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If You Build It, Investors Will Come |
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 When you begin to write your business plan or a section within it,
you probably ask yourself, "What should I talk about?
What key points
should I bring out that are important to potential investors?"
The best way to answer these questions is to put your business plan
trial. That’s right. Think of your potential investors as the jury and
you as the defense attorney. You must prove to the jury – beyond a
reasonable doubt – why they should invest in your business plan. At
stake is a life or death sentence for your business venture. Your job
is to come up with all the evidence and present it in a way the jury
believes you.
Yet, if you look at the way most business owners and entrepreneurs
prepare their business plans, they build no case at all. Instead, they
mindlessly throw information down on paper, most of which is the same
stuff all of their competitors are saying, just to say they have a
business plan.
The typical business plan doesn’t build a case
Take for example a business plan for a franchised auto repair
facility. A typical business plan for this business would include
claims like: nobody does what we do, we offer convenient hours to our
customers, we use high quality parts, we have friendly professional
technicians, we’re experienced, and we’ll make investors lots of money.
Does this build a case?
Let me ask this question differently. If you were interested in
investing in a business would these types of claims convinced you that
this business is the obvious investment choice for you? I don't think
so. There are no real claims. No proof that this business is any
different or any better than any other business. There are no
compelling reasons for investors to believe that they’ll earn more
money investing in this business than through other investment
alternatives. The only hope a business plan with such weak arguments has to attract investors is pure luck.
Imagine what it would be like if an attorney did as poor a job arguing a court case as most business plans do.
Let’s take the Martha Stewart obstruction of justice trial. Stewart
and her stockbroker, Peter Bacanovic, told the U.S. Securities and
Exchange Commission and federal prosecutors that she sold her shares of
ImClone on December 27, 2001. They claimed they sold the shares because
the two had previously agreed to sell the stock when the price fell
below $60 a share. Prosecutors argued the story was a lie. In the end,
the jury agreed with the prosecution. But why?
Maratha’s attorneys failed to build a strong enough case for her
innocence. They were saying "Come on...Maratha wouldn't have done
this! She's the domestic diva! She’d never risk her fortune for such a
small amount...there's no way she did it!"
As simplified and ridiculous as this may sound, it’s about as good
of a case as most business plans ever present to attract investors to
their business. They tell investors: invest in us our business is
better, we're the low cost producer, we're more professional, we
provide better service, we’ll make you, our investors, a ton of money,
and so forth.
Now, look at what the prosecution’s attorneys in the Stewart case
DID do. They researched and gathered all the evidence they needed to
prove that Maratha did obstruct justice.
Evidence that included the testimony of Bacanovic’s assistant. A
phone call from Stewart to Sam Waksal, the president of ImClone, just
minutes after she ordered the sale. Documents showing Bacanovic, a
constant cell phone user, did not use his cell phone for nearly two
hours on the afternoon in question. The absence of notes, e-mails, or
phone records to prove the $60 agreement was in place. Evidence that
the sole document suggesting an agreement existed was a forgery. The
admission by Stewart, testified to by her best friend and travel
companion Mariana Pasternak that Stewart knew the Waksals were selling
when that information was non-public.
See how powerful and persuasive evidence is?
Three steps to building a case for your business plan
Step 1: find out what prospective investors want
Step 2: give it to
them.
Step 3: explain your plan to them in a believable way.
You can easily find out what investors want and need to know in my article titled “Understanding the Mind of an Investor” (www.how-investors-choose.bizplansecrets.com).
Here's how to find out what you need to tell investors about your
particular business for them to decide whether investing in your
business is right for them. These are the talking points to build your
case around.
To start, I’m going to assume that you have researched your plan and
already know a bit about your business, your industry, your targeted
customers, and so on.
Now let's say that one of your best friends
is considering investing in a business just like yours and comes to you
for advice on how best to evaluate the business and its prospects. What
would you tell your friend to find out to make the best possible
investment decision? What would you tell your friend to look out for?
What specific pieces of information would your friend need to have to
decide whether this is a wise investment decision?
Whatever these things are, those are the key points to build your
case around. For instance, when I first started working with a start-up
company to raise money for a revolutionary aircraft landing light, the
company was passing out a two-inch thick business plan to potential
investors for their review.
Our first steps were to shrink the plan down to twenty-five pages.
We decided to focus on showing investors how the company’s new lighting
system would help airlines make more money. How big the opportunity is.
How the company’s business model differed from larger, more established
competitors. And, how much money potential investors stood to make
subject to certain risks. In other words, we identified the talking
points of our case.
Next, we gathered the evidence to support the talking points. We
gather data on the inventories of worldwide fleets by aircraft platform
to show the number of lighting units per aircraft to support our claims
of market size. Special reports from the Department of Transportation
spelled out maintenance costs and delay costs and showed how much
airlines were spending to maintain outdated lighting systems.
We used testimonials and surveys from top purchasing agents and
engineers to confirm their interest in our lighting system. Background
write-ups of the management team and what each manager would bring to
the venture in terms of skills and industry contacts showed why this
management team would get the job done. Engineering drawings served as
the basis for detailed bills of materials that outlined the costs of
each unit. Market studies and surveys provided support for unit
pricing.
All this information provided the basis to create projected
financial statements – income statement, balance sheet, and cash flows.
Finally, we gave investors a valuation model with all our assumptions
outlined for them to review, challenge, or change. This allowed serious
investors to decide quickly whether this particular investment fit
their investment criteria.
Within in weeks of passing out our “case”, our potential investor
network began to spread like a spider’s web that led to new contacts,
management meetings, and eventually two offers for financing.
So, build your case with passion. Uncover what's important for your
investors to know about your business plan. Then, present your points
clearly. When you do, you’ll be on your way to building an enabling
investor network and becoming the most desirable investment choice in
your particular investment space.
 Michael Elia
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
Mike is a CPA/MBA, visit his site www.business-plan-secrets-revealed.com for a free business plan guide and more articles on business plans.
Article Source: www.EzineArticles.com
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