A business plan for a startup or an established company is essentially a road-map for defining goals. This road-map details the actions needed to be taken in order to bring the product to the market and decrease uncertainty. Using a business plan, the entrepreneur can decide how much capital the company needs and its exit strategy. The time and resources put into the preparation of a business plan are significant, but is essential in both the short and long term. A business plan allows the entrepreneur to perform better.
How to build a business plan
Targo’s approach business plan
You have a winning product. You are excited, inspired and ready to jump into the water. The next step is to write a business plan. With just a simple Google search you will be able to find plenty of tips on how to construct executive summaries, marketing plans, and financial forecasts. While all of these are the basic components of a business plan (and you definitely need them), a good plan has a little more than that. A winning business plan generates passion within the reader and a desire to be involved in the project.
A business plan should meet accepted standards regarding form and content, becoming increasingly more important in the case where an entrepreneur’s goal is also to raise money based on the contents of the plan. This makes it possible to more clearly reflect the goals of the start-up and the strategies needed to achieve them, and serves as an effective tool for potential investors, banks, employees, etc.
When presenting a business plan to outsiders, you as an entrepreneur must know your market and the existing solutions attempting to fix the problem you are aiming to solve. Targo’s business plan will help you produce an operational work plan that will be presented to investors and assist you in recruiting relevant team members.
The process of building a business plan at Targo is a structured and orderly process. Over the course of the process we hold weekly meetings with our clients, where we discuss our findings and formulate a plan the following steps in the process based on the previous steps. For example, if the market research phase has been completed in the business plan then the meeting we will be dedicated to discussing our findings and its implications for the GTM, plan or even the necessity to perform a Pivot for the product.
With the completion of materials in each step, the client receives materials 24 hours before the meeting, allowing them to actively participate in the meeting and in the business planning process in general. With us, the client is a full partner in building a business plan, which allows them to answer any question posed by potential investors and base their answers on research-based data and benchmarks.
Targo’s business plan is tailored to the characteristics of the industry or field in which the entrepreneur or start-up operates. A business plan for a medical device will be completely different than a business plan for an application, or a business plan for a cyber-product; but any business plan built by Targo is based on research and relevant data.
Executive Summary of the Business Plan
An Executive Summary of a Business Plan is an overview of the document. Its purpose is to summarize the key points for its readers, save time and prepare them for the following business plan content. Above all, the summary must be clear and concise, but also enticing so the reader continues on to the rest of the business plan.
This is why the executive summary is often considered the most important part of a business plan. If it does not get the reader’s attention, the investor will not proceed in reading the rest of the plan. This would be disastrous if you wrote your business plan for the sake of raising money to get your startup off the ground. Fundraising is not the only reason for writing a business plan; there are other equally important reasons.
Since this is an overview of the business plan, we at Targo build the executive summary at the end of our process, but place it at the beginning of the document. In the executive summary we present information about the venture / product / service, relevant financial information relating to the expected profit forecasts, and information about the company and / or the entrepreneurs, according to the following details:
- Product / Service Definition
- The Problem / Opportunity
- The Competitive Advantage of The Product / Service Over The Competition
- The Business Model
- Target Market
- The main milestones and schedule for achieving the goals: future developments, service expansion or penetration into additional markets
- Company / Entrepreneur Profile:
It is important to provide the potential investor with the information about the project’s founders / consultants / senior management. When it comes to Start-ups at an early stage, entrepreneurs and investors will want to know in depth about the teams professional experience, capabilities and skills, in addition to and anything else that may help them in carrying out the project.
- Financial Information: Investors will want to know what the company’s goals are at the financial level
- Summary of Profit And Loss Forecasts And Multi-Year Cash Flow
- The Required Budget for the current round’s raise
Minimum Viable Product (MVP) In the Business Plan
There are differing opinions regarding a minimum viable product (MVP), and few truly understand what it is. An MVP is a version of a product with the potential for the highest return on investment with a minimal amount of risk. In our line of work with start-ups, we have seen a number of products with varying degrees of complexity, and what we have learned here at Targo is that MVP does not always mean that you will necessarily need to roll out all the product’s features within the initial product definition, nor does it mean that you will be able to go to market within a month.
