In this day and age, everyone’s in a hurry. In a world of 140-character tweets, can you really expect anyone to read a 30-page written business plan? Is a business plan even necessary to raise money today? Perhaps not, if you’re one of the founders of Google or eBay and you have another good idea. In that case, you may be able to raise millions just sketching your idea out on a napkin.

Still, virtually all entrepreneurs can benefit from developing a business plan, which requires thinking through the issues critical to their success and identifying the strategies to help them reach their goals. And if you’re trying to raise money from investors, you can expect funders to say, “Send me your business plan.” Even if funding sources say all they want is a few slides and some financial projections, you’ll benefit from having gone through the process of developing a business plan. Why? Because you can certainly expect that when you finally get that all-important pitch meeting with prospective funders, they’ll grill you on every aspect of your business. If you haven’t developed a thorough business plan, you won’t have good, polished answers to give them.

Whose money do you want?

When you need money for your business, don’t just seek a wealthy person with a checkbook. In most cases, you’re tied to your investors for the life of your business. So research and spend time getting to know potential investors. Find out where they’ve invested in the past, and speak with other entrepreneurs who’ve worked with them. For an in-depth look at financing see Chapter 8.

Developing a business plan can be a critical factor for successfully starting a company. A highly regarded study from the Illinois Institute of Technology that followed would-be entrepreneurs over a three-year period showed that individuals who intended to start a business were six times more likely to actually launch a business if they completed a business plan.

However, just because you need a business plan, that doesn’t mean you have to spend a huge amount of time writing, editing, and polishing a long written document. It’s the planning and not the physical plan that’s truly important. The process of developing your business plan is the biggest benefit—examining the critical aspects of your business, researching factors and trends affecting your success, asking yourself the tough questions.

While developing a business plan, you’ll likely change some aspects of your business. You may even conclude that your concept isn’t viable and decide to scrap the idea entirely. That’s what business planning is all about. Now’s the time to make those kinds of mistakes—on paper instead of in the real world.

How you’ll use your plan

Most likely, you want to use your business plan as one or more of the following:

■ A tool for raising funds (either investments or loans)

■ An internal document to guide your company’s development

■ A recruitment tool for key personnel

Business model canvas

One tactic some have used to sketch out a basic overview of a business concept is called the business model canvas. On one page, in a visual format, a novice entrepreneur who has come up with an idea for a product or technology can begin to think about some of the considerations necessary to turn an idea into an actual business.

en·tre·pre·neur·ship key terms

Assumption sheet

A statement that briefly outlines the information a company used to come up with its financial projections, such as market size, profit margins, and key expenses.

Business model canvas

A tool for describing some elements of a new business in a one-page, visual format. It was originally created by Swiss management consultant Alexander Osterwalder.

Business plan

A document outlining how a company will achieve its goals. A business plan can describe the concept and projected development of a start-up company or the new product or project of an existing company. It assesses all critical aspects of a business—including its mission, market, industry, competition, team, operations, financials, objectives, and more—and identifies a sustainable strategic position.

Business planning

The act of examining and researching the development of a new or existing company. Although the act of business planning doesn’t necessarily require the creation of a written business plan, it does require an entrepreneur to rigorously evaluate and determine a company’s fundamentals in order to successfully launch, grow, and even save a business.

Digital presentation

A computer presentation, also referred to as a “slide” show, a “deck,” or a “preso” (each frame of a computer presentation is called a “slide”).

Elevator pitch

A concise summary of a company’s service, business, or product idea that can be delivered in a very short time.

Executive summary

Highlights the most important aspects of a business, summarizing key points of its business plan.

Nondisclosure agreement (NDA)

Protects a company’s ideas. By signing an NDA, a person promises not to disclose any of the confidential information they learn during their dealings with another company.

Sources and use of funds

A one-page description of a company’s sources of money and how that money will be used.

A business model canvas can be particularly useful for someone who has a number of ideas and wants to outline those various ideas to see which seem most viable before beginning an actual plan for their business. Tools such as these, however, can easily lead the aspiring entrepreneur to treat assumptions as facts. They are no substitute for doing the real business planning—researching data, investigating markets and industries, developing detailed financial forecasting, challenging assumptions—necessary to launch a successful company. Users with significant business experience or knowledge may find a business model canvas more useful than novice entrepreneurs.

REAL-WORLD RECAP

Business plan success factors

Use these factors to guide you as you develop your business plan:

■ Formulate your business concept

■ Understand the market

■ Investigate industry health and trends

■ Create a consistent business focus and clear strategic position

■ Hire capable management

■ Attract, motivate, and retain employees

■ Take control of your finances

■ Anticipate and adapt to change

■ Emphasize company values and integrity

Business plan success factors

Creating your business plan provides a means of crystallizing your ideas and challenging your assumptions. The ultimate purpose of developing such a plan is to establish a successful business. The following factors play the biggest part in business success, so use them to guide your planning and thinking.

■ Formulate your business concept. Your business concept is about meeting needs. In fact, meeting needs is the basis of all business. You can devise a wonderful new machine, but if it doesn’t address a real and important need or desire, people won’t buy it and your business will fail. Your business plan should clearly and succinctly lay out your business concept and explain how it will offer the market something it won’t be able to resist.

