How to Write the Management Team Section of a Business Plan + Examples
Written by Dave Lavinsky
Over the last 20+ years, we’ve written business plans for over 4,000 companies and hundreds of thousands of others have used our business plan template and other business planning materials.
From this vast experience, we’ve learned exactly what you must include in the management section of your business plan.
Why is the Management Team Section of a Business Plan Important?
Your management team plan has 3 goals:
- To prove to you that you have the right team to execute on the opportunity you have defined, and if not, to identify who you must hire to round out your current team
- To convince lenders and investors (e.g., angel investors, venture capitalists) to fund your company (if needed)
- To document how your Board (if applicable) can best help your team succeed
What to Include in Your Management Team Section
There are two key elements to include in your management team business plan as follows:
Management Team Members
For each key member of your team, document their name, title, and background.
Their backgrounds are most important in telling you and investors they are qualified to execute. Describe what positions each member has held in the past and what they accomplished in those positions. For example, if your VP of Sales was formerly the VP of Sales for another company in which they grew sales from zero to $10 million, that would be an important and compelling accomplishment to document.
Management Team Gaps
In this section, detail if your management team currently has any gaps or missing individuals. Not having a complete team at the time you develop your business plan. But, you must show your plan to complete your team.
As such, describe what positions are missing and who will fill the positions. For example, if you know you need to hire a VP of Marketing, state this. Further, state the job description of this person. For example, you might say that this hire will have 10 years of experience managing a marketing team, establishing new accounts, working with social media marketing, have startup experience, etc.
To give you a “checklist” of the employees you might want to include in your Management Team Members and/or Gaps sections, below are the most common management titles at a growing startup (note that many are specific to tech startups):
- Founder, CEO, and/or President
- Chief Operating Officer
- Chief Financial Officer
- VP of Sales
- VP of Marketing
- VP of Web Development and/or Engineering
- UX Designer/Manager
- Product Manager
- Digital Marketing Manager
- Business Development Manager
- Account Management/Customer Service Manager
- Sales Managers/Sales Staff
- Board Members
If you have a Board of Directors or Board of Advisors, you would include the bios of the members of your board in this section.
A Board of Directors is a paid group of individuals who help guide your company. Typically startups do not have such a board until they raise VC funding.
If your company is not at this stage, consider forming a Board of Advisors. Such a board is ideal particularly if your team is missing expertise and/or experience in certain areas. An advisory board includes 2 to 8 individuals who act as mentors to your business. Usually, you meet with them monthly or quarterly and they help answer questions and provide strategic guidance. You typically do not pay advisory board members with cash, but offering them options in your company is a best practice as it allows you to attract better board members and better motivate them.
Management Team Business Plan Example
Below are examples of how to include your management section in your business plan.
Key Team Members
Jim Smith, Founder & CEO
Jim has 15 years of experience in online software development, having co-founded two previous successful online businesses. His first company specialized in developing workflow automation software for government agencies and was sold to a public company in 2003. Jim’s second company developed a mobile app for parents to manage their children’s activities, which was sold to a large public company in 2014. Jim has a B.S. in computer science from MIT and an M.B.A from the University of Chicago
Bill Jones, COO
Bill has 20 years of sales and business development experience from working with several startups that he helped grow into large businesses. He has a B.S. in mechanical engineering from M.I.T., where he also played Division I lacrosse for four years.
We currently have no gaps in our management team, but we plan to expand our team by hiring a Vice President of Marketing to be responsible for all digital marketing efforts.
Vance Williamson, Founder & CEO
Prior to founding GoDoIt, Vance was the CIO of a major corporation with more than 100 retail locations. He oversaw all IT initiatives including software development, sales technology, mobile apps for customers and employees, security systems, customer databases/CRM platforms, etc. He has a B.S in computer science and an MBA in operations management from UCLA.
We currently have two gaps in our Management Team:
A VP of Sales with 10 years of experience managing sales teams, overseeing sales processes, working with manufacturers, establishing new accounts, working with digital marketing/advertising agencies to build brand awareness, etc.
In addition, we need to hire a VP of Marketing with experience creating online marketing campaigns that attract new customers to our site.
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How To Write the Management Section of a Business Plan
Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.
:max_bytes(150000):strip_icc():format(webp)/SusanWardLaptop2crop1-57aa62eb5f9b58974a12bac9.jpg "management team for business plan")
Ownership Structure
Internal management team, external management resources, human resources, frequently asked questions (faqs).
When developing a business plan , the 'management section' describes your management team, staff, resources, and how your business ownership is structured. This section should not only describe who's on your management team but how each person's skill set will contribute to your bottom line. In this article, we will detail exactly how to compose and best highlight your management team.
Key Takeaways
- The management section of a business plan helps show how your management team and company are structured.
- The first section shows the ownership structure, which might be a sole proprietorship, partnership, or corporation.
- The internal management section shows the department heads, including sales, marketing, administration, and production.
- The external management resources help back up your internal management and include an advisory board and consultants.
- The human resources section contains staffing requirements—part-time or full-time—skills needed for employees and the costs.
This section outlines the legal structure of your business. It may only be a single sentence if your business is a sole proprietorship. If your business is a partnership or a corporation, it can be longer. You want to be sure you explain who holds what percentage of ownership in the company.
The internal management section should describe the business management categories relevant to your business, identify who will have responsibility for each category, and then include a short profile highlighting each person's skills.
The primary business categories of sales, marketing , administration, and production usually work for many small businesses. If your business has employees, you will also need a human resources section. You may also find that your company needs additional management categories to fit your unique circumstances.
It's not necessary to have a different person in charge of each category; some key management people often fill more than one role. Identify the key managers in your business and explain what functions and experience each team member will serve. You may wish to present this as an organizational chart in your business plan, although the list format is also appropriate.
Along with this section, you should include the complete resumés of each management team member (including your own). Follow this with an explanation of how each member will be compensated and their benefits package, and describe any profit-sharing plans that may apply.
