By Ed McLaughlin and Wyn Lydecker
Most entrepreneurs think they can get funding simply by sending out business plans to investors. This tactic seldom ever works because VC and angel investors often receive 10 business plans in one day. If you don’t count weekends, that’s still 2,610 plans per year. If you’re an investor staring down at an overflowing in-basket full of plans that you received out of the blue, you might take a cursory look at them, but more likely you would skip them for ones written by someone you know.
That’s why your first written correspondence with a potential investor should not be the business plan. It should be an email with a one page executive summary. Keep your correspondence brief and include bullet points about your company so that investors can scan it to determine their interest. If the investors get back to you, then you should secure a meeting.
After you meet with the investors, if they are legitimately interested in funding your business, they will request a business plan. At this point handing over a plan is more of a formality. It really serves to confirm that you have thought through your business model and have a plan for using investors’ money judiciously.
Experts such as William Bygrave, a professor emeritus at Babson College and longtime entrepreneurship researcher, are questioning whether plans are even necessary. Bygrave studied several years’ worth of Babson graduates to find out how much better those who started businesses with these formal plans did than those who didn’t. In 2006 he found there was no difference — entrepreneurs who began with a formal plan had no greater success than those who started without one.
Keep in mind that regardless of how good your business plan is, it will never be perfect. It could never answer every question an investor might have. If it did, it would be at least 100 pages long and no one would read it. Rather, your plan – and especially your executive summary – should focus on answering the questions investors ask most often.
In my previous blog, “The 7-Step Angel Funding Process vs the 2-Minute Cattle Call Pitch,” I present the questions an entrepreneur should be prepared to answer when meeting with an investor. As an investor, when I meet with an entrepreneur, I also like to be prepared with a summary that covers the basics, such as idea, value proposition, business model, management team, and funding needs. At our meeting, I will also take the time at that point to learn more details about the entrepreneur, the business, and the worthiness of the investment.
We have just released The Startup Roadmap: 21 Steps to Profitability. The Startup Roadmap is a step-by-step guide designed to help you understand the mechanics of starting and running a profitable new business. The print edition is available on Amazon. For a limited time, you can get a complimentary eCopy at our website (click here).
Ed McLaughlin is currently co-writing the book, The Purpose Is Profit: The Truth about Starting and Building Your Own Business, with Wyn Lydecker and Paul McLaughlin.
Copyright © 2015 by Ed McLaughlin All rights reserved.