Business Plan-Steps by step Guide
- Executive Summary
- Vision & Objectives
- Product & Services Details
- Market Opportunity
- Partnership & Alliances
- Operating Strategy
- Technology & Product Development
- Current Acquisition & Generation
- Audiance Development & Marketing
- Operations
- Finance Plan
- Management Team & Key Poeple
- Implementation Plan
- Executive Summary
A good executive summary is as important as the rest of the plan itself. It gives the first impression about the venture to the VC. It should be convincing and stimulate their interest to go through the rest of the plan on an optimistic note. The executive summary is not an introduction. It should be a stand-alone document. Imagine that the VC has just ten minutes and you want to convince the person to invest in you with that single sheet of paper.
It should provide a brief overview of the product/service, the target markets, the key alliances, your competitive advantage, management team and a summary of the valuation and the financial requirements. A well-written summary may not convince them to invest in your venture, but a poorly written one could convince them not to.
Test it out with as many people as possible before giving it to the VC.
- Vision & Objectives
This section should explain what your idea is and how you want the venture to grow into a successful company. Discuss how your company will be structured and what the goals are.
What is the idea? Is it a killer idea?
What customer segment are you targeting and what need are you satisfying?
What is the background of your venture?
What are the medium and long-term goals?
What will your venture do differently? Will your venture change the rules of the industry?
- Product & Services Details
Explain in detail what your product or service is and how it is different from and superior to ones that are present currently. Also, explain what the different features are and how they will help the customer.
Product/service concept
Value proposition
- Who is your target customer?
- What are their needs?
- How does your product meet them?
- What is necessary to realize this customer value?
- Why is your product/service superior to existing ones?
Features and details
What are the different features your product/service will have?
Are there different versions of the product? If so, how will they be different and when will they be introduced?
- Market Opportunity
Market opportunity
The larger the market, higher is the possibility of growth. Also, a clear understanding of the current industry structure and how your venture will fit in is critical. While discussing the potential size of the market you need to take care of all the important factors that affect demand and how you arrived at the market size estimate. You also need to enumerate the key assumptions, so that the VCs can understand how you arrived at the conclusion.
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Industry Scenario
Industry scenario and target market
Does the market exist already? Or is it a latent demand you are satisfying?
What are the latest technological and economic developments in the industry?
Are there government regulations?
What factors determine the market's growth?
What are the entry barriers for new players and exit barriers for existing players?
How do you segment the market? Why?
What are your target customer groups?
Who would be some typical customers?
Who are the decision-makers for the customer?
What are their key buying factors?
- Market Potential
What are total sales volume and revenues for the industry? What are the trends?
If it is a latent demand, how do you estimate the potential market size?
Is it just a local market or international market?
How sensitive is your market size estimates to assumptions made?
What is the optimistic and pessimistic scenario?
- Competitive Advantage
Competitive landscape - current and potential
What major competitors offer similar products?
What new developments can be expected? Who else could enter the market?
What are your competitors' target markets?
What market share do they have?
How do you estimate their profitability, now and in the future?
What is their strategy? Products? Region?
What is their marketing strategy?
How do you compare to key competitors in terms of development, marketing, and location?
How sustainable is your competitive advantage?
- International Scene
Are there any international companies that have similar products or services?
What are the learnings from their experiences?
- Partnership & Alliances
To succeed in a rapidly changing environment, partnering and alliancing is crucial to the rapid growth and even survival of companies. A well-thought out plan should have details of the potential partners who can come in at different stages for various reasons.
There are innumerable ways of partnering. Some of the common ones are:
Strategic alliances
Content partners
Technology partners
Marketing partners
For each category, the plan should elaborate on
What is the list of companies one can tie-up with?
What will be the nature of agreement?
Does this fit into the overall business plan?
- Operating Strategy
This section is to discuss the key elements of how the venture is planning to build and market the product/service.
- Technology & Product Development
Technology/Product Development
Do you already have the technology? If not, how do you plan to buy/build it?
What stage of development is your product in?
Do you plan to get patents for your product?
What technologies do you plan to license from others? How much do they cost?
What are the important development milestones to reach?
How does your product compare overall with that of competitors? Strengths? Limitations?
How do you plan to keep the technology ahead of competition?
