What about the MARKET?
I’m currently participating as a judge in a business plan competition. I do this kind of work frequently and always end up with feedback that sounds the same for most plans.
The principal fault I find in most proposals is a weak link to the market.
Most ideas are couched in terms of “I know how to do this really well, now I want them to pay me lots of money to do it”. Sometimes (read: very rarely) an entrepreneur’s personal interest connects with a market need, and when it does, most entrepreneurs are unprepared for the result – like taking a sip of water from a fire hydrant. Most of the time, only a small part of the entrepreneur’s interest overlaps accidentally with a market need, and the resulting enterprise spends a whole lot of time ramming their offering down their customers throats – this takes a whole lot more money than what was planned.
And “who” is “them” exactly? Most plans I read do a really poor job at identifying their target market – once we start talking about “who”, it’s amazing how quickly we discover that our “what” has little or no demand and that it requires extensive rework.
That’s related to the second most-common fallacy, my “what” sells itself. I still smile at business plans that include a commercial (sales, marketing, communications, etc.) budget with only 2 or 3 zeros. NOTHING gets to its intended market without consuming some resources – I scoff at people who claim that intermediaries aren’t worth their commissions.
This also leads to understating working capital needs. It takes a while for the company to reach break even, until then, company finances must cover the burn rate. Furthermore, in order to break into a market, especially an established one, sales must grow on some sort of credit terms. This, on top of the fact that inventories eat a whole bunch of cash. I love the face of most entrepreneurs when we go through a fully articulated financial model and see how the company can go broke by selling too much.
Thus, I see a lot of plans that are rife with structural obstacles: overestimating market acceptance compounds the underestimation of resources required to get to market, which undermines even the most carefully crafted budgets and distracts the management team with non-value added activities (like explaining to creditors why the company is in default).
