Written by Patrick Henry
When delivering a startup business plan, telling a story is critical. I’m not taking about telling a bedtime story, or the most ridiculous piece of fiction or fantasy that I’ve ever seen. However, this experience happens all too frequently in my role as an Angel investor, and my experience is not unique when I talk with my friends in the venture capital industry.
In the context of a startup business plan, the story needs to be grounded in a set of key components that all sophisticated investors want to see before making an investment. All of this information should be contained in a business plan, but it needs to be delivered in a way that investors can hear and understand. As I used to say to my sales team when I was still running product companies, “Don’t make the customer think too much, it makes their head hurt.”
The Business Plan is a Critical Tool for Funding
A crisp and solid startup business plan that holds together under a reasonable amount of scrutiny is one of the best weapons that an entrepreneur has in his or her quiver of arrows to slay investors and gain funding for their startup. Assuming that you have a good business idea and a business plan, along with the associated financial model, a solid pitch deck, a crisp & clear elevator pitch, confidence of the entrepreneur, and a reasonable amount of humility, you have the essential components for getting your startup funded. But how do you get an investor to read your business plan?
What to Include in a Business Plan
If you look online, there are a variety of different sources. I’ve picked three outlines of what should be included in your business plan. The US Small Business Administration, Entrepreneur magazine and Forbes magazine all have very similar outlines. All of them include an executive summary, a company description, market, customer & competitive analysis, management team, and a financial plan. This tells you a couple of things, but the biggest is that investors are used to getting specific information, and getting it in a very consistent way.
Do not try to innovate a new startup business plan outline! It will just create anxiety for potential investors. Feed it to them so they don’t have to think about the business plan structure. This will allow them to focus exclusively on the business plan content. The Executive Summary is the “hook” in a good business plan, and you should be able to use it on a stand-alone basis. This does not mean you have to deliver that information in a boring and uninteresting way.
Where Do Entrepreneurs Go Wrong?
There are many things that I’ve learned about business plans from being a CEO, a serial entrepreneur, an investor, and a purchaser of startup companies.
First, many companies THINK they have a plan, and what they really have is a loose set of ideas about a business proposition and their idea. They have not done the homework on the customer, the market, and the competition. An inability to predict the future with 100 percent accuracy should not be an excuse for not having a plan. Your plan likely will go through a set of refinements as your company progresses, and you gain valuable customer feedback, but lacking a plan is really like having a boat in the ocean without a rudder in the water. You will really have no ability to control your direction at all, since you don’t know where you’re going.
Second, entrepreneurs want to spend 90 percent of the time focused on their product, but investors want to spend maybe 20 percent of the time in the company’s product, and the other 80 percent on the business.
Third, most entrepreneurs don’t understand their audience. In dealing with the vast majority of investors, you are really dealing with what I call, “short attention span theater”. These guys and gals are extremely busy and bombarded with business plans all day long. In addition, they are conditioned to say NO! In order to gain their confidence, you need to have a business plan Executive Summary and an Elevator Pitch that stands out from the crowd. The way to stand out is to summarize well and tell a good story.
The Purpose of the Executive Summary
An executive summary of a startup business plan is first and foremost a summary, so you write it last, even though it is the first thing in the startup business plan. Because it’s at the beginning of a business plan, I think many new entrepreneurs try to write it first, and it really doesn’t work. It is a summary! You need to have the in-depth understanding of a strategic business planning process, which we’ll talk about in a bit, to write a really good executive summary.
The executive summary is really designed to grab potential investor interest. It highlights the overall strengths of your business, explains where you’re at today and where you’re going. It shows why your business idea will be successful. If you’re developing a business that you plan to get funded by either angel investors or venture capitalists, you need to have a business model that has the potential to deliver a 10X return on investment.
The executive summary also demonstrates that you’ve done a thorough market analysis, which is critical to investors. “thorough” means, not only that it’s there, but that you’ve done it with a critical eye. You’re not overly optimistic or Pollyanna-ish about your business opportunity. At the same time, you still have a belief and passion about it.
