Six Things NOT to say in a Business Plan

Six Things Not to Say in a Business Plan
Six Things NOT to say in a Business Plan

Let me tell you the story of the Entrepreneur who prepared a detailed business plan which he took to a series of investors and they all turned him down.

And he did not know why!

Unwittingly he had committed some cardinal sins which caused him to switch off the investors and reject his plan.

I want to help you avoid some of these pitfalls and so I have written the Six Minute Strategist Guide to Six Things NOT to say in a Business Plan.

In this I will tell you:

  • What the Entrepreneur means
  • What the Investor thinks; and
  • What you should say

“Our Financial Projections are Conservative”

What the Entrepreneur means:  I do not want to show you over optimistic and unbelievable numbers and I want you to believe that we are a careful and responsible management team.  This is  a realistic scenario and when you come to assess this business case I do not want you do down grade our numbers with your own base case scenarios

What the Investor thinks: All the numbers here are based on assumptions and therefore they are little more than calculated guesswork.  Do I want to invest in a Management team that are cautious and risk averse or do I want to invest in a confident management team who know their product and market.

What you should say:  We have worked extensively on these detailed financial projections and have used our judgement and experience to prepare the business case.  We would welcome the opportunity to discuss our detailed assumptions with you now or when you prepare your own projections.

“This Plan projects a 100% IRR on your money”

What the Entrepreneur means:  if we get it right and everything goes to plan, you can double your money.  You have to like that, right?  I mean what are you going to get from leaving it in the bank?

What the Investor thinks: what is the structure here?  I am investing in a growth opportunity how come I can only double my money.  If this goes well, I want to make 10x my money.  I had better ask these guys a lot more questions – am I getting set up here? How on earth did they come to that conclusion?

What you should say:  We are all fully committed to making this work and we want to make sure that all our interests are alligned.  If we do well, you will do well too.  Predicting exit multiples is very difficult at this early stage in a business, but you are welcome to form your own view.  What are your return expectations?

“We are projecting a 15% margin”

What the Entrepreneur means: we have prepared the plan to be profitable and have worked in 15% because this is a good number and makes the business case look good.

What the Investor thinks: Was this assumption part of the template model they started with?  Have these guys really thought through their pricing strategy, their sales and marketing plan and the degree of competition they are going to face

What you should say:  We have prepared a detailed bottom up model of our pricing strategy, our go to market strategy, the competitive pricing in the market (or expected) and considered our cost base to bring this together. We have also looked carefully at the scaling issues we are going to face.  On the basis of this work we believe that this business can make a 15% margin, although you will see that this varies over time as we scale up (or similar wording depending on what the model shows)

“We only need a 1% market share”

What the Entrepreneur means:  We have done a quick back of the envelope calculation and if we can get 1% of the market our revenues will be £x million and we will all be minting it!

What the Investor thinks:  These guys are too lazy to work out how they are going to sell to their customers and how they are going to grow revenues.  Strike Two!

What you should say:  We have looked carefully at the potential market for this product/service.  Evidence from Gartner (or some other authority) shows that this is a £xxx million market and it is growing xx% over the next five years.  We believed that the average sale to our customers is going to be £xxx,000 and therefore we need to sell xx in year one, xxx in year two etc.  On this basis we believe we can have a market share of 1% in year five if all goes to plan.

“Customers need our Product”

What the Entrepreneur means:  I asked my Uncle and he said it was a really good product and he was sure that my customers will need it but I haven’t actually sold any yet.  We also did some market research which supports this statement because the people the research agency spoke to said they would.

What the Investor thinks: Have these guys got any customers and if not why not.  When are they going to try to sell something to find out.  Come back and see me when you have sold something.  On the otherhand, don’t bother…

What you should say:  We have worked closely with some early stage customers on some pilot projects which have gone very well.  As a result when version 1.0 of our product service is ready to launch we have [six] target customers who are keen to discuss a wider deployment with us.   (Post revenue is a really big hurdle for investors and if possible you should try to at least sell to one customer to prove the existence of the market demand)

“We have no Competition”

What the Entrepreneur means:  We are so far ahead of the curve that we are unique and no one else is doing this.  Or: we have not bothered to check to see who else is in the market for this product and we think we can wing it.

What the Investor thinks:  Is this a solution for which there is no problem and therefore no demand?  Have these guys even bothered to find out.  Time out – I just remembered another meeting I would rather be in than here.

What you should say:  We have extensively surveyed the market and have identified the competition and their solutions.  We can show you how these existing market offerings differ from ours and why our solution is better/quicker/faster/more advanced/cheaper (not the best position to take as a start up).  We believe that we can position our product in the market to successfully compete, take market share and make a profit.

Six Minute Strategist Start Up Course – Is this for you?

Are you struggling to get your Start-Up Started?

Do you need to learn more about Business and Financial Plans

Do you need to learn how to pitch to investors?

Take a look at my brief Video…

Now go and check out the Course at https://jbdcolley.com/startup

Thank you for joining in the Conversation, see you again soon.

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.