of the whole company section. For every person on your management team list their name, degrees, relevant work experience, and their responsibilities in the company.
2.4 Advisory Team
Most successful startups have an advisory team that helps them with key decisions. People on your advisory team should have experience in the industry you’re competing in. When describing each member include their current positions, level of involvement with your startup, and key parts of your business they help with.
3 . Market
Entrepreneurs must be very knowledgeable of the industry they are working in. They need to know what the current climate is like, and what the latest projections say about the next five years. Make sure you convey your deep market knowledge in this section.
3.1 — Market Size
When startups are speaking about the size of the market they are competing in; there are typically three numbers that they must know.
- Total Available Market (TAM) = Total market demand for your product or service.
- Serviceable Available Market (SAM) = Segment of the TAM that you can reach through your sales channel
- Serviceable Obtainable Market (SOM) = Segment of the SAM that is most likely to be comprised of the first people to use your product (the early adopters).
3.2 — Market Projections
This section should include projections on your industry from reputable market research firms like Nielsen or Forrester. Include the growth rate for the number of companies in your industry, and the amount of money spent on your industry.
If you’re only competing in a domestic market, be sure that you don’t include statistics on the global economy.
3.3 — Competitors
You can choose any variables that accurately slice your competition for the X and the Y axis. Some examples that may work for you are level of functionality, niche or broad focus, customer base size, and pricing.
Tip: Never place yourself in the top right corner of the matrix. Investors will see right through this. Think about how you want to position your company. It’s unrealistic to be the best at everything when you’re competing with existing companies.
3.4 — SWOT Analysis
The SWOT analysis is your opportunity to objectively weigh how you stack up in the market and against your competitors.
SWOT = Strengths, Weaknesses, Opportunities, and Threats.
Be as forward as you can with your weaknesses and threats. No business is perfect. If you make it known that you are aware of all your potential problems, then your investors will know that you are aware of and working to minimize any risks your company may have.
4 . Marketing Strategy
In your marketing strategy, investors will be looking for a realistic strategy that will get your product into the hands of your customers/users. Most marketing plans are iterated many times, so the most important thing is that you are thinking diligently and realistically about how to achieve the growth you need.
4.1 — Customer Acquisition Strategy
Here, you can lay out your general strategies for acquiring new customers. Talk briefly about each channel or tactic you plan on acquiring customers through. Give a realistic expectation of how much it will cost to acquire one customer (CAC) from each channel. It’s important to be as quantitative as possible here. A large portion of the funds you obtain will go towards growth, so investors need to know how much risk your growth plan has.
500 startups have a great video about how to “Run Growth Like A Hedge Fund” to give you an idea of what investors are looking for.
4.2 — Product Driven Growth
If your business model requires a large mainstream user base, it’s important to build a referral program into your app to leverage network effects. Two apps that have used this successfully are Uber and Houseparty. With Uber, you get a coupon on your next ride, and your friend also gets a coupon for their first ride. Houseparty has built their entire app around the process of inviting your friends.
4.3 — Key Metrics
It’s very easy for startup founders to focus on what’s called “vanity metrics” or metrics that make it seem like you’re doing well, but in reality, you’re not on a route to a sustainable business.
Pick one or two metrics that you plan on focusing on that matter specifically for your business. For example, if you’re a social app daily active users might be more important than your total number of downloads.
5. Financial Plan
After your investor has read through all of the other sections, it’s time to show him/her exactly what kind of capital you need. Make sure your investor knows exactly where their money is going.
5.1 — Monetization Strategy
Some of the most common ways to monetize an app are:
Advertising: Are you a large social app? Do people spend time scrolling through your news feeds? If so advertising may be a great way to monetize.
Paid: Most apps nowadays don’t rely on paid models. People have a high aversion to paying for an app up front; they like to download and pay later once they know it’s worth it. If you have a paid app business model, explain how you will get over this hurdle.
In-App Purchases: In-app purchases are a very common monetization model nowadays. We see these most common in games, and other apps that involve gamification.
Subscription: Subscription models work because they continually bill people until they decide to stop the subscription. Headspace is an example of a very popular subscription-based app.
5.2 — Startup Costs
Your investor needs to know what his/her money will be used for. While it may be difficult to know the exact numbers, be sure that you put reasonable estimates, and leave some room for emergency costs that you will undoubtedly run into.
Make sure you specify the payment frequency and the price stability of each expense in your list.
- One time Costs: Something that you’ll only pay for once (i.e. incorporating your business)
- Recurring Costs: Something you have to pay for on a recurring basis (i.e. rent, inventory, insurance)
- Fixed Costs: A price that will remain the same no matter the state of your business (i.e. rent, utilities)
- Variable Costs: Something that will change quickly as you scale (i.e. employee salary)
5.3 — Funding Required
Finally, the last section is where you will ask for the funding that you need. Answer these questions about the structure of the deal:
- How much money do you need?
- What percent of equity are you proposing you give up?
- Will this be a convertible note or preferred stock?
- How long will this money last you before you need another investment round? (Runway)
That’s it! If you follow the format above, your next step will be pitching to an investor.
To learn more about what it takes to turn an app idea into a scalable and successful business download our PDF.
This post originally appeared on our App Partner resource center. Click here for more.