Learning how to write a business plan can seem like a labor-intensive prerequisite to doing real work. When I started my consulting firm Stellia Labs, I was so eager to get started on client engagements, that sitting down to pound out a long Word document felt restraining. I already knew my target market and revenue goal, so what was the point? At least that’s what I figured, until I read in Inc. that 60% of companies without a business plan fail.
Before I sing the praises of business plans, it’s worth noting that early-stage businesses do benefit from some on-the-ground testing before formalizing a document. As SunRun CEO Lynn Jurich wrote for the Sequoia Capital blog, “Starting a company is a big step, so it’s understandable that you would want to make sure you have the perfect business plan in place before you start. But that’s wasting time: Just get out in the field and refine the plan as you learn more about the problem you’re trying to solve.”
In other words, step zero in learning how to write a business plan is speaking to people who fit your target market and gauging their reactions to your products/services. AFter you validate your idea, you’ll be able to use your business plan to refine your offerings and build solid revenue projections. Instead of a loose vision document, your business plan will become the place where you can stress-test your hypotheses through further research and calculations.
I happened to have as much fun writing my business plan as I did building my business. That’s not to say the process was a breeze. A lot of the resources I used posed vague questions about my company that I had no idea how to answer. In this article, I do my best to give concrete suggestions about where to find the numbers you need, and how to fit the pieces of your business together. I think the best way to learn is through example, so I’m going to use a pretend company called “Female Tech Connectors” to illustrate exactly what to do in each section:
1. Executive Summary
The executive summary is where you boil down the complexity of your business plan into high-level takeaways. One glance at your executive summary, and readers will understand the basics of your company. Typically, the executive summary will follow this basic structure and extend for ~1 page:
Start with 1-2 compelling statistics about the problem you’re trying to solve, and the opportunity that exists if you solve it. For instance, Female Tech Connectors might start with some numbers that prove the gender gap in tech:
“Only 3% of the 1.4 million tech jobs created by 2020 will be filled by women, even though women accounted for 18% of computer science degree holders in 2014. Tech companies have a serious problem in recruiting women engineers. This means that they’re missing out on potential financial upside, as well. Gender diverse companies outperform competitors by 15%.”
Go on to describe how your company will solve this problem and benefit your customers. For instance:
“By connecting women engineers to high-growth tech companies through patented matching software, Female Tech Connectors will: help businesses diversify their teams to boost performance, and help women find employment at companies that care about diversity in tech.
Give some compelling reasons why now is the moment to start your business. If you’ve already started, why is now the moment to pivot or scale? Is your industry undergoing a seismic shift that you’re looking to capitalize on? Have you discovered an underserved market? Are you going to be the first entrant in a new field? Female Tech Connectors might write about how diversity in tech has captured unprecedented media attention this year, and that they want their launch to ride the publicity wave.
Goals & Objectives:
Where do you want your business to be in one year, three years, five years? How are you going to get there? A sample goal for Female Tech Connectors might be developing a reputation as the #1 recruiting service for women in tech. To achieve this goal, their objectives could be to: 1) sustain a 90% match rate of candidates to jobs; 2) secure 3 major name-brand hiring tech companies to attract more candidates; and 3) focus on referrals as a business development tool.
Briefly describe your market, including the market size in dollars and your target customer profile. Female Tech Connectors might say:
“The recruiting market is worth $X million, and tech recruiting comprises Y% of that market. There are currently Z million women engineers, and we will be targeting the X,000 women between ages 25-34, focusing on New York City and the Bay Area.” (More on how to calculate these numbers in the “Market Analysis” section.)
Even though the executive summary comes first in a business plan, many entrepreneurs write it after they have completed the rest of the document and can quickly summarize. I recommend going ahead and write a rough draft before you dive into the rest of your business plan. Then, once your document is polished, you can revise and incorporate any new findings.
2. Company Description
At first glance, this section can seem repetitive with the executive summary. The difference is that here, you hone in on your business values and vision (through a mission statement), and give the nitty-gritties on your company history.
You’ll need a mission to keep propelling you forward when the goings get tough, and to rally future employees around your work. That means putting a lot of thought into why your company exists, what you envision accomplishing, and how you will influence your market. For Female Tech Connectors, that “why” might be: “Our mission is to end the gender gap in tech by becoming the #1 recruiting company for women engineers.”
Here you can add information about your company structure. This would include the legal status of your business, equity splits, the location of your headquarters, and so on. Female Tech Connectors could explain that their team is currently comprised of two co-founders and one software engineer, plus a freelance virtual assistant. They could give their company address in New York, and specify that they’re currently doing business as an LLC but plan to become a B-Corp.
