May 1–Poorly written business plans can prohibit entrepreneurs from getting financed, possibly crippling their businesses and dreams, two Fountain Hills entrepreneurial authors found in a recentstudy. Business plans, typically between 15 and 50 pages long, are road maps that guide business owners through each aspect of their business’ development including concept, marketing, competition,financial plans and a strategic plan.

A recent study of 74 venture capitalists nationwide revealed their are six critical mistakes business plans often contain. Dee Power and Brian Hill, authors of “Inside Secrets to Venture Capital” and “Attracting Capital from Angels,” survey venture capitalists regularly to better help entrepreneurs. They are working on a third book, “Business Plan Basics,” which is due out later this year.

In their latest study, 28 percent of venture capitalists, who respond anonymously, said the most frequent business-plan mistake was a lack of marketing strategy. Entrepreneurs failed to specify who their customers would be and how they would communicate with them. One venture capitalist said, the mistake is “underestimating the challenge of developing a new market.” Another venture capitalist said, “They really need to think through the most effective ways to get their product/service to market and have a detailed plan of attack.”

They also said entrepreneurs overstate their market projections and understate the amount of time before they break even. “Entrepreneurs fall in love with their product and don’t think about how to get people to part with a buck,” Power said. “Marketing isn’t just defining the sales market. It’s defining the strategies, advertising program (and) publicity program.”

Power doesn’t advocate being a copycat, but suggested entrepreneurs look at public companies’ 10-K reports, which must be filed with the Securities and Exchange Commission. Also, many companies, including possible competitors, list their market focus on their Web sites. Lack of clarity and unrealistic financial projections and assumptions tied with 21 percent of venture capitalists listing them as critical mistakes. Entrepreneurs often have a business model that makes sense, but don’t explain why their company will be successful, they said. For example, assumptions are too generic and they have an ” inability to clearly articulate the value proposition.”

Power said entrepreneurs can avoid this mistake by asking several trusted people who aren’t familiar with the company to read the plan. One venture capitalist said entrepreneurs don’t build enough of a financial and time cushion into their plans, which skews their profitability schedule. “A business plan is a guess into the future, but rationalize and justify those assumptions with research,” Power said. She suggested entrepreneurs look on the Internet at financial reports of public companies in the same industry to determine a profitability timeline. Also, companies often discuss their growth in media stories, which are available online.

The fourth mistake was a lack of detail, which was cited by 15 percent of surveyed venture capitalists. They said entrepreneurs don’t pay attention to detail, lack research and aren’t thorough. Power said company outsiders such as attorneys and accountants should read the business plan and list issues that weren’t adequately addressed. Eight percent of venture capitalists said entrepreneurs are too optimistic in their business plans. Business owners overestimate their revenue and underestimate their costs.

“You have to be optimistic to be an entrepreneur,” Power said. “(But) they don’t realize it will take longer and more money than they expected.”

Trade associations and publications can guide entrepreneurs on how much time and money it will take, she said.

The final mistake cited by 7 percent of venture capitalists was a weak analysis of competition. Entrepreneurs can learn about their competition through chambers of commerce, trade associations, vendors, suppliers and customers, Power said. “Never say your company or product has no competition,” she said. “State your competitive advantage in one paragraph. If you can’t, or if takes more than one paragraph, you really don’t know what it is.”

The final tip entrepreneurs should remember is: Include your contact information in the business plan.

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(c) 2003, The Tribune, Mesa, Ariz. Distributed by Knight Ridder/Tribune Business News.