Evaluating Business Plan

Keys to Successful Failure

Joseph Garber, a best selling author, Forbes columnist, and investment advisor, offers the following advice in critiquing a business plan.

Initial Review

Common criteria used in evaluating a business plan and entrepreneur’s presentation are:

  • How will the money be spent?
  • What is the company vision?
  • What is the ability of the management team to handle difficulties, obstacles, and problems?
  • From where were the statistics obtained?
  • What is the investor exit strategy?
  • What is the two-year return on investment?

Common Errors and Omissions

Common errors include:

  • Linear forecasting of numbers
  • Failure to account for competitive effects on the market opportunity
  • Assuming a steady state economy
  • Calculating numbers for only one scenario

Serious omissions include:

  • No pricing analysis
  • Failure to account for after-sales service costs
  • No acknowledgement of foreign market opportunities or competitors
  • No discussion of alternative technologies fulfiling same market need
  • No objective discussion of risks

Due Diligence

In doing due diligence, common red flags are:

  • Math errors
  • Resume inflation
  • Nepotism
  • Dubious business practices
  • High compensation
  • High expenses
  • Too many partners
  • Legal problems
  • Dangerous products
  • Greed
  • Other agendas
  • Living dangerously (rock climbing, skydiving, )

If the company has customers, it is common to contact them to determine:

  • Do they have chronic shipping delays?
  • Do they have good product quality?
  • Are they over reliant on certain customers?
  • How difficult is it to do business with the company?
  • Are customers considering buying from competitors?

Traits Common to Incompetence

Common human errors in running a start-up are:

  • Over-confidence
  • Failure to follow through
  • Inadequate or ignored intelligence
  • Intimidated subordinates
  • Perfectionism
  • Poor priorities and planning
  • Analysis paralysis

The best advice that management in a startup can take?

“Admit your mistakes and fix them immediately!”

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