When a Business Plan Fails
Q: I created my own business plan and presented it to my friends and target markets for their review. They loved my concept. Last month, I sent out my finalized business plan to 35 well-known incubators. I've heard nothing from them. Help!
A: There are thousands of reasons plans are rejected and far fewer reasons why they're funded. The media proclaims record levels of capital, but most available money goes to "seasoned" entrepreneurs with a track record. For Internet ideas, an ex-Yahoo! executive can raise money easily. A smart person with no Internet background will have trouble. But avoiding the following common problems can help your plan survive first contact:
- Don't ignore your incubator's needs. Some incubators specialize by industry. Are you the right industry? Others give only certain kinds of assistance. Is that what you need? For example, an incubator whose strength is its industry expertise may want only opportunities with a full team of proven managers who lack industry experience.
How does the incubator make money? What does that imply they need in a portfolio company? An incubator that takes equity and holds it until IPO or acquisition will want companies with the potential to go public or be acquired. That means a big market size and a fairly early harvest. Since their holding period will be even longer than later investors' holding period, they may need a larger percentage of the company to get a decent return.
- Don't ramble. Present the market, the problem to be solved, the revenue model, the competition and why this is a good investment. If the reader can't find this information easily, your business plan is dead in the water. See "Formatting Your Business Plan" for details about information to include in a plan.
- Avoid buzzwords and "conservative" projections. Will you rely on "first mover advantage?" Do you establish "thought leadership" using your "viral marketing" campaign, since after all, you just need "2 percent of a $10 billion market?" If so, you're destined for buzzword purgatory. If your idea is compelling in plain English, it's likely to be taken seriously. Otherwise, you just end up looking like you've read one too many issues of Business 2.0.
- Don't claim you have no competition. You'll always have competition; they just might not be identical products. Movie theaters compete with arcades for amusement dollars. Paper checkbooks compete with online banking. Identify your real competition and address it in your plan. The best plans know the substitutes for their product and lay out ways to romance customers away from the competition.
- Your advantage is not "first mover advantage." Nor will your competitors be too "old economy" to respond. If you have a competitive advantage, spell it out clearly and show why it's an advantage. Being first isn't enough. VisiCalc was the first spreadsheet. The Apple Lisa had the first mass-market window system. Mosaic, the first Web browser. The Newton, the first handheld PDA. And by the way, don't rely on slow competitors. When you threaten an established player with deep pockets, you'll be amazed how quickly they learn. And even if they don't, deep pockets can fund many mistakes, while they use their existing clout to lock up key relationships and distribution channels.
- Please don't include "conservative projections." I've seen plans projecting a 97 percent profit margin and complete domination of a multibillion-dollar market still claiming to be conservative projections. I've reviewed plans by successful entrepreneurs that projected 200,000 direct sales contacts in three months (that means 2,000+ each workday) with two salespeople. Think your financials through. Make sure they mesh with your staffing plans. And if your plan can still succeed with one-third the revenues, you're on your way. Because if you don't divide by three, the investors who read your plan certainly will.
Stever Robbins is a consultant specializing in mastering overwhelm, power and influence. The author ofIt Takes a Lot More Than Attitude...to Lead a Stellar Organization, he has been a team member or co-founder of nine startups, an advisor and angel investor, and co-developer of Harvard's MBA program. You can find his other articles and information at SteverRobbins.com.
This article originally appeared on Entrepreneur.com in 2002.