Today I am preparing for a guest lecture at Purdue University's Discovery Park this week on developing business plans and my experience as an entrepreneur. I read a lot of business plans - about 100 per year, and I also help draft business plans and pro formas for business law clients and my own companies.
Here are some general guidelines to consider when developing a business plan:
1. Write to the intended audience. Is the reader the leadership team or potential investors? If to investors, understand that they have little patience and severe ADD. The plan should be succinct and to the point. What does your company do? What pain are you solving in the market? How will you do that at a profit? Think proof of concept, proof of scale, proof of profit.
2. Focus on math and metrics. What are your sources and uses? What are your fixed costs? What are your variable costs? What could influence these variables? Why are the revenue projections correct - they should never be “conservative”. I hear this all the time, "Our projections are conservative" (note, the investor doesn't believe you). If you have done your research, you should know exactly what you expect your projections to be.
3. Don’t lie, exaggerate or assume. Actually, exaggerations and undisclosed assumptions are lies – so simply, don’t lie. My mom taught me this when I was 3.
4. Know your numbers, your market, and your projections inside out. There is no reason for guess work in a business plan. Ask why, when, who, what and how for every line item in the plan.
Investors like succinct detail. I often see plans that round start up expenses to the nearest thousand or ten thousand dollar - this tells me they are guessing and don't have their shop in order. Plans that have start up costs down to the dollar (or even cent) tell me that the team knows their numbers. Back in 2007, the first year of Alerding Castor Hewitt, my expense projections were $27 off of our year end actuals. This was not done through guess work - we painstakingly worked through every line item expense and received quotes for most of our start up costs, and we monitored our variable costs and kept them on budget.
See also:
Funding Law - Investor Impatience
Random Thoughts on Private Equity
Funding Law - Know Your Numbers
Entrepreneurial Law - Developing a Good Business Model
Culture of Private Equity
A World of Private Equity
Rules of Funding
Entrepreneurial Law - Proof of Concept & Proof of Scale
Fatal Flaws in Leadership
Funding Law - Presentations to Investors
Here are some general guidelines to consider when developing a business plan:
1. Write to the intended audience. Is the reader the leadership team or potential investors? If to investors, understand that they have little patience and severe ADD. The plan should be succinct and to the point. What does your company do? What pain are you solving in the market? How will you do that at a profit? Think proof of concept, proof of scale, proof of profit.
2. Focus on math and metrics. What are your sources and uses? What are your fixed costs? What are your variable costs? What could influence these variables? Why are the revenue projections correct - they should never be “conservative”. I hear this all the time, "Our projections are conservative" (note, the investor doesn't believe you). If you have done your research, you should know exactly what you expect your projections to be.
3. Don’t lie, exaggerate or assume. Actually, exaggerations and undisclosed assumptions are lies – so simply, don’t lie. My mom taught me this when I was 3.
4. Know your numbers, your market, and your projections inside out. There is no reason for guess work in a business plan. Ask why, when, who, what and how for every line item in the plan.
Investors like succinct detail. I often see plans that round start up expenses to the nearest thousand or ten thousand dollar - this tells me they are guessing and don't have their shop in order. Plans that have start up costs down to the dollar (or even cent) tell me that the team knows their numbers. Back in 2007, the first year of Alerding Castor Hewitt, my expense projections were $27 off of our year end actuals. This was not done through guess work - we painstakingly worked through every line item expense and received quotes for most of our start up costs, and we monitored our variable costs and kept them on budget.
See also:
Funding Law - Investor Impatience
Random Thoughts on Private Equity
Funding Law - Know Your Numbers
Entrepreneurial Law - Developing a Good Business Model
Culture of Private Equity
A World of Private Equity
Rules of Funding
Entrepreneurial Law - Proof of Concept & Proof of Scale
Fatal Flaws in Leadership
Funding Law - Presentations to Investors
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