It’s no secret that setting up any business can seem time-consuming and complicated. Coming up with a business idea is a great start, but it is not enough and requires further actions and time. Some business leaders understand that it takes effort to set up a business, but they might not know what steps they should take to launch it while others reckon that developing a business plan is the right way for testing business ideas.
Businesses with a business plan succeed better than businesses without a business plan.
According to recent research,
36% of companies with a completed business plan obtained a loan
36% received investment capital
64% grew their business.
As you see, startups with business plans have great opportunities to survive and grow. But what are the main reasons the startups fail? Do you know? Let’s find out together! According to CB Insights, 70% of startup companies fail, and the key reasons are the following:
1. No market need
2. Run out of cash
3. Not the right team
4. Get outcompeted
5. Pricing/cost issues
How to make a business plan for a startup company: key reasons why startup companies fail
That’s why in today’s competitive world, business plans are used as an internal roadmap that helps you to run your company successfully. Even if you’ll never use them to attract investors or raise capital, they are crucial for helping all businessmen to ask and think through essential questions. Think I’m exaggerating? Let’s find out more about a business plan below:
What’s exactly a business plan?
As you already know, every business needs to have a written business plan, and a startup company is not an exception. Whether it’s to provide direction or attract investors, a business plan is vital for the success of any organization.
Simply stated, a business plan conveys your business goals, the strategies you'll use to meet them, the potential issues that you may face and ways to solve them, the organizational structure of your business (including titles and responsibilities), and finally, the amount of capital required to keep it going.
Sound impressive, right? A good business plan can be divided into the following primary parts:
- Business concept, where you discuss the industry, your business structure, your particular product or service, and how you plan to meet with success.
- Marketplace section, in which you describe and analyze potential customers: who and where they are, what makes them buy and so on. Here, you also describe the competition and how you'll position yourself to outperform.
- Financial section that contains your income and cash flow statement, balance sheet and other financial ratios, such as break-even analysis.
If we break these major sections further, a business plan will contain the following key elements:
- executive summary;
- company description;
- market research;
- description of products and/or services;
- management and operational structure;
- marketing and sales strategy;
If you have an idea for a startup company, but not sure how to get started with a business plan, in this article, we are going to provide a step-by-step guide that will help you to understand what you need to know to get started. Follow this 8-step guide to turn your idea into a real business plan. Let’s start!
A comprehensive guide: How to make a business plan for a startup company
Step 1: Provide an executive summary
An executive summary is your chance to tell us what your business is about, why it matters, who it’s for, and how you’re going to get it off the ground.
Step 1.1: Outline customer pain points
The main idea is to identify your target audience’s pains and gains. It’s advisable to make a list of the problems the customers face and link them to the value that your IT products and/or services can provide. Based on that list, try to communicate this value with specificity and clarity.
Step 1.2: Define your competitors
At this step, you should look at your competitors. That’s why you should start by identifying who or what your competitors are, what great IT products and services they offer, their pricing structure, the particular problems they may have. Based on that information, think of a feature/product/service you can provide that no other competitor can match.
Step 1.3: Craft a unique value proposition
Once you have elicited all the information, it is time to write your startup's value proposition. A startup value proposition should be:
- Important to your customer and solve a problem they may come up with
- Unique and hard to copy by other businesses
- Strong enough to create a buzz and begin word of mouth referrals
- Short and sweet so your customer can read and understand it in seconds
Basically, your value proposition should quickly and clearly outline what your customer will get if they pay for your products/services, and why it’s different from your competitors. You can use the following value proposition template to create a rough outline for further refinement:
- For [our customer]
- who [has this problem]
- our [product/service]
- provides [a summary of the solution].
- With [our company] you [list your main features].
As you may understand, business plan sums up all of the information and your executive summary should include:
- Your company’s name, location, and mission.
- Your company’s description that includes management, advisors, and brief history.
- Your product or services overview that helps to understand how your product differs from competitors in the industry and how your product/services are accepted by users in the market and differ from competitors in the industry.
- Financial considerations, start-up funding requirements, or the purpose behind your business plan.
In addition to that, don’t forget that the summary should be a short, maximum two-page synopsis of the information provided.
