There are many common business plan mistakes you need to avoid if you wish to prepare for a successful startup launch. To help you, we propose in this article to guide you through a list of common business plan mistakes, and show you how you can recognize and dodge them swiftly and easily.
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A business plan is an essential document summarizing a business’ strategy and how to achieve it. While this is obvious for startup ventures, it applies no less to established companies. A compelling, up-to-date business plan ensures everyone is working towards the common goals, and not in different directions.
Unfortunately, many business plans are simply not worth the paper they are printed on.
If you are currently writing your business plan or if you are simply wondering how to write a good one, make sure to avoid these common mistakes.
Common Business Plan Mistake #1: An Unexciting Executive Summary
The executive summary is a crucial part of any business plan. It is a section that effectively summarizes your larger business plan while highlighting main findings and takeaways, as well as the recommended course of action.
Investors, bankers, lenders, CEOs, managers, and senior executives are busy — always. This in turn means your executive summary is an important start; the gateway for the full plan to get the desired attention.
Consider this: In case you had a hundred and one to-do things and someone gave you a 90-page document and requested you read it, the first thing you would probably say is: “But why?”
Therefore, it is imperative that your plan should start with a compelling read. Your executive summary should be to-the-point, highlight the most important points of your document, and summarize your action plan.
However, most executive summaries are not only lackluster, but also incompletely summaries the business idea. No wonder, they fail to elicit the desired response from the business plan reader.
Don’t want that to happen to you? Spend time creating an effective executive summary. To help you do just that, we have listed 5 attributes of a great summary.
Mention the desired end-result
In not more than a couple of sentences state what will change if the need is met, the stated problem is addressed, or the desired goal is reached. You should not list the solution in detail here, but using precise KPIs, stats or numbers is highly recommended as shown in the examples below:
In the first chapter, we describe how getting more inbound links will boost the website’s SERPs…
As per our research, getting the website ranked in the top three results in Google search for this specific keyword will improve the bottom-line by 15%.
Mention the recommended solution
This is the most important part of your executive summary. Always describe the solution to the listed problem that will bring about the desired result.
As much as possible, provide a step-by-step explanation in short paragraphs, with each paragraph referring to that part of the document where you have described the mentioned solution in detail. Also, ensure each paragraph is concise and readable. Furthermore, don’t use jargons, needless abstractions, or biz blab.
Leveraging the new infrastructure will maximize existing technology investments, all the while helping us optimize re-training requirements. Improved reliability, in turn, will boost productivity, giving us a significant monetized competitive advantage.
We propose these steps to resolve the mentioned problem.
Step 1 – Install and evaluate a new system. This way we can test the latest software without jeopardizing our everyday operations. The detailed requirements for installing the new system are mentioned in Section 6.
[Step 2… and so on]
Show how you will handle risks
All business decisions involve certain amount of risk. For this reason, make sure your executive summary includes a word or two on the identified risks, and more importantly, show how you plan to handle them.
Keep this section tight, just like the rest of the summary. Avoid technical mumbo-jumbo or fluff and make sure each paragraph points to the appropriate part of the main document.
The recommended risk mitigation solution is not tied to the services or products of any specific vendor. It uses personalized scripts which can be integrated into different system architectures…
To improve customer service, the best strategy is to re-train the entire client service personnel, which will help us bring down the response time. We will also commission a personalized training manual to be used during the training sessions and placed on every desk as a reference CRM handbook.
Spell out the decision you want to be taken
You should also mention as precisely as possible the decision you want to be taken.
In case the proposed resolution involves money, make sure you list the exact amount needed. In case you want the decision to be taken within a specific time frame, mention that as well.
Our concern regarding our website’s consistently low Google rankings continues to negatively impact the company. That’s why it must be addressed without any delay.
To get our online store ranked among the top 3 search engine results and hence boost our sales, we require you to commission a $100K increase in the annual SEO budget.
Common Mistake #2: A business Plan Lacking Focus
Another common business plan mistake. Does your business plan clearly defines your target market, as well as exactly how you services or products serve the customer’s needs more effectively than the offerings of your competitors?
If no, your business plan may fail to elicit the desired response.
Many a business plan fails because of an unclear focus. More specifically, many business plans fail to clearly define the markets or customers they are targeting and, even worse, they omit to mention how their services or products are better than those of their competitors.
Lack of focus hurts startups even more. If new businesses don’t focus enough on well-defined services or products and target markets, their business plans end-up describing a business whose reasons for existence are not justified. This, as you can guess, is a recipe for failure.
Common Mistake #3: Defining Target Customers Superficially
This common business plan mistake can be deadly for your fledgling company. Often nothing hurts a business plan more than a lack of understanding who the targeted customers are. As a result, your venture may fail to get traction if you define target customers in a generalized way.
It is important to have a clear understanding of who your customers are and how the services and products offered by you add value to them. This includes a more granular understanding of your target market and how your offerings meet the varied needs of different segments of customers.
