Starting the Conversation: The Business Plan

A business plan is a company’s blueprint; it provides a roadmap for business owners and frames expectations for investors.  Many entrepreneurs will often have a good idea for what they want to achieve with their new business, but have difficulty organizing their ideas on paper and expressing their vision in a financial model.  However, all good business plans provide the answers to two main questions: “What good or service will that company provide that its customers value?” and “How will it deliver these goods or services at a profit?”

Business plans, when done well, can help entrepreneurs put a structure to their vision which can help guide decisions as the business grows and maintain a common set of goals toward the company’s success. The business plan will make it easier for investors to understand the entrepreneur’s vision for their company and give them comfort that the entrepreneur has a solid structure and plan in place to execute on it.

The starting point of a good business plan is the startup’s unique value proposition. This is a one or two-line statement that explains: a startup’s product or service; the target customer; and the competitive advantage that the startup has in the market. While a startup’s managers can usually describe their product in detail, it is important to consider one’s customers and competitive advantage carefully. It may be worthwhile to do some preliminary marketing analysis in order to understand the details of the proposition statement.

Once the startup team has a well-developed unique value proposition, they can continue creating the rest of the business plan. There are two types of business plan – lean and traditional models (on which more below). However, before pursuing either, it is helpful to have an outline. One helpful tool is the Business Model Canvas which breaks up the sections of the business model and allows it to be viewed in a big-picture format.

Business Model Canvas: business model canvasSource

Next, the startup should decide whether to create a lean or traditional business model. For VC pitches, it may be useful to hone the presentation down to the key elements in a lean business presentation. The lean model includes:

  • Value proposition
  • Key partnerships, resources, activities
  • Customer segments, channels, and relationships
  • Revenue streams

The traditional business model should be presented for more formal investor meetings. This business model can delve into the details, including:

  • Executive summary: a 1-3 page high level description of your company with the key highlights from your presentation
  • Business description, concept, strategy: describe the problem the startup is trying to solve and how the product is a marketable solution
  • Competitive analysis
  • Market analysis: a deeper description of target customers
  • Team analysis: biography of each member of the startup
  • Financials
    • Statement of cash flow with projected profit and loss
    • Income statement, for at least 12 months
    • Breakdown of anticipated revenue streams and expenses
  • Any relevant legal documentation

While the business model may feel time-intensive, much of this information has likely already been gathered as the team has built the startup. The business model allows all of the information to be collected in one document. In addition, presentations for VCs and other investors will be more cohesive and straight to the point when they are created from the materials in the business model.

From and investor’s perspective, there are key elements of the business plan that one needs to examine. Investors need to evaluate the customer segments that a company highlights for its product/service. Be wary if the company has failed to perform value-based customer segmentation. The target customer segment should be based on the type of people who value the product/service, not just a demographic bloc that intersects with the intended customer segment. Second, evaluate the company’s intended revenue streams to see if it fits in the context of the overall market strategy. Lastly, consider the startup’s financials to see if it feels realistic or outlandish. Together, the startup and investor can mutually benefit from a well thought-out business plan.

No matter which type of business plan you choose, some useful tips for writing a business plan are:

  • Be Concise: Investors read hundreds of business plans a year. Make yours easy to read and understand. Eliminate unnecessary information or detail that doesn’t add to their understanding of what the business is and how it will generate revenues and profits. 
  • Identify Your problem: Businesses are created to solve a problem for their customers who are willing to pay for its solution.  Be clear in what problem you are solving and how big that problem is for the customer. Investors want to see that you are addressing a large problem that affects many people.
  • Present Your Solution: Once you have clearly articulated the problem that your business will address, lay out in layman’s terms how you plan to solve it. Avoid jargon or technical terms and use graphics when possible.  As they say, a picture tells a thousand words.
  • Make Your Financial Model Simple: Most businesses have a limited number of important factors that determine their success. Identify those for your business and build your financial model around them.  While entrepreneurs deal with many issues each day, it is important to show that you understand what the key ones are that really make a difference. Always apply Occam’s razor: the simpler the equation, the more likely it is to be correct.
  • Do Your Homework: Show investors that you know not just your business, but also the market and your competitors. Show that you understand how you are different from your competition and how you fit into the industry. Don’t hold back on admitting to your challenges. Your potential investors will see them and they want to know that you do too.

This page was written by Neelima Gaddipati and Jeffrey CampMs. Gaddipati is a member of the Cane Angel Network investment team and is pursuing her joint MD/MBA at UM graduating in 2021. Mr. Camp is the Managing Director of the Cane Angel Network.