Planning your startup

Our ultimate guide will help you write a business plan investors will be ripping out of your hands. Learn how to expertly craft each section of it.
Feb 17, 2020 • 22 minute read
Edward Kost@EdwardKost
Technical Co-pilot
 
Cover photo for Planning your startup

Every successful business started with a single idea, even if it was an incomprehensible scribble on the back of a napkin

But a short written summary is not sufficient guidance to launch, a business; it certainly can't be used to convince investors to fund your project.

Can you imagine turning up to an investor meeting and just handing them a napkin?

 A formal plan needs to be put in place to outline its strategic unravelling.

You need a comprehensive and research backed document that accomplishes two things:

  1. Proves that your business idea is a highly profitable one

  2. Demonstrates that you and your team are capable of building the idea into a successful business

In this comprehensive guide we'll walk you through the process of creating a highly potent business plan that will convince anyone to support you and your venture.

The structure of a business plan 

There's no objective business plan structure you need to adhere to; your end goal is to simply convince anyone reading it to give your venture serious consideration.

The following, however, is a suggested structure that will give your business plan a logical flow.

  • Value proposition

  • Market opportunity

  • Target market

  • Competitor analysis

  • Funding required

  • Sales and marketing

  • Financial projections?

  • Milestones

  • Your team

Don’t let this dense list scare you, writing a business plan is actually a simple and rational process.

To help make this task much more palatable, we've come up with the following revised definition of a business plan:

"A business plan is an illustration of how you plan to make money and the reasons why you will succeed." 

That’s it, really. Think of all the components of your business plan as puzzle pieces fitting together to form this picture.

Before you start your business plan...

Before you start your business plan you need to make sure you have the right mindset. If you lack confidence in the potential of your venture being a success it will be clearly reflected in your writing.

Your business plan needs to convince readers to support you and your venture. If you're unable to convince yourself to begin with, you'll have no chance of convincing anyone else.

Aim to convince even the most stiff necked pragmatist to follow you to the ends of the earth 

Sure, starting a business is a scary endeavor. But you shouldn't let fear dictate whether or not you achieve your dreams.

Robert Kiyosaki said it best:

"Don't let the fear of losing be greater than the excitement of winning."

How long should a business plan be?

You should have two copies of your business plan: a single page summary and a comprehensive report.

The length of your business plan depends on how complex your business offering is, some require more pages than others. The optimum length is around 15-20 pages

The single page version of your business plan is very helpful to have on hand for those unexpected, and potentially valuable, conversations.

Here is an example of an effective one page business plan example by Xero.

The ultimate guide to starting a business chapter 2 - Image 1

Figure 1 - One page business plan example - Source: Fundera.com

Notice the use of graphics and color?

Anything that will make your business plan more palatable and engaging is a valuable inclusion.

If you can summarize copious amounts of information with a single graphic. Your readers will greatly appreciate it.

Writing your value proposition 

You set the scene of your business plan by opening with your value proposition.

Think of it as your elevator pitch: a concise summary of your business offering.

The secret to crafting an effective value proposition is to be crystal clear and straight to the point about what your business does without using jargon or pointless buzzwords.

Here's an exercise you can do to help you create the perfect value proposition.

Open up an Excel spreadsheet or Google sheets.

Label the first column as “Problem” and the second column as “Solution”

Work your way down each row listing all of the problems your customers face and the respective solutions you offer.

Here's an example of list we started populating for the Smart Watch:

The ultimate guide to starting a business chapter 2 - Image 2 

To give you an idea of the standard you should strive for, let’s take a look at an example of a great value proposition by Uber:

“Tap the app, get a ride.

Uber is the smartest way to get around. One tap and a car comes directly to you and your driver knows exactly where to go. And payment is completely cashless”

By unravelling this value proposition we can identify the primary pain points Uber endeavours to resolve.

Pain point 1: Hailing down a taxis is a frustratingly lengthy process. 

Solution: “...One tap and the car comes directly to you...”