■ Understand the market. It’s not enough to have only a great idea or a new invention as the basis of your business. You must also identify a market that’s sufficiently large, accessible, and responsive. If your market isn’t big enough, you can’t succeed. If it’s too big, you won’t be able to reach it efficiently. If it isn’t ready for you, your business will fail, no matter how good your concept. Your business plan must contain an overview of the market you intend to enter and an explanation of why it’s ripe for receiving your product or service.

■ Investigate industry health and trends. Generally, your company is subject to the same conditions that affect your overall industry. If consumer spending declines nationally, there’s a good chance your new consumer product will also experience poor sales. Thus, as you develop your plan, you need to respond to industrywide factors that will affect your own company’s performance. Although it’s certainly possible to make money in an industry that is experiencing hard times, you can only do so if you make a conscious effort to position your company appropriately. For example, if you plan to start a construction business and the number of new-home starts is down, you may want to target the remodeling market or the commercial real estate market rather than the new-home construction market. But you need to understand industry conditions and address them in your business plan.

Do the right thing

A company is strengthened by integrity. In the long run, when you deal with everyone—customers, suppliers, and employees—with fairness and honesty, you create a more sustainable and successful business. Integrity inspires customer and employee loyalty, helps avoid lawsuits and fines, and makes decision-making easier.

■ Create a consistent business focus and clear strategic position. Key to creating any successful business is developing a clear, strategic position that differentiates you from your competition—and then maintaining focus on that position. All too often, businesses fail because management loses sight of the central character of the enterprise. Defining a clear, strategic position enables you to capture a particular place in the market and distinguish yourself from your competitors. Different companies may sell a similar product, yet each may have a quite different sense of what its business is really all about.

■ Hire capable management. Perhaps more than any other factor, competent management stands out as the most important ingredient in business success. The people in key positions are crucial in determining the health and viability of your business. Moreover, because of the importance of capable management to business success, many investors and venture capital firms place the single greatest emphasis on this factor when evaluating business plans and deciding on loans or investments. They’ll review the management section of a business plan with special scrutiny. Your business plan must inspire confidence in the capabilities of your management, so you should put your management team together carefully.

■ Attract, motivate, and retain employees. A company is only as good as its people. The ability to attract and retain outstanding employees and managers is crucial to a company’s long-term viability and competitiveness. Your company’s reputation for treating employees well directly enhances both the number and the quality of job applicants and your company’s ability to retain employees once hired.

■ Take control of your finances. Key to any business is the way it handles money. Not fully anticipating start-up costs can immediately place impossible pressures on a new business. And poor cash flow management can bring down even a seemingly thriving enterprise. Things always take longer and cost more than anticipated. Build financial cushions into your plan to allow for unanticipated expenses and delays.

■ Anticipate and adapt to change. Change is inevitable, and the rate of change grows ever faster. In today’s world, your company needs to anticipate and quickly respond to change, and also to train its employees to be adaptable. Nimble companies that can quickly evaluate and respond to changing conditions will most likely succeed.

■ Emphasize company values and integrity. Every company must make money. You can’t stay in business unless you eventually earn a profit. However, studies of business success have shown that companies whose management is driven by significant goals in addition to making money (such as social goals, the drive for innovation, or the desire to create a great place to work) succeed better and survive longer than companies whose sole motivation is monetary.

Business planning tools from PlanningShop

A business plan outlines your business strategy and describes your competition, market, staffing, future developments, and the steps necessary to achieve your results.

PlanningShop has created the definitive guide to business planning. Successful Business Plan provides you with everything you need to know to write a fool-proof, perfectly formatted business plan. First published in 1991 and referred to as “the entrepreneur’s bible,” it’s the best-selling business plan guide in the U.S., used in the nation’s top business schools, and by over two million entrepreneurs.

To speed up your business planning process, PlanningShop also offers a Business Plan Financials package, which goes hand in hand with both Successful Business Plan and this book. These financials make it easy for you to fill in and complete your financial statements, formatted to professional standards. Visit www.PlanningShop.com to order the book and to instantly download the Business Plan Financials as an Excel spreadsheet. Visit www.BizGear.com for the cloud-based version of these financials.

As you develop your business plan, keep in mind those values you wish to express or achieve in the company you’re creating or expanding. These values can be aimed externally, at achieving some business, social, or environmental goal, or they can be aimed internally, at achieving a certain type of workplace or quality of product or service, or both.

What Goes into Your Plan?

Your business plan includes the following basic components:

■ The executive summary. Highlights the most important aspects of your business, summarizing key points of your business plan.

■ Company description. Features the basic, factual details about your business, such as your legal status, ownership, products or services, company mission, and milestones achieved to date.

■ Industry analysis and trends. Evaluates your industry and shows potential investors that you understand external business conditions.

■ Target market. Identifies the types of people or businesses most likely to be your customers, details the size and trends of that market, and explains their needs and wants.

■ Competition. Evaluates other companies offering a similar product or service or filling a similar market need.

