Thursday, November 3, 2011

Investor Preferences in the Business Plan

So what is that investors look for in your business plan? The may be a number of opinions on what a investable business plan is. Depending on the investor I'm talking to their is normally a range if different responses. Everything from "as long as the opportunity is clear' to 'I really invest in the person behind the business more than the opportunity itself' Truth be told it probably a combination of the previous two for me, but in the table below I tried my best to summarize the key issues in the business plan that needs to be included to ensure you are really communicating what the investor is looking for.

Too many entrepreneurs limit their opportunities by writing weak business plans. Great ideas are common; much rarer are businesses with the people and products to enter a market and take share or dominate. Only 1 % to 2% of all business plans presented to angels or VCs receive funding. 

Companies don’t build themselves. People build companies. Ultimately, an angel investor is selecting a management team. A great team can make even a mediocre company achieve reasonable success, whereas a company with the best technology will not be successful with a mediocre management team. 

Some of the key factors of a business plan that improve the success potential of a startup are shown below.

Success Factors 

• Years of operational experience in a similar industry 

• Startup experience with a similar business model that led to a successful exit 

• Willing to be coached 


• Addressable market that is fragmented and growing 

• Customers already lined up 


• Patent protected 

• Creates strategically defensible position 


• Shows that company has some competition, regardless of product or service 

• Clearly summarizes competitors and key threats 

Business model 

• Similar to one or more used by successful companies 

• Demonstrates that customers have real pain that product or service solves (“must have” vs. “nice to have”) 

Exit strategy 

• Identifies target acquirers 

• Shows deal history of acquisitions and IPOs with key financial multiples and ratios 


• Objectively assesses risks and describes actions to reduce, mitigate or eliminate them 

Financial projections 

• Shows conservative, expected and targeted figures with assumptions for each 

• Focuses on cash flow and profitability 

Capital structure 

• Detailed 

• Preferrably shows ownership by founders and only small numbers of unprofessional or inexperienced investors 

Investment desired 

• Places an offer on the table - indicates valuation 

• Shows uses of funds in detail 

• Details expected future rounds and uses of funds from each round 

Thursday, March 24, 2011

Who reads your business plan?

So much is written about writing the business plan, what to include, how much of this and which specifics of that, that we often forget about one of the most important considerations of the business plan, who will read it. For you as the entrepreneur, we also have to remember that the - Who will read it question is really crucial.

The saying goes that beauty is in the eye of the beholder and that is as true here as anywhere else. What is the reader looking for, what do the they notice and what does not really matter? At a recent business plan competition where a number of the judges were not from a business finance background, I was astounded at what they were looking at and seeing as important. Points of view were often very different and what one appreciated as a job well done, others over looked completely in favor of something else.

Nine times out of ten when I’m looking at a new business plan I’m rushed and my aim is to quickly work out whether it makes sense to meet the company behind the plan or whether we should politely let them know we are not interested, with a brief explanation as to why. As you would expect, we review many more business plans than we take meetings – I have never run the numbers but a back of the envelope estimate suggests that excluding plans from entrepreneurs who are well known to us the ratio of meetings to business plans received is in the region of 1:10, and lower still from entrepreneurs we have no connection with. With these sorts of ratios it is important for our productivity that we get to a decision quickly.

From the entrepreneur’s perspective situation is very different. The business plan and accompanying email is an important document, the one shot to impress a potential investor and try to get a meeting. Hence a lot of work goes into the business plan, and a lot of hope can be invested in it.

Clearly there is an undesirable asymmetry here – entrepreneur spends a long time creating the business plan, investor reads it quickly. I am writing this post to address that issue.

I am not anti-writing business plans by any means, and I think they serve important purposes beyond getting a first meeting with investors:

* writing a business plan typically helps to clarify and enhance thoughts and plans about the business
* investors will look to the business plan for information at later points in the process (hopefully including a more thorough read prior to the first meeting, assuming there is one)

However, I thought it might be helpful to highlight the parts of business plans I zoom in on when deciding whether to go for that first meeting:

* Summary of product
* Evidence of momentum – e.g. user traction or customers
* Summary financials
* Evidence of ambition
* Maybe a description of the market dynamics (often I feel comfortable enough with the market already)

The astute amongst may have noticed that despite the fact VCs always harp on about the importance of ‘team’ it isn’t on this list. That’s because we form our opinion on people from meeting them much more than from reading about their history.

The key issues is to perhaps include the most important elements of your plan in both he Executive summary, boude and conclusion for the reader not to overlook it.

Monday, January 10, 2011

Business Plan Outline

When drawing up a business plan it is important to take into consideration what information you wish to make known to your business investors and financiers in order to gain favour with them. A clear-cut business plan is of utmost important and will also help and guide you as your grow your new business.

