This is the tale of two business plans with very different cover pages. They both contain a unique and exciting business opportunity with the potential for high investment returns. Arriving in the morning mail, each neatly bound plan lands on the desk of the same potential business investor. Both plans are competing with hundreds of other documents, worksheets, phone calls, and articles for the investor’s attention. And, they compete in time, because each one, seen for a few seconds, is either heeded or passed up and seldom returned to by the investor. The first plan is tightly bound. It has a cover page made from thick paper stock. The cover page resembles the cover page to a term paper. The company's name in the center of the page and the owner's contact information in the bottom left corner provide the first bits of information about the business to the investor. Not being familiar with the company name or the owner, the investor must now open the plan in order to learn anything...

You have spent considerable time pulling your business plan together, contacting potential business investors, making management presentations and pitching your business plan to prospective business investors. Now you finally have a serious investor who wants to conduct “due diligence” before investing real cash into your business. Great! What’s “due diligence? Due diligence is a thorough examination of available facts, references, books, records, etc. of your business and business plan. And, what exactly should you expect during due diligence? Skepticism... Business investors want to be sure there are no skeletons in the closet and that your venture is not the next Madison Priest "black box technology" -- a revolutionary technology that claimed to allow ordinary phone lines to transmit data into people's homes at rates faster than fiber optics. By staging impressive demonstrations, Priest convinced private business investors and seasoned companies, such as Blockbuster...

Every business plan book tells you how the Executive Summary is your opportunity to provide a brief overview of your business plan; capture your readers’ attention and imagination; and, summarize the plan’s highlights and key selling points. So, why am I telling you these 3 things when you probably already know them? Because it’s useless advice unless you employ one, not so obvious, age old marketing technique to make these points come alive. This one technique is the key to the ultimate success of your business plan and its ability to attract potential investors. More importantly, it will help you raise money for your business…potentially a lot of it. Best of all, it costs nothing to “do” and can save time finding serious investors. The not so great news is it's rarely found in “business plan” books or on most business plan websites. It's one thing David Galdstone doesn’t tell you how to do in his popular “Venture Capital Handbook.” You won’t find it in...

It’s easy to lose sight of what needs to be communicated to prospective investors when writing the various sections of a business plan. Successful business owners/entrepreneurs use each section of their business plan to work up interest, to present arguments and, most important, to build trust and confidence. How To Earn The Trust Of Skeptical Investors… Usually some sort of upfront investment precedes starting or expanding a business, whether it be time, energy or cash. If you plan to raise cash from investors, you must get prospective investors comfortable with putting their money into your hands. To start you must understand that investors simply want to select the best investments, period. This means choosing businesses that earn a high enough rate of return on investment to offset the risk of the investment. That said, deciding what is a good opportunity is an investor’s number one challenge. That’s why investors thrive on information. Good information - good...

Show me the...evidence! When it comes to writing a business plan, many businesses focus on speed. By rushing to complete their plans, businesses often forget to gather critical evidence to support their plans. Investors never read business plans that lack evidence or consider the claims in them worthless. Gather evidence to build your case, support your claims, and persuade investors. When writing a business plan, use these 10 critical pieces of evidence to win the trust of potential investors and their backing quickly: Articles about your industry, competitors, products, trends, and so on. When unsolicited, articles about your company or products help build credibility, provide unbiased viewpoints, and often include third-party research. Market studies. Use market studies to support market trends, size, and growth rates. When prepared by an independent party, these studies add credibility to market related claims. Product or business literature. In-house product or business...

Business investors are sensitive to at least three major constraints when evaluating business plans. I call these constraints The Three R’s: reality, readiness, and resources. Reality Many creative entrepreneurs with ideas for scientific breakthroughs have ended up frustrated with business investors who just don’t seem to “get it.” The truth is, however, that it’s the entrepreneur who’s not getting it. Unlike creativity or scientific breakthroughs, starting or expanding a business requires the entrepreneur be keenly aware of their customers, competition, and core competencies. Creativity and scientific breakthroughs often disregard the customer, the competition, or a company’s core competencies, which is why they are usually risky and often require significant capital over several years before they are monetized. The opposite type of investment most business investors seek. For example, suppose you had an idea for a new everlasting light bulb. After researching the...

