The Importance of Executive Summaries
While typically just a page or two in length, an effective Executive Summary can take as long to write as the rest of the business plan – and it can be just as important, if not more so. We emphasize the significance of the Executive Summary for one reason – there is a good chance that a potential investor may not read beyond those opening paragraphs.
The dirty little secret of business plans is they are rarely read cover-to-cover. In fact, after reading the highlights from the Executive Summary, most receive a cursory flip-through. While a few interested parties may stop at the financials or read the management biographies, most are only interested in the “Cliffs Notes“ version up front. Those plans that are read in their entirety are likely in the final stages of the due diligence process, or possibly a competitive bid situation amongst a group of potential investors.
In general, an effective Executive Summary should be no longer than two pages. However, depending on the complexity of the underlying business (e.g., a highly technical or scientific endeavor), an additional page or two may be necessary. Regardless, the contents should be clear and concise, and it should draw in a potential investor; they should want to learn more.
Striking the right balance is a challenge and one that can be daunting. In our view, creating an effective Executive Summary is one part art and one part science. It is not a matter of word count, but the RIGHT information needs to be there to have any hope of getting the savviest investment professional to pay attention.
While most investors keep an open mind, some look for reasons to eliminate business plans. They scrutinize elements they believe are indicative of how you might allocate and manage their investment dollars. It is for this purpose that we emphasize the importance of the Executive Summary. It is the written equivalent of a high stakes elevator pitch.
Business plans can be eliminated for countless reasons. In fact, we dedicated an entire narrative to that very subject (reference Common Reasons Business Plans Get Rejected).
Failure at the Executive Summary level typically comes in three forms:
- Overlooking or ignoring key elements an investor needs to know up front.
The telltale sign a summary is over-selling is excessive verbiage and a lack of white space. Novice business plan writers often drift into this trap. Driven by emotion and excitement they feel compelled to convey as much as possible up front believing it is all critical, and it may be the only opportunity the information will get read. The result of over-selling can be sensory overload for a potential investor and a trip to the recycle bin for the plan.
Under-selling is, of course, the opposite dilemma we stumble upon and is often a function of uncertainty. A business plan may have all the necessary components spelled out, but the Executive Summary lacks the requisite detail and fails to generate enthusiasm for the idea.
Overlooking elements such as what the product or service solution is, what the risks are, or failing to identify the market opportunity does not happen often; but when it does, the result is often detrimental. Outside of over-selling, this is probably the second most annoying problem for an inquisitive investor as it creates confusion and uncertainty.
While business plans can be eliminated for countless reasons, a poorly organized and presented Executive Summary is perhaps the most frustrating. A useful summary should convey most everything an investor needs to know in a clean, concise manner. It should entice the reader to continue reading or, better yet, take a meeting/conference call. In short, a proper Executive Summary should express the essential elements without laboring in minutia.