May 16, 2008

THE BUSINESS PLAN – PART I - By Sanjay Anandaram

I’m writing this piece from Singapore where I’m on a teaching assignment of a course called Business Plan Workshop at the INSEAD business school. And given the last Indipreneur column, I thought it would be good to also talk in some detail in this and the next columns about one of the more important documents an entrepreneur will deal with (outside of dealing with investment documents and a last will!), namely, the business plan. A business plan gives birth to the start-up. It enables the entrepreneur and the team to envision and plan how the business will be run and how funds will be raised. The business plan addresses the needs of both the investors and the entrepreneurs because both have a similar objective – creating a successful business.

Writing a business plan is easy. Writing a clear, concise and fundable plan is not. Investors are not likely to be impressed by gimmicks or by flashy and flaky presentations. If they are, you probably don’t want such investors.

Clarity of thought, understanding of the market and its dynamics, building a competitive advantage are some of the elements that the plan should demonstrate. Usually, savvy investors don’t spend too much time looking at the financials of a startup as opposed to the team, business model and market environment.

So having said that, what’s a business plan to look like? Should it be the size of a dictionary or the size of a pamphlet? How should it be structured ? While there are no hard and fast rules, its usually a good idea to keep a business plan to a maximum of 20-25 pages in length. Number the pages, check spellings, and make sure the document is logically consistent. Investors don’t have the time to read a 100 page document to understand what you are trying to sell!

One good way to approach a business plan is to first develop a presentation in a maximum of 15 slides (including the cover and the “thank-you” slide), then the 3-4 page executive summary and finally the business plan. The presentation should have no more than 5 bullets per slide and use diagrams to explain key points. Remember, a picture is worth a thousand words. The executive summary is a like a candidate’s resume – you should want to meet the candidate after reading the resume.

Here are some guidelines for writing a business plan. As mentioned before there are no hard and fast rules, but following the guidelines below will force discipline and ensure focus. All of the following has to be condensed into a 20-25 page document in a clear and precise manner.

Section 1.0 Introduction
When was the company formed & by whom. Team backgrounds Where is the company based. What does the company uniquely offer.

Section 2.0 Market Opportunity
What is the opportunity/need/problems in the market? Who is experiencing the need? How big is the opportunity? How fast is the opportunity growing?

Section 3.0 Offering
What is being offered to address the need in the market? What are the different components of the offering?

Section 4.0 Competition
Why/How is the offering unique? How will it successfully compete against competition? Why will people buy/use the offering as opposed to competition?

Section 5.0 Market
Who are the customers of this offering? How will they use it? How is the market segmented? How large are these segments? What is the value of this offering to them?

Section 6.0 Business Model
How will the offering be delivered to customers? What does the delivery chain look like? What is the value proposition across the chain including to partners? How will the support process work? How will revenue and costs flow across the chain?

Section 7.0 Sales/Marketing Plan
What will be the company and offering positioning? How will be the positioning be achieved? How will customers be acquired – what will you do to acquire customers both direct and indirect? What are the alliances/partnerships that will be established? What are the different modules/components to be sold? What are the price points?

Section 8.0 Product/Service Development Plan
What are the timelines and technologies? What is the strategy for product development?

Section 9.0 Road Map
Over the next 24 months what will be the sales/marketing objectives? What will be the company objectives? Product development objectives? What is the exit strategy?

Section 10.0 Current Situation
What stage is the offering/company in now? Are any customers testing/using the product? How much money has been invested? How many employees are there? What are the milestones ahead? How much money is required? For what purposes will the company use the money? How many employees will be hired?

Section 11.0 Financials
How much money do you need? When, how and at what levels will you break-even? What’s the monthly outlook for the next 12-18 months? In all of these, the most important is the cash-flow statement!

Easy?

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.