IEEE-USA E-Books

Starting Your Start -Up

Book 1

book

book

book

2

Market Size and Strategy

Competitive Analysis

book

Pricing Strategies

The Launch

By Tanya Candia

Published and Hosted by IEEE-USA.

Copyright 2012 by IEEE-USA. All rights reserved. Printed in the United States of America
Edited by Georgia C. Stelluto, IEEE-USA Publishing Manager, g.stelluto@ieee.org
Cover design and layout by Josie Thompson, Thompson Design
This IEEE-USA publication is made possible through funding provided by a special dues assessment of IEEE
members residing in the United States.
Copying this material in any form is not permitted without prior written approval from the IEEE.

Table Of Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
What Are You Getting Yourself Into? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Blueprint for Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Part 1 of the Business Plan: The Business Concept . . . . . . . . . . . . . . . . . . . . 9
Part 2 of the Business Plan: Market Analysis and Strategy . . . . . . . . . . . . . . . . 10
Industry and Key Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Examples of Industry and Market Sizing . . . . . . . . . . . . . . . . . . . . . . . 11
Target Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Part 3 of the Business Plan: Competitive Advantages and Pricing Strategy . . . . . . . . 13
Competitive Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Part 4 of the Business Plan: The Product . . . . . . . . . . . . . . . . . . . . . . . . . 16
Part 5 of the Business Plan: The Go-to-Market Plan . . . . . . . . . . . . . . . . . . . . 18
Sales Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Part 6 of the Business Plan: Business Structure and Management Team . . . . . . . . 20
Executive Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Part 7 of the Business Plan: The Financial Plan . . . . . . . . . . . . . . . . . . . . . . 22
Fine-Tuning Your Two-to-Four Page Business Plan . . . . . . . . . . . . . . . . . . . . 23
Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Finding potential investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Next Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
APPENDIX 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Starting Your Start-UpBook 1: Developing a Business Plan

Introduction

he Starting Your Startup Guides e-book series is designed for the engineer or entrepreneur
who has a great product or service idea, but no real marketing expertise. With a small budget and big dreams, its difficult to know where to start. This book helps the reader understand
all the basics of starting a startup, quickly building an initial business plan, understanding and
communicating the value proposition, creating an effective elevator pitch, positioning the product and company, and speaking to potential investors and customers in a way that maximizes
the chances of success.
The Startup Guides helps you build a full Business Plan by systematically completing various
stages.
B
 ook 1, The Two-to-Four Page Business Plan, shows you how to develop an initial
business plan that contains just enough information to get started. It helps you define
your concept clearly and concisely, build an effective elevator pitch, communicate your
product and company positioning, and identify your critical success factors.
B
 ook 2, Market Size and Strategy, helps build out the initial plan. It helps you find the
real market size, even when dealing with disruptive technology, where market size data
is hard to come by. Importantly, this book helps entrepreneurs better understand their
target buyers, and how to communicate the value of their products or services, increasing the probability of early and ongoing sales.
B
 ook 3, Competitive Analysis, guides you through the competitive landscape, helping
you to understand who your real competition is, and why its important to see the landscape the way your customers do. This book helps you develop an effective positioning
strategy, determine the true value of your product or service to your target customer,
and find ways to ensure your solution is the ideal one.
B
 ook 4, Pricing Strategies, tackles one of the most difficult tasks for an entrepreneur
pricing the product properly. It helps you determine which time-tested pricing approach
is best for you, shows how to validate pricing, and demonstrates how to develop a longterm strategy. Book 4 helps ensure that your pricing is not too high or too low, and will
satisfy customers, as well as help you meet your revenue goals.
B
 ook 5, The Launch, presents a detailed roadmap to successfully launching your company and product. From setting realistic goals for the launch, determining the key
messages, and preparing the sales team, to briefing the press and analysts, finding the
right venue, and enlisting the help of early customers, this book takes you step by step
through all the necessary stages to a successful launch.

Starting Your Start-UpBook 1: Developing a Business Plan

Our experience is a combination of engineering, project management and marketing. Over

the past 25 years, we have worked with literally hundreds of startups around the world,
learning from their experiences, while we helped guide them to build successful companies
and grow market share. This book, along with the others in The Starting Your Startup Guides,
encapsulates that knowledge and experience, presenting it in a way that is easy for the busy
entrepreneur to act upon and internalize. The philosophy behind this book is: Do just enough
to get started; each subsequent iteration will become easier and faster, once you have laid
the base.
Tanya Candia

Starting Your Start-UpBook 1: Developing a Business Plan

What are you getting yourself into?

tarting your own business can be the most exciting, rewarding thing you ever do. All your
creativity, innovation, drive and ingenuity combine to bring something new and different
to the market. Youre no longer toiling away for someone elsenow, run your own company!
Youre in control; your creative freedom knows no bounds. You can see success in your future.
At the same time, it can be the most frustrating, costly and risky thing you will ever do. You will
need to invest significant amounts of time, energy and money in the business. And there is no
security: you will be giving up all the comforts to which you have become accustomed over the
years: a paycheck, insurance, paid vacations, and the freedom to leave your job behind at the
end of the day.
Before going further, its worth it to take a minute and write down the reasons you really want
to go into business. What do you hope to achieve, and in what timeframe? What are your
strengths and weaknesses? How can you assemble a management team that will shore up
your weak areas, and complement your strengths?
Here is a checklist of questions to ask yourself, before you take the plunge:
What is my commitment to success?
H
 ow much time am I willing to invest in this venture? How much money?
For how many years?
W
 hat management style will I employ? Will I be hands-on and, if so, for
how long? What tasks and responsibilities will I delegate?
Am I willing to take direction from otherssuch as investors?
W
 hat do I expect the business to look like in one, two or five years?
How many employees? How much revenue? How much market share?
What geographies will it cover?
W
 hat is my exit plan? Do I want to remain private, go public, or
be acquired?

