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3 Tips To Bulletproof
Your Business Plan
What Makes A Business Plan Bulletproof?
IMAGINE: You are finally ready to present your Business Plan, the one you’ve been diligently working on for months, to potential investors, lenders, business partners.
Instead of feeling overwhelmed and insecure about your upcoming presentation, you are beaming with confidence and a strong sense of purpose.
You don’t know exactly what questions they will throw at you, but you’re pretty sure you’ve got your act together and are ready to rock n roll.
What would it take to feel like this and how can you prepare for this moment today?
At StartupHQ we are crazy passionate about helping entrepreneurs write and design an effective Business Plan so that they can gain clarity and peace of mind when they go about and raise funding and get after the partnerships they need to succeed.
Here are three tips and a “FREE Downloadable Bulletproof Your Business Plan Tool” to help you make your Business Plan rock solid and get you closer to your funding goal!
ONE: Know Your Audience
Depending on the type of audience you will present your plan to, you will be more successful if you customize your business plan to suit their preferences.
A good rule of thumb is to start with the end in mind and think about the amazing user experience you will want to provide your audience with, from the moment they first lay their eyes on your business plan to the moment you shake hands and seal the deal.
Visualize this moment every step of the way as you write your business plan and you will be amazed by the results!
The first impression counts more than you can imagine: you basically have 7 seconds to convince your audience that it’s worth their time and money to read your business plan and hear you out.
The four typical audiences you will present your business plan to are:
So, who are the angel investors and what are they typically looking for?
Angel investors are accredited individuals who use their own money to invest in startups and small businesses. They are required to have a minimum net worth of $1 million and an annual income of at least $200,000 to be considered eligible.
Especially if you are just starting out, and require initial capital to start your company, an angel investor might help you get off the ground and become a trusted advisor and mentor. according to the SBA, the average amount an angel investor will invest is $300,000 and they typically expect a return of 20%-25% on their investment.
Despite their individual differences and various industry backgrounds, most angels are looking to invest in a company with a compelling business model, an attractive market opportunity, a strong growth trajectory as well as a viable exit option in 5 years or so.
If the main target audience for your business plan is angel investors make sure you investigate their past history of deals made and look for similarities of investment thesis and industries with your company.
Most angels will initially look for a convincing elevator pitch and pitch deck executive summary as well as proof of early traction and a working model of your proposed product or service/prototype. They will pay special attention to the integrity and quality of the founding team and their commitment to carry the company through difficult times.
Once these are to their satisfaction, they will take more time to look at the detailed business plan and check your overall strategy and assumptions, the intellectual property and technology protection rights as well as the suggested valuation and terms of investment.
Given that angels invest their own money, ultimately the fit between their values and personalities and the founding team is key to determine whether they will feel compelled to invest, therefore you should expect it to be a lengthy process until you find an angel investor that really resonates with you and your business plan.
Unlike angel investors who invest their own money, most VC’s pool money from various pension funds or investment companies and typically invest in more established companies that have already proven their business model.
They will invest a significantly higher amount compared with an angel investor, the average VC deal is $ 12 million and they expect a return of 25%-30%.
Not all VC firms are alike, some being more hands-on than others, some being more interested in opportunities in a certain market and industry and stage of growth than others.
You should definitely carry out a due-diligence to see if the VC firms on your pitch list seem to be the right fit to invest and bring your company forward.
So, what does a VC typically look for when they invest in a company?
First and foremost, they look at the quality of the founding team, their relevant domain experience, ability to execute and strategize, proof of grit and endurance and their passion to solve the specific problem they are aiming for.
They will also size the market opportunity and are typically interested in sizable markets of upwards to $ 1 billion in which you plan to capture a significant portion in time.
Another key aspect is the proof that there is interest in your product or service, demonstrate early traction, gather customer testimonials, build strategic partnerships and awareness in the press, PR, etc.
VC’s will be very interested in founders who understand the KPIs and drivers of their business and can prioritize and envision the direction where they will steer the company in the coming years.
