Ten Questions Every Business Plan Must Answer
August 1, 2012 by Akira Hirai
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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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).
- 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.
- 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.
- 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.
Other articles by Akira Hirai.
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