Should I factor in an investor when writing my business plan?
Should I be writing my business plan with an investor in mind?
I want to get some funding to grow the business, which I will launch this year, but not immediately.
How far ahead should I be thinking in terms of investment?
Your business plan should generally be written with the business itself in mind. The primary goal of a plan is to serve as a place for the entrepreneur to collect all their thoughts on the various aspects of the business.
The plan should provide you with the comfort that you know enough about what you are going to do; that it is worth investing the time and effort into the endeavour.
In theory, the plan is a document you could share with anyone and they would be able to get a good idea of what you are going to do, what the associated risks are and how you plan to address them.
In practice, the plan might be shared with mentors, potential employees and, of course, investors.
An investor will be more interested in some sections than others. If you’re considering looking for funding, you should focus on making sure those parts are comprehensive and detailed.
When the time comes for pitching, investors will go through your plan with a fine-toothed comb, so it’s important to accurately portray your company.
There are many standard templates for a business plan, but a nice outline can be found on Inc.
Headline sections are:
- Market analysis
- Competitive analysis
- Marketing and sales
If the plan was written solely for use by the entrepreneur, then some sections aren’t as critical, because they should be second nature to the entrepreneur.
Sections like summary, strategy, product/services should be almost self-evident. After all, it’s your company – you should know this inside out.
However, if the plan is to be shared, including with an investor, then these sections are required.
Nevertheless, the investor will be more interested in operations, market analysis, competitor analysis and business model.
- Operations – How will the business run? Staffing is usually the single biggest expense for a company and so the investor wants to know that the business is properly resourced to achieve the desired goals.
- Market analysis – How big is the opportunity? Focus on who will be your customer, what they want, why they want it. Research sources, such as Gartner, are useful ammunition to make your argument as to why the business opportunity is large.
- Competitor analysis – Who else is playing in this space? You show you know your competitors offerings, and what differentiates your product/service from theirs. Are you going after the same dollar or is there differentiation? Is there room in the market for you and your competitors?
- Business Model – How are you going to make money? This is one of the most significant pieces to the plan. Are you going to charge upfront or on an annual basis?
Are you going to undercut the competition or offer a premium product? Pricing and pricing models take a lot of thought about what is going to offer value for the customer and yet maximise returns for the business. This section is most often a “work-in-progress” as early stage companies try different ideas.
How far ahead you should think depends on the investor. For angel investors, probably one to two months is usual, whereas for VCs, allow six to 12 months. I’ve written previously about how long an investment takes.
So the business plan should be written primarily with the business in mind. However, as with many communication activities, keeping the audience in mind is a good idea.