The stodgy business plan—that multipage printed document that entrepreneurs used to hand out at meetings with venture capitalists—has gone the way of the typewriter and Rolodex. These days, entrepreneurs are expected to lay out their strategies in slick Power Point presentations, complete with colorful pictures and informative charts.
But while it’s true that the format of the business plan has changed, the substance most certainly hasn’t. If you’re headed out to raise capital for your company, you’ll still need to address key issues about the size of your market, the experience of your team, and your long-term financial goals. In the wake of the financial crisis, persuading potential financiers that your plan has legs will be especially challenging.
Here are the key questions you should ask yourself before you fire up Power Point and start preparing your slides.
1. Have I proven that I’m filling an unmet need in the market?
As the economy still struggles to turn around, entrepreneurs are under pressure to gauge the strength of their market—in detail—before they go out and raise capital. Try test marketing your product on a small scale so you can realistically forecast how much you can sell in the future, suggests Edward Hess, professor and Batten Executive-in-Residence at the University of Virginia Darden School of Business.
“Entrepreneurial funding is moving away from formal business plans to having to prove that customers are actually going to buy what you’re trying to sell,” Hess says.
2. How will I acquire and retain customers?
You’ll also need to prove that your idea isn’t a fad.
“Understanding how customers are going to be found, acquired and retained is critical,” says Alison Berkley Wagonfeld, operating partner for Emergence Capital Markets in San Mateo, Calif. “Some companies might say, ‘We’re going to buy search words,’ but once they get somebody to their website, how are they going to sell them a product?”
3. Why am I better than the competition, both current and future?
If you have direct competitors, you’ll need to devote several slides to depicting exactly how you plan to differentiate yourself. If you have no competitors, you need to explain that, too, Wagonfeld says.
“It’s always great to think you have no competitors, but the flipside to that is why has no one else found this opportunity?” Wagonfeld says. “You may have a different expertise or a unique technology,” but you have to explain why you think you can retain that competitive advantage.
4. What’s the story behind my financial forecasts?
One common mistake entrepreneurs make in their business plans is to project that they will capture a certain percentage of the overall market for their product without fully explaining how they intend to do that, says Mark Steranka, director of planning and policy for Moss Adams’ Consulting Group in Seattle.
“You can’t just play a numbers game,” Steranka says. “What will the key decisions be along the way? What will the key strategies be? You need to do a stellar job of really explaining how you’re going to get from point A to point B.”
5. What elements of this plan can I depict visually?
The rise of Power Point as the format of choice is forcing entrepreneurs to make their pitches with fewer words and more pictures. Some parts of your business easily lend themselves to graphic presentations, such as financial forecasts that can be shown in bar charts. But you might also consider using graphics, photos, and illustrations to demonstrate how your product works or how it differs from the competition.
6. Should I recruit a few key advisors?
Bryan Pearce, venture capital advisory group leader for Ernst & Young in Boston, says every startup should assemble an advisory board—a small group of industry leaders who can complement your skill sets and help you formulate your plan.
“An advisory board doesn’t carry the legal weight of a formal board of directors, but it can be very helpful to the founding team in advising them on how to get the company going,” Pearce says. The makeup of your advisory board should be included in your business plan, too. “If good people are willing to lend their names and help to get you going that speaks volumes about the potential of the business idea.”
7. How am I going to spend my investors’ money?
With the economy still sputtering, potential investors are going to want details about how you plan to stretch their dollars, Pearce says. Emphasize your strategy for holding down your cash-burn rate, and spell out exactly what you expect your costs to be for the first year or two.
8. Does my staffing fit the current state of my business?
Many entrepreneurs make the mistake of thinking they need to have all the key managers in place before they go out and raise funding, but that’s not necessarily true. If your product is in the prototype phase, for example, you don’t need a director of sales and a full sales force just yet. You should describe your plans for hiring those people, and include them in your cost estimates, but you’ll want to show that you’re taking a conservative approach with your funding and not over-staffing your company beyond your current operating needs.
9. What’s the exit plan for the business?
Potential buyers will want to know how they’re going to earn a return on their investment. If you hope to take your company public someday, your business plan should point to examples of other companies in your industry that have done so successfully.
If you think your company is a good candidate for an acquisition, try to strike up partnerships with potential acquirers, and include those names in your business plan, Pearce advises. “It’s always good to have an understanding of who potential buyers might be, and to show that you’re starting to create relationships with them,” he says.
10. What is my personal exit plan?
If you’re a 45-year-old founder with a dream of retiring at 55, don’t be embarrassed to reveal that in your business plan. Potential investors will want to know that you’ve defined your personal goals and aligned your company with them, Steranka says. For example, if you don’t plan to stay with the business for the long haul, your business plan should include a succession strategy—a specific strategy for developing talent within your organization, so the transition to a new leader is seamless.
“Investors want to know the truth,” Steranka says. “While transparency up-front could turn away a potential investor, it’s going to attract the right investor.”
This story originally appeared at Entrepreneur.com
This article was written by admin