■ Strategic position and risk assessment. Differentiates your company from the competition. It shows where you stand in the marketplace, what makes you compelling to customers, and what advantages you have over the competition.

Putting in your Appendix

Your business plan should be as brief as possible, so keep only essential information in the plan itself. Put other supporting information and details in an Appendix. But remember:

■ Your plan must stand on its own, without the Appendix

■ Only include an Appendix if the added information is compelling

■ Keep it short

■ The Appendix shouldn’t be longer than the plan itself

■ Marketing plan and sales strategy. Outlines how you’ll reach your customers, convey a positive message about your products or services, build a brand, and secure orders or make sales.

■ Operations. Explains how you run your business and actually produce your goods or services, and outlines the day-to-day factors that may give you an edge over your competition.

■ Technology plan. Outlines what technology you’ll use and how you’ll use it.

■ Management and organization. Describes the key people running your business and how your company will be structured from a personnel point of view.

■ Community involvement and social responsibility. Details your company’s values and how you’ll act on those values; identifies how you’ll be a good corporate citizen.

■ Development, milestones, and exit plan. Shows where your business will be in several years’ time, how you’ll get there, and the milestones you plan to reach along the way; indicates potential strategies for making liquid the financial investments in the company.

■ The financials. A set of financial statements showing the current financial status and future predicted income and expenses of your company.

When evaluating a business plan, experienced business plan readers generally spend the first five minutes reviewing it in this order: first, the executive summary; second, the financials; third, the management section; and next, the exit plan or terms of the deal, if applicable.

The executive summary is the most important portion of your business plan if you’re seeking financing. Only a clear, concise, and compelling condensation of your business right up front will persuade readers to wade through the rest of your plan. No matter how beneficial your product, how lucrative your market, or how innovative your manufacturing techniques, your executive summary alone must persuade a reader to spend the time to find out about your product, market, and techniques.

Your company mission

To help clarify your company’s position and focus as part of the business plan process, define a Statement of Mission. This Mission Statement should guide your company’s short-term activities and long-term strategy, position your marketing, and influence your internal policies. You’ll include your Mission Statement in the Company Description section of your business plan.

A Mission Statement concisely describes the goals, objectives, and underlying principles of your company, and guides your company’s values and long-term vision. It enables you and readers of your business plan to get a better picture of where you intend to go with your business, and it helps you more clearly articulate exactly what business you are in.

You should be able to sum up the basic objectives and philosophy of your company in just a few sentences. One statement should encapsulate the nature of your business, your business principles, your financial goals, your corporate culture, and how you expect to have your company viewed in the marketplace.

A Mission Statement provides focus for your company and should be the defining concept of your business for at least the next few years. It should be the result of a meaningful examination of the foundations of your company, and virtually every word should be important.

A finished Mission Statement might be: “AAA, Inc., is a spunky, imaginative food products and service company aimed at offering high-quality, moderately priced, occasionally unusual foods using only natural ingredients. We view ourselves as partners with our customers, our employees, our community, and our environment, and we take personal responsibility in our actions toward each. We aim to become a regionally recognized brand name, capitalizing on the sustained interest in Southwestern and Mexican food. Our goal is moderate growth, annual profitability, and maintaining our sense of humor.”

See pages 84–85

ENTREPRENEUR’S WORKSHEET

Statement of Mission

Describe your company’s philosophy in terms of the areas listed below.

Preparing Your Financials

For the financial portion of your business plan, the three most important forms you’ll prepare are:

■ Income statement. Shows whether your company is making a profit, by delineating the income and expenses for the period covered.

■ Cash flow statement. Shows whether the company has the cash to pay its bills.

■ Balance sheet. Shows how much the company is worth overall.

Chapter 7 covers these three forms in depth.

Predicting the future

In a business plan, you typically make guesses about what will happen in the future. But they shouldn’t be wild guesses. Your forward-looking projections should be conservative. Base your assumptions on the belief that will things take longer and cost more than you originally expect.

Other forms to include in your business plan are:

■ Break-even analysis. Shows the point at which sales exceed costs and you begin to make a profit. Advisable for internal planning. See pages 170–171 for more information on this analysis.

■ Start-up costs. For a new business, shows the initial investment necessary to begin operations. Base this form on the “Start-Up Costs” worksheet on page 207.

■ Sources and use of funds. Shows where you’ll get financing for your business and how you’ll spend the money invested or lent. A potential investor or loan officer will want to see this.

■ Assumption sheet. Shows those reading your financial statements how you determined the figures used. A good adjunct to other forms.

Sources and use of funds

If you seek outside financing, either through loans or investors, those contemplating giving you money will want to know what you’ll do with the money you raise. They’ll also want to see what other sources of money you have, if any.

To provide such information, devise a one-page description of the sources and use of funds. This can go in the business plan itself or can be sent with the cover letter to potential financing sources. It should tell a potential investor that you have specific plans for the money you raise, that you’re not taking on debts or giving up equity thoughtlessly, and that you’ll use the funds to make your business grow.