Starting Your Start-UpBook 1: Developing a Business Plan

 What is my fall-back plan if the business doesnt succeed?

W
 hich of the important characteristics below do I have, and which can be
provided by other members of my starting team?

1. Communication skills

2. Technical ability

3. Motivation

4. Organization and systems

5. Solid financial experience

6. Good, sound business sense

7. Vision

8. Focus

9. Product management

10. Marketing know-how

Starting Your Start-UpBook 1: Developing a Business Plan

The Blueprint for Success

oure convinced that your idea is worthwhile; friends, family and colleagues are loyal
supporters, and you have the drive, determination and temperament to succeed. Now
its time to step away from your relentless focus on the product, and take a look at the big
picturethe roadmap that will lead you to success. That roadmap is your business plan.
Many entrepreneurs shy away from developing a business planthey fear that the amount
of time spent writing a 40, 50, or 60 page plan is wasted, since the plan will quickly become
obsolete. Or they imagine that they can eventually hire someone who can help write enough of
a plan to get funding. This avoidance almost always leads to failure. Why? Because the many
aspects of running a business must be driven by the chief executive, not by a committee of
others. This company is your company, and this plan must be your plan. The business plan also
helps communicate your vision, direction, expectations and deliverables to those who may join
your company.
Its time to hang up your developer hat for a short time, and forgetfor the momentabout
working on your creation, fine-tuning it, tweaking it, or just getting it to work at all. Its time to
build the plan. Dont think that you only need this step, if you are going to look for funding for
your company. In reality, you need a business plan whether your company is self-funded, or if it
relies on partners or investors.
Building a business plan can be simpler than most people think, especially when you
understand that it can be done in phases. Experience has shown that a simple, two-to-four
page business plan can be just what you need to get the process started. It can have enough
meat to secure early meetings with potential investors, can easily communicate your value
proposition, and can lay outin gross termsyour financial plan. Then, with the initial business
plan in hand, you can flesh out various aspects to build a larger plan over time. In this way, you
are developing your own blueprint of how your business will succeed in the market.

Starting Your Start-UpBook 1: Developing a Business Plan

Part 1 of the Business Plan: The Business Concept

he first section of the two-to-four page business plan starts with the Business Concept. This
is a single paragraph that encapsulates what you intend to do as a company: what compelling issue you will solve, why you are the best company to solve it, and how your company
intends to make a difference in the marketand in the world. Here you discuss briefly the compelling need you are addressing, and any unique market timing issues that work in your favor.
This statement is very close to the elevator pitch that you will develop later in this book.
An example of a Business Concept that drew impressive attention from venture capitalists:
Company X has produced a patented, cloud-based offering that secures key executive communications desktop-to-desktop, and protects all other Internet-based
corporate communications firewall-to-firewall. This product eliminates exposure to
insider hacking, which makes up almost 70% of security problems today. Ease of
use and low cost remove the principal barriers to adoption. The companys direct
sales team will target IT and corporate compliance managers in market segments
where the need for email security is most compelling: healthcare and financial
services, with their stringent regulatory compliance requirements.

The reason this concept paragraph was so effective is that it starts with a strong position
(patented technology), discusses the delivery mechanism (cloud-based) and problem solved
(secure executive communications), and very quickly describes quantifiable benefits. It then
shows a very focused sales approach and target market, with a description of why consumers
will value this solution.
But be wary of overblown claims and arrogance. Potential customers, as well as potential investors, quickly see through hollow statements and hyperbole. See, for example, the following
Business Concept that was poorly received by industry analysts and potential investors:
This is a game-changing moment. Tomorrows enterprise will be driven by eventbased systems, and Company Y is in the vanguard of this market. With our ability
to filter and correlate real-time information, and provide immediate answers, we
are the Holy Grail of this market. Based on our proven scalable infrastructure that
allows nimble applications to be constructed for a variety of industries, we are
poised to be the leading player in both developing and dominating this market.

This Business Concept contains no specifics on the target market or segments, nothing about
the target buyer, no indication of which burning issue the product solves, and nothing but selfaggrandizing claims that allude to a vague market. This example is how not to write a Business
Concept

Starting Your Start-UpBook 1: Developing a Business Plan

10

Part 2 of the Business Plan: Market Analysis

and Strategy

arket analysis and strategy may well be the most intimidating aspects of the business
plan, since many entrepreneurs and innovators feel they have little expertise in determining the market size and characteristics. While this section can take some time and effort, it is
essential. And you will probably find that you know a lot more about the market, its size, and its
characteristics, than you think.
This section is vitally important, because doing a good job of market analysis enables you to
establish pricing, sales, distribution and marketing/promotion strategies that will lead to profitability. It also demonstrates and quantifies your companys, and the market sectors, growth
potential; and helps you make solidly-grounded estimates about the future financial health of
your business.

