How to Write a New Venture Business Plan
New venture plans answer five basic questions that provide prospective investors with the necessary information to determine whether they should further consider investing in your business.
Is the new venture’s product or service feasible?
In some cases, this question is unnecessary to ask. However, it’s important to consider in any case where a firm may invest in a new, unproven idea. This situation is most clearly illustrated in the case of a firm that plans to build and then market some newfangled technology.
If a product hasn’t already been built or a service hasn’t already been proven to be deliverable, the next best approach — and the one commonly used by technology startups — is to assemble a team of people who’ve built similar products in the past. Investors can probably rely on this team’s track record of success.
Does the market want the product or service?
Ideally, a new venture proves that demand exists by already having customers buying the product. If a new venture hasn’t yet finished the product or service, such hard-and-fast proof of demand is impossible to come by. In this case, you can prove market demand by running independent market research.
Sometimes, you can also prove market demand by showing that consumers or businesses already purchase a similar product or service and would, logically, purchase a clearly improved version of the product or service.
Can the product or service be profitably sold?
You must run rough numbers to prove that products or services revenue less the cost of goods sold produces a gross margin that is adequate not just to pay the operating expenses of the firm but to retain something for profit. In order to do a decent new venture plan, you need to understand enough accounting to produce a set of forward-looking financial statements that persuasively argue a profitable venture.
Is the return on the venture adequate for prospective investors?
Curiously, simply proving that a firm’s venture will be profitable often isn’t enough. A firm also needs to deliver profits at least equal to and, ideally, in excess of the return on investment that the investors desire. In the case of a new venture, investors have pretty firm expectations of what a risky investment should deliver.
Essentially, in a new venture plan, you provide information that lets the prospective investor figure out the rate of return. The prospective investor can then compare this return with his or her requirements.
Can existing management run the business?
Any new venture plan needs to sell prospective investors on the idea that the existing management team — which includes the founder or president and his or her lieutenants or vice presidents — can successfully operate the business. In other words, even a great business opportunity requires a good management team in place (or almost in place), ready to execute the business plan.
Some final thoughts
Consider the following comments as you prepare your venture plan for possible investors:
The general outline: Although new venture business plans really serve a different purpose than white paper business plans, you use the same sort of general outline for both.
A few caveats: Although you definitely want to make sure that your new venture business plan answers the five questions, keep in mind the following caveats:
Don’t lay it on too thick.
Remember that a new venture investor is typically not going to write you a check based on what he or she sees in a new venture business plan.
It’s very unlikely that any entrepreneur or business owner can honestly answer all five questions with a “Yes.”