“I didn't have time to write a short letter, so I wrote a long one instead.”
Information is everywhere. It is no longer an advantage. Almost anyone can learn anything with a few minutes and a decent Wifi connection. This makes entrepreneurship and funding your business very different than it was 10 years ago. Information used to be a competitive advantage, now it is just a starting point.
These days, entrepreneurship is all about execution.
Is Writing a Business Plan a Waste of Time?
Business plans are mostly obsolete when raising capital from angel investors. We see thousands of deals a year. We are scanning your materials, trying to find something that meets our preferences. It’s not personal, there is just not enough hours in a day to digest all of the details. The time you spend writing a business plan can be spent on creating, testing, pivoting, selling, etc. The best way to succeed in business is to be in business.
“Failing to plan is planning to fail,” has been replaced by “If you aren’t embarrassed by the first version of your business, you launched too late.”
But execution requires resources and funding...
Raising Capital without a Business Plan
The 1-Page Executive Summary has replaced the business plan in our 140-character-or-less world. It hits all of the major areas of a business. It demonstrates a business' potential, while leaving enough flexibility for possible changes and pivots. Although there are many formats, I find this one to be compelling
1. The Grab:
You should lead with the most compelling statement of why you have a really big idea. This sentence (or two) sets the tone for the rest of the executive summary. Usually, this is a concise statement of the unique solution you have developed to a big problem. It should be direct and specific, not abstract and conceptual. If you can drop some impressive names in the first paragraph you should—world-class advisors, companies you are already working with, a brand name founding investor. Don’t expect an investor to discover that you have two Nobel laureates on your advisory board six paragraphs later. He or she may never get that far.
2. The Problem:
You need to make it clear that there is a big, important problem (current or emerging) that you are going to solve. In this context you are establishing your Value Proposition—there is enormous pain out there, and you are going to increase revenues, reduce costs, increase speed, expand reach, eliminate inefficiency, increase effectiveness, whatever. Don’t confuse your statement of the problem with the size of the opportunity (see below).
3. The Solution:
What specifically are you offering to whom? Software, hardware, service, a combination? Use commonly used terms to state concretely what you have, or what you do, that solves the problem you’ve identified. Avoid acronyms and don’t try to use this opportunity to create and trademark a bunch of terms that won’t mean anything to most people. You might need to clarify where you fit in the value chain or distribution channels—who do you work with in the ecosystem of your sector, and why will they be eager to work with you. If you have customers and revenues, make it clear. If not, tell the investor when you will.
4. The Opportunity:
Spend a few more sentences providing the basic market segmentation, size, growth and dynamics—how many people or companies, how many dollars, how fast the growth, and what is driving the segment. You will be better off targeting a meaningful percentage of a well-defined, growing market than claiming a microscopic percentage of a huge, mature market. Don’t claim you are addressing the $24 billion widget market, when you are really addressing the $85 million market for specialized arc-widgets used in the emerging wocket sector.
5. Your Competitive Advantage:
No matter what you might think, you have competition. At a minimum, you compete with the current way of doing business. Most likely, there is a near competitor, or a direct competitor that is about to emerge (are you sufficiently paranoid yet??). So, understand what your real, sustainable competitive advantage is, and state it clearly. Do not try to convince investors that your only competitive asset is your “first mover advantage.” Here is where you can articulate your unique benefits and advantages. Believe it or not, in most cases, you should be able to make this point in one or two sentences.
6. The Model:
How specifically are you going to generate revenues, and from whom? Why is your model leverageable and scaleable? Why will it be capital efficient? What are the critical metrics on which you will be evaluated—customers, licenses, units, revenues, margin? Whatever it is, what impressive levels will you reach within three to five years?
7. The Team:
Why is your team uniquely qualified to win? Don’t tell us you have 48 combined years of expertise in widget development; tell us your CTO was the lead widget developer for Intel, and she was on the original IEEE standards committee for arc-widgets. Don’t just regurgitate a shortened form of each founder’s resume; explain why the background of each team member fits. If you can, state the names of brand name companies your team has worked for. Don’t drop a name if it’s an unknown name, and don’t drop a name if you aren’t happy to give the contact as a reference at a later date.
8. The Promise ($$):
When you are pitching to investors, your fundamental promise is that you are going to make them a boatload of money. The only way you can do that is if you can achieve a level of success that far exceeds the capital. What is your path to profitability and positive cash-flow? When will you get there? When will your investors start enjoying a financial return on their investment?
One more thing. 1-Page Executive Summaries need to be one page!
This is a good starting point for every funding campaign. It helps you clarify your thoughts and communicate your vision. If it cannot be explained in one-page, you should work on it more before you start pitching investors.
Are you interested in angel investing and helping us fund early-stage businesses? Email info@OmegaAccelerator.com.
Disclaimer: This does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or any other product or service. We are not offering any legal, investment, tax, or medical advice. Please consult the appropriate professional before doing anything you learn from the content posted on any of our digital properties. All stories are based on true events, but are altered to protect the identity of the individuals involved.
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