Here is an example to understand this better.
Let’s say you are coming up with a new travel app. Now saying the app is for all those who love to travel may sound impressive, because this means that your potential customer base is extremely large. However, not all travelers have the same needs, and if you fail to define each target group separately, your app may end up offering only those basic functionalities that all travelers need or being overly complex, since pleasing everyone is a herculean task. Both scenarios are not the best way to achieve success in the long run.
Go deep in your market research and analysis to understand your potential customer base. This is a key factor in your future business success.
Common Business Plan Mistake #4: Unrealistic Evaluation of Business Opportunities
Entrepreneurs must think big, but it is just as important to be meticulous and methodical in your planning. Make sure your view of things is not driven by your dreams — but rather by real data and hard facts. If you have an unrealistic picture of the market size and present the same to the investors, you are not likely to get far. A skewed view of the size of market your company targets typically stems from a superficial or generalized definition of your target customers.
For instance, in case you think that no fewer than 15% of travelers across the world will download your new app, you must have supporting data. Otherwise, your business plan will have dream figures nearly impossible for you to achieve.
Common Business Plan Mistake #5: Not Analyzing the Competition
This is probably one of the most common business plan mistakes. There is a fine distinction between being convinced that your service or product is good and having a distorted view regarding how your offerings measure up against those of your competitors. Some businesses, especially startups, make the mistake of being extremely self-centered, and eventually pay a heavy price for their folly. Another mistake that many entrepreneurs commit is underestimating or completely overlooking the chances of new players entering their market and increasing the competition even further.
If you don’t want your business plan to fall flat on its face, you must put in the effort to thoroughly understand your competition. The one question you must ask yourself is: “Do I really know who my real competitors are?”
Identifying your competitors is crucial to the success of any business, particularly a new one. Precisely for this reason, investors look for a detailed analysis here.
That being said, often identifying your main competitors is not a straightforward task. Here is an example to drive home the point:
Let’s say your company is planning to introduce a really cool salty snack chip product. Your new offering will not only have a unique texture, taste, and appearance but also health benefits.
However, the question is: Do you have it takes to compete in such a highly-saturated and competitive market?
You will not only be competing with all salty snack brands in the market but also against indirect competitors such as salty nuts, popcorns, etc. As you may agree, this looks like a tough ask for any company, especially a startup. When the competition is extremely stiff, it is likely to be extremely difficult — if not impossible — for a newbie to make a mark.
Considering this, you may benefit from targeting a more specific segment, a sub-category where you have more chances of success. For instance, the “healthy multi-grain snacks” sub-category looks more feasible. Here the competition is likely to be far less; hence the higher odds of you being successful.
To sum this point up, if you want to show your business plan readers that you have done your homework well, answer these three questions:
Who are you competing against?
Who are your direct and indirect competitors?
What are the core strengths and main weaknesses of your competitors?
What actions are your competitors planning to take next and how well are you prepared for them?
Common Business Plan Mistake #6: Using Too Much Technical Jargon
It is really natural to be excited about the technical details pertaining to your new service or product, especially if you are a new tech company.
However, the point you must remember is that investors, bankers or lenders are not technical people. So, throwing technical jargons at them right, left, and center may seriously put them off. As a new player looking for funding, that’s the last thing you would want to do, right?
Therefore, keep the technical language to the bare minimum. What your business plan readers are really interested in is the feasibility and marketability of your new offering. So, if you can show them how well your business idea meets the needs of the target customer using a clear and simple communication, you will have them hooked.
Common Business Plan Mistake #7: Underestimating or Neglecting Business Risks
Naturally, entrepreneurs want to spend their energies on finding how to best exploit available opportunities. While this is understandable, ignoring or underestimating business risks can prove fatal.
Business risks will not go away if you don’t identify and tackle them. Instead, in case a risk materializes, your company will be caught unawares. In addition to the risks linked to changing market conditions, demand trends, or increasing competition, you should also factor in regulatory and political risks. For instance, if your business is export-oriented, regulatory barriers, ever-increasing protectionism, and other global trends should be taken into account.
Common Business Plan Mistake #8: Skewed Financial Projections
When some of your assumptions are false — namely, those related to estimated demand, competitive pricing, financial risks, and market size — it is easy to make unrealistic or skewed financial projections in your business plan. However, investors are smart and experienced professionals, who can see through such gaps easily, and often at first glance.
So how can you avoid making this common business plan mistake?
Research, research, and research. While it’s true that no one can accurately predict the future, but when your projections are based on hard, real facts, you are more likely to come close to the mark.
A business plan is a crucial document when launching a new venture, but still many entrepreneurs get it wrong. Consequences of that are almost always severe.
The good news is that you can avoid these serious mistakes. This article shows you just that. If you can stay away from these common yet dangerous pitfalls, you will do fine, and your chances of getting the desired action from your business plan readers would increase.