1. Have a business plan. And I don't mean just a written business plan. There are many books out there on how to write a business plan so that is not the difficult part. You should have a real, well thought out business strategy and model and be able to put the plan on paper with realistic assumptions and projections. Having a good business plan will mitigate the chance for failure. Someone else's business plan format might not be the appropriate template for you to illustrate your business model. Be clear on your goals and objectives.
You can use frameworks to help you structure your plan, such as the famous Porter Five Forces. If you do this, try to use a combination of frameworks to make sure you cover all your bases. Be realistic about your strengths and weaknesses and how you will address them. A lack of balance in your business plan will raise a red flag to potential investors. We're looking to see if you have a grip on reality.
You are not committed to this plan because what you don't anticipate in the market will sometimes force you to change your strategy later. However, a well thought out plan will also be able to anticipate some of those changes and will discuss how you will be prepared to address them when they come. You should have a good idea where you at least want to be and how to get there and be able to articulate it in written form. It is a living document.
2. What stage are you at in your business? Are you at concept stage (idea mainly), product development (pre-and post- prototype), or business development stage (manufacturing, marketing and sales)? It needs to be clear that you know where you are now so you can talk about where else you need to be.
3. Do you have intellectual property (IP) and does your IP need to be filed and protected? Important questions to ask yourself is will it be more expensive to patent it and protect it than to just stay ahead of the game with regard to your competition if they can easily duplicate your idea or reverse engineered your product? Coca Cola doesn't patent their secret formula. Patents expire. Seek legal advice for time, effort and costs here.
4. Are there any other legal or government regulations you must meet? If your product is a Bio-Nano product like a medical device or a drug, the FDA will have a say over whether it will be approved and can make or break you as it has for many a larger pharmaceutical firm. There are also health and safety codes for certain types of products. Do you know what procedures and fees are associated with these products?
5. In your market assessment section of your business plan, you will assess your target market and existing competition in terms of product and company. In my experience, this is the weakest section in most business plans because it requires the most work in terms of research. The problem is if your market assessment is weak, the overall marketing strategy will not work. You'll find all business aspects, like life, are interrelated although there are many who haven't figured this out yet. It is a similar concept as Supply Chain.
6. You will also need to be able to estimate your expenses and project revenues. For revenue projection, pricing your product appropriately does not necessarily mean just tacking on some margin to cover your costs. You should be able to demonstrate your product pricing logic and why your targeted customers will pay what you ask for.
7. If your product is a manufactured item, who, how, where, when, for how much, will you make it? You should be able to estimate this as part of your costs and expenses. Make sure you separate it into fixed and variable costs and can provide a breakdown of these items. The more detailed the better.
8. Be overly conservative on your revenue projections and overestimate your expenses. Point out on what bases you have curbed or overestimated your estimates.
9. With regard to your market assessment, who are your targeted customers? If you already have customers, that is a big plus. What do your customers want or what are their needs? Do you understand your customer? Is this a niche product in terms of commodity versus custom? Are you meeting their needs? It also helps if you are a potential customer.
10. Do you have more than one targeted market? One trick ponies don't have staying power once they've exhausted their only option. You'll need to know and discuss other markets you can move and expand into with your product or services.
11. Can your product evolve? The question here is if another similar product comes into the market, how will your company stay ahead of the competition and maintain or further gain market share? This is about being flexible and able to adapt to changes in the market, strengths and weaknesses of your product, and potential opportunities or competitive threats to your business. Typical SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis here.
12. How will you market, sell and distribute your product? Will you do this yourself or ally with another company to take advantage of their distribution channels? How will this happen? These are some of the questions you should answer and potential investors, if you need them, will ask.
