Executive Summary 101: More than Just a Summary By: Adam Hoeksema August 2010 www.theexecutiveplan.com www.theexecutiveplan.com Welcome! I wanted to start by giving you a little bit of background on my experience. As a freshman in college I entered a business plan competition. I had no idea what I was doing, but I read a lot of material about business planning and I took my amateur idea and made a business plan out of it. I am not sure if the judges felt sorry for me, but they sent me forward from the executive summary round to the business plan round. After writing and submitting a 40 page business plan, I ended up being one of five finalists. The finalists presented and to my surprise I won The Best Undergraduate Award. This launched my “career” as a consultant. While I was still a full-time college student, for the next three years I had the opportunity to write numerous business plans, feasibility studies, marketing plans, and sales and distribution plans. My clients included: • Student Owned Businesses – One student that I assisted leveraged his business to be accepted as an MBA student at Harvard University • Local Governments – Economic growth council business plan • Universities – Business plans and feasibility studies for new programs • Non-profit Organizations – Business plans and feasibility studies for new revenue generating programs I had so much fun working with these small and big businesses as we tried to find creative new ways to do business. After graduation I was able to secure the perfect job at a technology based business incubator. This allowed me to assist exciting technology-based businesses each and every day. Over the years I have become a believer that the Executive Summary is the key to success in so many areas of business. When you need a loan, investors, a grant, maybe internal funding from your corporation, or even when you are attracting new clients, a powerful executive summary of your business is absolutely essential. So lets get started! Adam Hoeksema Founder – ExecutivePlan www.theexecutiveplan.com You have 2 pages. Two pages to compel your readers to ask for more. The reader will then be able to dig into your business plan, loan application, or funding request to find those answers. A successful Executive Summary is so much more than a summary – in fact, if you are starting with the intent to summarize your document you are setting yourself up for failure. Have you ever walked out of a movie saying, “Wow that was nothing like the movie preview. I thought it would be much different.” Clearly the movie preview was effective because you went to see the movie. A great movie trailer leaves you curious. You want to know more. They don't give away all the secrets or all the twists in the movie. In the same way, your executive summary should do just enough to leave the reader curious. It should not be a “summary” of the entire business or project. If a reader determines that in two pages they have a good understanding of your entire document, they have no incentive to read on or ask more questions. There are dozens of reasons you may need to write an executive summary, but for the sake of simplicity this report will cover three of the most common reasons for writing an executive summary. Loan applications. Attracting Investors. Business Plan Competitions. Before I discuss the unique characteristics that your executive summary should possess for each of these three cases, I want to borrow from famous author, speaker, and venture capitalist Guy Kawasaki's blog article “The Art of the Executive Summary”. The article is written by Kawasaki's colleague, Bill Reichert. He provides an incredible generic summary and outline for your executive summary. Let me explain this outline in my own words. The main sections are as follows: • The Grab • Big Problem • Unique Solution • Market Potential • Unique Selling Proposition • Management Team • Financial Projections • Request www.theexecutiveplan.com The Grab – This section does not actually have a title, but it is probably the most important part of your entire executive summary. In two or three sentences you should tell the reader why your business is special. Maybe you have Michael Jordan as a customer and he has promoted your product on twitter for free. Maybe you just signed a partnership with Google. Maybe you were just awarded a patent, or maybe you just made your first big sale. Whatever it may be, ask yourself “so what.” If it sounds reasonable to say “so what,” then you didn't do an adequate job. Obviously if you just signed a partnership agreement with Google no one would say “so what” so grab their attention. Big Problem – The first ingredient of a good business idea is a Big Problem, so explain the Big Problem that your product addresses. For instance, there is too much traffic in Chicago and everyone hates traffic. Everyone in the room should be saying “yeah I hate that.” Unique Solution – The big problem is the easy part. Now you have to convince the reader that you have come up with a unique solution to the big problem. If you have these two ingredients you have a good business idea. Maybe you developed a new traffic control system that will save one minute for every person in Chicago each day during their commute. One minute each day is valuable when you are talking about a couple million people. Market Potential – Elaborate on the big problem by providing stats for your industry. How much is spent annually on similar products or services and how fast is it growing. Maybe you operate an in-home health care company. With all of the health concerns brought about by aging Baby Boomers, you have a large market potential with a rapidly growing market. Unique Selling Proposition – This is where you elaborate on your unique solution. What specifically gives your product or service an advantage over the competition? Maybe your home health care service actually sends doctors to the home instead of just nurse practitioners, or maybe you guarantee same day visits so that you don't have to schedule ahead of time. Just point out why you are special. Management Team – Depending on what industry you are in, this can be one of the most important parts of your executive summary. Regardless, your investors or bankers are putting trust in the team, not the idea. Ideas are easy to come by, but executing on those ideas can only be accomplished through a strong team. Quickly show why your team has the experience and knowledge to execute your business plan. Financial Projections - Based on your market, your business model, and your historical performance, you need to develop a bottom-up financial forecast. If your plan is for a group of investors, don't spend too much time on this section because they know that you have no idea how much money you might make. Investors typically won't make a go / no-go decision based on your financial projections. They will essentially make their own financial projections. That being said, you should have some sort of graph or table with current sales and projected sales going forward for at least three years. www.theexecutiveplan.com Request – Now it is time to request either an investment, loan, grant or sales contract depending on the purpose of the executive summary. You should restate why your company provides value. Remind the reader of the big pain that you are solving and your market potential. Finally reemphasize your team and its ability to get the job done. Ask for the dollar amount that you need to reach the next major milestone for your business. Don't disclose how much equity you are willing to give up or what interest rate you are willing to pay. This should be done later through face to face negotiation. I recommend that you start by writing your executive summary following this exact outline. This will give you a great base to start from each time you need to write an executive summary for a new audience. For each new audience, you will need to analyze their specific needs and consider what they are looking for from your executive summary. Now let's look at how you should re-position your executive summary for each of three different audiences: Bankers, Investors, and Business Plan Competition Judges. Loan Applications If you are a small business owner or a small business consultant you have undoubtedly applied for or at least considered applying for a small business loan. With the economy inching its way to a recovery, lending to small businesses is still unbelievably low. Due to the increased demands for small business loans and the lack of banks supplying these loans, competition is at an all-time high. Your loan application must stand out from the crowd on all fronts in order to be considered for a loan. Audience Analysis - Bankers Bankers. Do you ever wonder why you see so many bankers out on the golf course on Friday afternoons? It is because they are not reading your entire 40 page business plan. In all likelihood they took 15 minutes to look at your loan application, maybe a bit more or less depending on the size of your loan request. They are not digging into the details of your business plan so if you want to stand a chance at securing a small business loan you need to have a short and powerful executive summary. www.theexecutiveplan.com Bankers will also want to see that you have some “skin in the game”, which means that you have invested your own time, sweat, and capital into the business. Because bankers can be picky in these economic times, they will also probably want to see some level of positive earnings and earnings growth. They will want see that you have some working capital already. If you are currently running on fumes and have no working capital for your business, it may be a difficult sell for most bankers. They will also want to see how well you manage the resources that you do have. If you can show that you have leveraged a $10,000 initial investment to create a profitable, thriving small business, you will have demonstrated your ability to manage the loan resources they may give you. Last but certainly not least, bankers are concerned with collateral. They simply want to make sure that if your business does not go as planned and ends up bankrupt or defaulting on the loan, they will still be able to recoup their loan investment. This is difficult for many small business owners, but by allowing bankers access to your assets as collateral you are significantly improving your chances of securing a loan. So to recap, your banker is probably looking for: 1. A short, power packed executive summary 2. Loan applicants with skin in the game 3. Positive earnings and earnings growth 4. Current working capital 5. Positive resource management track record 6. Collateral In this scenario you may use your financial projection segment to note the 5 key financial issues that bankers are primarily concerned with. For instance, you may want to show a small table with the basics of your balance sheet: Then simply state that your balance sheet demonstrates your access to working capital and your fixed assets can serve as collateral. Balance Sheet Current Assets $300,000.00 Fixed Assets $1,000,000.00 Current Liabilities $150,000.00 Long Term Liabilities $300,000.00 Owner's Equity $850,000.00 www.theexecutiveplan.com Bankers understand a balance sheet so you don't need to waste your time or theirs by explaining it. Just state what they want to hear. This is just one way that you can