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What sold investors on a
company a few years ago isn’t cutting it in the new economy. The
business plan model is changing in many ways; and is, most
importantly, getting back to basics. The bare-bones, real-life
basics. What is the
business and how much money you need?
But even the prototypical KISS-modeled
business plan has some new fundamentals. For those of us who have
been doing this for a while, it’s been a shock to the system. For
anyone else who is just getting started as a small business owner:
hang on tight, it’s going to be a bumpy ride.
The Executive
Summary
Isn’t that a fancy title? All it
means is tell the investors, quick and dirty, that you have a solid
business model that makes a profit (or will make a profit very
soon). But here is the trick: this is the most important place to be
jargon-free and user-friendly. Reading this section with the
bs-o-meter on high, all investors want to see is what your company
does and why it makes (or, again, is going to make) money. Get
technical later.
The Market Analysis
Investors see
business plan after business plan filled with the same general
market analysis. Digging up a study about total market size doesn’t
make you a frontrunner anymore.
So what does?
Your competitors. Study ‘em. Talk
about ‘em. In seemingly gratuitous detail. Identify your direct,
indirect and even potential competitors. What are their offerings?
Their market percentages (whether local or national)? Their funding?
Their pricing? Promotional Strategies? You get the picture. Now why
are you different and why are you better? Are you cheaper? A better
value for the money? Do you offer add-on services that the
competitors do not?
Show evidence that customers really
do what to buy your product or service. Show off your secured
contracts or orders. If you don’t have that yet, offer information
on beta testers who have tried out your product, or guinea-pigged
your new models or formats. Focus groups of potential customers can
also be offered as proof of customer appeal. This doesn’t have to be
a difficult project. A CPR Instructor who owned her own training
company found a niche when she noticed a change in state law that
required day care centers to provide employee training on Shaken
Baby Syndrome. She polled several day care owners in her area,
asking would they be willing to change training providers if SBS was
included in the training package for a minimal fee increase. Most of
them said yes, she used that information to get funding from a
Hispanic business association, then she went back and landed the
contracts.
The Management
One thing about the currently stalled economy,
is that it’s easier to find management talent. And no, they don’t
have to be full-time…or even drawing a salary at all.
It is possible to bring in an
advisor to fill in any expertise gaps, at least temporarily (and
these advisors getting offered company equity in exchange for salary
is not a bad thing for investors to see). Just make sure that if
their boss doesn’t know they are moonlighting (even gratis), that
their resume remains “blind” in the business plans ( no names,
contact info, or identifying stats whatsoever). This is especially
important if they are a prospective hire if your funding comes
through!
The Financials
Profit in three years is a thing of
the past now…the new rule of thumb is one year to 18 months with
detailed monthly projections that account for the slowing economy.
And IPOs are considered a shaky prospect now (and for the near
future), which makes buy-outs look better and better to investors.
Since investors still want to be able to cash out in 5 to 7 years,
consider including potential acquirers named in the business plan,
even if you don’t intend to sell…it shows a good knowledge of your
market.
In closing, the solid basics are
more important than ever. Investors have lost a lot of money since
the crash of the dot-com up-cycle. But they aren’t gone for good. It
just takes a little more hustle to land an investment angel. There
are some excellent web resources for business plan models, check out
the American Express small business website for a more in-depth
study.
Faith Harper is a small
business owner and free lance writer who resides in Houston, TX. She
can be reached at
WredenHarper@aol.com
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