Step 2: Make sure your company has a clear objective and mission
First and foremost, the business plan of your startup should convince that your idea for a business is a viable reality. In this step, you should create a company description that outlines vital details about your company - location, company size, business occupation, and your goals. With its help, potential lenders or partners can develop an accurate impression about who you are and your direction. Here you can find the elements that should be part of this section:
- Company name: The official name of your business as registered in the state where you do business.
- Type of business structure: Sole proprietorship, LLC, partnership or corporation.
- Ownership/management team: Names of the key people behind the company.
- Location: Where is the company headquartered?
- Company history: When was the business started, what inspired you to start the business, what need does your company fulfill?
- Mission statement: A clear statement that represents the purpose of your company.
- Products/services and target market: A brief overview of what you plan to sell and to whom.
- Objectives: An outline of what you want to accomplish in the immediate future based on the data in the rest of the business plan as well as future growth goals.
- Vision statement: A statement about how you envision your company in the near future.
Step 3: Identify your target market
Market research is a critical element of any business plan that helps in analyzing and evaluating customer demographics, buying behavior and buying cycles, and willingness to adopt new IT products and services. Having that in mind, data obtained from the market research feeds into many areas of the business plan:
- determines the sales potential of your IT products and/or services;
- attracts new customers to your business.
If your business is already established, but you’re about to make a significant change, such as business expansion and relocation, it’s very wise to use market research to support your decisions.
Step 3.1: Evaluate the market
You may start to evaluate by identifying the high-level questions about your market and your industry:
- The market size (growing, stable, or in decline).
- The overall industry climate (growing, stable, or in decline).
- The segment of the market you are going to target.
- The demographics and behaviors in the market.
- IT products and services demand (rising/falling).
- Сonsumer purchasing power.
As you may see, your main idea is to thoroughly master the market by understanding the characteristics and purchasing ability of thу target audience. Typically, the best way to segment it is by using these four categories:
You can start with things like:
- income level.
Once you have done a research, you will get the following information. Here is an example:
- Ages 25 to 40
- Living in the San Francisco area
- Annual income of $45 000-$65 000
Step 3.2: Uncover customer personas and industry trends
All elicited information helps you to identify your customers/users, identify opportunities to grow, and recognize trends in the industry. Not only can you identify customer/user personas, but also you will put together the customer/user personas that will guide business and marketing decisions. What’s more, it enables you to plan for any shifts that might disrupt the marketplace. It can be done by applying the following techniques:
- customer interviews;
- online surveys or questionnaires;
- in-person focus groups.
To sum up, market research can be a major factor and help you:
- Understand your customers and their preferences.
- Identify opportunities to grow and increase profits.
- Recognize and plan for industry and economic shifts.
- Identify and monitor the competition in the industry.
- Mitigate risk in your business decisions.
Step 4: Start by analyzing your competition
Positioning your startup company in the market or industry, and knowing how and where you can grow is critical. This allows you to strategically develop your startup company. In addition to that, understanding the strengths and weaknesses is crucial to make sure your business drives growth.
Step 4.1: Strategically analyze with SWOT
With competitive analysis, you can assess and analyze the comparative strengths and weaknesses of your competitors and include their current and potential product and service development and marketing strategies. Your competitive analysis should start with your SWOT Analysis — Strengths, Opportunities, Weaknesses, and Threats.
- Strengths: What are we doing really well (in terms of marketing, products, sales, branding, technology, etc.)?
- Weaknesses: What are we struggling with? What’s holding us back?
- Opportunities: What’s the weakest area for our biggest competitor? Are there any gaps in the market that aren’t currently being addressed? What has recently changed in our business or the market?
- Threats: What is our biggest competitor doing much better than us? What new products/features are they working on? What problems aren’t we currently addressing?
How to make a business plan for a startup company: you should start with SWOT Analysis
Once a SWOT analysis has been done, the results should generate a list of ideas that can be turned into goal statements.
Step 4.2: Identify your goals and financial projections
It is critical to make financial projections. Not only can you discover the total population of the target market, but also you will identify the percentage of that market to penetrate. Based on the market and industry research, you can obtain data that will help you to create realistic financial projections and should cover the first 3-5 years. However, the challenge for any startup company is creating financial projections when the business is not functioning.
