Keys to Successful Failure
Joseph Garber, a best selling author, Forbes columnist, and investment advisor, offers the following advice in critiquing a business plan.
Initial Review
Common criteria used in evaluating a business plan and entrepreneur’s presentation are:
- How will the money be spent?
- What is the company vision?
- What is the ability of the management team to handle difficulties, obstacles, and problems?
- From where were the statistics obtained?
- What is the investor exit strategy?
- What is the two-year return on investment?
Common Errors and Omissions
Common errors include:
- Linear forecasting of numbers
- Failure to account for competitive effects on the market opportunity
- Assuming a steady state economy
- Calculating numbers for only one scenario
Serious omissions include:
- No pricing analysis
- Failure to account for after-sales service costs
- No acknowledgement of foreign market opportunities or competitors
- No discussion of alternative technologies fulfiling same market need
- No objective discussion of risks
Due Diligence
In doing due diligence, common red flags are:
- Math errors
- Resume inflation
- Nepotism
- Dubious business practices
- High compensation
- High expenses
- Too many partners
- Legal problems
- Dangerous products
- Greed
- Other agendas
- Living dangerously (rock climbing, skydiving, )
If the company has customers, it is common to contact them to determine:
- Do they have chronic shipping delays?
- Do they have good product quality?
- Are they over reliant on certain customers?
- How difficult is it to do business with the company?
- Are customers considering buying from competitors?
Traits Common to Incompetence
Common human errors in running a start-up are:
- Over-confidence
- Failure to follow through
- Inadequate or ignored intelligence
- Intimidated subordinates
- Perfectionism
- Poor priorities and planning
- Analysis paralysis
The best advice that management in a startup can take?
- “Admit your mistakes and fix them immediately!”
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