A business plan is a well-known document for business people. A business plan is of course created when starting a new business, but it also plays an important role when drafting a medium-term business plan for an existing business or when an entrepreneur gives a presentation for raising funds. Masu.
Even though it is such an important document, don’t you think that most of us have never properly learned how to write a business plan?
Maybe because of that,There are quite a few business plans that you see in the business world that are not very good.. There are countless examples, such as those where the original purpose of the business is ambiguous, the profit outlook is too lenient, the organizational structure for carrying out the business is unreasonable, etc.
I have experience in three areas: creating a business plan, approving it, and executing the business plan. Because I can really understand the difference between a good plan and a bad plan, I can’t help but feel depressed every time I see a plan that is beautifully formatted but has disappointing content. It makes me feel good.
In this article, I would like to explain how to write a great business plan using specific examples.
The case study we will discuss is Airbnb (hereinafter referred to as Airbnb).. Airbnb is one of the most explosively successful startups of the past 20 years. Founded in 2008, the company was originally named AirBed&Breakfast. The concept was to create a system that would allow travelers to rent air mattresses from local houses.
The pitch deck (presentation materials) from when they raised more than $3 billion in initial funding around 2008, shortly after their founding, is published on Business Insider Japan.This is a pretty cool new business plan.. While quoting this, I will explain specifically what is cool about it.
Please read on as if you were an investor (business plan approver).
Below are the points needed to create a successful business plan that I talked about last time. Let’s read Airbnb’s business plan in this order.
・The three stakeholders (drafter, approver, and executor) are allies.
・A business plan ultimately consists of the following three parts.
(1)Business purpose：The “dream” part that the business manager wants to realize
(2)business plan: The “plan” part of how to make it concrete
(3)issue: “Issues and solutions” part to advance the business objectives as per the business plan
-Of the three points above, the most important is “(3) Point of contention.” It is important to increase the probability of business plans through repeated dialogue among the three stakeholders.
In addition, he listed the following four points as particularly important “points of discussion” for new businesses.
(A)client:Are there as many customers as we expect?
(B)customer value:Can our services and products provide the value that customers expect?
(C)Consideration:Will the customer pay the price we expect?
(D)operation:Can we achieve operations that generate the profits we expect?
(1) Business purpose: What kind of dream does the originator want to realize?
A business purpose is a dream that a business manager would like to realize.
What problems in the world do you want to solve through this business, and what kind of impact do you want to make? All stakeholders involved in this project (not only the “proposer” but also “approvers” such as investors and financial institutions that invest in the project, and “executors” including business partners) It has to be something that makes people want to help make their dreams come true and want to work with them as friends.
Airbnb’s business purpose is as follows.
Airbnb’s “business purpose” that can be gleaned from this plan is basically this.
Travelers pay money (cheaper than accommodation) to stay in a private house.
People living in private houses create a simple system to earn income by becoming hosts.
And it enables sharing of culture (which cannot be done at accommodation facilities).
It’s very clear and easy to understand what the drafter wants to do.
Moreover, we do not just match travelers with private houses;The aim is to “share culture” which is difficult to achieve in regular accommodation facilities.Doesn’t that make sense? The first thing that comes to mind is an image of young people using it.
What’s more, travelers can save money. Hosts can also earn money.If thisIt seems likely that it will be used not only by young people but also by a wider target audience..
In addition, since homes, which normally would not generate profits, do generate profits, it seems likely that there will be a certain number of hosts who will participate.
(2) Business plan: How to materialize the business purpose
The “business plan” is the “planning” part that describes how to materialize the business purpose mentioned in (1). If the business objective is the “what,” the business plan is the “how.”
No matter how wonderful your dream is, if you can’t make it come true, it will literally end up being just a piece of cake.So in this partWe need to be able to convince stakeholders how this is a good business plan..
Let’s take a look at the Airbnb case.
The business model that Airbnb envisions here is as follows.
