Editor’s note: This article was first published in November 2010 during the economic crisis in Spain; its references to the crisis and to the need to start a business for quick income reflect that period.
A business plan is essential for any venture, and its absence has been a notable trait among new Hispanic entrepreneurs. That said, when we start our business and look for financing, it is a fundamental tool. In fact, the more professional and realistic it is, the more likely we are to find that financing.
The main mistake when drawing up a business plan lies right there: we put it together quickly to satisfy the bank, but we don’t stop to analyse it in detail. And you should know that if entrepreneurs worked through their business plan conscientiously, a large percentage of them wouldn’t try to get financing at all, because they would see clearly that their project isn’t viable and that they would fail before the company’s second year (which is precisely what is happening).
The crisis and the need to find a quick source of income leave no option but to start a business. But as we have said on other occasions, whatever you do, you should do it well and give it the time it needs.
That’s why you should know that when you “inflate” the figures and shrink the profits to get financing, you’re not only deceiving the bank but also yourself, because if your business project lacks realism, you’re destined to fail.
This is the main mistake people make when drawing up a business plan. See the structure of a good business plan here. Other common mistakes when putting together our business plan are these:
- Choosing the wrong market: we have always said that innovation is a good weapon, but you should know that if you have an innovative product, the market may not be ready to take it on, or it may simply take you longer than usual to introduce it. The same happens when we aim our business at a mature or saturated market, perhaps because we think that if every company in our sector is doing well, why wouldn’t ours? Both approaches sometimes need careful analysis and, of course, a good strategy and market study.
- Choosing customers: when we write a business plan, we analyse our potential customers, but you have to start from the basis that they aren’t customers yet and may not want to be, which would be another failed section of our business project. That’s why it’s essential to have a secondary customer acquisition strategy and to study carefully what we can do, or what we can add to our product, to get as few “no”s as possible.
- Finances: finances are the Achilles’ heel of new entrepreneurs, so we tend not to be realistic about our business’s fixed and variable costs. If we don’t have them very clear, even if the business is quite profitable, we may suffer an unexpected leak of capital that would hurt the business.
- The competition: the competition is there and always will be, so a good business plan should study its competitors as thoroughly as if they were its own business. Very often your strongest competitor isn’t the big company right in front of you, but the small company 20 km from your business. Always remember that.
Remember that the core of a business is the idea, but a business idea isn’t everything. With that alone you only have the foundations of a project. Then you have to develop the idea so you can launch it on the market, and a thorough study beforehand is the key to success later on. I’ll leave you with a few articles that will give you the drive to start your business with more strength:
Further reading
- The mindset of an entrepreneur, according to Donald Trump
- The secret of success in business depends on you alone
- How to be a successful businessperson
- The inspiring story of Steve Jobs’s early days at Apple
Featured image: Generation Bass, CC BY 2.0, via Flickr.
