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MenuI have completed a 1 year business plan for my startup. Should I do a 2-3 year plan as well?
I am working on a startup. It's a website and app.
Answers
Craig is right, you'll need 3-5 year (you might aswell do 5 year btw) financial projections; a spreadsheet of course, with summary yearly costs/EDITDA etc on a slide in your deck.
The plan can take the form of a slide deck. Use something like this as a template:
10 to 15 Slides
COMPANY PURPOSE
Define the company/business in a single declarative sentence.
PROBLEM
Describe the pain of the customer (or the customer’s customer).
Outline how the customer addresses the issue today.
SOLUTION
Demonstrate your company’s value proposition to make the customer’s life better.
Show where your product physically sits.
Provide use cases.
WHY NOW
Set-up the historical evolution of your category.
Define recent trends that make your solution possible.
MARKET SIZE
Identify/profile the customer you cater to.
Calculate the TAM (top down), SAM (bottoms up) and SOM.
GROWTH
Go to market strategy
If viral, why will it be viral? ('Sharing' is not an answer)
COMPETITION
List competitors
List competitive advantages
What is your unfair advantage?
PRODUCT
Product line-up (form factor, functionality, features, architecture, intellectual property).
Development roadmap.
BUSINESS MODEL
Revenue model
Pricing
Average account size and/or lifetime value, LTV
Sales & distribution model, CPA & CAC
Customer/pipeline list/status
TEAM
Founders & Management
Board of Directors, and any key Advisors
FINANCIALS
P&L
Balance sheet
Investment to date
The deal (EXCLUDING valuation OR completion date)
AND financial projections/cashflow (as excel s/sheet, ideally 5 yrs but atleast 3)
** You'll also need, for review before investment (due diligence): **
- Company formation docs, any trademark, patent, etc certificates
- CAP table (current shareholder ownership to two decimal places %
- Contracts of employment (Founders should have these also, and you should have founder vesting agreements)
- IP assignments for employees/contracts current & previous if not included in their employment contracts
- Any insurances, atleast the minimal required by law (i.e. in UK employers liability if you employ anyone, public liability insurance if members of the public visit you at your place of work or if you perform work at places of work owned by third parties, and Professional negligence, not mandatory but sensible (covers you for eg. making a mistake in a piece of work for a customer, Loss of documents or data, Unintentional breach of copyright and/or confidentiality, Defamation and libel, Loss of goods or money, your own or for which you are responsible).
- In the UK, registration with the https://ico.org.uk/ (illegal not to if you store peoples data)
Slide headings based on an amended list from Sequoia.
Long typed out business plans cloud the precision that data and specifics provide. A deck as above with few words, forces you to get to the crux of your business and your go to market strategy and will be valuable both internally to you and your team and of course to raise funding.
If you can't make it concise and clear, you probably have not thought it through enough.
If your business plan is for the purpose of raising money, then funding sources will want to see 3-5 years of financial projections as well as market information that will support those numbers. I would need to know what your definition of "business plan" is.
If you look up typical business plan templates, you can find the items that should be in a business plan; however, 20 and 30 page business plans rarely get read. I suggest no more than 10-12 pages of what funders want to know to lend or invest money.
If you would like assistance on this, feel free to contact me as I have prepared many business plans and pitch decks.
Best of luck,
Craig
Most likely no. A single business plan is enough. The key is to make sure that what you actually wrote is good. And if you are a first time entrepreneur, you have little way of verifying whether what you planned will actually play out. This is where you have toget advice of experts to go over your plan.
Just build the site and generate traction first. You need only 90 day plan. Validate the business model. Then build the app. This will take a few months. Now write the business plan and you would have developed enough confidence in the business model and the numbers can be corroborated.
When you do, write the plan for 3 years as that will help you clarify your expansion strategies and plans.
Related Questions
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As a startup, is it better to find a way to pay for services (i.e. design) or trade equity for it?
Before I get to your question, let me give you a tip: always aim settle questions of payment before the work happens. It is ten times easier to agree on a price beforehand, and having done that doesn't stop you from changing it by mutual agreement later. The problem with paying cash is pretty obvious: you don't have a lot of it. The problems with paying equity are subtler. The first one is that early-stage equity is extremely hard to value. A second is that equity transactions require a lot of paperwork. Third is that entrepreneurs tend to value their equity much higher than other people would; if not, they wouldn't be starting the company. And fourth, people like designers are rarely expert in valuing businesses or the customs of of startup equity valuation. In the past, I've both given and received equity compensation, and it's a lot more of a pain than I expected. In the future, what I think I'd try is convertible debt. That is, I'd talk with the designer and agree on a fair-market wage. E.g. 100 hours x $100/hr = $10k. The next time we take investment, the $10k turns into stock at whatever price we agree with our investors, plus a discount because he was in before the investors. Note, though, that this will increase your legal costs and your deal complexity, so I'd personally only do this for a pretty significant amount of work. And I'd only do it for somebody I trusted and respected enough to have them around for the life of my business.WP
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What is the best way to write a cover letter to an early-stage startup?
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Business partner I want to bring on will invest more money than me, but will be less involved in operations, how do I split the company?
Cash money should be treated separately than sweat equity. There are practical reasons for this namely that sweat equity should always be granted in conjunction with a vesting agreement (standard in tech is 4 year but in other sectors, 3 is often the standard) but that cash money should not be subjected to vesting. Typically, if you're at the idea stage, the valuation of the actual cash going in (again for software) is anywhere between $300,000 and $1m (pre-money). If you're operating in any other type of industry, valuations would be much lower at the earliest stage. The best way to calculate sweat equity (in my experience) is to use this calculator as a guide: http://foundrs.com/. If you message me privately (via Clarity) with some more info on what the business is, I can tell you whether I would be helpful to you in a call.TW
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Should I charge for a pilot project?
Generally speaking, Yes. I say this for a couple primary reasons. 1) If you do not place value in your product, why should the customer? And if you are not charging for it you are not placing value on it. 2) the customer will be more "invested" in the success of something that has cost them something. If it was free and it fails, "who cares"? if it cost them resources they may be more interested in making it work. There could be overriding factors, but this is where I start with a question of this nature.MF
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What happens to a convertible note if the company fails?
Convertible notes are by no means "earned." They are often easier to raise for early-stage companies who don't want to or can't raise an equity round. Equity rounds almost always require a simultaneous close of either the whole round or a defined "first close" representing a significant share of the raised amount. Where there are many participants in the round comprised mostly of small seed funds and/or angel investors, shepherding everyone to a closing date can be very difficult. If a company raises money on a note and the company fails, the investors are creditors, getting money back prior to any shareholder and any creditor that doesn't have security or statutory preference. In almost every case, convertible note holders in these situations would be lucky to get pennies back on the dollar. It would be highly unusual of / unheard of for a convertible note to come with personal guarantees. Happy to talk to you about the particulars of your situation and explain more to you based on what you're wanting to know.TW
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