Thursday, 16 August 2012

6 Key Elements of a Good Business Plan~ PETER S. COHAN.~Editor’s Note: Young Entrepreneur’s Ask the Expert column seeks to answer readers’questions about everything from starting and running a business to raising funding and grow th strategies., or leave a comment below. Your query may be the inspiration for a future column. Q: How essential is a traditional business plan?What should a good business plan include?- Erin McIntyreGrand Junction, Colo.A: I started investing in start ups in 1996 and have seen plenty of business plans. I always get them from people who are seeking some of my money and from entrepreneurs who are starting a capital raising campaign. Unless you have a spectacular track record as anentrepreneur or an exceptionally great newbusiness idea, you cannot raise capital without abusiness plan. I have invested in six startups andthree of those were sold for a total of $2 billion.The other three went out of business.Related: Lean Startups Need Business Plans,TooAnd even in that tiny sample, there were clues tothese different outcomes in the business plans.Simply put, the business plans that resulted insuccessful outcomes contained deep insights intothe customers who ended up buying thecompany’s products. The ones that failed, didnot.Despite that simple — and as an investor —critical insight, 99 percent of the business plans Isee are missing that critical ingredient. Beforegetting into all the key elements of a goodbusiness plan, you should make sure you do agreat job at conveying your understanding of thecustomer.Here’s how. First, you have to figure out thegroup of customers that you want to sell to.Then, you have to develop an interview guide —a list of questions such as why current productsdon’t meet their needs, what an ideal productwould look like, how they decide amongcompeting vendors, and where they perceive anunmet need.Related: The Good, the Bad and the Ugly ofBusiness-Plan CompetitionsYou should then interview at least 20 potentialcustomers and make sure your analysis of theiranswers to these questions is in the businessplan. Your analysis should include key quotesfrom those potential customers that reinforcethe conclusions.A good business plan should cover these sixtopics.1. Executive summary: If you had two minutesgoing down an escalator with a potentialinvestor, you should talk her through yourexecutive summary. This should answerquestions such as: What is your company’smission? Why is it important to you? Why do youthink your company can make money pursuingthat mission? What is your track record ofwinning? How much money do you need? Whatkind of return can I expect if I give you themoney? Why?2. Business/product description: If you havemore than two minutes, the investor will want toknow more details. The business/productdescription should describe your company’smission and present the details of the productthat you have in mind to achieve that mission.This description should also focus on specificproduct attributes that you think will make itbetter than the competition.3. Target market: This section details whichgroup of potential customers your company willtarget. It describes why you picked that market,its revenues and growth rate, the key factorsdriving growth, and typical net profit margins inthat market. This section must, in my opinion,also present the results of your customerinterviews.4. Plan to gain market share: Here you willexplain the key factors, ranked by importance, apotential customer uses to decide amongcompeting suppliers. It will also describe howwell those customers perceive that competitorsperform on the various factors. It will nextdescribe how your product will outperformcompetitors on the key factors. Finally, the planto gain market share section will set marketshare goals and describe what your company willdo to achieve those goals5. Management team: This section will presentbiographies of the members of your team. If youhave no prior entrepreneurial experience,investors will be looking for signs that you andyour team are winners — this could show up inoutstanding academic, athletic, or extra-curricular accomplishments.6. Cash forecast: This section is in some ways theleast believable for an investor. Here, investorsare really looking to see whether you put inenough effort to make a detailed estimate of howmuch cash will be needed to achieve your goalsand what revenues and profits will ultimatelyflow from that investment. The key here is todevelop realistic assumptions and to prepare forinvestors to ask you questions about why youchose them and your sources of information.To me, the most important part is how well youunderstand the customers — if you do a good jobwith that, I think you will boost your venture’sodds of success considerably.

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