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Sometimes
I find that the
company’s founder is
so far ‘outside the
box’ that they
‘stretch the
envelope.’”
As
an angel investor, I
review more than 500
business plans each
year. Unfortunately,
many are so riddled with
economy lingo, business
jargon and clichés,
that they do not
communicate any real
business value.
In
my opinion, terminology,
such as
disintermediation, sweet
spot, ASP, best of
breed, and win-win
should be outlawed for
the next 100 years. For
building a real
business, these terms
are meaningless.
Another
challenge when reviewing
business plans is that
the introductory
sentences sometimes
stretch for an entire
paragraph as the
entrepreneur looks for
that all-encompassing
way to describe their
business. Forget it!
There isn’t one. Many
times I want to strangle
the writer to simply
tell me what they do in
five words or less.
Poor
choice of words:
This business makes
mechanical gasoline
fueled devices used for
transportation more
efficient by
periodically sending
them through an applied
for patent machine to
loosen the terra firma
from these vehicles to
make them more conducive
at performing their
task.
Solid
choice of words:
We run a car wash
Another
frequently used practice
is to create a business
plan using template
software or by working
from an existing plan.
I do not
recommend this practice
and like to refer to
William Sahlman in his
Harvard Business case
study "Some
Thoughts on Business
Plans." This case
study has continuously
inspired me to see
beyond clichés and
catch-phrases and better
interpret misleading
statements within
business plans.
If
the plan says: "Our
numbers are conservative."
I
read: "I know I
better show a growing
profitable company. This
is my best case
scenario. Is it good
enough?"
Since
all numbers are based on
assumptions, projections
in business plans are by
their very nature a
guess and are not
conservative.
If
the plan says:
“We’ll give you a
100 percent internal
rate of return on your
money."
I
read: "If
everything goes
perfectly right, the
planets align, and we
get lucky, you might get
your money back.
Actually, we have no
idea if this idea will
even work"
No
one can predict what an
investor’s return will
be. Let them decide.
If
the plan says: "We
project a 10 percent
margin."
I
read: "We kept the
same assumptions that
the business plan
software template came
with and did not change
a thing. Should we make
any changes?"
Ensure
you have developed your
financial projections
from the ground up.
If
the plan says: "We
only need a 5 percent
market share to make our
conservative
projections."
I
read: "We were too
lazy to figure out
exactly how our business
will ramp up."
Know
what it will cost to
acquire customers.
Gaining 5 percent market
share is not an easy
task in a large market.
If
the plan says:
"Customers really
need our product."
I
read: " We haven't
yet asked anyone to pay
for it.” or "All
our current customers
are our relatives"
or “We paid for an
expensive survey and the
people we interviewed
said they needed our
product”.
The
definition of a business
is when people pay you
money to solve their
problems. This is the
only way to prove people
“need it”.
If
the plan says: "We
have no
competition".
I
read: Actually... I stop
reading the plan. Always
beware of entrepreneurs
that claim they have no
competitors. If they are
right, it's a problem
and if they are wrong,
it is also a problem.
Every business has
competitors or else
there is a current
solution to this
customer need. If there
are no competitors for
what the entrepreneur
wants to do, there is a
good chance there also
is no business.
So
what should an
entrepreneur do? Write
the plan in plain and
proper English. Please
understand that the
reader comes to the plan
with no knowledge of
your business. No fancy
words, clichés or
graphs will make them
want to invest.
Understand every part of
your plan and be able to
defend it. Use your own
passion to describe your
plan. Make your plan
your own.
Author
Info: Moving from the
role of entrepreneur to
angel investor, Barry
Moltz co-founded Prairie
Angels in 2000, a group
of private investors
committed to investing
in and mentoring early
stage companies and
their entrepreneurs.
Moltz can be
contacted via email at Barry@moltz.com
or find additional tips
and information at http://www.prairieangel.com/news/index.cfm.
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