I was told that my business plan needs some work. Where do I start?
I’ve read a lot of business plans over the years. The guidance I provide to entrepreneurs on how to improve their business plan presentation and projections is truly dependent on the specific business and plans for the future.
There are a few key recommendations that tend to apply to all business plans, especially if the purpose is to raise capital from investors.
Despite reputation, smart investors don’t just consider the upside of any investment opportunity. They give equal weight to the factors that tend to increase operating, competitive and financial risks too.
You can separate your plan from hundreds of other plans from equally innovative entrepreneurs, by looking for ways to reduce the operating risk of your business strategies. Think about it. Are there some easier ways to achieve your goals? This is the question that all smart investors consider as they listen to entrepreneurs describe their “can’t fail” pitches.
Check out the following risk reducing options that can apply to most growth-oriented businesses in America:
- Anticipate your competition’s response.
If there is one weakness of business plans it is a foolish underestimation of the competition’s ability to copy great ideas. Entrepreneurs write “we have no competition” or “no one offers a similar product or service in the marketplace.” While you may enjoy an advantage today, but you might not tomorrow.
Should entrepreneurs fear their competitors? Absolutely! And I encourage it. Entrepreneurs who understand their vulnerability tend to work harder to make their products better. They also take proactive steps to lock down relationships with their customers.
Best of all, entrepreneurs who have a more realistic understanding of competitive risks write sharper business plans that catch the eye of check writing investors.
Here’s a worthwhile exercise to improve your tactical thinking. Name five or more ways your competitors can seriously undermine your business through blatant imitation or aggressive discounting. (It will happen.) So, after mulling over these scary thoughts, what steps can you take today to strengthen your position? Think it through. Every section of a company’s business plan benefits when entrepreneurs challenge themselves to really beat the competition.
- Improve gross profit margins.
When I look through business plan projections one of the first calculations I do is to determine a company’s gross profit margin. Based on my experience, this number is a far more reliable indicator of business sustainability, especially for startup businesses, than projected revenue growth and projected net income.
Here’s why. High gross profit margin companies (preferably over 50%) have more flexibility to fund new product development and advertising programs than lower gross profit margin companies. They also have more financial room to weather setbacks and raise capital from lenders and investors.
I also like to compare a company’s projected gross profit margins to industry averages. Investors will too. If a company’s projected profit margins lag industry’s averages, then it’s time to redesign products and services. And if a company is struggling to choose between new business initiatives, favor building higher margin products first.
- Explore partnerships.
Most entrepreneurs assume that operating partnerships and joint ventures are for well-established companies. Not so! There are many ways startup entrepreneurs can save money and time by piggy-backing onto the operating resources of more established businesses.
Can you share labor or space with another company in a mutually beneficial way? Can you package your new product idea as a “private label” of an established brand to gain faster distribution and revenue growth? Can you partner with other complementary Websites to reach a wider audience? Sure you can!
I encourage all entrepreneurs to think creatively about early partnership opportunities. Even if the negotiated deal seems small or local in nature, potential investors will value your mature, risk-adverse approach to business building.
Here’s another reward to partnerships. Young companies that partner with bigger players tend to receive higher per share price valuations than companies who are determined to go-it alone. It’s a strategy that’s hard to beat.
From an investor’s perspective, “fundable” business plans are not the fanciest or the longest. They are not measured by the quantity of impressive graphics or a promise to turn $10,000 into $10 million. Rather, business plans that are read cover to cover are well-researched, practical and precise. Your plan doesn’t have to be perfect, just representative of your best strategic thinking.
You can do it!