What information needs to be in your business plan? What is the order of information that will make the most sense to lenders and investors? You can answer these questions with the business plan outlines provided below.

What are the standard elements of a business plan? If you do need a standard business plan to seek funding — as opposed to a plan-as-you-go approach for running your business, which I describe below — there are predictable contents of a standard business plan outline.

For example, a business plan normally starts with an Executive Summary, which should be concise and interesting. People almost always expect to see sections covering the Company, the Market, the Product, the Management Team, Strategy, Implementation, and Financial Analysis. The precise business plan format can vary.

Is the order important? If you have the main components, the order doesn’t matter that much, but here’s the sequence I suggest for a business plan. I have provided two outlines, one simple and the other more detailed.

Simple business plan outline
1. Executive Summary: Write this last. It’s just a page or two of highlights.
2. Company Description: Legal establishment, history, start-up plans, etc.
3. Product or Service: Describe what you’re selling. Focus on customer benefits.
4. Market Analysis: You need to know your market, customer needs, where they are, how to reach them, etc.
5. Strategy and Implementation: Be specific. Include management responsibilities with dates and budgets. Make sure you can track results.
6. Web Plan Summary: For e-commerce, include discussion of website, development costs, operations, sales and marketing strategies.
7. Management Team: Describe the organization and the key management team members.
8. Financial Analysis: Make sure to include at the very least your projected Profit and Loss and Cash Flow tables.
Build your plan, then organize it. I don’t recommend developing the plan in the same order you present it as a finished document. For example, although the Executive Summary obviously comes as the first section of a business plan, I recommend writing it after everything else is done. It will appear first, but you write it last.
Tim Berry mentions a number of these issues in his business planning blog

A business plan may change with time and one must always leave room to grow and expand the original vision and direction that the business is taking when starting up your new business venture. As an entrepreneur, seeking mentors and angel networks to help you along, constantly refer back to your original plan, but be open to change and expansion in accordance with what you current economic situation in your country may be experiencing at the time. You may need to add more products, or discontinue some, and recreate your plan, purpose and vision.

Thursday, December 23, 2010

Tips for business plan writers

Starting a new business venture requires some research and investigation into the market into which you desire to go into. Whether starting a business online or not, a good business plan and a profile is a requirement , when applying for a small business loan from any financial institution in South Africa. In a recent article about Business Plan Writing, a few important factors were mentioned to help improve your chances of requiring financial assistance. Business planning is of utmost important when persuing your new venture. It is important to go into a business venture with a clear direction and knowlege of your targeted market. It is important to familiarise yourself with what business plan software is available on the market. Writing your own business plan is not that difficult and can be done without having to lay out excessive amounts of money on a professional business plan.

Why you need a business plan in South Africa
Whether you’re starting a new business or looking to expand your existing business, it is crucial to have a business plan in South Africa. If you need a bank loan or investment from outsiders, you need to have a business plan to show for this investment of capital. A business plan is your key to success
Writing a business plan is something that many small businesses fail to do although it is a necessary step in preparing for obstacles in the future. When you write a business plan, it forces you to start thinking about problems and solutions in your business and industry.

The first step to writing a business plan would be to do research into the feasibility and profitability of your new business. Investors and banks have to see that you have the resources and experience to make your business work and a business plan is the blueprint for what you plan to do for the future.

Your business plan should include the following elements:
An introduction that explains what your business is and what your objectives are.
A marketing analysis about the industry your business will be operating in and how you fit into it.
A marketing plan (which is basically your marketing strategy)
A management plan about how where you are going to set up your business, where your business will be located and the regulations and restrictions about your business.
A financial plan that clearly describes how you are going to finance your business and what your financial projections are.
An executive summary which is a one page overview about your business that you should write after you have finalised your business plan. Advice for writing a business plan.

Advice for writing a business plan
When you write a business plan, a good piece of advice is to break it up into smaller tasks. Don’t try to write the whole plan in one day. Start writing section you are most comfortable with – if you have marketing experience start off with the marketing plan. Another tip for writing your business plan is to spend quality time when you are writing it and don’t put it off so that it is a rushed job.

Business continuity plans for your business in South Africa
A business continuity plan is a series of documents that describes the priorities and actions that a business should take in the event of a disaster or system’s failure. A business continuity plan is as important as your initial business plan because it addresses the often overwhelming task of creating plans so that your business runs smoothly.

In conclusion, the internet is full of resources and help such as the article above. Once you have searched for a bussiness plan that best suits your industry, you will be well on your way to having a clear direction as to where u see your business in the next five years and beyond. Help and advice is only a click away through all major search engines!