Also, you should know about: How to raise the first investments: to do checklist
Step 5: Plan accordingly to your budget
The next step in creating your business plan is to develop an operations plan that will serve your customers, keep your operating costs in line, and ensure profitability. Your ops plan should detail strategies for managing, staffing, manufacturing, etc.
Your goal is to know the answers to the following key questions:
- what facilities, equipment, and supplies you need;
- what your organizational structure is, employees’ responsibilities for each aspect of the business;
- if there is a need for research and development, the ways to accomplish these tasks;
- initial staffing needs, the ways of staff expansion, etc;
- the ways of establishing business relationships, how will those relationships impact your day-to-day operations;
- what operational change in terms of company growth or failure.
Operations plans should be highly specific to your industry, your market sector, and your customers/users.
Step 6: Clearly define the structure of your startup company
Defining the organizational structure for your company is key to your startup success. It will also help you evaluate the skills, experiences, and resources your management team will need. Addressing your company's needs during implementation will make a major impact on your chances of success.
Many investors and lenders feel the quality and experience of the management team is one of the most important factors used to evaluate new business potential.
How to make a business plan for a startup company: you should define the structure of your startup company
How to define the structure of the company
Follow the steps below to develop an organizational structure. However, keep in mind that your business will operate in the rapidly changing environment, and a structure that works today might be outdated tomorrow.
1. Identify the activities that need to be performed in order to achieve organizational goals.
2. Break down these activities into tasks that can be performed by individuals or groups of employees.
3. Think about the type of people who can accomplish these tasks.
4. Identify the key managers, their experience, educational backgrounds, and skills.
5. Discover if key managers have industry experience required to perform tasks.
6. Identify the responsibilities required for each position.
7. Define the salary structure and salary levels required to attract qualified candidates for each position.
Step 7: Create a marketing plan
Definitely, business growth depends on a solid startup marketing plan and requires strategic planning. Not only does a marketing plan help you to identify potential customers, channels, but also it provides the ways that the marketing efforts can target them. Your marketing plan should include the following sections:
- Business objectives: the quantifiable objectives the company is going to achieve in the next year.
- Marketing priorities: you need to translate the objectives of your business into marketing priorities to be performed by the marketing team.
- Marketing goals: you should express the priorities into quantifiable statements of how marketing will support the objectives of the entire business.
- Marketing strategy: you should combine marketing goals and objectives into a comprehensive plan to achieve business goals.
- Key marketing actions: you should identify actions marketers will take to execute the strategy.
- Dependencies and risks: you should define the things you need a marketing strategy work.
How to make a business plan for a startup company: you should develop a marketing plan
However, at the very beginning you should do the following:
- launch a website;
- stay active on social media platforms;
- start building an email subscriber list;
- focus on customer retention;
- come up with customer loyalty programs.
To sum up, the marketing plan for startups is an extensive strategy that helps you to do the following:
- Evaluate if your startup marketing strategy is effective.
- Clear up the position of IT services/products in the market.
- Know your customers/competitors.
- Describe your startup business, its products/services.
- Recognize various marketing approaches.
Step 8: Map out a financial plan for startup business
A good financial plan identifies your financial goals, organizes and prioritizes them, then outlines the steps you need to take to achieve them. Your business plan should include details about your company budget. You should include the following startup expenses:
- Revenue streams: the way your company will generate income.
- Major expenses: the high costs you expect to anticipate in the year ahead.
- Expenses on equipment: calculate how much you are going to spend on equipment.
- Salary demands: identify how much you need to pay wages.
- Financial milestones: set achievable business milestones that keep you focused and on track.
In addition to that, you should summarize your financial requirements and map out a plan to make sure you've covered all the points that you should definitely include in your financial plan.
Bottom line: Does a business plan lead to startup success?
Creating a business plan is an extremely critical component of any business. Not only does it help you to determine if your business is thriving, but also it opens up great possibilities to keep it on track at the very beginning. A business plan is a way to evaluate an idea. Moreover, the process of creating the plan may reveal factors that you might not take into account and might prevent you from making a bad decision. Don’t hesitate and let us know if you have any questions!