Industry and Key Segments

For purposes of the business plan,

We begin with a short description of the industry and

the key segments in the industry. Tell where your
company fits, which segment you will address initially,
and which segments you plan to address in the future.
If its a struggle to narrow your focus from a wide
variety of industries and segments to just one, you
are not alone. But selecting a target area is important
for a number of reasons; it helps you focus scarce
engineering, marketing and sales resources; limits
the competition; and helps you move more quickly to
market leadership. Its also important because when
you identify a growing market, and/or one where the
startup can gain a majority market share, your chances
of success (and of getting funded) increase dramatically.

a segment is an identifiable group of

If your product represents disruptive technology, or a

truly innovative way to solve a long-standing problem,
it may be difficult to determine the industry in which
you will play, and the sectors within that industry. You
will need to research industries by reading industry
analyst reportssuch as those from IDC or Gartner/
Dataquest; and delving into reports written by financial

dealers, entertainment system vendors,

individuals, businesses or organizations

that have similar expectations or needs,
and that will respond predictably to a
marketing or sales offer.
Each of these groups is made up of individuals who read similar publications,
attend the same industry events, and
rely on one another for recommendations and advice. Importantly, members
of the segment share the same problems
and pains, and have similar needs when
it comes to solutions to their problems.
For example, in the automotive industry,
identifiable segments might include auto
embedded systems developers, etc.
Auto dealers share common concerns
and have similar requirements for solutions. However, people who like the
color yellow is a useless segment, since
they are not reachable through typical
marketing or sales efforts.

Starting Your Start-UpBook 1: Developing a Business Plan

analysts, such as investment banks; and accessing other sources. For the two-to-four page
Business Plan, try to find the closest match between your early product functionality and a
market segment. Keep in mind that your early efforts will be augmented by more in-depth
market sizing and segmentation, as will be described in Book 2: Market Size and Strategy,
so for nowmake an educated assessment of which major industry, and segment within
that industry, is most likely to yield sales for you.
The overall market and segment sizes you quote must be based on reliable data, which will
probably come from industry analyst or financial analyst reports, or other sources, such as
the U.S. Department of Commerce tables.

Examples of Industry and Market Sizing

We worked with an entrepreneur who defined the target industry and segment in this way:
Our company will address the memcached market that is looking for better
ways to speed up dynamic web applications.

This focus on the how vs the what might be interesting to some people, but it has multiple
pitfalls. It is impossible to find data on market size; segmenting such a nebulous market is
difficult; potential investors do not have a frame of reference; and it is even hard to explain
the value proposition to potential customers.
An example of market sizing done properly can be seen in the following overview:
Company N will provide affordable, easily-adopted Dental Billing Management
Systems to the huge underserved market of small and medium-sized dental offices in the U.S. and Canada. While market size data show the overall market to
be $1.1 billion in 2010 (growing to $1.9 billion by 2015), this number represents
only large enterprise purchases. Most small and medium-sized dental offices
fall outside the scope of the visible market, yet they represent some 60 percent
of the total number of dental offices. The market for our solutions has the potential to be in the range of $1-1.5 billion.

Starting Your Start-UpBook 1: Developing a Business Plan

11

12

Target Customer
After describing the overall industry and segment size, describe the potential target buyer
(in terms of role and title), and the characteristics of the buyers situation that will lead to early
and ongoing sales. Be aware that many engineers are happy to talk to end-users about their
product, but the end-user is not necessarily the person who makes the decision to buy, or has
the budget to do so. To win the hearts and minds of the ultimate buyer, you need to be able
to articulate your products differences and value in a way that makes good business sense,
saves money, improves productivity, satisfies strategic objectives, etc. Also, include information on how you will find these customers, since this knowledge will be a key lead-in to the
next sections: competitive analysis and go-to-market strategy.
You may not know with certainty which target buyers will be most likely to purchase your productand at this stage, a rough idea is fine. Later, you will be able to flesh out this section with
more specific information, to accelerate sales and reduce marketing expenditures. To identify
the target buyer, you will need to fully understand the magnitude, cost and importance of the
problem you solve, and determine which individuals in your target industry feel the most pain
relative to the problem.
Look at various aspects of customer need to fine-tune your target customer, so that you really
understand what drives them, what problems are most important, and what factors will influence their decision to buy:
Specific customer need/problem: How badly does it affect them today?
P
 ricing: What is their spending threshold to solve this problem? What can they pay for
alternative solutions?
C
 ompany viability: Are they willing to work with unknown players/startups to solve this
problem?
T
 echnology: What specifically solves their problem better/faster/cheaper than another
approach? Does your technology require an innovator or early adopter market, or is it
applicable to mainstream buyers?
B
 usiness model: On-premise license purchase, software-as-a-service, leasing, renting,
other ways to acquire the product. How will you generate revenue for your product?
Partnerships
Technical aspects: Security, quality, compliance, performance, etc.
If you have already closed some sales, you will have some information on the target buyer and
burning problems. However, early sales can be deceiving. Customers will probably come from
a variety of industries, and may have widely divergent reasons for buying. It is important for
you to speak with the customers and dig into the problems they face, determining how important those specific problems are in the overall landscape of things they worry about. Speaking
with customers can give you valuable hints and sound bites that can help you articulate the
value proposition. Include information on your target buyer in terms of the actual job titles and/
or functions within the organization.

