Perils and Pitfalls in Business Plan Preparation
by Susanne Lee Houfek
How hard can it be to prepare my companyís
business plan, you ask. I wrote one in business
school; Iíve got the software and just need to plug
in the information; Iíve read tons of them; Iíve got
a detailed outline to follow; I donít need a plan Ė
a PowerPoint is fine.
While these may be true, working from templates
and outlines or making a simple slide presentation
is only the first, and the easiest, step. Preparing
a document that thoroughly describes and
successfully sells your companyís concept and
strategies to potential investors requires much more
thought and work.
In my experience over the past 15 years working
with company founders who have prepared what they
say is their completed business plan, I see six
common problem areas. In these areas, paying
insufficient attention, failing to perform deep
analysis and research, and anticipating only the
most general objections are perils likely to lead to
The most common pitfalls of the typical business
- Unfocused or unproven product strategy
- Superficial description and quantification of
- Ineffective marketing and creative strategies
- Insufficient competitive analysis
- Incomplete or overly-aggressive financials
- Weak and unpersuasive presentation and writing
I. UNFOCUSED AND UNPROVEN PRODUCT DEFINITION
The product or service description includes
features and benefits and the needs it meets Ė the
void in the market it fills. The product strategy
must be focused, with the product targeted to
clearly defined market segments with the greatest
likelihood of purchase.
Fixes to some of the problems I see in the
product section of many business plans include:
- Donít develop multiple products that meet
every need or application within your industry or
within the supply chain. Focus on the one for
which you have the greatest competitive advantage
and best managerial skill sets.
- A corollary: donít say you have ten products
if youíve merely taken one and split it up by
different features or modules. That wonít impress
- Use consumer/user research to support your
statements that users will buy, make repeat
purchases, upgrade, prefer your product to those
of the competitors, and pay your price.
- Demonstrate that the benefits offered to users
are indeed benefits that are important to them.
- Conduct test markets in small geographic areas
to confirm sales potential.
II. SUPERFICIAL OR INADEQUATE MARKET
DEFINITION, SEGMENTATION, QUANTIFICATION AND
The market section describes how many user or
consumer dollars are available to you and your
competitors (what is called the ďtotal available
marketĒ), how fast itís growing, and the factors
that drive its growth. You will need a clear and
detailed description of the market and market
segments your product targets. You must prove that
your markets are either very big or, if not, that
they are growing fast enough to support you and the
potential competition. Here again, you must conduct
research as well as use reputable industry sources.
- Provide realistic and documented
quantification of the total available market and
its growth. This will include the actual number of
potential customers and their annual dollar
purchases of products currently meeting the same
or similar needs.
- Define the specific customers you are
strategically targeting within the market. These
are your market segments. For business,
institutional and industrial products: What type
of business? How large are the companies? Who is
the decision-maker, the user, the purchaser? For
consumer products: What are user demographics,
psychographics, buying patterns, and geography?
- Be conservative in forecasting your market
- Include a forecast of repeat usage.
- Define and document the market drivers.
III. INEFFECTIVE OR INEFFICIENT MARKETING,
ADVERTISING AND SALES STRATEGIES
In this section of your plan, you describe how
youíll position your product, how you'll position
and advertise to potential purchasers, what sales
methods youíll use, and which channels of
distribution youíll employ.
ďProduct positioningĒ is the concept - the set of
values, the image - that surrounds your product.
Positioning includes benefits, but is more than just
benefits, and it places you in the userís mind in
relation to competitors.
For both consumer and business products, a solid
positioning, good creative strategy and targeted
implementation are critical to generating brand
awareness, the impulse to purchase, and repeat
- Test different positionings with potential
users, then test them versus actual competitorsí
positionings. From this, develop your
communication strategy and creative direction.
- Hire a small firm or freelancers who have
major ad agency and marketing experience to
implement your communication strategy.
