Want to write a plan for an e-business that will impress post-shakeout investors? Start with a business that makes money, experts say, and explore how the Web can help your business succeed.
“Treat your e-business like any business startup,” Al Napier, a professor of e-business and entrepreneurship at Rice University, told the E-Commerce Times. “You’ve got to have a solution to somebody’s problem or an answer to their opportunity.”
Napier and other experts say most of the rules for what makes a good business plan haven’t changed in decades, let alone during the dot-com boom and bust of the past three years. What has changed is the level of scrutiny and outright skepticism that business plans receive from the investors and venture capitalists who review them.
“Don’t apologize for being an e-business,” said Napier, who co-authored The New York Times Pocket MBA book, “25 Steps to a Great Business Plan,” and also serves on the board of two-year-old e-tailer Foodlocker.com.”If anything, highlight how you will use the Web to increase efficiency and connect with your partners.”
Jeffrey Sohl, a professor of management and director of the Center for Venture Research at the University of New Hampshire, said the types of investors likely to take a piece of a startup, — including angel investors — want to see business plans that contain something they haven’t seen before.
“Early stage investors are gamblers by nature,” Sohl told the E-Commerce Times. “They’re not afraid of calculated risk. In fact, they like it. But they want to be able to justify it.”
Dotting the I’s
The format for a good business plan has not changed for years, according to Napier and Sohl.
The plans have to contain the same essential elements: a two- to three-page executive summary, past and projected financial information (including balance sheets and cash flow statements), firm ownership information, an explanation of how and why the business can deliver the goods, and an examination of the potential market.
The executive summary is the hook. It must grab the reader’s attention and make him or her want more information.
“The average angel investor sees hundreds of plans a month,” said Sohl. “Breaking through that clutter is a tough task. Flash and glitter doesn’t do it. Substance works, though.”
Good business plans have always contained an in-depth examination of how and when a business will make money, according to Napier and Sohl. Now, however, that section has to stand out.
Writers of these plans should never over-promise or be too optimistic, and never “cook the books.” Investors will see through it immediately.
If it’s going to take 10 years to reach profits, then write that, Napier argued. If the underlying idea is strong enough, that will carry the day.
“You have to have realistic numbers,” he said.
In recent years, business plans have gotten shorter, according to Napier and Sohl. Investors can always ask for more information — and almost certainly will — as the process moves forward. In other words, if it’s not essential, leave it out.
“If you don’t get the format just right, that’s OK,” said Napier. “If you’re idea is good, it will be spotted. Everyone is still looking for that diamond in the rough.”