"FATAL FLAWS IN BUSINESS PLANNING"
By Dave Tsoneff, President, David P. Tsoneff Associates

 

Business Plans are often uninformed, incorrectly prepared and insufficiently researched. Such errors can make what should be a crucial document completely valueless. This especially holds true for start-up or not-yet-mature companies.

Business plans of all kinds, including those used for the purpose of attracting capital, are vital to a company’s success. When these plans are misleading, incomplete, or not properly thought out, the results can be devastating. Investors often rely on the plan, and the work that went into its development, to make their investment decisions. They frequently don’t perform the appropriate, truly intensive due diligence on the plan’s contents and therefore can become disappointed with the post-investment performance results of the company and its management team.

What are the typical mistakes made in the preparation and presentation of business plans? Let’s take a look at several.

The Business Model
Assumptions about the business model can be unrealistic. The business model needs to be proved through the operating history of the company or other existing comparable companies. The proposed returns on investment should possess a sufficient pre-institutional-round multiple. In many plans, this information is approached vaguely or without sufficient support.

The Order of Plan Element Presentation
A business plan is essentially the description of a business opportunity with appropriate objectives, strategies, and implementation plans. It includes forecasted business and financial results. The plan is not a document to be presented at a scientific symposium. Get to the point up-front: this plan is to build a $XX million company in the next 3-5 years with a planned return on investment of XX%, in the XX market, using XX technology, with stated exit strategy options, etc. When writing and presenting plans, too often the technology is described in excruciating detail up-front, losing the reader/listener in the process.

The Market Analysis and Potential
The evaluation of the potential market for the product/service is frequently overstated and unsupportable. Competitive analyses are incomplete and not sufficiently detailed. One cause for this is that the entrepreneurs and their business partners are so enthusiastic about the opportunity they are describing that they view the competitive landscape as less intensive and complicated than it might really be.

The Management Team–Quality & Expertise
For start-up companies, particularly those in high tech, the proposed management team may not be a "management" team at all. Those individuals presented are often technologists with some functional area management experience. They are not general managers with a bottom-line orientation and required leadership expertise. Capital providers worry about such management teams. The proposed boards (advisory or directors) usually include some reputable business people, managers if you will, but they will not be managing the business on an ongoing basis.

First Product Only
Many business plans detail the first product/service exclusively, and only hint at additional products/services coming on line over the 3-5 year plan period. This provides the reader/listener with an incomplete view of the mid-term future. Too often the follow-on products/services have not been seriously considered.

Lack of an Implementation Plan
The business plans that most typically fail to produce desired results are those that stop with the completion of the strategic plan and forecasts. Plans are made or broken by how effectively they are implemented. Business plans without an action implementation plan can look nice in their pretty binders but don’t get the job done. The who, what, and when for each of the plan’s operating strategies should constitute the operating portion of the overall plan.

There is no such thing as a perfect business plan, but it’s always wise to avoid the pitfalls when forewarned about them.

David P. Tsoneff is president of David P. Tsoneff Associates, a business consulting firm. As former Senior Vice President at The Walt Disney Company, President of Thomas Bros Maps, senior executive at several Fortune 500 companies, and with 12 years of consulting experience, Tsoneff helps both ongoing and early-stage companies prepare for next steps by helping to ensure the correct preparation and implementation of all plans and programs. Contact Tsoneff at (714) 962-0162 or ndtsoneff@aol.com.