Investors typically are only willing to spend about five minutes to determine whether or not they should look more deeply at a project and spend time and resources on it. Consequently, over the years they have developed a reliance on a series of clues to help them make that determination. These clues are based upon how the business plan is presented, formatted, and prepared ... visual clues that they can see before they actually read the document.

Initial Impressions

Let's suppose that you send your business plan along with a cover letter that asks the potential investor to return the business plan in the prepaid envelope should he or she not be interested in the project. This assumes the investor is going to read the plan and make a determination. This assumption is wrong!

Instead, what you have told the investor is that you are financially strapped and are desperate for money. This relegates your project to the lowest level of where entrepreneurs are unlikely to be able to make the project work, and they quickly lose interest. Typically, they will not send the plan back, even if you provide the return envelope with postage affixed. They simply reject the business plan and toss it in the trash without ever opening it, let alone reading it.

At the opposite extreme, investors often receive business plans that are expensively bound, sometimes even in leather. This indicates to the investor that the entrepreneur is wasteful and would therefore waste the investor’s money. Again, the plan gets tossed in the trash without even looking at the project.

One investor even used the term “amateur hour” to describe those entrepreneurs who make the above errors in judgment. The investors understand that they may be losing out on a good project. However, they received so many projects that they are in a position to cherry pick only the best plans.

Going A Little Deeper

One of the other external clues that they use is the Executive Summary. If the plan does not have an Executive Summary, or if it is longer than three pages, or if it does not appear to address the required topics, again they simply toss the plan. Remember, I said that investors typically only have about five minutes to make a decision of whether or not to look at a plan more deeply. They know that it will normally take them longer than five minutes to read more than three pages, which is more than they are willing to invest in any project at this point.

Those are the primary clues that are external to the plan. But now they will look at the plan itself for additional clues. Mind you, they typically still have not read the Executive Summary. They are still looking for visual clues.

Internal Clues

Looking at the plan itself they start from the back, not the front. After all, an investor is interested primarily in projects that make them money. They are not as concerned about the product itself as they are about what kind of return is projected on their money. So they began by looking for the financials and see how well the entrepreneur presents a financial picture of the project. They are primarily looking for details, not summaries. If it looks like, as is typically the case, there are only a few pages in the document that show summary finances while the vast majority of the document deals with the product, they will toss the project.

They will also take a cursory look at how all the documentation is organized. Is there a reasonable amount of white space on the pages? Is its heading structure consistent? Does the document seem to be well formatted? Is there a well-structured table of contents? Does there appear to be a well-structured flow of information?

The Executive Summary

If the plan passes these tests the investors will typically read the executive summary to determine whether or not this is the kind of a project they are interested in. They always still have their radar up looking for other clues such as spelling, grammar, paragraph length, use of jargon, etc.

It is because of these concerns, that we coined the phrase, “success is the byproduct of the elimination of failure.” If we eliminate all the things, or as many as possible, that investors use to decide not to read a plan, then they will read the plan. This will also place the plan within the top few percent of those they receive.