Every year, the team here at Palo Alto Software looks forward to judging business plans for several prestigious collegiate business plan competitions. We all read multiple entries and then gather and talk about what makes a great plan and choose a winner.
We also get to see the mistakes that ultimately cost people prizes in competitions… mistakes that get made in real-world business plans and end up costing would-be business owners the loans or investment they need.
Tim Berry has written extensively about common business plan mistakes, and in fact he wrote an entire blog series detailing the Top 10 business planning mistakes to avoid. He now travels the country talking about this very topic.
For a different perspective, here are some things that our group of judges has seen in plans over the years. These might seem minor, compared to ridiculous projections or other major cash flow problems, but they’re still issues that have prevented us from awarding countless entries our “best written business plan award.” When you submit your plan to the bank or investors, they might not be looking for the best written plan, but you can be sure that making the mistakes below is going to hurt your chances.
As one judge said “It seems a shame to spend countless hours on a sound idea that could result in solid business, only to have your idea overshadowed by misspelled words, inconsistent formatting, and poor grammar.” This should really go without saying, but whether you’re entering a competition, going to the bank for funding, or presenting to investors, please have somebody read over your plan to eliminate any of these avoidable, distracting mistakes. They’re unprofessional and signal a lack of attention to detail, and when an investor has a stack of plans to read, that could be all he or she needs to see to make the decision to pass your business over.
2. An iffy management team
The quality of the management team is always a key factor for judges. As one judge asked, “Has anyone ever run an organization before? Does the team have good coverage (or a good plan to get coverage) of the major functional areas of their company?” It’s important to note that if the management team seems weak in some areas, including a plan to bolster it is better than simply glossing over the weakness.
3. Ignoring sales and marketing
Especially in business plans related to inventions or bio-tech, sales and marketing tend to not get the attention they deserve. “Too often the writers just wave their hands on sales and marketing, as if it will just happen because they have a good product idea. This is often reflected in the financials, where little or no money is allotted to sales and marketing activities,” says one of our judges. We see it in multiple plans every year, so we know it’s a common problem. Rest assured, anyone reading your business plan is going to want to know how you plan to market and sell your product, and that you recognize the costs that will be associated with those efforts.
4. Not addressing the competition or other obvious hurdles
There’s no such thing as a business with no competition. So if you either don’t address the competition, say there isn’t any, or simply write the competition off, you’re showing investors you might not have a firm grip on the landscape in which you’re starting your business. Similarly, if you do address areas that may challenge your company, be sure to talk about how you’ll mitigate the risks. Acknowledging threats gets you half-way there. Saying what you’re going to do about them demonstrates that you’re prepared.
5. Acronym and technical jargon overload
Regardless of how complex your product is, you need to be able to explain it. If you use acronyms, even common ones in your industry, be sure to spell out what they stand for at least once (early) in your plan. The same goes for very technical terms- don’t assume your reader understands them all. Consider your audience and make sure you plan speaks their language.
Along the same lines, diving too far into the technical details can cause your audience to lose interest or get overwhelmed. Give an overview of your technology and what makes it special, but save the complex diagrams about molecular design for your appendix. Says one judge “I need to be convinced that you can run a businesses, otherwise all you have is a really complicated hobby. I’m not investing in your hobby, even if it does cure cancer.”
When you put together a business plan there can be a lot riding on the result. Don’t let easy-to-avoid mistakes make the the difference between your plan rising to the top or getting tossed to the side. A little attention and time could be all it takes.