Two types of preparation are critical when looking for capital: preparing the written information about your company, and preparing for the meetings with potential investors or lenders, which is covered in Chapter 13. The Business PlanThe business plan document is often the first exposure an investor has to a company
seeking financing, often even before talking to the entrepreneur on the phone or having a meeting. Because it makes the critical "first impression" for the company, a poorly prepared plan can be a reason for an investor to decline on the investment, and not take the time to ask for more information. While we all hear of stories about deals that were scratched out on the back of an envelope, after a brief meeting between a savvy entrepreneur and a multi-millionaire, the truth is: no business plan equals no capital. What do investors think of the business plans they receive? We surveyed almost 250 venture capital companies across the United States and asked them a series of questions related to what the critical factors were in their investment decision, how they find the companies they invest in and how they evaluated the business plans presented to them. The survey participants were asked: What is the worst mistake an entrepreneur can make when completing their company's business plan? According to the respondents to the survey, there are eight major mistakes. The response that occurred most frequently (17%) was that entrepreneurs were not clear in explaining the opportunity--why the business made sense, why it would make a good investment. Some VCs said this was because the plan was incomplete, but others said it was because the plan had too much detail, was not concise or focused. This lack of clarity kept the venture capital firm from being excited enough about the company to proceed to the next stage. The plan was the first chance to sell the investor on the deal, by telling the company's story in a clear fashion. Another critical error was one that is very difficult for entrepreneurs to avoid: unrealistic projections (13% of respondents). A significant number of respondents (8%) said they see simplistic assumptions in the business plans they read, and the plans were filled with mistakes and errors. One respondent complained about the tendency for entrepreneurs to claim their projections are conservative, when this is simply not true. In the many years this venture capital firm has been in business, they have had many "winners" in their investment portfolio, but never once had a company achieved the projections of their original business plan--never once. One respondent expressed this mistake as "entrepreneurs believing whatever they write is factual." The analysis of competition in business plans is an area that the venture capitalists believe entrepreneurs are weak on (10%). Many entrepreneurs do not make the effort, or find it too difficult, to gather data in a systematic way about competitors. Two critical mistakes result, according to the respondents: entrepreneurs say there is no competition, or underestimate the strength of competitors; and the plan does not describe a competitive advantage the company may have, or how to achieve a competitive advantage. Mistakes and errors appear frequently in the plans they see, according to more than 10% of the respondents, who also said that entrepreneurs sometimes try to mislead them with the information in the plan, or do not trust the venture capitalists sufficiently to give them key pieces of sensitive information in the plan. Another response that occurred regularly was that management strengths were overstated in the plan (8%) with one respondent even saying that entrepreneurs "lie" about their credentials, and this is a critical mistake because the venture capitalist always thoroughly checks out the background of people involved in a company they are contemplating investing in. Incompleteness, including leaving sections out of the plan or not including sufficient financial data, were cited by 8%. Failure to describe a sustainable competitive advantage was also noted by 8%. Even though quality of management was viewed as the most important factor in an investment decision, only a small fraction of respondents believed a major mistake they have seen in plans to be that they were not focused enough on management experience (2%). The error of not clearly explaining the opportunity was more glaring to the venture capitalists, and they tend to draw conclusions about the management team after meeting them. Other responses that came back were: * The plan does not demonstrate an ability to reach the customers and sell the product
* Entrepreneurs do not understand their own plan