If there are any contracts that relate directly to your management team members, such as work contracts or non-competition agreements, you should include them in an Appendix to your business plan.
While external management resources are often overlooked when writing a business plan , using these resources effectively can make the difference between the success or failure of your managers. Think of these external resources as your internal management team's backup. They give your business credibility and an additional pool of expertise.
Advisory Board
An Advisory Board can increase consumer and investor confidence, attract talented employees by showing a commitment to company growth and bring a diversity of contributions. If you choose to have an Advisory Board , list all the board members in this section, and include a bio and all relevant specializations. If you choose your board members carefully, the group can compensate for the niche forms of expertise that your internal managers lack.
When selecting your board members, look for people who are genuinely interested in seeing your business do well and have the patience and time to provide sound advice.
Recently retired executives or managers, other successful entrepreneurs, and/or vendors would be good choices for an Advisory Board.
Professional Services
Professional Services should also be highlighted in the external management resources section. Describe all the external professional advisors that your business will use, such as accountants, bankers, lawyers, IT consultants, business consultants, and/or business coaches. These professionals provide a web of advice and support outside your internal management team that can be invaluable in making management decisions and your new business a success .
The last point you should address in the management section of your business plan is your human resources needs. The trick to writing about human resources is to be specific. To simply write, "We'll need more people once we get up and running," isn't sufficient. Follow this list:
- Detail how many employees your business will need at each stage and what they will cost.
- Describe exactly how your business's human resources needs can be met. Will it be best to have employees, or should you operate with contract workers or freelancers ? Do you need full-time or part-time staff or a mix of both?
- Outline your staffing requirements, including a description of the specific skills that the people working for you will need to possess.
- Calculate your labor costs. Decide the number of employees you will need and how many customers each employee can serve. For example, if it takes one employee to serve 150 customers, and you forecast 1,500 customers in your first year, your business will need 10 employees.
- Determine how much each employee will receive and total the salary cost for all your employees.
- Add to this the cost of Workers' Compensation Insurance (mandatory for most businesses) and the cost of any other employee benefits, such as company-sponsored medical and dental plans.
After you've listed the points above, describe how you will find the staff your business needs and how you will train them. Your description of staff recruitment should explain whether or not sufficient local labor is available and how you will recruit staff.
When you're writing about staff training, you'll want to include as many specifics as possible. What specific training will your staff undergo? What ongoing training opportunities will you provide your employees?
Even if the plan for your business is to start as a sole proprietorship, you should include a section on potential human resources demands as a way to demonstrate that you've thought about the staffing your business may require as it grows.
Business plans are about the future and the hypothetical challenges and successes that await. It's worth visualizing and documenting the details of your business so that the materials and network around your dream can begin to take shape.
What is the management section of a business plan?
The 'management section' describes your management team, staff, resources, and how your business ownership is structured.
What are the 5 sections of a business plan?
A business plan provides a road map showing your company's goals and how you'll achieve them. The five sections of a business plan are as follows:
- The market analysis outlines the demand for your product or service.
- The competitive analysis section shows your competition's strengths and weaknesses and your strategy for gaining market share.
- The management plan outlines your ownership structure, the management team, and staffing requirements.
- The operating plan details your business location and the facilities, equipment, and supplies needed to operate.
- The financial plan shows the map to financial success and the sources of funding, such as bank loans or investors.
SCORE. " Why Small Businesses Should Consider Workers’ Comp Insurance ."
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How to Write Management Team Section in Business Plan
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A business plan must include details about your key people and managers.
The management team section in business plan includes a detailed introduction to the owners, managers, and key people.
The management team section explains the educational and professional backgrounds of your key people. You can convince potential lenders or investors of the professional capabilities of your organization. A competent team is a strong argument in your favor.
The management team section in business plan also includes the vacant positions, the people you are looking for those positions, and how and when you plan to hire them.
How do you write the management team section in business plan?
Writing a management team section in a business plan is very easy; all you will need to do is to introduce your team to the world.
If you have not hired yet, explain who you want to hire, describe their educational and professional background, and also mention their job description.
Collect Manager Resumes
When writing the m anagement team section in business plan, c ollect the resumes of managers and key people. A resume typically packs every important professional detail about a person. You will need to use this information in the management team business plan section.
Describe an ideal resume for a post if you are yet to hire a manager.
Group Employees in Categories
Insert your organizational chart here. Show your chain of commands and describe who is who and what is what.
Every organization is divided into different departments like management, HR, advertising/marketing, procurement, etc. You will need people with different skills in every position.
Your organization chart will not only help introduce your team and chain of commands, but it will also help you prepare for hiring the right people for the job.
Introduce Key people
Key people include owners, top management, key managers, etc. These are the primary decision-makers in an organization. Potential lenders or investors would like to know the people in your business, their profile, and their business philosophy.
Include the resumes of your key people, their education or professional background, and their uniqueness for the business.
Managers Employment History
As the name suggests, you will tell the employment and professional history of managers. Though this is similar to the key people section, this part will include managers only.
A relevant employment history speaks in favor of your sound choice.
Explain Team Gaps
Team gaps are the positions yet to be filled.
If you are starting a new business, you may only have key people. Your organization chart is helpful here too.
Spot and name the vacant positions. Explain what the resume of the best candidates will look like and when you plan to hire.
Want to see a sample of the management team section in a business plan? Check our professional business plan samples and see how it is done.
5 Points to Include in Management Team Business Plan
- Who are key managers? If you have appointed them already, mention them; if not, explain who you want to hire.
- Discuss the educational backgrounds, professional experiences, and skills of managers.
- Explain the relevant industry experience of your managers. If you have not hired yet, describe who you will hire and give your desired profile.
- Explain who will be responsible for what. Including an organizational chart would be a good idea.
- What is the salary you will offer to attract the right people for the jobs?
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Tips on Writing the Management Section of a Business Plan
A business is as efficient as its team and its management. It, therefore, becomes important for business owners to build a structured management team that achieves the objectives and goals set by the organization. Thus, making the management section of a business plan the most essential component.
