Business Plan Basics for Early Stage Entrepreneurs

Many startup founders think that a business plan is only for large companies and while some would not have a business plan at all, others might make one only before approaching investors. Most of the times, entrepreneurs make a business plan at the start of the business and it is kept aside as the business eventually grows. A business plan is an important business document and it should grow along with the business. 

by Grishma Samuel
1 year, 7 months ago

Mohit Dubey, CEO & Co-founder, explained the importance of understanding what problem a business intends to solve.

An entrepreneur must understand the problem and find out if the problem he intends to solve through his business, is worth solving or not. The insights for understanding this should come from real-life situations and the problem should be meaningful. This will come from a thorough market research. Mohit says every entrepreneur wants to run a pain-killer business than take up a vitamin business. Identify the type of business your start up is. Once this is identified, find out if there are other people functioning in the same space as that of yours. If there are too many people solving the same problem, there could be competition and therefore you must check if there is scope in solving a problem which nobody is solving. This would depend on the advantage you have as an individual to solve the problem which could be your connections, expertise, skills, education, work experience etc. An entrepreneur must be solving a useful problem which should be critically important.

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An entrepreneur must be clear about the solution his business provides. He should know if he is different or better than his competitor. In the process of achieving this, an entrepreneur must not just want to be cheaper, faster or better. Start ups win by being different. Create a new category and dominate it. If a category does not exist, build a new one and name it. It is critical for an entrepreneur to first decide the domain he wishes to function in and dominate that domain. 

Instead of concentrating on the concept of first mover advantage, it is essential to make a place in the minds of the customer. Higher the brand recall, greater is the first mover advantage. Ensure to position your brand in a way that it works in creating a distinction in the product segment for itself. Estimate the market size of a category that may not exist or is new and not well-developed. Keep in mind the total available market and also the served available market will give you your ideal customer. Narrow down the segment as much as you can. For sales, the share of market will give you the customer adoption.

Value Proposition On today's lecture, we're going to cover value proposition. What is ...
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Always overestimate your expenses. It is okay to not know how to price your product initially. Go with the 'I'm figuring it out pricing' for at least a year.
~ Nandini Mansinghka

Nandini Mansinghka, a seed and angel investor and founder at Idyabooster explained the strategy to project revenue numbers and expenses for future. An entrepreneur must focus on the assumptions he is making in a business. There could be assumptions on different factors. An entrepreneur might not be sure of the product pricing and he must look at an 'invitation pricing' for his product. Invitation pricing is a 'I'm figuring it out' type of pricing where the entrepreneur gets a chance to experiment with different pricing models and arrive at one that works best for your business. The valuation of a business is how much a business has already been built. An entrepreneur must understand the difference between the cost versus effort metrics. The product being priced must not overlook pricing your effort as well in the total cost. An entrepreneur must look at beta pricing for the first year which can be fine tuned later. Understand the sales cycle and project accordingly and while preparing the business plan the pace of growth should be estimated. Variable costs must be calculated accordingly. Nandini suggests that after a business has been funded, an entrepreneur should not depend on the VC to run his business.

Revenue Streams Now let's take a look and see if we understand revenue streams ...
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Nandini threw light on some key financial concepts that an entrepreneur must understand while running a business.

Fixed Cost - A cost that does not change with an increase or decrease in the amount of goods or services produced. Eg: Rent, salaries

Variable Cost - A  business cost that varies with the production output. It depends on the company's production volume. Eg.: Marketing, insurance, office supplies

Capital Expenditure - Funds used by a company to acquire physical assets such as property, industrial buildings or equipment.

Gross Profit - It is a company's residual profit after selling a product or service and deducting the cost of production and sale.

Profit Before Tax - A profitability measure that looks at a company's profits before the company has to pay corporate income tax. This measure deducts all expenses from revenue including interest expenses and operating expenses, but it leaves out the payment of tax.

Profit After Tax - It the net profit earned by the company after deducting all expenses like interest, depreciation and tax.

Cash Burn - The rate at which a new company uses up its cash resources or capital before producing a positive cash flow. 

Working Capital - A measure of both a company's efficiency and its short-term financial health. The working capital ratio is calculated as: Working Capital = Current Assets - Current Liabilities.

In this course you'll learn from Steve Blank. Start learning the key steps to ...
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1. Identifying the problem
2. Competition and Differentiation
3. Revenue Projection
4. Key Financial Concepts
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