
Ask HN: How to write a business plan for an Internet startup? - hamgav
I've been approached by some investors who want to invest in my startup. They've asked me to put together a business plan - listing costs/revenue etc. Do I include my salary costs in this or do I assume that I won't be taking a salary? Any feedback/reading material will help!
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mixmax
I've written more business plans than I care to think about. This is my
experience:

1) A business plan is a marketing document. Usually you are using it to sell
your business to banks, investors or partners. You have to think of your
audience when you write it. An investor likes to see projected revenues that
are high and don't mind that there's a risk - banks are the other way around.

2) Don't use business plans as a plan of how to run your company, write a one
page strategy note instead. I have never seen a businessplan that was followed
100% and turned into a successful business. Everything changes fast in a
startup, and you have to adapt accordingly.

3) Make sure you don't write something in your businessplan you can't honor.
Investors and banks will look at it and blame you if they invested money and
you don't live up to what you have written. Make sure to have escape routes.
(If this and this market condition is true we will do such and such, if it
isn't we can't do jack shit, we expect to do such and such but require this or
that to reach these lofty goals) This will give you leverage and deniability
in later negotiations.

4) Make sure you use a lot of sources to underpin and validate your
assumptions (Gartner projects that within the next five years this trend will
do something, making it inevitable that we will make loads of money since
we're currently the only ones in this business) This will lend you
credibility.

5) Make good budgets, and talk about your assumptions in the business plan.
Budgets are the first thing investors look at. Particularly the assumptions
behind the numbers.

6) Beware of investors that think everything in your business plan is a road
map that simply needs to be followed in order to attain fame, glory and fuck-
you money: They don't know what they're talking about.

~~~
Skeletor
I don't like your statement about a business plan not being a plan to run your
company, that is exactly what it should be. Though maybe your 1 page strategy
document is your real business plan. The business plan is just a name though,
you should have 2 sets of books/plans: 1) Internal accounting that is very
pessimistic and realistic and assumes the worst case scenario and prepares for
it. 2) External accounting that is incredibly optimistic and assumes every
possible best break will happen 100% of the time.

~~~
brk
I'm not sure if this is what you were saying, but you should NEVER have 2 sets
of actual accounting books. The numbers are the numbers, the truth is the
truth.

You can create and present a document that shows your _expectations_ and
_assumptions_ , but you can't say you made X amount of sales and Y amount of
profit when the real numbers are different.

In reality though, the data you show and present should be realistic and
perhaps slightly cautious. This is what you are going to be measured against.
Being "incredibly optimistic" when you do not believe this to be true is
really kind of fraudulent.

Set expectations for what can reasonably happen with the resources/constraints
you are working with. Internally, manage your capital as if it were your last
dollar. If you do not meet the expectations set, determine why.

~~~
Skeletor
What if you rebate the cost of your software to customers for a trial period?
Do you think that counts as revenue or as nill?

What if you prepay for a year of office space before the end of your fiscal
year to show no profit in a year? Did you make a profit or not? These are
different ways to interpret the same numbers.

~~~
brk
Try (as much as possible) to stick to GAAP standards and you'll be fine.

Choosing how/when you depreciate certain assets, or if you use a FIFO or LIFO
inventory process is all well and good. But you would still have 1 single set
of accounting books/data.

I never enjoyed the accounting part of the companies I've started, but I've
learned there are things you _could_ do, things you _should_ do and things
that you _shouldn't_ do. There is not a whole lot of room for interpretation,
especially if you want to try to raise money or sell the company at any point.

------
mattmaroon
While I realize much of the capitalist world still operates this way, I'd be
hesitant about anyone who asked for a business plan. While a business plan
isn't entirely a waste of time, there's just so much of it dedicated to
pulling meaningless numbers out of your ass as to be an exercise in futility,
and it gives them something to be pissed at you about later if you miss your
fictional quotas.

