David E. Gumpert, author of Burn Your Business Plan, often tells the story of how he and his partner failed to raise any money after sending their business plan to venture capitalists and meeting with several others for presentations. Disappointed by the fruits of their labor, they considered quitting their company in 1995. Fortunately, following the advice of their board of advisors, they chose to divert their time from massaging the business plan to making sales. The funding, they were told, would come later.
It turns out that they sold enough to stay afloat until 1996. In 1997, sales didn’t grow as fast as they’d hoped, so they decided to seek financing again. This time, they hoped that positive results would be easier to come by, after all, they were pretty well established now. However, the board told them to go out and promote their business and increase sales.
If at first you do not succeed…
Instead, Gumpert and his partner decided to dust off their old business plan, spend many hours rewriting and updating the plan, and go out looking for financing once again. And, once again, they were rejected. How could this be? In the late 1990s, it seemed like every Internet-related start-up in the world was getting financing. In fact, according to the MoneyTree Survey, sponsored by Price Waterhouse Coopers, Venture Economics, and the National Venture Capital Association, the amount of venture capital ($7.7 billion in 1995) had risen to $16.4 billion by 1997.
However, the failed financing left Gumpert and his partner with two difficult choices at this stage: find ways to grow the business without financing, or leave. They took the first option. They also hired public relations professionals and had several of their most successful corporate clients featured in business and industry trade publications, citing their agency as the key force behind their clients’ success. This announcement set the agency’s phones ringing with new prospects, several of whom turned into additional sales.
As the business grew, they were vigilant about controlling their expenses and aggressively collecting accounts receivable. By 1999, they were operating profitably with $2 million in annual revenue, with nearly 20 employees. Additionally, the amount of venture capital being invested nationally has skyrocketed to a staggering $55.5 billion. But, Gumpert and his partner paid little attention to this; their interest in external financing had diminished significantly. (For the year 2000, the availability of venture capital peaked at $85.5 billion.)
The power of advertising
As Gumpert and his partner continued their success in 1998 and 1999, their promotional efforts eventually attracted the attention of a public company seeking the expertise they offered in developing and managing online content. In December 1999 this company acquired Gumpert’s company, NetMarquee. To Gumpert’s surprise, the acquirer never asked to see his business plan; he just wanted to see his financial projections under several different scenarios.
Recounting his financial experience, Gumpert makes two points: First, even in good times, the venture capital route is closed to the vast majority of companies that seek it. While it might have seemed back then that nearly every company applying was receiving venture capital, the reality is that venture capitalists reject the most carefully crafted business plans. Second, he will be amazed at what he can accomplish without the funding he believes he so desperately needs to avoid failure.
The truth is, a business plan by itself is unlikely to generate funding, unless it’s part of an overall marketing strategy.
Four tools to help market your business plan to investors
Famed motivational speaker Jim Rohn says there are three steps to successful communication: “Have something good to say, say it well, and say it often.” These three steps form the basis of the Business Plan Secrets Revealed manual. They are essential for marketing your business plan with the intention of attracting investors and selling your business plan to them. Here are four tools to help you “say it often” so you can attract investors and sell them on your business plan.
One, a concise and well-written twenty-five page business memorandum or “business plan” that builds a case for separating your company from your competition. You don’t need a two-inch thick business plan. Such long plans are often aimless; Instead of building a case that leads investors to decide whether the business is the right investment for them, they “shoot” in the hope that some of the shooting will pay off.
Two, an effective elevator pitch, a direct 60-second verbal pitch for your business, that communicates to your clients and investors what you do in an exciting and engaging way. The ability to separate your business from your competitors and gain an investor’s interest in the short time it takes to get on an elevator is critical.
Three, an investor relations website to build credibility and help investors quickly get the information they need, when they need it. Of all the communication media available, the Web is particularly important. It’s fast and available 24/7. With it, you can capture leads and automatically stay in touch with those who are interested in your business.
Finally, press releases to help you get the word out. A press release is the basic tool to capture the attention of the media. The public’s desire for interesting and relevant news remains strong, as does the importance of carefully selecting relevant target audiences. You are dealing with much more skepticism from the public now than in the past, which makes evidence and objectivity in your press release paramount.
The process of raising money and attracting investors is not easy. If it were, all business ideas would be funded. You need to use all the tools that are available to you and start looking at this process as a marketing process backed by solid, verifiable evidence. There is simply no telling when the plums (investors, on the tree) will ripen, ready for investment. But, he does know that if he does everything he can to take care of the tree (water it, fertilize it, etc.), it will eventually bear fruit: he will raise money for his business.