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Inside The Business Plan - The Executive Summary
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We get probably about 1,000 business plans a year that land on my desk, and so what we look at is very quick executive summary. We generally don't go much beyond that. You can't write it until you've done all the rest. You're not going to be able to say it in the compressed nature that you have to say it. So it's the last thing you do in creating it but in reviewing it, it's the very first thing I look at. So it's all about distilling, it's all about distilling and the executive summary is a technique for distilling if you will, the business plan. This is Deborah Streeter, bringing you the second in a series of podcasts called “Inside the Business Plan.” As part of our Lessons Learned podcast show, the series brings you key insights on topics of interest to new and experienced entrepreneurs. Today we are going to start turning the pages of the business plan, to understand the nitty gritty aspects of putting the document together in a useful and compelling manner. Once past the title page and table of contents, we arrive at the executive summary, our focus in today’s podcast. The executive summary in a business plan is a one-page distillation of the plan as a whole. It is designed to give the reader a clear idea of the key points that are made throughout the document. But the executive summart is not just important for others who read the plan – creating it is a critical part of the business planning process for the entrepreneur himself or herself. Alison Gerlach, a serial entrepreneur who is also involved in private equity and has reviewed thousands of plans, argues that if you can’t distill your plan down to a page or so, you really still don’t “get” your business: Gerlach10 There are certain sections that I always want to see. I want to see right up front a great executive summary that is... again if it's an early business you know, sort of seed stage funding business, if it's more than a page and a half, you don't get your business enough to say it. One page is great, I'm ... you know, a little over a page so you don't compromise is okay. More than two pages for an executive summary is too much and you just don't get it. The other thing is ... if you are creating that business plan, the executive summary is the very last thing you can write, I'm not even gonna say should. You can't write it until you've done all the rest. You're not going to be able to say it in the compressed nature that you have to say it. So it's the last thing you do in creating it but in reviewing it, it's the very first thing I look at. I agree with Alison – always finalize your executive summary towards the end of the business planning process. Although she suggests writing it as the very last thing, I have found in working with entrepreneurs, it is also beneficial to draft parts of it as you go through each section of the plan, leaving assembly and fine-tuning to the very end. The only reason I suggest leaving some bread crumbs for yourself along the way is that sometimes entrepreneurs are exhausted by the end of the writing process, and as we will hear today, the executive summary is incredibly important. So here are some of the components I have young entrepreneurs write along the way that make it easier to assemble the Executive Summary at the end: 1. Write a clear, short Description of business2. Briefly describe the compelling market opportunity, including the size and potential for growth3. Pitch the management team4. Tell about your sustainable competitive advantage5. Name your specific funding request As it turns out, thinking through these things along the way for yourself as the entrepreneur also positions you well with the investor. Listen to the comments of Anita Stephens, a general partner in OCP, a private equity firm. She tells us what she looks for in an executive summary: Stephens18_sizePlanAn executive summary to me is going to say "this is what my company does, this is what the market opportunity is, this is what the management team - not in detail - has 10-15 years of experience - such and such is CEO, blah, blah, blah, the market size is X billion growing at this/we're projecting that coming into this market we have first mover opportunity, we have a competitive advantage and now the numbers will look like this. It is no small task to write about all these elements in one page. Remember, it is almost always more difficult to write something in a concise manner than to do so more expansively. That’s where the saying comes from: I didn’t have time to write you a short letter, so I wrote you a long letter. Why does the Executive Summary have to be so darn short? We’ll hear why from Hans Serveriens, officer in three venture capital funds and the co-founder of the Band of Angels, a Silicon Valley investor group of over 100 executives, which invests in tech companies. Although Dr. Severiens passed away in 2004 at the age of 74, we feel really blessed to preserve so many of his insights on eClips. In this clip, Hans tells us how sorting through the “deal flow” for the investor is a bit like drinking out of a