And if I even heard the phrase "pro forma" I'd run.

~~~
webwright
+1

We talked to about 20 investing entities (maybe 5 or 6 VC firms, a mess of
angels, and a few angel groups). Exactly _1_ asked for a business plan and
they were the lowest quality entity with the least success/experience.

Fred Wilson (one of the top consumer VCs in the world) said that 17 out of 26
of his "successful" investments (with exits) utterly changed their business
model between investment and exit. In other words, a business plan has a
roughly 60% chance of being obsolete.

Planning is good. You should rough out some numbers. Build a spreadsheet or
two. If it's ad supported, get a sense of CPMs in your market and try to
figure out how many ad views you'd need to support a real business. If it's a
B2B offering, rough out what you can charge, investigate low cost distribution
angles (SEO, SEM, etc). In short, prove to yourself (and others) that your
business has some legs to stand on.

Write this down in an executive summary and be able to talk about it in some
more detail... But writing a formal business plan? Chances are you don't know
what business you're really in yet. And if you think you do, there are pretty
good odds that you're wrong.

Of course, if you have a mature startup (a year or two old, a pile of
customers), then some more structured planning might be appropriate.

~~~
tptacek
What are the top 3 things you'd want to have handy in Excel when you sat down
to a second meeting with a strong-sounding investor, webwright?

~~~
webwright
I didn't have any spreadsheets handy, but I think the best spreadsheet you
could have would be growth/traction data rather than prognostication. Without
_some_ traction (or a gold plated team), I think fundraising for web startups
is a waste of time for the most part. I think the data you should have at your
fingertips varies wildly based on what biz you're in and how mature your
business is, but off the cuff, I think you should be able to answer (with some
supporting wag numbers):

\- How are you going to make money? What if that revenue model doesn't bear
fruit... any other ideas?

\- How are you going to reach your customers? How much will it cost to reach
your customers?

\- Roughly, how big is your market? Is there a lot of demand?

\- How big a team do you need to test your initial theories and roughly how
expensive is that going to be?

\- Are there any other significant expenses aside from people?

\- How many sales/pageviews/whatever would it take for you to be cash flow
positive?

I don't good investors ask these questions to test your planning powers... I
think they ask them to test how smart you are and how much you've thought
about this stuff.

~~~
jmackinn
You do realize that these answers you suggest people should have amount to a
business plan?

~~~
webwright
No, I don't realize that. Go read a book on writing a business plan. :-)
Seriously, though-- there's a lot more to a formal biz plan than that.

Being able to toss out some ideas on distribution/marketing is different than
having a 2 page section on marketing. Being able to say that you need two more
devs to build what you think you need to build in the next 12 months is
different from having a 4-stage hiring plan with assorted milestones. Tossing
out some ways you could make money is different than a 5-year revenue
projection.

I don't think those questions aren't asked because you should have a confident
answer to any/all of them. They are asked to confirm that actually think about
the issues in question.

It's like agile development vs. waterfall development, IMO.

~~~
jmackinn
It's only on YC News that business plans are so black and white. The is no
international standard on what sections, how many pages, or how many years
into the future a business plan must be.

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Skeletor
I just took a 10 week entrepreneur course called FastTrac, there are many
local versions of the course throughout the US. I took a version in NYC. The
course met once a week for 3 hours and was a great networking and social
gathering. It was taught by a Professor at Fordham University who has his own
startup company and used to be a VC.

The goal of the course was to teach you how to run a business and complete a
working business plan after 10 weeks. Each class had a guest speaker and round
table discussions. They focused on a different topic every week: market
research, sales, accounting, legal needs, financial projections. I highly
recommend the course if you want a crash course in how to write a business
plan.

------
axod
A related question, how much is a reasonable salary for a startup founder? Do
investors usually assume the founders will be living in squalor, eating
noodles and paying themselves nothing until profitability, or are investors
usually open to founders that have existing financial commitments - family,
mortgage etc.

