Writing The Winning Business Plan

Structural Guides & Practical Hints for Senior Management in 2006.

Why We Wrote This Guide

At Derby Management, we.re in the business of coaching senior management, and we focus primarily on both emerging rapid growth companies and established middle market corporations. Very frequently when we begin working with a new customer, we find that the company is either stuck in its growth cycle, or that it's behaving erratically like a rudderless ship being buffeted by the currents around it. When the issue comes up of... "Let's take a look at your business plan.", the response too often is..."Well, it's a bit out of date.", or just simply, "We don't have one".

Since we work primarily with the venture capital and private equity communities which provide us with the majority of our references, many of our customers are planning to raise equity investment, refinance their existing bank loans, or look for longer term exit strategies for their shareholders.

For these reasons-internal direction and external financing-a short business plan which has been researched, analyzed, thoroughly discussed and argued over is critical to keeping any company on track and providing a means for bankers, investors and employees to understand the future direction of the business.

Having said this, unfortunately, we have found that the majority of business plans that we see can be generally rated as being "fair" to "poor" both in their structure and in their presentation. Typically the content of the plan is reasonably good, but the problem exists because it's simply too difficult to dig out the meaningful content from the reams of other unnecessary material that's included in the plan. "Business Plan Clutter" is the disease, and in our experience, it's rampant in the world of emerging businesses and too often occurs in even more established companies with revenues in excess of $50 million.

As a matter of fact, one of our larger companies, with revenues north of $60 million with a healthy bottom line has never written a business plan nor do any of their departments have operating plans past a few PowerPoint slides. My response to this is that although I.m impressed with their results, I consistently ask myself and my CEO what could the results be if in fact there were a written business plan that supported their financials?

So, that's why we wrote this outline. It's meant to provide you, the senior manager, with a guide for structure, format and presentation. It's meant to supply you with a few "Rules of the Road" as to how investors, bankers and your managers will look at your business plan. It's meant to push you to focus your thoughts and your vision into simple language that will move the reader-whether that reader is an outside investor or an internal manager-to clearly understand where you're headed, what strategies you plan to follow, and, when you finally get there, what you plan to do.

This is the eighth year we have updated this guide, and it has grown in content and as a result of our own experiences. Having now been in the business of management coaching for senior managers now for about ten years, we have never felt more strongly about the importance of having our customers update their business plans.

We think that it's a sign of these economically uncertain times, given the required fast pace of all businesses today and certainly given the explosion of ebusiness tools and processes. As a result, we have experienced that there's a renewed surge in entrepreneurial management both on the part of our core customers with revenues between $5 and $50 million, and even within our much larger customers.

Whatever the reason, businesses today live in much more complex market environments than ever before with a much wider variety of management pressures than we have seen over the last thirty years of our management experience. Given this fast moving world of change catalyzed by living in Internet time, we look to a company's business plan as that one solid document which should provide management with all of its core building blocks for the future of the business: What is the business about? Where is it headed? Where are the roadblocks? What are the opportunities?...and, most importantly, what are the new tactics that management will be using to create profitable growth over the next few years? What we've learned well over our time as management coaches is that success in your business is all about cementing a few well thought out strategies with a few detailed tactical plans.

The operative word to remember here is "few". Better to concentrate on perfect execution of two or three strategies with an equally small number of well honed tactics over a period of twelve or eighteen months, than it is to attempt to conquer five or more daunting new initiatives. Our experience is that less is always more and that trying to get your managers and your employees to successfully attack more than "a very few" new strategies always, always leads to confusion, poor results and demoralized employees.

Having now worked on hundreds of business plans and read hundreds more, we have found that there's nothing really difficult about creating the actual document. It just takes a lot of time. The hard work, and what is really difficult is the actual strategic management process that takes place before and leads up to the creation of the business plan. Call it strategic planning or merely the business planning process, the activities are mostly the same. Senior management needs to come together through a series of meaningful, honest and objective discussions based on data drenched in market research, sales results and financial ratios and be able to argue through the future of the business.

What the business planning process often becomes is a series of planned "time outs" from the frantic day-to-day twelve hours that occupies us every minute of every day. The business planning process becomes management's time to really think through both the strategic and the tactical issues of managing the business rather than having the business, or more typically the market and the competition, manage the management.

And the end result is The Business Plan. This then becomes the document that details the results from management's "time outs"...the strategic planning process. It should, and I emphasize "should", provide the basics of why this business exists not for now, but for the three or five year out future. It should be the vehicle through which management defines its own consensus for the future direction of the business. It should provide the basic strategies and their corresponding tactical plans for the period of the next few years. It should provide a well thought out conservative set of measurements. And most importantly, it should strongly identify what how this management teams defines success for the business. What are those activities which will truly set this business and this management team distinctly apart from the competition?

At the end of the day, your business plan needs to be about success, and success needs to be defined as you and your managers see the future. Nothing more, but absolutely nothing less.

Have fun reading this. We had fun putting it together. Give us a call at the office or email us at postmaster@derbymanagement.com and let us know what you thought of our ideas and maybe share some of your own experiences. We are always looking for new ideas and comments that we can share with our readers.

Jack

Jack Derby

President

Why Bother?

 A business plan is vital to growing your business and involving your investors for two critical reasons:

First, and most importantly, it is the only management tool that provides strategic focus and management consensus. It is the only vehicle for coordinating the primary operating tactics and the primary key company objectives that you want shared among your key managers.

Second, initially, it is the required instrument to raise the essential capital and the financing necessary to grow your business. You simply do not get to go past "GO", and you do not get to collect your $200 without a well written business plan. There's absolutely no alternative, and don.t waste your time telling me about your cousin who was funded in 1998 on the basis of 10 PowerPoint slides that he put together with his college roommate over a couple of beers. Most probably, the story isn't true, and if it is, I will guarantee you that not only is the company out of business, but the venture fund has most likely met the same fate. That's why we call that period, The Bubble, when only a very few people made a ton of money and most Bubbleheads lost everything.

During the past year, we had the opportunity to measure this process a number of times. Over the past fifteen years, we have been actively involved in raising over $300 million in venture capital and private equity financing, so as a result, we spend a great amount of time on the phone talking with our friendly investor groups about taking time to look at yet another "great" business plan. In our business, this process comes down to knowing when and to whom to direct specific business plans from our clients. Assuming the business plan is sound, we provide the introductions to the already overworked venture capitalist, private equity investor or banker who really has zero desire to read yet another business plan. The unread plans already stacked on their windowsill are so unwieldy that they're beginning to block out the sun. Always remember that today, the typical established first, second or third tier venture firm receives hundreds of business plans every year. The need that you must constantly fill is that which makes your plan and your business unique enough that somehow it gets worked to the top of the pile.

What we provide is the experience and the success of knowing how to get past the gatekeepers and ask the investor for a favor "just to look at an executive summary of a very interesting company that we have been working with". In a number of cases this year we were working with three very successful battle-tested entrepreneurs who had already proven their skills in one or two prior deals, and yet, in every case, the response from the potential investors was always the same. "Sounds interesting, why don't you have them send me a plan."

In each of these specific deals, management was funded, but it would not have happened without an updated business plan that followed the rules, was easy to read and contained all of the necessary data in a format which the investor expected.

The business plan becomes the key to open the door. No business plan, or worse, a poorly prepared plan, the door never opens. You simply don't proceed. All of what you might have read in INC. about the two entrepreneurs who raised $5 million in equity without a business plan is media garbage. It's there for selling the magazine and is just not true.

So unless you're wealthy or your rich aunt is ready to fund your dream for the next five years, you need to begin the process of creating a well thought out and well prepared business plan that will pass the number of tests of the well experienced and ever cautious venture investor who may only invest in two or three companies during the entire year.

If you want to get that first bank loan for your company, as an instrument to raise capital, your business plan is your representative at the bank standing in for you when the bank officer or credit committee has a question about your business.

