10 Things I Look for When Reading a Business Plan
It’s the end of May as I write this so I’ve just finished my annual April-May business plan marathon reading more than 100 business plans for my angel investment group and four different business plan contests. This seems like a good point to summarize here what I look for in a business plan.
- Don’t push adjectives. Let me assign my own. This year for every plan that really looks like it might be disruptive or game changing I saw 20 or so that claimed to be.
- Tell stories. A story tells market need way better than general market numbers. Write about problems you solve and who has them, how you solve them, and why you do it better than anybody else.
- I want a forecast that starts with specifics like channels or traffic and conversions or segments and builds up. I hate the forecast that assets some huge market and takes a small percentage of it. It seems like every time I read “this is a $X-billion-dollar market” the surrounding discussion lacks depth and credibility.
- I want unit economics. Often this is part of a good forecast. Tell me what it costs to produce one unit, what the channel pays for it (if channels are relevant) or what the buyer pays for it, what it costs to ship, and so on.
- I want realistic expenses. Most plans are pretty good about estimating direct costs but bad about underlying expenses. You can’t have a $20 million sales estimate with 10 employees in the company and a few hundred thousand dollars of marketing expense. It just doesn’t happen.
- Never write that you have no competition. Having no competition means one of two things: either your business sucks, or you haven’t done your homework and you don’t know your business. Even the most amazing disruptive game-changing plans have competition. If not now, then tomorrow. Who’s going to enter this market?
- I want good positioning. Don’t try to please everybody. Start with a relatively narrow product-market fit and, if you can, move it gradually up to more markets and more segments. Explain in your plan which segment is first and why. Explain who you’re leaving out of your market and why.
- I want to see basic numbers. I expect projected monthly income, balance, and cash flow for the next year and annual projections for the second and third year. And I want to see them, as in useful business charts, but I want to be able to see the numbers in detail too.
- I want to see milestones: dates and deadlines. And progress made. What have you actually done in the recent past? Write about achievements.
- By far the best validation of a plan is actual sales made already. People have written checks. Second best are letters from future customers promising future business.
- (Bonus point) Don’t muck it up with too much science. It’s not a research plan, it’s a business plan. Summarize the science so I have some idea and then tell me about the business.
- (Bonus point) Don’t let the document get in the way. I don’t want to think about formatting or editing, I want to read your stories and imagine your future. Keep it moving and keep my mind on the business, not the misspellings or repetitions.
Written by Tim Berry
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Take your choice (these are both real, honest-to-God pitches, and I’ve got the originals in my possession):
CluelessCo is an internet startup company seeking $2 million of equity financing to fund our company for at least one year. CluelessCo will become the main consumer outlet for the internet, digital cable and satellite TV, and cell phones and PDAs.
The most useful meetings with an investor are ones where going in everyone understands that there may actually be a rational reason for the investor to be interested. So even if my own mother asked me to meet with you, and you were pitching me a biotech opportunity for a $10 million investment at a $90 million valuation, I might
How will you make money (and no, advertising is not the answer)?
Who, specifically, is your first customer? Second? Third?
What is your contingency plan for when this seed round is exhausted, and you are unable to raise any more?
What is your API/platform/partnership strategy?
How are you going to sell the company, and to whom, within six years?
I’ve written on this topic previously, including David S. Rose’s answer to Startups: What is the worst startup pitch ever?. While I’ve never laughed outright during a pitch, I’ve certainly had quite a few occasions where I had to work hard not to wince. The problems with bad pitches tend to fall into the following major categories: