As Wall Street and the banking markets
continue to stumble, entrepreneurs in
need of start-up capital are challenged even more to draft successful business
plans.
For those looking to launch a new venture,
it’s important to understand the real purpose
of a business plan and fully consider the critical components that will make the plan
credible to the banks and venture capitalists.
“The primary purpose of most business
plans is to help you gain an audience with
prospective investors for your venture,” says
Dr. Charles Hofer, Regents Professor of
Entrepreneurship, Coles College of Business,
Kennesaw State University. “Your goal is not
to write your plan so well that everyone can
understand it, it is to write it so well that no
one can misunderstand any aspect of it, and
that is very difficult to do.”
Smart Business learned more from Hofer
about developing a business plan that will
entice lenders and venture capitalists to take
a closer look.
When does a company need to draft a business plan?
The optimal format for your plan will
depend on precisely whom your proposed
investors are. For instance, if you expect to
fund your business with loans, most bankers
will not require or expect a ‘full’ business
plan. What they will want is an executive
summary plus a set of fully developed financial projections for your venture. They need
to verify that your proposed venture has the
capacity of paying back this loan with interest and with very little risk of default. By contrast, most VCs will expect and/or require a
full business plan at some point during the
fund-raising process.
What are the key elements of winning business plans?
The style, organization and content of all
effective business plans are determined or at
least influenced by the goal of using the plan
to assist in the fund-raising process. The stylistic considerations are the basic look and
feel, use of pictures and colors, and professional pizzazz. The old saying that, ‘a picture
is worth a thousand words’ is absolutely true
for business plans. A picture on the front
cover and small pictures inserted in the body
of the plan can help explain and/or confirm
some important points related to the venture’s success. Color is also an important tool
for increasing the overall impact of the plan,
if not used in excess.
The first thing that needs to be said about a
plan’s organization is that it is simultaneously
the most important and least important
aspect of writing a plan. Poor organization
will destroy much if not most of the value of
the plan, however, once the plan is well
organized, additional efforts will add little to
its value.
What is professional pizzazz, and how can it
differentiate your plan?
Most of your attention needs to go into the
plan’s content since this is the most critical
part of all plans. But then you can put some
‘icing on the cake’ by strengthening its style
and adding a dash of pizzazz. This refers to a
number of small touches professionally done
that add to the plan’s overall impact and credibility. The possibilities are limited only by
one’s imagination and creativity, but they do
not compensate in any way for weaknesses
in the plan’s fundamentals.
What content is crucial in securing an interview?
The five major content considerations are
the plan’s accuracy, its documentation, its
use of precise, specific information, its internal consistency and its believability. First,
accuracy is crucial because almost all professional investors want you to communicate
your knowledge of and capabilities relative
to the industry you are proposing to enter.
Next, since the key to writing effective plans
is to tell compelling stories, you should document all really important information
through the use of extremely credible
sources and avoid using generalities. Internal
consistency is crucial since investors use it as
a measure of the degree to which you think
about and check your work before you act.
Before completing your plan, you should
also assess its believability. To be compelling,
your plan must be believable to your potential investors. Businesses come in all shapes
and sizes, and what works in one business
will not always work in another.
How could investor limitations hinder your
pitch?
Remember, the general investment guidelines investors have developed over a lifetime
of experience may not apply to the specific
industry in which you plan to launch your
venture. And they may not recognize the
changes that have taken place in an industry
since their last experience with it. Potential
investors will not tell you of these potential
limitations on their part — because they
can’t. The important point here is that it is
your job as an entrepreneur, not theirs as
potential investors, to recognize when this
may be the case, and to take the necessary
steps to provide whatever information may
be needed for them to assess your plan
appropriately.
DR. CHARLES HOFER is Regents Professor of Entrepreneurship, Coles College of Business, Kennesaw State University. He can be
reached at (678) 797-2502 or [email protected]. Hofer is considered the Bobby Bowden of Business Plan Competitions. Over the
past 17 years, his teams have had the best record in the world in such competitions.
Regents Professor of Entrepreneurship
Coles College of Business,
Kennesaw State University
