Tag Archives: Business Angels

Business Plans are worthless and a con

In talking to entrepreneurs the subject of business plans often comes up. While some have excellent plans, others haven’t and feel that business plans are a complete waste of time and just there to line the pockets of consultants.

I think the issue is that the phrase “business plan” has become over used and lost its meaning, conjuring up complicated and costly documents that have no real practical help. Just another form that has to be filled in.

However if you were to ask whether someone has a plan for their business, not a “business plan”, but simply do they have a plan for their business, then most will say yes of course.

Few would imply that they have no idea of what their business is selling, the market it is in and what its aspirations were, even if it’s not written down but just in their heads.

When communicating to potential Investors or applying for a loan however they will want it written down in order to decide whether it is something they are interested in and to filter all the many approaches they receive.

They can’t see or talk to everyone, they need to look at something to decide if the opportunity is in a suitable market area and has sufficient quality that they will then invest time in following up.

That has lead to the structure that we now call a Business Plan. But if you are not applying for funding is there any point in writing down the plan for your business?

Well yes. Because the discipline of having to write down your thoughts for the business is a great way to force you to put in place actions and ideas that will develop your business.

While it’s all in your head it is easy to be fooled that you have this grand plan. Start writing it down and get some detail into the woolly thoughts that you have.

If it is not for funding but only for you, it can be in any format and as long or short as you wish. An action list that goes beyond a few months is a business plan.

So is planning your business worthless? If applying for funding is it unreasonable for the potential Investor to ask for information about the business and its plans in writing so they can read it?

Other resources:
Writing business plans for business angels

Marketing plans

The Business Angel – a hidden treasure of resources

Happy New Year all. Time for reflection and to reinvigorate ourselves. Hope 2014 is a great year for you.

Thought I’d share a little known resource that may be of interest to people. We’ve put in one place good information for both entrepreneurs and Investors including some great tips from active Investors, worth a look…TheBusinessAngel.org

There’s pointers to many other resources as well and if there is anything we’ve missed, let me know, we’ll add it in.

Top 8 mistakes when seeking Investment

Investor reading business plan At Company Partners we talk to a lot of Investors and we often get the same observations about what Investors like and don’t like.

Although I normally try and accentuate the positives to be learned, there are valuable lessons from the goofs to be avoided, here’s my top 8 mistakes when seeking an Investor:

You know it all, any advice about your product, strategy or sales projections is actually criticism and must be defended.
The most important thing is to talk in detail about your product or service, you haven’t got figures but the market is begging for it and the sales will be enormous.
There isn’t a business plan, that’s not your expertise, you just want to get in front of an Investor and they will jump at the opportunity.
Mails and any communication with Investors are perfectly all right with typos and all in lower case or “text speak”, it’s your idea not your spelling they should be interested in.
No work has been done to prove the concept, you’ve not the money, expertise or contacts to do so, that’s why you want an Investor.
Although the business hasn’t started yet and has no revenue you want £100k for 20% of the business.
Good news you’ve found a potential Investor, but his demands of equity are unrealistic, after all it’s your baby we’re talking about.
You don’t have any idea how much investment you need, or what it will be used for, you just know you need someone to invest.

Let’s face it, it’s hard to know what is needed or what to avoid when you are seeking investment for the first time and we shouldn’t diminish the hard work entrepreneurs do in looking to grow their business. It helps to learn from others mistakes though.

Case study – finding a business partner

With Peer-2-Peer lending growing in popularity, Norman Akram realised that there was an opportunity for a company whose business model protects lenders against bad debt (most Peer-2-Peer loans are unsecured).

A well tried model already existed in the form of pawnbroking and Norman set about developing a website platform for lenders and borrowers to interact with one another, allowing loans to be secured by suitably valued goods.

Although Norman had the concept, he required partners with complimentary skills such as finance, management and marketing.

Having tried other places he turned to Company Partners and joined as a member to look for either a business partner or an Investor for his start-up.

That’s where Richard Luxmore came in. Richard had joined Company Partners as an Investor and had a background in accountancy and management, but was looking for a new and interesting challenge.

After finding each other on the site, they progressed through emails and then Norman and Richard agreed to meet up and look at how they could work together.

How did that meeting go? Well the proof is in the launch now of one of the most innovative and fast growing businesses I’ve seen for awhile; Fundingsecure.com .

There are some lessons to be had from this success.

