B USI N ESS P LAN S

THAT W I N $ $ $
Le sso n s f r o m t h e
M I T En t e r p r i se Fo r u m
STAN LEY RI CH & DAVI D GUM PERT
 Business Plans That Win $$$ - Page 1

MAIN IDEA
Preparing a business plan that appeals to investors sufficiently to have them reach for their checkbooks is one of the great
challenges to building a successful business. Yet the process of developing a business plan also serves another important function
-- it forces business owners and entrepreneurs to focus on company excellence and profitability in the marketplace above all else.
Although investor decisions sometimes appear to defy logic and reason, there is order and structure in the way they analyze
potential investment opportunities. The business plan is the starting point for all such discussions, and opportunities to progress
matters further. In essence, business plans have become the entry point to funding markets -- without one, you won’t even get a
foot in the door.
The key to winning funding with a business plan is to look at things from the potential investor’s perspective -- and being able to
make a viable case for the investment.

Before Starting -- What Investors Look For -- And Look Out For . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 2
The key elements investors look for in a business plan are:
1. Evidence of consumer acceptance
2. An appreciation of the investors financial return goals
3. Evidence of focus on a limited number of products
4. Proprietary positioning, reinforced by patents, copyrights, etc.
Investors also watch for the following warning signals:
1. A company that loves its product rather than serving a market
2. Financial projections at odds with accepted industry ranges
3. Growth projections out of touch with reality
4. Impediments that will make substantial growth difficult
The Preparation Process -- How Investors Will Judge a Business Plan By Its Cover . . . . . . . . . . . . . . . . . . . . Page 2
A good business plan will convey professionalism, clarity of thought and completeness by its appearance
and organization. In addition, suitability to the task should also be kept in mind.
The Company -- What Does The Business Want To Be When It Grows Up? . . . . . . . . . . . . . . . . . . . . . . . . Page 3
This section should clearly and concisely state where the company expects to be 5-years from now. The
answer to this question should flavor and influence the entire business plan.
Markets and Competition -- What’s the User Benefit? -- and Other Marketing Issues . . . . . . . . . . . . . . . . . . . . Page 3
Investors generally prefer marketing-driven companies. Therefore, this section must demonstrate the
company’s grasp on the real-world marketing issues involved.
Sales and Support -- How Will The Product Be Sold and Supported? . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 4
Companies that can demonstrate a viable sales channel exists and that they are sales-oriented and set
up to adequately address obvious service and support issues stand a far better chance of securing
investment backing.
Manufacturing -- How Investors View Development and Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 4
The higher the level, the lower the risk and the more information that should be provided. Conversely,
the lower the level, the greater the risk and the less information that should be included.
Management -- What Is The Management Team Like? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 5
Ideally, the business should be managed by three-to six-people with complementary skill sets and a mix
of previous experience, who are motivated, committed and appropriately rewarded.
Financials -- Those Darn Financial Projections! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 5
Investors naturally anticipate the company’s financial information will be optimistic and present a
best-case scenario. They also anticipate the data will be logical, well researched and assembled carefully
and thoughtfully.
The Investment -- Shopping For Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 6
The key decisions to be made when shopping for funds are:
1. Are investment or debt funds preferred?
2. Who are the most likely sources for those types of funds?
3. How can they most effectively be reached.
Making The Pitch -- And Now, It’s Showtime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 6
Making a good oral presentation which supports the written business plan is a must-have.
How Do Potential Investors Value A Business They Would Like To Invest In? . . . . . . . . . . . . . . . . . . . . . . . . Page 7
Business Plan Check-List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 8
Basic Business Plan Outline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 8
 Business Plans That Win $$$ - Page 2

Before Starting The Preparation Process

What Investors Look For -- And Look Out For How Investors Will Judge a Business Plan By Its Cover

