You've got the idea, now package it well! The way you present your company and vision will determine whether you get the right financial partners and the right deal.
Marketing Your Idea
Life is marketing. We're constantly being pitched to as consumers, yet we also market our products, our ideas, and ourselves personally and professionally. But where do so many early-stage entrepreneurs go wrong? They fail to sell their start-up effectively. The business plan, executive summary, and financing pitch are the ultimate marketing tools. Marketing your start-up well results in getting optimal investors, more favorable financing terms, outstanding executives, committed customers and more -- in other words, a shot at success in today's extremely competitive market.
As a former entrepreneur and a start-up consultant today, I've certainly seen more business plans than I care to remember. Of the more than 30,000 high-tech business plans submitted to venture capitalists last year, less than 3 percent were funded. Why? The plans were either for products or services no one truly needed, or the plans were for great ideas that were not presented well. I see far too many of the latter. What a shame to have a brilliant idea, and the right process of execution, only to poorly communicate that idea.
Make your business plan shine with the three "Cs" to success:
A concise plan provides a simple explanation for why the business is a great idea, as well as how it will be executed. The optimal length is 20 pages, but 30 is acceptable. This includes the three to five pages for the executive summary, but does not include the appendices (only include relevant info here to support claims made in the plan). Few investors will read the plan in its entirety. Remember, the goal of the business plan is for the entrepreneur to explain the company they want to build so they will a) be able to condense it and render an executive summary (that the investors will read) and b) have a basic execution plan for the company.
The goal is to make your company appear to be deeply compelling. A compelling opportunity is optimized by the right deal, with the right price, at the right time, with the right product or service, and the right team. Compelling deals always get financed with favorable terms.
You must have a trusted third party review your plan to ensure it addresses all possible issues an investor may have. An incomplete plan, such as one that lacks three years' worth of financials, a marketing or sales strategy, or a section describing the first few releases of a product and the high-level technology strategy, makes it look like the entrepreneur hasn't thoroughly thought out their business. This makes them look either unprofessional, fly-by-night, or both. Be complete -- it will help you gain the trust of all who read your plan.
A Lesson to Remember
Here's a sample paragraph from an executive summary I read a while ago: Freight trucks in America travel 30 billion miles empty each year. This inefficiency costs distributors hundreds of millions of dollars in unnecessary freight-handling costs, such as scheduling one-way trips and paying for last-minute loads. Our browser-based software matches empty containers with loads that need to be moved nationwide. By using our software, distributors and manufacturers can save millions of dollars in the first year of use alone. The distributors and manufacturers are under extreme pressure from their executive management to reduce their inefficient freight costs by 10 percent annually for the next three years. Our team of seasoned freight, distribution, and manufacturing executives think we can capture a minimum of 1 percent of the market over the next three years. This would result in profitability six months into year two, growth of over 100 percent per year, and, based on industry-standard P/E ratios, a valuation of over $200 million at the end of year three."
Wow! Huge pain, customers empowered to remove it, the right team to make it happen, and the potential for a glorious exit. Concise? Yes! Compelling? Yes! What's not to like? The entrepreneurs missed the "complete" part. The plan that backed up this fantastic opportunity lacked execution detail and thus has yet to be funded after two years of seeking capital. If you keep the three Cs in mind, you'll avoid falling into this trap.
Getting a Successful Start: Must-Dos and Mistakes
So now you're ready to create a killer business plan, which will yield a killer executive summary and financing pitch. You'll want to leverage your plan by using the content later for sales presentations, marketing collateral and white papers, recruiting pitches, and website content.
Here's how to do it: Do not use a business plan package. These render "fill in the blanks" business plans that make the entrepreneur look inexperienced, unsavvy, and basically out to lunch. Don't let yourself be branded this way. The key risks investors worry about are people, technology, market, and financial. Financial risk is hard to remove, so focus on showing how solid your people are, how robust and extensible your technology is, and how huge the market you're going after is. You must explain the barriers to entry, too, in honest, realistic terms.
You'll also need a financial model. Be sure to make it interactive, and not static. An interactive model is formula-based and takes longer to create than a basic static model. Trust me: You will definitely change your financial projections, so provide for flexibility from the get-go. An interactive model will also enable "what if" scenarios. Chances are good potential investors will slash your first-year revenue projections in half. What repercussions will this have? Run it through the model and find out.
Remember, marketing your start-up properly will result in a wild ride with life-enhancing results. Go for it! And whether you're just embarking on your business plan or have already successfully completed one, be sure to share your questions and lessons learned with other dreamers and doers on our message board.