When you are starting and growing a business it can sometimes be a little overwhelming as there are so many different things to think about in terms of your product development, your research, your marketing, your team, the money you need…the list goes on and on! And the advice varies too, just to add to the confusion and overwhelm.
It’s always a good idea to have a business plan, no matter what stage of the business journey you are at. At a very early stage, a plan is useful to help you gather and collate your thoughts and information and get a general sense of your direction of travel. As your business grows, a thoroughly researched, well-articulated and justified business plan becomes essential, especially if you are raising external funding to help fund your business growth.
There are lots of good templates freely available, for example, have a look at the content on Business Gateway, and also at our article on Business Plans here. And remember that the Executive Summary (a concise attention-grabbing summary of your Business Plan) is without question the single most important section of your plan, as often it is the only part that will be read by external funders!
Thinking about your business and business plan can be simplified a little by putting all the things you need to think about and do into six general ‘buckets’ of information, that all handily start with the letter ‘M’.
This is the 6M’s Model and gives a rough outline (although not exhaustive) of all the key areas that you need to think about. The answers might not fit exactly in each of these six buckets, but if you have answers to all these questions, you will be creating a good business and business plan. At a very early stage you simply won’t have all the answers to these questions, just view this as a guide to things you need to think about along the way.
1. Matter (Technology and IP)
This bucket is all about the bones of your business i.e. the ‘Matter’. It’s all about your product, the service, core technology/complete product and any associated Intellectual Property (IP). Think about the following:
- Clear and concise explanation of the product and any technology platform
- Indicate how long it has taken to be created and who has been involved in its creation
- Indicate how much of the product is ‘in-house’ and how much has been bought in
- Product/technology development plan
- Outline the proposed product/service offering
- What are the product’s sustainable competitive advantages – sometimes known as unique selling points (USPs)?
- What problem are you solving
- Barriers to entry
- Indicate if the product has been alpha or beta tested
- Time to market
- Product pipeline
- What IP exists, who owns it, and on what terms will it be made available to the company
- Future IP developments
- Prepare a separate file containing all relevant documents relating to IP – this should include patent applications, patent searches, license documents, trademarks, design rights, third party contracts, employment contracts, consultancy contracts, secondment agreements and confidentiality agreements
- IP insurance if appropriate
Final note, less is more in this section. Keep explanations succinct and simple. Investors are more interested in the market and how you will make money rather than laborious long-winded explanations of how brilliant your product is!
2. Markets (and Route to Market)
This bucket includes anything and everything to do with markets and marketing, all the information you need to think about regarding the sector that you will sell your product in, as well as some general operational issues to think about to get your product to market:
- Robust strategic marketing and sales plan
- Detailed market analyses. These would include PEST (Political, Analytical, Social and Technical) and SWOT (Strengths, Weaknesses, Opportunities and Threats), market size, growth rates and geographical location, market trends, cyclical/seasonal variations, regulatory environment, market segmentation, competitor analysis, product positioning against competitors (consider price, speed, functionality)
- Key target customers, end-users, influencers/key opinion leaders, decision-makers
- Market channels, time to market, key alliances and partnerships required
- Status of any customer contracts
- PR, social media, conferences, literature, website
- Route to market and operational issues
- Detail subcontractors
- Key suppliers and terms of contracts
- Tooling and manufacturing requirements
- Quality assurance issues
- Customer service issues
- Buildings and business interruption insurances
- Relevant company structure in place
This third M bucket is all about your Business Model and how you will make money i.e. the plan to generate profit and the assumptions behind your plan. It can sometimes be difficult to define as many people use the term in different ways, but when someone asks you “What is your business model?” they are really asking you “How will you make money?”:
- How will you make money/profit?
- Sales forecasts – detail key revenue components and justify stated sales volumes. Ensure your projections are realistic
- Detailed pricing model with competitor analysis
- Gross margins, and how these may change over time
- Customer acquisition cost
- Key cost components
- Major overheads and sunk costs
- Is the revenue generation model sustainable and scalable?
This bucket is really about project management, what are you going to achieve and by when and with what money:
- Prepare a detailed timed and costed list of milestones to be achieved
- Stretching but achievable targets – you need to show ambition but be realistic
- Factor in contingency – things can and will go wrong. They will take more time and more money than you think. A useful rule of thumb is that everything will take twice as long, cost twice as much and you will make half as much as you think you will!
- This section links in closely with risk management, detail the key risks to your business and what plans you have to minimise these risks
- Also think about the type of legal structure of your company and ensure you address issues such as privacy, GDPR (General Data Protection Regulation – read more about it here) and cybersecurity
- If you have external investors/funders, discuss these milestones carefully before agreeing them as they will be used in monitoring and can affect your valuation
5. Management (including Staff, Directors and Advisers)
This M bucket is all about people – the most important part of any business!
- Concise summary of the management team, their skills, and roles within the company
- Indicate any gaps in the management team (e.g. sales and marketing, financial, manufacturing) and how these gaps will be filled. Don’t be afraid to highlight the gaps – gaps are expected in early stage businesses
- Indicate management equity participations and remuneration packages
- Prepare individual CVs and lists of people who can be contacted for references
- Details of non-executive directors on the company board
- Details of any advisory board members
- Indicate any other key staff and future employee requirements
- Ensure relevant service agreements are in place
- Ensure relevant insurances are in place (e.g. keyman insurance, director’s insurance, employee cover, etc.)
- Indicate if a share option scheme is in operation
- Indicate if an employee ownership scheme is in place
- Indicate any relationships with external experts and key contacts
It’s important here to think about how you and your team demonstrate your drive, commitment, enthusiasm and motivation to other people.
6. Margins and Money (Financials, Investment and Exit)
And the final M bucket is all to do with the money and anything related to the numbers!
- Indicate key assumptions upon which the plan is built – really challenge how realistic they are
- Consider which changes in the key assumptions the model is most sensitive to – what impact does that have? Consider impacts of cost reductions, delays in time to market, competitors’ performance, etc.
- Prepare three-year projected P&L, balance sheets and cash flows, with detailed projections for time covered by current funding
- Indicate monthly cash requirement, peak cash requirement, key cost categories, and level of contingency built into the plan
- Key margins
- Ensure any investment and/or debt funding fees and on-going funding costs to be paid are included in the projections
- Prepare a folder containing all historic accounting documents (board packs, management accounts and audited accounts)
- Detail all other financial elements, including loans, overdraft facilities, creditors, grants, and prepare a file of relevant documentation
- Personal investment by you, co-founders and anyone else
- Indicate the current valuation of the company
- Provide the details of any proposed investment by all investors (including management, existing investors and new investors)
- Provide the details of the existing share schedule and prepare a proposed shareholder schedule (including number of shares, percentages, types of shares, option schemes, dividend policy)
- Consider the amount and timing of any further funding rounds
- Detail the proposed exit route and likely timescale – if it is a trade sale, indicate likely buyers
- Indicate strategy the company will follow to position itself for an exit
Sometimes it is also useful to provide a glossary of terms and acronyms used in an appendix. And remember that your plan is a living breathing plan, it is not fixed in tablets of stone – it will evolve and change as your business grows and you get more information about the product and markets. Don’t be afraid to change direction if it is the right thing for your business.