While every  business is different, business owners share many common traits.  As a result, they often make the same mistakes as they work on their business plan.   Here is a list of the ten most common mistakes :

1. No Plan - It is easy to put  off writing a business plan until you have no choice because your banker, investor, or potential landlord requires it. Unfortunately, that is the worst time to try and write a plan.
2. No Clear Audience - Why do you need a plan? Are you writing for the banker in hopes of getting a loan, or a potential investors or simply to guide your business.  While the outline is the same, the amount of detail required in each section varies depending on the audience.
3. Too Much Detail or the Wrong Type of Detail – Can you boil down the description of your business to a simple message without getting bogged down in the details?  Limit your product description to an overview, focusing on the problem your product solves and its unique features/  Remember to leave out the jargon and industry slang.
4. Poorly Defined Customer – Everyone is not your customer. With a clear, specific definition of your target customer, it is easier to write a clear, specific plan.
5. Limited Market Research – Just because you love your product or idea, it does not mean anyone else will.    (By “anyone,” I mean anyone other than your mom, spouse, or best friend.) Who are these people, and what will make them buy?
6. Underestimating your Competitors – Everyone has a competitor. Even truly innovative products must deal with competing products or services which may or may not solve the same problem, but ultimately will compete for the end customer’s available resources.
7. No Meaningful Goals and Milestones - What will you accomplish?  Be specific.  How long will it take you and how will you measure your progress along the way?
8. Activities Not Tied to Goals – Your goals form the basis of other decisions. Use the planning process to eliminate activities which do not move you closer to your goals.
9. Unsupported Financial Projections – Unrealistic financial projects with a hockey-stick-shaped growth curve, set up a business for failure when owners spend too much too soon without enough cash reserves to help the business through the startup phase. As you develop financial projections, consider two scenarios: a best case and a worst case.
10. Inadequate Consideration of Pitfalls – Stuff happens! Things go wrong. When the worst happens, will you be prepared? Having an adequate assessment of risks is not being negative — it is being prepared.
11. Failure to Communicate - I know, I promised a list of the ten most common mistakes, (but don’t you like getting the little extra from time to time? ) While not directly a part of your document, poor communication will have a detrimental affect on your business. As you write your plan, involve others.  Seek advice from people you respect. Talk to employees, family members, business partners, and advisers, such as your accountant and lawyer.

Need help getting your plan started?  You can download a free copy of my business plan outline

So, you have come up with the next great idea and you are ready to begin building your fortunes. One of the first questions you should ask is “what type of business should I be,” or as we lawyer-types put it, “what choice of business entity should you make”? Choosing the proper legal entity with which to conduct business is one of the most important decisions a business owner faces. This early decision will determine myriad other issues including responsibility for tortious acts, complexity of the entity, ability to transfer interests in the entity, ease of additional capital infusions, protection of intellectual property, and, of course, liability for the payment of taxes, to name just a few.

So many choices - will you make the right one?

The list of available entity forms is fairly extensive. From the more traditional corporations and partnerships to the more exotic state business trusts and conduits, it seems there is a form for everyone, and in most cases, multiple forms. In some instances, it may be appropriate to forego a separate entity and conduct your business as a sole proprietorship. In a sole proprietorship, the business is conducted in the owner’s individual capacity. Perhaps intuitively, a sole proprietorship offers no protection from liability, but it is the simplest way to conduct business. Generally, no separate documents or records need to be filed with any governmental authority, including the Internal Revenue Service.When a business owner wants to sell his or her sole proprietorship, it will always be a sale of the underlying business assets.

Future blog entries in this series will focusing on the three most common types of entities — partnerships,limited liability companies, and corporations.  Each of these has important characteristics that distinguish one from the others. By recognizing these differences, you can begin to highlight the factors that will influence your decision on which form of entity to select.

Check back in a few days for a discussion regarding corporations.

As you are in the early planning stages of your new venture, now is a good time to ask your self what direction you will take your business.   Your business plan is a road map, making it  easier to arrive, because you have specific directions and a clear map to  your destination.  Whether you  are looking for external funding, or simply want to get your ideas organized, a written business plan will keep you  on track.

WHAT SHOULD YOUR PLAN CONTAIN?

As you write your business plan, keep your audience in mind! If you are hoping to use this plan to solicit funds be sure to include information which will prove the value of your ideas.

