Tag Archives: business plan mistakes

10 Most Common Business Plan Mistakes, Updated for 2016

top10planningmistakesOver 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?

Business Plan Yes, Comprehensive and Detailed, Not So Much

Funny how sometimes what sounds like good advice isn’t. I was browsing online when I caught the alleged business plan tip shown here (although I added the red circle over it). It says you should write a “comprehensive, detailed business plan.” And I say probably not; only in special circumstances. 

business plan tip, business plan, agile and flexible

Instead, develop a streamlined, flexible, agile, lean, just-big-enough business plan and use it as the start of a forever-after business plan process. 

Set a schedule to review it and revise it at least once a month. Understand that it gets obsolete in weeks. 

Keep it on your computer where you can refer to it easily and keep it up to date. 

Focus on metrics, accountability, priorities, strategy, without a lot of text. For example, don’t ever write text describing your company or management team in a plan that won’t be read by anybody outside your company or your management team. That’s a waste of time. 

Of course you should know your business, your team, your strengths and weaknesses, and your market. That’s absolutely essential. But do you take the business time to describe it in comprehensive detail, with edited text, statistics and formal research? No. Not unless you have to communicate it to outsiders. If you’re jumping through hoops for a bank or investors, then maybe there’s an underlying business value to the extra description. 

But this kind of hype about big scary masters-thesis-weight business plans does a disservice to all the real business people out there who could use business planning to manage their business better — set priorities, develop accountability, move forward strategically — who unfortunately put off planning because of the mythology of the big formal document that feels as inviting as a high-school term paper. 

It’s business: Form follows function. If you don’t know why you need a comprehensive, detailed business plan document then you probably don’t. But don’t let that off-putting tippery keep you from using business planning to manage your business better. 

(Note: I posted this on Huffington Post this morning)

Top 10 Business Planning Mistakes #6: Hiding Behind Market Numbers

(Note: this is the fifth of a 10-part series listing my revised top 10 business planning mistakes. The list goes from 10, the least important, to 1, the most important.)

Planning is a lot more than just market numbers; its about what’s supposed to happen. The market numbers are nice when you have them, sure. But they’re about why, and planning is about what.

Showing there’s a billion dollar market isn’t enough. Showing hockey stick projections isn’t enough. Tops-down doesn’t usually cut it. Build it from the ground up.

I’m not advocating ignorance. Yes, your planning should deal with your real market, customer demographics, customer stories, customer needs and wants, and why people buy. Target marketing is critical. You have to know that market extremely well. I love it when a plan is built on real stories of real buyers, how they found a business, what they wanted, and why they wanted it.

But numbers aren’t the opposite of ignorance. Big market numbers are easy to hide in. Producing a huge market doesn’t mean you’ll be able to sell into it. In summary, my post here last week: Don’t aim for a tiny piece of a huge market. Create your own new market. Divide and conquer.

Beware of fake, contrived, unbelievable numbers. Sure, investors and analysts and professors want to see projected growth shoot up like a hockey stick. But not if it’s not believable.

So what makes market numbers believable? Market knowledge. Segmentation. Understanding the market need. Understanding the competition. And, by far the best validation, actual sales. People spending money.

When I read a business plan I look for the bottom-up projections that start with something very real, and build up from there to a larger potential. Don’t hide in big numbers.

(Image: Nicolas McComber/shutterstock)

Top 10 Business Plan Mistakes, #10: It’s Not a Hurdle

I’ve decided I need a new top 10 list for business planning mistakes. This isn’t the first I’ve done and I hope not the last either, but it’s a good thing to give these lists a fresh look every so often. And this morning I do a workshop on this topic as part of the Bend Venture Conference in Bend, Oregon; so it seemed like a good time to do it.

I’m doing it like Letterman does, starting with number 10, least important, and counting up to number 1, most important.

No, a business plan isn’t a hurdle you have to get over. That’s just wrong. It’s not a one-time thing. You don’t want to finish your business plan ever. When your business plan is done, your business is done.

A business plan isn’t a thing, like a document, that has lasting value when it’s built. It’s a process. The first plan is the first step in the process. You should review it every month, and revise it as often as your assumptions change.

My first business plan book, written in the late 1990s, carries the title Hurdle: the Book on Business Planning. My bad. Sorry about that. It’s no coincidence that my second one, done two years ago,  is The Plan-As-You-Go Business Plan.

I still like that first book, although not as much as the more recent one. But I hate its title.

(image: istockphoto.com)