In the world of venture capital, your business plan is typically the first document seen by the venture capitalist, the private angel investor, or the underwriting firm, and we all know the importance of first impressions. With most bankers and all venture investors, the business plan becomes your calling card, and without it you will not get past the first meeting or be taken seriously. Since your business plan is often the first example of your business that potential investors see, it's extremely important that it be carefully prepared, be well presented, and, most importantly, bought into by everyone on your management team. Too often we have read reasonably good business plans and then discovered that all of the ideas came from the CEO and that the rest of the senior management team either had not fully bought into the plan or, in the worst cases, they had not even read it. Hard to believe, but it happens, and it happens way too often.

A well thought out plan enables you and everyone on your management team to deal effectively with today's world of constant change helping guide your company more steadily through today's rapidly evolving business environment. Furthermore, you will find that, although difficult to begin, the actual business planning process itself serves as an extraordinary valuable series of exercises that will increase the chances of success in your business whether it is a venture start up or a well-established corporation.

The Do's and Don'ts for Business Plans

Do:

  • Grab the reader immediately with exactly what your business is.

  • Be brief, direct and detailed. "Get to the bottom line" is a most important rule.

  • Identify immediately the business core: products, technology, markets and customers.

  • State clearly the compelling reasons that the business will grow and customers will buy.

  • Be compelling! Why this business? Why will customers buy? Why now?

  • Break through the market clutter. Absolutely convince your reader about your success!

  • Be realistic with yourself. Remember: You're investing not just money, it's your career.

  • State clearly both the company's short and longer objectives for the next 3 to 5 years.

  • Describe the 2-3 primary strategies that will enable the company to reach its objectives.

  • Do include your ecommerce opportunities and strategies.

  • Be realistic in making projections and in assessing your market and revenue potential.

  • Support your primary strategies and tactics with detailed and quantified assumptions.

  • Substantiate statements with underlying business data and accepted market research.

  • Discuss very objectively, but not negatively, your company's business risks.

  • State clearly how much money you will need, and exactly how the funds will be used.

  • State clearly how you will create value for your investors and your "exit strategy".

  • Use an attractive, but not overdone, presentation format for your presentation and plan.

  • Stick with proven and accepted formats in creating your plan. Don't try to be cute!

Don't:

  • Write much about history. A business plan is about future directions and growth.

  • Forget to focus on the customer. This is not about you or your technology.

  • Include internal financial plans and detailed budgets. You will provide these later.

  • Use overly highly technical descriptions of your products, processes or operations.

  • Forget about the importance of detailed market data and objective customer research.

  • Make vague or unsubstantiated statements or claims.

  • Assume anything. Question everything. For sure, any potential investors will.

  • Forget the investment audience that you are writing for. What do they care about?

        -Experienced management
        -Focused market penetration
        -Cash
        -Exit strategies    		  -Large and growing markets
      -Proven sales channels
      -Leadership
      -Innovative technologies


  • Think about the United States only. Today, any growth business is a worldwide game.

  • Define valuations in the actual plan. This will come later as part of the negotiation.

  • Attempt to write the business plan by yourself without major input from your managers.

  • Try to write over a protracted period of time. Commit to a timeline of two months.

  • Include copies of resumes, technical papers or reams of marketing materials.

  • Forget to proofread, edit out unnecessary phrases, and proofread three more times.

Preparing The Plan

Getting Started: The Company Self-Appraisal

A company self-appraisal must be performed in conjunction with establishing both an operating budget for the coming three years and a business plan for investors. You simply cannot develop a plan or a budget for your company in a vacuum. The following questions, although they may sound very simple, are meant to evoke clear and specific responses which are fundamental to both the core of the business today and the future direction of your company.

  • What business am I really in? Is it the right model for the next three to five years?

  • Is there clarity in our mission? For our managers? For our customers?

  • What are our valuable or most unique skills? What are our core competencies?

  • Do we demonstrate a valuable service for our customers? How do we really know this?

  • Are we committed to make difficult changes? Write out two recent examples.

  • What's the nature of our markets: trends, size, competition, and risks ?

  • What changes are likely to occur during the next three and five years...

    ...in our present products and services?

    ...in a rapidly changing ecommerce world?

    ...in the technologies or manufacturing processes in our industry?

    ...in the nature of our competition?

    ...in the buying habits of our customers?

  • What market share do we want and by when?

  • What customers are we serving? How well? What customers are we not serving?

  • What are the needs of my customers? Their customers? What changes do they want?

  • How do our customers, both large and small, view us? Have we surveyed them?

  • How can we best finance the growth that we are planning?

    Developing Operating Strategies
    Figuring out your company strategies:

    Don't be put off by the word, "Strategy". Just translate "strategy" into, "Primary Future Directions". What you need to be concerned about is an ability to clearly define the primary directions and the primary tactics that will lead you into the vision of the future that you have defined for your company and for yourself.

    To begin, you need to clearly state your vision of the future for your company. Supporting that vision will be the two or three key strategies that will lead you and your managers to this vision. One Vision, two or three Strategies, and lots of Tactics.

    The graphic above is our definition that we created in order to visualize the differences between the words, "Vision", "Strategies" and "Tactics." It is management's primary responsibility to create a totally integrated balance within the circle. Too loose a Vision or too many Strategies, and there will be chaos since very the Tactics will not tie together. On the other hand, too few a number of strategies or the use of potential tactics that are only going to be marginally impactful will not lead to any meaningful growth for your business.

    Just as it is management's job to create an integration and a balance from Vision to Strategies to Tactics, an additional critical task is for management to be able to consistently involve all of the employees in the company up an down the line that moves them back and forth from Vision to Operations. The end game is that everything within this architecture must tie together and be balanced to the bandwidth of management and the amount of financial resources that the business can afford.

    Any manager can run a company on the basis of short term objectives and the actions that are necessary to achieve those objectives. This is merely "Management Maintenance". It's always necessary to some degree. At the same time, it's not very exciting over the longer term. It does not build growth or sustaining value. And most importantly, it's simply not the real job of senior management. We call this "Screwdriver Management" since when we first observed this trait a number of years ago at one of our new customers, the CEO of this $20 million manufacturer literally always had a couple of screwdrivers in his back pocket so that when he was out in the factory, he could check things out and tweak the adjustments on the manufacturing equipment. Although he had been very successful when the company was smaller, we recommended to the board of directors that he be replaced since it was impossible to grow the business. With the bottleneck gone, a new CEO who had previously grown a $60 million business was recruited and successfully led the company through a very rapid growth period over the next five years..

    The true job of senior management, by its very definition, is to plan and to lead the organization. What we have found in working in hundreds of companies is that there simply cannot be any long term success without a thoroughly analyzed business plan and planning process that focuses on balancing the combination of Vision, Strategies and Tactics.

    Ask yourself and your managers....

  • Do we have a well-defined Vision of what this company will become?

  • How can we translate this Vision more effectively to our customers and employees?

  • Do we have a "Bumper Sticker " or" Elevator Pitch" that fully describes what we do?

  • Can we explain our business succinctly to someone in a two minute elevator ride?

  • Do the strategies that we have utilize our primary strengths and competencies?

  • Do these same strategies minimize our weaknesses?

  • Do we know enough about our market to define three or five new opportunities?

  • What's the ecommerce sales on our customers?

  • What's the probability of our success? What must we do to improve this probability?

  • What will be the effect on our current organization if we follow these directions?

  • What's the risk of doing nothing and not making any significant changes?

  • Do we have the necessary management experience and skills internally?

  • Where are the weak points?

  • Am I the person who can lead the company as a senior manager?

  • What's the financial impact, both short and long range on revenues, margins and net?

  • Can we raise the necessary funds? What's our experience? How long will it take?

  • What's the support that we need from our bankers, stockholders, and suppliers ?

  • How long will the implementation of this new business plan realistically require?

  • When should this business plan be reevaluated?

  • Do we need outside assistance to help us develop this plan or will that slow us down?

