July 10, 2011
You’re an entrepreneur who is trying to obtain venture capital, so investors must perceive you as credible, capable and intelligent. Depending on how you address several important details, your business plan can either support or refute your abilities. Most entrepreneurs know the sort of things to AVOID putting in their business plans (i.e. “we have no competition, and our management team cannot be beat”) but the five tips below provide prime examples of what your business plan SHOULD include to boost your credibility and increase the likelihood that venture capitalists will seriously consider your company.
Click here to download your business plan template <==== 1. Always be realistic. For example, make sure your financial projections are realistic. Look at your income statement objectively, especially the portions relating to profit margins and year-to-year growth. Something that seems "too good to be true" probably is, and it will put off potential investors. Closely evaluate your assumptions, and if necessary, tone them down to ensure all of them are realistic. Remember, not everything will go smoothly or the way you plan it. However, if a projection indicating that your business will annually double in size can be realistically supported, then include it. Investors will be skeptical, so be prepared to respond to their questions in detail. Business plans often assert unrealistically strong operating margins. If your research has uncovered data from similar companies indicating they do achieve those margins, including that data can make your projections more credible. 2. Look at the entry barriers. Although this is often overlooked in business plans, you'll gain credibility - and favor with investors - if you're able to describe a realistic plan to gain entry rather than simply laying claim to a "first mover advantage." Many believe that advantage only lasts until a "second mover" appears. 3. Carefully define, analyze and explain the needs of your customers. Prove that you've done your homework. Use a number of studies, reports and other reliable, independent resources to demonstrate how your company offers precisely what the market is demanding. Click here to download your business plan template <==== 4. Limit your discussion to the segment of the market that's relevant to your business. Healthcare business plans frequently make the mistake of discussing the entire healthcare market rather than the relevant segment. The entire healthcare market might be a $1 trillion industry, but titanium replacement knees or open-heart surgeries may not pertain to a company's business, so why include those segments in the business plan? Including a staggering market size figure like that is fine, but you need to then hone it down to your particular market segment. For example, caffeinated citrus-flavored sodas might represent a tiny share of the overall worldwide beverage market, but market share within this specialized segment is much more significant to potential investors. 5. Highlight the fulfillment of tangible milestones and other company achievements. Investors will believe you're more likely to succeed in the future if you've achieved success in the past.
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