Thursday, November 6, 2008

Creating a business plan, continued.

More guidelines and cautions from San Diego investor Ken Olsen on creating a business plan:

How far along is the product?
- provide evidence of the current status.
- what are the product development milestones?
- no product is perfect - describe what’s wrong with it.
- if you claim it’s unique, prove it.
- what’s your intellectual property strategy?

Marketing strategy.
- what's the problem to be solved?
- what's the market to be addressed?
- who's the competition?
- what’s the value proposition?
- what's the value competition?
- what’s the selling cycle?
- what’s the customer buying cycle?

If you underestimate the latter, you’re likely to run out of money.

Development and operation plans.
- milestones for initial development.
- milestones for initial manufacturing.
- milestones for initial sales.

Talent and enthusiasm can only take you so far. You need controls and orderly functions as well, especially as you grow. Show that you have the capability to do this.

Spending and revenue results.
- concentrate on the first few years.
- provide estimates for five years out.
- show reasonable detail.

Potential investors will likely discount your estimates by 50%. You need to discount your own figures as well if you believe that everything has to go right to achieve these results. While your initial plan will inevitably be wrong, it shows people how you think. Investors will use this to calibrate your assumptions and your judgement.

Questions to answer when developing a capitalization plan.
- how much money do you have now?
- how much are you looking for
- when do you want it by?
- what are you going to use it for?
- how long will it last?
- what are you willing to give up to get it?
- what follow-on rounds do you anticipate?

Next, a brief review of some common problems with business plans.

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