Why Business Plans Fail!

Jun 28, 2017
74
125
Why Business Plans Fail

Investors have become even shrewder and are far more discerning in selecting only ventures with attainable revenue models, real competitive barriers to entry, and strong management teams. Ten most common reasons why business plans fail to raise financing from investors:

1. Making financial Projections too Aggressive

Many investors skip straight to the financial section of the business. It is critical that the assumptions and projections in this section be realistic. Plans that show penetration, operating margin and revenues per employee figures that are poorly reasoned; internally inconsistent or simply unrealistic greatly damage the credibility of the entire business plan. In contrast, sober, well reasoned financial assumptions and projections communicate operational maturity and credibility. By accessing and basing projections on the financial performance of public companies in their marketplace, ventures can prove that their assumptions and projections are attainable

2. Presenting Large, Generic Market size

Providing the market size for a venture too broadly provides little to no vale for the investor. The more meaningful metric is the relevant market size, which equals the venture’s sales if it were to capture 100% of its specific niche of the market. Defining and communicating a credible relevant market size, and a plan to capture a significant share within this market is far more powerful and believable to investors

3. Focusing too much on the Venture’s Proprietary Technology

While technology is a significant factor in investment decisions, it is much more important to show how this technology satisfies a large, unfilled customer need. Many unsuccessful ventures fail because they do not understand the needs of their customers. Understanding true customer wants and needs, identifying which target markets most exemplify these needs, and outlining a plan to penetrate these markets are critical to funding and execution success

4. Stressing First mover Advantage

A business plan must include strategies that demonstrate the ventures can and will build long term barriers around its customers. The methods through which the venture will retain customers should be detailed in the business plan. Such methods could include implementing customer relationship management (CRM) tools, building network externalities, ongoing value added services et al.

5. Indiscriminately Incorporating Investor Feedback into the Business Plan

Investors, like the rest of us, have different tastes. One investor may love a concept and/or business plan while the next may hate both. It is important to understand this as business plans are working documents and are always undergoing iterations. Management teams must not rush to incorporate each potential investor's comments. Instead, have several investors, partners and other business colleagues review the plan and provide feedback. Incorporate common concerns and probe other comments to determine if they are valid.

6. Asking Investors to Sign an NDA

Most investors will not sign NDAs (Nondisclosure Agreements). This is because a business' strategy and/or concept are typically not confidential. It is possible that a key partnership is confidential, for example, but for the most part the execution of the strategy and concept is what will make the company successful. If the concept and/or strategy must remain confidential, this often implies that there are no barriers to competitive entry. If a competitor or host of competitors can quickly copy the concept, then the business model is probably not sustainable. On the other hand, proprietary technology is confidential. The business plan should not discuss the confidential aspects of the technology but should discuss the benefits of the technology and how these benefits fulfill a large customer need. A serious investor will review the actual technology during the due diligence process. A discussion regarding signing an NDA would be appropriate at this point.

7. Not Tailoring Management Team Biographies to the Venture's Development Phase

The Management Team section should include biographies of key team members and detail their responsibilities. These biographies should be tailored to the venture's growth stage since different skill sets are needed to launch, grow and/or maintain a venture. A start-up venture should emphasize its management's success launching and growing ventures. On the other hand, a more mature venture should emphasize how team members have successfully operated within the framework of larger enterprises.

8. Focusing Too Much on the Future

Investments and valuations for growth companies are based on a firm's projected future performance. However, the best indicator of future performance is past performance, or a venture's past track record. Business plans must show what milestones/accomplishments a venture has achieved. Past success in achieving goals gives investors the confidence that the team will execute in the future.

9. Over Emphasizing Partnerships with Well-Known Companies

Forging partnerships to improve market penetration and/or operations has become commonplace, particularly for "new economy" businesses. The fact is that, regardless of whom the partnership is with, partnerships by themselves have limited value. Rather, what are meaningful are the partnership terms. The business plan must explain the partnership's equitable terms, the extent to which each partner will improve operations and/or sales, and the structure of the partnership.

10. Excluding Successful Companies in the Competitive Analysis

Too many business plans want to show how unique their venture is and, as such, list no or few competitors. However, this often has a negative connotation. If no or few companies are in a market space, it implies that there may not be a large enough customers need to support the venture's products and/or services. In fact, when positioned properly, including successful and/or public companies in a competitive space can be a positive sign since it implies that the market size is big. It also gives investors the assurance that if management executes well, the venture has substantial profit and liquidity potential.

Dear Members, welcome for more pitfalls of why our business plans fail
 

antimatter

JF-Expert Member
Feb 26, 2017
5,607
2,000
"...why bz plans fail 2 raise funancing frm investors" - In Tz, investors are largely only banks as there are no other type of financiers such as venture capital, etc. Thus, i find discussions of bz plans a bit out of touch with the reality on the ground, as most banks in Tz prefer to finance well established businesses where risks are low. As for startups, funding is provided only if the collateral (dhamana) is very attractive, it's value is higher than the funding amount sought, and is easy to sell. The bz plan hardly counts
 
Jun 28, 2017
74
125
"...why bz plans fail 2 raise funancing frm investors" - In Tz, investors are largely only banks as there are no other type of financiers such as venture capital, etc. Thus, i find discussions of bz plans a bit out of touch with the reality on the ground, as most banks in Tz prefer to finance well established businesses where risks are low. As for startups, funding is provided only if the collateral (dhamana) is very attractive, it's value is higher than the funding amount sought, and is easy to sell. The bz plan hardly counts
Thank you Sir for your contribution
If we look to the bank cases, you'll find that they (in most cases) finance the Business Expansion Plan and not the start up Business Plan.
Let us discuss both cases ie start up B-Plan and Expansion B-Plan for expanding business.
For start up, there are some institutions which finance the projects but it depends to what you have written and how you dig deep to get information. We need to work harder to find those institutions in Tz in relation to what we have written. Furthermore, pass through the following addresses to look on opportunities of your project to be financed:-
1. seedstar africa
2. African Entrepreneurship awards
3. Unesco Youth Citizen Entrepreneurship COmpetition
3. Venture Capital for Sfrica
4. United Nations Capital Development Fund
5. Afif entrepreneurship awards
6. Adamnsonia acceleration program
Expansion Business plan focuses to what you are doing now, then any instituion can not easily finance the ongoing project/business if it has assessed your current situation and find out the risks to take then, it will demand collateral to cover risks for anything that will happen in the future
 

antimatter

JF-Expert Member
Feb 26, 2017
5,607
2,000
Thank you Sir for your contribution
If we look to the bank cases, you'll find that they (in most cases) finance the Business Expansion Plan and not the start up Business Plan.
Let us discuss both cases ie start up B-Plan and Expansion B-Plan for expanding business.
For start up, there are some institutions which finance the projects but it depends to what you have written and how you dig deep to get information. We need to work harder to find those institutions in Tz in relation to what we have written. Furthermore, pass through the following addresses to look on opportunities of your project to be financed:-
1. seedstar africa
2. African Entrepreneurship awards
3. Unesco Youth Citizen Entrepreneurship COmpetition
3. Venture Capital for Sfrica
4. United Nations Capital Development Fund
5. Afif entrepreneurship awards
6. Adamnsonia acceleration program
Expansion Business plan focuses to what you are doing now, then any instituion can not easily finance the ongoing project/business if it has assessed your current situation and find out the risks to take then, it will demand collateral to cover risks for anything that will happen in the future
 

antimatter

JF-Expert Member
Feb 26, 2017
5,607
2,000
Ok.. Thank you for the list. I'll try and peruse their sites to find out what's on offer
 

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