In our last article we continued our series on how to start a successful business with a look at how to know if you need a patent or trademark for your business. In today’s article we are going to continue that series with a look at how to write a business plan in 10 easy steps.
Do you need a business plan?
Over the last several years there has been a growing debate about whether or not a business plan is a waste of time. Those on the no business plan side of the argument, (which is being lead by UC Berkley’s Steve Blank) argue that the time spent writing a business plan is better spent out talking to customers about the product or service you plan on developing.
As we talk about in our article on how to test your business idea, we agree that you need to go out and talk to people about your business to make sure there is demand before you build it. However, we also think a business plan is stills a valuable part of the success equation when starting a new business.
The components of a successful business plan.
If you are writing your business plan for yourself and staff, then we do not recommend doing anything super extensive. A better approach is to put together a short and to the point presentation using powerpoint or keynote. This is also the format that many venture capitalists like to be pitched with, so if you plan on raising outside money, this format will often work for that as well. If you are going to need a more extensive plan this is still a good place to start, and we discuss how you can expand it later in this guide.
The format outlined below is taken from the writing a business plan page of Sequoia Capital, a well known venture capital firm.
Step 1: Company purpose – (1 Slide Max)
Coming up with a simple explanation of what your company does is essential to selling your business to your future customers and others. This should be one sentence:
Here is an example from Airbnb a website where people can rent rooms out in their apartment or homes to travelers on a short term basis.
“We connect people who have space to spare with people who are looking for a place to stay”.
Step 2: Problem – (2 Slides Max)
If you have read our article on how to come up with a business idea, you know that the biggest mistake that new entrepreneurs make is starting a business that solves a problem no one has. In this section list the problem that your company solves, along with examples of how people are currently dealing with the issue.
AirBNB Example: Before airbnb there was no good way to connect people who had short term space to rent with people who wanted to rent it.
How did people deal with this issue before airbnb? They would either not rent out the space at all (missing out on that potential revenue) or they would use fragmented sources like word of mouth or Craigslist.
Keep in mind that it doesn’t have to be a major world issue, if your city doesn’t have a good mexican restaurant then that may be a problem as well.
Step 3: Solution: (4 Slides Max)
As we also outline in our article on how to come up with a business idea, the best businesses provide good solutions to problems that people have.
airbnb example: They provide an online platform which facilitates the connection between people with space to rent and people who want to rent it. They make the process smooth by handling the payments, providing insurance to the rentee, and providing reviews of users to both the rentee and the renter.
Here you can also provide use cases if you are a service or screenshots if it is a product.
Step 4: Why Now? (2 Slides Max)
Describe how the company got to where it is today. This is where you could include how you came up with the business idea, and what you found when you tested your idea.
What recent trends make your idea possible? For Airbnb one such trend was likely people’s increasing comfort with relying on online reviews and making purchases online.
Step 5: Who is your target customer? (2 Slides Max)
Describe your target customer based on personality type, income level, age, gender etc.
How big is that market? For more on how to calculate the size of a market read the article 8 Steps to determining market size from insight central.
Step 6: Competition (1 Slide Max)
Who are your primary competitors and what are your competitive advantages?
List out the primary features of your competitors product or service and how your product or service is better or different. A table format such as the one below generally works well for this.
Step 7: Product (2 slides Max)
What is your product or service and how do you plan on developing it? In the problems and solutions slides we talked about earlier, you are listing the benefits of your product or service to the end user. In this section you are talking about specific features.
Give the timing for each phase of the development process through launch.
Step 8: Business Model – (3 Slides Max)
This section should answer the following questions.
How do you plan to price your product and what will your profit margins be? For more on how to price your product or service read this great guide from Elizabeth Wasserman at Inc.com
How do you plan to sell your product? Are you going to sell directly to customers, wholesale or go through distributors?
For an in depth overview of sales and distribution strategies see this guide from Shorey Consulting. For more on online sales and distribution models see this great guide from the folks over at Yeoman Technologies.
How do you plan on getting the word out about your product or service?
Jessica from Shoestringmarketing.com offers a great 60 page guide about how to market your product or service on a budget, which you can download in exchange for your email here.
For more on how to come up with a business model read How to Design A Winning Business Model by Ramon Casadesus-Masanell and Joan E. Ricart at Harvard Business Review.
Step 9: Team – (1 Slide Max)
Who is on your team, why are they rockstars, and who is responsible for what. If you have outside advisors include them here.
Step 10: Financials (3 Slides Max)
This is where you try and predict your monthly revenues and expenses and how those will grow over time. Focus on the next 12 months.
Warning: Founders almost always underestimate how long it is going to take to reach profitability and how much money they are going to need to fund their business. While its the job of a company founder to be optimistic, it’s important to be realistic.
For a great laymen’s overview of how to put together your business plan financials see this 3 video series by the founder of Palo Alto Software and Bplans.com Tim Berry. For templates you can use to do so visit the business plan templates section over at SCORE.
How to Expand Your Business Plan When Needed
After going through the above process you should have somewhere between 15 and 20 slides giving you a solid overview of your business and how it will be run. If you are planning to raise money, then for some sources (such as friends, family, and certain venture capitalists) this may be enough.
If you plan on trying to get a loan from a bank, then what we outline above is a good start, but you are likely going to need to have a more extensive written plan to go along with it. For this we recommend the business planning software by LivePlan which you can find here.
If you prefer to go the free route, then the folks over at SCORE have some great templates you can use, which you can find here.
That’s our article for today. If you have any questions or comments please leave them in the comments section below. Also be sure to read the next article in our series on how to start a successful business which covers how to raise money for your business.
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Other great business plan resources:
Accion: Business Plans 101
Roy Rodenstein: Examples of the best pitch decks on slideshare.
Dave McClure: How to pitch a VC
MasterPlans: Professional business plan writing.