Making a business plan
Many people believe that a business plan for a startup, especially one at the pre-startup stage of development, is a fiction that it is not necessary to do it, and if it is done, then you can do with formal words. However, such startups remain, as a rule, without investments. Unless, of course, they attacked some sucker investor: one of the successful Russian startups told me that among the business angels to whom he presented the project as part of cooperation with one of the Russian networks of business angels, there were also mistresses of oligarchs - "real blondes" according to him - to whom their sponsors gave money so that they bought a business for themselves and engaged in it, and would not take out the brain of their "daddies" from idleness; so, according to this startup, it was more important for such "investors" to like the startup itself, and not the project.
However, all other investors will need your business plan, and they will study it very seriously. They need this document not so much for the payback figures that you give there, but in order to understand how deeply you have studied the market in which you are going to operate, and whether your product/service will be in demand by your target audience, which should bring money to the startup. Therefore, the preparation of a business plan should be taken very, very seriously. This document is primarily a kind of questionnaire for yourself - have you studied the market enough, have you thought everything through in your project. Personally, I always draw up a business plan for my new projects - it doesn't matter whether I'm going to attract investments or not - before starting their implementation, and always with figures. For myself and for a better understanding of what I want, what I have to do and whether I can do it myself or I will have to involve someone. In 99% of cases, the amounts that initially seem to me sufficient for the implementation of the project increase by 2-3 times - due to thinking out those little things, of which, as you know, the business develops.
Nevertheless, the business plans of startups who want to see venture funds are slightly different from the standard business plans that can be found on the Internet. First of all, the fact that venture funds need accents placed a little in other places. Therefore, the structure of the business plan below contains the requirements that venture funds impose on such documents. The above document, in particular, was compiled by the Alliance ROSNO Asset Management venture fund, but other venture funds will be satisfied if you present them with a business plan that exhaustively describes all the points mentioned below. I will devote the next couple of weeks to a detailed explanation of each item that needs to be described in the business plan (and which you need to know for yourself!), illustrating this with examples, including from personal experience.
Structure and content of the business plan submitted to venture fundsExecutive Summary of the project
• Market size and capabilities
Here it is necessary to describe the size, dynamics and opportunities of the existing market of the proposed product or service. Cite the main competitors, if any, and also describe their capabilities, both financial and non-financial. It is necessary to describe the trends and problems existing in the market.
• Product This section of the executive summary is intended for a brief description of the proposed product or service, its characteristics and main differences from similar competitor products or services.
If this is a new product that is still under development, then it is necessary to briefly describe the stage at which the product is being researched or finalized.
• Team
In the section it is necessary to give a brief description of the existing management team.
• Business model It is necessary to describe in several sentences the business model of the proposed product, namely: how the production and sale of the proposed product or service to end users is planned.
• Investments
The section should describe the size and purpose of the requested investment. It is also necessary to indicate what goals we would like to achieve after attracting investment in the project.
• Output It is necessary to determine the timing of the investor's exit from the project, as well as to give suggestions on ways for the investor to exit the project.
1. Market and industry1.1 Market development prospects
The current section describes the market of the proposed product or service.
It is desirable to give the dynamics of the existing market, as well as to give forecasts on the prospects for growth, changes and development of the market. If there is access to professional research regarding the market opportunities of the presented product or service, it is necessary to provide a link to these studies. It is also necessary to describe important trends and events taking place or planned in the market in question.
1.2 Market size, segment and potential consumers• 1.2.1 Potential consumers
Here it is necessary to give a complete and detailed description of potential consumers of the proposed product or service. If this product or service is the final product for retail customers, it would be interesting to see the structure of consumption and income (size, by country/region) of these consumers. If the potential consumers of the proposed product are commercial enterprises, it is recommended to characterize these consumers: market share, their annual turnover (if available), the share of the proposed product in the consumption structure of these enterprises, as well as the trend of business development of the described consumers.
• 1.2.2 Segment of the offered product / service
The segment of the proposed product/service is understood as a niche in the existing market that the proposed product occupies or will occupy.
