Every entrepreneur knows that investors want to see a business plan before they invest money in a startup.
Unfortunately, many entrepreneurs wrongly believe the primary purpose of the business plan is to document how you plan to grow.
On the contrary, the primary purpose of a business plan is to sell the investor on buying into your business.
Yes, your business plan must contain sales projections and so forth, but those are mostly just proof points that you've done your due diligence.
What investors really want to know is: "How much profit am I going to make and when?"
In other words, your business plan is a sales document-a type of sales proposal, in fact. And as I've repeatedly explained, the most important part of every sales proposal (and therefore every business plan) is the Executive Summary.
If the Executive Summary of your business plan fails to make the case that investing in your company is a smart move, the rest of the plan is irrelevant because it never gets read.
That's where many entrepreneurs get off-track. Rather than addressing the main issue of profit over time, they use the Executive Summary to summarize the plan.
So again, despite the name, the Executive Summary is not a summary. It's a sales pitch that encapsulates the deal being proposed.
What Doesn't Work
Here's an example of an ineffective Executive Summary that came my way two weeks ago. I've edited it for readability and to make it unidentifiable. Otherwise it's pretty typical:
XYZ is a boutique founded in London, England in 1987.
Named after its founder, it nurtures a unique vision of developing products and accessories genuinely unique to the consumers with a distinct focus on craftsmanship and quality.
We are seeking investment for the following objectives:
- [yearly sales projections in summary]
- To continue to deliver to our existing distribution and retail channels.
- To go directly to retail and establish a worldwide network of boutiques.
- To continue driving the growth and equity of our wholesale business.
In addition to being boring and plain-wrap, the Executive Summary above fails to address the issue that's uppermost in an investor's mind, which is: "If I invest $x, I will get $x*y in 'n' years, when you do 'z'."
What Does Work
Rather than summarizing the plan, an Executive Summary must lay out the business proposition so that an investor knows whether the business plan is worth any mental energy. For example:
- Based on our projections, an investment of $1m will secure 10,000 shares of founder's stock that will be worth $10m when we do an IPO in 2018.
- Your investment of $3m will be used to position us to be acquired by a competitor in 2019. Based upon past history in this industry, our company is likely to fetch between $100m and $200m, generating an ROI between $30m and $60m within four years.
I defy any investor to read either of those two sentences (or something like them) and not be interested in finding out more.
And that's the exact point. Once your Executive Summary answered "what's in it for me?" the conversation then turns to "can these guys deliver as promised?" Which the conversation that you really want to have.