2. KNOW THE COMPONENTS OF A BIZ PLAN
If you don't know the difference between a tablecloth and a spreadsheet, you'll definitely want to enlist some professional help. However, even if you're planning to eventually hire a business consultant to write your plan for you, you should still try to write a rough draft on you own. The first step in doing so is to familiarize yourself with the basics by reading through these typical components of a hypothetical business plan.
After you've read through these components, you should look at as many example business plans as possible, just to get a sense of what's out there. To get a company's business plan, all you have to do is call and ask for one. Many will not give it to you, but some may. If you pretend like you're going to invest in the company, then many will. Just be sure to give them a false telephone number or they'll hassle you for money until you die.
- Executive Summary. The executive summary is so important that we've devoted an entire step to it. For now just know that you should stick it in FIRST, even before the table of contents. Narcolepsy strikes very quickly, so read Step 3 and don't take chances.
- Table of Contents. A table of contents is exactly what you'd expect. No doubt you'll be editing your first draft like crazy, so double and triple check that your table of contents is well-organized and still correctly numbered after all the changes you've made. Also, strive to squeeze it all into a single page.
- Company Description. Here's your chance to dazzle strangers with the history of your company. Most business plans deal with the expansion and improvement of existing businesses rather than with the funding of start-ups. Now's the time to brag (factually) about how you transformed American Watermelon Ltd. from a booth in your garage to a strong local employer that's ripe to burst onto the national scene. Here are some things to include:
- Tell 'em how you got started and how the company has grown.
- Provide a history of sales, profits, and other important numbers.
- Lead up to a description of where you are now, and what plans you have for the future.
- Product/Service. Describe the thing in jargon free-language. How does it smell? What does it do? What differentiates it from all the other whatchamacallits out there? How does it improve people's lives? What prevents someone else from doing the same thing more cheaply? What kind of equipment do you need? Do you have, or can you get, patent protection? Put yourself in the shoes of the investor and ask yourself what you yourself would want to know before agreeing to part with a large amount of money ("large" being most likely at least tens of thousands of dollars).
- Market Analysis. In the next few sections, you're demonstrating that you're a clever old salt who's been hanging around the coffee machine long enough to know all about things like distribution problems, government regs, technological opportunities, and employee relations in your chosen line of work. Market analysis includes your sagacious discussion of industry characteristics and trends, projected growth, customer behavior, complementary products/services, barriers of entry, and so on. To do this effectively, you'll have to do a ton of research. Angels and VCs are suckers for good solid research (as they should be!), so pull out all the stops. Talk about how similar products/services have done well in the market, how you're fulfilling an obvious need, and exactly who you expect to purchase your whatchamacallit. Show them that in the foggy morass of corporate America, you're one of the meanest, wiliest swamp creatures around.
- Marketing Plan. Following your exposition of what the market is like comes your grand strategy of how you and your fellow managers intend to sit masterfully atop this market like a frog prince on a pond stone of solid gold. In other words, you have to detail exactly what steps you will take to ensure that customers know about your product/service and prefer it over the competition. Be as detailed as you can, and give several different tactics (start off with the cheapest marketing tactic, and proceed to the most expensive).
- Operations Plan. The nuts and bolts. You gave them vague assurances in your executive summary that you'd be able to run your business; now they want to understand precisely what's involved in running the show. Location, bricks and mortar, equipment needs, and labor requirements are laid out here in black and white.
- Financial Plan. The numbers. Ugh! Unless you were the kind of kid who thought trigonometry was fun, there's a good chance you're not too fond of financial tables. Yet, even if you have a very fine accountant whom you trust as your best friend, it's a wise idea to acquire a rudimentary knowledge of sales forecasts, profit-and-loss statements, cash flow projections, balance sheets, and standard biz ratios. Investors will expect you to be completely independent in this important area of knowledge; if they call you saying they'd like to set up a meeting with you, they will as you questions about your financial plan and you will be expected to act intelligently.
- Management. Never underestimate the importance of the collective genius of your management team. VCs will take a great management team with a mediocre business model over a great business model with mediocre management any day of the week. If you have somebody in the team (or at least on your board or among your advisors), who's had serious entrepreneurial success, you'll earn double bonus points from investors. Wouldn't you trust a business plan that said that Bill Gates was on the Board of Advisors?
- Exit Strategy. Not all biz plans have one of these. The exit strategy is for the investor, not the entrepreneur. It's basically a plan for him/her to get out of his/her investment in three to seven years. The exit usually comes in the form of a merger, acquisition, or more spectacularly, an initial purchase offering (IPO, a.k.a. "going public!"). Including one of these strategies in your plan shows the potential investor that you understand his/her need to get stinking rich as much as your own.
- Appendices. Chuck into the appendices all those necessary extra bits, such as managers' resumes, promotional materials, product photos, and independent assessments. Emphasis on the word "necessary;" clutter in a bulging set of appendices is as bad as verbosity elsewhere in the plan.
Obviously there's a lot involved. But don't panic. You're just getting started. Pretty soon this stuff'll be like mother's milk to you (and you'll never look at mom the same way again).