• 1.2.3 Market size and condition
This section is intended to describe the size, condition and capacity of an existing market for a product or service.
1.3 CompetitionHere it is necessary to describe the competitive component of the project existing on the market, list and describe all manufacturers of a competing product or service.
• 1.3.1 Direct competition
The direct competition section specifies and describes all products or services that can directly compete with the product offered in the project. It is also necessary to compare the proposed product with existing or future competitors.
• 1.3.2 Alternative competition
Here, in contrast to the direct competition section, it is necessary to describe possible alternative competing areas with the product or service offered for sale.
• 1.3.3 Competitive advantages Competitive advantages are one of the components of the key to success in the project, therefore it is necessary to provide a detailed description of all the competing advantages of the proposed product or service.
Examples:A unique technology or process protected from copying (patents, etc.). Unique experience accumulated by business/managers/specialists.
Expensive, unique equipment.
Special properties of products/services.
Exclusive contracts concluded.
Wide distribution network.
• 1.3.4 Barriers In this section, it is necessary to indicate the existing barriers that stand in the way of a new product and barriers that, in turn, will help in retaining the declared market share of the product or service.
It is also necessary to describe the barriers that need to be put in order to provide potential protection for this project from competitors.
2. Product and technology2.1 Technology
In this section, it is necessary to describe in detail the existing technology, its advantages and key components.
2.2 Ongoing developments in terms of technology improvementIn the section "Ongoing developments in terms of technology improvement", it is necessary to indicate those developments that are currently actively underway.
2.3 Product• 2.3.1 Distinctive features of the product
This section is intended for a detailed description of the product offered to end users. It is also necessary to indicate the main distinguishing features of this product from competing products offered on the market.
• 2.3.2 Channels and product implementation opportunities
Here it is necessary to describe the main sales channels of the proposed product or service.
Examples:The method of distribution of goods.
Prospective distributors and intermediaries.
The results of research on potential demand.
• 2.3.3 Features of direct application of the product
Here it is necessary to describe all the features of the direct application of the proposed product or service.
Examples:Distinctive features.
Disadvantages.
Hidden potential.
• 2.3.4 Possibilities of alternative use of the product
Here it is necessary to describe all the features of the alternative (if any) application of the proposed product or service.
Examples:Distinctive features.
Disadvantages.
Hidden potential.
3. Intellectual property and protection3.1 Intellectual property
Here it is necessary to describe the intellectual property that exists in the project and is subject to patent protection.
3.2 Existing intellectual property protection
In this section, it is necessary to list all available patents, including already filed PCT applications.
3.3 Planned steps for further protectionIf, according to the authors, there are unprotected places in the project regarding intellectual property, then it is necessary to describe the planned steps to implement the proposed protection.
Examples:Patent search.
Filing of missing patent applications in Russia and other countries.
4. The team4.1 Management team
Here it is necessary to describe in detail the control command:
Brief summaries of the main managers
Relevant experience, business achievements
Contacts with companies and employees of the Foundation and recommendations
Motivation of every top manager to work in business
4.2 Technology development teamThis section should describe, by analogy with the management team, the development team involved in this project.
4.3 Expected reinforcement of the control teamAvailability (or plans) for hiring directors:
General manager
Production Director
Director of Strategy and Business Development
Finance Director
Chief accountant
5. Business modelHere it is necessary to describe the existing or proposed business model for implementation and implementation.
5.1 Operational activities and strategy• 5.1.1 Research&Development (R&D)
The R&D section should describe the scientific component of the project, describe the ongoing developments, as well as the developments that are in the plans.
• 5.1.2 Production
The "Production" section is intended to describe:
Buildings, structures and land rights
Basic equipment, its cost and wear
The need and size of investments in re-equipment and repair
• 5.1.3 Service The service is understood as the necessity and structure, if necessary, of working with a client who has already become a consumer of the proposed product or service.
5.2 Product promotion strategy• 5.2.1 Marketing campaigns
Here it is necessary to describe the planned marketing campaigns, as well as key marketing moments in terms of influencing the loyalty of end consumers.