    Reviewing Assumptions
    Business Assumptions:

    Assumptions should be realistic and should not include everything that could possibly go wrong in the business. Murphy's Laws are going to impact your business anyhow, but you cannot build a healthy business on the basis of everything might go wrong. Additionally there needs to be a managed balance between what the business and its markets can realistically expect and the unknown reality of forecasting the future. Whatever assumptions are used must be rooted in a supportable pattern of logic and quantifiable data. Listed below are the primary assumptions that you need to at least consider as you write your plan. At the same time, understand that all of these assumptions may not be applicable to your own business.

    External Assumptions:

    Inflation
    Market
    Competition
    Materials
    Technology
    Regulations
    Taxes

    Internal Assumptions:

    Market data
    Customer data
    Sales forecasts
    Sales metrics
    Cost of Sales
    Sales Expenses
    G&A
    Margins
    Receivables
    Capital
    Financing
    Technology
    		The primary issues that you need to consider:

    Is there anything on the horizon that will cause concern?
    What are the primary analysts forecasting?
    What's new or looming in the future?
    Are you sole-sourced for critical components or services?
    What are the implications of Moore's Law? Of ecommerce?
    What's the government planning five years from now?
    Are there upcoming capital gains changes?

    The detail that you must have:

    by both primary and secondary sources
    by prospect category
    by period, unit, anticipated price changes, major customers
    by sales/salesperson; cost of acquisition; lifetime value
    by detailed primary cost components, lead times, inventory
    by sales channel, commissions, promotional activities
    by specific plans, headcount, leases, benefit plans
    by product line, critical materials, sales activities
    by forecasted sales, days outstanding
    by specific expenditures
    by forecasted demand with interest and acquisition costs
    by roadmap, product strategy and patent plans



    The Outline

    The following section provides a guide of a typical outline for your business plan. You will note that there are eight sections, but we have also been involved in the preparation of a number of plans that are ten sections long and some that are only six. There are a number of sections like the "Executive Summary" and the "Financials" that are always defined in the order that we have recommended. At the same time, depending on what's most important to the future of your own business, you may want to reorder some of the other sections. What is most critical is that you need to always be asking yourself if the order that you are presenting the material in your business plan may sense...to the reader who does not know anything about your business and may not know much about your market.

    Typically we recommend that you immediately begin to excite the reader with either the market opportunity or the products or the services. If you begin with the product or the service, then you must follow that section immediately with the Market section which typically is followed with the Sales section and the details of how you plan to penetrate the markets. Notice that we skipped by the Executive Summary section since you are going to write that last...after everything else is finished. In 100% of the business plans, you absolutely need to have an Executive Summary.

    The bottom line is that this is the time when you need to think like an outside investor or banker and understand how they will assess your business. What's the most logical flow of information that you can give that immediately provides any outsider with both a firm understanding of what you are attempting to do and really excites them to be part of your success.

    Since we often use this word, "excite", we need you to translate this into "compelling" and "value creation".

    • What is it that's compelling enough about your business that you're willing to risk everything plus the capital and the bandwidth of outside investors to build this into a very successful business?

    • What's compelling enough in your products and services that prospective customers who don't even know that you exist today and are already spending their dollars elsewhere are going to stop doing whatever they're doing and pay attention to you for ten minutes of a sales call or five seconds of a banner ad?

    If you could just remember to answer these questions relating to "compelling" and "value creation" all the way through your business planning process and the actual writing of your plan, we guarantee you that your plan will be more...compelling...to your investor audience.

    • What's unique about the business?

    • What is it that demands your customer's attention?

    • What's creates more financial value than that other business plan on an investor's desk?

    • What makes a potential investor grab the phone and schedule an appointment with you?

    Think like an investor, and your plan just may get you to the first meeting.

    In the world of venture capital and private equity, entrepreneurs typically lose out and don't get funded not because their business ideas were poor or not because they didn't have many of the necessary ingrediants for success, but because one of the other business plans that they had in there deal flow was more interesting, more compelling, and represented a larger financial opportunity for the investor to create more value.

    Working through the Sections...


    Section 1: The Executive Summary

    You are going to write this section last.

    Section 2: Introduction to The Business

    1. A simple description of your business, the industry and the markets
    2. An overview of the business opportunity-What is it? Why is it compelling ?
    3. A succinct outline of the market and the customer profiles
    4. An attention grabbing definition of your products, systems and services

    Section 3: Market and Sales & Marketing

    1. Market analysis and penetration strategies
      .1 Market Opportunity
      .2 Customer Analysis
      .3 Compelling Attributes
      .4 Competitive Analysis
             		What's the growth rate and trends: US and worldwide
      What are the specific customer needs?
      What's innovative? Why will your customers buy?
      What are the competition's advantages and risks?
      What is the tangent and indirect competition?

    2. Sales strategy: 'The Sales Plan'
      .1 Distribution Channels
      .2 Sales Models
      .3 Primary Tactics
             		What are the channels, why and when?
      Define the financials and metrics of your models.
      Detail the primary tactical penetration plans.

    3. Market strategy: 'The Marketing Plan'
      .1 Situation Analysis
      .2 Business Opportunity
      .3 Pricing Analysis
      .4 Marketing Tactics
      		This is a very brief classic SWOT Analysis
      What is the basic business opportunity that you have?
      Why will your pricing strategy work?
      This should be rich in content and innovative.

    Section 4 : Engineering and Product Development

    1. What are the core competencies of the organization?
    2. What is the product roadmap over the next three years?
    3. What is the current status of research and development?
    4. What is the project development status: timetables and projected costs?
    5. What's unique, innovative and blocks or slows down the competition?
    6. What is the proprietary status of the technology and patents if any?

    Section 5: Manufacturing (includes software production & service operations)

    1. Cite experience and core competencies if production and operations are internal.
    2. Identify in detail your outsourcing potentials, competencies and timelines.
    3. Specify costs and cost reduction plans.
    4. Identify any important sole source situations.

    Section 6: Management Team

    1. Do not include resumes.
    2. Create one (short) paragraph biography of each key manager.
    3. Include short bios for primary advisors, key scientific advisors if any, and Directors.

    Section 7: Financials

    1. Provide the highlights of the financial plan and your overall financing strategy.
    2. Provide standard proforma financial statements in standard investor-ready formats.

    .1 Profit & Loss
    .3 Cash flow
    .5 Use of funds     		.2 Balance sheet
    .4 Capital requirements

    3. Exit Strategies

    .1 Current equity and debt structure and future financings.
    .2 An overview of the use of funds

    Section 8: Appendices

    1. Important definitions if there are technical words and phrases in the text.
    2. Technical product descriptions, but only if necessary.
    3. Data sheets only for the primary products and one key marketing collateral piece.

    Section 1: Executive Summary:

    The Executive Summary is a three or four page summary of highlights that allows the investor or the banker to determine quickly if they have any interest in your plan.

    This section should clearly and crisply highlight the following. You need to keep true to The Three Rules about Executive Summaries.

    1. Most investors will typically read no further than the Executive Summary.
    2. All investors will be biased, positively or negatively, by this section.
    3. All investors, will prepare for that first meeting by skimming this section.

    The Components

    1. The business idea
    2. What's compelling?
    3. The market opportunity
    4. The target markets
    5. The competitive advantages
    6. The management team
    7. The offering
    		The Focus

    Be brief and get to the bottom line quickly.
    Answer in customer, market and value terms.
    Detail size, specific trends and real opportunities.
    Define what to sell, to whom and how.
    Focus on opportunities but point out the known risks.
    Explain who they are and their track records.
    State the amount that you need in equity or debt.

    This section is prepared after the other sections of the business plan are completed.

    This section must be both appealing and compelling enough for the reader to read on and or respond to your follow up calls asking ... "What did you think of our Plan ?"

    Hints:

  • Focused brevity is the most important attribute of this section.

  • Four full pages is too long. Make it shorter!

  • Most investors, bankers and potential acquirers will read this section.

