How to Craft a Business Plan That Will Turn Investors' Heads
People have differing views about the import of business plans. I've even heard some venture capitalists say they're not worth the paper they're written on. Instead, they prefer just an executive summary. Nonetheless, being able to describe your business, the industry you operate in and the potential market for your company is downright vital. And you won't generally address all of those aspects until you actually sit down and write up a plan. Here’s a checklist of the minimum information you should have in the plan, along with some nice-to-haves that will increase your chances of getting a "yes" to that dollar request.
An executive summary: This enables potential investors to quickly determine whether it’s worth their while to read your entire plan. Therefore put as much effort as you can into making it a strong pitch to keep reading.
Company overview: The main purpose of your company, including products and services as well as any proprietary technology or other unique features. This is also a good place to include information on the company’s history so far.
Related: How to Write a Business Plan
One of the most daunting tasks for most small business owners is creating a business plan. Sitting down, staring at a blank page or computer screen is never easy, and even less so when you are creating a document that will govern, to some degree, the path of your business for the next few years. However, there are a few things that can make the process a little easier:
o This is to ensure that you know at least somewhat where you are going, and have a clue as to the way to get there
o In fact, the simpler you can make your vision seem (and back it up) the more effective your business plan is likely to be
Now that we’ve clarified those business plan fundamentals, let’s get into the nitty gritty of how to actually write one.
Spend Some Time Brainstorming
Before you even put pen to paper on your business plan, it’s a good idea to sit down and make notes. Write down anything that occurs to you which may apply to your business. Don’t restrict yourself to the sections or template of a standard business plan; just allow your ideas to flow onto the paper. This will form the underlying basis of your final document, and will help you solidify the content to include in your plan from a holistic perspective. Once you’ve gathered all your thoughts on paper, you’re ready to start writing the plan.
1. Executive Summary
The executive summary of your business plan is pretty much exactly what it says – it’s a summary of the information contained in the rest of the document. Although it is short (around two pages), it’s the most important part of your business plan, and should be written last – after you have covered all the other sections of your plan. The reason for this is that potential funders and investors, who are extremely busy and have limited bandwidth, will NOT read your entire plan. To be honest, they will probably read just this part of your business plan to figure out whether to schedule a first meeting with you or not. Therefore, your executive summary needs to be a knockout!
2. Business Overview
In the business overview section of your business plan, you will cover the idea behind your business and the legal formation it become. For instance, you might be starting an online business that sells pet products. This is the section where you will cover that, as well as outlining what legal form the business will take, were they company is based, etc.
Anyone who is seriously considering investing in, or funding your business, will want to know who is behind the idea. They’ll essentially be asking themselves “who will be steering the business from business plan to market success?” In this section of your business plan, outline who the key players in the business are going to be (along with their resumes), as well as detailing the management structure of the business. Use this section of your plan to assure investors that you and your team are the best people for the job, but don’t lie! If you’re lacking in a particular area, for instance, accounting, indicate how you plan to address the issue – for instance, by outsourcing the function. Remember – no one is good at everything!
4. Your Market
Anyone who is considering investing in your business will want to know that there is, in fact, a market for your product/service. Even if you are self funding, you need to know who your target consumer will be! That means examining both the potential demographic your business is aiming for as well as the overall industry landscape. Market research will also help you to avoid costly mistakes. For example, if you are planning to open a fast food restaurant, but the area you have chosen already has five, there’s a good chance you need to rethink your strategy, right?
5. Sales and Marketing Strategy
Once you have covered WHO you are going to sell to, you need to be clear about HOW you plan to do it.
All of this information will help you to gain a foothold in the market while you are starting out. If you continue to build on the above, it will be a very worthwhile step toward ensuring the success of your business over an extended period of time.
6. Financial Statements and Projections
Easily the scariest part of preparing a business plan (for most entrepreneurs) is constructing the financial statements and projections. However, there are plenty of free online resources that can help you. There are an abundance of templates that will provide a framework for creating a clear financial picture of where you are right now, what you need to get started, and what your sales and profits will be in the short-term. Alternatively, you could hire an accountant to compile your information into a financial plan. Based on my experience, in the early start-up days, it’s always best to be engaged in every aspect of the business – there’s nothing worse than trying to present a business plan to investors and not understanding the numbers.
