Business plans – Does your startup still need one?
For new entrepreneurs and budding business leaders, understanding some key aspects of owning a startup can be hard. This article looks at the feasibility of developing a business plan when your startup is in a seed phase and suggests that it is far more prudent to invest time and energy into an effective pitch deck rather than a business plan. We will talk about the importance of business plans and what its key components are as opposed to a pitch deck to help you understand what the difference is between the two. Let’s get started then!
Table of Contents
- Executive Summary
- Market Size
- Operation and Logistics
- Company and management summary
- Financial plan
- Supporting Documents
A business plan is a road map that helps you navigate and avoid bumps on your future entrepreneurial journey. The time you spend on writing, rejecting, and fixing the business plan is an investment that will eventually [hopefully] payout in big paychecks for you as your startup takes off. Business plans chart your vision, the operations, the structure, and the financials of your budding business. At a later point, they can be further used by investment-seeking entrepreneurs to gather potential investors. Some experts suggest that a comprehensive business plan can attract well-established investors and venture capitalists to take a look at your idea and try to suss out your potential.
A simple business model includes business goals, strategies one might use to reach them, potential obstacles that may arise, and ways to solve them. It should also include a detailed organizational structure of your future business, including job descriptions, titles, and responsibilities. Furthermore, it should contain your projected financials and an exit strategy to suggest possible acquisition or IPO for investor payback. In essence, a business plan is a well-thought-out, structured tool for navigation that will help you through your business journey.
There are three main components that a business plan must include:
- The business concept. This aspect deals with the structure of your business, the product, and the service. Here you plan on how to make your business successful.
- The second is the marketplace. Here you analyze your target market and potential customers. You step into the shoes of consumers and see why someone would buy your product over others. You examine your competitors and what they offer to make a competitive plan accordingly.
- Thirdly, you create a section for financials. The name is quite self-explanatory. This section contains your cash flow statement, balance sheet, and other financial ratios including a break-even analysis. This process may require the external expertise of a professional accountant.
However, a business plan is an exhaustive document that goes beyond having the three main components discusses above. A business plan is structured to include these further 7 major components.
This is a general overview of your business plan. It comes first in your plan and should not be more than 2 pages long. It should summarize your venture’s idea and give a brief impression of what you wish to establish.
This section explores your target customers. It explores the product and defines a target market and customer base while simultaneously looking at the existing market competition.
This segment establishes a game plan for your venture. In this, you answer the question: How will you take this opportunity and convert it into a viable business venture? This part will also cover marketing plan, sales plan, and operations that will lead you towards success.
Having a robust foundational structure is a crucial aspect to a successful business. Having a set of competent individuals around you in a team will act as a catalyst to your success. This section defines organizational and legal structure, as well as, the salary and equity structure.
We can make as many plans we like, but without a sound financial forecast, one cannot move forward. This section defines the cash flow statement, income statement (profit and loss), and balance sheet. In this, one also needs to have a contingency plan or a pivot plan for when the venture does not meet its goals.
This section includes any other documents one might be interested in reading to learn more about the venture. It may consist of your existing partnerships, contracts with supplies, traction, reference letter, copy of the lease, legal documents, tax returns, etcetera.
As an entrepreneur, you might have heard about how important pitch decks are. So, what is a pitch deck? A pitch deck is a tool that paints a quick and exciting picture of your business. It is a quick presentation that tells a compelling account of your business or startup idea in a simple manner. Unlike a business plan, a pitch deck is not very comprehensive – that is to say, it does not entail a financial section or other complex and technical details.
A good pitch deck helps you avoid a big problem that entrepreneurs often find themselves in i.e. it stops them from dumping information on potential investors. Take a look at the image shared below. A pitch deck should ideally follow these pointers in a precise and to-the-point manner.
Before getting into the content required, you must choose the best design template. This is highly important as you do not have a lot of time to present your pitch and so the layout you choose will become the framework on how you choose to represent all your content. With a good design, you will be able to explain your most complex ideas, show investors the potential the company has, and illustrate the story of how your idea turned into a company with an organizational structure and a goal to grow and earn profits.
