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New app startups usually write their business plan for one of two reasons. Either they think it's beneficial for aligning the founding team around a shared strategy (and it's what they were taught to do in school), or they want to raise funding.
If you’re in the first camp, we actually recommend you don't write out a comprehensive, formal business plan. Instead, you should create a business model canvas. A business model canvas is a more focused and agile form of the traditional business plan. One of its advantages is that it can easily adapt to the pivots and iterations that are common in tech startups. Read more about what startup expert, Steve Blank, has to say about business plans here.
This article is for people writing a business plan in hopes of securing funding. All startups are different, especially if they are competing in the mobile app space, so tailor each of these sections to work for you.
This is the first and most important part of your business plan. Your executive summary will be the first thing any investor reads, so it’s crucial that you’re clear and concise; less is more.
1.1 - Problem
A problem is a difficulty a consumer has that either has no current solution or the available solution has shortcomings. Successful businesses identify these gaps in the market and fill them with their products or services:
1. What is your target customer dissatisfied
2. How big of a problem is this for your target customers?
3. What are they currently doing to solve this problem?
1.2 - Solution
The solution is where you introduce your app. Don’t go into feature details on how your app works, instead, stay true to the problem that you just identified. List exactly how your product solves the problems you identified.
1. What does my app allow people to do that they couldn’t before?
2. How will my app change the status quo people are dissatisfied with? (identified above)
1.3 - Unique Value Proposition
Your unique value proposition is the factor that differentiates your company from other businesses. Ideally, your company should be the only entity in the world that can claim it.
You should not claim that you are simply “better” than the existing competition. To be better than everyone else you will need lots of money and time, resources you may not have a lot of.
Example: Dollar Shave Club ships amazing razors and world-class grooming products for just a few bucks.
1.4 - Objectives
This section is where the investor will check to see if their portfolio goals align with your goals. There are two things you should include here:
Success Definition (Keep this to a shorter time frame [1-3 years]) - What metric or accomplishment would let you know that you succeeded? For example, this could be a revenue target or an ideal number of customers.
Exit Plan - What is the end goal of building up your company? This could be an IPO, acquisition, or a personal cash flow.
For some investors, the company section of your business plan is the most important. It’s often the case that what you are writing about now will not be what your business eventually becomes. This is why accelerators like Y-Combinator base most of their decisions on the founding team and company potential.
2.1 - Company Overview
This first section is where you should answer the key facts about the current structure of your company (legal and otherwise).
What kind of entity is your company?
Where is your team based?
2.2 - Company History
Explain the history of your company. Talk briefly about the idea that motivated you to start the business, then go on to explain what your team has been doing since you came up with the idea. List key milestones in your progress such as major pivots, early hires, changes in location, product launches, or anything else relevant to your experience.
2.3 - Management Team
This is often the most important part of the whole company section. For every person on your management team, list their name, degrees, relevant work experience, and their responsibilities in the company. Here’s an example:
2.4 Advisory Team
Most successful startups have an advisory team that helps them with key decisions. People on your advisory team should have experience in the industry in which you’re competing. When describing each member, include their current positions, level of involvement with your startup, and which parts of your business they're involved in.
Entrepreneurs must be very knowledgeable about their industry. They need to know what the current climate is like and what the latest projections say about the next five years. Make sure you convey deep market knowledge in this section.
3.1 - Market Size
When startups speak about the size of the market they are competing in; there are typically three numbers that they must know:
1. Total Available Market (TAM) = total market demand for your product or service.
2. Serviceable Available Market (SAM) = segment of the TAM that you can reach through your sales channel
3. Serviceable Obtainable Market (SOM) = segment of the SAM that is most likely to be comprised of the first people to use your product (the early adopters)
This article by TechStars walks you through the process of finding these numbers.
3.2 - Market Projections
This section should include projections on your industry from reputable market research firms like Nielsen or Forrester. Include the growth rate for the number of companies in your industry, and the amount of money spent on your industry. If you’re only competing in a domestic market, be sure that you don’t include statistics on the global economy.
3.3 - Competitors
You can choose any variables that accurately slice your competition for the X and the Y-axis. Some examples that may work for you are level of functionality, niche or broad focus, customer base size, and pricing.
Never place yourself in the top right corner of the matrix. Investors will see right through this. Think about how you want to position your company. It’s unrealistic to be the best at everything when you’re competing with existing companies.
3.4 - SWOT Analysis
The SWOT analysis is your opportunity to objectively weigh how you stack up in the market and against your competitors.
SWOT = Strengths, Weaknesses, Opportunities, and Threats.
Be as forward as you can with your weaknesses and threats. No business is perfect. If you make it known that you are aware of all your potential problems, investors will acknowledge that you are aware of and working to minimize any risks your company may have.
In your marketing strategy, investors will be looking for a realistic plan that will get your product into the hands of your customers/users. Most marketing plans are iterated many times, so the most important thing to convey is that you are thinking realistically about how to achieve growth.
4.1 - Customer Acquisition Strategy
If you need strategic advice on this section, check out our article: 35 Actionable App Marketing Tactics for Explosive Growth.
Here, you can lay out your general strategies for acquiring new customers. Talk briefly about each channel or tactic you plan on acquiring customers through. Give a realistic expectation of how much it will cost to acquire one customer (CAC) from each channel. It’s important to be as quantitative as possible here. Most of the funds you obtain will go towards growth, so investors need to know how much risk your growth plan has.
500 Startups published a great video about how to "run growth like a hedge fund" to give you an idea of what investors are looking for:
4.2 - Product Driven Growth
If your business model requires a large mainstream user base, it’s important to build a referral program into your app to leverage network effects. Two apps that have done this successfully are Uber and Houseparty. With Uber, you get a coupon on your next ride for referring friends, and your friend also gets a coupon for their first ride.
4.3 - Key Metrics
It’s easy for startup founders to focus on what’s called “vanity metrics” or metrics that make it seem like you’re doing well, but in reality, you’re not on a route to a sustainable business. Pick one or two metrics that you plan on focusing on that matter specifically for your business. For example, if you’re a social app, daily active users might be more important than your total number of downloads.
After your investor has read through the other sections of your business plan, it’s time to show them exactly what kind of capital you need. Make sure your investor knows exactly where their money is going.
5.1 - Monetization Strategy
Some of the most common ways to monetize an app are:
5.2 - Startup Costs
Your investor needs to know what their money will be used for. While it may be difficult to know the exact numbers, be sure that you present reasonable estimates and leave some room for emergency costs that you will undoubtedly face.
Make sure you specify the payment frequency and the price stability of each expense in your list:
5.3 - Funding Required
Finally, the last section is where you will ask for the funding that you need. Answer these questions about the structure of the deal:
1. How much money do you need?
2. What percent of equity are you proposing you give up?
3. Will this be a convertible note or preferred stock?
4. How long will this money last you before you need another investment round?
Once you've created a business plan, it's time to take the next steps. See how to maximize your app's success with our blog post on "6 Steps You Need to Take to Prepare Your App Idea for Investors".