When a plan comes together....

As an investor, I see a lot of business plans for start ups.  Everything from an idea to an operating business with a five year track record is supported by a plan.  Everyone from the first time angel through syndicates to large venture capital funds places a lot of store by these documents.  Quite often, the business plan is the only part of the pitch that has been prepared by a professional advisor and therefore represents spending some scarce cash. I know from talking to founders that the business plan is always the result of blood, sweat and tears. 

It would be generous, for all this effort, to describe the quality and coherence of startup business plans as variable.  There can be huge gaps, numbers and measures are often unclear, markets and business models are poorly defined.  It is one of the most frustrating experiences to talk to a startup team and find passion, knowledge and vision that are missing from the written plan.

So what do I look for?  This is not intended to be a ‘how to” manual for drafting a business plan. It is also a very personal view.  There are five key things which stand out for me:

1. Its a pitch. No-one uses business plans to actually, like plan what to do with a business. In the corporate world these documents are budget or target setting games.  For Startups it is more vital. This is the game of raising funds and you must play it. Don't lose sight of the goal and design a document that sells you idea well.
   
2. Define the market precisely.  Many business plans describe multi billion dollar opportunities or use general definitions from Gartner and their ilk.  Not informative or convincing. I already know that say Amazon sells a lot of stuff.  Tell me who will buy your product and why. Even better who will not.
   
3. Think about your sales and service model.  Most plans today are quite rightly software as a service. All very well but the buyers will expect a service as a result.  You may not know everything but at least consider how you will sell and provide service to your end customer. This could well be the biggest single driver of cost as you grow. Direct sales, channels and partnerships all have very different implications.
   
4. Link performance and financials. Everything can be measured. So figure out which measures of user acquisition, engagement and behaviour really create revenue for your business and measure it.  Show me the link so I can understand your financial projections. Most importantly work this out for your own benefit.
   
5. Be clear about exit. Angels are very bad at talking about this as well. For early investors, this is really the only thing that matters.  Very few businesses will ever list on the stock exchange so don't worry too much about becoming Mark Zuckerberg. Focus on possible trade buyers instead.
   

If you get these things right, you will have me hooked. After this there is only one question I need answered, what will you spend the money on?

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