Main Idea Main Idea

The key elements investors look for in a business plan are: A good business plan will convey professionalism, clarity of
1. Evidence of consumer acceptance thought and completeness by its appearance and organization.
2. An appreciation of the investors financial return goals In addition, suitability to the task should also be kept in mind.
3. Evidence of focus on a limited number of products Supporting Ideas
4. Proprietary positioning, reinforced by patents, copyrights, etc.
For a business plan to create a favorable first impression, it
Investors also watch for the following warning signals: should:
1. A company that loves its product rather than serving a market
2. Financial projections at odds with accepted industry ranges Have a neat appearance -- a plastic spiral binding, high quality
cover sheet -- tidy but not overdone.
3. Growth projections out of touch with reality
4. Impediments that will make substantial growth difficult Be about 40 pages in total length.
Supporting Ideas Have all the contact details listed on the cover page.
Business plans are the cost of entry into the business funding Be dated.
marketplace -- an essential fact of life for companies at every Have a good table of contents and a consistent numbering
stage of their growth. Most potential investors won’t even talk to scheme used throughout.
a company without a business plan.
Contain sections that are appropriate to the circumstances,
Good business plans are written from the investor’s perspective. rather than being a fill-in-the-blanks approach using a
That simply means weighing risk against opportunity -- investors standard business plan model.
have a strong drive to reduce risks while looking for investment
Have supplementary and supporting information available in
opportunities that provide above average returns and a suitable a second document if required.
opportunity to realize those gains by cashing out.
The structure and content of the business plan should closely
Positive factors (from an investor’s perspective) are:
match the venture being described. A ‘‘cookie cutter’’ or
1. Early sales and feedback from people who have actually ‘‘fill-in-the-blanks’’ approach should be avoided simply because
bought and used the product or service. each business plan must be unique if it is to be useful.
2. The opportunity for the amount invested to appreciate at 35% Ideally, the first draft of the business plan should be written by
to 60% compound per year adjusted for inflation, and a the business managers themselves. Outside consultants,
logical exit strategy for the investor. accountants and lawyers can then help refine and improve the
3. Well focused management attention -- trying to exploit one plan through successive drafts. That way, whatever emerges at
product successfully than half a dozen unsuccessfully. the end of the process is usable and applicable to the actual
needs of the company.
4. The existence of exclusive intellectual property rights, giving
the company a sustainable competitive advantage. And, don’t ignore good business basics. Check carefully for
misspellings, typographical errors, the use of specialist jargon
The warning signals from that same investor perspective are:
and non-standard formats for things like financial information.
1. Management who are so in love with their product they avoid Even these simple errors can downgrade the effectiveness of
worrying about who will buy the product, why and how. your plan -- they show a lack of attention to detail.
2. Financial and marketing projections that exceed what has Key Thoughts
already been accomplished by peer group companies
already in the marketplace. ‘‘We strongly believe that a business plan should be
3. Financial growth expectations that are wildly optimistic and approximately forty pages in length. It is often useful to generate
unsupported by any facts. an additional volume to the business plan, containing the
detailed supporting information that would be helpful to the
4. The need to tailor products for specific customers rather than investor during the investigative or "due diligence" period that
for the broader marketplace as a whole. will occur if there is sufficient interest.’’
Key Thoughts -- Stanley Rich and David Gumbert
‘‘We read 500 to 750 business plans a year -- and we invest in ‘‘Of all the hundreds of business plans that have been submitted
six. And the 500 to 750 that we read are only a fraction of those to the MIT Enterprise Forum, one stands out as so exemplary in
that are submitted.’’ its format that it can serve as the model plan. This plan was like
-- Richard Charpie, managing general partner, Paine Webber other plans in that it contained text on each right-hand side
through the book; what distinguished it from other plans was that
‘‘Part of the challenge for entrepreneurs as they assemble each page was summarized on the left-hand page. That is, each
business plans is to convince investors that the new venture will left-hand page -- left blank in other plans -- contained sets of
exploit high-growth opportunities while minimizing possible bulleted highlight phrases, so that it was possible to read the
risks. That means entrepreneurs must adjust their strategies to summarized version of the entire business plan in somewhat
accentuate the company’s strengths and anticipate concerns under 10 minutes.’’
about weaknesses.’’ -- Stanley Rich and David Gumbert
-- Stanley Rich and David Gumbert
 Business Plans That Win $$$ - Page 3

The Company Markets and Competition

What Does The Business Want To Be When It Grows Up? What’s the User Benefit? -- and Other Marketing Issues

