Many netrepreneurs are looking to start an online business or expand their businesses to the online realm. Doing this means new equipment, new services, and sometimes even more facilities. All these factors mean there''s a need for more capital, and lots of it. One way to acquire the financing necessary to accomplish your business goals is to obtain venture capital from outside investors. If you are an entrepreneur seeking outside capital, then one of the first steps you''ll need to take is creating a business plan. This is something that goes beyond the vision that exists in your heart and mind. It is a tangible document that lets investors know exactly what your company is doing now and where it plans to go in the future.
Creating a Business Plan
Business plans can be divided into six basic categories:
- an executive summary;
- a description of the company and its business;
- market analysis;
- marketing and operations;
- key personnel, and
- financial analysis.
Executive Summary and the Company''s Business
The executive summary allows potential investors see the highlights of your plan. It should be concise and to the point--three pages is very long, while one is usually too short. This is an overview of your business plan. If the Executive Summary doesn''t quickly provide an understanding of what your company is all about, then the rest of your plan may never get read, so pay careful attention to its construction.
The section, the Company and Its Business, provides details about:
- a history or time line of the enterprise,
- a list of important assets,
- a description of facilities,
- a list of suppliers,
- a list of professional advisors and why they are important to the company,
- a list of strategic partners and why they are important to the company, such as which strategic advantages they offer,
- existing customer lists,
- market strategies, and
- a description of products and services offered; this is the place to tell investors about your strengths
Market Analysis
In the next section, Market Analysis, you have the chance to describe the size, significance and potential growth opportunities of the market you are going after.
It is important to clearly describe the market and explain how your product or service addresses that sector. You will also need to tell investors how and when you will make your product or service available. These fundamental issues cannot be avoided.
In providing your market analysis be sure to provide facts and figures about the size of the market you are targeting. For example, someone looking to enter the solutions market for small businesses (fewer than 150 employees) might mention that there are 6.6 million such businesses in the U.S. alone. There are more than $100 billion in private and public contracts set aside yearly for this market. On average, small businesses spend $.25 for every dollar earned in pursuit of these contracts according to the Small Business Administration (SBA). This translates into yearly expenditures of more than $25 billion at current levels just to secure this work. You could then explain what opportunities your business would provide for the small business market.
Other suggestions for this part of your business plan:
- estimates of market growth rates;
- economic factors driving sales or creating opportunities;
- identification and analysis of competitors; and, especially important,
- a clear description of your company''s competitive advantage.
Marketing and Personnel
When discussing marketing/operations, be sure to describe your product or service and explain how it will be produced and delivered. Since so many new companies are offering many new solutions, gaining market share and market awareness is especially important. Remember, it is not always the very best solution that is successful but rather the one that can gain market penetration and acceptance. Therefore, be sure to explain how you intend to gain customers and users. Do not underestimate the resources necessary for this task. It will do you no good to develop an excellent service or product if no one knows about it. Investors want to be sure that once they have funded your idea, it will have life outside the hearts and minds of the inventors.
Key personnel are becoming increasingly important to obtaining funds from investors. A few years ago it was possible to get a great idea funded just because it was a great idea, but this is no longer the case. Many investors now want to place their bets on teams rather than individuals. They want experience or a track record that yields confidence in success. In essence, they want to know who is running the company.
The positions they will look at include: the Chief Executive Officer (CEO); the Chief Financial Officer (CFO); the Chief Technology Officer (CTO) ; the V.P. of Marketing ( i.e., the marketing expert) and members of the Board of Directors or Significant Advisors (who add value through their experience and connections).
As a start up, you might not have all of these positions covered. Investors will still want to know that you have filled some of these spots as appropriate to your company''s stage of development. Some of the highlights that you should present include education; experience; critical skills; accomplishments; tasks and responsibilities in making the new company successful.
The financial analysis that is part of your business plan includes past and current financial statements, projected financial statements (as well as assumptions about them), valuation analysis and the use of proceeds. We''ll discuss these in Part II, coming later this week.