There is no generic MVP strategy. When we build a business plan we define the MVP according to the industry you are attempting to break into, the problem you are solving and the solutions in the market.
The following points outline the concept of an MVP, based on the product and industry, and will help you understand how we decide which features will be present in the business plan.
1. Distinguish Between “A Must Have” And “A Nice to Have”
The basic rule for any MVP definition is to understand the core value proposition of your product. The ability to separate the core competencies from the rest will help you reach the market faster and validate your hypothesis at a lower investment.
The first version of the product should only address its core value, without requiring any additional, abstract features. Even if you design your product with only a few features, it should be enough to draw your user in and make sure that continue to use your solution.
Most developers make the mistake of defining the MVP in a business plan as a product with incomplete features. Defining the MVP in a business plan must provide an overall user experience. You can build a loop or a non-automatic workflow in the back-end without affecting the end user experience. In summary, MVP is not a landing page, mock-up or prototype, but rather a viable and functional product and should be defined accordingly in your business plan.
2. Initially Engage in Only One Market Segment
When we discuss your target audience in the business plan, we are referring to the entire potential total addressable market, however, the MVP should initially serve your seed users. That is, the segment of your target audience that will be easiest to recruit at the lowest user acquisition cost. Launching a product that tries to serve everyone is often not an ideal strategy.
Focusing on one customer segment and presenting yourself as a good solution to these customers’ problems will help you reach product /market fit. Investors prefer to see a focused business plan with a description of opportunities in additional segments, rather than a business plan that presents huge potential, but does not present a viable way to realize that potential.
3. Recognize The Difference Between a Target Audience And An Untapped Audience.
When building a business plan, you will discover that you may not be entering into a totally new and completely untapped market where you can launch your product. Your product may be a better solution, and that’s fine. It is imperative that when you are attempting to break into a market that has existing solutions, you must build yours better and separate yourself from the competition.
In this case, you can build something leaner than what your competitor already has. But make no mistake about the word “leaner”. It does not mean “fewer features”, but build on those features that are a core part of your product’s overall user experience. With an emphasis on those features that help to establish your competitive edge.
The MVP in this case will look very different than the one you are building for a completely untapped market, where such a product or service does not exist at all.
Status / KPIs in a Business Plan
When you introduce the company, it is important to indicate in the business plan the stage the company is currently at. Whether your venture is in the idea stage, development stage or sales stage, it is important to show the investor which milestones you have achieved so far. Some examples of milestones to present as follows:
- Users / Customers
1. Work Plan
In a business plan, the milestones can be placed on the timeline, and show your progress thus far and what work will be completed in future, and when. Your timeline goals to help the investor to understand where you can go and what steps you can take with your current investment. Example of a work plan in a business plan:
When your product is already on the market, this is a great opportunity to present in the business plan all the data that will help the investor make a decision about the viability of their investment in your. for example:
- User Acquisition Cost
- Customer / User Life Value – LTV
- Unit Economics
- Return On Investment in Marketing – ROI per user
With the help of this data, it is possible to assess where the company can reach with the help of the investment. With a customer acquisition cost of $50 it is likely that after an investment of $1 million in marketing the company will be able to reach 20,000 customers (or more because of the viral effect). If our revenue model is a $20 monthly SaaS subscription fee, that means the company’s monthly revenue will be around $400,000 per month at the end of the period. Whether you have traction or not, any business plan and financial model in particular must include KPIs, even if they are theoretical.
3. Performance – Traction
Actual traction is proof that there is demand for your product in the market. Preferably the sales graph should look more like a half parabola (a j-curve) rather than a straight horizontal line. A consistent growth rate means that the market itself is large, a solution has a valid business model and is maintaining sustainable growth. Investors want evidence that your startup is capable of rapid growth and attaining significant market share in a relatively short amount of time.
