As anyone who has fallen foul of their sat nav will know, it’s not always easy to get where you want to go if you don’t know where you’re going in the first place. Having a clear set of directions that will put you on the path to growth, and make your investors feel confident that you know how to get there, is the theory behind writing a business plan.
Just like a job interview, when you write a business plan, it’s a chance to showcase all the knowledge, skills and self-awareness that you have to make your startup happen. And, just like a job interview, there’ll be killer questions that you’ll need to answer. Here are eight of them.
There’s a bit of theatre involved when you write a business plan, according to marketing consultant and mHealth commentator, Lynn James. ‘Conveying your idea to partners and lenders is crucial. You’ve got to have a story to tell that is clear and concise – and you’ve got to learn how to tell it,’ he says.
Key to this is demonstrating the gap in the market. What is your company going to provide to meet that need, and who exactly are you going to sell it to? ‘It’s worth spending time studying the marketplace, undertaking market research and, to a certain extent, letting this drive your business plan – depending on the product, of course, sometimes customers don’t know what they need or can’t live without until it’s offered to them,’ says Dr Lianne Miller, Deputy Director for the Centre for Enterprise Development and Research (CEDAR) based at the Lord Ashcroft International Business School in Cambridge.
Once you have confirmed the market need, it’s time to demonstrate that you know who your customers are. ‘How to reach them and draw them towards your brand is possibly more challenging than developing the technology to make it happen,’ acknowledges Miller. ‘When you write a business plan, including how you will convert customers’ interest in healthcare, for example, into a decision to actually buy your product, will make it stronger and more credible,’ she adds.
Then it’s about how to communicate your offering. For medtech products, it’s best to ensure that the explanation of the technology showcases the business case and that the product’s uniqueness is explained in a way that a non-technical person can understand. Bankers and investors are unlikely to grasp all the minutiae but second-stage funders will, especially if they’re investing a substantial amount.
Potential investors will want to know the total size of the market you are planning to enter and you need to include this when you write a business plan. They will want to know if it’s growing, and how your company will grow with it. If your technology is disrupting existing incumbent suppliers, there will be volume and value figures to refer to. ‘But even if it is a completely new product, there should still be market numbers,’ says Miller. ‘For example, 10 million people in the US have sleep apnoea, which costs the medical services $1,000 per person each year to treat. So a new device that stops the root cause and prevents the symptoms has a cost benefit to go for.’
Beyond the numbers, include other uses for your application, where possible. Demonstrate additional avenues for growth such as how transferable the technology is across other populations and sectors.
‘You also must be credible in terms of recognising who makes the buying decisions and who pays,’ adds Miller. ‘In the US, there’s an approved list of treatments that insurers will pay for and how much they will pay for them. A completely new product may not fit into one of the categories, so that would be a hurdle to starting selling.’
Who and what will stand in the way of your success? These could be market forces or similar firms operating in the same marketplace. Even disruptor products have potential competitors. Depending on how cutting-edge your product or technology is, it could simply be a case of a competitor diversifying to create a ‘me too’ product with much reduced R&D lead time. ‘Making sense of who your competitors are, and how far away they are, is a good thing to do,’ Miller adds.
Stakeholders – especially lenders or investors – don’t like surprises. Regulations covering development, testing, clinical trials and manufacturing must be in place from the beginning of a product’s development. You should use the same terminology for your product or service that is already being used by regulatory bodies and have evidence that you have followed these rules from very early on. In addition, safety, risk and quality regulations must be included in the business plan. Materials, components and their sources should also be medical-grade, as you may need to track and trace individual product items if there is a problem.
Investors invest in people. They will want to see the technical capabilities of your startup’s founders and your team’s skills and experience. ‘There are two aspects here,’ says Dr Miller. ‘The knowledge, skills and abilities of the management team is one critical aspect. The second is the mindset and cognitive abilities of team members to think through the entrepreneurial process. My research, which is about how founders’ and managers’ thinking interplays while growing their businesses, revealed that sharing tacit knowledge as well as technical knowledge is crucial.’
It’s also worth considering your network. Who do you already know that can help you make your startup happen? Many medtech companies have non-executives or an advisory board that brings in academics and practitioners, such as doctors and surgeons, to give insight into the market.
‘I consider operation management to be the guts of the business,’ says Miller. ‘Taking time to consider when resources will be acquired, how long your product will take to manufacture, and the mechanism to get it to market/to customers, will influence all your decisions such as when or if you need the next round of funding.’
‘Knowing your numbers builds confidence in you, your idea and the business’ growth potential. In the same way, underestimating the cash needed to take your idea to market can have a negative effect on the pace of your success,’ says Miller. ‘Monitor your cash from close up but also have a long-term view of what is needed or might be needed later. It’s important that the resources to keep products and services in a healthy pipeline are considered honestly and openly, or it will put pressure on relationships and the business.’
‘Entrepreneurs need to be clear on their monthly “burn rate” and when the business will break even,’ adds Dr Jamie Ferguson, Deputy Head of Technology Transfer at the University of Oxford’s Isis Innovation. ‘Both of these talk to cash flow as being the key measure. Businesses also need to start raising more capital at least six months in advance, as fundraising can be a longer process than CEOs bargain for and can cause them to take their “eyes off the ball”.’
Technology development seldom goes according to plan, so making a note of contingencies and ‘what ifs’ is good practice. ‘Stakeholders gain confidence when they know that founders have considered all the eventualities and will keep them informed along the way. And at best, you have considered what to do if and when things either go wrong or take longer,’ says Dr Miller. Having a solid answer as to how your team would respond if things did go wrong isn’t just an acknowledgement of possible vulnerabilities, it’s an indicator that you know your business, and have the potential to address these issues and succeed.
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