Rules for effective Business Plan
Sarayu Srinivasan, Director, Intel Capital
The written business plan is often the first contact an entrepreneur has with the investment community. It presents the company on paper before the company can represent itself and opens the door to all subsequent interaction.
As an investor, I evaluate a lot of plans. Unfortunately, many of the plans that come across my desk are uncompelling – poorly structured, unnecessarily long, too casual, loaded with spelling and grammatical errors, encumbered by extraneous details or, conversely, too light on relevant information. The number of basic avoidable mistakes is great. You will note that the low plan quality refers not to actual content (product, service, opportunity) but more about how the information is or is not presented. Part of this syndrome can be attributed to the nascent process of venture capital fundraising in an emerging market. The fundraising cycle, consisting of creating a plan and a pitch, targeting certain investors, taking investor meetings, and so on is fairly standardized in developed markets simply because it has been practiced and perfected with a well documented, consultable history behind it. Time is a precious resource for investors and the high volume of plans and competing priorities can easily turn a difficult-to-digest plan into a passed-on plan. Deftly evaluating a plan, therefore, becomes paramount. A more detailed version of the plan can exist but for the first go round you don’t want to run the risk of losing your audience.
Ideally, a first plan should include only key components of the business with growth drivers and brakes. Seems simple enough, right? In reality, crafting a concise but readable plan can be a daunting task. What is included? What is left out or saved for subsequent discussions? Writing an effective plan is a discipline and a developed skill, usually resulting from an iterative process. The plan will likely see several incarnations where it is picked apart, rearranged, and refined before it is in a final form. Remember, this living document must summarize the details succinctly and compellingly without losing meaning and focus. No small feat; especially when it is your business and every detail seems critical to conveying the business idea.
Generally, business plans seem to come across best in a PowerPoint format, but format and sequence (assuming a logical flow) are matters of preference. In my opinion, a plan should not exceed fifteen pages; any additional data should go in to an appendix. The plan also should be able to stand alone; in other words to be read and understood without the benefit of the author’s narration.
Third, language makes a difference. Spelling, grammar, and formatting all make an impression; many investors view lack of attention to details a cardinal sin that is also indicative of a lack of respect for the reader. It raises a red flag about the entrepreneur and his or her conscientiousness now and in the future. Spell checks are built into applications for a reason – get into the habit of using them. Jargon, technical terms, and industry specific vocabulary should be regulated. If industry jargon is unavoidable, defining terms as they come up is a good practice. Explain acronyms and abbreviations the first time they appear. Do not create additional hurdles or unnecessary complexity for the reader (and ultimately for yourself).
So, from a funder’s perspective what are some of the key components that should appear in the plan? Below are items to consider including; they are by no means an exhaustive list but a base template suggestion that should help provide a general but holistic understanding of a business.
1. Conclusion: A summary page or slide stating the opportunity and the solution. A conclusion slide at the start of a plan sets expectations up front and allows the audience to focus on the details of how; there is no wondering about where the presentation is going. This is the ‘take away’ slide that captures the business on a page.
2. Product or solution: A detailed product and value proposition. Should reference differentiation, barriers to entry, and where the solution sits in its universe and may include a technology overview.
3. Market opportunity: Size, growth, macro trends, problem solved, and market share targeted.
4. Customers: Target and actual, pipeline with commitments, and segmentation.
5. Go-to-market strategy & sales: How do you reach your market? “Why to buy” message vs. competition, sales cycle, distribution, and acquisition.
6. Management or executive team: Relevant education, experience, and expertise. What is missing and what is the plan and timeline for filling the gaps?
7. Business model: Monetization strategy, scalability, sales, and costs.
8. Financials: Projections (usually for three to five years), include historical financials, if any. Use metrics like user numbers to mark growth potential.
9. Capital required, deployment plan, investors: Include milestones and current and overall growth expectations.
10 Competition: Key competition matrix. It is helpful to include competitors’ differentiators and market penetration, strengths and weaknesses, and funders and money raised.
11. Contacts: Include the name, designation, phone numbers, and email id.
The author of the article is Sarayu Srinivasan, Director, Intel Capital.Adapted from www.siliconindia.com