Good plan can lead to funding

We all know someone who had an idea that they thought would lead to the startup of a successful company. Some of these ideas are immediately launched with little preparation, while others start up after months of planning, development and capital acquisition. The problem remains that the majority of these companies fail, and few are able to attract capital.

By Gary Williams
Brigham Young University

For high-tech startups, it is estimated that for every 1 million ideas only six will become successful companies that make it to an initial public offering (IPO). For those companies that receive venture capital funding, only one in 10 will eventually become a public company, according to Saratoga Venture Finance.

I am often asked, "Why did a particular company receive venture capital or angel financing while others were unable to attract third-party funding?" In addition to a killer idea, a "great contact" and good timing, a well-written business plan will go far in helping secure funding for your opportunity.

Several sources exist to help in writing a plan, including self-help books, Web sites, software to help write and format the plan and courses at local universities. The other day at the bookstore, I found several books targeted to the business plan market, even a copy of the dummy series, "Business Plans Kit for Dummies." It included a guide to writing the plan and a CD to begin the process.

When writing the plan, keep the length from 30 to 50 pages. Make sure that your executive summary is no longer than two to four pages and that it addresses the key elements of your business. I personally prefer summaries that are informative, factual and non-argumentative.

Bill Sahlman of the Harvard Business School suggests most plans waste too much space on numbers. He recommends that the plan include a solid discussion of the following concepts:

* The people — A discussion of your management team and the outside professionals that you have engaged.

* The opportunity — A profile of the business, the product or service, your customer, the economics of your business model, growth factors and what might stand in the way of your success.

* The context — The regulatory environment, demographic trends, economic issues — any factors that you cannot control.

* Risk and reward — A discussion of what might go wrong and right and how your team will address the issues.

Sahlman always reads the people section first, "because without the right team, none of the other parts really matters."
Another credible study on what makes business plans stand out is found in the book "High Tech Startup" by John Nesheim. He says: "CEOs who succeeded in obtaining the funding they wanted told us why their plans were funded. Our research revealed that the heart of their secret for success was their ability to document the startup’s distinctive competence, the company’s competitive advantage and the management’s plans to sustain that advantage."

He defines sustainable competitive advantage as "a consistent difference in product attributes that is a direct consequence of a capability gap that endures over time. Sustainable competitive advantage is based upon delivering superior value to the customer. The product attribute differences must be the customer’s key buying criteria."
On average, a venture capitalist will receive 1,000 to 2,000 plans in a year. Less than 1 percent will be funded (six out of 1,000). Be careful to include in your business plan what the experts are looking for and you may find your company one of the fortunate enterprises that receives the necessary funding.

Gary Williams, a former CEO of a high-tech firm, is affiliated with the BYU Center for Entrepreneurship. He can be contacted via e-mail at [email protected].

(For an alternative view on the need for a 50 page business plan before a company gets going- please view "Steps to Success"- http://matr.net/stepstosuccess.phtml Russ)

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