16 General Reasons Why Business Plans Don’t Get Funded – Part 1

Most formal business plans are developed for one of the following reasons:

  1. To obtain financing to start a new business

  2. To obtain financing to purchase an existing business

  3. To obtain financing to purchase business related real estate, machinery or equipment

  4. To finance the expansion of an existing business

If one of these four reasons is applicable to you, then you will find value in this report.

The business plan is very often the first impression potential investors get about your venture or company. Avoid some of the following mistakes so it is not the lastimpression they have about your venture or company. Investors, whether they are angel investors or venture capitalists, see hundreds of business plans each year.

The business plan, more importantly the Executive Summary, is the only basis they have for deciding whether or not to invite an entrepreneur to their offices for an initial meeting. Many investors use the mind-set “just say no,” so the business plan needs to WOW them to go to the next step. Every mistake counts against you!

1.  Business Plan Organization:  Always remember that you are developing the business plan for outside funding. Therefore, the flow of the plan has to be directed so an individual who knows very little about your specific business can follow it. Each section should build logically on the previous section.

There is no specific outline for a business plan. However, if seeking outside funding, the Executive Summary is critical. This is a brief, one to three page summary of everything that follows in the plan. It should be a stand-alone document, as many readers will make their initial decision based on the executive summary alone.

Caution:  Do not repeat yourself! A well-written plan should cover key points only twice; briefly, in the executive summary and again, in greater detail, in the body of the plan.

Remember: The primary purpose of a business plan is to get funding it must motivate the investor to pick up the phone and invite you to an in-person meeting. It is not intended to describe every last detail.

Note: Financial forecasts are a litmus test of your understanding of how venture capitalists think. Unless you are an accountant, the financial section of the business plan can easily and quickly send your plan to the circular file. Some key things to keep in your mind as you compile the financials are included in some of the points below.

2. No Reason for Being:  You are in business to get paid for making pain go away. Pain, in this setting, is synonymous with market opportunity. The greater the pain, the more widespread the pain, and the better your product is at alleviating the pain, the greater your market potential.  Show how you alleviate the pain, thus your reason for being.

3.   Avoid killer phrases:  Phrases like “unparalleled in the industry,” “unique and limited opportunity,”  “superb returns with limited capital investment” and “we have no competition,” are nothing but assertions and hype. They will definitely cause your plan to go into the circular file.

4.   No Realistic Sales and Marketing Strategy:  Several angel investors have told me that the most important part of business plans is the sales, marketing and distribution.

The key questions that must be answered are – who, what, when, where and how.  Who will buy it? How will they buy it? When will they buy it? Why will they buy it?  How will you get it to them? (This is the most important question.)

5.   Too longtoo technical:  Investors will not read long business plans. They like to see small business owners demonstrate their ability to convey the most important elements of a complex idea with the fewest words. An ideal executive summary is no more than one to three pages. An ideal business plan is twenty to thirty pages maximum. 

Business plans, especially those authored by people with scientific backgrounds, are often packed with too many technical details and scientific jargon.

Initially, investors are interested in your technology only in terms of how it:

  • solves a really big problem that people will pay for;

  • is significantly better than competing solutions;

  • can be protected through patents or other means;

  • can be implemented on a reasonable budget.

 6.   Overcooked:  You could spend countless hours tweaking your plan in the pursuit of perfection. Much of this time would be better spent working on your product, company, and customers. At some point, you need to pull the trigger and get the plan out in front of a few investors. If the reaction is positive and they want to move forward, that’s great! If the reaction is negative (assuming that the investor was a good fit to begin with), then you may have been heading down the wrong path. Get feedback from a couple of investors, and if a general consensus emerges, go back and refine your plan.