After over fifteen years of working with entrepreneurs, investors, and professors in the realm of entrepreneurship, new ventures, and business plans; I’ve learned there are some very simple, yet devastating red flags that we all look for in business plans, executive summaries, and concept statements.
Trust me when I say that these top ten words and phrases are glaring indicators that you are either inexperienced, naïve, lazy, or simply not serious about what you are doing. So copy and paste these puppies into your “Find” feature and use each one as an opportunity to make your language more specific.
1. Many – The first question that always comes to mind when I see this word is “HOW MANY?” Relative terms have no place in a document that is trying to establish validity. Show me that you have done the research and that you know your numbers, your market, and your opportunity in a quantifiable way. So often I see sentences that open up with “Many people want…” or “Many experts believe…” Who are these people? Who are these experts? A small focus group would add validity here. “Our independently conducted market research indicated that 7 out of 10 women between the ages of 15 and 20 want…” Much more compelling.
2. Very – Again, this word is simply unquantifiable and a bit extemporaneous. Whether you say something is strong or very strong, really does not tell me HOW MUCH stronger it actually is. Consider substituting “very” with a percentage. For example: “our fabric is 10% stronger than our leading competitor’s fabric.” This comes across much more convincing than: “our fabric is very strong.”
3. Widely known – YOU may think it is widely known, but it may not be. Also, widely-known by whom? How do you know it’s widely known? Have you talked to your entire “wide market?” Quantify the actual knowledge, and if you can’t – take it out until you can do the research that makes it justifiable enough to put back in.
4. Highest quality and lowest cost – This statement indicates that you simply do not understand revenue models or how they work. If you are going for highest quality, you are assuming that you are creating some added value along with your product or service. If this is indeed true, customers should be willing to pay for that added value. On the flip side, if you are trying to be the lowest cost provider, that indicates that you are going for a no frills model because your research shows that your customers will pay for the basic service or product because they do not value the extra features that ultimately add to the price. Saying you are going to both is a contradiction. You can certainly pitch a new operating model that offers the same quality at a lower cost – but avoid saying you will provide the highest quality AND the lowest cost.
5. We believe (or we feel) – Feelings and beliefs are great for soul searching and personal development seminars – but they have no place in a business plan. What convinces an investor or customer is the physical evidence. I see so many times, “The founders believe this product will…” Investors don’t care what the founders believe, investors only care about what the founders can prove. Keep your passionate language for the in-person meeting.
6. The X industry is a $X million industry – This is what I like to call book report language. For some reason, the first instinct for writing about the market is to include the entire supposed market size. It seems that entrepreneurs think this will impress investors and help investors see the possible size of the opportunity. Nothing could be further from the truth. A better way to pitch the market landscape would be to highlight your own research in your primary market. For example: “Our analysis of the Orange County property database indicated that there were approximately 0.6 million homes at least 2,000 sq. ft. or larger.” Which would be an appropriate statistic for a home installation company targeting the middle class.
7. We only need 1% of the market – This phrase, whatever the percentage may be is probably one of the biggest red flags there is. It follows up on the points made in number six of this list. The thought process behind saying the market is a $100 million market so we only need to tap into 1% of the market in order to have $1M in revenue is not only unrealistic, but plain idiotic. The actual factors that affect a market are so diverse and unpredictable, a wash over statement like this demonstrates your clear lack of understanding of it. The reasons why you should not use this one phrase is probably a blog topic all its own. For simplicity’s sake, here is an example. Lets say a company like Microsoft controls 99% of the $100 million market. Hmmm….. changes the game a bit huh?
8. Conservative financial projections – Experienced investors generally will take any initial pro forma financial statement and double the costs and double the timeline to a positive cash flow. Financial projections, no matter how detailed and researched they may be, are estimates. They do not reflect the actual future, but your best guess at the future. Saying they are conservative are like a “duh.” Just call them financial projections and be sure you have assumptions for all of your numbers. Investors know you think they are conservative. The honest truth is, every time they hear the word conservative, they laugh a little on the inside.
9. Our primary marketing strategy will be word of mouth – It saddens me how often I have to explain this, but building something pretty and hoping people talk about it is not a strategy. “If you build it, they will come” only works in corny Kevin Costner movies.
10. We have no competition – No matter what industry you are in, no matter what you are selling, and no matter who you are selling it to: you have competitors. If your customer can spend their money on anything other than what you are selling – that thing is your competition. Especially in this day and age, simply getting attention is difficult enough. In reality, whatever gets your customer’s attention away from you is competition. Instead of spending your energy telling me how you have no competition, spend the energy showing me how you are going to get my attention.