edit your executive summary to improve your chances of securing a small business loan to take your business to the next level. I don't want to assume that you know where to look for these investors. Below I have provided you with the best resources for finding angel investors Directory of active angel investors - http://www.angelcapitalassociation.org/ Education and angel investor directories - http://www.angelcapitaleducation.org/ Angel investors are typically for earlier stage companies, and as the company shows promise venture capitalists may step in to further capitalize the business. A venture capital firm is essentially interested in one thing: exit strategy. A venture capitalist wants to know how to invest in your business and then exit as quickly as possible with the highest possible return. The Top 100 Venture Capital Firms for Early Stage Start-ups - http://tinyurl.com/2evfnw5 The Top 100 Venture Capital Firms for Later Stage Companies - http://tinyurl.com/2754yqd Attracting Investors You have sucked your friends and family dry asking for investments in your small business, and now you need another round of financing. It may be time for you to look into attracting an angel investor or maybe even a venture capitalist to infuse new life into your business in the form of a capital investment. Before we dive into the art of crafting an effective executive summary for attracting potential investors, I have a couple of resources for you. www.theexecutiveplan.com Again we start with an audience analysis. Investors are a diverse group. For instance, you may find an angel investor that is a doctor with more money than they know what to do with, but little understanding of business. You may also find an angel investor that made a good living in your industry niche that is looking to help other entrepreneurs in their specific area of expertise. Finally you may find angel investor groups that are looking to invest in various industries and even have a process set up for identifying investments that they are interested in. When it comes to venture capitalists, I don’t want to say they are all the same, but you will find far less diversity between venture capital firms than you will between angel investors. Investors have a very different mindset than bankers. Primarily an investor is not concerned with collateral because if you go bankrupt they are simply out of luck. Investors understand they are taking a risk by investing in a small business and are not as concerned with your collateral. So from the perspective of your executive summary, investors want to see a few things. To demonstrate this I will compare investors to sharks. The following section identifies the three things that an investor and a shark seek: 1. Blood = The Grab – Initially blood in the water will attract a shark. Similarly, what is often called “The Grab” will attract investors through your executive summary. The Grab is the first paragraph or couple sentences that entice the investor. Maybe it is the big account you just landed, or the new advertising campaign with a famous actor as your spokesperson. The Grab should get investors to raise their eyebrows and think maybe this is worth looking into. 2. Easy Prey = Easy Business Model – Sharks are looking for easy prey. For instance, they don't often mess with a dolphin or a whale because they are just too difficult to make use of. Similarly investors are looking for an easy to understand and easy to implement business model. There are complicated business models that are successful, but the average investor just wants to make money the easiest way they know how. 3. Meat = Sound Financials – A small fish might interest a shark and be easy prey, but ultimately a shark wants some meat. Investors also want some meat, or sound financial projections. A seasoned investor will take your financial projections with a grain of salt, because it is difficult to predict what will happen tomorrow, let alone what will happen 3 to 5 years from now. Investors will concentrate on whether your assumptions are logical and well thought out. They want to determine your competence level, not your ability to predict the future. So keep these three things in mind when you are fishing for sharks or fishing for investors. Now to look at a specific example of something you can do to improve your executive summary before presenting to investors, consider the following: A reader wants to get a basic understanding of your business model from your executive summary. They need enough detail to understand how the business makes money, but don’t overload them with details. Now that you know where to find these potential investors, let’s look at how you can actually get their attention. Audience Analysis-Investors www.theexecutiveplan.com Think about Google, probably one of the most difficult and diverse business models in the world, but if Google were seeking investors they would probably say, “we make money by bringing the right information, to the right people, at the right time” That is in a nutshell how Google’s primary advertising business makes money. That one line gets to the point of the business model, it is easy to understand, and it is somewhat intriguing to the reader who might want to know more. Try to breakdown your business model into a one sentence statement that describes how you make money. Keeping it simple is what investors want to see these days. So as you write your executive summary for a potential investor keep in mind that all investors want: 1. A Compelling Grab 2. An Easy Business Model 3. Sound Financial Projections Now that we have looked at the executive summary from both a banker’s and investor’s point of view it is time to move on to