Many aspiring entrepreneurs believe that a meticulously crafted business plan, filled with elaborate financial projections and flashy charts, is the key to achieving remarkable success. However, seasoned investors understand that these plans often rely more on wishful thinking than on reality. So, what do these investors truly seek? According to Harvard Business School professor William Sahlman, there are four crucial factors that determine the success of any new venture and a great business plan.
First and foremost, investors want to know about the people behind the venture—the individuals who will lead and operate it, as well as any external parties involved, such as lawyers, accountants, and suppliers. Savvy investors prioritize people because they recognize that execution skills matter the most. You must demonstrate that you possess the necessary skills, experience, and network to succeed.
The second factor is the opportunity itself—a comprehensive profile of your business, including what you plan to sell, who your target customers are, pricing strategies, and more. It is essential to discuss the competition openly. If your business plan boasts an unbeatable market position, it may come across as naïve. A good business plan acknowledges both strengths and vulnerabilities.
Context is the third critical aspect. This entails showcasing your understanding of the bigger picture—the regulatory environment, interest rates, and other external factors that may impact your business. Equally important is explaining how you will respond when these external factors inevitably change.
Lastly, you must address risk and reward. Consider scenarios like a founder leaving or a sudden surge in demand. Evaluate all possible outcomes, positive and negative, and explain how your team will effectively respond. While numbers should be included in your business plan, they should primarily appear in the form of a business model, demonstrating that your team has thoroughly considered the key components of success or failure. When will the business become profitable? How will investors eventually realize returns?
A business plan that poses and answers the right questions becomes a powerful tool. By presenting such a plan, entrepreneurs can secure better deals and improve their chances of success. Remember, it’s not about constantly introducing something new; it’s about retaining cumulative advantage and connecting new advancements to what has worked in the past. Appealing to the subconscious desire for familiarity and comfort can be a winning strategy.