Business plans have long been an essential document for new businesses. Are they still relevant today? If so, what best practices and data can help you create a winning document that will help your business get the financing you need and keep your business going?
Before you dig into how best to craft a business plan to help you crush it, and spend hours or lots of dollars ordering one, do you even need one?
Ten years ago, anyone you approached with a business idea without a plan would have laughed and kicked you out. Even your friends and family, or the most aggressive angel investors. Things have changed.
As I describe in my book, The art of fundraising for startups, a business plan is always essential for certain scenarios and reasons. Yet some may also think that pitch decks and smart presentations can move them. Every entrepreneur and start-up needs a plan. Before you decide exactly what it looks like and how to create it, there are a few critical questions to answer and factors to understand.
What is a business plan for?
Just because it’s the status quo should never be a line in the vocabulary of a startup founder today. Traditional business plans can be big beasts of a project consuming time, money, and money at a vital moment. Don’t do this unless you know why and what you’re trying to accomplish with it.
In fact, David McClure, angel investor, VC and founder of 500 Silicon Valley startups, says “don’t write business plans.” We will show you what it Is it that want to see if you hope to get a fundraising check from him in a moment. Yet the point is, most aspiring business owners don’t even try to match their goals with what they think they’re supposed to do.
You should have a plan to organize yourself and make sure you have some viable business potential. You are focused and hopefully not going to run out of money or starve before you start. If this is all you need and you are not planning to raise funds, apply for loans and do not intend to use partners, then you certainly do not need to. ‘a 25-book manuscript. Keep it simple. In fact, Brian Chesky (founder of Airbnb) is famous for his one-page business plan for global domination.
If you are thinking of going to a local bank for a business loan, or if you are approaching your sphere of influence to support someone you know is used to seeing legitimate business plans, then you know you need to. probably create something they understand in a format they are comfortable with.
If your goal is to raise money and your startup isn’t going anywhere without it, then make sure that whatever you take the time to create is going to relate to today’s fundraising environment.
Business plans vs. Pitch Decks
Business plans and pitch decks are two different things. They have a lot of crossbreeding factors. Yet one is for presentation and specifically securing funding from angel investors and venture capitalists. The other is more organizational and internal in nature.
If you want to be funded by David McClure, then he says he wants to see “a working product that people use.” We are looking for functional prototypes and customer development and above all, scalability. Can you increase customer acquisition at a lower cost and in a measurable way? “
Unlike old school business plans, McClure recommends:
- 12-month spending projections
- Marketing plans
- Customer acquisition costs
- Customer value
- Test results (i.e. a KPI dashboard)
- Evidence of constant improvement
- Know your burn rate, and never go below 6 months of cash
Most of that you can cram it into a pitch deck, at least with a good appendage.
Not too long ago, I covered the pitch deck model created by Silicon Valley legend Peter Thiel (see here) where the most critical slides are highlighted. Additionally, I also commented on a pitch deck from an Uber competitor who raised over $ 400 million (see here)
Business plans vs executive summaries
A summary is still a different document. It is a smart and essential tool to have as a cover for your business plan. This is especially true for those considering financing involving commercial real estate or an SBA loan.
It’s a brief 1-3 page document that summarizes your business and plan, and gives viewers enough information to decide whether or not they want to see more data. Like a pitch deck, this is good enough, it can be enough for lenders and investors to choose to work with you and work out the details of the process.
Best practices for crafting a brilliant business plan
What makes a good business plan?
The format, substance and key data that viewers expect are all important. The same goes for how much time you spend on it and when you do it.
When to create a business plan
The big problem with business plans is that entrepreneurs often get bogged down in them. Getting lost in rehearsing and crafting a business plan for a year or more can cost your startup the optimal time to market and the best funding opportunities. Too many founders have also tried to cram the equivalent of a business plan into a pitch deck, only to find that it is an obstacle to achieving the desired results.
According to Harvard Business Review (HBR), “The real key to business success is being flexible and responsive to opportunities. Entrepreneurs often need to pivot their business once it becomes clear that their original customer isn’t the right customer, or when their product or service turns out to fit better in another market. Because of these realities, the business plans that are written initially are nothing more than a fable. “
Additional statistics from HBR show that:
- The “most successful entrepreneurs are those who wrote their business plan 6 to 12 months after deciding to start a business. Stating that this “increased the likelihood of successful business viability by 8%”.
- The odds of success increased by 12% for those who did not spend more than 3 months on their plan. With more turn out to be futile.
- The chances of the start-up being viable increased by 27% if the plan was created at the right time when the founders spoke to customers and prepared the marketing.
According to Entrepreneur.com and Rule’s Book of Business Plans for Startups, founders should consider these factors when creating their plan.
- How the business will be acquired
- Main goals
- Mission statement
- The keys to success
- Industry Analysis
- Market analysis
- Competition analysis
- Basic strategies
- Marketing plans
- Organizational structure
- Key operations
- Projections and proformas
- Profitability Analysis
- Financial needs
Fortunately, developing a business plan has become much easier today. There are many sources of data to support hypotheses and supplement research. There are many great freelancers available online who can help you manage the tedious parts of the process, such as research, formatting, and interactive proformas.
There are even templates you can plug in and print so you don’t waste time figuring out what to include.
SCORE offers fillable worksheets covering these key pages of your business plan for your start-up business:
- Company Description
- Products and services
- Marketing plan
- Operational plan
- Management & Organization
- Start-up costs and capitalization
- Financial plan
The SBA (US Small Business Administration) offers templates for traditional business plans and more modern business plans for Lean startups, with examples to display.
A business plan still plays a vital role in starting a profitable and sustainable business today. New trends and data show us that the best time to complete a solid plan may now be later in the journey than before. It’s much more important to get started, test, and get funded first.
When it comes to creating business plans, there are now more streamlined templates and formats that are adjusted to meet today’s needs to accommodate faster, leaner startups. Don’t let this part of the process slow you down.
No matter how you do it and who you show your plan to, make sure someone with experience reviews it for you.