I’ve been spending a lot of time recently reading and judging business plans for a business plan competition at a well known MBA program. I have read some great plans and some not-so-great plans, but that is how it always turns out in any business plan competition.
I thought it might be useful to talk about the most common deficiencies that have come up in the reading of these plans.
Executive Summary – Frequently, business plan authors are so immersed in their business and their business concept that they forget that all potential readers of the plan aren’t experts in their industry. Many executive summaries that I read assumed some degree of knowledge about the industry and in some cases even the business and business concept. Executive summaries need to be short, direct, and provide an overview of the business opportunity. The idea of an “elevator pitch” is critical here. A good plan will communicate what the business does, who the target market is, and what the potential upside is in no more than 5 sentences.
Expenses – A common failing in business plan financials is to either under-estimate expenses or to leave out some expenses altogether. Several plans I read recently neglected to include any personnel costs. This is fine if you are bootstrapping the business, but this needs to be explained clearly in the supporting text. On the flip side, don’t discuss plans for a sales team and then neglect to include the costs of that team in your personnel plan.
On the expenses side, make sure that your P&L includes all of your fixed costs for running your business. You’d be surprised how many people forget things like rent, insurance, hosting costs for a web site, etc.
Optimism – Optimism is great and a required attribute of any entrepreneur but it can be a minor detriment in planning. While it is tempting to create a sales forecast that shows exponential growth, make sure your forecast is realistic. Most business plan readers are going to question what appears to be overly optimistic growth scenarios and it is important to back up these claims with text if these projections are realistic.
Market Size – Similar to my point on optimism above, it is very common for businesses to define their market too broadly in their plans. It is not uncommon to see plans that define their markets in the billions of dollars and millions of potential customers. While this is not a bad thing on it’s own, it’s very important to sub-divide this huge market into manageable target markets or market segments. Divide your market into manageable segments such as location, customer needs, age, income, etc. Without a realistic market segmentation strategy and a marketing plan that addresses that segmentation, you will have a difficult time implementing the plan.
There are plenty of other topics worth focusing on to build a successful business plan, but these four I mention today are common enough that they merit being singled out for discussion.