A Business Plan to Open an Investor’s Wallet
“If your motivation is funding, they’re going to ask for the specific additional information they want.”
So you may have a fantastic business concept, alternatively you may have an established business that you want to grow, but you need funds and a way to convince investors that they’ll see a return on their investment in your business. The thought of putting together a business plan that will effectively “sell” your business concept to seasoned investors is intimidating, but it’s also essential in getting the funding you desire. A well rounded business plan will provide you with valuable insight into your business, its potential for success, and the areas in which you may want to fine-tune your operating model.
My advice to you would be to keep it simple. An effective business plan can be short, ten pages or less. No one wants to read a really long plan.
In fact, ideally I don’t think you need much beyond great financials and an impressive executive summary. Potential investors are going to ask for whatever additional information they’re interested in whether you’ve written ten pages or 100. If you’ve done your homework and put together an impressive, tight little package, then you’re going to be in great shape. No one wants to read a 50 page business plan.
If your motivation is funding, they’re going to ask for the specific additional information they want. Your plan is more likely to be too long than too short. Too short is not good mind you, and would mean you’re missing critical information.
Do Your Homework
Just because you’re writing a succinct (and therefore effective) business plan that hits on the critical elements for potential investors doesn’t mean you shouldn’t do copious homework in preparing that nice, little plan. You absolutely should. Especially when it comes to knowing your financials. The easiest and most accurate way to do this is to build the financials from the bottom up. If it’s a new business, then start by determining your market, then what percent of that market you are going to get, how much are they going to spend (lifetime value), and how much is it going to cost you to get them? If you can answer these questions accurately for the first twelve months, year two, and year three, then your financials are going to be in a good, realistic state for potential investors to pick them apart and (hopefully) like what they see.
Critical Elements of an Effective Business Plan and Pitch
Your plan and pitch to investors should address each of these topics:
- What market problem you’re solving
- How you’re solving it
- Target market, size, and segmentation
- Your sales channels
- Marketing efforts
- Competitor analysis and your competitive advantage
- Real financial projections
- Key milestones in your business to date and a timeline of expected milestones to come
- Key team members and advisers championing your success
The Pitch: Tell your story
Once you’ve put your business plan together, ensured it’s not too long, and that it covers all of the important bases, then it’s time to start working on your pitch. I won’t go into too much detail here except to say that people (and don’t forget that investors are people too) love a compelling story. If you can find a way to weave the elements of your business plan into a tale that illustrates how your business is going to solve people’s problems, gain their loyalty, and generate revenue then it’s going to be a lot easier for you to pitch to investors. After all, stories engage our emotions and get us to root for the protagonist to win.
Make your business the hero of your story and back that story up with facts and figures to prove your potential for success and investors will appreciate the work you’ve put in and be much more likely to infuse your enterprise with the funds it needs to get up and running.
Investment Exit Strategy
Forbes contributors strongly emphasise the importance of your exit strategy. This is the bottom line of “how the investor will make money (aka “the exit”) from investing in your business proposal.” It comes on high recommendation that you prepare to answer the obvious questions investors will have at the end of your pitch including how their investment will be monetised, which may include licensing agreements and your strategy to sell your company to another, larger company.
Hundreds of episodes of Dragon’s Den have taught us that if you don’t know your business inside-out and if you don’t come across as capable of running your business without the ongoing guidance of your backers, you’re not going to stand much of a chance. Investors are just as the title suggests – investors. They’re the deep-pockets with the connections that we turn to when we want help launching and growing our business. They’re the step ladder, but are not there to run your business unless that’s part of the agreement. That’s what you’re supposed to be doing so know your business and be ready for the questions!