[This Knowledge Base series will include our answers to select questions on Quora.com and miscellaneous queries we get from our customers, partners and other interest groups.]
Unless it is an established market, making a 3-5 year forecast for a startup is nearly impossible. Even with contract-based businesses, it is reasonable to expect maximum 1-2 years of pipeline. Business plans have earned a bad reputation due to the rigid way in which they are conceived and crafted. Most business plans tend to be “definitive” and can be anywhere between 35 and 60 pages. Any startup business plan more than 10-15 pages long is superfluous.
Here are some things you might want to consider:
- Utility: Use the doc as an explanatory material for you pitch deck. Discuss your deck’s “talking points” here and use the document as a ready reckoner. Move it around as a next step after you have submitted your deck and when asked for more information. Most importantly, do not restrict your plan to “external” use only. When done right, it can be a handy tool for the management. Do not underestimate the power of writing your thoughts down. Writing compels you to think clearly and consider various scenarios/tools/impediments that may remain either sketchy or be missed altogether when only in the head.
- Planning: Draw up your near-term plans for product roll out, hiring, marketing and others in the form of tables and charts that include timelines. Long narratives are not required here, but time-based targets will help you stay on track – very important for a seed-stage startup. On the other hand, knowing how the founders intend to convert the plans into action will tell an investor how serious and well-prepared you are. It’s a good marketing pitch!
- Forecasting: Projecting financials does not mean you are predicting the future. Forecasting means making informed and realistic estimates of your revenue potential and costs. I have seen a number of founders missing out some important cost components or underestimating expenses. Don’t get so fixed on working out optimistic revenue numbers that you forget the costs that will hit your bottom line. Remember that the startup world is not about the race to capture the market anymore; it’s more to do with your topline and profits.
- Flexibility: Make sure your plan document remains flexible enough to accommodate mid-course adjustments in response to the changing business environment. In addition to adaptable financial models, you must also have adaptable operational models.