Avoidable Mistakes Made Preparing Business Plans For Investors (part two)
Do not be too technical.
People with technical backgrounds or specialized products often fill the document with jargon and concepts with no meaning for the non-technical person. Investors are interested in how the product works, but only in reference to how it solves the problem.
For example, when Steve Jobs introduced the iPod, it had 5 gigabits of storage. No one other than engineers knew what 5 gigabits were, so the way he explained it was to say with the iPod, you could put 1,000 songs in your pocket.
If investors are interested in your opportunity, they will have engineers look at the technology in depth. You can also detail the technology in a separate document.
No risk analysis
Investors are in the business of balancing risks versus rewards. Some of the first things investors want to know are the risks inherent in your business and what has been done to mitigate the risks.
The key risks of entrepreneurial ventures
Market risks: Where people actually buy what you have to say, will you need to create a major change in consumer behavior?
Technology risks: Can you actually deliver what you say you can? On a budget and on time?
Operational risk: What can go wrong in the day-to-day operations of the company? What can go wrong with manufacturing and customer support?
Management risks: Can you attract and retain the right team? Can your team pull this off? Are you prepared to step aside and let somebody else take over if necessary?
Legal risks: Is your intellectual property truly protected? Are you infringing on another companies patterns? If your solution does not work, can you limit your liability?
These risks are, of course, just a partial list of risks.
Even though you may feel that the risks are negligible, potential investors will feel otherwise unless you demonstrate that you have given a lot of thought to what can go wrong and can take prudent steps to mitigate these risks.
Your plan should flow in an excellent organized fashion. Each section should build logically on the previous section, without requiring the reader to know something presented later in the plan.
Although there is no single correct business plan structure, one successful design is as follows:
Cover page: This is the first thing the reader will see, so keep it simple and professional, and be sure to include your contact information so the reader can reach you easily.
Executive summary: This is a brief, 1 to 3 page summary of everything that follows in the plan. It should be a standalone document as many readers will make their initial decision based on the executive summary alone.
Background: If you are in a highly specialized field, you should provide some knowledge in layman terms since most investors will not have advanced degrees in your area.
Market opportunity: Describe how businesses and consumers are suffering and how much they are willing to pay for a solution.
Products or services: Describe what you do and how your solution fits into the marketing opportunity.
Market traction: Describe how you have succeeded in attracting customers, marketing and distribution partnerships, and other alliances that demonstrate that experts in your market are betting on your solution.
Competitive analysis: Identify your direct and indirect competitors, and describe how your solution is better.
Distribution and marketing strategy: Describe how you will get to market, how are you will price your products etc.
Risk analysis: Identify primary sources of risks, and describe how you are mitigating them.
Milestones: Showcase a strong past track record and describe key checkpoints for the future.
Company and management: Provide the basic facts about your company – where and when you, Inc., where are you are located, and give a brief biography of your core team.
Financials: Provide summaries of your P&L and cash flows and the assumptions used to come up with this. Also, describe your funding needs, how are you are using the proceeds and possible exit strategies for investors.
As stated earlier, there is no right structure; you will need to experiment to find the one that best suits your business.
This article completes part two. The third and final article deals with the financial aspect of the business plan.