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:
Proves that your business idea is a highly profitable one
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.
Sales and marketing
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 a comprehensive business plan depends on the complexity of a business, usually they contain around 30–50 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.
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:
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.
Place of residency
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:
Figure 2 - Source: ironspringsdesign.com
Figure 3 - Source: inalign.com
Some customer personas get quite granular, even to the point of mapping the personality traits of their ideal customers:
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:
Digital ServiceDigital services are services you can provide remotely, such as web design, app development, etc.
Digital ProductDigital products are products like software, e-books, online courses, etc.
Physical ServiceServices requiring the physical presence of an employee, such as an electrician, computer repairs, etc.
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:
Who are your potential customers?
Market opportunity size
Estimated number of potential customers.
Percentage of market you will be focusing on.
Is your market likely to grow?
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:
It identified a gap in the market (reduced-sugar flavored water)
It helped refine their audience (individuals with healthy lifestyles).
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.
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.
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:
Figure 6: Professional Market research example - Source: euromonitor.com
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:
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.
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 opportunity size
Market research is a two-step process:
Ask the right questions
Find the answers from reliable data sources
Here's a list of suggested questions to help guide your market research efforts, this isn't an exhaustive list but it serves its purpose of giving you a sense of direction.
Does your solution exist?
When/where is your solution purchased?
What percentage of people are currently using a solution similar to yours?
What percentage of population would be interested in your solution?
What is your estimated market size?
What is your penetration rate? (low percentage for very specialized solutions and high percentage for low maintenance setups).
Here's a list of statistical sources you can use to find the data for each of your research inquisitions.
Data sources to use for market research
United States Census Bureau
Data collected from the Census in the United States is publicly made available via the United States Census Bureau website.
On the website you can search through any data that was collected from answers received in each Census. Just select a category from the home page or use the search bar.
Here is an example of poverty data across a one-year cycle:
Figure 8 - Data example from United States Census Bureau
The United States Census Bureau also contains extensive geographical data across most states.
If you require an up-to-date map for your market research, this website contains a library of shapefiles you can instantly download.
You can even integrate this data into a mapping tool if your business solution requires it.
The Henry J Kaiser Family Foundation presents valuable data sources relating to national health. The organization performs its own independent research to produce statistics that are trustworthy and unbiased.
World Health Organisation
The World Health Organisation is another helpful statistical source for global health related categories.
This is a great market research tool to use if you're establishing a social enterprise
As you can see, their statistical data is quite granular.
Figure 9 - World Health Organisation
Statista contains statistical information for different industries across 50+ countries. They have statistical data for almost any search query and it’s usually very up to date.
Apart from sourcing data from the above source to validate a prospective business idea, you could perform your own case studies by aggregating user data and insights.
There are a couple of methods you could use to do this
Build a smoke test site
One method of validating a pure idea is to build what's known as a "smoke test site," which is essentially a landing page for your prospective idea.
A smoke test site is designed as if its product has already been developed.
Whenever a pricing option is clicked, visitors are taken to a form they can submit to learn more about the product.
The total amount of clicks to each pricing option will reveal whether there's a demand for the product and, if so, the price prospects are willing to pay for it.
Because the last stage of this process is the submission of a form to learn more, you shouldn't have to worry about misleading visitors because you aren't promising that they will actually receive the product.
After you've assessed all of the data, you would then email each user to let them know that the product will be available soon and that you'll keep them updated on its progress or, alternatively if there isn't much demand, advise that the product is unfortunately unavailable.
The benefit of the smoke test site method is that you'll have a list of high-intent potential customers you can email once your product is ready and achieve your first round of sales (and feedback) almost instantly.
Crowdsourcing is another method of idea validation that's extremely effective.
The process is incredibly simple:
Create a crowdfunding campaign for the solution you're thinking of implementing and set a fundraising goal.
If you raise the money, not only will you receive validation for the idea, but you'll also have the funds to make it happen!
