Today, Enable provides the last five of our ten commandments of business plan development. These are especially important as they focus on key issues companies face as they try to raise capital, and impress investors.
6. Thou Shalt Not Be a Product - You're a Company After All
You must demonstrate that you are indeed a company and not simply a product. You must explain what business you are in, and the image you are creating for your company. You must also provide long-term strategies, explain how the company will grow, and how it will expand its markets and product lines.
7. Thou Shalt Not Negotiate in Thy Business Plan
You must be very careful to avoid negotiating in your business plan. For example, do not state that you will sell 20% of the company for $1 million, because you will establish the upper end of the negotiating range. Sophisticated investors will realize that this is their worst case scenario and that they should be able to negotiate a better price. Your company is also worth more to different types of investors, so leave the negotiations for face-to-face meetings. This should not be confused with the amount of money you are asking for - which should be stated in the plan, along with its proposed usage.
8. Thou Shalt Not Say: "All We Need To Succeed Is 1% Of A Huge Market."
The above words are very familiar to investors, and are a very quick turn off. The marketing section is one of the most important in the entire business plan. The percentages, in and of themselves, are irrelevant. You must not only state which market niches you will focus on, but what determines that niche - price, quality, performance, geography, patents, etc. You must discuss competition and never state that there is no competition. You must also deal with market penetration, sales force, and other marketing and promotional issues. While many business plans contain expert opinions regarding the technical feasibility of core products, it is very rare to find a business plan that contains an expert-based market analysis.
9. Thou Shalt Not Avoid Potential Risks
Every business faces risks and potential problems. You must deal with them in the business plan if you want to be credible. By identifying and discussing the risks, you demonstrate to investors that you have thought about them, factored them into projections and can deal with them professionally. In identifying the risks, include a description of those pertaining to the industry, your company and the market. Indicate which business plan assumptions or potential problems are most critical to the success of your venture.
10. Thou Shalt Not Shop The Plan Around
It is very important for the business plan to get into the hands of the most appropriate investors. All investors have their own specialties and if your plan is rejected because it does not meet that particular investor's known criteria, then you have lost credibility in the investment community and your plan could get a "shopped around" reputation. Furthermore, valuable time has been wasted simply because someone forgot to do their homework. Companies must learn as much as they can about investors before approaching them - especially their investment criteria including their methodology, industry preferences and investment criteria.
Published by Israel's Business Arena on May 2, 2000.