B USI N ESS P LAN S

THAT W I N $ $ $
Le sso n s f r o m t h e
M I T En t e r p r i se Fo r u m
STAN LEY RI CH & DAVI D GUM PERT
 Business Plans That Win $$$ - Page 1

MAIN IDEA
Preparing a business plan that appeals to investors sufficiently to have them reach for their checkbooks is one of the great
challenges to building a successful business. Yet the process of developing a business plan also serves another important function
-- it forces business owners and entrepreneurs to focus on company excellence and profitability in the marketplace above all else.
Although investor decisions sometimes appear to defy logic and reason, there is order and structure in the way they analyze
potential investment opportunities. The business plan is the starting point for all such discussions, and opportunities to progress
matters further. In essence, business plans have become the entry point to funding markets -- without one, you won’t even get a
foot in the door.
The key to winning funding with a business plan is to look at things from the potential investor’s perspective -- and being able to
make a viable case for the investment.

Before Starting -- What Investors Look For -- And Look Out For . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 2
The key elements investors look for in a business plan are:
1. Evidence of consumer acceptance
2. An appreciation of the investors financial return goals
3. Evidence of focus on a limited number of products
4. Proprietary positioning, reinforced by patents, copyrights, etc.
Investors also watch for the following warning signals:
1. A company that loves its product rather than serving a market
2. Financial projections at odds with accepted industry ranges
3. Growth projections out of touch with reality
4. Impediments that will make substantial growth difficult
The Preparation Process -- How Investors Will Judge a Business Plan By Its Cover . . . . . . . . . . . . . . . . . . . . Page 2
A good business plan will convey professionalism, clarity of thought and completeness by its appearance
and organization. In addition, suitability to the task should also be kept in mind.
The Company -- What Does The Business Want To Be When It Grows Up? . . . . . . . . . . . . . . . . . . . . . . . . Page 3
This section should clearly and concisely state where the company expects to be 5-years from now. The
answer to this question should flavor and influence the entire business plan.
Markets and Competition -- What’s the User Benefit? -- and Other Marketing Issues . . . . . . . . . . . . . . . . . . . . Page 3
Investors generally prefer marketing-driven companies. Therefore, this section must demonstrate the
company’s grasp on the real-world marketing issues involved.
Sales and Support -- How Will The Product Be Sold and Supported? . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 4
Companies that can demonstrate a viable sales channel exists and that they are sales-oriented and set
up to adequately address obvious service and support issues stand a far better chance of securing
investment backing.
Manufacturing -- How Investors View Development and Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 4
The higher the level, the lower the risk and the more information that should be provided. Conversely,
the lower the level, the greater the risk and the less information that should be included.
Management -- What Is The Management Team Like? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 5
Ideally, the business should be managed by three-to six-people with complementary skill sets and a mix
of previous experience, who are motivated, committed and appropriately rewarded.
Financials -- Those Darn Financial Projections! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 5
Investors naturally anticipate the company’s financial information will be optimistic and present a
best-case scenario. They also anticipate the data will be logical, well researched and assembled carefully
and thoughtfully.
The Investment -- Shopping For Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 6
The key decisions to be made when shopping for funds are:
1. Are investment or debt funds preferred?
2. Who are the most likely sources for those types of funds?
3. How can they most effectively be reached.
Making The Pitch -- And Now, It’s Showtime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 6
Making a good oral presentation which supports the written business plan is a must-have.
How Do Potential Investors Value A Business They Would Like To Invest In? . . . . . . . . . . . . . . . . . . . . . . . . Page 7
Business Plan Check-List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 8
Basic Business Plan Outline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 8

