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Any business plan is geared to achieve a variety of things, the most important
of which is to demonstrate a blueprint for how your company will
develop in all of its phases. It is also a document for demonstrating credibility
and vision when seeking funding, key employees and strategic partners.
However, building a solid business plan that not only snags the
attention of key partners, but also acts as the point of reference for a company
as it grows, is no easy task.
When looking at business plans, potential investors, employees and
partners—and even your early-stage clients—are examining your company
to see if it offers an innovative solution. They also want to be convinced the
company will succeed in its target market and that the management team
offers the breadth and depth of experience to execute on the plan. A good
business plan should reflect a company’s flexibility to evolve as new models
and information come to light, such as changes in the market, in the
competitive landscape and in the opportunities that technological developments
can afford to your venture.
The proliferation of new businesses, and the growth of entrepreneurship,
have given rise to accelerated competition for capital, employees and
customers. Every startup competes with a great many other companies for
resources and market share. In addition, companies of all sizes must strive
to be entrepreneurial in order to succeed in a marketplace becoming more
and more competitive every day. This competition begins with the ability to
put forth a compelling business strategy. Enter the business plan.
Sum of the Parts
In the end, simply plugging in data is not what makes a good plan. Even if
a business plan is well executed, it is often missing a less tangible element—
the spirit of the venture and a clear understanding of its goals and objectives.
Plans that stand out above the rest are based on a logical progression
of concept, supported by the best numbers you can find, solid research,
imagination and creativity in approaching your marketplace. Thus, the
whole plan should be greater than the sum of its parts.
It is not sufficient to state that your company can capture market and
mindshare. It is equally important to prove that your team is the most
qualified one to execute on your ideas. More often than not, you might see
several plans with a similar business idea—all with potential. In this case,
the decisive factor is whether a particular plan approaches the proposed
market in a constructive and feasible way, and whether the members of the
team are the ones to implement an ambitious and aggressive strategy. This
should be the case irrespective of the size of your venture; even if you are
a person still operating on your own, you need to have the energy to spark
the imagination of others who will contribute to the effort and support
your new venture.
Who Should Prepare Your Business Plan?
Your business plan should be the culmination of careful thought and as
much expertise as you can gather. If you’ve never put together a business
plan and you are trying to put numbers to ideas, run them by someone who
has a clue—don’t just put any old numbers in there. If you haven’t explored
the interesting new possibilities, and even some of the old reliable methods
for sales models, find someone who will walk through them with you.
If you are at a developmental phase in your company where you don’t
have all of this expertise in house, it is important to find people who can
help you think this process through, be that an outside consulting firm, a
business angel or an experienced entrepreneurial mentor. It is best to find
people who have started and run companies before, who understand the
reality of what you are trying to create and who have felt the burn of success
or failure in being able to achieve these things themselves. On the other
hand, this is the plan for your business, and you need to take the ultimate
responsibility for it. You shouldn’t feel somewhere down the line that the
plan put forward is a stranger to you and that you don’t really buy into
what you are trying to sell—that is a sure way not to succeed.
Build a Plan for Your Company, Not for the Financier
One of the most common mistakes young businesses make is building a
plan they believe will ensure that a particular VC will fund them. Going
about building a plan in this way is also one of the fastest ways to become
frustrated and disenchanted with bringing your business to fruition. In the
end, you won’t be able to deliver, and you will find over time that there will
be an ever-widening gap between goals and results. There are enough funders
out there to get a good and sound plan funded—build a plan that will
make a good business and it will get funded.
Build a Strong Foundation
Clearly, the minute things start moving—and in aggressive companies these
days things are moving fast—the work you put into your plan will pay off.
All the thinking, the planning, the exploration and challenges you and your
team pursued in the planning stages will pay off as you instinctively move
towards bringing it to life. The more carefully you have prepared your plan,
the stronger a foundation you will be able to build upon to ensure success
when executing your plan.
Dare to Be Different
With the development of technology come new possibilities for sales and
distribution. These new methods bring challenges to a budding management
team, which must ensure the company is creating a stunning new
product or service offering, while at the same time steering a stable and reliable
revenue course that will satisfy investors. New distribution methods
are perhaps a double-edged sword; they create new opportunities for selling
your products, but also put pressure on you to come up with a more
complex business plan. Companies today aren’t just competing for the best
business idea, but also the most unusual sales method.
