I’ll bet you don’t need me to tell you the answer to that one.
Welcome to the first part of an ongoing series about the business of Web development. Running a real business does not consist solely of collecting money for your services. We will show you how to set up your business, prepare for projects, maintain profitability and grow your firm beyond what you thought possible. We will be asking you to invest time in the operation of your firm. But we promise, this will be time well spent.
The normal evolution from a hobbyist to a professional Web developer has historically been pretty informal. It usually involves someone unexpectedly wanting to pay the developer for some work. Then someone else pays them, and then someone else, and so on. At this early stage, the elation of actually getting paid usually masks the developer’s concerns for the future of their business. If you were to ask one of these young go-getters what they do for a living, or what their business is about, they would probably respond, “Web design.” But try asking them where they see their company in five years. Look in their eyes as they struggle to answer your question about obtaining funding to expand their reach. The truth is that most small development firms live very much in the now. They care about paying this month’s bills and completing work for the current client. They have no business plan.
A business plan is a document prepared by a company that outlines what kind of business the company is in, their history, their competition, their projections, their plans, and their current position. It is the document that defines the business. It is the first thing a budding company should prepare so they have a clear understanding of where they are heading.
Business plan FAQ
No, really… what good is this going to do me?
A business plan has many uses. Most importantly, it forces you to think about what you are getting yourself into. Because much of a business plan is forward-looking, it requires that you have a plan for the future of your company (what a concept!) More practically, private investors, banks, and venture capitalists will require that you have a formal business plan in hand before they even consider giving you money. The Small Business Administration (SBA), which provides guaranteed loans to new businesses requires a business plan before you can apply for a loan. A business plan is also an excellent tool to attract top recruits to your company.
And let’s not forget the benefit of having a business plan within arm’s reach on those days when you can’t seem to remember why you started a business at all. It provides vision, focus, and goals.
When should I put a business plan together?
You should put a business plan together as soon as you’ve determined that you want to be a professional Web developer. Part of the reason for drafting a business plan is to bring issues to light that you would not have thought about in the normal course of business. It is always better to know about these things sooner than later. If you uncover a flaw in the way you planned on making money, you can deal with it before you’ve invested anything.
What should I put in a business plan?
It is customary to put some combination of the following in your business plan:
- A description of the services your firm is going to offer.
- Your firm’s history. Or, if none exists, your own professional history and the history of your partners/associates/management team.
- An analysis of the industry your firm is trying to penetrate, including major competitors.
- Plans for marketing your firm’s services.
- Financial projections for the next two to three years. Many people include both optimistic and conservative projections in their plans.
- Growth strategies.
- A brief summary of everything listed above.
Is there a standard template I should follow?
Though different company’s formats are similar, there is no one “official” business plan template.
How long does my business plan have to be?
Full-length business plans for your average start-up are generally 20-30 pages. They usually include pretty graphs and charts and other display material to back-up the information. Web design firms are usually less formal have fewer people than other kinds of start-ups, and will probably not hit the 20 page mark. Still, if you have less than 10 pages, you are probably leaving out some important details.
What if someone sees my business plan and tries to steal my idea?
We will assume that your business plan contains an angle that differentiates your firm from others. After all, there is little value in stealing the idea of just being a Web developer.
It is not wise to put the details of your secrets in your business plan. State your service and what you hope to accomplish, and leave the critical data out. It may also be prudent to require that anyone who views your business plan sign a non-disclosure agreement. People who are serious about learning more about your firm won’t mind.
Any tips before I get started?
Oh… ok. Here are a few things to consider:
- Define your market and your customers. You may know what you are selling, but if you don’t know to whom you are selling, you will have a difficult time marketing your services. And simply saying that you are focusing on other businesses doesn’t count.
- Though one of the purposes of the business plan is to get people excited and enthused about your firm, you do not want to provide financial projections that you can’t back up with some reasonable assumptions. You have to actually BELIEVE you can achieve the targets you are setting.
- Your business plan should not read like advertising hype. This is a professional document and should convey the sense that your firm is also professional. Including words like “earthshattering technology” or “kick-ass” (this is not a joke) in your business plan is a guarantee that you will not be taken seriously.