Before Starting
What Investors Look For -- And Look Out For
Main Idea
The key elements investors look for in a business plan are:
1. Evidence of consumer acceptance
2. An appreciation of the investors financial return goals
3. Evidence of focus on a limited number of products
4. Proprietary positioning, reinforced by patents, copyrights, etc.
Investors also watch for the following warning signals:
1. A company that loves its product rather than serving a market
2. Financial projections at odds with accepted industry ranges
3. Growth projections out of touch with reality
4. Impediments that will make substantial growth difficult
Supporting Ideas
Business plans are the cost of entry into the business funding
marketplace -- an essential fact of life for companies at every
stage of their growth. Most potential investors won’t even talk to
a company without a business plan.
Good business plans are written from the investor’s perspective.
That simply means weighing risk against opportunity -- investors
have a strong drive to reduce risks while looking for investment
opportunities that provide above average returns and a suitable
opportunity to realize those gains by cashing out.
Positive factors (from an investor’s perspective) are:
1. Early sales and feedback from people who have actually
bought and used the product or service.
2. The opportunity for the amount invested to appreciate at 35%
to 60% compound per year adjusted for inflation, and a
logical exit strategy for the investor.
3. Well focused management attention -- trying to exploit one
product successfully than half a dozen unsuccessfully.
4. The existence of exclusive intellectual property rights, giving
the company a sustainable competitive advantage.
The warning signals from that same investor perspective are:
1. Management who are so in love with their product they avoid
worrying about who will buy the product, why and how.
2. Financial and marketing projections that exceed what has
already been accomplished by peer group companies
already in the marketplace.
3. Financial growth expectations that are wildly optimistic and
unsupported by any facts.
4. The need to tailor products for specific customers rather than
for the broader marketplace as a whole.
Key Thoughts
‘‘We read 500 to 750 business plans a year -- and we invest in
six. And the 500 to 750 that we read are only a fraction of those
that are submitted.’’
-- Richard Charpie, managing general partner, Paine Webber
‘‘Part of the challenge for entrepreneurs as they assemble
business plans is to convince investors that the new venture will
exploit high-growth opportunities while minimizing possible
risks. That means entrepreneurs must adjust their strategies to
accentuate the company’s strengths and anticipate concerns
about weaknesses.’’
-- Stanley Rich and David Gumbert
Business Plans That Win $$$ - Page 2
The Preparation Process
How Investors Will Judge a Business Plan By Its Cover
Main Idea
A good business plan will convey professionalism, clarity of
thought and completeness by its appearance and organization.
In addition, suitability to the task should also be kept in mind.
Supporting Ideas
For a business plan to create a favorable first impression, it
should:
Have a neat appearance -- a plastic spiral binding, high quality
cover sheet -- tidy but not overdone.
Be about 40 pages in total length.
Have all the contact details listed on the cover page.
Be dated.
Have a good table of contents and a consistent numbering
scheme used throughout.
Contain sections that are appropriate to the circumstances,
rather than being a fill-in-the-blanks approach using a
standard business plan model.
Have supplementary and supporting information available in
a second document if required.
The structure and content of the business plan should closely
match the venture being described. A ‘‘cookie cutter’’ or
‘‘fill-in-the-blanks’’ approach should be avoided simply because
each business plan must be unique if it is to be useful.
Ideally, the first draft of the business plan should be written by
the business managers themselves. Outside consultants,
accountants and lawyers can then help refine and improve the
plan through successive drafts. That way, whatever emerges at
the end of the process is usable and applicable to the actual
needs of the company.
And, don’t ignore good business basics. Check carefully for
misspellings, typographical errors, the use of specialist jargon
and non-standard formats for things like financial information.
Even these simple errors can downgrade the effectiveness of
your plan -- they show a lack of attention to detail.
Key Thoughts
‘‘We strongly believe that a business plan should be
approximately forty pages in length. It is often useful to generate
an additional volume to the business plan, containing the
detailed supporting information that would be helpful to the
investor during the investigative or "due diligence" period that
will occur if there is sufficient interest.’’
-- Stanley Rich and David Gumbert
‘‘Of all the hundreds of business plans that have been submitted
to the MIT Enterprise Forum, one stands out as so exemplary in
its format that it can serve as the model plan. This plan was like
other plans in that it contained text on each right-hand side
through the book; what distinguished it from other plans was that
each page was summarized on the left-hand page. That is, each
left-hand page -- left blank in other plans -- contained sets of
bulleted highlight phrases, so that it was possible to read the
summarized version of the entire business plan in somewhat
under 10 minutes.’’
-- Stanley Rich and David Gumbert

