WHAT NOT TO SAY
In a Business Plan
According to the writer, a business plan should be drawn in plain and simple English, with easily comprehendible sentences enunciating business profile. Since investors read plans without any prior knowledge of a company, fancy jargon, graphical projections, etc, are pointless and confusing. Instead, a business plan should reflect a company’s overall personality, best conveyed through to-the-point ideas
What then should be an
Entrepreneur’s course of action?
According to Sahlman
- There are many business plans that say their numbers are conservative. An investor reads such claims as false; the entrepreneur is aware that his business plan should show expansion and profitability and therefore he declares the ‘conservative’ status of his profits. The writer elaborates saying assumptions play a crucial role in business projections. By virtue of its nature, numbers are always deducible and can never be conservative
- Sahlman states that when business plans promise 100% returns on investments, they are misguided in their prediction of returns. Returns on investments cannot be predicted. Since investors know this, the writer asserts, they also recognize a business plan announcing 100% profits as one making claims solely for capital acquisition.
- Business plans projecting a 10% margin, according to Sahlman, are indicators of software templating of business strategies. This means that number projections adhered to assumptions made by a business plan software template, without any changes at the time of actual presentation. the writer opines that financial projections of a company should always be developed from its inception.
- Sahlman points that companies announcing they need only 5% market share to achieve their conservative numbers are too lazy to plan and work out a business expansion model. the writer advices companies to understand costs required for building customer databases since 5% share is not easily achievable in a competitive market.
- Yet another pompous claim by companies, as Sahlman writes in his book, is that customers ‘need’ their products. These customers, as investors understand, are either the entrepreneur’s relatives, or people who participated in an expensive survey, or freeloaders. In other words, the only way companies can define their business and that people ‘need’ them is when customers pay for services.
- Sahlman advices investors to steer clear of companies claiming ‘no competition’. The industrial market is highly competitive and every business has a competitor. Competition encourages companies to do better and expand. When competition stops, there is a good chance that the business will too. Not surprisingly therefore, companies claiming ‘no competition’ are also the ones that are rejected by investors.