* The plan has too much detail, is not concise
* They believe that an IPO is the only possible exit strategy
One interesting response was that the entrepreneur failed to provide the name of anyone in the company to contact after finishing reading the plan. He or she must have been in quite a hurry to get the plan in the mail! Common MistakesVenture Capitalists were then asked What is the most common mistake entrepreneurs make when completing their business plan? By far the most frequently mentioned mistake was saying that the company had no competition, or underestimating the strength of competitors (32%). The failure to describe a sustainable competitive advantage was also mentioned by 9%. Not clearly explaining the opportunity was the next most frequently mentioned mistake, by 27%. Following that was the related mistake of having a disorganized, unfocused, or even poor presentation (12%). Miscalculation of market share and market size (9%) were also regarded as frequently seen mistakes, with several respondents saying that they still receive business plans that say, "The total market is $1 billion, if we only get 10% of it, we will be a $100 million company"--without ever explaining how they are going to sell $100 million worth of their product. Respondents also said they commonly see business plans that do not address the risks of a venture, and contain no contingency plans for coping with the risks (also 9%). Other less frequently mentioned responses were: Not explaining how they are going to sell the product
They don't understand the venture capital process, and send the plan to the wrong audience
The overstate management's strengths
They make unrealistic projections
The information is incomplete; sections are missing; the financials are inadequate
They underestimate the amount of capital required and assume the business will develop easily
They refuse to cede control and insist on being CEO
The discussion of management is weak
They assume and IPO can be their exit strategy
They overestimate the value of their enterprise
Help is availableIf you don't have a business plan and are a little overwhelmed by the prospect of completing one from scratch, there is help. There are consulting firms and accounting firms that specialize in assisting companies with their business plans. Fees can range from $250.00 to provide an objective review of your business plan to over $10,000.00 (there is an organization in California that charges over $25,000!) to research and write a business plan from the beginning. The average consulting fee is about $5,000. Should you hire someone to write your business plan? You can do it yourself and do a good job, but writing your plan is time consuming and not easy to do if you've never written one before. Some people simply have difficulty expressing their thoughts on paper. Most entrepreneurs focus on the attributes of their products and ignore their competition. They also assume that customers will come to them with a minimal marketing effort. If money is an issue, you can draft the business plan yourself and then have a professional review your draft and recommend changes and if you wish, polish it up. However there are also sources that that provide free help or at a minimal fee. Organizations that provide business plan assistanceThe SBA (Small Business Administration) has a business plan guideline and workbook available. You can find it at their web site http://www.sbaonline.sba.gov/starting/busplan.txt. Try your local city's Small Business Programs Office or Small Business Assistance Office. Your state department of commerce may have an office to assist you or even provide a publication devoted to small business or starting a small business. SCORE - Service Corps Of Retired Executives (http://www.score.org) can give you locations for offices all over the country, offers free counseling and presents workshops on a regular basis. Various Chambers of Commerce also offer business plan guidance and review. They also might offer actual assistance in finding financing. Check your public library as well they may have a regular series of free seminars and often will include business planning. Your state Small Business Association also has workshops on business planning. The Small Business Development Centers provide free consulting in the area of business planning, some also have regular workshops and seminars. Below is a list of the state offices you can find the local office nearest you by contacting the state office. You can also access local offices that have web sites through the state office's web site, if they have one Alabama Small Business Dev. Consortium
Univ. of Alabama
