At this very moment, hundreds of thousands of people are creating plans to start up the next great business to solve one of the world’s problems; but the one thing standing in the way? Green…cold, hard cash. That’s where investors come in and evaluate a start up company's business plan and evaluate whether it is a viable idea. In this post, I’ll be taking a brief look into a couple of angel investor’s advice, and some practical tips about what they are looking for in a business plan.
Scott Shane, is a successful author (Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live by (Yale University Press, 2008)) with a teaching background in Entrepreneurial Studies from Western Reserve University. Mr. Shane offers some pretty simple tips for those looking to start up a new business in an article titled, “Start Your Business in a Favorable Industry That You Know Well”. He contends that if you are well-versed in an industry that is not succeeding, such as the auto industry, your odds of success are far less favorable than if you pick starting up a business in the software development industry, which is booming. As you begin to dream up plans for the next big idea, it’s important that you are doing the proper industry research to know if you are working in an industry that will pay out big time, or is past its prime. Knowing the forecast for your industry before launching you business can be very helpful before presenting to investors. Investors will want to know upfront if there is a high success rate in your particular industry and will probably shy away from an industry that has flat-lined.
Marty Zwilling is CEO and Founder of Startup Professionals, Inc.; Callaman Ventures Board Member and Executive in Residence; Advisory Board Member for multiple startups, along with long list of other business accomplishments. Marty hosts a blog (where his previous bio information was snatched) that focuses on giving business startups practical advice on what to include and what to avoid when seeking funding. I read his article titled, “Early Stage Start Ups Need Friends, Family and Fools” and gained some great insights into walking in to a room with a dozens of angel investors. Marty also has some pretty simply tips listed that if followed could be make-it or break-it for a start up. Out of the list of ten or so suggestions there were a couple that particularly stood out including – Ask for the minimum rather than the maximum; and Communicate the risks, and write down the agreement.
Some people may not want to communicate the risks up front for fear of showing weakness in a business plan, but the opposite is true really. If you have you’re your proper research you will be aware of potential pitfalls in your industry or your specific business plan, and be able to plan for and recognize them immediately if they do indeed pop up. This shows that you are responsible and trustworthy.
Regarding asking for the minimum rather than the maximum he goes on to say, “Set some milestones for three or four months out and show what you can do, then ask for more.” In a book I read recently “Start Something That Matters”, by Blake Mycoskie, founder of TOM’s Shoes, Blake builds off of this concept of using as little money as possible to get a company off the ground. He speaks in great detail in the book about how the company was able to keep costs low because decisions made up front to not be extravagant in their spending. This equals to the company starting out of his loft apartment in Santa Monica, and now being house in a simple warehouse with many plywood cubicles. If you show investors that you are going to steward their resources well, you’ll have a much better chance in having them open their pocket books.
References
Scott Shane bio. (2011) Businessweek.com Retrieved January 5, 2012 from http://www.businessweek.com/bios/scott-shane-2250.html
Shane, S. (2008) Start your business in a favorable industry that you know well. Retrieved January 5, 2012 from http://smallbiztrends.com/2008/06/start-your-business-favorable-industry-know-well.html
Zwilling, M. (2011) Early-stage startups need friends, family and fools. Retrieved January 5, 2012 from http://blog.startupprofessionals.com/
Mycoskie, B. (2011) Start something that matters. New York : Spiegel & Grau
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