Investors Don’t Fund Startups Without a Good Plan

Too many entrepreneurs still believe the urban myth that you can sketch your idea on a napkin, and investors will throw money at you. Every investor I know is frustrated with the poor quality of the business plans they get. This is sad, since “how to write a business plan” is a frequent topic found in every business journal, and a common title in the business section of every book store.

What is the definition of a good business plan? In simple terms, it is a document which describes all the what, when, where, and how of your business for you, your cohorts, and potential investors. Forcing yourself to write down a plan is actually the only way to make sure you actually understand it yourself. Would you try to build a new house without a plan?

Make sure your plan answers every relevant question that you could possibly imagine from your business partners, spouse, and potential investors. That means skip the jargon and include explanations and examples. A plan that generates more questions than it answers is not a good plan.

Finally, hone the result into a professional document. Remember that you only get one chance to make a great first impression. Make sure it has a cover page, table of contents, headings, page numbers, and is organized logically.

Notice that I didn’t say anywhere that a good business plan has to be at least 20 pages, or have ten sections, or must start with an executive summary. These are good things, but I’ve seen great business plans that are ten pages, or have totally non-standard formats.

But, if you ask, ten sections is a nice round number, and would include the following:

• Executive summary
• Problem and solution
• Company description
• Market opportunity
• Business model
• Competition analysis
• Marketing and sales strategy
• Management team
• Financial projections
• Exit strategy

You can get free downloads of sample business plans from the Internet, and there are thousands of customized samples for sale highlighting every business area. I’ll even send you a free sample of my own business plan via email, if you drop me a note. You really need a business plan for you own efforts, even if external funding is not a requirement.

So what if you know that you simply aren’t a good writer, or don’t have the time or patience to write? No problem. That’s why they invented ghost writers, and came up with the concept that you can pay someone else to do it for you. A few thousand dollars is a small price to pay for a successful business, or for that $1M investment you expect the plan to entice.

The tougher case is where you really don’t understand the business you are about to enter, so you don’t know what to write. This is a recipe for failure that most investors and professionals can quickly see, so no investment will be forthcoming, and your startup will likely wither and die.

My advice here is to swallow your pride, and find a partner or give it away to someone who has the “domain knowledge” and the business experience to get you going. Your idea may be right, but dead right is not very satisfying to anyone.

Keep in mind that thoroughness and clarity of the plan are factors that will play key roles in successfully financing, starting, and operating your business. A great business plan is one that your team can learn from, attracts investors, and will guarantee your species a future. With no plan, I hope you have unlimited personal funds or at least a rich uncle!

Marty Zwilling