Plan first, fundraise after. Business planning is an essential stage of startup development. A business plan gives readers the complete overview of what product you are planning to create, if there is any demand for it, and if you are likely to gain the revenue out your idea.
A technology startups business plan is usually presented to investors and partners. It is also a basic document that a team uses in order to check if its results meet project goals. Here, you’ll find the main tips on how to write an IT startup business plan correctly.
An executive summary: the most important in all startups business plan
An executive summary is an essential part of any startup according to The Number One Guide to creating a Highly Profitable and Ultra Success Business Plan by William Thompson.
Usually, a summary is being prepared after your startup ideas have been completely developed and turned into a tech startup business plan. It contains all the major points on startup mission, goals, features, and marketing strategy and presents them in a brief form.
A summary should be performed in written form and doesn’t outline anything but the startup basics with only the essential details. Here is the preferable structure of an executive summary:
- Product overview, business name, and location
- Business goals
- Customer description
- Market and competitors overview
- Team and resources
- Market strategy and profits
- Budget calculations
If you plan to present your summary to the potential investor try to make it as short and clear as it is possible. Mind, that nothing attracts investors better than your high chances to get the revenue. Put the emphasis on your expertise, team potential, uniqueness of your proposition and your clear business planning. “You know what you do” is the feeling you need to put into investors’ hearts.
Remember that a lender for financing usually has a shortage of time. Your summary has to be simplified in order to be studied carefully. Don’t overload it with details.
Find real users problem first
If a product doesn’t fit anyone’s needs, nobody will need it. The problem was described in The Growth Marketer’s Playbook by Jim Huffman as the most common startup failure cause.
Developing software startup business plan try to adapt your product or services to your future client’s lifestyle and define the customer’s buying motives. And if you’ve already created a product that you are not going to change, find whose problem it solves and create a detailed target customer’s portrait.
The easiest way to find real users problem is to ask them.
The user survey could be conducted by third-party Research Company with appropriative expertise or by your team. If you plan to work in the area with a high competitive level, take into consideration that you must serve customers better and solve extra problems not covered by existing competitors.
These questions may help you realize if your startup idea is strong enough to be paid for:
- What problems do your potential customers face?
- How do they solve the problems? What weaknesses does the existing solution have?
- Are those problems serious? How they affect people’s lives?
- What are your customers ready to do to try your solution?
Analyze the drawbacks of every existing solution and improve your ideas according to the results, while planning a startup business. Other life hacks you may find in Jim Huffman’s book.
Research the market
You may have a product that your users could adore but if your competitor provides them with the same perfect solution for the lower price you are likely to lose.
In 2018, business services, HoReCa, healthcare and retail are the areas in which most of the successful startups were founded. However, the most profitable areas of the year are Accounting, Lessors of Real Estate and Legal Services (Startup Statistics). Learn more about your market to know what to expect!
Precise market research will also help you to find out if there are any direct competitors in your area and if yes what their weak points look like. There are several ideas on how to learn more about your market niche:
- Do guerilla competitor and customer research
- Speak with top market experts from your area
- Collect statistics, reports and latest surveys on your industry
Keep in mind that it is important to learn the information both on your competitors and industry in general. If there are only a few weak competitors in your niche it doesn’t mean that nobody is launching the same startup at the same moment.
Also, don’t judge a book by its cover! If there are only a couple of competitors you’ve got to struggle with, put extra effort in studying the market potential. It could happen that the niche itself is not profitable (for example, a good solution is too expensive for its target audience).
Market research tech startup business plan part should include the customer’s description. The basic categories to divide customers into are demography, geography, behavior model, and the level of income.
The market research is a starting point of the brand differentiation strategy.
To study your competitors better, try to define the key points of their differentiation strategy and compare similar product’s pricing on your market. Visualize gained information on this phase.
Represent the solution you offer: what is your unfair advantage?
The basis of any IT startup is the description of the solution you’re going to develop for your target audience. Here, debates on why your project desires investments start. The solution section speaks on your project values, mission, and strategy.
The strength of a UVP (Unique Value Proposition) is a key factor in startup commercial success.
UVP is a brief description of customers’ benefits and product features that let customers choose your company among other competitors. A unique value proposition is a must for startup business planning.
Your UVP must be clear and easy to represent. Stick the solution to your audience’s problems in order to gain better results. Let’s look through the well-known UVPs samples:
provides customers with immediate safe transport and transparent taxi rates
gives customers a chance to sell or buy handmade goods without financial risks and building their own sales platform (site)
helps people to use their apartments as an extra revenue source; provides travelers with affordable apartments
As we see, UVP is closely connected with a company idea and mission. Take into consideration, that UVP based on the understandable, fair and strong mission is always a good idea of how to make your brand appealing to your future customers.
An unfair advantage is an extra advantage that only your company could have. It could be a specific team experience, technology discovery made by your researchers or even your potential to reduce development expenses having your own cheap production base.
What about scalability? Describe your way to drive growth
A scalability potential is a software startup business plan feature most of the investors look for. Scalability means that you could multiply the revenue changing the project scale without updating product features.
The business could be scaled by various scenarios. The simplest one is to open accredited units of your company in other geographical zones or to set on an Initial Public Offering (IPO). However, for the online services market, it is more common to scale the project by just selling it on the different national markets. If you develop a White Label product, to double your revenue you need to serve a double amount of customers.
