How does a business plan for social network differs from a business plan for a normal startup? After working with several clients who have developed unique social networks, we realized that projects in this field are different in many ways. Preparing a business plan for a social network is a challenging process because there are unique aspects that must be recognized in order to achieve a high level of output. You must understand which factors to consider, and what is critical to success.
Factors to consider before you build your business plan:
- Monetization – Revenue Model
- Start-Up Financing
Often entrepreneurs want to be the next Facebook. They underestimate how Mark Zuckerberg built his empire or the marketing costs involved in promoting the wider websites. If you do not have the financial backing of a venture capital fund, you should choose a niche industry or specific users to focus on. Start by generating revenue in your segment and then expand into other areas ; do not try to be a general social network.
For example, Amazon began with the book market, took over and created a revenue stream. Then they moved on to electronics, fashion, shoes, sporting goods and more. The problem with a lack of focus is that you can’t focus your marketing budget to get enough traffic to your website to take off.
Social networks are social by definition and include groups of people who are interacting. It is very difficult to build a user base from scratch since most people are busy and may already be active on other social networks.
To be successful, you must start with an enthusiastic group of basic users to help you launch and grow. The enthusiasm and energy of active users, preferably those with influence, is the key to your success. This group may be relatively small at first about 100-1000 users to get things off the ground. It is essential that the go-to-market of your business plan will include the recruitment process of those enthusiastic users who will spread the word.
The most successful communities were groups of users with a specific need. LinkedIn, for example, was built to meet the communication needs of professionals.
Competition is mandatory in every business plan and investor presentation. Think about your competitors broadly. When you analyze the competitive environment and display it in the business plan you should consider forums, social sharing sites and general networks that can also compete with your product.
Try to analyze carefully the profile of your direct competitors. Make sure that someone from your team signs up to these networks and examine their strengths and weaknesses. Create a table comparing key features of competitors and learn their revenue model.
The key to success, of course, is monetization by building a great revenue model. There are a wide variety of revenue models out there, including the advertising model, the subscription model and the freemium model.
In order to build a successful a business plan for a social media platform, you need to ask yourself before development begins “How am I going to make money”? There are five common revenue models that are generally used, but creating a new model is certainly plausible. All five models will look familiar to the standard consumer such as: the freemium model (free to regular version and charge for advanced features), the affiliate model, subscription model, In-app purchases model and the classical model of advertising.
Facebook, for example, uses advertising to generate revenue, and receives relatively little per user. There are many companies that use the freemium model, while relatively fewer companies utilize the affiliate and subscription models.
While WhatsApp has not been able to present a solid revenue model, there have been some exceptions such as the a few periods when it charged a $1 subscription fee for the application. However, in most cases such a business plan would be unattractive and would leave investors with losses.
There are three large expenses when you create a social network-oriented business:
- Development and Customization: This usually require a considerable investment of time and money. A team that wants to build a social network should consider having at least one experienced engineer.
- Marketing and advertising: paid ads, influencer marketing and PR.
- Don’t forget that there are massive costs in creating, keeping and managing content, even if it is created by users.
The dot-com period of financing promising ideas is long gone. We recommend to raise funds from friends, family or private investors until the platform has a user base and revenue stream. Once you achieved these goals you can turn to venture capital firms and established angel investors.