Tuesday, September 16, 2014

How to Overcome the Hesitancy to Write Your Business Plan.

I’ve written many business plans not only for myself but for others. No matter how much experience you have there is always a tendency to shy away from the task at hand. Writing a proper business plan is a big challenge for each and every entrepreneur.

Too often the reluctance to start writing the business plan is purely mental – the natural reluctance of the mind to engage with a very challenging task. Every entrepreneur learns to overcome this in time. But, here is how I do it and the task is less overwhelming if the following is observed:
  1. Don’t feel rushed. Take time to thoroughly do the underlying research and be patient with yourself. A good business plan will take 2-4 months to complete. Don’t start until substantially all the required data is available.
  2. Brainstorm your thoughts. Start writing down your thoughts, questions, issues, and information points on a piece of paper with no particular organization in mind. Let your mind roam, but write down your thoughts. Don’t lose your priceless mental thinking. Start this on day one.
  3. Build the Table of Contents. The TOC helps to further organize your thoughts. You can use a standard business plan template or make one up to suit your needs. Organize and title the chapters of the TOC so that just reading the TOC reveals how your business will succeed. More on this in my book.
  4. Add bullet points. Start filling in bullet points within each section (this is not writing, per se). You can use the brainstorming notes to help you determine which information goes where.
  5. Organize the bullet points. Place the bullet points in logical order from a reader’s point of view. Which information needs to be presented first, next, etc. What is the important concluding sentence of each paragraph and remember only one major thought (or point) per paragraph.
  6. Identify critical charts, pictures, graphs, etc. These non-text items add interest and variety to your business plan but most importantly they convey important facts and conclusions in a form that many readers can absorb quickly. Prepare corresponding text or identify how you will use that information.
  7. Writing responsive paragraphs. Now, it is finally time to start writing text for each section but don’t try and perfect that text yet. Just do the first cut which involves more organization within each sentence and paragraph to deliver the proper message. Consult a thesaurus and dictionary to use the words that portray in the mind of the reader the precise thoughts and messages you want to convey.
  8. Connect paragraphs. Once the paragraph thoughts are organized, look for how each paragraph-thought relates to the others and fill in those links between paragraphs that the reader needs to know to complete their mental images they are developing.
  9. Finish (polish) each paragraph and section or parts of sections. If you get bored with a particular section then move to another. Don’t get bogged down. If the writing seems difficult move to another section, but keep writing. Don’t be afraid to take a mental break of a day or so. Relax, you are almost there.
  10. Continue with the writing/polishing. At some point you will have written the first draft of the business plan.
  11. Update. Constantly work on the business plan as new information and thoughts develop.
By breaking the process down into small, incremental steps and being patient, the business plan will eventually come together and at some point the progress you have made will incentivize you to continue working. Strive for accuracy and quality of work.

Remember, credibility = specificity so make sure you have the data and facts available so you can write with authority.

See my author web site at www.rockyrichardarnold.com.

All questions and contributions are welcome.

Saturday, September 6, 2014

Enhancing Start-Up Valuations: Target Markets and Pre-Revenue Sales Projections.

In an earlier blog, I suggested that an inventor/entrepreneur must ask and answer five questions before deciding to start a new business.
Here is Question #2: Is there a significant market for products to be made or services to be provided?
My comments and answer.  
One of the more difficult issues for entrepreneurs to address relates to target markets and potential sales revenue.
It is critical at the earliest stage of planning and due diligence by founders to determine those markets (e.g., the target markets) that are sufficiently large and growing that they would support the entry of a new competitor (the entrepreneur’s new venture). Professional investors generally insist that target markets be large and growing so that missteps and errors on the part of the new venture can somewhat be compensated by the size of the market which presumably contains large competitors who are not particularly concerned with competing with a small, up-start, technology company. Nevertheless, venture capital firms, in particular, are interested in supporting companies that target billion dollar markets rather than those that target million dollar markets. Both the magnitude of investment considered and the interest of professional investors scale with the size of the markets to be served by the underlying technology.
The goal for an entrepreneur is to identify a number of potential target markets that collectively (in a summed sense) have a large size, presumably in the billions of dollars range. One of these target markets will eventually be selected as the entry market — that market that offers the best prospect for producing profit soon after funding. That initial target market need not be large, but it must be one for which success is highly probable.
The weakest part of any business plan will be the projection of sales revenue. Investors, for good reasons, dissect sales numbers and also carefully study the rationale behind the projections. The inability of the entrepreneur to adequately explain or validate how sales will be accomplished gives investors the opportunity to discount proposed valuations. The entrepreneur is usually ill-prepared to defend the business plan in the absence of a good, if not excellent, marketing and sales strategy and plan.
For a new venture without any evidence of sales, sales revenue needs to be projected using a combination of provable data about the markets and assumptions and judgments about how prospects are converted into customers. These assumptions and judgments will still be examined closely by investors but they are more defensible and subject to testing (surveys, focus group, for instance) at early stages by the new venture. With early testing, sales projections become more credible and less subject to discounting by investors. This provides a pathway for entrepreneurs to argue for greater pre-money valuations. 
More detailed information about developing robust pre-revenue sales projections are discussed in my book, The Smart Entrepreneur: The book investors don’t want you to read available on Amazon in September 2014. 
Question #2 must be answered YES to continue moving forward.
See my author web site at www.rockyrichardarnold.com.
All questions and contributions are welcome.