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Ten Questions Every Business Plan Must Answer

August 1, 2012 by


Ten critical questions to answer in your business plan

Are you getting ready to pitch investors? Then you need to make sure that your materials – your pitch deck, executive summary, and business plan – answer ten critical questions.

Conversely, if you find yourself including a lot of material that isn’t directly related to one of these ten questions, you may be better off leaving it out of your documents.

Here are the ten critical questions to answer:

  1. What’s the problem? First, you need to explain what problem you solve. If you aren’t solving a problem that people are willing to pay you to alleviate, then you probably won’t see much demand for your product or service. The more acute the problem, the more attractive the market. Some problems are dramatic: thousands die each year from pancreatic cancer. Others are more mundane: there isn’t a decent burger joint within 8 miles of this intersection.
  2. What is your solution, and what makes it special? Next, you need to explain how your product or service is going to meet the need created by the problem. This is where you describe your offering. Try not to get into excessive detail – focus on showing how your business will be viewed from your customer’s point of view.
  3. How big / severe is the problem? This is where you describe your market potential: how many people in your target markets are willing to spend money to make their problem go away, and how much they’re willing to spend. This is the “total addressable market” that you and your competitors are collectively targeting.
  4. How will you make money? This is what many people call the “revenue model” or “business model.” For most businesses, this is fairly obvious: you will sell your product or service for some advertised price. Other markets – particularly those that involve licensing, subscriptions, bundling, and other strategies – can be more complex. If you’re a startup, it’s best to start simple and make refinements down the road.
  5. Who will buy it, and how will you sell it to them? You need to identify your target customers and demonstrate an understanding of their buying habits and how you plan to buy from you instead of from somebody else. In other words, this is your marketing strategy.
  6. Why are YOU the best team to do this? Most investors say that the startup team is more important than the idea itself, because a good team can fix a mediocre idea, but a mediocre team is likely to fail even if they are pursuing a great idea. Therefore, you need to convince the investor that your team has what it takes to turn their money into a successful business.
  7. Who are your competitors, and what makes you better? No matter what you may think, you do have competitors. You need to think about all of the different ways in which consumers are currently dealing with the problem that you solve. Some will be direct competitors, some indirect, and some will be substitute products (to a parent trying to keep a child calm on an airplane, a coloring book is a substitute for a Game Boy). You need to describe what makes your product superior, and how you intend to stay one step ahead of the competition (say, in the form of patents or other sources of competitive advantage).
  8. What have you done, and what will you do? Investors want to know that you have a track record of achievement – that you’ve been busy building your business over the past instead of just dreaming about your idea. They also want to know that you have an aggressive but achievable set of planned milestones for turning your idea into reality – in other words, they want to know you’ve thought things through.
  9. What are the economics? Investors tend to think in terms of numbers, so show them the key metrics for your planned business, and let them know how your business will compare to industry norms. Some examples include per-unit profitability, revenue per employee, expense per employee, revenue per customer, cumulative units to break-even, and so forth.
  10. How much do you need, and what will you do with the investor’s money? Finally, you need to show the investors that you have a concrete plan for executing on your business plan – that you know what resources you’ll need at what time in the future, and that you understand how cash flow works. Ideally, you want to show them that you can achieve profitability soon after receiving your investment.

Note that the exact order in which you address these questions depends on your specific situation. You have a unique story to tell, and you need to think about what order makes the most sense in your situation.

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  • Manpreet Kaur

    Great post. I also think the presentation plays a big role. Having all the documents and planning business model, and knowing the markets are great. But if you are not confident enough to stand and defend your product than having all these documents are pointless. I have seen many people present their idea and they seem so nervous. Some actually read from paper. If you trying to get investor be confident and let investor know why they should invest in you. I think investors look for person more than business to invest in. Show investor that you are capable of leading your start-up company.

    • http://www.caycon.com/ Akira Hirai

      You are absolutely right. I know we’ve covered presentation skills in prior posts, but we should probably create a new one soon. Thanks for commenting!