The worksheet “Sources and Use of Funds” on page 87 is particularly helpful to you with investors or lenders if you already have some commitment of financing from respected sources (which shows that other people believe in your company) and are committing significant personal funds (which shows that you believe in the project enough to take substantial personal risk). A sources and use of funds sheet also demonstrates that you’re using your funds to start or expand a business, rather than to offset existing debts (a use that investors notoriously dislike).

ENTREPRENEUR’S WORKSHEET

Sources and Use of Funds

Complete the following form to describe how much money you are seeking and how you will use the funds raised. Be as specific as possible: If you know what equipment you are going to buy, list it; if you have a loan from a bank, state the name of the lending institution, amount, and terms.

Think visually

As you work on your business plan, look for the kind of information and statistics that you can convey in graphic form, to make a greater impact and keep readers’ attention. As you do your research, capture any charts and graphs that will be helpful. Even consider “infographics” that display data in interesting fashion. Help your business plan come alive.

In your sources and use of funds statement, include both funds you’ve received to date and the amounts you’re now seeking, clearly delineating each. In preparing your statement, consider the following issues and terms:

■ Funding rounds. The number of development stages at which you’ll seek financing from the investment community.

■ Total amount. Amount of money sought in this round of financing, from all funding sources.

■ Equity financing. Amount you’ll raise by selling ownership interest in the company.

■ Preferred stock. Outstanding stock for which dividends will be paid, before other dividends can be paid for common stock or before other obligations of the company are paid; investors often want preferred stock.

■ Common stock. Stock for which dividends are paid when company is profitable and has paid preferred stock dividends and other obligations.

■ Debt financing. Amount of money you’ll raise by taking out loans.

■ Long-term loans. Loans to be paid back in more than a year’s time.

■ Mortgage loans. Loans taken out with property as collateral.

■ Short-term loans. Bridge loans, credit lines, and other loans to be paid back in less than a year.

■ Convertible debt. Loans that are later convertible to stock, at the funder’s option, giving both the security of a loan and the potential of stock.

■ Investment from principals. Amount of money that you or other key employees are contributing to the company; this can be in the form of cash or property.

■ Capital expenditures. Purchase of necessary equipment or property.

■ Working capital. Funds to be used for the ongoing operating expenses of the business.

■ Debt retirement. Funds used to pay off existing loans or obligations.

See page 87

Assumption sheet

Financial forms are merely meaningless numbers unless you base them on decisions and facts. Your potential financing sources want to see how you arrived at your numbers and must be convinced that your assumptions are reasonably accurate. If, for instance, you have indicated your sales at a certain amount, investors want to see what size you assume the market is and what percentage of the market you assume you can secure. If those figures seem realistic, you increase your credibility; if those assumptions seem based on inaccurate numbers or overly optimistic projections, investors will look skeptically at the rest of your plan.

It’s good discipline for you, as well, to learn to develop an assumption sheet whenever you do financial projections. Otherwise, you can be too easily tempted to write down figures that look good on paper but have little to do with reality.

If you have worked through the business planning process, putting together an assumption sheet should be a relatively easy task. You have already asked yourself most of the questions called for on this form and have the answers available to you.

An assumption sheet should list purely straightforward information; it doesn’t require substantial detail or explanation. You don’t even need to use sentences; simply provide the data in each category. Include a completed assumption sheet at the conclusion of your financial forms in your business plan and familiarize yourself with these assumptions in order to defend them well when you meet with investors.

See page 90

Guidelines for preparing your financial forms

In preparing your financial forms for your business plan, you’ll almost certainly have questions as to how to attribute certain expenses. You might wonder whether you should ascribe sales commissions to cost of goods sold or to operating expenses. Accounting practices differ, so follow these guidelines:

■ Be conservative. Avoid the tendency to paint the rosiest picture possible; doing so reduces your credibility.

■ Be honest. Experienced financing sources will sense dishonest or manipulated figures; expect to be asked to justify your numbers.

■ Don’t be “creative.” Use standard formats and financial terms; otherwise you look inexperienced to financing sources.

■ Get your accountant’s advice.

■ Follow the practices used in your industry.

■ Choose the appropriate accounting method.

■ Be consistent. Make a decision and stick with it for all your accounts, otherwise you can’t compare one year’s figures to another.

Historical performance of your company

If you run an existing business (not a newly established one), you also need to gather historical data about your own company. In particular, you should examine your past internal financial records. Here is some of the financial information you may need to locate:

ENTREPRENEUR’S WORKSHEET

Assumption Sheet

Use this worksheet to show how you arrived at the numbers in your financial statements.

■ Past sales records, broken down by product line, time period, store, region, or salesperson, depending on size of your business

■ Past trends in costs of sales

■ Overhead expense patterns

■ Profit margins on product lines

■ Variations from budget projections

Tailoring the plan for your recipients

Once you’ve researched your potential funders, you should organize your cover letter and executive summary to highlight those aspects of your business most likely to fit the needs and interests of each funder.

Is the venture capital firm particularly interested in patentable new technology? Will the bank fund only those companies established for more than three years? If so, discuss these areas in the first paragraph of your cover letter, or place greater emphasis on them in your summary.

