The reluctant Entreuprener: Do we need a Business Plan?

A business plan in the old days was also called project report. Today with venture capital funding jargon like business plan and elevator pitch have made an appearance. However the basics of industrial /project security remain the same.

Recently GCCI had a business plan competition. Being old fashioned I would worry about participating in such a competition. Imagine not only your competitors but also potential copy cats would be lurking in the audience. I heard a few and all could be copied by anyone. There was no technology at the heart of the project to prevent the idea from being copied.

An elevator pitch makes sense to me. Goa has power shortages so if someone wants to manufacture gensets it would be of immediate interest to an investor and he may want to hear more. Then a business plan would be needed to take the discussion forward.

Let me give you an example of how dangerous it is to have actual business plans floating around. Years ago, I applied to EDC for a term loan to finance my project. EDC officials had a preference for Boroplast another rotomoulder who also wanted to manufacture water tanks. While we wanted Rs 30 lacs, Boroplast wanted Rs 1.3 crores.

My application kept getting delayed for one reason or the other. One day the dealing hand asked me for a market study. A market study can be considered a sub set of a project report or business plan. In my opinion it is the heart of any business plan.

Making a market study was child’s play using a laptop and an excel spread sheet. I did it over the weekend. Ofcourse, I was sure that if any one used my market study to start a rotomoulding water tank manufacturing facility he would be surely lost. None of my actual thoughts were reflected in this document. My fears were proved right, I saw the dealing hand take my market study out of the EDC office. When I asked him, he said he was studying the same at home. Hehe I thought to myself he fell for it. Ultimately EDC funded Boroplast who closed in six months without paying back the money borrowed, if I am not mistaken till date. We were financed by MFSC and not only are we still around 16 years later, we have a no default track record. No prizes for guessing why EDC ends up with OTS (one time settlement) cases.

The point I am making is, every entrepreneur should be careful with his business plans. A genuine business plan should not be distributed like a free gift. Before handing over a copy to a potential investor, an entrepreneur should spend some time studying the track record of the investor. One alternative is to give a synopsis of the business plan to a potential investor, this should have numbers if any which are masked. By masked I mean if sales is say 100 in first year, then in year two, 130 would represent 30% increase. Similarly expenses could be 60 in first year (ie 60 % of sales) and 58% in the second year. These numbers reflect the real situation but do not give too much away. Also avoid spelling out strategies or details of what is the Distinctive Competitive Advantage (DCA) of your approach.

The same approach can be used for submitting your project report to a nationalized bank for funding. You never know who will read your report.

A word of caution for would be entrepreneurs, do not let the decoy business plan fool you. You must be sure that you have a reasonably good idea that will work. Do not tweak the numbers just to make profits on paper, with excel spreadsheet this is a no brainer. At the end of the day if your idea does not make money you will lose first.

In summary, while you will meet many who will either try and help or take advantage of your situation. The key is to remember that you are on your own and you must watch out for pits falls or traps, no one else will.