Every business should have a business plan. Unfortunately, despite the fact that many of the underlying businesses are viable, the vast majority of plans are hardly worth the paper they’re printed on.
Most “bad” business plans share one or more of the problems outlined in previous post here (1-5) or below (6-10):
6. The plan makes unfounded or unrealistic assumptions. By their very nature, business plans are full of assumptions. The most important assumption, of course, is that your business will succeed! The best business plans highlight critical assumptions and provide some sort of rationalisation for them. The worst business plans bury assumptions throughout the plan so no one can tell where the assumptions end and the facts begin. Market size, acceptable pricing, customer purchasing behaviour, time to commercialisation – these all involve assumptions. Wherever possible, make sure you check your assumptions against benchmarks from the same industry, a similar industry or some other acceptable standard. Tie your assumptions to facts.
7. The plan includes inadequate research. Just as it’s important to tie your assumptions to facts, it’s equally important to make sure your facts are … facts. Learn everything you can about your business and your industry – customer purchasing habits, motivations and fears; competitor positioning, size and market share; and overall market trends. You don’t want to get bogged down by the facts, but you should have some numbers, charts and statistics to back up any assumptions or projections you make. Well-prepared investors will check your numbers against industry data or third-party studies – if your numbers don’t resonate with their numbers, your plan probably won’t get funded.
8. There’s ‘no risk’ involved in your new venture. Any sensible investor understands there’s really no such thing as a “no risk” business. There are always risks. You must understand them before presenting your plan to investors or lenders. Since a business plan is more of a marketing tool than anything else, I’d recommend minimising the discussion of risks in your plan. If you do mention any risks, be sure to emphasise how you’ll minimise or mitigate them. Be well prepared for questions about risks in later discussions with investors.
9. There’s no competition. It’s absolutely amazing how many potential business owners include this statement in their business plans: “We have no competition.”
If that’s what you think, then think again! Every successful business has competitors, both direct and indirect. You should plan for stiff competition from the beginning. If you can’t find any direct competitors today, try to imagine how the marketplace might look once you’re successful. Identify ways you can compete, and accentuate your competitive advantages in the business plan.
If there genuinely is no competition, then you need to address why nobody else is doing this. If you think there’s a gap in the market then demonstrate that there’s a market in the gap.
10. The business plan is really no plan at all. A good business plan presents an overview of the business now, in the short term, and in the long term. However, it doesn’t just describe what the business looks like at each of those stages; it also describes how you’ll get from one stage to the next. In other words, the plan provides a “roadmap” for the business, a roadmap that should be as specific as possible. It should contain definite milestones – major targets that have real meaning for your business. For instance, reasonable milestones might be “signing the 100th client” or “producing 10,000 units of product.” The business plan should also outline all the major steps you need to complete to reach each milestone.
Next time I’ll look at some of the steps you can take to avoid these.