The Business Plan 157of development and only a tiny fraction of all startups will ever “go public,” but the
model is widely taught at business schools all over the world. Therefore, if an entrepre-
neur wants to raise money from outside investors (i.e., people other than friends, fami-
ly, and fools), he or she should have a business plan.
Patricia Adams, CEO of College Capital, understood this when she went to look for
financing. She put together a 15-page plan containing what she thought was the neces-
sary information for investors. She didn’t manage to raise the money for her college
preparation company till eighteen months later, and by then the business plan filled two
three-inch binders. When the economic bubble burst, investors got nervous and want-
ed more and more information. If, as Adams herself says, this plan is a “little bit of
overkill,” it makes the point that any business plan must respond to changes in the busi-
ness environment.^2
The outside investors are only one of many internal and external audiences for a busi-
ness plan. The internal audienceis the executives, managers and employees of the com-
pany, and for them the plan is a guide for decision making and for communicating goals,
objectives, and preferred methods. The external audienceis everyone else, including
investors, customers, and vendors. It can persuade a landlord to lease a property to the
company. It can induce a supplier to offer trade credit right away. The business plan has
multiple uses.
Not everyone, even in the United States, agrees that a business plan is needed to start
a growth-oriented business that requires outside financing. The founders of scores of
famous companies got started without writing business plans: Reebok, Mrs. Fields,
Pizza Hut, and Crate & Barrel are noteworthy examples.^3 Best-selling author David
Gumpert, an expert on entrepreneurship and investor relations, contends that most busi-
ness plans are relatively worthless because they are poorly written, poorly thought out,
and obsolete by the time the ink is dry.^4 Gumpert prefers a much more organic and
incremental process, an “either/or” proposition, but a matter of timing. He recommends
that entrepreneurs seeking financing in the new business environment follow this
process:
- Get the business going through bootstrapping. Bootstrapping consists of methods
used to finance a business without resorting to outside debt and equity.^5 (See
Chapter 7 for more on this topic.) Then let investors know the venture is up and
running. This is the front end of the process. - Write a synopsis letter briefly setting out the basics.
- Always stay in the financing mode. Entrepreneurs are always looking for financing
and must adjust their business and revenue models as needed. - Show staying power and perseverance. The most frequent responses to entrepre-
neurial ideas are “It can’t be done,” “You can’t do it,” and “It’s already been done.”
Don’t let this get in the way, and don’t take no for an answer. - Keep in regular contact with investors.
- Show sales early.
- Prove your business model. Produce a product, sell it for more than it costs to pro-
duce, and attract repeat business—that proves the model. - Finally, complete a business plan. Now you have something to write about!