Business plan should focus on the business model

Sept. 1, 2005
Please give me some constructive feedback on my business plan.
1304qa Chang New
Q: Please give me some constructive feedback on my business plan.

A: Your business plan is well written and covers the topics expected in a business plan. Like most business plans we see, however, the emphasis needs to shift from validity of the technology to viability of the business model. I also think the business plan is far too long. This may be because of an attempt to be thorough, but instead conveys the body language that you can’t decide on the salient features or core drivers of your business. And we all know how important focus is in starting a company.

It may be helpful to understand that the business plan is only one of the steps in a long process to get funding. It is impossible to sell your business proposition just with the business plan. So, it is more important to provide a “hook” to keep the interest level high to avoid rejection and to keep the process going. Potential investors can always ask for specifics if they are interested in pursuing further discussions.

Investors are willing to assume your technology is valid initially, but really want to know that the product serves a useful purpose and has a reasonably sized market. They also want to know the amount of resources required to build the business, whether you have sustainable competitive advantage to succeed, whether your team has what it takes to execute, and, finally, what the return on their investment is likely to be. In short, provide specifics to answer the questions that are important to them. Remember, you are selling a business proposition, not a technical proposal. That means you have to get some help to do what you are not accustomed to doing and maybe not even inclined to do. Paradigm shift!

Q: I have attached two journal articles I have published on a fiberoptics signal-processing technology. How do I begin to start a company to build cheaper and better test instruments with this technology?

A: In talking to you, I realized the technology is at proof-of-concept stage, and you do not actually have any specific cost data or marketing statistics to know the business potential of your invention. Technical innovations are plentiful in the photonics industry and by themselves they have no inherent economic value because there is usually more than one technical solution to a given problem. Some ideas wind up in products while others languish as technical achievements because no one is committed to overcoming the hurdles and push the project forward. And given that different skill sets are required at different stages of technology and business development, several champions may be required along the commercialization path. At this early stage, if you are not committed to the idea, why would anyone else be? So you must be the advocate for your invention until someone else recognizes its value and is willing to carry the torch for you.

While you do not have any business experience, in reality your technical background enables you to do early-stage customer development and market-size estimates better than anyone else because you have the knowledge to make a connection between needs and what is possible with this technology. You can talk to potential customers, for example, to gain an understand of whether your product can uniquely serve their needs and to get a rough idea of the market size by knowing how many similar people are out there. You can also get a prototype going to get a better handle on costs and to demonstrate that there are no technical show-stoppers. Even though the data you get is subject to debate, that’s how all business gets startedby transforming an abstract vision with uncertainty to something real. For that, you need capable people who are committed to the idea and who become champions. Right now, you are it, and for that you need a positive can-do attitude.

About the Author

Milton Chang

MILTON CHANG of Incubic Management was president of Newport and New Focus. He is currently director of mBio Diagnostics and Aurrion; a trustee of Caltech; a member of the SEC Advisory Committee on Small and Emerging Companies; and serves on advisory boards and mentors entrepreneurs. Chang is a Fellow of IEEE, OSA, and LIA. Direct your business, management, and career questions to him at [email protected], and check out his book Toward Entrepreneurship at www.miltonchang.com.

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