This is a chapter that needs to be extremely comprehensive. An investor that had read through the executive summary and decided to continue reading now needs to have a thorough understanding of the business and its field of operations. Explain in plain words what it is that the product does or the service offers. Don’t be shy in elaborating. Remember that if the person reading had reached this stage, he is already interested.

1. Field of Operation – There is a distinct difference between the market in which the company intends to operate and its field of operations. A company might operate in the field of search engine marketing (SEM) but the market is still online advertising. Defining the field of operation allows differentiating between the business essence and global environment. Now is the time to focus the reader on exactly what it is that you intend on doing. This sub chapter need not be vague. 1 or 2 lines are enough to clarify it all.

Example: “The company deals with enhancing targeting abilities for advertisers and publishers alike, based on orthopedic variables calculated from user interaction”

2. Service Description – Some companies only provide services and not products, but all companies who provide products also deal with services. Everyone provides a service. Explain in detail the value that your clients will find in your service and offer some examples.

If it is a product and not a service that you intend on explaining, choose “Product Description” as your headline instead – Don’t hesitate in providing the reader with information about what the product does and how you do it. The more information you provide, the less questions, to which you thought the answers are clear, will emerge. Provide screenshots and images of the product (a picture is worth a thousand words). Explain the experience a user will have when using the product but refrain from explaining its benefits (this will be discussed later).

Example: “Kadooki’s clients, who choose use the Kadooki engine to enhance their targeting abilities, hence reduce advertising spending, and advertise their products or services through any advertising network that implemented the Kadooki Engine, gain a perceptual change of the online advertising world. Unlike old fashioned targeting techniques, such as geo-targeting and gender based targeting, the company deals with the gathering orthopedic data that enables an advertiser to better focus their online marketing campaign.

The conventional perception model of the advertising world is well known. A company pays for advertising a sum of X dollars. The advertising reaches millions of people out of which only a small percentage constitutes the actual target market, and an ever smaller percentage actually calls in for additional details. An actual sale will be made to very few people. Using the Kadooki engine, advertisers will target their market with simplicity and, simply, sell more”

3. Technology – If the product is technological in nature, discuss in brief the different elements used or required for the development process. There is no need to get into the fine details since they will be discussed in the due diligence phase of the investment.

Example: “In today’s rapidly changing world, the need for worldwide tracking options is a must. That is the reason why all three platforms were originally designed to be web based systems with advanced servers and high capacity. Ad serving technology needs to be scalable, reliable, redundant and effective. Peak traffic management is an issue by itself, which conforms to scalability. As of today, our servers are located in a server farm in North America, and include the following components: 1 Commodore 64 personal computer, 1 jar of soap, 2 cables and a prayer”

4. Business Model – This is probably the most important part of any business plan. Elaborate as much as you can about business essence of the company. In the previous sections you spoke of the product or service, gave a brief explanation of the market and where you position yourselves and now is the time to explain to the reader why you think the company has a solid financial reason to exist in a competitive market. Always keep in mind that the goal of any company is to provide revenue to share holders. Elaborate to the reader how you intend on making money without explaining a pricing model.

Important note: Every company needs a solid business model. This is by far the make or break point of any business.

5. Revenue Channels – It is important to have more than one revenue channel, otherwise the company might fall into the famous “Pareto” rule (essentially, don’t put all of your eggs in one basket). Try and locate at least three different revenue channels and offer a brief explanation of each. (For example: A company that develops software products may earn its money from selling the software, implementing it and supporting it).

This concludes part two of this blog series. Next week I will post part three that will cover the subject of “Market Analysis”. If you missed out on previous posts in this series, here is a link to the first post in the series (the intro) and a link to chapter one.

If you have any comments or feedback about this post, feel free to drop me a line at doron@dhconsulting.info and I will gladly answer all your questions.