Business Planning for Startups is unavoidable when you want to pursue your dreams of running your own business. But planning is boring and cumbersome. You won’t get very far without effortful planning to execute your business idea.
Business Planning for Startups 101
Business Planning is creating a document outlining your company’s objectives and strategies for achieving them. A solid business plan can strengthen your company, put you on a path to growth and help you attract investors if you decide to raise capital one day. This blog post will cover some of the essential things every startup should remember while writing a business plan.
Why is Business Planning for Startup so Important?
The startup process requires a significant investment in time, money and people. Solid business planning will help you identify the right opportunities and manage your resources effectively. Before writing your business plan, ensure you understand the value of business planning. A business plan is a roadmap that helps you navigate the journey from startup to scale.
It can help you make more informed decisions and set the right expectations for your team and investors. By creating a clear vision for your company and outlining your strategies for achieving it, you’ll have a central place to keep track of your progress and pivot if needed. The process of business planning for startups will also help you set the right expectations for investors, partners and your team. Finally, a good business plan will be a reliable source of information about your company’s objectives and strategies for achieving them.
Business Planning for Startups ― Must-Do #1: The hardest part of Business Planning is coming up with the Idea
The most important step in startup business planning is coming up with the right Idea. Finding the right business idea can be overwhelming with so many options available. Aim to find an idea that is valuable to customers provides a solution to a problem, and has a healthy profit margin. There are many ways to generate ideas: Brainstorming with your team, asking for ideas on social media or talking to people in your network. When you have a few ideas, evaluate each to find their strengths and weaknesses. Then, aim to find an idea that solves a problem, is scalable and has a healthy profit margin.
Business Planning for Startups ― Must-Do #2: Know your Audience
Audience and market segmentation strategy – every business plan should start with an overview of the target market that you want to serve. You should also identify the different segments of your market and their needs. This will help you understand your audience better and design your business accordingly. Every product and service is designed to meet a certain need. Identifying your customers’ needs will help you create an effective marketing strategy.
To learn more about your customers, look at the demographics of your existing customers to see what they have in common. You can also do a survey or focus group or use data from your website to better understand your customers. Every business has competition, whether it’s offline or online. Understanding your competition is important since it helps you learn about the industry, your customers and their needs.
Business Planning for Startups ― Must-Do #3: Create a Clear Vision for Your Company
A clear vision for your company will help you focus your efforts as you build your business. It will also help you guide your team and make decisions in the future. Your vision should contain a few short paragraphs describing your company’s core values and mission. In addition, your vision should answer the questions, “Why are you starting a business?” and “What do you want to achieve?” Finally, ensure that your vision statement is short and easy to remember. Keeping your vision close to your heart will help you stay motivated during the challenging moments of entrepreneurship.
Business Planning Steps ― Must-Do #4: Estimate the Resources You’ll Need
One of the key sections in the business planning for startups process is capital requirements, or how much money you need to start your business. Startups require significant funding for research and development, marketing and operations. So before you write your business plan, estimate how much money you’ll need to start.
Your initial capital requirements include the cost of setting up your office, hiring your first employees and purchasing equipment. It would help if you also kept in mind that as your business grows, you’ll need funding for R&D, marketing, operations and expansion. Remember that you won’t have access to all this money immediately. It’s a good idea to budget for the time when you’ll need to invest in these areas.
Business Planning Steps ― Must-Do #5: Define Your Target Audience and Competitors
An essential part of startup business planning is understanding your target audience and competitors, which is important in creating a detailed marketing strategy. Knowing your target audience will help you create better content and choose the right distribution channels and strategies for the best marketing channels. For example, if your target audience is millennials, you’ll want to create content that appeals to their interests and keeps them engaged. In addition, understanding your competitors will help you understand the challenges and opportunities you face.
It will also help you decide on the differentiation strategy for your product or service. For example, if your competitors have a similar product to yours, you have the opportunity to create a differentiating strategy. Finally, in-depth market research will help you understand your customer’s needs and identify how you can provide a better solution.
