Ventures West - October 20, 2004 - How to Sell Your Idea to the Money Men

How to sell your idea to the money men

Creating an attractive business plan is a vital first step in getting off the ground.

By Richard Bloom

Four years ago, KidsFutures Inc. was just an idea; its three founders desperately looking for cash to get the rewards program up and running.

Now, just a few weeks after its Oct. 1 national launch, the company has blossomed to a 35-person operation with dozens of partners and millions of dollars in financing. President Dave Lacey credits a large chunk of the Toronto-based company's early success on its business plan.

The founders of the company spent the good part of their first 1½ years working on the concept for the company, constantly changing its business plan while shopping it around to possible investors.

KidsFutures is the latest rewards program to hit Canada. Members set up an account, make purchases from partner companies and accrue cash for a registered education savings plan (RESP), of which the federal government will also contribute 20 per cent a year, up to a maximum of $400.

Every time a new partner was added, it was added to the fledgling company's business plan. The company also spent a portion of its initial funds on market research to test consumers' attitudes toward the idea -- all of which came back overwhelmingly positive. That too went into the plan, Mr. Lacey explains.

"One of the key challenges for a small business like ours, especially in the early stages, is that the business goes through a significant metamorphosis as you grow and get feedback from various stakeholders and so, changing that business plan is a part of that everyday task," Mr. Lacey says.

A business plan is definitely not the sexiest part of starting a business. Still, before you're able to meet with suppliers, hold a launch party, take home a profit or pull the trigger on an initial public offering, it's among the first tasks that must be completed.

Indeed, it's one of the most important parts of any business, experts say, as it creates a road map for a business to follow, allows possible investors and money lenders to see how you're going to turn an idea into a successful venture and then acts as a guide once the company is up and running.

But creating a business plan that allows your company to stand out from the pack isn't easy. Experts say that while every plan is different, there are ways to ensure yours piques the interest of people with money.

"Keep it short," says Barry Gekiere, a partner with Ventures West Management, Canada's largest venture capital firm, with $600-million under administration.

"The message I always leave with [small businesses] is: 'Less is more.' . . . If you give me a 40-page business plan, it's not going to take my attention."

Indeed, putting together a concise plan can make the difference between securing financing and walking out of a meeting empty-handed, according to Jacques Lemoine, senior vice-president of Ontario operations for the Business Development Bank of Canada, a federal Crown corporation that provides small and medium-sized businesses with financing, consulting and venture capital.

"The tendency in business plans is to be all encompassing and in my mind, that's not the most appropriate way," he says.
"They have to be concise but don't overwhelm readers with technical data. Most people reading it aren't rocket scientists. One of the things we forget is we have to respect other peoples' time constraints. . . . We're all under time constraints, and I think that [a concise plan] shows respect for people."

Notes Mr. Gekiere: "Don't overstate the financials -- you have to walk a fine balance, you have to leave me with enough excitement in your financials that it will excite me as a venture capitalist but it can't be so wild that it's not believable. If it's not aggressive enough, the VC doesn't have interest. But if it's too aggressive, you lose credibility."

He says some of the key questions that must answered in the business plan are:

How big is the market, in dollar terms?

Who are managers and how much do they know about the business?

What has the company already achieved and how much money has it already raised?

What are you going to do with the capital over the near and long terms?

Who is your competition and what makes your product or service different?

A company should also not be afraid to ask for help. "Anywhere you can get some good tips is important," Mr. Lemoine says.
That could mean hiring an accountant to review the financial figures or asking for help from entrepreneurial relatives who have written business plans or consulting a printing house to reproduce the plan.

"Appearances are very important and they should all be professionally prepared documents," Mr. Lemoine adds. BDC has a free business plan template on its website, as do most VC firms and financial institutions.

At KidsFutures, Mr. Lacey recommends trumpeting the company's management team and forming an advisory board with industry experts -- because those are the people who can make or break any investment.

"If you can point to those folks and say, these folks are helping us out. And if they have some corporate pedigree, that can be particularly helpful as well."

Preparing the ultimate business plan

1. Define your objectives.
Who is going to read the plan and what do you want them to do? The objectives can help you decide how much emphasis to put on various sections of the business plan.

2. Allocate enough time and resources to research your plan.
A business plan is only as good as the research that went into producing it. For example, you will have to do research in order to find out more about your industry, your potential customers, your potential competitors and your potential sales and costs.

3. Show drafts to others.
It can be very useful to get feedback on your draft business plan from various people, including those who are associated with the business and others who are not.

4. Write your own plan.
One common mistake made by entrepreneurs is to borrow heavily from a sample business plan and simply change the names and some of the numbers. There are two big problems with this approach. First, the emphasis you place on various sections of the business plan must reflect what is important in your particular business. Second, a good business plan should flow together like a good story, with the sections working together to demonstrate why the business will be successful. Business plans that borrow too heavily from other business plans tend to be disjointed, with some sections contradicting others and some key issues left unaddressed.

5. Outline the key points before you start writing.
Review your outline to ensure that your sections are consistent with each other, that there is little duplication and that all the key issues have been addressed.

6. Make sure your financial projections are believable.
For many readers, the financial section is the most important part of the business plan because it identifies your financing needs and shows the profit potential of your business. In addition, a good financial plan will give the reader confidence that you really understand your business. So be sure to test the reasonableness of each of your assumptions. Overly optimistic assumptions or a failure to accurately reflect the full costs of operation can quickly destroy the credibility of your plan.

7. Do the executive summary last.
This can be the most important section of your business plan because people will look at it first and it may be the only section they read. The keys to a good executive summary are that it should be short (two pages at most), highlight what is important in your plan and get the reader excited about your business.

Source: Canada Business
Service Centres
http://www.cbsc.org/ibp/doc/intro_bp.cfm