Common business plan mistakes - and how to avoid them
Here at Virgin StartUp we take great pride in helping aspiring, ambitious entrepreneurs turn their dreams into reality. There’s nothing that gives us greater satisfaction than seeing an entrepreneur embark on their business journey with our support.
However, unfortunately we do decline some of the business plans submitted to us. Often this isn’t due to the quality of the entrepreneur or the potential behind the idea – rather it is because the entrepreneur usually needs to further develop one or two specific areas within their plan before a successful application outcome can be attained. Head business adviser Henry Kuang talks about some of the common pitfalls seen in business plans - and how you can avoid them.
Not giving enough information
Business plan templates can differ from one another, but they typically follow a similar structure. Within these templates you’ll be expected to articulate your idea, product, target customer, competitive positioning, pricing, business model / key processes / logistical matters, launch strategy and marketing plan, team backgrounds etc. Depending on your idea, there may be some areas you focus on more than others – however, do make sure to complete all sections. Doing so provides colour for the reader, enables them to better understand your business, how it operates, how it will be positioned and what it will take to get it off the ground. From a funder’s perspective, the more you can provide in terms of relevant detail, the more you’ll have de-risked the plan – and the more faith they will have in you. Find our Virgin StartUp business plan template here.
Not quite nailing the elevator pitch
Most business plans have an executive summary section, where you sum up what your business is all about – treat this very much as a Dragon’s Den-style elevator pitch. This is your opportunity to succinctly and compellingly convey what your business does. Make sure your audience comes away knowing what your product is, who your customer is, why this opportunity is exciting and why you’re going to win. And ideally do this as efficiently as possible – a few rapid-fire bursts – so it’s quick and painless for the reader!
Not proving your idea
There is a nuanced difference between an idea and an opportunity. An idea is abstract, and at times, hypothetical – often communicated with a heavy dose of subjective opinion. An opportunity is backed up with indicators and facts. The trickiest part of any startup is to prove the market for their product, and similarly the trickiest part of any funder is to believe there is a market for the product. The nice thing is that, if you can prove there is a market, funders will be more inclined to believe there is one too - so prove it! Evidence that is particularly useful includes pre-orders, expressions of interest, an existing community of interested parties, positive feedback from recognised industry parties, successful crowdfunds, awards or prior product versions, etc. These will really set you apart from the crowd, turn your idea into an opportunity, and bring real-world context to the reader.
Being unrealistic about your cost base
Sometimes we all fall prey to living in our own heads. Coming up with a fantastic idea and basing your financial assumptions on what you think they may be is easily done, especially in the heady first weeks of an exciting idea where you're racing to get started. How many times have you caught yourself saying “Well, these costs are ballpark – they should be fine”? Well, our advice at Virgin StartUp is to leave the ball park as much as possible when business planning. Whether you’re dealing with costs associated with manufacturing, hiring a PR agency or taking out rental premises, there’s no substitute for doing your research and getting quotes in. From a funder’s perspective, referencing or evidencing through quotes not only provides us confidence in your cost base, but it also demonstrates that you have a sound grasp of your figures and know how to assess and interact with potential suppliers to get your business going.
Moving too fast, too soon
On the one hand, you need to describe your vision - but on the other, you need to outline the reasonable steps that you need to take to get there. Sometimes it’s easy to get carried away by the grand vision, but make sure your plan is always grounded in reality and based on facts and evidence wherever possible.
It's also vital to make sure you never lose sight of your first target market. For example, you may plan to launch a chain of successful restaurant chains in time – however, your starting point might be to first launch a successful food truck or local restaurant. Therefore your first target market is determined more so by local footfall, rather than the market size of the UK casual dining industry. Watch out for hubris - remember to always keep it real!
Not meeting compliance and regulation requirements
Whilst not having the right paperwork may not permanently dent your startup aspirations, they will delay them. For your chosen industry, make sure you have a clear understanding of certification and regulatory and compliance requirements. By the time you receive funding, all these requirements should be satisfied and hopefully you’ll be all systems go!
Not communicating why you're the best person for the job
Wherever possible think about the key capabilities, knowledge and assets needed to make your business a resounding success. These should be things the business can’t do without, and which also differentiate you from the competition. Then think through what you bring to the table and cross-reference against this list. Hopefully most will be covered – and if so, shout it from the rooftops!
In cases where the business you aspire to launch is radically different from your current day-job or current skill-set, it’s time to hustle - get to know your chosen industry well, get to know its participants, experiment with lean business models and product prototypes. Start making a name for yourself and collecting experiences, so that in time you can demonstrate that you are the right person to launch your business. Here at Virgin StartUp we have funded entrepreneurs that planned to do something radically different, but they’ve demonstrated to us why they’re the right person for the business.
Skipping over numbers
Numbers, financial models and spreadsheets can all seem daunting. But think of it this way – they’re just a way for you to communicate your startup story! By looking or splitting apart some of your numbers, you and your audience should be able to tell the story of your journey. For instance, when I look at a startup’s marketing expense line through the size of the figure and how it rises and falls over time, I may be able to tell – for instance - that the startup is jump-starting itself with a big launch and then tailoring down to a more steady mix of social and traditional marketing. I may be to deduce that during its launch event, it’ll be inviting all the people on its mailing list who have registered interest and that it expects higher customer conversions - as evidenced by a spike in sales compared to other months. And so the story builds...
Not thinking long-term
The most important thing to us at Virgin Start-up is that the entrepreneur is able to build a sustainable business, one that can last the test of time and isn’t a flash in the pan. From this perspective, make sure the end point in your business plan represents a state of sustainability and is based on sensible assumptions. The business should be able to fund itself and hopefully produce financial returns and cash-flow profiles aligned with your aims. Unfortunately a business that needs to crowdfund itself in 6 months or else run out of cash may not exist in half a year’s time. Don’t end your business plan with a cliff-hanger!