5 Business Plan Mistakes to Avoid | Ep. 69 | Business Podcast
I’ve written a lot of business plans for my own businesses and reviewed a lot of business plans in my days as an angel investor and venture capitalist.
I put together 5 common business plan mistakes you want to avoid.
Fall into the trap and make these mistakes and you risk losing time, market share and money.
More Information on Build a Business Success Secrets
Hello, friends. Welcome to the build a business success Secrets Podcast. I’m your host, Brandon. See White. And today we’re talking about five common business plan missed aches that entrepreneurs make on a regular basis. Let’s not waste another second. Let’s get to it. I was looking back on these students from last year and businesses that I’ve helped and talk Thio and fellow entrepreneurs and even myself, and came up with five common business plan Missed aches that I see entrepreneur and business owners make on a regular basis. Number one people put it off.
And there’s three main reasons that I found that entrepreneurs don’t do their business plan, whether they’re starting with an idea or scaling their business. Hey, you don’t think you have enough time? So the common dialogue goes, I don’t have enough time to plan. I’m too busy. And that’s the point is, you’ve got to plan. You’ve gotta have a plan, just like you use Google maps when you’re going to a location, even a location that, you know, you still sometimes use Google maps because you want to know what the traffic is.
So I encourage you to go back to episodes 55 56 57 58 where I outline exactly how I built my first online business media company and sold it and how I started out with no plan and finally figured out from a mentor that I needed a plan and what happened. So again, go back to episodes 55 56 57 58 you get your answers be. You don’t know what goes in it. So we all avoid things that make us uncomfortable and or we don’t know the unknown.
And there’s all of this crazy information out there on the Internet about what people think goes into a business plan. I’d suggest that you listen to people who are successful and to help you get the answer to that start at Episode 10 here on Build a business six Sex Secrets and I go through our business plan course that we actually sell, but I made the cliff notes and you can from listening to the episodes. I think I did 15 episodes because a few of the slides I wanted to elaborate on, but if you started Episode 10, you can get every single slide 13 easy sides to know what goes in your business plan and what each one of those sections needs toe have.
See, The reason you put it off is because you don’t know how to build your financials and financials air hard on. Everybody thinks you need to be a spreadsheet junkie or have an MBA or being an investment banker or have been a venture capitalist. You don’t need to do that. But you do. Do you do need to do your financials. And the reason is, Is that the story of your business? Well, you wanna talk about it and how you got started and why you started it and all of these things. Truth of the matter is the real story, the financials, how much money you could make, how much it costs to make your product, how much it costs to distribute that product, how much it costs to pay for your team members.
That story is all in the spreadsheet, and it doesn’t have to be super complicated, but you gotta have your financials. And if you want to know what goes into your financials and how to do it pretty easily, Goto Episode 21 which is part of the how to write a business plan. Siris on this podcast and you’ll learn how you can build a general financial plan that will at least give you insights and directions so that you don’t lose your shirt and start using that as a guideline. So let’s go toe number two of the five common business Plan mistakes not defining the rial problem you are solving. So what happens is is we believe that we’re solving ex problem.
But you have got to go into the market meaning potential customers or customers, and you need to talk to them and listen to them because they’ll tell you. And if you listen to them and you understand the rial problem that you’re solving, let me give you an example. I have a company called File Finder and it helps you find files that you know you have. I can’t find faster, so I think about that. We all have these files. We don’t know where they are. They are a computer. Do we put them in a folder? Are they in an email box? Oh, where they in slack? Oh, did I text that? Oh, were they in Microsoft teams uh, Google Drive box Dropbox.
Oh, I can’t remember that document was six months ago, so we help you find that faster and initial, you would say, Well, we help people save time and frustration because I’m sure you know how frustrating that is to spend 20 minutes of your time looking for a file that you know you have but you can’t find, and the surface layer of that problem is reduce frustration. But here’s what I mean by understanding the real problem. The real problem that we solve is people want to get home from work or get off of work. Now, if you’re working from home so that they can hang out with their kids, see their kid’s soccer game, get home for dinner on time, that’s the real problem. But initially, if we didn’t really spend time analyzing talking to customers and digging really point that onion back, you’d say, Oh, well, we just end frustration. That’s not true.