Medical Towers Building
1717 Eleventh Avenue South, Suite 419
Birmingham, AL 35294-4410
(205) 934-7260 FAX: (205) 934-7645
E-mail: sandefur@uab.edu
http://www.asbdc.org
Alaska Small Business Development Center
University of Alaska
430 West Seventh Avenue, Suite 110
Anchorage, AK 99501
(907) 274-7232 FAX: (907) 274-9524
e-mail: anjaf@uaa.alaska.edu
Arizona Small Business Development Center
Maricopa County Community Colleges
Small Business Development Center
2411 West 14th Street, Suite 132
Tempe, AZ 85281
(602) 731-8722 FAX: (602) 731-8729
e-mail: york@maricopa.edu
http://www.dist.maricopa.edu/sbdc
Arkansas Small Business Development Center
University of Arkansas
Little Rock Technology Center Building
100 South Main, Suite 401
Little Rock, AR 72201
(501) 324-9043 FAX: (501) 324-9049
California
Central Coast Small Business Development Center
6500 Soquel Drive
Aptos, CA 95003
E-mail: sbdc@cabrillo.cc.ca.us
(408) 479-6136 FAX: (408) 479-6166
http://www.businessonline.org
North Coast Small Business Development Center
207 Price Mall, Suite 500
Crescent City, CA 95531
E-mail: fransbdc@northcoast.com
(707) 464-2168 FAX: (707) 465-6008
Central California SBDC
3419 West Shaw Avenue, Suite 102
Fresno, CA 93711
E-mail: sbdc@abrillo.cc.ca.us
(209) 275-1223 FAX: (209) 275-1499
http://www.ccsbdc.org
Colorado Small Business Development Center
Office of Business Development
1625 Broadway, Suite 1710 Denver, CO 80202
e-mail: sbdclcl@attmail.com
(303) 892-3840 FAX: (303) 892-3848
http://www.state.co.us/gov_dir/obd/sbdc.htm
Connecticut Small Business Development Center
University of Connecticut
School of Business Administration
2 Bourn Place, U-94
Storrs, CT 06269-5094
e-mail: statedirector@ct.sbdc.uconn.edu
(860) 486-4135 FAX: (860) 486-1576
http://www.sbdc.uconn.edu
Delaware Small Business Development Center
University of Delaware
102 MBNA America Hall
Newark, DE 19716-2711
e-mail: clinton.tymes@mvs.udel.edu
(302) 831-1555 FAX: (302) 831-1423
http://www.be.udel.edu/sbdc
District of Columbia
Howard University
Small Business Development Center
2600 6th Street, NW, Room 128
Washington, DC 20059
(202) 806-1550 FAX: (202) 806-1777
Florida Small Business Development Center
University of West Florida
19 West Garden Street, Suite 300
Pensacola, FL 32501
(904) 444-2060 FAX: (904) 444-2070
Georgia Small Business Development Center
University of Georgia Chicopee Complex
1180 East Broad Street
Athens, GA 30602-5412
e-mail: hlogan@sbdc.uga.edu
(706) 542-6762 FAX: (706) 542-6776
http://www.sbdc.uga.edu
Hawaii Small Business Development Center
University of Hawaii
200 West Kawili Street
Hilo, HI 96720-4091
E-mail: darrylm@interpac.net
(808) 974-7515 FAX: (808) 974-7683
Idaho Small Business Development Center
Boise State University College of Business
1910 University Drive
Boise, ID 83725
E-mail: jhogge@bsu.idbsu.edu
(208) 385 1640 FAX: (208) 385-3877
http://www.idbsu.edu/isbdc
Illinois Small Business Development Center
Dept. of commerce
620 East Adams Street, Third Floor
Springfield, IL 62701
(217) 524-5856 FAX: (217) 785-6328
Indiana Small Business Development Center
216 West Allen Street
Bloomington, IN 47403
(812) 339-8937 FAX: (812) 335-7352
Iowa Small Business Development Center
Iowa State University
College of Business Administration
137 Lynn Avenue
Ames, IA 50014
E-mail: rmanning@iastate.edu
(515) 292-6351 FAX: (515) 292-0020
http://www.iowasbdc.org/staff.html
Kansas SBDC State Office
214 S.W. 6th St., Suite 205
Topeka, KS 66603
ksbdc@cjnetworks.com
(785) 296-6514 FAX: (785) 291-3261
Kentucky Small Business Development Center
University of Kentucky
Center for Business Development
225 C.M. Gatton Business and Economics Building
Lexington, KY 40506-0034
(606) 257-7668 FAX: (606) 323-1907
Louisiana Small Business Development Center
Northeast Louisiana University
College of Business Administration Room 2-57
Monroe, LA 71209
(318) 342-5506 FAX: (318) 342-5510
Maine Small Business Development Center
University of Southern Maine
15 Surrenden Street
Portland, ME 04103
e-mail: msbdc@portland.maine.edu
(207) 780-4420 FAX: (207) 780-4810
http://www.usm.maine.edu/~sbdc Maryland Small Business Development Center
7100 Baltimore Ave., Suite 401
College Park, MD 20740
http://www.mbs.umd.edu/sbdc
(301) 403-8300 FAX: (301) 403-8303
Massachusetts Small Business Dev.Center
University of Massachusetts
205 School of Management
Amherst, MA 01003
(413) 545-6301 FAX: (413) 545-1273
Michigan Small Business Development Center
Wayne State University
2727 Second Avenue, Suite 107
Detroit, MI 48201
E-mail: ron@misbdc.wayne.edu
(313) 964-1798 FAX: (313) 964-3648
Web site: http://bizserve.com/sbdc
Minnesota Small Business Development Center
Minnesota Department of Trade & Economic Dev.
