Businessmodel

FROM THE HARVARD BUSINESS REVIEW

OnPoint
A R T I C L E

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Got a great new business idea? Here’s how to grab

How to Write a Winning Business Plan
by Stanley R. Rich and David E. Gumpert

investors’ attention—and get the dollars you need to make your idea succeed.

New sections to guide you through the article: • The Idea in Brief • The Idea at Work • Exploring Further. . .PRODUCT NUMBER 584X

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How to Write a Winning Business Plan

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ou ’ v e got a great idea for a new product or service—how can you persuade investors to support it? Flashy PowerPoint slides aren’t enough; you need a winning business plan. A compelling plan accurately reflects the viewpoints of your three key constituencies: the market, potential investors,and the producer (the entrepreneur or inventor of the new offering).

But too many plans are written solely from the perspective of the producer. The problem is that, unless you’ve got your own capital to finance your venture, the only way you’ll get the funding you need is to satisfy the market’s and investors’ needs. Here’s how to grab their attention.

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•Show the nature of the industry; e.g., franchised weight-loss clinics might grow fast, but they can decline rapidly when competition stiffens. State how you will continually innovate to survive. • Project realistic growth rates at which customers will accept—and buy—your offering. From there, assemble a credible sales plan and project plant and staffing needs. ADDRESS INVESTOR NEEDS Cashing out. Showwhen and how investors may liquidate their holdings. Venture capital firms usually want to cash out in three to seven years; professional investors look for a large capital appreciation. Making sound projections. Give realistic, fiveyear forecasts of profitability. Don’t skimp on the numbers, get overly optimistic about them, or blanket your plan with a smog of figures covering every possiblevariation. The price. To figure out how much to invest in your offering, investors calculate your company’s value on the basis of results expected five years after they invest. They’ll want a 35 to 40% return for mature companies—up to 60% for less mature ventures. To make a convincing case for a rich return, get a product in the hands of representative customers—and demonstrate substantial marketinterest.

EMPHASIZE MARKET NEEDS To make a convincing case that a substantial market exists, establish market interest and document your claims. Establish market interest. Provide evidence that customers are intrigued by your claims about the benefits of the new product or service: • Let some customers use a product prototype; then get written evaluations. • Offer the product to a few potentialcustomers at a deep discount if they pay part of the production cost. This lets you determine whether potential buyers even exist. • Use “reference installations”—statements from initial users, sales reps, distributors, and would-be customers who have seen the product demonstrated. Document your claims. You’ve established market interest. Now use data to support your assertions about potentialgrowth rates of sales and profits.

• Specify the number of potential customers, the size of their businesses, and the size that is most appropriate to your offering. Remember: Bigger isn’t necessarily better; e.g., saving $10,000 per year in chemical use may mean a lot to a modest company but not to a Du Pont.

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HBR

How to Write a Winning Business Plan
by Stanley R. Rich and David E. Gumpert

comprehensive, carefully thought-out business plan is essential to the success of entrepreneurs and corporate managers. Whether you are starting up a new business, seeking additional capital for existing product lines, or proposing a new activity in a corporate division, you...