You can conduct market research by talking to your customers, employees, potential customers or any other person you want to reach out to. You can also conduct market research by reading articles about your industry, attending conferences and networking with industry experts. Make sure you choose the best target market for your product or service, and you have identified their needs and how your product or service can solve them.
The process of business planning for startups means you should conduct market research to determine who your competitors are and how they win customers. You can also read articles about your industry to learn from experts and identify your competitors’ challenges.
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Business Planning Steps ― Must-Do #6: Create a Marketing Strategy
A marketing strategy is a detailed plan of how you’ll promote your product or service and reach your customers. Before you write your marketing strategy, you should know your product or service, your target audience, and how you’ll reach them. A good marketing strategy includes various channels, from paid advertising to partnerships.
Choose a marketing strategy consistent with your company’s values, brand and vision. You can also consider what marketing channels will bring you the most customers; this is where you need to be strategic. No one marketing strategy works for everyone. Each product or service has its own set of customers; therefore, your marketing strategy should be flexible enough to meet the needs of your audience.
Steps of Business Planning ― Must-Do #7: Write a Roadmap for the Next 6 Months
Every business plan should include a 6-month roadmap that outlines the milestones needed to achieve your immediate short-term objectives. You can use your roadmap to measure your progress and make mid-course corrections as needed. In addition, your roadmap should highlight the goals you set for your company, such as gaining customers, increasing sales and expanding operations. A good roadmap will guide you through the challenges of entrepreneurship, help you meet your company’s goals and measure your performance. It will also help you identify the next steps you need to take to achieve your milestones. But don’t want to go at it alone? Need some help with your Business Plan?
Steps of Business Planning ― Must-Do #8: Identify your key Risk Factors and Assumptions
Every business plan will have some risk factors that can threaten your company’s success. Identifying the key risk factors and assumptions is important to help you manage the risks. For example, you may assume that your product is ready for launch and won’t need any enhancements. However, if the market expects enhancements, you’ll need to address this assumption and make the appropriate changes. Therefore, an important part of business planning is identifying your company’s risk factors and assumptions. This will help you manage the threats to your company’s success and find ways to mitigate them.
Steps of Business Planning ― Must-Do #9: Estimate your Costs and decide on an Exit Strategy
An important section of a business plan is the cost section. It would help if you decided on an exit strategy by estimating your costs and identifying the revenue you expect from your business. If your revenue is higher than your costs, you’ll be able to break even. The best exit strategy for a startup is unique to the company and the owner. The exit strategy you choose should reflect your values since the company you leave behind (or don’t if you liquidate) is part of your professional legacy.
So ask yourself, what’s most important to you?
- Is it the pride of a big-ticket third-party offer to purchase?
- Is it seeing your family members at the helm?
- Is it leaving a healthy business that continues to provide jobs and contributes to the financial stability of your community?
There’s no one right answer, but it’s important to face these questions honestly to choose the best exit strategy for your startup or small business. And when you’ve had time to reflect, you can compare options based on how well they fit your answers.
- Liquidation: Many small business owners choose liquidation as their “glide path” out of ownership. It enables owners to avoid making difficult choices and slowly unwind the business, living off revenues instead of reinvesting them and closing down when the business no longer turns a profit. Assets are then sold, debts are paid, and if anything’s left, it goes to the former owner. An obvious downside to liquidation is the potential loss to employees, vendors, customers, and communities.
- Friendly Buyout: Family succession often involves selling the business to children, and it’s not an uncommon choice among small business owners. The same can go for close friends. But combining those relationships with conversations about price, timelines, management succession, and more can get messy. In addition, further complications can arise when not all siblings are interested in a business. And it’s not unheard of for family members to take over to mismanage a business into ruin.
- Management Buyout: Sometimes, a rising generation of company leaders successfully takes over the business — but this exit strategy requires careful succession planning and can be complicated by employees’ ability to front the money or secure the credit for the purchase. There are certain advantages to structuring the sale over time, but if one of the involved parties wants to back out, financing can be fraught.