Building a Dream Team
People are key to your business. A strong and competent team can take a
mediocre idea and turn it into a winning business, but a weak and illsuited
team can destroy the best of all businesses. Some important things
to think through and address in your plan are: Who are the right people
to help you develop and execute your plan? Do you have a plan that will
attract—and enable you to keep—the right people? How will you go
about attracting them?
Essential Elements: Construction of a Business Plan
Now that you’ve covered the basic overall themes, it’s time to get into the
nitty-gritty of writing your business plan. Every person who reads your plan
has a checklist in mind. They look for essential information expected in
every business plan, so don’t hide basic facts. Your business plan will be the
closest thing you have to a road map, and it is the thing that will help those
around you—funders, advisors and employees alike—understand where
you think your business can and will go and how it is going to get there.
One thing people often wonder is how long should my plan be? There’s no
“right” length for a business plan; it should be long enough to give the type
of detail that is needed to lay out your plans in a clear and concise way,
without wandering down unnecessary paths. That said, a plan over 45
pages long is rarely justified.
I. Executive Summary
The executive summary is your three-minute window of opportunity. It is
the place where people decide if they read on to the rest of your plan. It
is your opportunity to make a compelling argument for what your company
does, to position it within its competitive landscape and to demonstrate
why your company will rise above others to challenge what exists
and become the leader in its field. Be brief. Two to five pages is ample
space to get your point across.
II. Business Description
• An overview of your industry
• A discussion of your company
• Descriptions of your products/services
• Your positioning in the marketplace
• Plans for expansion and globalization
III. The Market
• Market Size and trends
• A clear and forthright outline of your competitive landscape and your
position within it
• Current state of the market: competitors, marketshare
• Growth in market and customers and projected movement of your
Competitors
• Customer base and timeline for growing your customer base
• Estimated Sales
IV. Research and Development
• Development status
• Production process
• Cost of development
• Labor requirements
• Expenses and capital requirements
V. Sales, Marketing and Business Development and Partners
• Marketing strategy and execution
• Marketing communications
• Strategic partnerships
• Sales strategy
• Method of sales
• Pricing strategy
• Sales forecast
VI. Management
• Description
• Ownership
• Board of directors/board of advisors
• Support services
• Plans for organizational expansion
VII. Financials
• Risks
• Revenue projections
• Cash flow statement
• Balance sheet
• Income statement
• Funding request and return
VIII. Appendices
Any supporting materials that further demonstrate the above
Dealing with the Shareholders
They say in marketing that getting the customer is only half the battle.
Keeping the customer is the other—and perhaps harder—half. So it is with
the company’s shareholders.
Keeping shareholders happy is relatively easy in boom times, and not
so easy when the market is down and the economy is down and inflation
threatens and the jobless rate is threatening. Still, aside from the mandatory
information devices, such as the annual report and the annual meeting,
there’s a great deal that can be done.
The web site has become a primary tool for telling shareholders what’s
happening. Not just the financial information, but everything else that’s
going on in the company. The new contracts. The new building. The major
new customers. All the good things that happen that make a company thrive.
Shareholders don’t like surprises. They don’t like being told regularly
that things are just great, only to read in the paper or hear on the broadcast
media that the company is really in serious trouble. Telling the truth is not
only a virtue, it’s sound business practice.
In the old days, which was not so long ago, the printed quarterly report
carried the company news to shareholders. Today, it’s the internet. News
about your company is ubiquitous. It’s on the broker’s sites and on MSN
and Yahoo and AOL, and on your own web site. Years ago, informing the
shareholder beyond the legal requirements was optional. No longer. The
law demands it, but even if it didn’t, access to corporate news is so easy that
the best reason for your controlling it is to be sure it’s told accurately, and
to your advantage.
Competing for investors means that if you can’t keep your shareholders
happy, some other company will.
The Annual Report
For all the communications devices and channels, the traditional annual
report is still at the top of the heap. Unlike the internet and the web site, it
has heft and staying power. It informs not only the shareholders, but the
analysts, the employees, the suppliers, your customers, and the media.
