There’re a lot of entrepreneurs out there who have a great entrepreneurial spirit and some pretty rocking ideas, but who don’t really understand what they need to do to get the funds to make their dreams reality.
Obviously, having kicked it for a couple of years in VC, I’ve got an inside scoop as to what investors, as well as lenders, are looking for amidst the flood of business plans that come through the door every day. You ready?!
Let’s go for a ride:
1. Is your business idea solid?
This seems obvious, right? You’d be surprised how many not-so-solid ideas walk through the door. To be solid, you need to have at least one of five things: (1) something new, (2) something better, (3) a new or underserved market (as I’ll get into next), (4) a new way of or channel for getting something to customers, or (5) more integration. If you don’t have at least one of these, you better just start over.
2. Does a sufficient market exist for your product?
Whether the market for your product is new or underserved, isn’t a make or break. But whether the market for your product is sufficient definitely is. I don’t care how great your idea is, if the market doesnt exist to support it, you’ve got no chance. Every stage of the development of your product needs to be based on giving your customers value so as to create a sufficient market.
3. Are your financial projections worthwhile yet realistic?
A very key component of a business plan is your financials. Plain and simple, if you’re not gonna make enough, you’re not gonna get funded. On the flip side, one of the biggest mistakes you can make is to just make numbers and then grow them at a great rate over a few years in order to make your idea look good. Uh uh. Bad idea. The first question you’re gonna get asked is how you came up with your numbers. Do research. Find comparable companies. Analyze your market. You need to have SOME basis for your numbers. From there, I say go with the highest numbers that you can defend.
4. Is your business idea in line with the investor or lenders patterns?
This is where a little homework can save ya some wasted time. If you’ve got a great idea for a new dog collar, but you’re approaching a VC firm that specializes in medical technology, it doesn’t matter how happy it’ll make Rover, you’re not getting your cash. Similarly, if banks only lend to borrowers that fall within certain categories and you’re not in one, you’re not in the money either. Just do you’re homework.
5. Are the key members of management experienced and capable?
I’m a firm believer that it’s the actual people running the show that make it or break it. As I often remind my readers, I invest in people, not projects. No matter how great the idea, if you dont have experienced and capable managers outlined in your plan, an investor or lender isnt gonna touch it without at least demanding that its own managers be put in place. If you dont wanna be put in that situation, bring some experienced and capable managers on board on your own, even if just as Advisory Board members.
6. Does the plan clearly describe how the investor or lender will get paid?
Newsflash, Walter Cronkite, investors and lenders arent funding your great idea because they think youre a nice guy or chick or because they are feeling generous. They’re doing it because they think they can gain by doing it. To help them realize this, make your investor’s exit strategy or your repayment to the lender very clear. THIS is what they really wanna know. THIS is how they make their money and why they’re in the game.
When you’re putting together that rocking business plan, keep these questions in mind. If you can’t answer Yes to them, investors and lenders aren’t gonna answer Yes to you either.
This guest article was written by Jake Pitt. You can read more interesting articles by him at TheRatingBlog.com. If you write great content, you too can guest blog on QOT.