When we at Targo build a business plan, we know how to set the metrics for success and how to present our results in a convincing manner to investors.
Introducing the Team in a Business Plan
The business plan aside, the Venture’s team and their experiences in the field in which it operates is reflected throughout the start-up’s lifecycle – from the recruitment phase in which the investor examines the capabilities of the founders, to the management of the company.
An individual entrepreneur will find it more difficult to raise money and execute their business plan, in terms of both convincing the investor and strategically implementing a business plan on their own. The optimal number of founders for a start-up is three entrepreneurs, with at least one of the entrepreneurs having a technological background for product development CTO and the other having relevant business experience as CEO.
In the go-to-market stage, it is advisable to recruit the CMO marketing manager with experience in a specific industry you want to enter and be able to implement your business plan. A business plan is a dynamic document and at every stage of the entry of a professional staff member, the business plan will change according to its guidelines.
Introducing the Team in A Business Plan
In contrast to a business presentation where the team is presented in a minimalist way. In a business plan, it is advisable to dedicate about a quarter of a page to each team member. It is advisable to introduce the following topics:
- A role in a start-up
- Relevant professional experience that will help advance the startup’s goals
- Successes passed in the field of venture capital
- Companies in the field in which he was a partner or played a significant role
The recruitment process for a business partner is very similar to the investment recruitment process. An entrepreneur needs to convince a potential partner that their product has a future. At this stage, an entrepreneur should already have produced a business plan including extensive research and goals. As mentioned a business plan should be updated at every step and stage.
Market Research in a Business Plan
It is not writing a product description or product vision, but rather the market research that is the first thing to do when attempting to write a professional business plan. The information obtained from market analysis is of immense importance to a start-up, and it falls upon the entrepreneur to design their unique product or solution, and the services they offers (whether they thought of them in the first place or out of necessity, derived from the research), and “tailor” them to suit them best. To customers. The answer to the seemingly trivial question is also – “Who are my customers?” is not always clear. The research phase helps discover and define who and where they are.
But … in the age of the Internet, there are a number of varied sources of information, which often leaves the entrepreneur not always know where to begin. Moreover, improperly performed market research can hurt the start-up, leading it in the wrong direction, with the possibility of even ending the Venture’s cycle itself. So let’s put the process in order together.
During the market research phase of the business plan building process in particular it is worthwhile to conduct a preliminary market research as a means of proactively and actively generating meaningful information by the entrepreneur or a consulting company. The product is an up-to-date picture of the market, sales, competitor plans and more.
The information production process will, if possible, usually include:
Conducting interviews with key players in the industry, service providers and customers. A phone call or Skype is an effective means, but a face-to-face conversation will make it possible to make the most of the interview. Dedicated online surveys through free or paid sites are a powerful and very important tool, such as:
Questionnaires to potential customers, in highly concentrated areas such as Facebook groups also have the potential to be a useful tool. The next step is market research for secondary information (also called secondary). Secondary information is information that third parties have already gather and collected and can be quite handy while conducting and compiling your research.
Secondary information is essential for the completion of the initial information you collect, and its validity. The information is mostly available for free, but it is sometimes worthwhile to buy it from professional sources who have collected it and are offering it for sale in order to save time. Use cost-benefit judgment. Here are some common sources of information you can use in market research:
Articles and interviews online or print media. Searching the names of competitors or industries on Google and internal search engines of the leading press sites. Interviews with competitors’ CEOs are an excellent sources of information as well.
Government information sources are endless sources, and are updated from time to time, but searching for them may take some time until you find what you are looking for. Since most startups turn to the Western market (the Israeli is usually used as a pilot, if at all), it is likely that there are some statistics bureaus that have published relevant and reliable pieces of data. Professional organizations, bureaus and associations relevant to the startup industry – search the research area on the institution’s website This Wikipedia page that lists trade unions in the United States and is a good place to start looking.
Commercial entities that trade in information and specialize in collecting it, sometimes the information is behind a paywall with some information being offered for free:
Information by industry can be found on the website:
- Or at hoovers.com
- Looking for information on a particular type of business? At cbb.census.gov/sbe you will find by regions and domains in the USA.
