Planning Kamran on 28 Nov 2007 09:27 pm
6 Critical Elements in a Successful Business Plan
by Amit Jain
cpSphere
Here are the six elements I find to be most important in a successful business plan:
#1: Conducting a Thorough and Complete Competitive Analysis
Many business plans stress the uniqueness of the company, product, or service and neglect studying the competitors.
However, this can have an adverse affect. If there are few or limited companies in a market space, perhaps it’s because there are not enough customers to support the company’s products and/or services.
According to a partner at a technology company, business plans should include a reference to successful and/or public companies in a competitive space to prove that the market is large enough to support the new operation. It also gives investors the assurance that if management executes well, the company has the potential to be an acquisition target.
#2: Forming Partnerships and Alliances
Forging partnerships and alliances to improve market penetration and/or operations has become commonplace in the new business environment.
It can also help brand a new company and add an installed base of customers before the actual launch. These partnership agreements should be equitable and explicit in the business plan. They must seem logical and realistic to an investor.
For instance, stating that Yahoo is a “potential partner” but adding nothing substantive to support the claim can cause an investor lose confidence in the plan.
#3: Highlighting a Successful Track Record
Valuations of a company and investments are based on a firm’s projected performance. But, one of the best indicators of success is past performance, or a company’ track record.
Business plans must demonstrate what quantitative milestones or accomplishments a company has achieved. Past success in achieving goals gives investors the assurance that the team will execute successfully in the future.
For start-up companies, providing a track record has to be more creative. Including a case-study within the business plan on a similar business venture or similar strategy employed by another business in a parallel industry can provide enough insight. The strength of the management team can also instill confidence in the business plan.
#4: Targeting Your Audience
Investors, like the rest of us, have different tastes and different backgrounds. One investor may love a business concept and/or business plan while the next may hate both. One investor might be more in-tune with marketing while another is strictly focused on operations because of their career backgrounds.
Thus to be successful, the plan must address the expectations and characteristics of the specific audience that it addresses.
#5: Providing a Realistic Portrayal of the Market Size
Defining a company’s market size too broadly provides little to no value for the investor.
For example, mentioning the “trillion dollar” U.S. healthcare or business process outsourcing markets is a redundant exercise because no company could reap $1 trillion in sales in either market while every business is going after a “multibillion-dollar market.”
Be as specific as possible about the possible size of the total market opportunity. Defining and communicating a credible market size and a plan to capture a significant share of it is far more powerful and convincing to investors.
#6: Presenting Accurate, Realistic Financial Projections
Many investors focus directly on the financial analysis of the business plan in an attempt to get to the bottom line. It is imperative that the assumptions and projections in this section be realistic.
Well-reasoned financial assumptions and projections communicate prime operations and credibility. By utilizing projections based on the financial performance of public companies in the same market segment can provide proper evidence for the sustainability of the business. Be prepared to have this section examined in-depth, with many questions posed by the investors.
All in all, a business plan must include a great idea and a realistic opportunity that can be seized.
The ROI (Return on Investment) must be something that the investors view as an affordable risk.
The presentation of the plan must exude confidence and look sharp so that the audience is convinced about the value and feasibility of the plan. That would help the audience ask the right questions in the Q&A session.