Start-up Ideas that MAGNETS Money scattered in YOUR STREETS
Monday, 21 October 2013
The worst business plan mistake entrepreneurs make
Years ago, I was hired by a group of entrepreneurs to write a business plan I will never forget. That is because we made a fatal business planning mistake that caused the venture to lose it chance at VC funding.
The founders had a personal connection to one of the VC partners and they seemed interested in the business ideas. It felt like everything was set up for success until we met with them in person.
As the meeting developed, I became painfully aware of a problem. I wondered anxiously whether my clients saw it too, but couldn’t tell. They gave no sign.
The plan itself wasn’t the problem. It conceived a specialty computer product that would have addressed a real need for a large market of middle managers and small-business owners. The team had the experience and background it needed. We had a good-looking well-edited document, a detailed financial model and convincing market statistics. We had a good summary slide deck.
The problem, however, was that I had done the plan, built the financial model, written the text and shepherded the document through the painful coil binding, yet I wasn’t part of the team. I didn’t want to be. I was getting my MBA, in my early thirties, married with three kids and my part of this venture was writing the plan, period. I needed the money to pay tuition. I couldn’t afford to jump into a startup.
And my limited role might have been okay except that the three founders never really got into the plan. It was a hurdle they paid me to jump for them. Every meeting we had behind the scenes, generated new changes, so I would go back to the basement computer at the business school, and re-run the financial model. Since the team of three didn’t include a financial person, they left all the tweaking to me, which meant I was the only one who knew the plan. I’d re-run my financial model, edit the text, and publish a new version of the plan. They read paragraphs here and there, glanced at the numbers, but stuck with the strategy and left the details to me. At key moments when VCs would ask critical questions, all heads would turn to me and I would answer. I knew the plan inside out. But I was the only one who did. It was my plan.
The same scenario played out at every meeting we had. The three entrepreneurs assumed that business planning was a function they could always delegate to someone with special skills, while they generated high-level strategy. However, founders who don’t know their own plan aren’t very convincing. So, in the end, they didn’t get financed, and the planning didn’t work.
A business plan should be measured by results, and in this case, good as the plan document may have been, it was a part of a failure.
The lesson here is as clear as day and as much a problem today as it was then. In general, business plans have to be the work of business owners and managers, not outsiders. A business plan can last only a few weeks without revision, so the idea of a finished plan is flawed. And business plans are about business execution and management, which means those in charge have to own the plan in the intellectual sense.
In those rare cases when having a specialist develop a plan as a consulting job could work, the owners must make very sure they still own it, know it, and live it. After all, it is their business.