10% commission per transaction
Market size is $10.6 million
Average fee is $20 ($70 for 3 nights)
Multiplying these amounts is 200 million dollars per year.
By using Fermi estimation to determine the market size (detailed explanation of market size will be given later) and multiplying it by the commission rate, we have roughly calculated the annual revenue scale of 200 million dollars (approximately 20 billion yen).
From the standpoint of investors and other approvers, we are concerned about whether the numbers calculated here are reasonable, but in this respect, there are parts of Airbnb’s plan that we feel are particularly inadequate and lenient. is not found. The content makes me feel that this is an exciting new business that has the potential to generate sales of 10 billion yen.
(3) Issues in new business
Now, let’s move on to examining the “points at issue”. As I emphasized last time,The most important thing in a business plan is setting this issue.. Whether or not the business plan you write will be successful depends entirely on the quality of this part.
I will explain the points at issue, which mainly consist of four elements, using the example of Airbnb.
(A) Customers: Do you have any customers?
Here, we will present the number of customers expected for the proposed business and the market size.
In the case of Airbnb, the market size of the business they are about to start is calculated as follows.
Over $11.9 billion in travel bookings worldwide
Online reservation market $532 million
AB&B travel market share $10.6 million
The market size of “travel reservations (worldwide)” (more than $11.9 billion) is probably disclosed information. If it’s an established industry like the travel industry, you should be able to find the exact numbers if you do some research. This figure is one of the few markets that has the potential to grow even larger as developing countries continue to grow and their middle class increases.
You can do the same for the “online reservation” market and state the facts. According to Airbnb’s planning document, the online booking market accounts for less than 5% of the global travel booking market. However, in the future, as the Internet becomes more widespread and online reservations and electronic payments become more widespread, this percentage will naturally increase.
Finally, for “AB&B travel,” the numbers reflect the market share the creators are aiming for. Airbnb estimates it at “$10.6 million.” This is equivalent to 2% of the online market ($532 million x 2% = $10.6 million).
Fermi estimation is often used for these calculations. It is difficult to grasp exact numbers unless the market is already established.The Fermi estimation should be accurate enough that the digits do not shift..
The $10.6 million figure that Airbnb came up with is not unreasonable since it estimates it to be 2% of the online market. I understand that it could be worth at least several billion yen.
The accuracy required for the market size presented here varies depending on the purpose.. For example, in the case of Airbnb, the decision is related to whether or not to invest. If the approver listens to the presentation and decides to make an investment, the second phase involves calculating the stock price and determining the investment amount. Therefore, even if there is some fluctuation in the market size of the business plan, if the approver determines that there is a risk, the risk can be hedged in the second phase.
On the other hand, if the purpose of the business plan is to determine sales, a higher degree of accuracy is required in estimating the market size.
Now, in order to know how likely the market size is, the expected number of users of competing services is also important information.
For example, Airbnb points out the following competing sites:
There are two competing sites.
One has 630,000 users
The other has 17,000 users
In other words, we can see from this that it is not a completely new market, but a market that is starting to emerge.
Even if those who approve or invest in this service are skeptical, it is a strong case that there is already a market for it.
(B) Customer value: Can value be provided?
Even if the dream that the creator has is good and it seems that there are enough customers who want it, it is meaningless unless the service or product can truly meet their expectations.
Therefore, in this part, we will tell the approver:we can certainly make it happen’It is necessary to convey that.
It would also be a good idea to also communicate in this part what points of differentiation you have against potential competing services.
Let’s take the example of Airbnb. How did they show they could make this dream come true?
First of all, the product’s UI is simple. The UI is designed to be intuitive and easy for anyone to use, such as “Search by city name → Search results → Easy reservation!”, so it is aimed not only at young people who are accustomed to using the Internet, but also at a wider age group. I have hopes that it will expand.
Next, let’s take a look at our competitors. Airbnb views its competitive environment as follows:
Although there are competitors from the two services mentioned above (Couchsurfing.com and Craigslist.com), they are both primarily offline services.
