It's easy to lose sight of what needs to be communicated to prospective investors when writing the various sections of a business plan. Successful business owners/entrepreneurs use each section of their business plan to work up interest, to present arguments and, most important, to build trust and confidence.
How To Earn The Trust Of Skeptical Investors?
Usually some sort of upfront investment precedes starting or expanding a business, whether it be time, energy or cash. If you plan to raise cash from investors, you must get prospective investors comfortable with putting their money into your hands.
To start you must understand that investors simply want to select the best investments, period. This means choosing businesses that earn a high enough rate of return on investment to offset the risk of the investment. That said, deciding what is a good opportunity is an investor's number one challenge.
That's why investors thrive on information. Good information - good decisions, bad information - bad decisions. But, investors are often asked to invest funds with little reliable information. This, combined with the difficulty of deciphering the information they do get about various investment alternatives, leaves them fearful of getting into an awful deal and skeptical of the deals being presented.
To get comfortable with an investment, prospective investors want to see results and evidence. They want to be educated about the investment opportunity and the investment options available to them. But, they won't accept this education at face value; they want to see the evidence that supports it. Even for niche businesses.
Investors use this education to expand their research and use the evidence they gather to develop their expectations. In the end, investors merely want the opportunity that they select to match the expectations they have developed.
When investors object to an investment the objection is usually of the "Educate me?" type. Tell me your story, show me your numbers, and then prove it. Prospective investors want information that they can validate, options and risks that they can see, and to be educated about your specific business. They want to hear why you and your team are the ones that can produce the projected results.
If your business plan "educates" prospective investors on these issues, you'll win their trust. When that happens, its time to?
Build Investor Confidence - Show Why Customers Will Award Their Business To You Rather Than Other Service Providers?
Investors invest money in businesses based on expected cash flows. To create cash flow, you must first win business. That's why it is important for your business plan to show investors why customers will award their business to you at a price that allows investors to earn an acceptable return on their investment.
When potential investors begin evaluating a service business plan, they are likely to be skeptical of your ability to consistently win business. In their minds your prospects need someone to do something for them. Something that your customers either don't know how to do, don't want to do, or don't have to do.
Service provider business plans must convince potential investors of two things. First, that the customer's pain of not having this "something" done or the pleasure of having this "something" done is so great that it compels the prospect to act. Second, that the customer is willing to pay to have this "something" done.
Potential investors in service type businesses expect that your customers are feeling confused about which service provider is the best at providing the solution you offer. They may also perceive your market as saturated with so much information?some of it true and some of it not so true?that customers are finding it difficult to decipher the information they have about each solution.
As a result, investors in service type businesses often picture skeptical customers with fresh memories of negative service experiences. Moreover, they suspect that your potential customer's biggest fear is getting awful service.
To overcome this, your business plan must show investors how you plan to successfully educate prospects about your solution and convince them that you can deliver the expected results. It must present the evidence you'll use to convince customers that you will do the job right, do it right the first time, and won't fix what doesn't need to be fixed. It has to explain how you will educate the prospect about the service and the options available to them in a way that they will understand and trust.
Your plan must convince investors that you can win over prospective customers who are likely recovering from a negative experience in your market space?customers who have been promised the ultimate solution only to be disappointed. It must provide details about how the principles and techniques chosen to market your service enable customers to view you as honest. It has to help investors see how the chosen delivery method for your service ensures customer satisfaction.
The business plan must also convince investors that customers can verify the service results you promise and that prospects can easily compare the results to other alternatives. This proves to investors that prospects can determine the superiority of your service and it shows them how you differentiate your services from other service providers.
Points For Service Providers To Address In A Business Plan
In summary, if you're a service provider trying to attract investors, these are the points you must address in your business plan:How and why prospects will pay you to do something for them rather than your competitors.How and why they will have less hassles and it will be easier for them to do business with you rather than your competitors.How and why customers will trust doing business with you rather than your competition.
When you address these points in a business plan with verifiable evidence to back them, potential investors will have to conclude that they would be foolish to invest in any other service provider but you.
Mike Elia is a chief financial officer and an advisor to venture capitalists and leverage buyout specialists. His business plan ebook "Business Plan Secrets Revealed" shows how to make your business the most appealing investment choice to venture capitalists, bankers, and other business investors. For his free business plan guide click here.