Youíve heard the adage about businesses biting the dust not because their owners planned to fail, but rather because they failed to plan.
That play on words carries a lot of truth, said Jason Spievak, senior vice president of investments at Santa Barbara Technology Incubator.
Whether you need seed money from an angel or a venture capital firm or a line of credit from a traditional bank, investors and lenders will want to see your well-written plan before they decide whether your idea is worth their financial risk.
In many cases, particularly those involving high-tech start-ups and expansions, businesses donít have an opportunity to fail because their owners failed to produce proper business plans and never got the capital they needed to get it off the ground.
"You need to think of the business plan as the resume for the company," Spievak said. "You want to capture all the vital information in a way that will grab peopleís attention and keep it."
Given that the incubator has examined more than 500 business plans since May, "you can imagine each plan doesnít get a thorough read," he said.
"We know within 30 seconds whether weíll spend a significant amount of time on it. If the core concept isnít concisely summed up in an attractive manner, weíre probably not going to read any further."
The most important component of a good business plan is the executive summary.
No more than two pages in length, it should provide all the pertinent information about the company and the principals involved. The core criteria include whether the company is addressing a large, unserved market need; whether the company proposes something that serves a need of the target market; and whether the management team is going to be able to "roll with the punches," according to Spievak, and create success as the market changes.
"If we donít get those three loud and clear, weíre unlikely to read the whole business plan," he said.
The two-page executive summary should be strong and informative enough to stand on its own, with the rest of the plan serving as support material. All relevant information should be contained in the first paragraph, much like the lead in a well-written newspaper article.
"If people arenít interested they wonít read on," Spievak said. "Imagine you had someoneís voice mail. What would you rattle off to get their attention and get them to call you back? Thatís what should be in the first paragraph of your executive summary."
Marketing and Management
Other components of a well-written business plan include marketing information that shows the target market clearly defined; the management teamís credentials; the businessí operation plan, which includes the plan of attack for marketing and distribution and, if necessary, manufacturing; and finally, summarized pro forma financials.
Speevak acknowledged that while the financials must be present in the plan, investors tend not to take them at face value but use them as a means of understanding the thought processes of the management team.
"They have to show positive returns, of course," Spievak said. "But the specific numbers are less important than what they show about the management team."
Entrepreneurs seeking help with the writing of their business plans can get assistance any Wednesday morning from the Senior Corps of Retired Executives (SCORE), a volunteer organization formed under the auspices of the United States Small Business Administration.
From 8:30 to 11:30 a.m., groups of retired executives are available on a drop-in basis to counsel entrepreneurs on all aspects of business plan development and production, among other topics.
"The number of volunteers varies," said Jerry Dysart, a SCORE volunteer with expertise in technical and medical instrument export marketing. "We usually have at least three. Sometimes weíre very busy and sometimes we sit there looking at each other."
According to Dysart, changes are afoot among the entrepreneurs who seek out SCOREís services.
"Thereís been a significant change in Santa Barbara," he said. "A few years ago it was mostly males coming in. Now half of the people coming in are female."
Small Business Development Centers, also funded by the Small Business Administration, offer additional assistance to entrepreneurs.
Located at 500 S. Milpas St. in Santa Barbara, 3566 S. Higuera St. in San Luis Obispo, and 5700 Ralston St. in Ventura, these centers offer workshops and one-on-one counseling sessions with consultants who specialize in different industries and business issues.
Five Business Plan Dos and Doníts
"The thought process is different when itís gone through some kind of screening," he said.
"You need to think of the business plan as the resume for the company."