Investors are looking for two things when it comes to reading a business plan, a reason to love your company or a reason to toss your plan in the garbage. There are three major red flags in the business plan world and if you throw one up your business is not getting investors.
Do Not’s!
Claim No Competition
Entrepreneurs are prone to getting carried away, particularly when it comes to entry barriers that set their company on high above all others. Entry barriers are things that your company has access to that no one else does, for example an amazing management team or proprietary information and knowledge. While these kinds of elements will make your business look great, there is no business on the planet that is completely without competition.
The size of the industry you are competing in will be shown in the industry analysis section of the business plan while the sub set or niche of that industry you are focusing on is listed in the market analysis. Finally the competitive analysis must contain the strength of your competitors and how you will overcome it.
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In other words, you can have your cake and eat it as well. Competition shows that there is a large enough market to make money while you point out your strengths and strategy, which will give you a secret inroad into the market, side stepping your competition.
Chief exit strategy-First Mover Advantage
If your base exit strategy is to create a new product or service, flood the market and then sell out in a short amount of time, worthy investors will not be found. The information age has everything moving quickly and while a company that can grow fast is desirable investors also want to see that it will grow steadily in specific phases. When it comes to your business plan, they want to see a realistic, sober financial outlook that provides sound investor exit strategies.
Focus on One Company for Buyout
For instance, let’s say you are creating new computer software; you should not solely depend on Microsoft or Google. Provide parallel case studies if your exit strategy depends on a larger enterprise buying you out. You must show good solid evidence that the conditions are just as favorable for your business as they were for a similar case study sell.
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Prove, furthermore why a big company would not be able or even want to develop your product themselves.
Bottom Line:
- Do Not claim no competition or extremely weak competition
- Do Not have a chief exit strategy dependent upon first mover advantage
- Do Not target on major company when it comes to selling your little company
- When you avoid these perilous business plan mistakes the path to investments will be much easier.