- Do not try to impress your reader with your extensive technical knowledge. Jargon and industry slang are not appropriate for this document even if you only intend for insiders to read it. This is a “big picture” kind of project, and rarely does the big picture deal with such details. Besides, you never know who might want to hand you a large roll of cash if your business plan says the right things.
- Answer the hard questions. A business plan is not all sunshine and picnics. You should include an analysis of your immediate competition, including what they are better at than you and how you plan to deal with it. Consider scenarios where your firm doesn’t make as much as you think it’s going to, and describe how you will manage the business during those times. Eventually, someone is going to want to know these things. It could be someone who wants to lend you money, it could be someone who wants to buy your firm, it could be a recruit. It is best to have the answers ready for them when they do ask.
We have included two separate examples for the same firm. The first one is very short and should be considered an “executive summary”. Give this to people who only need a brief overview of your intentions. The short example is NOT A SUBSTITUTE for the full-length version.
The full-length version included here uses a quasi-outline format and a lot of bullet points. As stated above, there is no official format for a business plan. Feel free to make yours more of an essay if you think it reads better. The test for readability is to show it to people who are not in the industry and see if they understand your intentions and can see the potential for your business.
Finally, please note that all references to people, businesses, places, addresses, and all proper nouns are completely fictional. We picked a random state, a random industry, and random names. If any portion of this business plan looks familiar, it is purely coincidental.
Business description and company history
Dangerous Design (“DD”) was founded by brothers Alex and Jason Halka to serve the Web site development market in the Nashville metro and West Tennessee areas. Currently, DD is a limited partnership, but may be incorporated if the economic environment warrants it. DD plans to focus their attention on small, established businesses and start-ups in the local hospitality and tourism industry. Before the official partnership, the brothers worked on several medium-scale Web design projects together with their respective employers. They have also volunteered their time to the Web sites of their favorite charities, increasing traffic to each of them significantly.
Industry and market description
Web developers generated over two billion dollars in gross revenue in 1999. However, Tennessee has a proportionally small number of Web developers compared to the rest of the country. Tennessee is one of the most popular states for tourism in the United States, with new tourism-related businesses opening every day. These two facts make opening a quality Web design firm in Tennessee very desirable.
Currently the Web design industry in Tennessee is dominated by two major firms: Yee-Haw Design and Web Gurus. Several independent developers also have a significant combined market share. None of these firms focus on the tourism industry nor do they appear to have any special qualifications that would make them more desirable to that market.
Dangerous Design plans to offer complete Web design services to its clients, including interface and graphic design, back-end scripting and engineering, and limited marketing. A number of proprietary utilities are currently under development, such as a shopping cart and database management system for use with e-commerce clients, and a program to allow customizable user session tracking. DD does not plan to offer supplemental advertising services relating to the Web site, such as paper marketing or brochure preparation, though recommendations can be made for such services.
Dangerous Design has developed a logo and branding package to use on its own Web site and supplemental marketing materials (business cards, letterhead, etc.) The firm intends to launch an advertising campaign by taking out a large ad in the upcoming Nashville Yellow Pages and offering discounted or pro bono work to develop a substantial portfolio and develop goodwill and word-of-mouth marketing. Additionally, the founders have relationships with local media celebrities and hope to negotiate publicity spots with them.
Dangerous Design projects that sales and profits will be as follows, all as further detailed in more extensive projections and underlying assumptions available upon request.
The undersigned reader acknowledges that the information provided by __________ in this business plan is confidential; therefore, reader agrees not to disclose it without the express written permission of __________.
It is acknowledged by reader that information to be furnished in this business plan is in all respects confidential in nature, other than information which is in the public domain through other means and that any disclosure or use of same by reader, may cause serious harm or damage to __________.
Upon request, this document is to be immediately returned to __________.
Name (typed or printed)
This is a business plan. It does not imply an offering of securities.
1.0 Executive summary
Dangerous Design is in the process of being formed as a limited partnership owned and operated Jason and Alex Halka. This plan is written as a guide for starting and managing this new business. Following is a summary of the main points of this plan.
