The business plan plays a unique role in the life of a business. It tells investors why this is a unique opportunity to get richer, it crystallizes the strategy for the company itself, and it gives the management team an opportunity to better understand what fiction writers go through.
Here are some simple steps, section by section, for creating a real good business plan.
The executive summary is crucial, for most readers will only read the summary. And of those readers, most will only read the first paragraph. In fact, no one reads to the end of paragraphs anymore; that's so ’80s, back before the Great Attention Deficit Disorder epidemic known as the Web. So, make sure the first couple of sentences are grabbers. Ideally, the first sentence should state a need so universal and so compelling that the solution proposed in the second sentence gets VCs to daydreaming about buying the property adjoining their Aspen winter home. The perfect two sentences read: "Over 1 billion men have at one time been unable to become aroused. Viagra will get them rock hard and keep them that way for hours." Unfortunately, that business plan has already been written. Strive to get yours as close to that as possible, however. (Hint: Check your mailbox for spam. They have this two-sentence thing down real good.)
Next, you need a mission statement. Most companies make the mistake of sweating over this, polishing each word like pebbles in a lapidary drum. Fuhggeddaboutit. No one reads mission statements or cares a fig about them because they are all the same: Our mission is to make ourselves rich. The rest is just armor to prevent some wiseguy VC from saying "Your mission statement doesn't seem very customer-focused," as if any VC ever cared about such a thing.
Now you need to describe the market. Here's how you do it. VC's want to make back at least 10 times their investment in no more than five years. This tells you where you have to be in five years. For example, if you're going to sell 20% of your company for $10M, the VCs will want their investment to be worth $100M in five years, so your company will have to be worth $500M at that point. This gives you the figure you need when doing the financials at the end of the business plan.
Now, at some point in the plan you need to be able to say that you are being very conservative in your estimates, and must include the phrase "If we gain a mere 1% of that market -- a very conservative estimate in our opinion -- ..." Therefore, your market must be on track to be worth $50,000,000,000.
How do you decide how much your market is worth? Easy. You hire an industry analysis group that agrees to write a report (current minimum cost: $25,000) that defines the market you're in and quantifies it at $50 billion. That may seem like a lot, but every market is worth $50 billion ... if you hit the right level of abstraction. For example, if you make necktie gloves that protect neckware from lunch drippings, the market figures might look as follows:
Necktie gloves: $1M Neckware: $1B Men's fashion industry: $200B Fashion industry: $500B
Your job is to find a way to pare the men's fashion industry down to a segment worth $50B. Perhaps you can go with "Men's Fashions (above the waist)" or, better, "Men's Secondary Fashion Industry" which is defined as clothing designed to augment other clothing. Let your well-known industry analysts figure it out. That's why you're paying them the big bucks!
Now that you know the size of the market and your revenues in the fifth year, deriving all the other financial information is a piece of cake. But here's an important tip: Make sure the graph showing the five-year march of revenues curves steeply. No one trusts a straight line since it implies that you know from the beginning what you're doing and all you have to do is execute. Where's the fun in that? No, since everyone knows that you're going to tank your first couple of years, show them as slow growth, maybe only 100% - 200%. Then, in the third year, things can really start to take off because that's when your "viral marketing" and "synergistic partnering" and "economies of scale" kick in. (It's required that you use the phrase "kick in" when describing this growth.)
You have to write a frank and honest assessment of how your business will fare against your competitors. Do that early on, then burn all the copies and wipe your memory clean. Now you're ready to write the "Competitors" section of your plan. If you have no competitors, then it will be obvious that your idea is just plain stupid. So come up with five, write them up dispassionately to show that you're a grown up, and then show why your competitors are so stupid and incompetent that they can't figure out which end of the toothpaste tube to squeeze in the morning.
Now bring back your industry analysts and get them to create a 2x2 matrix that puts you in the upper right. If you can't figure out a way to get into the upper right, hire an Israel industry analyst so your axes will read right to left. Where there's a will there's a way!
Now we get to what everyone says is the most important part of the business plan: the management biographies. But you don't really need any advice here, for if you're in the position to write a business plan, you've been lying about your career so long that you actually believe it.
Now all you need do is print it on heavy stock paper, surround it with Non-Disclosure Agreements, and stamp a big red number on it -- make sure you use a low number in order to impress the recipient with how important you think she is! -- and you're off to the races.
Next: How to write a real good press release!
David Weinberger is editor of Journal of the Hyperlinked Organization.