Mistake #1: Trying to write the business plan with just an idea.
Bam! You have an idea. In fact, you have a great idea. It is to your credit that you want to put your thoughts to paper and create a business plan. Yet, you will improve your idea and ultimately your business plan, if you let your idea incubate. In this fast-forward age, some things are still better developed over time. Think of your business plan not as microwaveable meal. Rather, as a stew with many ingredients. Each one must be added in its own time. Sample the stew and see what to add next. All along you had the recipe, but you must let it come together over time. In the end you’ll know when it’s ready to be served.
Remember that it’s a ‘business plan’, not an ‘idea plan.’ The business plan needs to reflect that you have thought through all of the aspects of turning your idea into a business. Yes, get to it early, but not before you’ve thought through all the critical factors.
Mistake #2: Outsourcing the writing of your business plan without learning anything in the process.
There are plenty of services that will write your business plan for you, for a fee. In fact, you can even buy a canned business plan for your type of business. There is nothing wrong with getting help creating your business plan. Keep in mind that in the end, you have to execute the plan. If your plan is to serve any purpose you must truly understand it. Reading a document that was written by someone else won’t qualify as truly understanding the plan. In a business plan, there are inputs and outputs, causes and effects, actions and outcomes. It’s important that you understand these relationships.
Get the help you need, but also take the opportunity to learn what you didn’t know before. For example, let’s say that you needed to go to an outside source for help with the financial projections. When they are complete, have your service provider walk you through every aspect of the financial statements so that you would be able to explain them to someone else with confidence.
Mistake #3: Claiming you have no competition.
There is big trouble ahead when a business plan includes the words, “We have no competition.” To a banker, investor, or experienced business person this translates to, “I have no idea who my competition is.” It is very important for you to understand who your true competitors will be. Your true competitors are those organizations where your future customers are spending their money today—money they will instead be spending with you in the future. That might or might not be a business just like yours. For example, the motorcycle shop’s biggest competitor might be the boat dealer.
In addition to your direct competitors, be sure that your business plan addresses all of those organizations that will be competing for the same dollars you’ll be going after.
Mistake #4: Outrageous financial projections.
It’s impossible to know if your financial projections will prove to be accurate. Yet, it’s fairly easy to tell if they are realistic. Understand that your financial projections are more of a reality check than anything else. Accordingly, make sure they are within reason. More than one wide-eyed entrepreneur has thought they had the next Google on their hands. Even if they were right, the more likely reaction to seeing a sky-high revenue forecast would be a total loss of credibility.
The source of most unrealistic financial projections is the “top down” forecast. A top down forecast sounds something like this: “There are $1 billion of widgets purchased online every year. If we get just 2%, we’ll have a $20,000,000 business.” These forecasts rarely go on to say how the business will get to 2% market share.
Instead, take the bottom up approach. Show the number of sales that can be made by each sales person (or per site visitor), and build it up. Then make sure your plan accounts for all of the right resources that will be required to generate and deliver the sales figures. The reality of your forecasts will start to come into focus much more quickly with a bottom up approach.
Mistake #5: Not having the right team in mind.
Finally, keep in mind that new businesses are nothing more than the wisdom of the people behind them. They have no current customers, contracts, or sales backlog. The new business is totally dependent on the team. Collectively the team should be fully experienced in all aspects of the industry and markets your business will serve. Yet, when you are at the business plan stage, it is unlikely that you will be in a position to hire your full team. There are two steps you can take early on that will provide fuel for your business and your business plan.
First, map out the key positions for which you intend to hire. Clarify their roles and the qualifications. Prioritize your list of early hires, recognizing that sometimes things fall into place due to timing. If possible, identify specific individuals who are enthusiastic about joining your company when you have funding or reach a certain milestone. With their permission, incorporate their information into your business plan.
Next, work to assemble a board of advisors who have relevant experience. Advisory board members, depending on the formality of the arrangement, often work at no cost in the early stage of the company. Identify individuals who could provide mentoring in specific areas. Again, with their permission, list these advisors in your business plan’s team section.
A business plan is a working document that will help you to refine your vision and execute a successful plan. Adhering to the discipline required to write a solid plan will propel your business forward. Start with a solid business plan outline or business plan template. As it’s said, nobody plans to fail, but too many fail to plan. Be sure you “plan” to succeed.