Do your research upfront. Norman had already gathered accurate statistics and information on competition and the market. When he met Richard, he could present the facts, not just a hopeful idea.
Have a vision of what you want to create. Then when inevitably you have to be flexible in altering aspects of the business you can refer back to that vision to ensure you make the right changes.
Start with a partnership heads of agreement or get something down in writing of how you will work with your business partner, but be prepared to be flexible in changing it as you discover what works.
Build a team of good people around you, be flexible (that word again) with your infrastructure in order to maximise each person’s contribution and to accommodate those good people.
Don’t have high fixed costs, such as premises or cars and do as much as you can yourself. Preparing some external work like web site design before the programmers start and preparing legal documents that the lawyers could then review all help precious start-up funds go further.
For those thinking of a web based business, be aware that offshore web development may seem cheaper, but in a start-up you need to be able to sit down and talk with your developers, Fundingsecure changed from an offshore developer to a local one to ensure communications worked.

If you want to find a business partner like Norman and Richard, have a look at what Company Partners does for its members.

Why ideas don’t get investment.

Investment for a good idea

“I’ve got a great idea; it will make millions, guaranteed. I haven’t got the time myself to pursue it, so I’m looking for someone to take it on. Maybe I could licence the idea, or sell it. I don’t actually want much, I just want to see it made.

“No, I haven’t got round to doing a business plan, not sure where to start on that anyway, I’m more of an ideas person and of course I am a bit careful about telling anyone about it in case they steal the idea.”

Sound familiar to Investors? Any entrepreneur thinking “what’s wrong with wanting to sell an idea?”

Let me give 5 reasons why ideas don’t get investment:

Good ideas are 10 a penny. Everyone you meet in the street or bar, has a good idea.
By themselves ideas have no value. They are not rare, they are very common.
They gain value as you do work proving that an idea will practically and commercially succeed.
You should be able to contribute more to a venture than just the idea, your expertise, skills, background, experience and effort will give an Investor more confidence that the concept will work.
Ideas by themselves are high risk, the highest of risk in fact. Investors have plenty of choice where they can invest their money; they don’t need to take that high risk.

Right, so you’ve got a fantastic idea for a new product or service, it will take some investment to turn the idea into a business, what do you do?

Even with no funds you can do market research. Don’t ask your family or friends, talk to real potential customers, think through your target market (see How to market smarter ), construct a marketing plan. This all shows an Investor that the concept is likely to be viable.

Do work to move your idea forward. Build a prototype product or start a basic service, to prove the idea works in reality.

Get some sales. Even if just a few, or obtain some advance orders, or letters of intent to buy. This more than anything is the big difference between securing funding or not. Not every good idea is a commercial good idea. Showing that customers will hand over their hard earned cash moves the idea from fantasy into an investable business.

How to write a business plan – the structure of the plan

Last week I looked at the preparation needed to write your business plan, now we are laying out the structure of the plan.

Not all of the following will be needed for every plan and you must decide what to include based on the use that the business plan will be put to. For instance Business Angels will want to see a section on the Management Team, however if the plan is only for you to run the company you could easily leave that section out.

Main sections of a Business Plan:

1. 0 Executive Summary

Normally 2 to 3 pages that clearly states what your business does and summarises the main elements of the plan. If you are looking for investment, the Executive Summary is the first information that Business Angels or banks will want to see. They need to quickly understand your business and its attractiveness before they will ask see the main plan.

Although it comes first in the structure, you will write it last. You can’t summarise what you haven’t yet written.

In the Executive Summary you should state what your companies Objectives or Goals are and even your business’s Mission. Mission Statements are not just the remit of large corporations; they also give direction to fast growing businesses.

Remember the above Exec Summary is done last. First you layout the main Business Plan sections as below.

2.0 Company Summary

Describe where your business is located, is it a start-up or how long it has existed, what services or products does it supply, and to what group of people.

Include in this section who owns the company and the history of the company.

3.0 Products / Services

This is the section most people find the easiest. Everyone enjoys talking about their own products. However apart from describing your products & services do include these essentials:

- What makes your offering different and more attractive than the competition

- Where do you source your raw materials, or service providers from

- How you distribute your product/service What about after sales support

- What about after sales support

4.0 Market Analysis Summary

You will already have some knowledge of your market, but now quantify it. Do some book/web research and get real numbers and statistics. Being able to refer back t0 the sources of your information is vital when talking to Investors, it gives credibility.

Even if not looking for investment, you must base your plan on actual information, not a personal/general impression that may in reality be far from accurate.

Do your own market research, ask people who you believe to be your target customers for information and if they would buy your product. Don’t just ask friends and family.

4.1 Market Segmentation

A key part of your marketing is to sub-divide your potential customers into groups that have some similarity. You haven’t got the resources or funds to market to everyone, so create target groups and you will then be able to decide how best to reach them.

