How to Craft an Investor-Friendly Business Plan

March 18, 2008

Canadian entrepreneur Duncan MacPherson admits that he got it all wrong when drafting his company’s business plan for meetings with potential investors. He says he tried too hard to dazzle them with data and focused only on the upside potential of the company, among other missteps.

“I was trying to raise money for my own company and I completely blew it,” says MacPherson, co-founder of Pareto Platform Inc., based in Kelowna, British Columbia, which sells Web-based software that helps small businesses organize tasks and resources.

In that first meeting with a potential venture investor, MacPherson says, his team failed to outline a meeting agenda, handed out thick and detailed copies of its business plan and did not address vulnerabilities in the plan. Instead, he now realizes, he should have guided the discussion with a simple agenda, pointed out weaknesses as well as strengths and handed out a brief business plan at the end of the meeting.

Fortunately, Pareto was able to raise enough cash from friends and family members and his business is now on stable financial footing.

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8. Address Vulnerabilities, Don’t Hide Them

Entrepreneurs become so used to evangelizing the merits of their business, that they often have difficulty admitting vulnerabilities and weaknesses, says MacPherson, who learned the hard way. Investors will kick the tires and check under the hood before committing a cent, so it is better to address weaknesses yourself, he says, as it shows honesty and a deep understanding of your organization.

“We spent way too much time trying to convince them of all the upside and spent no time talking about risks, downside, or competitive scenarios,” MacPherson says. “But it’s important to deal with things the way they are and not the way [we] want them to be.”

If there are weaknesses or vulnerabilities - every organization has them - any investment firm worth its salt will find them, sources all say. And if they find them first, then it does not reflect favorably on the company or the firm’s ability to trust its founders, MacPherson says.

Business

IN BOX

By Karen E. Klein, Special to The Times
March 13, 2008

Don’t cut prices to increase sales

Dear Karen: I want to increase sales. Should I cut my prices, given the economy?

Answer: It’s natural for you to consider lowering prices now, but it’s not the wisest choice, said Duncan MacPherson, co-founder of Pareto Systems, a business development firm. “Such an approach can come off as projecting a reactive — and even desperate — vibe to the marketplace,” he said

If you cut prices, prospective clients may focus on cost, not value. “The best way to convince new prospects is to spend more time with the people who are already convinced,” MacPherson said. “Now is a great time to convert your existing clients into referral-generating advocates. Many of your competitors may be neglecting their clients as they attempt to recruit new business, and those clients could be friends of your clients.”

Call the top 20% of your clients and ask how they are doing. “You aren’t trying to sell anything or be the bearer of any profound news, just placing a courtesy call. As the conversation is winding down, remind them that as a value-added service, you make yourself available to answer any questions that their friends or family members might have regarding your type of services,” MacPherson said. “Simply planting the seed gets the concept of referrals embedded in your clients’ minds so that they may respond when the opportunity presents itself, without making you appear needy or putting them on the spot.”