Monday, August 20, 2012

Investors Know A Product Doesn’t Make a Business

Why is it that most of the business plans I see are really product plans? I define a product plan as a detailed description of your product or service, with a bit of business thrown in at the end. A business plan is a detailed description of your business, with a bit of product description thrown in near the front.

Don’t get me wrong. It’s definitely positive to have a product plan. A simple differentiation is that a product plan is designed for internal use, to get the product out. A business plan is an “outward facing” document for external investors, or for C-level executives within your own company.

The product plan tells your developers what to build, and the marketing team what to market. Because it addresses an internal audience, it can use technical jargon and assume the reader understands the technology. Here are the key components of a good product plan:

  • Detailed features. For software, websites, and high-tech products, this is the “meat” of what you intend to build. Enough detail is required so that someone else can build it without you (outsourcing). Equally important, marketing and sales people should be able to identify benefits and marketing strategies, set prices, and validate a business model.
  • Market research. This section defines the market, sizes the opportunity, and discusses the needs and requirements that will be addressed by your product and service. Establishing credibility is key, so this data should come primarily from industry experts, with footnotes to the source, rather than your passion that everyone needs one.
  • Competition analysis. There are always competitors, or alternative ways to get the job done. Here is where you pick a few of these, characterize what they do, and position your own product to show your competitive advantage.
  • Development and rollout. Show the timeline, milestones, costs, and people required to produce the product or service. Address proof of concept, performance considerations, quality certification, and support ramping.

Concurrently, or later, it’s necessary to build a separate business plan. Because this document is “outward facing” the tone and level has to change to be understandable by customers and investors. Here are some key components:

  • Problem statement and solution. Skip the acronyms, write at an eighth-grade level, and talk in terms of “benefits” rather than “features.” Assume readers don’t know or share your vision, knowledge, and passion, so you have to sell them on your plan at all levels.
  • Market research and competition. Reuse the two comparable sections above, making sure you refocus the words for an external audience, and remove the technical jargon. These are the only sections that these two plans have in common.

Actually, it’s most disconcerting when people approach me with neither – just a verbal description of their “idea,” looking for a business assessment of its potential. In frustration, I usually comment to them that ideas are worthless outside the context of a realistic business plan.

I realize that many of you entrepreneurs are technical types, and you feel certain that an exciting product plan will highlight an exciting business opportunity. Instead most investors will see it as a “solution looking for a problem.” That’s a big red flag, and will usually get your plan a quick toss to the circular file.

Marty Zwilling


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