When entrepreneurs seek funding for a new venture, potential investors often want to see a business plan. The question is: What kind?

When entrepreneurs seek funding for a new venture, potential investors often want to see a business plan. The question is: What kind?

by David E. Gumpert

If you are searching for funding—whether from venture capitalists, angel investors, bankers, or even friends and family—one of the first requests you’ll receive is this: “Send along your business plan.” Before you hang up the phone or acknowledge the e-mail, you may want to ask one question: What kind of business plan do you want me to send?

Business plans come in several forms, and before you start writing a 35-page document, you may want to determine whether a one- or two-page summary might do the trick, or vice-versa. Just keep in mind that whatever type of document you send, it must do more than simply describe your business—it must also sell you and your business and convince the backer you have what it takes to make the business succeed over the long term.

Here are the five most common types of documents that can fill a request for a written business plan, from most basic to most involved.

An executive summary. An executive summary is essentially a business plan in miniature and shouldn’t be longer than two pages. That means it should cover the main components—the strategy, the management team, the market, the product or service, the sales plan, and the finances. But it must go beyond simply addressing these issues in factual format like an abstract or an outline, as if hitting items on a list. It should integrate them in a cohesive and convincing way that interests and stimulates the investor candidate.

A synopsis. A synopsis might best be described as an executive summary on steroids. From a writing and presentation perspective, a business synopsis is a cross between an executive summary in traditional business plans (BusinessWeek.com, 12/3/07) and a business proposal. The emphasis here is less on the particulars of the idea and more on why the idea is especially relevant to the investor. Does your business somehow complement the venture capital firm’s other investments from an industry perspective? Does it open up a new opportunity area the investor is likely to be interested in, based on his past experience? In other words, the focus is on convincing and selling the recipient.

A summary business plan. This is a document typically 10 pages or fewer. It includes an executive summary, and then a page or so of explanation of each of the key components of a business plan. So it expands on what an executive summary or synopsis provides. Its financial section may look ahead a year or two instead of the traditional three to five years. A summary business plan has become the most common answer to the request from prospective investors, in my experience.

A full business plan. This is the traditional business plan of 25 to 35 pages that gets written about in books on planning. Each section of the plan is explained in full—lots of industry marketing data to back up the marketing section, much detail about features and warranties in the product description, and full financial projections including cash flow, looking ahead three to five years.

An operational business plan. This is the most detailed plan, since it is for companies that are already operating and thus have a history and an existing strategy. Moreover, such companies tend to develop a business plan literally to plan the business, rather than simply to raise money. A complete operational plan may be 50 or more pages, going into detail about sales, production, and distribution, so as to offer guidance to key managers, and in some cases to all employees. A well done operational plan can also be used to raise expansion capital, or even to attract prospective acquirers.

How do you know which kind of plan you should be preparing? Sometimes it’s best to ask prospective backers what kind they would like to see. And if you haven’t prepared anything, you can try to steer them toward the simplest plan, as in: “How about if we send you our executive summary?” Then you can get busy writing, in hopes of completing something reasonable in a few days.

But be prepared. If the prospective backers are truly interested, they may come back with the question: “Do you guys have any more detail to back up what you sent us?” Then the next step could be a summary business plan, or maybe even a full plan.

For more advice on business plans, including a video interview with a leading consultant, a roundup of resources experts recommend, suggestions for crafting a compelling presentation, and more, click through the rest of this special report (BusinessWeek.com, 1/7/08).

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First, you need to test your product or service with potential customers, and define your business model

Before I launched my last startup, I prepared a business plan exactly as I had been taught in business school. I was determined to lure professional investors, and I thought the key lay in creating lofty financial projections and carefully documenting the details. If all went according to my 40-page plan, my software company would be worth billions in five years by capturing just 1% of the market. My CEO friends told me that this was one of the most professional business plans they had seen. Yet it didn’t take me long to realize that it wasn’t worth the paper it was printed on. It bore no resemblance to the company I finally built. I don’t think that any of the 100 people I sent it to read more than the executive summary.

True, the analyst reports that I read to prepare the market analysis section provided valuable industry insights. And the process of creating the sales and marketing section forced me to think much harder about how I would achieve my goals. But the two to three months I spent creating the plan would have been better spent if I had instead focused on building my product and speaking to potential customers to understand their needs.

Over the years, I have mentored dozens of entrepreneurs seeking venture capital or angel investment in their new companies and reviewed hundreds of business plans. They all seem to be the same. A startup business plan is always a good piece of fiction filled with great ideas. No one really believes what he reads in them. What venture capitalists look for before they make an investment is a proven product with strong market demand and an experienced management team. And angel investors usually invest in vision and enthusiasm.

Validating Your Idea

To prepare a business plan that will lure professional investors, you need to first focus on testing your product or service and defining your business model. Because the truth is, all you really have at the idea stage is an idea. It is best to first validate it and make necessary changes based on what you’ve learned before you write the plan. Here’s what you should consider doing first:

1. Write down your thoughts on the product you want to build and the needs you want to solve. You’ll be detailing your hypotheses.