What we’re really selling is a better life and the ability to hang out or see or do other things that you want to do and get out of the office. So dig down and understand what problem you’re really solving and spend time on it. It’s not as easy as 10 minute drill. It takes a minute when you really start drilling down. Number three, not defining your target market and the rollout plan. So I teach this in our course. I talk about this at seminars when the coronavirus isn’t around. E talk about in Virgil events. I talk about this all the time and people still get it wrong, and it’s, I don’t know. I think it’s the attraction to big markets and feeling that you can be in this big market, and it’s more comforting.
But here’s the story and let me give you an example. Example. One of the examples that I often give is the automotive market and somebody selling windshield wipers, and someone will say, Well, I sell windshield wipers and it the automotive market is a 30 automotive parts market may be given specific is $36 billion and we’re gonna grab 1% of it. How many times have you heard this from people, or even thought it yourself? That that’s not your target market? Your target market and getting really defined would be we do cars in California because it doesn’t rain as much. People’s windshield wipers, dry rot and out. We have special rubber and it lasts longer, excites etcetera.
That would be a start. Even better, we do BMW windshield wiper replacement even better. Even better than that, we dio BMW windshield replacement when she’ll wiper replacement for BMWs in Half Moon Bay, Calif. Now we’re starting to understand. And here’s the thing people say, Well, that’s not a big market. I don’t feel like I could make a lot of money. It’s not about that. It’s about owning your target market, starting local per se and then building out. It doesn’t mean that you can expand, but you’ve got to get a foothold. You’ve got to get a foothold in the market, and you’re not going to do that by selling 1% of a huge market.
You’re going to do that by dominating a small market and moving out. I need this mistake. When I started building my first social networking site Media Company, we did a regional site. We blew it up. We cover the entire United States for international destinations countries. It was super hard. We deluded our stuff when I bought it back from the investors, which you can listen to in that Siri’s where I outline how I built it. I came back. I said, I’m just gonna own the Chesapeake Bay Region. I’m not going to do anything else. I’m going to absolutely dominate it, own it. And once I do that, I’ll consider expanding. I’m not gonna do it until I do that. And turns out I didn’t never even got to that A big media company came in and said, We’re doing a roll up plan will never get into this market. You own it.
Obviously you have this incredible brand where we want to add that. So that’s an example of saying and and initially I thought, Well, there’s not enough money here. There was plenty of money. There was plenty of money. So understand what your target market is. Get really specific and then get specific on your rollout plan on what exactly you’re going to do to get your product distribution.
Number four mistake people make in their business plan is they build hockey stick financials, and they do that because that is the popular buzzword out there that mainly mainly venture capital firms are looking for, and venture capital firms are looking for hockey stick financials, meaning it just putters around person and then just goes through the roof. And the reason that venture capital firms need companies that either are doing that or have that potential if they invest is because their investment timeframe is not that long. Their investment timeframe for a fund is 10 years, and they’re investing. Cycle is five.
That means that they raise, ah, $100 million to invest, and they have five years to invest all that money and another five somewhere between them, staggered between all the investments they make to get exits. And you can’t do that. If you’re building a long term company, they need companies to go through the roof so the valuations go through the roof. So the R O. I on their investment goes through the roof, and there are some companies that can absolutely do that with large investments or capital injected. But the vast majority of them do not do that and candidly don’t have the potential to do that. And that’s not bad. That’s okay, but what’s happened in the media is that that gets proliferated as the only way to build a business. You build these hockey stick financials, they’re not realistic.
