|Business Plan Analysis |
Over the years, the staff at Chapman, Spira and Carson has perused countless
business plans. We have come to realize that there are certain critical elements
that are strategically imperative if the entrepreneur wants his plan acted upon by
a funding source.While for most of us, funding is the purpose of the exercise
abut we are also convinced that a well thought out plan has benefits far exceding
the receipt of money alone. So often, in the plan's formative stages, the author
enters into its design with missionary like zeal. He is so convinced of the fact that
his concept will reshape the world we live in as well as most of the rest of the
universe that professional guidance is not sought. The result becomes an illogical
monolith, saying little and convincing no one. Author's that only have visions to
guide them, at time have a great deal of trouble putting their thoughts into a
rational, intelligable, readable form in which everything has its proper
Furthermore, some visionaries believe that they can see the essence of the
concept and its conclusion before they lay pen to paper. A business plan is
almost a living and breathing thing, thus, it grews as we nurture it. We are
always suprised at how the scenario plays out when the proper imput is added
to the equation. If the author "goes with the flow" the final document will reflect
the "state of the art" when it is completed. With too many preconceived ideas,
the material becomes restrained and the avenues, dead-ends.
As the progress unfolds and new data is imbedded into the text, new marketing
possibilites begin to unfold and many of our historic concepts begin to appear
foolish. The end result is more often than not, a far different cry than what we
anticipated when the process was begun. Thus, we look upon the business plan
as a dynamic evolution in sophistication and knowledge about a field that
belongs to the author. We view the its creation as mandatory, not for the
purpose of showing others what you have written, for the purpose of raising
money or for some other mundane purpose, but self inflicted knowledge and
betterment. It is a truly wonderful exercise.
From the preceeding you can understand why we have determined not to spend
valuable time reviewing plans that have not been carefully structured and
laid-out in advance. The subject is not that complex, structurally, only two
elements exist, the creation of the plan and being able to convey its essence to a
reader in terms that do not make the subject matter more opaque to the reader
than it was before he started reading. Remember, you are an expert relative to
your concept and we are reviewing for the first time. Remember the axiom
KISS, keep it simple, stupid.
All too often, the critical discipline involved in this process is not in evidence. If
the principal has not taken the time to painstakingly convey his concept in an
organized, readable fashion, why should an overworked venture capitalist waste
his time going over a series of disorganized thoughts.When the playing field has
been leveled for all concerned, one meeting is sufficient for the parties to take
each other's measure and determine whether or not to proceed. A physical
meeting is more about those intangibles that are of importance, such as the
chemistry between the promotor and the venture capitalist.
It may be hard to believe the fact that the venture capitalists feels that his
monetary contribution isevery bit as important as your intellectual contribution.
Theventure capitalist also is cognizant of the fact that deal flow is critical to his
well being. Mathematically, there is not much question that a workable concept
will present itself given a finite number of presentations. At times, while we may
have no interest in a particular transaction, its merits are of obviously of such
consequence that we are not uncomfortable recommending it to some of
associates on Wall Street.
For this reason, until the work becomes burdensome, we will agree to critique
an indefinate number of business plans both from the point of view of structure
as well determing if their is a potential for funding. In order to cull out those that
are not really serious about their ideas, we would ask that you submit both an
executive summary of your proposed project of not more than two pages along
with a completed plan which among other things discusses the "state of art"
within the targeted field along with potential competition. We would also like to
see a marketing plan and a pro-forma balance sheet. Additionally, if scientific
representations are made, there should be an explanation given of the source of
said knowledge and an explanation. If we are talking about new technology,
regarding a product to be manufactured, there should be an explanation of the
facilities necessary and a discussion of logistics. What type of labor is necessary
and is it available where the company wants to do its production.
Another problem we often see with first time business plan writers is a lack of
keeping the document fresh. One of the first things we lock at when perusing a
plan is the date on its face. How long has this thing been floating around? Is the
technology still as unique as it was when the plan was written? What about the
competition, is there now something out there that is similar or even better?
How many of our peers have looked at the plan over that period of time? It is
obvious to us that the business plan was not written to grow infirmed with age
before it would be acted upon.
The older the plan is, the more people there are that have seen it. Although we
feel that the types of transactions that Chapman does are not for the average
firm that does not have our research abilities and staff, there can be reasons that
go beyond this arena. An example would be the possibilty that although the plan
has merit, management is not realistic about how a transaction should be
constructed. They may not be offering the money enough safeguards or may not
be interested in a transaction containing progress payments. They may not be
willing to share board membership and it is possible that they are not willing to
provide a discernable exit strategy.
