Tuesday, July 31, 2007

[business plans] mistakes to avoid

These things are all over the net but this is a summary of one of the best. If it seems facile and a bit Biz Admin 101, still, it's a handy reminder of the salient points.

As I'm currently involved in writing one of these, the advice is relevant to me:

Too Much Information

# Most investors have half dozen or so specific points that they look. Everything else just gets in the way so keep it to 25 pages.

# The purpose of your plan is not to impress the investor with the depth and extent of your knowledge but to focus on the key elements succinctly.

# If you have pages of information you must include, put them in the back as an addendum.

Hiding Weaknesses

# Effectively dealing with weaknesses is usually not addressed, on the grounds that what the investor doesn't know won't hurt him and anyway, we'll recover once the funds come in.

# That strategy doesn't work. Like a heat-seeking missile, if there is a weakness in your product, service or strategy, the savvy investor will find it within the first few minutes.

# Once this subterfuge is uncovered and it is obvious to everyone that you haven't been completely forthright, the next logical question 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 each problem.

Distribution Channels

# If you don’t have a thorough understanding of distribution, the portion of your plan that deals with channel strategies is fraught with potential landmines.

# How your product reaches the market is unquestionably one of the most important aspects. At all costs, resist the temptation to cover all bases by listing every imaginable channel possibility e.g. 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."

# This tells the investor is that you don't have a channel strategy.

Competitive Analysis

# The operative word here is "analysis." Listing the name and address of your competitors is NOT analysis.

# The investor wants to know what you know and expect to see from your competitors near term and longer term - their strategic direction, core competencies and what makes them tick.

# Knowing little or nothing about your competition is evidence that you haven't done your homework.

Legal Entanglements

# 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 of potential legal issues:

Was your product developed while you were employed somewhere else

Are there potential employment contracts or non-compete conflicts

Is there any possible patent infringement issues

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. You want to avoid surprises at all costs.

Assessment of Risks

# Risks are different to weaknesses in that they deal with the future and are normally outside your business.

# Are there market forces that could prevent your plan from being successful and if so, what are they?

# Possible impact of new technology, e-commerce, changes in consumer demand and a variety of other issues that could negatively impact your business should be investigated.

Financial Projections

# Can you answer the final question: "what data do you have to support these projections? Show me your analysis..."

# First, be prepared for this question because it will come up.

# There is a very strong correlation between the amount of research data that you have to support your projections and the likelihood of success in securing funding.

[From Daniel M. McGilvery, President of The Business Planning Institute ("BPI") . BPI provides professional business plan writing and review services. Contact BPI at 561-242-0429 or e-mail at info@bpiplans.com or visit our Web site at www.bpiplans.com]


Welshcakes Limoncello said...

Well, believe it or not, I once wrote a business plan AND got a bank loan on the strength of it! It was for a franchise I took on at one point and I look back and don't know how I managed it! I did do a lot of research and you are right that ANALYSIS is very important. In the end I decided that self-employment was not for me - it's too hard - and I admire anyone who can cope with it.

An Education Wasted said...

Never mind business plans, get on over to


to see what life is really like. The one I identify with is: "Mistakes - it could be that the purpose of your life is only to serve as a warning to others".

PS. The only business "plan" I ever wrote was to persuade my by-then ex-employer to pay my tuition fees for a course in librarianship, while I sank my large redundancy cheque and took out a Career Development Loan to pay for us to move as a family for a year while I completed the course.

I wish they had said no - it would have saved me from yet another broken dream. All I ended up with was a Dip.Lib., another 5 years of misery in the same grotty mortgaged flat that was already too small for a family of four, but with a mountain of debt I couldn't pay back.

I would have been far better off leaving school with three A-levels.

Welcome to the real world of broken dreams and shattered people.

Ruthie said...

Gosh darn, the business world confuses me.

Lord Trafalgar Rock Pigeon said...

Ruthie - it's meant to. Welsh - it's a pain. AEWS - a salutory lesson indeed.