Thousands of business plans might pass through the hands of potential investors this year, but only a small portion of them will actually receive the funding they’re requesting. If you’ve ever been denied funding, you are likely familiar with the anger and frustration that can accompany such a denial. You may have invested a lot of time into your business plan, and your plan looked perfect to you. What could possibly have gone wrong, and what do these investors want from you, anyway?
The best thing to do after you’ve received a denial is to take a deep breath. And the second best thing to do is to read this article.
Put Yourself in their Shoes
Unless they have some kind of referral from someone they trust, all a potential investor has to go on is your plan. Not only that, but yours is far from the only proposal they will receive this year, week or even today. These individuals are skilled at identifying those fundamental mistakes which indicate inexperience. And if your plan contains these mistakes, each one can add up to a rejection.
Mistake #1 – Believing that more is Better
Investors want to see laser-like focus in your business plan. If your plan goes into detailed explanations about how many markets your product or service can work for, this will cause red flags to be raised. The same is true if you are trying to present not one, but several related products in a single plan.
To have maximum impact on a potential investor, your plan needs to communicate that your single product can solve a significant issue in one sizeable market. There should be some kind of connective tissue running through the story of your product to give it continuity and ensure that investors can relate one part of your story with the next.
Mistake #2 – Not Making it Hurt
We all experience pain in one form or another on a daily basis. Perhaps we’re tired of the complexity of a particular job task. Or maybe the equipment we use at work just can’t get the job done. Whatever the issue, pain is pain. Your business plan needs to exploit it well and often. But it can’t be just any kind; the pain your product or service solves should be significant and widespread. The market potential of what you’re selling will be based on how well your product or service solves that significant pain everyone is feeling.
Mistake #3 – Thinking You’re an Island
Competitors lurk everywhere, even though it may not seem so at the outset. And your potential investor knows this very well. So stating that you have no competition will only communicate to them that you haven’t done your market research. The truth is this: in saying you have no competition; you are telling your potential investor that there is no market for your product or service.
When considering your competition, think of direct as well as indirect competitors – anyone who is going after the same customers you are. Then, pit your product’s strengths against them.
Mistake #4 – Using Fancy Lingo
Using industry jargon or highly technical terms in any business plan will do nothing for you but get it tossed in the rubbish bin. No potential investor will be wooed into giving your business money via the use of flowery or confusing language. They only want to know four things, essentially; whether your product will be affordable to implement, whether it can solve a significant problem, whether the idea can be legally protected and whether it has the potential to be better than what’s already out there.
You can include technical details about your product or service, but this is best done by placing them in a separate section. This will give the investor the option to peruse if they’re interested, rather than forcing them to work to get through technical details so they can drill down to what your product is about.
Although these represent only a few of the many common mistakes made in business plans, avoiding them can help improve your chances with potential investors. It can also help to have the advice of a professional on your side.