Main Idea Main Idea

This section should clearly and concisely state where the Investors generally prefer marketing-driven companies.
company expects to be 5-years from now. The answer to this Therefore, this section must demonstrate the company’s grasp
question should flavor and influence the entire business plan. on the real-world marketing issues involved.
Supporting Ideas Supporting Ideas
The answer to this question must address four basic issues: To demonstrate and quantify an understanding of how the
1. What do the founders want themselves? customer will benefit from your product or service, use concepts
and analogies that non-specialists can understand.
Building a successful company is too vague. You must be
more specific: The key marketing issues are really:
To guide the business from start-up to $---- in sales. 1. How much time / money / lost production / reduced costs or
other savings does your product deliver to customers?
To stay with it as the company grows and matures.
2. How much does it earn customers -- through greater
To create value and then sell it after years. productivity / better performance / increased production
To provide a good lifestyle for the founders. capacity?
This blend of business and personal preferences will have a 3. What non-monetary benefits are delivered in the form of
flow-on effect in the way the founders view their business, improved appearance / better quality of life / entertainment?
and the decisions they make. It may not be articulated as Once you have quantified the benefits, you can then calculate
such, but it should be thought through beforehand.
what the payback period will be. For most products:
2. What do the founders want for their company? Mandatory purchase -- payback of less than 1 year
The broad spectrum of potential answers may include:
Probable purchase - payback between 1 year and 2 years
To go public.
Unlikely purchase -- payback over 3 years
To become a giant corporation. Once the payback period is calculated, the challenge then
To be acquired -- realizing capital gains. becomes to provide credible evidence that buyer demand exists,
To stay focus on a specific niche. and the size of that demand. Here, actual user documentation is
required -- testimonials from people who are already using your
To be a cash cow.
product or service, even if only in prototype format. These written
To become a partner in a joint venture. testimonials are of great significance.
To become a licensing company. Similarly, some rationale should be developed as to why a stated
To acquire other companies. percentage of an existing market may be secured by a new
3. What are the industry realities? product. Simply stating that it should be possible to achieve a
2-percent market penetration rate because anyone could do that
Sophisticated investors will do a little research and find out won’t cut it. You have to provide some basis in fact -- and nothing
what peer-group companies are achieving. Therefore, if will impress more than the fact some customers have already
you’re suggesting results that are significantly better than bought from you.
anyone else is realizing, it will set off an alarm bell.
Also, avoid the temptation to take an oil well approach to
Similarly, if you’re suggesting competing on a shoestring business - drilling 10 wells in the hopes 1 or 2 will pay off big.
budget against an established competitor who spends Instead, focus all your efforts on making one product a success
millions of dollars in marketing, do you have a realistic before trying to add more.
chance of success?
The marketing section should also realistically detail the
That’s not to say it can’t be done. Exceptions will always exist competition’s strengths and weaknesses. Failing to do this in a
-- but investors usually aren’t interested in the exceptions. If forthright manner makes your company seem negligent at best
you’re trying to start an exceptional company, you’d better and dishonest at worst. Show you’ve done your homework.
plan on doing it with your own money.
Finally, keep in mind the difference between marketing and
4. What are the investor’s or lender’s objectives? sales. Marketing is the strategy, sales are the tactics you plan
Money managers can earn 20% per year in safe on using. In the product section, you can and should outline your
investments. Therefore, a venture capitalist requires a return broader strategy. The actual tactics involved in executing that
of 35% to 60% each year (adjusted upwards for inflation) to strategy can be included in the sales section of the business
offset the risk being taken. If you’re attempting to arrange plan.
venture capital backing, you need to cater to this reality. Key Thoughts
Other sources of funds have different requirements.
Lenders, for example, typically look for collateral as security. ‘‘Effectively exploiting markets is the key to unlocking the doors
Therefore, if seeking this type of funding, you’d stress the to commercial success.’’
collateral that is available. -- Stanley Rich and David Gumbert
 Business Plans That Win $$$ - Page 4

Sales and Support Manufacturing

How Will The Product Be Sold and Supported? How Investors View Development and Manufacturing