The Company
What Does The Business Want To Be When It Grows Up?
Main Idea
This section should clearly and concisely state where the
company expects to be 5-years from now. The answer to this
question should flavor and influence the entire business plan.
Supporting Ideas
The answer to this question must address four basic issues:
1. What do the founders want themselves?
Building a successful company is too vague. You must be
more specific:
To guide the business from start-up to $---- in sales.
To stay with it as the company grows and matures.
To create value and then sell it after years.
To provide a good lifestyle for the founders.
This blend of business and personal preferences will have a
flow-on effect in the way the founders view their business,
and the decisions they make. It may not be articulated as
such, but it should be thought through beforehand.
2. What do the founders want for their company?
The broad spectrum of potential answers may include:
To go public.
To become a giant corporation.
To be acquired -- realizing capital gains.
To stay focus on a specific niche.
To be a cash cow.
To become a partner in a joint venture.
To become a licensing company.
To acquire other companies.
3. What are the industry realities?
Sophisticated investors will do a little research and find out
what peer-group companies are achieving. Therefore, if
you’re suggesting results that are significantly better than
anyone else is realizing, it will set off an alarm bell.
Similarly, if you’re suggesting competing on a shoestring
budget against an established competitor who spends
millions of dollars in marketing, do you have a realistic
chance of success?
That’s not to say it can’t be done. Exceptions will always exist
-- but investors usually aren’t interested in the exceptions. If
you’re trying to start an exceptional company, you’d better
plan on doing it with your own money.
4. What are the investor’s or lender’s objectives?
Money managers can earn 20% per year in safe
investments. Therefore, a venture capitalist requires a return
of 35% to 60% each year (adjusted upwards for inflation) to
offset the risk being taken. If you’re attempting to arrange
venture capital backing, you need to cater to this reality.
Other sources of funds have different requirements.
Lenders, for example, typically look for collateral as security.
Therefore, if seeking this type of funding, you’d stress the
collateral that is available.
Business Plans That Win $$$ - Page 3
Markets and Competition
What’s the User Benefit? -- and Other Marketing Issues
Main Idea
Investors generally prefer marketing-driven companies.
Therefore, this section must demonstrate the company’s grasp
on the real-world marketing issues involved.
Supporting Ideas
To demonstrate and quantify an understanding of how the
customer will benefit from your product or service, use concepts
and analogies that non-specialists can understand.
The key marketing issues are really:
1. How much time / money / lost production / reduced costs or
other savings does your product deliver to customers?
2. How much does it earn customers -- through greater
productivity / better performance / increased production
capacity?
3. What non-monetary benefits are delivered in the form of
improved appearance / better quality of life / entertainment?
Once you have quantified the benefits, you can then calculate
what the payback period will be. For most products:
Mandatory purchase -- payback of less than 1 year
Probable purchase - payback between 1 year and 2 years
Unlikely purchase -- payback over 3 years
Once the payback period is calculated, the challenge then
becomes to provide credible evidence that buyer demand exists,
and the size of that demand. Here, actual user documentation is
required -- testimonials from people who are already using your
product or service, even if only in prototype format. These written
testimonials are of great significance.
Similarly, some rationale should be developed as to why a stated
percentage of an existing market may be secured by a new
product. Simply stating that it should be possible to achieve a
2-percent market penetration rate because anyone could do that
won’t cut it. You have to provide some basis in fact -- and nothing
will impress more than the fact some customers have already
bought from you.
Also, avoid the temptation to take an oil well approach to
business - drilling 10 wells in the hopes 1 or 2 will pay off big.
Instead, focus all your efforts on making one product a success
before trying to add more.
The marketing section should also realistically detail the
competition’s strengths and weaknesses. Failing to do this in a
forthright manner makes your company seem negligent at best
and dishonest at worst. Show you’ve done your homework.
Finally, keep in mind the difference between marketing and
sales. Marketing is the strategy, sales are the tactics you plan
on using. In the product section, you can and should outline your
broader strategy. The actual tactics involved in executing that
strategy can be included in the sales section of the business
plan.
Key Thoughts
‘‘Effectively exploiting markets is the key to unlocking the doors
to commercial success.’’
-- Stanley Rich and David Gumbert