In most business plans, no matter how striking the idea, the covers are critically important. The majority of investors may flip to the executive summary, if they get past the cover, when deciding whether or not they are interested. Exactly like the front page of a daily newspaper, a business plan cover puts the important highlights of the proposal upfront for potential investors to read. The success of an entire business plan campaign may stand or fall on what is said on the cover of the business plan. In his book, the Venture Capital Handbook, David Gladstone wrote that of the one-hundred proposals a week an investor receives, maybe ten are read. So, providing critical information on your cover is about the most important thing for sparking the interest of prospective investors. In fact, your cover page competes with hundreds of other documents, worksheets, phone calls, articles, and other information for the attention of prospective investors. And, based on Gladstone's...

The success of a business plan stands or falls on its ability to get potential investors to take a moment to read it. Nothing works better for doing this than well-written headlines designed to interrupt and engage investors. Here are five fundamental rules for writing and incorporating headlines into your business plan. More important than anything else, try to get investors’ self-interests into every headline you write. Make your headlines suggest to investors that there is something about your business plan or venture they want. This rule seems so obvious. Yet, absent omitting headlines entirely, it is the rule most often violated. Replace overused one word headings like "Company", "Products", "Market", Financials" with headlines that appeal to investors’ self-interests like making money, protecting their investment, or building trust. Be sure to get news worthy information like new products, new uses for old products, or technological breakthroughs into your headlines...

Whether you are seeking capital for your company or are optimizing your business strategy, the most important element - particularly for outside investors -may be your written business plan. You can tune-up and supercharge your plan using this 19-step checklist. When your written plan firmly answers yes to each of these 19 questions, your market/product strategy is in terrific shape plus you increase the odds of attracting investment capital. If you don't already have a written business plan - write one! Your business plan is a blueprint for your whole company. It describes in detail your goals, the financial and technical viability of your goals, and the strategy you will use (or are using) to reach those goals. And your business plan is a working tool - it is a yardstick to measure your progress and a compass to keep you on course. Must a business plan be written? Yes! A plan which is not written usually has not been thought through fully. And despite what you may have read, it...

International business plans require additional study compared to domestic ones. These require additional expense and time to resolve. Here we will discuss four critical ones for a business plan. First, we must decide on the business structure. Countries have favorite structures that evolve slowly. When considering international companies, different structures might be required. Typically, the type of business structure must be discussed with a business consultant in the country itself. This will most often be a lawyer from that country. It's possible that a lawyer in your home country would know the laws of another, but it's not very common. This information is critical for the correct filing of papers, company organization and other important details. As we are deciding which structure to use for a foreign country, the decision on how to control it is also important. Will the foreign company be a stand-alone? Will it be a subsidiary of another company? These questions...

Who needs a Business Plan? Every business needs one. It's not just for start-ups or new product launches or business expansion initiatives. Why? And what should be in one? Documenting a Business Plan is an extremely useful process to focus management and owners on their business concept, strategies, and operating plans. It forces consensus and decision making that might otherwise be neglected. It requires issues to be resolved and the decisions to be reflected in financial projections. A well-documented business plan will help you communicate the most important elements of your strategy and plans to the people who need to know them. Including you. Already in business for years and never needed a business plan? It's still a good idea for all the same reasons. And now is a good time. Ready to exit your business? Even better. A solid business plan will be the most important document in supporting the valuation of your business. The greatest value of a business plan, however, is...

The Customer Analysis section of the business plan assesses the customer segments that the company serves. In it, the company must 1) identify its target customers, 2) convey the needs of these customers, and 3) show how its products and services satisfy these needs. The first step of the Customer Analysis is to define exactly which customers the company is serving. This requires specificity. It is not adequate to say the company is targeting small businesses, for example, because there are several million of these types of customers. Rather, the plan must identify precisely the customers it is serving, such as small businesses with 10 to 50 employees based in large metropolitan cities on the West Coast. Once the plan has clearly identified and defined the company’s target customers, it is necessary to explain the demographics of these customers. Questions to be answered include: 1) how many potential customers fit the given definition? is this customer base growing or...

