It seems the Business Plan Challenge has been ahead of its time, because the shorter, leaner business plan is in vogue this year.
It was probably inevitable in the age of Twitter, but some of the newer thinking is that you don’t need a fat BP anymore — what you want is a quick concise summary with supporting documents at the ready.
There is no one right way to prepare a business plan; there is no one-size-fits-all template out there. A business plan should be used internally for strategic planning purposes — it gives you a roadmap to your growth and can keep you focused. It can also be used externally as a sales tool when you are seeking bank financing, investor funding, government contracts and more.
“Don’t spend weeks on a 30-plus page business plan,” says Marjorie Weber, chairwoman of SCORE Miami-Dade, which has given hundreds of workshops on business planning. “Prepare an executive summary with appropriate addendum. Highlight the strengths of the management, the product, the market.”
“Thirty-page business plans are no longer in vogue,” agrees Melissa Krinzman, managing director of Venture Architects, which helps businesses with the capital-raising process.
Even when pitching investors, a succinct plan is much more likely to be read, Krinzman says. “Today, a smart investor package includes a completed proof-of-concept phase (an actual product demo or prototype) accompanied by a two- to three-page executive summary, five-year financial projections and an investor deck with a polished pitch.”
Perhaps you are entering the Business Plan Challenge this year. For the Challenge, your business plan entry can be a maximum of three pages, plus one supplemental page for a chart or diagram. Or maybe you just want to start the plan-writing process or refine the plan you already have.
Robert Hacker, a Challenge judge in the FIU Track who teaches entrepreneurship to engineering students at both FIU and MIT and is CFO of One Laptop Per Child, says that he recommends the outline offered by Sequoia Capital, one of the most-respected venture capital firms. Under “writing a business plan” on www.sequoiacap.com/ideas, Sequoia says, “We like business plans that present a lot of information in as few words as possible.”
So do we, so let’s get started. What should go into your plan? While some depends on the stage and specifics of your company, Business Plan Challenge judges say, in general, being able to address key questions will get you going in the right direction. Here are some to consider:
— What’s your company purpose? “Describe what you do in one sentence; at most you can have one semicolon,” says Hacker, during a workshop he gives at the FIU Pino Global Entrepreneurship Center called Developing a Killer Business Plan. This isn’t easy — it will take revisions — but it will become the first sentence of your plan.
— What is the problem or pain your customer is experiencing and how does your product or service solve that? This is your value proposition, and all good plans should contain this.
“All good business plans start with a profound understanding of the customer,” says Hacker, author of Billion Dollar Company. “You’ve got to be able to articulate what is the pain and what are the existing solutions. … Then you have to articulate your solution and your value proposition. … How are you creating value and how are you monetizing it? Explain how people are going to use your solution so a potential investor will understand.”
— What is your target market?
“Be specific. You can expand your market as your company grows. You can have Phase 1 and Phase 2 markets,” says Weber, a Challenge judge in the Community Track.
–Who is your competition? Weber suggests providing names of competitors and highlighting their strengths and weaknesses.
“You’ve got to acknowledge the competition and show where you have competitive advantage,” Hacker says.
— What is the product or service you are developing? This is where you briefly describe your product or product lineup, including features, pricing, intellectual property, etc. You could include a timeline to achieve your desired outcome, says Felipe Basulto, a retail market manager with TD Bank and a judge in the High School Track.
Be careful though: Entrepreneurs are passionate about their products or services and sometimes spend too much space on this section and not enough on others, says Krinzman, a veteran Challenge judge in the Community Track.
–How will you make money? This is where your business model comes in and should include your revenue drivers, pricing and sales and distribution strategy. “What is it going to cost you to acquire a customer? If your sale is a one-time sale, for example a consumer product, do you have enough gross margin to pay for marketing and for the distribution channel, and then some left for GA and profit? If you are selling a service, are you confident you will retain the customer long enough and realize enough gross margin to recover your customer acquisition costs and eventually cover GA and have a profit?” says Darius Nevin of G3 Capital Partners and a Community Track judge.
Don’t forget to include your marketing strategy in your plan. “Marketing is an ongoing activity of every successful company. Don’t ignore it,” Weber says.
— What are potential challenges and threats to success? Identify steps to monitor and address/reevaluate these, Basulto says.
— Who’s on your team? Include a brief description of your background and expertise — “this is not the place to be modest,” Hacker says — as well as key team members. This section can also include advisors.
— Last but not least, what are the numbers, including startup costs, funding sources and financial projections?
“Focus on the projections and financials section. This is where the bankers and potential partners are going to go first. If this section is incoherent or irrational — that is, the projections are unrealistic — not only will lenders and investors decline the proposal, the business owner will be woefully unprepared for success,” says Althea Harris, an assistant director with the U.S. Small Business Administration in South Florida and a judge in the Community Track.
The weakest sections of last year’s Business Plan Challenge submissions were the financials, and you might consider including them in your supplemental page chart.
“Many entrants left them out of their applications altogether. Others just included one or two line items,” says Krinzman. “The key to understanding an emerging business is understanding the financial drivers of the business. Show the judges that you understand your operating metrics and how the numbers scale over five years.”