It’s a well established fact that writing one’s ideas makes them coherent and clear. A very famous screenwriter William Zinsser had once said, “Good writing is clear thinking made visible.”
This inherent connection between writing and clear thinking is the reason why entrepreneurs should write their business plan.
A business plan is nothing but a detailed memo that explains a company’s business goals, financial requirements, and actual steps that the company will take to achieve those business goals.
Structure of a business plan Executive summary |
Reasons to write a business plan
Very often business plans are written as a means to raise funding from either angel investors, banks, or VC funds.
They also act as a roadmap for senior executives to keep the business on track and bring every employee on the same page.
It is advisable that as the company grows, markets evolve, new competitors come in, and technological advancements happen, founders should revise their business plan.
There are different types of business plans and each of them serve a different purpose. Largely, they can be categorised as internal and external business plans.
The internal business plan is for the consumption of the employees. Reasons to write an internal business plan include:
- To motivate employees
- To announce a change in business strategy
- Setting context for employees’s roles and responsibilities
- Communicate company and individual goals
An external business is needed when:
- The company needs to raise funding
- Hiring and attracting top talent
- Looking for a new partner or co-founder
How to write a business plan
Even if founders know the ins and outs of their business, writing a business plan is quite challenging. Putting down the thoughts and plans in a coherent manner is no easy task.
We are listing down some easy markers that founders should keep in mind while they write a business plan:
1. Executive summary
This is ideally a one-page summary of the business plan. It should include a quick introduction of the company, products and services it offers, market size, and a broad summary of the company’s financial growth.
Founders should convince investors why their company is better than the others operating in the same industry. Executive summary should be treated as an elevator pitch to investors.
2. Business description
This is the place for founders to go into the details of their company, the problems it solves or aims to solve, different products it manufactures or services offers, and if applicable, the number of intellectual property rights the company has.
It is important that this section stresses on the company’s competitive advantages over other players, why customers prefer to use their product instead of their competitors, etc.
Founders should feel free to boast about the business, products, and key partnerships with the government or a big company.
At this point, investors want to have an idea of the company’s past growth curve and its expectations to grow in the next three to five years. Providing them the metrics that are used to track the growth, and giving details of the company’s future growth trajectory will help.
3. Founding team
Introduce the founding team members, key executives, and provide the total team strength. It’s important for founders to know the background of the people they choose to invest in.
Founders can also highlight their major accomplishments, past work experiences, projects they have led, and most importantly the story and motivation behind starting this company.
4. Market analysis
Founders who are looking to raise money have the responsibility to inform investors the market size, problems that customers face, opportunities available, and the current products in the market.
To make a positive impact on investors, it’s important that founders do a PESTEL analysis of the market.
What is PESTEL Analysis? It is a framework to analyse the business environment of the industry a company operates in. PESTEL stands for: Political Economic Social Technological Environmental Legal |
The PESTEL analysis will give investors a proper understanding of the industry, what’s currently happening in the industry, and where the company stands among all this.
This will also apprise investors on how the government and other local bodies see the industry.
For example, if an electric vehicle (EV) company wants to raise funding, VC funds would want to know the government policy regarding EVs, current status on the availability of infrastructure, customer sentiments for EVs, and what other companies in this industry are doing.
Investors would also like to know how the industry is expected to change in the next 10 years and if the company is prepared to tackle such changes.
The main aim of this section is to convince investors how this company stands out among its competitors.
5. Customer segmentation
Since customers hold the key to the company’s success, a business plan should have an elaborate customer profile that includes their age group, average yearly income, sex, education, profession, etc.
Founders should talk about their customers based on the following pointers:
- Customers’ problems
- Customers’ willingness to pay
- Customers’ motivations and reasons to buy the product
- Customers’ mindset
- Customers’ buying journey
Founders will have to give investors’ a peek into the customers’ psyche, the challenges these customers are going through, and their willingness to pay for a product that solves their problem.
This is the time to talk about customers’ key motivations and reasons to buy the product or service that the company sells.
Founders should be mindful of the fact that investors would ask for hard proof and the metrics that the company has used to track customer experience, their motivation, and other such consumer insights.
At the end of this section, investors must be convinced of who the company’s customers are and that they will be willing to pay for the product or service the company is selling.
6. Competitive landscape
Painting the competitive landscape should start by naming main competitors, how customers perceive them, how market experts look at their products, pricing, and capabilities to innovate.
Investors need to know the following:
- Competitors’ key products and services
- Pricing strategy
- Unique marketing and sales strategy
- Advertising expenses
- Quality of customer service
Founders should add a section within this to talk about points of parity and points of differentiation of their products and services. They should give details of the unique offerings their products have compared to competitors.
While talking about the competition, founders should circle back to the customers and mention how other companies have not been able to fully satisfy customers’ needs.
7. Mission statement
Now that the investors have the context about the market, company, and competitors, it makes better sense to put the mission statement in the middle.
This part of the business plan should contain the ethos of the company, what the business wants to achieve, and how it plans to do it. This should also feature a brief description of the company’s top products or services.
In addition to the company ethos and description, list out a few immediate growth plans. This is specifically important if the reason behind writing the business plan is to raise funds.
This section should make investors realise how the company’s mission perfectly aligns with everything that they read before this.
8. Products and services
This is one of the most essential parts of the business plan. This is where the real meat is.
Founders should start by talking about the key problems they aim to solve through their products or services, why they think this is the most important problem to solve, and what capabilities the founding team has that makes them the right team to solve the issue.
Next comes the product description. Here founders should talk in detail about:
- How the product or service works
- Talk about the key technology used to make the product
- Mention intellectual property or patents filed
Here investors would like to get into the details of the product such as its pricing, how it fares compared to competitors’ pricing, whether it will be available online, in stand-alone shops or shopping malls.
9. Financial projections
The next part of the business plan is to add the financial goals the company has and an actual on-ground strategy it will implement to achieve them.
Investors need to see the company’s balance sheet and would be specifically interested in the following numbers:
- Revenue
- Profit or loss
- Cash flow sources
- Cost of manufacturing
- Customer acquisition numbers from the last few years
Next, they would want to see how healthy the company’s unit economics is for each customer. Company’s valuation would depend on these factors including, cost of customer acquisition, customer’s lifetime value, etc.
Investors would like to see the company’s financial projections for the next five years as well. To be more specific, use quarterly or monthly projections – at least for the first few years. This should be quite detailed that includes budgets for capital expenses, forecasted income statements, and cash flow statements.
The aim here should be to convince investors that the business is viable, stable, and with a little investment is set to become a financial success.
10. Estimated funding requirement
Simply stating the amount the company needs is not enough. Founders should inform investors how and where the company is going to spend the money.
If founders need money to expand to new markets, they should ideally explain why it’s important to be present in those markets. The reason behind raising funds should be water-tight so that investors are convinced of backing the company.
Founders are also required to provide investors with an exit strategy that will allow them to make money on their investment. This exit strategy could either be getting acquired by a bigger competitor or going public.
Founders’ intent here should be to make their argument so strong that investors would want to put their money in the company.
To sum it up
The strategy behind writing a business plan will change based on the intent behind it.
In any case, a business plan is often a founders’ guide book, which they can refer to whenever they feel like. It is also one of the most important documents a company will need during raise funding.
An ideal business plan will have an overall mission of the business, throw light on the market size, what competitors are doing, who their customers are, talk about its products and services, and show the financial projections to investors.