Many investors skip straight to the financial section of the business plan. It is critical that the assumptions and projections in this section be realistic. Plans that show penetration, operating margin and revenues per employee figures that are poorly reasoned, internally inconsistent or simply unrealistic greatly damage the credibility of the entire business plan. In contrast, sober, well-reasoned financial assumptions and projections communicate operational maturity and credibility. For instance, if the company is categorized as a networking infrastructure firm, and the business plan projects 80% operating margins, investors will raise a red flag. This is because investors can readily access the operating margins of publicly-traded networking infrastructure firms and find that none have operating margins this high. As much as possible, the financial assumptions should be based on actual results from your firm or other firms. As the example above indicates, it is fairly easy to...

Even the best new concept or existing plan will fail if executed poorly. The Management Team section of the business plan must prove to the investor why the key company personnel are "eminently qualified" to execute on the business model. The Management Team section should include biographies of key team members and detail their responsibilities. It is important that these biographies are not merely resumes that include the educational backgrounds and previous job titles and responsibilities of the team members. Rather, biographies should highlight the most relevant past positions that the individuals have held and specific successes in each. These successes could include launching and growing new businesses or managing divisions of established companies. Team member biographies should be tailored to the company's growth stage. For instance, a start-up company should emphasize its management's success launching and growing companies. A more mature company should emphasize how team...

All investors greatly desire and are motivated by a clear picture of a company’s exit strategy, or the timing and method through which they can “cash in” on their investment. This picture best comes into focus when the key valuation and liquidity drivers of the company are clearly delineated. An excellent method to accomplish this is through descriptions of comparable firms that have had successful liquidity events, either through acquisition, merger, of initial public offerings (IPOs). It is helpful to show other companies in your market, or similar companies in other markets, who have successfully exited, and how and why these companies were successful. For instance, were they successful since they acquired a large customer base? Or were they successful since they accomplished fast growth or high profit margins? It is also important to tie their success to their exit price. Was the exit price based on earnings or the number of customers the firm had at the time? The business...

Many people ask how many graphs or charts they should have in their business plans. As with most other business planning questions, the answer is “it depends.” This article discusses the key factors influencing the number of graphs and charts to include in your business plan. To begin, the key point to consider in developing your business plan is the time restraints of your audience. If your audience is a retired angel investor, he may have few obligations and can spend an hour reviewing your business plan. However, the more likely scenario is that a venture capitalist, corporate investor or loan officer will review your plan while sitting at a desk topped with fifty other business plans. As such, it is critical that your plan conveys its key points quickly and easily – this is where graphs or charts come in. In determining whether to use a graph or chart, consider the old adage, “a picture is worth a thousand words.” The point here is that the picture should save a...

How long should a business plan be? A business plan needs to be whatever length is required to excite the investor, prove that management truly understands the market, and detail the execution strategy. From surveys of investor needs, Growthink has found that 15 to 25 pages of text is the optimum length in which to accomplish this. Any more and the time-constrained investor will be forced to skim certain sections of the plan, even if they are generally interested, which could lead them to miss essential elements. Any less and the investor will think that the business has not been fully thought through, or will simply not have enough information to make an investment decision. Many management teams feel that their company is too complex to describe in 15 to 25 pages. While this is sometimes true, the business plan is not meant to tell the whole story. Rather, the company must be “boiled down” into its essential elements. If the investor is interested, there will be plenty of...

When developing the competition section of your business plan, companies must define competition correctly, select the appropriate competitors to analyze, and explain its competitive advantages. To start, companies must align their definition of competition with investors. Investors define competition as any service or product that a customer can use to fulfill the same need(s) as the company fulfills. This includes firms that offer similar products, substitute products and other customer options (such as performing the service or building the product themselves). Under this broad definition, any business plan that claims there are no competitors greatly undermines the credibility of the management team. In identifying competitors, companies often find themselves in a difficult position. On one hand, they want to show that they are unique (even under the investors’ broad definition) and list no or few competitors. However, this has a negative connotation. If no or few companies...

Forging partnerships to improve market penetration has become commonplace, particularly for “new economy” businesses. And, most companies proudly mention their many partnerships in their business plans. The fact is that, regardless of whom the partnership is with, partnerships by themselves are meaningless. What are meaningful are the terms of the partnership. For instance, while it sounds great to have a partnership with a Fortune 500 company, the details of the partnership are what investors find important. For instance, investors will look poorly upon a partnership in which the Fortune 500 company earns 90% commissions on customers it refers. On the other hand, investors would look favorably upon a more equitable partnership. As such, be sure to detail the specifics of the partnerships. This includes factors such as how the partnership will work, payment terms, contract length, minimum and/or maximum guarantees, the type of customer leads expected from each partner, timing of...