Unlike conventional taxi services, the Uber platform makes ordering a ride almost effortless

This line also brilliantly identifies the Uber platform as a mobile application since only a ‘tap’ is required to operate it.

Pain point 2: Passengers need to keep describing their destination to taxi drivers, every time they enter the cab.

Solution: Uber’s application notifies drivers instantly about where the passenger would like to go.

Pain point 3: Paying with cash is time consuming and inconvenient.

Solution: Payment is cashless via the Uber app.

All of this information was compressed into a little over 3 lines of text!

It will take some time for you to craft the perfect value proposition, so you'll need to polish up quite a few drafts before your final shiny version is ready.

It will be perfect once anyone that hears it instantly understands what your business does and how you help your customers.

Writing a customer persona

Some business plans include a customer persona chapter while others choose to reflect these details in the “target market” chapter.

A customer persona profile maps out all of the different characteristics of your ideal customer.

Things like

  • Age

  • Place of residency

  • Gross income

  • Number of dependants

  • Types of pets

Each category can be further broken down into an even deeper level of analysis.

The deeper you go, the more detailed your customer persona is and, therefore, the more targeted your marketing tactics will be.

How to create a customer persona

The best way to create a customer persona is by receiving firsthand feedback from your target audience, either via surveys or interviews.

If you don't have the funds to coordinate a survey at such a large scale, a cost-effective alternative is to create one yourself based on your ideal customer.

Your ideal customer is someone who will benefit the most from your solution.

Here are some examples:

The ultimate guide to starting a business chapter 2 - Image 3 

Figure 2 - Source: ironspringsdesign.com

The ultimate guide to starting a business chapter 2 - Image 4 

Figure 3 - Source:  inalign.com

  

Some customer personas get quite granular, even to the point of mapping the personality traits of their ideal customers:

The ultimate guide to starting a business chapter 2 - Image 5 

Figure 4 - Source: suttidayang.com

Negative customer personas are as important to create as your standard positive ones.

Negative customer personas represent the people that are completely incompatible with your solution. Think of a personality that would absolutely hate everything about your solution and then create a profile to illustrate them.

Including a negative customer persona in the comprehensive version of your business proposal will put a smile on any investor's face. It shows that you deeply understand how to effectively target your ideal audience.

If you want to include visual charts to compliment your customer personas you could use an online tool such as Visme.

If you prefer to use Excel, a fantastic tutorial can be found here

Writing your market research chapter

Your business plan will be immediately rejected if you don't provide statistical proof of a sizeable demand for your solution.

Proof of a market opportunity means that your business has a high chance of succeeding.

The marketing research strategies we'll discuss can be broadly applied to all types of business solutions.

There are four primary types of business solutions: 

  1. Digital ServiceDigital services are services you can provide remotely, such as web design, app development, etc.

  2. Digital ProductDigital products are products like software, e-books, online courses, etc.

  3. Physical ServiceServices requiring the physical presence of an employee, such as an electrician, computer repairs, etc.

  4. Physical Product Physical products that are delivered to a physical location, such as bicycles, clothing, etc.

Digital business solutions require more a personalized market research approach (we’ll expound upon this in greater detail further along this chapter).

A comprehensive market research report is comprised of the following essential components:

  • Market definition

    • Who are your potential customers?

    • Geographic locations.

    • Customer profiles.

    • Market niche.

  • Market opportunity size

    • Estimated number of potential customers.

    • Percentage of market you will be focusing on.

    • Is your market likely to grow?

  • Consumer segmentation 

Consumer segmentation identifies market opportunities and also helps refine your market identify.

This is very potent information, so it's well worth our time examining an instance of its data being implemented effectively.

Aguas Danone (an Argentinian bottled water company) noticed that “health” and “flavor” were the two main drivers of non-alcoholic beverage consumption.

The company then used this data to create a beverage that was both healthy and tasty, which resulted in the successful launch of their new flavoured water range: “Ser.” 

Since its launch in 2002, Ser has continued to outsell Coca Cola year after year.

