June 26, 2010
If you’re looking to raise capital for your business, you need a great business plan.
And if you still haven’t finished your business plan…
Click Here for a “short-cut” to finish your business plan faster.
And here are some important mistakes to avoid…
When investors read business plans, they are looking for reasons to love the business, but they are also looking for reasons to unceremoniously discard it. As soon as they run across one of the following three red flags, it doesn’t matter how good the rest of your plan is. You’re dead in the water.
Don’t do the following.
Claim a lack of competition.
Some entrepreneurs get carried away in their zeal to demonstrate barriers to entry that set their company apart from others. A “barrier to entry” is proprietary information or knowledge, or a set management team experience no one else can claim. Factors that make your company stand out are attractive, but the reality is that no business has no competition.
The Industry Analysis section of your business plan must show the size of the industry in which you compete. The Market Analysis will show the sub-set of that industry on which you will focus. The Competitive Analysis must show your competitors’ strengths – and how you will overcome them.
You can have your cake and eat it too, in other words. You must show there is enough competition to convince investors that the market is large enough to cash in big-time, but that your strategy is focused and unique enough to navigate an exclusive path through the waters of that competition.
Use first-mover advantage as your chief exit strategy.
Companies whose sole exit strategy, or investor payout point, is to flood the market with a new product or service, and then sell the company in a year, will not find worthy investors. Things move too quickly in the information age. Investors want a company that can grow quickly but steadily in phases. They look for business plans that show a sober, realistic financial lookout, and fiscally responsible exit strategies.
Target just one large company to eventually buy your smaller company.
For example, if your company is developing a new software, do not place all your eggs in the Google or Microsoft basket. If the exit strategy of your business plan depends on a larger company buying yours, provide parallel case studies. Show sufficient evidence that the conditions are the same for your company as they were for the successful sale of the case study companies.
Furthermore, show why a larger company would not want or be able to develop the same product in-house.
Let us be absolutely clear:
Don’t claim a lack of competition.
Don’t use first-mover advantage as your chief exit strategy.
Don’t target just one large company to eventually buy your smaller company.
Avoid those business plan mistakes and your path to funding will be far clearer.
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