fire hose: Severiens16_planSelection We get probably about 1,000 business plans a year that land on my desk, and so what we look at is very quick executive summary. We generally don't go much beyond that. We just don't have the time for it. You try to determine is it an area that is fundable, do these people sound fundable. I don't want to go through this whole rigamarole and then wind up nobody investing in the company. So, we give it a cursory look. To make matters worse, it is not only important to keep the summary short, it has to really draw the reader in. Dave Pelletier, previous to his current role as CEO of Annalee Mobilitee, spent years writing and reading business plans as part of his management consulting practice. Dave argues that you really have to keep the attention of the reader. Pelletier_22_ExecutiveSummaryTake it from someone that's had hundreds come across his desk through in the course a month that if you don't write a good executive summary, your plan's probably going to be dead in the water because a lot of times not only a good executive summary but a good -- a couple of good first paragraphs in the executive summary are even more important because if the executive summary's a page or two long if you want to get that person to read beyond the first and second page, you have to have a good first and second paragraph. Don't fall short even in the unique way of coming up with the unique ways to grab someone's attention and to put together a really good executive summary. Now you don't have to have anything real glitzy or fancy or so unique that whatever but, you know, if it fits with your product, if it fits with your service then do it but you want someone to go further. You want someone to read the market analysis, the financial analysis or whatever, the operation analysis. And, you know, I'll tell you to be honest with you you're going to end up putting a lot of work into this and to doing this plan and in those sections and in the real world if you will, you want someone to read those cause you put some effort into them. And if it was the real world and you don't grab them in the executive summary, they're never going to get to those sections. To reinforce Dave Pelletier’s point, next we hear from Dave Ahlers, an entrepreneur and partner in Cayuga Venture Fund who has mentored many entrepreneurs and made investment decisions on hundreds of plans. Dave talks about all the bad things about a plan that can put it in the circular file. Ahlers38_bizPlansThe bad stuff and what would cause me to ash can it okay, would be any format errors whatsoever. If somebody misspells something, my god, if you can misspell it and not punch you know spell checker, okay what did you do on all the other stuff, it's so much harder, I mean you get the easy stuff done. If there are missing charts and tables if there's more than a two-page executive summary, if there are large appendices with detailed excel spreadsheets that mean absolutely nothing given the early stage of the company, okay I don't bother. Let’s say you have distilled everything down to a compelling one-page executive summary and you get the attention of the investor. What next? Gabe Murphy, founder and CEO of two Internet service companies, talks about what it is like when you are courting investors with your executive summary. Murphy27_prepareForVC Typically before they will even look at you, before one of the senior guys will look at you, or before even one of the junior guys will come look at you, you have to give them a very well prepared executive summary or Business Plan and from that, they are going to decide whether or not you are even worth their time. If they think so, then they will come out and see your operation, if you are lucky. Typically, you go to them. We were lucky enough to have one of their junior associates come out here and see our organization and then we went back, and two or three weeks later I got to meet one of the three founding partners and by the time you get to that level, I mean, you have already talked to one guy. You have given him an executive summary. They are pretty prepared-they know a good amount from your business talking to their junior associate and so you have already prepared a lot in that regard. It is not like you just go out there and you meet with them. You know, you have got to earn your way up to that level. Gabe’s point is that the Executive Summary lays the groundwork and sets the tone for a lot of the discussions. So boiling things down to the executive summary is just the first step to making your case to the investor community. You have to be ready to follow up with a coherent presentation. We’ll hear next from Rhett Weiss, CEO of DEALTEK, Ltd, a management consulting firm specialize in the start-up, development, expansion/consolidation, and location/relocation of business operations and facilities. His comments come from a session in which he is comparing deal-making in negotiations with the creation of a business plan. Weiss_13makingDeals My bit of advice to you here when you are trying to make a deal is not just to have your proposal ready. For example business plan ready, but have your presentation ready. How you present that. Make