6 Critical Mistakes in Building a Business Plan for Funding

My experience in my own businesses and in working with many start-up and smaller businesses is that we all have this question.  If we have a good business and or good idea, and we develop a good logical business plan, why is it so difficult to get funding to grow our business?  Let’s look at what may have gone wrong.

Your Business Plan is very often the first impression potential investors get about your venture or company.  Avoid the following six critical mistakes.  Then it will not be the last impression they have about your venture or company!

Investors, whether 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 go to the next level which is requesting your full plan or an initial meeting. Many investors use the mind-set ‘just say no’ so the Executive Summary and Business Plan needs to ‘WOW’ them to go to the next step. You can see, therefore, that every mistake counts!

1.      Business Plan Organization

 Remember that you are developing the Business Plan for outside funding. 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, the Executive Summary is the most critical. This is a brief, one to three page summary of everything that follows in the plan. It needs to be a stand-alone document.  This will be the first document that a potential investor will ask for and they will make their initial decision based on the Executive Summary alone.  If this isn’t good you may not get any further.

2.      Why This Product or Service

You are in business to get paid for making pain go away. Pain, in this context, is the same as market opportunity. The greater the pain (market opportunity), the more widespread the pain (market opportunity), and the better your product is at alleviating the pain, the greater your market potential.  Don’t forget to explain how your product alleviates the customer’s pain.

3.      Avoid Marketing Hype and Over-exaggerated 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   hype.  If these phrases are in the Executive Summary you will never get to the next level. If they are in the main part of the plan they will cause it to be put into the trash.

4.      No Realistic Sales and Marketing Strategy

Many investors have said that the most important part of Business Plans is the part that talks about sales, marketing and distribution.

The key questions that must be answered are who, what, when and where.  Who is going to buy it? When will they buy it? Where are they going to buy it?  How will you get it to them?

Investors believe in the statement ‘Nothing happens until something is sold.’ This is one of the three legged approaches to small business success that Martco Associates believes in.

Next to the Executive Summary, this section is probably the second most important one. Spend the time to fully answer the questions who, what, when, where and how.

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 as Sergeant Joe Friday would say in the TV Show Dragnet: “Just the facts.”

As a point of reference, an ideal Executive Summary is no more than one to three pages. An ideal Business Plan is twenty to thirty pages maximum.  Remember the objective of the Business Plan is to get to the next level – a face to face meeting.

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

Remember the objective of the Business Plan is to get to the next level – a face to face meeting, not to try to close the deal with a Business Plan.

6. Overdone

Many aspiring and growing small businesses will spend countless hours and days trying to make the plan perfect.  You need to send up a trial balloon and get the plan in front of a few investors. If the reaction is positive and they want to move forward, then the plan is accomplishing what you intended it to do. If the reaction is negative, then you may have been heading down the wrong path. Get feedback from a couple of investors, and then go back and refine your plan.

Conclusion

It’s always tough securing outside funding but in this economic climate it is even more difficult. However, good ideas backed by good Business Plans are still getting funded. Investors have dozens, if not hundreds, of plans waiting to be read.

Lastly, if they call for your plan after they have read the Executive Summary, you must make sure that the cover is attractive, the binding is professional, the pages are well laid out and the fonts are large enough to be easily read.  Once you feel ready, then relax and think positively.  Good luck!

Go to our website, www.martcoassociates.com, for much more information on Business Plans and funding. We invite you to sign up for Martco Biz Bits, our weekly blog on helping you grow your business.