by Marcos Rivera
I know what you’re thinking, and I don’t blame you – “not another vague teaser on how to write a business plan.” But I’ll spare you the basics, which you can find on your own by reading sample plans and Web sites.
Through my consulting firm in San Diego, I work with dozens of entrepreneurs every week. And with the economy going south, entrepreneurial pursuits seem even more attractive to out-of-work executives and MBAs. Even now, with exceptional talent flooding the job market, I usually get one of three comments:
- I have great ideas, but struggle to get my thoughts on paper.
- I have no idea what the venture capitalist or investor wants to see.
- I know how to write a business plan, but I just don’t have the time.
Now here’s a little secret – all business plans are in principle the same. We are all serving the same dish with the same key ingredients. We just dress them up and serve them differently.
In reality, most investors analyze opportunity and risk using the same framework: Is the reward (and path to get there) attractive enough and achievable enough to sacrifice my precious pot of gold? To get to yes, or even maybe, you need to hurdle over these next questions:
- Do you know your market, and is the pain out there so insufferable that people are willing to pay big bucks for your cure?
- How does your thingamajig solve this pain better than competitors’ thingamajigs, if some exist, and how will you profit from it?
- Can you run your business and sell this thingamajig in a way that produces a sustainable and lucrative income?
- Is the deal structures in a way that makes you rich on the upside, but prevents you from being displaced or homeless if things go awry?
We all know that the investor is a tough customer with no time to squander on measly appetizers – they want the main course, and it must arrive promptly and taste delicious. To deliver, you need to know that a business Rady School of Management, UC San Diego | rady.ucsd.edu plan, for the most part, boils down to the following ingredients:
<strong>1. THE MARKET</strong>
Are you going where the puck is going, or is your product yesterday’s news? Assuming your idea is on the right track, show the investor that you know this space inside and out with some metrics and trends from reliable sources. Dress these up with with quotes, articles and charts, and be sure to draw some meaningful insights. You want to elicit an emotional response. Here are a few more questions to keep in mind:
- Is the market growing or shrinking? Why?
- Why hasn’t the market need been met yet?
- Who is the target customer, and how can they fight back?
- How is your unfair advantage sustainable?
- Where is your growth coming from?
- Do you have any market validation or proof that all this is true?
<strong>2. The Product</strong>
Is your product or service both innovative and relevant? Show the investor that your thingamajig is not only cool and impressive, but people will spend money on it and only you can give it to them. Show them that your product or service can’t be easily replicated, and if it can be, your price must be pretty darn good or you need to have a distribution advantage up your sleeve. Consider the following when exploring this ingredient:
- Precisely how will this product or service fill the market need?
- Can a 10-year-old understand how this thing works?
- Do the customers understand the value they are getting?
- How did you come up with your pricing strategy?
- How flexible is this thing, and can it change with the market?
<strong>3. The Business</strong>
Putting together the whole enchilada, can you make money? Are you structured in a way that allows a quick response to market needs and competitive attacks? Truthfully, you don’t know what you don’t know, so you must ensure that your business model is well thought out and flexible. This is where the plate meets the table, so be sure to have a solid plan to mitigate pesky risks. Here are some ideas to keep your proposal appetizing:
- Do you have the right team (well-experienced with meaningful accomplishments) on board? Who will do what?
- Is your sales team paid to do what you want them to do?
- What is your business culture, and why will it help you and not hurt you?
- Are your milestones realistic, or are you dreaming?
- Have you tested the assumptions behind your pro forma financial statements, especially margins and cash flows?
- How much cash do you burn and why?
- Are your costs and supply chain under control?
- Is your exit viable, and will it happen in this lifetime?
You’ve probably considered most of this already, but perhaps you’ve never fully crystallized your thoughts and your plan. If you boil it down to the above three ingredients, you should be able to construct an outline that a business consultant can help you refine. If you can’t address even half of these questions and aren’t motivated to do so, then perhaps being an entrepreneur isn’t for you, and you should get out of the kitchen, pronto.
Now if you have what it takes to cut the mustard (I mean the secret sauce that will have investors screaming “ratatouille!”) then feel comforted that investors, even in this market, have an insatiable appetite for delicious and substantial ideas. If you can give them something to chew on and smile, then have faith that you will soon have the recipe for success.