5 Easy Steps to a Great Business Plan

Writing a great business plan (and I've authored and co-authored dozens of plans) is not that hard. You simply need to understand that investors are busy people, and tell them the five critical things they need to know about your business, as soon as possible in the plan.

Contrary to a lot of advice about writing the Executive Summary last, I believe you should first write the Executive Summary first - but in a highly structured way. So put aside the templates, fire up a blank Word document, and start creating your business plan by first creating the "one-page plan" that encapsulates the five essential things your investors need to know about your business:

1. What problem does your business solve?

2. How many potential customers have this problem?

3. How many of these people can you effectively reach?

4. How much capital do you need to get started, and how much money can you generate after costs?

5. Is it possible to protect your solution against competitive pressures (i.e. by using patents, by out-advertising the competition, by offering a lower-cost solution, by teaming up with market-leading partners, etc)

The first thing that you'll notice about this approach is that it works for ventures of any size, or any type - from giants like Google down to single-proprietorship businesses. For example, if my business is selling wireless sensors that detect the PH level of swimming pools and alert pool owners via email, my "pre plan" might look like this:

1. What problem does your business solve?

Many swimming pool owners don't know how to regulate the PH level of the water, or don't have the equipment to do an effective job. An unmaintained pool and poorly-regulated use of chemicals can pose significant health risks. Using a pool maintenance service provider can cost hundreds of dollars a month.

AAA PoolBot alerts customers via email when the PH level of their pools requires adjustment. Costing just $129.95, with optional service plans starting at just $4.95 per month, the AAA PoolBot allows pool owners to maintain their pools at a fraction of the cost of hiring a pool service company.

2. How many potential customers have this problem?

According to USA Swimming and the National Swimming Pool Foundation there are 10 million swimming pools in the United States, with 360,000 Public Pools that stay open all year.

3. How many of these people can you effectively reach?

Our web site, www.aaaPoolBot.com, receives around 10,000 unique visitors a month, almost all of whom have pools. However, our new marketing partner, www.poolbotsrus.com, is the market leader in this space and reaches over a million unique users a month, 80% of whom are returning visitors.

We believe we can create awareness among 22% of US pool owners, or 2,200,000 potential customers, representing a possible market size of $285 million. Based on conversion data collected from aaapoolbot.com over 12 months, 2.5% of visitors can be expected to convert to sales, resulting in $3.51 million in first year sales, net of affiliate commissions, up from $350,000 last year.

4. How much capital do you need to get started, and how much money can you generate after costs?

The company is currently unable to fund manufacture of the anticipated number of units from cash flow, and requires additional capital to ensure an adequate flow of units into the market.

Taking in investment capital will also allow us to increase our margins and lower costs. Each AAAPoolBot currently costs $38.95 to produce and distribute. We believe we can reduce costs by 50%, and increase our net margin by 12% to 18% overall, by producing in volume.

5. Is it possible to protect your solution against competitive pressures (i.e. by using patents, by out-advertising the competition, by offering a lower-cost solution, by teaming up with market-leading partners, etc)

We believe our five year exclusive partnership with the world's largest swiming pool device distributor provides good protection of our market position. In addition, we are the holders of US Patent #089278 which we believe will provide strong protection over the next fifteen years. Our board of advisors includes two ex-Olympic champions, both of whom have agreed to feature in our marketing campaign over the coming 12 months.

Summary

Now, I don't know about you, but after reading the Executive Summary above, I'm pretty sold on AAA PoolBots (which is a shame, because it's a toally fictional business!) They appear to solve a problem that a large number of US households have to deal with, and are able to back up their numbers with evidence from 12 months of selling to a fraction of the total market.

Their new partnership should allow them to reach a much bigger share, and the capital they are seeking will allow them to increase their margins beyond the cost of capital. Their exclusive distribution deal and US patent provide strong protection for investors, and it looks like they have exactly the right folks on board to work as pitchmen for the product. It looks like a winner.

The rest of the plan should now be plain sailing - more detailed information on your beta trials, information about your previous success as a business operator, some discussion on any potential delivery risks, plus a detailed financial plan - and you'll be in good shape to start pitching your business.

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John Sharp

John is a serial entrepreneur and investor, and the co-founding Partner of Hatcher+, a data-driven, globally-focused venture investment platform based in Singapore. In addition to leading capital raising and deal syndication, he is the visionary and architect behind the Hatcher Stack, the company's proprietary research and technology platform. Over the past five years, John has led numerous venture investments in early-stage companies, including ASYX, DocDoc, Dropsuite, Heardable, Invit, Inzen Studio, SocialCops, ThoughtRiver, and Telr - and syndicated over US$100Mn of additional debt and equity co-investment. IPOs and trade sales in which he was acted for the majority shareholder include Dropsuite (ASX:DSE) and Inzen Studio (ASX:ICI). His M&A work includes the merger of payment leader Telr with Dubai-based Innovate Payments, and the merger of Singapore-based companies DocDoc, and DoctorPage. Prior to co-founding Hatcher, John founded cybersecurity technology leader Authentium (acquired by CYREN in 2010), and acted as a director for global payments aggregator Mozido, and an advisor to Africa-based Gateway Communications, satellite technology developer MDS America, Kuwait-based Internet marketplace Sheeel.com, and Orion Partners, a $2B private equity fund manager based in Hong Kong.

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