What Do Backers Look Out For? How to Shape a Successful Business Plan
The authors of The Business Plan Workbook draw on years of teaching and research at Cranfield University to share what features the successful business plans had in common.
Business plans are written to be read- that in turn means that the reader’s needs, however few or diverse, have to be carefully considered in the preparatory process. Lenders want to be sure their money is safe, investors need to be enticed by the expectation of future profits, and managers, be they running a health service, utility company or charity, want to be convinced that the proposal is (a) needed and (b) likely to come in on time and budget.
Based on their experience at Cranfield University, the authors of The Business Plan Workbook have noted over the years that the plans that succeed meet ALL of the following requirements.
Evidence of market orientation and focus
Entrepreneurs must demonstrate that they have recognized the needs of potential customers, rather than simply being infatuated with an innovative idea. Business plans that occupy more space with product descriptions and technical explanations than with explaining how products will be sold and to whom usually get cold-shouldered by the financiers.
Evidence of customer and user acceptance
Backers like to know that your new product or service will sell and is being used, even if only on a trial or demonstration basis. If you are only at the prototype stage, then financiers have no immediate indication that, once made, your product will appeal to the market. Under these circumstances you have to show that the ‘problem,’ your innovation seeks to solve is a real one, and a substantial one that a large number of people will pay for!
Exclusive rights to a product through patents, copyright, trademark protection or a licence helps to reduce the apparent riskiness of a venture in the financier’s eyes, as these can limit competition- for a while, at least. However well-protected legally a product is, it is marketability and marketing know-how generally that outweigh ‘patentability’ in the success equation.
Anyone lending money to or investing in a venture will expect the entrepreneur to have given some thought to his or her needs, and to have explained how these can be accommodated in the business plan. This will apply even if the money is coming from an ‘internal’ source such as a parent company, a divisional budget or a government department. As new or fast-growing businesses generally do not make immediate profits, money must come from risk or equity capital, as well as being put in by founders, their families and friends.
Entrepreneurs frequently believe that ‘the sky’s the limit,’ when it comes to growth, and money (or rather the lack of it) is the only thing that stands between them and success. Make your growth forecasts believable: support them with hard facts where possible. If they are on the low side, then approach the more cautious lending banker, rather than venture capitalists. The former often see a modest forecast as a virtue, lending credibility to the business proposal as a whole. But if you believe in your vision and have patience and resilience, take your proposal to institutions that are up for big risks in return for the chance of big rewards.