When a bank makes a loan, they expect that if it is not for the purchase of a
residence, it will normally be repaid within three years. Although the time frames
involved in venture capital are much longer, the relationship between the
financier and the recipient is generally much closer. The bank calls to find out
why they haven't been paid if you should be a little late. The venture capitalist is
will to become involved on an ongoing basis by rolling up his sleaves. People
that do this for a living generally have excellent contacts within the government.
The have contacts with advertising agencies, public relations companies,
offshore manufactures, patent attorneys and marketing people in all areas of
business. For the most part it is understood that when a venture capital group
get involved, they will provide substantially more than money.
Additionally, the venture group has funded other transactions, it usually has
people on its staff that have been involved in all facets of industry successfully.
These people, although often senior, consider it rewarding to help a fledgling
company, offering unique products an opportunity to strut their stuff. The
reward for becoming successful in these people is the luxury of helping others
achieve the success that they have achieved. At least, that is the way most
member of our staff feels.
Yet, we do not want to be totally married to one another, this relationship is
more typically similar to an engagement than it is a lifetime of being tied together
at the waist. In situations such as this, as the company matures, other types of
funding become more competitive than the early stage risk funding that venture
capital provides and the at that point in time, it is usually time for the venture
capitalist to cash in some chips. The company has achieved another level in their
development and it is time for the bird to leave its nest. We do not want
management, at that point saying, we aren't interested in going public, lets just
keep this deal between us.
Things always don't go perfectly between the engaged couple.The business plan
should include an extensive use of proceeds section which not only tells us what
the overall projected needs of the operation are but when in the process they
will be needed. To prevent management from changing the agreed upon course,
usually one of three methods is used to insure that those proceedures are
followed. The first, is the simple installation of a progress payment schedule. The
two parties sit down and work out a series of hurdles. As each stage is
accomplished, the money is released for the next. if, a stage comes in over
budget, that is also addressed. If stages are constantly brought in over budget,
the projects are revisted as being to optomistic. If a hurdle can not be finished
with several traunches of additional funding, it may mean that the project or
more particulary, its economics are just not feasable.
The second possibility would be the setting of an escrow account with the
progress schedule held by a lawyer or the bank. This is more formal and offers
less interaction between the parties. On the other hand it does provide an
additional comfort factor to the company that the agreed upon funding will be
available as representated in the agreement if everyone finishes their job
succesfully. Another variation on this theme would be the venture people placing
their own people with the company in the role of treasurer or comptroler. This
creates a comfort level that works between the parties provided that the
installed individual does not become overbearing and get involved in affairs that
are not part of his domain. This usually can be easily resolved. The last option is
giving the company all of the money in front and praying that no one goes on
vacation with the funds. The venture fund is usually, at least to some degree,
acting as a fiduciary and at times it would not only be a mistake, but illegal as
well. If things are going swimingly, none of the above solutions are harsh, if they
are not on target, any of them will not work. It is just part of the process.
It is our intention to eventually publish on this site a primer on "how to write a
business plan", but considering that we have not done it as yet, the author should
attempt to follow established methodology in the presentation. This offer is
limited until we become inundated and is on a first come first served basis. A
senior member of the team will do the analysis and promptly report back to you
withour findings. We will be happy to sign a non-dsclosure agreement after
having read the executive summary. Please enclose the business plan in a sealed
envelope along with a non-disclosure form.
We do suggest though, that you have the plan copywrited and the idea patented
beforeputting into the public domain. A senior member of our staff will be
assigned to you project upon receipt and you will be notified as to that persons
name and direct telephone line Please enclose your name and address and
ore-mail, Our Address is Chapman Spira and Carson LLC, 45 Wall Street
Suite 1022, New York,New York 10005. The phone number is
212-425-6100 and our fax number is 212-425-6229. We wish you, Good
Additional sources for assistance,
1. The Service Corps of Retired Executives (Score) has free couseling and
workwhops with over 14,000 volunteers in over 400 centers. These are called
Small Business Development Centers and can be accessed by calleing SCORE
2. The Small Business Administration (SBA) The Small Business Administration
was created by Congress in 1953 to help America's entrepreneurs form
successful small enterprises. It has evolved to the degree that it is located in
every state in the Union. There is almost nothing the SBA can't provide but
because it has so much to offer, it is difficult to find where you want to go. A call
to their local office or on-line in internet (http://www.sbaonline.
