Nine Common Business Plan Mistakes To Avoid As A New Entrepreneur
Business plans are often considered an essential tool to help set a new entrepreneur up for success. This document typically encompasses the vision for your company, including your mission statement, while also pinpointing your target audience, sales projections and growth goals.
If you’re a new entrepreneur, developing a business plan can be intimidating and you might not know where to start. You may also be prone to making some common errors that business owners tend to make on their first plan.
To that end, nine members of Young Entrepreneur Council each share one mistake new entrepreneurs often make in their business plans and what they should be doing instead.
1. Making A Long-Winded Business Plan
After working at a larger company and starting my own company, I think that having a long, 50-plus page business plan is a mistake for startups because things change so quickly, and by the time you finish writing it, it is outdated. I have used the business model canvas from the Lean Startup methodology to create a one-page business plan, and leveraged it to create our mission and vision statements. We have never needed a business plan in our nine years of operations, and have just leveraged the business model canvas, revisiting it every two to three years to make sure that our strategy is still sound. I advise my clients to use this as well. I don’t think I will ever write a long-winded business plan ever again. – Candice Lu, ONPREM SOLUTION PARTNERS
2. Underestimating User Acquisition
Entrepreneurs often underestimate user acquisition. With the immense competition for the consumer’s attention today, it is more important (and difficult) than ever for their message to stand out. Part of that is a product that solves a burning pain point for the consumer that the consumer would be immediately drawn to, but another part is finding nonsaturated channels to reach their target consumers and building compounding loops within their product so that their users champion their product to other users. While it would be ideal if building a great product was all it took—”If you build it, they will come”—in my experience, this has not been the case. Great products need great distribution strategies to break through the noise and reach consumers who need what the entrepreneur is making. – Akshar Bonu, The Custom Movement
3. Striving To Create A ‘Perfect Plan’
One mistake is that new entrepreneurs are trying to create the perfect business plan with everything all figured out. You will never start if you are trying to have everything figured out. Come up with a basic business plan and start it. No matter what, things are going to change as you figure it out along the way. For most things, you won’t know until you start it and try things. So keep the plan basic and get started. Take notes and make adjustments along the way. – Lisa Collum, Top Score Writing
4. Failing To Research The Target Market
One business plan mistake that new entrepreneurs often make is failing to research their target market properly. They may have a great product or service, but if they don’t know who their customers are, they’ll have a hard time reaching them. It’s important to have a clear understanding of who your potential customers are, their needs and how your product or service meets those needs. Without this knowledge, it’s difficult to create an effective marketing strategy. New entrepreneurs should take the time to research their target market thoroughly. This involves identifying their needs and wants, understanding their buying habits and knowing where to find them. Only then can entrepreneurs develop an effective marketing plan that will help them reach their potential customers. – Tonika Bruce, Lead Nicely, Inc.
5. Forgetting Cash Flow
New entrepreneurs focus a lot on their profitability in their business plan, so they forget to focus on cash flow. Profitability often does not equal cash flow. Many profit-making businesses are not able to pay their bills because their funds are stuck in debt and stock. Thus, when making a business plan, it is important to look at the cash conversion cycle and how to reduce the cycle, as well as how to fund the cash flow shortfalls even when the company is profitable. Profitability ensures that the business will remain existent in the long term, but cash flow ensures that the business will remain existent in the short term as well. – Kripa Shroff, AK Multinational LLC
6. Thinking A Business Can’t Be Started Without A Formal Plan
Many entrepreneurs think they need a highly detailed, professional business plan before they can start their business. I would say that most of the business owners I know didn’t sit down and formalize a plan before they launched. They just got after it and met a need in their market, learned lessons from the wins and the losses and refined their offering and operation each day. There are enough mental roadblocks that people obsess over and let stop them from ever starting, and the business plan shouldn’t be one of them. That being said, it is good to have a business plan developed at some point in the business, which can be updated over time as the business grows. Chances are that the plan you start with will need to adapt and grow just like your business does. – Joel Mathew, Fortress Consulting
7. Misunderstanding The Plan’s Purpose
Entrepreneurs’ most significant mistake when writing a business plan is not understanding who they’re writing it for. Not all entrepreneurs use their business plans to attract venture capital. If that’s you, you don’t need a comprehensive plan, but you do need a solid market analysis and financial picture. A business plan is a fluid document, not one set in stone. Business plans can be one page or even written on a napkin. If you’re a company of one not seeking funding, it needs to: state the basic idea or concept; thoroughly examine the competition and product or service viability; detail a one-year marketing plan and a one-year budget and financial plan. You need to know your idea, the market and the money in as few pages as possible. If it’s too long, you won’t read or follow it. – Jared Weitz, United Capital Source Inc.
8. Underestimating The Competition
One of the most common mistakes new entrepreneurs make when making a business plan is underestimating, or outright failing to identify, their competition. This is especially prevalent for those with a truly unique product or service. New entrepreneurs can let their optimism and excitement for the idea cloud their vision when assessing the competition. If you think you have no competition, chances are you just don’t recognize them. Just because the way you’re addressing a problem is brand new doesn’t mean the problem isn’t already being addressed. Try to take a step back and focus less on businesses that seem comparable to yours, and instead think of alternative solutions to the problem your business will solve. – Bryce Welker, The CPA Exam Guy
9. Leaving Little Room To Pivot
One of the most fundamental mistakes entrepreneurs make when creating a business plan is failing to leave room to pivot and modify the plan as it is being executed. Flexibility is key. If your plan calls for marketing your product or service a certain way, and that strategy doesn’t work, you need to change your approach or your business may fail. In addition, too often people fail to leave enough time to establish product-market fit (improving your product over time based on customer feedback). Imagine trying to sell something people don’t want. That won’t work. So, realize your business plan is a guide; it’s meant to give you direction. It’s not meant to be restrictive with your ability to learn and apply those lessons to increase the likelihood of a successful outcome. – Kristopher Brian Jones, LSEO.com