Andrew Carnegie , an American steel magnate, beautifully summarized it –
Teamwork is the ability to work together toward a common vision . The ability to direct individual accomplishments toward organizational objectives. It is the fuel that allows common people to attain uncommon results.”
A business management plan helps build an efficient team, and formalize business operations . This helps businesses streamline strategies to achieve their goals .
It, therefore, becomes imperative that business owners pay utmost importance while writing the management section of a business plan.
So, if you are a business owner who is looking to formalize their business structure and write the management section of their business plan, this guide is for you.
Here’s a sneak peek into what you’ll learn:
What Is the Management Section?
Importance of the management section, what to include in the management section, example of a management section plan, ensure that the management section is fool-proof.
Sounds good? Let’s dive in.
What Is The Management Section Of A Business Plan?
The management section of a business plan is an in-depth description of a business’s team, its structure, and the ownership of a business.
The section discusses in detail who is on the management team – internal and external- their skill sets, experiences, and how meaningfully they would contribute to an organization’s goals and outcomes.
Now that we have defined what is the management section of a business plan, let’s understand why it is so important.
The Importance Of The Management Section Of A Business Plan
The management section helps you to:
1. Convince your investors (banks and government agencies) to disburse loans and grants for your business idea
2. Prove that your management team can execute your idea and if not, help hire the right fit for a position
3. Share how your advisory board can help your team succeed
What To Include In the Management Section Of A Business Plan?
The management section of a business plan helps in formalizing and structuring the management team plan and is comprised of
The Management Team
The management team gaps, the management structure.
Let’s understand them in detail.
An organization’s entire management team can be divided into parts – the internal team and the external team.
The Internal Management Team
A business team consists of several departments. The most common departments are – Marketing , Sales, IT, Customer Service, Operations, Finance, and HR.
These departments may or may not be required. It purely depends on the nature and functioning of your business. For example, a dental clinic may not require a sales department per se.
The entire management team is compartmentalized according to their responsibility. This helps the business owners and investors be aware of the roles, benefits, ESOPs (if applicable), profit sharing (for sales), work contracts, NDAs ( Non-Disclosure Agreement ), and Non-Competition Agreements of the entire team.
It is recommended that business owners collect and document the following information about their team:
- Educational Background
- Work Experience
- Accomplishments
For example, your present VP of Marketing helped their previous company grow its bottom line from $3 million to $10 million over 18 months.
The External Management Team
The external management team is usually composed of – Advisory Board Members and Professional Services.
Advisory board members help by :
- Establishing trust, showing results, and experiencing to the table.
- Increasing the confidence of investors and consumers.
This helps attract talented employees to the team. Credible advisory board members show great commitment to a company’s growth. Therefore, it becomes important to document their experience and specialization in the business management plan. The advisory board members can help give valuable advice that internal team members need or lack.
If your business has not or will not have VC funding, you may not require board members on your team.
Usually, board members meet quarterly or monthly to provide strategic guidance in place of stock options in your company. This helps attract the best advisors and motivates them to invest in your business.
For example, founders and business owners coming to raise funds in Shark Tank , a business television series, are looking for advisory members who would invest money and provide guidance at necessary steps.
On the other hand, Professional Service helps by
- Offering highly specialized advice and sharing knowledge.
- Business owners make key strategic management decisions.
Such services help businesses leverage skills that would be difficult to build and acquire over a short period.
Examples of such professional services are
- IT Consultants
- Business coaches and consultants
After a brief overview of the Management Team of an organization, let’s dive into what to include in Management Team Gaps.
The management team gap is an important part of the management section. Primarily because it helps document if your management team currently has gaps or missing skills. Your team may lack a few required skills while starting. The management team gaps help you to be aware and make efforts to close this gap.
As a business owner, you must document what positions are missing and who ought to fill that position or take the responsibility.
For example, if you need a VP of Sales, clearly document this in the section.
Also, write down the job description and key responsibilities to be undertaken,
Example – You might mention that role required 10 years of experience in the sales domain. The applicant must have experience handling a sales team, closing new accounts, working in tandem with the marketing team, and have relevant startup experience.
Be as detailed as possible. This will help you build a checklist while interviewing the right candidate and also win investor confidence in your managerial skills.
Following are a few key positions you would want to include in your management team:
- Founder and/or, CEO
- Chief Technical Officer (CTO)
- Chief Marketing Officer (CMO)
- Chief Operating Officer (COO)
- Chief Financial Officer (CFO)
- Chief Human Resources Officer (CHRO)
- Head of Product Management (PM)
- VP of Sales
- VP of Marketing
- UX Designer
- Digital Marketing Manager
- Business Development Manager
- Customer Service Manager
- Customer Success Manager
- Sales Managers/Sales Staff
- Advisory Board Members
Let’s dive into the nitty-gritty of the management structure.
The management structure defines how a business organizes its management hierarchy. A hierarchy helps determine the roles, positions, power, and responsibilities of all team members.
The management structure also depends upon the type of business ownership . Business ownership can be – a sole proprietorship, partnership, or simply an LLC.
Following is a sample management structure of an organization.
Now that we understand what details we need to document in the business management plan, let’s look at a few examples of the management plan.
Example Of A Management Section Plan
[management section of a hotel], [management team], internal team members.
Name: Charles Fargo
Role: Owner
Responsibility: Formulating key strategies, defining budgets , and building a business plan
Experience: 35 years of owning multiple hotels in Las Vegas
Educational Background: B.Sc in Hospitality Management from South Dakota State University.
Name: Michael Clark
Role: General Manager
Responsibility: Overall hotel operations – guest interactions, revenue management, brand ambassador of the hotel, customer satisfaction , and experience, leadership to all departments
Experience: 25 years working with several technology hotels as the general manager.