Starting Your Start-UpBook 1: Developing a Business Plan

Part 3 of the Business Plan:

Competitive Advantages and Pricing Strategy

ompetition may be straightforward, especially if the product fits cleanly into a single category. Conversely, the competition may look quite different when you evaluate your product in
one market vs. another. This section briefly describes the competition and how your product is
positioned to win in a competitive sales environment.
It is sometimes difficult for entrepreneurs to recognize all the competitors in the landscape,
since they may take a purist approach to the problem and how it should be solved. At times,
they ignore very real competitors, or practice the all-too-frequent solution of throwing a marginally-similar product at the problem. They may think they know all the competitors, and their
weaknesses, only to have a prospective customer, an investor, or an industry analyst come up
with names that they have never heard of.
Perception is reality, and you will have to deal with the perceptions of others as you go through
the process of building your plan and defining your company. The more you can articulate what
you do better than the competition, the more you will be able to bring prospects to an understanding of just how great your product is. Here, it is especially important to be able to fully describe what customer problems you will solve. And keep in mind that competitors dont stand
still: as you begin to do a better job of articulating your value proposition, smart competitors will
begin to copy your words or even your features and capabilities. Understand their strengths in
terms of technology, but also in terms of sales, marketing and relationships.

Competitive Comparison
To help guide this effort, use the aspects of customer need (identified above) in determining the
target customer, and assign a weight to each, to indicate the relative importance to your target
customer. Then, determine to the best of your ability, how your top two competitors fare in the
analysis. See the example on the next page.

Starting Your Start-UpBook 1: Developing a Business Plan

13

14

Weighting
(10=important,
1=unimportant)

Your product

Competitor 1

Competitor 2

Price

5 - - +

Low TCO

6 + - -

Company viability
yrs in business,
funding, liquidity 5 - + +
Hosted / on-premise
flexibility

7 + + -

Reports available;
ad hoc reporting
capability

4 - + -

Performanceable
to handle 100,000
txns/sec.

Scalabilityable
to support 125,000
internal users at
peak times

High availability
load balancing,
failover systems 8 + - +
Ease of use

9 + - +

Reference customers
using product in
similar environment 6

TOTAL
46

30

49

If you find that your product meets the needs of your target audience better than your competition, you can easily articulate the competitive advantages, and you may choose to price at a
premium. However, if your product is more or less equal in terms of meeting the requirements,
you will need to find a way to compete: on the basis of the product itself (highlighting important
values), distribution, pricing, or promotion. If your product is clearly inferior, as shown in the
chart, its time to go back to the market identification and positioning, and find a better market
for what you have to offer.

Starting Your Start-UpBook 1: Developing a Business Plan

An example of how to clearly articulate your competitive advantages and pricing strategy is
shown below:
Company A will have a competitive advantage due to three factors:
1. The company will provide superior customer value by using the highly efficient
Software as a Service (SaaS) delivery model. We remove the cost-based barriers to adoption presented by our principal competitors, Y and Z, since we do
not require the initial capital expenditure for hardware that their on-premise
solutions do, and we avoid the significant early and ongoing expenses they
require for maintenance and support.
2. Our solutions are extremely easy to tailor to the specific needs of each customer, a key factor in our target market, where workflows change frequently.
Competitors such as A, B and C require costly customization which more than
doubles the cost of the solution.
3. Unlike competitors D, E and F, with low customer loyalty, our business is oriented around building a community to share best practices and grow a sense of
belonging. This facilitates reference selling and enhances long-term customer
loyalty.
With such a strong competitive position, we have chosen to price at a premium
compared to other SaaS vendors, while still presenting a low Total Cost of Ownership (TCO) compared with on-premise solutions.

Your previous work in defining the industry and market segment may come to play here. As an
example, one company found itself hard-pressed to differentiate its products from more established, better-funded competitors. However, when it focused on a specific market, it found that
the competitive advantages were clear:
This company, which had developed an IT service management solution suite,
understood that it could easily address a broad range of industries, but with more
than 80 established competitors, it would be necessary to tighten the focus. They
determined that the best approach was to focus on the automotive industry where
periodic audits for software license compliance incurred huge expenditures of time
and resources (with similarly huge fines for noncompliance.) With this focus, they
were easily able to find which competitors played a role in the market, determine
their market approaches, and fine-tune their own understanding of the competitive
advantages.

Starting Your Start-UpBook 1: Developing a Business Plan

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16

Part 4 of the Business Plan: the Product

his section is often the hardest to write, since there is so much that the product does, and
the tendency is to include all the specifics. Some business plans devote the majority of
pages to the product, with exhaustive detail on the technological brilliance. However, it is much
more valuable to describe the product in a sentence or two, highlighting any unique features
that make it better than what is currently available in the market.
Here you will explain how this product is positioned in the marketplace. Refer back to the work
you did on competitive advantages and build out the elevator pitchgenerally, a two-sentence
overview of the product, written in terms of usage and differentiation. It is built along a simple
structure:
The [product] is a [member of category] that solves [problem] for [target end
user] by providing [compelling reason to buy]. Unlike [competing solutions], the
[product] [delivers these differentiated capabilities], which results in [measurable
benefit].
Example:
The XYZ is a financial tool, aimed at finance directors of medium to large companies, that solves budget consolidation problems by performing automatic data
conversion from a variety of different formats. Unlike custom-built applications or
tedious manual spreadsheet consolidation, XYZ automatically extracts data from
financial, manufacturing, human resource, and other systems, resulting in a proven 10 percent productivity gain, and eliminating costly errors.

The elevator pitch gives a good overview of the product, but at a very high level. After writing
the elevator pitch, add a short paragraph about what makes your product new, differentand
compelling. Include information about your intellectual property, including any patents granted
or pending, as well as methods, algorithms or other ground-breaking approaches that show
your products unique capabilities. Building on the previous elevator pitch:
The XYZ is a financial tool, aimed at finance directors of medium to large companies, that solves budget consolidation problems by performing automatic data
conversion from a variety of different formats. Unlike custom-built applications or
tedious manual spreadsheet consolidation, XYZ automatically extracts data from
financial, manufacturing, human resource, and other systems, resulting in a proven 10 percent productivity gain, and eliminating costly errors.

