Where Business Plans Go Wrong
In my experience with writing business plans and pitching investors, there are common holes that the management team either fails to cover extensively enough, or fails to cover at all. This can happen for two reasons:
1. You’ve discussed the matter (your competition, for example), but your explanation opens more questions than it actually answers. This can happen by naming your competitors, but not discussing what they do and / or how you will do it better, differently, more efficiently. etc.
2. Your information is mentioned in its entirety, but is overlooked due to formatting, organization or location. This is only partially your fault, but keep in mind that angel investors and venture capitalists will typically spend very little time looking at your initial pitch and business plan at the early stages of your relationship. Business writing is not fancy, so be obvious with what you want to say. You should attempt to avoid generalizations and ambiguity
The point of the first meeting should be to get another meeting. The point of the second meeting should be to get a third meeting. Somewhere along the line, the goal is to receive funding. The best way to do this is to plug the holes early. Here are a collection of questions I’ve missed because of the two reasons above, which I’m pointing out so you don’t have to miss them as well:
1. What is proprietary about your technology that will protect it from being copied immediately?
(Note: If there will be barriers to entry in protecting your technology, the winner will be based on execution and marketing. Have you accounted for these higher marketing expenses in your business model?)
2. How will you acquire and retain customers?
(Note: Even brilliant marketing plans tend to skip this question. Explain your marketing plan, but answer these questions explicitly as well.)
3. Who are your target customers?
(Note: I’ve been told a million times that I haven’t been specific enough. The rule of thumb is to start with the lowest hanging fruit. Ask yourself “who will be my FIRST customer?” That is your answer, at least temporarily.
4. If you are a subscription service, what research supports your $X amount per year?
(Note: I’m guilty of basing my subscription fees off of other services, which can run you into trouble if the services aren’t related. Obviously you should check how much your competitors are charging to get a ballpark idea, but keep in mind that for certain products, consumers PREFER to pay more. The lower prices can infer lower quality, even if it’s not true. This again is a marketing issue, and will take some experimentation)
5. Why is your projected growth so slow?
(Note: Financials are extremely tricky, but I’ve found that the best investors tend to focus more on your idea and execution strategy rather than the excel models you mock up (and they should). Attempting to predict financials and growth patterns can be a blurry exercise, so I’d recommend remaining conservative (it’ll keep you out of trouble). Also, always state your assumptions behind the numbers you are projecting. It’s more credible that way.)
The goal should be to answer these questions prior to meeting with investors the best you can, even if you aren’t answering them “good enough.” The fact that you have done your research will show you are responsible and credible, which can say more about your chances for success than a business plan can.
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