  • Many investors will not read past this section before they meet with you.

  • Ask yourself...

          "What's our compelling business opportunity?"
          "What do we do best and why?"
          "Where's the value creation in five years?"
          "Can I put this on a bumper sticker?"

  • Make yourself...

          Think like an investor.
          Move 1,000 feet above the deck and look at this business plan objectively.
          Remember that your plan is only one in the 10 to 20 that will be seen this week.

  • Provide Total Focus everywhere in your overall planning and in your written plan.

          -a Focus on the customers and their needs. Be specific and explain these needs.
          -a Focus on the markets both today but especially in three to five years in the future.
          -a Focus on the specific methods that will allow you to penetrate your customers.
          -a Focus on doing one or two things really well. Don't cloud the future.
          -a Focus on the core of the business first and what you need to do to make it a success.
          -a Focus on the strength of the management team and how you hire "A" level experts.
          -a Focus on and decide specifically what your own strengths are.
          -a Focus on pragmatic answers and conservative financials.
          -a Focus on creating the most efficient and logical sales models to your customers
          -a Focus also on taking risks. Answer "Why you?", "Why this business?"

    Section 2: The Introduction to the Business

    2.1 The industry, the company and its products and services

    This section should clearly present the business that the company is in, the products and the value-added services that will be provided, the nature of the industry, and the opportunities that will be exploited over the period of the next three to five years.

    The section should contain:

    1. An industry analysis of its current status and, most importantly, its future trends.

    2. The specific target markets and specific target primary customers. You need to be able to support these comments with hard data which cannot merely be "because it's a huge multibillion dollar market".

    3. A clear description of products and value-added services. You need to be "technical enough" without being overbearing.

    This section should provide the following in general overview terms. The next sections will go into the necessary detail. Begin with a good solid overview in this section. Let the next sections grab the reader and pull them down into the interesting details.

    1. Customer needs, product features, customer benefits and business advantages.

    2. Advantages and disadvantages compared to the competition.

    3. Current status, trends and prospects of the industry.

    4. Market size and growth trends. Make sure that you use graphs here.

    5. Future products, developments, markets and economic trends.

    Hints:

  • Use industry accepted data and well-known analysts' research to support your claims and comments about the market and your target customers.

  • If you have them, use direct quotations from brand name customers that support your business and your business directions. For new companies, you can do the same with well known industry analysts, senior management in the market and your own business and scientific advisors.

  • Be data rich in this section. Wow and excite the reader with hard compelling facts.

    Section 3: Marketing and Sales

    3.1 Market analysis

    This section of the business plan is one of the most difficult to prepare; however, it is also the most important. All of the other sections of the business plan depend on the market research and analysis that is presented in this section. It should present the facts to convince the investor that the company's products and services have a market opportunity in an expanding industry and can win sales. Information in this section needs to support your assertions that either your well established business or your emerging venture can capture a substantial part of the market over the next five years.

    It is vitally important that you realize that all of the follow-on financial projections in your business plan depend on the validity of the market data and the resulting sales strategies and tactical implementation models that are outlined in this section.

    Even after the first meeting with potential investors, we have seen more deals not get done because of the lack of compelling market growth than any other reason.

    This section of your plan must address:

    1. The customer analysis:

    Customer research and hard data are absolute necessities. You need to discuss customers' needs specifically and the means by which you know that these are their needs. Also, you need to identify both your current and your targeted customers. You cannot afford to be general or vague in this section.

    2. Market size and trends.

    Verifiable and industry accepted data is an absolute necessity!

    Don't even try to explain that since this is "a new market" and that data doesn't yet exist. You may be correct in that data for a brand new market may not yet exist, but it's out there somewhere either in market data which is synergistic to yours or in market data from which you are going to be stealing share and customers. The best example of this issue of unknown market data has occurred over the last three years in Internet space. In spite of the fact that there were, and are still, a lot of unknowns, our experiences is that market sizes and trends are able to be forecasted with varying degrees of accuracy, but forecasted all the same.

    3. Competition strengths and weaknesses.

    This includes estimates of each key competitor's market share and their total sales along with an objective analysis of each of their strategic directions.

    Make a realistic assessment of the strengths and weaknesses of your competitors.

    Also assess the indirect competition through an objective analysis of the substitutes and other alternative products and services that exist listing the primary companies that supply them, both domestically and internationally.

    In general text, but with specific data, compare competing and substitute products and services on the basis of market share, quality, price, performance, delivery, timing, service, warranties, and other related features.

    You do not need to include each of these attributes, but you do need to be inclusive both to convince yourself and your potential investors that you thoroughly understand the competitive landscape.

    Discuss the three or four key competitors and why customers buy from them. Determine and discuss why customers leave them. Explain why specific competitors are vulnerable and the means that you will take to capture business. Indicate any knowledge of competitors' actions that could lead you to new or improved products and a more advantageous position.

    In essence, you need to answer completely and analytically the question..."What makes your products better?, and "Why will these same customers buy from you and not your competition?"

    4. Value Creation

    Compare the fundamental value that is added or created by your products and your services stating clearly why that value meets the customers' needs both today and three to five years from now.

    This issue of value creation is a key differentiator when comparing your products and services to those of your competitors.

    Let's assume for the moment that all of your products and services are exactly the same as those of your competitors. We know that you believe that your products are supremely different, but let's make that simple assumption that all are equal. Now you need to ask yourself honestly what it is that will differentiate your products.

  • Where is the real value that is created in your business?

  • Is it in the business model itself?

  • Is it because you're less expensive or faster or create a better return?

  • Is it in your sales processes or in your level of customer service that you provide?

  • Just where do you create lasting value? And for whom? Your customers? Vendors? Alliances? Employees?

    Hints:

  • We strongly advise you to prepare this section on Market Analysis before any other. You really need to use extreme care in your research and in preparing the content in this section and validating all of the data that you are going to be using.

  • This is a great place for the use of charts and graphs.

  • Make sure that you write about not just today's products or services, but that this market analysis supports future product enhancements, new generations and proposed service applications where you plan to take the company over the next three years.

  • Typically this section is the most difficult to write and takes the most time so prepare yourself both organizationally and mentally when you begin this task.

  • Do your research first and get all of your collected data organized into folders and browser bookmarks before you sit down to write.

  • Try to answer that interesting question that goes around in the heads of the venture investors...."Will the dogs eat the dog food?" The phrase comes from a case study that was done a number of years ago where a large corporation thoroughly analyzed the market. As only large consumer product companies can, they scrutinized the competition and digested all of the data that existed everywhere in their quest to develop a brand new dogfood with all of the wonderful attributes and benefits of smell, color and vitamins. Unfortunately, most of the dogs, apparently other than the few in their doggie focus groups, hated the taste and the product was a disaster.

    What you need to do with your products and services is convince yourself and your management team first and then your potential investors that you have thoroughly answer ed that weird question of ..."Will the dogs eat the dog food?" Even though you may be managing a small business, there is no reason that you cannot do the research and answer that question. Quite frankly, if you don't answer it, the potential investors will form their own answers, and, most probably, they are going to be "no deal".

    How do you do this? It's simple...Ask your targets!

  • Use focus groups, both formal and informal.

  • Execute customer or potential customer surveys either by telephone or online.

  • Talk to everyone you know and record the data.

    3.2 The Sales Plan:

    This section should include:

    1. The distribution channel strategies.

    Convince the reader that you know what you are talking about in terms of channels. That you know how to hire the best players to execute these strategies, and that you, and the management culture that you practice, are totally (and we mean totally) customer-focused. Give a number of examples throughout your plan that will forcefully demonstrate this principle consistently.

    Channel strategies do not need to be singular. You could simultaneously explore both direct sales and sales through reps or distributors or OEM partners. The key in all of your channel thinking is the focus of your management bandwidth and the amount of money that you have to spend. Channel strategies are also not something to be cast into cement since they will be changed over time and as a result of your experience. What's important is for you to convince yourself, your management and your potential investors that you have the experience to hire people into your company who can make these decisions cost effectively.

