5 Pitfalls that Ruin the Effectiveness of Your Business Plan
Do you have a great idea for a start-up or new venture? Much of its potential for success—finding investors, securing funds for research and development, etc.—depends on creation of a compelling and comprehensive business plan. Without such a plan, there’s no way to set a course for the future, anticipate opportunities and obstacles or entice others to get on board.
So what are the typical pitfalls to watch for when creating an effective business plan?
1. A lot of talk and little action.
Some great ideas never get put on paper at all. An entrepreneur wastes time and energy talking up the concept at dinner meetings or networking events or he holds off until everything is in place before taking that next crucial step forward. But a business plan that’s not set in writing isn’t really a business plan at all.
2. A lack of clear purpose.
Sometimes the author of a business plan gets too ambitious, adding a little from one business model here, another business model there. The scope becomes too broad and the resulting document lacks a clear sense of desired goals and timelines. Above all else, investors want to know the purpose of your business plan. During the composition phase, ask yourself these questions:
- What business problem am I addressing and what’s my proposed solution?
- Am I looking for cash to fund the venture or am I in greater need of resources to build the product?
- Why should investors want to fund my product and not someone else’s?
- What’s the expected ROI?
Investors will respond favorably to a plan with clarity and purpose.
3. Vague projections and forecasts.
Investors are naturally wary of anyone promising them the moon. On the other hand, they’re usually lukewarm to proposals that aren’t based in reality or that appear to ignore prevailing industry trends. A successful business plan will always include—in detail—a forecast of monthly and yearly milestones, accurate financials and an outline of responsibilities.
Also keep in mind that any overly detailed forecasts for the next five or 10 years will likely be met by skepticism. There’s no way to predict what can happen over this time-span, so it’s best to focus on transforming your revolutionary idea into a viable business model spanning the next twelve months.
4. Fuzzy analysis of target market and competition.
In your excitement over the great idea you want to unleash on the world, you may overlook the time needed to analyze your proposed target market. Have you identified the potential customer base and do you actually understand their needs and issues? How will your product gain access to that market? Is there a compelling reason customers would choose your product over your competitors?
Speaking of competitors, investors will be more impressed with a business plan that acknowledges who’s out there who can undercut your fabulous-looking venture. Be sure your plan includes a sophisticated analysis of existing (or potential) competitors and their impact on your new product launch and roll-out.
5. Poor writing.
Granted, many entrepreneurs aren’t gifted writers. Nevertheless, there’s a basic standard by which potential investors will judge your business plan—and a confusing, disorganized and poorly written plan won’t see the light of day. In the same respect, the author of the plan is expected to create a plan that presents the core idea succinctly and with enthusiasm. Generally speaking, this means a document including an executive summary and no more than three or four more pages.
Take time creating a first-rate business plan. Show your initial draft to a few trusted friends and colleagues. Incorporate their input, revise and cut away flab and imprecise language. When you’ve made the plan as strong as it can be, you’re ready to take the next step.
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