Educational Background: MBA from Wharton School
Name: George Trump
Role: Department Manager
Responsibility: Manage employees, smooth coordination amongst employees, plan daily affairs of the department, strategize, prepare reports and deal with complaints and suggestions. Lead team members to function as a team
Experience: 15 years working as a department manager
Educational Background: BSc in Hotel Management from Texas University
Note: There can be multiple Department Managers depending on the nature of your business. In the case of hotels, departments can include – housekeeping, logistics, security, food, and banquets.
Name: Donald Clooney
Role: Marketing and Sales Manager
Responsibility: Increase occupancy and generate revenue. Position the hotel as an option for leisure activities, relaxation, and holidays.
Experience: 11 years working as the marketing and sales manager for hotels
Educational Background: MBA in Tourism and Hospitality from Midway University
Name: Oprah Williams
Role: Human Resources Manager
Responsibility: Recruit and train hotel staff, maintain smooth onboarding process for new recruits, train, counsel, and coach staff, resolve conflicts, and conduct performance reviews
Experience: 9 years working as human resources manager for hotels
Educational Background: MBA in Human Resources Management from California University
External Team Members
Advisory Board Member
#1 Richard Branson
Responsibility: Strategic advisory for sustainable growth and expansion
Experience: Founder of Virgin Group
Professional Services
#1 Digital Marketing Agency – Neil Patel
– Help market and sell our product using digital mediums – blog, website, YouTube, and social media.
[MANAGEMENT STRUCTURE]
There is a gap in one key position in our startup.
#1 Chief Finance Officer (CFO)
Responsibilities: Finance , Accounting, Tracking Profit and Loss , and overseeing FP&A ( Financial Planning and Analysis)
How To Ensure That The Management Section Of Your Business Plan Is Fool-Proof?
“In preparing for battle I have always found that plans are useless, but planning is indispensable.” ― Dwight D. Eisenhower
By building a fool-proof management plan and ensuring that all the intricate details are accounted for, we can ensure that your business has a greater chance of succeeding.
Business planning software like Upmetrics ensures that business owners, like you, get the management section planning correct in the first attempt itself.
You can also get started with a free demo today to discover how Upmetrics can help you plan your business in a breeze.
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How to Write a Winning Business Plan
- Stanley R. Rich
- David E. Gumpert
The business plan admits the entrepreneur to the investment process. Without a plan furnished in advance, many investor groups won’t even grant an interview. And the plan must be outstanding if it is to win investment funds. Too many entrepreneurs, though, continue to believe that if they build a better mousetrap, the world will beat […]
The Idea in Brief
You’ve got a great idea for a new product or service—how can you persuade investors to support it? Flashy PowerPoint slides aren’t enough; you need a winning business plan. A compelling plan accurately reflects the viewpoints of your three key constituencies: the market , potential investors , and the producer (the entrepreneur or inventor of the new offering).
But too many plans are written solely from the perspective of the producer. The problem is that, unless you’ve got your own capital to finance your venture, the only way you’ll get the funding you need is to satisfy the market’s and investors’ needs.
Here’s how to grab their attention.
The Idea in Practice
Emphasize Market Needs
To make a convincing case that a substantial market exists, establish market interest and document your claims.
Establish market interest. Provide evidence that customers are intrigued by your claims about the benefits of the new product or service:
- Let some customers use a product prototype; then get written evaluations.
- Offer the product to a few potential customers at a deep discount if they pay part of the production cost. This lets you determine whether potential buyers even exist.
- Use “reference installations”—statements from initial users, sales reps, distributors, and would-be customers who have seen the product demonstrated.
Document your claims. You’ve established market interest. Now use data to support your assertions about potential growth rates of sales and profits.
- Specify the number of potential customers, the size of their businesses, and the size that is most appropriate to your offering. Remember: Bigger isn’t necessarily better; e.g., saving $10,000 per year in chemical use may mean a lot to a modest company but not to a Du Pont.
- Show the nature of the industry; e.g., franchised weight-loss clinics might grow fast, but they can decline rapidly when competition stiffens. State how you will continually innovate to survive.
- Project realistic growth rates at which customers will accept—and buy—your offering. From there, assemble a credible sales plan and project plant and staffing needs.
Address Investor Needs
Cashing out. Show when and how investors may liquidate their holdings. Venture capital firms usually want to cash out in three to seven years; professional investors look for a large capital appreciation.
Making sound projections. Give realistic, five-year forecasts of profitability. Don’t skimp on the numbers, get overly optimistic about them, or blanket your plan with a smog of figures covering every possible variation.
The price. To figure out how much to invest in your offering, investors calculate your company’s value on the basis of results expected five years after they invest. They’ll want a 35 to 40% return for mature companies—up to 60% for less mature ventures. To make a convincing case for a rich return, get a product in the hands of representative customers—and demonstrate substantial market interest.
The business plan admits the entrepreneur to the investment process. Without a plan furnished in advance, many investor groups won’t even grant an interview. And the plan must be outstanding if it is to win investment funds.
Too many entrepreneurs, though, continue to believe that if they build a better mousetrap, the world will beat a path to their door. A good mousetrap is important, but it’s only part of meeting the challenge. Also important is satisfying the needs of marketers and investors. Marketers want to see evidence of customer interest and a viable market. Investors want to know when they can cash out and how good the financial projections are. Drawing on their own experiences and those of the Massachusetts Institute of Technology Enterprise Forum, the authors show entrepreneurs how to write convincing and winning business plans.
A comprehensive, carefully thought-out business plan is essential to the success of entrepreneurs and corporate managers. Whether you are starting up a new business, seeking additional capital for existing product lines, or proposing a new activity in a corporate division, you will never face a more challenging writing assignment than the preparation of a business plan.
Only a well-conceived and well-packaged plan can win the necessary investment and support for your idea. It must describe the company or proposed project accurately and attractively. Even though its subject is a moving target, the plan must detail the company’s or the project’s present status, current needs, and expected future. You must present and justify ongoing and changing resource requirements, marketing decisions, financial projections, production demands, and personnel needs in logical and convincing fashion.
