Do investors prefer a simplified or detailed business plan?
What type of business plan should be used when working with investors and raising startup capital? I have a simplified plan with 1, 3, and 5 year goals. My company is a new start up in Tech industry that is launching now. I am looking to raise several million dollars, so how detailed should my plan be and is there a specific style or form(s) I should use?
Amber - your pitch is much more important than your business plan. If you cannot articulate in 3-4 minutes the purpose of your business, the opportunity you think you have, what you want the money for, and how you plan for the investor to get their money back, you will never get to share your business plan.
On top of that, investors know that whatever you put into a business plan and forecast are assumptions and estimates, and we all know that these are often (usually!) wrong. So do they. And business plan and forecast formats are so varied it doesn't really matter which you choose.
Despite this, it is expected that you produce them in detail because, in doing so, you are forced to think through your business in detail. This is important, because you must be able to justify your assumptions and know how changes in assumed outcomes will affect your forecasts.
I suggest you prepare a 1-2 page 'opportunity note' to send to potential investors that will enable them to gauge whether they want to find out more, and rehearse your pitch. Once you have an investor who is interested, ask them how much detail they want to see next. You are likely to get a much better response doing it this way than if you send out a detailed business plan first, even if it does have a good exec summary.
Hi Amber - I think no matter what, you should prepare a detailed business plan. From that you can take bits and pieces and make a simplified presentation or Investor Deck depending on who you are talking to. In some cases, you may get in front of someone with a teaser and then since you did the detailed business plan, you can easily show the details behind your summary. But some investors may want all the details up front. Either way, you are prepared. I happen to like Live Plan to prepare my plans. Good luck and if I can help further, let me know!
I can't speak for all investors. I can speak for how I look at business plans in the tech industry. The answer I'd give is somewhat in-between simplified and detailed. Specifically,
The business plan should convey that you know what value you will be creating...and have a solid idea of how to navigate to product-market fit and then tackle the challenges of scaling the business. It's much less about the detail: since no forecast will be accurate, it's not worth digging down to three decimal places in your plan. Rather, the business plan is about showing that you are able and willing to dig down as the need arises, and that you can act smartly based on what you find out. The business plan for an early phase company like yours should also show that you have a strong sense (i.e., metrics) to know when the business is or is not working...with bonus points if you can show that you can pivot. (NOT what you'd pivot to...just that you can pivot if it comes to that).
In the early stages, investors want to know you as much as they want to know the business. Think of the business plan as your business's resume. The investor presentation is your business's interview with your employer. Can you convey the above in a short resume and presentation? Maybe...if you have the credibility that comes from a track record in startups. Can you convey it in a highly detailed book that requires months to prepare? Probably not, because it shows that you're too bogged down in detail to be agile enough to succeed in starting up. Thus, the answer is in-between. At least, that's my opinion.
You’ve already had a lot of thoughtful answers.
I recommend a single page (if possible) business plan. In it, you should be able to convey enough about:
• The Problem & who is affected
• How important it is for those affected to get the problem solved
• How big (financially) is the problem
• What EBITA will be generated
• How much you’re looking for
to attract appropriate interest.
First and more important, however, is the development of your Business Model.
Have you worked through the various facets of your Customer Segments, Value Proposition, Channels, Customer Relationship, Revenue Streams, Key Resources, Key Activities, Key Partnerships and Cost Structure? If you’re looking for more detail on this, go to: www.businessmodelgeneration.com. There are many other web resources, as well.
Having gone through this process, if you’ve not already done so, will allow you to test your assumptions so that your Business Plan, however long it is, has defensible reality as its base, rather than assumptions and hopes.
Finally, in concert with your Business Model efforts, I suggest developing a Tactical Plan. In other words, on the day after funding (and for whatever period you’re projecting thereafter), what will happen, who will do it and what metrics you will use to determine if you’ve achieved your goals.
In conclusion, your Business Plan in combination with the Business Model and Tactical Plan will provide everything you’ll need to impress the VC’s that you know what you’re talking about and that you (and your team) can execute what you propose.
I'd recommend to check out http://www.scribd.com/doc/47617897/Velocity-by-Intersection-Capital#scribd
With the approach of Oren Klaff's Pitch Anything you should avoid falling into the analytical aspect of ROI calculations etc. Get to the bigger picture of WHY "THEY" should be the ones investing in THIS project.
Of course you should be able to backup you ROI strategy, but don't focus on that, and don't let the investor focus on that either.
Best is to start with the complete business plan and then scale it down to, at least, two shorter ones. As a first.-time, brief presentation to potential investors, you should only show those elements that show how your project stands out from the rest. As for financials, best is to show 5 year time period so that investors can see from the overall figures that your project is a fast-growing, scalable, ambitious project ...and they can calculate IRR on their investment as well!
Hope this helps.
I specialize in a different type of business development i.e. when your business is all set, in production and you want to capture new markets. But , your question is intriguing and I think I may be able to give you one or two nibbles on your fishing line. Its up to you as to how you catch the fish (it may be an old boot too).
For your business, I'm presuming you will be approaching VC firms. To get it through, do make it as detailed as possible. More importance should be given to the financial portions . The cash flow statement is very important. Having said that, try to make it as simple as possible. Put yourself in the boss' shoes. Had you been in his/her place, you would have wanted to know first how you are going to get your money back.
Make the proposal more attractive ( I don't mean any doubtful info insertion -you have to be honest at all times). Say if the cash flow comes in increasing quantities, you have to make that apparent. Like icing on the cake.
when you explain just how you aim to bring in that kind of revenue, expect questions as to your targeted customers. How do you know that there is a need? Have you done a survey?? talked to someone relevant, etc. Keep this back up ready so that if the question arises, you can chip in with the answer.
Then you go the expenses section. Here you can be a little less detailed. The figures should be logical however. Very often , people club minor expenses together making it big money and than simply budget for it saying Misc and Contingencies. If this figure is fairly high, you will be asked.that how come you anticipate the contingencies to be so much. That is true. So break up into justifiable heads.
I am sure you can do the rest easily. The days of forms are now past. Forms were preferred earlier for ready horizontal comparison. Be simple is what I would advise. Finally, do some homework on the VC's you shortlist and find out what that gentleman is most comfortable with. In case he likes forms, then you gotta use templates.
Prepare your pitch, roll it a couple of times, try to think of anything you may have overlooked etc. and there you are its D-day
All the best.
Its a kind of both answer an executive summary of the business plan. A one or to page summary is easier to read than the entire BP which provides in depth information.
This detailed BP proves to investors that you have spent the time and energy to thoroughly understand the market opportunity the competition and the business model and the strategy you propose to succeed.
A BP is always a work in progress similar to the "pirates code" its more of a guideline really.
Proof of concept, proof of capability, proof of measurable plan (ROI too!)...and proof you have the energy and will to carry through with the whole shebang.
Amber, there is a very good facility for this at Growthink.com. If you use their service, they do recommend that you include a Strategic Foresight style risk assessment, identifying the top 20 risks for the project, together with your plans to mitigate these risks. My company provides a rapid, economic service for such a risk assessment.