What do entrepreneurs think is the most critical mistake entrepreneurs
make in their business plan? By Dee Power and Brian Hill
From the Entrepreneur's Point of View
**************************************
Entrepreneurs were asked "What do you think is the most critical
mistake entrepreneurs make in the business plans that they present
to angel investors?" The entrepreneurs who responded to this
survey question had, as a group, a remarkably thorough understanding
of what can go wrong with a business plan.
Unrealistic 27%
The respondents really took their fellow entrepreneurs to task
for not presenting a realistic picture of the business opportunity
to investors. They told us that nearly all parts of the plan
are unrealistic, except perhaps the table of contents and the
appendix.
Entrepreneurs said:
"Not being practical & pragmatic"
"Underestimate the time and amount of money needed
to develop a product"
"Overestimate potential and underestimate competitive
pressure's"
"Too much BS and inflated guesses on the numbers"
"Inflating the numbers or expectations, the--'if
I sold 1 cup of tea to every person in China syndrome"
Lacking in Clarity of the Presentation 16% The best business
plans are those that are concise and to the point. The trend
these days is toward shorter business plans. The 100-page magnum
opus of the past has given way to a sportier, twenty-five page
document.
Entrepreneurs said:
"Unclear and overoptimistic projections of the expected
results"
"Too involved in the details and forget to sell the
sizzle"
"Too much useless information, too many numbers,
not precise about what is being offered"
"Not being able to present their reason for funding
in a simple and concise manner"
"Being clear and concise about what they are all
about and excess of knowledge about the idea but many difficulties
giving a good and easy explanation about the real business"
Incomplete 15%
Incompleteness of presentation often stems from a lack of basic
homework into the market and the competition. The plan is an
ideal venue for the founders of the company to demonstrate their
thorough knowledge of the market space they will be entering.
Unfortunately, many times the business plan content demonstrates
just the opposite.
Entrepreneurs said:
"Not showing profit timeline"
"Poor presentation (business plan incomplete)"
"A lack of defined objectives and poorly presented
executive summary"
"Insufficient explanation of marketing and sales
strategy and approach"
Valuation and Exit Strategy 10%
This is a controversial part of a business plan. Is it better
to be extremely direct and specific about the proposed deal
structure- how much equity can be given up for how much capital?
Or be flexible and not state a projected return on investment
and exit strategy? The experts and the investors disagree.
Entrepreneurs said:
"Exit strategy is unclear of overly optimistic"
"Do not show how they will generate ROI for investors
nor an exit strategy for them
"Weak business plan (i.e. no clear ROI)"
"Lack of return on investment figures"
Financial Projections 8%
With financial projections, sometimes less is more. Only 8%
of entrepreneurs responded that unrealistic financial projections
was the most critical mistake while both angel investors and
venture capitalists ranked unrealistic financial projections
as the number one most critical mistake.
Entrepreneurs said:
"Too long and involved in financial numbers."
"Presenting vague or ambiguous assumptions regarding
their projected cash flow statements"
"Not understanding their business start up costs,
possibly due to lack of research"
Market Need 8%
For an entrepreneur to succeed in his/her mission of obtaining
capital, the venture must be clearly set apart, and show to
be superior, to both potential competitors in the market space,
but also to other deals that are competing for the investors'
attention and dollars. Entrepreneurs tend to overlook the latter
type of competition: other entrepreneurs are constantly coming
up with good ideas as well.
Entrepreneurs said:
"Inadequate presentation of market need and value
proposition"
"Do not identify the size of the market, nor the
particular niche they will compete in"
"Failing to explain what is different about the 'solution'
that they offer"
Competition 8%
It is truly amazing how many business plans contain a statement
like the following: "There is no competitor in our market
space who is providing the same service/product that we are;
therefore we do not see any direct competitors."
Entrepreneurs said:
"Not understanding their competition"
"Not thorough enough analysis of competitive landscape"
"They think they have no competitors"
Management Team 4%
It is interesting that relatively few entrepreneurs cited this
as the major weakness of a business plan, whereas investors
overwhelmingly view this as the critical factor in making the
investment decision.
Entrepreneurs said:
"Don't focus enough on their management team and
what experience they bring to the new venture"
"Lack of information on management or inexperience
in their field"
Methodology
**********************
The angel investor survey information presented here is based on
a survey completed by Brian Hill and Dee Power, founders of Profit
Dynamics, Inc., in June 2001. 50 individual angel investors completed
the survey and resided in various geographic areas of the country
including Southern and Northern California, Pacific Northwest, Southwest,
Midwest, the South and the East Coast.
The responses of the angel investors were compared, in some cases,
to the responses of a series of surveys of 250 venture capitalists
and of over 100 entrepreneurs actively trying to find capital. The
venture capital surveys were conducted each year from 1998 through
2001. The entrepreneur survey was conducted in April and May of
2001.
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Startups: 8 Business Plan Mistakes 
