This article was written by the original owner of startupguide.com, Ryan Allis, and published on his website in 2012. Read more about why Ryan was happy to hand over his website domain to us here.

When you hear the term business plan, you might visualize a forty page document, full of dense paragraphs, charts, and diagrams. Today, in fact, most business plans are not such in-depth documents. Business plans today often to come in the form of slide decks or shorter ten page executive summaries.

Too many people get stuck in analysis paralysis and will spend six months building a business plan before they even get started. It’s much better to just start testing a number of things before you spend much time on a plan.

See also: What exactly is the lean startup methodology?

You’re better off incorporating, printing up some business cards, getting a website going, and starting to work on creating a prototype for a minimum viable product (or MVP).

Business ideas are a dime a dozen. In fact, there’s nothing too special about most ideas. What really matters is the operational execution (the ability to actually make it happen) and the quality of the team of people involved.

That said, when you’re ready to scale your idea or raise funding, you’ll need at least a basic pitch deck and financial plan. Going through a lightweight planning process before you start building like the one described in this section is usually worthwhile for making sure your startup doesn’t run out of money before you get your product launched and to cash flow positive.

Don’t try to do too much with your business plan. In fact, most business plans will be made up of five key sections.

The first key element is introducing your team. You should not only highlight the people who are involved in the day-to-day running of the company, but also the advisors and the mentors around the team. People are everything in a business. Most good investors would tell you that they’d rather invest in a great team with an okay business idea than a great business idea with an okay team.

Once you’ve shown who your team is, describe the problem you’re trying to solve and show evidence of the demand for this solution. It’s important to clearly illustrate that you understand what the problem is, that you have a clear plan to go about solving it, and that you know for whom you are solving this problem. Demonstrating that you know your target market is critical.

The third element of a good business plan is a tricky one: describing the product. This is where a lot of entrepreneurs get stuck. They’ll talk about a product that might exist someday in the future, but admit that they don’t have anything to show. If you can go to an investor with a prototype that makes it easily visualized — even if it’s just wireframes, mockups, or a 3-D printed version of your future product — you will get much further with those investors.

In the product section, you also want to share your timeline for product creation and any key milestones that may be coming up toward initial product delivery, as well as discuss future products that might be applicable to the target market and services you can provide as an add-on or up-sell to increase your average revenue per customer.

Your fourth section should cover the target market. You should talk about your suppliers and how you’re going to source the parts or components that are necessary to create your digital or tangible product. This should include information on the challenges that you’ll face in getting there and the barriers to entry within that market, whether it be capital or knowledge.

You should also be able to talk about the relative intellectual property field and what patents are out there within your sector. Seek out some analyst reports to approximate market size, and discuss what stage your market has reached in its evolution. Is this a ten-year-old market, a one-year-old market, or a one-hundred-year-old market? How will you beat your competitors? Who are those competitors, and who are potential partners — companies that you might be able to work together with to advance the solution you’re trying to bring to the world?

Last but not least is your financial market. This section is, simply, about how you’re going to make money. A lot of companies struggle with figuring out their revenue model. There’s a sense that if you build a product and get users, you’ll be able to raise money. And if you can raise money, you can scale and then figure out the revenue model later. That’s fine, but I find that being able to understand the revenue model (at least the intentional revenue model) before you begin raising and spending millions of dollars building out the company is worthwhile.

When building your plan, you’ll want to talk about your market and whether you’re selling business-to-business (B2B) or business-to-consumer (B2C). You’ll want to talk about how you will sell, and through what distribution channels.

Are you going to sell your product at wholesale to stores? Are you going to sell your product directly online at a retail price? Is it going to be a digital download? Is it going to be a physical product? Are you going to ship? Are you only going to sell in bulk or sell individually?

One of the most important questions to consider is: does your product generate revenue once or does the product provide recurring revenue to your business (effectively, a subscription where you can put customers on auto-bill)? If you can create a recurring revenue model, you can more easily and more smoothly grow your revenue.

You also need to show your user growth assumptions and your customer growth assumptions. And you want to define your unit costs — how much it costs you to produce one unit of your product. This cost can vary depending on the volume you produce. If you were just producing one, for example, it might cost $50,000, but if you were at scale and producing 10,000, it might only cost $1,000 to produce one unit of your product.

Once you’ve shown unit cost, you then want to show unit revenue, which is how much you’ll charge for that product. If you’re charging $5,000 for a product that costs $1,000 to make at scale, there might be a great opportunity to build a profitable company.

In your financial projections, which are often the weakest section of an investor pitch (and, I think, besides the team, one of the most important), you’ll want to show your revenue assumptions — not just the results of those assumptions, but the assumptions themselves.

You need to expose your cost assumptions and your expense assumptions. You should project revenue by month for at least the first thirty-six (if not, the first sixty) months. And, of course, revenue amount minus cost is net income, so you’ll be able to show your net income by month. Then you’ll show the number of months it will take you to break even.

A lot of people will tell you to raise at least twice as much as you believe it will take you to get to net income (profitability). But you don’t have to do that all at once.

Eventually, your revenue becomes more than your expenses, and your aggregate net income starts to go up until you reach the point where your overall retained earnings for the company start to be positive. At this point and going forward, you have a profitable company. And when you have a profitable company, you have a valuable company.

To summarize, your startup plan should address the following questions: who’s on your team? What’s their background? What is the need for the product? How will the product be priced? What is the size of the market? Is the market ready for this product? What will it cost to produce the product? What is the total startup cost?

At this stage, you also need to be able to answer a number of questions, including: how much is needed in total to break even? Will you need to acquire any patent licenses or intellectual property? Who is your target customer? What roles are you going to need to fill in the future? What are your future products? What are your annual revenue projections? What are your annual cost projections? What are your annual profit projections?

The answers to these questions are critical to your plan and your pitch deck. Fortunately, you no longer need a forty-, fifty- or sixty-page business plan in order to raise capital, but you do need more than a napkin. A ten to twenty slide deck, with perhaps some additional slides in case someone wants further information, will greatly increase your chance of raising capital and funding your business.

Main photo: Unsplash/Craig Garner

*This article was originally published on October 17th, 2018 and updated on December 11th, 2018.