13 Easy Ways to Screw Up Your Business Plan

by Brian Acord

In the past two weeks I have served as a judge for two separate business plan competitions. This was my third year as a judge for the business plan competition at Brigham Young University and was the seventh time Young Entrepreneurs of America has provided the judges for the State DECA entrepreneurial events.

In spite of the fact that these two competitions serve distinctly different markets and the ideas themselves are markedly different, both competitions tend to produce a lot of first time business plans. As such, the mistakes and errors in judgments from both sets of plans are quite similar.

While I could write an entire chapter on how an applicant could game the system by playing to the judges, I realize that the purpose of most business plans are to provide direction that supports the starting of an actual business. I will refrain (for the now at least) from playing to the former comment while I make an attempt to provide some useful insight into how one can actually write a better business plan.

As I sit in a room reading hundreds of business plans the comments from other judges are quite common. Most of them have judged these types of competitions before and virtually all of them have actually started their own business at one point or another. Keep in mind, these mistakes are not simple typos or margin widths…most entrepreneurs could care less if you wrote it on papyrus in crayon. From those who have actually been in the trenches before, they are looking for substance, purpose, sustainability, and of course, profits.

Based on the comments of many of the judges and my own personal thoughts, here are 13 Easy Ways to Mess Up Your Business Plan.

1) I don’t get it. How many pages do I have to read until I actually figure out what your business is? Make sure you have a concisely written executive summary that clearly explains what problem / opportunity you are going after, what products / services you are offering towards that end, and why this is a big idea. Frankly, if I don’t have a clear understanding of what your business does and why it does it after the first few paragraphs, my eyes will barely skim the rest of the document and it will take a dramatic pink elephant to regain my attention…assume that every one who reads your business plan has severe ADD…wait, did I just see a pink elephant?

2) Okay, you have an interesting idea but how are you going to enter the market? Make sure you are very clear about your target market. This is especially important for those products and services that may be used by anyone. We all get the idea that a t-shirt may be purchased by a 12 year old blind girl or a 60 year old Hispanic man but there is no possible way for a startup to actually target a market that broad. Be specific. Who is YOUR TARGET MARKET? That does not mean that you wouldn’t sell your product to a hockey team from Argentina or that the elementary teachers won’t see your advertisement but you better pick a specific market and it better be defined well enough to aim your marketing arrows at with some amount of precision.

Don’t ever EVER give the line that provokes fits of laughter from every seasoned entrepreneur, marketing professor, or venture capitalist and say that you hope to attract 1% of a specific market in China). Getting any percentage of any market is much more difficult than you realize. Just because you picked a huge target doesn’t make your rounding error any less embarrassing. If you really can get 1% of a specific market, why wouldn’t you want 20%? Again, aim for something that you can actually target. See my previous article on How to Clearly Identify Your Potential Customers for help in targeting your customers with a rifle scope instead of a hand grenade.

3) People really do read the financials…some of us actually read them first. There is an infinite number of ways you can screw up your financial projections and apparently, more are being discovered with each passing business plan competition. The mistakes that generally provoke the most laughter from someone reading your business plan can be avoided by following these simple guidelines.

First, actually include your financials. This is not an optional part of a successful business plan. Nor should it be added after midnight the day before as an afterthought.

Avoid unreasonable or unsupported numbers start your financials by detailing the key metrics specific to your business. (This is called a “bottom’s up” approach…and no, it doesn’t have anything to do with alcohol or cute little duckies.) If your business is a restaurant, you should base your numbers on the number of hours you are open, the number of seats in your location, the number of clients per hour and the average amount of a ticket. This approach not only helps you develop financials that actually have some basis in reality, but will actually help you think through your entire business from a financial perspective. (It will help your readers do the same thing.)

Please be realistic. I know it looks really cool in a chart and I absolutely love the sport, but there is very little basis in reality for a magical hockey stick increase in profits in year four.

If you really want to knock the socks off of your reader (or gain a better understanding of your own business) include a breakeven analysis, profit per customer, and do some scenario analysis based off of some of your more important key metrics.

4) We know you need the money to start your business but what an investor really cares about is when and how they will get paid back. Try to look at your business plan from your investor’s perspective. Wouldn’t you want to know why the entrepreneur needs the money? Wouldn’t you like to know how and when they are going to spend it? And more importantly, wouldn’t you like to know how and when it is going to be paid back?

You should also seriously consider what else the investors could do with their money, what kind of a return would they get, what kind of risk would be involved. Now ask yourself “Why would they want to invest in this business instead of another opportunity?” If you can’t come up with a really good answer to that question, don’t waste their time.

5) Nobody in their right mind invests in “cool.” Investors give you money because you have a very good chance to make more money and will then give some of the additional money back to them. Having a “neat” idea or doing something just because it would be fun is how really bad movies are made.

Okay, clearly I have some unresolved issues on this topic. I have written well beyond the time and space allotted and will have to consult with my therapist before pursuing the matter further. For now, we have covered most of the major ways to really mess up a business plan. My next post will cover some of the minor issues and of course since I obviously feel deeply on the subject, I will also include a few trivial things that really drive me crazy.

Welcome back! Yesterday’s diatribe contained most of the really big mistakes that immediately cost you credibility. Once you have clearly avoided those major pitfalls, here are a few other ideas that could really help you strengthen your business plan.

6) Clearly demonstrate that your business is beyond the idea phase. In their eagerness, too many entrepreneurs seek an audience with potential investors before they really have anything to show them. Having been in too many of these meetings to count, I have come to view them in a very negative way. From an investor’s perspective, it looks and sounds too much like this: “I have an idea of something that might be a good business. I am not entirely convinced myself, but if you’d like to give me some of your money I will be able to research it to see if it is worthy of an investment.”