    2. The e-commerce strategy.

    Whether it's today or a couple of years in the future, you will have a business-to-business e-commerce strategy. This is not marketing banner ads. If you are going to use online ads, this tactic belongs in the marketing section. Your e-commerce strategy is a business-to-business sales strategy followed up with the same level of exacting tactics and actions that you would expect in your direct-to-business salesperson strategy. If you have not thought through this component of your sales plan, that's okay...for the time being...but you need to recognize that in most businesses, in the year 2005, you are already operating at a disadvantage.

    3. Sales tactics and customer support mechanisms.

    Define the tactical plan through which you are going to enter, penetrate and ultimately become a leader in your specific markets, in your defined geographies, and in your categories of targeted customers.

    Do not leave out of your business plan the very important sales functions in customer service, in telemarketing and in technical support. It's our experience that well trained inside sales and customer support people always provide the most cost effective solutions for your new customers. Most of your customers will spend the majority of their time interfacing with your internal sales and support associates and not with the salesperson who visits them occasionally so spend wisely on your internal people and their support tools.

    4. Salesforce profiles.

    Define the skills necessary and the attributes of your sales management and sales personnel both in the field and internally. A business plan that does not talk specifically about the makeup of the salesforce and their internal support associates, is not a realistic business plan, plus it shows a real lack of understanding of the sales process on management's part.

    Hints:

  • Convince the reader that you know how to create the exact fit between your customers and the sales channels that you have selected.

  • Similar to one of the Marketing Hints, you need to remain focused on what has been proven to work, and yet not let your sales tactics become just a "cookie cutter" repeat of what every other sales channel does in the industry. In addition to what has been field-tested, your tactics should include something that's innovative and should definitely include technology tools linking your field sales force and your customers to your office. Make sure that your customers always have access to your company representatives through direct dial-ins, Treo's and Blackberry's and, of course, email tools. In today's world, it is incomprehensible to us that too many business voicemails proudly announce that "Our office is open from 8:30 to 5:00" without thinking about the impact that that statement has on both existing and new customers who do not fit into your time schedule.

  • Define why your tactics are going to be better than those of your competition.

  • Analyze what companies would be your best alliance partners. Whether it's a straight OEM deal or it's a much larger corporation that synergistically wins by selling your products or it's a license arrangement, there are a lot of sales methods and channels that are much more effective than fielding your own field force of direct salespeople or even independent reps.

  • Although you may be able to hire a field salesperson for a $55,000 base or less, an experienced field salesperson will typically cost $150,000 minimum per year with commission, expenses, and benefits. For an experienced inside telesales person, expect to pay $90,000 to $110,000.

  • For field salespeople, plan on paying their car operating expenses plus $500 a month in car allowances. Plan on paying for the use of a cell phone ($200 per month) for local travel. For plane and accompanying hotel travel once a week, plan on $700 a day on average unless the travel is very regionalized.

  • For each new salesperson, plan on three months as their uptime until they become "effective", which does not mean that they will yet be "cost effective". Three months is the typical time during which you are going to being paying full costs without any production of revenue directly from their efforts. In our experience, The Three Month Rule is typical even when the person comes from the direct competition. Customers don't change their allegiances to companies typically because the salesperson changes to a competitor especially a smaller competitor.

    Following the initial three months, you need to plan on the fact that it will be nine to twelve months before the new salesperson becomes "cost effective". One of the metrics that we use more and more is the mean time to cash recovery of a new salesperson.

  • We have found that sales plans usually fail in both small and emerging businesses because the company failed to hire heavily experienced and battle tested sales management. Other than the CEO, sales positions are the most critical to the company's success.

  • Successful selling today in fast growth companies is about arming your field salesforce with powerful notebooks, networked contact databases, email, and linked websites that include product data sheets and detailed technical support. Make sure that you build these tools, and your company's online strategies, into your sales plans and into your budgets.

    3.3 The Marketing Plan:

    This section should describe how the sales projections that you are making in your financials will be attained in terms of positioning, marketing activities and promotional campaigns. This section is actually a representation of the overall content of your more detailed company Marketing Plan, (You do have a Marketing Plan, don't you?) but in a much more condensed fashion.

    It should include:

    1. Your overall marketing strategies including your primary tactics, events, materials and a summary of their costs and expenses.

    2. Your pricing strategy. You need to convince your reader that there is a relationship of price and margin to market share, growth rate, and profits. You also need to thoroughly explain your pricing strategy for these products and services now and what happens to those over time and in relation to your planned product extensions and new replacement products.

    3. Your marketing and your sales messages. What are they? How will they change? How are you going to be delivering these? Note also that your marketing message may be different in form and probably in methods from your selling message.

    4. Your promotional strategy and your primary tactics. Please stay away from falling into the entrepreneurial trap of "all other". Many of the business plans that we read list marketing tactics, and especially promotional tactics like an all inclusive shopping list..."We will also do PR along with national and regional ads plus banner ads, national and regional trade shows..." And that sums up their promotional program. It also shows the reader how unprepared this management group is for the reality of marketing in today's environment of cluttered messages and media opportunities

    This section of the plan needs to answer definitively where the company's few resources, both in expense money and in management bandwidth, are going to be spent. With any new venture, you must have focus, and this is one of those places that the rubber needs to hit the road in terms of absolute focus.

    Hints:

  • This section needs to be highly focused and point specific. Be careful that you show that your various strategies and related activities are...

       - well linked together,
       - focused to specific markets and penetration tactics,
       - tactical and action oriented,
       - measurable,
       - and cost effective

  • This section needs to describe what's to be done, how it will be done, when it will be done and by whom without going into overwhelming detail that will numb the reader. Hit the high points. You can always go into detail during your investor meetings.

  • On one hand, you need to be "standard and true" using the time-tested standards of classic marketing and PR, but you need to create solid balance in considering what you are going to do online. A marketing plan without a fully fleshed out Internet strategy is worthless. So what are you going to do both in getting your message out electronically and how are you going to use online solutions in your business in order to create value both for your customers and for your company.

    In an era of an increasing number of messages falling on the ears and eyes of potential buyers who complain that they have no spare time, you need to be convincing that your ideas will be different and will stand out from the rest of the pack. Linked and interactive websites, e-commerce tools, database marketing programs and salespeople with networked notebooks should be basic components in your business plan.

  • Make sure that you focus on those geographies that you know best, but recognize that almost every business today is a global business. If you are focused on the US, answer the question of when you plan to move into Canada, Mexico, Europe, Japan and East Asia.

    Section 4: Engineering and Product Development:

    This section should explain the nature and the extent of the design and development requirements for your products and services over both the short and longer term.

    This section should include:

    1. Core technologies. What are those technologies that your company is absolutely best at? Make sure that you point these core skillsets out and explain why they are central to your business's success.

    2. Current development status. What are the costs and timetables needed to deliver a fully marketable product if this is your first product, or if it represents a new generation of existing products or services. You also need to outline the general risks. Investors always ask the question, "What would you do if the product is six (or 12) months late", and your answer cannot be, "It won't be".

    Include a timetable model in this section graphically outlining the major milestones of your primary development projects.

    3. Product strategy for future products. What are the funding requirements for the next generation of future products and especially services in terms of people, skills, and tools?

    4. Intellectual Property. Describe any patent, trademarks, copyrights or intellectual property rights that are owned or will be sought as a result of the product development. Describe any contractual rights, agreements or alliances that provide the company with exclusivity or rights or represent a risk.

    This is a key section. We have not seen many deals flounder because of the lack of patents, but we have seen management suffer because they did not have a well thought out strategy for their intellectual property. A rule of thumb is to hire the best intellectual property firm right at the very beginning and involve them in all of your strategy planning for patents.

    5. Product Roadmap Make sure that you include an overview of your product roadmap along with a graphic outlining deliverables for the next three years.

    Hints:

  • Focus first on the core technologies that reside in your company today.