4.2 Target Market Segment Strategy

Look at how understanding the different needs and attitudes of your target demographics may be translated into a strategy.

By having segmented your market, the messages that you give to each of these groups can be very different and delivered in a way that attracts that group of people.

You may also decide to make differing versions of your offering for different segments of your market.

4.3 Industry Analysis

Describe the industry in general and it’s size. Specifically talk about the competition in the industry and how you compare. Describe buying patterns; are sales seasonal for instance, do they depend on other factors, how long is the decision process to buy.

Is there price sensitivity, or is quality and service the most important?

5.0 Strategy and Implementation

5.1 SWOT Analysis

Strength – Weakness – Opportunities – Threats analysis. You may not want to actually include this here. It may be better in a appendix, or kept separate simply as part of the background to understanding your business.

5.2 Competitive Edge

These sections are about implementation, so think about how you will put in place strategies and activity to take advantage of the differences that your products/services have.

5.3 Marketing Strategy

Specify your strategy for reaching your target market and the main actions needed to carry out these strategies. You should include PR, Direct Marketing, advertising, sales calls, customer referrals, special deals/promotions, endorsements, partnerships, sponsorships etc.

Think about your resources, can you afford to advertise a bit, do you have someone who could make sales calls, try getting free PR if possible

You have a great product/service, but no one will buy it unless they know about it. See our resource on making a Marketing Plan and then include the main elements in this business plan.

5.4 Sales Strategy

Will you sell on-line, have your own sales force, franchise or not, will you have distributors, a store, a warehouse? A restaurant, bar or cafe needs premises to sell from. Where and what location, how about “foot-fall” for high street premises.

Will you sell in bulk, or minimum orders, discounts, pricing and loss-leaders, all the nitty-gritty of how sales will be made has to be thought out.

5.4.1 Sales Forecast

The finance section of most business plans includes 3 years of forecast. The first year by month and the next 2 years as separate yearly totals. Some industries may have longer forecast needs, but not normally.

People find this section hard to do, but you have to give it your best estimate. Note down the assumptions that you made in coming to that estimate, so you can justify it. When operating you can compare actuals to forecast and look back and see if any assumptions needs changing.

Sometimes you can get an idea of your likely sales by looking at your competitors, or competing products & services.

6.0 Management Summary

If the plan is only for internal use, you will not need a full biography of the management team of the business, which you will certainly need for Investment purposes. Even if it is a one person start-up, you will need to say something about your background that makes Investors believe that you are capable of being successful with their funds.

There’s no need for a full CV in this section, just a summary, picking out relevant details.

In this section also you can say how the personnel levels will grow over time and what skills or positions will be expanded.

7.0 Financial Plan

As mentioned with the sales forecast, the financials are normally the first year by month and then the next 2 years as a yearly total.

If you have the sales forecast ready, all you need then as preparation are the costs of the business. Typically these are split between fixed costs and variable costs. The putting together of the financial side of the business can be done on a spreadsheet for small businesses but larger concerns will need to use an accountant to translate the forecast and costs into full financials that include a balance sheet, cash flow and Profit & Loss accounts.

Alternatively, there is software around that will guide you through putting all the sections of a plan together and also produce the full financial section. Try this business plan software, we’ve looked at many and this turned out best in our review.

Finance sections to include:

- Important Assumptions

- Break-even Analysis

- Projected Cash Flow

- Sales Forecast

- Projected Profit and Loss

- Projected Balance Sheet

It’s important not to get stuck in any one section of the plan. Do your best and move on, keep momentum going. If possible bounce ideas around with your team, a business partner, or a friend. If you need a Business Partner, Mentor or Investment don’t forget to join Company Partners.

Start or grow your business now – what’s holding you back?

Start and grow your business in 2013

It’s a New Year and the entrepreneurial juices are flowing. It’s time to start the business that you’ve been talking about for years. What’s stopping you?

Or maybe you’ve already got a business but it’s not growing as fast as you had thought, what has to happen to make this year the year it doubles its revenue?

I’ve talked to thousands of prospective entrepreneurs and small businesses over the years and surprisingly it’s not always lack of funding that is the biggest hurdle. It’s fear of the unknown.

Whether you are dreaming of starting a business or hoping that this year your business is going to somehow take off, it is much more comfortable to continue dreaming than to do something about it. The dream is warm and cosy; we can lie in bed and feel comforted that our lives can change for the better at any time. But if we take action, what if it doesn’t work out? There’s no longer a dream just trouble.

When I started Company Partners, one of the key drivers was to allow people to find a business partner with complementary skills and a like-mind. Having a partner will motivate and encourage anyone starting a new business. It’s quite daunting by yourself.

