The Business Plan
A business plan is a foundational document. Like the Declaration of Independence, or the Bill of Rights, but for your business. It sets the ground rules for how this whole thing is going to work. Sure, if you’re scrappy enough you can build a business without one. Plenty of folks have. But even if you can, you shouldn’t. A business plan provides critical structure for your concept. The process of developing the business plan forces you to think through each aspect of your business in a structured and transparent way. You are forced to write specific information down, where it can be read, checked, and referred back to. You can check your future progress based on it. You can improve upon it. You can fundraise with it. Anyone can have a good idea. A business plan is the first of many things that will stand up and challenge you. It asks: “you’ve got a good idea, huh? Prove it.”
Writing a business plan is, truly, the first tangible step towards turning an idea into a profitable company.
Audience
While this may seem obvious, it’s important to be intentional about who the business plan is written for. In my experience, there are two types: internally facing and externally facing. The internal business plan is the most important one. This is a perpetually working document. It is raw, honest, and comprehensive. The external business plan is a marketing document. You’ll find it in a prospective investment package, sitting in the corner of a Dropbox due diligence dump. This document is important too, and we will discuss it, but not quite yet.
Format
A good business plan has a relatively standard format. Luckily for all of us, there is no need to reinvent the wheel here. The important stuff are the details, the format is just the vehicle to help get us there. You can find good business plan templates on sba.gov, score.org, and pretty much anywhere else you look. Most of them are good enough. You’ll want to make sure that the plan you use or build has, at the very least, the following sections:
- Executive Summary
- Company Description
- Market Analysis
- Products / Services
- Marketing Plan
- Operations Plan
- Organization & Management
- Financials
I’m going to be building out a deep dive post for each section, because they each deserve that kind of attention. For the sake of brevity, I’ll just touch on the highlights and broad intent of each category here:
Executive Summary: This section is written last. It’s the final chapter – a few paragraphs that pull all the pieces together and summarizes the entire plan into a concise, standalone description of what you’re doing, why and how you’re doing it, and how you’re going to succeed.
Company Description: You’ll include technical details like company name, entity type, state of incorporation, stated purpose, mission & vision statements, any special licensure or certifications, tax and legal info, and other similar info.
Market Analysis: In the market analysis, you will describe the sector or market you will operate in, and to expose the market opportunity you will be capitalizing on. The more data the better. You generally don’t need to hire market research groups for this work (at this stage), but you definitely do need to put some research hours in to find as much hard data as possible. You need to prove that the market cap in your space warrants the effort.
Products / Services: You’ll be providing a detailed look at the products or services you intend to offer, retail pricing, associated costs, and projected profit margins. You’ll detail suppliers or manufacturers if relevant, and product / service expansion plans or phases for the future.
Marketing Plan: A critical and often undervalued aspect of any startup is marketing. You can have the best product or service in the world, but if nobody knows about it, it doesn’t matter. This section will detail how you plan to market whatever it is that you are selling. You’ll break this down into subsections covering a wide range of marketing verticals including print, social media, targeted marketing campaigns, paid users, etc. You’ll need to back the narrative portions up with projecting pricing and timelines.
Operations Plan: What will the day to day operations of your business look like? Who is doing the work, and how are they doing it? Where are you located, and what are the costs and benefits of doing business there? These are the kinds of questions that go into the operations plan. This is a description of how the business will operate. You’ll describe all aspects of operations during the startup phase and also as the company begins to grow. As this is a living document, you don’t need to think much beyond the first 5 years, but a lot will change in 5 years, so you’ll need to put some real consideration into how your operational needs will evolve across that time.
Organization and Management: This section details the founding team (even if it’s just you), your background and experience, and your role at the startup. It is important to define roles and expectations, as startups can quickly spiral into endless work and undefined boundaries. Set clear roles for each team member, and set equally clear work product expectations. Not only is it good for investors to see a well rounded team, putting this on paper allows you as a founder to identify weak areas, which can help you with hiring decisions.
Financials: As a pre-seed or seed stage startup, you may not have a financial history. Even if you do, you’re very likely in the red with no profitability to show. That’s ok. You aren’t trying to show profitability here. You are trying to show two things: first, if you have a fiscal history that can be shared, you are showing good money management and progress towards goals. Regardless of whether you have a history or not, the other thing you are showing is that you understand realistic pro-formas. Pro-forma financials are a very important piece of a seed stage business plan. Not because they show how you will perform financially. It doesn’t show that – whatever you produce here will be wrong, and likely by a lot. What you are really trying to show with your pro-formas are that you are smart enough to generate realistic, data backed projections. You need to have a “why” behind each Excel cell. You need to understand it for the fiscal benefit of your business, and investors need to know you understand it for the same reason.
Business Plan as a Marketing Tool
As we touched on at the beginning of this discussion, sometimes a business plan becomes outward facing. When an organization shares their business plan with folks outside of the organization, the incentives and intent shift a little bit. They shift enough, even, that a revised document is warranted. There are two main reasons for this: preserving protected information, and providing a streamlined marketing tool.
Many businesses leverage some type of proprietary object or information. Legal protection of those things is very tricky, and can also be very expensive. Often, and especially with very early stage companies, the most effective solution to protecting proprietary information is to just shut up about it. The details of such protected info will be an important part of an internal facing business plan, but if the document is headed out the door, you’ll want to make sure that anything which could cause harm to the business if exposed is removed.
The other big difference is that investors simply don’t want to see a messy, work-in-progress style document. While they intuitively know that any opportunity has thousands of risks attached, you don’t want to be sticking that in their face with your business plan. You’ll want to streamline and package the document to make it appear that while there are risks to your business, you have identified and mitigated them. Huge caveat here that I am absolutely not saying you need to play games or be deceitful in any way. I am saying, though, that you are selling when you send this document around, and you need to look at it as such.
Seed Stage Sage 