- Acquisition: Mergers and acquisitions are two very different transactions that are often mentioned together. In a merger, two or more companies combine to become a single entity — which can be just as complex as it sounds and even involves conditions such as requiring leadership to stay in place for a specified period. In an acquisition, an outside company buys your company (e.g., a competitor, an investor, or a previous vendor partner). Then, you negotiate the sale, take your money, and walk away. That can sound good to many entrepreneurs, but if the future vision of your company is important to you, acquisition can be a bitter pill to swallow.
- Third-Party Sale: Selling your company to a third party on the open market is, for many owners, the dream. After all, it results in an instant successor with a keen interest in succeeding, a potentially lucrative selling price, and negotiated terms. In addition, the current business market is in a generational transition as baby boomers head toward retirement. That can mean lower prices. The other major complication of third-party sales is the time factor. It can take years to find a buyer — and when you do, that’s when negotiations begin.
- Initial Public Offering (IPO): Maybe it’s the dream of many startup founders, but the IPO is not necessarily the best fit for every business. They’re usually reserved for bigger companies that can attract institutional investors, exposing your business to significant outside scrutiny and meeting regulatory requirements. It also makes all those shareholders the new company bosses have to answer.
A Little Bit Extra ― Business Planning: Is it Time for a New Approach?
Lately, I’ve been rethinking the concept of a Business Plan. On the one hand — in the consulting, finance, investor and academic world — what a Business Plan means is a fairly comprehensive research project.
It includes a thorough analysis of issues, including customers, markets, competitors, pricing, marketing strategies, and risks, followed by detailed multi-paged financial projections looking three- to five years into the future. To create this kind of plan, management works on it for months or hires a Business Plan Consultant to do it for them. Either way, investing a hundred hours or more into creating it is not unusual.
On the other hand, in most of the business world, what is generally meant by a Business Plan is a brief written statement indicating goals and overall steps for achieving those goals. The goals might relate to customers, sales, units sold, profits, facilities, etc. It looks out a year, maybe two, into the future. The owner or management puts this together in a few meetings and then gets updated every year or two.
These are two very different meanings of the term Business Plan, and I wonder if both are missing the mark. The comprehensive plan isn’t practical for small businesses or non-profits that lack the time or money to do all that work, however valuable it might be.
And the brief plan version can be very superficial to the point that it does little more than set ambitious goals with minimal guidance on what to do when the business encounters those pesky potholes in the road. Most importantly, the brief plan will not be enough to present to investors as it does not contain all the information needed by these individuals and institutions. For example, a plan presented to the IDC looks different from a plan presented to an investment bank or Venture Capitalist.
So, here’s my idea for a third kind of plan — for the South African market — taking the best of both worlds into account.
Keep it short and simple but still useful. It involves doing “Just Enough” and “Just in Time” research, projections and analysis into “Just the Right Areas” that will matter for achieving success within the business.
The “Just Enough” results are summarised into a 3-page Business Model Summary, then a 2-page Financial Projections Summary and then a 5-Page Pitch that incorporates all the other important facets, e.g. management experience, target market, competitors and market size.
- Can this offer the best of both worlds? It just might.
- Will it attract investors? I don’t know, but they’re more likely to read this business plan version than the 100-page variation.
- Will it be more affordable to new entrepreneurs? Most definitely!
- Your thoughts?
Let me leave you with some critical facts. First, strong, data-driven evidence suggests that business planning is vital and generates positive ROI on time and money invested in writing them.
- Individuals who write plans are 2.5x as likely to start businesses.
- Business planning improves corporate executive satisfaction with corporate strategy development.
- Angels and venture capitalists value plans and their financial models.
- Companies who complete plans are 2.5x as likely to get funded.
- A back-of-the-envelope ROI calculation shows that early-stage companies can expect significant ROI in business planning strategy, perhaps as much as 5,000%.
- Even if a small-scale early-stage venture seeking just R5 million in finance spent almost R50,000 on business planning strategy and another almost R50,000 on capital raising, it should still expect to “break even” on a probability-weighted basis.
- Larger early-stage ventures enjoy extraordinary probability-weighted returns on investment from business planning. Because the target net capital so greatly exceeds the money spent on business planning, the prospective ROI is huge.