Candidly, they will require if your business is even in a market that can achieve them, it will require an injection of a significant amount of money, because when you’re growing your business, you need cash. That’s just how it works. If all you’re doing is hiring people, you need cash to hire them. If you’re growing your product, you’re going to need Thio. Invest in inventory. If you’re doing software, you’re going to need sales and marketing all of these things.
You gotta invest ahead of the curve, but ah, hockey stick financial model. Even if you hire someone to do your financials because you’re not a now, you feel comfortable doing anything in Excel that which is totally okay. Don’t build hockey stick financials for the sake of just building hockey stick financials, because that’s what you want everyone to think. Build the financials based on your market and your rollout plan into that market and what it looks like so that you have a realistic view and the number five mistake people make with their business plan is vague goals and you can’t have bagels. I was interviewing John Lee Do miss from entrepreneurs on fire.
Very successful podcaster and really cool guy. And one of the things that I just grabbed and I thought I was really specific in my goals. This guy, he really nails it, and he takes goals not just from a business and quarterly basis, which is what you monthly basis, which you should dio but a daily basis and planning your day. And he really emphasizes that. And I agree you can’t wake up in the morning and not know what you’re going to do that day, and you’d be like, Oh, well, I’m gonna I’m gonna answer inbound emails. I’m going to react to things that come my way. And I’m going to think about which translated means I need to figure out what I need to dio.
And then you spend most of the day trying to figure out what you need to do. And by that time you figured out you’re worn out because you spent an enormous amount of brain cycles which burns calories and wears you out. And then it’s the end of the day and you get a bit And how do I know this? Because I did that in the early days I did, and because I felt like there was so much coming at me that I didn’t know. But you need to be very specific. And this is especially in the beginning, the year everybody’s talking about smart goals and all of these things, and I think that’s great. The problem is, is that people talk about amount of the time we get worn out by it, and then we don’t really hear the message. But with your business, it is extremely important toe. Understand what your goals are and then measure those things on a weekly monthly daily, whatever it is basis, so that you know where you’re going and you know what your progresses and in the business world, so to speak.
We call them KP ice Key Performance indicators. What are your KP Ice one? I can tell you it’s for sure. Sales number two, I can tell you it’s for sure. Gross profit Number three is definitely net profit. Those air three k p. I is that you want to measure on a regular basis. If you’re a software as a service or software company or some sort of membership subscription. It’s gonna be what you’re churn rate. What’s your net? Add to subscribers. How many leads did we get if you’re into Ah, bigger sales where you bring in Leeds? How many leads do we get? How maney do we convert? What? What are the cohorts? What is our average revenue per user? Are poo? What is our customer acquisition costs? What is our contribution margin?
These air all K p I is that you wanna be measuring because then you’re headed towards something and set very specific goals and stretch yourself a little bit. If you’re just starting out, it’s probably unrealistic for you to set your goal to say that I’m gonna do three million next year. You’re probably not going to do that. I I hope you dio. And if you have a really hot product or software or or service, that’s possible, especially in the service business, where you’re where you’re an agency or E.
I don’t really like that word agency. I think it’s overused on the Internet too much, but if you have a service business, if that’s you, have a software engineering. You build products for people or you do consulting those air things that you can scale relatively quickly from a revenue standpoint, because the units that you charge on an hourly basis or large but for the most part, if you’re selling a product that’s under $100 it’s going to take a minute for you to do that. But be specific. Be really, really specific. So real quick summary of the five common business plan mistakes people make. They put it off. They don’t defined the rial problem that’s being solved.
They don’t define their target market and the rollout plan to address that target market. They build hockey stick financials that air unrealistic, and they’re very vague goals. So don’t make those mistakes gave you a whole bunch of ways that you could get answers to these things in previous episodes. So put these things in action and go kick some butt in your business and thank you friends for tuning into the show. If you enjoyed this episode, please rate review. We want to hear from you and subscribe so you don’t miss any of our weekly episodes until the next time. Remember, you are just one business plan away. I’m rooting for your success. We’ll see you soon