When writing a business plan for a software product, the most important thing to remember is that this is a business plan and not product roadmap. When investors want to know about the product, the main topics of interest to them are:
1. Does the management team have professional expertise to get the company to achieve its business objectives?
2. Is there a market for the product in the suggested price and what is its market size?
3. How soon the company could reach the market?
4. Why customers choose your product over a competitor?
5. How difficult will it be to sell the product?
6. When and how the company reaches profitability?
Business model is an essential part of a business plan for a software product. A very popular business model is SaaS (Software as a Service). Instead of selling a product for unlimited use, you charge fixed/monthly fee per usage.
Another business model is the model of sharing software (shareware, freeware or freemium). The software is developed and offered for free to users to produce a wide user base. In this case the revenue model is based mostly on the provision of technical services fee or advanced packages. Sometimes the product doesn’t need to be installed, but it is used through a supplier. In some cases, the user community continues to develop the software to make improvements that are given free of charge.
The most common mistake of start-ups in the software industry is product targeting. You have to focus on the commercial aspect of the project. When it comes to marketing, you need to focus on promoting the product and what it does for to the consumer, not its features. A business plan will help you understand the market, the target market and qualify your product properly.
Response and change
We understand that some start-ups (especially those who survive the initial development process), are required to change their original idea. Flexibility is the key. We understand that some of the information we need to build a winning business plan becomes clear and bright after product launch. We encourage you to respond to changes instead of insisting on the original business plan. A business plan is the first step of the process. The plan is like driving on the road, you should always take into account external factors, competitive environment and adapt accordingly.
Prefer revenues over external funding
Revenues from customers are the clearest evidence you solve the right problem in the right way. If you want to learn what a user is looking for in a software product, ask him. If you want to know what the market wants from your product, ask your customers. Clients communicate through cash.
Business plan sections example (not all of them appear in a business plan)
1) Executive Summary
2) High-level overview / summary of business
A general description of what the company produces, an estimated market size, number and size of competitors (if it is in a start-up, an explanation on how the need was identified, how big the market of the product and why this product addresses the need).
• Who are the people behind the company, a summary of the experience, skills.
• High level financial plan, sales projections, EBIT forecasts for 3-5 years and their assumptions.
• What is the business offer. (Only in the business plan, not in one pager and presentation)
• What is expected from the investor and what is he getting in return for his investment. It must be very clear. You must be able to answer the question; “What do I get for investing in this business?” Just to make him read the rest of the business plan.
All answers must be in the executive summary. Professional investors will not bother to read the rest of the document if they don’t feel that there is an opportunity, if they don’t understand the deal or what they are asked to consider. The executive summary shouldn’t be more than 3 pages.
3) Overview – The essence of the business
• Description of the Business
• Product – what the product is, how it works, how is it packaged and how is it sold.
4) Business Strategy
• Industry Analysis
• Penetration process
• Strategic partnerships
• The opportunity to EXIT
5) Marketing Plan
• Environment – SWOT, PEST
• Analyze competition – can use Porter’s model
• Target market segments
• Consumer Analysis
• Marketing channels
• Value Proposition
• Promotional Program
6) Operational Strategy
• Critical Success Factors
• major milestones
• The current management team
• Future recruitment
8) Financial Data
• Revenue Model Revenues for 3-4 years analysis, DCF, IRR and ROI for investors
• 12 months Budget
• Key assumptions and sensitivities
• Requirements for capital raising and exit strategy
We at Targo are very familiar with the nuances and differences between the various business plans and financial models, we have developed several unique models for our customers, other than those specified above. Our business plans are built on the basis of research for each customer and are customized and tailored to the product, the market and its core business.