500 Metro Square 121 Seventh Place East
St. Paul, MN 55101-2146
E-mail: mary.kruger@dted.state.mn.us
(612) 297-5770 FAX: (612) 296-1290
Mississippi Small Business Development Center
University of Mississippi
Suite 216, Old Chemistry Building
University, MS 38677
e-mail: msbdc@olemiss.edu
(601) 232-5001 FAX: (601) 232-5650
http://www.olemiss.edu/depts/mssbdc
Missouri Small Business Development Center
University of Missouri
300 University Place
Columbia, MO 65211
e-mail: summersm@missouri.edu
(573) 882-0344 FAX: (573) 884-4297
Montana Small Business Development Center
Montana Department of Commerce
1424 Ninth Avenue
Helena, MT 59620
(406) 444-4780 FAX: (406) 444-1872
Nebraska Small Business Development Center
University of Nebraska
60th & Dodge Streets CBA Room 407
Omaha, NE 68182-0248
(402) 554-2521 FAX: (402) 554-3747
Nevada Small Business Development Center
University of Nevada
College of Business Administration/032
Business Bldg., Room 411
Reno, NV 89557-0100
(702) 784-1717 FAX: (702) 784-4337
New Hampshire Small Business Dev. Center
University of New Hampshire
(603) 862-2200
108 McConnell Hall
Durham, NH 03824-3593
(702) 784-4337 FAX: (603) 862-4876
New Jersey Small Business Development Center
Rutgers University
49 Bleeker Street Third Floor, Ackerson Hall
Newark, NJ 07102
e-mail: bhopper@andromeda.rutgers.edu
(973) 353-5950 FAX: (973) 353-1110
New Mexico Small Business Development Center
Santa Fe Community College
6401 Richards Avenue
Santa Fe, NM 87505
(505) 428-1343 FAX: (505) 428-1469
New York Small Business Development Centers
State University of New York
SUNY Plaza, S-523
Albany, NY 12246
e-mail: kingjl@cc.sunycentral.edu
(518) 443-5398 FAX: (518) 465-4992
North Carolina Small Business Dev. Center
University of North Carolina
333 Fayetteville Street Mall, #1150
Raleigh, NC 27601-1742
e-mail: sdaugherty@sbtdc.org
(919) 715-7272 FAX: (919) 715-7777
http://www.sbtdc.org
North Dakota Small Business Development Center
University of North Dakota
118 Gamble Hall, UND
Box 7308
Grand Forks, ND 58202-7308
(701) 777-3700 FAX: (701) 777-3225
Ohio Small Business Development Center
Department of Development
77 South High Street, 28th Floor
Columbus, OH 43215-6108
(614) 466-2711 FAX: (614) 466-0829
Oklahoma Small Business Development Center
Southeastern Oklahoma State University
517 University Station A, Box 2584
Durant, OK 74701
e-mail: gpennington@sosu.edu
(580) 924-0277 FAX: (580) 920-7471
Oregon Small Business Development Center
Lane Community College
44 West Broadway, Suite 501
Eugene, OR 97401-3021
e-mail: cutlers@lanecc.edu
(541) 726-2250 FAX: (541) 345-6006
Pennsylvania Small Business Development Center
University of Pennsylvania
The Wharton School
Vance Hall, 4th Floor
3733 Spruce Street
Philadelphia, PA 19104-6374
e-mail: pasbdc@wharton.upenn.edu
(215) 898-1219 FAX: (215) 573-2135
http://www.libertynet.org/pasbdc
Rhode Island Small Business Development Center
Bryant College
1150 Douglas Pike
Smithfield, RI 02917-1284
(401) 232-6111 FAX: (401) 232-6933
South Carolina Small Business Dev. Center
University of South Carolina
Mr. John Lenti, State Director
