I’ve started my business plan marathon season again. Between now and the end of May, I’ll read several hundred business plans: some for my angel investment group (Willamette Angel Conference), and others for judging business plan contests at the Universities of Oregon, Texas, Rice, Princeton, and Notre Dame.
I’d like to use the famous T.S. Eliot line from The Wasteland: “April is the cruelest month.” The trouble is that I like reading business plans, so that wouldn’t fit. I posted about his last year around this time, and here I am again, reading plans.
What does seem appropriate, however, is my plea to business plan writers, wherever you are, if you’re going to produce a plan that I have to read:
- Convert it to PDF please. I hate those big honking bound documents. They weigh a ton. Most of my business plan judging involves planes, hotels, and airports.
- Give my aging eyes a break. Learn the definition of presbyopia and then reflect on the demographics of angel investors and business plan judges.
- Make it about the business, not the science. I want to see target markets, channels, sales, costs, exit strategies, defensibility, scalability, and things like that. Unless it’s software or Web stuff, where I’m more at ease, I’m not going to read or understand your science. I’ll look at your experience and degrees and I’ll take your early sales, testimonials, and such as validating your science.
- Summarize well. Make sure you hit the high points. Don’t ever let me finish a summary without knowing what you’re selling to what market, why they’ll buy it, what it does for them, how much money you think you need, how fast and to what sales level you can scale up, strengths, core competence, and a quick sense of your team.
- Tell me stories. Make me understand what problems you solve, for whom, and how they find you. Make that story credible. Give me some real examples, real situations, real people, and make it believable.
- Show me milestones: milestones you’ve achieved, and milestones you need to achieve.
- Don’t give me dumb profits. If you’re going to generate margins at twice the average industry levels, then you better have a convincing reason for why that’s possible. When I see huge profitability, it doesn’t make me think you’re going to be amazingly profitable; it makes me think you don’t know the business you’re in.
- Show me your patents if you have them but if you do, show me something about how defensible they are (if at all) and make sure your projections include legal expenses to defend them.
- Show me that you know something about cash flow: inventory management if you have products, receivables and collection days.
- Think of your reader. We don’t all have hundreds of plans to read, but whether it’s for angel investing or a business plan contest, we do all have a good number.
[…] think it proves anything. And with patents, well, here’s what I wrote about that last March, in 10 requests from your business plan reader: Show me your patents if you have them but if you do, show me something about how defensible they […]
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Great tips. What would be good to know is what you find is the best length for a business plan. I feel many investors want too much information in a standard format and I think you should be able to sum it up in 5-10 pages.
I agree with Craig, but I’d put it slightly differently. Many business plans, especially for startups, fall down on the customer acquisition plan. How are you going to get new customers in a way that results in profitability? Is it going to be through inbound marketing, a sales force, distribution channels, or some combination of the above? Keep in mind that there’s a reason, in the IT world at least, that only products selling for $50k and above typically have a direct sales force. It’s because less expensive products can’t pay for full-time salespeople. So make sure the customer acquisition strategy and the product really fit together.
Also, every early-stage business plan is largely a set of assumptions. How are you going to validate those assumptions? Make it explicit.
A concise plea for substance and readability versus expensive packaging, and needed encouragement for all of us at the end of March!
Does the plan “tell me stories” that transfer understanding of the business and give the reader just enough information to talk about why you will be successful with it? Examples,… stories often do that best.
Excellent points-thanks for the list.
I would add that people looking to web marketing must understand that capital investment in a “web site” is for the archives. Web sites are dead.
The investment in business execution now involves inbound marketing with competent agency partners. Any go to market plan must include Social PR, Advertising and sales- all must point to ROI not the traditional -and accepted “spray and pray” marketing.
If I saw a business plan without these considerations, I would assume they hadn’t done their homework!