What's the Best Way to Write a Business Plan?

ohyeahohare asks: "I've got an idea that I want to start up in Australia. The business store front will be a .NET web application, however any business requires money to start up and I'm looking for some Venture Capitalists to help fund mine. As the saying goes, 'Businesses that fail to plan, plan to fail.' I need some advice on how to write up a killer business plan, everyone involved knows exactly where the business is heading. Does Slashdot have suggestions or recommendations from personal experience to offer?"

Comments

Mortgage your house...

[Eightyford]

If you have any equity on your house, use that first.
If you have rich relatives, use them first.
If you can get a bank loan, use that first.
If you can sell a kidney, do that first.

Unless you need big bucks to start your company, you should avoid VC firms. They'll want too much control, and too much money. Hell, I bet VISA and Mastercard have better interest rates.

Re:Mortgage your house...

[damsa]

Parent is mistaken. VC firms don't charge interest. All they ask for is your soul and maybe your first born son.

Re:Mortgage your house...

[Imsdal]

maybe?

Yes. Sometimes two daughters will do. That's why it's so important to ask these fee questions up front.

Re:Mortgage your house...

[hardie]

Since you're asking about writing a business plan, I'll make the assumption that you are a geek like the rest of us, and probably are a little short in negotiating skills.

Stay far away from VC's. They are professional negotiators. They will own your underwear before you get your second dollar out of them. It will all sound very reasonable--if they're going to give you $5,000, why wouldn't they get 50% of the company in return? You don't have any products after all. Wrong, wrong, wrong.

On the other hand, I strongly disagree with the mortgage your house line of argument. There are three very important letters to focus on: OPM (Other Peoples' Money). You have a terrifically valuable item--a business plan and the smarts to execute. They have something *less* valuable, but still very important--MONEY. You will need a bunch, then you will need to go back and get more. You will probably need to hit them a third time. Each time you do so, you sell off part of the company. Be sure you sell it slowly enough that you have some left in the end. The first negotiation determines the rate of the following ones--don't sell yourself short.

So where do you get money? Relatives are a possibility, but only if they have a lot of it. My folks were touchingly naive when we started a company--"Don't forget your mom and dad, let us invest..". A very high risk investment and they aren't dripping with it. A source that is a good compromise between pissing off your relatives and getting eaten alive by VC's is called an angel investor. These are people with a good sized bundle of money looking for somewhere to make use of it. The good ones have additional motives, like seeing others succeed, being part of starting something that lasts, etc. You could certainly find a bad one too (devil investor?). They might be successful people in your community, like dentists or doctors. They might be people that are on top of a successful startup (i.e. has been in business for 5-10 years) and want to help start another one. The really tricky part here is finding them. Unlike VC's, they don't run advertisements.

The words exit strategy are ugly to a founder, but crucial to your investors. So is a business plan. The better your plan is, the more likely you are to attract money at favorable rates. The purpose of a plan is not to exactly predict the future--it is to make sure you think carefully about all the details.

I've worked at small companies twice. The first time, I joined a small, year old company run by the technical folks. We did a lot of stuff, and made some fine products, but in the end we ran aground and were bought by a larger company at a fair but bargain price. This took 12 years all told (note that I do analog semiconductor chips, not software).

The second time around, a group of us started from scratch. We had a wheeler-dealer (but trustworthy) business type at the top. The difference was like night and day. Our business was very similar to the first company, but succeeded. We sold our souls to a larger company after only two years, on pretty favorable terms. Almost entirely using OPM.

Steve

From Experience

[kvsnut]

I recently started a business and a partnership. I googled for business plans and you can get samples for the SBA (Small Business Administration - US) probably au as well.

However after the rubber hit the road the document meant very little. That may not be the case for you since you will be looking for funding but until you have done it - it is difficult to know what you are doing.

I would suggest before you take on money and perhaps before you start your business that you read "The Partnership Charter".
http://www.amazon.com/gp/product/0738208981/102-97 56474-8088941?v=glance&n=283155

It raises some good questions whether your partner is your brother (my case) or a vc company (your case).

Good Luck

Here's a start.

