Internet Business Plan
Checklist for Online Start-Ups
Web Commerce Today, Issue 22, May 15, 1999
Most online business start-ups will fail. Depressing thought! But there's one way you can greatly increase your chances of success: by writing a Internet business plan.
A business plan is a written statement of your definitions, plans, and projections for your new business. Banks and venture capitalists require such a plan before they'll provide funding. You may have decided you don't need a business plan since you don't need start-up funding, but the need is just as great for other start-ups. Existing businesses entering the Internet marketplace are also wise to develop a business plan for the Internet portion of their business. This is what a business plan does for you:
- An Internet business plan forces you to think through your strategy carefully and spot holes in your business concept that you'd otherwise miss.
- The process of researching and writing forces you to think and plan -- and carefully planning is one of the keys to success.
- Then, too, when you've written your business plan, even an abbreviated plan, you can share it with your CPA or a SBA business advisor to get their feedback. The more critiquing your business plan can receive prior to execution, the better the plan will be.
- A Internet business plan helps you keep on track. Since you'll know your break-even points, you'll be able to judge where you are much better, and be motivate to meet stated objectives and milestones.
- Finally, a business plan forces you to assess your competitors, and on the Internet there are many more than in any single geographical area. A competitive analysis helps you to differentiate your business and thus increase its chances to stand out and attract new customers.
Here are the key elements of an Internet business plan. You'd be wise to borrow or purchase a book on business plans when you get ready to do this. But the checklist below will show you the kinds of information you'll need to gather and prepare.
1. Executive Summary
The summary is a condensation of the entire Internet business plan so that it can be quickly scanned. Here you ought to include a concise statement of the mission of your business. Then briefly describe your product, service, or store approach and touch on your marketing strategy. Next, present your sales revenue projections and plans for the future, outline the structure of your business, and provide short biographies of the management team.
2. Internet Business Description
Now explain in some detail your product, service, or store approach. "Successful businesses share a common attribute," says Mike McKeever, in How to Write a Business Plan, "they do something useful for their customers. One way to determine what is useful for your customers is to identify and describe the problem that your business will solve." Explain how your customers will obtain your products or services, often, for online businesses, whether online, by phone, or shipping service. Also include business accomplishments.
3. Internet Market Analysis
In this section you define your target customers precisely, using demographic studies of online customers. You can obtain quite a bit of demographic data from Wilson Internet Services (http://www.wilsonweb.com/webmarket/demograf.htm), CyberAtlas (http://www.cyberatlas.com), or Nua Surveys (http://www.nua.ie). One of the most important questions to address is: Why should this customer buy your products or services? Describe the size of the market. This kind of data can be extrapolated from demographic studies available online for many industries. Don't forget to include the size of the world marketplace. Then discuss the economic and social parameters that effect the market and flag any significant trends in your sector.
An important part of this analysis is a competitive analysis. The number of businesses in your sector that are online is mushrooming, however, if you are aiming for the lead, the ones that are likely to be main competitors will be few. Identify your five major competitors, and chart both their strengths and weaknesses. It might help you to state in a single sentence their Unique Selling Proposition to force you to understand their business model. Then clearly differentiate your own business approach from those of your competitors: better, different, new, etc.
Finally, you'll want to do a risk analysis. List the risks your business faces: typically these include competition, pioneering a new product or service that people don't understand and trying to stay afloat while developing a new market, business cycles and trends, slow times, your own areas of expertise, and cash flow. For each of the risks you identify, explain how you plan to overcome it.
4. Finances
If you aren't preparing the business plan in order to obtain financing, you may not need to include as much detail. But remember, the analyses that you would do for a lender or venture capitalist are also vital to help you understand your own Internet business better. These are elements:
- Equity financing you'll be providing
- Additional debt and equity financing you'll need
- Projected sales revenue for three years. The first year should be provided for each month, the second year by quarters. Be explicit about the assumptions you used to prepare these projections. The what-if analyses you do on a spreadsheet to prepare these projections will greatly increase your understanding of the financial structure of your business.
- Break-even analysis to show at what timepoint and sales volume the business will turn a profit. In order to conduct a break-even analysis you'll need four different estimates: (1) sales revenue, (2) fixed costs or overhead, (3) gross profit for each sale (the difference between the sales price and the cost of goods), and (4) the break-even sales revenue, that is, the dollar amount needed each week or month to pay for both direct product costs and fixed costs, not including any profit.
- Capital spending plan.
- Opening day balance sheet
- Your investors may require you to include your own personal financial statement, as well.
5. Management Team
Investors and lenders will want resumes of management personnel. But you'll want to create an organizational chart, outline job descriptions for key personnel, and explain staffing projections. It is vital that you accurately assess your own strengths and weaknesses, preferences and dislikes, and make sure you plan for staff that complements you.
Good management of your online business is of highest importance. Good management can sometimes succeed even if you're under capitalized, but plenty of capital without good management will sink the ship. You might want to take this as an opportunity to upgrade your own management skills by taking a course or two at your local community college.
6. Attachments
Most formal business plans also include several appendices such as resumes, patents, contracts, letters of reference, letters of intent, market research studies, logos, designs, etc. Some companies keep all confidential specifics about products or services in an appendix that can be separated from the main document for security reasons.
The process of writing a business plan will force you to define and refine your business concept to a fine edge -- and that will surely make you more competitive on today's crowded Internet. Of course, even the finest Internet business plan won't guarantee you a successful and profitable business, but it certainly increase the odds in your favor.
You'll find lots of help in these books about business planning.