By Roger La Salle
What value is a business plan?
Seldom is any serious business investment undertaken without the prior analysis presented in a well-researched and documented business plan.
Certainly in the case of inventions and new products a business plan that documents the business case is always sought, especially by potential investors.
The problem is business plans are too often prepared by the champion of an idea and these people are already convinced about the likely success even before they start. The task of actually documenting the business case is seen as a necessary and troublesome precursor to getting investment funding.
With this mindset, how could a well-researched and objective business plan be developed? The fact is, it’s almost impossible.
There are many companies and consultants that write business plans and there are many templates available to assist. The better templates are not ones that simply ask you to fill in some boxes, but instead prompt the writer with the questions they need to be exploring to develop and document the business case.
However, even in these cases the likelihood of an independent and objective outcome is slim, to say the least.
Where businesses most often fail
In essence there are only two risks in starting a new venture or launching a new product:
1. Technical risk, meaning can we do it
2. Commercial risk, which in effect means, can we sell it.
By and large, the most common reasons for business failures is in the market place; and that’s where most business plans get it wrong.
Business plans always provide a spreadsheet with revenues over perhaps four or five years showing start-up costs, revenues, costs and finally profits. If the profit projections are not as high as would have been expected the writer can simply fudge the numbers and “hey presto” a winning business plan appears.
There is no doubt that in many cases market research is essential, especially where a very large investment is to be undertaken, but beware, market research often gets it wrong.
Possibly the most notable and well documented example would be the FORD EDSEL motor car rolled out by the FORD Motor company in 1958 to a huge fanfare. This car was an unfortunate market failure despite a huge amount or prior market research. Many marketing texts use this as an example of research risks.
Another, also in the auto sector is the TATA Nano from India.
A very low priced car targeted at the bottom end of the market and to all accounts this car has not won wide market appeal despite the delivery of a very good low priced vehicle. One reason cited for this failure was the perception that in buying such a “low end car” you are in essence advertising that the “low end” is your calling. Not an advertisement many wish to broadcast.
Beware the inspired and bullish entrepreneur or inventor carrying a wining business plan and beware the market research that underpins this document.
Right it may be, but very often and unfortunately, it will be wrong.
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Roger La Salle, is the creator of the “Matrix Thinking”™ technique and is widely sought after as an international speaker on Innovation, Opportunity and business development. He is the author of four books, Director and former CEO of the Innovation Centre of Victoria (INNOVIC) as well as a number of companies both in Australian and overseas. He has been responsible for a number of successful technology start-ups and in 2004 was a regular panelist on the ABC New Inventors TV program. In 2005 he was appointed to the “Chair of Innovation” at “The Queens University” in Belfast. Matrix Thinking is now used in more than 26 countries and licensed to Deloitte, one of the world’s largest consulting firms. www.matrixthinking.com
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