TV business shows make it seem easy: dream up a good idea, make an entertaining pitch to investors and walk away with the cash. Or not. People watch Dragons’ Den in great numbers and think it’s the proxy for the real world.
But what they’ve done is eliminate all the details that can slow down the storyline. For example, you never see an actual business plan on the show.
This doesn’t imply that the dragons (also known as angels in business) are not savvy investors. You can be sure that the details are discussed behind the scenes. They have to do their due diligence to make sure the successful business really does have the financial track record promised in the pitch.
In real life, the pitch and the details are not separated. If you’re an entrepreneur, you need the pro-forma projections co-mingled with the marketing and promotional flash. While the kernel of a good idea is the key, make sure you provide the hard numbers to accompany it.
As an entrepreneurship educator, I have seen more than 2,000 elevator pitches and seen many good ideas hatch into living, thriving companies. Students have established more than 200 new businesses in my classes. I have led or championed startups both with and without formal business plans. I am now a part-time partner in a private equity group.
Here are my five things to consider when formulating your business plans.
1. While a good succinct business plan is still expected by loans managers at the credit union or landlords at the mall, don’t let the business plan be a roadblock in realizing your idea. A strong vision and a solid understanding of the business sector where you see an opportunity can instil confidence in your backers.
2. There is a middle ground between just writing your idea pitch on the back of a napkin while schmoozing at the Marriott and doing exhaustive research to produce a business plan as thick as a phone book.
There are terrific local companies that are a great resources for entrepreneurs. There are business planning tool that help you boil down the pitch to the salient points and display them in a visually appealing manner. That’s important because you can assume the investors you approach have seen lots of others, and your plan needs to stand out.
3. Key elements of a new business plan are the strength of the management team and the cash-flow projections. It doesn’t hurt to have an impactful executive summary that expresses the genius of the concept simply and forcefully.
The executive team’s experience and understanding of the industry you are about to enter is absolutely priceless. A business education counts for something as well. Both together make for a strong and capable leadership team that can inspire confidence by the all-important investors.
Cash flow illustrates the fluctuations and will predict how much assistance is necessary (from a line of credit or other option) to pay the bills in the startup stage.
4. Be flexible. Just like business operations, a business plan has to reflect possible changes to the competitive environment or the resources available.
Has your potential supplier changed? Are consumer preferences shifting? Adjust your plans as needed for sustainable business success.
5. The current state of the art for a so-called lean startup, as popularized by the 2011 book by Eric Ries (The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses) is a strategy that upends the standard practice: Ready. Fire. Aim.
Using this deliberate misconstruction, especially as a digital entrepreneur, the goal is to develop a successful business by getting feedback along the way and releasing the idea before it is perfected. In this world, the term “beta” is recognized by consumers as “we’re still working the bugs out and we want to know what you think.”
A business startup is never a paint-by-numbers affair. Details aren’t laid out and a new business doesn’t come with a manual. Still, if you follow this advice in principle, you will be on your way towards your goal. •
