The Business Plan and Contingent Plan for Startups

The startup world in Sri Lanka based on very simple techneque. They are tech experts who are highly concern about finishing project on time. So many startups has a project plan. when to start and when to complete the project and deliver the output.

But startup is more about a innovative way of doing things.So why Startups need a business plan in first place .there are 4 major reasons 

1. Resourse identification
2.Resource utilisation
3. Market Segment and Demand forcasting
4. Financial Cashflow forcast

In this article I will explain you the importance of above mentioned factors.

# Resource identification - In a business you have to play with the resources you already have . So better identify your capital availability and the skills availability.Because business success is all about how you create  things using available resources.

#Resource utilisation - After identification of resources you need to identify opportunities available to match your current resources . Write down list of things you can do using currently available resources. Never plan for maximum utilisation of resources. Always keep 20% plus or minus movement to cater the variance. Out of the options identified select the project based on your best skills and which utilise available resourse effectively and most importantly product which will generate a good demand in market obviously.

#Market segment & Demand forcasting - What is market segment? market segment is the particular market with characteristics where potential buyers of your product available. So when you plan the product you should not live in your Business hub or in your big fat office. You need to visit and talk to people from the probable market segement. Understand the importanceof your product to the potential buyers. Check the value addition brought by your product to potential customer. Check what is the demanding price for your product or Service. Check whether current product give direct access to potential buyers of the product or service. Based on your time in the field you will understand the market more presisely. for an example AENZ International first started as an accounting firm. But when me & Harindu visited the potential market there were thousand of issues ignored by many consultants in many various business. Further Solutions were not intergrated as a result. So we changed our business model accordingly to support our potential customers here we are an Entrepreneurship and Strategic Business Consulting firm. So Startups need to understand importance of flexibility you need to express for the potential clients. So depend on your field work start forcasting the demand for the product.

#Financial cashflow forcast - Now you are comming to the interesting part. Depend on the startup you build, you need to forcast how much time it will consume to get your product complete and get your first customer. So untill you get the payment from first customer you are completely running on your available cash stocks. Then get your demand forcast and discount your demand down to  80%- 70% to get into more conservative figures. Now forcast with your knowledge how much cost I will incur seperately to cater a one service unit to a client. then multiply that unit service cost into conservative demand forcast. Now you will have very  important 3 figures

1. Startup Investment
2. startup Income for first year
3. Startup running cost
Now breakdown your first  year into 12 months . Then include How you going to incur startup investment in each month . how you going to earn income in each month . what is the running cost to earn revenue in each month . Then you arrive your simple cashflow forcast.

Now You will ask me how to use it . First identify what are the months you have a cash draught . when will you have a cash surplus. Then you need to find equity or debt investment or a OD facility if available to generate cash in the draught period. In the months you have a.surplus you need to reinvest atleast 50% to your business and rest you can use for personal us.

Now you can see the need of your favourite angel investor will arrive only when you have a draught in cashflows. Further in many cases cashflow issues are short term. So giving a share capital portion for a investor to solve a short term issue will be a waste of your own energy.

I know After reading this article many IT industry startups will come to me with guns and ask how could we know about marketing and finance. I like to give them the answer in advance. Marketing or Finance is not rocket science . Please take the Armstrong's Management Techneques book and learn few principals. Then  you can handle all the steps mentioned above.

So now you will ask me what is a contingent plan . In a dynamic changing tech environment you need to analyse and do a what if analysis and see what key factors related to your business can be change in future and what is the Sales and finance impact of it. So prepare seperste financial & Sales forcasts with impact from market shocks. Depending on results check whether you need more cash stocks to recover those situations and plan accordingly in advance.

I like to give all the tech startups a one advice. Forget you are tech experts. Think yourself as a entrepreneur. Entrepreneur is a man capable of every task in the business including Operations, HR , Finance & Marketing. Dont be imbalanced. Be balanced and try to learn things related to each areas of business. Very recently one of the top CEO of a successful tech startup told me 99% failure of startups is a normal obvious fact. But in my view if another 1000 startups in Sri Lanka fail, our country will have major issue. So  I have a one believe that every startup can be a success if factors mentioned above are considered carefully. You are the reason behind your success so all the very best to success of your startup.



Pasan Malinda Katipearachchi
CEO
AENZ International
Entrepreneurship Development Programme
Business Tomorrow