elements of a business plan

9 Elements Of A Business Plan to remember if you are Looking to Raise Funds

“You need three things to create a successful startup: to start with good people, to make something customers actually want, and to spend as little money as possible.”― Paul Graham, the iconic American VC, Entrepreneur, Author & Scientist

The term venture capital can create a buzz within the minds of the entrepreneur, and give them hope, and a promise of ‘hitting the jackpot’. Every startup, especially in the tech domain, wishes to get funded from a venture capitalist, scale up their business, and aim for the Unicorn tag as soon as possible.

Sadly, not every startup is able to do so. 

A fairly popular Forbes article in 2013 declared that 8 out of 10 startups fail, and the reason for failure can be anything. But lack of funding, lack of traction, lack of money were the most critical reasons listed. It’s not that startups are not getting funded: In 2019 alone, a record $10 billion or Rs 7500 crore was funded by Venture Capitalists into Indian startups and companies. Not only tech startups, but lifestyle, health, e-commerce, fashion, automobile, drones, space and more niches were heavily funded.

So, what makes the difference between a fundable and non-fundable business? What are those Key Elements of a Business Plan which convinces the VC? Of course, the idea and the passion of the entrepreneur counts heavily. It’s said that a VC will not invest in the idea of the startup, but who is behind it. Because ideas can fail, but the passion behind it will never fail.

The business plan, which transforms into the business pitch is probably one of the most crucial presentations and documents for a new startup, and it should have all the critical elements which can help the investor make the right decision. It’s not how you present it, but it’s always why you are presenting it, and what have you included. 

 

elements of a business plan

 

Here is a checklist of 9 most important Elements of a Business Plan, which can help raise funds. 

Are you game?

#1: Take On The Problem Head On, At The Start

The very first part of the business plan should clearly, and concisely define what the problem which your startup is going to solve is? Several times, the entrepreneurs are over-excited with the ‘solution’ which they are offering and focus on that first. The solution becomes sellable, only when the problem is defined and explained in detail. 

Are you selling a new platform for B2B buyers? First, explain what is the problem with B2B selling in India, and then explain the solution you are providing.

#2: Your Startup’s USP: The Solution

Once the problem has been defined, head straight to the solution part, and make it the USP or Unique Selling Proposition of your business. You can avoid the technical jargon, and the insider details of the solution, but explain it in layman terms so that even a non-technical person can understand it.

If the VC is not able to understand how you are solving the problem, his brain automatically will reject the idea. 

#3: Market Size, Competition & Numbers

Once the problem and the solution have been provided, focus on the numbers: The size of the market, the segmentation, demographics, customer landscape, competition and basically, how big can your business grow? 

Investors like businesses which can eventually hit the billion-dollar mark, and double-digit growth, but it depends on the market size. To provide credibility, Components of the Business Plan should have reports from reputed publications such as Forrester or Gartner, and never, ever underestimate the competition during the presentation of the business plan. Investors like those entrepreneurs who know who their competitors are, and to what extent can they disrupt your venture.

#4: The Business Model

This is probably the most important feature among all Parts of the Business Plan: How will you make money?

The business model should have revenue projections, profit estimation, gross margins, details like who will eventually pay you money for sustaining operations. The entrepreneur should be really passionate and dedicated to finding and calculating these numbers because at the end, this is what makes or breaks the business.

#5: Marketing & Sales

Once the business model is established and explained, move over to the Elements of a Marketing Plan, which is laser-focussed on results. Yes, we admit that marketing and sales is a dynamic process, and there can be no future-proof, cemented plan in this regard. 

But the VC should know your vision, and the ideas you have regarding marketing and sales, and how your idea will spread in the ecosystem. How the sales channel will be established, how marketing funnels, affiliates, partners will be created. These should be the Key Components of a Business Plan.

If you can acquire Letter of Intent (LOI), contract summaries from sales/marketing partners, then it will undoubtedly boost your chances, as it shows a concrete plan and vision.

#6: Your Most Important Asset: Your Team

A team is what builds and nurtures your startup.  Before asking how much money you need as venture capital for your business, always present the team or the expected team as one of the Major Components of a Business Plan. Investors invest in teams, and not ideas.

Major Components of a Business Plan

Investors can ask for names, and experiences of the people you mention in the team, so be prepared with that. 

#7: Money You Need: Your Funding Requirement

Based on your business model, and the projections, calculate how much money your startup needs, and then explain the planned usage of the funds. 

Quantify every penny, and calculate the sweat equity and capital needed and invested. An estimate of the current valuation is also recommended, if possible. All three factors of volume, cost and pricing parameters should be considered and explained. 

#8: Financial Predictions

A separate financial model is required by most of the investors before they say yes. But a brief financial prediction can be made within the business plan, which mainly projects revenues and expenses for the next 5 years. And past 3 years, if you have an existing startup. Factors such as breakeven and growth predictions can also be included.

Overall, the investor wants to know where you are currently, and where you want to go, and how his investment can make him money.

#9: Exit Strategy 

On average, every investor invests with an aim to generate 10X returns on exit. This is the reason that a projected and estimated exit strategy should be in place, which gives an idea to the investor about your startups’ plans, and how you as the founder will be able to leverage its potential during an exit. It can be an IPO, a sell-off to another big investor, or more.

Refer here, if you want to know who are investors?

So these were the elements of a business plan. For more blogs like these, look out for this column on MSMEx.

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