- Content Acquisition & Generation
Content here is broadly defined and will vary depending on the venture. If your venture is a web portal focusing on students, you might need to build a database of educational institutions, courses offered etc; if your venture is a travel-related site you might want to have articles on the interesting places to visit in India and so on. There are also ventures in which the content will be built by your customers - Amazon, for example, where customers provide feedback on the various products they buy from the site, which will act as a guide for future customers.
There might also be cases where content might play a relatively small role - typically in B2B ventures - which will focus on providing some tailored services.
What kind of content does your venture need? How critical is the content to the overall success of the venture?
How often will it change? How fresh will the content be?
What are the different sources you are planning to set up (in-house, customers, tie-ups etc.)?
Will the content be proprietary and act as an asset?
- Audiance Development & Marketing
The issues dealt in this section will depend on the nature of the customer segment you are targeting, i.e. businesses or consumers.
If the customer segment is business users (B2B):
Do you already have your first customer? Who are the customers you are already talking to/ targeting in the first round?
How do you plan to introduce your product? (trade conferences, direct marketing etc.)
How many customers/projects do you plan to get each year?
What are the innovative marketing/ sales strategies you are planning?
How do you plan to retain your customers?
What role will your partners/alliances play?
What is your pricing strategy? Will you do your first project at subsidised rate to gain entry and use that to build your experience? Will you have a standard pricing package or does it vary with customer?
What will be your marketing/sales team? Where will they be located?
If the target market is consumers (B2C):
How many customers do you plan to reach in every quarter (how does this number ramp up)?
What is your initial launch strategy?
What is your advertising plan? (What media do you plan to use for advertising? What is the response you expect from advertising? How do you plan to spread your advertising budget?)
Are you tapping/ tying-up to access a database of existing customers?
What are the promotions you are planning? (free- trial period, initial discounts etc)
How are you pricing your product?
How will customer service be done? (post-sale follow-up, hotlines etc.)
- Operations
The complexity again varies with nature of product/ service. Taking an example of an e-commerce venture where the complexity will be high, some of the main issues to be addressed are:
How do you source the products?
How do you plan to fulfil the orders? (Where will the goods be stored and delivered from? Who will ship the product? How many points of pickup will you have?)
If you have tied-up with external vendors and merchants - how will they be informed and how will you ensure that the order is serviced?
How will the payment system work?
How will you handle customer complaints?
Are there sales tax and duty related issues?
- Finance Plan
How should you decide whether you should do a five-year cash flow projection or a ten-year projection? A lot of people are confused here and make too many theoretical calculations which finally might not make sense. People who are planning innovative products/ services often force a traditional cash flows analysis where it is not required.
The answer is simple. Look at your strategy. If you know what you are going to do for the next ten years, do a ten-year cash flow analysis. But if you are in a rapidly changing industry and you don't know what will happen after two years, there is no point in making a five-year cash-flow analysis. Just project revenues for the next two years. Of course, this will not capture the entire value you will create in your venture. This is where trying and using alternate mode of valuations will help.
One approach would be to focus on the options your venture would generate at the end of two years and what that opportunity is worth. Depending on the value of that option you could arrive at a valuation for your venture by using an appropriate market cap-to-revenue multiple. A higher multiple would mean that the options are more valuable. (The exact multiples to be used can be got by looking at similar ventures in your area and what multiples they have got. For example, a multiple of five to ten is normal for a company involved in IT services).
The other approach is to value your business on the assets you create rather than on the actual income. For example, you could use the customer base you create, or if you are planning for a portal venture, you could use the number of page views you will get at the end of two years etc. Another thumb rule floating for dot com companies is that a page view a month is worth $10 - isn't that easy?
Typically a mix of cash-based projections in the initial period and a value-based projection after that should suffice.
- Traffic & revenue generation
The focus here is to explain the various sources of revenue and how you are planning to make money. Typically, there are four kind of revenue streams:
Transaction revenues - This is the simple form of revenue stream where a customer pays as and when he uses the product or service (like in shopping malls - people pay per usage).
Subscription revenues - Typically these are one-time, annual or monthly fees that are paid by your customers for your products and service. (like web hosting charges for two years; magazine subscriptions etc.).
