By Paul Morin
You’ve heard you need to have a business plan, so you figure you’ll throw one together and get it over with, right? This article talks about how to write a “bad” business plan. It also explains how to avoid these common errors. Well, it explains a bit. Really, it would be best if you’re good with irony and inference, as this article is mainly about what’s to be found in bad business plans. Note: For anyone thinking about quoting from this article or following its advice verbatim, as I point out below, hopefully you’ll pick up on the irony and can infer what to do from what not to do. For everyone else, see Business Plan Basics — The Essential Elements of a Good Plan.
The contents of the business plan typically should vary based on the expected audience for your plan. However, given that this is how not to write a good business plan, we won’t differentiate for particular audiences. They’re all the same, right?
Here’s what a bad business plan would include and a few suggestions to avoid being “bad.” Please note that many experts don’t believe a business plan is necessary, so think twice before putting massive effort into writing one. By the way, while I don’t think a full business plan is the first step you should take in launching your business, the planning process should help you to gain many insights into the venture you are considering launching. So, even if you’re not big on the plan itself, in my experience, the process of putting it together can bring a lot of risks and opportunities to the surface.
So, here we go. Make sure your bad business plan includes the following (remember, it’s “opposite day”):
Executive Summary: Most people who read your plan won’t be very busy, so don’t bother with a summary. Better yet, if you do include a summary, make it ten pages long, or somewhere around twenty-five percent of the document.
Problem Description: Be sure not to discuss any specifics in this section. Speak in generalities. Talk about how there is a big problem and it’s likely to keep getting bigger, given that no one is really doing anything about it.
Overall Market Description: Again, speak in generalities. Be sure to use older data about the market and explain how the market really hasn’t changed that much in the last ten years, so the older data should be a pretty solid indicator of the current opportunity. Be sure to describe the expected tremendous growth over the next several years.
Market Niche(s): Pick a couple of market segments that you think will pique the interest of the readers of your plan. Again, don’t get into too many details about their size, but talk about how great they are and how all the best buyers are in those segments. Be sure to point out how those buyers are not particularly price sensitive, so the niche you’re targeting should therefore be a lot more profitable than the rest of the market.
Products/Services: Describe how your products and services perfectly solve the problems of the market and especially of the price-insensitive segments you are targeting. Be sure to refer to your offerings as “world beaters” and highly innovative. It also helps to use the word “revolutionary” wherever possible. Explain how nothing has come along like this in a long time, really since sliced bread.
Competition: The first thing you should point out is that you really don’t have any competitors. Not only are there no competitors, there are really no substitute solutions that do exactly what yours does for the market. Be sure to hit this point very hard, as investors and other consumers of business plans love to hear that no one else has paid any attention to this tremendous need you’ve identified in the market.
Marketing Strategy/Tactics: Here is where you talk about how you’ll let your target market and the rest of the world know about the great solutions you’re bringing to the marketplace. This section won’t require a lot of work, as given the quality of your products and services, you likely won’t need to market and sell a lot. Word should travel and “word of mouth” marketing should take over, creating a “viral” spread of praise regarding your company and its offerings.
Management Team: It has been said many times that a potential investor cares more about having a great management team than about having the perfect product or service offering. It’s just a saying though, right? You’re just starting out. Don’t worry too much about what your management team will look like. Given all your talents, you should be able to do most everything yourself, at least at the beginning. In this section, just include a large bio for yourself and reference a few other people who may join the business if all goes well.
Financial Summary: This is the section of the plan that gives non-financial and non-quantitative people the most pause. It’s not easy to put together a good financial summary, as in order to do so, you need to do a bunch of financial analysis in the background. It’s not possible to predict the future, so why try, right? Just include a bit about how fast you think the sales will grow and how profitable you think the company will be.
Break-even Analysis: This is a calculation of the point at which the company covers all its fixed and variable costs. Since you will not be doing financial analysis, don’t worry about this.
Key Assumptions: In an ideal world, you’d try to do as much research as possible to justify your assumptions on both the cost and revenue side. That would be a lot of work though! Go ahead and just take some guesses based on your experience. Don’t worry; everyone does it!
Projected Financials: Here, based on your assumptions, you may want to project the three major financial statements: the Income Statement, the Balance Sheet, and the Cashflow Statement. But that too would be a lot of work. Just focus on the Income Statement. Don’t worry about using a spreadsheet, as you won’t be using any formulas. You can just type the info into a Word table.
Key Financial Indicators: Don’t worry about this. It’s too much detail.
Capital Requirements: One of the reasons you’re creating a business plan may be to raise money from equity investors or get a loan from a bank. While most potential investors will be very interested in what you expect to do with the investment, don’t worry about it. That’s not your issue. They’re professionals. They should be able to figure it out, right?
So in the end, the business plan is not so complicated. It’s particularly easy if you follow the advice in this article for how to create a bad business plan. Whatever you do, don’t follow the advice of this article verbatim. This article highlights everything you should not do in a business plan, or in any kind of document or presentation where you are trying to convince others that you have a compelling business opportunity and you’re the one to take advantage of it. This article was written in this contrarian mode in the hope that it will startle some folks into reality. Without exaggeration, I have seen thousands of business plans and investor pitches in my career. I can tell you that a large percentage of them commit some, if not most, of the errors described above. Don’t write the next bad business plan. For more advice on what you should include in a business plan, see the following article: Business Plan Basics — The Essential Elements of a Good Plan.
I look forward to your thoughts and questions. Please leave a comment below.
Paul Morin is the founder of CompanyFounder.com. Morin has worked with various entrepreneurial companies in senior management roles and has led the development, review and selective implementation of several hundred start-up and corporate venture business plans, financial models, and feasibility analyses. You can e-mail Morin at firstname.lastname@example.org.
Originally published: Nov 16, 2011