How to Sell Your Idea - Components of a Great Business Plan

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businessplan.jpgA business plan serves many purposes, but the main one is to clearly and concisely capture the limited attention of a potential investor. In order to do this, a business plan must be thoroughly written, even more thoroughly thought out, and contain certain types of information, such as an Executive Summary, an identification and description of target markets and customers, and financial projects, to name a few. Depending upon the type of business you are proposing, some of the following categories may be more important than others, and some entirely irrelevant. Either way, presenting potential investors with a well thought out roadmap of your business’ operations and strategy will go a very long way towards your goal -- a financed business!

In general, each business plan should have the following sections:

      1. Executive Summary

      2. Description of Consumer Value Proposition

      3. Market and Target Customers

      4. Competition

      5. Marketing and Sales

      6. Business System

      7. Financials

Let’s get into a little of the details below. For a real world example, take a look at this sample business plan.

Executive Summary

The Executive Summary should concisely describe the key elements of the business plan. The Summary is  one of the most important aspects of the business plan because it captures the attention of the potential investor and tells them why it’s worthwhile to review the plan in detail. The Executive Summary should convey several pieces of crucial information, and has several subsections, including:

A. Brief description of the business

B. The proposed management team

C. Financial projections summary

D. Required funding and purpose

The brief description is basically your “elevator pitch.” It’s the 30 second version of your grand idea. It should serve to both inform the potential investor as well as pique their interest further. At no more than a short paragraph, by the time the potential investor is finished reading this, they should understand your general idea, and be excited to learn more.

The management team should consist of the important executive positions, as well as relevant bios of those individuals. The bios should briefly explain what these individuals will be responsible for, and why they are right for the job.

The financial projections are what every investor wants to see. How much money is this business going to make, and when? The Executive Summary should contain a simple projection, and usually a graph illustrating the numbers. Depending upon the business, the summary projections should lay out net income, expense, and profit/loss for the first four quarters, and then the subsequent two or three years. This gives the potential investor an idea into what the first year will look like, and then what the future may hold.

The funding section simply states how much capital is requested, and what that capital will be used for. Although short and straightforward, this section certainly requires some thought. An investor will want to see that they are providing necessary funding, but not excessive funding for non-essentials.

Description of Consumer Value Proposition

The Consumer Value Proposition (CVP) tells the story of the business. It answers the question “why?” Why do consumers need this business? Why will it be successful? Why should I, the investor, risk my hard earned money for this idea?


Some questions to keep in mind when writing this section:

Who is the customer?

What basic problem does the customer have?

How would they describe that problem?

What benefits will your solution provide to that customer?

What markets might exist for your solution?

Market and Target Customers

This section is relatively self explanatory, but quite important. This is where you will describe the overall market size of the business opportunity based on the size of the consumer target and the appeal of your CVP. This information will directly support your revenue and margin assumptions.

This section should include information on economic trends, consumer trends, and market attractiveness. A more in-depth look at your target customer is appropriate here as well, with a description of the customer to whom you will offer the CVP (via demographics, location, etc.). If appropriate, this description should be relatively narrow to include information such as buying patterns, brand and price sensitivity, loyalty, willingness to substitute.

Market attractiveness is the total number of target customers expected to purchase the CVP, whether it is offered by your business or competitors (if entering into an existing market).

Competition

This is where you describe the competitors to the business and their relative strengths and weaknesses. You will want to understand the range of direct and indirect competitors (i.e. Ford competes directly with GM, but it also indirectly competes with public transportation). The competitive set should be defined narrowly enough so that you can address your business’ position and competitive differentiation.


Some questions to keep in mind:

Do competitors exist in my space?

What are the substitutes for my solution?

What are competitor’s size and market share?

What are competitor’s strengths and weaknesses?

How is my offering positioned against theirs?

Marketing and Sales

This is your strategy and tactical execution for bringing your solution to the market. The marketing strategy should follow logically from the target consumer, market and competitive analysis in the previous sections. The mix of marketing tactics (advertising, channel of distribution, packaging of the solution, pricing, positioning) should logically flow from the strategy. The marketing budget should reflect both the marketing goals and your goals for return on advertising investment in the business model.


Some questions to keep in mind:

What’s the main message I need to deliver to the customers?

What mid of media will most effectively deliver the message to the target?

What’s the best channel(s) of distribution for getting my solution to the target customer?

How to price to maximize volume and margin?

What level of spending is needed to achieve my marketing goals?

Business System

Here you will explain how the business will produce and deliver its service. This is the operational section -- where the wheels hit the road. How will you do what you plan to do? Describe capacity and status in terms of physical facilities: owned or leased, size and location, sales volume and unit capacity, expansion capabilities, and capital equipment. Include a facilities plan and description of planned capital improvements with a timetable for those improvements.

Also describe partners/suppliers if appropriate, including name and location of principle suppliers (if known), length of lead time required usual terms of purchase, amounts, and duration and conditions of contracts.

Financials

All told, this is the most important section of the business plan. Essentially, this is the only page the potential investor cares about. If they like what they see here, the purpose of the rest of the business plan is simply to legitimize the numbers within these financials. Depending upon the type of investor you are presenting to, and the industry your business will be in, your financials may be very general or very detailed. As for time frame, run them out far enough into the future to show a best case scenario of profitability.

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This page contains a single entry by the boozwatt team published on November 21, 2007 5:23 PM.

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