In addition, Hostels.com exists in the online and low-cost segment, but since this is a service that focuses on staying at hostels, although it allows guests to interact with each other, “sharing of culture” is not possible.
There is a possibility that it could provide value just by making it an online service, and there are no players that have the concept of sharing culture. In other words,We have the potential to become the only entity that can provide value to travelers.I understand that.
(C) Consideration: Will you pay the price?
Next, verify whether your customers are really willing to pay the price you envision.
In the case of Airbnb, the matters related to this part are written very simply in the presentation materials mentioned earlier.
“A 10% fee will be charged for each transaction.”
$20 per night with 10% fee. So you can see from here that Airbnb estimates the nightly accommodation fee to be $200.
During the first screening, the approver checks whether there is any sense of discomfort with the project from the user’s perspective.
For example, in the case of Airbnb, if you do a little research you will quickly find out that hotel prices vary considerably depending on whether you are in a city or a rural area, and depending on the rank. Standard rooms at some high-end hotels can cost over $500 a night, and at budget hotels, you can stay in the $30 range.
The “middle class” hotels most often used by travelers cost between $130 and $200 in urban areas and resort areas, and over $100 in regional cities. In Las Vegas, hotel prices are surprisingly low, around $70 to $90.
B&Bs (Bed&Breakfasts: guesthouse-style accommodations where owners offer several rooms in their homes to guests and serve home-cooked breakfasts) can cost as much as luxury hotels, starting at $200 a night.
As long as we look at these, we can judge that the figure of $200 per night that Airbnb is assuming is a very appropriate figure in the United States.
(D) Operation: Does the system really have the ability to put it into action?
The fourth point of contention is “operation.” In other words, this is the part that tells you whether you really have the power to carry out the scale and profit-making business that has been described in detail so far.
In the Airbnb example, we included an introduction to the three founder members titled “Team.”
When venture capitalists (VCs) decide whether to invest, the most important thing to consider is “who will do the work.”
No matter how great a business idea is or how profitable it is, it will never work if there is a lack of people to put it into action.
Regarding Airbnb’s team composition, the following comment is introduced in the Business Insider Japan article cited in this article:
“Paul Graham, who first invested in Airbnb through Y Combinator, wrote this email to fellow investor Fred Wilson in 2009: “I think Airbnb will turn out to be similar to eBay. The founders are like this. It’s perfect for business.”
As Y Combinator co-founder Paul Graham has said, the three founding members are well placed to get Airbnb off the ground.
Joe Gebbia has a background in design and is familiar with UI; Brian Chesky is also knowledgeable about design and also works as a consultant; and Nathan Blecharczyk is knowledgeable about technology and has experience developing apps.
Don’t you think that these three people are able to carry out the plans written in the business plan? Don’t you think that the team composition is strong enough to arouse your expectations?
Remaining issue: competitive advantage
The above are the four most important items when setting issues, but in addition to these, Airbnb’s presentation materials also mention competitive advantage.
It’s easy to imagine that offline competitors will move online in the future. In other words, there is (potential future) competition.
“The key to big profits is to be first in the market faster than your competitors and make sure they can’t catch up.”—That’s what Airbnb is appealing to in this plan. “That’s why we want you to invest the funds to accelerate the process.”
Use that money to hit the market all at once. By doing so,
- Be the first in the market (so you want to raise funds)
- If you become attractive to hosts (this requires funds)
- All properties are displayed at once (so convenient)
- Easy to use (just convenient)
- High attention (use funds for this)
- Achieving design and brand power (can be achieved as long as you have the funds)
That’s what I’m saying.
How about that? It contains just the right amount of information that approvers need, and is concisely summarized in just 10 pages.This content can be considered a model for a business plan for a new business..
If you were an investor or decision-maker, wouldn’t you want to look at this Airbnb business plan and definitely approve it?
Creating a good cycle starting from the business plan
As I mentioned last time, the three stakeholders involved in the business plan have the following relationships.