- Hire a media placement firm or ad agency to
select and buy the appropriate media. Such
companies can ensure that your media plan is both
efficient and effective - not targeted too widely
and using the appropriate media for the audience.
- Test your advertising and media plan.
IV. POOR COMPETITIVE ASSESSMENT
Here you describe your strengths and weaknesses
vis-ŗ-vis your competitors' and the barriers to
entry - what prevents others from doing the same
thing you do.
- Describe each direct competitor fully, both
the product and the company.
- Objectively assess your product and company
strengths versus each competitor. Then, accurately
describe your product and company weaknesses
versus each competitor. Then include how you may
be able to overcome each weakness.
- In the barriers-to-entry section, include how
long your window of opportunity is.
- Donít overlook other types of competition,
such as partial and indirect.
- A graphical gap analysis showing unmet needs
and available positioning in the marketplace is
V. INCOMPLETE OR OVERLY AGGRESSIVE FINANCIALS
In developing the financial projections, use an
expert such as an accountant, a temporary CFO or a
finance consultant. Now, having said that, it is
also critical that you, the founder, be closely
involved in the forecast process. Ideally, you will
start building the spreadsheet yourself, defining
the variables that drive revenues and costs. Then,
bring in the financial consultant to ask the tough
questions and prepare the final versions.
- If you have historical data, show a P&L and
Balance Sheet for three to five years.
- Forecast your Profit and Loss, Cash Flow and
Balance Sheet for three to five years. For Cash
Flow, show it monthly for the first year or two
until ending cash turns positive.
- Show what month you will use the funds raised
and for what specific capital and expense
- Profit goals must be realistic; on the other
hand, make sure you have budgeted enough for
marketing and sales.
- Include the assumptions driving the forecasts.
These can be written separately or be line items
in the spreadsheet.
- Make certain that your sales forecasts tie
specifically to each product category, target
market segment, and distribution channel described
in the plan.
- The exit strategy is the investment pay-off,
which will be either IPO, acquisition or continued
dividends, interest, or profit participation.
- Show comparable valuations and P/E ratios.
- Include sensitivity analyses - best, worst and
average cases. You can also show different growth
scenarios with different levels of funding.
VI. DISORDERED AND UNPERSUASIVE PRESENTATION
How you present your material and explain it is
as important as what you say in making your plan
persuasive. You need to tell a compelling story,
setting up a problem in the beginning and
demonstrating that you have the solution.
In a way, your business plan should be like a
good adventure novel or movie. You want your reader
to be intrigued and read through to the end. So you
need to set up the question in the beginning: ďWill
Dirk Pitt find the undersea treasure?Ē ďIs Neo
really the Chosen One?Ē In your case, the question
is: "Why is this investment opportunity superior?Ē
There are many ways to strengthen the narrative
of your plan and present a logical, orderly case to
answer the question:
- Donít force your reader to wade through
paragraphs of rationale to get to each conclusion.
- Donít try to impress your reader with your
detailed scientific or technical knowledge and
vocabulary. If you are a scientist, physician or
engineer, you need to remember this isnít a
publication for peer review in a scientific
- Donít exaggerate. Market forces, need for the
product, benefits, accomplishments, etc., must be
described in a conservative and honest fashion.
- Donít just compile data and statistics. Your
business plan isnít an undergraduate research
- Make sure the names of the products, product
categories, market segments, channels of
distribution, etc. are consistent throughout the
plan, all the way through to the financials.
Copyright © 2005 Susanne Lee Houfek. All rights
Permission to reproduce this article is granted
provided the following is included: Copyright ©
2005 Susanne Lee Houfek. All rights reserved.
Susanne Houfek has developed business plans for over
70 companies across a variety of industries
worldwide in the past 15 years. She also worked for
a decade at Fortune 100 companies and an
international advertising agency in corporate
strategic planning, new product development and
consumer product management. She is a graduate of
Stanford, with her MBA from U.C. Berkeley.
This article was first published in the
September 2005 issue of our e-zine, Propel Your Venture.
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