Should you write a business plan – Part 2?
If you're looking to raise seed funds for your start-up, you need to create the appropriate business plan for this audience, as mentioned in part 1 on this topic.
This second level of business plan would be a 3 to 5 pager but updated and expanded with what you've learned. I.e., clearly explain the problem you are solving, how you intend to solve it, the value proposition, who your customers will be, the channels to them, how you’re going to make money, what you expect the costs to be, your bio and your next 5 activities to keep the project moving forward. You don't want to do the 30 to 50 pager because it will confuse, "scare" and generally put off the potential investor.
Raising money from more professional sources, such as angels, venture capitalists, banks or other institutions, requires different levels of plans, as they will respond more favorably to your business opportunity if the plan is written to their needs. A bank, for example, requires the big jobbie with detailed financials, forecasts, etc ., whereas the angel and VC look less at the numbers and more at the team and it's ability to execute and if the idea is validated (i.e., has paying customers.
As an "anchor investor", KENOVA will accept the one pager described above, but if that’s not sufficient it will take the entrepreneur through its One Page Business Plan strategy (see below). Whereas the angel may be happy with a “napkin idea” level plan, but usually they want a document that clearly articulates the investment opportunity. If the project and the opportunity are clearly understandable, the 3 to 5 pager can suffice – it depends on the angel. For example, I know of projects that have been offered funding solely on the basis of a PowerPoint presentation. Just think what if this CEO had spent months writing a 30 to 50 page business plan document, just to find out that they were able to raise the funds with a presentation that only took 12 hours to develop.
Venture capitalists and angels range from “I haven’t read a plan in 10 years” to “We expect to receive a fully fleshed out 30 page value proposition with projections and full financial disclosure”. So ask the investor what kind of plan they would like before spending too much time writing one. For example, I once asked a VC if they had a business plan format they prefer that my clients could follow. They said no, we take them how they come. I then asked how would you like KENOVA to present deals them. To cut a longer story short, they were more interested in receiving a paragraph in an email or an executive summary and if they wanted more, they’d like a “slide deck” (I’ll be talking about slide decks in a future blog), and only expected a business plan to confirm that the entrepreneur had done her due diligence.
Earlier I mentioned KENOVA’s One Page Business Plan strategy. What this is is a process of identifying the business hypothesis from the problem being solved through to defining a team and an advisory board. It’s an 11 point process that is arguably the most important activity the entrepreneur must do and do before spending any time or money on anything else. For more details please see One Page Business Plan in KENOVA’s Services. So there you have it. Yes, you need a business plan, but there are a number of different levels, dictated by the intended audience. Also, think of a plan this way – a business plan should be a living referential document that should evolve as the business evolves. And as the business is evolving, the intended audiences will evolve, generally requiring a more sophisticated document. And finally, it is crucial that whatever the format of the plan, whoever the target audience is, as a minimum the plan must clearly define the problem or need identified, how the business intends to solve the problem or fulfill the need and how this will be achieved profitably.
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