Step 3. Business Plan and Seed Funding
Bringing an idea to fruition requires systematic planning. A business plan primarily acts as a guide for the founding team and as a communication tool to tell others the elements of your business. A good business plan will contain the following sections:
Executive Summary. Typically a 35 page summary that's concise and effective. This is the document that's read most often by potential investors.
Market Opportunity. Why is the idea worthy of pursuit, and what is the aggregate potential?
Company Strategy. Given the market opportunity, how will your company seize the market? How large is the prospective revenue? What's the key capability that's exclusive to your company?
Competitive Analysis. A demonstration of your understanding of existing and prospective competition and the rationale to defend against them.
Management Team. Who are the identified players in your company to execute to this strategy?
Operational Plan. What are the specific plans in place for infrastructure, technology development, hiring, partnering, marketing, and sales?
Financial Analysis. Detailed projections of cost and revenue and a return on investment (ROI) analysis. This tells the investor the potential (optimistic) value of investing in your company. A small sensitivity analysis based on realistic assumptions provides for boundaries on expectations.
Once you have your business plan figured out, you need to chase investors and get their attention. Find out where the potential investor can be found; for example, at the golf course, conferences, through common friends, and so on. Relationships are the key; find someone who can vouch for you to a potential investor. Entrepreneurs can go through a considerable length of time before they get their first funding. Be prepared.
When do investors fund? These are the critical ingredients:
Market: Potentially large and profitable. Can be "secured" against the competition.
Capability: Proprietary technology, process, or strategic agreements or relationships.
Management: Encompassing entrepreneurial experience, operational experience, passion, and commitment.
While all three are essential for success, typically investors will not fund until assured that capable management is in place.