the final group of potential readers for your executive summary. I have personally participated in a business plan competition while I was a freshman in college. I actually won the Best Undergraduate Award and a bit of start-up money for my idea. Let me tell you that my idea was nothing special, but I successfully positioned my executive summary in the first round, my business plan in the second round, and my 15 minute PowerPoint presentation in the final round to sway the judges in my favor. I truly believe that the positioning and presentation of my idea were far more important than my business idea itself. First I want to point out a couple of great resources for you if you are interested in entering a business plan competition: http://www.bizplancompetitions.com/ - Find all the legitimate business plan competitions throughout the United States. This website provides a wonderful calendar that notes all of the competition deadlines. http://istart.org/ - This is a new site that actually allows business plan competition administrators to organize and run the competition through the tools provided on the website. Additionally, you can find business plans from various competitions around the world and discover businesses that may be looking for investment. Business Plan Competitions www.theexecutiveplan.com So back to the task at hand, if you are considering entering a business plan competition, you must master your executive summary first. In most competitions your executive summary will be the first stage of the competition. Typically business plan competitions have two or three rounds, and the executive summary round is used to weed out the wannabes from the legitimate contenders before you get a chance to actually present your business plan or a short elevator pitch in front of a panel of judges. So again we need to start by analyzing your audience. Business plan competitions are difficult because a good competition organizer will bring together judges from varying backgrounds, ages, genders etc. This will probably keep you from targeting your executive summary toward one group of people, instead you have to take what you have been given. Most competitions will have a set of guidelines. They may even publish a judging criteria for you so that you know what aspects to focus on. How can you ensure that your executive summary stands out in a business plan competition? 1. Quotes from Experts 2. Disclosure of Client lists 3. Disclosure of other Credible Investors Quotes from industry experts can give your business credibility. Maybe you are developing a medical device to assist the elderly in getting in and out of bed, and you have a quote from a distinguished doctor or maybe the CEO of a large nursing home chain that gives credibility to your claim that there is a need for this type of device. If they provide you these details you should start there because you can rest assured that there will always be a few people on the judging panel that will go down the published judging criteria list and score you directly from that. So there is no sense in costing yourself points before you even start because you did not follow the judging outline. You should also understand that many of the judges will probably throw the criteria out the window and judge based on their own perceptions. You need to spice up your executive summary in a business plan competition - especially if they provide a specific criteria for judging. Audience Analysis - Business Plan Competition Judges www.theexecutiveplan.com Listing a major client or a couple of well-known clients in your industry is also a great way to stand out. Using the medical device example, maybe you have developed a prototype that a nursing home chain with 10,000 beds is currently using on a test basis for just a few of their residents. Again, disclosing this client gives your product or service credibility in the eyes of the judges and will immediately ease concerns they may have had. Finally, if you already have acquired an investor or investors for your business, the judges will look at the plan with a more positive outlook simply because someone else believed in you enough to hand over some cash. I did say credible investor though, so if you say that your rich uncle in California gave you $15,000 to develop your prototype, that is almost meaningless. However, if a wealthy doctor that works with the elderly gave you $15,000 to develop a prototype, now you are starting to raise some eyebrows. So again, in a business plan competition and with any executive summary you need to establish credibility early. You can accomplish this task by quoting industry experts, naming clients, or disclosing other current investors in your business. Recap Your executive summary is so much more than just a summary. It is your one chance to make a powerful first impression. It is your chance to intrigue the reader. My suggestion for you is to write one business plan and then write a number of executive summaries that are used for various situations, because as we saw above, bankers, investors, and competition judges will undoubtedly have varying expectations from your executive summary and business plan. I hope this guide provided you with the additional insight and tips you need to craft a powerful executive summary. There are a number of additional resources for you on my website www.theexecutiveplan.com, also make sure to follow me on Twitter @ExecutivePlan. I truly hope that something I mentioned will positively impact your business, and I look forward to interacting with you through comments on my website, on Twitter, or even personal emails at adam.hoeksema@gmail.com Thanks for reading! – ExecutivePlan www.theexecutiveplan.com