Don't Tell People You Have Little or No Competition in Your Business Plan This is a Fatal Flaw seen in many business plans. Everyone likes to think that their product or service is so unique that no one else can successfully compete against it. In rare instances, a new technology may come on stream that truly is a new and better solution to a problem, but even then the advantage may be only temporary before other people offering similar technology enter the market. In reality, every type of product or service faces competition of some kind, because you still have to convince someone to purchase from you rather than spend the money on something else. And if you really believe you have no competition, how do you know there's a market for your product? Perhaps no one is offering it because no one wants to buy it. Perhaps others have tried and failed. Investors reading a Business Plan in which the company states it has no competition, usually conclude the management group has not...

Having a great idea in theory, and being able to pull it off in practice are two wildly different things. It's very easy to start a business that you think will work, but to avoid making big mistakes one of the best things you can do is to write a business plan. If you are able to write a plan of action about your idea or business, then it is probably worth your time. Below are some key steps to follow when writing your business plan: 1. Concentrate On ClarityYour business plan is not the place to insert massive amounts of technical jargon, the best way forward is to concentrate on presenting your ideas clearly so that almost anybody could pick up your business plan and understand it. 2. Understand Your Audience How you write your business plan depends a lot on who you think will be reading it. If you are looking for investment, you have to ensure that you are to the point and at the same time you need to include as much relevant information as possible. 3. Ask For AdviceThere are...

It is hard to get a funding from a business plan, even a very good business plan. You can give yourself a much better chance of raising capital if you avoid eight common business plan mistakes. Your business plan may be the first thing investors see, and it is important that your business plan be written professionally and excellently. Investors see thousands of business plans each year, and the ones that get funded are less than 1%. You will greatly improve your chance of getting funded if you avoid these mistakes. 1. Mistakes in Overall Content A well written business plan finds the solutions to problems that customers are looking for and will pay money to solve. The plan dos not need superlatives to say that it is great. If it is great, the readers will come to that conclusion. Also, be sure your plan presents a focused strategy to solve only one problem in the target market. 2. Stating “There is no competition” Every business has competition, either direct or...

This one mistake is so critical that it jeopardizes the immediate survivability of your start up company - even before you get started. What is the second biggest mistake? Many cost-sensitive entrepreneurs depend on number crunchers, bean counters and newly minted MBAs for their projections - just to save a few dollars. New start up CEOs doom their new company by pinching pennies in the wrong place. Instead, what they need are pivotal insights from experienced consultants who can provide the guidance the entrepreneur needs for producing a realistic, genuinely implementable business plan. Your business plan is not some academic document - instead, it is your crucial road map to successful implementation of your vision for your new company. The most important part of any business plan is the detailed financial projections that are the basis for the entire business model of every new start up company. There are four sets of underlying assumptions that drive all the...

The format of a Business Plan is something that has been developed and refined over the years and is something that should not be changed. Like a good recipe, a business plan needs to include certain ingredients to make it work. When you create a business plan, don’t attempt to recreate its format. Those reviewing this type of document have expectations you must meet. If they do not see those crucial decision-making components, they’ll see no reason to proceed with their review of your business plan, no matter how great your business idea. Executive Summary Section Every business plan must begin with an Executive Summary section. A well-written Executive Summary is critical to the success of the rest of the document. Here is where you need to capture the attention of your audience so that they will be compelled to read on. Remember, it’s a summary, so each and every word must be carefully selected and presented. Use the Executive Summary section of your business...

It's disturbing to have to reject a business plan, but sometimes it's the best choice for all stakeholders. As a volunteer for a lending committee, I wish we could approve every loan application that hit our table; unfortunately it's not possible. The committee meets as-needed to review business plans and decide whether or not to finance the applicants. We deal with mostly very small businesses seeking small loans, usually under $250,000. Lending to inexperienced, new business owners is one of the riskiest arenas for a lending agency. In spite of this fact, we manage to keep our loss rate to a minimum. Over a period of more than a dozen years, I have observed certain challenges surfacing again and again. The amazing thing about these business plan killers is that they rarely travel alone - they almost always appear in clusters. Here are the top ten business plan killers and what you can do to avoid or fix them: 1. Dreadful Personal Financial Profile What is the likelihood that one...