On Business Planning

Most business plans are too big. As I type this, I’m looking at a 200-page plan created by an entrepreneur who wants to use it to raise money.It simply won’t work. Investors only have a little bit of time to manage the initial stages of contact with entrepreneurs. They use a funnel-shaped process that rapidly culls the number of interesting companies they see every year from hundreds down to a tiny handful. They don’t have time to deal with hundreds of massive documents.

By contrast, I’m also looking at a plan that raised $750,000 of angel money last year. It’s 12 pages long. Of course, a lot more information was needed to close the deal, but the entrepreneurs were very smart: they put just enough into the business plan to start the investor conversation, and had a truly comprehensive diligence document prepared.

The 12-page document would win out over the 200-page document every time, particularly when it’s backed up by careful preparation for rapid, intelligent diligence on the merits of your company.

I talk to companies about their business plans every day. At least once a week, I get a business plan outline that is really an outline for a due-diligence binder. I got one in e-mail today. It will create a plan that will be too big to be useful.

Here’s a suggestion. Before you start to write a huge business plan, do a “flyby”. A flyby is a single-page, double-sided document that gives extremely short answers to the questions you will have to address in your business plan. You’ll be surprised at how difficult it is to give concise, compelling, and meaningful answers.

Here’s a sample (but no means definitive) set of questions to answer in a flyby:
• What are you going to do?
• Who will care?
• Why is this better than what’s being done now?
• Who else is doing the same thing? In other words, who will fight with you for money at the customer’s wallet?
• Why should a customer give you money instead of a competitor (on a case-by-case basis)?
• How many customers exist? How much do they spend on this
problem now? How would your product change this?
• What prevents somebody else from doing this too? Why are you unique? How can your IP be protected?
• Who’s involved? Why are they good at doing this? Why are they better than anyone else?
• If you had a ton of money, what would you do with it to allow you to succeed? Why is this better than bootstrapping (why is VC money needed)? With this money, what would the next four years look like? Will you need more, or is this first batch of money enough?
• How will the investors make a profit?

Once you have the answers to these questions laid out cleanly, take them to someone for comment. You can bring them to CTI, take them to the Alberta Deal Generator or to any of the Angel networks, and get some feedback. You can then expand a revised version of these questions out into a pretty decent business plan.

October 3, 2007 | Registered CommenterThe Startup Guy


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