To successfully land funding, you need to think like investor when reviewing the business plan. If you were considering lending money to a business what would be one of your first concerns? Naturally it would be the chances of the business failing. An investor lends money with the intent on getting a return on that investment. So it makes sense that the business plan should be evaluated from the same perspective by the business owner.
Small businesses have a high rate of failure according to the Small Business Administration. There have been many studies done to determine why this is so. These studies have identified common errors that businesses make, so you want to consider these problems before they ever become an issue. Realistically, potential investors will have them in mind before agreeing to lend money so being prepared to respond is important.
Typical reasons for small business failure include over-expanding to prove growth to investors, underestimating expenses or overspending, assuming too much debt based on revenues and cash flow and underestimating the competition. Also included on the list are choosing a poor location and lack of capital. The likelihood of these factors occurring in your business will be considered by investors evaluating a business plan.
If you have already thought through the reasons for failure, investors will recognize that fact. For example, location is high on the list of reasons for small business failures. Presentations to investors, therefore, should address the choice of business location and explain the competition and accessibility by customers. Making sure you address the reasons why your business could fail is an important step towards ensuring it doesn’t.
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More and more businesses are looking for investors to fund a global expansion. More and more investors are looking for businesses ready to go globally. The business landscape is changing rapidly, and small businesses are expanding internationally right along with the big corporations. The internet can probably be named as the primary motivator for this trend because it made it so easy to communicate with people around the world. Orders can be placed with a click of the mouse. Governments recognized the opportunities this created and have created laws and regulations that promote global business.
Naturally, investors want a piece of the action. They are looking for companies that can successfully expand through globalization because the opportunities are unlimited. Of course, participating in international trade can be expensive so it’s not a decision made lightly. Yet there are so many advantages to expanding internationally that it makes sense.
What are those advantages? For one thing, a business can increase sales and thus profits which makes the company more attractive to investors. Other reasons include gaining greater market share, spreading risk by expanding market access, stabilizing seasonal sales cycles and establishing a foundation for unlimited growth. All of these reasons are exactly what can make a business attractive to investors.
Of course, expanding globally takes money. There are import and export fees, expanded production costs, higher shipping costs and the expenses associated with new promotions like marketing and travel. Investors will balance the higher costs to the expected increase in revenues and profits before making a decision. Investors will also weigh the risks associated with the global expansion. This balancing act though is one that the business should have already mastered in the business plan.
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Writing your business plan is probably one of the most important business duties you will assume. If you follow a quality business plans template you will cover the basics of the plans, but there are still common mistakes made by entrepreneurs that hurt their cause. It is reminiscent of the teacher in school who gave you the parts of the essay for easy outlining and then marks points off because the essay is too long or too boring.
Following are some of the most common errors made in business plans. Some of them are simple errors, but that doesn’t minimize their importance. Other are mistakes usually made due to lack of experience. Either way, these mistakes can hurt the effectiveness of the overall business plan.
Including more than one business model in the false belief that more information and more strategies are always better (not true!)
Lacking cohesiveness throughout the business plans
Difficult to read due to illogical or poor layout (another reason to use a business plan template)
Including unsupported projections or estimates
Not fully analyzing the competition
Failing to prepare all required sections of a business plans (making your plan look amateurish or as if you are hiding something)
No value proposition separating your business from the competition
Not letting anyone else read your business plan and provide feedback before submission
Making the business plan difficult to read because it is written using mostly hard-to-understand industry or discipline terms (i.e. your funder may not know much about technology so using technical jargon will make the plan too difficult to understand)
Showing lack of understanding of the niche market to be served
These are certainly not the only mistakes, but they are some of the most common. You want to avoid writing a business plan that is too long and tedious, is not well written, and is boring. Though funders are often professionals looking for the next great business investment opportunity, they are also human. Grammatical errors and boring prose can quickly discourage anyone reading the business plan. It seems your essay teacher was right all along.
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The ideal business plan is composed of more than just history, marketing and financial sections. It should also convey the value proposition to the angel investors you approach about business funding. Typically, angel investors are sought after a business has been established so it’s possible to show real products, actual customers and a working business model. However, the angel investors will want to know how you define the company’s value proposition.
