7 Business Plan Blunders You Need to Avoid
Most entrepreneurs write business plans because they have to — either to raise money from investors or to obtain a bank loan. But to successfully secure outside funding, your business plan has to be strong. Very strong. Because a business plan is a bit of a double-edged sword.
A strong, well-thought-out business plan can be a powerfully effective way to pitch your business to investors or banks so that they say, “Yes, please.” But a weak business plan can be your fastest route to a “No, thanks.”
You only get one shot at making a good first impression, and you don’t want to blow your big chance. So you need to know how to write a plan that avoids raising red flags, making investors and banks alike take an immediate pass.
Self-funding? You’re not off the hook.
Even if you’re bootstrapping and simply writing a business plan to use as an operating blueprint, you’re not off the hook. The same mistakes that turn off investors will present challenges for you down the road as you build and grow your business.
So, what do you need to avoid in your business plan? I’ll let you in on what to watch out for, and you can dodge these bullets before you put your plan in the hands of the people you want to impress.
1. Too much technical jargon.
If investors can’t understand what you’re saying, they’ll tune out and move on to the next guy. Words and phrases that may be automatically understood by people in your industry may be incomprehensible to the uninitiated, and investors are unlikely to invest the time and energy into trying to figure out what your jargon actually means.
So trim out all of the tech-speak you can on your own — and also consider running your plan by someone else to ferret out any bits that are too hard to decipher. I promise you there’s a way to effectively explain your concept while speaking plainly.
Another caution: Go easy on the latest buzzwords. If your business plan is filled with a slew of startup industry buzzwords, investors’ antennae go up. They’re likely to suspect that you’re using fancy words to hide a lack of confidence or expertise. You’ll be far better off writing a straightforward, easy-to-understand business plan in plain English.
2. Great idea, but not enough people willing to buy it.
You may have an absolutely incredible idea for what your business will be selling, but that’s no guarantee that there are enough customers willing to pay for it. The key question you need to answer is, “What problem am I solving for paying customers?”
There are many factors that go into a customer’s decision to purchase a product or service, and those factors are part of the analysis (and legwork) you need to tackle when you’re writing your business plan. You have to develop a clear, defensible rationale for why the value of your offerings is strong enough to persuade people to overcome inertia, pull the trigger and buy. You need proof that your concept will fly in the real world.
3. Too many generalizations.
Far too often, business plans are filled with superlatives, generalizations and over-the-top optimism — guaranteed red flags for a savvy investor who’s expected to put their money on the line. A lack of specifics in such a high-stakes transaction will turn off investors in a heartbeat.
If you’re addressing how you’ll approach a market problem in your business plan, discuss your specific solution(s). If you’re making claims, predictions or estimates, support your statements and back them up. Detail matters. More than you think.
4. No clear path to “how are you going to sell it?”
“If you build it, they will come” may have worked for Kevin Costner in Field of Dreams, but in the real world this kind of magical thinking isn’t going to get you money from investors or banks. No matter how good your mousetrap may be, the people with money won’t believe the world will beat a path to your door unless you can prove it.
Your business plan must clearly — and in enough detail to paint a believable picture — explain exactly how you’re going to reach your target customers to sell your product or service. The more well-thought-out your process for this, the more compelling your business plan will be.
5. Unrealistic assumptions.
A seasoned investor can spot unrealistic assumptions a mile away. Ignoring reality, sugar-coating expectations or simply assuming that things will work out exactly as planned isn’t going to cut it.
Another caveat: Your numbers need to support your story. For instance, you can’t talk about your elaborate marketing strategy without allocating the necessary funds in your financial projections!
All of this is equally true if you are self-funding and you’re the only one who will ever see your business plan. What good will it do for you to be unrealistic about your assumptions? The chickens will come home to roost sooner or later.
6. Competitive position can’t be defended.
You can have a great idea, but as I’ve said before, that’s not enough. Success is a magnet for imitators, and an easy-to-copy idea leaves you vulnerable. Investors will see that, so your business plan has to address it head on with a strategy for defending your position in the marketplace.
And before you start thinking that a patent is the answer, I’ll tell you now that a patent is only as strong as the size of the legal budget to defend it. And being first to market is no guarantee for maintaining market share, either.
Writing the executive summary first.
How can you summarize what you haven’t written?!
Your executive summary is the distillation of your full business plan. Done right, it communicates your vision in a clear, concise and compelling way. Done wrong, it leaves investors questioning whether you’ve really done your homework.
Writing a business plan is a process, and there are no shortcuts. As you write your plan, your concept will naturally evolve and take shape as you work through the details and issues, big and small, that are part of your business. In fact, this process is the most valuable part of business plans! The thought you put into it will show not only in the plan itself, but in your executive summary, your pitch and whenever you’re talking about your business. You’ll sound like you know what you’re talking about because you do.
So when it comes to writing your executive summary, you need to write it last and write it well — it’s the hook that will get you in the door and entice an investor to look deeper.
There’s a lot you have to “get right” in a business plan.
You need to nail a lot of things in a business plan — a great narrative, realistic financials, a well-thought-out operating plan and more. It takes time to make sure that you’re getting each part “right.”
But you also have to avoid getting key parts wrong. Remember, you only get one chance to win over any given investor or bank — and they’re a pretty skeptical bunch.
Fortunately, you can prevent the blunders and red flags because you know what to watch out for. Take care of these 7 things, and you’ll have a business plan that has a far better chance of persuading investors and bankers to take a closer look.
(And if you need any help writing your business plan, I can do that for you.)
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Tight budget? Check out my DIY Business Plan Kit.