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How to Write a Winning Business Plan

Marc Kramer

It's obvious that Wall Street has had a good run over the last year: the stock market has done well, venture capital is flowing, and private equity funds have more money than they know what to do with.

I was at a Wharton School of Business Private Equity and Venture Capital Conference last month, where I heard the chairman and CEO of Blackstone Group, Stephen Schwarzman, speak. He said that pension funds and corporations were beating down his door pleading with him to take $200 million pots of money and invest them.

For many of you who read this column, either you are sick of working for someone else and want to start or buy a business, or you want to raise additional capital for your existing business. Unlike Bill Gates, Steve Jobs or Schwarzman, who could write an idea on a piece of toilet paper and it would have more value than the Ten Commandments, you will need to develop a well-thought-out business plan.

There are two types of business plans. One is a plan to raise capital, and the second is a plan to run the business. The former covers information at the 50,000-foot level, and the latter provides detailed information about how you are really going to run the business.

Professional venture capitalists such as Tim Draper -- founder of Draper Fisher Jurvetson and the money behind Skype, Netzero and Hotmail, to name a few -- need to articulate on paper a business model that solves a problem or changes the world and opens up opportunities that no one else has ever dreamed of. Right now there are an abundance of such opportunities, ranging from energy to e-commerce to health care to security.

Once you have identified a need that people will pay for, you need to develop a well-thought-out, yet short and concise, business plan. Investors aren't going to weigh your plan on a scale to determine its value. The reality is that investors typically only read the executive summary and the financials, and if they like what they read, they call up the entrepreneur or business owner and offer to meet.

The following is an outline of what investors look for in a plan.

Executive Summary: This is a three- to five-page overview of the entire plan. The best way to start this section is to have a subheading called "Problem" followed by another subheading called "Solution." The rest of the section gives brief overviews of the market, marketing and sales strategies, revenue streams, competition, management, capital needed and exit strategy.

Company History: If the company has been in existence, provide a brief history of how it was started and milestones it has accomplished.

Market: Here you provide marketing statistics, quotes from stories and other information that will back up your claim that there is a robust market for your product or service.

Marketing Strategy and Tactics: In this section, you need to provide a plan for how you want to position the product or service. For example, Budweiser is targeted at the masses, but a microbrewer such as Sierra Nevada is targeted at wealthy patrons. Once you have decided your product positioning, then you can list your tactics, such as newspaper, Internet and television advertising.

Sales Strategy and Process: In this section, you need to describe how you plan to sell the product or service and your process for closing a strategic partnership, alliance and sale.

Revenue Streams: This section details how the company has or will make money.

Competition: This is an analysis of the company with a spreadsheet comparison of your proposed venture and its major competitors. This section should also talk about the company's competitive advantages.

Retention Strategy: I put this in all my plans, and I have been told by many venture capitalists and private equity groups that they rarely see plans that mention how they intend to keep their clients. Most entrepreneurs are so focused on obtaining sales that they don't think about getting the same people to purchase on an ongoing basis and to recommend to others to buy.

Operations: This is a description of where the operations are located and what is involved in running the business. You should mention which functions will be taken care of in-house and which will be outsourced.

Launch Plan: If this is a new company or product line or a relaunch of an existing company, you should include a detailed spreadsheet showing the various activities that will occur each month for the first six to 12 months.

Financials: The investor wants to see a five-year projection and 12 to 24 months of cash flow. The investors want to see how the numbers were built. It's best to stay away from using percentages of the market, because no one believes anyone will capture 10% of whatever market they are focused on.

Your total plan with financials shouldn't be more than 30 pages in length. It should also be written in a Word document and be short, concise and grammatically correct. The reason I mention conciseness and grammar is because investors get a sense of who you are by how you write. If you write long-winded documents, they will assume you are long-winded and take a long time to get things done. Sloppiness indicates you don't pay attention to detail.