4.0 Avoiding Roadblocks

HOW TO WRITE A BUSINESS PLAN >> Each section contains key Action Items located within the downloadable Action Guide >> Click to Download Action Guide.

AVOIDING ROADBLOCKS, OR THINGS THEY DON’T TEACH IN BUSINESS SCHOOL

4.1    Market Analysis Challenges

There’s no question that creating a useful market analysis section can be a tricky proposition.  Load the section up with too many numbers, charts, and other graphics and you’ll overwhelm your reader.  Provide too little information and your business plan will seem insufficient and unsubstantiated.

One of the best places to start is by figuring out your market size, or how many potential customers you have.  Answering this basic question can pose a challenge, however.  Here’s where many entrepreneurs make a basic miscalculation.

We’ll use an example to illustrate: say for instance you’re selling a new brand of organic baby formula for newborns in your hometown for $20.  Many entrepreneurs who are trying to determine their market size would make the following assumption: because I’m selling baby food, all parents in my region are potential customers. So that means I have 1 million potential customers, the population of people ages 25-40 (those people who are of the typical age to raise children) who live in my area.

This is incorrect.

First, not everyone in that age range will actually have kids. And many of those people who actually do have children may not have any infant-aged kids. Not only that, the parents that do have infants may choose to feed their babies breast milk as opposed to formula, knocking your potential market size down even more. You should also consider that many households in your area may not be able (or willing!) to pay $20 a pop for organic baby food.

You probably see where we’re going. These are the sorts of things that must be worked out through careful research.  In other words, don’t make sweeping generalizations without any numbers or data to back them up.

This research should also help you address other questions, such as where these consumers live (and how to reach them with marketing) and what the likelihood is that they’ll purchase your product.

4.2    Financial Projection Challenges

The biggest challenge for most entrepreneurs when it comes to the financial projections is developing accurate numbers.

Don’t let this challenge derail you.

Here’s the dirty secret about financial projections in a business plan that you might not know: no one truly believes you can project anything more than four to six months out. Still, most bankers and lenders will want to see between three and five years worth of numbers. It may not make much sense, but it’s one of the industry standards that won’t go away.

Put those numbers together, but don’t waste too much time projecting what will happen in five years because it’s purely theoretical. Instead focus your efforts on your first six months of projections and strive to make them as accurate as possible. While it may feel a bit like cheating to gloss over four years worth of numbers, it’s not. Not even a thriving business like Apple can predict accurately how many iPods or laptops they’ll sell beyond six months, and they have leagues of accountants and business modelers.

The second greatest and related challenge most entrepreneurs face when it comes to the financials is projecting realistic figures.  Sure, it’s easy to come up with pie-in-the-sky numbers when you’re dreaming up your business model in your head. But once you put pen to paper, you must come up with numbers that you believe you can actually achieve that are backed up by research and data.

Simply saying that you plan to make $100 million in sales in the first year isn’t enough to make it unless you’ve got the numbers to show that it’s a real possibility. Investors and lenders can see through all sorts of number trickery, slippery figures, and weird math. Don’t bother with it. Present realistic numbers, bottom line.

ACTION ITEMS: Complete the Action Items in your Action Guide.

Using the per unit economics you created earlier, see if you can realistically come up with some numbers reflecting what you expect to sell in the first six months.  Write it out in sentences.

What will drive sales (hint: generally marketing)?

Put in a front end marketing number (how much you’ll spend) to drive the sales of the units.

4.3    Management Summary Challenges

While some of this is touched upon in section 2.2, it’s worth repeating: keep your management summary section focused on the skills and experience you have that make you the person to run the show.  Too many entrepreneurs waste pages listing out every job they’ve had since 1988 only to lose their investor, and whatever shot they had for start-up cash.  Don’t fudge details, either.

Another mistake many entrepreneurs make is to claim in the business plan that they’ll do it all, from accounting to marketing to sales to admin.  Investors are perfectly aware that you can’t do everything and that naturally you have strengths and weaknesses.  Instead, put together a team of individuals who are experts in their respective fields.  In the management section of your business plan, you should clearly describe what experiences these individuals have, what gaps they fill in your business, and what each person brings to the table that’s unique.

You should also list the holes you have in the team that you will honestly need to fill. Don’t try to hide from an investor that you don’t have an accountant by suggesting that one of your partners is an expert because he or she once managed the finances for their kid’s soccer team. Investors will see through it, and you’ll end up looking naïve at best, deceptive at worst. It’s okay to have holes in your team. Google’s a great example: neither Sergey Brin nor Larry Page, the company’s two founders, is the CEO or chairman of the board. It’s because they’re not business wonks. They work in product development and technology.

ACTION ITEMS: Complete the Action Items in your Action Guide.

List the members of your team and take a hard look at their experiences and areas of expertise.

What holes do you see?

1)

2)

3)

4)

List the positions that you will likely have to fill down the road to have a complete management team.

1)

2)

3)

4)

4.4    Executive Summary Challenges

The greatest challenge most entrepreneurs face when it comes to the executive summary is keeping it all on one page.  While the importance of keeping it short is something we’ve touched on numerous times in this document, this is perhaps most critical in this section of your business plan. Don’t try to cram too much in.  Perhaps the simplest way to accomplish this is to read each section of your business plan and to take the highlights from them – but no more than a paragraph from each.  Using those paragraphs, craft a one-page (no more!) document that hits the high points of your business idea.

ACTION ITEMS: Complete the Action Items in your Action Guide.

Consider for a moment the high points of each section of your yet-to-be-created business plan: the product/service description, the market analysis, competitive analysis, strategy for achieving milestones, management summary, and your financials.  Come up with one or two sentences from each section and use that to create a rough executive summary. Before doing so, go ahead right now and create a new, blank document. Then, copy and paste the titles and lesson numbers below onto the new document.  Do not worry about formatting and numbering right now, just copy it onto the new page.

Executive Summary – 1.4, 2.4

Product/Service Description – 1.1, 1.3, 1.4

Market Analysis – 1.3, 3.1

Competitive Analysis – 1.3, 3.2

Strategies for Achieving Milestones – 1.3, 4.2b

Management Summary – 1.3, 2.2, 4.3

Financials – 1.3, 2.3, 4.2

Now, copy and paste your answers from each of the noted lesson’s Action Items under each of the titles on the new document and you’ll have the foundation of your business plan.

Then, simply come up with one or two sentences from each section and use that to create a rough executive summary.

As you begin to review your plan you’ll realize areas that need more clarity and research, however, you’ll be well on your way to creating a brief, concise and relevant business plan.

It’s not rocket science, but it does take time to perfect.

You’ll want to have trusted mentors review your business plan and listen to their questions, so that you can continue to refine your content and research new information as requested.

Next — 5.0 Do’s and Don’ts »