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When entrepreneurs seek funding for a new venture, potential investors often want to see a business plan. The question is: What kind?
If you are searching for funding—whether from venture capitalists, angel investors, bankers, or even friends and family—one of the first requests you'll receive is this: "Send along your business plan." Before you hang up the phone or acknowledge the e-mail, you may want to ask one question: What kind of business plan do you want me to send?
Business plans come in several forms, and before you start writing a 35-page document, you may want to determine whether a one- or two-page summary might do the trick, or vice-versa. Just keep in mind that whatever type of document you send, it must do more than simply describe your business—it must also sell you and your business and convince the backer you have what it takes to make the business succeed over the long term.
Here are the five most common types of documents that can fill a request for a written business plan, from most basic to most involved.
An executive summary. An executive summary is essentially a business plan in miniature and shouldn't be longer than two pages. That means it should cover the main components—the strategy, the management team, the market, the product or service, the sales plan, and the finances. But it must go beyond simply addressing these issues in factual format like an abstract or an outline, as if hitting items on a list. It should integrate them in a cohesive and convincing way that interests and stimulates the investor candidate.
A synopsis. A synopsis might best be described as an executive summary on steroids. From a writing and presentation perspective, a business synopsis is a cross between an executive summary in traditional business plans (BusinessWeek.com, 12/3/07) and a business proposal. The emphasis here is less on the particulars of the idea and more on why the idea is especially relevant to the investor. Does your business somehow complement the venture capital firm's other investments from an industry perspective? Does it open up a new opportunity area the investor is likely to be interested in, based on his past experience? In other words, the focus is on convincing and selling the recipient.
A summary business plan. This is a document typically 10 pages or fewer. It includes an executive summary, and then a page or so of explanation of each of the key components of a business plan. So it expands on what an executive summary or synopsis provides. Its financial section may look ahead a year or two instead of the traditional three to five years. A summary business plan has become the most common answer to the request from prospective investors, in my experience.
A full business plan. This is the traditional business plan of 25 to 35 pages that gets written about in books on planning. Each section of the plan is explained in full—lots of industry marketing data to back up the marketing section, much detail about features and warranties in the product description, and full financial projections including cash flow, looking ahead three to five years.
An operational business plan. This is the most detailed plan, since it is for companies that are already operating and thus have a history and an existing strategy. Moreover, such companies tend to develop a business plan literally to plan the business, rather than simply to raise money. A complete operational plan may be 50 or more pages, going into detail about sales, production, and distribution, so as to offer guidance to key managers, and in some cases to all employees. A well done operational plan can also be used to raise expansion capital, or even to attract prospective acquirers.
How do you know which kind of plan you should be preparing? Sometimes it's best to ask prospective backers what kind they would like to see. And if you haven't prepared anything, you can try to steer them toward the simplest plan, as in: "How about if we send you our executive summary?" Then you can get busy writing, in hopes of completing something reasonable in a few days.
But be prepared. If the prospective backers are truly interested, they may come back with the question: "Do you guys have any more detail to back up what you sent us?" Then the next step could be a summary business plan, or maybe even a full plan.
For more advice on business plans, including a video interview with a leading consultant, a roundup of resources experts recommend, suggestions for crafting a compelling presentation, and more, click through the rest of this special report (BusinessWeek.com, 1/7/08).