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Business failure is a distinct possibility for many businesses, especially for start-ups during the so-called three-year "valley of death". A key to getting through these years is to avoid the obvious mistakes. Generally speaking, businesses fail for significant and substantial reasons which are often very evident to outsiders. Insiders often fail to see them because of their closeness, determination and so on. Areas where failure is most likely to occur include finance. markets/sales, offerings, management and operations. See a detailed listing of possible reasons for business failure.

Clearly, there are very many reasons as to why businesses fail. The key point is that causes are usually very apparent (especially with hindsight) and the trick is to anticipate them by executing appropriate tactics and strategies from the outset. Three examples:

  • Use market research to confirm demand and assess suitability of proposed offerings.
  • Create a management team to offset any gaps in experience or expertise.
  • Raise equity to reduce exposure to interest rate changes, reduce gearing etc.

Given that reasons for failure are often both simple and clear, it should (in theory) be possible to reduce the possibility of failure through prior experience, forethought and effective planning.

For more information, see Devising Business Strategies, Developing a Strategic Business Plan and Writing a Business Plan. Also look at and/or participate in the online poll on Strengths & Weaknesses of Businesses.

When preparing financial projections for your business plan, be conscious of the pitfalls and dangers listed below. These can arise as the result of a lack of foresight or insight, or because of excessive optimism. As they can lead to underestimation of the resources required to develop a business with potentially disastrous consequences, it can be counterproductive to overstate its potential.

Financial Planning Traps
  • Using financial forecasting as a substitute for business planning.
  • Ignoring historic trends or performances at company, sectoral and national levels.
  • Overstating market shares and growth, sales forecasts, and profit levels.
  • Giving insufficient consideration to working capital requirements.
  • Underestimating costs and delays likely to be encountered.
  • Disregarding industry performance norms and competitors' responses.
  • Breaching generally-accepted financial guide lines and ratios.
  • Making unduly optimistic assumptions about the availability of loans, trade credit, grants, equity etc.
  • Seeking spurious accuracy while failing to recognize matters of strategic importance.


Realistic views should always be taken of a business's prospects, prospective profits, funding requirements etc. There is often merit in compiling "worst" case projections to complement "most likely" or "best" forecasts.

In practice, the realization of financial projections, especially for a new business without any trading history, might easily take twice as long and cost twice as much as expected. This is the double (costs), double (time) or half (revenues) rule.

Remember that it is much less painful to deal with a flaw in a business at the planning stage, than later on when commitments have been made and the business has started trading.

Our software planners - Exl-Plan and Cashflow Plan - offer comprehensive facilities for doing sensitivity analysis and exploring "what-ifs".

How long should it take to write a business plan and how should the time be allocated?

Some useful answers to these questions can be gleamed from an ongoing survey being conducted by PlanWare amongst people who have prepared written business plans.

Based on over two thousand responses, more than one-third (38%) of the respondents spent less than a month on their plan; a similar proportion (37%) worked on their plan for 2-3 months; and the balance (25%) spent several months on the task. More detailed analysis of these findings indicated that:

  • The elapsed time to prepare comprehensive plans was considerably longer than that for basic plans.
  • Over one-third of all plans compiled within an elapsed time of one month were used to seek bank loans or approvals from shareholders/directors, or they were compiled for internal/personal use.
  • About one-third of all plans used to raise venture capital/equity took least three months to research and write.

The survey also showed that the task of actually writing the plan was usually the least time consuming part of the planning process as almost two-thirds (63%) of respondents spend more time researching than writing their plan. For a fifth (21%) of respondents researching and writing times were about equal. Only a small minority (16%) undertook little or no research before drafting their plan.

For more findings, see a detailed analysis of the survey findings and the latest survey results.

New Business Ideas

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This entry deals with the tricky task of assessing new business ideas.

Having built up a moderate list of ideas, these must be evaluated so that a short-list of preferred options with the greatest potential and lowest risk can be assessed in greater depth.

One way of evaluating ideas would be to use a simple scoring system using gut-feel with a limited number of criteria such as personal fit, degree of risk, funding need and so on - see a comprehensive list of factors at Getting New Business Ideas.

Before scoring individual ideas, run through the criteria and set what you feel should be minimum desirable scores for each. The resultant total could be used as your overall minimum threshold. If some ideas don't achieve satisfactory scores, drop them and look for better ones.

