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 companys 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
dont perform the appropriate, truly intensive due diligence
on the plans 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? Lets
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
The Order of Plan Element
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
The Market Analysis
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 TeamQuality
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
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
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 dont get the job done. The who, what,
and when for each of the plans operating strategies should
constitute the operating portion of the overall plan.
There is no such thing as a
perfect business plan, but its 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 email@example.com.