First-time founders have a lot on their plate, including figuring out what processes work when putting together a business plan. What is one thing that beginners often miss doing when putting together their business proposal, and how does missing this hurt them?
These answers are provided by Young Entrepreneur Council (YEC), an invite-only organization comprised of the world’s most promising young entrepreneurs. YEC has also launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.
1. What Sets You Apart
Never forget what sets your business apart from the competition. The business plan should not be entirely about your company, but include a bit of information on how yours is differentiated from competitors. Failing to add this in will hurt, and your proposal might not be accepted because it may not be clear that you can beat out others in your niche.
2. Whose Problem You Are Solving
One of the biggest mistakes I see is first-time founders with a solution in search of a problem. They have an idea and they have an action plan, but they have no clue about their market, their competition, or whether anyone has the slightest need for what they are offering. A clever idea isn’t enough: It has to solve a common problem that real people actually have.
3. Customer Lifetime Value
Unseasoned entrepreneurs have a tough time thinking long term. When they consider the factors that impact customer lifetime value, then they can look for further ways to increase their product or service offerings, foster customer loyalty and positively impact sales projections.
4. An Exit Strategy for You and Your Investors
A business plan is a document often filled with a lot of hope for the future, details about the competition, market focus, strategy and funding. What is often overlooked by first-time founders is a solid exit strategy for the owners and investors. Many funders want to see the first available opportunity to cash out on shares. Skipping this might leave potential investors underwhelmed.
5. Your Weaknesses
Good plans need explicit assumptions and thoughtful questions. I used to feel pressured to have the answers to everything. But doing this makes your plan less believable, and makes it harder for people to help. Founders should remember that demonstrating awareness of your gaps and having a solid plan of how you’re going to tackle them, is often more powerful than appearing to have all the answers.
6. Cash Flow Projections
Beginners often miss cash flow forecasts that tie to their balance sheet. If you don’t project out your balance sheet, you won’t know what your current ratio is now and what it is expected to be at the end of the year. Understand how much cash you are burning, and make sure that you can successfully manage major cash expenditures.
7. Clear Revenue Goals
Revenue goals are overstated and costs, marketing, and operating expenses are understated in rookie business models. Sales forecasts with unsubstantiated numbers, without client contracts, plugged into Excel, produce projected growth rates that are intangible. Add 30% buffer on your cost projections, as unexpected crisis and financial challenges will happen to even the most prepared entrepreneurs.
8. Check Assumptions
Many people don’t realize how many unfounded assumptions they make in their business plans. These assumptions will become red flags for investors if they’re not supported by research (or, better yet, testing).
9. Your Timing
Test your business plan with, “Is this the right product at the right time?” I loved my Palm Pilot back in 2003 (despite its slow syncing). It was years ahead of its time. Today it does not exist in a market dominated by the iPhone and other players. It would have been great in 2008 with a faster wireless network. Conversely, a service may be too late or nondistinctive in a crowded market.
10. Plan Is a Living Document
Many entrepreneurs forget that a business plan is a living document, and therefore ever-changing. As the business grows and changes, the business plan should, too. Many entrepreneurs are so proud of their first business plan, that they do not want to ever change it. However, a business plan that does not change will hold the business back and prevent it from ever growing.
11. True Market Validation
Too often, first-time founders push forward with business plans and even businesses without engaging in true market validation. By not interviewing enough objective prospective customers, entrepreneurs run the risk of investing their time and resources in a business that may not have an audience, and in turn, viability.
12. Plan for the Worst
I’ve seen and heard countless stories of bright-eyed and bushy-tailed entrepreneurs and startup founders planning around their ideal business environment, only to have their plans blow up in their face at the first sign of trouble. The secret to building a business proposal that works in the real world is to have contingency plans if things go wrong. Plan for the worst and hope for the best.
13. Remember Marketing
I think many first-time founders believe that if you build a better mousetrap the world will beat a path to your door. From my experience, this is simply not true. I have seen numerous businesses invest in their product and website, only to find nobody can find them. Before launching a business, it is imperative to have a plan for acquiring customers and an idea of customer acquisition costs.