Another key aspect VC’s will look for is a thorough risk analysis where the business model, technology, regulatory, product and market risks are understood and steps are taken to reduce, eliminate and mitigate them.
Lenders will typically be the most conservative audience you will present your business plan to and will closely look at the generated cash flows and repayment ability of your company and the overall industry and business risk.
Detailed financial forecasts for the next 3-5 years will be essential here, and the projected financials will be benchmarked against industry standards to make sure they are realistic and credible. Break-even analysis will be closely checked as well to determine the required sales to cover the costs of doing business.
Another key aspect of interest to lenders is the collateral the company owns: is there any real property or other collateral that can be pledged to guarantee the loan in case of default?
Lenders will closely look at the use of funds and determine if the purpose is serving the business or is an expenditure with little economic value.
Moreover, if you are looking for a SBA loan there are additional criteria that need to be met in order to qualify, find the latest info at http://www.sba.gov
A business plan can also be useful if you are looking to build a strategic partnership with another company that could benefit both parties to faster reach their goals.
A strategic partnership is a mutually beneficial agreement between two companies who by collaborating together can enhance their offers and/or offset their costs.
Areas of interest for strategic partnerships are in the marketing, supply chain, technology, finance, digital departments.
For example, many small businesses would benefit from strategic marketing partnerships where they can leverage their strength in one particular channel and offer their expertise and reach in exchange to access to another channel that is less developed in their business.
When pitching to a strategic partner, the business plan should emphasize the potential synergies and explain why and how the strategic alliance will be of benefit to each party.
TWO: Create A Clear Structure
A business plan that is easy to navigate and understand, with a clear hierarchical structure, where sections, chapters, headings, subheadings are clearly outlined, creates a visually pleasing user experience and demonstrates organizational skills and professionalism.
The following sections are typically included in a Business Plan:
First impressions do matter and having a functional and beautifully designed front cover is a great way to put your best foot forward when presenting your Business Plan to a potential investor or business partner.
Your front cover should include your company’s name, logo, the year and month it was created and the contact details of the founders/CEO as well as a short statement of confidentiality and non-disclosure.
Having a “Table of Contents” section greatly facilitates the navigation and puts into context all the elements of the Business Plan.
The Executive Summary is typically the section that most people who get your Business Plan will read or skim. You should definitely leave writing your Executive Summary at the very end after all your other sections have been outlined and described.
The Executive Summary provides a high-level overview of the business and clarifies and distills the key points that define your business in a very short format, typically one page or less.
It should explain in easy to understand terms what your business does, your team, vision, mission and goals, how your product or service stands out and is different from your competitors, your target market and how you are going to reach it, your projected financials and what is the amount of funding you require and are currently fundraising for.
What is the background story of your company and why did you decide to start your business at this time? Who is part of your core team and how did you come together?
Describe your business model and how you provide value, what makes you different and better compared to your competitors, what are your goals and why is your company an attractive investment opportunity.
What type of business is it? (Sole proprietorship, S corp, B Corp, General Partnership, Limited Partnership etc) What industry is your company operating in?
What are your values, what is the mission and vision that your company stands for? What is the impact you aim to have on your community and how are you planning to achieve your vision?
What are your company’s short and medium-term business objectives? What are your KPIs (Key Performance Indicators) and how do you define success?
No matter how much intuition you have about the specific market and industry your company operates in, a sound and thoroughly conducted market research will be key in gaining valuable market intelligence to better position your product and offering, as well as identifying the pain points of customers and targets and the differentiating factors versus your competitors.
For many investors the potential size of the market and opportunity are key for deciding whether to invest in your company.
Basing your analysis on solid supporting data and relevant market sources ( government statistics, industry reports, trade association, university research, databases and reputable industry coverage in the press) is key to validating your assumptions and gaining trust in your go-to-market strategy.
Clearly identify your ideal target market and customer avatar and tie your analysis with relevant industry trends and consumption patterns in the coming 5 years or so. Segment your customers by demographics and psychographics (i.e. geography, age, education, behavioural patterns, values and preferences, tech-savvy-ness, employement status, earning range etc).