For existing businesses, sometimes it’s not a new (expensive) employee that you need but someone else with ideas and energy that could join as a risk (and reward) taking partner to grow the business.

Yes having the funds to start or grow a business is also important and that’s why we have such a strong Investor community on Company Partners, but the first thing is to stop dreaming and do it.

There are things you can do to get the ball rolling. Write down your ideas for a business, or the way that you would like to grow, think what you need to do in order to make this happen. Dare I say, join Company Partners and search for a business partner, or Investor.

The key is to get started. Don’t wait, have drive, energy builds on energy.

Business Angel or Venture Capital – which to use

Just back from giving a business plan workshop to a group of MBA students, many of whom were keen to start their own business. So naturally the subject of how to fund a business came up.

One of the areas that regularly seems to cause confusion with the students is the difference between Private Equity, Business Angels and Venture Capital.

At first glance they may all look the same. But there are differences and which you use varies with situation.

Firstly let’s clear up the term Private Equity. Although it’s a generic name for having a company owned by a person or group of people where the shares are not in the public domain (ie not on the stock market). Private Equity in investment terms tends to mean those large investment companies that buy up the majority of shares in a significant sized established business.

Most entrepreneurs will be more interested in Business Angels and Venture Capital companies where they both invest in younger businesses and don’t generally take the majority of shares.

The main difference between these is that Venture Capital firms are investing money gathered from other people who have bought into a Venture Capital fund. Whereas Business Angels are investing their own money.

This is an important difference because it means that Venture Capital firms have to invest in less risky opportunities. Hardly ever do they invest in start-ups, preferring to be involved after the business has proved itself and is ready for high growth. To cover their overheads these also tend to be larger opportunities.

Since Business Angel investors are using their own money, they will be prepared to take slightly more risk, start-ups and early stage companies are more suited to these individual investors. Occasionally in order to share risk or to be involved in larger deals Business Angels will form a consortium, generally headed by a lead investor.

Business Angel Investor’s names and contacts are not in a “yellow pages” of investors, otherwise they would have people camping on their doorsteps, never mind the security issues, they tend to use intermediaries to act as gatekeepers and screens.

Some of these intermediaries are expensive to use, which is why Company Partners set itself up as a “members site”. For a small monthly membership you have access to a full database of Business Angels.

SEIS Start-up Investment

Business Investment SEIS (Seed Enterprise Investment Scheme) is a new government incentive to help UK start-ups and young companies.

It starts in just a few weeks on April 6th, so now is a good time to start building this into your funding plan for your start-up. Or if you are an Investor, have a look to see if this will be applicable to the businesses into which you are investing.

There has been a similar incentive around for some time now (see EIS) but the SEIS is specifically targeting new companies.

The details will come out in the Chancellors budget speech next week (21st March), but these are the basic points:

The business must be new, or 2 years old or less, with fewer than 25 employees. It must have less than £200,000 of gross assets and not quoted on a stock market.
Directors or executives cannot use the scheme to invest in their own companies.
You can raise up to £150,000 of funding through the SEIS, but mustn’t have already raised any money under EIS or venture capital trust (VCT) schemes. This is in total not per year.

An Investor can have up to 30% of a share in the business under this scheme. The SEIS makes it attractive for an Investor to fund a start-up because of the number of tax reliefs that they would receive:

Investors can claim back income-tax of 50% of the amount invested.
An Investor can have a ‘capital gains tax holiday’. Capital gains tax (CGT) can be avoided on any asset sold during the financial year 2012-2013 as long as they reinvest the proceeds in a SEIS eligible start-up in the same year.
The combined effect of the CGT holiday and the income tax break gives relief of up to 78% in the first year.

There is as you can imagine, a number of detail points that would need to be investigated but this should whet your appetite. It’s well worth while finding out more about the scheme either to make your new business attractive, or to maximise your investment returns.

After the chancellor has given final details next week, I’ll do a summary here and point you towards the required forms that the revenue will need to be completed.

How to get Investors

Business Angel and Investors “How do I get an Investor?” is the question I most get asked by entrepreneurs. Finding an Investor is often a hard and very time-consuming part of growing a business, but thousands of companies manage to do it every year.

Here are my top tips:

Make sure you really need an Investor. On the plus side they will bring contacts, experience and funding that can help your business grow larger, quicker. It may even be the only way in which you can start, or grow your company. However you will have to relinquish some control, give a share of the business in exchange for the finance and have the Investors watching how you spend their money. You must be willing to do that in exchange for the resources.
Prepare your business case. You have to show what your business is about and why the investor should give you their money and time. The business case for investment comes from your plans for the business. Hence business plans are a key part of being prepared. People tend to associate such with lengthy, formal documents. It needn’t be so. It can be quite succinct and practical.