Probably varies massively, but I've often assumed that investment often
requires you don't take a salary, or very much at all anyway.

~~~
ambition
Austin Hill @ StartupEmpire in Toronto suggested that a reasonable VC-funded
startup salary is based on needs rather than competitive salary. E.g. living
expenses + a little, which means more $ for a CEO with a family & mortgage and
less for a 22-year-old. He pointed out that you don't want to starve the CEO
or force them to live in squalor because it's just not productive, e.g. the
CEO needs to be able to rest well and stay healthy. Some VCs also tossed out
$90k-$150k as reasonable salary once the company is able to self-fund that.

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puzzle-out
Your in an interesting, slightly unusual position here. That is, the investors
have approached you, rather than vice versea. Business plans are normally
written for a more general audience - I would find out more about these guys'
other investments and see what makes them tick, and weight the business plan
towards those interests. This may sound a little manipulative, but as some of
the other posts have pointed out, a business plan is a fundamentally an
investment-raising document, and in the medium term often has little relevance
for the running of the company. But of course you should take a salary, it
would seem unprofessional not to.

------
whyleyc
I wonder if Chad and Steve from YouTube had a business plan, or Craig Newmark,
or Steve Jobs ?

Don't write a business plan.

Instead spend the time you would have spent on the plan putting together a
kickass demo, or working on the product.

Having been approached, you're operating from a position of strength already.
You should work that to your advantage - if you don't need the money then you
can afford to negotiate more on your own terms.

If some documentation is required put together a Powerpoint of 5-10 slides
explaining:

\- Your product, and why it is unique (and defensible to competition)

\- Your team's credentials and experience

\- Your market, it's size

\- Your competitors (including SWOT analysis)

\- Your funding requirements (including salary)

\- Your best and worst case scenarios for growth

~~~
gsmaverick
Chad said at a dinner that when he and Steve made the rounds on Sand Hill
road, they had a working product, and users to prove their idea was good. They
didn't bring a business plan or any fancy presentations.

~~~
supahfly_remix
hmm...I'm not sure Chad Hurley's case is a good example because he had some
excellent connections. His father-in-law is Jim Clark of Netscape/SGI fame.
I'm sure that helped open doors, and let them be taken more seriously.

------
Mystalic
Good business plans are tough. I was taught at Northwestern by a very
successful entrepreneur how to build the presentation, business plan, and
financial model.

You need to cover the basics. Here's what my last one covered:

\- Executive Summary

\- Project Information

\- Company Description

\- Market and Industry Analysis

\- Marketing and Sales

\- Operations

\- Management

\- Capitalization and Structure

\- Development and Milestones

\- Financial Projections and Models

\- Summary and Conclusion

It's no easy matter. This was a 30 page plan. I'd love to talk about the
breakdown via IM or skype; it's just too much information to put into one
comment.

~~~
tptacek
Has a 30 page business plan ever directly helped a company you worked on? I'm
not challenging you, I'm genuinely interested.

~~~
Mystalic
It helps get money, period. I organize things via basecamp and wikis, not by a
business plan.

Business plans are a VC marketing tool for me.

------
fallentimes
TicketStumbler is my third business and the closest thing I've ever done to a
business plan is the YC application form. Know what problem you're solving,
why you're solving it, who has this problem, how you're going to solve it and
(maybe) monetization options.

I think a business plan could be important if you're looking to take gobs of
money, but your query makes it sound like the investors are angels. Maybe
providing more details would help everyone provide further feedback?

------
Flemlord
John Nesheim sells an Excel spreadsheet ($25) for creating financial
projections. My background doesn't include accounting so it was a big help,
factoring in many things I wouldn't have thought to put in our plan. I used it
successfully to raise my first round of funding.

<http://www.nesheimgroup.com/quickup_model>

(The financial projections are just one component of your business plan, of
course.)

------
justinchen
I think that depends on if you need the salary for the timeframe in your plan.
The investors want to make sure you'll be around to see the startup succeed so
unless you're independently wealthy (or at least have enough to cover yourself
for a few years) I'd include it.

------
KLAW
Your salary should be basic, covering your costs and giving you a bit of
spending money. This assumes you're working full time for the startup.
Remember that the bigger picture is equity.

Some good tips here: <http://blog.guykawasaki.com/2007/07/how-to-
write-a-.html>

Whatever you do don't spend a month writing a 60 page document. Keep it short
and sweet. Use lots of bullet points / bold highlighting to ease readability.
No complex multi-idea paragraphs. And most of all, just answer the key
questions.

Good luck.

~~~
tptacek
Do we believe Kawasaki on this one? He says, paraphrasing, "a pitch is a great
communication tool, but no substitute for a plan", which he says you should
write in 12 point type for people over 50. I feel like webwright at least
would contradict this advice.

------
ryuio
Business plan is the biggest piece of bull crap. You should know your business
or do whatever it takes to learn it and persist - that is the only thing that
is required and a smart investor will get that and ask the right questions.

Still, write it if you think that it will get you the money and then promptly
discard it, or better still ask them to write it - obviously if they
understand enough they should rely on their numbers more than anyone elses.

