There is no precise road map for preparing a business plan. The
length of the plan and areas of focus will depend on
the industry, the stage of the company's development, the complexity
of its business, and the intended audience.
We generally recommend that the core of the plan be 20 to 25 pages long, plus financial statements. If certain sections require further amplification, we encourage the preparation of appendixes that provide more detail. The appendixes may be included with the plan or made available when more information is requested.
A business plan has a dual purpose. On one hand, it should
demonstrate the potential of the business and stimulate
the interest of investors so they seriously consider the opportunity.
Thus, it serves as a sales document to sell the
The plan should cover the expected horizon of the investor, which is usually five years. The investor is interested in knowing how you will build the value of the company and create an opportunity for eventual liquidity, whether through the sale of the company or an initial public offering of the company's stock.
The Executive Summary is the most important section in the plan and should be written last. In two to five pages, the plan must provide a compelling story about the large opportunity in the marketplace, why it is not presently being served adequately, your company's unique capabilities and product, and its unfair competitive advantage that will enable it to generate superior growth and margins. Provide an explanation of how you will efficiently reach the customer through your marketing and sales program. Define the required management skills and describe the qualifications of the existing key managers. State the amount of capital that is required to implement the plan, indicate the timing of your capital requirements, and project the financial results.
Naturally, the Business History should include the date the business was founded and the form of the organization (C Corporation, S Corporation, Partnership, LLC, etc.). Any material investments into the company or changes in ownership or business focus should be discussed. The current breakdown of ownership should be provided. In addition, the Business History should tell the story of why the company came into being. What was the chance discovery, the unique perspective or ideal combination of experiences that enabled the company to identify the superior solutions to the market's problems rather than someone else? The Business History should provide insight into why the founders were in the right place at the right time with the right skill sets to seize the opportunity. Include an explanation of any existing or pending litigation.
The Product and/or Service
This section should provide a detailed description of current
products (or services) and products that are under
development. Most investors consider a broad range of opportunities
and many do not have a technical background.
This section should provide a broad overview of the market sector and the specific niche being targeted. Discuss the overall market size and growth, significant industry trends, and major opportunities and constraints presently facing the industry. (The method of analyzing industries developed by Michael E . Porter in Competitive Strategies is an outstanding framework for market analysis. See "Suggested Readings".) Ideally, this information should be supported by reference to trade journal articles, industry studies, industry experts, and government sources that published the supporting historical data and industry forecasts.
A more detailed description of the company's specific niche is required. It should cover factors such as:
All too often business plans fail to acknowledge the presence and potential of all forms of competition. Identify the existing competitors in the market with a discussion of their particular strengths and weaknesses. Provide an estimate of their market share and information about their financial performance and resources, if available. Specifically discuss the products that you will be directly and indirectly competing against. Discuss the relative price, performance and other characteristics of these products from a customer's perspective. Discuss the trends in their price/performance trade off. Include a matrix or table that provides a summary comparison of each product on each important attribute. Who are the key rivals and why are they of particular concern?
The section should also discuss competitive responses to your product offerings, both those that have occurred and those that are anticipated. Provide a rationale for the expected responses from the competitors, both current and long term.
In addition to existing competitors, the section should discuss possible new competitors that may emerge. What are the barriers to entry for new competition? Also discuss potential substitutes, (which includes not buying and maintaining the status quo) for your product or service with a particular focus on those that have a superior price/performance trade off.
Marketing and Sales
The key components of a comprehensive marketing plan include:
Manufacturing and Operations
What are the manufacturing, assembly, and shipping requirements? Discuss the current facilities and manufacturing capacity.
Are there any new investments in capacity required? If it is an early stage company with a new product,
What are the critical issues and risks in scaling up the manufacturing process? If subcontractors are used, discuss how they are selected and the reliance on their performance for success. If there is a sole source of any critical input that impacts the price and performance of your product, provide an understanding of the risk of that input becoming unavailable or unreasonably expensive and how those risks are mitigated.
The single most important criteria in the selection of an investment opportunity is Management. Provide a complete resume of each of the senior managers (including all relevant work experience, education, patents and technical publications, and professional certifications) and an organization chart.
Early stage companies typically have incomplete teams. In these cases, investors want to understand the particular strengths of the current team. Equally important is a recognition and an understanding of the qualifications required to complete the team. Describe how you expect the roles of the present team to evolve and provide a recruitment schedule to fill key positions as the organization grows and the team is completed.
Also include background information on any Board members, shareholders, or advisors that provide added expertise and credibility for the company. Include a description of how active they are within the organization and any expected changes in their roles.
Venture capital investments are inherently high risk investments. Many of the risks are the ordinary risks faced by every new business (such as no proven market for the products and a lack of liquidity for the investors). Investors are already familiar with these risks. Your attorney will insist on disclosing these risks if you draft the document as a private placement offering, but it is not necessary to state the obvious in a business plan. Investors are primarily interested in your perception of two kinds of risk: internal risk and external risk.
Internal risk includes all risk factors associated with the company's ability to execute its plan and achieve its objectives. These include:
The external risks are those that may undermine your ability to be successful even if you flawlessly execute your plans. They include:
Discuss the steps you are taking to mitigate significant risks.
Venture capital investors typically expect to be shareholders in your company for three to seven years. They are patient, long term investors, but eventually need liquidity to return capital to their investors. Briefly discuss how you expect to create liquidity for your investors.
Historical and projected financial information is required to enable investors to understand the use of capital, assess the current and potential value of the company, and to evaluate the trade off between risk and return for the investment. The business plan authors have to find the balance between the optimistic outlook that conveys the potential of the opportunity and the conservative forecast that makes the numbers achievable so that investor's expectations can be met and enable the company to have continued access to financing.
At a minimum, this section should include:
Include any product brochures and trade industry articles that discuss the market opportunity or provide a description or review of the company's product. If appropriate, include any other supporting material that provides more detail to any of the earlier sections and which aids the reader in understanding the product or market opportunity.