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Does Your Business Plan Ease These Investor Concerns?

Business investors are sensitive to at least three major constraints when evaluating business plans. I call these constraints The Three R’s: reality, readiness, and resources.

Reality

Many creative entrepreneurs with ideas for scientific breakthroughs have ended up frustrated with business investors who just don’t seem to “get it.” The truth is, however, that it’s the entrepreneur who’s not getting it.

Unlike creativity or scientific breakthroughs, starting or expanding a business requires the entrepreneur be keenly aware of their customers, competition, and core competencies.

Creativity and scientific breakthroughs often disregard the customer, the competition, or a company’s core competencies, which is why they are usually risky and often require significant capital over several years before they are monetized. The opposite type of investment most business investors seek.

For example, suppose you had an idea for a new everlasting light bulb. After researching the market, you determine that customers do want such a bulb and are willing to pay a premium for it. Preliminary manufacturing studies show that you can produce the bulb and profit nicely from it. Would business investors be receptive to backing a business plan that puts you up against the likes of General Electric or Westinghouse? But, you say, your plan is to some day sell your idea to these competitors. Again, how receptive would a GE or Westinghouse be to a plan that obsoletes a major product line? What would HP do with a plan that killed its aftermarket in print cartridges? Do you see the flaws in such thinking? Business investors do.

That’s why business investors like to invest in business plans that are grounded in reality. Plans based on reasonable risks that can be monetized quickly and generate a return on their investment. Although the everlasting light bulb strikes a consumer hot button, it fails the reality test by not addressing the distribution network and shelf control of large competitors. More important, the strategy to sell the business to one of these competitors is a flawed exit strategy.

Readiness

The second major consideration that a business investor wants addressed is readiness or timing. Unless the time is right for the proposed business plan, business investors are not likely to support it.

Take for example a business plan to introduce dishwashers in Japan in the early 1970’s. When dishwashers were rapidly becoming popular in other areas of the world, the average Japanese kitchen was too small to accommodate the new appliance. Moreover, the prevailing attitude among homemakers was that dishwashers were for the lazy or the idle rich. It took over a decade of attitude, social, and cultural changes before the timing was right to successfully introduce dishwashers to the Japanese market.

Business plans not only fail to gain support when they are premature, they also fail when they are late. Think how many American and European watch, automotive, or camera manufacturers lost their competitive advantage in their respective international markets because they resisted automation or robotics until it was too late. It is unlikely that investors would support a U.S. business plan based on automation or robotics in one of these markets today.

Resources

It’s amazing how many entrepreneurs ignore or neglect this constraint. Perhaps they believe that this is the entrepreneurial way…to know no obstacles. Although this attitude may impress self-help gurus, it won’t impress business investors.

The business plan graveyard is filled with plans that failed because their entrepreneurs were not sensitive to resource limitations. In most cases, these limitations range from the entrepreneur’s lack of sensitivity to their own internal resources and skills to not fully understanding what it takes to execute the plan itself.

This is especially true of businesses that are trying to expand through diversification. The world markets are filled with food companies that have failed trying to enter pharmaceuticals, chemical companies that have failed trying to enter foods, or electronic component manufacturers that failed trying to enter final assembly.

For start-up companies, entrepreneurs often fail to adequately estimate cash requirements or the time and resources required to build distribution channels, win customers, or to launch or sustain a business.

Business investors, experienced ones anyway, are all too familiar with the importance of resource constraints. So, when business investors zero in on this area and challenge your assumptions, don’t get too defensive. Instead, listen to their concerns with the knowledge that they can help you tighten up your plan and improve your chances of success.

How to Create an Effective Web-Based Business Plan

A web based business plan can be put together in quick time when you understand the basic facts. For most businesses, it is simply an approach paper outlining the route and putting the navigation tools in place. The plan will also help you to stay focused and avoid pitfalls. The following discussion will help you understand the processing of creating an online business plan.

1. Define your business

The first part of your business plan should define your business. This should provide a brief overview of the product or range of products, your approach and goals. Your perception of the market size, opportunities for growth and demand projections will also figure here. If you have any unique selling points (USP) that should be highlighted.

2. Study competition

What competition will your business face and how you propose to take the competition on should be elaborated. Analysis of the competitors’ key words and page ranks will also help to evolve your own success formula. Using competition as a means to fine tune your own business is the secret.

3. Define revenue and expenditure streams

Business should generate revenue to sustain itself and progress. How do you propose to generate the revenue? Tabulate the cost of the product, selling price, realization, expenses, provisions and profits to understand how the cash comes in and what goes out.

4. Contingency plans

Always make sure to add contingency measures to your web based business plan. Even when you are too sure that your business will not face any contingency, it is still essential to provide for a lean patch. Understand that you can always appropriate these provisions at the end of an accounting period.

Business Plan Deal Breaker Factors

Executive Summary
It all comes down to a few words. Get it right! How much money do you need and how you will protect the interest of your investors?
Why you need to know your business competitors…and make yourself stand apart from them.
What will your market penetration be?
What is the exit strategy for your business?
The ownership and form of your business: What investors will want to know.
Know your customers: Why you need to know who your customers are for the sake of your business.
How will your business protect the interest of your investors?
How will investors make money with your business?
How much money does your company need? Why you need an exact figure before you approach investors.
How easily can you be copied?
Does your business plan explain how your customers will get to know about your products and services?