Starting Your Start-UpBook 1: Developing a Business Plan

Our patent-pending processes, developed by renowned industry mathematician,

Mr. ABC, include unique algorithms for data extraction, filtering and correlation.
This unique process gives us at least a two-year time-to-market advantage over
any potential competitor.

In addition to the technical aspects of the product and its genesis, this section should include
marketing aspects. Briefly discuss both what needs to be done to complete the product, and
what needs to be done in terms of market development. An example might be: Complete
Phase I of product development and begin Alpha testing. Create marketing collateral material,
and develop Beta testing and launch plan.
An example of a Product Section comes from a company founded to develop a cloud-based
online backup and recovery system:
Company Z provides world-class professional backup and recovery systems
delivered through the cloud. They are affordable, immediately implementable and
easily tailored by end-users themselves. Our products:

Give small and medium business owners control over their critical data

 rovide operational flexibility, allowing customers to adapt processes to

P
changing needs

Provide immediate recovery, in case of an unexpected outage

Ensure cost-effective, redundant data storage for maximum productivity

For this short version of the Business Plan, it is probably best not to include multiple screen
shots, or architectural diagrams. But they will, of course, form part of the complete Business
Plan.

Starting Your Start-UpBook 1: Developing a Business Plan

17

18

Part 5 of the Business Plan: The Go-to-Market Plan

his section explains how you will bring your product to market. Will you sell through a direct
sales team (best for high-ticket products that have a complex sales cycle), through a telesales team (best for low-ticket products with a simple sales cycle, that are well understood in
the market), through channel partners, or via a web self-service model?
Just as importantly, how will you let the market know that your product exists? What type of
marketing/promotion approach will you take? If you dont have a lot of extra money, there are
very cost-effective ways of getting the message out, which are described in The Launch e-book
in this series.
Once again, the watchword is focus, because it is all too easy to try to do too much with
limited resources. One of our clients wrote a Go-to-Market section that indicated they would
sell the product through a direct sales team (even though the average sales price of the product
was less than $40,000, which made for a very expensive sales process!) and would also engage channel partners, as well as provide a self-service web portal. Not only was this confusing
for potential investors, who questioned every aspect of the planit was impossible for potential customers to figure out how they should buy.
The Go-to-Market section should cover the basic sales approach, as well as give an overview of
market activities that will lead to greater adoption.

Sales Approach:
Its a given that sales in a startup requires a heavy dose of evangelizing, cold calling and
missionary selling. In determining the best sales channel, keep in mind two factors: which type
of channel (direct or indirect) will do the necessary evangelizing and missionary selling for your
company, brand and solution; and which channel has the best chance of reaching your target
customers.
To build this section, look at three types of sales approaches:

 Direct sales generally describes a high-cost, high-return group of sales representatives located in geographical areas, with the intent of selling to major customers. The
direct sales team may also be supported by an inside sales team (covering smaller sales
opportunities, and passing bigger ones to the direct team), and/or a telesales team that
uncovers and qualifies opportunities.
T
 he channel sales approach utilizes one or more Value Added Resellers (VARs), Systems
Integrators (SIs) or Original Equipment Manufacturers (OEMs).
A
 web-based sales approach involves establishing a self-service website, and then
driving prospective customers to the site, where they effectively sell themselves
on your product.

Starting Your Start-UpBook 1: Developing a Business Plan

All sales channels are not created equal. This chart shows some of the factors to take into
consideration when choosing which types of channel partners will be right for your company.
As shown, your expensesfor branding, sales and support, and marketingare lower for
OEMs and highest for VARs, since you will need to build the brand, and help them market
your solution.
Vendor
Involvement

Most

Most
Sales
and
Support
Assistance
Required

VAR
Systems
integrator

OEM

Least

Least
Least Visible

Branding

Most Visible

Marketing
The mix of marketing activities you will undertake will depend on which sales approach you
choose. However, several marketing activities cut across all approaches, and are crucial for a
startup with limited visibility and limited funds. Such activities include public relations(building
relationships with influential journalists, so they are encouraged to write about your company
and product; and releasing news in a regular fashion to build and maintain awareness), as well
as the corporate web sitewhich is the face of your company. Other activities can include
participation in industry events and trade shows; direct mail or email campaigns; advertising;
search engine optimization and marketing campaigns; social media campaigns; participation in
industry analyst-sponsored marketing activities; and other high-cost approaches, such as radio
and TV spots, billboards, etc.
An example of what a Go-to-Market overview might look like is shown below:
Company Z will sell through specialized channel partners (dental office supply
vendors who want to offer complementary software) and through focused telesales efforts, aimed at small- and medium-sized dental offices. Initial geographic
coverage will be the United States only. As we develop experience with channel
partners, we will expand our coverage to other geographical areas (a process that
is facilitated due to the products localization capabilities). Our marketing approach
will start with a company and product launch at [major industry trade show] and
will rely heavily on search engine marketing, an effective way to drive prospective
customers to our website. Equally important is an aggressive public relations
strategy that will build awareness and visibility by targeting key influencers in
relevant publications and delivering a steady stream of news about the product,
new customers, success stories, awards, and other relevant information.
Starting Your Start-UpBook 1: Developing a Business Plan

19

20

Part 6 of the Business Plan: Business Structure

and Management Team

his section explains how the business will function on an ongoing basis: what responsibilities will be taken on by the management team, and how the business will be organized. It
includes information on important partnerships, and presents an overview of the capital and
expense requirements related to operating the business.

