Business Plans
Most Common Mistakes
© 2000,
by Daniel M. McGilvery
1.Too Much Information
When is a 25-page
business plan better than a 200-page business plan? The answer
is - always.
Most investors
have a mental checklist of half dozen or so specific points that
they look for in a business plan. Everything else just gets in
the way and the last thing they want to do is wade through pages
and pages of tedious and often extraneous narrative. Long complex
paragraphs that fill up half page are about as welcome as Mike
Wallace knocking on your door.
The purpose of
your plan is not to impress the reader with the depth and extent
of your knowledge. Your objective is to focus on the key elements
of the plan and make your case as succinct and as straight forward
as possible. If you have pages of information that you just can't
bear to part with, put them in the back of the plan under an
addendum and reference the information in the body of the plan.
The reader then has the option of reviewing this information
if they think it's sufficiently important.
2. Hiding Weaknesses
One of the more
difficult aspects of writing a good business plan is effectively
dealing with problems or weaknesses - and every business has
them. Here are some of the more common theories offered by unsuccessful
plan writers.
- Why draw unnecessary
attention to a negative
- If we ignore
the weaknesses, they may go away
- Once we get
funding, we can deal with the problems
- What they (investors)
don't know won't hurt them
- It works for
Tony Robins
Clearly you want to put your best foot forward but ignoring or
glossing over a negative issue simply because it doesn't help
your cause is potentially very damaging and is very often fatal.
Like a heat-seeking missile, if there is a weakness in your product,
service or strategy, the savvy investor will find it and probably
within the first ten minutes. Once this subterfuge is uncovered
and it is obvious to everyone that you haven't been completely
forth-right, the natural question in the mind of the investor
is "what else haven't you told me." When you've lost
this element of trust, you've lost the opportunity.
The best way
and really the only way of properly handling problems and weaknesses
is to get then out in the open and to have a detailed and well
thought out action plan that effectively addresses these problems.
3. Distribution Channels
The portion of
your plan that deals with channel strategies is fraught with
potential landmines especially if you don't have a thorough understand
of distribution. How your product reaches the market is unquestionably
one of the most important aspects of your business plan and your
ability to effectively articulate this strategy is critical.
At all costs, resist the normal temptation to cover all bases
by listing every imaginable channel possibility.
"We will
market our widgets via Internet, catalogs, distributors value
added resellers, infomercials, wholesalers, direct mail, agents,
direct field sales, telemarketing, retail outlets and - oh yes
smoke signals in selected areas."
What this tells
the investor is that you don't have a channel strategy.
4. Competitive Analysis
The operative
word here is "analysis." Listing the name and address
of your competitors is NOT a competitive analysis. The investor
is interested in knowing what you expect to see from your competitors
near term and longer term; what is their strategic direction,
their core competencies and what makes them tick. Why do customers
buy from them. Is there a possibility that they might enter into
strategic relationship or an acquisition (or be acquired) and
by whom. How good is their sales and support organization. What
is their funding position. What are their weaknesses and can
they be exploited. Knowing little or nothing about your competition
is evidence that you haven't done your homework. While it may
not be fatal blow, it certainly doesn't help your cause.
5. Legal Entanglements
Investors today
are very conscious of potential legal problems that may be lurking
around the corner. If they like your plan they will conduct their
own due diligence but the time to address any potential legal
problems is during the plan review. Here are some questions to
ask yourself if you're not sure:
- Was your product
developed while you were employed somewhere else
- Are there any
potential employment contracts or non-compete conflicts
- Is there any
possible patent infringement
- Are there any
disgruntled former employee(s) who could sue your company
- Is there clear
ownership of your product or service
If you have doubts about any of the above questions, it's probably
a good idea to have an attorney review and resolve the issue
before you meet with an investor. A good rule of thumb is that
you want to avoid surprises - at all costs.
6. Assessment of Risks
Risks are different
than weaknesses in that they deal with the future and are normally
outside the realm of your business. What market forces are there
that could prevent your plan from being successful in the future.
Some common sense should lead you through this exercise. I would,
for example, leave out world wars or Armageddon but I would consider
the possible impact of new technology, legislative issues, changes
in consumer demand and a variety of other issues that could negatively
impact your business.
7. Financial Projections
You're sitting
across the conference room table from your prospective investor.
He's just finished reading the executive summary and he's already
skipped ahead to the financials. Then he looks at you and asks:
"What do
you have to substantiate these numbers?"
Dead silence.
Sweat is starting to accumulate on your upper lip. You glance
over at your finance guy who shrugs his shoulders as if to say
"hey, I'm just the messenger."
"Well, ah
- ah - ah - our projections were based on our analysis of the
market, competition and what we feel are the advantages of our
product line."
"Okay then,
show me your analysis."
Here's a tip.
If you're expecting an investor to commit funding for your business,
chances are they will expect more than just your best guess.
There is undoubtedly a strong correlation between the amount
of research data that you have to support your projections and
the likelihood of success is securing funding. This doesn't necessarily
mean that you need to spend months and thousands of dollars on
focus groups, surveys and market research. What it does mean,
however, is that you should have and be able to provide some
rationale for how your projections were put together.
- Daniel M.
McGilvery
is the President and Managing
Partner of The
Business Planning Institute.
BPI provides professional
business plan writing and review services. Contact BPI at 561-689-7980
or dmcgil@mindspring.com.
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