Having spent more than 10 years in the entrepreneurial ecosystem including my own stints with a resturant chain, event management start-up to a US based E-tech startup. I have had the distinct privilege of understanding from the two of the major constituents in the funding game that is the Investor & the entrepreneur.
One of the major challenge which resonates across all entrepreneurs irrespective of the vertical & scale especially in the early stage invariably revolves on the issue of “Funding” or raising money externally outside the closed circle of FFF (Family, Friends & Fools).
While a lot has been written; debated about this very core issue, the journey towards successful entrepreneurship begins with an idea, but without a strong business case behind it “ideas are actually dime a dozen”. What is actually needed is a rigorous exercise of putting your idea to paper – perhaps the first critical step towards entrepreneurial success & venture funding.
Idea to Paper –
For an entrepreneur however trivial it may sound it’s extremely essential to translate his idea to paper as one of the first critical steps towards building a comprehensive business plan & vision path for his venture. The journey from being a mere idea in one’s head to paper is not an easy one, as it forces the entrepreneur to think with clarity, logic & see the opportunity in its totality. This exercise is not just a funding application but actually a vision document for your venture, several entrepreneurs having done this exercise saw for themselves the potential & the gaps in the opportunity that they wanted to pursue. Hence if you are serious about your idea & you feel you are on a big opportunity start putting it to paper not for anyone else but yourself.
I have highlighted some learning’s especially from a venture investor perspective which might help you to align your thoughts & make the transition from a mere idea to paper.
a) Overall Space- Identify the overall space in which you are operating in what is the size of the market & the opportunity. You should be clear on how big the market, most entrepreneurs that I have meet seem to be conservative in the size of the opportunity which does not go down to well with the investor, typically investors for the sake of an example would look at a business which has the potential to scale to Rs 100 crore in the span of 3-5 years with a clear exit strategy. While defining your market you must be careful in identifying how you validate the overall space, investors are interested in the space that you are specifically operating in i.e. so it may be a billion dollar market but what really is your market potential 1% of a billion dollars? If you are in the social impact space besides the large market opportunity you have to elaborate on the actual social impact you are able to create on low income people in India.
b) Defining Product/Service- You need to clearly highlight the product or service that you are building try & cover critical points like -whether its going to be removing pain point for a customer or is it adding value to an existing product/service etc. Essentially is it a necessity for the end customer or something which may or may not dramatically make a difference to his/her life?
c) Customer???- Identifying who your customer is extremely important let me illustrate with an interesting example of an entrepreneur who manufactured a motor which would help the cycle rickshaw puller to propel faster & with less effort. The question then arises who is the customer in this case surely not the cycle rickshaw puller- he does not have the paying capacity or even the rickshaw owner who is probably going to earn the same amount whether the cycle rickshaw puller can propel faster or slower, hence extremely important to identify the customer. Once you have identified customers put down a detailed go to market strategy on how you will tap into new customers as well as retained new ones.
d) Competition- I have heard a lot of entrepreneurs talking about that I have no competition the reality more often than not that there is always competition, you should look beyond the obvious & actually do a complete SWOT on your competition or potential competition, lessons & learning’s from competitor experiences can be very rewarding when you are putting your plans together. The key is to look at what are the alternatives your customer has even if today they don’t have access to your service or product.
e) Value Proposition/Differentiator- The importance of clear value proposition can never be understated, a first mover advantage does not guarantee sustainability of the business, you need to think of creating value proposition it could be through building intellectual property, differential market entry strategy, innovative processes etc. The point being that there has to be a clear differential & value proposition in what you are trying to do.
f) Team- We have often heard investors say Team A with a B plan is always better than a Team B with a A plan, this especially holds true for an early stage venture when the investor is actually putting in his money solely on the team, it’s the team which breaks & makes the venture. So when you are putting your thoughts to paper highlight who are the other team members, what is their background & experience, what is the value that each core team member is going to bring to the table – this important because the investor must have faith in the team’s execution of the idea.
g) Financials- At this stage you do not need to go into a major number crunching operation, keep it simple cover the basics over a 3 year time horizon like top line/bottom line, head count, profitability when? You must also clearly highlight the amount of investment sought & for what.
h) Risks- What are the risks with the venture while we know in common jargon of market risks, competitor risks, technology risks its always a good idea to pen these down & more importantly how will these risks be mitigated, examples of early set backs & their handling is a good idea to evoke investor confidence.
The above is not an exhaustive checklist for a business plan but simply some key points to keep in mind while documenting your idea. So whether you are talking to potential customers, investors or co founders it always helps to document your thoughts for a better chance at success.
You can also check out my slide share presentation on this.