Question

Question 1: Writing a Business Plan

Demonstrate why the "management team and company structure" section of the business plan is often given disproportionate weight among investors? Highlight 3 potential issues that can arise when this occurs.

Answer:  

• Investors read more business plans with interesting ideas and exciting markets than they are able to finance.
• As a result, it's often not the idea or market that wins funding among competing plans, but the perception that one management team is better prepared to execute their idea than the others.

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Answer 1

Ans

Investors give "management team and company structure" higher weighage while selecting business plans to invest. This is because of following reasons:

a) Trust in the capability and integrity of the team is extremely important and the investors would like to give money where they are confident about the team's capability to execute its plans.

b) Very often teams pivot around ideas after getting feedback from the market and with deeper understanding of the needs of the clients. The team can still make good on the money already invested by utilizing the learnings from the experience. At the pivot juncture it is the team that matters and not the idea.

c) At any given time multiple teams are working on the same ideas and the differentiating factor among them is the capability of the team members and their structure.

the 3 potential issues that can happen in giving higher weighage to team members are:

a) Investors can lose out on some brilliant idea where the entrepreneur has not invested time on building the idea

b) Some ideas are owner driven and need not require a great team to execute. An example could be innovative product or medical breakthrough that only the proposer of the idea has the patent.

c) Many startup fail when the timing of the idea is not right. Thus there are other Criterias that need to be given importance too.