  • Define your plan to acquire or outsource the technologies that you do not have but that are essential to the success of the business.

    What you want to do here is create a balance between your internal development activities and outsourcing those functions which are either not critical to the project or that could be done more quickly as an outsourced activity.

  • "Speed to Market" is the key to successful growth in most markets today. Your emphasis in critical product and service development should always be, "How do I insure that this product will absolutely get to market when I need it?".

    It is in this section that you need to be extremely conservative in your planning and maximize the need for new capital in order to insure that your timetables will be met. Money's cheap; delays in schedules are very costly!

    There are two fears of venture capitalists. The first is when they hear from the entrepreneur that the company is out of money next Friday (Don't laugh, it happens much too frequently.).

    The second is that they have just discovered something (substitute the word "software") critical in the product development cycle that will now take six more months to do. It happens all of the time, and there is no reason for it except that the entrepreneur was overzealous in their desire to meet a forecasted date, or they lacked the resources or experience to hire the best developers.

  • Again, to take a lesson from the Sales section, the question that should be asked here is... "What are those technologies that you could import from an alliance partner faster than you could develop internally?"

    We have a medical company that concentrated only the development of the hardware while they negotiated a joint development agreement for their new disposables with a much larger corporation who could be looked upon, under "normal" circumstances, to be an indirect competitor. By doing so, they made a potential future competitor a partner while they reduced their overall development time by 60%.

    Did they spend more money? Probably not, although they spent more cash in a much shorter period of time than they would have done by doing the project internally. Experience counts, and it gets you to market on time!

  • At one of our companies, we virtualized all of the product development in a company which was technology and patent (26 issued patents) rich. What we did was to hire a superbly experienced VP of Engineering (MS in electrical engineering, Harvard Business School, Bain Consulting, Raytheon) who had a lot of experience in overall product management and scheduling. From that person on, we never hired another full time person into the department but outsourced everything.

    As the company grew from $0 to $8 million the first year, the "engineering" process became one of strategic planning and project management of an extended virtual department of highly skilled engineering companies and individual engineers for hire. Cash outlay was higher in that first year, but we went from concept to successful introduction of sophisticated products in just one year.

    Section 5: Manufacturing Plan:

    This section should provide a general overview of your production and operation strategies both for the short term and over the next three to five years. Will you produce internally and why? What's your concept of quality and how do you plan to implement that strategy at a tactical level? Where and how will you warehouse and ship your products?

    This section should include:

    1. Your core manufacturing capabilities and processes.

    2. The company's quality strategy.

    3. What is the balance between in-house production and outsourced suppliers?

    4. Inventory planning: What are your concepts, financial objectives and tools?

    5. What is your strategy with key suppliers? Detail any key sole sources.

    6. What are your distribution strategies for warehousing and shipping?

    Hints:

  • Some of the most successful companies that we know outsource their entire manufacturing process including warehousing and shipping since they are not critical to their business and because they have created partnerships that are much more heavily experienced than they are. Again, what defines success today is "Speed to Market".

  • Make sure that you point out any critical regulatory issues (FDA, FCC, ISO, EPA, OSHA, EC) that need to be dealt with in production and explain how you are going to reduce the risks of non-compliance.

  • Be definitive in your cost of goods and your future plans for cost reduction. With both bankers and investors, margin is the critical name of the game, and it all begins with cost-of-goods and the potential for future decreases. As something to think about, this issue of margin should be peppered throughout your business plan everywhere from the all important financial projections to your thoughts on margin contribution as it relates to your sales strategies.

    Section 6: The Management Team

    This section includes:

    1. The organizational model. If it is truly innovative, such as in a virtual organization, describe your management philosophy and the culture that you have created and why.

    2. Provide one paragraph biographies of the experience of all key management.

    3. Do the same for your critical primary advisors and any official scientific advisors.

    4. Finally, do the same for your Board of Directors including industry awards and any life achievements.

    Hints:

  • Do not include resumes of the key management. They take up space and may create questions and misleading perceptions due to past positions. There will be a time during later meetings that details such as this become important. In the meantime, provide overviews and highlights while you focus on why their experience will help you manage the company.

  • If you do not have a Board of Directors, acknowledge that you will create a Board and that you would look to the guidance of your new investors for their experience and counsel.

  • List only those advisors who have clout and name recognition in the community. If your accounting firm is one of the larger firms, list it. If it's a small local firm, don't. The same goes for your law firm. When raising professional money, it is much better to have big name CPA and law firms.

    Assuming that you have an interesting business, you can always negotiate low fixed fees for the first three years with most large firms. This is one of those areas which will bring tremendous comfort to the professional investors if you are working with well known service providers that they know and already work with in the community. When it actually comes to the point where they have committed to investing in your company, they will insist that you "graduate" to the larger CPA and law firms.

    Section 7: The Financials:

    This section represents the conservative and achievable management projections of revenues, costs, expenses and, most importantly, cash flow.

    You often hear the phrase "Cash is King" for good reason. Underlying your entire business plan, you need to convey a primary realization on the part of all of your management that cash is your most important weapon when you are pushing your emerging business or even well-established business to grow quickly. This does not mean that you need to be conservative in your use of cash in all areas. It does mean that you need to spend the cash that you are about to raise very wisely applying more than you need in those areas that are critical to your future success and being downright cheap in other areas.

    There should be two subsections to the Financial Section of your business plan. The first should be simply "The Financials". It will focus on the overview of your current financials and your objectives for the future three to five years.

    This first subsection should include:

    1. P&L projections for three to five years: by month for the first year, by quarter for years two to four, and by year for year five. Detail your asset management objectives.

    2. Cash flow projections for three to five years.

    3. Proforma balance sheets for the first year with annual summaries for the next three years.

    4. Major capital requirements.

    5. Latest P&L's and balance sheets for the past two years with brief statements of the major operating variances. Sales and cost (margin) data by primary product lines. Do not include the entire financial statements for past years-only the P&L and the balance sheet for each year and show these on a comparative basis.

    6. Definition of your overall headcount year-by-year.

    Hints:

  • Before you crank up your Excel spreadsheet, check with your banker or primary targeted investors in order to listen to their ideas of the format that they would prefer. If possible, use their formats if they also assist your business planning. At the very least, clearly understand how they will assess your financials and where they will primarily focus. The key here is DO NOT just go off and use your own financial format without checking with a professional as to what is typical in that particular market of either bankers or venture capitalists or private equity investors

  • If you don't (or can't afford) have a CFO, plan on hiring a part time CFO who is well known in the venture or local banking community. One, the cost is not that expensive and two, you and your small company are now dealing with an individual with whom the venture community is already comfortable. How do you find a person like this? Ask your potential bankers or investors who they would recommend.

  • A banker is not an investor. An investor is not a banker. You need to have a banking instrument in your planning at the right time.

    The next subsection should be titled "Investor Path to Liquidity" or the more common, "Exit Strategies". This section defines the amount of funding needed from the investor, the securities offered and the use of the funds.

    This section should include:

    1. Type of financing structure: equity and debt

    2. Involvement of banks and venture equity.

    3. Involvement of corporate or supplier alliances if any

    4. Use of funds

    5. Exit strategy

    The "Use of Funds" section needs to be general in its format, but needs to tie back to the details of your financials including your cash flow plan. An interested investor or banker should be able to tie your primary tactics together from your business plan text with your "Use of Funds" in this section and also with your cash flows.

  • Valuation.

    Do not place in the business plan your thoughts about valuation unless you can back them up with market accepted data, recent investment criteria, and heavy experience. In most cases, you will not be able to do this, so don't attempt it and create a problem at the beginning. Valuation discussions will come, but down the road in the follow-on meetings.

    More important than attempting to define a valuation in your business plan, you should be able to outline a valuation strategy that is clear and logical and that management is planning to follow.

