How complete should my business plan be before I approach investors?

The big buzz these days are that Business plans are for established businesses. Startups are in search of a Business model (see gurus Steve Blank and Eric Ries).

Steve Blank have some great arguments against the Business plan in startups here.

So, you need to spend some time with is your Business model. Here is a good book about Business modeling.

Basically

• Think long and hard about how you fit in your market
• Postulate some hypothesis about how your Business model should work
• ... and test the hypothesis early to be right or wrong.

Document all this and show your investors that you're capable of this very complex process. You'll most certainly not be right the first time, and you shouldn't have to. What's important is that you can work quickly to pivot. Speed is everything in startups.

Best of luck!

If you are going to try and impress investers then a business plan is only part of the pitch. You will need to know how to pitch your business plan as well as deliver it on a bit of paper.

Mark Suster is a VC who writes about all this kind of stuff on his blog. He has tons of stuff relating to pitching to investors and what you should and shouldn't do. Take a look, I'm sure you'll find some good information.

Guy Kawasaki is also a great place to look. Check out You Tube for some of his videos. If nothing else, he will inspire you to press on with your idea.

as each month passes I'm concerned that someone else will think of our model and beat us to it

They will beat you to it, not because they thought of your model, but because they started actually doing something.

Aaron Patzer is famous for saying that adding an MBA to a founding team removes $250,000 from your valuation. That should give you a hint.

Stop thinking about your plan, and start doing something. Then you can credibly pitch to investors, once you can show that "our traffic is up 10% month over month" and "we have committments from a big retail store to use our product as soon as we do XYZ".

What doesn't work is "we think that people will buy our stuff, but we never tried".

When beginning to approach investors it is absolutely necessary to have eliminated all of the possible risks that may be associated with their potential investment. What I mean by that is each step you take along the process all the way up to a firm user base or customers purchasing your product eliminates risk from an investors point of view. The business plan is just the first step and assuming this is your first version of it, as you develop your product and begin to "beta" test, it will change more than you probably even realize at this point.

In my experience, the process should be something like this (assuming you have $0 to personally invest):

Stage 1 - Concept/Business Plan with investors consisting of family, friends, self and a company valuation of $250K - $1 million

Stage 2 - Technology is developed with investors consisting of Angels or Seed VC's. The company valuation can be set from $1 million - $5 million

Stage 3 - Launch of product & early customer traction with investors consisting of Seed VC's or a Series A VC. Company valuation set from $5 million - $10 million.

Stage 4 - Scaling & adoption (company has negative cash flow) with investors consisting of Series A/B/C VC's. Company Valuation has huge variability at this point and can be valued anywhere between $15 million - $100 million.

Stage 5 - Rapid & Mass Expansion (positive cash flow). This stage will usually involve an IPO or Exit Strategy Implementation. Obviously the valuation of the company has huge variability at this point.

All of these stages represent a removal in the level of risk involved with an investment into your company.

I would suggest using this initial business plan as a frame of reference for your ideas. It should be used to keep you and your partners on track. If your main concern is that you will be beaten to the market then completing what you view as a flawless business plan will only hold you back. Begin product development and if possible complete it as well.

From an investor standpoint, people have incredible ideas all of the time. The hard part lies in executing the technology and implementation of those ideas into the market. If you can eliminate as much risk as possible, not only will you find it easier to locate potential investors, but your valuation will obviously increase and the cost of equity will increase substantially for the investor.

I hope this helps!

Whatever it takes to be ready to answer every question in a room full of aggressive investors firing questions at you. The more professional and complete, the better. You don't want investors finding holes in your plan or throwing you off guard by questions.

Having a plan is great, but you don't need to have a 100% polished plan to start your business and get to work on prototypes, etc.

Initially, you should be doing just enough planning to get up and running. Then, flesh out your plan as you validate initial assumptions or as your assumptions change. Of course, if you are talking to investors, you will want to have at least your financial model fleshed out so that you have a good understanding of pricing, profitability, forecasted break-even, how much money you think you need, etc. You'll also want to have a solid picture of what your marketing and sales plans will look like. Investors are going to ask about these things and you need to be prepared.

Honestly, it's very possible that investors will never ask you for your actual plan document. All they may want to do is have a conversation, see your prototype, and have you run through a pitch deck. While none of these activities technically requires a business plan, you almost certainly will have had to do some planning to make sure that you are prepared for these activities.

At the end of the day, it's not so much about the document, but about the planning process. You need to go through the process to answer the tough questions about your business and to validate that your business will be a financial success. But, you certainly don't always need a highly polished document. Remember, all plans are wrong. Everything will change as you start selling products and talking to customers. But, the planning process is invaluable and 100% necessary.