Main Idea Main Idea

Companies that can demonstrate a viable sales channel exists The four manufacturing levels are:
and that they are sales-oriented and set up to adequately Level 4: Finished products and satisfied customers
address obvious service and support issues stand a far better Level 3: Completed products, no customers yet
chance of securing investment backing. Level 2: Prototype products, needs development and evaluation
Supporting Ideas Level 1: Promising idea, product still to be developed
Sales and support are the nuts and bolts of the future business The higher the level, the lower the risk and the more information
revenues. Most business plans simply rely on hiring sales that should be provided. Conversely, the lower the level, the
personnel and letting them loose. That’s somewhat ambitious as greater the risk and the less information that should be included.
well as unrealistic. Supporting Ideas
In reality, four viable sales channels exist: To secure backing:
1. Executive Selling A level 4 company should be seeking capital to broaden
Most suited to products worth more than $100,000 each. In marketing and sales efforts or to increase manufacturing
essence, the senior management are the sales force. capacity. The key here is to demonstrate that a 35-percent
2. Company Sales Force growth rate is achievable for the potential investors.
Usually for products in the $10,000 to $50,000 range, with A level 3 company will ideally be seeking capital to launch an
about 10% of the price being used up by the cost of the sales aggressive marketing and sales program, and to scale-up
personnel. manufacturing. The key here is to demonstrate a strong
3. Sales Representatives foundation exists, an opportunity exists to earn 35- to
Independent contractors who work on a non-exclusive basis 60-percent per year on the investment and the risk is
and are paid strictly on commission. Usually used for manageable.
products in the $1,000 to $10,000 range. A level 2 company typically seeks funding for customer
4. Mass Distribution testing, production engineering, marketing development and
Wholesalers, retailers, mail order, direct marketing or direct tooling and design of production facilities. The uncertainty is
mail. Usually used for products less than $1,000 in price. higher, so the potential reward to investors must reflect that
Here, the key issue becomes having realistic expectations of -- often in the form of a much larger proportion of the
the likely response rate. company’s stock.
A good business plan will offer evidence of the interest that exists Securing funding for a level 1 company is highly unlikely --
in whichever sales channel is to be utilized by the company. except in the case of people with prodigious track records or
Once you’ve addressed the sales tactics, there are two support products that are exceptionally highly marketable. Since
areas to be considered: Level 1 funding is normally to be applied to product
development purposes, it may be preferable to seek research
1. External Support grants rather than venture capital backing.
How will you let potential customers know your product
exists? What will you do to generate interest so that your Again, the further along the spectrum a company is, the more
sales channel can close the sale. How do you plan on information that should be available -- and the detail contained
reaching your target market -- so you can get them to the in the business plan needs to reflect that level of development.
point at which a sale can be made? Key production issues will usually include:
2. Internal Support 1. The amount of research and development required before
What systems are in place to develop the materials the sales manufacturing engineering is completed.
channel will require to be effective? Who is responsible? 2. What adjustments will be needed in the scale-up to high
What is their budget? How will the sales channel be levels of production.
organized, and who will be responsible for achievement of
the objectives? 3. What facilities are required to evaluate product performance,
and the budget for these facilities.
Key Thoughts
4. How quality will be controlled and standards maintained.
‘‘Investors want to feel comfortable that the companies they back 5. How the product will be manufactured, and the projected
will be marketing oriented; the best way for investors to reassure costs.
themselves is to see a detailed and sensible description of
Key Thoughts
selling, promotion and support tactics. For all the questions
about business plan focus, form and projections, investors know ‘‘Investors usually prefer, at least during a company’s early
there’s no substitute for selling. Venture which can vividly and years, that more funds be concentrated on selling the product
clearly demonstrate that they are sales oriented will be the and less on the ‘‘bricks and mortar’’ associated with producing
likeliest to receive investor backing.’’ the product. Thus, entrepreneurs are usually better off early on
-- Stanley Rich and David Gumbert to subcontract for components and processes than to invest in
the facilities for handling such production in-house.’’
-- Stanley Rich and David Gumbert
 Business Plans That Win $$$ - Page 5

Management Financials
What Is The Management Team Like? Those Darn Financial Projections!

