Business plans should be based on hard data rather than ideas or concepts. Many entrepreneurs are known for their creativity and ability to develop ideas, and for them, this statement might seem like a veritable slap in the face. But entrepreneurs are also known for their versatility. They are quite adept at locating hard data to substantiate their ideas and demonstrate to investors that their ideas have merit and are worthy of funding.
Three major elements comprise the foundation of any business plan.
1. Market Research
Every investor’s initial question about a company relates to its potential for growth in the marketplace. This means that it’s essential for your market research to clearly demonstrate the presence of a large and growing market for your company’s service or product. And, your research must prove that customers actually need your company’s offerings, not merely want them.
Your research can draw on reports issued by independent industry research institutions as well as reports by trade organizations, government agencies and educational groups. Consider using blog posts, books and articles written by reputable leaders in your business sector along with other secondary sources. Primary sources could include customer surveys and interviews.
2. Qualifications of Your Management Team
The qualifications of your management team are often more important to investors than the company itself. Describe the previous accomplishments of your team in great detail. Identify and thoroughly explain your team members’ direct experience in growing companies into successful ventures. Indirect evidence of your team’s ability to help manage your company can also be helpful, including their education, pertinent awards and experience in different sectors.
3. Exit Strategy
Your business plan must set forth a credible exit strategy that permits investors to cash out. An initial public offering of your company’s stock, or a buyout or merger involving another company, are two of the options.
Investors become wary when entrepreneurs guarantee liquidity, so explaining your proposed exit strategy can get a bit tricky. Don’t blithely explain how companies similar to yours have fulfilled liquidation targets by using strategies similar to yours, because that can make you look na├»ve. Instead, research similar companies and their exit strategies, and then include that information in your business plan.
You should also research and provide information on companies that have previously bought companies like yours. Prove that these companies will have solid reasons for buying or merging with your company.