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What our members have to say...
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"I'm having good success and interest with my time release technology with Mid-Atlantic Investment Network. So far, I have about 10 interested parties. "
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Fritz Steiger - www.steigerrealty.com |
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Entrepreneurship 101: Developing an executive summary and business plan
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Why do you write a business plan?
“Writing a business plan forces you into disciplined thinking if you do an intellectually honest job. An idea may sound great in your own mind, but when you put down the details and numbers, it may fall apart.”- Eugene Kleiner, venture capitalist
There are two universal truths to a good business plan:
1) The first version of your business plan will be totally different from the n-th version which you end up having.
Be dynamic and be ready to adapt to changes and to how your investors, clients and collaborators view your business plan.
2) The business plan must hold true to the original ideals and principles of the founders, but what changes are the details of how it is implemented.
Dogma is the root of all evil for business ideas. The changes may frustrate you but they are for your own good. If you respond respectfully and with some thinking to the critical and helpful comments from industry folks, you can refine your plan to a form preferred by an investor.
Sometimes, experts can make mistakes, but you have to remember that they are right 90% of the time. The real difference-maker for you as an entrepreneur is to see that remaining 10% which they cannot fathom. Even when your business eventually starts with version X of your business plan, expect to make changes as your company engages the market.
Elements of a business plan
Executive Summary: The overview and summary of the business plan. It must be short and never exceed more than 2 pages.
Problem and Opportunity: The first thing that you need to frame is the problem that your business is trying to solve. Once you have done that, demonstrate why your problem has a business case by exploring the dollars and cents behind that industry. For example, a bottle of mineral water is a solution for the problem of thirst in human beings. You can then explain the market opportunity based on the consumption of water and how many bottles of water are required to deal with the problem of thirst. Do not try to define the problem based on your solution. That usually requires a change in behaviour and not many companies succeed in creating a brand or product for a solution that is yet to find a problem.
Technology/Product/Business Idea: Every market opportunity has a background that needs to be explained. For example, you can cite that governments may be planning to put a significant amount of their GDP to boost the prospects of that industry. Highlight key features of your product/service/technology and compare against competitors in the market. Note that this is not a research report on a product. The product or prototype must work so that you can explain how the features solve the business case of the problem.
Management Team and Advisory Board: Who is on the team? Who are the advisors or grey hair behind the team? A good team is made up of individuals who have complementary skills and clearly defined roles and responsibilities. In the business plan, the CVs of the team members (usually 3/4 of a page) are placed in the appendices. Some say this part is the easiest to write. In my opinion, it is toughest to do so not because you don’t have the information, but rather how you frame your team’s skill set to convince investors that they are the right people for the job.
Markets: This is the part where you explain how your company meets the needs of the customers. It also provides a market segmentation analysis of your target industry. You must convince the investor about your plan to approach the market. For example, you may want to target women between 18 to 30 for a particular type of utility clubbing wear you have in mind. The key to understanding markets is to get a grasp of the actual numbers of how much that industry has grown and what the CAGR rate is.
Business Strategy and Route to Market: This section is the most important part of the business plan. You need to work out the business model for your company, the strategy to enter the market, the pricing model for your product and service and how you plan to engineer the different channels into a successful corporation. You also need to clarify your sales and branding, logistics operations and distribution channels. Investors genuinely want to know how you plan to scale, and the best way to think of this is to ask the question: “How do I drive down the cost of customer acquisition to near zero?”.
Operations Plan aka Timeline and Milestones: You need to create a realistic timeline of usually about three years. It should detail how you plan to take the initial investment and finally cross the valley of death into a positive revenue company. In the real world, if you are fundraising for different stages, your next round of financing is tied to the milestones you achieved. Suppose you are a mobile web company currently raising US$5M and you have built up 5 million users, then you need to also tell your investors that you will be raising US$20M in the next round. You should also state how many users you plan to procure and the percentage of users that will generate revenue, using the US$5M you will get.
Risks, Barriers to Entry, and Competition: You cannot convince your investor unless they know who you are pitting your startup against. You need solutions that will help to minimize these risks and mitigate against the barriers to entry. This is the part of the business plan which requires truthfulness: What is your plan to prepare against all the problems which will crop up down the line?
Financials: In this section, through the use of a financial forecast, calculate both the pre and post-money valuation of your company. You do not need these numbers until you have reached the last two rounds of negotiations with the investors. Usually, what you forecast greatly differs from reality.
Exit Strategy: What will be the company status within a three-year horizon? Do you need additional fundraising to enter the next stage, or are you simply looking to be acquired by another company? If your growth trajectory is really awesome, you might be able to take the company to an Initial Public Offering (IPO).
Do you really need a business plan in real-life fundraising?
The answer varies. In fact, what entrepreneurs usually do in reality is to build a presentation deck of about 50-100 slides with the elements required in the business plan. Then, the entrepreneur would trim it down to about 20 slides for an introduction deck (without mentions of financials and valuation), 30-50 slides for an investor-ready deck (with some mention of financials). It varies from investor to investor.
You will probably hear some entrepreneur claiming that they did not need to write a business plan or a presentation deck to get investors. That is probably true, because if you are profitable and on a super growth trajectory, you will do less work to get funding.
I have this conjecture for mobile-web start-ups that the amount of money you raised is inversely proportional to the amount of content in a business plan. The reason is that in the modern day tech startup scene, investors don’t look at your overbloated PowerPoint presentations or documents, but rather a prototype and some analytics about the number of users, user behaviour and what takeaways you’ve learnt in order to turn it into a profitable business.
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