Business plans are like a compass—they point the way for the company and explain the business to the investor. Yet, business plans can tell the wrong story and may even kill the deal with the investor.
Here are some examples of business plan blunders to avoid:
- Lousy Writing: Nothing kills a plan more quickly than poor grammar, incorrect punctuation, and spelling errors. Enough said.
- Target Market Poorly Defined– A product that fits everyone is a prescription for disaster. Don’t go there. Be very specific in your definition of your customer.
- Incomplete Plan: Missing key elements or an incomplete plan tells the reader that the plan is half baked or not well thought out.
- Too Technical: An obsession with technical details often is done at the expense of the business model. The investor wants to know how the business will make money.
- Blue Sky Sales Projections: Although it is true that plans should be optimistic, a hockey stick growth curve needs to be backed up with strong assumptions and facts.
- Risk Unaddressed: Not addressing risk in the plan is a major flaw—bankers and investors want to know what the downside risk is in the plan.
- Ignoring the Competitive Environment: Ignoring or dismissing the competitive environment is a common blunder by business plan writers. Who is the competition and what do they do right and wrong?
- NDAs Required. Don’t obsess about confidentiality since most investors won’t sign a Non-disclosure Agreement anyway. You need to tell your story to as many people as possible.
- First to Market Claims: There are not many rewards for being first in a market; in fact, the opposite is generally true. Being first is very expensive and investors know this.
- Business-Speak: Say what you mean and leave the big words for the lawyers. Be deliberate and concise. Avoid business clichés such as “think out of the box.”
- Plan Too Long: The one inch thick business plan does not get read. Keep it below 50 pages.
- Business Plan Services: Don’t even consider the use of cheap business plan services which outsource to India or other exotic places. Very tacky.
- Business Plan Pre-made Templates: These templates are the pre-made plans you edit to fit your business. They are pure garbage. This is the domain of the lazy entrepreneur.
- Business Plan Software: I am not sure why but most business plan software programs are bug ridden. Be sure to double check the financials.
- Hidden Profits: Investors want to know how the business will make money and what the return on investment will be. Address it.
- Unclear Valuation and Exit Strategy: What is the cost of ownership and how will the investor get their money out? This must be spelled out clearly or there is no deal. If you avoid these pitfalls, your plan will be better than 95% of the others out there.
John Bradley Jackson
Director Center for Entrepreneurship
California State University, Fullerton