2. Validate these hypotheses with as many potential customers as you can. Ask them if they will buy your product or service if you build it. Learn about what features they need and what they will pay for, ask them for more ideas, and be sure that there is a large enough market.

3. Build a prototype of your product or offer a test run of your service and again ask potential customers what they think about it. You’ll find that customers usually provide much better input when they can actually try out a product.

Defining the Business Model

As you make progress in building your product, your next challenge will be to create a business model (BusinessWeek, 5/12/06). This is usually a lot harder than it seems, especially if you are creating innovative products and services and venturing into new markets. Here are the questions you’ll need to answer:

1. How are you going to find customers or have them find you? Are you going to advertise, cold-call, or rely on word of mouth?

2. How will you differentiate your product or service? There is always competition, so how are you going to set yourself apart?

3. What can you charge for your product or service that’s profitable for you and provides value to the customer?

4. How are you going to persuade potential customers to buy from you? Even great products or services don’t sell themselves, you have to develop a process for closing deals (BusinessWeek, 7/12/05).

5. How will you deliver your products or services to your customers? Are you going to have a direct sales force, sell through distributors, or over the Internet? Can you do this cost-effectively?

6. How are you going to support your customers if your product breaks? Are you going to provide a telephone hotline, on-site support, or answer e-mails?

7. How are you going to ensure customer satisfaction and turn customers into loyal fans? Your success will ultimately depend on how happy your customers are.

Back to the Drawing Board

Getting all this right takes a lot of trial and error. Most entrepreneurs I know have found themselves going back to the drawing board to rethink their product or services as they developed their business models. As you do all this, you will also become aware of gaps in your management team (BusinessWeek, 5/19/06). And you will develop realistic expectations of what your business can achieve and how much funding you need.

The good news is that once you’ve perfected your business model, professional investors are likely to be much more interested in you. And you will have all the information you need to create a credible business plan they will take seriously.

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Si tratta di un Master di I livello in «Management delle Imprese dei Servizi Energetici ed Ambientali – Revisore Ambientale» (MISEA-RA). La stessa Facoltà ha ottenuto l’approvazione del progetto di Scuola Emas, integrata nel suddetto Master, dalla Commissione Nazionale Scuole Emas ed Ecolabel.

Organizzato dalla facoltà di Economia di Foggia.

>Il Bando

La facoltà di Economia per l’anno accademico 2007-2008 ha ampliato la propria offerta formativa con l’attivazione del Master di I livello in «Management delle Imprese dei Servizi Energetici ed Ambientali – Revisore Ambientale» (MISEA-RA). La stessa Facoltà ha ottenuto l’approvazione del progetto di Scuola Emas, integrata nel suddetto Master, dalla Commissione Nazionale Scuole Emas ed Ecolabel.
Il Master – Scuola Emas nasce dall’esigenza di soddisfare il crescente fabbisogno delle aziende, degli enti e delle amministrazioni pubbliche, operanti ed aventi competenza nei settori energetico, idrico e dei rifiuti, di disporre di capitale umano capace di affrontare le questioni organizzative, gestionali, economico-finanziarie e quelle legate agli impatti ambientali dei progetti e delle attività proprie di tali comparti, soggetti a radicali cambiamenti istituzionali ed operativi.

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Start Cup 2008 PER UN PUGNO DI IDEE

È partita la quarta edizione di Start Cup Torino Piemonte, la competizione per progetti di impresa di innovativi promossa dai tre atenei piemontesi ed organizzata da rispettivi incubatori di impresa. La prima scadenza per presentare le idee di impresa è il 27 Febbraio 2008, per i business plan c’è tempo invece fino al 16 Luglio. Per le idee i premi consistono interamente in servizi, ovvero in formazione imprenditoriale, tutoraggio e affiancamento nella stesura del business plan: le migliori idee potranno così trasformarsi in piani di impresa e concorrere ai premi in denaro previsti per la seconda fase del concorso. In palio, oltre ai numerosi premi speciali, 20.000 euro per il business plan primo classificato, 15.000 per il secondo e 10.000 per il terzo. I tre vincitori di Start Cup partecipano inoltre al Premio Nazionale per l’Innovazione, la coppa dei campioni dei progetti di impresa nati in ambito universitario.

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Si è conclusa la quinta edizione del Premio Nazionale Innovazione con la proclamazione a Napoli dei nomi dei tre progetti vincitori: si tratta di Nanoxer di Start Cup Trieste, Dynanotex di Start Cup Veneto e Ingenia di Start Cup Torino-Piemonte. La competizione, che premia le migliori e più innovative idee imprenditoriali ad alto contenuto di conoscenza a livello italiano ha ritenuto la start-up torinese Ingenia, che ha ideato EcoThermo, un sistema integrato per il risparmio energetico tramite la conversione di vecchi impianti di riscaldamento, meritevole del terzo premio pari a 20.000 euro. Primo classificato è il progetto Nanoxer, che sviluppa una tecnologia di sintesi e di nanostrutturazione di materiali a base di allumina e che si è aggiudicato 60.000 euro, mentre 30.000 euro sono stati assegnati a Dynanotex, che ha ideato un sistema per produrre tessuti in fibra di carbonio trattati per servire mercati diversi da quello aeronautico.

