Part 2: How to write a knock-out 12 page business plan

Yesterday I wrote about pitching ideas to money-men (or women, but the alliteration of money-men sounds better), ie. raising capital. If you manage to spark the interest of a money-man you may either get the opportunity for a quick pitch (see previous post) or they will request a business plan.

When they ask for a business plan, they don’t want a tome. Try and keep it to 12 pages. Why 12 pages? It’s a nice number, 10, 13, 9, whatever. Keep it short.

Here are the components of those pages broken down (hint: they are in a meaningful hierarchal order, the most important is first..):

1. Executive Summary – super tight executive summary that will, in 1 succinct page, explain what it is you’re doing, who will buy it and why.

The Executive summary is your advertisement; it must be concrete and compelling. It’s the pull element of your marketing piece (biz plan). It’s like a header on an ad, if it doesn’t pull the reader to read the rest and convince them to take action, you’re done. If other parts of your business plan are weak, you might get by, but if your exec summary is weak, you’re sunk.

Think in terms of the money-man — Why should I, the VC/angel, read the rest of your document? Make me interested, make me drool, make me want to turn to your other sections and actually skim them. Or better, I’ll skip reading and call you immediately and setup a meeting.

2. Management Team – who they are and why they can accomplish the goals set out. Identify any gaps and how these will be addressed. So they read the exec summary and the instantly turn here. Money-man is thinking “who am I dealing with here?”

Again – a business plan to raise capital is a sales pitch. Write it with benefit statements, you’re selling yourself, why is the team going to kick ass? Have concrete examples of past performance, any job and experience etc. that might support the new venture.

Do you have any partnerships, a board of directors, a board or advisors, or other element established? Put it in! You need credibility – if you don’t have it, piggy back off someone who does and drop the names (with their blessing of course). The easiest thing to do is think of high profile people who would have very impressive resumes who would sit on a board of advisors for a start-up.

3. Financials – this includes an analysis of the market potential, cost structure, and revenue projections. Also what are you using the money for, will you need more, when? What other financial instruments will you use? Cash flow issues? Lease-hold improvements? Capital purchases? Inventory? Min. manufacturing orders, etc?

Have 1 and 3 year projections, any more is frankly impossible to predict at a startup. Actually even 1 and 3 is blatant guess work, but be conservatively aggressive. You don’t need a PhD in economics to figure this out, just a few nice tables and graphs. You don’t want details to how many Bic pens you’re buying and the coupons you’ll use to save cash, summarize it all. Ideally get an accountant to help you. Or CFO preferably. If you can’t afford the former and don’t know the latter, head to the nearest university or college campus and find a 3^rd year or later business, commerce or accounting student. Buy’em lunch, get their help. Pitch it as a great resume piece for them.

4. Competitive advantages – self explanatory? Describe what sets you above the competition. IP? Patent? Trademarks? First mover? Why can’t someone simply copy you? How long would it take to duplicate your business?

Read the book “Blue Ocean Strategy”. Then create a strategy canvass (I prefer calling it a “Blue Ocean Graph”). Map out your enterprise and the competition. Include it in the business plan as 1 of the 12 pages. A worthy page.

5. Product/Service – NOW you get to describe what you’re doing. What do you have to offer, to whom and why would they buy it? Focus on the pain you are solving – why will the market buy this? Why is the opportunity ripe now? What signs point to this?

What is the trend you’re projecting or riding? How long will it last? Is it a fad or does it have staying power?

Focus on the pain and the solution with benefits. I don’t care about features, unless they are within context of why I should care about that. Ok, so your new can opener widget is made from solid gold. Why do I care? Oh, you’re targeting a high end market with a “pimp my kitchen” accessory line. Ah ok.

6. Marketing plan – How do you plan on selling this? Distributors? Sales team? Direct to consumer? Strategy depends on type of product, biz-biz or biz-consumer. Do your research, talk to existing individuals in that market space.

7. Support materials – include letters of reference from professionals (your lawyer, accountant, your banker, any high profile people you know who will endorse you and your idea, etc). You can go over 12 pages with this stuff. As long as the testimonial letters are reasonably short and are copies of originals.

Here are some helpful hints dealing with VCs. They want to see a prototype, they want to see some customers signed up or at least have letters of interest or intent to purchase, they want to see partnerships established, they want to see a very strong team behind the company. If you’re an online play, do you have a strong mailing list to start your word-of-mouth grass-roots marketing? Do you have a way to tap into a wide range of potential instant-adopters of your new tech? If you don’t have a combination of those, then raising VC/angel capital is tough.

And the final tip is to look for investors that play in your target arena. They’ll come educated, knowledgeable, and you’ll able to get more detailed quicker with what you’re doing and why it’s such a great thing.

There you have it, some basics to start with. Good luck and happy financing!

This entry was posted on Friday, February 16th, 2007 at 4:38 pm and is filed under Raising Capital. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.