Find out more about business continuity plans in South Africa

Monday, December 13, 2010

Raising finance for a new business

Raising finance for a new business is often the most challenging task of the entrepreneur. No one enjoys asking others for money (well almost no one) and going hat in hand to your local bank or investment firm is perhaps similar to a trip to the dentist. But it does not to be that hard. Using business plan services should be seem as your first real opportunity to see whether you fist of all can communicate your idea effectively an secondly whether other professionals see the opportunity in the same light that you do. Its one thing convincing friends and family, who after all are often interested in seeing you in a good mood, vs convincing the people to such an extent that hey will invest money into the idea. Granted that if you are one of the lucky few, friends and family may be the same people who will be finding the business in the first place.

In general, raising finance for your business can be divided into 6 simple steps.

1. Seeking out the Investors

This is arguably the hardest part of the process. If you are someone who regularly runs to stay fit you will know that the hardest part is to put your shoes on and start running. Once that is happening the rest sort of happens by itself. Most people start within family circles, friends, business associates and other acquaintances. Others may go directly to the bank or government institutions proving grant or loans for start-ups.

Once you find the right contact willing to finance your business, a well written business plan should normally take care of the rest. The first step often takes the longest so don’t loose fath when I takes longer that expected. Is your idea is viable and it excites you then the right investor or investment body will come along.

2. The Approach.

During the approach, two things must happen. As with any new relationship its always useful to start by breaking down the barriers between you and the other party. In his classic book, How to Win Friends and Influence People, Dale Carnegie talks about finding some thing in common with the other person. A common interest can help you to get to know the other party in question and help them to start understanding that you are actually not to different from them. Remember that the first thing you may have in common is that you may both be interested in meeting the right venture partner. Secondly you need to make the other person believe that you know your subject area and that your business idea can also help them with other own goals fr the future. Simultaneously be building a degree of kudos. The venture source needs to invest capital, and you need to raise capital. Fulfilling your mutual needs is the task you must accomplish together.

3. Choose the most suitable source

once you have identified suitable funding sources, list the reasons why they would be interested in funding your business. Always consider the ‘WIFM’ concept. When listening to your proposal or business concept the other party will be listening through a filter of ‘What’s In It For Met?’ Not everyone invests in the same deals for the same reasons, as certain benefits among the features will be more important to individual capital sources than others. In fact, the same plan is likely to be supported by different people for different reasons. You need to identify the needs and reasons for investing of your potential money source. Study the background of the various funding sources, ideally considering the other businesses they have invested into.

4. Presenting the Business Plan.

During this stage you can really show of your knowledge and passion for the industry and the business that you are intending to start or grow. This is an area where most entrepreneurs actually do well in. Do remember however, that your presentation need to reflect the investors interests and answer questions that thy may have. If you have already build up a relationship with the investor it may be easier to understand and address their concerns. If not, be sensitive to any body language or signs form the investors as to which areas you need to focus on.

A rookie mistake at this stage is to over value your business or present and half developed concept. Unless your market research has show exceptional interest from potential clients, investors will be looking for working concepts. Remember that they are thinking, what can go wrong with this, is it a good investment opportunity. They are not interested in simply paying your salary for the next two years while you further develop your concept.

5. Address their concerns confidently.

Don’t be taken aback if there are allot of questions or objections. These merely indicate that the investors are interested and want their doubts put to rest. They may ask about your income potential and how you came up with the amounts mentioned. Real sales is of course the ideal at this stage as it takes the doubts out of business. "What are you going to do that's different, and how are you going to do it better than what is already being done?" In handling objections, the first thing to avoid is to be defensive. Instead, acknowledge the comment, and respond to the objection in a sincere way. See objections as a support mechanism. If investors have objections or doubts then so may your eventual clients. These may be people who have been involved in start-ups before and its really an opportunity for some very valuable free advice. Don’t be afraid to ask questions of your own.

6. Getting to a yes.

If the first five steps was executed well then this final step should take care of itself. Look for definite answers and commitment, if there is a maybe, discuss next steps and how you could potentially turn the last objections into a yes. Remember, apart from your business plan, your enthusiasm and entrepreneurial spirit are two characteristics that investors will value most.

Saturday, December 11, 2010

Implementing a Feedback Strategy for Your Business Plan

Ask any business owner or manager an they will quickly tell you that at any business level feedback is a crucial element of business imporovement. The feedback process is not only important for existing bsuiensses but similarly so for the entrepreneur writing a business plan or just starting. Whether you are using the snail method of writing your plan or using the latest in business plan software technology with feedback options build in, you need to keep in mind that your business plan will be updated on a regular basis. Where does the feedback come from? Well that is exactly what we are looking at in this article.