If they say that your business plan is not good enough, ask them to shove it
up their sorry ass.

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pedalpete
I'd start by getting the budget and forecast together, and then write the
executive review. Get some feedback on it, and then pass it to the investors.

Go from there. You'll get an idea from the feedback and from what the
investors say to know if you should proceed writing the entire plan, maybe
they will find some holes in it, etc. etc. Then if they still want the full
plan in writing, go write it. You'll probably learn a ton just in the process
of writing the executive review.

------
blender
I'll second mattmaroon's comments and say that you're probably barking up the
wrong tree. You should try to self-finance or go after love-money (family and
friends) first. Once you have traction and revenue a commercial or short-form
business plan might make more sense - until then it's all wishful thinking.

With that said I have found SWOT (Strengths, Weaknesses, Opportunities,
Threats) analysis to be a useful tool...

Cheers

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hamgav
To clarify, I work for a software consulting company. The potential investors
would be the directors of this company. They themselves, have sold a startup
for millions... What would u do?

------
matt1
Is your website <http://www.sendible.com/> (your first HN submission and the
only one that isn't a question)?

------
anamax
> I've been approached by some investors who want to invest in my startup.
> They've asked me to put together a business plan - listing costs/revenue
> etc.

Are said investors paying enough for what they want? Or, would you be better
off doing something else?

I'm assuming that you have enough of a plan to run your biz and enough
accounting to know what's happened in the past.

If that information is not what they want (and "not what they want" includes
"we need it in a different format") or they don't understand what you've got
(assuming that you're willing to share a redacted version), why do you want
them as investors?

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tptacek
Instead of writing a full-on business plan, which is a huge waste of time,
consider coming back to them with a set of spreadsheets. I've had to do
business planning work for products I managed, and what the CEOs wanted was
Excel. You might look _more_ professional for not coming to them with a three-
ring binder.

With that said, and with the _huge_ caveat that while I've done this before,
my advice might not be the current hotness:

(.) You need a table for revenue growth, quarter by quarter, in your case
probably based on users and conversion rate scenarios.

(.) You might consider a seperate table for pricing; of all the things you
write in the plan, pricing is the most likely to change, but do a couple
scenarios, keep conversion/close rate in mind.

(.) If it makes sense for your product, segment the market and get that in a
table; you might do, "home office", "small business", "enterprise", and have a
pricing/phase-1/phase-2 revenue scenario for each model customer based on your
pricing. Include a SWAG total addressable market size (there are, say,
2000-4000 "enterprises" to sell to).

(.) You can do a schedule table, quarter by quarter, and use it to set a
conversion rate for each market segment, to chart featuresets in your product,
when they'll be released, and what releasing them will do to your cash flow.

(.) If you have significant marketing expenses, break them down into line
items quarter by quarter, showing some things kicking in later. You can break
this down by outreach mechanism (direct mail, blogging, AdWords, research).

(.) You need a table for headcount; we just SWAG a common (somewhat lowball)
fully loaded cost for everyone from management to QA; remember fully loaded
adds (say) 30% for taxes, health insurance, and equipment/office/overhead.

(.) You need a table for all your expenses, quarter by quarter, which should
include headcount, a line item for hosting/bandwidth/server/etc, marketing,

(.) I'm probably missing something, but with all that, you should be able to
do a final seperate sheet, call it "use of proceeds", broken down by
engineering, opex (hosting etc), sales, and administrative costs, quarter by
quarter, against revenue.

Of all the things you "plan" now, pricing is the most likely to change, so
don't get too hung up.

Lowball your headcount. Don't include anything you could reasonably outsource
(like accounting, HR, graphic design).

Do you want to take a salary? What I think is, lots and lots of people pitch
investors saying they'll forego salary; it's a cliche. You might look more
serious if you're up front.

This is all going to sound over the top, and that's because it is, but on the
other hand you're not going to _do_ any of these things (price a product,
figure out how many people to hire next month, allocate dollars to anything
but AdWords) without these spreadsheets. A bunch of this stuff is optional
(don't do a marketing plan if your marketing plan isn't crucial; maybe don't
do a product schedule if long term product vision isn't a huge part of your
pitch --- the schedule will embarass you 2 months from now).

------
Stalemelon9
Business Plan Pro is AMAZING :-)