[Eightyford]

Here's a start. You don't need slashdot's help!

Avoid VCs + Read Kawasaki

[Infonaut]

Unless you really need a lot of capital to start out with (and probably even then) avoid VCs like the plague. They will f*ck you and not even say thanks. Seriously, their job is to let someone else take all the risks, then jump in and make a metric buttload of money off of an idea that has already been proven. They are very seldom risk-takers, and they are generally ruthless. There are somne exceptions, but if you must find a VC, do your homework first. Talk to entrepreneurs who have worked with VCs. Get first-hand info from people who've been through a VC experience and survived to tell the tale.

When writing a business plan, cut through the crap. Read Guy Kawasaki's stuff. He knows what he's talking about. His piece on business plans is brief and to the point, which is how your business plan should be.

Good luck to you!

Re:SCORE

[Alien54]

I've tried using SCORE on four separate occasions

Alot of SCORE types are retired business execs who have little computer sense or ability. Which makes them horrible for evaluating business ideas.

This also is seen in the banking culture in different parts of the country. Shop one in in the Ozarks and you may get one result, vs shopping it in Silicon Valley. Some advisors only know a certain type of industry, so you want an advisor with experience in the area you are interested in. And even then....

The retired former owner of a car wash chain might not be the right person to advise you on your web startup.

So I'm kind of going through the same process

[pHatidic]

So having just written a business plan, it should roughly follow the format:

1. Executive Summary (your elevator pitch, no more than 3 paragraphs)
2. Investor Relations (What you want from other people)
3. Description of Business (about 1 page)
4. Sustainable Competitve Advantage (The only thing anyone will read other than the executive summary)
5. Description of Competition (a full page is about right)
6. A list of competitors with a the strengths and weaknesses of each in about a paragraph per.
7. A timeline for what you want to do and when
8. SWOT chart (strengths, weaknesses, opportunities, threats)
9. Financials (make up some numbers and use them to make excel graphs)

The thing that gets most people is the financials. Obviously there is no way to know so you just have to make something up that seems reasonable. This isn't cheating or being unethical, it's the only way to do it and it is expected of you. Some people feel bad about this anyway. Don't.

Also, here is my Squidoo Lens on the subject if it helps. It is mostly just a recommended reading list. That being said, there really are fifteen or twenty Do Not Pass Go, Do Not Collect 200 dollar books. Everyone agrees on this, but of course they will all give you a slightly different list of what these books are.

That being said, you won't get any money from a VC until you have partners and a board of directors. The first step is to go around and talk to as many people as are willing to listen. Once you have told fifty or so people your idea and gotten all the feedback you can handle (mostly people telling you how stupid you are), then circle back and ask those people to advise you, be on your board, or invest. Most of them will offer without you having to ask if you are talking to the right people, i.e. people who have experience as serial entrepreneurs. Also before you can get VC funding you will probably need to show traction. The correct order of doing things is 1) Sell the product 2) Design the product 3) build the product. It's counterintuitive, but so is the idea of dropping out of college to make more money. :-)

I think Cryptonomicon gets it right.

[shobadobs]

MISSION: At [name of company] it is our conviction that [to do the stuff we want to do] and to increase shareholder value are not merely complementary activities--they are inextricably linked.

PURPOSE: To increase shareholder value by [doing stuff]

EXTREMELY SERIOUS WARNING (printed on a separate page, in red letters on a yellow background): Unless you are as smart as Johann Karl Friedrich Gauss, savvy as a half-blind Calcutta bootblack, tough as General William Tecumseh Sherman, rich as the Queen of England, emotionally resilient as a Red Sox fan, and as generally able to take care of yourself as the average nuclear missile submarine commander, you should never have been allowed near this document. Please dispose of it as you would any piece of high-level radioactive waste and then arrange with a qualified surgeon to amputate your arms at the elbows and gouge your eyes from their sockets. This warning is necessary because once, a hundred years ago, a little old lady in Kentucky put a hundred dollars into a dry goods company which went belly-up and only returned her ninety-nine dollars. Ever since then the government has been on our asses. If you ignore this warning, read on at your peril-- you are dead certain to lose everything you've got and live out your final decades beating back waves of termites in a Mississippi Delta leper colony. Still reading? Great. Now that we've scared off the lightweights, let's get down to business.