Main Idea Main Idea

Ideally, the business should be managed by three-to six-people Investors naturally anticipate the company’s financial
with complementary skill sets and a mix of previous experience, information will be optimistic and present a best-case scenario.
who are motivated, committed and appropriately rewarded. They also anticipate the data will be logical, well researched and
Supporting Ideas assembled carefully and thoughtfully.
As a rule of thumb, first-rate managers with a second-rate Supporting Ideas
product are more attractive to investors than second-rate Most investors discount company developed financial
managers with a first-rate product. People take priority, and projections by 50-percent straight away. Therefore, they always
assembling a high quality team can make or break the project. value a company on the basis that it will possibly achieve half its
The key positions are marketing, sales, operations, finances, stated financial goals.
manufacturing and engineering. Since there is a natural The key, therefore, is not so much the conclusions you reach but
tendency for people to go into business with others who have a the justification. If you can show the rationale you followed in
similar background, the key emphasis should be on showing the making those projections, they will be far more credible. You
diversity and variety of the management skills at hand. must demonstrate you’ve thought things through.
How do investors evaluate the management? Normally, on the Overdoing the financials -- such as calculating all sorts of
basis of: scenarios -- can be just as irritating as ignoring them altogether.
Maturity, sound judgment and stability. The challenge is usually not what to include, but how to make
them believable. This is usually accomplished by peer-group
Practical experience. comparisons, with other companies in similar situations.
Know-how and market savvy. Keep in mind that the financial information section generally
Again, management team levels exist: won’t be closely looked at unless the investor is seriously
Level 4 teams are in place and committed. considering making an investment. Therefore, the presentation
should be in a generally accepted format, without any creative
Level 3 teams have identified gaps, and are searching.
twists or originality. The standard financial information (projected
Level 2 teams have not yet decided who they need to find. over a 5-year period) is:
Level 1 teams are one-man bands. An income statement showing sales, gross margin, expenses
Obviously, the higher the level, the lower the risk -- from an and operating profit or loss.
investor perspective. Finding the correct people for the The cash-flow forecasts -- receipts, disbursements, cash
management team is one issue -- being able to reward them and requirements and timing.
retain them is quite another contentious area.
Balance sheet.
There are three steps a company can take to reassure investors
Break-even analysis -- when revenues will finally exceed
the management team is likely to see the job through:
costs.
1. Through stock option agreements which vest progressively
The financial section will also come face-to-face with the central
over a 5-year period. This provides incentives for everyone
issues of: ‘‘How much of the company will we have to give away
to work hard to add value.
to secure backing?’’ or ‘‘How do we retain control?’’ Keep in mind
2. By compensating everyone in an open, well-defined way -- that from the investor’s perspective, these issues are irrelevant.
withou t any sideba r agreements , privat e deals , The investor doesn’t want control -- he or she is looking to
under-the-table payments, etc. maximize their investment gains. The focus should be how to
3. By using formal, written employment contracts which set out grow a substantial company.
all relevant terms and conditions. Key Thoughts
One commonly used method for offsetting a lack of management
depth is to put a number of outsiders on the board of directors. ‘‘The venture capitalist is looking to maximize investment gains,
That will make it more likely the company will be operated on a not for control. If you’re doing a good job, you’re in control. If
commercially viable footing, rather than just rubber stamping you’re not doing a good job, the bankers or venture capitalists
whatever the entrepreneur suggests. are in control.’’
-- Stanley Rich and David Gumbert
Another idea is to have an advisory panel consisting of people
from various backgrounds. They will have no legal or other ‘‘The last thing investors want is to provide new management for
responsibilities, but they can act as a sounding board or source an emerging enterprise. Investors, regardless of the percentage
of fresh ideas. of a company they own, will avoid replacing the people who
Key Thoughts created a business unless they prove totally incompetent. In that
case, replacement is best for all concerned, including the
‘‘Assembling a winning management team is at once one of the founders.’’
most important and most difficult tasks facing a young venture.’’ -- Stanley Rich and David Gumbert
-- Stanley Rich and David Gumbert
 Business Plans That Win $$$ - Page 6