Because they struggle so hard to assemble, organize, describe, and document so much, it is not surprising that managers sometimes overlook the fundamentals. We have found that the most important one is the accurate reflection of the viewpoints of three constituencies.
1. The market, including both existing and prospective clients, customers, and users of the planned product or service.
2. The investors, whether of financial or other resources.
3. The producer, whether the entrepreneur or the inventor.
Too many business plans are written solely from the viewpoint of the third constituency—the producer. They describe the underlying technology or creativity of the proposed product or service in glowing terms and at great length. They neglect the constituencies that give the venture its financial viability—the market and the investor.
Take the case of five executives seeking financing to establish their own engineering consulting firm. In their business plan, they listed a dozen types of specialized engineering services and estimated their annual sales and profit growth at 20%. But the executives did not determine which of the proposed dozen services their potential clients really needed and which would be most profitable. By neglecting to examine these issues closely, they ignored the possibility that the marketplace might want some services not among the dozen listed.
Moreover, they failed to indicate the price of new shares or the percentage available to investors. Dealing with the investor’s perspective was important because—for a new venture, at least—backers seek a return of 40% to 60% on their capital, compounded annually. The expected sales and profit growth rates of 20% could not provide the necessary return unless the founders gave up a substantial share of the company.
In fact, the executives had only considered their own perspective—including the new company’s services, organization, and projected results. Because they had not convincingly demonstrated why potential customers would buy the services or how investors would make an adequate return (or when and how they could cash out), their business plan lacked the credibility necessary for raising the investment funds needed.
We have had experience in both evaluating business plans and organizing and observing presentations and investor responses at sessions of the MIT Enterprise Forum. We believe that business plans must deal convincingly with marketing and investor considerations. This reading identifies and evaluates those considerations and explains how business plans can be written to satisfy them.
The MIT Enterprise Forum
Organized under the auspices of the Massachusetts Institute of Technology Alumni Association in 1978, the MIT Enterprise Forum offers businesses at a critical stage of development an opportunity to obtain counsel from a panel of experts on steps to take to achieve their goals.
In monthly evening sessions the forum evaluates the business plans of companies accepted for presentation during 60- to 90-minute segments in which no holds are barred. The format allows each presenter 20 minutes to summarize a business plan orally. Each panelist reviews the written business plan in advance of the sessions. Then each of four panelists—who are venture capitalists, bankers, marketing specialists, successful entrepreneurs, MIT professors, or other experts—spends five to ten minutes assessing the strengths and weaknesses of the plan and the enterprise and suggesting improvements.
In some cases, the panelists suggest a completely new direction. In others, they advise more effective implementation of existing policies. Their comments range over the spectrum of business issues.
Sessions are open to the public and usually draw about 300 people, most of them financiers, business executives, accountants, lawyers, consultants, and others with special interest in emerging companies. Following the panelists’ evaluations, audience members can ask questions and offer comments.
Presenters have the opportunity to respond to the evaluations and suggestions offered. They also receive written evaluations of the oral presentation from audience members. (The entrepreneur doesn’t make the written plan available to the audience.) These monthly sessions are held primarily for companies that have advanced beyond the start-up stage. They tend to be from one to ten years old and in need of expansion capital.
The MIT Enterprise Forum’s success at its home base in Cambridge, Massachusetts has led MIT alumni to establish forums in New York, Washington, Houston, Chicago, and Amsterdam, among other cities.
Emphasize the Market
Investors want to put their money into market-driven rather than technology-driven or service-driven companies. The potential of the product’s markets, sales, and profit is far more important than its attractiveness or technical features.
You can make a convincing case for the existence of a good market by demonstrating user benefit, identifying marketplace interest, and documenting market claims.
Show the User’s Benefit
It’s easy even for experts to overlook this basic notion. At an MIT Enterprise Forum session an entrepreneur spent the bulk of his 20-minute presentation period extolling the virtues of his company’s product—an instrument to control certain aspects of the production process in the textile industry. He concluded with some financial projections looking five years down the road.
The first panelist to react to the business plan—a partner in a venture capital firm—was completely negative about the company’s prospects for obtaining investment funds because, he stated, its market was in a depressed industry.
Another panelist asked, “How long does it take your product to pay for itself in decreased production costs?” The presenter immediately responded, “Six months.” The second panelist replied, “That’s the most important thing you’ve said tonight.”
The venture capitalist quickly reversed his original opinion. He said he would back a company in almost any industry if it could prove such an important user benefit—and emphasize it in its sales approach. After all, if it paid back the customer’s cost in six months, the product would after that time essentially “print money.”
The venture capitalist knew that instruments, machinery, and services that pay for themselves in less than one year are mandatory purchases for many potential customers. If this payback period is less than two years, it is a probable purchase; beyond three years, they do not back the product.
The MIT panel advised the entrepreneur to recast his business plan so that it emphasized the short payback period and played down the self-serving discussion about product innovation. The executive took the advice and rewrote the plan in easily understandable terms. His company is doing very well and has made the transition from a technology-driven to a market-driven company.
Find out the Market’s Interest
Calculating the user’s benefit is only the first step. An entrepreneur must also give evidence that customers are intrigued with the user’s benefit claims and that they like the product or service. The business plan must reflect clear positive responses of customer prospects to the question “Having heard our pitch, will you buy?” Without them, an investment usually won’t be made.
How can start-up businesses—some of which may have only a prototype product or an idea for a service—appropriately gauge market reaction? One executive of a smaller company had put together a prototype of a device that enables personal computers to handle telephone messages. He needed to demonstrate that customers would buy the product, but the company had exhausted its cash resources and was thus unable to build and sell the item in quantity.
The executives wondered how to get around the problem. The MIT panel offered two possible responses. First, the founders might allow a few customers to use the prototype and obtain written evaluations of the product and the extent of their interest when it became available.
Second, the founders might offer the product to a few potential customers at a substantial price discount if they paid part of the cost—say one-third—up front so that the company could build it. The company could not only find out whether potential buyers existed but also demonstrate the product to potential investors in real-life installations.