Once your short-list has been developed, you will need to start devoting substantial time to assessment, research, development and planning. For a start, you could pursue the following tasks:

      1. Discuss products/services with prospective customers
      2. Assess the market using desk & field research
      3. Analyze your competition
      4. Consider possible start-up strategies
      5. Set ball-park targets and prepare first-cut financial projections
      6. Prepare a simple action plan
      7. Critically examine ideas from all angles

      For more insights into these tasks, see Getting New Business Ideas.

Bear in mind that the incubation period for a new business can easily last several months or even years. Don't rush into the first feasible idea without letting it incubate or develop in your mind for a reasonable period. There might be a tendency to get all fired up and enthusiastic such that your heart is starting to rule your head. Instead, stand back and think!! Do not be afraid to seek external assistance from professional advisers or from enterprise support organizations which are virtually everywhere. These include SBDCs in the US, Enterprise Agencies & Business Links in the UK, County Enterprise Boards in Ireland, EC BICs throughout the EU and so on......

For help with converting your preferred business idea into a business plan, see How to Write a Business Plan.

Here are some quotations to motivate and inspire the planning and development of your business:

    • Rise early, work hard, strike oil. (J Paul Getty)
    • The person who doesn't scatter the morning dew will not comb grey hairs (Irish proverb)
    • A chicken doesn't stop scratching just because worms are scarce (Grandma's Axiom)
    • A wise man turns chance into good fortune. (Thomas Fuller. Gnomologia, 1732)
    • A great fortune depends on luck, a small one on diligence. (Chinese proverb)
    • Luck is a dividend of sweat. The more you sweat, the luckier you get (Ray Kroc)
    • I'm a great believer in luck and I find the harder I work, the more I have of it. (Stephen Leacock)
    • Success is more attitude than aptitude. (Anonymous)
    • If, at first, you don't succeed, try again. (Proverb)
    • If, at first, you do succeed, try to hide your astonishment.(Los Angeles Times Syndicate)
    • There is nothing more difficult...than to take the lead in the introduction of a new order of things. (Niccolo Machiavelli)
    • If you want truly to understand something, try to change it. (Kurt Lewin)
    • Do not follow where the path may lead. Go instead where there is no path and leave a trail. (Ralph Waldo Emerson)
    • You cannot travel on the path until you become the path itself. (Gantana Bouddha)
    • There is no top. There are always further heights to reach. (Jascha Heifetz)
    • For the wise man looks into space and he knows there is no limited dimensions. (Lao-tse)
    • It is not best that we should all think alike; it is a difference of opinion that makes horse races. (Mark Twain)
    • It's not because things are difficult that we dare not venture. It's because we dare not venture that they are difficult. (Seneca)
    • It is a myth, not a mandate, a fable not a logic, and symbol rather than a reason by which men are moved. (Irwin Edman)
    • Great spirits have always encountered violent opposition from mediocre minds. (Albert Einstein)
    • Every wall is a door. (Ralph Waldo Emerson)

For more quotations see this list and look here for lots of bad advice and decisons !  

So, you have a solid idea for a business and you are wondering how to turn it into a real business.

Try following these steps:

  1. Clarify your business idea in terms of what you will offer customers. See getting new business ideas.

  2. Conduct market analysis and research (desk and/or field). See profiling target markets.

  3. Refine your business idea and flesh it out so that you can prepare a relatively comprehensive description and market positioning statement (as regards price, features etc.). See product/service descriptions.

  4. Compile a short strategic plan to give you an overview of your idea from a "total" business perspective. See developing a strategic plan and online strategic planner.

  5. Write a business plan with projections AND include an action plan. This plan can range from an eight-page informal document (for your eyes only) to a 40-plan comprehensive plan (for raising external finance etc.). See how to write a business plan and get insights into a business plan. For projections, look into using financial projection software

  6. Use your plans to help mobilise resources. These could cover pilot operations, raising finance, prototyping, R&D, creating networks, recruiting staff, locating premises/equipment and so on.

  7. Update your business plan and related action plan (especially if #6 takes time).

  8. Start executing your business and action plans.

  9. Revise your action plan and key financial projections (especially short/medium term cashflow forecasts) in light of initial results.



