11 components that make up a good business plan
Investors want to back ventures with strong teams that address a large market opportunity, so how to write a business plan that reflects that?
Investors will be interested because you have a plan to address an opportunity well, not just because you have identified an opportunity that is interesting. That’s why while having a good idea is certainly a good starting point, it is not enough for investors to invest.
Most entrepreneurs make the mistake of detailing out their product or service or concept. What most investors are looking for is your plan for building a strong, profitable, scalable, defensible business around that product or concept.
The success of an entrepreneurial venture depends entirely on the quality of execution. Many companies fail to implement their ideas well. Hence what investors seek in the plans they review is evidence that this team will be able to execute well on a concept that appears to address a potentially large market.
What should a business plan cover?
A business plan is a ‘Plan for your Business’. It is not a document that you make for the investors. It is a document that you should prepare for yourself. Writing down your business plan helps you think through the assumptions clearly, and often writing helps you identify in-practicalities in the thought process.
Yes, for investor presentations too, a business plan is necessary.
Broadly speaking, a business plan should communicate the following to an investor:
What are you selling and to whom?
How large do you see the company growing to – what is your own
aspiration for the company?
How are you going to implement it?
How are you going to make money?
Why are you the right team for the investors to invest in?
While entrepreneurs need to and should make very detailed plans, the first document that you send to investors should be a very short one – may be 1-2 pages or 8-10 slides – that gives a good view of the points mentioned above and is a summary of your detailed plan.
Also Read: I can never invest in someone I didn’t like: Singapore angel Michael Blakey
Remember, no investor is going to make a ‘yes’ or ‘no’ decision based on the first document you send. The objective of the first document, mail or pitch deck is just to seek a more detailed meeting. (Even if you are presenting to investors in person, the first meeting is likely to be a short one to check if it is worth their while to fix a longer follow-on meeting with you).
While sending your initial deck or document, make sure that the document is also pleasant to look at. Remember, investors get 100’s of proposals every week, and many of them are not very nice to look at – crowded and badly formatted. Hence visually pleasing documents do tend to stand out. Of course, the content and the business case have to be meaningful for it to be considered after the initial good impression. But nicer looking documents or presentations help.
Components of a Business Plan
Brief business description
No more than one paragraph to describe your business and the business opportunity. If it takes more than a paragraph to describe your business, perhaps you need to revisit the drawing board. The simpler the message, the quicker you will draw investor attention.
Note: Do not provide details of market size, etc. if your concept is addressing an opportunity that most people are likely to be broadly aware of. For example, if you are building an online platform for students to learn science, there is no point in explaining how large the market is. Everyone is likely to have a sense that the market can be large.
Team
This section should answer the question ‘Why is this team/entrepreneur best suited to implement this business opportunity’.
Keep it simple. Include educational qualifications and work experience. But most importantly highlight your passion or interest in the sector, and what you have done to get familiar in understanding the domain.
What is the issue / pain point that your product / solution will address
This section will reflect the clarity of your thinking about your business opportunity. Be precise and succinct.
What is the size of the market opportunity
Investors like big ideas with big markets. Be clear about who and where is going to buy your product/service and how much they would pay for it.
Market estimation should be done bottom up, and not top down. High-level figures from research reports mean nothing for investors, nor are they helpful for the entrepreneurs in planning the way forward.
Here is an article on estimating market potential that you may find useful.
Product / Technology Overview
Highlight the uniqueness of the technology and application and not the technical details of the solution.
Remember, the first impression and perceptions about how good your venture can be are likely to be create by how well your website is designed. That’s the first thing that investors are likely to check. Hence, my suggestion to entrepreneurs is to have a very high quality website/portal even if you are in a very early-stage, or even if you are at a concept stage. (You can provide a username / password protected version if you have not yet exposed your concept publicly).
Also Read: In 1999, very few people knew what I was doing: Gobi Partners’ Ken Xu
If you have a demo video add that (but keep it short). Showing how the product works helps.
What is the value proposition
Why would consumers choose this over others?
Business model / financial model
This is about how you will make money from this business opportunity. The business model is important, not an excel sheet with 5 year detailed projections. Please remember, a 3/5-year excel sheet projection is at best an educated guess. More than specific details, the financial model should reflect the aspiration of the team.
Competitive landscape
Who are you currently or in future likely to compete against and what is your plan to win this battle?
“We don’t have any competitors” is not a sentence that sits well with investors. Competition is not just someone who is doing exactly what you are doing, but everything that your target audience is doing to address the problem that you are promising to solve for that audience.
Risk factors to execution
What are the market risks, financial risks, business model risks, execution risks that may hamper your plans?
Funding objective and use of funds
Describe how much money you want to raise and what you intend doing with these funds.
It is important to outline what you will achieve with the capital you seek from them, by when and how much follow on capital you might need to achieve your longer term business goals.
Fundraising history and investors
Mention previous investment history including year, amount and investors if any. If there are existing investors, do mention if they would participate in this round of fund raising.
Remember, investors are not going to be excited about your startup because you have a great idea. They will be excited if you make them feel “Wow, that’s a great idea. It can become a large business. The team looks solid and they seem to have practical plans. Lets meet them.”
The author is the founder of Applyifi, an online platform for individual angel investors to discover curated, high-potential startups.
The views expressed here are of the author, and e27 may not necessarily subscribe to them. e27 invites members from Asia’s tech industry and startup community to share their honest opinions and expert knowledge with our readers. If you are interested in sharing your point of view, please send us an email to writers[at]e27[dot]co
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