Business Plan Advice from Yale – Dumb it Down
The best advice I ever received on writing business plans may have also been the most obvious. The advice came from David Cromwell, a 30-year veteran at JP Morgan. For 6 of those years, he was the CEO and President of JP Morgan’s Private Equity division. He is now a professor at the Yale School of Management. Since my time at Yale, I’ve used his insights into writing business plans with great success.
He said, “Investors all have one thing in common: they invest in ideas that they understand. And, great ideas that are communicated poorly in business plans don’t get funded.” So, your success or failure hinges on how effectively and efficiently your business plan translates your idea.
Keep in mind that the sophistication of investor audiences varies greatly. The investor that loves your business plan could be a multi-billion dollar Venture Capital (VC) firm with a hundred MBA-type Analysts that pour over 30 business plans every day. But, your investor could also be an Angel investor that dropped out of high-school and made 7 million dollars over 30 years in the plumbing business.
So, remember this with every stroke of the keyboard as you create your business plan. Write the plan for every audience (the self-made Plumber Angel and the VC Analyst). If you write it such that only the VC Analyst can read it, you lose any chance of attracting the Angel. But, if you write it such that the Angel can read it, you actually make it easier for the VC Analyst to understand your plan versus the other 29 plans they read that day.
To illustrate the point, read the following two paragraphs and decide for yourself which language will appeal to the most investors.
“Given the stabilization of both the macroeconomic environment and the recent increase in the willingness of commercial lenders and financial institutions to provide capital, our conjecture can only be that pursuit of this venture not only has merit, but also is timed appropriately. Our deep operational experience and tenure in this industry provides the foundation and aptitude to assure superior returns and superlative results.”
“The economy is improving. Banks are lending again. The time is right to launch our company. We are absolutely the industry experts and are certain of our success”
Here are 4 ways to make your business plan readable for every audience. It is going to sound very elementary, but I promise it will make every bit of difference in your plan. First, I’ll lay out the 4 principals and then I’ll provide you with an enormously valuable tool to help you measure the readability of your plan. When writing your plan:
- Use shorter words versus longer words. Stick to basic language. Words with more than eight or ten letters slow readers down and detract from readability.
- Use shorter sentences versus longer sentences. Sentences should be no longer than ten, or so, words.
- Use fewer sentences per paragraph versus more. This makes for crisp reading and reduces monotony.
- Use simple, familiar words to describe your industry and product. Impressive-sounding “MBA” terminology and industry jargon greatly detracts from readability.
A very useful, but little-known tool in Microsoft Word is the Grammar and Readability statistics. You can learn how to enable and use this tool here. Once you complete spell-check, the Readability statistics are displayed and show metrics like “Average words per sentence” and “Average sentences per paragraph”, as shown below.
The most-useful indicator in the readability statistics is the Flesch-Kincaid Grade Level score. This score indicates the grade level education that a reader would need to read and understand your document. The lower the grade, the more readable the document. Believe it or not, Mr. Cromwell always pushed us to aim for a 7th grade to 9th grade level range! Any more than that, and you could lose the Angel investor. Moreover, the VC Analyst (who may have already read 29 business plans that day) could struggle to understand your plan and simply move on to the next.
Following all the advice above and using the tool won’t guarantee that your business plan will get funded. But, if you don’t follow the advice, you will artificially decrease your appeal to all possible sources of funding.
Best of luck to you with your business plan and your new venture.
P.S. The Flesch-Kincaid Grade Level score for this post is 8.8.