The general IT rule is: the more universal your solution is, the easier it is to automate and scale sells without extra effort.
The scalability feature should be mentioned in the list of your project objectives and long-term perspectives as well as in your long-term action plan. It’ll be great if you also fix state scaling timing there. Don’t forget that you need a completed product (not an MVP) to scale your business successfully.
If you are not ready to present your scaling strategy management plans and scalability is not your priority at the time, try to attract venture companies and inspire your teammates proving that the project is open-ended. For fresh ideas on how to improve the growth section of the business plan read The Growth Manifesto: How to Drive Growth in a fast-changing digital world by Alex Cleanthous.
Describe your monetization strategy
Monetization concept, business model canvas, and market strategy are decisive factors for investors while analyzing your startup business plan. Make sure that you’ve described them fully and clearly. On this phase try to answer several questions:
- How will you get the revenue to bring your investments back?
- How will people get to know about your solution?
- Will the chosen monetization strategy bring you enough money to cover the launch and ongoing expenses?
If you are about to create an application or another online service, consider that there are a lot of monetization strategy options you may choose between. Moreover, it is also possible to mix approaches. Inbuilt Advertisement, in-app purchases, online sales, user behavior selling are among the most popular of them. Learn more about how you can monetize your app idea.
It is not enough to state what strategy is more preferable for you. In your business plan as well as in its summary you need to give specific details on when and how you’ll sell your solutions to your customers. It is also important to support your plans with measurable marketing goals.
Working on online service startup business plan, remember that 98% of the existing solutions in this area are free for their users. In order to beat your “free” competitors, get ready to make your product downloading free too or to develop a free version of it.
Draft a tech startup marketing plan, but focus on unit economics
The marketing plan section usually contains a long-term marketing strategy as well as specific points on how you are going to promote and sell your tech solution.
Marketing strategy requires a budget for its implementation. In your business plan, start with a general strategy overview and move to the concrete marketing tasks, their timelines and money calculations. If it is possible, try to give an approximate forecast for the results of each marketing strategy step. Use the unit economics concept to provide your venture company with undeniable arguments in favor of your project.
Unit economics is based on the startup performance forecast. It lets you find a break-even point of your business and measure resources spent on one customer.
Unit economics seems to be tricky if the only thing you have is your tech startup idea. However, if you can’t answer the question on how much money you suppose to spend on development and promotion and how many users you are going to attract, that actually means you are not ready to start your business.
A good marketing section contains those parts:
- A customer acquisition strategy (channels, tools, the expected number of users, and expenses)
- Key metrics (active users number, downloads number or time spent using your product)
Map out a financial plan for startup business
A detailed financial startup business plan refers to marketing strategy but is itself a wider document useful for both investors and project executors. Its idea is to give a precise answer to the question of how much money your team needs for startup launch and support.
40% of small businesses are profitable, 30% break even and others are continually losing money as Startup Statistics wrote. Moreover: 87 of 100 global startups fail to have their cash flow miscalculated. Plan your finances responsibly in order not to join them.
On this phase think of all kinds of expenditure, you need to deal with. The integral point of a financial plan is the following:
- Equipment and software
- Promotion tools
Additional expenditures are insurance, business travel costs, legal or financial consulting, internet fees, and governmental taxes.
Divide expenditures by stability and frequency and give a financial plan of long and short periods of work.
There two options of payment frequency: once paid things and repetitive payments, and there are also two options of stability as some payments stay unchangeable during months and some are likely to become less or more expensive.
Summarize financial information giving details on investments you need at the moment and the desirable schedule of future investment rounds. It is also important to develop the mechanism of profit sharing and investments return.
Burn rate calculating
Thinking about the financial forecast you can’t avoid burn rate calculation. As it was previously mentioned, your financial startup business plan should include all possible expenditures as well as information on the break-even point. The last one is influenced by a factor called a burn rate.
The growth rate is the amount of money you need to launch your business. Burn rate is an amount of money that your company spends in order to keep the project alive after launch.
When the burn rate of the company is lower than the revenue it brings, the startup becomes profitable.
To define your burn rate use the information you’ve already written in the financial plan and marketing strategy sections. Keep in mind that most of the things connected with your startup will probably cost you more than you expect.
It is better not only to give your investors a positive financial forecast but also to explain them in several statements your reasons for being so optimistic. Use look-like examples from your practice or team’s portfolio, statistics and experts’ opinion.
There is no “average” burn rate for tech startups; however, the burn rate of any startup is the highest during the first 6 months after launch.
A business plan is the only material that allows you, your team or investors to imagine what your business will be like. A business plan serves several functions. First, it helps you determine if you are ready to start a business and if you really have a clear understanding of market and budget. Secondly, the business plan helps you convince investors that their investments will not be wasted.
A business plan consists of several parts. A brief project description, market analysis, and financial plan are among them. Preparing each section, remember that, unlike a business startup, the price of your mistake in your business plan is negligible. Rewrite and improve your technology startup business plan as more as you feel like this!
Create an interactive business plan with LANARS or entrust us with the implementation of your tech startup idea. Share your idea now!