13. Who will be your CEO? The CEO entrepreneur has many functions in terms of the company and is critical and responsible for success. They are a combination of sales and marketing and fundraiser. The more things the CEO can do, the better he will be at leading the company. Are you resourceful? Are you an idea guy? People will want to follow a good CEO and not have to be forced to follow. A good CEO also knows what he is not good at and will bring in people to help them fill in those deficiencies. Keeping a tight reign on things as a CEO is good for quality control but not good if it's for ego issues. Are you someone who can see the big picture? These are typical leadership qualities written about in many leadership books and courses. There are natural born leaders but they also say leaders can be taught. If you are the inventor but are not the CEO type, be ready to pass the baton when needed. There are other positions you can take or even create that will still give you a say in the company if you cannot be CEO.
14. Getting back to management issues, who is going to manage the different aspects of your business? Unfortunately most investors are impressed by people who have good pedigrees and impressive backgrounds. However that is not the best way to pick your management team if you want to succeed although it may be a good way to raise money the way things are done these days. Many management people can hide their weaknesses and ineffectiveness in a large corporation. I've turned down business plans because of having interviewed management teams and found them to be inappropriate. In a startup environment, any deficiencies will be exposed early on because there is little room for error versus in a large corporation. A startup is often on the edge of do or die and there is no room for slack.
Try to assemble a team of people where each are capable of handling more than one area (e.g. operations, finance, marketing, sales, etc.). Good management people are able to do this. Does your management team play well together? How can you make this happen? Good people often have egos that need to be managed properly. You don't want too many prima donnas unless it's for a reason. Be diligent when you interview people for these positions.
15. Do you need help, such as business consulting, legal, sales, etc.? You're probably saying that you're a startup company and you can't afford to hire people. Well, be resourceful. Check out your nearest university for discount or free help from students. Many business school students can trade services for a project grade. Interns and students don't cost as much.
16. If you can't explain your business plan to the average person to the point where they can explain it easily to someone else, go back to the drawing board. You should be able to explain the concepts in plain language. Jargon will confuse and put off investors who are not as savvy. If the average person wants to invest in it, then you're on the right track.
17. Be able to adequately answer all questions. You need to be able to know your business inside out and anticipate all questions and have an answer for all potential questions. Otherwise, you haven't thought it through. Even if the answer is "I don't know" but you have thought about it and can present a proposal for remedying it which demonstrates that you are aware of your gaps and have a plan to fill them. Practice your pitch on everyone and get to the point where you can answer everybody's questions easily. You will be hearing some of the same questions over and over again. If the same question keeps coming up, it is an indication that you haven't addressed it appropriately in your pitch.
18. Put yourself or designate someone capable to play investors' advocate as a check for everything. If you can have several people as investors' advocate, even better. The more perspectives the better.
19. Fund it as far as you can by yourself and with private money you've raised before going for VC funding. We're talking friends and family and other angel investors. Research sources for grants and loans. Have you checked out the Small Business Administration backed banks for ideas for loans? Do you truly believe in your business idea that you are willing to risk your personal assets? Many startup companies max out their personal credit. I am not saying you should but this is common.
Of course, this could put you in a compromising position if things don't work out. 65% to 70% of new business will fail within the first five to eight years of operations. A good business plan will help you reduce this risk although it won't remove it. However, this is about risk and if you are risk adverse, you need to think about selling your idea in a different way. As an aside, it's easier to startup your company if you've got another source of income.
20. If you seek VC money, be prepared to give up much equity in exchange for their risk. This is another reason to try to find other ways to fund your business plan. Do not pursue venture capital money with the way venture capital industry is currently structured unless absolutely necessary and you have exhausted all other avenues. When you do go, do not wait until you have no leverage.
There are many VC firms out there. Not all VC firms are created equal. A good venture capital firm can help you in many other ways besides financing. They may be able to help with lining up customers or with your marketing strategy. Like any other relationship or marriage, make sure everyone is on the same page and has the same objectives. Just because a VC firm wants to invest in you doesn't mean it validates your business model and it's smooth sailing from then on. Don't live in a fantasy world. So do your homework. Actions speak louder than words. Otherwise, divorce later is much more painful than giving up the money now. Shop around. It also doesn't help if you look too desperate for money. That old saying that banks only lend to people who don't need the money is pretty accurate.