My business is currently raising the second round of angel funding, so as we now prepare for a larger amount of money, we are gathering all the proper documentation to do things right. At the current stage, we must put together a PPM (Private Placement Memorandum) which is a 40+ page document clarifying to investors that there is risk involved when investing in a startup. Inside this document is the business plan, which is the part where you sell them on the idea. This will be attached to the convertible note, which is the document that sets terms for the investment. The PPM is optional, but it makes things feel much more legitimate, and in an area like the Midwest, where people aren’t throwing money around like the valley, it will really grease the tires. Many entrepreneurs and investors today know that the business plan is really not worth much. It’s never what you end up doing. Of course, you could also say that this helps entrepreneurs think through their business in more detail, which I would say is important. With that said, you need to have enough data to make a plan. After doing our market research for over one year on PenPath, we have a viable business idea and data to start putting a legitimate plan on paper for others to see.
Here is how I went about putting our plan together:
The first thing you need to do is gather your thoughts. Know what you know, what you don’t know, and know what you need to learn. As an entrepreneur, there are going to be areas of the plan you don’t know much about. If you know accounting, you might not know the marketing side. If you know development, you might not know UX or user acquisition funnel. Yet, these are all important factors that paint the future of the business. My examples are of a web application business model, but yours will probably be different and have it’s own set of challenges. Investors are going to want to know how you are going to make money in detail, and how great the risks are. Fortunately for you, there is more free and rich content on the web than ever. There’s never been an easier time to learn. You just have to invest the time. I probably spend about 3-4 hours a day learning — learning how to learn could be a post of it’s own. So once you get a sense of where you are and what you need to know, you must hit the books.. er, blogs — get to learning. Tell your college business professor to hold it because this is where the real learning takes place. When you have to learn as you apply things in real life, you will be forced to grasp the concept better than any late night study session before test day. What will end up happening at this point, is one blog article will answer one questions but spark 2-3 more. You will have to continue to answer these questions. I would say, remember what the question or topic at hand is that you want to solve while you do this research so you don’t get stuck going down a rabbit hole. An entrepreneur is a generalist when it comes to knowledge. You need to know how it’s done, but later you can hire people that know that topic in more detail.
Quick Tip: Take notes and summarize as you learn and save the links. It helps you absorb the information and you’ll be able to reference the information later. I put mine in a Google Doc.
Why is it like a Sudoku Puzzle?
Here is where it gets tricky. Now that you start finding what you need, you must imagine how it might all come together in order to get things right. That is to say one part of the plan is dependent on others from a different section — let’s say user acquisition is going to affect revenue in accounting which will affect marketing budget allocation that is based on revenue. Solving this chicken and egg problem is the puzzle. In the end, if you do the plan right, you need to — much like a sudoku puzzle — fill in a few numbers and see if it works out in the end. That is how you break the cycle. Download business templates, and mess with the numbers. Find out what are popular marketing strategies and see what kind of results you could realistically get. It is doable, just structure your thoughts. A quality investor will be impressed you thought about these things and you will be a better entrepreneur for it.