Sales and Support
How Will The Product Be Sold and Supported?
Main Idea
Companies that can demonstrate a viable sales channel exists
and that they are sales-oriented and set up to adequately
address obvious service and support issues stand a far better
chance of securing investment backing.
Supporting Ideas
Sales and support are the nuts and bolts of the future business
revenues. Most business plans simply rely on hiring sales
personnel and letting them loose. That’s somewhat ambitious as
well as unrealistic.
In reality, four viable sales channels exist:
1. Executive Selling
Most suited to products worth more than $100,000 each. In
essence, the senior management are the sales force.
2. Company Sales Force
Usually for products in the $10,000 to $50,000 range, with
about 10% of the price being used up by the cost of the sales
personnel.
3. Sales Representatives
Independent contractors who work on a non-exclusive basis
and are paid strictly on commission. Usually used for
products in the $1,000 to $10,000 range.
4. Mass Distribution
Wholesalers, retailers, mail order, direct marketing or direct
mail. Usually used for products less than $1,000 in price.
Here, the key issue becomes having realistic expectations of
the likely response rate.
A good business plan will offer evidence of the interest that exists
in whichever sales channel is to be utilized by the company.
Once you’ve addressed the sales tactics, there are two support
areas to be considered:
1. External Support
How will you let potential customers know your product
exists? What will you do to generate interest so that your
sales channel can close the sale. How do you plan on
reaching your target market -- so you can get them to the
point at which a sale can be made?
2. Internal Support
What systems are in place to develop the materials the sales
channel will require to be effective? Who is responsible?
What is their budget? How will the sales channel be
organized, and who will be responsible for achievement of
the objectives?
Key Thoughts
‘‘Investors want to feel comfortable that the companies they back
will be marketing oriented; the best way for investors to reassure
themselves is to see a detailed and sensible description of
selling, promotion and support tactics. For all the questions
about business plan focus, form and projections, investors know
there’s no substitute for selling. Venture which can vividly and
clearly demonstrate that they are sales oriented will be the
likeliest to receive investor backing.’’
-- Stanley Rich and David Gumbert
Business Plans That Win $$$ - Page 4
Manufacturing
How Investors View Development and Manufacturing
Main Idea
The four manufacturing levels are:
Level 4: Finished products and satisfied customers
Level 3: Completed products, no customers yet
Level 2: Prototype products, needs development and evaluation
Level 1: Promising idea, product still to be developed
The higher the level, the lower the risk and the more information
that should be provided. Conversely, the lower the level, the
greater the risk and the less information that should be included.
Supporting Ideas
To secure backing:
A level 4 company should be seeking capital to broaden
marketing and sales efforts or to increase manufacturing
capacity. The key here is to demonstrate that a 35-percent
growth rate is achievable for the potential investors.
A level 3 company will ideally be seeking capital to launch an
aggressive marketing and sales program, and to scale-up
manufacturing. The key here is to demonstrate a strong
foundation exists, an opportunity exists to earn 35- to
60-percent per year on the investment and the risk is
manageable.
A level 2 company typically seeks funding for customer
testing, production engineering, marketing development and
tooling and design of production facilities. The uncertainty is
higher, so the potential reward to investors must reflect that
-- often in the form of a much larger proportion of the
company’s stock.
Securing funding for a level 1 company is highly unlikely --
except in the case of people with prodigious track records or
products that are exceptionally highly marketable. Since
Level 1 funding is normally to be applied to product
development purposes, it may be preferable to seek research
grants rather than venture capital backing.
Again, the further along the spectrum a company is, the more
information that should be available -- and the detail contained
in the business plan needs to reflect that level of development.
Key production issues will usually include:
1. The amount of research and development required before
manufacturing engineering is completed.
2. What adjustments will be needed in the scale-up to high
levels of production.
3. What facilities are required to evaluate product performance,
and the budget for these facilities.
4. How quality will be controlled and standards maintained.
5. How the product will be manufactured, and the projected
costs.
Key Thoughts
‘‘Investors usually prefer, at least during a company’s early
years, that more funds be concentrated on selling the product
and less on the ‘‘bricks and mortar’’ associated with producing
the product. Thus, entrepreneurs are usually better off early on
to subcontract for components and processes than to invest in
the facilities for handling such production in-house.’’
-- Stanley Rich and David Gumbert

