Why Business Plans Fail

Pitfall #1: Making Financial Projections Too Aggressive

Many investors skip straight to the financial section of the business plan. It is critical that the assumptions and projections in this section be realistic. Plans that show penetration, operating margin and revenues per employee figures that are poorly reasoned, internally inconsistent or simply unrealistic greatly damage the credibility of the entire business plan.

Pitfall #2: Presenting Large, Generic Market Sizes

Defining the market size for a venture too broadly provides little to no value for the investor. For example, mentioning the trillion dollar U.S. healthcare or B2B markets are generally extraneous since no venture could reap $1 trillion in sales in either market. Rather, a more meaningful metric is the relevant market size, which equals the venture's sales if it were to capture 100% of its specific niche of the market.

Pitfall #3: Focusing Too Much on the Venture's Proprietary Technology

While proprietary technology is a significant factor in investment decisions, it is much more important to show how this technology satisfies a large, unfulfilled customer need. Many unsuccessful ventures fail because they do not understand the needs of their customers.

Pitfall #4: Stressing First Mover Advantage

A business plan must include strategies that demonstrate the venture can and will build long-term barriers around its customers. Simply claiming a first mover advantage is not compelling in today's funding environment. The methods through which the venture will retain customers should be detailed in the business plan.

Pitfall #5: Indiscriminately Incorporating Investor Feedback into the Business Plan

Investors, like the rest of us, have different tastes. One investor may love a concept and/or business plan while the next may hate both. It is important to understand this as business plans are working documents and are always undergoing iterations. Management teams must not rush to incorporate each potential investor's comments. Instead, have several investors, partners and other business colleagues review the plan and provide feedback.

Source: businessknowhow

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