Business Plan Guidelines

The business plan is that all-important first impression. It is the appeal for money, an opportunity to promote the company, and the reason for someone to pick this deal to invest in over the many other excellent deals available. It will also form part of the contract of deliverables if someone does invest in your company. It is not just the story; it is “the plan”.

The target audience is potential investors, not a thesis review committee. Investors are much more interested in the business opportunity than in the technology. Use your space and their time wisely. Dedicate the plan to the potential investor, not to your peers who will be impressed with your product. Consider that investors are interested in only one thing: getting out with a lot more money than they put in. No, they do not have to understand the technology to invest in it.

First impressions are lasting impressions. Do not sink your plan by including incorrect spelling, bad grammar or punctuation; the use of unprofessional language; numbers that do not total, or poor organization. Avoid “slick” plans that are perceived to be “form over substance” and a waste of scarce resources. To look “professional” consider a binding that permits easy updates and a cover that looks good and includes all contact data. Include a detailed table of contents, numbered pages and identify each plan with a control number.

The Business Plan should not exceed 30 pages (and 20 is much better) including the Executive Summary. (Print front and back to make it look even shorter!) Imagine your reader is flying out of state and is going to take five plans with him. He will pick the skinny ones he can fit in his brief case. Those 50 page plans will stay back in his office until he “finds time” for really long plans. Get to the point. Present results not research.

OUTLINE
I. Executive Summary – write last. Cover all topics BRIEFLY. Limit to 2 or 3 pages. This may be the only part of your plan that is actually read. Should be a separate document or (detachable).
1. Company’s background not history – formed when? for what purpose? with what goals? 2. Products and/or technology – What? Uniqueness? Proprietary? Barriers? Stage? Benefits?
3. Management team – completeness? Brief relevant experience, highlight strengths!
4. The Market – size, growth trends, recent and projected, estimated market share.
5. Financial projections and exit strategy – boiled down, summary reports. 1 paragraph or chart.
6. Funds Sought – how much, what for, for how long?
7. Contact information (if detachable the cover will probably stay with the plan).

II. Company Overview & Background
1. Begin with the “Elevator Pitch”, the hook. Fast, Efficient, Clear, Exciting
2. Keep the content consistent with external information such as website, D&B, etc.
3. Founding history.
4. Significant milestones achieved to date and critical success factors for the future.
5. Touch lightly upon the technology.
6. Mention strategic partnerships or relationships already established.
7. Include the mission statement.
8. Convey the team’s direction, foresight and philosophy to investors.

III. Products & Technology – Readers are investors not technologists.
1. Cover important aspects of the product (reserving technical specifications for appendices).
2. Hit hard on unique or competitive advantages.
3. Include helpful diagrams to help the investor (not the inventor).
4. Emphasize the benefit to the end-user.
5. Explain how customers will use the product. (Easy? Education required?)
6. Explain why they will need or pay for such a product.
7. Explain clearly why there will be an extremely high-demand in the near future.
8. Where will they buy, how will they buy it, what is their “switch” motivation.
9. Discuss manufacture-ability, customization issues, and supplier issues if relevant.
10. Discuss industry standards or requirements – FDA, OSHA, EPA, etc.

IV. Market definition
1. Most recent data on the market size and trends.
2. Forecast of market size and trends.
3. Geographic concentrations in the market.
4. What is the buying process in this market? (Is there a certification needed? Is it a committee or single person decision?)
5. How does the market segment? (What characteristics help predict buying behavior?)
6. What are the major influences on the market? (environmental, regulatory, economy, etc.)

V. Competitive Analysis
1. Identifying competitors: a) Direct competitors: doing the same thing in the same way b) Substitute: does something else in the same way c) Alternative: does same thing in different way d) Who has filed patents and are they assigned to individuals or companies e) Who has the most to gain from success — Which companies can leverage a success in this market into a success in another market?
2. Competitor profile: a) How large is the company and/or the unit of competition? (annual sales, number of employees, locations, organization structure, such as what positions do their senior managers hold) b) What are the strengths and weaknesses of each competitor? (based on what you learn from press releases, articles, technology partners) c) What is their market share? d) What is their reputation? (Usually from interviews) e) Who are their major customers and likely prospects? (from company websites)
3. Summary and conclusions – including implications

VI. Market positioning
1. How is your product or service different than your competitors’ product or service?
2. What is your value proposition? (how do you answer the question “Why should I buy your product or service?”)

VII. Marketing Plan
1. What is your pricing strategy? (Do you intend to offer quantity discounts? Charge lower prices to break into the market? Charge a premium price to reflect the quality?)
2. How will sales be financed? (any credit extended?)
3. What is the whole product that the customer buys? (Does it include certain services in addition to product?)
4. Do you offer customer service? (Is there a fee? Is it available 24 hours a day/7 days a week?)
5. Is there a warranty policy and what is the cost?
6. What is the “short” statement of your product or service? (What is its use and why is it different?)
7. What is your promotion plan? (advertising, public relations, trade shows, direct mail, etc.)
8. What is your strategy for entering the market? (Distribution, target markets, promotion, location, reputation)

VIII. Distribution channels
1. Direct sales: Will you have a dedicated sales force, use the Internet, etc.?
2. What are the wholesale channels available and will you use them?
3. Is there a Reseller network and will you use it?