The extensive information you gather can be applied to the process of setting up an MVP during the second stage of the business plan writing process.
Analyzing Competitors in a Business Plan
Analyzing competitors is one of the most important parts of the business plan building process. A competitor’s websites are an excellent source of information. Check out which products/services they offer, what are their marquee technologies, and at what price. Sites such as AppsFlyer, similarweb or alexa make it possible to understand a numbers of competitors’ sites and provide a means to search for information on potential customers. Some of the services on these sites are provided on a subscription fee, while others are free for use…
When analyzing competitors for a product or service, the following issues should be considered:
- A thorough analysis and description of a competing product or service
- The strengths and weaknesses of the company’s products that you may compare to similar points in your company.
- Company size and sales turnover
- Competitor’s target markets and market share
- Competitor’s marketing strategy
- Recruitment rounds and scope
The goal is to show the investor reading the business plan that there are alternatives in the market, and prove to them that you know the market, its structure, the key players and their characteristics. To summarize, you should present a detailed analysis that demonstrates that there is room for a new player in the market. Once you have establish this, you must assert the competitive advantage of your product with which you will be able to draw in and convince potential customers to use your product, rather than your competitor’s.
A business plan should also present the competitors who are not directly competing against you, but rather offer a different solution to the same problem. Amazon and is a direct competitor of eBay, but is also an alternative to Shopify. The presence of a major competitor may be an opportunity for an exit, since there have been many cases where an established company will prefer to collaborate or acquire a new competitor in the market, rather than trying to compete against it. The reason for this is because these established companies will be required to invest valuable time and resources to compete with the latest technology it offers.
After listing all the competitors, both direct and indirect, it is advised to build a table to summarize and clearly present a comparison between the existing solutions and your product. The table can be presented in both a business plan and in the investor presentation. Example table:
Beyond the table, it is important to present the competitive advantage at the concept level in the business planning process. Investors are looking for a different solution to an existing problem and are less impressed with products based on adding to existing solutions. Spend the time formulating the benefit you offer in this part of a business plan, as it can be a crucial factor in the investor’s decision making process.
SWOT Model in A Business Plan
A SWOT analysis is a strategic planning model that is used by an entrepreneur or startup in order to identify the Venture’s strengths, weaknesses, opportunities and threats related to the business’s competition or planning. The SWOT model summarizes the research phase and the internal aspects of the business plan such as MVP definition and the description of the Venture itself. Also the other parts of a business plan like go-to-market plan or business model, will be based on the SWOT model.
The SWOT model is intended for use in the initial stages of the decision-making process. The intention is to indicate the goals of the start-up goals and to identify the positive and negative internal and external factors for achieving these goals. In the SWOT phase it is advised to ask and answer questions in order to generate meaningful information for each category, establish the usefulness of the model and identify your competitive advantage.
It is common to assume that strengths and weaknesses are often related internally, while opportunities and threats are usually used to analyze external factors. The name is an acronym for the four parameters that the model examines:
- Strengths: The strengths of the start-up / product that give it an advantage over the competition.
- Weaknesses:The characteristics of the start-up or product that put it at a disadvantage compared to its competitors.
- Opportunities:Elements in the market that the startup can take advantage of.
- Threats:Elements in the environment that can cause problems.
In the go-to-market business building phase of the business plan; entrepreneurs and start-ups build detailed profiles for each competitor in the market, focusing specifically on their relative advice and weaknesses through the SWOT analysis. In the process of building the business plan we examine the expense structure, revenue model and history of each competitor.
SWOT business plan
Unlike other parts of a business plan, the SWOT model always appears in exactly the same place regardless of product type or industry. A research-based SWOT model can be an excellent management tool in the hands of the entrepreneur and will help him maximize the start-up’s chances of success. The SWOT model is the shortest part of a standard business plan but its contribution to the planning process is extremely high.
