subject: The Business Plan Is A Selling Document For Investors [print this page] Be enthusiastic, but don't sound like a carnival barker. The Business Plan is a selling document: it is supposed to attract people to the financial opportunity presented by your company. But a sophisticated investor can quickly spot exaggerated claims about management capability, or projections that are completely out of line with reality. You have to strike a delicate balance between not sounding like a dry technical manual and not sounding like a high-pressure salesman from some telemarketing boiler room. The more excited you sound about the prospects for your business, the more likely the reader will be too. The other extreme, however, is like someone who told us he uses the plan to get the investor's "greed glands" pumping. Making promises you cannot deliver on can later arouse the investor's "anger glands" and even his "litigation glands."
Market Size
Market size is important to investors because it is easier to build a large enterprise in a large and growing market than in a smaller niche market or a stagnant one. But market size is not specifically an indicator of the likelihood of success. You still have to get the customer to buy. It's important that you document the size of the market and not just make the assumption that every single member is a potential customer. In other words if your product is directed to senior adults with dogs, don't make the mistake of including every adult over 55 years old, as a potential customer.
Hold the Scenarios
Many people think that the more complex their financial models are, and the more "what if" scenarios they concoct, the higher their chances of being funded. A variation of this is the plan that has projections seemingly for decades. Fifty pages of imaginary numbers are not better than five. Particularly in this age when technology is evolving so quickly, it is impossible to accurately forecast three years out, let alone seven. Concentrate instead on answering these questions: How fast are we going to use the investor's money, when does the company's cash flow turn positive, and what margins can this company earn? Back up your projections with hard assumptions not guesses.
Special Bonus Tip
Don't just say what you're going to do, explain how. The detailed, concrete steps involved in executing your business strategy are really the heart of planning itself, and will differentiate your plan from all the others the investors get in the mail that sound like wishful thinking.
