The Four Types of Business Plans
Business plans come in four basic flavors with each serving a different purpose.
The “Idea” Business Plan: This short quick version is basically an extended executive summary, ranging anywhere from 5 to 10 pages. You use it to brainstorm and describe your venture in broad strokes. It covers the problem you will be solving for customers; a description of your solution; why your solution is substantially better than that of the competition; the size of this market; how you will sell; and, finally, what resources (money, people, assets, and partners) will be required to make it happen. The objective of the Idea Plan is to help you decide whether or not you have a viable idea. If the answer is yes, you can use the Idea Business Plan to start the ball rolling in terms of looking for partners, seed capital, and beta sites. As your founding team develops, this document will evolve as new team members make their contributions. If your venture doesn’t need outside capital this version of the business plan is all that’s required in most instances.
The Equity Financing Business Plan: This highly polished document is used to persuade potential angel, venture capital, and corporate investors to take a closer look at your company. It’s typically 20-35 pages in length and expands on and refines the issues covered in the Idea Plan. The objective is to sell a potential investor on inviting you to meet with him for “a dog and pony show” followed by a grilling session. The Equity Financing Business Plan conveys opportunity, urgency, and competence in a dignified and professional manner. It is flawless and beautiful to look at. Equity investors swing for the fence so you need to help them visualize hitting a home run.
The Operating Business Plan: This is usually a thick 3-ring binder that develops over time and never stops evolving. As the name suggests, it contains the myriad details and benchmarks documenting exactly how you plan to operate your business. It contains items like the detailed operating budget, detailed market and competitor research and analysis, product design specs, sales prospect lists, partner acquisition strategies, intellectual property strategy, and anything else that guides the growth of the venture. This type of plan is developed for complex businesses such as those in manufacturing or businesses with large numbers of employees.
The Bank Loan Business Plan: This version of the business plan is used to apply for a loan from the most cautious and conservative of money sources: banks. Banks want their 10% and their money back at the end of the term. Bank funding is usually only available if you either have a solid operating history with positive cash flows or can put up collateral to cover the loan (for a startup, this means your house). The Bank Funding Plan focuses on persuading the banker that you can satisfy their lending criteria through historical financial ratios, collateral, and operating covenants.