Executive Team
This section of the plan contains the vitally important information about your team, where you
describe the key individuals in the companythe executive team and any advisorsand clearly
articulate why this group of people is the right one to build the foundation for your company, to
stand shoulder-to-shoulder during the difficult times, and forge a culture that leads to success.
Be specific about how each individual brings vital core competencies and characteristics to the
team, and provide examples of past successes.
For each member of the executive team, describe the function this person will perform in your
company, and add a sentence on previous experience, education or other characteristics that
are directly related to ensuring the success of your company. You will build out the bios in the
full Business Plan, but this section should present compelling information in a brief form.
Example:
Michael Bair, CTO and VP Engineering, is responsible for the software research
and development function at Company D. He has more than 25 years of experience in programming language design and logic programming, holds a Ph.D.
in Computing from Imperial College, London, and has been issued three U.S.
patents.

Organization
Describe the organizational makeup of your company. Include any relevant information, such
as any outsourced resources, and describe how they are managed. Keep in mind that many
startups outsource some combination of finance, HR, engineering, marketing and support,
and each of these should be mentioned, if applicable. For outsourced software or hardware
development, be sure to include information on how quality, timeliness and protection of intellectual property will be handled. The hiring plans for each department will be covered in the
next section, Operating Expenses, so it is not necessary to include an organization chart here.

Starting Your Start-UpBook 1: Developing a Business Plan

Operating Expenses

21

Do a rough calculation of the cost of personnel, and the cost of overhead (including travel,
maintenance and repair, equipment leases, rent, marketing, supplies, utilities, packaging and
shipping, payroll taxes and benefits, professional services, insurance, loan payments, depreciation, etc.) Much of this information may be unknown to you, and it is fine to go with industry
averages as shown below:

Year 1

Year 2

HEADCOUNT

Engineering

7 12

Sales

3 4

Marketing

3 4

G&A

2 3

Year 3

AVERAGE ANNUAL SALARY

Engineering

100,000

100,000 100,000

Sales

120,000

250,000 250,000

Marketing

100,000

125,000

G&A

80,000

90,000 90,000

135,000

Note that compensation may shift from lower salary/higher equity, in the early years, to higher
salary/lower equity, as the company matures.

Starting Your Start-UpBook 1: Developing a Business Plan

22

Part 7 of the Business Plan: The Financial Plan

here are any number of ways to do this section of the plan, including income and cash
flow statements, balance sheets, break-even analysis, and other financial ratios. The
approach you choose will depend on your expertise, understanding of various financial
analyses, information at hand, and assistance from others. One common approach is to
present a single chart that shows expected revenues, expenses, profit, investment, headcounts
and number of customers over a five year period. Dont hesitate to enlist the help of an
accountant, if necessary. You are presenting conclusions that provide a quantitative outlook
on your business, so its worthwhile spending time to get it right. Begin this section with an
overview that indicates the basis for your assumptions. An example is shown here:
Company B bases its financial projections on the market positioning, pricing
model, distribution approach, and marketing and sales strategies. The company
expects to generate a small amount of revenue in Year 1, following the initial
product launch. Revenues are expected to ramp up by the end of Year 2, due to
aggressive marketing campaigns and programs to leverage early customers.
We expect to grow momentum and reach break-even by the end of Year 5.

If you have more than one target market or sales approach (direct enterprise sales and
web-based self-service, for example), you will need to include a separate revenue projection
for each.
To arrive at revenues, consider the volume of product you will sell and the price for each unit
of your product. The volume should be consistent with the market size and share you expect
to realize for your target customer. Revenues are the product of sales price multiplied by
the volume. Your profit or losses are the result after you have reduced your revenue for the
expenses (costs) of the business. [Revenue minus expenses equals profit/loss].

Year 1

Year 2

Year 3

Revenue ($K)

216 3,055 7,320

Expenses ($K)

2,200 3,400 7,500

Profits/(Losses) ($K) (1,994) (345)

(180)

Investment ($K) 2,000 2,000 0

For an example of how all the foregoing parts work together in a short Business Plan, see
Appendix 1.

Starting Your Start-UpBook 1: Developing a Business Plan

Fine-tuning Your Two-to-Four Page Business Plan

ow that your short Business Plan is done, go back over it to make sure all the sections tie
together. In the process of writing later sections, you have learned things that will require
some modification to earlier sections.
If you plan to use the Business Plan to begin talks with potential investors, your focus should
be on the Business Concept, the management team, and the marketing and financial aspects
of the plan. Make sure you have clearly articulated how your company is going to make money.
If youre looking for a bank loan, youll need to stress your ability to generate sufficient cash
flow to service loans. Equity investors--especially venture capitalists--must see your exit strategy, understand how they can cash out of your company, and generate a rate of return theyll
find acceptable. While this short Business Plan is just the beginning, you will naturally flesh it
out in subsequent iterations by delving deeper into specific sections. However, as a first cut at
your company, it should tell as good a story as possible.
Make sure to perform a sanity check of your financial projections. Most startups show a small
amount of revenue in Year 1, with small expenses; a huge bump in revenue in Year 2, with
a small increase in expenses; and a hockey stick in Year 3, with wildly profitable operations.
Experience has shown that this progression is not realistic. The expenses will be higher,
and the revenues will be lower, and lots of unknowns will occur, so make sure your financial
projects can withstand intense scrutiny. You want to plan for the worst, not best, case.
Please note that the examples presented in this book are based on actual business plans,
but the data have been altered to ensure anonymity, and the projections shown may not
necessarily represent planning for worst case.

