A clear, concise and convincing business plan can mean the difference between getting your business funded and not getting started at all. In the world of venture capital, with thousands of ideas competing for investors’ attention, you’ve got to stand out. The best way to get noticed is to have a great idea that’s presented flawlessly and framed by the right level of detail and supporting data.
But how do you write a winning business plan? Let’s start with the primary components of your plan, and then take a quick look at some common mistakes to avoid.
Components of Your Business Plan
Executive summary. The executive summary is a single-page distillation of your business plan. The goal of the summary is to hook the readers’ interest enough so that they explore the plan in more detail or call to arrange a meeting with you. Most business plans never get read past the executive summary, so make it succinct and make it count.
Company history. Give the reader a bit of background on the history or origin of your company or idea. What was the inspiration? What roadblocks or challenges have you faced and overcome so far?
Goals. In three or four paragraphs, describe the short-term and long-term goals of your business. Cover topics like projected growth, anticipated customers and the value proposition your business presents to the target market.
Management team bios. Introduce the team that’s leading your company. Include the names, titles, backgrounds and qualifications of each member of your management team—don’t forget to cover current roles and responsibilities too. Try to condense this information into a single short paragraph for each member of your team.
Description of the service or product. Explain the product or service you plan to offer. How is it different from what’s already on the market? How does it fill a niche in the marketplace or an unmet consumer need? Give your readers enough information to fully understand the product or service, but don’t overwhelm them with technical details or minutiae.
Market potential. This section is where your research comes in. For local businesses, explore the current market scene within a reasonable driving distance. What competitors are out there? How are they not meeting current demand? For larger or Web-based businesses, use online research tools and information to make your case.
Marketing and advertising strategy. Potential investors need to know how you plan to get the word out. Is your marketing plan well-rounded? Will you use print, radio, TV and search engine marketing? Include annual projected marketing budgets, and stress how you’ll use metrics and data to reallocate marketing resources as-needed.
Financial projection. This section should include a summary of your financial forecasts, balance sheets, income statements and cash flow projections. Include relevant spreadsheets and the formulas and assumptions you’ve used in all projected numbers. This is also where you cover how much start-up capital you’d like to borrow. Tread carefully—this section will get the most scrutiny. Your numbers and financial data need to be meticulous and transparent.
Exit strategy. An exit plan isn’t cynical; it’s realistic. All good business plans include the criteria that will determine when to sell and when to throw in the towel. Whether it’s a dollar figure, a rate of growth (or decline), market reception or a decision of the leadership team, an exit strategy shows that you’re willing to get out when the time is right.
A Few Things to Avoid
Now that we know the essential parts of a business plan, what are some common pitfalls in execution? Most plans—even the ones based on great ideas—fail in delivery. Avoid the following.
Overselling a “dream team.” Avoid focusing too much on the educational achievements of your managers. Instead, tout real-world qualifications that have prepared your leaders to meet the unique challenges of your new venture. The best business plan matches good leaders with a solid idea, thorough research, and a clear strategy.
Ignoring risk. No venture is a sure bet. Investors don’t want to be consoled about the risk; they want to know that you have a firm grasp on the risks involved and can face them competently. Don’t down-play the realistic risks your venture will face. Instead, demonstrate a clear understanding of the challenges and focus on how your team will overcome them.
Presenting a solution looking for a problem. A good business plan starts with a concrete problem or challenge. The solution is secondary and is valuable (and marketable) only to the degree that it’s useful in solving the problem. Avoid a business plan that touts an amazing new service or technology that has an unclear purpose. Funders won’t want to invest in developing a solution that’s in search of a problem.
A winning business plan supports an idea by clearly spelling out the opportunity and strategy, while still being mindful of risk. Plans that get funding combine the science (data and research) with the art (writing) to win the minds—and pocketbooks—of investors.
Kentin Waits is a freelance writer and marketing specialist based in Portland, Oregon. His work has been featured in US Airways magazine and top-rated blogs such as Wise Bread, the Consumerist, and MSN SmartMoney. When he's not writing, Kentin runs a small online antiques business.
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