The Investment Making The Pitch

Shopping For Funds And Now, It’s Showtime

Main Idea Main Idea

The key decisions to be made when shopping for funds are: Making a good oral presentation which supports the written
1. Are investment or debt funds preferred? business plan is a must-have. Some keys:
2. Who are the most likely sources for those types of funds? 1. Have one master-of-ceremonies to direct the presentation.
3. How can they most effectively be reached. 2. Maintain good eye contact with the audience.
Supporting Ideas 3. Emphasize marketing and management expertise above all.
4. As far as possible, demonstrate the product in action.
A business plan normally takes between 2- to 6-months to
5. Have several trial runs before the real thing.
prepare. Many companies won’t start the process until they are
desperately short of funds -- therefore, by the completion of the Supporting Ideas
process, the situation is usually fairly serious, and that doesn’t Ideally, the oral presentation should build momentum towards
even take into account the 3- to 6-months required to negotiate the desired conclusion. Good presentations make the business
a transaction. plan come to life.
Generally speaking, the decision on whether to seek venture What questions will be in the investors minds?
capital or debt funding comes down to just one issue -- whether How well prepared is the management team to clearly and
the business can make a viable case to grow at more than 35- coherently sell the company and its concept?
to 60-percent per year over the next five years. If so, venture
capital funding is definitely an option, otherwise debt funding Are the founders market-oriented or simply in love with their
technology or product?
should be pursued. Finding collateral then becomes the
objective, rather than funding. Does the management team come across with integrity,
The most common sources of venture capital funding are: competence and expertise?
Does the "chemistry" between the various members of the
1. Venture capitalists -- who usually invest from $125,00 to $1.5
management team feel right?
million. They prefer companies with established
management teams (level 4) and finished products (level 4), Is the management team responsive to constructive criticism,
although they might also be responsive to businesses at level or are they defensive?
3 in either area. To put on an effective 30- to 40-minute presentation:
2. Early-stage venture capital funds -- usually investing 1. Have one member, usually the CEO, act as the presentation
between $50,000 and $250,000. Frequently invest in manager, directing events, providing background and
companies at level 3 or 4 in product development and keeping things moving.
management.
2. Establishing personal rapport and building interest are the
3. Investment bankers -- who may be interested in the key goals. Therefore, avoid slides, overheads and visual aids
possibility of offering shares to the public, although this is a wherever feasible. Speak without notes, maintaining good
very long and formal process. eye contact, and supplement what you say using a flip chart
4. Informal investors -- who often invest between $10,000 and with bulleted key points. It’ll be far more effective.
$100,000 in level 2 start-up companies. These investors 3. The key issue is not the product -- it’s the market, the
prefer local companies, seek annual returns in the 20- to management and your long-term goals, and how they
50-percent range and look to liquidate their investments translate into a return on investment. Make certain those
within five- to seven-years. points get the major proportion of the allocated time. And
Lenders, by contrast, generally fall into two broad categories: don’t forget to provide evidence of customer acceptance --
the investor will love that part.
1. Commercial -- banks, finance companies, leasing
companies, insurance companies. 4. Wherever possible, make it possible to demonstrate your
2. Government -- Small Business Administration, local product in front of the investors. It not only shows what the
product does, it also proves the product exists. You can also
government business development groups, state
find a way to take the investors somewhere where your
government agencies.
product is in action if appropriate.
Getting an introduction to any of these groups is always more
efficient than making cold calls. For that reason, developing a 5. Rehearse, rehearse, rehearse. Have dry runs before hand.
Smooth out the rough spots, find ways to increase the impact
business network is a sound idea, and may open the door to
of what you’re going to do. There’s no use coming out of an
discussions with lenders or investors.
investor presentation full of ways to jazz up the presentation
Many companies also try and hire a consultant or a fund finder next time around -- generally speaking, there won’t be a next
to help them through this challenge. Generally speaking, that time. You must get it right first time. It also gives an
doesn’t pan out all that well -- both lenders and investors prefer opportunity to decide who will answer what type of question
the business manager to be more hands-on, viewing the process -- that way everyone becomes involved in the presentation
of preparing the business plan as a good exercise for the rather than making it look like a one man show.
management to go through personally. Besides which -- why
waste resources that should be applied to building the business
on a funding finder or consultant?
 Business Plans That Win $$$ - Page 7

How Do Potential Investors Value Step 5

A Business They Would Like To Invest In? Make a calculation of the projected value of
the business enterprise in 5 years time:
Start 1. Assume the company will achieve 50% of its current
financial projections in 5-years time.
2. Company revenues will be...............$ million
Step 1 3. Net profits will be..............................$ million
Decide whether or not the business is in a field in which Therefore, using the rule of thumb the company
the company has some expertise, and wants to invest in. will be worth 10-times its net profits at that stage:
Yes No
End Projected Company Value: $ million

Step 2
Make a qualitative rating of the current level Step 6
of the company’s product or service: Calculate the future value of the funds being invested
Level 4 Prod uc t devel oped . Sa t isfie d users . today, allowing for the required rate of return
Established market. and the projected rate of inflation.
Level 3 Product developed. Few users. Assumed Required rate of return............................... %
market. Plus allowance for inflation.......................... %
Level 2 Prototype product. Not production ready. Total rate of return....................................... %
Level 1 Good idea. Market assumed to exist.

