March 29, 2010
How to Improve the Credibility of Your Business Plan
As an entrepreneur seeking investment capital, it is crucial that investors see you as intelligent, credible and competent. Your business plan can support or deny that you possess the above attributes, depending on several important details within the text. Most entrepreneurs have heard what NOT to write (i.e., â€œOur competitors do not exist, and our management team is unbeatableâ€), but the following five tips are excellent examples of what you SHOULD do to gain credibility and be taken seriously by a venture capitalist.
1. Keep it real. When it comes to your financial projections, make sure they are realistic. Do a â€œsanity checkâ€ by looking at your income statement, particularly your year-to-year growth and your profit margins. If something seems â€œtoo good to be true,â€ it probably is. Dig through your assumptions and temper them to make sure theyâ€™re all realistic. Also, keep in mind that not everything will go as planned.
On the other hand, if you can realistically support that your business will double in size every year, by all means do so. But be prepared for healthy skepticism from investors, and be ready to answer all of their questions in detail. Another common assertion is that a business will have unrealistically strong operating margins. If you can show data from comparable companies that are actually making those margins, then your projections are believable.
2. Examine the barriers to entry. This is an overlooked part of many business plans. You will win credibility and favor in the eyes of investors if you can articulate something real other than a â€œfirst mover advantage.â€ Itâ€™s been said that the first-mover advantage only lasts until thereâ€™s a second mover.
3. Define, analyze, and explain your customersâ€™ needs. Show the investor that youâ€™ve done your homework. Use as many reliable third party resources (reports, studies, etc.) to show how your business provides exactly what the market is demanding.
4. Talk about the relevant market, not the total market. This is a common mistake in healthcare business plans; the healthcare market, broadly defined, is worth $1 trillion, but that includes everything from knuckle bandages to titanium hips and open-heart surgery. When writing the plan, include the eye-popping market size figure, but be certain to condense that figure down to your relevant market. For example, caffeinated citrus-flavored sodas are a fraction of the global beverage market, but the market size for this specialized product is much more meaningful to an investor.
5. Draw attention to tangible milestones and achievements. Have you been successful in the past? Investors will think youâ€™re more likely to succeed in the future.
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