By William A. Sahlman, Harvard Business School.

This is only an executive summary, to order copies of the full article, contact Harvard Business School Publishing through its Web site: www.hbsp.harvard.edu or call 1-800-988-0886.

Every seasoned investor knows that detailed financial projections for a new company are an act of imagination. Nevertheless, most business plans pour far too much ink on the numbers and far too little on the information that really matters. Why? William Sahlman suggests that a great business plan is one that focuses on a series of questions. These questions relate to the four factors critical to the success of every new venture:

• The people
• The opportunity
• The context
• The possibilities for both risk and reward

The questions about people revolve around three issues:

• What do they know?
• Whom do they know?
• How well are they known?

As for opportunity, the plan should focus on two questions:

• Is the market for the venture's product or service large or rapidly growing (or preferably both)?
• Is the industry structurally attractive?

Then, in addition to demonstrating an understanding of the context in which their venture will operate, entrepreneurs should make clear how they will respond when that context inevitably changes.

Finally, the plan should look unflinchingly at the risks the new venture faces, giving would-be backers a realistic idea of what magnitude of reward they can expect and when they can expect it.

A great business plan is not easy to compose, Sahlman acknowledges, largely because most entrepreneurs are wild-eyed optimists. But one that asks the right questions is a powerful tool. A better deal, not to mention a better shot a success, awaits entrepreneurs who use it.

Reprinted by permission of Harvard Business Review "How To Write A Great Business Plan," bt William A. Sahlman, (July-August 1997). Reprint no. 97409. Copyright 1997 by President and Fellows of Harvard College; all rights reserved.