Description of the Products or Services Offered
Describe your products and services and show how they are related to your mission. What is your business? Be clear. Many business plans do not begin to discuss the actual business of the company until the middle of the plan. Most investors will not be that patient. Tell it up front and tell it in plain language. If the product is highly technical, save the details for inclusion in an appendix. Keep the discussion on a strategic level. The potential financers are probably not yet interested in tactical details.
On equal footing with the products and services offered is the credibility of the management team of the company. Investors say that the three most important factors for success in business are management, management, and management. In this section, you will be providing a synopsis of the management team and its members' qualifications. You can include full rйsumйs in an appendix. Investors, especially sophisticated ones, would prefer an A management team and a B idea to a B management team and an A idea.
Differentiating the As from the Bs: What differentiates the A team from the B team is a history of solid success and accomplishment. It proves the existence of skills and experience that can mean the difference between success and failure. Do not merely state that the marketing executive spent decades with a Fortune 500 company. Instead, specify the revenue growth and profitability results achieved in products and divisions for which the executive was responsible.
Many start-up ventures have difficulty attracting an experienced management team before their business has been tested in the marketplace. One way to offset any lack of depth on the management team is to establish a board of advisors and populate it with persons well-known in the business and professional community. Often, advisors become more interested in the business and can be recruited to join the management team. Alternatively, they may introduce you to qualified management candidates.
The marketplace and competition section helps you understand and define your market, the demographics and psychographics of your target customers, your competitor's products or services, and your business risks.
Describe the target market for your product or service and the trends in your industry. For example, your market may be consumers between 25 and 40 years of age in the Rocky Mountain states or the upscale furniture industry in Chicago. Drill down to the specific market niche that fits your situation.
How large is your niche? Investors look for products that have scalable markets; that is, niches capable of expanding with the acceptance of the product in the marketplace.
How large a share of the market can you capture, and over what time? Who are the people who will buy from you? Why will these customers buy from you and not your established competitors?
Describe your competition as specifically as possible and do not ever state that you have no competition no matter how unique your product or service. It is said that the only companies that have no competition are those that have no customers.
The marketing and sales plan section of your business plan includes your advertising, promotion, pricing, profitability, selling tactics, distribution, public relations, and strategic business relationships. It answers the question, What marketing vehicles will you use in your business—advertising in print and broadcast, direct mail, product brochures, trade shows, public relations? You should also discuss how your product would be sold, including your distribution channels and methods.
The financial information section addresses your ability to make money in your proposed business. Your company's capital requirements and the profit and wealth potential are analyzed and demonstrated here. Include any financial history as well as your forecasts in the financial statements. Normally, your projection should forecast at least three years out. Remember that financial projections are only as good as the underlying assumptions, which must be uniformly applied to the cash flow statements, income statements, and balance sheets. Once you have completed the financial statements, review the business plan and make sure the language and
examples in your plan are supported by and consistent with the financial statements. Some of the assumptions you will wrestle with are revenues, marketing expenses, research and development costs, general and administrative expenses (G&A), inventory, accounts receivable, property and depreciation, debt and interest expense, and cash. Do not shirk from this task. It will cause you to seriously analyze, perhaps for the first time, the financial essence and feasibility of your business proposition.
One venture capitalist, when asked about his internal review of business plans, said, "[we] take their projected revenue, cut it in half, double the expenses and then see if it still makes sense."
Avoid the use of hockey stick financial projections—financial statements that skyrocket during the last year or two of the planning period. It is probably not reasonable to assume that the level of marketing, production, and other resources can grow fast enough to accommodate the hockey stick. It is also unreasonable to assume large sales volume during the first year when your business is still in a conceptual or start-up stage.
Use a Number Cruncher: Some business
Plan software allows you to prepare financial projections. If you get easily lost in the numbers, this may be a good time to hire an experienced financial executive to
Help you engineer your business.
You may wish to provide a section that shows the benchmarks or significant developments in the life of the company, and the projected time frame in which these events will occur. For example, at the end of month three—
Develop a prototype; at the end of month six—solicit manufacturing bids and file for patent protection; etc.
The funding request is a statement of how much money you need, why you need it, how you are going spend it, and how the investor is going to be rewarded. In the case of a loan request, the return to the lender is the amount borrowed plus interest. In the case of an equity investment, an exit strategy (IPO, acquisition, merger, sale of the company, or stock redemption) is required. Determine what the typical wealth creation event is for your industry and how business values are determined.
The advantage of having a shorter business plan is that you can include more lengthy materials in the appendices. At a minimum, include the full resumes of management. You can also insert articles on your product or the industry trends, test results, marketing studies, or any other information that supports the main plan.
You will need a cover letter when forwarding your plan to someone for review. For a start-up company, a summary business plan of approximately ten to fifteen pages may work for you. Most beginning companies do not have an extensive history of operations, and therefore, do not initially need a twenty - to forty-page plan.
/ Figure 2.3: QUESTIONS TO ASK
Burke Franklin, President of Jian Tools for Sale, Inc. and the creator of BizPlanBuilder software, suggests questions to ask in formulating your business plan.3
□ What type of business do you have?
□ What is the purpose of this business?
□ What is the key message or phrase to describe your business in one sentence?
□ What is your reason for starting your own business?
□ What is your product or service?
□ Can you list three unique benefits of your product?
□ Do you have datasheets, brochures, diagrams, sketches, photographs,
Related press releases, or other documentation about your product or
□ What is the product application?
□ What led you to develop your product?
□ Is this product or service used in connection with other products?
□ List the top three objections to buying your product or service immediately.
□ When will your product be available?
□ Who is your target audience?
□ Who is your competition?
□ How is your product differentiated from that of your competition?
□ What is the pricing of your product versus your competition?
□ Are you making any special offers?
□ What plans do you have for advertising and promotions?
□ How will you finance company growth?
□ Do you have the management team needed to achieve your goals?
You can also include this template as an initial summary for bankers or investors. You should have the answers to these questions readily available when seeking a loan or investors for your new venture. Some of these answers may be appropriate to include in a cover letter for the company and may accompany the executive summary document.