Guide to An Excellent Business Plan

Guest post by Alex Fraser of Invenfin

The golden rule for writing a business plan to raise funding is simple: The shorter, the better. If you send a 60 page document it will, at best, be skimmed through. Venture Capitalists receive hundreds of plans and simply don’t have the time to go through them in detail – so keep it simple. You should also remember that business plans are fluid documents: they should be updated regularly, and be tailored to the potential funder’s mandate.

Here is what your plan should cover:

1. Company Purpose/Executive Summary

  • Define the business in a single sentence. This should be similar to your elevator pitch and should explain who you are, what problem you are solving and how you are going to make money.
  • The “secret sauce” of your business may be your technology, your business model, strategic relationships or something else – but you must have some key ingredient that will give your business a sustainable competitive advantage.

2. Problem

  • What is the burning need you will solve or are solving for your customer? Your business either needs to take away a pain or satisfy a desire for your customer or your customer’s customer.
  • How are your customers presently addressing this issue and why are the current solutions not satisfactory?
  • Why are you able to now solve this problem (e.g. new technology, changes in regulation etc.)?
  • What factors or barriers to entry have prevented this problem from being solved until now?

3. Product or Solution

  • Describe your product or solution and the “secret sauce” of the business.
  • What is your value proposition to the customer?
  • What stage of development is your business at? It should be post proof-of-concept.
  • How has the product/solution been third party validated (user testing)?
  • What further product development is needed? Set out the development plan and note the major development milestones.

4. Intellectual property

  • Who owns the intellectual property?
  • Has any of the IP been licensed from or to any third party/ies?
  • How is it protected (e.g. patents, trademarks, copyrights, software libraries, trade secrets) and where is it registered?
  • Has any work or development on the core technology or intellectual property been done in conjunction with, or by, a university or research organisation in South Africa or using funding from the South African government? In this case, the IP from Publicly Funded Research Act will apply.

5. Market Size

  • Identify and characterize your target market. Be specific.
  • How big is this market and what is your target position?
  • Are you focusing on the local market, the global market or emerging markets?
  • How do you acquire customers and at what cost?
  • How many customers to you have and what are the conversion rates?
  • Be very careful of making broad assumptions and over inflating your market size.

6. Competition

  • List your competitors: Direct and indirect, local and international. There are never no competitors. A weak competitor analysis is often a major problem with South African start-up business plans.
  • Provide a detailed competitor analysis based on the features of each product.
  • How are you differentiated? What is your sustainable competitive advantage?
  • You need to know your market intimately. The potential funder must be impressed by your market knowledge.

7. Business Model

  • Describe how the business is going to make money (revenue model) and be specific. It might be best to have a number of revenue sources, especially if it is an online business which can be tried and tested.
  • What will your average customer pay for your solution and how long will they be a customer for (stickiness)?
  • How are you going to implement this plan, as well as find and reach your customers (route to market)? Who is going to sell your product?
  • Major costs and cost drivers of the business? Are these fixed or variable costs?
  • What market penetration are you planning and what are the key success factors and challenges which you will face in order to achieve this market share?

8. Team

  • Who are the founders of the business? What are their key skills?
  • Who will manage the business and why are they the best person for the job?
  • What are the current and planned organograms? Ensure your organograme covers all key disciplines required by the business.
  • Who are your advisers or board of directors and what value do they add to the business?

9. Financials

  • Financial statements (if available): Profit and Loss, Balance Sheet & Cash flow.
  • Budget of projected costs (linked to development plan) and income for the next 18 – 24 months.
  • How much money has been raised to date?

10. The Deal

  • How much money are you looking for, and what percentage of equity are you willing to give up?
  • What part of the business’s life-cycle does this funding address? How long will this funding last for (amount of runway)?
  • You need to be frugal as this is the most expensive money that you will raise. At the same time, you need to have a realistic budget to reach the next major stage of your development, so that you can raise further funding.
  • Early stage investors (angels and venture capitalists) seek equity, do not generally provide debt funding and tend to fund on a milestone basis.

Final tips:

  • Consistency in your plan is vital. Gaps or holes in the plan will indicate to funders that the team is not clear on the direction and strategy of the business.
  • Be careful of jargon! Can someone who is not familiar with the technology understand the business plan? Explain your “secret sauce” carefully.
  • Get someone outside the business, and preferably unfamiliar with the technology, to proof read the plan before you submit to funders.
  • From this business plan template, you can then very easily build a 10-slide pitch presentation for potential funders, with additional information covered in back-up slides.

Further Resources:

The Art of the Start, Guy Kawasaki (Chapter 4: The Art of Writing a Business Plan) http://www.guykawasaki.com/books/art-of-the-start.shtml