EPILOGUE: Beware these characters!

To end on a lighter note, how would you like your backer to speak of your merits as a business plan writer?

An entrepreneur or a chancer? A realist or a smoker? A persuader or a prat?

You should try to leave the right impression with your backer. All too many don’t – and we’ve met some of these characters along the way in this book. Here are a few as a reminder of what not to do when writing your business plan.

They are the dreamer, the loner, the magician, the macho, the delusionist and the shot-gunner. Don’t do as they do . . . !

The dreamer

This is the person who lays out a set of sales forecasts that bear no relation to what market demand is forecast to do and/or how the firm is positioned in the market. We met him earlier (in Chapter 7) when looking at RandomCo’s sales forecasts and assessed his forecasts as wild. He’s the kind of guy who forecasts 14% per year sales growth in a segment even though market demand is shrinking, his firm is at best tenably positioned and he has no plans to launch new products (or services) or enter new markets.

He’s a dreamer. His forecasts bear no relation to the market environment in which his firm operates or to his firm’s competitive standing. He’s unbackable.

The loner

This is the person whose business plan has one sentence, not even a paragraph, let alone a chapter, on competition. Competition doesn’t matter. She identifies a market and her firm will serve it. No one else matters, no competitor exists, no new entrant will arrive. Hers will be the sole provider to this market. If others do arrive, customers will be disdainful, since the newcomers won’t have what it takes to compete. Only her firm counts.

She’s a loner. Her firm alone can serve the addressed market. Others are irrelevant. She’s unbackable.

The magician

This person is the clever guy who has forecast sales reasonably, consistent with both market demand and his firm’s competitive position, but has forecast his cost base to grow at a fraction of his sales growth rate. He believes he can use his purchasing skills to drive down direct costs and, as far as he is concerned, overhead expenses have plenty of slack at present and, by forecasting them to remain flat while sales grow, he is being conservative. As for capital expenditure, who needs it? The company should do fine with its ageing capital equipment for a good few years yet and, if space gets a bit tight in the plant, they can always improve the production process flow. Operating margin is thus forecast to grow dramatically year on year.

He’s a magician. He can grow sales without deploying the resources, and costs, needed to drive and serve them. Even if he has a sound market development case, he risks rejection by backers due to his unrealistic cost and margin forecasts. He may be unbackable.

The macho

This person is the turnaround guy extraordinaire. No matter that profits took a bit of a dive last year. This year profits are going to bounce back and rise exponentially thenceforth. His are the fabled ‘hockey stick’ forecasts. Everything that could go wrong went wrong last year. Everything that can go right will go right in years to come.

And why? Because he has taken charge, he’s the new CEO. He’ll sort everything out – he’ll get the sales staff re-motivated, the production staff more efficient and the R&D staff more market-focused. The firm will have world-class leadership for the first time ever. That is he.

He is the macho man. He may be right. Companies have been turned round, led by exceptional people, with the bottom line following that hockey stick. But the odds are not on his side and his backers will be wary indeed of his manifold claims. They will examine his track record with a toothcomb. And they will cross-examine him on every sentence and number in his business plan. If they can bear sitting alongside him that long.

The delusionist

This person has completed a rigorous, thoroughly researched and analysed assessment of the market opportunity. She has explained convincingly why it would be unlikely that more than four companies will enter the field. And she has set out in minute detail why her firm will remain at least as competitive as any other player on the assumption that others copy and follow her company’s consistently innovative policies. Her sales forecasts assume conservatively no more than a one in four market share by year five. Her expense forecasts are individually well argued and seem reasonable. And yet her forecasts show an operating margin of 40% by year five.

She is deluded. The sales volume forecasts may well prove correct, so too the cost forecasts. But what about pricing? Can she assume that competitors won’t price more competitively in order to gain share faster? Ultra-high operating margins tend to get shaved back through competitive pricing either by the incumbents themselves or a new entrant, or through escalating marketing costs, or a ­mixture of both. She may well win her backing, but not on the terms suggested by her business plan.

The shot-gunner

This guy is good. He started a business from scratch, survived the early ups and downs, and now has a healthy, tidy, little business. But he is not enamoured of that final adjective. He wants to grow, and grow fast. There is little scope for expanding his current business as is. But it could be replicated in another location. Or he could try introducing a new product line, aimed at a different customer group. Or he could try doing something similar with a different product group entirely. Given his track record, he could well succeed in any one of these strategic directions.

The problem is that his business plan shows investment in all three directions. Forecast profit by the end of year three shows a trebling with each new direction contributing its share. It won’t happen.

He is going to be stretched in so many directions he will have to be Mister Fantastic of the Fantastic Four to catch all the balls. His plan is unbackable, but he might not be. If he can be persuaded to select one strategy, to focus, he may be backable. He could become a rifleman, not a shot-gunner.

When you write your business plan, don’t be a dreaming, lonesome, macho, deluded, shotgun-toting magician. Be a realist. Earn the respect of your backer. Win that backing.

Good luck!