Business Strategy

Failed Funding: Major Mistakes Business Owners Make with Their Business Plan

business plan

Every budding entrepreneur is excited about their startup idea and eager to get their company off the ground. But, as you probably already know, having a unique or brilliant idea isn’t good enough. The U.S Bureau of Labor Statistics reveals that 20 percent of newly founded business enterprises in the U.S don’t survive past the second year of operation. Within five years, half of all businesses fail. And while there are many reasons why this happens, lack of business planning is one of the leading causes of failure.

Even the most exceptional startup ideas can be worthless if you don’t define your objectives and come up with a strategic plan that details how you’re going to validate your idea. In fact, companies that complete business plans are 16 percent more likely to achieve business viability and 30 percent more likely to grow faster than businesses that don’t create formal business plans. 

Furthermore, business plans are necessary for fundraising. A solid business plan can be a crucial tool in maximizing the chances of securing investment capital from angels, venture capitalists, and banks. Unfortunately, many startup entrepreneurs don’t give their business plan the attention it deserves, making mistakes that result in failed funding. With that in mind, here are six of the most common mistakes— and what you can do to avoid them.

Don’t Make These Business Plan Mistakes

The business plan is poorly written.

Investors and lenders receive and review tens of thousands of business plans every year. Unless you’ve been referred to an investor by a trusted source, your business plan is essentially the only tool you can use to communicate your ideas to them. Moreover, it’s the only basis a potential investor has for determining whether or not to schedule an initial meeting with you.

There’s no shortage of investment opportunities out there, and investors can turn you down for a myriad of reasons. Bad grammar, typos, spelling mistakes, or unformatted text are simple mistakes that can make investors question your preparedness and ability to run a successful business. Therefore, it’s important that you take your time to spell-check and review your plan to make sure it’s well-written with a formal style. Use a free business plan template to help you gain a better understanding of how business plans should be written and structured. 

Lack of market research or exaggerating your specific market.

If you can’t demonstrate to potential investors that you understand your target market, you’re unlikely to secure funding. You certainly aren’t trying to build a company that appeals to everyone in the market, and this is something investors will want to see.

It’s important for you to accurately define your target market and conduct market research to define and outline business opportunities, get insights on possible problem areas, and minimize business risks. Be as specific as possible when defining your specific market and determining its size. 

Failure to demonstrate this in your business plan could result in a “no” from an investor. There are plenty of market research tools available online, but if you aren’t confident in your ability to collect and communicate data, consider working with a market research firm for this portion of your business plan. 

Lackluster executive summary.

Lenders and investors don’t have the time to read through every detail in your business plan right away. As mentioned, they see thousands of these documents each year, and only pay attention to those that pique their interest. This is why your business plan’s executive summary section is so important. It summarizes your entire plan and offers an overview of your startup’s key strengths, mission statement, and why you feel that your company will be successful.

Think of your executive summary section as a complete yet concise plan with a summary of all the most important parts contained in the entire document. Investors will decide whether or not to read the full document by simply looking at this section. Avoid writing “fluff” or putting too much unnecessary or complex detail into this section. Instead, stick to the facts and summarize your key selling points. Lastly, write this section after you’ve written your business plan to help you better summarize and conclude the document holistically.

Including too much information.

When creating a business plan, many entrepreneurs— especially those founding tech-based startups—tend to get into technical details that don’t necessarily add any value to the document. Keep in mind that investors and lenders are more interested in finding out what your business is all about and why it’s a good investment opportunity for them. Anything that doesn’t serve this purpose shouldn’t be part of your plan.

Think of your business plan as a communication tool and marketing document for your startup company. Focus on the most crucial elements of your company and, if you must include any technical details or additional information, add it to the appendix section. Avoid a ‘data dump’ at all costs.

“We have no competition.”

It could be possible that your company has a unique idea and you’re the “pioneer” in your industry, which then means there’s little to no competition. Well, any successful founder will tell you competition is inevitable in business— regardless of the uniqueness of your startup idea. Indicating that business doesn’t have competition is a sure way to put off potential investors and lenders.

Conduct a competitor analysis to better understand the strategies that are working for your competitors. You also need to identify your competitor’s weaknesses and communicate how you can leverage those weaknesses and outperform them. If you’re struggling to find direct competitors, consider highlighting indirect competitors. For example, a direct competitor to a gym owner is another gym, but an indirect competitor would be retail stores that sell gym equipment and equipment manufacturers.

Unrealistic assumptions in the business plan.

As an entrepreneur, you have the best intentions when creating a business plan. However, in an effort to get the attention of potential investors, you may find yourself setting unachievable goals, overhyping your business idea, or making unrealistic financial projections. Unfortunately, this won’t get you the seed capital you need to fund your business. Instead, it can set off warning bells to investors, making them reject your business plan.

Don’t over promise investors—period. For every presumption you make about the time to production, target market size, financial projections, acceptable pricing, etc., provide some kind of justification for it. The information and data presented in the business plan needs to be factual and as clear as possible. Make sure all your assumptions are tied to your industry’s benchmarks and facts.

About the Author

Dave Lavinsky is an internationally renowned business plan consultant who specializes in capital raising and new venture development. He is the co-founder of Growthink, a firm that has helped over 1 million companies develop business plans to start and grow their companies.