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Un ponte tra Usa e Italia per favorire l’incontro tra comunità di investitori e idee imprenditoriali innovative, attraverso una competizione fra business plan.

Una competizione che premi i progetti d’impresa italiani più innovativi e brillanti, le idee meglio traducibili in realtà imprenditoriali di successo, con il supporto economico e strategico di quella che possiamo definire la vera culla delle nuove tecnologie: la Silicon Valley.

È Mind the Bridge, l’iniziativa no-profit che getta un ponte (è il caso di dirlo) fra Italia e USA allo scopo di promuovere la cultura d’impresa legata all’innovazione scientifica e tecnologica, attraverso la creazione di nuovi canali che ne promuovano lo sviluppo.

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An easy way to determine the future of a company is to listen to the chairman, CEO and largest investor. So why is Sears (SHLD) surrounded with speculation of liquidations, real estate sales, brand sales or laundry lists of public takeover candidates?

Facts from Eddie Lampert:

• The company is not a real estate play.
• The company will be run as a retailer
• The company will not be selling its most valuable brands
• The company is pursuing lower costs of capital and improving debt levels
• The company is focused long-term and is not competing with WalMart (WMT)

Combine these facts and a business plan for a quality, higher-end retail outfit begins to emerge.

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There are some people in this world who appear to have success handed to them. You’ve read the stories – they are born into a successful business, they came across a product that turned out to be wildly popular, they picked up on a trend just before it swept across the country and now they’re rich.

Here is what I’ve learned this year in talking with dozens of business owners and the people who help them: Some people really are just lucky. They were in the right place at the right time. Most, however, have created their own luck. They worked hard and they made a lot of mistakes.

As you are reviewing the year and making changes to your business or getting ready to launch one, here are some unconventional lessons I learned over the year for you to keep in mind.

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So here’s my list of new year’s resolutions for entrepreneurial companies for 2008:

•Evaluate what you did right. When drawing up a list of resolutions, we usually focus on things we want to change. But you’re still here in 2008, so you did some things right in 2007. See how you can continue or increase your commitment to the positive ways you currently run your business.

•Treat your employees right. If you’re starting 2008 with experienced, motivated employees, you’ve probably treated them well last year – paid them competitive salaries and benefits, trained them, acknowledged their contributions. Keep that up! If, on the other hand, you have high turnover and dispirited employees, resolve to change the way you hire, manage, and reward your staff.

•Get your financial information organized. January 1 is the ideal time to start keeping better financial records. If you’re using a wordprocessing or spreadsheet program (or worse, a shoebox), get a good, easy, financial accounting program now.

•Increase your efforts with best customers. If the economy turns sour in 2008, your customers are going to have to make some cuts. Make sure you’re not the one on the chopping block by working with them, serving them well, and making sure they don’t forget you.

•Market, market, market. In bad economies, the first budget item big corporations cut is marketing. That means the chance for you to go out and get some of their customers. Companies that keep up their marketing in downturns actually increase market share.

•Diversify your income stream. If you’re overly dependent on one customer or one sales channel, you’re vulnerable. I certainly learned this in 2007 – when my distributor went bankrupt. Fortunately, I had diversified a few years ago and had a second, significant sales channel. But stay focused on your core business! Many people use the phrase “multiple streams of income” to lure you into bad investments or second businesses you know little about or don’t have time to manage.

•Start a reserve account. 2008 is likely to be an unsettled income year, but in every year, cash flow in a small business is like a roller coaster. By building a reserve account of a few month’s operating expenses, you’re less likely to get queasy from any sudden drops.

•Develop an annual business plan. Without a doubt, the one thing I’ve done that’s improved the health and income of my business is to develop an annual business plan. We do a full company planning session every year. Even if you do just a simple plan, sit down and figure out a plan for 2008.

•Exhibit at a trade show. In my company, trade shows have been a major source of customer leads. But it’s expensive, so do your homework and be sure to have a follow-up plan ready. Start with local or state trade shows rather than national shows that are far more costly.

•Back up your data. Having twice had major disasters and a hard drive crash, I know the importance of backing up data. Backup regularly (at least weekly) and, ideally, store your backup data in another location.

•Clean up your credit. As banks and other lenders grapple with the mortgage crisis, make sure your personal and business credit is as clean as possible. Pay your bills on time, even if you have to maintain a balance. And check your credit reports. Get a free credit report from www.annualcreditreport.com.

•Keep learning. Whether you work alone or have a thousand employees, you are your company’s most important asset. Go to seminars, read journals, take classes, learn new skills. Your brain is your most important business asset. Add to it.

Finally, remember what truly matters. In 2008, let’s create peace, opportunity, fairness and joy in our businesses and our lives. Have a happy and healthy new year!

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