Starting Your Start-UpBook 1: Developing a Business Plan

23

24

Funding

f you intend to get outside investment, you can use this two-to-four page Business Plan
as your entre to getting a first meeting. But before that meeting is held, you will need to
develop an investor presentation that is clear, concise and defensible.
Some of our clients have successfully used the outline shown below. Your personal tastes,
and the preferences of the potential investors, will naturally drive the exact contents, but this
sample outline is a good starting point:

 itle slide (with your company logo and branding, date and time, and name of
T
potential investor)

 Big Fat Claim slideencapsulates the Business Concept from your Business

Plan

Market definition and size

Target market segment and buyer characteristics, including problem/cost data

Your solutionoverview with proof points

 igh-level evidence slideincludes quotes from customers and industry

H
analysts

Competitive landscapewith visual representation of competitive stance

Company profile

Management team

Status and outlook; amount of funding sought; uses

Financials

Backup slides:
- Architectural diagrams
- Product specifications
- Customer acquisition plans
- Ownership structure

Starting Your Start-UpBook 1: Developing a Business Plan

Finding potential investors

25

There are many sources of investment, but market dynamics and financial trends can have a
big impact on their accessibility and propensity to fund your business. Most startups look to
some combination of the following:
Friends and family

1. Pro: They are easy to find and they know you.

2. Con: You are blurring the line between friendship and business.

3. Con: They may not be professional investors, so they may not realize the risks until
its too late.

Angel investorsindividual rich people, or bands of rich people

1. Pro: Many of them have made their money through technology, so they understand
your situation.

2.

3. Con: Expect close scrutiny over how you invest the money.

4. Con: They will value your company much lower than you dothe price you pay for
early money.

5. Con: They will want you to have an exit strategy. Do you expect to go public, or be
acquired? Theres really no third choice.

 ro: Angel investors may bring you valuable contacts that lead to early sales
P
success.

Seed investor firms

1. Pro: These venture capital-like companies invest in early stage firms, so are more
accustomed to uncertainty, and will take more risk.

2. Con: These firms invest in early stage companies, so they are accustomed to the
fact that an early stage company may redefine itself many times. They are more
interested in the management team, than in the product itself.

3. Con: Again, the valuation may not be what you would like to see.

Starting Your Start-UpBook 1: Developing a Business Plan

 Venture Capital (VC) firms invest funds made up of other peoples money

26

1. Pro: These firms are easy to find, and its easy to determine the winners and the
losers.

2. Con: VCs generally only invest in later-stage companies.

3. Con: The best VCs will only invest in the cream of the crop, and if your companys
prospects dont look stellar, they wont touch you.

4. Con: The lower-ranked VCs will take companies that others have rejected, but may
drag out the funding process endlessly, costing you valuable time and energy, and
perhaps not resulting in an investment in the end.

5. Con: Expect a great deal of scrutiny over not only how you spend the money, but
how you run your business (VCs generally take a board seat, and may be quite active in board decisions).

Make sure you are quite prepared before asking for the first meeting. You should be able to
show at a glance why your team is uniquely positioned to make this company a success, and
how your product will solve a significant problem in such a compelling manner that revenues
will not only meet, but also exceed, expectations. If you have closed and implemented several
significant deals, and your marquee customers are well-known in the industry, you are in a
much better position to enter into serious discussions with potential investors.

Starting Your Start-UpBook 1: Developing a Business Plan

Next Steps

27

ou have invested significant time and effort into building your short Business Plan, but you
have probably made some equally significant decisions along the way. This time is well
spent, since it is your investment in your startup.
But, of course, its only the beginning. While the short Business Plan may help you articulate
your value proposition; identify the most likely early customers; solidify your thinking about pricing, revenues and expenditures; and maybe even go out for funding, its just the short form of
the plan. You can develop the full Business Plan in various ways, and one of them is to follow
the next books in this series.
Book

2 in The Startup Guides, Market Size and Strategy, will help you flesh out Part 2 of
the Business Plan, and will be an opportunity to fine-tune your analysis and understanding of the various market segments that might be most appropriate for your company.
B
 ook 3, Competitive Analysis, will help you discover the many competitors that may still
be unknown, and devise strategies for effectively competing against them.
B
 ook 4, Pricing Strategies, will guide you through a more detailed analysis of where you
really should price your products, and will debunk some common myths about pricing in
general.

Armed with a full Business Plan, you can turn your attention toward launching your company
and your products. Book 5, The Launch, presents a step-by-step guide, complete with timelines, dependencies and responsibilities, to help make sure you dont overlook any important
steps, yet can focus on doing just the right amount to ensure success.

Starting Your Start-UpBook 1: Developing a Business Plan

28

About the Author

anya Candia has worked in high-tech companies for more than 25 years. She began her
career in the Silicon Valley with Ford Aerospace, as a product manager and systems analyst;
and later, worked with ASK Computers, where she ran the statistical quality control programming group. After managing software quality and release with AIDA Corporation (acquired by
Teradyne) she worked in marketing with a series of startup companies. At Unison Software, her
work in streamlining the product line and strengthening the value proposition was instrumental
in the companys successful IPO. IBM/Tivoli later acquired Unison Software.
Candia served as vice president of worldwide marketing at F-Secure, the Finnish security
software company, which she took through its initial public offering. She successfully helped
grow F-Secure to over $40M in revenue, by renaming and repositioning the company as the
leader in managed wireless security for the distributed enterprise. Candia holds an MA in
Communications from the Monterey Institute of International Studies, and an MS in Systems
Management from the University of Southern California. She runs Candia Communications
LLC, an international business consulting firm, with offices in California; Annapolis, Md., and
Italy. She holds a third degree black belt in Tae Kwon Do.

