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If you think you only need a business plan to go fishing for
capital, you are sorely mistaken.
A business plan--thoughtfully assembled and diligently
updated--is the very blueprint for any company. It sets
direction, facilitates communication and establishes performance
metrics. Better yet, well-articulated business plans force
business owners to constantly weigh the strengths and weaknesses
of their operations.
And, yes, these documents are
de rigueur
when courting professional investors.
Investment-grade business plans--usually about 20 pages long--are
grounded in deep knowledge of an industry and the money-making
opportunities within it. I can't do that work for you, but I can
highlight the 10 key elements that matter most--to business
owners and their investors. (For important tips and traps in
creating these plans see the slides)
1. Definition Of The Problem.
Every plan must start with an explanation of the problem the
business aims to solve--not
a description of the company and product. Lay it out in terms
your mother could understand, and quantify the "cost of pain" in
dollars or time. Avoid airy assertions like "every customer
needs this" and gobbledygook like "next generation platform"--they
mean nothing and undermine your credibility.
2. Solution and Benefits.
This is not the place for a detailed product specification.
Instead, explain how and why the product works, including a
customer-centric quantification of the benefits. Again, skip the
technical jargon and hyperbole.
3. Industry & Market-Sizing.
Without compiling a tome, capture the evolution of the overall
industry,
market segmentation,
market dynamics and customer landscape. Relevant charts and
graphs, with figures from accredited sources, sell a story very
efficiently.
4. Explanation Of The Business Model.
This section should explain (again, clearly) how you will make
money: who pays you and how much of that you get to keep after
expenses. A mere glance should yield a decent grasp of the
business' growth potential.
5. Competition and Sustainable Advantage.
List and describe all of your competitors, including substitute
products or services. (Simple example: If you're selling a car,
don't forget about motorcycles and trains.) Then detail your
sustainable competitive advantage, and highlight barriers to
entry which will keep your competitors at bay.
6. Marketing and Sales Strategy.
Here you sum up how you will go to market, including your
pricing and distribution channels (which could also include
strategic partnerships). This is a good place to map out a
timeline of key milestones.
7. Executive team.
Investors ultimately bet on people, not ideas. Convince
investors that your team has the chops and determination to
start new businesses, and demonstrate deep knowledge in the
company's specific domain. Include members of the Advisory Board
and key industry players involved in the company.
8. Funding Requirements.
Explain how you arrived at the amount of capital you are asking
for, and describe in depth how you plan to use that money. Show
the amount of financial commitment founders and equity owners
have in the company, including
sweat equity
(hours slaved in exchange for a percentage of the company, as
opposed to cash salary).
9. Financial Forecast.
Include revenue and expenses for the last three years (if
relevant), and project them for the next five. Clearly show--and
justify--any growth assumptions. Highlight the break-even point.
10. Exit Strategy.
This section is required when courting outside investors eager
to know when and how they will get their money out, and what
sort of return they might expect. (Initial public offerings--the
exit of choice for many investors--are few and far between these
days.) Plan to keep the business in the family? Ignore this
section. Trap: Plenty of entrepreneurs have built companies only
with an eye to sell them. For many, this is the greased path to
perdition. Focus instead on building a truly sustainable
business. The money, fame and stock tickers will come.
A final word on great business plans: Longest and fanciest
doesn't win the race. These documents are meant to enlighten and
reassure, not entertain. The best plans anticipate and answer
every question an investor could possibly ask, except maybe: "Where
do I sign?"
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