Business Planning for Startup Businesses
A tool to Attract Venture Capitalists
Venture capitalists, doubtlessly, possess huge risk appetite. Although, they exhibit tendency to invest in startups, but out of an enormous pile of competitive ideas they frequently confront, their attention gets diverted towards only those ideas that project future growth potential with a solid reason to invest in them. After all, the degree of risk associated with a startup business is gigantic due to absence of proven operational outcome. Therefore, for startups, this risk can substantially be minimized by supporting the idea with a well-drafted and smartly pitched business plan.
What Can a Business Plan Do?
A crisp business plan that is on point can truly enthuse a venture capitalist and can result into an investment offer. A business plan answers the most crucial questions that venture capitalists are looking for in any startup. It helps you showcase to the investors the reasons underlying your belief that your business carries a spark to stand out in the marketplace and to back up your claims about your business. Questions of desirability, feasibility and viability of startup business are addressed in it.
Core Components of Plan:
Let us now have a look at what a “good business plan” constitutes for any startup.
- Target Problem: Your startup business idea must be based on some problem or must at least propose to solve a problem in a better way. Try to define and explain the problem your business proposes to solve through real life experiences or story to make it more engaging.
- The Value Proposition: Tell the investors what are your planned products/services for solving the problem? Highlight the features of your planned offerings and correlate them with the problems you defined earlier to make your proposal look more relevant, goal-oriented and sensible. If you have any demos or prototypes, do include them too.
- Vision and Goals: Once, you convinced the investors with ‘what’ and ‘why’ questions, communicate your startup’s vision and goals thereby highlighting where you see yourself in the future and what goals have you set to achieve that over the years. Catching attention of the investors at the earliest stage of the plan is the key ingredient to a successful investor pitch. Therefore, discussion of vision and goals has been prioritized after the problem definition and value proposition discussion. Although, executive summary would have already helped your investor in getting brief overview of your startup, giving brief overview of your venture with vision and goals is still advisable.
- Customer Segments: What customer segments are you targeting and why? Giving a vague image may caste an impression that your business scope lacks clarity. Try to support your claims with maximum possible evidences. Prove your decision of customer segments and product/service success in those segments through results of your business idea validation tests, if conducted. Also mention about your planned customer outreach.
- Competitor Analysis: Businesses do not operate competition-free. Even product leaders do meet the competition in the longer run. Develop a competitor analysis for your offerings; both short term and long term and identify where do you position yourself in the marketplace in comparison with the competitors; now and in future.
- Sub-Plans: How are you going to do all this? This is one of the most vital questions an investor wants to be answered. This must be responded through marketing plan, human resource plan and financial plan of your startup.
- Marketing Plan: What will be your marketing strategies for creating product/service awareness in your market segments? Whether you plan to go above-the-line or below-the-line? Would you prefer physical or online ads? What is your social media marketing plan? The extent of importance you exert on digital marketing is expected to yield positive impact on investors as this is the age of digital marketing.
- Funding Requirement: Be cautious while quoting estimated funding requirement as the investor would have already got a rough idea of estimated long term and working capital needed after reviewing the financial plan. It is advised to show the funding requirement along with its utilization to link capital utilization with envisaged activities. Also clarify the planned capital structure of your startup. This will inform the venture capitalists about the degree of stake they will have in the startup. Also discuss the management’s ability to confidently handle the investment and operate the business.
- Way Forward for Growth: What are your plans in case your business grows successfully? Will you get listed on the stock exchange? Do you plan for any mergers/partnerships in future? Don’t stay on any section for too long as it will have your investors lose attention. Keep your pitch concise and to the point. Use annexures for details like technical documentations, market research, business idea validation, PEST/SWOT analysis, etc. Know your venture capitalist; his/her risk profile, history, investment portfolio, etc. Go through already built plans of models similar to yours. The more you know, the better your startup model and plan will be.
The one who dedicatedly invested his time and energies in his startup business model would really enjoy giving it the shape of a business plan. This will not only amplify his confidence but would elevate his trust and belief in his startup’s workings, assumptions, and planned outcomes. Indeed! Business plan forms one of the major bases of investment decision for any venture capitalist.