According to the U.S. Chamber of Commerce, new business applications are booming across the nation. This means that now, more than ever before, understanding what it means to create a business plan for a startup, its benefits or purpose, and how to write one is imperative. Creating a plan for a startup differs from creating a plan for an established business in many ways, which we will get into later. The following is a guide on the importance of a business plan for a startup. It will also look deeper into what a startup business plan is and how to write one that is effective and will help you get started on the right foot, increasing your chances of success:
What is a startup business plan?
To put it simply, a startup business plan is a strategic roadmap that outlines your new company’s goals. It also attracts potential investors, and is helpful when applying for a business loan and other financial backing as it communicates your vision for your company and/or product or service by providing a valid and well-thought-out plan. It is based mostly on concepts and predictions instead of actual data, because the business is brand new and the only way to quantify it is through these means.
How a startup business plan differs from other business plans
Startup plans greatly differ from an established business plan in that a startup business plan will focus mostly on expectations or predictions and emphasize opportunity and investor-focused projections, always allowing for fluidity. It will be focused on testing ideas, not proving performance. Established businesses might use a foundation of existing data based on sales and other metrics, which is more comprehensive and ultra-detailed as it was formed over several years of history. A new business or startup variety will have none of that data to share, so a startup business plan will be more concise, maybe even taking up just one page. Whereas, an established business plan going into the new year might constitute a 50-page, detailed document. The following are some additional ways that startup plans differ from established business plans:
Limited or no operating history
There is no past revenue data to share or customer tracking possibilities. Instead, startups rely on estimations and great research to predict performance.
Greater uncertainty
Again, a new business will not have the foundation of an established business. This means markets, pricing, and demand are still being tested. Consequently, there is a greater chance that the plan will change at some point of the process and should be designed with fluidity in mind.
Emphasis on validation
A business plan for startup business focuses on problem-solution fit. As such, learning and iteration matter more than precision when it comes to startup plans, especially when compared to established business plans.
Why startups need a business plan
The most basic reason that startups need a startup company business plan is to reduce their risk when launching their business. This means that the research done for said plan will help quantify and predict customer behavior and help solve and identify problems before they even happen. It also helps a new owner like yourself think through the costs and pricing in a realistic way, thus helping you identify risks early. Then you can communicate the risks and the solutions to others clearly from the outset. Therefore, a business plan for a startup is more of a risk-reduction tool or a thinking tool than a promise or out-and-out prediction or expectation.
When a startup business plan is necessary
Startup business plans are necessary for a variety of reasons. For example, if you, as a founder, feel you need to seek loans, investors or grants, want to bring on co-founders or a partner, are launching with significant upfront cost or find yourself entering a competitive or regulated industry, then a startup business plan is necessary. Of course, it’s worth noting that some very early-stage startups might not need a full-fledged plan and can instead work with a simple outline or more basic plan to start.
How to write a business plan for a startup
The following information serves as more than a mere template. No two businesses are exactly alike, so not two startup plans should be either. However, there are some common factors that should be considered when going through this process, which are outlined in more detail below:
Start with the problem and customer
At the very beginning of the business plan startup plan-making process, you want to ask yourself— and then answer— a few key questions: Who does your business serve? What problems will it solve? Why does it matter? You will need good answers to these questions to get started out of the gate correctly.
Describe the solution and business model
The next aspect of a startup business plan should explain the solution and business model being proposed. This will answer questions like: What does the business offer? How will it make money? What will success look like initially? This is important because quantifying success is not always as cut and dry as simply saying it is a business making a profit. While that is the goal, sure, there can be other goals to meet and track early on that indicate future success is on the horizon.
Research the market realistically
Another aspect that is necessary when creating a good startup business plan is to research the market realistically. This includes looking at competitors and alternatives to your product or service. You also should create a target customer or audience persona, so you know who you are aiming at based on the answers you gave to the questions outlined under “start with a problem and customer.” Avoid over inflated market-size claims and instead take a good, hard look at the reality as it exists.
Outline basic operations
This part of the plan will outline in practical terms how the business will run on a day-to-day basis. It will include naming partners and key resources and outlining early staffing needs if applicable.
Think through finances carefully
Many startup businesses launch and then crash and burn due to the lack of planning in this strategic category. Don’t be discouraged, though, because you can overcome these hurdles if you plan correctly. Think through your finances by outlining startup costs and ongoing business expenses. You can make some revenue assumptions, but be conservative in your estimations.
Identify risk and assumptions
Look at your business with a critical eye, as if you were an outsider or even a skeptic looking in. Ask yourself these questions: What could go wrong? What needs to be tested? What could cause a pivot? Once you have considered the risks or potential problems, then come up with a plan to address these or counteract these issues as part of your planning process.
Common startup business plan mistakes
Even if you approach the business plan process with the best of intentions, there are some predictable pitfalls and errors you want to avoid. The following will give you some insights into many common mistakes surrounding startup business plan creation you should avoid at all costs:
- Overconfidence in projections: Again, never assume that all will go exactly as planned, and you will launch a successful business instantly. Don’t be underconfident, but also don’t go to the other extreme either. Give yourself a good dose of reality, not overconfidence.
- Ignoring uncertainty: Understand the market into which you are entering. Know that there isn’t certainty in any industry. So, don’t ignore this.
- Writing For investors before understanding the business: Don’t write a plan with the sole purpose of enticing investors first and foremost. Instead, create a good plan that any investor would want to learn more about.
- Treating the plan as fixed: Your plan will have to evolve along with your business as it grows, so don’t make the mistake of being too rigid.
Startup business plans should evolve
Although the term “plan” evokes a one-and-done type of document, this isn’t exactly accurate, especially as it relates to startup business plans. Instead, your startup business plan is ongoing. You can use the plan to help guide decisions, but remember to treat change as progress, not necessarily failure. Make sure you also update assumptions or predictions as real world data emerges to enhance the quality of your plan.
Getting prepared before writing a startup business plan
Now that we have considered what a startup business plan is along with its purpose, it’s time to get prepared to perform the task yourself. In order to do this, organize your basic business information into one easy-to-access location. Do this first because you don’t want to begin the process of creating a plan if you don’t have any of the key information handy. Take time to clarify your business timeline and goals, and separate your personal and business finances. This is key to protecting yourself if your business should go under. Keep in mind that the organization involved in getting ready to create a plan will make the process much easier by supporting clearer ideas going forward.
Conclusion
Startup business plans are a great way to reduce the uncertainty of starting a business. Admittedly, launching a new business is scary. There is no way around it. However, by implementing a plan and using the tools available to you to learn more about your business’s potential outcome, you can enter into the business with eyes wide open.
This will help you overcome early setbacks or even avoid them altogether. While planning is not predicting, and should instead be considered learning, it can be invaluable, especially early on. Keep in mind, when creating your plan, you want to give the right level of detail to each stage and goal, and you want to remember to start simple and don’t be afraid to adapt.
Change, evolution, and fluidity are not in and of themselves a bad thing, especially if they guide you to a more prosperous future. If you need help getting started or want to know more ways to simplify your business journey, contact us today at Tailor Brands.