    Pricing venture capital and private placement deals involves the estimated future values of your business that is being financed and is, therefore, highly subjective. Typically, unless there has been a recent financing, theoretical approaches will be used to estimate the company's future value and the corresponding percentage of ownership that the investor requires. The estimated percentage ownership the investor must receive is then calculated to derive the desired return on the investment. The details of the valuation discussion become a negotiation between you and your potential investors and the balance becomes one of mathematical formulae on one side and entrepreneurs dreams on the other. The best advice at this stage of planning your business plan is not to be hard-nosed about definitive numbers. You may undersell your company's value just as easily as overpricing it. The second recommendation is to identify an experienced management coach that has been through this a number of time to work with you as an advisor.

    The best way to build value in a company is to achieve the objectives and milestones set for the company within the timetables detailed in your business plan. As the milestones are achieved, risk is reduced and subsequent rounds of financing can usually be raised at more attractive valuations. No statement is more potent than..."Every month, we've met the milestones identified in the business plan!"

  • Always remember that a large shareholder percentage of nothing is nothing.

  • Your financial numbers are extremely important. They need to be objective, well presented and really conservative. You need to remember that at the initial stages of introducing your business plan and during your initial meetings, no one will believe your numbers anyway. What is really important here is not the specific numbers themselves: the size of the revenue line or the profit line. What's critically important is that they are....

     - accurate.
     - logical.
     - cash centric.
     - tied.
     - substantial.
     - substantiated.
    		Mistakes and over-reliance in Excel sheets are deadly!
    You need to take a look at the numbers from 1,000 feet.
    Cash is King because when it runs out, everyone is embarrassed!
    Make sure that the numbers tie together within the text in the plan.
    Investors only invest in big ideas, not $10 million businesses.
    Hire an experienced part time CFO rather than a full time CFO lite.


  • At the same time, you, your management team, your product ideas, and your understanding of the market and its growth are much more important than the numbers in the eyes of your future investors and bankers. The numbers need to be interesting and they must be accurate and logical, but no one will invest in your company solely on your numbers no matter what story they tell.

  • Management, Markets, Products: If you cannot make investors and bankers comfortable and knowledgeable about these three components, they will never get to the numbers.

    Section 8: Appendices

    Assuming that you need an appendix, which you may not, this section includes:

    1. Technical product data sheets of the primary products only.

    2. Important publications or references from well-known industry leaders only if they are both focused and compelling. A copy of a page from a well respected market research report would be an example.

    Hints:

  • Do not include "everything else" in this section that did not fit in any other section, but you feel a need for the reader to see. When you get to the stage of the continuing series of follow-on meetings, there will be both the time and the need to provide this level of detail.

  • We often like to see a brief one page "dictionary of terms" if the product, technology of market descriptions included critical terms that would not be standard terms for the typical investor or banker.

  • Do not include technology, market or customer references for investors to call. Again, the need for these will come out as your follow-on meetings unfold. At that time, you will know enough about your investor and their issues that you can provide them with the most appropriate references.

    Formatting and Presentation Hints

  • The best business plans weigh no more than a quarter of a pound. Business plans tend to be read on the train, on the plane, in front of the television, and on the weekends. If you make them unwieldy, they will simply stay on the desk and will not be read.

  • Of course, you are going to email your business plan, but we always recommend sending a hard copy also...unless, of course, you are told not to send a hard copy. Bind the plan preferably in spiral binders similar to this booklet or in a narrow three ring notebook which opens easily on the reader's desk or lap. Use resume quality bright white paper which you cannot see through.

  • Use lots of white space to make the important points, 12 point type, margins wide enough for notes, and standard word processing formats from Microsoft so that when an investor asks for a copy on a disk or to be sent by email to another investor, they will not have formatting problems.

  • Thank your reader up front for taking the time to read your plan. Also remember to send them thank you notes at the end of the process even if the process ends in a "Thanks, but no thanks" form letter. By the way, when this happens, always go back to the individual and ask them for a critique and where else they think that you might try for potential investors.

  • Maintain a detailed database of every individual to whom you have sent a plan noting the dates that plans were sent, exact responses, meetings, and telephone, fax and email numbers.

  • Understand that almost no one will read your plan thoroughly. Investors and bankers will typically read the Executive Summary and the Market section and skim your financials initially. Your internal management will read more thoroughly, but often may fail to understand initially the specific strategic directions on which you have worked so hard unless they were actively involved in the process.

  • The resulting business plan is the creation of you, your managers and your closest advisors. You have worked on it for weeks and months laboriously writing and rewriting while refining the specific direction of your business. No one else knows this, so the real job is up to you to communicate the plan and its excitement.

  • Understand the way that investors and bankers think about business plans. If you have close friends in the financial industry, ask them how they assess businesses. If not, ask somebody from our firm since we're in the industry and review hundreds of plans each year plus Jack teaches business planning at MIT.

  • Understand that your business plan is being compared to tens, and in some cases at the larger firms to a hundred other plans which have nothing to do with your business, your markets or you. This is your competition, and you need to make sure that you get your "share of mind" from your potential investor or banker and, of course, ultimately the sale.

  • Understand that your business plan is being balanced against the internal demands and objectives of the investment firms and banks in addition to the personal objectives of the individual investors and bankers. Ask yourself, "How and why do I fit their needs?".

    Final Hints

    When sending business plans to potential financing sources...

  • Make sure that you include your address and telephone, fax, and email numbers.

  • Make sure that you spell check, spell check again and finally read every word three times.

  • Your cover letter should be brief and inviting while stating that you plan on following up within the week merely to insure that the plan was received. Of course, what you really mean is that you are going to call and ask for a meeting.

  • Plan on following up to the sending of your plan within a week. Make sure that it was received and ask what happens next. Listen carefully to the comments and advice. Write it down in the database tracking file that you've created for this funding.

  • One of the best pieces of advice that we have is that you need to remember that you have only one initial objective: Get an initial meeting. Then remember that you have only one more objective: Get to the next meeting. We learned this from Dan Holland of One Liberty Ventures early in the building of Derby Management, and it continues to ring true.

  • If you run out of meetings or cannot obtain the first meeting, ask the investor or banker's advice for their suggestions of where you could go next or what you should do. No matter how bland or negative, write these comments down exactly so you can compare them later.

  • Be selective in sending out your plan. There should be 20 to 25 firms or individuals that you initially target. That's right: 20 to 25 firms. Unless you have been the a successful CEO of two or three other successful startups and your plan has already been pre-invested in by investors who have hand picked you, do not attempt to be casual about sending out only a few plans. Raising money is a war which needs to be fought in a series of battles and skirmishes so plan on a four to six month campaign during which you need to prepare yourself both financially and emotionally for lots of rejections.

    We have had lots of entrepreneurs shy away from sending out more than five plans at a time since they wanted "to see how they would do" or they did not want to be caught up in "too many meetings" while they were running the business. Bottom line: just plain stupid and naíve. Raising money is a full time event and requires an extra 50%-100% of your time. Don't be casual about the process. Fred Smith of FedEx visited over 200 potential venture investors before he was funded. Judy George of Domain over 100. We're heavily experienced in this arena, and we will typically contact 20 to 25 firms to begin the process.

  • Link a specific reason to every name and ideally a reference contact. Most plans need some type of introduction for the entrepreneur and their company.

  • Do not "shop" your plan with too many mailings (50 or more). It will become well known negatively in the financial community if you are going to every investor group and bank. In all geographies, the professional investor community is extremely tight and confidential. They talk, they do deals together, and they are bright people who have strong convictions.

  • You need to develop a Presentation Pitch in PowerPoint format. This is your abbreviated Business Plan and becomes your sales tool at each of the meetings. Assume that no one has really read your business plan, and if they did, it was weeks before so that by the time that you get to your first meeting, they have forgotten it. An experienced salesperson would not go into an initial sales call on a prospect without sales tools and neither should you.

    A PowerPoint presentation can be either hard copy or computer generated. A good rule of thumb is to have both. It should consist of 20 or less slides formatted with heavy use of bullet point text, graphics, trend lines and tables. What you are attempting to do is to capture the attention of your audience in the first five minutes. The story needs to be totally compelling and your presentation needs to look absolutely professional.

