Business plan is first and foremost for you – not your investors
In which phase of my startup should I consider crafting a business plan?
Every startup should have some kind of a business plan at the very beginning, even if it's just in the founder's head. Without it, you can never make a qualified decision about whether your project has the potential to succeed in the real world, on the real markets. You're basically founding your startup in a vacuum. Of course you can only go to so much detail when you're just starting out, there are too many unknowns.
The bare minimum you should know is what you're going to make, how you're going to make it, and what price tag you're going to put on it to become a profitable company. Then you build on this, reviewing and refining the plan as your business grows.
Is there any milestone after which I simply can't continue with a well written business plan?
I can guarantee that each and every investor and bank will want to see your business plan when you approach them to get an investment or a business loan. That said, it wouldn't be wise to see the business plan as a necessary evil that you have to do for someone else. You need it first and foremost for yourself. It's the only way to avoid neck-breaking mistakes like working on a product for half a year only to find out that due to high material cost you'll be selling it for a price that no one is willing to pay.
What if I'm launching my startup in a new area of business – e.g. in PropTech – where there's still little to learn from the market? How shall I go about it?
Speaking of PropTech, one of our incubated startups is Spaceflow. If we were trying to look up some information e.g. about their competitors two years ago, we wouldn't have found much.
This entire business field was in its infancy, so launching a startup there presented that more of a challenge. In such cases, financial predictions have more unknowns and can't be as precise as in more developed industries. But on the other hand, startups that embrace it end up having a huge time and know-how advantage over those who join later on.
As a member of the main board, you have a say in which startups UP21 is going to incubate. How much is your decision affected by the quality of the business plan or the lack of it?
I don't expect a founder to show up with a perfected business plan that raises no questions or concerns on our side. Even if they manage to make it hundred percent correct in terms of financial calculations and all the technicalities, it's common for us, as an investor, to have a different perception of the business as a whole. Take SENS, for example, one of the startups we incubate. They make protein and energy bars with cricket flour, and their initial plan was to focus solely on selling online directly to end customers.
We believed their business results would be tremendously better if they partnered up with resellers and supermarkets. So, having gone through their business plan, we weren't concerned about their specific numbers as much as about the business model as a whole. During these introductory meetings, it's more important for us to see if we get along well with the founder on a human level and if we believe they have what it takes to turn their idea into a healthy business than if the have two or three mistakes in their business plan.
Could you recommend any specific form of the business plan? Are there any “trends” to be followed?
I wouldn't call it trends, business plans evolve hand in hand with how business in general moves forward. Startups often enter the tech market which is incredibly fast-paced, so it doesn't make sense to write their business plan as a fifty or sixty-page essay. Founders – and I believe also investors – today are fine with a straightforward list of bullet points that cover what's necessary and are easy to grasp and refine when necessary.
Speaking of reviewing the business plan and updating it, how often should this be done?
It's crucial to update a business plan as soon as any major change within the startup's business landscape occurs. When for example an important supplier raises their price by thirty per cent, your existing business model is suddenly useless. At UP21, we've got good experience with reviewing business plans on a monthly basis.
Each month, we sit down with the founders to talk about how things have been going, how close they got to reaching their KPI or financial goals, and, most importantly, what changes can we make in their business to improve it. This is how we iterate the business plan, and it sometimes happens that at the end of the incubation, it's totally different from what we started with.
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