7. SWOT Analysis
Yet another aspect of the business plan that scares many entrepreneurs is the SWOT analysis. This acronym simply means an analysis of your business in terms of:
Spend some time with a sheet of paper for each of the above, and list your ideas. Then simply transfer them to your business plan, and expound upon them with detailed explanations as to how you’re either going to mitigate or capitalize on each of them.
8. Supporting Documentation
This is the section of your business plan where you can supply any other documentation that is relevant to your company or which your readers may find interesting. Maybe you are applying for growth funding, and your company or product has won an award – include a copy. Or maybe you operate in a highly specialized environment that requires certification – include yours here. This section can have a substantial impact on how your business plan is received from a risk mitigation perspective.
Take Your Time, and Treat Your Business Plan as a Learning Tool
As you can probably now see, the concept behind your business plan is not that difficult or complicated.
Yes, building a business plan can be a process that takes some time, but it is an exercise that will help you to gain a clearer picture of your company. Furthermore, a great plan will help you to convince potential investors and funders that you are worth the risk.
Think of your business plan as your sales pitch for your business on paper – invest time in making it great.
Company mission and vision: This is the biggest picture for your company -- the "why" behind what you do.
Investment rationale: Simply, how much you want and what you’re going to do with it.
Market and competition analysis: This covers the size of your market and who your competitors are for your product or service.
Marketing plan: This is the four Ps of marketing -- product, price, place and promotion. Remember that you'll want to prove that you know how to generate revenue for your business.
Related: 7 Common Marketing Mistakes to Avoid:
Sorry to say, but you’re not likely to have a highly successful marketing plan right out of the box; there will probably be quite a bit of learning as your marketing techniques evolve. The message of your marketing plan should be clear to you before you even get started and should be aimed to elicit a response from your audience. To help get a good start to developing a lucrative marketing plan, here are seven big and all too common mistakes:
Mistake #1: Keep that professional front
A professional appearance and language is important in any marketing campaign but the acceptable levels of professional decorum vary greatly depending upon the industry. The language of a children’s birthday party service should sound a lot different than the marketing of a law firm. This being said there is no rule that a law firm can’t still be slightly playful in their language, at the very least to some extent a more casual forum will be more inviting to clients possibly intimidated with the prospects of selecting a law firm.
Also a common mistake made in business marketing is the overuse or underuse of the lingo of your industry. It is important to find that fine line between overusing confusing terms or sticking to the proprietary terms and leaving your readers lost. Over simplifying can be interpreted as dumbing-down to your readers and really may be more offensive than helpful.
Mistake #2: The more readers the better
This couldn’t be farther from the truth. Blast marketing at as many people as possible won’t necessarily translate into new customers. They key to successful marketing is to find a specific niche market and give them what they want. This does sound simple, but it may take a bit of work and research to discover where the niche market truly lies and how to best reach them. Once the appropriate market is understood, then the original concept of the more readers the better may actually apply.
Mistake #3: Speak to the group
Big mistake. Though you are speaking to a wide group of readers, never speak to the reader as if they are part of a faceless group. The best marketing plans will make the reader feel as if you’re speaking directly to them. Using phrases like, “Dear valued clients” or “you all” sets readers in frame of mind that will make them less likely to feel important to you.
Mistake #4: The readers need to see the value
Marketing campaigns frequently tend to lose focus on their actual goals; rather they blast what they think people want to hear. Showing readers the value of your product or service likely wont convince your readers, demonstrating your value is more impactful. Including things like client testimonials or reviews of your product or service is priceless. If costs prohibit you may want to consider actually giving a little to get a lot, as in a free gift or a special discount offer for your readers.
Mistake #5: My marketing is about me
This couldn’t be farther from the truth. Marketing is about the customer and how your unique product or service will suit them. It is the job of a successful marketing piece to demonstrate how the prospective customer can’t live their lives without you.
Mistake #6: People just want the facts
If you’re lucky enough to capture the attention of your readers, it is so important to showcase useful information channeled through a unique personality or voice to your business. Sure the readers are there for information purposes, but reading charts, graphs or blocks of numerical information is just plain boring. People inevitably don’t just want the facts, they want entertainment or at the very least a captivating flow of language to keep them reading to listen to what you have to say. Make an appeal to emotions to involve the reader dimensionally with your words.
