What are the 5 top business plan pitfalls?

In this post I discuss the execution of the strategy. Business plans help articulate how new ventures enact their strategies. They include the value proposition, describe products and services offered, sales and marketing tactics, and other details about how the organization will execute the plan (see box below).

My work in assisting organizations develop strategies and plans over the years has helped me identy 5 common business plan pitfalls:

1. Writing the plan without involvement and buy-in from all key stakeholders: often the task of writing the business plan is given to a staff member or consultant. The worse thing this person can do is write the plan in isolation. Unless there are a series of consultations with people who know the business intimately and will be responsible for implementing the plan, its execution will fail or the plan will sit on a shelf forever.

2. Unrealistic sales forecasts: selling is hard. Selling a new product or service is extremely hard. A common mistake is to over-estimate the size of the market and the ability to penetrate this market. To ensure projections are realistic, get individuals who know the market intimately to challenge them.

3. Lack of thoroughness of the financial model: every business plan includes a section that summarizes cost and revenue assumptions. These cannot be taken lightly. The excess of revenues over costs is what will provide the fuel for the journey. As soon as cashflow is out of balance, you lose, not only your ability to invest and grow the business, but also the trust of your stakeholders. Set exhaustive and realistic budgets!

4. Lack of recognition of the need for business skills: many ventures are started by experts in a certain field (scientists, non-profit managers…). The smart ones understand the importance of complementing their lack of business skills and experience.

5. Failure to identify the risks: many are concerned that stressing the risks of a venture in a document will reduce the chances of “selling” the business plan to others. To the contrary- pointing the risks and related mitigation tactics shows the reader you’ve done your homework and have realistic expectations! It reveals maturity.

I invite you to read previous related blog posts on strategy:

Strategic planning: who to involve and when?

Good strategy- Bad strategy: Richard P. Rumelt’s lessons on strategy for business 

The secret to effective strategies: embrace uncertainty and create options for the future 

Debunking business strategy myths: Michael Raynor’s strategy paradox

You might also be interested by a relatively new book: Business Model Generation, by Osterwalder and Pigneur –it is generating a lot of hype in social innovation circles.

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One Response to What are the 5 top business plan pitfalls?

  1. Renee says:

    I just lucked up on this website and I thank God I did. I’m in the process of learning how to open a Transitional Home and needed to see an actual business plan. This really helped.

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