- The objectives of DD are to generate a profit, grow the firm at a reasonable rate, and to further extend its education of its business and relative communities. Profit – To generate sufficient profit to finance future growth and to provide the resources needed to achieve the other objectives of the firm and its partner. DD plans to maintain a 60% gross margin and 35% pro forma earnings. Growth – To grow the firm at a reasonable rate that is both challenging and manageable. DD plans to grow from four full-time employees during the first year to twelve by the end of the third year. Education – The partners and staff of DD would like to not only grow in terms of finances, but personally as well. Significant resources will be spent to educate in new fields of technology, management, and personal growth.
- DD’s services will encompass all aspects of Web design and development.
- DD plans to focus its attention on small, established businesses and start-ups in the hospitality and tourism industry, primarily in West and Central Tennessee.
- An initial financial analysis of the viability of this venture shows outstanding promise and results. The popularity and commercialization of the Web have convinced most entrepreneurs that the internet is a real and significant way to increase sales and brand awareness and decrease costs. Hundreds of Web companies spending millions of dollars will work in our favor with our target market.
In conclusion, this plan projects rapid growth and high net profits over the next three years. Implementing this plan will ensure that Dangerous Design rapidly becomes a profitable venture for the partners.
The objectives of this business plan are:
- To provide a written guide for starting and managing this Web design firm.
- To provide a legitimate basis for obtaining outside funding or an SBA loan.
- The scope of this plan is to provide summary annual projections for the current and next two fiscal years.
1.2 Goals statements
Dangerous Design defines its goals by the following statements:
- Purpose – DD exists to provide practical Web solutions to small and emerging businesses.
- Vision – DD will provide the most complete, customer-oriented Web sites in their class. By focusing their efforts on a particular industry, DD’s name can become synonymous with solutions for that industry.
- Mission – The short-term goal for the firm is to build enough working capital to implement a more aggressive growth strategy. This will be accomplished primarily by keeping expenses to an absolute minimum. Long term, DD wants to grow large enough for the partners to remove themselves from day-to-day engineering and operations and focus more on management and further practice development.
1.3 Keys to success
The keys to success for Dangerous Design are:
- Marketing and networking.
- Comprehensive Web solutions.
- Generating goodwill within the selected market through performance of high-quality work.
2.0 Firm summary
Dangerous Design will be a start-up venture with the following characteristics:
- DD will initially be a limited partnership, owned by Jason and Alex Halka, both general partners.
- DD will entertain the possibility of incorporating or forming an LLC if the partners consider it advantageous to do so.
- DD will lease office space in the Nashville Office Complex.
- The firm will be initially financed solely by partner capital investments.
2.1 Firm history
Before the official partnership, the Jason and Alex worked on several medium-scale Web design projects together with their respective employers. They have also volunteered their time to the Web sites of their favorite charities, increasing traffic to each of them significantly.
2.2 Start-up summary
Because the firm is starting up prior to receiving any outside investment, an emphasis has been placed on keeping start-up expenses to a minimum. Once either additional investors are found or net income has reached an acceptable level, more investments will be made on infrastructure. Total start-up expenses for DD come to $36,700, all of which will be financed through partner investment.
- Some of the amounts are based on estimates received from vendors.
- $5,000 cash buffer is for expense items not anticipated.
- Planned partner investment of $100,000 more than covers first month’s start-up and operating expenses.
Table 2.2: start-up
|Office rent (r)||1,500|
|One month’s staff payroll (r)||6,000|
|One-month’s telecom (r)||500|
|One month’s business DSL (r)||1,500|
|Total first month expenses:||36,700|
(r) = recurring monthly expenses = 9,500
2.3 Firm location and facilities
- The firm will be leasing a 1,200 sq. ft. office at the Nashville Office Complex, located at:
123 Main St.
Nashville, TN 38000
- Computers are to be purchased with start-up funds. As a technology-oriented company, it was decided that computers should be of above-average speed and power.
- Telephone lines are already installed in the office space.
- The office will be connected to the internet by a 1.5Mbps business DSL connection.
Dangerous Design’s plan for “concept to completion” services is consistent with the standard level of service generally offered in the Web design industry. DD’s process for developing a standard site is:
- Market and Business Research – Investigate the company and learn their business processes, marketing and branding strategies, workflow and goals.