Management
What Is The Management Team Like?
Main Idea
Ideally, the business should be managed by three-to six-people
with complementary skill sets and a mix of previous experience,
who are motivated, committed and appropriately rewarded.
Supporting Ideas
As a rule of thumb, first-rate managers with a second-rate
product are more attractive to investors than second-rate
managers with a first-rate product. People take priority, and
assembling a high quality team can make or break the project.
The key positions are marketing, sales, operations, finances,
manufacturing and engineering. Since there is a natural
tendency for people to go into business with others who have a
similar background, the key emphasis should be on showing the
diversity and variety of the management skills at hand.
How do investors evaluate the management? Normally, on the
basis of:
Maturity, sound judgment and stability.
Practical experience.
Know-how and market savvy.
Again, management team levels exist:
Level 4 teams are in place and committed.
Level 3 teams have identified gaps, and are searching.
Level 2 teams have not yet decided who they need to find.
Level 1 teams are one-man bands.
Obviously, the higher the level, the lower the risk -- from an
investor perspective. Finding the correct people for the
management team is one issue -- being able to reward them and
retain them is quite another contentious area.
There are three steps a company can take to reassure investors
the management team is likely to see the job through:
1. Through stock option agreements which vest progressively
over a 5-year period. This provides incentives for everyone
to work hard to add value.
2. By compensating everyone in an open, well-defined way --
withou t any sideba r agreements , privat e deals ,
under-the-table payments, etc.
3. By using formal, written employment contracts which set out
all relevant terms and conditions.
One commonly used method for offsetting a lack of management
depth is to put a number of outsiders on the board of directors.
That will make it more likely the company will be operated on a
commercially viable footing, rather than just rubber stamping
whatever the entrepreneur suggests.
Another idea is to have an advisory panel consisting of people
from various backgrounds. They will have no legal or other
responsibilities, but they can act as a sounding board or source
of fresh ideas.
Key Thoughts
‘‘Assembling a winning management team is at once one of the
most important and most difficult tasks facing a young venture.’’
-- Stanley Rich and David Gumbert
Business Plans That Win $$$ - Page 5
Financials
Those Darn Financial Projections!
Main Idea
Investors naturally anticipate the company’s financial
information will be optimistic and present a best-case scenario.
They also anticipate the data will be logical, well researched and
assembled carefully and thoughtfully.
Supporting Ideas
Most investors discount company developed financial
projections by 50-percent straight away. Therefore, they always
value a company on the basis that it will possibly achieve half its
stated financial goals.
The key, therefore, is not so much the conclusions you reach but
the justification. If you can show the rationale you followed in
making those projections, they will be far more credible. You
must demonstrate you’ve thought things through.
Overdoing the financials -- such as calculating all sorts of
scenarios -- can be just as irritating as ignoring them altogether.
The challenge is usually not what to include, but how to make
them believable. This is usually accomplished by peer-group
comparisons, with other companies in similar situations.
Keep in mind that the financial information section generally
won’t be closely looked at unless the investor is seriously
considering making an investment. Therefore, the presentation
should be in a generally accepted format, without any creative
twists or originality. The standard financial information (projected
over a 5-year period) is:
An income statement showing sales, gross margin, expenses
and operating profit or loss.
The cash-flow forecasts -- receipts, disbursements, cash
requirements and timing.
Balance sheet.
Break-even analysis -- when revenues will finally exceed
costs.
The financial section will also come face-to-face with the central
issues of: ‘‘How much of the company will we have to give away
to secure backing?’’ or ‘‘How do we retain control?’’ Keep in mind
that from the investor’s perspective, these issues are irrelevant.
The investor doesn’t want control -- he or she is looking to
maximize their investment gains. The focus should be how to
grow a substantial company.
Key Thoughts
‘‘The venture capitalist is looking to maximize investment gains,
not for control. If you’re doing a good job, you’re in control. If
you’re not doing a good job, the bankers or venture capitalists
are in control.’’
-- Stanley Rich and David Gumbert
‘‘The last thing investors want is to provide new management for
an emerging enterprise. Investors, regardless of the percentage
of a company they own, will avoid replacing the people who
created a business unless they prove totally incompetent. In that
case, replacement is best for all concerned, including the
founders.’’
-- Stanley Rich and David Gumbert

