Ten (More) Common Business Plan Mistakes
After struggling to create your business plan for months, every entrepreneur likes to think that their document is inspirational and will reach someone who is smart enough to see the brilliance of the idea, intuitive enough to recognize their business acumen, and enthusiastic enough to offer the money required to make it happen.
Every serious investor, on the other hand, has a stack of these in their in-basket (email or real plastic) awaiting review, and is looking for the flaw or less-capable entrepreneur in each that predicts failure, allowing them to discard it like another piece of junk mail. Many VC firms and investment banks receive as many as ten plans per day, so it’s hard to get them salivating.
Thus, I think it’s helpful to know some of the most common turnoffs that investors encounter in plowing through this stack of requests for money. Here is what I hear from investors that you shouldn’t do, and can attest to from my own meager efforts:
- Tease or spam the investor. Every investor is annoyed by persistent messages that say “Give me a call to hear about the most disruptive technology since the wheel.” You can bet that if he ever sees a real business plan from you, it will go to the bottom of the pile. Asking him to check out your website first and comment is equally bad.
- Send the plan without a summary. An Executive Summary is a one page elevator pitch of the whole plan (may be separate from the plan), which gives an investor a net perspective on the key business parameters. Too many plans don’t have a summary section, or the summary is all you get. You lose in either case.
- No plan in the Business Plan. Many plans investors see are really modified product specifications, which tell you more than you want to know about the internals of the product, but almost nothing about how and when you plan to sell it and make money.
- Embarrass your English teacher. Obvious draft markings, handwritten, or unprofessional results, like misspellings and grammatical errors in the plan, will only convince investors that your business will be run the same unprofessional way. Remember, investors invest in people before ideas.
- Fill the text with acronyms. Remember that the people reading your plan are smart, but not intimately steeped in the acronyms of your technology. They assume heavy use of acronyms in inconsiderate, lazy, or maybe an intentional obfuscation of facts. Stick to laymen’s terms.
- The base plan is a book. Avoid being excessively wordy or redundant in your plan. The base plan should be in the 20-page range. Stick to the facts, state them clearly, and do not repeat them unnecessarily. At best, long plans make your business seem complex and more risky.
- It’s all in an appendix. Investors don’t mind supporting documents with the base plan, but the base should make sense and be complete without jumping to an appendix. Making the total plan heavier, with ten appendices, or a hundred pages is not impressive.
- Don’t be negative. Don’t say things about your competitors or customers that you wouldn’t be able to defend if they were in the room with you. I see lots of statements about poor usability, poor quality, fat and slow, all without even anecdotal data. Investors read these as unprofessional and even unethical, unless supported by third-party data.
- Prototypes and demos attached. Remember that early prototypes and demos usually break or don’t work for unfamiliar users, and we can’t see all the work and love you have already put into them. Pictures and words leave a much better impression at this stage.
- Letters from your friends. Introduction letters from friends of the investor are always appreciated, but letters of praise from your friends don’t carry the same weight. Customer testimonials and vendor contracts are much more impressive.
When you send a business plan to an investor, remember that the purpose is not to sell your product or service, but to sell you and your business model. You are looking for scarce investor financial resources, and your competition at this stage is your peers who may have more convincing and credible proposals. You need real brilliance, not turnoffs, to win.
For more on how to avoid common mistakes, read Akira’s article, Why Business Plans Don’t Get Funded.
|Author(s)||Marty Zwilling (other articles by Marty Zwilling)|
|Original Publication Date||April 8, 2011|
|Related categories||Business Plans, Raising Capital|
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