3. Internet has countless folks that have placed sample plans on their sites in
order to give assistance to entrepeneurs like yourself. Along with this, many of
the large accounting fimrs have developed plan outlines that can be
Here are some pointers that are short and sweet,
a. Tell us what you have simply and quickly;
b. Tell us why what you have said it true, what do you have to back up your
c. Tell us what the competition has and why what you have is superior;
d. How do you plan to begin your business and what do you base those
particular thoughts on?
e. Where will the business be located and why are you putting it where your
f. Tell us about the labor supply in the area and what you cost will be;
g. Tell us about transportation;
h. What sort of meetings have you had with regional business committees,
Better Business Bureau, Chamber of Commerce, Small Business
i. How are your going to market your product and how is it going to be
distributed? How much is it going to cost and can it be done more effectively for
less and why? Is your approach to marketing and distribution unique and if so
why hasn't anybody else tried it?
j. Tell us about your management. Why are they capable of doing this job?
What is their work history and when if ever have they been successful? Why did
you chose this particular management group when other were available?
k. What will you earn or lose the first 12 months after you receive funding?
Don't be so optimistic that it can't be justified. What about the next four (4)
Give as a pro-forma balance sheet and income statement with footnotes
showing where you got everything and what you justification was.
l. Are you a Sole Proprietership, a Partnership or a Corporation?
m. What is the Company's correct name, what is its state of incorporation and in
what year, if a corporation? What is the entire address? What are phone
numbers fax numbers? E-mail and Url?
n. Who are the owners, and what is their interests? Who is representing the
company in its discussions and what is that person's telephone number and
o. When the plan is finished, go back again and creat a table of contents;
p. What caused you to come up the concept? What was the need you
perceived? Why do you feel that you have created an improvement over what is
currently the market place?
q. What type of regulatory approvals do you need to be in business? How are
you going to get these approvals? What type of warranties and guarantees will
you be issuing?
Are there possibilities of licensing or royalty income?
What are you doing about it and why?
r_ What is your current financial situation? A certified balance sheet is helpful
but not at all necessary. What is the current burn rate? What about historic
earnings or loses? Please itemize;
s. Have you included a glossary? If your company is in an industry in which a
seperate language is spoken it would beneficial if you shared it with the readers.
Please define your terms;
Expect that this will take you a lot longer than you think, no matter how long you
think it will take. Our office offered to help out a client finish a business plan
concerning a somewhat complex medical devise that was going to need FDA
approval. It was a unique product that had no market. We had to figure out
how long it would take to get through the FDA, where and how it would be
manufactured, who would sell it,what price it should sell for, where we could
make money while awaiting FDA approval, what countries in which to file
patents, what degree of disclosure we would make on our specifications when
awarding contracts and when all was said and done, who and what was our
This business plan took 4 professionals who had experience in writing then,
three months of 12 hour a day work. I must say that when it was complete, it
was quite a work of art, but every author thinks the same. After finishing that
plan I took an oath never to do another, and it wasn't more than six months later
that I was hooked again. I find these things similar to mystery novels in which
you don't know who did it until you put all of the numbers together and let them
run. It is one of the most exhilerating experiences in our business. Objectively, if
you even have a clue how these things will come out when they are done, you
are a better person than I am.
What I learn putting this material together is something that can never be taught
in school. And you know when you have done a good job because the numbers
just seem to fall in line like soldiers. When I finish a business plan, I am
convinced, at least for a time, that I know as much about that business as
anyone that is in it. Maybe not each little nuance, but from a macro-economic
viewpoint, for about a week, I will be the smartest person alive in what is
happening in that field. It is exhilerating.
In pure economic terms, my writing a business plan makes about as much sense
as a doctor collecting garbage. I believe that all venture capitalists are aliens of
some sort or another. We sit in our offices and listen to 20 stories a day, each
more fantasitic than the one preceeding it. We sit in our chairs nodding at the
appropriate time and pretent that we are familiar with each and every nuance
that we are hearing. Solomon like, we blurt out intelligent sayings when there is a
pause in the conversation. When it is all over the promoter actually comes away
thinking that we have had some experience in the field. In reality, we have
terrific business instincts, honed on dealing with infine diferent managements
over the years and keeping track of who won and who lost and what were the
common traits that the winners shared and what the losers shared.
So our track record is not all that bad. But best of all, we are in sync with
technology and are on top of what is going on globally. To, be able to do that
and get paid beside, you can't really beat that.