The business value proposition is developed with the marketplace in mind. The value proposition defines why people in the target market should buy your products or services. It defines what benefits purchase of the goods or services will provide or what problem will be solved by product or service use. It sounds like the statement would be long, but it should be kept short which forces the business owner to concisely explain the value the company is bringing to the marketplace and the relevance of the product to the customer. If it takes a long winded explanation then there’s good chance the business owner has not fully developed the business concept.
The value proposition is important to the angel investor because it concisely differentiates the business among its competitors and reflects an alignment of business operations with the market. The value proposition must also reflect specific results or performance and is not a generalized statement that any business could use. For example, a consulting business could say that it can help customers get a high return on investment , but that would be a weak value proposition. A strong value proposition would say that the business can demonstrate customers will experience an improvement of 15% Return on Investment (ROI) by using the company’s state-of-the-art proprietary software.
Angel investors expect a business plan to have a value proposition that quantifies market results and also states the source of its competitive advantage. That should never be a problem if a company is serious about success.
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It might be surprising, but a lot of venture capitalists understand the situation of would-be entrepreneurs who are looking for investors who will finance their startups. The reason for this is simple: these people who now have millions of venture capital funds stashed in banks also started as a small company owner who experienced the challenges of looking for someone who is interested in providing financial support.
They might have followed the traditional venture capitalist model or used personal means – such as credit cards and personal guarantees – to raise significant amount of money. But one thing is clear – most venture capitalists understand the position of startup owners. And this shows their true nature when it comes to dealing with these kinds of partnerships.
Unlike the common conception that they are all too powerful and very difficult to please, venture capitalists are also human. And because most of them have experienced and succeeded in this industry, the requirements that they ask from startup owners should be seen as reasonable and realistic. Here are some of the traits that startup owners applying for financial support should have:
Passion – Those who are passionate, enthusiastic, and confident with their startups usually get not only the attention, but also the approval of investors.
Intelligence – Knowledgeable would-be entrepreneurs always have the advantage. Venture capitalists think that intelligence is tied with the success of the company.
Defensibility – Having a great concept is one thing, but being able to defend it at different levels is another. Most of the time, investors will point problems on the concept submitted by the startup owner. He or she must be able to defend the idea and convince venture capitalists that the problems can be resolved.
Contrarianism – Investors are waiting for the next big thing. Thus, unique ideas that have huge potential almost always get the nod of venture capitalists. After all, nobody wants another social networking site, not if we already have Facebook. We want something new.
Perseverance and Persistence – Startup owners who exhibit determination on their ideas always get the attention of investors. Consistent follow-ups and immediate response to queries sent by the potential investors show how important the deal is for the entrepreneur.
Humility – Despite the need for passion and determination, startup owners also need to have an ounce of humility. One must keep in mind that even the best actors or athletes have to follow the orders of their directors and coaches, respectively.
Aside from the traits enumerated above, would-be entrepreneurs should also understand what goes in the mind of venture capitalists. Usually, it only involves two things: fear and greed.
As noted earlier, investors want to put money on proposal that will be as big as Facebook. Because of this, they are afraid of letting a potential project go (fear). Also, venture capitalists look at the things that they will get once they finance a startup. This includes profit, recognition, and a powerful position within the company, among other benefits (greed).
In the end, it all comes down to these two. And startup owners might want to use these to their advantage. Of course, it would not be easy. Venture capitalists are experienced people who will know if they are being manipulated. But having the knowledge of what they want is something that could spell the difference between failure and success.
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When your business is in its starting phase, you need a loan to grow it. Yes, there are ways for you to start your business with very little capital, but even in the age of the internet you need loans for the growth and expansion of your business. Oftentimes, startup and small business owners are scared of taking loans because they believe returning the same loan with interest on it will hinder their growth. The fact is a loan is not such a big liability if you have done your homework before getting it. Hastily getting a loan without researching the market and knowing your business’ growth potential can be detrimental to the business.
Your Business Plan Matters Big Time
It does not matter how experienced your management team is when your business plan is weak. When you ask for a loan from lenders, they are trying to find reasons to forward you the desired loan. They want to be sure that the loan they forward is returned in time and according to the terms and conditions set at the time of loaning. Lenders will seldom gauge the potential of your business to return the loan based on what you speak. What they want to see is a solid business plan and that’s why you need to have an impressive one. A strong business plan will consist of the following and some more.