IX. Sales approach and proposition
1. What will be your sales organization and method? (Will direct sales people be employees? Who will be responsible for generating leads? Who will be responsible for working with prospects and closing the sale? etc.)
2. How will sales people be compensated? (base salary vs. commission, etc.)
3. Describe the sales cycle. (Who is the buyer? What are their first indications of interest? What do you do to take them to the next level of interest? What are the major stages of selling this product/service?)
4. Demonstrated interest by potential buyers—from those with 1) authority, 2) need, 3) capability, and 4) interest

X. Management – The most important topic. Read second by investors. Know their depth and limitations.
1. One paragraph for each key founder/executive covering only relevant experiences and background. (Not entire resumes). Note functional responsibilities for each.
2. Summarize key hires for the immediate, intermediate and long-term future. Recognize the limits of the founding staff in relationship to the future company.
3. Provide an assessment of weaknesses; cite when and where the company will most benefit by changes in management. (Most successful companies have had 3 CEO’s. Investors are impressed with entrepreneurs who know the score.) Discuss recruiting strategy and don’t forget to include some serious recruiting costs in the financial model. (20% to 30% fee plus $10K to 25K relocation expense per new executive hire).
4. List outside board members. Helpful, but not essential. Not intended to make up for weak management. Strong and independent is impressive.

XI. Implementation Plan – Exactly how and when will you execute this strategy. A table, a timeline or a succinct discussion to show you know what to do when you raise the money. Research and development – resources committed and expected results
1. Facility requirements – leased, purchased or both.
2. Labor requirements – local labor pool, skilled/unskilled, academic relationships.
3. Subcontracted production – sources, quality control, supply issues.
4. Capital requirements – equipment list, financing requirements.
5. Quality control – raw materials, manufacturing, finished goods.
6. Critical processes – capacity requirements planning, critical paths, cost components.
7. Seasonality – production planning, alternative use of resources.
8. Inventory control – inventory turnover, production operations, lead-times, storage requirements, waste/shrinkage factors, obsolescence.

XII. Financials – Should be summaries only. Reserve the detailed worksheets for the appendices. Most readers look at the “top line” more than the “bottom line” and at the assumptions for believability.
1. Amount of funds sought a.) Equity – amount, terms, % given up. b.) Debt – amount, terms, % of interest.
2. Sales targets – volumes or numbers, not dollars (that is #3)
3. Revenue growth – some product or segment detail here is fine.
4. Gross Profit
5. Operating expenses – save space. Lump them all into one line except Sales and Marketing and Interest.
6. Net income
7. Cash flow
8. Balance Sheet
9. Table showing total headcount by period
10. Cover 3 to 5 years. (Save monthly detail for appendices).
11. Use of funds
12. Subsequent funding rounds required
13. Exit Strategies! (How and when do the investors get liquid again?) a.)Acquisition b.) Management buyout c.) IPO d.) other
14. Relevant ratios – ROI, Breakeven, etc.

XIII. Appendices – don’t forget your space requirements now.
Optional. 1. Resumes for each founder/executive.
2. Detailed financial statements or worksheets
3. Detailed product or technical description and patent grants.
4. Relevant research material or articles.
5. Sample of Marketing or Promotional materials.

XIV. Available Upon Request – These should be EXCLUDED from the plan, but ready to send.
1. Customer/beta references
2. Letters of intent
3. Personal references
4. Supporting financial worksheets
5. Articles, publications, or research material to support business plan.
6. Term Sheets

What are some reasons investors don’t invest in your deal?
1. Time – on average, investors must exit in 5 to 7 years. This influences everything — from their opinion of your deal to the term sheet. Later stage investment funds require even quicker exits.
2. Management – still the #1 reason a VC turns you down. No matter what a VC says about the fund, the economy, the technology, the business plan, etc., concerns about management kill deals 80% of the time. Investors avoid engineers, scientists and professors as CEOs, especially if they have no management experience. Without a complete, experienced team a deal is simply not as attractive. Nepotism and spouses working together are major taboos.
3. Lack of Sophistication – Normally a company requires 3+ CEO’s from founder to IPO. Often more. Skill sets vary. The founder CEO may be perfect for the startup. He may be perfect for managing the design and product development team, the fledgling company, and the beta test sites with the first customers, but he may have no experience running a fast growing business with rapidly growing sales and distribution and cash flow problems. He may have absolutely no experience running a public company. If the business plan addresses this in a logical and rational way, it gives the investors much more comfort in knowing the entrepreneur will be easier to work with down the road.
4. Intellectual Property position –  The #2 reasons VC don’t invest is the absence of a strong IP position. They want a major delay for competitors, a great barrier to entry and an absolutely unfair advantage.
5. Finance – the proposed exit strategy doesn’t look right for them. It may be no problem to someone else, so shop it around. Liquidity is paramount. They don’t want to invest forever. They want to get in and get out.
6. Industry – Some industries might be slow right now with many recent entries trading lower than their IPO price. Lackluster performance in the NASDAQ and NYSE backs up into the start up arena and causes investors to avoid certain early stage deals.

Shop deals around. Most funded deals were turned down many times.

Never forget that some deals will get funding in spite of violating any number of these suggestions. “Sales covers a multitude of sins.”

Many promising deals are burdened by a business plan that is too thick, too confusing, misdirected and therefore rejected without even a real look. The purpose of the business plan is not to get funded. It is to generate interest. You want them to say, “I would like to know more about your company”. This is the first step on your journey.

Useful Links:  
Forms, Scorecards and Applications The Paulsen Award Application
Guidelines Sample Business Plan
Sample Deal Summary Resources
The Entrepreneur’s Handbook