• 5.2.2 Expected return from marketing companies This section is intended to evaluate the effectiveness of the implementation of the marketing campaigns described above.
Here it is necessary to describe and predict:
Dynamics of marketing investments / returns per client
Dynamics of one client's response to a certain marketing component
Intended actions to track the effectiveness of marketing campaigns
5.3 Sales development strategy• 5.3.1 Main sales channels
In this section, it is necessary to describe the strategy of promoting the proposed product or service through the main sales channels, working with distributors and suppliers.
• 5.3.2 Alternative sales channels
Here, by analogy with the previous section, the same thing should be described, but with respect to alternative sales channels.
• 5.3.3 The basic concept of the sale
This section should describe the basic concept of promoting a product or service in the distribution network or to individual consumers.
5.4 Deadlines and implementation plan• 5.4.1 Estimated time to market
Here it is necessary to describe the expected timing of the withdrawal of the enterprise to the maximum capitalization and give your suggestions on the timing of the investor's exit from the project.
• 5.4.2 Main Reference points
This section is necessary to describe the main significant events in the life of the company.
6. Finance6.1 Key assumptions
• 6.1.1 Sales forecast
Here it is necessary to describe the main provisions on which the sales forecast is based, as well as to give this forecast calculation.
• 6.1.2 Operating and capital costs In this section, it is necessary to describe all the estimated operating and capital costs in a time breakdown and linked to the sales plan.
6.2 Consolidated financial forecastIn this section, it is necessary to provide a consolidated financial plan of the company, starting from the moment of investment.
7. Project risksProject risks are understood as the following:
Stages of industry development, current status and forecasts
Factors influencing the increase/decrease in sales volumes in the industry and the price of products/services
Dependence on other industries, the threat of product substitution
The role of the state (regulation, licensing)
8. Investment and exit strategy8.1 Amount of requested investments
Here it is necessary to describe the volume and terms for which investments are requested.
8.2 Structure and schedule of investment consumptionThis section is necessary to describe the structure of the requested investments, the rate of consumption, as well as to describe the return on each item of the investment structure.
8.3 Intended exit strategyThis section should describe the options for the investor's entry and exit from the project:
The structure of the proposed transaction and the participation of the Fund
Description of options for the Fund's exit from business (IPO, sale to a strategic investor, etc.)
Potential buyers and their motives
Availability of options to sell a share to the Fund or purchase an additional block of shares by the Fund.
So, we saw the requirements for the business plan of startups that venture investors put forward - for example, the requirements for the business plan of the venture fund "Alliance ROSNO Asset Management". Other venture funds have similar requirements for startup business plans, and, in my deep conviction, the answers to the points described in the requirements are even more important for startups themselves than for venture investors, especially if startups have not managed their own business before. After all, it is well known that hired managers, even at a very high level, journalists, etc., who do not own and do not fully manage the business themselves, seeing how someone else does it from the outside, believe that they could do it much better. However, then plunging into their own business, and faced with many problems, the existence of which they had not thought about before, the opinion about the apparent simplicity of running their own business then changes.
This is well described here in this article in the "Secret of the company", and is also well described in the book of my friend and colleague, the journalist of "Money" Alexey Khodorych "Moonshine Chronicles", in which he describes the process of creating and developing LLC "Kosogorov Moonshine" - from the origin of the idea to industrially produce and legally sell moonshine to transformation of the company into a structure with a sales volume of several million dollars. The book, which is written very fascinatingly, describes just the passage of the path from the initial confidence "Yes, I'm smarter and more creative than all these millionaire businessmen!" to understanding in my own skin what it really is to run your own business. I advise everyone to read this book, and excerpts from it are posted on the book's website.
But let's get back to business planning and drawing up a business plan. My deep conviction is that business planning should start with the following things:
1. Clearly and in a few sentences, without spreading your thoughts along the tree, formulate the problems that currently exist among consumers that your startup plans to solve.
2. Evaluate the importance of solving these problems for potential customers of these startups, the willingness to pay for their solution.
3. Evaluate the market volume, the number of your potential customers on it and determine the characteristics of the market.