- Define Site – Create a creative brief, define the scope of the site, and determine budget and schedule.
- Develop Site Structure – Create a preliminary sitemap, determine navigation methods, and begin gathering content.
- Production – Graphic and HTML development begin, semi-functional prototype used to determine if the layout and navigation make sense. Back-end and technical work developed.
- Integration – All pieces from previous phases put together for a functioning beta version.
- Testing and QA – Field-test all components with objective samples.
DD intends to use the most reliable languages and techniques available to provide the highest quality product to its clients. Though ultimately the client’s particular needs will dictate technologies and applications used, emphasis will be placed on creating consistent user experiences for the largest number of users. DD does not plan to offer supplemental advertising services relating to the Web site, such as paper marketing or brochure preparation, though recommendations can be made for such services.
In order to provide low cost implementation of particular popular applications, DD is currently developing utilities such as a shopping cart, a Web-based database management system, and a customizable user session tracking tool. The firm has researched the most common requests from clients thusfar. The top three are:
- High search engine placement
- E-commerce capability
DD believes that investing the time up-front to develop these applications will allow them to offer pre-packaged solutions for common client requests. Customization will be available for any of these applications as necessary.
4.0 Market analysis summary
Dangerous Design’s marketing strategy is focused a few key issues:
- Concentrate on the basic factors of Web design success.
- Develop tight niche within selected market.
- Treat competitors as assets and strategic partners.
4.1 Factors of web design success
DD’s key assumption is that two factors are required for success in the Web design industry:
- Lack of significant Web sites in the chosen market
- The ability to bring an integral aspect of the market’s services or products to the Web.
DD’s initial market will be the tourism industry in West and Central Tennessee, with a focus on small, established companies and start-ups. According to the Economic Census of 1997, tourism in the specified market brought in receipts in excess of $10 billion (all tourism-related services included.) After extensive research by the firm, it was concluded that only 15% of all businesses in the chosen market had Web sites that were anything more than on-line print ads for the company. Only the major attractions (the Country Music Hall of Fame, Graceland, the Grand Ole Opry) and international hotel chains with local presences had any significant Web presence, neither of which are in DD’s target market. With more than 2,000 established businesses in the market without a quality Web site, the first factor is met.
DD’s target market includes (but is not limited to) hotels, motels, travel agencies, tourist attractions, tourism-related retail stores, guided tour companies, resorts, campgrounds, and local restaurants. Each of these establishments has the opportunity to make their business more customer-oriented and convenient by bringing some aspect of their services on-line. Booking reservations, placing orders, reaching others with similar interests, planning vacations, and on-line tours are just a few possibilities, with any level of customization available. The potential to bring real value to these businesses is enormous.
4.2 Tight niche
DD believes the possibility exists to fall into an even tighter niche within their selected market. For example, if an overwhelmingly large percentage of the firm’s business comes from lodging facilities, it may be logical for the firm to concentrate their efforts on that niche and expand their geographic market. Experience gained by serving a very specific kind of business will make the firm’s time more valuable, allowing them to charge higher rates.
4.3 Competitor analysis
Although there are several competitors in the local market, there is also ample room for growth. DD supports this claim with the following points:
- Competition surveys indicate that most local Web developers are sole proprietorships or small partnerships with no expertise in a particular market or niche.
- Customers in this industry tend to be loyal, relying on the same firm for future needs once a relationship has been established.
- DD intends to form cooperative relationships with its main competitors.
4.3.1 Competition surveys
Dangerous Design performed non-comprehensive surveys of the local market competition using the following methods:
- The Nashville Yellow pages show 38 display ads and 51 total ads for Web designers and developers. Only the “Internet/Web Design” sections were surveyed. Though some ads listed “small business specialists” or “we cater to local clients”, none of them indicated a specialty in a particular industry. It should also be noted that though only 51 ads were found in the Yellow Pages, it is assumed that a large number of independent Web developers with relatively small client bases exist in the market.
- Several firms were contacted anonymously to inquire about particular technical specialties, size of their firm and pricing structures. Generally, the firm’s representatives indicated that there was no job that they could not handle and that they “only had a few people.” Each firm’s pricing structures (when revealed) were based on different criteria, but were all volunteered as negotiable.