Get New Business Ideas

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Here are some tips on getting ideas for a new or established business.

Bear in mind that ideas could be based on any of the following fundamental approaches:

  • A manufactured product where you buy materials or parts and make up the product(s) yourself.
  • A distributed product where you buy product from a wholesaler/MLM, retailer, or manufacturer.
  • A service which you provide.

You should narrow your search to specific market or product areas as quickly as possible. For example, the "food business" is too broad a search area. Do you mean manufacturing, distribution or retailing, or do you mean fresh, frozen, pre-prepared etc. or do you mean beverages, sauces, confectionery etc.? It is better to pursue several specific ideas (hypotheses) rather than one diffuse concept which lacks specifics and proves impossible to research and evaluate.

When looking a market, segment it and keep segmenting so as to drill down to possible opportunities. 

Generally, you should always aim for quality rather than cheapness. Be very cautious about pursuing ideas which involve any prospect of price wars or are very price sensitive; getting sucked into short-lived fads; or having to compete head-to-head with large, entrenched businesses.

To locate ideas, observe consumer behavior:

      1. What do people/organizations buy ?
      2. What do they want and cannot buy ?
      3. What do they buy and don't like ?
      4. Where do they buy, when and how ?
      5. Why do they buy ?
      6. What are they buying more of ?
      7. What else might they need but cannot get ?

Also, look at changing existing products or services with a view to:

  • Making them larger/smaller, lighter/heavier, faster/slower
  • Changing their color, material or shape
  • Altering their quality or quantity
  • Increasing mobility, access, portability, disposability
  • Simplifying repair, maintenance, replacement, cleaning
  • Introducing automation, simplification, convenience
  • Adding new features, accessories, extensions
  • Changing delivery method, packaging, unit size/shape
  • Improving usability, performance or safety
  • Broadening or narrowing the range
  • Improving quality of service
  • Catering for special groups of customers.
  • Adapting to suit different market segments.

For further suggestions and tips, see our white paper on Getting New Business Ideas.

When planning a new business or developing an existing one, it is useful to have a gut feel for the characteristics of a successful business. Here are some criteria against which to measure your business or its plan:

    1. Be sensibly financed (with prudent mix of equity and debt).
    2. Have a strong cash position (with access to follow-on or contingency funds).
    3. Offer above-average profitability (in terms of return on capital invested).
    4. Aim for rapid growth in revenues (with profits lagging but in prospect).
    5. Target expanding, or otherwise attractive, market segments.
    6. Develop a strong franchise or brand.
    7. Devote substantial resources to innovation (R&D, offerings or market).
    8. Compete on non-price issues (e.g. quality, service, functionality).
    9. Be very close to customers and responsive to their needs.
    10. Seek a specialist/leadership image with superior offerings.
    11. Be well managed with high-grade staff & good people-management.

Behind every characteristic there should be an explicit strategy designed to increase the chances of success and not simply aimed at reducing the likelihood of failure. For example, for #1, a startup might decide to raise external equity and place minimal reliance on borrowings or an established business might set a limit of 50% on its projected debt/equity ratio. 

For more help on setting strategies, see Developing a Strategic Plan and Devising Business Strategies. Use the free Online Strategic Planner to create a 3-page strategic plan.

Before any detailed work commences on writing a comprehensive business plan, you should:

  • Clearly define the target audience
  • Determine its requirements in relation to the contents and levels of detail
  • Map out the plan's structure (contents page)
  • Decide on the likely length of the plan
  • Identify all the main issues to be addressed.

Shortcomings in the concept and gaps in supporting evidence and proposals need to be clearly identified. This will facilitate an assessment of research to be undertaken before any drafting commences.

Bear in mind that a business plan should be the end result of a careful and extensive research and development project which must be completed before any serious writing of a plan should be started. Under no circumstances should you start writing a plan before all the key issues have been crystallized and addressed.

For more tips and suggestions, check the white paper on Writing a Business Plan and Free-Plan our free 150-page Business Plan Guide and Template (Word format). Also, refer to the 30-point Checklist for Preparing a Business Plan.

About this Archive

This page is an archive of recent entries in the Starting Up category.

Raising Finance is the previous category.

Strategic Planning is the next category.

Find recent content on the main index or look in the archives to find all content.

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