In the same way, an entrepreneur might offer a proposed new service at a discount to initial customers as a prototype if the customers agreed to serve as references in marketing the service to others.
For a new product, nothing succeeds as well as letters of support and appreciation from some significant potential customers, along with “reference installations.” You can use such third-party statements—from would-be customers to whom you have demonstrated the product, initial users, sales representatives, or distributors—to show that you have indeed discovered a sound market that needs your product or service.
You can obtain letters from users even if the product is only in prototype form. You can install it experimentally with a potential user to whom you will sell it at or below cost in return for information on its benefits and an agreement to talk to sales prospects or investors. In an appendix to the business plan or in a separate volume, you can include letters attesting to the value of the product from experimental customers.
Document Your Claims
Having established a market interest, you must use carefully analyzed data to support your assertions about the market and the growth rate of sales and profits. Too often, executives think “If we’re smart, we’ll be able to get about 10% of the market” and “Even if we only get 1% of such a huge market, we’ll be in good shape.”
Investors know that there’s no guarantee a new company will get any business, regardless of market size. Even if the company makes such claims based on fact—as borne out, for example, by evidence of customer interest—they can quickly crumble if the company does not carefully gather and analyze supporting data.
One example of this danger surfaced in a business plan that came before the MIT Enterprise Forum. An entrepreneur wanted to sell a service to small businesses. He reasoned that he could have 170,000 customers if he penetrated even 1% of the market of 17 million small enterprises in the United States. The panel pointed out that anywhere from 11 million to 14 million of such so-called small businesses were really sole proprietorships or part-time businesses. The total number of full-time small businesses with employees was actually between 3 million and 6 million and represented a real potential market far beneath the company’s original projections—and prospects.
Similarly, in a business plan relating to the sale of certain equipment to apple growers, you must have U.S. Department of Agriculture statistics to discover the number of growers who could use the equipment. If your equipment is useful only to growers with 50 acres or more, then you need to determine how many growers have farms of that size, that is, how many are minor producers with only an acre or two of apple trees.
A realistic business plan needs to specify the number of potential customers, the size of their businesses, and which size is most appropriate to the offered products or services. Sometimes bigger is not better. For example, a saving of $10,000 per year in chemical use may be significant to a modest company but unimportant to a Du Pont or a Monsanto.
Such marketing research should also show the nature of the industry. Few industries are more conservative than banking and public utilities. The number of potential customers is relatively small, and industry acceptance of new products or services is painfully slow, no matter how good the products and services have proven to be. Even so, most of the customers are well known and while they may act slowly, they have the buying power that makes the wait worthwhile.
At the other end of the industrial spectrum are extremely fast-growing and fast-changing operations such as franchised weight-loss clinics and computer software companies. Here the problem is reversed. While some companies have achieved multi-million-dollar sales in just a few years, they are vulnerable to declines of similar proportions from competitors. These companies must innovate constantly so that potential competitors will be discouraged from entering the marketplace.
You must convincingly project the rate of acceptance for the product or service—and the rate at which it is likely to be sold. From this marketing research data, you can begin assembling a credible sales plan and projecting your plant and staff needs.
Address Investors’ Needs
The marketing issues are tied to the satisfaction of investors. Once executives make a convincing case for their market penetration, they can make the financial projections that help determine whether investors will be interested in evaluating the venture and how much they will commit and at what price.
Before considering investors’ concerns in evaluating business plans, you will find it worth your while to gauge who your potential investors might be. Most of us know that for new and growing private companies, investors may be professional venture capitalists and wealthy individuals. For corporate ventures, they are the corporation itself. When a company offers shares to the public, individuals of all means become investors along with various institutions.
But one part of the investor constituency is often overlooked in the planning process—the founders of new and growing enterprises. By deciding to start and manage a business, they are committed to years of hard work and personal sacrifice. They must try to stand back and evaluate their own businesses in order to decide whether the opportunity for reward some years down the road truly justifies the risk early on.
When an entrepreneur looks at an idea objectively rather than through rose-colored glasses, the decision whether to invest may change. One entrepreneur who believed in the promise of his scientific-instruments company faced difficult marketing problems because the product was highly specialized and had, at best, few customers. Because of the entrepreneur’s heavy debt, the venture’s chance of eventual success and financial return was quite slim.
The panelists concluded that the entrepreneur would earn only as much financial return as he would have had holding a job during the next three to seven years. On the downside, he might wind up with much less in exchange for larger headaches. When he viewed the project in such dispassionate terms, the entrepreneur finally agreed and gave it up.
Investors’ primary considerations are:
Cashing out
Entrepreneurs frequently do not understand why investors have a short attention span. Many who see their ventures in terms of a lifetime commitment expect that anyone else who gets involved will feel the same. When investors evaluate a business plan, they consider not only whether to get in but also how and when to get out.
Because small, fast-growing companies have little cash available for dividends, the main way investors can profit is from the sale of their holdings, either when the company goes public or is sold to another business. (Large corporations that invest in new enterprises may not sell their holdings if they’re committed to integrating the venture into their organizations and realizing long-term gains from income.)
Venture capital firms usually wish to liquidate their investments in small companies in three to seven years so as to pay gains while they generate funds for investment in new ventures. The professional investor wants to cash out with a large capital appreciation.
Investors want to know that entrepreneurs have thought about how to comply with this desire. Do they expect to go public, sell the company, or buy the investors out in three to seven years? Will the proceeds provide investors with a return on invested capital commensurate with the investment risk—in the range of 35% to 60%, compounded and adjusted for inflation?
Business plans often do not show when and how investors may liquidate their holdings. For example, one entrepreneur’s software company sought $1.5 million to expand. But a panelist calculated that, to satisfy their goals, the investors “would need to own the entire company and then some.”
Making Sound Projections
Five-year forecasts of profitability help lay the groundwork for negotiating the amount investors will receive in return for their money. Investors see such financial forecasts as yardsticks against which to judge future performance.