If you don't raise enough funds to meet your campaign target, that will be sufficient proof that your idea is probably not worth investing in. Coming to this conclusion as early as possible will save your business a lot of time and money. We'll go into more detail on crowdfunding in chapter 3.
Writing up a competitor analysis
Competitor analysis is a subset of market research. Competitor analysis should be something you perform as early as possible, to help you decide whether your venture is even worth pursuing.
You may find that the competitor field is much too fierce and the bar for your solution set much too high.
As debilitating as this intel might be, it's best to become aware of it sooner rather than later.
You shouldn't be discouraged when you do find competitors in your niche. If a competitive product or service exists, you could still establish a successful business by cultivating a superior solution.
A successful business plan doesn't always outline a novel solution. Sometimes it demonstrates how a given solution is capable of outperforming each of its competitors.
How to locate your competitors
There are two main methods of finding competitors:
Online marketplaces are a great place to find competitors, especially for digital products and services.
Just type in the keywords of the product or course you wish to create and the results page will list all of your competitors.
Good ol' Google is a fantastic resource for finding competitors. Simply type in keywords related to your idea and Google will do the rest.
Here's an example:
Let’s say you had an idea for a bicycle helmet with an inbuilt airbag.
A quick Google search will reveal the existence of such a product:
Figure 10 - Using Google for competitor research
It’s not enough to just list your competitors. If you want your business plan to reflect how seriously you desire your business to succeed, you need to take your competitor analysis one step deeper by categorizing each of them by the level of threat they pose to the success of your prospective business.
Categorizing your competitors
Not all competitors are created equal. Some pose a greater threat to your business than others.
There are three levels of threat:
These are competitors that are offering a very similar service to you and are targeting the same audience.
These competitors offer a similar service to you but to a different audience sector. They are essentially one step away from developing a similar solution and becoming your high risk competitor.
Medium risk competitors are also those that offer either a high-end or low-end version of your solution.
Low risk competitors are those that offer a solution different to yours but still in the same niche.
An example of a low risk competitor to a computer repair company would be a computer retailer.
A computer retailer specializes in selling computers, not repairing them. These competitors are still worth noting and monitoring.
Another good reason to list these competitors is have them on hand as possible strategic partnerships you could develop to expand your business (eg a computer repairer might partner with a retailer to sell their computers to customers seeking an upgrade).
Using market research to help you find a winning solution to sell.
If you're trying to decide on a product to sell, online marketplaces can give you ideas on how to create a product that is superior to your competitors.
Here's a list of some great online marketplaces to use:
Let’s take a look at how online marketplaces can help you uncover golden product ideas.
If you were thinking of creating a Python course, but uncertain about the specifics of such a course, you would begin your research by searching as broad a search term as possible.Here are the results from Udemy for the search term “Python”:
Figure 11 - Udemy.com
You will notice a common theme throughout all of the course titles:
The default result lising filters by popularity, so the above words are included in the titles of courses users are searching for and purchasing.
So if you were doing some research to help you decide on a Python course to create, judging by the above list, an effective course would be:
Aimed at beginners
Filled with real life examples
Include extensive exercises for students to complete.
If you're trying to decide on the perfect digital product to sell, the answer may be buried within the customer testimonials of your competitors.
Let’s revisit our example of the creation of a Python course. The following steps will help you decide on the best idea for a python course that is almost certain to be a success.
Step 1: Perform a broad search
The first step is to search a broad phrase related to your prospective course in an online course marketplace (such as Udemy, Coursera, Edureka, etc).
Step 2: Select a product with a high number of ratings
Click on a product with as many ratings as possible. If your initial search filters products by popularity, most of the top search results should contain a high number of ratings.
Step 3: Filter by 1 star ratings
Filter all ratings so that the one star ratings are shown at the top.
Step 4: Note down improvement ideas
Read through as many 1 star ratings as possible and note down any suggestions for an improved course.