The Investment
Shopping For Funds
Main Idea
The key decisions to be made when shopping for funds are:
1. Are investment or debt funds preferred?
2. Who are the most likely sources for those types of funds?
3. How can they most effectively be reached.
Supporting Ideas
A business plan normally takes between 2- to 6-months to
prepare. Many companies won’t start the process until they are
desperately short of funds -- therefore, by the completion of the
process, the situation is usually fairly serious, and that doesn’t
even take into account the 3- to 6-months required to negotiate
a transaction.
Generally speaking, the decision on whether to seek venture
capital or debt funding comes down to just one issue -- whether
the business can make a viable case to grow at more than 35-
to 60-percent per year over the next five years. If so, venture
capital funding is definitely an option, otherwise debt funding
should be pursued. Finding collateral then becomes the
objective, rather than funding.
The most common sources of venture capital funding are:
1. Venture capitalists -- who usually invest from $125,00 to $1.5
million. They prefer companies with established
management teams (level 4) and finished products (level 4),
although they might also be responsive to businesses at level
3 in either area.
2. Early-stage venture capital funds -- usually investing
between $50,000 and $250,000. Frequently invest in
companies at level 3 or 4 in product development and
management.
3. Investment bankers -- who may be interested in the
possibility of offering shares to the public, although this is a
very long and formal process.
4. Informal investors -- who often invest between $10,000 and
$100,000 in level 2 start-up companies. These investors
prefer local companies, seek annual returns in the 20- to
50-percent range and look to liquidate their investments
within five- to seven-years.
Lenders, by contrast, generally fall into two broad categories:
1. Commercial -- banks, finance companies, leasing
companies, insurance companies.
2. Government -- Small Business Administration, local
government business development groups, state
government agencies.
Getting an introduction to any of these groups is always more
efficient than making cold calls. For that reason, developing a
business network is a sound idea, and may open the door to
discussions with lenders or investors.
Many companies also try and hire a consultant or a fund finder
to help them through this challenge. Generally speaking, that
doesn’t pan out all that well -- both lenders and investors prefer
the business manager to be more hands-on, viewing the process
of preparing the business plan as a good exercise for the
management to go through personally. Besides which -- why
waste resources that should be applied to building the business
on a funding finder or consultant?
Business Plans That Win $$$ - Page 6
Making The Pitch
And Now, It’s Showtime
Main Idea
Making a good oral presentation which supports the written
business plan is a must-have. Some keys:
1. Have one master-of-ceremonies to direct the presentation.
2. Maintain good eye contact with the audience.
3. Emphasize marketing and management expertise above all.
4. As far as possible, demonstrate the product in action.
5. Have several trial runs before the real thing.
Supporting Ideas
Ideally, the oral presentation should build momentum towards
the desired conclusion. Good presentations make the business
plan come to life.
What questions will be in the investors minds?
How well prepared is the management team to clearly and
coherently sell the company and its concept?
Are the founders market-oriented or simply in love with their
technology or product?
Does the management team come across with integrity,
competence and expertise?
Does the "chemistry" between the various members of the
management team feel right?
Is the management team responsive to constructive criticism,
or are they defensive?
To put on an effective 30- to 40-minute presentation:
1. Have one member, usually the CEO, act as the presentation
manager, directing events, providing background and
keeping things moving.
2. Establishing personal rapport and building interest are the
key goals. Therefore, avoid slides, overheads and visual aids
wherever feasible. Speak without notes, maintaining good
eye contact, and supplement what you say using a flip chart
with bulleted key points. It’ll be far more effective.
3. The key issue is not the product -- it’s the market, the
management and your long-term goals, and how they
translate into a return on investment. Make certain those
points get the major proportion of the allocated time. And
don’t forget to provide evidence of customer acceptance --
the investor will love that part.
4. Wherever possible, make it possible to demonstrate your
product in front of the investors. It not only shows what the
product does, it also proves the product exists. You can also
find a way to take the investors somewhere where your
product is in action if appropriate.
5. Rehearse, rehearse, rehearse. Have dry runs before hand.
Smooth out the rough spots, find ways to increase the impact
of what you’re going to do. There’s no use coming out of an
investor presentation full of ways to jazz up the presentation
next time around -- generally speaking, there won’t be a next
time. You must get it right first time. It also gives an
opportunity to decide who will answer what type of question
-- that way everyone becomes involved in the presentation
rather than making it look like a one man show.
 Business Plans That Win $$$ - Page 7

How Do Potential Investors Value Step 5

A Business They Would Like To Invest In? Make a calculation of the projected value of
the business enterprise in 5 years time:
Start 1. Assume the company will achieve 50% of its current
financial projections in 5-years time.
2. Company revenues will be...............$ million
Step 1 3. Net profits will be..............................$ million
Decide whether or not the business is in a field in which Therefore, using the rule of thumb the company
the company has some expertise, and wants to invest in. will be worth 10-times its net profits at that stage:
Yes No
End Projected Company Value: $ million

Step 2
Make a qualitative rating of the current level Step 6
of the company’s product or service: Calculate the future value of the funds being invested
Level 4 Prod uc t devel oped . Sa t isfie d users . today, allowing for the required rate of return
Established market. and the projected rate of inflation.
Level 3 Product developed. Few users. Assumed Required rate of return............................... %
market. Plus allowance for inflation.......................... %
Level 2 Prototype product. Not production ready. Total rate of return....................................... %
Level 1 Good idea. Market assumed to exist.

