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Confessions of an Entrepreneur: Mistakes to Avoid in Your Start-up’s Business Plan

Mistakes to avoid

November 3, 2020 | By Mark Zweig

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Folks, I have seen so many business plans for new ventures it would make your head spin. I don’t think it would be an overstatement if I said I had seen 1,000 or more over my lifetime.

Some of them are fantastic and grab your attention right off the bat and make you think, “Wow — these people must be geniuses!” Others are ho-hum and you think, “These people won’t make it.”

If you are creating a business plan and want to be in the former category versus the latter, please allow me to make some observations about where some of the common deficiencies are in these plans:

  1. Not quickly and clearly getting to what this business does.
  2. I always put this as number one and it needs to be at the beginning of the plan. It may seem obvious but believe me, many times I can’t figure out what the business actually does. This is especially true for technology companies. Avoid buzzwords and jargon and spell it out in terms a 12-year-old would get.

    This is super-super important!

  3. Not clearly explaining how the business makes money.
  4. Here’s another one that you would think would be obvious but isn’t. How does the business make money? It’s one thing to have an idea to fill a need but it’s another to turn that into a business that has a super-clear revenue model and one that can explain the costs of doing what you will do versus the revenue you will receive for doing it.

    The bigger the spread between cost and revenue, the better.

  5. Not clearly describing the market and the size of it.
  6. The best business is one that serves a tightly-defined market that is huge, and the business only needs a small fraction of it to be profitable. That takes some thought and some research to figure that out. But it’s crucial information and you cannot ignore it.

  7. Not clearly describing the target clients or customers for the business.
  8. Every single aspect of the business needs to be designed around the targeted clients or customers. They need to be clearly identified. Describing them in very clear terms is essential. One tactic I have suggested many times over the years is to do something called a “target customer collage.” This is where you show pictures of your ideal customer(s) along with everything they like to do, eat, watch, listen to, where they live, etc. Having a very clear picture in mind of who the business serves is always helpful to a new business.

  9. Not having testimonials from target clients or customers.
  10. Throwing in a bunch of quotes from the kinds of clients or customers you plan on targeting is really important to adding credibility to your plan. There’s little better than a specific (and maybe even well-recognized) target customer saying something to the effect that, “If this product or service was available I would buy it!”

  11. Not including a clear offering along with exit options along with an estimate of the business’s value if the financial targets are met.
  12. If you are trying to attract equity investors, they want to know exactly what their deal will be. What will they be getting for the money they invest? What are the buyback terms? What rights do they have? And they are also going to want to have your thinking (well-justified, of course) about what that value could be for the business at some point down the road when you/they exit.

  13. Not giving enough (or the right) info on the founders.
  14. Investors or lenders care far more about the people running the business than they do the business itself. If they have confidence that you have the right background, character and orientation to succeed, they will be more likely to give you what you are wanting from them. Spell it out. And spell out the exact roles everyone will be filling as well. And while I am at it, do not propose co-CEOs for your business. It rarely works.

  15. Not having outside directors or an advisory board identified.
  16. This is especially crucial if you are young or relatively inexperienced in the industry you will be serving. The right outside directors or advisers can instantly bring credibility to the plan and reduce the perceived risk of getting involved with you. And believe me, many would be shocked to find out how willing some very experienced people are to help out as directors or advisers — in many cases for little to no compensation.

  17. Not having proforma income statements, balance sheets and cash flow projections that are realistic and make sense.
  18. These things are the heart of the business plan and they have to add up. Why would a $10 million annual revenue plan require $9 million in cash in the bank for working capital? Why do income statements and balance sheets not tie together? Why is seasonality not considered in the forecasts? Why is there a line for taxes on the income statement of an S-Corp? Why wasn’t the negative cash flow accounted for in the starting capital requirements?

    I could go on and on here but these financial projections are critical in the plan, and they have to be done right.

  19. Not sharing the break-even point.

  20. Everyone who looks at a business plan wants to know what the break-even volume is and how long it will take you to get there. And the lower the number and the faster it looks like it will come, the better!

  21. Vastly underestimating the amount of marketing dollars that have to be spent.
  22. Marketing activities and costs are almost always underestimated in the start-up plans I see. I always ask the question of why do you think you will have this hockey stick-like revenue growth while spending a tenth of what established companies in this industry are spending? It makes no sense. You probably need to spend two or three times what the industry norms are, at least when starting out. And in some cases, the marketing activities have to start well before the official launch of the business. That needs to be noted and accounted for.

Take a look at your business plan and see how you stack up on these 11 points.

I’m sure I could go on here, but I have to get back to working on a business plan for a potential new venture myself!

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Mark ZweigMark Zweig – a leading expert in management and business for the architecture, engineering, planning, and environmental industry – is president of Mark Zweig, Inc., which has been named to the Inc. 500/5000 list of fastest-growing privately-held companies; chairman and founder of Zweig Group – named to the Inc. list three times – and entrepreneur-in-residence teaching entrepreneurship at the Sam M. Walton College of Business at the University of Arkansas.