A Good Business Plan - Acquiring Financing, or Venture Capital
|Prepared By: Melissa C. Marsh, Los Angeles Business Attorney
Written: March 2009
Introduction to Writing a Good Business Plan.
You have a new business idea and have started to assemble your management team. You have even convinced some friends and family to invest some money. Now it is time to write your business plan. This article will highlight some of the most critical points to consider when writing a business plan. This section serves as an introduction to a seven part series that is intended to provide the reader with a detailed explanation on how to write a business plan. At the end of the article you will see links to the seven articles that provide more comprehensive details on how to write each section of your business plan.
Writing The Business Plan.
Writing a business plan can seem like a daunting task to even skilled executives. But, in fact, it is a very helpful exercise, because developing the plan, forces you to analyze some of the details of your business, its directions, and its weaknesses. As you develop better answers for the business plan, you can also be working towards turning these "better" ideas into reality.
Creating a business plan is not about writing a long and boring academic paper about a business. A good business plan shouts with enthusiasm and conveys the exciting prospects for your company and provides a written outline of where you're taking your business.
One of the issues that my clients always raise is the confidentiality of the business plan. Clients correctly point out that they have little or no protection if they give the plan to a potential angel investor, or venture capitalist ("VC") without some kind of confidentiality agreement. The problem is that VCs, unlike individual angel investors, typically will not sign a confidentiality agreement and even if they do it is only because they know it won't be enforced.
The VC's perspective is that hundreds, or even thousands, of business plans cross their desk in a year and they cannot possibly sign all those agreements. In addition, signing such an agreement could create huge problems for a VC, if they fund one deal, but received several business plans that were arguably quite similar. The problem with this argument is that they are right.
As an attorney who often represents start-ups, and not the VC, it is my opinion that while a VC stealing your ideas or sharing them with a potential competitor is a bad risk to have to take, it's one that you'll have to accept. It's simply one of the rules of the game.
If you push too hard for a confidentiality agreement from a VC, you'll generally find that you'll have a business plan that didn't get read and you'll brand yourself as an amateur who doesn't understand the rules. Neither is a result that you want.
The simple fact is that your business plan must compete against more plans than you would ever wish to imagine. What does this mean? You must find ways to make yours stand out from the pack.
Let's start with the Executive Summary. The executive summary is not an introduction and it is not a preface. The executive summary is the most important page in your entire business plan and it is your entire plan condensed to its most important one to two pages.
The purpose of the executive summary is to convince your reader to continue reading. It's the first, and potentially the only, portion of your business plan that may get read. For this reason, it must be as close to perfect as possible. If the reader is not left captivated and wanting to know more, he or she will not read the rest of your plan.
In two pages or less, you must describe: your market, your product or service, the strength of your management team, a summary of your projected numbers, how much money you are seeking and, most importantly, "why you." Yes, this is a lot to discuss in very little space, but it is the most important task.
Another way to look at the executive summary section - it is the "why you" section of the business plan. Others refer to it as your "competitive and sustainable advantage," or simply as an explanation of what makes you unique in the marketplace.
Your executive summary must have a great explanation of why you should be funded. You must explain what it is that you do better than anyone else in the marketplace and how you will sustain that advantage. You may have a great and new idea, but you must have a plausible explanation of how you will maintain it.
In the body of the plan, when you are dealing with "why you," you must detail how your advantage will survive reverse engineering, outright copying, and just being overwhelmed by the brute force capabilities of giants that may want to invade your space. If you believe that you have this type of sustainable advantage, you must persuade the VCs.
The Management Team & Your Competitive Advantage.
After the executive summary, many plans I see go into a history of the company followed by its current status and then they provide a few pages about the charted course for the future. Others will jump into the technology or the marketplace. I don't recommend either approach.
Many VCs have informed me that if they are captivated by the executive summary, they will immediately skip to the section dealing with the management team. I, therefore, suggest that an extended section about the qualifications of the management team should follow the executive summary. You can put the detailed resumes in the back, but you should present your information in the order of interest to the typical VC.
If the executive summary convinced the reader to keep reading, you keep them reading by persuading them that your management team is solid, experienced, capable and dedicated. Provide the reader with a summary of the qualifications of key members of your team right after the executive summary.
If they're still reading, the next thing the reader will want to know is "why you." This is where you provide the reader with the details of your competitive and sustainable advantage. Explain why the monster companies in similar markets can't just jump in, use your ideas and wipe you out.
Now that the details of your competitive advantage have been explained, continue to think like an interested potential investor. Let's assume that you got the reader to continue beyond the executive summary, convinced the reader that the management team is solid and committed, and that you could sustain your real and identifiable advantage in the marketplace. The next thing that the reader wants to know is that there is a market.
What is your market? How big is it? Where is it going? Who is your competition? You must do your homework and present solid answers to these questions. When you meet with VCs, you must be prepared to demonstrate solid research on these issues. You're not going to get very far pulling these answers from the sky. Solid information to go along with your solid ideas is what you want your business plan to present.
Use the information contained in this article to get started, but also plan on investing in some good and comprehensive guides to writing business plans. Writing business plans is more art than science. There is no perfect plan or even a perfect formula for a plan.
Just remember to think like a VC and you may go far with your ideas. Answer the questions you yourself would want answered before investing lots of money with an unfamiliar person. Good luck!
If you would like to hire Los Angeles, California business law attorney Melissa C. Marsh to assist you with starting a new business please call 818-849-5206 or Send us an E-mail.
California Business Law attorney, Melissa C. Marsh, is based in Sherman Oaks and West Hollywood, and is available to serve small and midsize businesses throughout Los Angeles County, including: West Hollywood, Miracle Mile, Beverly Hills, Century City, Santa Monica, Burbank, North Hollywood, Valley Village, Toluca Lake, Studio City, Sherman Oaks, Van Nuys, Encino, and Woodland Hills.
© 2009 Melissa C. Marsh. All Rights Reserved.