If you cannot easily gather this information, change your reporting system so that in the future you’ll be able to have the data you need for adequate planning.

If you’ve created business plans or set goals or objectives in the past, you should also track how well your business has performed in terms of meeting the objectives set in those previous plans. Have you consistently underperformed, or perhaps exceeded your goals? Have you reached key milestones within the time period originally projected?

Preparing Your Plan

The most important aspects of your plan must jump out at even the most casual reader. Even if you intend to create a plan for internal company use only, a compelling, vivid presentation will make it more effective. Highlighting specific facts, goals, and conclusions makes your plan easier to review, more effective as a working document, and more likely to make a positive impact.

Keep in mind that funding sources primarily look for answers to the following questions concerned with the heart of the plan:

■ Is the business idea solid?

■ Is there a sufficient market for the product or service?

■ Are the financial projections healthy, realistic, and in line with the investor’s or lender’s funding patterns?

■ Is the key management described in the plan experienced and capable?

■ Does the plan clearly describe how the investors or lenders will get their money back?

Within the first five minutes of reading your business plan, readers must perceive that the answers to all these questions are favorable.

Length of the plan

How long should the perfect business plan be? No magic number exists, but on the next page are some guidelines.

IDEAL LENGTH

15–35 pages (not including financials or appendices)

Break any of these rules if your business requires something different

Language that conveys success

Convey realistic optimism and businesslike enthusiasm by following these guidelines:

■ Employ a straightforward, even understated, tone.

■ Avoid formal, stilted language; be natural, as if you were speaking to the reader in person.

■ Use clear, active language.

■ Avoid passive verbs and jargon.

■ Always be professional.

■ Avoid slang, and don’t be “chatty.”

■ Instead of using superlatives like “the best” or “terrific,” provide specific information that proves you’re doing something right.

■ Use positive comments from third-party sources, if possible.

■ Use business terms.

Five crucial minutes

Although you may spend five months preparing your plan, the cold, hard fact is that an investor or lender can dismiss it in less than five minutes. If you don’t make a positive impression in those critical first five minutes, your plan will be rejected. Only if it passes that first cursory look will your plan be examined in greater detail.

Distributing and Presenting Your Plan

Whether you intend to use your plan internally or externally, you must consider how you can best distribute it for greatest impact and how to make the finished plan an effective instrument for achieving your aims. Although a banker will probably be satisfied with only a written plan, an investor or strategic partner will probably want a digital presentation, such as a PowerPoint, as well.

A word about confidentiality: Nondisclosure agreements

Although most new entrepreneurs are probably overly concerned about issues of confidentiality, you may want to draw up a nondisclosure agreement, or NDA, for the recipient to sign before receiving your plan. However, many professional investors—particularly venture capitalists—don’t sign NDAs. They see so many plans in so many related industries that they would inevitably have a conflict.

To best protect your information, be selective about to whom you send your plan. Research your recipients to make certain they haven’t already funded a competitor. Check their reputations for honesty and discretion. Deal only with reputable people. On top of that, limit the number of copies of your plan in circulation, and omit from your plan highly technical, sensitive information. You can provide that information later to only the most serious sources of potential funding.

See page 407

Preparing a digital presentation

Most investors now expect to first see your business plan’s basic info and highlights in digital form. Expect to be asked for your “slides” and financials. However, you still need a written plan, either to be reviewed before you’re granted a meeting or to leave behind after you meet with potential investors.

In some cases, you won’t present your plan in person. Many investors will likely ask for your slides before they’ll even consider looking at your plan. In that case, you’ll send your presentation electronically. For this reason, you must create a presentation that’s compelling enough to stand on its own without a presenter.

NINE SUREFIRE WAYS TO RUIN YOUR BUSINESS PLAN

Consider embedding video or audio into your slide show. Your content can include a prototype if you have one, a demonstration such as how your service will be performed, a look at your location, or anything else that will make your plan more comprehensible and exciting. You can link to a password-protected YouTube video if you have one. You may also choose to put the slides online on a password-protected site.

12 CRITICAL SLIDES

SLIDE NUMBER	SLIDE NAME	SLIDE DESCRIPTION
1.	Title Slide	Your company’s name, a short company description, name of presenter(s) if presenting in person
2.	Your Elevator Pitch	A succinct description of your products or services, market, and competitive advantages; use vibrant language; if possible, embed audio or video to demonstrate your product or service
3.	Size of Opportunity	Investors want to know the potential size your company can grow to and your plans for future development
4.	Your Specific Target Customers	Who they are and the customer needs that your product will meet
5.	The Market Size	Numbers and dollars, past growth, growth forecasts
6.	The Competition	Division of market share, how your product compares to theirs, your value proposition in comparison to the competition’s, and barriers to entry
7.	Your Team	Who they are, past successes and experience, and why they’re qualified to do the job
8.	The Business Model	How you’ll distribute your product, pricing strategies, how you’ll reach your customers
9.	The Time Line	When you expect to reach key milestones
10.	Financials	A brief summary of key points from your income statement, balance sheet, or cash flow projections
11.	Funding	How much you’re asking for in this round, how many future rounds you expect, how much you’ll request during those rounds, and how you’ll use the funds
12.	The Investment Opportunity	Potential exit strategies and financial return for investors

Of course, the presentation should contain all the major points of your business plan. You need not present them in the exact order of the written plan, but you may have to explain some elements before other points will be understandable. If you make your presentation in person, the investors will interrupt you to ask questions, challenge your assumptions, and so forth, so make certain you get to your most important points early in your slides.

