Whether you are just starting out and need startup investment or are looking to expand your business and raise capital, a business plan is a must. Indeed, a business plan is not only essential if you want to get people to invest in your idea, it can help you articulate what it is you hope to accomplish with your business – your mission, goal(s) and values – and plot the company’s growth trajectory.
However, to be successful, a business plan cannot just be a bulleted list of an entrepreneur’s thoughts and musings, hopes and dreams. It needs to be a serious business document with the following six elements.
1. Executive summary
“An executive summary is the ‘elevator pitch’ of your business plan,” explains David Mercer, founder, SME Pals, a blog dedicated to helping entrepreneurs. “More often than not, landing a new investor relies on hooking them with a great elevator pitch. Without grabbing their attention, your business plan, no matter how well researched and presented, may not stand out enough.”
The executive summary should, in brief, describe the “problem you are going to solve, and why that problem needs to be solved right now,” by you, says Peter Arvai, CEO, Prezi presentation software. “If you aren’t able to communicate that deeper purpose to others, you will have a very hard time convincing investors to fund your idea and people to join your team.”
Tip: Write the Executive Summary last, after you’ve done all your research and put everything down on paper.
[ Related: 12 tips for creating a must-read business blog ]
2. Description and bios of your leadership/executive team
“The entrepreneur should clearly demonstrate what they are bringing to this venture – the idea, the technical ability or the passion,” says Hossein Rahnama, founder & CEO, Flybits. “Investors want to understand how you will execute using your personal strength.”
You should also “talk about the leadership team,” says Andrew Witkin, CEO, StickerYou. “If the leadership team has a previous track record of building and delivering businesses, this should be highlighted. Business plans serve multiple purposes, but one of them is to build trust, and the team is as important as the product to potential investors and partners.”
“Investors bet on jockeys, not horses, and knowing about who will execute on an idea is key to an investor making an investment decision,” says Richard J. Foster, president, Foster Management & Holdings. “Very frequently I’ll see multiple companies with the same idea, but the one to invest in is the one with the team who has the experience and the credentials to succeed. Having the best idea with the wrong team is a recipe for failure, but proving that your team is the [right] one to execute [your idea] can make all of the difference.”
3. Description of your product(s) or service(s)
“When developing a business plan, it’s crucial to clearly [explain] the need your product or service is trying to address,” says Elena Filimonova, senior vice president, global marketing and strategy, CGS. “Your business plan should highlight how the product or service will address the need, what is unique about your offering and why it would be difficult to replicate. To do this, you should outline key differentiators, features and why the product or service is something that stands out in the market.”
[ Related: 11 ways to build your online brand ]
4. Market/competitive analysis
“Every business plan should have a section that defines the target sales market – who you are selling to,” says Victor Clarke, owner, Clarke Inc. “This is the part that requires considerable research into areas such as industry sales data related to the service or product you are selling and trends within the industry. You should look at competitors and see who they are targeting, look at your current customer base and create a profile of an ideal customer or client for your product.”
“For a business plan to be effective and attractive to investors and partners, you must be able to provide tangible data and information that supports the notion that your demographic is strong and growing, and that market trends support the continued need for your service or product offering,” says Brock Murray, cofounder & COO, seoplus+.
[ Related: 7 attributes of a successful CMO in the digital age ]
“Sequoia Capital has a great framework that every business plan should use: separate your Total Addressable Market (everyone who conceivably needs your product category), Serviceable Addressable Market (everyone who needs your specific product or service, limited by factors like where you can do business) and Serviceable Obtainable Market (the portion of the market you can realistically capture),” says Christopher S. Penn, vice president, Marketing Technology, SHIFT Communications. “For example, lots of companies say everyone is a customer, and while that may be a TAM, if the company has only one salesperson, their SOM is significantly smaller. VCs and investors especially want to understand what's realistically obtainable, and splitting out your addressable markets… shows them you're not just presenting pipe dreams.”
Also be sure to “include a competitive analysis section,” says Bryan Robertson, founder & chief revenue officer, Mindyra. “Every business has competition, so it's a good idea to research companies in your industry who are fighting for the same customers. You should include specific details about their strengths and weaknesses. This forces you to become very familiar with your market. It also encourages you to think of ways to differentiate your business [from] the competition.”
5. Financials (how much cash you need and when you’ll pay it back)
“Make sure that the plan goes into exacting detail about how much startup capital will be needed, where it will come from and how it will be paid back,” says Bruce Stetar, executive director, Graduate Business Programs, SNHU. “Equal importance should be given to how you [plan to] pay back capital as how you acquire it. Investors want to know when they will see a return. Failing to plan adequately for capital acquisition and payback is one of the chief reasons that new businesses fail.”
“Whether you're hoping to receive funding to build a brick-and-mortar shop or a technology venture, you must have your numbers straight,” says Erica Swallow, founder & CEO, Southern Swallow. “For tech entrepreneurs, I'm a big fan of the startup financial model template developed by startup investor David Teten, in collaboration with a couple of colleagues. Based in a nearly fully-automated Excel worksheet, it enables early-stage entrepreneurs to map out their financial plan, without being too overwhelming. It's the best startup financial model I've encountered over the past five years.”
6. Marketing plan
“It is critical to have a plan [for] how you are going to spend your marketing budget,” says Deborah Sweeney, CEO, MyCorporation. “Assess different options (paid search, salespeople, flyers, [social media], etc.) and the associated ROI with each.”
“The plan should cover both sales and advertising strategies and costs,” says Stetar, as well as customer acquisition costs. “Be conservative here since you will look good if your over achieve but it will cost you investor confidence if you under achieve.”
A successful business plan is one is easy to read and follow
You need to make your business plan easy to read and follow. “There's nothing more daunting than to receive an all-text business plan, 30 pages in length,” says Swallow. “Keep your potential investors engaged by including product and user photos, team headshots, colorful headings, financial graphs, charts, tables, anything to make reading more of a pleasure. Even bullet points help.”
Indeed, “don’t underestimate the importance of visuals,” says Arvai. “Researchers have found that presentations using visual aids are, on average, 43 percent more persuasive than those without.”
Finally, before you go public with your plan, “have trusted mentors and expert peers look over it [and give you] their feedback,” says Sam Lundin, CEO, Vimbly. “Having [someone] review your business plan [before you present it to investors] is crucial.”