Nearly all business experts and successful entrepreneurs agree on one thing: the importance of having a business plan.
A comprehensive, carefully thought-out business plan is essential to success of businesses. Whether just starting a business, seeking additional capital or proposing an expansion, you will never face a more daunting writing task than a preparation of a business plan.
Intuition and optimism are needed to build a successful business but it is advisable not to get carried away as operating without a business plan can prove even more time consuming in a long run.
The time invested in a business plan will pay off many times over. Some of the benefits of a business plan include;
An opportunity to test if new ideas can be successful
A clear statement of your business mission and vision
A blueprint to keep your company right on track
To benchmark your performance and make midcourse corrections
Serves as a portrait of your potential customers and their buying behaviors
A detailed list of your major competitors and strategies for outcompeting them
An honest assessment of your company’s strengths and weaknesses
Financial analysis of your revenue costs and projected profits
Sales and Marketing strategies
For an entrepreneur seeking investment, the business plan offers potential investors a formal document containing the most important information they require to reach a decision.
Of course, even the best business plans do not guarantee funding but having a business plan increases your chances of getting funding. Funding depends on a lot more factors than just a business plan. For example, the management team, business model, risk associated and various other factors influence the decision of an investor. With our experience from working with entrepreneurs across various industries, we can definitely state that in today’s competitive landscape, having a well-documented business plan is definitely a key to attracting investor’s attention.
A winning business plan is one that describes the business accurately and attractively. In writing a winning business plan that convinces investors, it is important to remember each investor has specific preferences on the business plan format based on the sector they specialize in or based on the geography they cater. However, there is definitely a global standard for business planning which encompasses the salient features of your venture that an investor might need to know before investing in your venture. It is very important for an entrepreneur to invest time and resources in creating a well-documented business plan to attract investors.
Here are some key highlights investors look for in a business plan
Investors and partners want to put money in a market with potential for growth. This is simple to understand. Businesses in early stage markets are scalable. The scalability factor excites investors. It justifies the risk reward mechanism. A business in a growing market is likely to survive if not grow exponentially than a business in a declining market. So, spend some time to research the growth potential of the market and industry you want to compete in and let your plan capture the opportunities in the market with verifiable data.
This is not to say investors only invest in a growing market. If your business seeks to play in an unproven market or declining market then you need to spend some more time to explain with figures the opportunities in such market others are turning away from. It could be that your idea will disrupt an established market and industry giving you a market category leadership position.
Whatever the case, you have to prove that there is potential for profit in your target market and industry. Ways of making a very convincing demonstration of the presence of opportunities in your market include; demonstrating user benefits, documenting market research and recognizing interest of sizeable number of potential customers.
The business plan must reflect clear positive responses of customer prospects to the question “Having heard our pitch, will you be willing to buy?” If you are just a start-up, it would be ideal to perform a pilot test so you can get a clear understanding of what interests the market. Use whatever you obtain from the pilot test to draft an appealing business plan. Detailed research can also be used to find out the interest of your market. In an appendix to the business plan, you can put in letters attesting to the value and benefit obtained from the ‘pilot test’ customers.
Business model describes how the business seeks to capture value opportunities in the market. The cost implications and potential revenue streams of the business from its adopted business model is of particular interest to investors. Are there less costly means of delivering value to identified customers? Are there additional revenue streams? Is it more beneficial to enter strategic partnerships or stand alone? Should the business adopt in-store, online or omni-channels to reach potential customers?
These and more are business modeling questions the business plan should answer. The clarity of the business model and the revenue model is the key to a business. This is one of the most important aspects of a business plan. If you do not have a clear business model in mind, let’s face it your planning needs some more homework.
Investors do not invest in ideas. They invest in the people behind the ideas and in companies with positive valuations.
For example, a single entrepreneur with an unproven idea, unless the founder has a wonderful track record, such a venture has an infinitesimal chance of obtaining investment. While on the other hand, is a business that already has an accepted product or service in a particular market with competent management team and staff. This business is more likely to convince investors.
Investors fear inexperience managers. If you do not have a track record of success in management positions, you will need to consider partnership arrangement and demonstrate visible progress in building your venture before reaching out to investors.
Products and Services Offered
Your business plan must include the exact product or service you plan to offer along with the target market you are aiming at. Everything for everybody is not a very good idea. Will you be manufacturing a product, distributing or sourcing a semi-finished product to repackage and distribute? Your business plan should state and explain all these.
Your venture does not necessarily need to be a unique innovation. It can be a traditional business but it is imperative to highlight the competitive advantage that you are offering to the market. It can be a gap in supply and demand, or it can be a product or service with better performance and price or simply your offerings are more convenient.
A business plan without the implementation strategy is like talking in the air. Let us be honest everybody has great ideas, but the ones who know how to implement them are true entrepreneurs. Your business plan must contain the strategies you will need to ensure seamless implementation of your business with timelines.
This is the last but definitely the most important section of your business plan. We have seen most entrepreneurs struggle with this section primarily because of entrepreneur’s myopia or unrealistic assumptions. The financials must be realistic and based on past data or data from a similar business.
Developing a business plan is essential for driving the business to success. However, if you seek to craft a business plan to convince investors and source for investment, there are additional considerations for such business plans. Such plans should pay attention to investor’s needs. Some common investors needs are
Business owners more often than not do not understand why investors can have short attention span. When investors evaluate a business plan, they do not just calculate how to enter they also consider when and how to cash out and exit. Suggest exit options to investors.
Investors deal largely with accuracy in numeracy when dealing with business owners. Too often, business owners go over the board with numbers and in some cases, don’t do enough work on their financials and rely on overoptimistic figures. When investors sense a number of over optimistic estimates, they tend to believe that to be a character trait of the business owner. Once investors conclude that the business owner is not realistic, their risk assessment of the business owner increases and they begin to second guess all facts and opinions shared by the business owner.
Some investors normally calculate the potential worth of a business after five years to determine what percentage they must own to realize their return.
The final percentage of the business acquired by the investor is subject to negotiation depending on expected earning and inflation.
Make It Happen
Businesses differ in marketing, sales, production and financial capabilities. Their plans must show such differences and must make emphasis on major or stand out areas and reduce on minor issues. Make sure to write your business plan by looking at what is required to convince investors.