This post is part of a series designed to help you prepare to launch a high-impact startup.
What’s a business plan?
A business plan helps your team and funders understand your vision for the organization.
Before determining your organization’s legal structure (or filing anything at the state or federal level) you should prepare a business plan.
In order to prepare your business plan, we recommend you find customers or beneficiaries, find a market advantage, and use a Business Model Canvas to understand your business model.
Market research & competitive analysis
Market research helps you find customers for your business. Competitive analysis helps you make your business unique. Combine them to find a competitive advantage for your small business.
Finding customers or beneficiaries
Market research blends consumer behavior and economic trends to confirm and improve your business idea.
It’s crucial to understand your consumer base from the outset. Market research lets you reduce risks even while your business is still just a gleam in your eye.
Gather demographic information to better understand opportunities and limitations for gaining customers. This could include population data on age, wealth, family, interests, or anything else that’s relevant for your business.
Then answer the following questions to get a good sense of your market:
- Demand: Is there a desire for your product or service?
- Market size: How many people would be interested in your offering?
- Economic indicators: What is the income range and employment rate?
- Location: Where do your customers live and where can your business reach?
- Market saturation: How many similar options are already available to consumers?
- Pricing: What do potential customers pay for these alternatives?
Finding a market advantage
Competitive analysis helps you learn from businesses competing for your potential customers. This is key to defining a competitive edge that creates sustainable revenue.
Your competitive analysis should identify your competition by product line or service and market segment. Assess the following characteristics of the competitive landscape:
- Market share
- Strengths and weaknesses
- Your window of opportunity to enter the market
- The importance of your target market to your competitors
- Any barriers that may hinder you as you enter the market
- Indirect or secondary competitors who may impact your success
Business Model Canvas
Once you’ve conducted market research & competitive analysis, but before writing your business plan out, consider using a Business Model Canvas to better understand your organization’s value proposition, customers, and finances.
A Business Model Canvas is a strategic management template used for developing new business models. It focuses on nine elements of a business model, seen right (and pictured below).
These elements interrelate and are therefore worth drafting in tandem with one another — rather than, say, finalizing key partners before moving on to key activities.
Here’s a template for thinking through your business model:
The Business Model Canvas, courtesy of Business Model Foundry AG
Writing your business plan
Once you’ve understood your business model, you’ll be in a position to write up your business plan as a document for potential hires and investors.
(In fact, your Business Model Canvas can itself serve as a “lean” business plan, but we generally recommend writing it out in a more traditional format.)
A compelling business plan will likely include the following elements (although these don’t necessarily each warrant their own “section”):
- Summary: An executive summary identifying the purpose, competitive advantage and/or theory of change, and expected running costs (e.g. for the first 12 months).
- Purpose, mission, and values: See Understand your purpose, mission & values for more information.
- Market research, competitive advantage and/or theory of change: An explicit competitive advantage is more common with for-profit business plans, while a theory of change is more common for nonprofits. Either way, this section should explain why you expect to succeed in your mission.
- Organizational structure: We’ll explore choosing a business structure in a future post.
- Activities: Which activities will your organization conduct and how do these relate to its mission? A for-profit might frame these as “Services,” while a nonprofit might frame these as “Programs.”
- Marketing: We’ll explore creating a marketing strategy in a future post.
- Finances: We’ll explore creating a budget in a future post.
- Risks: This is less common in a traditional business plan, but can serve as a signal that you’re aware of risks and transparent about them. We’ll explore key risks in a future post.
Don’t worry about making these perfect or comprehensive. These sections can and will be refined in subsequent steps; there’s nothing wrong with completing the operational setup of the entity before, or alongside, setting up foundational values and preparing organizational documents. You might consider using a large language model (LLM) to draft your business plan’s structure, before updating it with concrete facts and figures.
Stay tuned for our next post: Choose a business structure.