Mistake #7: The goal of the message should be to get clients
Okay, the goal of marketing is to obtain new clients this is true, but it should not be the message of your marketing plan. No one likes being “sold-to.” Successful marketing should be sharing information, providing value to the prospective customer and building a relationship of some sort with the receiver. There are two objectives to focus on if you plan to succeed in your marketing plan:
There are plenty more mistakes to be made in marketing but these seven are some of the most frequented ones out there. No need to spend precious time and money on ineffective marketing plans.
Organization: The structure and location of your organization are important measures of how well you’ve planned for future growth. This can be a simple organization chart with short explanations of roles, along with the address of your operation.
Management team: Your expertise and the skills and background of your team members can mean the difference between a yes or no on funding. Even if your experience is limited, talk about anything that makes you and your team -- if there is one -- uniquely suited to make your company a success.
Operations: How your organization runs. Consider using a flow chart.
Project execution: Do certain projects need to be completed before you can generate revenue? List them here with a plan for getting them done.
Related: 6 Reasons Your Startup May be Viable But Not Fundable
New entrepreneurs often seem to confuse viability with fundability. Certainly a non-viable business should be not fundable, but many viable businesses are also not fundable. Thus when an investor declines your funding request, you need to curb your anger and understand the real reason for this outcome.
In my experience, here are the most common issues that cause funding requests for viable businesses to be rejected, in priority order:
1. Inadequate business plan. Some investors say half the ideas pitched to them don’t have any plan at all, even though some have great potential. Other entrepreneurs skip some key elements of a good business plan, like financial projections, or analysis of competitors. None of these get funded. Investors know that entrepreneurs who start a business without a written plan almost always fail.
2. Inexperienced team. Investors bet on the team, more than the business plan. Your business model may be very attractive, but if you are new to this, you may not be fundable. If you can find a partner who has deep domain knowledge and a track record of building businesses, I can assure you that your luck will improve.
3. Business domain is high risk or not squeaky clean. Certain business sectors have historical high failure rates and are routinely avoided by investors. These include food service, retail, consulting, work at home, and telemarketing. Also, don’t expect investor enthusiasm for your gambling site, porn site, gaming, or debt collection business.
4. Opportunity is not large or growing. Investors are looking for a large and growing market, to offset the huge risk of funding a startup. Rules of thumb include an opportunity projection that exceeds a billion dollars, with at least double-digit growth. Smaller numbers may easily make a viable business, but won’t attract investors.
5. No sustainable competitive advantage. The market may be large and growing, but you need some “secret sauce” or intellectual property to keep the big guys from jumping in, once they get the picture. Sleeping giants do wake up, and investors hate to see their money used to build a market for Microsoft, IBM, or Procter & Gamble.
6. Financial projections are too conservative or too optimistic. Investors won’t fund people who won’t push the limits, or inversely won’t recognize business realities. More rules of thumb. Your five-year revenue projections better reach at least $20M, but should not exceed Google’s actual revenues of $3B in the fifth year.
Don’t expect a straight answer on your rejection reason from most angels or venture capital people. They will probably tell you all looks good, but come back later, after you have finished the product, signed up a few customers, or reached some other future milestone. This is called “not burning any bridges,” in case you start to show traction and they want back in the deal.
Thus you need an experienced advisor who can do his own analysis of your plan, and follow-up informally with all investors to give you the real reason for your rejection, so you can fix it. I find it completely disheartening to see founders banging their head against the same wall over and over again with every investor, without even realizing their problem.
There were at least a half million startups last year, and only a few thousand received investor funding. In fact most of the others avoided all these rejections by simply using their own money (bootstrapping), or using the old standby funding source of friends, family, and fools.
Even if you don’t intend to “walk the gauntlet” of external investors, it will be worth your while to navigate your startup into a category that is both viable and fundable. Isn’t your personal risk just as important as investor risk?
Risk analysis and mitigation: This is the section where you show that you are aware of the risks and have thought about how to deal with or eliminate them.
Financial plan: In this section, you'll need to layout your funding structure, which tells investors where they fit in the equity of your company. You'll also need to list your expected start-up costs, along with financial projections for the first five years. It's helpful if you can offer a realistic estimate of when you will break even and start generating profits.