The longer the 1 star review the more passionate the reviewer is, and therefore, the more likely they are to uncover highly valuable information.
Here is a great example from Udemy:
Figure 12 - Review example from Udemy.com
From this extensive review, we can gather the following insights about this course:
Experienced data scientists want a course specifically designed to build up their python programming skills, not a basic introduction to Python.
This course does not contain enough exercises for students.
Programming scripts should be downloadable.
Principle Python concepts need more in-depth explanations.
Switching instructors throughout the course confuses the students.
Students want the answers to solutions explained in more detail, rather than just read out.
Beginner data scientists should be taught about different visualization types in much greater detail.
Look at all of the profitable data we gathered from just one review!
The insights gathered from this review alone is enough to curate a couple of highly informative and valuable Python courses, one for beginners and the other specifically for data scientists.
Make notes from multiple 1 star reviews across different courses.
Once you have enough intel from 1 star reviews, do the same for 5 star reviews and take note of all the features customers love (which you should also include).
As you can see, sometimes positive reviews also contain constructive feedback:
Figure 13 - Review example from Udemy.com
This research does take time. Hours, in fact. But it's well worth it the effort.
Marketing and Sales
In your business plan you need to outline how you plan to notify prospective customers about your solution.
An effective marketing plan will keep the customers rolling in and your sales numbers nice and plump.
There are various marketing channels to choose from, available in both analogue and digital formats. We'll go into detail on all of them in chapter 6.
How to outline a marketing strategy
Marketing is a very broad and deep topic. It’s easy to get a little carried away and start over-strategizing your marketing efforts.
When constructing your business' marketing strategy, keep things simple and straight to the point.
Readers should quickly and easily comprehend how you plan to bring in customers.
Here are some suggested marketing strategies for you to implement that will make your business marketing plan appear bulletproof.
Define your market position
While this isn't a marketing strategy per se, it's a powerful way to set the scene because it demonstrates your confident understanding of your market position.
Think of your market position as a fusion of your value proposition and your target audience in a graphical way.
Here is an example of the market position of The Cambridge Strategy Group:
Figure 14 - Defining market position - Source: bplans.com
The Cambridge Strategy Group is positioning itself as the leading business consulting firm for small businesses.
Notice how this graph differentiates Cambridge Strategy group from its main competitors.
By including a clearly defined market position in your business plan, you will earn the trust of skeptics that may doubt your ability to spend your advertising budget efficiently.
Use the above example as a template when creating your marketing position graphic.
To help you decide on the title of the y-axis, think of the two polarizing sectors of your business solution.
For example, if you are opening a tutoring company your polar sectors could be high school students and college students.
If your tutoring services include first year college students as well as high school students, your market position would be located somewhere in the middle of the y-axis.
Constructing sales funnels
Sales funnels should be incorporated into every single digital advertising campaign you create.
You may have seen a video ad on social media offering a free product that you can only be accessed after inputting your email address.
Or a landing page that clearly outlines all the features and benefits of a product before asking readers to take a desired action.
All of these advertising efforts incorporate a variation of a sales funnel.
Here is a brief overview of the sales funnel philosophy:
The concept of a sales funnel is simple, yet super effective. It’s designed to encourage a visitor to progress through to the end of a customer buying journey.
The typical customer buying journey is comprised of 4 main stages:
Figure 20 - Customer buying journey - Source: easyautomatedsales.com
The awareness stages appears at the top of the sales funnel (TOFU). At this stage a customer first becomes aware of your solution.
The awareness stage has no chance of converting a prospect on its own. A prospect could become aware of a solution and then just choose to ignore it.
If, however, after becoming aware of a solution, a prospect’s interest is piqued, they take one step closer towards converting.
At the interest stage a prospect is actively looking for the perfect solution to their identified problem.
It's very possible for a prospect to become aware of your solution, concede their need for it and then transition instantly into the interest phase.