Revenue Model as Part of the Business Model
When talking about building a business plan, many people use the terms “business model” and “revenue model” as if they are the same thing, when in practice a business model includes far more just the revenue model.
The business model in a business plan describes how all the factors in the company relate to one another, or contribute to the success of the start-up (customers, suppliers, employees, etc.).
The revenue model in a business plan is merely a part of the business model. The revenue model is the process by which your startup will generate revenue based on the value you provide. There are simple models such as selling the product or SaaS, and there are more complex models like selling information or affiliation. The part of calculating the TAM in the business plan and financial plan in particular, is largely based on the revenue model of the startup, so it is important to conduct research into the market and competitors in order to decide which model to use. Targo helps entrepreneurs and startup companies formulate the optimal business model and revenue model according to a comprehensive and thorough market research process.
There are some common revenue models:
- SAAS subscription Fee
- Billing for Advanced Freemium to Premium Features
- Payment per Use
- Price per Unit (sale of a product at a fixed price)
- Information Trading
As we at Targo define the monetization process in the business plan, we define how you intend to market the more advanced services to Freemium users. i.e. how do you convert free users to complementary users. Not every business plan involves a monetization process, this predominately occurs when a startup employs a B2C business model.
GTM Strategy as Part of a Business Model
The Go-To-Market strategy is an integral part of any start-up business plan at the seed stage, and even Round A if the product has not yet been launched. An effective GTM strategy includes all the important components that drive the startup:
Marketing and sales, distribution, pricing, brand development and an understanding of customer needs. It provides a practical roadmap that helps reach customers, and can be applied to both new products and existing products or services.
Comprehensive planning of this part of a business plan can take up to several weeks, and its successful implementation may take between anywhere one to two years; and sometimes even longer. It is important to remember that this is a long-term approach to establishing profitability, reducing customer acquisition costs, and enhancing the customer experience.
The GTM strategy has a number of objectives, including:
- Minimizing the time needed to reach the final customer / end-user
- Cost Reduction
- Better Adaptation to Change And Innovation
- A Successful Product Launch
- Avoiding Mistakes
- Defining the Ideal Path for Growth
In order for the GTM strategy to be effective and achieve the desired results, we at Targo make sure that your business plan includes the following sections:
- Market Definition – Which market would you like to conquer?
- Customer Definition – Who do you want to sell to? Who is your target audience?
- Marketing and Sales Channels – Where and how do your customers buy your product or service? Where and how will you promote your product?
- The Product – What is the product or service you are selling? What is the unique added value you are offering to each customer group?
- Price – What is the price for the product or service for each customer group?
- Branding and Differentiation – What is the main factor that sets you apart from your primary competitors?
As part of the business planning process for entrepreneurs and start-ups, Targo builds a robust strategy for the penetration process. We believe that an effective penetration strategy is essential for informing a company’s decisions on where to compete for the customer’s attention. Our approach allows the entrepreneur to reach and adapt to the market as it is continuously changing, and allows them to improve the product based on quick and reliable feedback. The GTM program can be part of the overall start-up business plan.
Building a business plan and an effective market penetration plan are always a combination of both in-depth market research and a deep understanding of where you want to go.
A Financial Model in a Business Plan
A financial model is in the final section of a business plan and looks at the business model numerically. Within Excel, sheets are linked together with the help of relevant functions. This model presents a company’s financial forecasts in quantitative terms. A financial model can simulate the impact of specific variables on company performance (sensitivity analysis). In start-up companies the main purpose of the financial model is to present an expected cash flow and a required budget for a defined milestone.
The financial model consists of 8 main sub-modes, with a model of manpower divided between the three models: G&A, R&D, and M&S. These three models together with the CAPEX model constitute the total expenses of the company and the budget for the defined period.
In the business plan itself, it is customary to insert only the summary table of the financial model, with a more detailed picture being displayed in a separate Excel file. Many new entrepreneurs often try to build a financial model without performing the relevant market research and synthesizing it with a clear strategy in a written business plan. Even an investor understands that the Excel in which the financial model that encompasses everything and is built in an unprofessional way is not worth the memory it takes up on their computer.
