Over the weekend, a Quora user asked me to list common mistakes that people make when developing a business plan.
I’ve done that post from time to time, and it seemed like a good time to do it again.
Here’s my list of most common business plan mistakes for 2016:
1. Misunderstanding the business objective.
All businesses need plans to set strategy, tactics, milestones, tasks, and essential numbers.
Not all businesses need plans to show to investors or bankers. They don’t have to be traditional formal plans for most businesses, but they do have to be lean business plans that are about managing change.
Plans themselves are useless, but planning is essential. Plans should be made to fit business objectives.
2. Not doing the plan at all, because it’s supposedly too hard.
That stems from #1 above.
3. Doing (and including) too much.
Real business plans are to run business, not just to communicate to outsiders.
They last only a few weeks. They are lean. They don’t have any descriptions or summaries that won’t be used. They take hours, not weeks or months, to do. They are never finished because they are revised every month or so.
And a plan for internal use has no need to describe in text what everybody in the organization already knows, such as backgrounds of the management team. Plans for businesses that already know their market, and make decisions without additional market research, don’t need to include, much less prove, their markets.
4. Overestimating profits.
It’s amazing how often this happens.
In a world where healthy normal businesses make six percent, eight percent, 10 percent or so profits on sales, half the business plans I see in angel investment mode project profits of 40 percent or more.
Really, half. Crazy.
People think we (angel investors) are supposed to be impressed, when what that really means is not understanding the business very well, and underestimating expenses.
5. Naked numbers.
Numbers mean very little without the stories that give them reality.
Don’t bother putting numbers to markets or potential markets without going bottoms up through the assumptions. Numbers always change. Work with the assumptions.
6. Percent-of-total-market forecasts.
Useless. Nobody gets a tiny percent of a huge market.
Successes get meaningful percentages or nothing. Huge markets are almost always poorly defined. The only sales forecasts that count are those based on assumptions, like traffic, PPC, conversions, channels, sales cycles, something real.
Bottoms up only, never top down.
7. Startups trying to compete on price.
You’ll fail. Don’t be the low-price spread. That takes big-branding capital.
Find a lucrative small market segment that appreciates value, and differentiate. Build a story that sizzles.
8. Showing off your knowledge.
I hate the plans that try to show how much founders know.
If your technology takes that much explaining I’m going to just skip to your resumé to decide whether (or not) you know what you’re doing.
This is business. Get to the business of it.
9. Vague, hand-waving at big concepts.
Plans need specifics, when and what, how much, and who.
If it doesn’t have major milestones, tasks, and metrics, it’s just cotton candy.
10. Stupid trite claims.
Half the plans I saw last year (about a hundred or so) claimed to be game changing or disruptive.
Don’t say it. Show it. Let the readers lay the labels on you. That’s way better.
The source on this, the original question and answer, are on Quora here:
What are some common mistakes that people make when developing a business plan?
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