I’ve seen a lot of companies fail — and fail quickly. In fact, according to the U.S. Small Business Administration, nearly half of all businesses shut down within their first five years.
No two businesses fail for the exact same reasons, but I’ve seen many people let their emotions take the driver’s seat rather than create a clear road map for success. It’s easy to do when you’re excited about getting your business off the ground, but it means your venture probably won’t last long.
While a business plan won’t guarantee success, it can help you avoid common mistakes many new business owners make:
1. They confuse having a product with having a business idea. Having one great product doesn’t mean you’ll have a successful business. Building a sustainable company often means including additional products or a service element to generate extra revenue.
2. They fail to identify and address personal weaknesses. Many business owners perform an organizational SWOT analysis, but they don’t understand their own shortcomings as leaders. Knowing your weaknesses and compensating for them through training or hiring the right team members can help you avoid failure.
3. They don’t build a strong team right away. Many small business owners try to do everything themselves — knowing that manpower is inherently limited — but hiring the right people is essential to success. New businesses sometimes have to get creative to attract and compensate talent. If you find people who believe in your vision, they might even work as unpaid advisors until sales start rolling in.
4. They don’t account for cash flow. This is a sticky problem for a lot of new business owners. You must have available cash to keep your business running, so make sure your sources of cash flow are aligned as you prepare financial projections.
5. They overestimate their sales projections. It’s easy to assume sales will start pouring in immediately, but they often don’t. Many business owners underestimate how long it will take to establish a product or service in their market or don’t account for seasonal fluctuations. The time of year you establish your company can be crucial.
6. They forget about regulations. New business owners frequently overlook regulatory processes. Don’t forget to check whether your product is infringing upon any existing patents, particularly if it’s intellectual property. Otherwise, you could invite a lawsuit.
How to Create an Action Plan for Success
Drafting a business plan can help you steer clear of these fatal mistakes by forcing you to think through your strategy, study your market, and crunch the numbers. A good plan will also serve as a sales document if you’re looking for outside capital.
There are many different types of business plans, but they all contain these essential elements:
- Company overview: This explains the core purpose of your business and outlines the problem your product or service will solve.
- Market opportunity: This is where you identify your target market and include your SWOT analysis. You’ll also describe your competitors and outline your company’s competitive advantage.
- Marketing and sales plan: This is the starting point of your business model. It’s where you describe the details of your product or service and your sales and distribution plan.
- Operations plan: This part of the plan should explain your organization’s day-to-day operational processes. You must also identify long-term goals and the milestones you plan to hit in the first five years.
- Management team: This aspect of the plan details the reasons why key company leaders are qualified to execute your business model. You can also identify skills gaps and pinpoint potential hires.
- Financial plan: Your financial plan is crucial for wooing investors. Identify how your company will generate revenue, and highlight the key assumptions that govern your financial projections. If you seek funding, identify how much money you need and how you’ll use it.
- Executive summary: This part briefly summarizes what your business will do, as well as its unique success factors. This is where you outline financial projections and the money you want to raise. While this section comes first, I recommend you write it last. It’s the most important part — if people don’t like it, they won’t read any further.
The best way to avoid potential problems is to invest time in planning the details of your business thoroughly. Done correctly, your plan can put you on track to healthy growth and be a great resource for introducing your company to potential investors.
Once you launch your business, you’re either going to join the 50 percent who fail or the other half who succeed. While a business plan can’t guarantee runaway sales or a killer pricing structure, it can put you in the right mindset to be the best business owner you can be.