I’ve written a more detailed description on how to write business plans for Business Angels that you may want to look at.

I often get entrepreneurs ring me and say they simply need to be given the chance to talk to an Investor and they will convince him. They don’t feel a business plan does them justice and they haven’t got time to write one anyway. That may be, but an Investor can’t talk to everyone and they have to filter who they do talk to based on some information – that’s why you must have written data to first show them, normally an executive summary of a business plan.
Find investors to approach. There are several ways to do this and you should try all that you can afford and have the time to do. You have to do everything you can and leave no stone unturned.

a. Friends & family. Start-ups often begin by getting help this way and it can be the quickest, but you have to feel comfortable that you are risking their money. The amount is normally fairly small, so usually only suitable for getting a business going.

b. Existing contacts. Beyond immediate friends & family there will perhaps be people you can approach with a business proposal. Your old boss, ex-colleagues who have made good and contacts who may know of potential investors. Spread your net wide.

c. Business Angels. Not to be confused with Venture Capital (see below), these are individuals who are investing their own money in promising opportunities. They generally will only invest in areas that they know about, so as to be able to judge risk and add value.

You may know one, or have a contact who knows one. However, since there isn’t a yellow pages of business angels (they would be constantly pestered, never-mind security), the best place to find them is through a Business Angel Network.

d. Business Angel Networks. You can find many on-line, simply search for “find a business angel” on Google. Be aware that all will charge a fee upfront, with no guarantee of success. You may not like paying upfront and rather only pay if they find an investor, but that is how all the industry works.

To a certain extent it is fair enough, since they have no control on how good you or your opportunity may be, all they can do is make introductions. Nevertheless, some do charge large amounts, from several hundred to several thousands.

The difference being that those that are charging a few hundred use an on-line data base where you enter your proposal and those charging thousands will instead take your proposal and ring round their investors to see if anyone is interested, you pay for it being more hands-on.

If that wasn’t enough, most also charge a “success” fee of 4% to 5 % and some even like to negotiate a small percentage of the final company for themselves as well.

A bit of a plug here for Company Partners – we operate as a member’s site, a bit like a normal “dating site” for entrepreneurs and Investors. We’re certainly the most cost effective and only charge a monthly membership starting at £29.95, with no other fees. See how Company Partners works.

e. Venture Capital. This is provided by a venture capital company who is investing other people’s money. They therefore have to be more careful and are more risk adverse. Seldom investing less than £1m, in established or proven businesses. Management buy-outs, buy-ins and fast growing companies already returning a profit are suitable.

Occasionally, high-tech and bio-tech start-up businesses with exceptional potential, that have IP and already gained traction may get funding.
Approaching Investors. First find out all you can about them, what businesses they have invested in before and the industry sectors they are interested in. In Company Partners for instance the Investors will have indicated the sectors that they want to invest in. Approaching investors with a proposal for a market sector that is not of interest will waste everyone’s time.
First contact with the Investor. At the initial stage you are just trying to gain attention and qualifying that the potential investor and your opportunity are well matched. The information you send can be as simple as a brief statement of the market area, general background and some numbers. Ask if you can send an Exec Summary, or business plan with more detail.
If interest is shown, provide the Exec Summary or plan, ensuring that it is written well and looks professional. Do not at any stage over-hype – it turns investors off. If they like what they see, you will be invited to a meeting. It may be informal one-on-one, or a more structured presentation. Some good deals have been done without a stand-up presentation, just by sitting round a table and explaining the plan.
How to present to Investors. If you are asked to do a presentation find out as much as possible about your audience. Who will be there, their backgrounds, how long have you got, what they are expecting to see.
See how to present to Investors.
The deal. There is no simple formula since every situation and business is different. However it generally starts with the valuation of the business. We’ve all seen Dragon’s Den where the presenter is asking for £100k for 10% of a start-up business. This values it at £1m and the company hasn’t started trading yet. Be realistic and if possible show that you have already achieved some sales. It reduces the risk for the investor and justifies a better price. This paper does show some ways to value your business.
The contract. Get this drawn up by a solicitor used to dealing with business angels, ask me if not sure, I know a few. It will need to include the types of shares that you and your investors own, what happens to them if further investment is made (called dilution), what happens if you or the investor wants out and much more.
Persistence. When Innocent drinks were looking for an investor for their fledgling smoothie business they had approached dozens of business angels, with a very well constructed business plan to no avail. They’d contacted everyone they could think of and got nowhere. But they persevered and finally found that one person who liked what they were saying and committed to back them. Try everything – be persistent.

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