If you’re on a mission to turn away your investors then by all means explain to them how you want them to sign a non-disclosure agreement or that you don’t have any competitors. But if you’re serious about attracting competitors then you’d do best to steer well clear of these 10 classic business plan mistakes. Make an attractive business plan and a powerful power point presentation to convey all the information about your business so that they get right information about the business and can turn into real investors. Below I am going to explain some such important aspects one by one which can really help you:
1. Asking Investors to Sign an NDA
NDAs (Non-Disclosure Agreements) are not usually signed by investors, angel investors or venture capitalist , because the strategy or concept of a business is not normally confidential. Although an important partnership may be confidential, it is the execution of the concept and strategy that make the company successful. When the concept or strategy has to stay confidential this indicates that there are no blocks to competitive entry, and if it can be copied by a competitor then it probably won’t be sustainable.
Proprietary technology, however, is confidential. Although the business plan does not want to mention aspects of the technology that are confidential, it should include details of what the benefits are and how they fulfill the need of customers. During the due diligence process, serious investors will review the technology itself, and this is when the NDA should be discussed.
2. Excluding Thriving Firms from the Competitive Analysis
Although you may be tempted to show how unique you are in your business plan by saying you have very few competitors, this doesn’t normally look too good from the investor’s point of view. If there are not many companies in the market space then this suggests that there may not be a large enough customer base for the company’s products or services. Including successful firms can often be positive because it suggests a large market size, as well as assuring investors that the company has a large potential for profit and liquidity:
3. Focusing on First Mover Advantage
It is not a good argument to focus on first mover advantage alone. Rather, it is imperative that a business plan includes the strategies that show how the company will develop long lasting barriers around the customers.
The business plan should discuss how the company will retain customers, which could include building network externalities, value-added services over time and the implementation of customer relationship management tools.
4. Presenting Generic Market Sizes
If you define the size of the market too broadly, the value to the investor will be very low. Far more meaningful is the relevant market size, which is equal to the sales of the company if it managed to capture a large % of its niche in the market.
5. Giving too Much Attention to Proprietary Technology
Proprietary technology is important when it comes to investment decisions, but what is more important is to display how this technology satisfies a large and as-yet-unfulfilled customer need. Unsuccessful companies often fail to truly understand the needs of their customers. Identifying the target markets that show these needs and detailing a plan to penetrate the markets is key to the success of funding and execution.
6. Exaggerating Partnerships with Known Companies
Even though forming partnerships is common practice, more important than who a partnership is with are the terms of the partnership. The equitable terms of the partnership must be explained in the business plan, along with the partnership structure and how the partners will both improve operations and sales for you.
7. Too Much Focus on the Future
Rather than just focus on projections of future performance, it is far more important to study the previous track record of a company. Demonstrating the past success of a company is a good practice for providing investors with confidence for the future, and it is therefore important for a business plan to show the company’s previous accomplishments.
8. Failing to Change the CVs of the Management Team to the Ventures Development Cycle
CVs of the key members of the management team should be included in the business plan, along with their responsibilities. These need to be tailored specifically to the growth stage of the company because different skills are required for launching, growing and maintaining a company. Whereas a start-up company would do better to focus on the success of the management in launching other companies, a mature company would get more from showing how members of the team operated successfully within larger enterprise frameworks.
9. Aggressive Financial Projections
The projections in the financial section of the business plan have to be realistic because many investors will go straight to this section. If a plan shows unrealistic or inconsistent operating margin and penetration then this will damage the credibility of the whole plan. Instead, accurate and credible projections and assumptions will translate into increased credibility and maturity. Companies can prove that their projections and assumptions are attainable by basing these projections on the performance of public companies in their marketplace.
10. Ignoring Fraud Prevention System
Whether you are 100% confident about the loyalty of your employees still you need to put a proper and effective fraud prevention and fraud detection system to curb any fraud losses. One can see in history that most of the time loyal employees and relatives have been found indulged in the frauds and scams which results in a huge loss to the enterprises. Even some CEOs, loyal employees and close persons have committed such financial crimes in many companies and organizations. By putting a proper fraud detection and fraud prevention system enterprises can save millions and billions.
If you are following these steps then definitely it is going to help you in raising capital for your business, but just remember these facts which i have mentioned above, as many entrepreneurs know everything but do not stick to the plan.
Bill Trueman is director of the UKFraud a leading fraud prevention and risk review service provider based in UK which provide valuable consultancy services for fraud prevention, fraud detection, risk review, risk management to corporates, banks, enterprises and government organizations worldwide. One can visit his website at www.ukfraud.co.uk