The most prevalent complaint among venture capitalists and other business plan evaluators is that the plan does not plainly describe both the opportunity and risks. This opinion is equally relevant to the executive summary, since that is the part of the business plan which is read first and decides wherever the reader will read further into the plan.
Close on the heels of insufficient clarity is the use of impractical or hockey stick predictions based on weak assumptions. Unrealistic, in this case, implies unrealistically high. Poor assumptions are those not supported by the economic facts of the marketplace. Often times, the issue is that the claims are too simplistic.
There is a marked tendency on the part of business owners to treat their products or services as unique in the industry. Therefore, one will read claims that no competition is available. Conduct thorough research to discover direct and also indirect competitors. Strangely, some business owners believe that it is beneficial to present filtered details to reviewers and omit a thorough competitive analysis or other information which may detract from their business model. For the complex reviewer, omissions and errors do not deliver a high degree of assurance in the plan or in management. A lot of investors wish to be on the second wave of companies entering a field or market space; therefore, the presence of competition, specifically defined, can in fact present a component of risk reduction. They know that competition is available in every industry and that the later market newcomers usually have the best opportunity at success.
A business plan must create the existence of a sustainable competitive advantage, yet a lot of business plans are vulnerable on market analysis. One reason for this weak point is that the cost of getting extensive market data can be very high. A low-cost, high-value option is to get your market research via internet. The benefits of the Internet can not be over emphasized. Examine it to doing market research at the public library just a couple years ago.
While the originality of the product or service is helpful, the proven expertise of the management group is much more essential. It's quite common for business plans to overstate management's strong points or to present an insufficient discussion of the management team. Sophisticated investors will not invest in the best product or service when there is not enough confidence in management or an unwillingness to cede control to professional management if required.
Additionally there is a tendency to over value companies. The times of sky-high appraisals of the 1980s and 1990s have ended. Assessment is an art, not a science, particularly in early stage businesses. Your best protection is to be competent to recognize precious elements of your business and place a sensible valuation. Find out how investors in your sector or geographic area define company value. In a non-revenue company, concentrate on intellectual property (IP), management, and standards accomplished so far.
Surprisingly, many companies neglect to incorporate their contact information in the materials they give or present to investors. The right spot to include that information is on the front cover of the business plan and in the executive summary.