- DD visited the Web sites of many of these firms and found them to mimic their phone representation.
The conclusion is that though there are several dozen competitors in the local area, none of them are threatening to DD from a marketing or expertise standpoint.
4.3.2 Client loyalty
Web design firms, when marketed and promoted properly, should be seen by the general community as professional service firms, just like attorneys and accountants. Because professional services are usually provided on a personal and customized basis, there is a much higher likelihood that a client will remain loyal to the firm that provides them the best service. Indeed, the patterns of the clients of these other professional services indicate that their clients remain with their chosen firm for many years.
DD intends to offer its clients unparalleled personal service at reasonable prices, investing extra time during their formative years in establishing long-term relationships with its clients.
4.3.3 Competitor alliances
In the spirit of generating goodwill, not only in the Web design community but also in the local market as a whole, Dangerous Design will implement a strategy whereby we refer specific work to selected local Web design firms. Work qualifies for this strategy when it is either outside the designated market, deemed too high risk, or when client timelines would overburden the staff. This will have the following benefits:
- Selected work would not be up to DD standards, either because of the lack of experience on DD’s part in the clients industry or because there would not be enough time to perform the work adequately. DD is protecting its reputation by declining these jobs.
- Clients that DD sends to other firms will get a positive opinion of DD as professionals who are not afraid to turn down work. DD understands that appearing too desperate for work leaves the client with the impression that they are working with an unstable firm.
- The selected firms would be asked (though not required contractually) to reciprocate this goodwill by referring work to DD that falls within DD’s niche. If DD has done its job by establishing dominance in their niche, this should be simple judgement for the competing firms to make.
- Competing firms’ marketing and promotional efforts work to DD’s benefit if DD can count being the referral for tourism industry clients.
DD firmly believes that nothing can be gained by establishing an adversarial relationship with its competitors. Unless a firm establishes a presence in DD’s market with DD’s specific skills and expertise in its industry, DD will have no competitors.. only alliances.
5.0 Sales and marketing strategy summary
Dangerous Design will focus on the following to establish and grow the firm:
- A somewhat aggressive traditional media marketing strategy.
- Good value by establishing fair rates and providing clients with fixed costs.
- Excelling in chosen niche will create a reputation of authority, which will work to greatly expand the DD’s geographic market.
5.1 Marketing strategy
DD’s immediate marketing strategy consists of the following:
- Dangerous Design has developed a logo and branding package to use on its own Web site and supplemental marketing materials (business cards, letterhead, etc.)
- The firm intends to launch an advertising campaign by taking out a large ad in the upcoming Nashville Yellow Pages and offering discounted or pro bono work to develop a substantial portfolio and develop goodwill and word-of-mouth marketing.
- The partners have relationships with local media celebrities and hope to negotiate publicity spots with them.
With most Web design firms pursuing a more Web-oriented marketing strategy, DD’s traditional approach is unique, fresh, and leaves a more lasting impression on the general public.
5.2 Value proposition
Through significant industry research, DD has concluded that most clients of Web design firms insist upon a fixed price for all but the most minor projects. Based on this research, DD’s services will be priced to the client at a fixed cost per project. The fixed cost will be based on estimates of the time and expenses needed to complete the project. This will have the following benefits:
- Clients will be able to properly budget the cost of a Web design project in their overall operations plan.
- Clients will not waste money on DD experimentation.
- DD will have incentive to work efficiently.
- In order to establish a firm basis from which to make an estimate, DD will perform thorough research into each client’s needs and requests. This will allow DD to get to know the client and their business much better than would have otherwise been permitted.
By becoming the Nashville authority for tourism Web sites, DD will position itself to launch a very directed marketing campaign into other geographic markets. As illustrated in Section 4.3.1, most competitors do not identify themselves as specialists in any particular field or service. By creating the reputation of specialists in the tourism industry, DD will make itself the obvious choice for tourism clients around the country.
5.4 Sales forecast
The projected sales figures below represent an average chargeability of 75% for the staff and 50% for the partners. They also assume an average of 30% PFA on first year projects, 25% on second year projects, and 20% on third year projects.
|Year 1||Year 2||Year 3|
|Pro Forma Income||14,000||155,000||236,000|
This plan shows that if the partners re-invest in the firm for the first year, the firm will begin prospering significantly by the third year.
