The Bulletproof Business Plan

It’s straight-shooter time in the search for investors. No fluff. No dodges.

In January 2000, when Patricia Adams started looking for outside funding, she put together a business plan that was just 15 pages long. The CEO of College Capital, a two-year-old business based in Scottsdale, Ariz., knew what investors were looking for: “a short, quick, fast read explaining what [the business] is and explaining how much money you want,” Adams says. What she herself needed was $1 million to move her college-preparation services onto the Internet.

Two months after Adams started sending out her business plan to venture capitalists and angels, the Internet bubble popped, and suddenly investors were guarding their checkbooks more closely. In the end it took Adams a year and a half to find the money. By then, summer 2001, her business plan filled two three-inch binders. “It’s a little bit of overkill,” Adams admits.

CEO PATRICIA ADAMS: When the market changed, so did her business plan — drastically.

Indeed, 25 pages is a more typical length for business plans, even now. Still, the business plan that impresses investors today is a very different beast from the one that pulled in the dough two short years ago. These days it’s back to basics with a vengeance. So what makes a business plan truly bulletproof at a time when the air seems to be thick with bullets? Here’s our take on the “new” fundamentals.

The Executive Summary
Investors are looking for a clear, solid business model that makes a profit or will make one soon. So among other things, you need to describe the business in an understandable fashion.

That was the advice that Donald Spero, director of the Dingman Center for Entrepreneurship, at the University of Maryland at College Park, gave Chesapeake PERL. The first time he read its plan’s executive summary, he thought it was too technical — not an uncommon problem. So Chesapeake president Terry Chase revised the summary, rinsing out the jargon and using much simpler language: “Our manufacturing system changes simple insect larvae into efficient mini-bioreactors that produce recombinant proteins at both high quality and low cost.”

“It tells you something about what they do even if you don’t understand what a recombinant protein is,” says Spero. “Second thing, she explains that this can reduce the time by a lot and the cost by maybe an order of magnitude to produce stuff that sells for between $1,000 and $3,000 per gram. That’s a way of saying there are good gross margins in this business.”

The Market Analysis
Simply citing a study about total market size from Gartner or Jupiter Media Metrix “isn’t very compelling to investors today,” says Brad Weirick, partner and chair of emerging technologies at Gibson, Dunn & Crutcher, who works with many West Coast start-ups. “They’ve seen the same glowing reports for every company they’ve funded, and yet a lot of investors are having problems with those companies.”

Instead, talk about your competitors in detail in your business plan: identify direct, indirect, and even potential competitors and describe their offerings, their percentage of the market, their funding, and their pricing, distribution, and promotion strategies. Most important, the plan should be crystal clear about how your own offering is different and why it gives customers a better value.

Some evidence that customers will buy your product — and buy it at the price you’re charging — is essential in a business plan today. Take the plan of a former General Motors engineer who went to angel Carl Meyering recently looking for funding to produce a new electronic monitoring device to protect battered spouses. Though the engineer’s business was promising, Meyering didn’t agree to fund it until the entrepreneur secured a $250,000 order from an Ohio court system.

If start-up founders can’t produce full-fledged paying customers, they might do well to provide information on beta customers, who have used a test version of the product. Results from focus groups made up of potential customers can also provide some proof of demand.

Finally, when it comes to sales and distribution, entrepreneurs shouldn’t rely on an if-you-build-it-they-will-come model any longer, cautions Kathy Elliott of the Boston angel group Renaissance Partners. Today a business plan should include information about the industry’s principal distribution channels and typical sales cycles and a well-thought-out — if possible, proven — model for the company’s own sales and distribution. Elliott cites the example of one start-up that recently won over Renaissance after switching its plans from hiring an expensive sales force to using already established value-added resellers.

One model that angel and venture capitalist Patty Abramson of Women’s Growth Capital Fund and WomenAngels.net, in Washington, D.C., likes to see is sales and distribution partnerships with larger, more established companies. They bump up a young business’s credibility, she says, not just with investors but also with customers.

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