Business Plans for Technology Businesses
Developing a business plan for a technology business is a little bit more complicated then producing one that would be specific for a general service based business or a retailer. This is primarily due to the fact that technology businesses have highly proprietary technology that can be patented. As such, special additional precautions need to be taken when developing this type of business plan given that you do not want to have the reader given too much information regarding anything that is highly proprietary. For these types of business plans, an attorney will often be hired in order to have a nondisclosure agreement developed so that anyone who is reading the document will be bound by a legal agreement that they will not disclose anything that they have seen within the documentation. One of the keys to writing a business plan specific for a technology business is that you want to be able to provide an understanding of exactly what the new technology
does without being a huge overview to the operating process were underlying patent. In many cases, a qualified business writer can be hired so that they can gain an understanding of exactly with the technology does and providing insights as to how it can be beneficial to businesses and individuals without disclosing the exact operating nature of the patent worthy to be patented technology.
One of the more difficult aspects of writing a technology focused business plan is also discussing the valuation of the business within this document. This can be optional given that many technology businesses will often undergo a formal valuation of the patent or technology by someone who is qualified to make that determination. Most business plan writing firms do not engage in doing business valuations given that there is a significant amount of liability that is associated with rendering the service. However, there are number of specialty firms – known commonly as business valuation experts – that can render an opinion as to what they feel that the technology would be worth in the open market. Most venture capitalists, private equity groups, and highly seasoned angel investors are going to want to see that a formal valuation is done and either have this as part of the business plan or as a stand-alone document. One of the other things that many of
these firms can do is to develop an economic viability analysis that shows whether or not this specific piece of patent technology would be in demand within the marketplace. One of the common issues that occurs when an individual is developing a new technology business is that with the rapid increase in the way that technology is developed these days – a competitor could easily copy what the company is doing and create a similar platform on their own. As such, speed to market is one of the key focuses that needs to be discussed within any type of business planning documentation that is going to be read by potential funding source.
One of the other key components to the business plan specific for a new piece of technology is the development of the financial model. More so than any other type of business, a technology focused business plans financial model can be difficult to draft given that there are a number of different revenue streams from which the business can produce profits. First, the entrepreneur needs to determine whether or not they are actually going to engage in the production of the technology or simply license it to a third-party. As many people have spent years developing these patents, they are often looking for a quick exit as it relates to either the licensing of the patent or the entire sale of the business along with the patent for a substantial price. However, many entrepreneurs are driven to see that they want to bring the product to market and therefore will develop an entire business around their patented technology. In these instances, the entrepreneur
needs to make a determination as to what type of revenue model will be used in conjunction with their development. Frequently, technology as a service or software as a service ("SaaS") business models are used that they produce highly predictable streams of revenue on a monthly basis. This is especially true among companies that offer general-purpose technology where the general public will pay a monthly fee for accessing the service. These companies tend to have a much higher sales premium given the highly predictable nature of the revenues. Of course, certain technologies are based on product sales and in this case the revenues are not nearly as predictable as individual units need to be sold on a month-to-month basis. As such, the entrepreneur needs to have a complete understanding of the gross profit that will be generated from each unit of the technology sold. If this technology is going to use as a component for a standalone device then examination of what manufacturers will be
incorporating the product needs to be examined as well.
One of the key focuses to developing this type of business plan is to discuss the speed to market. Most venture capital firms and other private investment groups want to have an understanding of how much capital is going to be needed before revenue generation occurs. This is commonly referred to as the burn rate. A very large table showcasing each month's expenditures needs to be clearly provided to a venture capital group in order for them to understand exactly how much money is needed before they can gain a return on their investment. One of the other things that is frequently put into the business plan is a discussion as to whether or not the business will be sold in the event that revenue generation does not commence. As such, this is where the valuation of the technology can come into play given that this is a salable asset and can be divested in order to recoup any investment that may be lost if the business fails to produce revenues and profits.
One of the things that we have often seen as a relates the technology focused business plans is that these companies often focused far too heavily on with the technology does and its revolutionary nature rather than the business itself. While it is extremely important to provide moderate technical specifications regarding the company's product, what is really being sold in the business plan is the business itself and its ability to produce a profit. As such, when we develop a business plan for a client we often focus no more than 50% of the documentation on the product itself. Many newer entrepreneurs or individuals that do not have a significant experience with business planning will often allocate 50% to 90% of the document on the technology itself while neglecting to properly mention how a business will be developed around it. One of the things that can remedy this situation is to have a standalone white paper or documentation regarding schematics
and specifications that accompanies the business plan rather than putting all the information into one document. Given the complexities of technology-based businesses this is completely appropriate to do given that you do not want to overwhelm the reader with a substantial amount of technical information will not focusing enough on how the business will ultimately produce a substantial amount of profit for the management team and investors.
On this website we have a number of different resources that are specific for technology and e-commerce base businesses. We encourage you to review everything we have on the site as it will help you determine what direction to take when developing a business plan for a technology focused business.