The company description
Management role and experience
The product description
Strategy for marketing
Financial projections
An executive summary
Documented cash flow
Keep in mind that banks often look at the cash flow in the documented form, and their scrutiny is not limited to what your projections are for the future but more importantly how you have managed things in the past. They will look at your company’s cash flow records for past couple of years to see if you should be given the loan you are asking for. So, keep your business plan in mind and make sure you have worked on every aspect of it to present something impressive to the investors.
Your Loan Options Are Many
Sometimes, you have a solid business plan and everything else is in place, but your understanding of loan options is not at its best. Many small business owners live with the impression that the only institution available to them for obtaining a loan is a bank. That’s far from truth because there are dozens of other ways to obtain the loan or investment for your startups that’s much easier to manage than a bank loan. Some of the options available to you include SBA loans from the government, invoice financing, business equipment financing loans, etc. If you are just a startup and none of those options seem viable to you, there is online fundraising. Online fundraising has become quite a popular method of getting investments for your startup from individuals who trust in your idea and concept of the business using websites like Funded.com.
The Right People Can Make the Difference
Delegating responsibilities to the right people is an art and skill that not many business owners have. Oftentimes, small business owners rely too much on their own skills and are scared to trust any other person to do things for them. This can be a grave mistake because you cannot be the jack and master of all the trades at the same time. For example, you might be great at crunching numbers and making accurate projections for the business but not very great at sales and pitching ideas. If you have to pitch your business idea, its marketability and scope to the investors, choose the person who can best present it. Despite your great business plan, you will fail to obtain a loan because of your nervousness and lack of confidence when it comes to acting like a clever salesperson.
You have to bear in mind that investors are not investing only in your business, they are also investing in you. It is very important for them to like your personality to invest in your project. Appearing unprepared or nervous in front of them will send an impression that you are not fit to lead the project, your decision making is faulty and that you cannot create strong teams.
A Well-prepared Presentation Can Win Hearts
It does not matter who is giving the presentation when the content is boring and does not address the points that investors are most curious to know. First, get your numbers straight and bring them into the presentation at the right points. Be the investor in your mind and think of the questions you would ask if someone presented the same product/service to you. Have your accountant, advisor and business lawyer by your side when preparing the presentation. You don’t want to give wrong figures during the presentation and fall for a bad deal at the end of it. The most important thing is to explain your business idea as clearly as possible. Many times, the presentations are so all-over-the-place that investors can’t make heads and tails of it. If they don’t understand your business, they will never invest.
So, bear in mind that obtaining a loan is not that big of a challenge. Most of the times, it is just some small mistakes in the areas mentioned above that become the cause of lost opportunities to get the right loans for your business. Create a solid business plan, choose the right people to represent your business and use all the options that are available to you at the right time to grow your business at the pace you want.
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If you are doing all you can to grow your small business but nothing is working, you might want to take a step back and reconsider your marketing mix. Doing the right type of marketing at the right place and at the right time requires some brainstorming, research and analytical approach. Take a look at what marketing mix is and how you can use this concept to grow your small business.
Understanding Marketing Mix
In simple words, marketing mix involves the techniques, tactics and strategies you implement to promote your product, service or brand. The marketing mix consists of four Ps: Promotion, Product, Place and Price. If you research the idea a bit more you will find that people are adding more Ps to the mix but their understanding is not as important as the understanding of these four factors. In the new definition of marketing mix, they have also included other Ps like: people, positioning, packaging and politics. Here is a basic understanding of the four essential Ps of the mix.
Product: It could also be a service—anything that you are selling
Price: The value that you want to obtain when you sell the item.
Place: The exact location where you sell the product.
Promotion: The mixture of activities and campaigns that you put in to spread awareness of your product and increase its sales and additional funds to your business.
To expand your business you have to achieve perfection in your marketing mix. You have to attain a balance in all the areas of the mix for a successful strategy. Working on attaining the right balance right from the beginning will help you lay the foundation of a business that faces least amount of struggle when it comes to expansion and growth.
Using Marketing Mix for Small Business’ Growth
To create the right marketing mix, you have to understand your product at its core. When it comes to the product, you have to have a full understanding of it. What is your product? What problem does it solve? Even if your product solves a problem, have you designed to in a way that a potential customer would look at it and know what it is supposed to do? Once you know your product well, you can get to the other Ps of the marketing mix. Here is a little understanding of how marketing mix works.
