GURUKUL > Writing a Business Plan: Part 3
"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 3
In the last 2 gurukuls, we looked at business plans and what they should contain. In this gurukul, we’ll focus on the key aspects of a business plan. These are the aspects that VCs will focus on in great depth and will decide if your venture is going to receive funding.
First and foremost, as mentioned many times before in this series, is the management team. The plan must contain detailed resumes of the management team and show how they’re qualified to handle their responsibilities. Ideally, the team must be experienced and have an understanding of the marketplace, the technology, of running a business. At the very least, the team must demonstrate an understanding of the market and of the technology. The team members must bring complementary skills and experiences and again ideally, should have worked together. More start-ups are destroyed due to bad chemistry between team members than any other reason. So make sure you focus on building a great team. If a resume cannot be displayed in the plan, at least indicate that you’ve spoken to people who’d be interested in joining as soon as funding is arranged; or at the very least, you must show that you understand the need for say, a VP Sales & Marketing and have accordingly made allowances in the plan. Good VCs will work with you and help identify and recruit the right candidate but remember you can’t abdicate the responsibility of identifying the requirements of the job!
Second, you must demonstrate that you understand the market. While it is necessary to have data about the market from various sources, it is not sufficient. Arriving at a share of market for your business by looking at market research data is something good VCs will not accept at face value. This is called the top-down approach and it goes something like this: reports indicate that the market for selling used cars on the Net is about Rs 1000 million (Rs 100 crore -5,000 cars each at an approx value of Rs 200,000). Assuming 10% market share for your business results in a business worth Rs 100 million (Rs 10 crore). Ergo! My business will have sales of Rs 100 million as I’ll target 10% market share! This conclusion is unlikely to pass the sniff test unless it is supplemented by a bottoms-up approach. The bottoms-up approach goes something like this: I need to sell 500 cars at approx Rs 200,000 each to achieve sales of Rs 100 million. Where will these 500 customers come from? how? Will they be willing to pay Rs 200,000? How many of these 500 have Net access? etc. As you can see, the bottoms-up approach ensures that you look at the achieving sales from the customer acquisition standpoint. By following the bottoms-up approach, you will get a better understanding of the market, its segments, and opportunities.
By focusing on the market you will also understand the competitive landscape and how to position your company accordingly. Building of a competitive advantage with barriers to entry is key to having a sustainable and viable business.
Third, you need to demonstrate how your offerings will be delivered to the customers and what your revenue model (i.e. flat monthly fee, % of transactions, license fee, etc) will be. This is the so-called business model and must be realistic. VCs prefer a predictable revenue model; the model must have strategies that dampen the effect of factors like seasonality. Try to develop a recurring revenue stream – this will ensure that every sale is not a new sale. For example, the annual maintenance fee charged by computer companies is a source of predictable, recurring revenues.
Execution plan with milestones. This is another factor that VCs will want to get into detail. After all they’re putting their money to work and want to know how and in what time-frames it will get deployed. This is also a very useful exercise to get into as it will force you to think about the details of delivering your goods and services to customers within specified time horizons. This in turn will ensure focus. A set of milestones must result in a major goal being achieved (e.g. complete management team in place, site up and running, business operational in 2 cities etc). The achievement of the major goal then becomes a fundable event so you can now plan on raising the next round of capital.
Keep in mind that the above points are not in any specific order of importance but are all equally important. However, the management team is clearly the # 1 point. So, before rushing off to approach VCs, take a moment to review your plan to see that it covers all these points. Remember, as the saying goes: You don’t a second chance to make a first impression. And the first impression has to be the best impression!
All the best!