CAPEX – Fixed Assets Investments. Technological infrastructure or infrastructure for production and development.
G&A – Derived from general and administrative expenses that include most of the Venture’s operational expenses (OPEX) and all relevant personnel from the corresponding personnel tab.
R&D – Development expenses predominately composed of all relevant research & development personnel from the corresponding personnel tab and any outsourcing expenses.
M&S – Includes all expenses from the marketing tab in addition to all relevant marketing personnel from its corresponding tab .
REVENUE – Revenue model
CASH FLOW (CASH FLOW= REVENUE– (CAPEX + G&A+R&D+M&S
Budget – Budget for 12-18 months of activity of the company.
Business Presentation and One Pager
During the first meeting with an investor, it is customary to present the activities of the Venture/Company. Since the main points need to be conveyed in a timely manner, it is customary to present the business plan to the investor via a short, professional and matter-of-fact business presentation. The presentation is in merely a tool to accompany the business plan that aims to present the business plan’s essence in a concise and convincing manner. In our experience there is no second chance to make a first impression, so it is important to enlist the help of experienced professionals. You can create a presentation in a PowerPoint or Prezi format. The business presentation should be based on a business plan. When building the presentation, the product description should only account for 10% of the presentation, with the remaining 90% discussing other topics.
If the first meeting is successful, the investor will likely request a detailed business plan as part of the due diligence process. In some cases, the investor will not ask for a business plan, but will ask dozens of questions in order to verify if you have done your homework.
Investors today do not have the time to read a long and tedious document and before they express interest and invest their time, they expect entrepreneurs to send them a one-page document, acting as a sort of marketing summary of a business plan. The one-pager should contain a summary about the venture including topics such as: the product, the market, the business model, the competitors, the team, the development status and more. For the entrepreneur who wants to pique the interest of potential investors, the single-page One-Pager is the most effective way forward. It is short and concise, eye-catching and comprehensive; touching every point and while leaving the investor wanting more. The purpose of the document is to begin the dialogue process with the investor and the investment process in general. The One-Pager should be synchronized and coordinated with the contents of your business plan.
It is important to understand that the time an average investor is willing to spend to get to know your Venture is between 20 seconds and a minute and a half, at most. It is key that you treat the One-Pager as a marketing document that should generate a meeting or phone call and nothing more. The first rule for a successful One-Pager is: “less is more”.
Business Plan for The Purpose of Raising Investment
In an initial engagement with an investor, entrepreneurs/developers are expected to send a one-pager, executive summary or a presentation. These documents are short, yet touch on every important point in the business plan. It is important to understand that the one pager or presentation contains the essence of a business plan. If an investor shows interest, they will ask for the full business plan or just a dozen questions. If you have not prepared a business plan, this will give the investor the impression that you are not a professional and are unable to answer all the questions.
At the meeting, the investor will examine whether or not you are truly familiar with the market, and the competitors therein, and will ask you for an accurate breakout of the required budget and what processes the investment will be used for. Building a business plan is a necessary step in the process in order for you to pass the due diligence successfully. It is also a collaborative process between the entrepreneur, or the Company and Targo’s professional team. In this process, the entrepreneurs study the business environment, brainstorm and define the business strategy of the Venture with us.
If you recently sold your previous startup for $100 million, you probably will not need a business plan to raise investment for your next venture. Conversely, if this is your first venture, a professional and complete business plan demonstrates that you understand the issues and have a real execution plan.
Entrepreneurs with new technologies too often assume that the technology will sell itself. The fact is that your job is to show how the technology will be implemented within a solution that meets the customer’s need. Additionally, it is vital to define which channels will be used for sales and which business model will maximize the return on investment. A Targo business plan provides a comprehensive answer to these questions and will maximize your chances of raising an investment.
Our advice to entrepreneurs is to start doing your homework; research the market, build a lean penetration plan and a solid financial model. Startups without a business plan is an expensive hobby for investors to have.
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