Crafting an Effective Business Plan (Part 3) – Baiting the Hook

As mentioned in the previous posting, when fishing for potential investors, there is a fine line between baiting the hook and feeding the fish. The art behind the fundraising process (and it takes a tremendous amount of skill and talent to do it right) lies in crafting a variety of weapons and knowing how (and when) to skillfully use each one.

Start by developing a creative and compelling “tag line” to describe your business. This should be a brief 1-sentence answer to the question “What do you do?” NOTE: The answer this question should never be “Here is an 80-page business plan that includes 18-months of personal research, 40-years of made-up financial projections, pretty graphs and charts and a note from my mother.” Something more along the lines of  “We break the poverty chain,” or “We save orphans from starvation,” or “We cut inventory costs by 40%.” Any of these answers should elicit the shocked response of  “Wow, how do you do that?”. If you don’t receive that response on a regular basis you need to rework your tag line or rethink your business.

Of course, the next step in the process is to have a slightly more detailed response to the question “Wow, how do you do that?”. Something like “Our programs deliver food and training dirctly to 1.5 million children in 29 third-world countries.” or “Our software leverages proprietary industry data and minimizes freight and logistics costs on over 50,000 products in the automotive parts industry.”

If done properly, your next response is something like “How do you do that?” or “How big is that market”. It is incredibly important to realize that each question from an interested investor is actually another nibble on the hook. The art of fundraising is knowing how much information to give, in what format, at what time, and in what order to maximize the interest of the investor. Not every question deserves to end with “Will you read my business plan?”.

A successful progression should follow a pattern similar to the following:

“We solve the problem of X”

“How do you do that?”

“Is there any money in that?”

“How big is that market?”

“Who else plays in that space?”

“Who are your customers?”

“Who do you mean by ‘We’?”

“How far along are you in the process?”

“What makes your product better than X?”

Notice that along the spectrum of tools discussed in the previous posting, the correct answer to these questions still do not involve the business plan. These investors are still nibbling at the bait, are very cautious about the “free meal” and will scurry away quickly at any sight of the net / business plan.

If you have answered four or five of the previous questions and think that the investor may be genuinely interested it might be appropriate to offer to send a BRIEF executive summary (no more than 2 pages, preferably 1 page). The business plan is still a later-stage document and my next post will talk a little more about how investors actually view the business plan.

Crafting an Effective Business Plan (Part 2) – Fishing for Interest

It has been said (probably far too often) that crafting a business plan is just as much of an art as it is a science. There are MANY posts and books and ideas about what should be included in a business plan and it is not the intent of this posting to reiterate all of the information found in a successful business plan outline. This post will discuss the more artistic side of crafting a business plan.

One of the first, and arguably most important aspect of a business pitch is to get the investor’s attention and interest. If I don’t care about your idea I am certainly not going to write you a check, meet you for lunch, or read a lengthy business plan…it is just not going to happen. Entrepreneurs must understand that wooing potential investors is a process, not a document.

Consider the analogy of a fisherman. The fisherman is in his rowboat with an idea of catching fish. He first casts a small amount of “chum” (raw, chopped bait) into the water immediately around his boat. The smell of the raw bait attracts the attention of all of the fish in the lake and they swim near to take advantage of the free meal. Next, he expertly baits his hook and casts a ways away from his boat. The fish who have been interested in the free chum notice the attractive bait and nibble at the hook. The experienced fisherman then “sets the hook” by tugging expertly on the rod to drive the hook deep into the mouth of the nibbling fish. Next, the fish must be brought near the boat by “reeling ’em in” with the fishermen keeping a consistent tension on the line. Once the fish is near the boat a net can be used to land the catch and bring the fish into the boat.

Notice all of the tools that the fisherman used in this analogy…chum, bait, hook, rod, reel, boat, net, patience, experience, and skill. The fisherman did not just drive his boat around the lake at high speed dragging the net alongside the boat hoping to “catch a fish.” I have seen many entrepreneurs attempt a similar, unsuccessful strategy when looking for investors. Armed only with a massive business plan, trolling the funding event hoping to land the big one.

The business plan is only one tool used in landing an investor. The savvy entrepreneur will also use a very brief tagline, a 30-second elevator pitch, a 1-2 page executive summary, a 12-slide introduction, etc. throughout the process. The goal at each stage of the process is NOT to “land the fish” but to bring an investor one step closer to the boat.

Just as you don’t fish with a rocket-propelled grenade launcher, you don’t begin introductions to potential investors with a complete business plan. Consider the following steps and consider that there is a fine line between baiting the hook and feeding the fish.

• Tag line
• Mission Statement
• Elevator Pitch
• Initial Presentation
• Executive Summary
• Business Plan
• Detailed Presentation
• Due Diligence I
• Due Diligence II
• Term Sheet

The next post will include additional information about how to get investors to move from one stage to the next.