3. Market Analysis
This is where you dig into your opportunity size. Where will your customers come from, how many of them are there, and how much money can you earn by providing them with your product or service? I find it helpful to break down the market analysis into subsections:
Who are your target customers?
Your customers are the basis of your business. For your business to succeed, you’ll need to be able to sell, and selling requires understanding your buyers. A good way to analyze your target customers is by defining their demographic, geographic, and psychographic profile:
Demographic: Gender, age, income bracket, profession, etc.
Geographic: Location and setting
Psychographic: Mindset, pain points, fears, dreams
Female Tech Connectors is a more complicated, because they’re targeting two separate markets: 1) the women engineers who will form their candidate pool, and 2) the tech companies that will hire them. So they might describe their first target market as: “25-34 year-old women engineers who currently make $75k+ annually, live in New York or San Francisco, feel frustrated by the lack of opportunities in their current role, and dream of working at a tech company that invests in their career growth.” Their second target market could be: “Tech companies on both coasts making $50+ million in revenue, that are having trouble connecting to talented women and are afraid of negative press about bad diversity statistics.” Of course, this will all be based on solid research -- not on the founders’ whims about who they think they’ll be targeting.
What is the market size in terms of consumers?
One crucial number for your business is the size of your target market. How many people exist who fit your ideal customer profile? Knowing this number will help you evaluate whether your business is sustainable. If only one tech company meets Female Tech Connectors’ requirements, they’re in trouble. If 500 tech firms fit the bill, they have a viable business.
The Bureau of Labor Statistics and the U.S. Census can be valuable tools for sizing a consumer market. If Female Tech Connectors wanted to know how many 25-34 year-old women lived in NYC or SF and made $75k+, they’d be able to found out through those websites. If they wanted to drill down further, and figure out how many of these women work in tech, and how many are frustrated with their current jobs, they might look for recent statistics from aggregators like Statista or eMarketer. Articles in industry journals like Techcrunch and Recode might also share recent findings about women in tech.
If you’re thinking that it’s nearly impossible to calculate a definitive market size, you’re right. Market sizing isn’t a science. It usually requires some smart triangulation. One website might tell you that 15% of women in tech express frustration with their jobs; another source claim you that number is 40%. Don’t be afraid to use a range for your market size, but make sure all sources are recent (ideally published within the last year) and reputable (from a research organization, as opposed to a random blog).
What is the market size in terms of dollars?
You already know how many customers are in your market, but how much money is there? If you’re creating a business in clear-cut sectors like finance or travel, you’ll be able to find a lot of public information on market size. If your industry is more private, you might have to get creative. If Female Tech Connectors had trouble sizing the tech recruiting market, they could triangulate by researching the salary of the typical engineer, the number of engineers hired per year, and the average percent cut that a recruiting company takes out of that salary. If the average engineer made $100,000, and 50,000 engineers got hired per year through recruiters, and recruiters took a 5% cut, then there would be: (50,000 engineers * $100,000 salary * 5% cut) = $250 million total in the part of the market Female Tech Connectors wants to tap. If they think they can match 1,000 of those 50,000 engineers, then they would stand to make: (1,000 engineers * $100,000 salary * 5% cut) = $5,000,000. It’s not a perfect calculation, but a reasonable estimate is better than no estimate at all.
It’s also important to determine the growth potential for your market. Is your industry growing year-over-year? Is it worth more in 2017 than in 20166? How quickly did it expand from 2010 to 2016? These numbers are useful mainly because you can extrapolate to calculate your market’s future growth. For instance, if tech recruiting has grown by 3% each year since 2010, Female Tech Connectors would know that they’re entering the market at a time of expansion.
Who are your competitors? What are their strengths and weaknesses? What is your competitive advantage?
Female Tech Connectors would consider competitors along several dimensions. Other recruiting firms, internal HR departments, and women in tech organizations with job boards are some categories they might consider. It’s generally helpful to include key performance indicators (revenue, number of employees, market share) for your competitive set. These numbers, along with qualitative research, will help you evaluate your competitors’ strengths and weaknesses.
In this section, you can also elaborate on your company’s unique value proposition. How and why is your solution better? Is it higher quality? More cost-effective? More convenient? Female Tech Connectors could emphasize their patented matching software as a technological advantage. They might also highlight that they plan to match candidates within 4 weeks, a short time span that suits fast-moving tech companies.
