Many people discuss the formatting and contents of a business plan. I list some good links at the end of my post. However, it is important to know that
A business plan is not a document to show OTHER PEOPLE. It is an actual plan for YOUR BUSINESS. Business plan is not a pretty dress to wear when dating an investor. If the investors smell that you DID NOT PLAN YOUR BUSINESS, they have nothing to invest to. They invest not in a company, but in a business project.
So it is important to DESIGN THE BUSINESS. Which is a far more important topic than "how to write a business plan". But since writing a business plan is a good path to develop an actual plan for business, I will give you some helpful hints.
The three classic mistakes people make are:
- If I get money, I will start my business;
- I will use the business plan as a basis for discussion with an investor;
- I HOPE the investor is impressed by something ONLY I thought about, and would join me by giving some money.
These mental traps would guarantee that you will write mediocre business plans, which will mean you will never receive any funds. The investors are not technology people, they do not hold doctors degrees, but you can not expect to fool them or find a good one by luck.
Six critical components of a good business plan are:
Who is your audience;
What do you offer them?
How do you offer them?
Please prove your offer is effective and your offer is exclusive (that is, only YOU can offer them)
How do you plan to make money through this offering? who is your competition?
How much money do you need from the investor?
Many novice startup entrepreneurs do song and dance, they write about business model, about disruptions they want to cause, about their idealist world view, projected income, projected valuation, etc etc, but they always don't have complete answer to these six essential core questions. A novice entrepreneur talks about ceilings, valuation, value proposition, barrier of entry by reciting the paragraphs they just read in a library book or online blog - they have not started their business, they just want to try their luck!
IF YOU CAN NOT ANSWER THESE SIX QUESTIONS, YOU DO NOT GET MONEY.
A plan for business details at least four elements of growth:
(1) Have you quit your job or your school?
(2) Have you received money for a first order? if not, what is your plan for the first order?
(3) Ultimately, how many orders per day do you expect to get once you receive money?
(4) How does your company keep growing over a ten year time frame? (A company that stops growing and innovating is a company already dead). Business is brutal - there are always people waiting to eat your lunch or move your cheese. Even you are Yahoo!, there is always a Google growing in the next floor.
There are few cases that you should stop writing a business and actually plan a business first. Otherwise you are just writing a half baked recipe book about baking cookies by reading five recipe books in the library.
If these apply to you, be very careful:
You think you might hit upon a great idea, and you keep thinking;
You think having your own company is cool and is solution to your real life problems or career bottlenecks;
Right after you get funding, you will start your company.
Real life entrepreneurs visit 400 investors before hitting on one success. Real life investors read 10,000 proposals before giving money to one team.
Links to other great articles about how to write a business plan.
(The First 1:20 of this video is good. The rest is idealistic and not practical)
Other important topics:
What exactly IS a business?
How to design a good business idea?
How many types of business startups are there?
Dr. Chang Liu is an entrepreneur, technologist, professor, and author. He founded five companies. He is the founder of Seven Parallel Consulting, a startup consultancy focusing on helping startups succeed.