Unless you can hold a ton of data in your head and exploit your invention without financial help from anyone, you’ll reach a point where you need a business plan or project plan. Producing one isn’t many people’s idea of fun, but there are some things you just can’t do without a business plan. Keeping control of your own exploitation plans and activities is one, raising investment or any other kind of significant support is another. This Project nags you to grasp the nettle early and have a good business plan ready well before potential investors and stakeholders start demanding one.
If you want investment, grant funding or some other kind of significant support to develop your invention, it’s almost inevitable that you’ll be asked to provide a business plan (if there’s going to be a business) or project plan (if you’re still at the R&D stage with business activity some way off). The line between a project and a business can be fuzzy so from now on we’re going to lump the two together and use only the more familiar term business plan.
Business plans get a bad press. At bottom they’re simply predictions that are about as reliable as a weather forecast, but that hasn’t stopped business planning turning into an industry in its own right, full of specialists who for the right (high) price will produce a dazzling and perhaps not entirely frank business plan for you. Thus, business plans are often disparaged as little more than future fiction. So what’s the point of them?
The point is that the person who will benefit most from your business plan is you.
You need it to prove the viability of your idea and to guide your progress. It’s your certificate of seaworthiness and navigation chart combined. It’s also your main tool for reducing risk to you, your team and other stakeholders.
Putting together a good business plan is never a quick or simple process. All the detail you might need to know could easily fill a book on its own, so consider this Project as no more than base camp. Don’t skip it though, because business or project plans based on inventions are not the norm and require a different approach from the models used in most business literature. This difference is what we focus on and you might not learn about it anywhere else.
Bank websites are the best place to find instant, high quality and (usually) free guidance on business planning. Many offer information kits, worked examples and software. Take the lot. Nor is it hard to find specialist books on business planning, though to be on the safe side choose one written for the country you’re in, or intend to raise money in.
Enterprise support organisations may be able to give you some help with business planning at little or no cost. When it comes to paying professionals other than your accountant, solicitor or patent attorney, beware. Consultants who specialise in business planning will always be expensive and won’t necessarily improve your funding prospects. Few private inventors can afford to use them even once, let alone for the continuous updating that a good business plan needs.
Your business plan should in fact be a written expression of due diligence. Due diligence (or due care) is a fundamental requirement in the business and investment world. It basically means that before inviting other people to gamble on you, you’ve done your level best to eliminate grey areas and minimise everybody’s risk. This is what we’ve been repeatedly urging you to do throughout this book, so by now you shouldn’t have any qualms that you haven’t been duly diligent. The business plan is simply one of your most important opportunities to prove it.
(By the way: falling down on due diligence can be considered negligence, which can potentially have severe legal repercussions. We therefore hope you have been paying attention to all our previous advice on risk reduction.)
The main uses of a business plan are:
There are no rigid rules about how to put together a business plan, so the format below is for guidance only. No matter what anyone else may tell you, when you’re an inventor the virtues to aim for are:
Executive Summary: A single side of A4 outlining:
The Business: Explain what you want to do in business terms. If the business already exists, give its history and current status. Indicate where you want it to be in three to five years’ time (the limit of a typical investor’s wish to be involved).
The Product: What it is (in plain English, especially if highly technical), what its competition is and why it's better. List its advantages clearly in descending order of importance. Provide proof of novelty and ownership (patent searches, patent applications etc). Detail any need for necessary or desirable further development, including compliance testing.
Tip: Focus on commercial rather than technical advantages, in a ratio of at least 2:1. The more technical your inventive step, the more quickly you should move on to its competitive benefits.
Indicate what market research you’ve done to establish sales potential. This should include market size and more detail of competition (their selling prices, sales volume etc). List all non-confidential sources of information. Even highly professional market research can be shaky on new products, so if possible include (in the Appendix) letters of intent, actual orders or proof of sale of a few prototypes.
How will you promote and sell the product? To whom and at what price? Forecast your sales and justify them. Your cash flow forecast (see Finance below) will show if you can afford what you propose.
Tip: This is hugely important so you won’t get away with a ‘Don’t know yet’. This alone may be what you need a team for (Project 7).
How, who and where? Techniques, equipment or resources, capacity, suppliers, subcontractors, labour, premises, location, transport, storage, delivery, lead times (time taken from order to delivery) etc. If you need to buy equipment, how do you justify a large up-front cost when you can least afford it? How will you control quality and service?
What human resources will you need and how will you manage and pay for them? List your own and other available key skills, with CVs (which can go in the Appendix). If your proposed venture is large enough, include an organisation chart. Identify missing skills and explain how these gaps will be filled.
Tip: Keep income requirements - if necessary at all - significantly below the market rate to indicate commitment and willingness to share risk. (See Income replacement in Project 7).
Here you may need help from an accountant but don’t ask him or her to massage the figures in your favour; professional investors won’t be fooled.
All businesses, especially in their early stages, must minimise risk, so demonstrate that you’ll tread a cautious path.
This is where you put all the key documentation referred to in the other sections: the patent search report, the patent application, team CVs, independent market or technical reports, letters of intent etc. The Appendix may be bulkier than the business plan proper. This doesn’t matter too much as it’s essentially for reference rather than cover-to-cover reading, but make sure that each document is easily findable from the Contents list.
For highly technical proposals it might be useful to include a short bibliography. This ought perhaps to go before the Appendix.
A business plan isn’t a once-and-for-all document. It should be continuously updated as things naturally progress, the quality
of data improves, and your plans need to be modified. This is where keeping your business plan clear, short, factual and well organised pays dividends: it’s far less of a chore to review it regularly and make changes whenever necessary - possibly even weekly. The advantage of keeping your business plan current is twofold:
The following checklist is partly an action planner and partly a reminder of what matters. If you’re tempted to think ‘I don’t need to do all this stuff’, it may help to point out that we’ve modeled the checklist on questions professionals are very likely to ask if you want their advice, support or money. We therefore have to be stern and say that if you aim to be a respected and successful inventor, you can’t afford to duck any of it.
The first step towards a licensing deal is finding the right companies to approach.