Remember VHS? For those of you who don’t, it recorded TV shows before DVDs and DVRs came along. Did you know that it had a competitor known as Betamax? Many considered Beta’s technology superior to VHS’s. Yet Beta flopped and VHS soared until DVDs caught on. Beta failed because customers wanted an affordable option. VHS cost several hundred dollars less than Betamax.
It takes more than a great product or service to win over the market. Marketing plays a role. Customer needs play a role. A well-written business plan plays a role.
A business plan describes your company’s future in three to five years from now. It also explains what it will do to get there and how. Whether your business is up and running or in the beginning stages, it needs a business plan. This tool can convince potential investors and lenders that the business is worth the risk. Many business plans fail to accomplish this.
This won’t rehash what belongs in an effective business plan. You can find plenty on the Internet. The U.S. Small Business Administration has a section devoted to creating a business plan.
Here, we look at some of the common problems in a business plan.
Overhyping the business
Business plans tend to lovingly describe the company’s amazing, unique and wonderful technology, product or service. The people behind these plans believe that its readers will fall in love with the business and provide working capital or invest right away. Overhype can hurt your chances. Instead of using a lot of superlatives and adjectives, back up your claims with facts.
The cold hard truth is that investors, business financing services and banks don’t care how fabulous your business sounds. They want to know what problem your business solves and how it’ll bring in the money.
Failing to define the target market
If you can’t figure out the market that most benefits from your product or service, then keep looking until you find it. Readers of your business plan won’t take it seriously if you don’t spend the time understanding your market. You should know your market well enough to create two personas complete with their names, ages, background, money earned, family life, hobbies and so on.
It’s possible your target market can change from when you first create your business plan. And that’s OK. Sometimes a better market comes to light. But you want to figure this out as early in the process as possible. Imagine how many more sales a business could’ve had if it found its target market earlier.
Yes, it’s scary to develop a specific market. A broadly defined one looks like the business owner is shooting in the dark hoping to hit something. No business can be all things to all people.
Exaggerating your numbers
The smart investors know how to ask the right questions to challenge your numbers asking about your margins and costs. So while your numbers might look darn good, they may not be. Find some experts to look over your spreadsheets and numbers to identify potential weak spots. Big numbers can compel investors to question your research.
No investor will believe your business is perfect and going to execute without problems. Be up front about your weaknesses and how you will address them. You’ll get more respect. Share past failures and lessons learned.
Investors tend not to work with someone who hasn’t experienced failure. When you’re honest about everything, you’ll gain more trust and have more credibility.
Claiming you have no competitors will look like you haven’t done your research. Every business has competitors. New technology has competition in old technology. Something that’s faster, more convenient and cheaper still has to win over customers who may not like change.
Including too much information
A business plan shouldn’t read like a college paper or a government document crammed with abbreviations and jargon. A lengthy plan shows the owner can’t write concisely. An investor doesn’t have time for something that’s more than 20 pages.
If you want to explain a technical process, put the details in an appendix and reference it in the plan. The important thing is to capture the key parts of your business.
One way to overcome these mistakes
A good way to check for these mistakes is to ask others to read your business plan. It helps if the readers don’t know much about your venture. If they don’t understand something, then you know what needs clarifying.
Don’t let all this scare you. It’s possible to write a lean business plan. An effective business plan pays off in many ways. It can grow business 30 percent faster. It keeps you on track. It reminds you why you’re doing this when things aren’t going your way. And it could lead to funding.
What other common mistakes do you see in business plans?