Advertising revenues - These are typically for B2C ventures that aggregate consumers and provide a platform for advertisers to target (like portals, contest sites, online magazines etc.) The word advertising is loosely used here. It refers not only to direct advertisements but also includes lot of innovative promotions, cross-selling revenues etc.
Asset-related revenues - These are the revenues obtained by selling the assets built by the venture over a period of time. For example, selling customer databases, licensing content and technology developed to other companies. Though you might have developed some technology to serve your customers, there could be ways to sell the unique technology to other non-competing companies and make money.
The venture could have a mix of all these revenues as well. The focus here is not so much on the numbers as on your plan to tap these sources.
Projecting traffic or market size, particularly where the demand is latent, is difficult. An easy way out is to arrive at the numbers for two-three different routes and cross-check if the numbers make sense.
Top-down approach - This approach will be useful, especially in latent demand situations. For example, if you are building an e-trading site, it might make sense to ask questions like what will be the total volume of trading in stocks at the end of three years? If ten per cent of the trading can be assumed to move online by then, what is the total market size I am looking at? This approach will give you a macro-perspective
Bottom-up approach - In this approach, try to project the way you are likely to increase your customer base and see how the numbers work out. If I start with 1000 subscribers initially and grow at twenty per cent every quarter, what will be the total number of subscribers I will have? If the average trading by each of them is Rs 10,000, then what will be my estimated revenue? This helps you to identify if the assumptions you are making (such as twenty per cent growth every quarter) are realistic and will help you refine your numbers.
Market-share approach - Look at the strategies of competition and based on your action plan, estimate the market share you are likely to get. This approach would of course be relevant when the industry is reasonably stable.
These approaches are not exhaustive or mutually exclusive. One can always come up with a creative way of looking at how the market will evolve and how that will translate into traffic or revenues.
And finally, the acid test. People often make the mistake of delinking the numbers from the overall strategy they have in mind. Look at the numbers and do a reality check to see whether doing what you are planning to do (with the resources at your command) will help you get the numbers you are planning. If you have projected 50 per cent market share at the end of two years, you better have something really, really different in your approach that will redefine the market!!!
- Investment & Operational costs
This again ties up with your previous section. Estimate the investments required and the costs that will be incurred to implement the action plan that will give you the necessary revenue numbers. Higher market share in a competitive market, for example, will imply huge spending on marketing.
- Financial Needs
Having decided the plan and the cash outflow required, how much investment is required at different points of time?
Who you are planning to raise it from?
What is the debt and equity required? · What is the amount you plan to raise in this particular round?
- Valuation of Business
What are you valuing your business at? This is primarily based on the financial projections made. How much stake in the company do you want to give the VC in return for the investment? The exact stake offered to the VCs might sometimes vary from one VC to another, based on the other value they bring to the company in the form of a customer, privileged relationships etc.
Ownership structure
Who are the other investors and how much are their stakes?
What is the amount of ESOPs (employee stock options) offered to the employees and when will they vest?
Risk factors and challenges
What are your company's principal risks in terms of market, competition and technology?
How do you plan to deal with these risks?
What are the key assumptions made and how valid are they?
How will your plan look under the best and worst case scenarios?
- Management Team & Key Poeple
This section is one VCs will be very interested in. They might even jump to this section directly after they read the executive summary. Project the management team and the skills/experience well. Discuss the complimentary skill sets and the relevance of the experience to the current venture.
Other than the core management team, discuss the angel investors and external advisors who strengthen to the venture. Also discuss the compensation structure and ensure that some part of it is linked to performance.
What have been the career paths of management members and key people with know-how? What are their skills?
What kind of professional successes have they had?
How is the organization to be structured?
Who will be group or unit heads?
Should management be strengthened in any particular area?
What will the compensation system look like?
- Implementation Plan
- Road map * Action Plan
What is the launch date?
What are the key milestones in the growth of the venture?
What are the important activities? Who will own it? When will it end?
What are the different versions? What will be different among the versions? When will they be launched?
- Organisation /resources/other resources
What are the non-financial resources required to implement the action plan?
How many people do you require in the different functions and what role should they play?
What are the other resources required?
- Critical success factors
What are the critical success factors?
What is the contingency plan at every step?
- Key perfromance measurements
What are the parameters that need to be tracked to monitor the progress of the venture?
What will be the targets on these parameters?
What are the contingency plans if these targets are not met?
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