Adjust the content of your slides according to the knowledge base of your audience. You don’t want to bore them with information they already know (or don’t need to know), such as the nitty-gritty details of your day-to-day operations. You can, however, include background information for those recipients who need it. And do your homework. Some quick research on your potential investors can reap big rewards. If you include some of this information in your presentation, your credibility increases dramatically.

Remember, your slides are meant to whet their appetite. While there’s no exact number that will be right for every business, you should be able to convey all the key details of your company in 12 slides. If you have too many and you present in person, you’ll feel as if you have to rush through your presentation to get to them all. Present your text primarily in short, bulleted points. You rarely need whole sentences. Put no more than three to five bullet points on a slide.

If you present your slides in person, practice first. Make certain you feel comfortable working with the computer and the software so that you’re not distracted during your meeting.

REAL-WORLD RECAP

What to include in your pitch

■ What your business makes or does

■ What market you serve

■ How you plan to make money

■ How your business compares to other, familiar businesses

■ Why you will succeed

■ Your ultimate goals for the business

Your elevator pitch

Before considering a prospective investment, venture capitalists and other investors often want to hear what they call the elevator pitch. This is the concise description of a company—its product or service, its market, its competitive advantages—that an entrepreneur could give in the time it would take to ride up an elevator (and not an elevator in a skyscraper!). An elevator pitch shows that you understand your business. (If you’re unclear on your strategic position, you’d still be mumbling as you pass the fifteenth floor.)

Your elevator pitch doesn’t have to be made in an actual elevator to be useful. You’ll find you’ll use it often: in emails to prospective financing sources, to introduce yourself and your company at networking events, and to deftly and briefly describe your business to potential customers.

It takes some thinking to decide which aspects of your business to mention in an elevator pitch. Even more frustrating, you have to decide which parts of your company to leave out. Often, these can be the things you’re most excited about—a new technology, a great location, and the fact you get to go to Europe on buying trips. But if they’re not central to the core of your business, they don’t belong in an elevator pitch.

Your elevator pitch must not only be short, it must be clear. Unless you operate in a highly technical field, your neighbor or grandmother should be able to understand your business well enough to be able to describe it to someone else. A good elevator pitch offers the following information:

Sample elevator pitches

■ “We design, install, and maintain landscaping for high-end residences and estates.”

■ “We audit manufacturing facilities for energy efficiency and find solutions for increased energy efficiency.”

■ “We build high-quality oak furniture in the Mission style for people with traditional tastes.”

■ “We create cloud-based software to automate bookkeeping and accounting for small- to medium-size businesses.”

■ What your business makes or does. This should be very brief: “My company manufactures water- and weather-proof, solar-powered outdoor lights.”

■ What market you serve. You should be very specific about this: “Fifteen-to 30-year-old males who daily play video games” or “Small businesses with five to 10 employees.”

ENTREPRENEUR’S WORKSHEET

Your Elevator Pitch

Use this worksheet to develop the main components of your elevator pitch. Then edit your responses to fewer than 100 words. Remember to keep your pitch short. Focus on what customers get, not on what you do. And make your pitch easy to remember.

■ How you plan to make money. This is very important if you give your elevator pitch to potential investors. Because they’ll want to know how you will earn a profit, you need to be very explicit about the business model you plan to employ. For example, “We will charge a monthly subscription ranging from $5 to $25 per user.”

■ How your business compares to other, familiar businesses. If you compare your business to other similar businesses, people may more easily understand what your product or service is all about. For example, a new social networking site for lawyers might be described as “Like Facebook for law-firm employees.” Or a new airline might be described as “A discount carrier with more frequent service than XYZ regional airline.”

■ Why you will succeed. What market conditions will make your idea a surefire success? You need to use all your powers of persuasion here. If you have any hard numbers to back up your assertions, so much the better: “Census figures show that families with young children are moving into this area at a rapid pace (up 27% over the previous decade), and those families will require housing.”

■ Your ultimate goals for the business. Do you want to eventually run a multinational corporation, or do you want to keep it relatively small and contained? You should be prepared to articulate your vision for the business’s size and reach.

See page 97

Classes and Competitions

You may prepare a business plan for a class assignment or to enter a business plan competition (often with significant cash awards). One major difference in preparing a business plan for a class or competition is that you’re much more likely to work with a team—as equals—rather than have one entrepreneur with a vision driving the process and making the final decisions.

Another major difference from the “real world” is the way your plan will be judged. Professors and competition judges typically place more emphasis on the quality of the written plan itself than potential funders do. And in the real world, potential funders will base far more of their decisions on the capabilities of the key founders than competition judges or professors will.

