Most entrepreneurs think they can get funding simply by sending out their business plan. Unfortunately, this rarely works. Over the past 15 years, my company, Growthink, has developed thousands of business plans for entrepreneurs seeking funding.
But I always tell people not to send the plans to investors. The trick is not simply sending out a plan. It is finding the best way to leverage it.
Your Business Plan Can't Answer All the Questions
Regardless of how good your business plan is, it will never be perfect. For instance, it can never answer every question an investor might have. If it did, it would be 100 or more pages long, in which case, no one would read it.
Likewise, any written document, including your business plan, is subject to interpretation. As a result, based on the experiences of the investor, he may incorrectly assess your opportunities or challenges.
That's why, ideally, your first written correspondence with a potential investor should only include an overview or brief information about your company. Put it in the form of an email or a one-page Executive Summary. Include within it bullets about what your company does and why it's uniquely qualified to succeed. Such a document gives the investor an overview of your venture and allows him to determine if it's something he's interested in pursuing.
Get Investors to First Invest Time
After giving investors an overview of your company, your next goal is to secure a meeting. Realize that investors have two scarce resources: their time and their money. Start by getting them to invest their time in learning about you and your company. Importantly, how they feel about you personally is often equally significant to how they feel about your company's success prospects.
So, secure the meeting, bond with the investor, and use the time to determine and answer all of his questions. You can generally answer questions far better in person than including them in your plan, as you can adjust based on follow-up questions and/or the investor's body language and tone.
When to Send Your Business Plan
After you meet with the investors and they are legitimately interested in funding your business, they will often request your business plan. This is when you give it to them. The business plan, at this point, is more of a formality. It allows them to confirm that you have fully thought through your business and will use their money wisely.
Even though your plan is more of a formality here, it's still critically important to create. Not only does it give the investor the final confidence needed to fund you. But in developing your business plan, you develop:
1. the compelling overview information to initially share with investors
2. a comprehensive understanding of your company
3. the materials for your in-person meetings and presentations
4. answers to all the questions they might ask you during the process
Approach raising funding from investors as you would any other marketing endeavors. Think of it the way people sell cars. It starts with a commercial or brochure to gain customer interest. This is like your overview email or one-page Executive Summary. Next, prospective customers are offered a test drive. This is similar to your in-person meeting and presentation. And finally, if the prospective automobile customer has questions, they might be given the full manual to understand more fully how the automobile operates. This is similar to your business plan.
Having a well-written and compelling business plan is a critical when raising capital. But knowing how to use it is equally important.
The author is an Entrepreneur contributor. The opinions expressed are those of the writer.
Dave Lavinsky is the co-founder of Growthink, a Los Angeles-based consulting firm that helps entrepreneurs identify and pursue new opportunities, develop business plans, raise capital and build growth strategies. He also is the author of Start at The End (Wiley, 2012).