The legal requirements of the annual report are the same as for the
Form 10K, and indeed, an increasing number of companies are using wrap
reports—an attractive cover with some additional company information
wrapped around the Form10K. According to Scott Greenberg, head of
Curran & Connors, one of the country’s leading producers of annual
reports, 10K wraps are overly legalistic, supplying information that any
shareholder can glean from the SEC’s Edgar web site. Shareholders want
more than that, he says, particularly in view of the need for shareholders
to be made aware of a company’s compliance with Sarbanes-Oxley and the
new SEC regulations.
“Under Sarbanes-Oxley,” he says, “the company is not legally required
to certify a company’s financial statements in the annual report, but many
are doing so anyway to demonstrate compliance and responsibility.”
While the extravaganza reports of the past are not as common as they
once were, many companies recognize the value of using the report to go
beyond the financials to demonstrate the breadth of the company’s activities.
They make much of the board of directors, which is a major issue under
Sarbanes-Oxley, and frequently supply more industry specific information.
Informal writing, many companies now realize, is better communication.
“When a company boasts of ‘results-driven value’ or ‘leveragable
knowledge’,” says Greenberg, “it’s time to take a few steps back before
shareholders start scratching their heads in confusion.” Writing what your
company does in plain English, he says, will convey the message that you’re
proud of your business.
Shareholders and analysts still believe that, despite the new rulings,
annual reports don’t say enough. Most companies fail to analyze industry
trends, risks, cash flow and capital needs, they say. Accounting policies are
not adequately explained, and while many companies are now specifically
reporting on non-GAAP financial information, too many are not.
Too little advantage is taken of the Management’s Discussion and
Analysis (“MD&A”) section of the report, including an explanation of its
off-balance sheet arrangements in a separately captioned subsection of the
report and Form 10K. NIRI’s Lou Thompson says that the SEC wants the
MD&A to be a principle means of communicating to investors what drives
value in the corporation and what management considers the company’s
prospects for performance. “Warren Buffett put it best,” he says, “when he
said ‘When I read an MD&A, I want to feel like I’m having a conversation
with the CEO, who says to me that these are the issues that concern me
most. I want that level of candor.’ ”
Ultimately, the annual report is more than a financial report. It’s a selling
document to the shareholders and all of its other targets.
The Annual Meeting
Of all aspects of shareholder and investor communications, the annual
meeting is the one that most CEOs look forward to with measured anxiety.
A very serious event in which shareholders have the opportunity to participate,
at least vocally, in their company’s business, it can also be a time in
which questions are asked—some of them quite rudely—and management
is challenged. Some shareholders have become known as annual meeting
gadflys, going from one to another, vociferously challenging management.
Many meetings have been company events, with souvenirs and favors
and free lunch—gala affairs, although in somber days there is less of a party
atmosphere and the questions are more serious.
The business part of the meeting is indeed serious. Resolutions
regarding company policies are passed, officers and board members are
elected, and the CEO gives a state of the company message. When it
comes to the resolutions, and the votes, there are all the trappings of corporate
democracy, but little of the realities of it. The shareholders are,
after all, the nominal owners of the company—rarely with enough shares
to make a difference.
Two things are happening that may change that. First, the SEC is
plumping to make corporate democracy a reality by introducing mechanisms
whereby small shareholders will have the opportunity to put their
proposals before the shareholders. Second is the interesting phenomenon
whereby institutional investors, with growing awareness of their power as
significant holders of a company’s stock, are using their votes to affect management
policies.
Each year, the legitimate questions from the floor reflect the concerns
of the moment. For example, the revolution caused by Sarbanes-Oxley, and
the events leading to its passage, will cause concerns about corporate
integrity and compliance for several years. In this era of terrorism, safety
measures are a concern. Accounting matters are always questioned, as are
questions of internal controls and audit committees, and while the days of
the trophy CEO are waning, the questions about corporate governance and
management compensation are still being raised.
The message is clear, however. The annual meeting is serious business,
and calls for management to take it seriously, to be informative, to be presidential,
and to demonstrate concern for the shareholders.
The More Things Change
In Wall Street and the financial world, as in the world at large, some things
change and some things remain he same. What has changed in recent years
is new regulation and new technology, as well as a burgeoning economic
environment and globalization.
What has not changed is the competitive nature of the auction market,
and the need for the kind of integrity that sustains faith in the reliability of
the various and several participants in the market. There is an old saying
that the market is always the market. True. But only if the integrity of the
market is palpable.
(Copyright © Marcus Venture)
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