Friday, May 23, 2008

Write a Business Plan?

For many years I have believed the mantra that no business will succeed without a formal business plan. I now think this is only partially true. The plan process is vital, the plan output is less-so. A typical business plan has a section about the market followed by how you will address that market, the team you will have, the description of the product or service you'll provide, some financial projections that culminate in the amount you need to raise to get going. The SBA website is a great place to start this process. http://www.sba.gov/smallbusinessplanner/plan/writeabusinessplan/index.html

I've come to believe now that the business plan can be simpler and more to the point. It doesn't matter what you write down in a fancy, 6 inch thick bound plan, so long as you can articulate and follow these 5 steps completely and accurately.

1. What is the "Need" you're trying to meet.
-The more urgent the need, the better the opportunity. You want to be selling aspirin, rather than vitamins; if a person's hair is on fire, you want to provide the water bucket.

How big is the Opportunity?
-Notice I didn't say "market." The market may be huge, but your opportunity may not be. Many companies have failed chasing the gloves-to-the-Chinese fallacy: ...there are so many of them, if I could only sell 1% I'd make a fortune...

2. Who else is trying to meet the Need and why are you different/better?
-You've got to have a really good answer to this question. You may have identified a great need (curing the common cold) but have no hope of beating out the more well-financed competitors.
-People usually speak of a "competitive advantage" in this section. You must have more than that. You must make the reader (and yourself) believe that you have an "Unfair Advantage" over the competition - and by the way, this gets the VC's really hot.
-This is where your Team or your bright idea are really important.

3. Now the hard part- How are you going to do it.
-You have to actually have a plan that starts at the beginning and gets you all the way to the finish line. Plans that start well but have a "...we'll figure out the rest when we get there," will not be successful.

4. The financial projections naturally fall out of your assessment of the market opportunity and how you're going to capture it.
-The big secret is that all financial projections are hooey. Nobody can predict the future with any accuracy. Nonetheless, you have to prepare one because the discipline of the process will be educational and uncover things you overlooked.
-The VC's, will discount most of the plan anyway.
-The best deals are ones for which you don't need a calculator to see the value.

5. Don't ask for how much you need, ask for how much you can get.
You don't want to be raising money every week. If you need a million dollars, but think you can raise $1.5, go for it. Your projections are not that accurate anyway, you'll need it.
-If you're afraid that you'll give up too much of the company cheap: Stop worrying. The worst that can happen is that you have too much financing and you can accelerate your success. More likely, you'll use the extra funds to take care of the thousands of things you didn't expect.

I've read thousands of business plans and written many as well. As an Angel investor, I can tell you that the screening process is pretty short and sweet. A sloppy preparation comes to light quickly. A very good article on what not to say in your business plan comes from Angel Investor Barry Moltz.

Conclusion
Focus on what's most important as part of planning your business and a business plan will materialize before your eyes..

I'd like your thoughts...

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