College of Business Administration Hipp Building
1710 College Street
Columbia, SC 29208
e-mail: lenti@darla.badm.sc.edu
(803) 777-4907 FAX: (803) 777-4403
South Dakota Small Business Development Center
University of South Dakota School of Business
414 East Clark Street
Vermillion, SD 57069-2390
e-mail: stracy@usd.edu
(605) 677-5287 FAX: (605) 677-5427
Tennessee Small Business Development Center
University of Memphis
South Campus (Getwell Road) Building #1
Memphis, TN 38152-0001
(901) 678-2500 FAX: (901) 678-4072
Website: http://www.tsbdc.memphis.edu Texas Small Business Development Center/
North Texas Small Business Development Center 1402 Corinth Street
Dallas, TX 75215
(214) 860-5835 FAX: (214) 860-5813
http://www.ntsbdc.org Utah Small Business Development Center
Salt Lake Community College
1623 South State Street
Salt Lake City, UT 84115
E-mail: FinnerMi@slcc.edu
(801) 957-3480 FAX: (801) 957-3489
Vermont Small Business Development Center
Vermont Technical College
P.O. Box 422
Randolph Center, VT 05060-0422
e-mail: dkelpins@vtc.vsc.edu
(802) 728-9101 FAX: (802) 728-3026
Virginia Small Business Development Center
Dept. Economic Development
901 East Byrd Street, Suite 1400
Richmond, VA 23219
E-mail: rwilburn@dba.state.va.us
(804) 371-8253 FAX: (804) 225-3384
Washington State Small Business Dev. Center
Washington State University
College of Business and Economics
501 Johnson Tower
Pullman, WA 99l64-4851
(509) 335-1576 FAX: (509) 335-0949
West Virginia Small Business Dev. Center
State Development Office
950 Kanawha Boulevard East, 2nd Floor
Charleston, WV 25301
e-mail: palmeh@mail.wvnet.edu
(304) 558-2960 FAX: (304) 558-0127
Wisconsin Small Business Development Center
University of Wisconsin
432 North Lake Street, Room 423
Madison, WI 53706
Kauten@admin.uwex.edu
(608) 263-7794 FAX: (608) 262-3878
http://www.uwex.edu/sbdc
Wyoming Small Business Development Center
University of Wyoming
P.O. Box 3922
Laramie, WY 82071-3922
E-Mail: DDW@uwyo.edu
(307) 766-3505 FAX: (307) 766-3406
Chapter Summary : What Does All This Mean To The Entrepreneur? If you want to make a good first impression on the investors, consider the following when constructing your business plan documents: The business opportunity is presented in a clear, exciting manner. The entrepreneur understands that projections are, at best, hopeful guesses and tries to base the projections on realistic assumptions. The entrepreneur discloses the pitfalls of the business and its strengths. The plan is carefully proofread until it does not contain any errors in grammar or math. The plan shows why the company and its products are different and significantly better than what is out there in the marketplace. The company has taken the time to study and understand its competitors and can address their strengths and possible weaknesses. The plan contains enough information to tell a complete story about the company, but is presented in a concise, tight writing style. The plan does not make exaggerated claims about the product or the management. The entrepreneur knows the plan by heart before making a presentation to the venture capitalist. | 
