The five most important items to incorporate in a business plan
The five most important items to incorporate in a business plan are:
1) Management. Venture capitalists cite the quality and depth of the management team as the single most important factor in the investment decision. They evaluate teams based on management's relevant industry experience and track record for building profitable businesses. In addition to company managers, the plan should discuss directors, the advisory board and existing investors.
2) Market size, growth and trend information. Investors seek information quantifying the market opportunity. The best plans incorporate extensive market research from reliable third party sources. Good plans quantify the size and the growth rate of the company's market niche and explain the macro factors that are influencing market demand.
3) Sustainable competitive advantages. The factors that distinguish the company from its peers and create barriers to entry for new competitors are key investment considerations. Examples of sustainable advantages include: proprietary technologies, established distribution channels and partner relationships, and a well-known brand name.
4) Strategies for growth. Investors are interested in the three or four specific strategies management is using to grow the business. Typically, these will include marketing strategies for expanding share and targeting new customers, product/service development strategies and strategies for improving internal efficiencies and boosting margins.
5) The Financial model. Good plans share the company's cash burn rate, working capital and capital investment needs and timetable to breakeven on a cash flow and operating profit basis. In addition, investors seek information regarding projected revenue growth and sustainable operating and cash flow margins.
The five most common business plan mistakes:
- Lack of marketing focus. Many plans are overlong, lack marketing content and fail to engage the reader's interest.
- Weak financial model. Other plans do a terrific job of marketing the company's products and/or services but are weak in
- discussing sources of revenues and the company's progress towards profitability.
- No attempt to quantify market opportunity. Too many plans fail to provide specific measures of the company's addressable market. The impression this leaves with investors is that management doesn't know the market as well as it should.
- Too ambitious. Many plans present unrealistic expectations. Start-up companies must walk before they run. The plan should focus primarily on near-term strategies and growth goals.
- Fail to make the company unique. Venture capitalists are interested in funding companies that have a sustainable competitive advantage and can dominate their market.