EXECUTIVE SUMMARY: We will raise [some money], then [do some stuff] and increase shareholder value. Want details? Read on.

INTRODUCTION: [This trend], which everyone knows about, and [that trend], which is so incredibly arcane that you probably didn't know about it until just now, and [this other trend over here] which might seem, at first blush, to be completely unrelated, when all taken together, lead us to the (proprietary, secret, heavily patented, trademarked, and NDAed) insight that we could increase shareholder value by [doing stuff]. We will need $ [a large number] and after [not too long] we will be able to realize an increase in value to $ [an even larger number], unless [hell freezes over in midsummer].

DETAILS: Phase 1: After taking vows of celibacy and abstinence and forgoing all
of our material possessions for homespun robes, we (viz, appended resumes) will move into a modest complex of scavenged refrigerator boxes in the central Gobi Desert, where real estate is so cheap that we are actually being paid to occupy it, thereby enhancing shareholder value even before we have actually done anything. On a daily ration consisting of a handful of uncooked rice and a ladleful of water, we will [begin to do stuff]. Phase 2, 3, 4, . . . , n-1: We will [do more stuff, steadily enhancing shareholder value in the process] unless [the earth is struck by an asteroid a thousand miles in diameter, in which case certain assumptions will have to be readjusted; refer to Spreadsheets 397-413]. Phase n: before the ink on our Nobel Prize certificates is dry, we will confiscate the property of our competitors, including anyone foolish enough to have invested in their pathetic companies. We will sell all of these people into slavery. All proceeds will be redistributed among our shareholders, who will hardly notice, since Spreadsheet 265 demonstrates that, by this time, the company will be larger than the British Empire at its zenith.

SPREADSHEETS: [Pages and pages of numbers in tiny print, conveniently summarized by graphs that all seem to be exponential curves screaming heavenward, albeit with enough pseudo-random noise in them to lend plausibility].

RESUMES: Just recall the opening reel of The Magnificent Seven and you won't have to bother with this part; you should crawl to us on hands and knees and beg us for the privilege of paying our salaries.

First, challenge your assumptions...

[darnok]

You say "any business needs money" like it's a "people need air to breathe"-type fact.

I'm in the process of starting my 3rd Australian business now and none of them have required any significant money. Computers are close to free these days, or free if you can use a 3yo one that someone's throwing out; FOSS is free (and, yes, you can develop in .NET with FOSS); hosting services are nearly free. What isn't free is your own time, and that's the tradeoff you make.

Some suggestions:
- live off your savings. If you don't have any, then get some. If you can't save any money, then you won't be in business long anyway so you may as well get a job
- spend as little money as you possibly can. Really. If you need particular expertise, scour your personal network to see who's got that expertise; once you find someone, offer your skills in exchange for theirs. Work from your own house, and live on coffee and sandwiches if you have to. If you eventually have to go to a VC for money, they'll want/expect to see that you're tight with your money before they give you some of theirs
- call in favours from friends and family. Visit your parents at mealtimes, if you have to. Track down that teenage cousin who wants to build Web sites for a living, and have him build yours; if you can't pay him, tell him he can put it in his portfolio and you'll refer people to him later. Pick the brains of people you know who've run their own businesses; in particular, find those who've *failed* because they'll probably have insights into how they went wrong, and you can learn from their mistakes
- when opportunity permits, seed the idea of what your business is with people who have money, but *don't ask for their money* and *don't* give them enough info so they could get someone else to build it for them. Go to networking seminars, if you don't know these sort of people and want to track them down. Show them your business plan, but don't go with your hand held out for cash. At some point, you may want to sell your business to these people, but you want them to be coming to you begging to buy, not you going to them begging for cash

You asked for it

[ceeam]

1. Borrow a shitload of money
2. ???
3. Profit!

Well, maybe /. is not the best place for this question...

Crayons

[joecm]

But stay away from the orange shades as they may make you appear less professional.