6.0 Operations summary
Dangerous Design’s primary operations functions will be as follows:
- Financial Analysis
- Human Resources (HR)
- Tech Support
- Professional Services
To accommodate these functions, DD intends to hire a full-time operations employee within the first two quarters of business. Until then, the partners will perform the operations functions.
It is worth noting that though some of the duties and responsibilities of the various operations positions are included, this should be no means be considered a comprehensive list of the many tasks these categories cover.
The staffing position’s responsibilities will include:
- Assigning employees to jobs based on experience and availability.
- Reviewing performance evaluations to determine employees’ strengths and weaknesses, in order to better match employee skills with client requirements.
As the firm grows, it will be necessary to make staffing at least a half-time function (up to 20 hours/week) in order to keep up with client needs, staff locations and availability. Staffing personnel will work closely with recruiting and HR to assist them in determining where additional skills are needed within the firm.
6.2 Financial analysis
The financial analysis position’s responsibilities will include:
- Measuring firm’s key operating factors, including chargeability, recovery, contribution, margin, total hours, performance against budget, etc.
- Reviewing detailed pro forma statement for unusual activity. If any is found, it should also be investigated and explained.
- Setting budgets and sales plans for upcoming fiscal year.
- Reviewing time reports for accuracy.
Financial analysts will frequently be asked for various ad hoc reporting. As needs arise and as DD works with different ways to analyze their financial data, necessary reporting will become more predictable. Financial analysts will work closely with accounting when investigating pro forma variations and during budget season.
As the firm grows, it will be necessary to make financial analyst a full-time position (40 hours/week) in order to maintain a high level of control.
The recruiting position’s responsibilities will include:
- Advertising firm positions when needs arise or become anticipated.
- Screening all potential candidates and confirming resume information.
- Marketing the firm as a desirable place to work.
- Schedule and participate in social functions for potential candidates to become familiar with the firm.
As the firm grows, it will make a more aggressive effort to recruit from college campuses, although the focus will remain on experienced-hire recruiting.
Although DD is breaking out training as a separate function in this business plan, it will generally fall under the HR (6.5) duties until the firm grows to a significant size. The purpose of breaking it out is to illustrate that DD takes training seriously and intends to invest substantial resources into its employees to ensure they are the most highly qualified in their fields. The training position’s responsibilities will include:
- Track skill sets of employees to determine when and in what areas training is needed.
- Work with staffing to schedule training at most convenient times.
- Work with recruiting to ensure new hires have appropriate specialized training.
- Monitor training industry for classes and sessions that may be beneficial for the firm.
6.5 Human resources (HR)
HR’s responsibilities will include:
- Maintaining employee files and processing employee paperwork (I-9, W-4, etc.)
- Processing payroll.
- Establishing a benefits package and constantly research new ways to improve it.
- Introducing new employees to the firm and instructing them on policy and procedure.
- Provide new employees with all necessary resources (laptop, supplies, etc.)
- Perform exit interviews for employees leaving the firm.
Accounting’s responsibilities will include:
- All accounts payable, accounts receivable, and general ledger transactions.
- Maintaining accounting program/package.
- Maintaining accurate records and receipts of all transactions.
The above list of accounting’s responsibilities is greatly simplified for the purposes of this business plan.
6.7 Tech support
Tech support’s responsibilities will include:
- Maintaining and upgrading all firm computers, hardware, and software.
- Maintaining local and external networks.
- Maintaining Web server(s).
- Making recommendations for upgrades to new technology.
6.8 Professional services
DD will need services in addition to the ones the divisions above will provide. Professional legal counsel, tax preparation and high-level accounting, facilities maintenance, and other services not covered above will be contracted to companies specializing in professional services and outsourcing.
As the firm grows, it will be come possible to move some of those outsourcing functions to internal divisions. Financial analysis will be done to determine whether it makes sense to make such moves, when the time comes.
7.0 Management and organization
Now that you know what you WANT to do, you need to get the tools together to do it. Tune in next time to set your initial expenses and get some funding.