When a potential investor reads your business plan, they look for both for reasons to discard your plan and for something that will make them want to enthusiastically back your business. If they see one of the following problems, it wonΓÇÖt matter how solid the rest of your plan is; theyΓÇÖll toss your plan and move on to the next, so avoid the three mistakes which follow.
Fail to acknowledge the competition
ItΓÇÖs all too easy to get carried away demonstrating the barriers to entry (like proprietary technology or an expert management team) your business has that you donΓÇÖt acknowledge the fact that you have competition. ItΓÇÖs great to show potential investors that your business has competitive advantages, but there are no businesses which have no competition.
Your business planΓÇÖs Industry Analysis section should explain the size of the industry youΓÇÖll be competing. Your Market Analysis section is where youΓÇÖll explain the particular segment of the market which is your area of focus. In Competitive Analysis, youΓÇÖll look at your competition and evaluate their strengths as well as how your business will be able to get past these hurdles.
You can have it both ways and avoid this mistake at the same time. Your business plan needs to demonstrate that there is a level of competition which makes it clear that there is money to be made in this market, but that your company has enough unique advantages and understands the market well enough to be competitive and profitable.
Use first-mover advantage as exit strategy
A company which is founded solely to introduce a product or service and sell out in the very short term is not likely to find investors. What investors are looking for is quick growth, to be sure, but they want this growth to be steady and come in stages with realistic financial projections and exit strategies which are responsible in fiscal terms as well as providing a good return on investment.
Targeting just one large company as a potential buyer
If your company is a software development firm, for instance, donΓÇÖt put all your focus on courting Microsoft or Google as a buyer. If your business planΓÇÖs exit strategy is to be bought out by a larger firm, then youΓÇÖll need to provide some case studies which are relevant to your industry and your business. You have to demonstrate that your company is in a similar condition to the businesses which have been successfully sold to others in your case studies. You also need to show potential investors that the companies youΓÇÖre targeting as buyers wouldnΓÇÖt be able to (or choose to) develop a product in-house which is similar to your own.
To recap, donΓÇÖt claim that your business has no competition, donΓÇÖt rely on first-mover advantage as your exit strategy and donΓÇÖt put all your eggs in one basket in terms of being bought out by a larger company. If you can steer clear of these mistakes, you will have a much greater chance of finding the funding your company needs to grow.