Business plans are based on hard data, not concepts. Entrepreneurs are known for their creativity and ideas, so that thought might come as a surprise to some. But, entrepreneurs are also capable of many things. For example, they’re skilled at locating the data that are needed to support their ideas and prove to potential investors that their ideas are worthy of funding.
Your business plan should be developed with three main elements as its foundation.
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Market Research
Investors always want to know about a company’s growth potential before anything else. Your market research should, therefore, demonstrate the existence of not just a significant market, but a growing market for your company’s product or service. Your research should also prove that your target market needs as well as wants what your company is offering.
Your market research can come from several independent sources, including reports published by educational, governmental and trade organizations; third-party industry research groups; and books, articles and even blog posts from respected leaders in your industry. In addition to those secondary sources of data, you can also conduct a variety of customer surveys and interviews.
A Highly Qualified Management Team
Because investors place tremendous importance on the makeup of a company’s management team when they’re making investment decisions, the qualifications of your team members are often more important than the company itself. So, research their past accomplishments and then put those accomplishments on display. Wherever it’s directly relevant, be prepared to fully explain your team’s experience in growing successful companies. You should also use any available indirect evidence that demonstrates your team’s ability to help you operate your company. This evidence might include their education, where pertinent; holding similar management positions even if in unrelated industries; and any awards or other recognition they have received.
A Plausible, Realistic Exit Strategy
Your exit strategy should consist of some anticipated liquidation event, such as a buyout or merger with another company, or an initial public offering (“IPO”) of your company’s stock.
Describing your exit strategy can be tricky, because investors are generally wary of entrepreneurs who claim the occurrence of a liquidation event is a lock. Don’t look naive by simply describing how other, similar companies have used strategies like yours to bring about a liquidation event. Instead, include hard data relating to those companies after conducting thorough research.
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You should also investigate and describe the companies that have bought companies like yours in the past. Demonstrate to your investors that these companies will have good reason to buy out or merge with your company.
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