Investors need to see something they can invest in. More commonly referred to as “traction”, you need to show that your idea already has legs. Nobody likes to invest in neat the "neat idea" phase of a business. If you can show me the actual product or better yet, demonstrate that customers are already buying your product, it removes much of the doubt, builds significant credibility and is much more likely to capture the interest of potential investors.

7) Marketing brochures, flyers, and a cool website do not make up a marketing strategy. These are tools used to get your message across…they are not in, and of themselves, strategies. True market strategies include options like cost leadership, product differentiation, market segmentation, price skimming, etc. Flyers and coupons are just a way to implement those strategies.

8) I don’t have any competition. Aaarrrgghhh…Charlie Brown is now pounding his head against a wall…so is your audience. Everyone has competition. EVERY ONE HAS COMPETITION. Saying “We really don’t have any true competitors” makes experienced entrepreneurs and investors want to scream and it makes you look like an idiot. Let’s assume that you are the only movie theatre in town. First, I’m pretty sure there is a movie theatre in the next town and that sometimes people go there. Second, your customers can also rent videos online and have them mailed to their door. Third, your customers may choose to watch something on pay per view or TiVo their favorite show, or maybe even watch public television or old home movies, or listen to the radio, or draw in the dirt with a stick. ALL of these things are your competition. Broadly stated, you are in the entertainment business and there are many, MANY ways for people to spend their time besides going to your video store.

Be aware of all of the many varieties of your competition. Understand what you are displacing and have a realistic view as to why your potential customers are already using that. Be honest about why they are using that and why they might change to you. You should also consider how the older, displaced market will react to your offering. You may unknowingly catapult your competition into a more strategic advantage over you. (NOTE: There is a GREAT BOOK written on this subject called Co-Opetition. I highly recommend it!)

9) If you don’t already have a very strong management team in place, at least have a plan for how you will get one. There is absolutely nothing wrong with being honest and admitting that you have a weak management team and that you have identified positions that need to be strengthened. If you do have a weak team it will be obvious anyway and you could build substantial credibility by saying that “none of the current management team has had any real startup experience and we are looking for a seasoned veteran to come on board and manage the finance duties.” This doesn’t mean that you are willing to give up control of your company, only that you are smart enough to understand your weaknesses and courageous enough to ask for help when it is needed. (This last point, by the way, is one of the most obvious attributes of successful entrepreneurs that I have known.)

Please don’t list a Who’s Who of local entrepreneurism and claim that they are all on your Advisory Board. Make sure that the people who are on your Advisory Board actually add credibility to your plan. Just because your uncle owns one of the most successful egg farms in the state does not automatically make him a valuable asset in starting an Internet business. If you want to impress someone (or heaven forbid, actually find someone who could help grow your business) talk with local Internet entrepreneurs and find one who likes your idea enough to actually beg you to be on your board. If you can’t do this, you probably don’t have a very good idea to begin with.

10) Avoid stupid comments. Several hours into my most recent judging competition at BYU I ran across the following statement that I had to copy verbatim for its full, ridiculous effect. “It has recently been proven that revenues increase with the amount of business a company does." Seriously? This was a recent proof? Wow! I’ve been doing it all wrong for years. These comments not only detract your readers from the main purpose of the business plan, but destroy what little credibility you had to begin with.

I know you have spent a lot of time working on your business plan. Like every entrepreneur before you, you have probably re-written the entire thing dozens of time. You are very close to the end product and have coke-bottle blinders on. So, for that reason alone, please have someone not related to you or the business review your business plan. In fact, have several people review it. Make sure they read this article first so they know what they are looking for but if your neighbor or auto mechanic (not your mother) can’t understand your business plan, you still have some work to do. It would be in your best interest to find the most critical person you can and have him/her read your business plan. My high school English teacher would be a great resource.

11) Do everything you can to build credibility. Be realistic. Provide reasonable assumptions on your revenues, market penetration, timelines, key assumptions, etc. Never lie or exaggerate a point. For one thing, if the readers of your business plan are half the expert you need them to be, they will already understand the market and the problem much better than you think. Besides, if the intent of your business plan is to find a partner, this is the wrong way to start a solid working relationship. Be honest…even about your weaknesses and don’t be afraid to ask for help and guidance on particularly difficult issues.

12) Avoid words like "unique" unless they truly are "once-in-a-lifetime". These phrases are overly used marketing words with no factual basis and tend to highlight your inexperience more than draw the reader’s attention to a good opportunity.

13) Unlike this wordy blog, edit your business plan for brevity. Say what you have to say to prove your point and move on. Do not explain the entire process of how you came up with the idea. Some of the most compelling statements I have read in a business plan have come from the editing process.

While participating in the UTEC Challenge Business Competition at the University of Utah several years ago I was able to immediately (and correctly) identify the winner very early in the competition. The decision, for me at least, came when I heard the company founder state a very interesting, succinct fact during his presentation. In identifying the size and attributes of his chosen target market he stated the number of individuals of Hispanic decent who currently live in America. It was one of those big numbers that hold very little relevance in an average conversation. He then followed it up with a comment that demonstrated his entrepreneurial spirit and clear understanding of his opportunity. He simply restated “There are more individuals of hispanic decent currently living in America than there are Canadians in Canada.

To paraphrase Guy Kawasaki, “Everyone makes stupid mistakes in their business plans. However, it would be greatly appreciated if you could at least make new mistakes.”

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