4. Clearly and in a few sentences formulate how your startup will "close" the existing problems of your target consumers and briefly assess their effectiveness.
This is a very important point in drawing up a business plan. According to all the venture investors with whom I managed to communicate, and according to my own feelings, a lot of startups are not able to articulate these things clearly. Instead, startups are starting to focus on technology, although it is necessary to focus on the economy. Technology is important, no one argues, but it's just a business tool. People are not willing to pay for super-sophisticated and super-technological products or services, simply because they are so super-sophisticated and super-technological, but at the same time useless.
The only exception when a consumer is willing to pay for "super-sophistication" is if you and the product/ service are useful to them, and you own a very strong brand like Apple - then in fact the dream of owning a product from such a brand can by itself increase in the eyes of the consumer the "usefulness" of the product, and this increased for the utility brand account will cost the consumer extra money.
But, since, I think, IdeaBlog readers do not own such a brand, it is necessary to evaluate the "pure" usefulness of your startup for your potential consumers. First of all, formulate it for yourself, and then start "polishing" the wording of paragraphs 1, 2 and 4 on your family, friends and loved ones. Just as a journalist should have the ability to explain the most difficult things to the reader briefly and "on his fingers", a startup should have exactly the same skill. Take your girlfriend, friends who are not geeks or technical specialists - that is, take simple people who are not burdened with technical knowledge - and try to explain points 1, 2 and 4 to them in no more than five minutes so that they understand everything and can coherently repeat what you said.
As an illustration, I posted a project concept on the forum, which I probably won't get my hands on in the near future, and which I allow anyone to implement, provided that the phrase "The author of the project concept, Arthur Welf, is mandatory on the "About us" or "About the project" page. www.ideablog.ru ". The link to the blog must be active.
Please note: in the description of the above 4 points in my example, there is not a word about the technologies that will be used to solve the problems of potential customers. The main thing in business is solving consumer problems, and the bigger the problem you solve, the more important and critical it is for them (or for their business), the more people or companies will be willing to pay for them.
The technology of how to implement all this is undoubtedly also important - but it is still not it that is primary, but the business of a startup, and it is on thinking through and planning a business that it is worth focusing your main efforts.
Practice on at least a dozen of your family and friends, telling them what problems exist in the target market, how important they are for the players of this market and how you are going to solve them. And at the same time constantly look at the clock and never get out beyond five minutes. If it doesn't work out, then you need to sit and think again, formulate the above points in a shorter and more understandable form. Try to find some non-key details that can be omitted at the moment without prejudice to the description of the project concept - you will have time to describe them later. Believe me - there are not so many people in the world who will specifically understand, read or listen for a long time about how you can help them solve their problem, and you should focus on most people who need to be able to state in just a few phrases what their problems your startup is aimed at, how much it will improve life or your clients' business solving these problems, and how you can solve them.
After you have polished these points, telling them to your friends, state the same thing, only in writing. You should get no more than 2 pages in Word's 11th font size, and even less is better. For example, I outlined the concept of a project in the publishing business yesterday, and today, when I write this post, I already see where I could shorten it. Therefore, do not be lazy to spend a few days polishing the text now. Send this text to people you trust, but who have nothing to do with technology - let them read it and tell if everything is clear. If they don't understand something, then ask what it is, and then edit your text in such a way that your other friends, far from technology, this item no longer caused misunderstanding or discrepancies.
What happened will be the framework for your Executive Summary and the starting point for market research. This is not all Executive Summary, but perhaps the most important part of it - both for you and for your negotiations with investors and future clients of your startup.
Well, what about point 3 - assessment of the market and its features? Here Google will help you and a lot of patience in finding the right information. You will definitely find data about the market - it is very unlikely that the market you are targeting is of no interest to anyone except you - except that it is very small and in this case you should think carefully about whether it is worth spending your time on a startup focused on a market of this size. And if the market is not only interested in you, then most likely you will be able to find information about it on the Internet. Not without difficulty, of course, but you can. It should be noted that this is not a market research - we have yet to conduct it.
Portal "Eternal youth" www.vechnayamolodost.ru08.12.2007