4. Products or Services
This section describes in detail what your business will offer. Female Tech Connectors would talk about their recruiting software and packaged offerings, such as subscription plans (e.g. $19.95 per month to browse jobs) or matching fees (5% of a hired candidate’s salary). They might plan to expand these offerings within the next 6-12 months to include more subscription tiers, and an annual membership option, and so on. This would be the place to discuss those plan.
5. Marketing Plan
Now that you’ve fleshed out your target market, competitive set, and value proposition, you’ll want to detail your plan for exactly how to reach your ideal consumers. Marketing generally fits into major pillars, including public relations, advertising, events, and content. In this section, I suggest being strategic as well as tactical -- meaning, name the marketing areas where you’ll focus, and explain why. Then you can get more granular about how many events you’ll hold in a month, and so on. Female Tech Connectors could reiterate that their business will grow by tapping into recent press on the gender gap in tech, and by building strong relationships with candidates and companies. Tactically speaking, their marketing plan might include:
Events and partnerships: Working with organizations like Tech Ladies and Flytechnista on joint networking events, while also participating in conferences and recruiting fairs that feature major tech companies with lots of open positions
Content strategy: Interviewing strong engineer candidates to feature on the Female Tech Connectors blog
PR: Press in industry publications like TechCrunch and Recode
6. Operations Plan
Operations, of course, depend on your company and industry. If you’re manufacturing a product, you’ll have a lot more ground to cover in this section than someone who is building out a marketing agency. Female Tech Connectors would want to describe the process of working with candidates and matching them with open roles at tech companies. Who will be the candidate’s point-person throughout the process? Will the hiring company have the same point-person? How many interviews will take place? What insures against tech companies pulling their offers or candidates turning down offers at the last minute? What are the terms of invoicing and payment processing? All of this fits the operations scope.
Your financial projections should answer three major questions: how much revenue do you expect to generate, how much profit will you make, and how long is your timespan for generating revenue before you run out of money?
For the sake of brevity, I’m going to condense the financial section, but please note that strong business plans include actual financial statements: an income statement, a balance sheet, and a cash flow statement. There is often a break-even analysis, as well. If you’re unfamiliar with accounting, I would absolutely recommend these two books: Financial Intelligence and How to Read a Financial Report. Both books walk you through the basics of building financial statements. There are also some great online resources that you can find for free on The Balance, Above the Glass, and Investopedia. For now, here’s the bare bones of the information you need:
Revenue: To figure out your revenue, you can pull in your market size numbers from section 3. If Female Tech Connectors plans to match 3 candidates to tech companies every month, each at a salary of $100,000 with a 5% recruiting cut, then their revenue for each would be (3 candidates * $100,000 salary * 5% cut) = $15,000. Annually, that would be ($15,000/month * 12 months) = $180,000 per year.
Expenses & Profit: Female Tech Connectors would have to determine whether this number could pay for their expenses, such as their office space, co-founder and employee salaries, software development, and marketing/sales costs. If all this costs less than $15,000 per month, they’re in the green and will soon be making a profit (which, simply put, is revenue - expenses). Of course, they’d need a cash flow statement to illustrate that they would have this $15,000 in cash before their bills were actually due. If it turns out that there total costs add up to to more than $15,000 per month, and/or that they won’t have cash in time to pay, they’ll need to revisit their revenue projections and figure out how long they have to boost their revenue before running out of money
Runway: Assuming their expenses are initially higher than their revenue, Female Tech Connectors should calculate how much time they have before their business runs out of money. They might have 8 months to fully develop their software and start matching candidates. If they believe they need more time than 8 months, they can adjust some of their “levers” from the revenue and expense calculations. Can they set more aggressive candidate matching goals, like 5 per month? Can they take a higher 7% cut? Can they cut down on their office space expenses?
8. Management & Personnel
Finally, who is going to do the massive amount of work that you’ve just outlined? Here you’ll elaborate on your team and their qualifications. You can include co-founders, developers, freelance hires, assistants, and so on. Female Tech Connectors would profile their co-founders, listing out that, for instance, they have 10+ years of experience as engineers, and that one of them went to business school or spent a few years in human resources. You can also include how your business plans to hire more talent.
More questions about business plans and beyond?
I know from experience that writing a business plan means grappling with a lot of moving pieces, and often second-guessing your original vision for your business. Helping women succeed as entrepreneurs means a lot to me, and If you’re left with questions, I’m always happy to chat. You can email me at [email protected] to set up a 15-minute call, or browse further resources on my blog Writing on Glass.
About the Author: Stephanie Newman writes about feminism at Writing on Glass and publishes a weekly newsletter on how to advance gender equality. She also founded the creative consultancy Stellia Labs, which helps entrepreneurs build growth-focused content strategies.