Make sure you include a SWOT analysis of your business and identify both internal and external factors that are expected to impact your business.
This will help you to have a more realistic expectation of your potential and help mitigate some of the risk factors and weaknesses identified in the analysis.
Knowing your competition and what they are offering is key to better positioning your company in terms of offering and identifying the right niche to be operating in. Think about how can you differentiate your product or service and what is the best business model to pursue.
Even if your product is cutting edge and there is no clear competitor yet, think about the current ways your target customers are solving their problems. What alternatives are there to your product and service and why should customers switch to your offering?
Describe your product and service line and the features that make them particularly useful and valuable to potential customers.
Explain the value creation process, the sourcing and manufacturing process if the case and what is the differentiating factor vs. your competition.
Once you clearly identified your ideal customer segment, you can make informed decisions about tailoring your marketing plan and strategy to reach your ideal customers with the right messaging on all channels they like to hang out.
Your marketing plan should include key decisions about the classical four -P’s that create your marketing mix:
- Price: What is the expected price your products and services will sell for and based on what did you make that decision
- Product: What are you selling and how do your products and services stand out in the market?
- Promotion: How are you going to promote your offering and get it in front of your ideal target customers? What are the channels you will use for finding and communicating with your ideal customers?
- Place: Where will you sell your products? Are you going to have a physical location or will you be online only?
How are your operations actually working? Who are your suppliers? What raw materials or services are they providing you with? Who is manufacturing or producing your product? Will you have your own premises or lease them from someone else? Are you planning to have a physical office or will your team work remotely? Do you need specialized equipment to conduct your operations? How are you going to handle shipment and order fulfillment? Will it be in-house or outsourced to a third-party? How are you going to manage inventory, inhouse or will you outsource it to a fulfillment partner?
What are the expected operational milestones and what resources will you need to make your business model operational? What are your contingency plans in case something goes wrong in your business operations? Did you plan a cash buffer to cover your operations in case of unforeseen events?
This is where you translate your Business Plan into numbers that reflect all the decisions you are making.
If you do not have a finance or accounting background, you will most likely need some external support from an experienced business plan consultant that can understand your business model and translate it into projected financials.
Ideally, your business should have projected income statements, balance sheet and cash flow statements for the next 3-5 years, ideally split in quarterly or monthly figures.
It’s very likely that these projections will not match the actual figures, however it is still a very useful exercise to model your assumptions and business decisions in a financial blueprint that helps guide your business and that you can refine as you get new data from the market.
Forecasting your cash flow is one of the most important elements of your Business Plan, it determines the amount of capital you actually need to have available to operate your business.
Managing your cash flow is critical for your survival, regardless how much sales or profit you are making, having enough cash to cover your obligation is always the critical part of staying in business.
Clarify your startup costs and ongoing financial requirements and allow yourself sufficient wiggle room rather than assuming to be frugal and only budgeting for the bare minimum.
In the Appendix of your Business Plan you can include important supporting information that was not included in the main sections of your document such as: product mockups, proof of strategic partnerships and letter of intent from potential customers or suppliers, any trademarks, licenses or patents you have in place, supplemental market data or detailed forecasts etc.
The back cover page typically includes the name of the business, logo, and contact details of the founders, the year/ month it was created, a copyright notice and statement of confidentiality and non-disclosure.
THREE: Avoid The Typical Red Flags
Investors and lenders typically see hundreds of Business Plans every year so that they develop a fine sense of what is internally inconsistent and not well thought out.
Their first impression is made in 7 seconds or less when skimming your Business Plan and when they see a red flag they immediately question the diligence and professionalism in conducting research and ultimately carrying out the vision outlined in the Business Plan.
While some of the red flags are structural such as a misaligned business model that is internally inconsistent others are due to poor research such as a target market that is not clearly defined, lack of supporting data to prove product-market fit or due to overly optimistic thinking such as lofty financial statements that are removed from industry benchmarks or the current economic environment.
Red flags also appear when there is a need for an objective risk assessment that is superficially addressed or when a change in consumer behaviour to accommodate the introduction of a new product is naturally assumed without providing supporting market evidence.
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