Business Plans: Why Write Them? When to Use Them?

By Beacon Staff

I have often heard investors state that they do not read business plans, implying that entrepreneurs need not write them. I disagree. Entrepreneurs need to write business plans for two reasons:

• Most entrepreneurs are totally focused on their products and technology and have given little thought to the other critically important aspects of their potential businesses. Writing a business plan is a great discipline, forcing company founders to detail all facets of their business, including their competitive advantage, sales and marketing plan, financial plans, capital plans and preparations for building a quality management team.

• Regardless of the opinion of some, most of us investors read business plans. Angels in groups generally do formal due diligence before investing. These investors use the company’s business plan as a starting point for their in-depth review of the opportunity.

When asked for a great tool for writing business plans, I refer entrepreneurs to “The Business Mentor,” available from FastTrac (Kauffman Foundation) for $34.99. Not currently available online, this product can be ordered by calling (877) 450-9800.

OK … so I believe entrepreneurs need to write business plans. But, you can find a confusing list of different kinds of business plans: Elevator Pitches, Executive Summaries, PowerPoint Presentations and Full Business Plans. In the table, you will find a brief description of each and some insights into when and how to use them:

Elevator Pitch: An elevator pitch is a two-three minute verbal presentation of your entire business plan. Difficult to do? Sure! But, your elevator pitch is the most likely vehicle for creating interest by new potential investors in funding your business. Don’t just talk about your product. Discuss how you will build a business and create value for shareholders by delighting customers. Design your elevator pitch at a level that your third-grade teacher would understand it. And practice it until you can deliver it smoothly and effectively.

Executive Summary: An executive summary is a two-page written synopsis of your business plan. Be sure to write it AFTER you complete your full business plan. Use your elevator pitch and executive summary to “set the hook” with investors. As you give your executive summary to investors, ask them if you may call them in a few days to follow up. And, be sure to include your contact information in your executive summary (and business plan). It is surprising how many entrepreneurs forget to do so.

PowerPoint Presentation: If investors are interested in your business (after hearing your elevator pitch and/or reading your executive summary), they will likely invite you to make a verbal PowerPoint presentation to a small group of investors. This presentation must include all aspects of your plan, in a rather abbreviated format. I like the Guy Kawasaki 10:20:30 rules for PowerPoint presentations (from his book “The Art of the Start”). Develop 10 slides to cover all aspects of your business, with no more than one slide per topic (product, technology, competition, etc.). Practice and practice a 20-minute presentation, covering all 10 slides. And limit the number of words per slide by using 30-point font, so that all those watching your presentation can read every word. Great advice from Guy!

Full Business Plan: A complete business plan is usually about 20 to 50 pages long and covers every aspect of your new venture, including your product, technology, management team, competition, marketing plan, sales channels, capital requirements and a full set of proforma financials for the first five years of operations. It needs to be written before approaching investors and before creating any of the abbreviated forms of business plans described above. That said; never give your business plan to investors until they ask for it. Investors simply will not read your business plan until they express an interest in funding your company.

Next month we will discuss the specifics of what investors like to see in business plans.

Columnist Bill Payne is an entrepreneur and angel investor. He may be reached by e-mail at [email protected] or see his website at www.billpayne.com, where his book “The Definitive Guide to Raising Money from Angels” is available. This is the first in a series of monthly articles in the Entrepreneurs’ Corner written by Bill Payne for the Flathead Beacon.