Business planning

An essential tool for transforming an invention into a commercial product is a business plan. You need it to help you and your team plan and stay in control of your exploitation activities. You also need it to persuade investors and funding bodies to support you.

There are many sources of guidance on business planning, much of it free - for example, from banks. But a business plan for an invention may require a different approach.  

A common criticism of business plans is that they are little more than ‘future fiction', intended primarily to impress other people. In fact, the main function of a business plan is to help reduce risk to you, your team and potential investors. It does this by recording and organising every significant detail of your project in a way that can quickly reveal any weaknesses and enable them to be corrected.

A business plan is also the equivalent of an operations manual. It should be updated regularly, and always regarded as a work in progress. In the case of a fast-moving project, a business plan even a few weeks old may be useless!

Disclosure risk

Information in a business plan will count as disclosure. Before showing anyone your business plan you must ensure that your invention is adequately protected, for example by a patent application. This also applies to any drafts of your business plan written before a patent application is filed.

Even if you have a patent application it is important to limit access to your business plan. For example, do not put it on your website! Investors may be attracted to a new business idea in part by its exclusivity. They may be much less willing to invest if they think that details are already known to competitors.

Consider asking people to sign a non-disclosure agreement before letting them see your business plan. Potential investors may refuse, but they may also be impressed by your concern to keep information confidential.

Constructing a business plan

There are no rigid rules about how to structure a business plan, but something like this will be needed:

1 - An executive summary

• A single side of A4 outlining briefly:
• Who you are: your career, qualifications, experience.
• What you want to do.
• Why your business or idea will succeed.
• Its sales and profit potential.
• Resources available to you now.
• The additional resources that you need. 

2 - Your proposed business

• Explain what you want to do. If the business already exists, give its history and current status.
• Indicate the position you want your business to be in after 3-5 years. (Few investors will want to be involved longer than that.) 

3 - Your idea or product

• Explain what it is in terms that are easy to understand, especially if it is highly technical.
• Describe the competition it faces, and list the advantages that make your product a better alternative.
• Provide proof of originality and ownership (patent searches, patent applications etc).
• Detail any further development needed to make the product ready for market. 

4 - Market information

• Provide detail of the market research you have done to establish sales potential. For example, indicate the size of the market for your product and provide more detail of competing products (their selling prices, sales volume etc).
• List all non-confidential sources of information.
• Even highly professional market research can be wrong about new products, so if possible include (in the Appendix) letters of intent, actual orders or proof of sale of a few prototypes. 

5 - Marketing techniques

• How will the product be advertised and sold?
• Who will buy it, 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.

6 - Manufacture and distribution

• How will the product be manufactured - and by whom, and where?
• If you intend to manufacture the product yourself, provide all relevant detail: equipment or resources needed, suppliers, labour, premises, transport, storage etc.
• How long will it take to fulfill orders?
• How will you control quality and service, including after-sales service?
• How will you secure distribution agreements with wholesalers or retailers? 

7 - Management

• List your own skills.
• List the skills of other members of your team. (Provide full CVs for you and your team in the Appendix.)
• Identify any missing skills and state how you intend to provide them.
• What additional human resources will you need? 

8 - Finance

(Here you may need help from an accountant.)

• Identify and fully justify the funding you need to start your venture.
• Forecast your cash flow. You must include all costs, and the list can be very long!
• What funds can you provide yourself - for example, from private or other sources including government grants?
• List the ‘what ifs'. These are alternative versions of your cash-flow forecast designed to test the robustness of your plans. For example, what will be the effect on your cash flow if it takes four months to get paid instead of two; or if your first year sales are 50 per cent less than predicted. Consider all possible setbacks - because if you do not, potential investors will!
• Indicate how investors can profitably exit from your business after 3-5 years.

9 - Risk management

• Indicate how you will minimise risk. For example, if there is more than one market, propose to aim initially for the one that offers the least risk, even if the profit margin is lower.
• How will you manage rapid growth? Many businesses are at their most vulnerable when growing fast, as costs may initially rise faster than money comes in. 

10 - Appendix

• This is where you put all the documentation mentioned in the other sections: patent search reports, CVs, technical reports, letters of intent etc. Start with a list of contents so that documents can be easily found.

Keep it short!

Do not be tempted to write a 100-page business plan in the hope that its size will impress potential funders. Your business plan should be short, clear and well organised - perhaps 10-15 pages plus Appendix.

This matters because there is always heavy demand for investment, and few investors will be easily persuaded to gamble on an invention in preference to something that is more familiar and thus safer. Making your business plan easy for them to read and understand could be as important as your presentation of your invention.

A shorter business plan is also simpler to update, and easier for your team to use as an operations manual.

Keep it factual!

You should always be positive about your idea, but do not make claims about its prospects for which there is no evidence. Nor should you deliberately conceal known weaknesses. Experienced investors will not be fooled.

You risk losing all credibility if your business plan attempts to mislead people, so let the facts do the persuading. As long as the potential of your invention is clearly demonstrated, you may even gain credibility if you can correctly identify weaknesses before someone else identifies them for you.