Unless you have a spectacular track record as an entrepreneur or an exceptionally great new business idea, you cannot raise capital without a business plan. So what should you include in your business plan?
There is typically one stand out reason for a successful business plan, and it’s that the successful business plans contains deep insights into the prospective customers.
As an accountant I see a good number of business plans, and this deceptively simple point is missing from 99% of the ones I see. Before getting into the key elements of a good business plan, above all else, I think you should make sure you do your homework when it comes to understanding who your customers are.
Firstly, you have to figure out the group of customers that you want to sell to. Then you have to develop a list of questions, for example “Why current products don’t meet their needs?” and “What an ideal product would look like?”
You should then interview at least 20 potential customers and make sure your analysis of their answers to these questions is in the business plan. And your analysis should include key quotes from those potential customers that reinforce the conclusions.
A good business plan should cover the following topics:
- Executive summary
- Business / product description
- Target market
- Plan to gain market share
- Management team
- Cash forecast
If you had two minutes going down an escalator with a potential investor, you should talk them through your executive summary. This should answer questions such as: What is your company’s mission? Why is it important to you? Why do you think your company can make money pursuing that mission? What is your track record of winning? How much money do you need? What kind of return can I expect if I give you the money? Why?
Business / product description
If you have more than two minutes, the investor will want to know more details. The business / product description should describe your company’s mission and present the details of the product that you have in mind to achieve that mission. This description should also focus on specific product attributes that you think will make it better than the competition.
The target market section details which group of potential customers your company will target. It describes why you picked that market, its revenues and growth rate, the key factors driving growth, and typical net profit margins in that market. And this section must also present the results of your customer interviews.
Plan to gain market share
The plan to gain market share section will explain the key factors, ranked by importance, which a potential customer uses to decide among competing suppliers. It will also describe how well those customers perceive that competitors perform on the various factors. It will next describe how your product will outperform competitors on key factors. Finally, the plan to gain market share section will set market share goals and describe what your company will do to achieve those goals.
The management team section of the business plan will present biographies of the members of your team. If you have no prior entrepreneurial experience, investors will be looking for signs that you and your team are winners, this could show up in outstanding academic, athletic, or extra-curricular accomplishments.
The cash forecast part of the business plan is in many ways the least believable for an investor. What investors are really looking to see whether you put in enough effort to make a detailed estimate of how much cash will be needed to achieve your goals and what revenues and profits will ultimately flow from that investment. The key here is to develop realistic assumptions and to prepare for investors to ask you questions about why you chose them and your sources of information.
To me the most important part is how well you understand the customers. If you do a good job with that, I think you will boost your venture’s odds of success considerably.