GURUKUL > Writing a Business Plan: Part 1


"These articles were originally published in VentureKatalyst, India’s first e-zine aimed at entrepreneurs, started by Sanjay Anandaram in 1999. He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. As a passionate advocate of entrepreneurship in India, he’s associated with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at "

Writing a Business Plan: Part 1

This and the next few gurukuls will talk about probably the most important document an entrepreneur will deal with, outside of a last will! Namely, the business plan. A business plan gives birth to the start-up. It enables the entrepreneur and the team to envision and plan how the business will be run and how funds will be raised. The business plan addresses the needs of both the investors and the entrepreneurs because both have a similar objective – creating a successful business.

The business planning process can be quite complicated as can be the writing of the plan itself. Determining the appropriate form of the plan – what topics to put in, in what order, and with what emphasis – is important. However what is even more important is the content. The content should convey an intimate understanding of what will make the business succeed. Investors don’t throw money at glossy plans, so focus more on the substance rather than the form.

There are two basic types of plans: a “general planning and funding” document that’s useful at the beginning of a business and to raise funds while an “operational” business plan is used to monitor and control the growth of the company. In start-up situations, it is the general planning and funding document that is of essence. This plan is usually written during a concept stage before any outside funding is received. Most plans are written while the entrepreneur is still employed. In the start-up culture of Silicon Valley, almost everyone has 2 jobs: the regular 9 to 5 job that pays the bills and the other(s) from 5 to 9 that will hopefully someday result in the doing away with the worrying about paying bills!

So when do you write the plan? The fact is that your boss is unlikely to give you time off to write a plan for your start-up (unless of course he’s part of it), so the obvious answer is that you need to take the time and energy to write the plan while you’re still employed. However make sure that there is no conflict of interest or commitment. You will need to conduct research, talk to potential customers and investors and in general understand the market. Rarely can you do this in a part-time manner. Planning your start-up while still employed is neither illegal nor immoral. And unless you are independently wealthy, you have to do the planning while you still have an income and before you burn any bridges. As long as you don’t actually begin a business and/or start recruiting a team made up of colleagues, while still on a payroll, you are safe. However be clear: at some point you will have to quit and devote yourself full-time to creating the start-up. There are any numbers of wannabe entrepreneurs who will never ever start that business they constantly dream of. Remember it takes sacrifice and a certain appetite for risk to start your own business. And if you are not sufficiently committed to quit and do your own start-up, maybe you should consider joining someone else’s startup as a key employee or co-founder.
 
It is a good idea to build a founding team as soon as possible. A collective mission in all probability will make you all successful. Studies have shown that multiple founders increase a start-up’s chances. Larger founding groups start with more capital, generate more sales earlier and work longer hours. Remember you will need help to write a good plan and to raise funds. It is a good idea therefore to have team members on board who can contribute.
 
Business plans can take anywhere from 1 week to 3 months or more to write. They can be as long as 25 pages or as short as 1 page (like Intel’s business plan originally was!). But then look around and see who’s on board your team as this can have a very significant impact on the investors. The type of plan you submit will also be determined in large part by this aspect. For the record, Intel was founded by a team of PhDs who had all earned their stripes under Nobel laureate William Shockley at Fairchild and were the very best in the semiconductor business. Assuming we’re talking of the average start-up, it is safe to assume that a plan longer than 1 page will be required by investors (actually about 20-25 pages max). There are many business plan models and templates available in the market. Use the Net to research and take a look at samples. Talk to successful entrepreneurs, check out VC web-sites, and understand what’s expected. While content and substance is king, form is important as well. Make sure it is professional and clean and well-laid out.
 
The business plan should emphasize the management team or the terrific market opportunity that you will be chasing. It should ideally do both. An A-class team with a B-class opportunity is more likely to get funded than a B-class team chasing an A-class opportunity. Decide upfront what you will be offering to your investors: the A-class team or the A-class opportunity and structure the plan accordingly. If the management team is inexperienced, it’s a good idea to focus on the great market opportunity that will be uniquely met by your start-up and hence create a successful business. It is not a good idea to bury resumes of the management team in the plan: investors usually read this first and if it’s hard to locate, chances are that the plan will not go very far. If the management team is a successful or high profile one or on an overall basis is highly appealing, highlight this asset. You will often hear investors say: “we invest in people”, or “lack of a management team is the # 1 company killer”. So focus on the team’s credentials.
 
Don’t focus on creating an extremely detailed plan discussing every single item: you will put off investors. Remember you are selling the team and the unique market opportunity. So prepare the plan accordingly.