Too often, entrepreneurs go to extremes with their numbers. In some cases, they don’t do enough work on their financials and rely on figures that are so skimpy or overoptimistic that anyone who has read more than a dozen business plans quickly sees through them.
In one MIT Enterprise Forum presentation, a management team proposing to manufacture and market scientific instruments forecast a net income after taxes of 25% of sales during the fourth and fifth years following investment. While a few industries such as computer software average such high profits, the scientific instruments business is so competitive, panelists noted, that expecting such margins is unrealistic.
In fact, the managers had grossly—and carelessly—understated some important costs. The panelists advised them to take their financial estimates back to the drawing board and before approaching investors to consult financial professionals.
Some entrepreneurs think that the financials are the business plan. They may cover the plan with a smog of numbers. Such “spreadsheet merchants,” with their pages of computer printouts covering every business variation possible and analyzing product sensitivity, completely turn off many investors.
Investors are wary even when financial projections are solidly based on realistic marketing data because fledgling companies nearly always fail to achieve their rosy profit forecasts. Officials of five major venture capital firms we surveyed said they are satisfied when new ventures reach 50% of their financial goals. They agreed that the negotiations that determine the percentage of the company purchased by the investment dollars are affected by this “projection discount factor.”
The Development Stage
All investors wish to reduce their risk. In evaluating the risk of a new and growing venture, they assess the status of the product and the management team. The farther along an enterprise is in each area, the lower the risk.
At one extreme is a single entrepreneur with an unproven idea. Unless the founder has a magnificent track record, such a venture has little chance of obtaining investment funds.
At the more desirable extreme is a venture that has an accepted product in a proven market and a competent and fully staffed management team. This business is most likely to win investment funds at the lowest costs.
Entrepreneurs who become aware of their status with investors and think it inadequate can improve it. Take the case of a young MIT engineering graduate who appeared at an MIT Enterprise Forum session with written schematics for the improvement of semiconductor-equipment production. He had documented interest by several producers and was looking for money to complete development and begin production.
The panelists advised him to concentrate first on making a prototype and assembling a management team with marketing and financial know-how to complement his product-development expertise. They explained that because he had never before started a company, he needed to show a great deal of visible progress in building his venture to allay investors’ concern about his inexperience.
Once investors understand a company qualitatively, they can begin to do some quantitative analysis. One customary way is to calculate the company’s value on the basis of the results expected in the fifth year following investment. Because risk and reward are closely related, investors believe companies with fully developed products and proven management teams should yield between 35% and 40% on their investment, while those with incomplete products and management teams are expected to bring in 60% annual compounded returns.
Investors calculate the potential worth of a company after five years to determine what percentage they must own to realize their return. Take the hypothetical case of a well-developed company expected to yield 35% annually. Investors would want to earn 4.5 times their original investment, before inflation, over a five-year period.
After allowing for the projection discount factor, investors may postulate that a company will have $20 million annual revenues after five years and a net profit of $1.5 million. Based on a conventional multiple for acquisitions of ten times earnings, the company would be worth $15 million in five years.
If the company wants $1 million of financing, it should grow to $4.5 million after five years to satisfy investors. To realize that return from a company worth $15 million, the investors would need to own a bit less than one-third. If inflation is expected to average 7.5% a year during the five-year period, however, investors would look for a value of $6.46 million as a reasonable return over five years, or 43% of the company.
For a less mature venture—from which investors would be seeking 60% annually, net of inflation—a $1 million investment would have to bring in close to $15 million in five years, with inflation figured at 7.5% annually. But few businesses can make a convincing case for such a rich return if they do not already have a product in the hands of some representative customers.
The final percentage of the company acquired by the investors is, of course, subject to some negotiation, depending on projected earnings and expected inflation.
Make It Happen
The only way to tend to your needs is to satisfy those of the market and the investors—unless you are wealthy enough to furnish your own capital to finance the venture and test out the pet product or service.
Of course, you must confront other issues before you can convince investors that the enterprise will succeed. For example, what proprietary aspects are there to the product or service? How will you provide quality control? Have you focused the venture toward a particular market segment, or are you trying to do too much? If this is answered in the context of the market and investors, the result will be more effective than if you deal with them in terms of your own wishes.
An example helps illustrate the potential conflicts. An entrepreneur at an MIT Enterprise Forum session projected R&D spending of about half of gross sales revenues for his specialty chemical venture. A panelist who had analyzed comparable organic chemical suppliers asked why the company’s R&D spending was so much higher than the industry average of 5% of gross revenues.
The entrepreneur explained that he wanted to continually develop new products in his field. While admitting his purpose was admirable, the panel unanimously advised him to bring his spending into line with the industry’s. The presenter ignored the advice; he failed to obtain the needed financing and eventually went out of business.
Once you accept the idea that you should satisfy the market and the investors, you face the challenge of organizing your data into a convincing document so that you can sell your venture to investors and customers. We have provided some presentation guidelines in the insert called “Packaging Is Important.”
Packaging Is Important
A business plan gives financiers their first impressions of a company and its principals.
Potential investors expect the plan to look good, but not too good; to be the right length; to clearly and cisely explain early on all aspects of the company’s business; and not to contain bad grammar and typographical or spelling errors.
Investors are looking for evidence that the principals treat their own property with care—and will likewise treat the investment carefully. In other words, form as well as content is important, and investors know that good form reflects good content and vice versa.
Among the format issues we think most important are the following:
The binding and printing must not be sloppy; neither should the presentation be too lavish. A stapled compilation of photocopied pages usually looks amateurish, while bookbinding with typeset pages may arouse concern about excessive and inappropriate spending. A plastic spiral binding holding together a pair of cover sheets of a single color provides both a neat appearance and sufficient strength to withstand the handling of a number of people without damage.
A business plan should be no more than 40 pages long. The first draft will likely exceed that, but editing should produce a final version that fits within the 40-page ideal. Adherence to this length forces entrepreneurs to sharpen their ideas and results in a document likely to hold investors’ attention.
