With an estimated $800+ billion in funding available for the entrepreneur annually (even in bad times), you may think that venture capital and R&D partnership firms would be falling over each other to fund the latest wave of scientific and technological proposals.
Venture capital companies such as R&D Funding Corp., Early Stages Co., Mayfield Fund, Asset Management, and others receive an average of 100 technology and service/support proposals each month, even when the economy is “less than desirable.” Unfortunately, instead of paving the way for funding, the proposals are often more detrimental than helpful. The sad truth is that the majority of the business plans presented are not just badly written, they’re very badly written. That makes the evaluation – finding the winners – even more difficult.
Pyramid Your Plan
The business plan should be presented to potential investors in the same manner that products and services are presented to potential customers – quickly and effectively. A simple way to accomplish this is with a pyramid-style presentation. It starts with a tight, action oriented summary and expanded sections toward the base.
After you get through the legalities and disclaimers, the most important part of your plan is the executive summary. This one to two-page summary clearly states what the company is going to do, what the market potential is, how the company plans to achieve market penetration, the time period involved, the product/service plans, the amount of money needed and how that money will be used.
The second most important section of the business plan is the business summary. This includes corporate objectives and strategy; a market summary with product/service objectives; unique (maybe even proprietary) technology involved; a plan of operation/action; a financial summary and investment requirements.
The executive and business summaries are the most important parts of your proposal. Few senior funding officials will read beyond these areas, so if you haven’t hooked them at this point…pack it up!
The next section is the product or service description…the real idea. This includes the products, systems or service’s features and capabilities, as well as future plans. Since many people feel that marketing is as important as the technology (if not more so), include an aggressive marketing and communications program. In short, marketing and market perception is where it’s at.
The fourth section is the market analysis. Here you discuss the market or markets, the trends and the need your products/services will fill. Depending upon the potential market, there are numerous information sources for this section. Start with the Web. Then focus on the media outlets that target your specific market area. By knowing who and what to ask, you can usually find a significant amount of valuable information at no cost.
Over the last decade, a complex market research industry that covers every aspect of every market has emerged. Research reports can be purchased from companies such as IDC, Gartner Group, Forrester, Jon Peddie Research, Yankee Group, Ipsos and others.
The fifth section of the business plan is the competitive analysis. This includes a discussion of the participants in the market as well as potential market players, the number of years (or sometimes months) they’ve been in business, their size, sales volume, product/service niche markets, their strengths/weaknesses and product/service plans.
Today, firms of every shape and product discipline have Web and social media sites with excellent information just waiting for you to access. And, with the depth/breadth of the Web, virtually all the data you want will be at your fingertips.
Don’t try to bluff your way through this section. If your company and products or services are of interest to the investors, you can be certain that they will have more than a passing knowledge of the industry and its participants. In addition, the funding industry is closely knit, and it only takes a few phone calls to check out details.
After evaluating the competition, include a section on the management. It includes a discussion of the current management team, as well as any additional people you will need and when you expect to add them.
Keep in mind that funding people look at the total picture and evaluate every request in detail. At times, part of their contingency plan will include replacing certain members of the team with individuals of greater strength. It could even be you. These strings are not attached out of malice. They are putting out the hard cash and want to do everything possible to ensure that the company will succeed so that they can get a good ROI (return on investment). Some people have great ideas but can’t execute.
The Whole Plan
Finally, a complete business plan includes a section on financial projections where all of the pieces come together on a cold, hard ledger sheet.
For the first two years of operation, lay out the program’s cash flow in monthly detail. The third year should be outlined by quarters and the fourth and fifth years in six-month increments. No one believes that your crystal ball is so clear that you can see what is going to happen month by month in the third, fourth and fifth years, but you should at least show that you have planned that far ahead. By following this outline, you can develop a clear, logical business plan that attracts investment interest.
Great ideas need help to make them happen. A solid business plan will help you prepare for success.