The Advisory Board and Management Team
Without a doubt the most important aspect of the business plan is the product or service itself. A viable business must be able to have the cornerstone of their reason for being intact which is a clear understanding as to what their product is and how to articulate it. What Ron adds is that the next most important aspect of the business plan is the management team. “The management team is the second most important thing in the entire business plan. Some people say no matter what the product is, if you put the right team together the business can succeed.” Ron agrees with this to the extent that it is partially but not wholly true. “It’s a nice theory and works from time to time. But essentially investors are buying concepts and people together.” As for Ron’s efforts with his clients, a fundamental aspect he conveys to them is the importance of a chorus of people in building a successful business. “Internal and external team are important. Sometimes it is easier to build the external team (e.g., advisory board). It is an intelligent use of time. If you can find intelligent people who are willing to give you advice, perhaps for free, you’d be a fool to say no.”
Part of what Ron offers to his clients is a network of professional and individuals that can act as members of an advisory board to augment the size and team of persons working with the new business venture. This aspect is one that Ron takes very seriously because he is introducing people he is associated with to assemble and effective team, and the ability to match the right people to make the right chemistry will benefit his clients and professional associates. “When the Lone Ranger comes in the door, he leaves a month later and is no longer the lone ranger. In fact that is typically what they need part of their funding for which is to retain the senior people to help make this work.”
The root of the importance of an advisory board and management team comes from his experience with investors and what it is the wish to see in a new business venture that helps mitigate their risk. “No serious investor is just going to hand an individual dough. Not unless there is an immediate plan to hire people or to have the team grow.”
The Summary Business Plan
Even as Arthur Andersen is attempting to build a client base to assist new business ventures, they themselves are innovating their service offerings to try and assist their efforts. A strategy that Ron utilizes in introducing new business ventures to the investor community is the utilization of a summary business plan as the first introduction of the opportunity to the investors. Simply put, the summary business plan is a shortened version of a comprehensive business plan that summarizes the critical sections of the full plan to give the reader a quick overview of the entire concept that they can read in a short period of time and have their most important questions answered right away. However, this is more complicated than it sounds. The construction of the summary plan is based on the knowledge Ron has developed over his years of experience to understand what it is the investor community is looking to learn from a business plan, and what their evaluation processes and points of interest are like. From this he has constructed a summary plan outline that takes into account a venture capitalist’s or private investor’s busy schedule, their inundation with dozens of business plans a week, and their desired investment type and risk aversion.
“In a couple of paragraphs I can put together a quick synopsis that tells the whole story to the plan audience. For example, one paragraph can address the market size, one can discuss the competition, and another can explain the resources to be utilized and the people that are involved. All the sections of a business plan can be covered, complete, comprehensive and concentrated in short form. That’s how you keep it under twelve pages.”
Brevity seems to be the key in trying to communicate the new business opportunity to the investors. A typical business plan that ranges from forty to sixty pages holds a tremendous amount of information that would take a lot of reading and time to comprehend. Ron knows this and uses it as support for the use of a summary plan for a first step to the investor. “A very well known venture capitalist told me that when he gets a seventy page business plan the first thing he does is turn it over to an associate and says ‘give me a five page summary.’ This summary plan format will tend to make it a higher probability that they will read the whole thing because they can get through it in a half hour. The objective is to get that first reaction of, ‘Okay, I understand the technology being talked about, we’ve done work in that marketspace, the size is reasonable for their investment style, and all the important points are addressed.’ From this you attempt to generate the results of ‘I want to meet this guy’ and ‘I need more.'”
This summary plan is the introduction for the larger more comprehensive plan that addresses all the same sections in the summary plan, yet with more comprehensive and extensive content in each section. “Certain sections stay the same such as the company name and history, but sections like the target market are bigger. Market segmentation needs big augmentation and cannot be ignored. When you are invited to see the venture capitalists they not only want to see these sections expanded in the business plan, but they expect the entrepreneur to be completely up to speed on them.”
This approach has been very successful for Ron and his consulting group. According to Ron venture capitalists have told him that he is doing them a favor by creating this summary plan format.
Investor Characteristics
The audience has been mentioned many times already. It is clear that an advantage to composing a successful series of business plan documents as well as an effective way to present them is to know who the audience is and what they want to see and hear in considering a new venture opportunity. Ron’s typical clients are seeking six to seven figures in investment capital. The audience consists of venture capitalists in charge of millions of dollars in investment funds, or wealthy individuals trying to seek out a new and interesting business venture. But in as much as they have money to invest, they also have their objectives with their investments. Having a new business concept stand out and be clearly understood by the investor, and reducing the risk in the investment is a major goal of the business plan and thus of the summary plan as well.
“The audience is a risk averse party that is busy and inundated with a lot of useless information and plans that are off the mark on fit with the firm’s goals. They want a document that they can read and understand easily, that hits the points that will help to begin to mitigate the risk. It is a 100% risk to the investor…they have money in a CD that is safe but not gaining tremendous return. Entrepreneur’s come around to ask for that money to put it at 100 percent to the tenth power of risk.”
Another interesting characteristic of the investor population that is necessary to consider is the technical knowledge they possess. When ascertaining the merit of a new business venture for a software product for example, their interest does not lie in the detail behind every line of computer code written. “A reader that had no technical background that is an investor will not be assisted by too much technical jargon. Better to say in one sentence that this product is based on proprietary technology, we have obtained adequate legal counsel to protect the intellectual property, we have begun the process of filing patents… THEN, this product is used in the following way and this product is used by the following buyers.” Essentially tell them who buys it and why, the customer proposition as Ron likes to call it. “Have the reader appreciate who the customer is and why they are going to buy it, then they can come to appreciate the dollar amounts and the sales amounts later. If not, the rest is hogwash.”