Tying Product with Price
It can be one of the toughest things for most business owners to do. While it is a job for the marketing department, you don’t always have a dedicated marketing department when you are still a startup. When you are about to price your product, you have to consider a lot of factors. First, what type of audience does your product appeal to? What materials have you created the product with? How much competition you have in the market? What is the buying power of the market for which you have designed the product? It is only after taking all of these factors into consideration can you price your product appropriately. Keep in mind that when you are a new business, you cannot charge your customers for your value because there is no value for customers in buying your product at this stage.
Tying Price with Place
You cannot be thinking of one individual component of the marketing mix at one time. You might have created the right product but the question is “are you selling it to the right people?” What if your product is more appealing for teenagers but you are targeting people over the age of 35? What if you know your target audience but are placing the product in the wrong places? Maybe your item is more sellable online but you are putting it on retail store shelves. Now that you know the “place” where you need to sell the product, you have price the item aptly too. For example, a product that you have designed for teenagers should be affordable within their pocket money.
Moreover, your product might be appealing for a niche market but you might have priced it too low. As a result, too few people would buy it and your revenue will not cover your expenses. You have to be sure that you cover your costs within the limited number of purchases that occur.
Tying Place with Promotion
When looking at place and promotion as a combination, you have to be sure that you are promoting your product in the right place. Is your product more appealing for women than it is for men? If yes then you should consider promoting it on social networking platforms where women are more active e.g. Pinterest. Moreover, your promotional activities should match the place. For example, if you are promoting in an area where there are Oakland Athletics fans, you don’t want to be wearing San Francisco Giants’ t-shirts and gear.
Combining All the Ps
Once you have created the right product, priced it perfectly and strategized your promotional campaigns, you have to bring the product in the right place so all the Ps work successfully. Creating the right product, pricing it right and promoting it with passion but in the wrong place will result in disappointing response. Just because you are good with one of the Ps does not mean you will be successful in others as well.
Now that you have a good idea of tying the Ps together, you should have a complete road plan of how you are going to sell your product. It will require a lot of working at initial stages. You cannot know your market unless you do some surveys and spend time collecting data about the market. At the same time, you have to perform a thorough research of the market to know how you will price your product. When it comes to promotion, you will have to come out of the conventional methods and think more digital. You might as well set up a dedicated team for social media marketing and website analytics.
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It can be difficult path sometimes once you decide to set up a good pitch on a site platform. Whether it be crowdfunding or raising capital from accredited investors. You will find many of the same attributes that are similar to finding the right pitch to attract views to your posting or profile.
Posting
Your posting “tile” is the image that show the image and the description in a rectangular box that is aligned with many other posting tiles. The top image can be from 1”-3” squared and the title is usually under or above the image. The describer or the short content that is directly below the image and title and is describer content box. Also on the posting tile will show what you are trying to raise, your industry, you location or other items of that might be specialized be each platform. Once the posting tile is clicked by user it will take you inside page(s) depending on the platform. It is important you use quality images and very catchy title with a description that is very to-the-point. Your capital raise price must make sense to how you have arrived at your capital asking level.
Your Inside Page
This is where your main image and other images of what you need to include. This has to also be very good images that shows your story, product or methodology. It can be actual photos of a process, or if the business is a fresh startup with no images, you can find advertised free images and art online, or purchase images from paid third-party websites to avoid any copyright infringements. Your content must be very clear and if lots of content to title each section and outline. Your inside page may have a section for a team bio. If it’s just you, it’s okay as lots of startups can be a one-man-show to start. If it allows you to post a photo of you, do so.
Support Documents
If you have a business plan, and the platform lets you include, do so. If you do not have a plan, then upload a cover letter about you and your company. It is always good if you are competing against other pitches and your pitch tile gets opened then next step is to show you have an attachment and have taken the time to put something together that the funder can take away or download.
Summary
It is always good when putting your best foot forward to have everything prepared to make the first impression by getting more traffic and interest to your posting and pitch. Making a good first pitch impression is really key and to rush to get initial interest would not be swapped out if it meant you lack on your Posting, Inside Page and Support Document material. Get a second opinion on how it looks and don’t be afraid to make changes earlier than later.
