Is Your Business Plan Designed to Fail?

Many business plans, even those that are comprehensive, are designed to fail from the outset. Often the weaknesses in a business plan are not recognized until it is too late to take corrective action. The following are some of the most common issues that many business plans have failed to avoid.

We have a long track record of identifying and helping to build successful companies in software, healthcare, medical, biotech, and technology markets. If you can identify any of the following issues in your company then you need to contact Pedlar Ventures right away.

1. No niche market focus:

To an entrepreneur, a product, service or technology that's applicable to everyone is attractive - to an investor, this may signal trouble. The fact is, there may be many markets for a product or service, but even well capitalized giants have trouble selling in multiple markets. Thus, for start-ups or companies expanding into new markets, the critical questions on investors' minds are: Which market will you pursue with my money? How will you do it? What does it mean if you succeed? Investors fear that, without a specific niche market focus, the company will be focusing on so many different things that it won't be able to carry out the most fundamental purpose of the business, which is to create value and wealth for its shareholders.

2. No clearly defined exit strategy:

How do the investors get their money back and earn a return commensurate with the risk? There are really only two exit strategies. The company is acquired, or it goes public. If an entrepreneur refuses to commit to one of these options, the investors usually walk away.

3. No willingness to surrender control:

Having a control freak at the top of the organization is a problem. It's expected that entrepreneurial genius brings with it some unique character traits, but this one can lead to disaster. If the person running the company cannot or will not surrender control, there is little likelihood they'll be able to successfully orchestrate an exit strategy for the investor. Why? Because ultimately an exit strategy in the form of selling the company or going public is about a change of control.

4. No reality based business valuation:

This refers to the overall worth or dollar value an entrepreneur places on the business. Valuation is vital because it determines ownership positions for the entrepreneur and the investors. That is, if a business is valued at $10 million and the entrepreneur wants to raise $4 million in equity financing, it's likely going to cost 40 percent of the company. All companies seeking equity financing are valued in comparison to similar publicly traded companies. When an entrepreneur sticks to a valuation that is totally out of sync with the valuation yardsticks of their peer companies, that deal becomes unfundable.

5. No large market application:

If your market isn't very big, it's hard to get outside investors fired up about chasing it with you. It's one thing if you own a storefront business or operate an enterprise within a single community, but if you're competing nationally you'll need a minimum market size of $100 million.

6. No strength in your business plan:

A weak business plan may not render your deal absolutely un-fundable. After all, someone might see the genius behind the clutter. If you're going to a professional investor or an active angel investor chances are, they get inundated with business plans. If that's the case, they won't take the time to labor through your muddled presentation. There's really no excuse for poorly written business plans because there are many places to get help preparing them.

7. No or poor financial assumptions:

One area of a business plan that can definitely make your deal un-fundable is the financial projections. There are several ways this can happen. For established companies, a sales and earnings curve that deviates too much from historical standards isn't good. That is, the top and bottom lines have been growing at about 5 percent per year, but you're predicting they're suddenly going to accelerate to a growth rate of 50 percent per year once the company is funded.