How do we build a business plan?

1. Your Business Plan Checklist

  • We have a business plan and have reviewed it with at least one other person 

  • We have a high-level financial plan of income and expenses 

  • We can think of at least one (maybe several) potential business models 

  • We have a clear sense of our funding target

 

2. How do we build a business plan?

It is likely you will need at least some money to get started. How much do you need? How will you spend it? What will you do if it runs out? Building a specific financial plan for at least the next 3-6 months will help you figure this out. 

 

Sitting down to make a business plan can be a slog but it is worth spending some time on this upfront. This section will focus on the financial section of the business plan. You should also have a clear problem identification, value proposition, and outline of how you are going to take your idea to market. 

 

The purpose of the financial section of your business plan is to know how your business will make and spend money. Underpinning the revenue flows in your financial statements, is your business model. This is broadly thought of as the way you plan to generate income. Who will your customers be and how will you charge them (a flat fee, subscription model, freemium etc.)? 

 

Once you land the business model you are going to test, you can begin to model out your financial position. At a minimum, think about the following three financial statements: 

 

Cash Flow Forecast:
  • The purpose of this is to show how you will generate and spend money on a day to day basis. Your goal is to be able to meet your obligations and create enough ‘runway’ to build your idea without running out of money. 

  • The cash flow forecast shows money coming in and going out month by month. Try to project this for at least 3-6 months, ideally for all of Year 1. 

  • Think about the timing of your accounts payable, when is the payment due and how will you cover it? Consider the seasonal variations in your spending e.g. is Back to School in August/September the most expensive time for your business as you launch products?

  • Try to be realistic about your income. It may be tempting to overestimate your sales, try to build in a contingency in case things are a little slower than expected.  

Profit and Loss Forecast: 
  • Don’t confuse your cash flow forecast with your profit and loss forecast. Here for your business plan you should figure out the following information about your business: 

    • The level of profit you expect to make on each product sold or service you deliver.

    • The breakdown of the costs on each product or service you supply. 

    • A breakdown summary of your overheads (the operating costs), these are fixed costs like the cost of a shared working space or the web hosting (hopefully you are taking advantage of the iLabs and these are minimal). 

Break-Even Analysis:  
  • This is the point of activity at which your business is making neither a profit nor a loss. You have generated exactly enough revenue to cover what you have spent and you are on track to start making a profit if your revenue is greater than your ongoing costs. 

  • Know your breakeven point. How many sales do you need to make in that first year (or whatever time frame you have set based on your product) to break even? 

 

Good examples: 

After establishing the problem they wanted to solve and validating that there was a willingness to pay for their product, New Teachers Thriving (a two-time HILT awardee) began working on their business model. How would they make money? What would it cost them to deliver personal development to teachers? Who would pay for their products and services and how would they price them? They came up with their business plan for the next four years based on the financial statements we mentioned above. You do not need to project four years into the future but try to have a plan for at least the first year. 

 

How do we create a business model? 

Hubspot has some great resources, tips and templates to help entrepreneurs make a business model. Take a look at the link below:-

https://blog.hubspot.com/sales/how-to-start-a-business
 

How do we build a financial model? 

Similarly, the Founder Institute has some great resources, tips and templates to help entrepreneurs make a business model. Take a look at the link below: https://fi.co/insight/how-to-create-a-basic-financial-model-an-entrepreneur-s-guide

Source: New Teachers Thriving draft business plan, April 2019. 

 

For another detailed business plan from an entrant in the HBS New Venture competition, see page 20 of this doc from AppSuccess

Questions to ask yourself:

  • Do we know what it will cost to build my idea?

  • Do we have a budget for at least the next three months, hopefully a full year? 

  • Have we tested my financial plan with at least one other person? If you are finding this hard, make an appointment at the iLabs or with a HILT Fellow. 

 

3. How do we determine the market size?

Figure out what your problem space is called, then Google your problem space + “market size” + “market share” and read the reports (this is called “top-down” market sizing).

