Thirteen common business plan mistakes part-1

In the twenty or so years that I’ve been preparing and reviewing business plans, I have seen certain mistakes repeated over and over and over again. If you or your client or your friend or your business associate is an entrepreneur hoping to gain financing, then you’ll want to avoid the following mistakes:
Having Too Many Pages; Not Being Brief And To The Point

Not Clearly Stating The Product Or Service The Opening Sentence

Using A Canned Business Plan Package Or Someone Else’s Business Plan As A Template

Over-Defining Your Market

Using Too Many Industry Specific Terms, Catch Phrases, Acronyms And Abbreviations

Not Quoting Sources
Forecasting Revenues Beyond A Reasonable Growth Rate
Basing The Revenue Forecast On Capturing Just 1% Of The Market
Including Irrelevant Or Unimportant Information
Dancing Around The Competition
Predicting a Baseless Exit Strategy
Overlooking Expenses and Overstating Profit Margins
Providing Too Much Financial Detail


Having Too Many Pages; Not Being Brief And To The Point
Make your business plan as brief and to the point as possible. Investors are busy. They’ve been successful in business, and they’ve made a lot of money. They don’t have time to waste, and they won’t allow you to waste it. If your business plan is long and wordy, it will not get read. Let me repeat that. IT WILL NOT GET READ.
The purpose of your business plan is to get a meeting. It is a resume of your business, not a dissertation. The business plan is not the document on which the deal will be closed, and it is not supposed to answer every possible question about your business. The purpose of your business plan is to open the door and to get a meeting…period.
Your business plan should only provide highlights and only the most key elements of success for your business. It should contain just enough to entice a prospective investor to ask you to make a face-to-face presentation, and this means that it must be no longer than twenty (20) pages, including the Executive Summary and the financial schedules.
Do not be embarrassed to provide a thin document. As long as you include the essentials and make the story of your company compelling, no one will ever complain that it is too short. If you can effectively tell your story in 5 pages, then do it.

Not Clearly Stating The Product Or Service In The Opening Sentence
You must, first and foremost, before anything else, tell the reader of your business plan in simple easy to understand terms, what is your product or service. This sets the context within which everything in your business plan is set. Without it, your potential investor won’t care how big your market is, won’t care how great is your management team and won’t care how revolutionary your technology is. Without it, he won’t be able to understand any of it, and he won’t want to take the time or make the effort to do so. Without it, you are simply inviting the reader of your business plan to set yours aside and go on to the next one.
I cannot emphasize this point strongly enough. Your opening sentence should be as straight forward as can be, without any build up or background, without talking about the size of the market or the technology or the need. Just simply state what you do.
DO NOT start with something like, “XYZ Company has spent the last three years developing a revolutionary technology that will change the way people communicate. This technology addresses the 40 billion dollar wireless communications market and will revolutionize the way that mobile phones, PDAs and personal computers interconnect…blah, blah, blah.”
These kinds of openings are all to common, all too lengthy, all too boring, and they never get to the point. You must remember at all times that your typical investor has a very short attention span and 360 business plans on his desk to read in addition to yours. If you can’t capture and retain his attention with the very first sentence, then you will end up in the round file within 8 seconds.

Here are some examples of how an opening sentence should be:
“General Motors manufactures and sells automobiles and trucks.”
“Macy’s is a high end department store.”
“Intel makes state-of-the-art integrated circuits and microprocessors for computers.”
It needs to be just that simple and direct in order to properly set the stage. If you can, insert a picture of the product. A visual can help the investor relate to the product and the ensuing narrative.
Only after the investor has a very clear understanding of what your product is, what it does, and most likely what problem it solves, are you ready to discuss the size of the market, the uniqueness of the technology and the strength of the management team.

Using A Canned Business Plan Package Or Someone Else’s Business Plan As A Template
So, you need a business plan, and you need it yesterday. Obviously, the best way to speed up the process is to go with something that is partially completed, right? Isn’t it to best to use something that’s already been done rather than reinvent the wheel? The answer is, “NO!”
The truth is if you want to get the best possible product for a business plan, start with a blank piece of paper and an open mind. Very early in my career, when I had to write my first business plan, I asked Eugene Kleiner (of Kleiner, Perkins, Caulfield & Byers) for a sample to use as a template, and he refused. Gene’s exact words to me were, “If you start with someone else’s plan, you will constipate your mind,” and he was right.
To express your vision with all the passion you possess, the words have to be your words and speak with your voice. You can’t do this, if you start with someone else’s plan or a canned template.
Your business plan must emphasize your company’s unique strengths. Each company is different, and each has different key success factors. In some case, it is the product or technology, while in others it may be the experience of the management team. While you may have several areas of strength, you should always put your best foot forward in a business plan, that is, emphasize first that which is most compelling. Canned programs force you into a format and an order doesn’t necessarily reflect your uniqueness.
It may seem like more work, but always start with a clean slate!
(to be continued)
© Copyright 2001 by Eli Eisenberg and Straight Line Management

If you enjoy these articles please feel free to forward them to your friends. All I ask is that you retain the full attribution and copyright legend, and the email and Web site addresses.
You may also use material from my articles, in whole or in part, on your own Web site or in your own ezine, as long as you include the attribution below, including live Web site link and email link and let me know where the information will appear.
Please use this attribution:
“Copyright © Eli Eisenberg, all rights reserved. This material is by Eli Eisenberg of Straight Line Management. Straight Line Management provides CFO services and financial expertise for high potential early-stage companies. To learn more visit http://www.StraightLineMgt.com or contact Eli at Eli@StraightLineManagement.com.

Leave a Comment