A Good Business Plan is a Window into your Idea
Date: Tuesday , November 01, 2011
Every aspect of a business is important; and the business plan is one such aspect as it helps form the initial interface between the start-up business and its investors. Even more importantly, writing the plan forces details to be fleshed out and vague ideas to be clarified that would otherwise stay vague within the spoken word. Mentioned below are some points to keep in mind before we discuss the business plan itself.
1. All business plans are work-in-progress and will have unanswered questions. If all the answers were available, then the company would not be a startup. The plan is a starting point and not an end point of conclusions.
2. Every topic covered in the business plan will be incomplete but to different levels, because not all aspects of a business can be equally well thought through from the get-go. However, it is still important to give some thought to each topic.
3. The plan will evolve both during conversations with investors and of course during execution. Don't be afraid to change things as long as you know and can articulate why.
4. Prepare the plan at multiple levels - for introductory conversations keep the material very concise and ideally restricted to less than 15 power point slides. Different people will dig deeper into different areas depending on the person talking to you. So be prepared to go deeper, but not right away.
Now I would like to discuss some of the topics that should be covered in a plan: 1. An articulation of the problem being addressed - This includes both “why” and “how”. The “why” is usually more important than the “how” because it captures the value proposition on why someone would pay for this problem being solved.
For example, consider an enterprise software company. Understanding why an enterprise will pay for the software is very crucial. The process of building the software is itself not as complex. Even in those cases where the “how” is complex, the why is often more important because in such cases where the reason is evident, there is usually an existing solution and the question becomes why this solution is better than the ones before. For example, a better encryption algorithm is good but there are older ones and the question becomes why this one will be more useful. One of the most important issues to think about in this context is the set of alternate solutions the customer may have.
2. How this solution will be taken to market - The problem of selling things is often harder than building the solution because there are so many competing demands on a customers money. This is also the hardest question to answer right upfront because without actually taking something to market it is not clear what one will find. That is OK. One should try to articulate whatever best is currently visible. 3.Why this team is well positioned to get the business started - and what other roles are needed to complete the team. Teams are always incomplete, even when the company is large. Being aware of what is missing is the key.
4.Market size - What would a customer pay for the solution, how many customers there may be and what share of the market could one reasonably hope to get? For e.g., in the car retail business the amount spent on a car is not important - it is what the retailer gets to keep. This simple point is overlooked very often.
5.Forward looking financials for the company. The financials will likely be crystal gazing at this stage but it helps precipitate the process of estimating what it will cost to run the business. It is very likely that revenue numbers and expenses will all be different in reality but by doing this exercise there is some chance that some answers may emerge and that at least there is the beginning of the process of keeping track of company financials. At the end of the day if money runs out, even the best plan will fail.
6. Competition - It is important to be aware of alternate ways a customer will solve the problem you are tackling. For example the local pot-makers were not competing with each other but with the factory in the city. So its important to realize that “credible alternatives” should be viewed and not just direct competitors.
It is worth spending a few more sentences on the characteristics of the team itself. I have not found any formula for what makes a successful entrepreneur, but, there are some common traits that I have come to believe in.
*Intellectual honesty - The ability to recognize facts for what they are.
*Emotional energy - Building a company is very demanding and requires inordinate energy infusion from the team.
* Thinking big while executing small - This way progress is made while not shooting for something mediocre.
* Ability to enthuse others about the journey - If others cannot be taken along on the journey then it will be lonely. This is also a key skill for being able to sell in the beginning.
The author is Senior Managing Director, Helion Venture Partners