Seed Round (FFF) Plans
Many new entrepreneurs launch their ventures by borrowing money or selling equity ownership to friends and relatives in the first or “seed round” of financing (also called the friends, family and fools or FFF round). There are no standards for business plans at this stage … but there are some ways that entrepreneurs can use a preliminary business plan to advantage. There are really three things that you want to accomplish with a preliminary plan;
- Figure out whether there is really a business opportunity in your idea. To accomplish this objective you need to describe what market need your business addresses and why customers would choose your solution over their alternatives. You must also figure out how to market and sell the product and whether the gross margins would cover those costs and allow for a profit. See our Business Case Checklist.
- A full and fair disclosure of risks means telling your friends and family about the risks as well as the potential rewards. Frank risk assessment can also avoid stress and damage to important relationships. Moreover, it makes business sense to evaluate critically the risks of your venture. By considering what could go wrong, you will do a much better job of planning. Risks may include that the invention does not work, or that the target customers won’t pay the projected price or that competitors will react to your market entry with a new product of their own.
- A well-researched preliminary plan can help inform you about the industry and the market segment where you will need to compete. By studying the competitors, you can get a sense of what sort of operations and resources you will need to gain a foothold. How do they market, sell and advertise? Where do they manufacture? What kinds of skills and resources do they have? The answers should inform your plan.
Generally, preliminary business seed stage plans should include all the same sections as plans that target professional investors. You may wish to consider writing the plan using business planning software. I do recommend drafting plans that you intend to send to professional investors on these software formats however.
One last piece of advice. Please do not accept investment from anyone who cannot afford to lose the money. They cannot afford the risk of a start-up.