The team process

One of the major challenges of developing a business plan for a class or competition is working with a team. Mastering the dynamics of working together in a group—how to reach decisions, allocate tasks, communicate, and so forth—will help prepare you for the very real situations you’ll face when developing an actual business. The following key steps will help you manage your competition process.

■ Choose your team. Your people determine your success. Unlike with an actual business, you don’t always have the option of jettisoning members of your class or competition team. So choose carefully, and look for balance among the functional areas you’ll put in your plan: Having four great marketers may be overkill, leaving you without sufficient depth in operations, technology, or finance.

■ Make decisions. The first decision any group must make is to decide how they’re going to make decisions. Devising a clear and fair decision-making process makes every other decision easier and the group interaction more pleasant. The important thing in devising a decision-making process is that all team members “buy in” to the process.

See page 101

■ Choose your project. Some classes or competitions may limit the kinds of businesses you can select as a project, but more often you have a universe of options from which to choose. You’ll probably start your selection process with a brainstorming session of team members, to come up with a list of possibilities. In fact, some professors require you to submit a number of potential business plan projects. Refer back to Chapter 2 to help you focus your selection process.

■ Identify key issues. Once you’ve decided which business you’re going to plan, you need to identify the key issues you’ll have to address in developing that plan. Go over the “Basic Business Concept” worksheet on page 40. Be critical: Don’t be afraid to tear your business idea apart. Ask yourself all the tough questions that a reader—whether a professor, judge, or potential funder—will inevitably ask.

■ Assign tasks. When apportioning tasks, you can choose to either divide up tasks based on functional areas or share all tasks among team members. Because it’s generally helpful to have one key person act as the focal point for reporting in, setting meetings, and so on, you’ll also need to choose a group leader. The group can then decide the nature and extent of the leader’s responsibilities.

■ Reevaluate assumptions. Toward the end of the planning process, before putting the written plan and presentation together, reassemble the group to reevaluate your original assumptions and readjust your business concept or strategy. As a result of your research and data into the industry, market, and competition, you’ll have a much better idea of what might actually succeed. Take the time to do this step, and be willing to change as well.

■ Integrate the work. Even after each member of the team has completed their section of the plan, you’re far from finished when they turn their sections in. You’ll likely find that you have a very uneven document: some sections more thorough than others, some more clearly written than others. Put one team member, or at most two, in charge of completing the written plan. It’s difficult to write an excellent document by committee.

■ Prepare and present the plan. Finally, decide who’ll give the presentation of the plan, if an oral presentation is required or is an option (take it!), and then practice that presentation. You don’t want to be caught fumbling at the last minute, figuring out who’s going to stand up.

REAL-WORLD RECAP

The team process

The following key steps will help you manage your competition process:

■ Choose your team

■ Make decisions

■ Choose your project

■ Identify key issues

■ Assign tasks

■ Reevaluate assumptions

■ Integrate the work

■ Prepare and present the plan

Tricks for improving your chances in business plan competitions

Although each business plan competition has its own rules and requirements, you can improve your odds at winning by adopting these strategies.

■ Understand the nature of the competition. A competition sponsored by M.I.T. will have a different emphasis than one sponsored by a business association that helps launch small businesses.

■ Find team members with complementary backgrounds and skills. Judges often look at your depth of expertise. If your background is in marketing, balance your team with team members skilled in other functions, such as technology, operations, or finance.

■ If possible, talk to past winners or entrants for insights. If the competition sponsor shares examples of previous years’ winning plans, look at a number of entries—not just at the first-prize winner; you’ll get a better feel for how they distinguish among entries.

■ Research the judges. What areas of interest and expertise do they have? If they’re investors themselves, what types of businesses do they invest in? Such information gives you a sense of the level of industry and technology knowledge they’ll bring to their judging.

■ For university competitions, call on alumni members for advice or information. In fact, this may be the perfect opportunity to get a personal meeting with a potential funder (or employer) who happens to be an alumnus or alumna of your school.

■ Be real. Unless the competition specifically seeks plans for visionary businesses and groundbreaking concepts, an idea with a good chance of succeeding in the real world will much more likely impress judges.

Special considerations for classes

Generally, the issues for preparing a successful business plan for a class—and getting a good grade—are the same for preparing any business plan. Still, professors and teachers will particularly look for:

■ Well-integrated plan sections

■ Well-documented sources of information

■ An accurate assessment of the real-world situation

■ A clear statement of assumptions

■ An adequate assessment of risks

■ Clear writing and presentation

In a class, you’ll also likely be judged by how well the team has worked together, so pay particular attention to your group dynamics.

ENTREPRENEUR’S WORKSHEET

Who’s on Your Team?

challenge

Identify the opportunities and challenges when launching a new business

solution

Develop a business plan to help navigate the new company on the sometimes bumpy road to success

REAL-WORLD CASE

Honest Advice on Business Planning

Two thirsty guys walk into a supermarket. No, that’s not the beginning of a joke. It was the beginning of Honest Tea, a groundbreaking maker of bottled, low-sugar organic tea. What began on a kitchen counter with a guy mixing up some drink concoctions today is a company selling bottled beverages in approximately 100,000 stores across the U.S.

