We recently asked you to send in questions about small businesses to OPEN Forum's expert, Guy Kawasaki, to help launch his new column. Today, he kicks off his second Ask the Wise Guy column about what really attracts investors. You can send your questions to Guy here.
Q: It seems like great ideas aren't the hard part, but coming up with a killer and attractive business plan is where the intimidation sets in (at least for me). How would you recommend an inexperienced person/team approaches creating a solid business plan to help further their chances of having a great project funded?
-C. D. in Connecticut
A: You’re right: great ideas aren’t the hard part. You’re also wrong: killer and attractive business plans aren’t the hard part either. The key to attracting investors isn’t an attractive business plan—it’s an attractive business. Most business plans are nothing more than the printed version of an entrepreneur’s hallucinations.
These days, there are two ways to get funded. One is to not need funding because you’ve already created and cashed out of a successful company. Then you can tell the story that you’re “proven,” and suckers will line up to invest. The other way is to build a prototype, get it to market, and prove that the dogs will eat the food. In both cases, a business plan is more or less a formality.
Note: you should not focus on a business plan, but this doesn’t mean you shouldn’t do business planning. Planning you need to do; that is, think about what your customers need (maybe they can’t even articulate it—that’s when the vision thing comes in), how you can serve these needs, what kind of people you want to hire, and how to finish your product and get it to market. One of the most valuable outcomes of business planning is getting your team on the same page. You’d be amazed at how founders differ on what’s really happening and what’s really important.
Just so you don’t make yourself crazy trying to create the War and Peace of business plans, these are the sections that you need: Executive Summary, Problem, Solution, Business Model, Underlying Magic, Marketing and Sales, Competition, Team, Projections, Status and Timeline, and Conclusion. All of this should add up to less than twenty pages.
Of the twenty pages, the first page—the executive summary—is by far the most important. This is because if it isn’t fantastic, people won’t read beyond it. (And if it’s truly fantastic, then people won’t read beyond it because they’ll be sending you an email or calling you to come in to make a pitch.) Many people will tell you that the team section is the most important. This isn’t true because most people’s business plan cannot prove that you have a great team unless your co-founder is, for example, Steve Jobs. Demonstrating the competency of your team comes later—in person and in action.
I suppose that I now have the moral obligation to explain what “fantastic” means in this context. First, let me tell you what fantastic isn’t. Most entrepreneurs use words like “revolutionary,” “patent-pending,” “first-mover,” “world-class, rock star, proven team,” and “multi-billion dollar opportunity.” These words and phrases are so over-used that they are meaningless if not laughable. Generally, the more adjectives you use in an executive summary, the less likely you have a good business.
By contrast, a fantastic executive summary catalyzes a fantasy by explaining an obvious pain point and a believable solution. It doesn’t cite the umpteenth consulting firm’s study that proves there’s a $20 billion market for shrimp-farming software. It simply tells a story that the investor can appreciate, and then the investor fantasizes about how many people would love your product or service.
Send your questions for future columns here.