Starting a business can be a risky undertaking. They can be full of missteps, starts and stops and disappointments. To ensure that you start off on the right footing, there are three documents that will create your ventures foundation. Without them, it will be hard to be successful. These three pieces will take some time to get right. Iterating on them will codify your idea. This creation and iteration process will make your venture much more likely to succeed. If this seems too overwhelming, then you might want to work on your business narrative first and then come back and work on these.
Step 1: The Pitch
The first document is your pitch. This is usually done in some presentation tool like NeoOffice or Keynote or Powerpoint. It should be the first document you create since it outlines your venture. Take a look at Pitch Perfect for an overview of what’s in a pitch.
The importance of the pitch is that it allows you craft a story for your business. It’s what Angels and Venture Capitalists will want to see when they meet you. A good pitch is not a wordy, 12 point font business plan in Power Point but a high level vision of what you want to do. Refining your pitch will strengthen your story. Refining your pitch delivery will make your idea come alive.
Step 2: The Financial Model
Once you have outlined your idea, you need to figure out if it will actually make money. I know, sounds shallow and all corporate but it’s the truth. There is no point in spending a ton of time on your business idea unless it feeds you.
The financial model is meant to cull through your assumptions about income and expenses. Getting these all down will help you refine your pitch and executive summary. Since this is an iterative process, don’t worry about getting everything perfect right away. Just get something down you can play with. If you are unsure about an expense, put it in anyway. It’s much better to over estimate a little than to undershoot. The same applies for Income (or sales). Take a look at Financial Models: Cash Budgets for some ideas.
Step 3: The Executive Summary
The executive summary is critical to getting that first meeting with investors. It’s the first thing they will ask for (the pitch might be second). It needs to stand-a-lone as the best possible high level overview of what you do. Each word, each phrase and each number has to do useful work. It has to be clear, concise and easy to read. Think of it as your ventures infomercial. Take a look at Executive Summaries for how you might craft one.
Step 4: Iterate
Getting all three pieces right will take some iteration. These iterations will anneal all three into a cohesive set. The best way to iterate is to practice your pitch in front of your team and others you trust. Have them act as investors and critique your delivery and message. These sessions will show you where your idea needs more work. Any area where you have to give long explanations or stumble over words, needs to be refined. Stumbles during the warm-up will tend to get worst when nerves get the best of you when in front of investors. Practicing will make that a whole lot better.
What About A Business Plan?
Business plans are an important component of your venture but not the end all, be all. Solid business plans start with the three documents above. They lay the foundation for how your plan will be structured. It’s important to flush out the high level idea before you dive into the business plan details. In most cases, your original idea will morph into something different. Waiting for the morphing to stop will save you time and effort.
Some funding sources don’t even want to see a business plan (Ventures and Angels). What they will want is a verbal description of your venture along with specific plans (like technology road maps or market roll out). Just because you don’t do a formal plan does not mean you don’t have to do the work. Knowing your business inside and out will instill in the investor that you are the right person to make it successful. Skimping on that will never get you funded.