Entrepreneurship University
College of Entrepreneurial Studies (CES)

BPs for Making Money

What is the most common mistake entrepreneurs make when completing their business plan?


For a survey of venture capitalists, see:

By far the most frequently mentioned mistake was saying that the company had no competition, or underestimating the strength of competitors (32%). The failure to describe a sustainable competitive advantage was also mentioned by 9%.

Not clearly explaining the opportunity was the next most frequently mentioned mistake, by 27%.

Following that was the related mistake of having a disorganized, unfocused, or even poor presentation (12%).

Miscalculation of market share and market size (9%) were also regarded as frequently seen mistakes, with several respondents saying that they still receive business plans that say, “The total market is $1 billion, if we only get 10% of it, we will be a $100 million company”–without ever explaining how they are going to sell $100 million worth of their product.

Respondents also said they commonly see business plans that do not address the risks of a venture, and contain no contingency plans for coping with the risks (also 9%).

Other less frequently mentioned responses were:

  • They don’t explain how they are going to sell the product
  • They don’t understand the venture capital process, and send the plan to the wrong audience
  • They overstate management’s strengths
  • They make unrealistic projections
  • The information is incomplete; sections are missing; the financials are inadequate
  • They underestimate the amount of capital required and assume the business will develop easily
  • They refuse to cede control and insist on being CEO
  • Their discussion of management is weak
  • They assume an IPO can be their exit strategy
  • They overestimate the value of their enterprise

From mistakes, let’s look at some tips to separate your plan from the rest:

  • Spend time writing a succinct and persuasive executive summary, but write the body of the business plan first. Two- to three-pages should be enough for the executive summary.
  • Let the reader know, early on, what type of business the company is in, state the company’s objectives, and describe the strategy and tactics that will enable the company to reach those objectives.
  • Create a professional, graphically pleasing document. Make sure that it is well indexed for easy reference. Number copies sequentially so that investors will know that only a select few copies are being distributed. Include a cover letter addressed to a specific contact person in the firm and follow up with an e-mail or phone call. Include a phone number and e-mail where the investor can reach you with questions.
  • Use references or introductions from sources respected by venture capitalists. Have your plan referred through an accountant or attorney with a strong venture capital practice.
  • Spend time researching potential venture capital investors so that you send the plan only to those who specialize in making investments in companies in your industry. This research may also help you discover something about the investor that you can use to get your plan noticed.
  • Cite clearly how much money the company will need, over what period of time, and how the funds will be used. Plan the fundraising strategy through several rounds. The initial financing will typically lead to subsequent rounds, and presenting a realistic timeline demonstrates to an investor that the plan is carefully prepared.
  • The cash-flows statement must correlate to the balance sheet and income statement and should mirror the timing of the funding requirements stated in the plan. Investors will study the cash-flows statement to determine when cash-flow break-even is expected and when periodic needs are anticipated.
  • Venture capital firms set aside a certain percentage of their funds for follow-on financing to address these periods of need by their portfolio companies, but the cost in lower valuations for unanticipated financing can be high. This is why it is important to set realistic forecasts so that the initial request covers the capital needs until the business can complete milestones leading to higher valuations in future rounds.
  • Be realistic in making estimates and assessing market and other potentials. Substantiate statements with underlying data and market information.
  • Discuss the company’s business risks. Credibility can be seriously damaged if existing risks and problems are discovered by outside parties.
  • Have a clear and logical explanation about the investor’s exit strategy.

If the plan is of interest, the entrepreneur will be contacted for the first of what will generally be several meetings, and the venture capitalist may begin the due diligence process. Since venture firms are in the business of making risk investments, one can be certain a thorough analysis of the company’s business prospects, management team, industry, and financial forecasts will precede any investment.

Wishing you success,

John B. Vinturella, Ph.D.

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