Approvers who listen to the drafter’s presentation often become skeptical, thinking, “Does this business plan only contain things that are convenient for them?”
If the business purpose explained by the drafter does not have a dream, it is natural that neither the approver nor the executor will support it, but that does not mean thatThere is no point in being told a dream story that is completely unrealizable..
Also,Even though there are some difficulties or unclear points in the business plan, there are people who hide it and come up with a business plan as if it is perfect.. No matter how good the plan looks, it is meaningless if the plan cannot be realized, but it is troubling to be so focused on getting approval from the approver.
However, from the approver’s perspective, this type of drafter can be said to be “still better.” If the approver is familiar with the industry, they can correct the course by asking the right questions and correcting any difficulties or unclear points during the dialogue.
What’s worse than that isCases where the drafter is not aware that there are difficulties or unclear pointsis. In this case, even the drafter himself “doesn’t know what he doesn’t know,” so the approver can’t ask questions and correct the course.
Not just me, but any stakeholder will never give the OK to a drafter who cannot see the issue he or she wants to solve, or in other words, who cannot define the points at issue.
“Don’t insult adults”
This happened when I was in charge of new business at Recruit.
Have new area managers and store managers prepare a business plan. Then present to me and get approval.
The business plan also included a spreadsheet to simulate the planned numbers. With just a few changes to the numbers on your spreadsheet, you can create a great and profitable business plan (on a spreadsheet, after all).
Sales have been accumulating from the beginning of the business with a rocket start, and profit margins are surprisingly high… Some of the planners who presented to me came with such unrealistic plans. They probably thought that if they created a highly profitable business plan, they would easily get approval from me. At that time, their goal was not to make the business a success, but to gain my approval.
Whenever I heard these unrealistic plans, I used to say to them: “You shouldn’t insult adults,” he said. Approvers don’t care how nice-looking the numbers are on a spreadsheet.This is because variables that can change in any way with just a little manipulation are not the essence of a business plan..
This is what the approver wants to know more than such trivial matters.
In order to ultimately increase profits, what kind of hypotheses that we don’t yet know are being made by the drafters?What are you trying to challenge?.
Of course, if you want to try something, you need money. Of course, we don’t know if the challenge will be successful or not. However, that is why I would like to know the uncertain points that have not yet been considered in this business plan.
The approver does not intend to thwart the dream by asking tough questions of the originator.We want to use our wisdom, sweat, and money to work with you to realize your dream business plan..
Please take another look at MIT Professor Daniel Kim’s “quality of relationships,” which I discussed last time.
A virtuous cycle is created by improving the quality of relationships through dialogue and mutual respect, leading to results. The unwavering fact that “he, she, delivered the results that she expected” strengthens the relationship of trust between stakeholders.
Please keep the points discussed in this article in mind the next time you create a business plan.
When you successfully accomplish this series of processes, your ability as a business person will undoubtedly increase by one or two times more.
*This article is a repost of an article published on August 6, 2021.
Ryuichiro Nakao: Representative Director and President of Nakao Management Institute. Completed the Graduate School of Engineering, Osaka University in 1989. Joined Recruit. He assumed his current position in 2019 after serving as executive officer (in charge of business development) of Recruit Sumai Company, president of Recruit Technologies, and deputy director of Recruit Works Research Institute. He is also an outside director of Tabikobo Co., Ltd., an outside director of LIFULL Co., Ltd., a part-time auditor of LiNKX Co., Ltd., and a fellow at Hakuhodo DY Holdings Co., Ltd. His new book is “OJT management that develops employees who can think for themselves.”
(Serial logo design: Mio Hoshino, editor: Ayuko Tokiwa)
Source: BusinessInsider
Emma Warren is a well-known author and market analyst who writes for 24 news breaker. She is an expert in her field and her articles provide readers with insightful and informative analysis on the latest market trends and developments. With a keen understanding of the economy and a talent for explaining complex issues in an easy-to-understand manner, Emma’s writing is a must-read for anyone interested in staying up-to-date on the latest market news.