Funding being sought today: $

Product/Service Rating

Use a financial calculator or the table below to

calculate the required value of those funds in 5-years.

Step 3 Yr-Start Interest Yr-End

Make a qualitative rating of the current level Year 1
of the company’s management team: Year 2
Level 4 Fully staffed, experienced management team. Year 3
Level 3 Partly staffed, potential team members Year 4
identified and awaiting additional funding. Year 5
Level 2 Two founders, not yet identified other
management positions which will be required.
Required value of those funds: $
Level 1 Single founder -- entrepreneur.

Management Rating
Step 7
Therefore, for the investment to achieve its financial
goals, calculate the proportion of the company
Step 4 which must be owned by the investor to achieve
Look up the required annual rate-of-return: the total rate of return requirements:
Product Rating
4/1 4/2 4/3 4/4 Required Value (Step 6) / Company Value (Step 5)
4
----- 50% - 60% 40% - 50% 35% - 40%
3/1 3/2 3/3 3/4
3
----- 50% - 60% 40% - 50% 40% - 50% $ / $
2/1 2/2 2/3 2/4
2
----- 50% - 60% 50% - 60% 50% - 60%
= %
1/1 1/2 1/3 1/4
1 This is the percentage ownership the investor requires.
----- ----- ----- -----
1 2 3 4
Management Rating
Can something suitable be negotiated?
Required Rate of Return
 Business Plans That Win $$$ - Page 8

Business Plan Check-List Basic Business Plan Outline

The MIT Enterprise Forum came up with the following checklist 1. Executive Summary (1 - 2 pages)
of the key requirements of a successful business plan: 2. The Company (5 - 6 pages)
It must be tidy and professional -- a table of contents, an Current Status
executive summary and chapters in a logical order. Near-Term Objectives
It must be the right length and appropriate to the situation -- Long-Term Objectives
not too long, too short, too fancy or too plain. Management Team
It must vividly portray what the company expects to achieve Management Objectives
in the next five-years. 3. Markets and Competition (10 - 11 pages)
It must detail the product or service user benefits both The Present Market
quantitatively (using hard evidence) and qualitatively (using User Benefits
more humanistic qualities). Other Customer Benefits
It must present hard evidence of the product’s or service’s Near-Term Market
marketability. Long-Term Market
Summary of Projected Market
It must justify the sales channel chosen in solid financial
Competition
terms.
Projected Sales and Market Share
It must explain and justify the level of product development Specific Target Markets
which has been undertaken, or which is proposed for the Sales Strategy to Reach Objectives
future.
4. The Products ( 6 - 7 pages)
It must describe, in an appropriate level of detail, the
Theory of Operations
manufacturing processes involved and their associated
Applications
costs.
Product Performance Data
It must portray the management team as experienced and Product Economics and Advantages
possessing complimentary business skill sets. {resent Product Status
It must convey the impression the product development team Scale-Up requirements (If any)
are sophisticated and well versed in whatever they do. Patents and Proprietary Know-How
It must contain credible financial projections, with the key data 5. Sales and Product Support ( 5 - 6 pages)
explained in detail and documented. Current Sales Methods
It must show how early investors can cash out in five-years, Near-Term Sales Methods
and the projected capital appreciation. Projected Long-Term Sales Methods
It must be presented just to those who are potentially the most In-House Sales Support
receptive to avoid wasting company resources. Pre-Contract Sales Costs
Custom Engineering Sales Requirements
It must be easily and concisely explained in a well thought-out Product Pricing and Warranties
oral presentation.
6. Manufacturing ( 4 - 5 pages)
Facilities Needed
Make / Buy Considerations
Major Purchasing Issues
Second, Third Sourcing Needs
Manufacturing Engineering Support
Quality Control Plans
Staffing Requirements
7. Financial Data ( 6 - 7 pages)
Financial History
Expansion requirements, Budgets
Financial Projections
Summary of Operations Prior to Financing
Current Stockholders, Number of Shares
8. Investment ( 2 - 3 pages)
Use of Proceeds
Details of the Offering and Potential Exit Strategies
Appendices
Management Team Biographies