Starting Your Start-UpBook 1: Developing a Business Plan

APPENDIX 1

29

Example Business Plan

Part 1: Business Concept
Company X has produced a patented Software as a Service (SaaS)-based offering that manages
all aspects of dental office billing. This eliminates the multi-million dollar problem, experienced
by more than 32 percent of dental offices, of erroneous billing, late billing, and excessive accounts receivable. The solution runs on existing hardware, is easy to use, and very cost-effective, removing common barriers to adoption. The companys telesales team will target dental
office managers in the United States, focusing on the small and medium-sized offices where
the need is greatest, and the cost to solve the problem is out of reach of most offices.

Part 2: Market Analysis and Strategy

Company X will provide affordable, easily-adopted Dental Billing Management Systems to the
huge underserved market of small and medium-sized dental offices in the United States and
Canada. While market size data show the overall market to be $1.1 Billion in 2010 (growing to
$1.9 Billion by 2015), this number represents only large enterprise purchases. Most small- and
medium-sized dental offices fall outside the scope of the visible market, yet they represent
some 60 percent of the total number of dental offices. The market for our solutions has the
potential to be in the range of $1-1.5 Billion.

Part 3: Competitive Advantages and Pricing Strategy.

Company X will have a competitive advantage due to three factors:
1. T
 he company will provide superior customer value by using the highly efficient Software as a Service (SaaS) delivery model. We remove the cost-based barriers to adoption presented by our principal competitors, Y and Z, since we do not require the initial
capital expenditure for hardware that their on-premise solutions do, and we avoid the
significant early, and ongoing expenses, they require for maintenance and support.
2. Our solutions are extremely easy to tailor to the specific needs of each customer, a key
factor in our target market where workflows change frequently. Competitors such as A,
B and C require costly customization, which more than doubles the cost of the solution.
3. Unlike competitors D, E and F, with low customer loyalty, our business is oriented
around building a community to share best practices and grow a sense of belonging.
This philosophy facilitates reference selling, and enhances long-term customer loyalty.
With such a strong competitive position, we have chosen to price at a premium compared to
other SaaS vendors, while still presenting a low Total Cost of Ownership (TCO), compared with
on-premise solutions.

Starting Your Start-UpBook 1: Developing a Business Plan

30

Part 4: the Product

Elevator Pitch
The XYZ is a dental office management tool aimed at office managers of small- to mediumsized dental offices that solves billing problems by providing automatic billing and collection
activities that take place directly from the online systemwhich handles all aspects of patient
scheduling, appointments, procedures and inventory. Unlike error-prone manual processes, or
complicated multi-system coordination, XYZ automatically consolidates all relevant information
to ensure timely billing and payment, resulting in a proven 20 percent increase in collections,
and eliminating costly errors.
Product Overview
Company X provides world-class dental office management systems delivered through the
cloud. They are affordable, immediately implementable, and easily tailored by end-users themselves. Our products:
Give small and medium dental offices control over their critical billing data
Provide operational flexibility, allowing offices to adapt processes to their needs
Provide immediate access via the cloud, from anywhere
Ensure quick implementation and minimal training, for maximum productivity

Part 5: Go-to-Market Plan

Company X will sell through specialized channel partners (dental office supply vendors) and
through focused telesales efforts, aimed at small and medium-sized dental offices. The initial
geography will be the United States only. As we develop experience with channel partners, we
will expand our coverage to other geographical areas (facilitated by the products localization
capabilities). Our marketing approach will start with a launch at [major industry trade show] and
will rely heavily on search engine marketing, an effective way to drive prospective customers
to our website. Equally important is an aggressive public relations strategy that will build awareness and visibility by targeting key influencers in relevant publications, and delivering a steady
stream of news about the product, new customers, success stories, awards, and other relevant
information.

Starting Your Start-UpBook 1: Developing a Business Plan

Part 6: Business Structure and Management Team

31

Organization
Michael Bair, CTO and VP Engineering, is responsible for the software research and
development function at Company X. He has more than 25 years of experience in programming
language design and logic programming, holds a Ph.D. in Computer Science from Carnegie
Mellon University, and holds three U.S. patents.
Operating Expenses

Year 1

Year 2

Year 3

HEADCOUNT

Engineering

7 12

Sales

3 4

Marketing

3 4

G&A

2 3

AVERAGE ANNUAL SALARY

Engineering

100,000

100,000 100,000

Sales

120,000

250,000 250,000

Marketing

100,000

125,000 135,000

G&A

80,000

90,000 90,000

Part 7: the Financial Plan

Company X bases its financial projections on the market positioning, pricing model,
distribution approach, and marketing and sales strategies. The company expects to generate
a small amount of revenue in Year 1, following the initial product launch. Revenues are
expected to ramp up by the end of Year 2, due to aggressive marketing campaigns and
programs to leverage early customers. And we expect to grow momentum and reach
break-even, by the end of Year 5.

Year 1

Year 2

Year 3

Revenue ($K)

216

3,055 7,320

Expenses ($K)

2,200

3,400 7,500

Profits/(Losses) ($K) (1,994)

Investment ($K)

(345) (180)

2,000 2,000 0

Starting Your Start-UpBook 1: Developing a Business Plan

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