sure you know what you're going to say in what order. ….. Well rest assured number one I'm not going to read the whole plan. It's a harsh truth. I'm probably not going to read his plan. He'll be lucky if I read the executive summary. It's because I'm getting five hundred of these a week. I just don't have the time to read them all. So again, if there's something about you know he was referred to me because he knew a friend of mine or something. There's some reason he got my attention. He's still going to be lucky for me to read his executive summary. And even if I read it, I'm going to want to hear it from Mike. Because think about it, those entrepreneurs you're trying to sell others all the time. Again whether it's money people. Landlords. Equipment providers. Prospective management team members. Board members. Whatever. You're trying to sell them on your idea all the time. And they're just not going to read yet another document that's slapped in front of them. You're going to have to know your highest invest points. Your signing points. …. So it's more than just saying here's my plan. It speaks for itself. Any questions? You're going to have to have your proposal. What you say or how you say it or a PowerPoint or whatever, you're going to have to have that very finely tuned as well. Rhett describes the executive summary as just a tool in the deal-making process, noting that you still have to have the right connections and do the networking in order to work your way towards a conversation with the investor. So far, we have focused on what goes into an executive summary. What are the things best left unsaid? Kevin McGovern, Chairman and CEO of McGovern Capital, is a founder in over twenty companies including Sobe, Neostrata and KX Industries. Kevin makes a strong argument that you should leave anything about valuing the company out of the executive summary. According to Kevin, you should make the ask without indicating the equity that goes along with it. McGovern07_executiveSummary I will tell you that I never want to see in the executive summary... I think it's unwise for an entrepreneur to say what the deal is that they're intending to ... what percent of the company they want to give away. I think that's very na?ve. You want to make sure you put in the executive plan how much money you are seeking, make sure that's in the executive summary, but to say I need a million dollars and I'm only gonna give away 20% I throw it away right away, I don't care what it is. Because that means these are people I'm going to have difficulty dealing with. Because really, the percent that you give away is often a function of how valuable the people with the money can really bring to the table to your company…. Don't be locked into how much equity you're gonna give away, because we've all heard the expression it doesn't matter how much of the pie you're giving away if you've got a loser and if you've got a winner it doesn't really matter that much how much you own because you'll make all you want to make. So, I recommend highly, don't get locked into percentages. Very important. To wrap things up, here is a final comment from Peter Hackbert, a teacher, scholar, public speaker, social and civic entrepreneur and consultant, who describes that one page executive summary as a way for entrepreneurs to really look into the future and envision the business. Hackbert13_executiveSummaryAndBusinessPlan So it's all about distilling, it's all about distilling and the executive summary is a technique for distilling if you will, the business plan. …… So it's a tool for us or for reviewers to be able to see it's more than just an idea that you have thought through some of the constructs associated with assessing the opportunity, some of the major milestones or objectives that need to be accomplished and that you can communicate action and so it's ... very powerful and it's really about putting your idea into the future so that people can see it as a likely venture such that they would continue the conversation. Summarizing today’s podcast, the executive summary:l Should…..Be shortl It should ….Help the entrepreneur distill the business plan to the key ideas l It should …..Keep the investors, who overburdened with investment possibilities, intrigued so they continue reading the detailed plan l It should…..Lead to a more detailed presentation to investorsl And it should….Exclude anything that locks the entrepeneur into a particular position in deal-making Thanks for listening to this segment. Join me for our next podcast, when I’ll go Inside the Business plan and move to the next section, The Mission/Vision statement and the Business Description. Meanwhile If you are interested in hearing more from Alison Gerlach, Anita Stephens, Hans Severiens, Dave Pelletier, Dave Ahlers, Gabe Murphy, Rhett Weiss, Kevin McGovern or Peter Hackbert or if you are interested in hearing more eClips speakers share thoughts on the topic of business plans, please check out our website, at eclips.cornell.edu. That’s E-C-L-I-P-S. cornell.edu.And remember, if you are looking for insights from the real world, eClips is the place to hear “Lessons Learned”…
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