The internet is littered with all kinds of reasons why one absolutely needs a pitch deck. Where the challenge emerges is finding one which works for you and helps you create a good first impression. Pitch decks are usually emailed and read by the investors before you have even had a chance to introduce yourself in-person. Therefore, make them small enough to share easily and make sure there is contact information for you so that anyone can get in touch with you if they are interested.
The following are some tips and tricks to help you deliver the perfect pitch deck and have investors vying for a chance to invest in your idea.
This tip is equally focused on the design and the content of your presentation. The goal of any pitch deck is to create interest and get a meeting with an investor. Nobody ever got a check just from showing their pitch deck.
So there are a couple of things to focus on. Firstly, let’s look at the content. The information you choose to present should be simple, precise, and should not veer off into tangents or be repetitive. Cluttering your slides with too much information will dilute the impact of your most important information and make it difficult to read and digest. Unless it is necessary, keep all complex concepts and phenomena away from your presentation.
If such a complex concept is integral to your pitch/product, then the way it is presented is extremely crucial. Try to compare your concept to a concept the investor already might know. For instance, your company might be the “AirBnB for pets visiting foreign countries with their owners” or something along those lines. Another option is to have a link to a demonstration of your company or servies so people get a better feel for what you’re offering.
The design will have a big impact on how the information you present is absorbed. Thus, the design of the information being presented should be clear, highlighting the most important bits and reducing the focus on the less important ones. This also applies to when you present multiple data sets. A well-thought design does wonders for the impression you are trying to create about your firm.
Another absolutely imperative design element is the number of words used in a slide. Try presenting your data using various infographics with supplemental text instead of inserting the snapshot of a spreadsheet or a word-to-word copy of your speaking points. If one has to put a strain on their eyes and focus on what is written then your presentation has failed. With an extremely limited amount of time to present, the last thing you want is to be stuck on one slide while investors read your thesis, forgoing other important facts and figures integral to the success of your presentation.
Yet another problem commonly found in the way data is presented. The problem starts when founders use peculiar metrics or by having confusing visuals. Use the standard and most commonly used metrics like MRR, CAC, and LTV to name a few. Remember to use clean and simple design to present that information otherwise, investors will be too worked up trying to make sense of it and will lose track of the rest of what is being pitched to them.
These presentations are serious business. Some might throw in a joke or two to lighten up the mood and try to make the investors more relaxed. However, not knowing or researching the identities of all those who will be present listening to you or who might be given the presentation for review, this might create an opportunity where an intended joke might offend someone and put your entire pitch in grave danger.
Most investors you’ll deal with are pretty sophisticated so it is best if one avoids using a lot of jargon and buzzwords to prop up their presentation. It is however important to provide a good story about why you started the business and the problems you are trying to solve. This gives the investors something to relate to and to remember about you.
Your pitch deck will be futile if after receiving the funding you have no marketing plan or any plan on how to deploy the capital efficiently to meet your business goals. A comprehensive marketing plan is necessary to make sure you reach your target audience and build the traction you need to succeed Here are some tips to help you create the perfect marketing strategy for your company.
Set a tangible and realistic goal for your team. Not only will this set a benchmark but it will also provide a gauge for all future marketing plans. Create a timeline and divide the goal into sub-sections to track performance over regular intervals.
This one is all about having a consistent brand image and message when marketing your firm and its products. This will provide consumers with a reference image for whenever they think of the product you offer. Minor changes over time might be necessary but the underlying branding should ideally remain the same.
Be it, investors, or consumers, your product pitch needs to be presented in a way that appeases the sensibilities of the viewer and entices them to put their trust and faith in your brand. Targeting a demographic which may not be inclined to use your product has the potential to destroy your brand’s image and the success of your company.
