Steadily work at maintaining your competitive edge.
Optimize the organization to rapidly transform if and when change occurs.
Continue to search for ways to take better advantage of what you do best.
Some managers may follow all these tips automatically and intuitively. But if you want to make sure that strategic thinking extends into all parts of your company, you have to create a framework to ensure that it happens. When you make planning a basic responsibility for the whole enterprise, you get the added benefit of including all levels of employees in the process. Employees — especially those closest to the customer — often have different and equally valuable viewpoints about shaping strategy. Having a planning framework ensures that you hear their voices.
Satisfying Your Audience
Whether you write your business plan on your own or do it by committee, always keep in mind who reads the written document. A business plan is meant to communicate your vision and strategy — what you plan to do and how you intend to do it. The best way to convey your message is to consider your audience. You don’t speak French to someone who only speaks Italian, right? (Well, maybe the French do.) For the same reason, you don’t want to fill your business plan with all kinds of techno-jargon if your audience is made up of people who don’t know the first thing about the cool new technology you work with.
What if your whole business idea is based on something brand-new? Don’t you need to describe it in detail? Sure you do. But you can address different audiences within the same document. For example, your plan may include an overview of the new technology that anyone who reads it can understand, and if necessary the techno-speak can go into an appendix. Before you can really think about how to address different audiences, however, you have to know your readers.
For the sake of simplicity, we lump them all together and call them your stakeholders — as in everyone who has a possible stake in what your company does or how it operates. Some of these people may have direct stakes: They rely on you for their income, for example, or they own a piece of your business. Others may have less tangible interests: government watchdogs who occasionally survey you to ensure that you’re complying with legal standards or civic organizations who want to make sure that you remain a good corporate citizen.
Whatever the interest group, your business plan is one of the most important tools you have to communicate with them. But there is a catch: Each of these groups is likely to look at your plan in a different light. So take a closer look at two very important types of stakeholders: investors and lenders.
Venture capital
If you need money to fund your business and you want to minimize your financial risk, one place to turn to is the venture capital (VC) marketplace. Venture capital firms are in the business of raising money and then putting it in the hands of businesses that make their money grow. They usually invest capital in new ventures, hence their name. So for start-up companies, venture capitalists can be a very important (and discerning) audience when it comes to the business plan. You can bet that they will read your plan very carefully before handing over any cash.
What do you need to succeed in the venture capital sweepstakes? First, it helps to know about the nature of VCs. Venture capitalists come in all sizes, from small, independent operators to large national or even global VC firms that evaluate thousands of new business proposals every year. Some VCs specialize in certain industries — biotechnology or e-commerce services, for example. Others tend to stay close to home, funding companies in their own geographic area so that they can keep close tabs on their investments. Some VC firms prefer to invest in companies working in the early stages of development. Others look for companies that need a final push into the big leagues.
Now comes the $64,000 question — or if you’re lucky, make that $64 million: What’s the best way to get your business idea and plan in front of real, live investors? We wish we could give you a sure-fire, one-size-fits-all answer. There isn’t one. Still, entrepreneurs who’ve been successful before can provide you with valuable knowledge. The following sections provide a few tips that should help you distinguish yourself.
FANCY FINANCING LINGO
As you may expect, the world of venture capitalists has a language all its own. Most of it has to do with the various types of financing available — which in turn is closely tied to the different stages of a company’s development. Here’s what you need to know:
Seed financing: The money you need to prove that your basic business concept is a rock-solid one that can generate streams of additional funding. Seed financing may go into building a prototype of your very cool new technology; this is called “proof of concept.” Or it can be used to conduct market research to show that customers really want what you have to offer.
Start-up financing: The initial level of investment required to get your business off the ground. You can use the funds for everything from assembling your business team to developing your product or service, testing it, and bringing it to market.
First-stage financing: Additional money that comes in after your initial start-up funds run out. You often use the funds to support further growth by ramping up new product development, production, marketing, or your sales efforts.
Second-stage financing: Money raised further down the road after your business has initially proven itself. You typically use the funds to allow the company to expand even more by supporting growth in all areas of the company’s operations.
Mezzanine financing: We’re not talking about buying theater tickets here. Mezzanine means in between. In a theater, the mezzanine level is between the orchestra and the first balcony. In the business arena, mezzanine financing falls between an equity investment and a standard bank loan. The money allows your company to expand in a particular direction without necessarily having to give up additional ownership in the business.
Bridge financing: Like a bridge over troubled waters, this kind of financing can help your company over temporary rough spots. For example, you sometimes use short-term bridge loans before an Initial Public Offering (IPO) to smooth out any working capital needs that may occur before the IPO is completed. When the latter occurs, the bridge loan is paid off with the proceeds.
Making connections
As almost all successful entrepreneurs can tell you, it’s not just what you have, it’s who you know. The more networking you do — those people who can say nice things about you, your business idea, and your plan — the better your odds of actually getting onto some venture capitalist’s radar screen.
Doing your homework
Venture capitalists have been to the rodeo before, many times in fact. And although they love to see excitement and enthusiasm in the entrepreneurs they talk to, they absolutely need to know that you’ve also done all your homework — everything from scoping out the competition and sizing up the market to crunching the numbers and identifying the strengths, weaknesses, and uncertainties inherent in your business model (see the earlier section “Bringing Your Ideas into Focus” for tips on finding this info). You need to be enthusiastic,