  • Procurement Books

    Very good questions to ask. I think it is vital for you to know what your target market is because this will allow you to think up of ways on how to improve your products. Focusing on your market’s needs will move the plan to the next level, especially if you want to get the support of investors who share the same vision.

  • Aaron Biehl

    #6 is so important and true.

  • c123

    Akira, great points. I am wondering about point 1 though. Having experience w/VCs and in IB, it is very understood that the product should solve a problem. I think this helps create an addressable market to quantify the need and ultimately validate the product/service’s existence. However, I pose the following question. How do you explain the iphone, ipad? I hone in on this example because I believe that if these product concepts were presented in the similar forums that many of us have had to pitch new ideas and products to investors (without the Jobs allure or the Apple brand), I think that many VCs would have passed primarily because, in my opinion, the iphone unto itself did not solve a problem, but created a need. In other words, I don’t think that prior to the iphone, people walked around thinking, I could really benefit from a device such as the iphone (there was no addressable need). It showed people new possibilities of going about their activities. There are many entrepreneurs and innovators out there that have products & ideas that are in a similar realm where they don’t necessarily solve an existing problem, but create new needs. In many ways, this example can also be applied to the ipad – possibly more so than the iphone. I bring up this point because I’ve also been guilty of saying the boilerplate point 1 in some shape or form to startup companies and have also been told point 1. This doesn’t mean that your point 1 is not valid; I believe however, that there is more to the story and entrepreneurs should keep in mind that they can also create needs as opposed to purely solving needs. Just wanted to point that out.

    • http://www.caycon.com/ Akira Hirai

      You make a good point. Products that create new needs, rather than addressing existing problems, require a different thought process. They need a pied piper like Steve Jobs who can get others to believe. Or they need the financial resources of a company like Apple so that they can develop and market the product without any outside money!

  • Joseph Schufle

    Very good points Akira. I do an exercise with my business plan students (Fashion Institute in New York City) where I have them imagine that they just got a company buyout, or won or inherited $100K and what could they do with it. The two key things on any investor’s mind are, or should be, ROI (what I’ll get back for what I put in in terms of $, time, intellectual investment, connections, help create a new or better world, etc.) and Opportunity Costs (what do I give up or miss- what else could I have done with that investment). I then ask them to imagine I’ve come to them with “a great business investment opportunity”. What do they want to know before they’ll trust me with their money? When people really think about it, they come up with a very similar list.Those answers are what the business plan should provide. If it were not your own product or service that you were investing in, but you were an outside investor, what would you want to know? Most business owners or inventors think it should be obvious, but it’s not. And for each investor the deciding answer can be different.
    As to c123’s question, the iPhone answered needs on both the user AND the developer sides: the need for an integrated system and ease of delivering added functionality to meet user wants. As anyone who used a Palm Pilot, Treo or Blackberry at the time, the things they did well were great (like Blackberry for email). But trying to use it for something else was always clunky. And for a programmer, you had to jump through hoops for the rights to be able to create something for the OS. Apple gave away the developer kit, resulting in an explosion of apps and new businesses for anyone interested in giving it a shot. This made it easy to bring new solutions to market, even though some were for a very limited audience. I think it was Bill Gates who said that hardware adaptation follows software. And I don’t believe Apple initially realized they were creating a platform rather than a product. But that really is the bigger picture of what the iPhone and iPad turned out to be-an integrated platform for creating, running and marketing applications that have really changed the way we live and do business.
    Interesting aside, there is a Youtube video of Steve Jobs where he mentions that the iPad was really developed first, but was sitting on a back shelf. When the iphone development team was struggling with coming up with a screen/input solution, someone thought of trying what had already been used for the ipad. So a combination of both internal and external customer needs/wants elegantly met (though it did take about a year to get email to work. Probably why Blackberry or Nokia weren’t worried). Ahhhh. Hindsight. It always seems so 20-20 obvious.