Planning mistakes often involve too much information
In avoiding common planning mistakes remember business plans are not measured by weight. When is a 25-page business plan better than a 200-page business plan? The answer is always, small enough to do the job.
You will find that most investors have a mental checklist of five to ten 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 irrelevant words. Long complex paragraphs that fill up the half page are a turn-off.
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 in an appendix 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.
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One of the more difficult aspects of writing a good business plan is effectively dealing with problems or weaknesses even though every business has them. Here are some of the more common theories offered by unsuccessful plan writers.
- What the readers don’t know, won’t hurt them?
- 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.
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. 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. Once this deception is uncovered and it is obvious to everyone that you haven’t been completely straightforward, 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 them out in the open and to have a detailed and well thought out action plan that effectively addresses these problems.
Financial projections lead to planning mistakes
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?”
“Well, ah – ah – ah – our projections were based on our analysis of the market and what we feel are the advantages of our product line”. “Okay then, show me your analysis”.
If you’re expecting an investor to commit funding to your business, chances are they will expect more than just your best guess. There is a strong correlation between the amount of research data that you have to support your projections and the likelihood of success in 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, is that you should have and be able to provide some rationale for how your projections were put together.
Distribution channels can be costly planning mistakes
The portion of your plan that deals with channel strategies are fraught with potential landmines especially if you don’t have a thorough understanding of distribution. How your product reaches the market is unquestionably one of the most important aspects of a business plan and your ability to effectively articulate this strategy is critical. Resist the common temptation to cover all bases by listing every imaginable channel possibility.
“We will market our widgets via the Internet, catalogues, distributors value added resellers, infomercials, wholesalers, direct mail, agents, direct field sales, telemarketing, retail outlets and naturally smoke signals in selected areas”.
What this tells the investor is that you don’t have a channel strategy.
Underestimating your competition and competition leads to planning mistakes. 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 in the short term and longer term:
- What is their strategic direction?
- The number of resources they have, what are their strengths?
- What are their core competencies and what makes them tick?
- How good is their sales and support organisation?
- Why do customers buy from them?
- Competitors funding situation?
- What are their weaknesses and can they be exploited?
- What is the possibility that they might enter into a strategic relationship?
Knowing little or nothing about your competition is evidence that you haven’t done your homework. While it may not be a fatal blow, it certainly doesn’t help your cause.
Assessment of risks
Risks are different to weaknesses in that they deal with the future and are normally outside the sphere 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. Consider the possible impact of new technology, legislative issues and changes in consumer demand. There is a variety of other issues that could negatively impact your business, so if in doubt seek help from your advisor.
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 employees who could sue your business?
- 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 a solicitor review and resolve the issue before you meet with an investor. A good rule of thumb is that you want to avoid surprises for the investor. You want to give them confidence that you have not made any serious planning mistakes.
“You can’t outsource your planning creativity, but you can outsource a catalyst to help you”. Peter Sergeant
“When you are planning, if you want to make progress, never ever confuse activity with accomplishment”. Peter Sergeant