Background details can be included in an additional volume. Entrepreneurs can make this material available to investors during the investigative period after the initial expression of interest.
The Cover and Title Page
The cover should bear the name of the company, its address and phone number, and the month and year in which the plan is issued. Surprisingly, a large number of business plans are submitted to potential investors without return addresses or phone numbers. An interested investor wants to be able to contact a company easily and to request further information or express an interest, either in the company or in some aspect of the plan.
Inside the front cover should be a well-designed title page on which the cover information is repeated and, in an upper or a lower corner, the legend “Copy number______” provided. Besides helping entrepreneurs keep track of plans in circulation, holding down the number of copies outstanding—usually to no more than 20—has a psychological advantage. After all, no investor likes to think that the prospective investment is shopworn.
The Executive Summary
The two pages immediately following the title page should concisely explain the company’s current status, its products or services, the benefits to customers, the financial forecasts, the venture’s objectives in three to seven years, the amount of financing needed, and how investors will benefit.
This is a tall order for a two-page summary, but it will either sell investors on reading the rest of the plan or convince them to forget the whole thing.
The Table of Contents
After the executive summary include a well-designed table of contents. List each of the business plan’s sections and mark the pages for each section.
Even though we might wish it were not so, writing effective business plans is as much an art as it is a science. The idea of a master document whose blanks executives can merely fill in—much in the way lawyers use sample wills or real estate agreements—is appealing but unrealistic.
Businesses differ in key marketing, production, and financial issues. Their plans must reflect such differences and must emphasize appropriate areas and deemphasize minor issues. Remember that investors view a plan as a distillation of the objectives and character of the business and its executives. A cookie-cutter, fill-in-the-blanks plan or, worse yet, a computer-generated package, will turn them off.
Write your business plans by looking outward to your key constituencies rather than by looking inward at what suits you best. You will save valuable time and energy this way and improve your chances of winning investors and customers.
- SR Mr. Rich has helped found seven technologically based businesses, the most recent being Advanced Energy Dynamics Inc. of Natick, Massachusetts. He is also a cofounder and has been chairman of the MIT Enterprise forum, which assists emerging growth companies.
- DG Mr. Gumpert is an associate editor of HBR, where he specializes in small business and marketing. He has written several HBR articles, the most recent of which was “The Heart of Entrepreneurship,” coauthored by Howard. H. Stevenson (March–April 1985). This article is adapted from Business Plans That Win $$$ : Lessons from the MIT Enterprise Forum, by Messrs. Rich and Gumpert (Harper & Row, 1985). The authors are also founders of Venture Resource Associates of Grantham, New Hampshire, which provides planning and strategic services to growing enterprises.
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How to Write the Management Team Section of a Business Plan
Reassuring potential investors and clients that your company is managed by qualified experts is just as crucial to your overall business plan as being able to present solid financials and marketing strategies. Once a business launches, it needs an experienced management team to carry out the written plans. Your business plan's management section must be written to convince others that you do have a solid team to manage your business.
Management Structure
The business plan should explain who is responsible for the specific areas of your business structure. While titles and management areas vary depending on your industry, the basics are the same for all businesses. You need someone who is ultimately responsible for the entire business, generally a chief executive officer or general manager. You also need to identify positions and the personnel who will fulfill the duties for those positions -- for marketing, accounting and personnel management. The positions and their hierarchy should be presented in a visual, such as an organizational chart.
Management Team Qualification Summary
Once you have your management structure established, present the qualifications of each management team member. Start at the top of the organizational chart and write a summary of each person's experience and background. Include educational history and any awards or certifications earned. Writing a summary enables your reader to quickly identify the qualifications of the individuals involved in the management of your business.
Management Team Résumés
Include detailed résumés to back up the information you have presented in the qualification summary section. While many business plan reviewers prefer to have the information presented in a brief, easy to read format, other reviewers want to see the details of dates, employers and specific responsibilities that are listed on your managers' résumés. Format the résumés so they are consistent with the format of the rest of your business plan. Do not simply cut and paste from the résumés your team members submitted when they first applied for their job with your company.
Board of Directors
When writing the management section of your business plan, include the names and qualifications of your board of directors. Although the daily business tasks will be the responsibility of the management team that you have identified and described in the previous sections, the board of directors will oversee your business decisions. If you do not have a formal board, include an advisory committee or a similar informal group of expert advisers that can provide guidance and oversight to the management of your business.
- U.S. Small Business Administration: Create Your Business Plan
- Entrepreneur: Elements of a Business Plan
Pat Fontana began her career in 1981. Her extensive experience includes work in small business, entrepreneurship, marketing communications, adult education and training. She has written for Entrepreneur, Atlantic Publishing and other clients. Fontana earned a Master's degree in English with a concentration in Technical and Professional Communications from East Carolina University.
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Management Team Gaps · Founder, CEO, and/or President · Chief Operating Officer · Chief Financial Officer · VP of Sales · VP of Marketing · VP of Web Development and/
A management team business plan is a section of a proposal that indicates the credentials and expertise of a team of managers in a company. Its
But if there's one section of a business plan that may carry the greatest weight with lenders, investors and potential strategic partners, it's the management
When developing a business plan, the 'management section' describes your management team, staff, resources, and how your business ownership
But putting work into the Management Team section will not only benefit people who may read your plan. It will also help you evaluate the skills
How do you write the management team section in business plan? · Collect Manager Resumes · Group Employees in Categories · Introduce Key people.
Management Summary. Our management team is comprised of people with many years of experience in the long-term care provider and software development
The Management Team Gaps · Founder and/or, CEO · Chief Technical Officer (CTO) · Chief Marketing Officer (CMO) · Chief Operating Officer (COO)
The business plan admits the entrepreneur to the investment process. ... believe companies with fully developed products and proven management teams should
Once you have your management structure established, present the qualifications of each management team member. Start at the top of the organizational chart and