How to Create a Solid Business Plan for a Mobile App Startup
If we look at the most important technology megatrends of the last ten years, we can see a clear shift from desktops to smartphones. For most new startups, an app is a necessity for reaching their customers.
However, it is no longer enough to create an app and wait for downloads. Whatever sector you're in - whether your customers are B2C or B2B - this puts you up against a lot of competition.
In Apple's App Store (iOS and macOS), there are around 2.1 million apps. Since the App Store was launched, over 140 billion apps have been downloaded. For Android users, they've got the choice of over 2.8 million apps. And yet, according to reports, most people only have 30 apps on their smartphones, using at least 9 of them once per day.
To achieve growth, startup founders can no longer afford to guess and hope for the best. Taking a Lean approach is always sensible, but whether you need to align a team around a vision or raise funding, creating a business plan is a smart use of time in the early-days. If you are looking to raise Angel, VC or even crowd-funding, put as many learnings from interactions with potential customers in your mobile app business plan as possible, and if you've already got paying customers, then that is a big upside.
So the question of how to write a business plan for an app is crucial if you want to enter this field. Here is what you need to include in a business plan when launching a mobile app startup.
Business plan template
1. Executive Summary
Be clear and concise in this section, especially for those seeking investment. It might be easiest to write the introduction to this at the end, once everything else is down on paper. In this section you need to deal with the following:
A problem, or series of pain points is something that you know your potential customers are having. Either no effective solution exists, or the current solution has serious shortcomings. It should also demonstrate that this problem impacts enough people to make your app startup a viable commercial proposition.
Now introduce your app and explain why it's a suitable solution to this problem. Explain how it solves the problems identified and why people or companies will turn to this as a potential solution.
1.3. Value proposition
Unique value propositions change over time. No app business plan survives contact with real customers and the market in action; however, you should have a starting point.
If you are entering or attempting to create an entirely new market, it might be harder to define this. But for those entering established markets, you need to use this opportunity to outline why you are different from the competition. In established markets, it might be difficult to claim that you're "better" than the completion. Chances are, they've got more resources and customers, so explain why you're different and therefore, how this will help you gain market share.
For those seeking investment, an investor needs to know if your goals align with their portfolio. Now is your chance to define what success looks like. Is it:
- A specific revenue target?
- An exit - IPO or acquisition?
- And how soon do you hope to achieve that (e.g. 3 to 5 years)?
Some of the most successful startups of the last decade were entering huge markets. Take Uber and Airbnb, for example: transport and travel. Enormous global markets. It took them billions to disrupt those markets, thousands of staff and a lot of uphill struggles before they started making a profit.
Not everyone needs to be that ambitious, but it certainly helps investors to know three key metrics - if you can work them out or find them about your market:
- Total Available Market (TAM) = total size of the market you know exists.
- Serviceable Available Market (SAM) = percentage of the market you can reach through your sales/marketing and partner channels over a specific timescale, e.g. 3 to 5 years.
- Serviceable Obtainable Market (SOM) = known size of the early adopter market that you can reach in the first 6 to 12 months.
An article by TechStars is a useful starting point for figuring out those numbers.
Now, if you are entering an established/growing market, research firms such as Nielsen or Forrester should have an idea of this markets size and anticipated growth projections. Gartner can probably give you an overview of competitors. All of this research should be publicly available.
If you are facing established competitors - whether they're also startups or big players, it would be useful to do a SWOT analysis as part of the app development business plan.
SWOT = Strengths, Weaknesses, Opportunities, and Threats.
Make it clear that you know what the challenges are. Investors know false confidence when they see it. Also, if this plan is going to convince others to join the team, they need to know they're working with someone who's got a realistic view of the road ahead.
Your team is everything. It is the main reason investors put money into startups. Accelerators, such as TechStars and Y Combinator pick startups for the teams behind an idea.
In this section of your tech startup business plan, you need to outline the following:
- Legal entity, where the company is registered and when it was formed.
- Number of employees and/or shareholders.
- Where are you based and how does the team operate together, if some members are remote?
Next, you need to outline the history. How did you uncover this problem you want to solve? What steps did you take to understand the market and customer pain points (e.g. develop an MVP, do some market testing)? How did you assemble the team?
Listing key milestones is also a useful indicator of how you've grown and lessons learned along the way.
This can not be understated how important this section is. For everyone involved, either full-time or who plays a key role in the strategic direction of the company, investors want to know more about them. Give details on how they got involved, their role and responsibilities, along with academic and professional experience in mobile application development or related fields.
If you have an advisory team, it's useful to list who's onboard and how they are supporting your startup. This serves to give investors further confidence in your plan.
4. Marketing Strategy
A marketing strategy is one aspect of your plan that will iterate and change the most during the first year or two. It depends on a wide variety of factors: who and where your customers are, and how to reach them.
Most app startups - whether B2B or B2C - need to use a variety of evolving tactics over time. Everything from social media to content, PR, advertising and referrals. You won't be able to do everything all at once. Some tactics may need to be rolled-out later, after you've got some traction. So be realistic. And patient.
Get a sense of costs. How much will it cost to acquire a customer (known as your customer acquisition costs - CAC)? And therefore, based on this, how long will it take to break even and start making a profit (this is known as your burn rate)? A realistic idea of how much runway, and therefore how much investment and the expected risk factor, is what an investor is looking for at this stage.
Now is the time to sit down and crunch some numbers. In any business plan, investors need to see the following:
- How are you going to make money?
- What it will cost to run your business?
- How much funding is needed?
5.1. Revenue models
For app founders, the following revenue models are available:
- Advertising. This works if you intend for your user-base to be the product, whereby they get it for free and advertisers pay to reach them.
- Paid. Although many people are averse to paying to download, apps can still generate revenue this way. If you are going this route, iOS and macOS app stores are where you are more likely to find users willing to pay, alongside selling apps through your own and third-party websites.
- In-app purchases. For consumer apps, this is the most viable route to revenue. Base revenue projections on a percentage making a purchase - don't be over optimistic - and use prompts such as referral discounts to encourage upgrades.
- Subscription. A popular choice for B2B apps (hence the boom in SaaS startups), although this is also becoming more commonplace with consumer apps.
Investors need to know what everything is going to cost and what the variables are.
App design and development costs vary considerably depending on the app's features, complexity and developer's rates. An app cost calculator can give you an instant idea of these expenses, however, for a more accurate estimate you need to request an app development quote from IT experts.
Some costs are going to remain fixed, such as salaries, subscriptions and office rent. Whereas others are going to increase as your business scales, e.g. server space. Base your cost projections on your revenue, so that an investor can see how the company should scale over time, and hopefully, start registering a profit.
And finally, to secure investment, with these numbers in hand, you should be able to outline how long it will take to achieve profitability and how much funding is needed. This is the amount you are asking for. In exchange, you need to say how much equity you are giving away, or alternatively, work out how long it will take to bootstrap until profitability - once you've got an app to launch.
Every technology startup and app is different. All of them take a different road. No journey is the same. But with a solid business plan, you can approach potential investors with more confidence, and align your team around the mission ahead.