Wise planning will watch over you. Understanding will keep you safe. (Proverbs 2:11)
This is the third part in a series of 5 on writing business plans.
Getting ready to start your business requires planning—doing research in your field. Market research is essential to ensure you know as much about your customers, city, sector or niche as you can. Assumptions based on your gut feelings are highly risky. Thinking, ‘build it and they will come’ is not wise. The wisest man who ever lived teach us that planning, research and seeking understanding about the market you’re in, will keep you safe and save yourself problems in the future.
A group of investors were asked a series of questions related to what the critical factors were in their investment decision, and how they evaluated the business plans presented to them. The survey participants were asked “what is the worst mistake an entrepreneur can make when completing their company’s business plan?” According to the respondents to the survey, there are 9 major mistakes.
1. The response that occurred most frequently was that entrepreneurs were not clear in explaining the opportunity–why the business made sense, or why it would make a good investment. Some investors said this was because the plan was incomplete, but others said it was because the plan had too much detail, was not concise or focused. This lack of clarity kept the investor from being excited enough about the company to proceed to the next stage.
2. Another critical error was one that is very difficult for entrepreneurs to avoid: setting unrealistic projections.
3. The analysis of competition in business plans is an area that business plans are weak on. Many entrepreneurs do not make the effort, or find it too difficult, to gather data in a systematic way about competitors. Two critical mistakes result, according to the respondents: entrepreneurs say there is no competition or underestimate the strength of competitors; and the plan does not describe a competitive advantage the company may have, or how it may achieve a competitive advantage.
4. Mistakes and errors appear frequently in the plans they see, according to more than 10% of the respondents, who also said that entrepreneurs sometimes try to mislead them with the information in the plan, or do not trust the investor sufficiently to give them key pieces of sensitive information in the plan.
5. Another response that occurred regularly was that management strengths were overstated in the plan, with one respondent even saying that entrepreneurs “lie” about their credentials, and this is a critical mistake because investors thoroughly check the backgrounds of people involved in a company they are contemplating investing in.
6. Incompleteness, including leaving sections out of the plan or not including sufficient financial data, were cited by many.
7. Failure to describe a sustainable competitive advantage was another issue raised frequently.
8. A significant number of respondents said they see “simplistic assumptions” in the business plans they read, and the plans were filled with mistakes and errors. One respondent complained about the tendency for entrepreneurs to claim their projections are conservative, when this is simply not true. In the many years this investor has been investing he has had many winners, but never once had a company achieved the projections of their original business plan—not once. One respondent expressed this mistake as “entrepreneurs believing whatever they write is factual.”
9. Many B4Ters it was pointed out, fail to integrate the “B” & the “T” of B4T. Investors wish to see how the business will impact lives for Jesus and bring godly transformation into the community.
If you are looking to raise capital, keep these 9 things in mind and remember Proverbs 21:5, “Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty.“
If you don’t have a business plan and are a little overwhelmed by the prospect of completing one from scratch, there is help. Both the OPEN Network (services@theOPENservices.net) and IBEC (Robert.Bush@ibecventures.com) have coaches who understand the B4T world and who will assist you.