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Chances are this is not your first business plans if you are considering starting a new business. Studies have shown that today’s successful entrepreneurs have tried 3 or 4 times before to start a business sales. Sharing that information is not meant to be discouraging though. It’s meant to be motivating because true entrepreneurs don’t give up easily.
In fact, you may like to know that Bill Gates and Paul Allen started Microsoft in 1981 after 3 prior failed business attempts. The 3 failed attempts were The Lakeside Programmers Group in 168, Traf-O-Data in 1970 and Micro-Soft partnership in 1975. In reality, the 3 failed companies were not failures at all in one very important sense. These 3 companies taught Gates and Allen a lot about business planning and development. They used that information to start Microsoft, Inc. and the rest is history as they say.
One of the strategies for managing a new business venture is the business plan. Because it forces the entrepreneur to identify sales specifics so that investors are comfortable providing equity, loans or other capital. The entrepreneur should also consider a graceful exit should the business not succeed as planned. Though you would not present a business destined to fail to investors, the people you are asking for money also want to know how their investment will be protected as much as possible.
When developing sales projections for the business plans, it’s important to go through each step with due diligence. It begins with a product or service description, followed by a market study. A sales estimate is calculated which drives needed production capacity. The needed production capacity then drives facilities planning and workforce estimates. Finally, the financial analysis is calculated.
One of the issues to be addressed in the business plan is the timing of sales growth. This is where entrepreneurs often get too optimistic. The end result is disappointed investors and a failed first, second or third venture. Sales projections need to be as realistic as possible because inflated numbers don’t do anyone any good. The business plan needs to tell an honest story and that will greatly increase your chances of getting the new business right the first time.
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Angel investors are playing a larger and larger role in the business investment community for obvious reasons. The banks are making it more and more difficult, due to a tightening of credit policies, for an entrepreneur with a new business idea or an early stage business expansion plan to find funding. Yet you can’t keep a good entrepreneur down. Angel investors see a need in the marketplace they can meet while businesses can see a need for investment fulfilled.
It’s a win-win arrangement.
Planting Seeds for Business Success
Finding adequate funding will probably always be one of the greatest challenges a business must meet. On the other hand, investors need a good place to invest their money to increase returns. The tight credit market has created the ideal forum for bringing businesses and private investors together. By investing in companies like yours, angel investors can earn a higher rate of return while your business gets the much needed capital injection required to move forward.
One of the nice features of this type of funding is the fact startup businesses can attract the angel investors when they could not attract venture capital or equity partners due to lack of financial history. The angel investors are known for being willing to give young companies with exciting new ideas, concepts or methods opportunities they would not be able to find elsewhere.
How big is the angel investor market? According to the Center for Venture Research at the University of New Hampshire, in the first two quarters of 2010 (latest numbers reported) angel investors invested $8.5 billion. As many as 25,200 entrepreneurs obtained this type of business funding. Many people are not aware of the size of the private investment market that includes angel investors, venture capital and equity partners.
Harvesting Success
Angels are committed to providing startup funding and even money for small business expansion. Business loans are made in numerous industries too including:
Healthcare
Energy
Industrial production
Green technologies
Retail
Biotech
Software
Computer equipment
Originally angel investors tended to be sole financiers or loose groups of investors willing to make business loans for new business ventures on an informal basis. Today there are formal investing groups able to offer larger amounts of business funding to new enterprises if the entrepreneurs have solid business plans. In fact, the angel investing industry has grown to point where they have their own trade association called the Angel Capital Association.
One of the most common questions asked is: What makes angel investors different from venture capitalists? Though there are no formal definitions, angels are more likely to invest in startup businesses or existing businesses that are still in the early stages of operation. These are the types of businesses that often have difficulty finding traditional loans. Angels will also invest smaller amounts. In fact, the news reports are full of stories of angels making microloans.
Venture capital, on the other hand, usually invests in businesses that have been in operation for a while or have a proven financial track record of some kind. Another difference between angels and venture capitalists is angels invest their own money while venture capitalists usually invest money from formal funds created for investment purposes.
Making Good Sense
If you are searching for startup funding, approaching angel investors makes sense. This is a group of investors more open to funding entrepreneurs ready to get their small businesses up and running.
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