    Even when the potential investor says that they don't need to go through your presentation, force the issue. Your presentation, is your storyline, and you have put it together logically. If you do not use a formal presentation, you will then be at the mercy of questions and answers, which is never healthy. You may eventually come out with the same content, but it will not be presented well and will be filled with inconsistencies and misunderstandings. Use a Presentation Pitch for everything and you will not be disappointed.

  • Review your plan with both industry-knowledgeable and investor-knowledgeable people before you send it out. Listen to their advice and adapt the business plan where practical.

  • Be prepared for lots of criticism and accept it constructively. No one will believe your financial projections to begin with even though you have prepared them "very conservatively".

  • Make sure that you track your progress through this process by logging comments, detailing the results of meetings and moving your plan along to its final conclusion: Getting the Deal Done!

  • Be prepared for a minimum of four and up to six months of hard work and intense time demands before completing your financing.

  • We have been involved in investment financing that has occurred in 90 days, but after reading literally thousands of plans and working with hundreds of companies, the four to six month rule always applies. Also, if you are not getting to any initial meetings by the time that the six week window has occurred, something is wrong with your business model, your business plan, or possibly, you. Get a professional in to look at your plan and your presentation pitch.

  • Fundraising is a process not an event. Your business plan will evolve as will your methods of presenting it both in your Pitch and in your presentation style and format. You cannot afford to stick to all of your initial ideas and concepts unless they are fundamental and core to the business model. You need to use the fundraising process as a learning process and be able to rapidly adapt taking criticisms and constructively evolve these where possible into your business idea and your business strategies.

  • Typically we expect the following activities to occur within the 4 to 6 months:

    • Define 20 to 25 potential targeted investors or firms.

    • Understand exactly their criteria for investments.

    • Determine a means of entry with a respected reference other than a cold call.

    • Fed Ex, email or physically deliver your plan yourself.

    • Above all: Get that first meeting!!!

    • Then get to the next meetings.

    • Think of this as a football season. Every week (every meeting), you need to win.

    • The list will quickly narrow down to three to five potential investors.

    • Bring one to three of these to potential conclusion.

    • Involve your law and accounting firms up front. It's too expensive to do this at the end.

    • Negotiate valuation with objectivity and with outside advisors. Never by yourself!

    • Set up a timetable with everyone and then push through the legal documents to close.

    • Do the same in setting up a firm budget with your accounting and your legal firms.

  • At the beginning of this investment campaign you will need to devote a minimum of 50% of your time to organizing, preparing and working through the initial meetings. During the middle of the campaign, the demand on your time will decrease to 25% to 40%. During the final stage of the last two months, the requirements on your time will fluctuate between 75% and 100%.

  • Stand for what you believe in. At the same time, do not stand on weak arguments with unsupported data.

  • Finally, luck counts, but connections count more. Ask everyone you know about fundraising connections. You must keep driving this process hard through the entire campaign and connections do make a difference in getting your plan looked at a little more intently especially right at the beginning when you need to break through the clutter.

    • Have a strong and experienced advisor close to you during the entire process.

    • Look for connections in the financial community.

    • Ask your law and accounting firms for help with their contacts.

    • Look for contacts everywhere: college alumni/ae, business associates, friends of friends

    DERBY MANAGEMENT
    Senior Management Coaching

    From Vision to Strategy to Business Plan to Tactics to Actions

    The core strengths of Derby Management are our skills sets in formulating and executing strategic directions that allow us to create a customized business planning process for our customers.

    In our work as strategic planners, we coach our customers through the process of defining and executing both their strategic plan and their Business Plan. Most importantly, we provide a variety of methods through which the strategic directions are discussed and analyzed while working with the management at all levels to build an action-based Business Plan and an integrated understanding and consensus throughout the business .

    We involve all of the senior management in a unique and creative linkage analysis process aimed at integrating the current business issues with the future strategic planning required for the corporation. With corporate visions and core strategies established, we work through a tactical process of writing a workable Business Plan, securing financing and investment, and creating operating linkages of buy-in, detailed management understanding, and commitment throughout the organization, its suppliers, and its customers. As management coaches, we continue to work with our customers through the initial stages of implementation to ensure the continued focus and momentum of the management. We believe strongly that the best corporate strategies are those that become real world and take on the perspective of becoming totally integrated into the culture and the daily operations of the business. In order to achieve the objectives of the corporation once the Business Plan is established, we provide our customers with a review process that ensures that the performance of the management is maximized.

    For more information about our services of Senior Management Coaching, Strategic and Business Planning, Financial Planning, Strategic Selling, Customer Satisfaction Programs, Market Research tools and Venture Capital Fundraising, visit our website at www.derbymanagement.com

    About Jack Derby...

    Observing a wide diversity of business situations from an equally wide variety of industries, Jack Derby believes that any successful business in today's uncertain times must have a well-defined management team at its foundation coupled with a consistently updated strategic business plan. Derby Management interacts with its clients as senior management coaches providing both emerging and established businesses with both strategic and tactical business planning skills.

    Prior to forming Derby Management in 1990, Jack's background included positions as CEO of Mayer Electronics Corporation, President of CB Sports, President of Litton Industries Medical Systems, CEO of Datamedix Corporation and President of Becton Dickinson Medical Systems.

    Jack has been named to Mass High Tech's All Star Team. He is often quoted in The Wall Street Journal, The Boston Globe, The Boston Herald and has published articles and editorials in The Boston Business Journal and Mass High Tech. He is frequent speaker at numerous business organizations including the MIT Enterprise Forum, the Small Business Association of New England, the Harvard Business School, and the WPI Venture Forum. He is also a guest lecturer at MIT where he teaches classes in writing business planning for undergraduate students and for the MIT-Singapore University Program.

    Jack is extremely active in the New England entrepreneurial community. He is currently and has been an active board member in a number of emerging companies. He was instrumental in restructuring the Board of the MIT Enterprise Forum (www.mitforum-cambridge.org) where he has held the position of Chairman of the Forum. Additionally, he has been the Vice Chair of the Smaller Business Association of New England (www.sbane.org). During 2004, Jack was the recipient of SBANE's Pro Bono Publico Award for his significant contributions to the entrepreneurial community. Jack has also been a Director of MIT's Technology Capital Network (www.tcnmit.org), and the President of the University Club of Boston (www.uclub.org). Currently, he is Chairman of the Association for Corporate Growth (www.acgboston.org), and a Director of The Associated Industries of Massachusetts (www.aimnet.org).

    About Derby Management...

    Derby Management was formed in 1990 and since that time has worked with approximately 380 customers. The primary focus of the firm is in its three core competencies:

    1. Senior Management Coaching

    Jack and the managers of the firm provide extensive one-on-one and one-on-team management coaching for the senior managers and employees of its customers. These services include the following...

    • One-on-one confidential interviews
    • Objective qualitative and quantitative analysis
    • Objective assessment reporting with specific recommendations
    • Individual mentoring and coaching skills
    • Conflict resolution skills and tools
    • Team building skills and processes

    2. Strategic Planning Coaching

    Derby Management provides its customers with extensive strategic and tactical skills resulting in the creation of operating strategic plans used internally as long term planning guides.

    3. Sales and Marketing Coaching

    A core competency of the firm exists in the areas of sales and marketing planning and execution. Evolving from creating strategic operating plans, the managers of the firm provide detailed hands-on tactical plans in sales channel analysis, objectives and quota assignments, forecasting, and compensation planning. The firm also provides extensive marketing planning, market research and customer satisfaction surveys.

    4. Financial Planning

    The firm provides extensive financial auditing, review and preparation skills in addition to interim financial management.

    • Derby Management
    399 Boylston Street, Boston, MA 02116
    Tel: 617-292-7420
    Bondville, VT 05340
    Tel: 802-297-2766