These phases do not need to be separated by any specific amount of time. Quite often a prospect transitions through all of the stages and takes action instantly just after viewing a single ad for the first time on social media.
At this stage a prospect is ready to commit and settle with a solution. During this stage of the funnel an advertiser needs to pull out all of the best tricks and offer incentives like free shipping, a money-back guarantee, etc., in order to convince a prospect to take action.
The final phase of the sales funnel is taking action.
A prospect is transitioned into a conversion once they take the desired action the advertiser would like them to take.
This could be a purchase, signing up to an email newsletter, signing up to a software trial, etc.
The content you integrate into each phase of your sales funnel depends on your offering. Highly complex solutions require more convincing and therefore more in depth content.
A sales funnel strategy can either be integrated into written content or through video. For best results you should utilise a combination of both.
To make the process quick and simple for you, there's software to help you guide prospects seamlessly via each stage of the sales funnel.
For a tutorial on how to use software to set up your sales funnel click here.
For an overview of setting up an effective sales funnel on Facebook click here
Your product distribution plan
List all of the different distribution channels of your business solution, and be as thorough as possible.
Will you only be selling your solution via your website, or will your partners also display affiliate links?
If you'll be turning your customers into evangelists through a referral program, make sure you include the details of the program.
By being incredibly thorough when listing your distribution channels, you'll demonstrate that you're taking advantage of every available opportunity to reach your prospective customers.
Remember, a business plan is an outline of how you plan to make money, so position yourself as profit-driven leader by listing as many distribution opportunities as possible.
Writing your funding section
No business idea is possible without money. Some ideas require more money than others, but how do you figure out how much you need and, most importantly, how do you get that money?
Let's start by giving an overview of fund raising.
Startup funding sources
Your business plan should also include a detailed description of your financial projections, as well as how you plan to source your funding. Lucky for you, our next chapter covers this in detail.
Writing your startup growth milestones
The milestones section of your business plan demonstrates how you propose to make the best use of your time when establishing your business.
Milestones also make the strenuous task of establishing a business much simpler by breaking it up into smaller achievable goals.
Your progress can then be readily tracked by noting how much of each milestone was completed.
Every milestone you create should include a description of the task, the names of all responsible parties, the due date and the budget (if applicable).
The size of each milestone is entirely up to you, think of them as different chapters of your journey.
The best way of coming up with your milestones is to create a mind map of absolutely everything that needs to be done, then categorize each of these tasks and divide them into separate milestones.
Xmind is a free software you can use to create a mind map and start brainstorming.
Once you've finished brainstorming you should use a project management tool to turn each of these tasks into milestones.
Project management tools are fantastic because they allow you to allocate each task to your team members and track its progress.
Here are a few great project management tools options:
Writing your team chapter
The experience and skills possessed by your team members are sometimes the most important factors affecting your business funding.
It doesn't matter how well thought out a plan is. If the people executing the plan lack the necessary skills, no one will support you.
The construction of the team component of your business plan is your opportunity to demonstrate that every member of your team is equipped with the necessary skills to get the job done.
You don't need to have your entire team assembled. If you lack a certain skill set, create a profile of the ideal candidate you will need to hire to fill this void.
An effective strategy to filling empty skill sets is by rounding up seasoned professionals as advisors in exchange for equity.
Your team will seem very persuasive if you onboard highly experienced experts to guide the establishment of your business.
LinkedIn is a great tool to use to find advisors because you can instantly see the experience level of each person on their profile.
Here is a list of details you should include under each of the members of your team.
Industry experience (number of years as well as names of key industries they worked with).
Projects/duties the team member will be responsible for.
Key industry related achievements.
Your business plan is the handbook of your prospective business. If you follow the guidelines in this chapter your business guide will demonstrate your readiness to launch your business idea.
In the next chapter, we will discuss all things finance and outline how you can fund your startup.