Like many great start-up stories, Honest Tea began when the founders faced a problem. Seth Goldman was an active, health-oriented guy who couldn’t find bottled beverages that met his needs. He wanted something healthy and refreshing. He preferred something organic. Most of all, he didn’t want all the sugar that was in super-sweet store-bought beverages, like soft drinks.

Goldman shared his problem with Barry Nalebuff, his former professor at the Yale School of Management, who was also tired of super-sweet store-bought beverages. During an interview on NPR, Nalebuff said, “What we realized is that there was a whole group of people like Seth and myself who were being left out of the market.”¹

So, in 1998, Goldman and Nalebuff decided to create a nonalcoholic beverage business—making and selling low-sugar alternative drinks for people like them, using real ingredients. They had evidently hit on an unmet need because soon after Goldman created a prototype of his organic, low-sugar tea, the duo had their first order: for 15,000 bottles.

Yikes. Sometimes good news is too good. They quickly had to figure out not only how to make organic, low-sugar bottled tea in large quantities (discovering problems like the tea becoming cloudy in the bottle), but they also had to think through the issues of starting a rapidly growing business.

What did they do? Goldman got serious. He deleted the solitaire program from his computer—so he wouldn’t get distracted—and started developing a business plan for their fledgling company. You can see and download their original business plan on their website at www.honesttea.com/about-us/our-story.

The original Honest Tea business plan covers everything—the product, the target market, marketing and distribution, management, financials and investment opportunity (not shown online), and more. The concrete details show that Goldman and Nalebuff did their homework and asked themselves some tough questions.

They paid a lot of attention to their target market, and in researching their plan, Goldman and Nalebuff found that the market for soda alternatives—ready-to-drink tea and bottled water—was undergoing explosive growth. They also profiled their target customer: 60 percent female, with a median age of 42, college educated, active, middle-class, and living in an urban area. Details like these help a company create its core marketing message, narrow down which retail stores to pursue, and determine the size of the opportunity—something investors want to know.

Somewhat unusual at that time, Honest Tea’s original business plan also included a “Statement and aspirations for social responsibility.” By working with its suppliers, the young company vowed to improve the environmental and labor conditions of the tea estates from which it sourced its ingredients. After two decades in business, the company’s teas are now all Fair Trade Certified, helping to ensure that workers on tea gardens receive a fair share of profits and have decent workplace standards. And, by buying huge quantities of organic ingredients—nearly 7 million pounds in 2014—the company believes they’ve helped change an industry while improving the environment.

How big did the opportunity turn out to be? In 2015, sales reached a record $178 million. One of their customers was President Barack Obama, who stocked Honest Tea as his favorite drink while in the White House.

In 2008, Coca-Cola invested a 40 percent stake in the company, and bought it three years later, with Goldman at the helm as CEO. Today, Honest Tea is run as an independent unit of the bottling giant yet benefits from Coca-Cola’s distribution power.

As with any business, there were bumps along that road to success. But bumps are easier to deal with when you have a business plan to guide you through them.

Could the company that Goldman and Nalebuff launched with humble beginnings like these have reached such impressive success without having developed a business plan? To be honest, it’s doubtful. Yes, it takes a good idea, a great team, timing, and more, to launch a successful business. But without a roadmap, how do you know where you’re going?

These two men already knew a lot about business, of course. Nalebuff was a Yale Management professor, after all, and Golden had earned a Yale MBA and had worked in finance. For less-seasoned entrepreneurs, business planning becomes even more important. Yet the process doesn’t have to be a daunting one. The planning helps an entrepreneur work through the many facets of their business and create a roadmap to their goals—and to success. ■

1. “Honest Tea Founders Tell Their Story of Not-Too-Sweet Success.” NPR.org. Aug 30, 2013.

questions

1. How does developing a business plan help an entrepreneur when starting a business?

2. When do you think business planning is most crucial? Do you think it’s necessary only when starting a business?

3. What sections of a business plan do you think are the most important? Why?

4. What risks or rewards (if any) did Honest Tea face by including social responsibility in its business plan?

EXERCISE: critical thinking

HOW TO SPEND $25,000

Goal:

Learn to plan where you’ll spend your resources.

What to do:

You run a small café next to your community’s performing arts center. You sell coffee and make your own delicious baked goods: cookies, cupcakes, cake, and pastries. You’re very busy in evenings before and after performances. But business is pretty slow during the day and on nonperformance evenings.

To make more money, you want to attract more of the residents and tourists who frequent in the area during the day. You decide to invest $25,000 to increase sales.

You’ve identified a number of ways you could spend that money and increase revenues:

■ Launch a marketing campaign.

■ Add catering services.

■ Get a food truck.

■ Partner with another local business to supply it (such as a local bookstore).

■ Hire a part-time marketing or sales person.

■ Advertise on social media.

1. How would you divide up the $25,000 and spend it? Go through your list and allot dollar amounts from $0 to $25,000 for each idea. Don’t go over your total $25,000 budget!

2. Explain why you think your decisions are the best choice for your company.

Подняться наверх