I read business plans as a major part of my consumer products and marketing consulting business. I act as project consultant for various venture capital firms. I am a member and lecturer at the University of Miami Farmer Business School Center for Entrepreneurial Studies. I teach students to write Business Plans. My consulting duties include the preparation of Business Plans for clients seeking financing opportunities.
There is no definitive and 100% detailed methodology for building these crucial documents. The internet, bookstores, and home study courses are full of ready-to-use templates that claim to lead to successful outcomes for projects. They do not.
In its simplest form, a business plan is a document that quantifies (figures, costs, finances), qualifies (due diligence, research), and narrates (tells an exciting opportunity story) a series of assumptions about the project being offered. . Plans submitted for my consideration invariably do not meet the level of professionalism required to be considered for funding. Even if the product or project has real utility and commercial value, if the document is defective, it will not be fully read or considered.
There are many elements that investors consider when reviewing a new business plan submission. Often the first reading is handled by a junior partner whose sole duty is to cull the herd, mark and submit only plans that meet firm standards. This means that around 98% of all newly submitted Business Plans are never read or even touched by key decision makers. You don’t want to be part of the slaughtered herd.
Here are 10 items that are among the most crucial items to avoid when preparing a business plan that will merit a thorough reading, marking, and full consideration by your investment goals.
1. Don’t build a plan by following a standard download template. When I am approached by an Entrepreneur with a Business Plan, I always ask if they have prepared the plan and if they have ever written a Business Plan before. If the answer is yes, I prepared the document and no, I have never done it before, I can be sure that a form template has been followed.
A quick scan of such a document always indicates a fill-in-the-blank approach. This screams lack of due diligence, hence lack of commitment. If you want the proper consideration your work deserves, personalize the plan and present it professionally.
2. The Executive Summary MUST present a vivid, compelling and comprehensive overview of the project. The first pages of a novel by John LaCarre or Vince Flynn catch the reader. The opening scenes of a Jerry Bruckheimer thriller absorb the viewer. Similarly, the Executive Summary is the window to the rest of the plan. If it excites the analyst, it will prompt him to continue reading with delight.
3. Don’t second guess financial items. For a consumer products plan, which is my area of expertise, the most important number to determine is the net dead cost of goods to produce and obtain a product. All other income and expense items on the financial statement, balance sheet, and cash flow projections (3 years, NOT 5 years) will be false if the true cost basis is not fully examined.
4. If you can’t provide a fully organized and committed management team, the project will go nowhere. We review far too many plans submitted by an entrepreneur who has no management experience in the space he is seeking to enter. No investor will commit funds to a project without experienced managers. People count as much as a product or concept.
5. What is the unique selling proposition that your product or service will provide to retailers, international distributors, and consumers? In a messy and chaotic market, how will your supply get through the maze and create demand? You need to be able to detail the obvious points of difference between your product and the myriad of competitors it will face. You don’t have to reinvent the wheel, but you must be able to improve or embellish the wheel.
6. Avoid bombastic pronouncements. This always results in a quick “deep 6”. Every time we see outlandish claims, we back off. Whether it’s financial projections, product performance statements, or detailed market share, if the project isn’t backed up with realistic due diligence, it won’t get anywhere.
7. It is not financeable if your project does not provide a return on investment of a minimum of 30% per year from the 24th and 36th month of full operational activity.
8. You don’t have first-mover advantage, but you think you have a better mousetrap. We recently reviewed a cosmetics and skincare project. The owner claimed his first-mover advantage was a new ingredient story. He was unable to detail a feature or benefit of the product that was not already being addressed in the marketplace. The product will have to be the first to offer a niche application in its space.
9. Never mistake a large document for a complete plan. A great business plan, unless there is new technology or divergent science involved, rarely exceeds 25 pages. Add as many supporting exhibits, competitive analysis, research papers, studies, etc. as possible. The main body of the document should be laser-focused on providing answers to the many questions investors always ask. Keep it tight and moving.
10. If your business plan is based on false assumptions, it won’t hold up to scrutiny. Remember that you must be able to fully support every assumption you make about cost of goods, marketing strategy, sales models, competition, expenses, financial projections, etc. This requires research and due diligence that will be apparent, or not, to the potential investor.
A great executive summary will contain references to almost all of the items detailed in this article. It will be concise, interesting, substantiated, and written with professional zeal, not bombastic. If this two-page introduction is put together correctly, your business plan will have a real chance of receiving a serious reading from your real target audience: venture capitalists, investment bankers, JV partners, and licensees.