Yesterday's Wall Street Journal had an article by Dr. John W. Mullins entitled "Why Business Plans Don't Deliver" which I found very insightful. Following is part of the article, which identifies five common errors in business plans. For the complete article, go to: http://online.wsj.com/article.
HERE I AM, NEVER MIND THE PROBLEM
In this kind of plan, the writer is smitten with the elegance of his or her technology. The plan begins not with the identification of a customer problem to resolve, but with a detailed explanation of how the technology works, why it is cutting-edge or state-of-the-art, and how it is better, faster and cheaper than current solutions. A Me-First plan sends a clear signal that the writer’s priorities are misplaced. What matters more than great technology or a great idea is the problem or pain that the new solution or technology resolves.
A COKE FOR EVERY KID IN CHINA
This gambit rests its case on a plethora of secondary data to show how large and fast-growing a market is. The plan then makes a heroic leap and assumes that the new venture will grab X percent of that market—it could be 1%, 10%, 30% or whatever. “Surely,” the plan argues, “with the large number of customers in our market, we’ll easily get enough. We only need a small fraction to have a very nice business.” Plans like this reveal that the writer isn’t sure what the initial target market is. Rather, it is much easier to win a large share of a carefully targeted but narrow market than it is to win a small share of a very large market.
JUST LOOK AT OUR (PAPER) PROFITS
Of the five fundamentally flawed business plans, this one is perhaps the most difficult to spot. The archetype is the failed Internet business, Pets.com, which offered pet supplies via the Internet. Simply put, the economics of delivering large, heavy bags of dog food one at a time could not compete with the economics of putting pallet-loads of the same bags of dog food on supermarket or discount-store shelves and letting the customers do the delivery.
OUR TEAM WALKS ON WATER
Investors won’t be snowed by top-tier diplomas or past employment with a leading company. Investors care first about the main challenges of the industry in question, and whether the proposed team has hands-on experience tackling those challenges. Every industry has critical success factors—typically two or three—that, when addressed effectively, are likely to bring success even if less-important challenges aren’t handled well. Location, for instance, is a critical success factor in much of retailing.
EVERYTHING IS WONDERFUL
The most common type of business plan, and the one that goes most quickly into the trash, is the one in which the writer can’t find anything but good things to say about the opportunity and plans to pursue it. Rather than attempt to paper over the rough spots and uncertainty, identify them yourself and deal with them candidly in your plan.
