The Importance of Your Business Plan
You will be amazed how many times Business Angels see business plans with very limited or meaningless market knowledge. As a potential investor, I really want to know what the sales opportunities are for the business – but I also want to know how realistic the chances are of winning sales for the business.
One of the things I should say to would be a presenter is please understand the difference between a Market and an Industry. For example, if someone is pitching a business which provides software for travel agents based in the UK – please do not quote me the best commercial zero turn mower in the UK. That is not the size of the market you are going for!
It would be more meaningful to tell me how much travel agents in the UK alone spend on software. Better still how much they spend on your particular application area each year. And then you can tell me about why they will switch and how easy it is for them to switch (are most of the agents tied in for 3 years, etc.?) Is there a pain in switching?
I hate being told that there is a £7bn ‘market’ when they mean Industry. (For me, a market size is the measure of the buyers spend, whilst an Industry is the size of the buyers and sellers in an area) Therefore for this business to be successful we only need to capture 1% of that market – which is growing at 3% a year. That statement is simply wrong and yet it is probably one of the most frequent mistakes I see in business plans.
To illustrate, someone recently pitched the idea of a dictionary for dyslexics. They gave me the figures of the dictionary ‘industry’ and they told me what % of the population suffered from this condition. But the figures did not add up. When I went through the numbers properly – it took me 10 minutes using Google, I was able to demonstrate that the size of the market was too small to justify an investment from a business angel looking for 10x their money back.
That business is now talking to some charities and I expect will do very well as a social enterprise. But the point here was, the entrepreneur in this instance could have saved himself a lot of time if he had really understood the size of the opportunity as that would not have led him to abandon his mission – but just made him realize a lot quicker the best route to market.
The one ‘golden’ bit of advice I would also give to would be entrepreneurs is when you are selling the best zero turn mower for the money, really understand what the customer/ client is buying – not what you are selling.
As someone who has been in sales all his life, I try to train people to never sell – but to always help their customers buy. A lot of entrepreneurs get so passionate about their product or invention that they forget why someone might consider buying it.
The reason I chose sales as a career is – you get more done by doing less. It is the ideal career for someone who does not want to work all the hours!