Better Than a Napkin: The Lightweight Business Plan

 

The traditional “business plan”, which generally ran anywhere from 40 to 60 pages, has been criticized as a waste of time and effort when trying to raise capital from investors.  Many have argued for an emphasis on describing the steps taken to identify and execute the company’s “business model” in order to demonstrate that the founders and other members of the management team have validated knowledge of their customers, markets and products and the value proposition that the company seeks to offer.  Others have argued that all that companies need is a relative short executive summary accompanied by a “pitch deck” of no more than 20 to 25 slides that serves as a “lightweight startup plan”.  Recommended sections for such a plan include the following:

The Team:  This section should highlight not only the people who are involved in the day-to-day running of the company, but also the advisers and the mentors around the team.  The section should cover the background and experience of current team members and should also identify the roles that will need to be filled in the future.

The Problem:  This section should describe the problem that the company is trying to solve and provide evidence, based on validated learning, of actual demand for the solution and willingness to pay for the solution.  The company must be able to demonstrate that it understands what the problem is, has a clear plan to go about solving it, and has a thorough and detailed knowledge of the target customer segments.

The Product:  While the finished product may not yet be available, the plan must include, at a minimum, a prototype that makes it easily visualized—even if it’s just wireframes, mockups, or a 3-D printed version of the future product (i.e., a “minimum viable product”).  This section should also a timeline for product creation and any key milestones that may be coming up toward initial product delivery (and key activities that need to be completed for the initial product to be ready), as well as discuss future products that might be applicable to the target market and services you can provide as an add-on or up-sell to increase the company’s average revenue per customer and strengthen the long-term customer relationship.  If the company will need to develop or acquire any intellectual property, the plan should describe how this will be accomplished.

The Market:  In the section on market, the company should describe the external environment in which it will be operating and marketing and selling its products and services.  The size, evolution and current state of development of the target market should be described along with information on actual and potential competitors, suppliers, barriers to entry, role of technology and intellectual property and other key partners (e.g., distributors) that the company needs to find in order to provide solutions to customers.  Just like it’s important for the company to “know its customer”, “knowing the market” is also critical to success.

Customer Development:  While somewhat duplicative of information in other sections, the company should include an identifiable discussion of its plans for implementing the customer development methodology associated with the “lean startup” process including customer discovery, validation and creation.  This ensures that the plan will address key questions such as channel selection and development, pricing tactics etc. and will demonstrate how the company has validated customer interest and established a foundation for building customer relationships.  Efforts to gain traction in the marketplace prior to completion of the final version of the first product should also be discussed.

Financial Model:  This section should describe and demonstrate a thorough understand of the proposed revenue model for the company and also describe key assumptions regarding company growth (i.e., people, facilities and other tangible assets), customer growth, revenues, costs and other expenses and profits.  The financial model should be based on key milestones in the company’s development and provide readers with a sense of how much money will be need in order to get to each of the milestones, particularly “cash flow break even”.

In addition to each of the sections above, the plan should address topics specific to the particular company such as any potential encumbrances on the company’s “freedom to operation” (i.e., licenses to use intellectual property owned by others and/or talent shortages); barriers to entry; market adoption; regulations and exit strategy.

Source: R. Allis, How to Build a Startup Plan.

Alan Gutterman is the Founding Director of the Sustainable Entrepreneurship Project, which engages in and promotes research, education and training activities relating to entrepreneurial ventures launched with the aspiration to create sustainable enterprises that achieve significant growth in scale and value creation through the development of innovative products or services which form the basis for a successful international business.  Visit the Project’s Library of Resources for Sustainable Entrepreneurs to download handbooks, guides, articles and other materials relating to sustainable entrepreneurship and keep up with the Project’s activities by following Alan on LinkedInTwitter and Facebook.

 

 

 

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