To convince investors, you must describe your dream plan in words and spreadsheets, moving from vision to practical details.
Milton Chang
Momentum is building. You're confident your idea is going to work and you want to move forward to start your company. Now's the time to gather your thoughts and put them down on paper. In this article, we'll look at the basics of writing a business plan--what it is, who needs it, and how to think about it. Having been both an entrepreneur and an investor, I can take you across the table and behind the scenes to help you develop and sell your idea.
You want your business plan to convince investors to part with their money and to convince professionals to join your team. But before it can be useful and convincing to them, it must be useful and convincing to you. Most of all, the business plan is a valuable planning tool to help you systematically think through the business.
You start with a vision of what you want to accomplish. In preparing a business plan, you deal with the details, the practical aspects of how you're going to realize and implement your vision. You have to decide how to develop, make, and distribute products (or provide services), persuade customers to buy them, find and keep good people, respond to your competitors, and even decide how to pay yourself.
Writing the business plan helps you achieve a state of intellectual preparedness. Be prepared to fine-tune your business plan as you add people to your team and as you get investor feedback.
Writing your plan is like working through a flight-simulator exercise that trains you to run your business. It's the next best thing to having actually done it. You'll envision and play out different scenarios. You'll describe those scenarios in words and also in spreadsheets that show the financial results of your actions. As problems in cash flow become apparent, you modify your decisions and actions or even modify your strategy. For example, you may decide to slow down your sales growth if it's placing too high a demand on cash. That's counterintuitive, but it shows up clearly as you play with your spreadsheet. The work you do now can help you avoid costly mistakes.
If you can't write a good business plan, you're probably not ready to start your own business. But it's unthinkable to have an outside professional write your business plan; it defeats the whole purpose. You will need guidance from experts on different aspects of the business, and you can learn a lot from books and from existing companies. You can get an annual report from a public company in a similar business or simply look into the company you work for now. It's important that other people critique your plan along the way to help you find blind spots. I recommend that you also have a lawyer review the plan to make sure your optimism won't be construed as a warranty for success.
The first thing an investor reads is the Executive Summary, so it's the most important part
of your business plan. The investor really wants answers to these questions:
Body language. Potential investors can't possibly understand all the business plans coming their way. They get the job done by looking for inconsistencies in your presentation and by resorting to intuition and reading body language. In essence, consciously or not, they are comparing you to business people in their own experience who have been successful.
Successful people are goal oriented, thorough, and decisive; they can cut to the heart of the matter quickly. They have enough self-confidence to be objective, and they don't generally resort to snow jobs to convince people. As for myself, I also look for honesty, enthusiasm, and commitment. People won't be successful unless they're passionate and love their work. That's the body language you have to convey in your business plan, and, for that matter, in all your interactions.
It's inexcusable to submit a business plan that's inconsistent, incorrect, poorly written, or in any way unprofessional. I tend to shy away from a business plan if I don't understand the main message right away. If the plan is sloppy, I get nervous about the planner's ability to get the job done right.
Keep it short. Keep the business plan crisp and concise, no longer than 30 pages as a rule of thumb. The Executive Summary should be just a page or two. The optimal length for the main body text is 10 to 15 pages. If your plan is too long, investors may think you're trying to cover up a lack of substance with bulk, you're indecisive or lacking in confidence, you're confused and can't see what's most important, or, worse, that you're inconsiderate--you're taking up people's time unnecessarily.
Be honest. People often ask me whether they should inflate the numbers "because the investors will divide them by two anyway." I tell them no. It's essential that you be honest. Don't exaggerate any numbers, and make sure you can back up your claims about the size of the market. Professional investors will run their own numbers if they're seriously interested. And if you get away with inflating the numbers, you'll be forced to operate as if you were reaching for an unrealistically high target. That may very well mean spending at a higher than optimum rate, which heightens your risk of running out of money before the business develops.
Think also about the people that would join your company based on your presentation. You may be disrupting their entire career! Dishonesty could very well be a time bomb for investors, employees, and everyone involved. Your lawyer may protect you with the right caveat wording, but I prefer to think of the business plan as an implied contract.
At the introductory stage when you submit your plan, the key is to keep the process going rather than to close the sale. This perspective puts an interesting spin on how you approach writing the business plan. You'll want to keep it short and simple, easy to read and understand, and you'll want to give the reader a reason to come back for more information. Relax and be yourself. All you need is one investor that responds well to you. If you aim right, you'll get funded soon enough.
Reprinted from and Copyright © Laser Focus World--June 1995
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