Category Archives: Start-up

Funding Your Venture When Banks Say, “No!”

Many aspiring business starters are sadly mistaken in believing that banks actually fund start-ups.  With no business experience and even less collateral, they expect a bank to open the vault and give them money.   If you are ready to move forward with your idea, you need to clearly understand your funding options and the challenges that await you. Raising money is likely the hardest thing you will ever do when it comes to your new venture.  Click here to see the presentation.

The Role of an Executive Summary

There is little doubt that  when seeking funding, a well written business plan is a must.  However, you will also need an equally well written executive summary.  When “shopping” for funding, you approach potential investors with the executive summary and not the actual business plan.

The executive summary is just that:  a high level summary of the business plan.  Once there is preliminary interest in your business concept from potential investors, you would proceed to share the business plan.  In some case, an interim step might be the delivery of a one-to-one or group presentation via a “pitch” deck.  The pitch deck is a graphical representation of your written executive summary.

Typical sections of an executive summary include:

Business Introduction

A brief description of the business, the need, the potential and the uses of the funding sought.   Highlight anything with a “wow” factor.  The purpose of the introduction is to catch a potential investor’s initial interest.  Sophisticated investors are routinely inundated with proposals and pressed for time, which is why your executive summary is such an important first step.

The Market

Quantify the overall size of the market in which your company will operate.   In relation to this market, detail what percent of the market your venture aims to acquire.  Investors want to see a healthy, growing target market and a sound strategy for gaining market traction.

The Problem

The purpose of any business is to solve a problem.  Clearly state what is the problem that your business hopes to solve.  Detail why this market problem necessitates the solution you are proposing.

The Solution

This is likely the most important part of your executive summary.  Guide your potential investors through your solution to the problem at hand.  Be as direct and detailed as possible.  Be sure to highlight any aspects of your business that will result in a first mover’s advantage; competitive differentiation or intellectual property.

Revenue Model

Explain how you will monetize the problem via your solution.  Explain the components of your solution and how you will charge for your products and/or services.

Demand Generation and Customer Acquisition

Show potential investors your plan for acquiring customers via demand generation activities.  Explain why the activities/tactics make sense and how much it will cost to acquire a customer.

Management Team

A solid founding team is critical to the success in raising money.  Potential investors are looking for decisiveness, passion, leadership, proactivity, adaptability, reliability and great communication skills.  If at all possible, round out the founding team with a strong board of directors.  Ideally, directors should be successful individuals that have relevant experience in your target market.

Financials

At a minimum, present a five year profit and loss statement, with business valuation estimates at the end of each year.  Explain the uses of the capital sought and detail any information that helps to explain the financial projects.

Business Growth, Extension and Exit

The exit plan is critical.  Investors want an exit event in order to realize the gain on their efforts and capital.  Going into your business, you should have a good idea of who would want to buy the business in the future.  Finally, past what’s already included in the financial projections, show potential investors any future business extensions.  For instance, these could include international expansion, additional products or new customer segments that could be served.

Business Plan Sections

Business plans can range from very simple to very complex documents, depending on their intended use.  For raising funds from friends and family, the plan may be simplistic.  However, when seeking funding form accredited investors, angel funds or venture capital firms, business plans require a much greater amount of detail.  No matter its intended use, the basic sections of any business plans contain at least the following:

Business Overview

A description business.

  • Business name
  • Location
  • Legal business description (i.e. proprietorship, limited liability, corporation, and so forth)
  • Business status (new, expanding, franchise
  • Industry
  • Business purpose and goals
  • If an existing business, provide history of operations, revenue, profits, etc.

Market Analysis

This section should illustrate your knowledge about the particular industry your business is in, which should include among others:

  • Industry description and outlook
    • Description of your primary industry
    • The current size of the industry as well as its historic growth rate, trends and characteristics related to the industry as a whole
    • Major customer groups within the industry (i.e., businesses, governments, consumers, etc.)
  • Target market information
    • When you are defining your target market, it is important to narrow it to a manageable size
    • Distinguishing characteristics of the major/primary market you are targeting
    • This section might include information about the critical needs of your potential customers, the degree to which those needs are (or are not) currently being met, and the demographics of the group
    • You need to know the number of potential customers in your primary market, the number of annual purchases they make in products or services similar to your own, the geographic area they reside in, and the forecasted market growth for this group
    • The extent to which you feel you will be able to gain market share and the reasons why
    • Define the levels of your pricing, your gross margin levels, and any discount structures that you plan to set up for your business
    • Trends and potential changes which may impact your primary target market, along with key characteristics of your secondary markets
  • Evaluation of the competition
    • When doing a competitive analysis, identify the competition by product line or service as well as by market segment; assess their strengths and weaknesses; determine how important your target market is to your competitors; and describe any barriers that may hinder market entry
    • Note all key competitors for each of your products or services and for each key competitor, determine what their market share is and then try to estimate how long it will take before new competitors will enter into the marketplace
    • Weaknesses:  analyze the same areas as you did before to determine what your competitors’ weaknesses are

Marketing and Sales

Successful marketing can make or break any business. When developing your sales and marketing, consider the following:

  • Marketing Plan
    • Who are the primary customers and how you will sell to them
    • Market penetration strategy
    • Growth strategy
    • Channels of distribution strategy—choices for distribution channels could include original equipment manufacturers (OEMs), an internal sales force, distributors, or retailers
    • Communication strategy—generally, a combination of the following tactics works the best:  promotions, social, advertising, public relations, personal selling, and printed/electronic materials such as brochures, catalogs, flyers, etc.

After you have developed a comprehensive marketing strategy, you can then define your sales strategy. This covers how you plan to actually sell your product.

  • Sales strategy
    • Sales force strategy. If you are going to have a sales force, do you plan to use internal or independent representatives?  How many salespeople will you recruit for your sales force?  How will you structure their compensation in order to drive the crucial results that you want ?
    • Compensation plans for sale personnel
    • Sales activities/tactics and objectives

Employees, Operations and Locations

It is important to provide detailed information about your business. This includes information on:

  • Employees
    • Number of employees and managers
    • Job descriptions
    • Required business departments and working hours required to run a smooth operation
  • Operations
    • List products and services offered
    • How the will be offer and what equipment and furniture will be required to operate smoothly
  • Location
    • Location of your business
    • Explain any renovations, new buildings, machinery, systems that are required.
    • If applicable, address any zoning laws and licenses that are required for business operation

Financial Projections

Even if the object is not to raise money from outside investors, a financial plan should include the following, at a very minimum:

  • Detailed by month, one-year profit and loss statement
  • Detailed by year, five-year profit and loss statement
  • Start-up capital needs, sources and uses of the cash
  • Balance sheet and cash flow statement
  • Detailed notes as required to explain aspects of the financial documents