Strategic
What are the factors that may hold your business back or make it thrive. How to show investors that your strategy is sound.
Identifying the key milestones for your business.
How will you measure the success of your business?
Your business lifeline: What are the 10% to 20% of activities that could account for 80% to 90% of your business success?
What key relationships do you need to sustain to help your business to survive and thrive?
Outlining the long-term and short-term goals of your business.
Identifying and targeting the factors that may hold your business back and prevent you from achieving your business goals.
How can you leverage key activities for your business to produce greater results?
How are you qualified to run your business?
Explaining the organizational strengths of your company.
Discussing the factors meaningful to your customers – How to show investors that you know your customers.
Business values to guide your company.
Assessing your resources – why you need to know the current status of your company’s resources.

Business Model
What business you are in? How you will make money? What threats and opportunities exist to your survival?
Why you need to establish your track record to impress investors.
Why do you need the money, anyway? – Explaining how investor funding will be used to achieve your company’s goals.
What business you are in? Why you need to know and how you can find out!
Preparing your business the right way: Picking the right business structure for the right reasons.
Making your business venture appealing to investors.
Establishing your long-term objective for setting up and expanding your business.

Products and Services
Why will your customers buy from you? How will you show investors that you stand out among your competitors?
Your Customers: Explaining why your customers will buy from you.
What is it about your products and services? What your business plan needs to explain about the products and services you offer.
Pricing Policies: What investors will want to know about how you’re pricing your products and services.
Keeping your customers.
How are you different? Showing your Investors that you stand out among competitors.

Industry Analysis
What are the barriers to entry into your business?
The Face of the Competition: Knowing your competitors, direct and indirect.
Protecting Your Business: What you need to consider about trademarking, copyrighting, and patenting.
Knowing your market and which factors are important to customers, clients, and partners.
How large is the industry that your business competes, or plans to compete in?
Finding your unique selling point.
Explaining the factors that affect your target industry.
Explaining government regulations that affect your industry – points your business plan should cover.
Business Planning: Barriers to Entry.
Assessing your business competition: How many companies are expected to enter your industry in the future?
Assessing the long-term security of your business – How long will it take an existing competitor or new entrant to overcome your business model’s advantages for stakeholders?

Market Analysis
Knowing your target markets and identifying them for investors.
Your market development timeframe and why it is important.
What investors want to know about your market: Is your market growing?
What are the sales trends in your market for the last 5 yrs?
What are the growth prospects of your market and what are the future sales trends in your market for the next 5 yrs?
Validating your business plan: what investors want to know about the research you have done to develop your business idea.
Specifying your markets: explaining to investors where you are going to be doing business.
Searching for untapped markets: Why you should do business with the customers everyone else ignores.
Purchase Values: What are your estimates?
Planning Your Business: How to assess the annualized market size in 2-4 years.
Knowing your target markets (and identifying them for investors).
Identifying key prospective purchasers.
How much of your target market do you intend to capture with your business?
Distribution, Promotional Methods, and Marketing Expenditure levels.
Describing historical shifts in your industry: key points for investors.
Assessing the seasonal aspect of your market.
Assessing the resilience of your business: Is the industry cyclical with the economy?
Assessing regulatory and structural restrictions on trade.

Competitive Analysis
Knowing whether your market is fragmented and why it matters to investors.
Who are the top three competitors for your business?
What are your competitors’ marketing strategies?
What are your competitors’ channels of distribution and why do they matter?
Knowing whether your market is fragmented and why it matters to investors.
Improving upon your competitors’ product offerings.
How do your competitors promote their business and why investors want to know.
How are your competitors competing? Recognizing the most important factors for your business.
Establishing your ‘market share goals’: how much of the market do you intend to capture and how fast?
Developing your pricing strategy: how to make sure the pricing of your goods or services is competitive.
Assessing the size and strength of your competitors.

Sales and Marketing Plan
Launching your business into your target market: how to prepare an initial market entry and development strategy.
Forecasting your marketing and sales expenses.
Developing a contingency plan for sales.
Creating a pricing model.
Building your sales team.
Building your marketing team.
Budgeting your sales and marketing.
Breaking down your marketing and sales budget.
Applying the 80-20 rule for profitability.

Management and Talent
Identifying your weaknesses and convincing investors you can compensate for them. Highlighting your talent acquisition strategy.
What is it you do? Why and how you should explain your role in your business.
Outlining the strengths and weaknesses of your management team.
Identifying your weaknesses and convincing investors you can compensate for them.
Creating your management team.
Building your business: how many employees do you need?

Risk Management Contingencies
Planning for the worst-case scenario: How will you mitigate any setbacks, delays, or unforeseen delays to your execution strategy?
What is your “plan B” if you cannot execute your business plan?
What are the inherent and perceived risks to your business?
What are the final projections for the first year of your business?
Planning for the worst-case scenario: How will you mitigate any setbacks, delays, or unforeseen delays to your execution strategy?

Exit Strategy
Planning for the best and worst case scenario: what are the possible outcomes for your business?
Show me the money: assessing how much of a return your investors can expect.
Planning for the best and worst case scenario: what are the possible outcomes for your business?
How organized are you with your financial data?