Online surveys can improve the efficiency, effectiveness and profitability of your business. To make it easier, we’ve developed templates on each of the survey types below, using proven market research techniques. These templates will give you an edge, and the right data, as you look for feedback on new ideas for your business.

Get Customer Feedback
One of the most popular uses of surveys is as a yardstick for customer satisfaction. Annual, semiannual or quarterly surveys serve as a barometer of your business’ health and allow you to monitor your performance over time. In addition, many businesses send out satisfaction surveys after each customer transaction, using the survey as a way to judge the effectiveness of individual employees and the product itself.

Test the Concept
Expanding your audience to include prospects allows you to check the receptivity of the market to a
product enhancement or a new offering. Sending a survey to two segments – a portion of your customers and a portion of your prospects – provides visibility into whether prospects require different messaging or education than was required to win your current set of customers.

Check Your Vendors
Surveys can help evaluate which vendors are best equipped to deliver the raw materials required to fulfill your product plan. You can send out a survey asking about their shortest lead-time, their standard shipping terms, etc. By downloading their answers into a spreadsheet, you can sort your vendors by those most capable of meeting your new requirements for faster shipping or expanded capacity.

Plan and Evaluate Your Event
A survey is an easy way to collect multiple data points from a large group of people.
Zoomerang users in the marketing and event planning departments have deployed surveys to ask representatives about their arrival times to a trade show, their requested shifts, etc. and have used that information to plan their event. Afterward, they deployed a separate survey to ask the representatives for their opinion on the value of the tradeshow, the number of sales attributed to it, and whether they plan to attend next year.

Gauge Employee Satisfaction
Online surveys are an ideal mechanism for soliciting employee feedback since they provide the
anonymity that is essential to candid feedback. Many companies use surveys to conduct
management evaluations and to ensure privacy Zoomerang can even deploy the survey for you.

Share Best Practices
Guidance is golden and Zoomerang users within associations or even loose groups of vendors are finding surveys an effective way to gather wisdom that they can’t find elsewhere. A quick survey on a how to handle a difficult business question generates responses that can be directly put into practice.

Get It On Your Calendar
Give yourself enough lead time to really learn what the survey reveals: too frequently surveys are
done at the last minute, which makes it impossible to act on the insight. In addition to a quarterly
customer satisfaction survey, consider sending surveys using this rotation:
Operational surveys after each transaction
Prior to regularly scheduled tradeshows and events
Marketing concept tests as product development dictates
Quarterly employee reviews
Quarterly vendor surveys
Semi-annual product releases
Annual employee satisfaction surveys
Benefit queries before changes in annual plans

Survey Deployment

There are several ways to deploy your surveys and each method has its own advantages. A one-time email broadcast to your entire customer or prospect base is a thorough way to communicate. If you
host your survey on your Website, you send a signal to prospects, customers and vendors that you
are constantly listening to them and receptive to feedback.

Building a real-time feedback loop into a number of sections of your annual business plan can
provide you with a way to be nimble – and knowledgeable – in your operations. Examine your calendar and your plan and ask yourself: would it help to test this concept or gather more information?

We acknowledge the guys at “ for contributing to some aspects of this article.

A Business Plan for Business Finance

The business plan is increasingly playing a crucial role when it comes to securing small business finance. Not only with banks, where it is now mostly compulsory to have a business plan if you are hoping to apply for business finance, but also with venture capital firms and angel investors.

Today in order to get your new business going, your business plans are essential at this stage of setting up your business. In it you will already have scoped out what your money needs are and how you plan to raise the startup capital, and you'll be using it to persuade potential investors and lenders of the benefits of funding your new business.

Your financial calculations in your business plans therefore need to be thorough and accurate and presented with confidence. Everyone expects that they'll be able to stick to their business plans and only need to borrow the absolute minimum, but more often than not something unexpected crops up to throw a wrench in the works. It therefore makes good business sense to include a contingency element in the amount of startup capital you request. It's better to do that now and have the extra cash as a safeguard than it is to have to return to your lender or investor not far down the line to ask for more money.

If it wasn't in your original business plans they are likely to be concerned about your financial ability and your request may be rejected. Many people wonder how much startup capital they should request. You want to keep costs to a minimum and invest your money wisely in your new business, while still having the security of a little extra for backup if required. What startup capital you borrow should give you a realistic challenge for your new business but should not be too risky. And back up your calculation with evidence in your business plans, since it has to be credible.

With numerous organisations in South Africa now supporting the use of business plan software in order to get the business plan right, the issue is hard to ignore. Organisations such as Investors Network and the SA Venture Capital Association are all throwing their weight behind effectively constructed and well researched business plans to ensure that not only the business is successful in finding the finance it needs but also that it is able to start successfully.