The executive summary also clearly explains the customer pain point, the problem that you’re solving for customers, the unmet need, your unique value proposition and why you have a sustainable competitive advantage with the value proposition that you’re offering.
The BEST Executive Summaries Tell a Story
Your executive summary should tell a story, as should the full startup business plan. A story has a beginning, middle, and an end. The story should start with the problem that you are solving and why it is a big deal. Give the really big picture. You’re on a mission to solve that problem. You have a solution that solves this critical problem better than anyone else, and you can do it over a sustained period of time, even as competition enters the market. The market is big and growing fast, and people don’t realize it yet, but a discerning eye can see it emerging. Your solution has incredible value to your target customers, and your business makes money, and a lot of it. There are bigger competitors in your space that will struggle to develop what you have, and it will be critical to them for their businesses going forward.
Key Components of a Rock Solid Executive Summary
Here are the key elements of the startup business plan executive summary. Be sure to include them, even with the story.
Have a mission statement, which is really just a description of your idea in the context of the problem that you are solving. It tells what your business is all about, and is typically several sentences to a paragraph.
At the next level of depth, include a brief description of your product and services and the features and benefits.
Include information about your company, when your business was founded, the names and roles or the founders, the key employees, the number of employees and business locations.
Include any growth highlights. If you’re pre-revenue and pre-product, there is still an opportunity to talk about growth in terms of the target market.
Include financial summary information, and make it as graphical and visual as possible. As they say, a picture is worth 1,000 words. If you have a combination of good pictures and graphics, it will make things a lot easier for investors to understand.
Finally, you want to include a summary of your future plans. What are the goals for the business? Where do you want to take it over the next three years? If you are raising money, which you are really always doing as a startup CEO, you want to describe the use of funds, and the funding request.
Make the Summary Come Alive with an Elevator Pitch
The executive summary is your opportunity to give your best clear, concise “commercial” about the company. The full startup business plan is the infomercial. You also will need to learn to do this summary in a concise set of slides for use with investors, and in verbal form where you don’t have any slides. This last version is typically referred to as an “elevator pitch”.
For those of you who aren’t familiar with this term, taking a ride up an elevator could last thirty seconds to two minutes. In that time you need to clearly describe what your company does, how you’re going to win in your target market, some of your specific customers and the competitive advantage of your products versus the alternatives in the business.
The executive summary in a startup business plan can be a little bit longer than that but it shouldn’t take more than three to four minutes to read. As a reader and potential investor, it gives you the key highlights of the company.
Here is what I call elevator pitch basics: In order to be really good at delivering an elevator pitch about your company, you need to have done the homework. You need to have a strategic plan and a business plan. You need to have a clear Executive Summary that tells a story.
Know Your Audience
If you’re talking to a purely financial investor, you tailor what you’re saying to that audience. They may have a different basis of knowledge that they’re operating from. The elevator pitch should be the basis for that, but you also have to keep your target audience in mind. Once you have this down, you need to learn it, memorize it and practice it.
Be Prepared
Speak with authority and passion. No one will be interested in you or your company unless you’re excited about it. I’ve met a number of entrepreneurs and company CEOs throughout the years. They’re down in the mouth and really sad. They’re trying to raise money. I think, “Wow, I don’t know that anyone is going to give you a dollar with how you feel about how things are.” You need to be able to be passionate about what you’re doing.
Be ready to “turn on the charm” at any time. You never know when you’re going to run into a prospective customer, investor, client, or someone who can make in introduction for you. Once you’ve delivered your pitch, which should last thirty seconds to two minutes, be ready to listen. Be ready to be receptive. Be ready to answer questions. If you’ve done a good job, this is going to happen. If you have a good business idea, a thorough startup business plan, a strong executive summary, and a solid elevator pitch, then you’re going to get people interested in what you’re doing and possibly even investing in you and your company.
This is Patrick Henry, CEO of QuestFusion, with The Real Deal…What Matters.