Funding being sought today: $

Product/Service Rating

Use a financial calculator or the table below to

calculate the required value of those funds in 5-years.

Step 3 Yr-Start Interest Yr-End

Make a qualitative rating of the current level Year 1
of the company’s management team: Year 2
Level 4 Fully staffed, experienced management team. Year 3
Level 3 Partly staffed, potential team members Year 4
identified and awaiting additional funding. Year 5
Level 2 Two founders, not yet identified other
management positions which will be required.
Required value of those funds: $
Level 1 Single founder -- entrepreneur.

Management Rating
Step 7
Therefore, for the investment to achieve its financial
goals, calculate the proportion of the company
Step 4 which must be owned by the investor to achieve
Look up the required annual rate-of-return: the total rate of return requirements:
Product Rating
4/1 4/2 4/3 4/4 Required Value (Step 6) / Company Value (Step 5)
4
----- 50% - 60% 40% - 50% 35% - 40%
3/1 3/2 3/3 3/4
3
----- 50% - 60% 40% - 50% 40% - 50% $ / $
2/1 2/2 2/3 2/4
2
----- 50% - 60% 50% - 60% 50% - 60%
= %
1/1 1/2 1/3 1/4
1 This is the percentage ownership the investor requires.
----- ----- ----- -----
1 2 3 4
Management Rating
Can something suitable be negotiated?
Required Rate of Return
 Business Plans That Win $$$ - Page 8

Business Plan Check-List Basic Business Plan Outline

The MIT Enterprise Forum came up with the following checklist 1. Executive Summary (1 - 2 pages)
of the key requirements of a successful business plan: 2. The Company (5 - 6 pages)
It must be tidy and professional -- a table of contents, an Current Status
executive summary and chapters in a logical order. Near-Term Objectives
It must be the right length and appropriate to the situation -- Long-Term Objectives
not too long, too short, too fancy or too plain. Management Team
It must vividly portray what the company expects to achieve Management Objectives
in the next five-years. 3. Markets and Competition (10 - 11 pages)
It must detail the product or service user benefits both The Present Market
quantitatively (using hard evidence) and qualitatively (using User Benefits
more humanistic qualities). Other Customer Benefits
It must present hard evidence of the product’s or service’s Near-Term Market
marketability. Long-Term Market
Summary of Projected Market
It must justify the sales channel chosen in solid financial
Competition
terms.
Projected Sales and Market Share
It must explain and justify the level of product development Specific Target Markets
which has been undertaken, or which is proposed for the Sales Strategy to Reach Objectives
future.
4. The Products ( 6 - 7 pages)
It must describe, in an appropriate level of detail, the
Theory of Operations
manufacturing processes involved and their associated
Applications
costs.
Product Performance Data
It must portray the management team as experienced and Product Economics and Advantages
possessing complimentary business skill sets. {resent Product Status
It must convey the impression the product development team Scale-Up requirements (If any)
are sophisticated and well versed in whatever they do. Patents and Proprietary Know-How
It must contain credible financial projections, with the key data 5. Sales and Product Support ( 5 - 6 pages)
explained in detail and documented. Current Sales Methods
It must show how early investors can cash out in five-years, Near-Term Sales Methods
and the projected capital appreciation. Projected Long-Term Sales Methods
It must be presented just to those who are potentially the most In-House Sales Support
receptive to avoid wasting company resources. Pre-Contract Sales Costs
Custom Engineering Sales Requirements
It must be easily and concisely explained in a well thought-out Product Pricing and Warranties
oral presentation.
6. Manufacturing ( 4 - 5 pages)
Facilities Needed
Make / Buy Considerations
Major Purchasing Issues
Second, Third Sourcing Needs
Manufacturing Engineering Support
Quality Control Plans
Staffing Requirements
7. Financial Data ( 6 - 7 pages)
Financial History
Expansion requirements, Budgets
Financial Projections
Summary of Operations Prior to Financing
Current Stockholders, Number of Shares
8. Investment ( 2 - 3 pages)
Use of Proceeds
Details of the Offering and Potential Exit Strategies
Appendices
Management Team Biographies