You may not have a solution yet—and that’s a good thing! However, you do need to figure out who else is currently solving your problem. Resist the urge to to assume that you have no competitors. Don’t fool yourself—you always have competitors. Google for key terms related to your problem and see what solutions show up. Make a list of the terms each solution uses on its website. Once you hone in on the industry name, repeat your search with the term, “market size” and “market share.”

 

E.g. Say you want to solve the problem that undergrads lack ways to connect with industry professionals. Google “undergrads connect with professionals tools.” You’ll notice the words “alumni” and “network” used on almost every site. Now, search for “alumni network.” Voila! out pops an ad for a few “Alumni Networking Platforms.” Repeat your search with “Alumni Networking Platform.” There you go—hundreds of solutions. Once you narrow in on the industry name, repeat your search with the term, “market size” (e.g. “alumni networking platform market size”). If your industry is big, someone will have done a study on how large this market is. In this case, the market for alumni management software is ~$300M-$450M. This won’t be precise, but at least it gives you an idea. Now, repeat your search with “market share.” Again, this won’t be precise, but it will give you a sense.

 

Put yourself in your buyer’s shoes, understand how much they spend on existing solutions, then multiply that number by the number of potential buyers (this is called “bottoms-up” market sizing).

Step 1 is helpful for understanding how big the entire market is, but isn’t helpful for understanding how much you can make. In this case, you’ll need to understand the industry “spend.” Return to the solutions in step 1. How much do they charge? (Google your competitor + “pricing.”) Who are their clients? (Google your competitor + “clients.”) Revenue = Price X Quantity, so if you can estimate the price and the number of people being charged that amount, you’re good. Or, Google your competitor + “revenue.”

 

Imagine what you could sell long-term and add those revenues (this is called a “total addressable market”). Do you have higher aims? Are there adjacent problems you’d like to solve? Do the above exercise with these additional ideas.

Questions to ask yourself:

  • How much are our alternatives / competitors charging for their solution?

  • How much are our alternatives / competitors making in revenue every year?

  • How many of these alternatives exist out there?

 

4. What delivery models are most appropriate to scale?

Follow these steps: (1) Evaluate the delivery methods you have used so far (2) Analyse whether these are sufficient to get to your ultimate aspiration for scale (3) Consider other possible options (4) Start doing pilots with other delivery models if required (5) Decide and execute on optimum delivery method for scale

 

In education, as in any other sector, there are different delivery models that can enable your organization to reach scale. Some of the more common ones are:-

 

  • Business to consumer (B2C) over the internet – eg. Khan Academy, Coursera

  • B2C through brick and mortar models – eg. Year Up

  • Business to Business (B2B) – often these businesses may be schools - eg. Google Classroom, Clever

  • Business to Government systems (B2G) – eg. Panorama

  • Business to Individual Intermediaries such as tutors

  • Franchising – eg. Kumon

 

As a founder, you may have used one of these in your early years of operation eg. Khan Academy started as a product directly to students using the internet. However, at the scaling stage, you should evaluate whether that is the only pathway to scale, or if you want to replace or add other options. Khan Academy decided that working with school systems would increase impact and now work both B2C and within schools as a blended learning solution.

 

The best way to figure this out is to evaluate your model currently and analyse the key elements to success. Once you’ve done this, you’ll be in a good position to understand whether you can replicate these elements faster or better through some other delivery model.

 

Then start piloting these other methods and see how they’re working and whether that’s easy to implement. You can use these pilots to decide which model to scale.

Questions to ask yourself:

  • 1. Why did we choose the current delivery model

  • 2. What are other organisations in the same space using?

  • 3. What models are best suited for our team’s skills, resources and networks

  • 4. How do we think about control vs scale?

  • 5. Have we tried out any other models to scale my solution?

 

Resources at Harvard

  1. Libraries and researchers - Make sure you access the resources Harvard offers in terms of knowledge and information. Every school has its own libraries (Widener at the College, Baker at HBS, etc) and researchers who can help you analyze your sector and competitors and enable better decisions​
     

  2. Databases - Harvard has a lot of central subscriptions that are free to use. This includes access to business media (eg. Wall Street Journal, etc), business databases (Crunchbase, etc). You can see a full list of free resources here - https://library.harvard.edu/services-tools/database-search

Know of more resources?

 

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