Developing a Business Plan in 2021
Business plans have long been a critical document for new businesses. Are they still relevant? If so, what best practices and data can help you create a winning document that will help your business get the funding you need and ensure your venture lasts?
You should have a plan in order to get yourself organized and to ensure you have some type of viable commercial potential. You have focus and hopefully aren’t going to run out of money or starve before you get going. If that’s all you need, and you don’t plan to raise money, apply for loans and don’t intend on bringing in partners, then you certainly don’t need a 25lb 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 planning to go to a local bank for a business loan, or are approaching your sphere of influence for backing who you know is accustomed to seeing legit business plans, then you know you probably need to create something that they understand in a format they are comfortable with. If your purpose is to raise funding, and your startup isn’t going to go anywhere without, then make sure anything you take time out to create is going to relate in today’s fundraising environment.
What’s a Business Plan for?
Just because it is 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 that suck time, money and mojo at a vital moment. Don’t do it unless you know why and what you are trying to achieve with it. In fact, Silicon Valley angel investor, VC and founder of 500 Startups, David McClure says “don’t write a business plans.” We’ll show you what he does want to see if you hope to get a funding check from him in a moment. Yet, the point is that most aspiring business owners aren’t even trying to match up their goals with what they think they are supposed to be doing.
Before digging into the best way to craft a business plan to help you crush it, and spending hours or numerous dollars on commissioning one, do you even need one? A decade ago anyone you approached with a business idea without a plan would have laughed and shooed you away. Even your friends and family, or the most aggressive angel investors. Things have changed. As I describe in my book, The Art of Startup Fundraising, a business plan is still a must for some scenarios and some reasons. Yet, some may also think that pitch decks and clever presentations may displace them. Every entrepreneur and startup company needs a plan. Before deciding exactly what that looks like and how to create it, there are some critical questions to answer and factors to understand.
Business Plans vs. Pitch Decks
Business plans and pitch decks are two different things. They have a lot of crossover factors. Yet, one is for presenting and specifically for getting funding from angels and VCs. The other is more organizational an internal in nature. If you want to get funded by David McClure, then he says he wants to see “a functional product that people are using. We look for functional prototypes and customer development and most importantly, scalability. Can you scale customer acquisition cheaply and measurably?”
In contrast with old school business plans McClure recommends:
- Prototypes
- 12 month expense projections
- Marketing plans
- Customer acquisition costs
- Customer value
- Results of testing (i.e. a dashboard of KPIs)
- Proof of consistent improvement
- Knowing your burn rate, and never falling below 6 months of cash
- Most of this you can cram into a pitch deck, at least with a good appendix.
Not long ago I covered the pitch deck template that was created by Silicon Valley legend, Peter Thiel (see it here) where the most critical slides are highlighted. Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400M (see it here)
Business Plans vs. Executive Summaries
An executive summary is a different document again. It is a smart tool and essential one to have as a cover for your business plan. This is especially true for those considering funding that involves commercial real estate or a SBA loan. This is a brief 1-3 page document that sums up your business and plan, and gives viewers enough info to decide whether they want to see any more data or not. Like a pitch deck, it it’s good enough it can be sufficient to get lenders and investors to choose to work with you, and work through the details in the process.
Best Practices for Building a Brilliant Business Plan
What makes a great business plan?
Format, substance, and key data that viewers expect are all important. So is the 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 rehashing and dragging out a business plan for a year or more can cost your startup the optimal moment to get 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 it is a hindrance to getting the results they want. Harvard Business Review (HBR) says “the real key to succeeding in business is being flexible and responsive to opportunities. Entrepreneurs often have to pivot their business once it becomes clear that their original customer is not the right customer, or when it turns out that their product or service fits better in an alternate market. Because of these realities, business plans written at the start end up nothing more than a fable.”
Additional stats from HBR show that:
The “most successful entrepreneurs were those that wrote their business plan between 6-12 months after deciding to start a business. Stating that this “increased the probability of venture viability success by 8%.” Chances of success rose by 12% for those that spent no longer than 3 months on their plan. With any longer proving futile. Startups' chances of venture viability rose by 27% if the plan was created in the sweet spot when founders were talking to customers and preparing marketing. According to Entrepreneur.com and Rule’s Book of Business Plans for Startups, founders should be considering these factors when creating their plan.
How the business will be vested
- Main objectives
- Mission statement
- Keys to success
- Industry analysis
- Market analysis
- Competitor analysis
- Core strategies
- Marketing plans
- Management
- Organizational structure
- Key operations
- Projections and pro formas
- Break-even analysis
Financial needs
Fortunately, crafting a business plan has become much simpler today. There are plenty of data sources to back up assumptions and to complete research. There are plenty of great freelancers available online who can help handle time intensive parts of the process like research and formatting and interactive pro-formas. 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 in your business plan for your startup business:
- Executive Summary
- Company Description
- Products and Services
- Marketing Plan
- Operational Plan
- Management & Organization
- Startup Expenses & Capitalization
- Financial Plan
Appendices
The SBA (US Small Business Administration) offers templates for both traditional business plans and more modern lean startup business plans, with samples to view.
Summary
A business plan still plays a critical role in launching a profitable and sustainable venture today. New trends and the data show us that the best time to complete a robust plan may now come later in the journey than it used to. It is much more important to get started, test and secure funding first. When it comes to business plan creation there are now more templates and streamlined formats that are being adjusted to meet today’s needs to accommodate faster moving, leaner startups. Just don‘t let this part of the process slow you down.
No matter how you do it, and who you’ll show your plan to, make sure to have someone with experience review it for you.
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