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Writing a Business Plan

December 19, 2009

 

Business Compass, It is now more than ever that business entities should evaluate their operational effectiveness.  Writing or updating a business plan is the best way to achieve that objective.

Here’s the tricky part: there are two distinct philosophies on how to pitch to a Venture Capitalist (VC). One is the traditional Business Plan, whereas the other calls the entrepreneur to forget convention and phrase the plan in the form of a continuing startup story. Both methods will be explored here because experimenting with both is an excellent exercise. First, we’ll deal with the non-traditional story:

Startup Story

The problem is that idea-bombarded, time-bereft venture capitalists find it difficult to sift through business plans, like in the old days. So, by putting together an eight-point startup story, many entrepreneurs are able to get their attention with simple, plausible steps. VCs want big market ideas and are captivated by clear, well-articulated stories of success waiting to happen. They love to see confidence, so brag about your accomplishments! Let them know how positive you feel about your idea and get them to feel the same way. But remember, often times, less is more. Keep it brief: four to five sentences per point; include the numbers, but save them for the end. So how do we get the message across?

Here are the eight points: First, the business. It’s pretty simple. What’s your idea in terms of business; tell them what specific customer need you are trying to satisfy and explain why satisfying that need is a great business idea. Next, define ‘customer”. Define their profile/potential numbers, and talk about their needs or the market circumstances that led to your idea. The next step is the solution. What else? Your idea: enthusiastically expound upon how your idea will draw millions of customers and how your ingenious market strategy will make you a winner. To draw off skepticism, you must address alternatives. Here’s where you assess the difference between your value proposition, what your business actually offers its customers, and every other individual alternative to your business (including your business being completely ignored by the public). Then, don’t be shy about what you’ve done already: your accomplishments. Talk about your business partnerships and how they were formed, your first customers, etc. any impressive head start that you can claim. Next, tell them about yourself, the entrepreneur. What’s your role in all of this? What’s your background in regard to the formulation of the idea? Now begin to talk about the company, itself. Where is it? Talk about things like equity, who do you want on your board, when was it founded, how can you be contacted, and so on. Finally, end with the numbers. Review key cash, staffing, and customer profile and product expectations over the short term. Now remember, listen to feedback. Interact with VCs; you should be constantly updating and modifying your story.  For more detail on form, see the venture capitalist section of the Funding chapter.

Business Plan

One of the best ways to conduct due diligence is to write an actual business plan. Think of it as the “final draft” of your due diligence. I know that writing a plan is not one of the easiest endeavors one can undertake, however it will certainly help you focus, streamline your mission and provide clear definition for your ideas. Before you take a second mortgage out on your home and invest all your savings into your pet project, you definitely want to know if it has any chance of success. So, whether or not, you use your business plan to pitch to VCs (Venture Capitalists) and other investors, it still serves as an important step: a rigorous, systematic finalization of due diligence.

Why is writing a Business Plan critical to success?

A good business plan acts as a road map. It has the power to convince investors that the management team you put together has the ability and experience necessary to launch a successful business. Additionally, it also provides would-be investors with measurable operating and financial objectives. Building confidence in this direct way is key to obtaining the necessary funds to create a successful venture.

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