If you’re looking for investors, you need a business plan and
not just any business plan. You need one that is well crafted,
concise and exciting. But how do you know what venture capitalists
want to see in a business plan and how can you avoid what they feel
are the top seven critical mistakes? We asked venture capital
companies across the United States how they evaluated the business
plans presented to them. The VCs were asked: What is the worst
mistake an entrepreneur can make when completing their company’s
business plan?

Seven Critical Mistakes

1. Lack of Clarity
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VCs believe that entrepreneurs are not clear in explaining the
opportunity. Why the business made sense, why the business
model would be successful. Entrepreneurs can avoid this mistake
by simply asking several people who aren’t familiar with their
company to read the business plan. If they don’t “get it”,
it’s unlikely an investor will.

2. Unrealistic Projections
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In second place is a mistake that is difficult for entrepreneurs
to avoid: unrealistic projections. While it’s true that the
company must produce enough revenue to be able to generate the
30% to 40% yearly returns that VCs expect, those projections have
to be reasonable and achievable. Apply common sense. You can
get an idea of whether your projections are in the ballpark by
looking at the annual reports of public companies in your industry.

3. Simplistic Assumptions
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Simplistic assumptions are closely related to unrealistic
projections. Avoid the ‘all the tea in china’ syndrome. You know
the logic of ‘there are 80 billion Chinese people, if we sell
just one tea bag to only 10% of them we’ll make a lot of money’.
Justify your assumptions, base them on as much research as you can.

4. Competition Analysis
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The analysis of competition and the failure to describe a
sustainable competitive advantage are killer mistakes in business
and business plans. Many entrepreneurs do not make the effort, or
find it too difficult, to research their competitors. Entrepreneurs
often say there is no competition, or underestimate the strength of
competitors. Their business plans do not describe a competitive
advantage for the company, or how to achieve a competitive advantage.

5. Mistakes and errors
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These appear frequently in business plans, according to the VCs.
Rely on more than just the spell checker in your word processing
software. If you aren’t very good at spotting grammatical errors
or incorrect spelling, hire someone to act as a copy editor.

6. Lack of Management Strengths
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Management strengths were overstated in the plan, with one
VC even saying that entrepreneurs “lie” about their credentials.
Venture capitalists always complete thorough background checks. If
your management team is weak, try to assemble an advisory board
that has the strengths in the areas your team lacks.

7. Incompleteness
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This includes leaving sections out of the plan, or not including
sufficient support data. One interesting response was that
the entrepreneur failed to provide the name of anyone in the
company to contact. He or she must have been in quite a hurry to
get the plan in the mail!