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.
Where businesses most often fail
In essence there are only two risks in starting a new venture or launching a new product:
- Technical risk, meaning can we do it.
- 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 projections over 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!
Market research
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.
The advice?
Beware the inspired and bullish entrepreneur or inventor carrying a wining business plan, there is no other type; and beware the market research that underpins this document.
Right it may be, but very often and, unfortunately, it will be wrong.
Roger La Salle, www.innovationtraining.com.au