There are key differences between a business plan and pitch deck that is often lost on some startups. Here are 2 main differences that set a pitch deck apart from a business plan quite prominently:
The reason why pitch decks are called ‘pitch’ decks is that ‘pitching’ the idea of your business is an integral part of securing funding for it. They are meant to act like small teasers that should effectively entice the interest of any investor. A pitch deck acts as a guide for a quick visual presentation which need not include all the technical and drawn-out details that business plans often include.
An effective pitch deck conveys the idea of your startup in a simple and easy-to-understand fashion. If an investor is interested to find out more, then you will have an opportunity to answer all their questions and demonstrate your product when you meet with them.
Let’s be straight. If you don’t have a good pitch deck, you are not likely to get a chance to sit down and discuss your business plan or other details with an investor. No pitch deck, no investment, and no need for a business plan. To come up with a good pitch, you need to have a plan but that does not necessarily mean an exhaustive business plan with projected financials. This is because a business plan, at the early stage of a startup, will be based mostly on assumptions and will require resources to develop that can be better spent on developing other foundational aspects on your business.
For startups, securing financial support is a primary and essential concern. Here, angel investors come in the picture as the figurative “knights in shining armor”. Who are angel investors? Simply put, they are affluent individuals who have the means to provide your capital and financial support in exchange for equity in your business. Angel investors are not only individuals, sometimes angel investor groups or syndicates are looking to invest in startups.
For an angel investor, your startup is an investment, perhaps a risky one, but an investment nonetheless – one that they wish to gain returns from. Remember, angel investors are not like the typical venture capitalist because they often use their own money to invest in business ideas that they think are worth giving a chance.
So, how does an angel investor decide that your startup is worth the effort? Your initial pitch plays a very important role in piquing the interest of these potential benefactors. Once you get their interest, the investors will start doing their due diligence and this is where in-depth research of your niche market and a robust marketing plan can greatly increase your chances of getting investment.
Remember, each angel investor is different but what makes a startup look promising is their dedication and passion. If you can strategically provide data-driven insights to define a problem and a market your startup is designed to address, then you are on the right track! For this, you do not need a streamlined business plan.
Rather, you need to show your commitment by developing a “one-sheet” document, pitch deck, and marketing plan. Furthermore, you should be able to show that you have a cohesive team and management that is actively engaged in meeting the milestones you set for your startup.
Don’t be afraid to ask your angel investors what exactly they are seeking in a startup before investing in it? Their response can help you understand if you have the potential to gain their interest and you can align your presentation to directly address their concerns.
Founders have a lot to think about when they are launching their startups. In the past, it was expected that founders would spend a great deal of time perfecting their formal business plans. While it was an excellent exercise to figure out all of the planning for the startup and certainly the financial and the marketing in the end it was based on such wild assumptions to render anything more than the plans themselves to be virtually worthless. In addition, it keeps founders and startups from actually launching and operating the business to find out what works and how much traction they can achieve.
Angel investors understand this. They would rather see real-world experience and actual financials rather than a bunch of projections out to a mythical 5 years. Later stage funding like series A or Series B might necessitate a formal business plan to appease more formal investors or VCs who want to see long-range projections based on actual experience and revenue, but even that is changing as sophisticated investors can take actual performance and apply their own algorithms to it to determine if it is a good fit in their investment portfolio.
It is quite possible that formal business plans have been discarded by all the mainstream investors in favor of a great pitch deck and some actual revenue and traction.
About the Author
Jonathan Hung is one of the most active angel investors in Southern California, his mission is to drive value creation within each portfolio company. In support of this mission, he serves as Co-Managing Partner at – Unicorn Venture Partners.
Jonathan and his team target investments in US companies that have global market potential with a focus on long-term growth expansion to East Asian markets.
Jonathan developed his investing prowess as a Managing Member for his family office fund, J Heart Ventures, which made investments in start-up companies such as Gyft, ChowNow, Miso Robotics, Clover Health, Bitmain, to name a few startups he funded.
Jonathan has various degrees from the University of Southern California, London School of Economics, Massachusetts Institute of Technology, and The Wharton School at the University of Pennsylvania.