Consumer segmentation data helped Agua Danone in two important areas:

  1. It identified a gap in the market (reduced-sugar flavored water) 

  2. It helped refine their audience (individuals with healthy lifestyles).

  • Competitor analysis

    • Who are your competitors?

    • What is the intensity of the competition?

    • Who are the key threats?

You could either conduct your market research yourself, or solicit the help of experts to do it for you.

There are pros and cons for both options:

Cons of performing market research yourself:

You have limited expertise

Unless you are experienced in market analysis it can be a pretty tough slog to learn and execute flawlessly.

If you don't mind devoting the required amount of time to learn the processes, we'll cover some basic market analysis methods further along this chapter.

Pros of performing market research yourself:

You're in control

If you conduct your marketing analysis yourself, you have full control over which metrics you wish to investigate and their corresponding levels of detail.

It’s cheaper

You save money by doing all the market research yourself, without having to pay a middle person to collate the data for you.

Outsourcing your marketing analysis can get quite costly, especially if you contract an established agency to do it for you. 

There are, however, other outsourcing options available that could get the job done for you at a much cheaper rate without any sacrifice to expertise or quality. We'll outline some of them further along this chapter.

Cons of outsourcing your market research

Limited project visibility

When outsourcing your market research your only exposure to the data is upon delivery of the report, so you're unable to direct the trajectory of the research. 

Communication 

This is rarely an issue but still worth noting.

Unfortunately some experts are not always open to adjusting their professional practices to the specifications of clientele.

This is always a risk when working with any professional. 

If you choose to outsource your market research, take some time to have a proper conversation with them to learn their characteristics and behaviors.

If they seem flexible and very open to communication, you should have no issues. 

Pros of outsourcing your market research

They're experts in their field

When you outsource your marketing research to an experienced party you're soliciting the assistance of experts in the field of market research, it's what they do on almost a daily basis.

Market researchers naturally know which databases to tap into for key insights, so they'll deliver your report in a very timely manner.

Here are some examples of the kind of in-depth insights a professional market research firm will deliver.

The following are excerpts from a market research study in consumer trends: 

The ultimate guide to starting a business chapter 2 - Image 6

Figure 6: Professional Market research example - Source: euromonitor.com

The ultimate guide to starting a business chapter 2 - Image 7

Figure 7: Professional Market research example - Source: euromonitor.com

As you can see, market research agencies are capable of extrapolating incredibly detailed data, even for very unique metrics.

You'll have more time for other business pursuits

By not having to sacrifice hours (if not weeks) learning how to expertly execute a market analysis project, you could make better use of that time by spending it on other, more important aspects of establishing your business.

It doesn't need to be expensive

As mentioned, outsourcing your market research to an expert does not need to be expensive.

Below we've outlined some very cost effective alternatives to an expensive professional market research agency:

Cost effective market research outsource options:

College students 

Market research students are hungry for industry experience to increase their employability.

Students prefer to work on real life scenarios rather than textbook questions. It helps boost their confidence and gives them a chance to exercise their well-developed theoretical knowledge.

You could incentivize projects by offering an internship or the possibility of employment after graduation.

To get in contact with market research students just reach out to the head of market research at your local college.

Colleges love establishing student-industry relationships so you shouldn't have any issues getting connected.

Freelancers

There are plenty of freelance market researchers online you can hire for a fraction of the cost.

Freelancer platforms help prospective business owners connect with global talent in almost any industry, including market research.

Another benefit of hiring a freelancer is that you have complete control over pricing. It’s up to you whether you pay hourly or per project.

How to perform market research

For those who prefer to keep things linked to the bone, we've included a market research guide.

The market research directives outlined in this section should help you create a research report consisting of all the essential components we mentioned earlier (outlined again below for your convenience).

  • Market definition 

  • Market opportunity size

  • Consumer Segmentation 

  • Competitor analysis

Market research is a two-step process:

  1. Ask the right questions

  2. Find the answers from reliable data sources