The potential investors use business plan to evaluate whether the proposed idea is worth investing or not by analyzing what is in it for them. They go through the business plan to have insight about the business idea, people involved in the team, potential market, competitors, scope for growth and expansion, amount entrepreneurs want them to invest, return they are expected to receive and payback time. If they feel that the business adds value to the customers and investors alike, the business is worth investing. So, it is important to back up the information presented in the plan with fact and figures. The potential investors articulate merits, requirements, risks and potential rewards based on the content of business plan and then the investment decision follows (Spinelli & Adams).
Investing money involves certain degree of risk so they want to be sure that their investment will not go in vain before taking the decision for which business plan is used as a tool. The four anchors they are attempting to validate through business plan as given by Geiser (2016) are:
Value Creation or Addition: The business plan should highlight the value to customers which means it should communicate the benefits of the products, not the features, technologies and processes. For example: If the business plan of a data analytic company is to upgrade the system they are currently using to speed up the task of processing data, it should mention how the upgradation will add value to the customers and make their task easier instead of explaining about how they are going to do it. If the value addition is significant to address the customers need in more effective way, the investors will be willing to invest their money.
Problem Solving: The business plan should be able to communicate how the proposed product will solve the problem or satisfy the need of the customers. But it is necessary to note that we cannot solve the problem of every people at once. So, it is important to identify the target segment and address the pervasive need of that particular segment by offering something for which customers have sense of urgency. This will increase customers’ willingness to pay for that product making it an attractive opportunity for investors.
Growth Margin and Profitability: The investors will not be willing to invest in a project if it does not have robust market, growth margin and profitability. The projected cash flows, revenues, profit, returns etc. should be clearly communicated in order to make the investors believe that they will be getting decent return in their investment.
Team: The background, experience, skills and experience also influence the investors’ decisions. If there is a team with collective domain expertise, investors are willing to provide then with required fund. For example: There are two business plans for running a restaurant. Among which, one has a team consisting of one people each hospitality, finance, quality assurance and marketing background with some years of work experience while the other team consists recent graduates who are highly passionate about the business but do not possess any knowledge about that particular sector, the team will complementary set of skills has the higher chance of getting the investment.
Thus, the business plan should incorporate these four anchors to gain the trust and fund from the investors.
The potential investors use business plan to evaluate whether the proposed idea is worth investing or not by analyzing what is in it for them. They go through the business plan to have insight about the business idea, people involved in the team, potential market, competitors, scope for growth and expansion, amount entrepreneurs want them to invest, return they are expected to receive and payback time. If they feel that the business adds value to the customers and investors alike, the business is worth investing. So, it is important to back up the information presented in the plan with fact and figures. The potential investors articulate merits, requirements, risks and potential rewards based on the content of business plan and then the investment decision follows (Spinelli & Adams).
Investing money involves certain degree of risk so they want to be sure that their investment will not go in vain before taking the decision for which business plan is used as a tool. The four anchors they are attempting to validate through business plan as given by Geiser (2016) are:
Value Creation or Addition: The business plan should highlight the value to customers which means it should communicate the benefits of the products, not the features, technologies and processes. For example: If the business plan of a data analytic company is to upgrade the system they are currently using to speed up the task of processing data, it should mention how the upgradation will add value to the customers and make their task easier instead of explaining about how they are going to do it. If the value addition is significant to address the customers need in more effective way, the investors will be willing to invest their money.
Problem Solving: The business plan should be able to communicate how the proposed product will solve the problem or satisfy the need of the customers. But it is necessary to note that we cannot solve the problem of every people at once. So, it is important to identify the target segment and address the pervasive need of that particular segment by offering something for which customers have sense of urgency. This will increase customers’ willingness to pay for that product making it an attractive opportunity for investors.
Growth Margin and Profitability: The investors will not be willing to invest in a project if it does not have robust market, growth margin and profitability. The projected cash flows, revenues, profit, returns etc. should be clearly communicated in order to make the investors believe that they will be getting decent return in their investment.
Team: The background, experience, skills and experience also influence the investors’ decisions. If there is a team with collective domain expertise, investors are willing to provide then with required fund. For example: There are two business plans for running a restaurant. Among which, one has a team consisting of one people each hospitality, finance, quality assurance and marketing background with some years of work experience while the other team consists recent graduates who are highly passionate about the business but do not possess any knowledge about that particular sector, the team will complementary set of skills has the higher chance of getting the investment.
Thus, the business plan should incorporate these four anchors to gain the trust and fund from the investors.
References
Geiser, M. (2016, October 6). Four Anchors of Superior Business. Retrieved from LinkedIn: linkedin.com/pulse/four-anchors-su... 5
Spinelli, S., & Adams, R. J. (n.d.). New Venture Creation: Entrepreneurship for the 21st Century (Nineth ed.). Irwin: McGraw Hill Education.