Say you wake up one day with an exciting new business idea. You jot down some notes on a piece of paper so that you will not forget it. You then look around to check if there is anyone already offering that product.
You get more excited when you find that there is actually no one supplying that product in your local market.
You do your research and list all the things needed to get your product onto the market. There is some capital required, which you do not have. You consult some friends who know some rich friends and relatives who might be able to fund your project. You are happy when an uncle of a friend asks you to give him a call. Nervously you dial his number on your smartphone and your heart beats with excitement when the voice at the other end sounds friendly and cheerful. After introducing yourself and explaining your proposal, your friend’s uncle agrees to hear more about the project and asks you to email the business plan.
Going home, you quickly write down a business plan and email it to your friend’s uncle.
Then you wait. A week passes by and you reason that he must be a busy man so he probably has had no time to read your business plan. Then another week passes. After two months of waiting, you ask your friend to find out for you if his uncle is interest in investing in your business. Your friend gives him a quick phone call.
“Sorry mate, he says he is unable to help in this instance,” your friend informs you.
You heart is shattered. There is potential in this idea, maybe your friend’s uncle just does not get it. You send your business plan to other rich people and no one even bothers to send you a response.
I have heard such stories from many people. They seem to have brilliant ideas for new businesses or for expanding their existing enterprises, but fail to attract the attention of investors. In most cases, the idea would be very good but the entrepreneur fails to express the business plan in a way that attracts investors.
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What’s in it for me?
The first thing a potential investor looks at in a business plan is “What do I get by funding this business?”
It is easy to get so absorbed in the beauty of your product that you forget to show how rewarding it will be for someone who puts his money in there. Everyone naturally thinks of himself first; the investor will want to see how he will be rewarded by making an investment. He is not there to help you, but to make money. Therefore, he is more interested in the profits of the project and the return on his investment.
Take time to work out the financial returns of your project and emphasise that in your business plan, with realist projections, sales volumes, prices and margins. Seasoned business people will see through pie in the sky projections and believe me, they will thoroughly scrutinise the financials. Make sure you can back up your projections with real market evidence.
Proof of market demand
It is more difficult to prove market demand for new business projects because the products would not have been tested in the real world. If the idea is just in your head, you would be wise to work on creating a prototype first and testing it among potential customers. Find out if they would buy it at the price you want to sell it. If the product is very good, some customers might be willing to pay for it in advance. If you can prove this to an investor, that a substantial number of people have pre-bought your product, then he can get excited enough and be willing to come on board.
Investors want to invest in businesses that will grow fast and give them good profits in the short to medium term. Ensure that you can prove that there is a big enough market for your product to allow for such growth.
Exit strategy
The next question an investor might ask himself is, “If I invest in this project and make my money, how do I get out?”
You need to include the exit strategy in your business plan: will you float the business on the stock exchange? Will you invite other investors to take over? Will you sell the assets?
Governance
Putting money into any business is risky. The risk is further heightened if you do not have a team in your business that is well known for trustworthiness, honesty and integrity. Work on enlisting trustworthy and experienced people into your team and plan systems around governance, ethics and controls, so that you put an investor’s mind at ease. Many businesses fail to get funded simply because they have no strong and trusted people in their management team. So, consider these issues before you send out a business plan.
Until next week, keep on accelerating your growth.
l Phillip Chichoni is a business development consultant who works with SMEs and entrepreneurs. You may contact him by email, [email protected]. You can also visit http://smebusinesslink.com