• Demonstrate Market Focus. Can you clearly describe the needs of potential customers, rather than simply being infatuated with an innovative idea.

• Evidence of Customer Acceptance. Investors like to know that your new product or service is proven. Provide evidence that your product will sell or is already being used, even if only on a trial or demonstration basis.

• Believable Forecasts. Entrepreneurs are naturally optimistic when explaining the future prospects for their businesses. Are your forecasts reasonable? If you have no sales, consider including compelling research information which supports your sales forecasts.

Do you need a boost getting started? Download our free business plan outline

There is a great post on Venturebeat.com about 6 common legal mistakes startups make.  Some of these have been covered elsewhere on this blog – some not.  Here is the cliff notes version- check out the post itself for more details:

• IP Ownership – make sure it can be transferred to the startup.
• Choice of Entity – choose carefully.  They recommend a corporation instead of an LLC.  I disagree on a certain level, as I have stated before on this blog and my Indiana Law Practice Blog.
• Place of Incorporation – they say Delaware.  Again, I disagree to an extent (see this post).
• Vesting Restrictions – make sure founders stock vest over time, otherwise you run the risk of a founder leaving early on and keeping all of his /her stock.
• Securities Law Compliance – beware of not complying when issuing any securities to anyone, no matter who they are.
• Legalzoom – avoid like the plague.  Hire an attorney!

A business plan helps you  look ahead, allocate resources, focus on key points, and prepare for opportunities and problems. You use it the same way you study a map to plan a route, determine where to turn, and locate key landmarks. A complete plan includes descriptions of the company, product or service, market, forecasts, management team, and financial analysis.  Here is a brief outline of what your plan should contain.

Executive Summary

• Company description and current status
• Products/services and market description
• Company objectives
• Financial performance and funding plans

History and Position to Date

Here you describe why you started the business, why you believe it will succeed, and how you will define success. It should include:

• Company background
• Sales and other achievements
• Mission, vision, values, and goals
• Business structure and management team
• Product/service description

Market Research Includes

• Description of the target customers
• Product preferences and purchase influences
• Market trends
• Description of the competitors

Business Strategy – Includes all four elements of your business strategy: Product, Price, Place and Promotion.

Operations; This section is not complete without the milestone schedule, a table that captures all the assignments, commitments, and plans that assign timelines and responsibilities.  It should also include your plans for :

• Sales and sales management
• Manufacturing/supply
• Staffing issues
• Business controls and critical risk

Forecasting and Financials – The plan culminates with the financials. Ultimately, your business plan must boil down to results.

Appendix – What goes into the appendix? Everything else!

Find this interesting? Sign-up for our How to Write a Business Plan in  10 Weeks or purchase my “Business Map: A Practical Guide to Business Planning”

I recently stumbled across the “Lean Start-Up” Process, a term coined by Eric Ries, 31, an engineer, entrepreneur and blogger. His inspiration was the lean manufacturing process, fine-tuned in Japanese factories decades ago – which focused on eliminating any work or investment that doesn’t produce value for customers.  This is a concept I am familiar with in my solo, virtual law practice – operate lean and focus only on providing good legal service.  Any effort or energy expended otherwise is of no benefit to me nor my clients.

Part of the this process also involves developing a “minimum viable product” that will please some customers, and then build the business from there, responding and reacting rapidly to market responses to product changes.

This process kind of precludes developing a formal business plan – which I do not totally agree with.  I see too many startups, particularly tech startups that do not have the luxury of significant outside funding and investors/advisors that bring business acumen to the table , flounder on the business side of things even when they have developed a great application.  Sure there are exceptions, and a business plan is not always absolutely necessary – but without some sort of focus on making a startup idea / startup application into a real, money making, viable business entity – long terms success is difficult to come by.

Below is a great slideshow that illustrates the process.

Related articles by Zemanta

• Why Startups are Agile and Opportunistic – Pivoting the Business Model (tpgblog.com)
• Thinking Inside the Box: Eric Ries On Creating Startups Within Large Organizations (readwriteweb.com)
• What Start-Ups Can Teach Big Companies (bits.blogs.nytimes.com)

I read an interesting post on Gigaom.com titled “The 10 Ways Startup Advice is Flawed.”  It focuses on advice given by people perceived as successful start-up entrepreneurs – attacking the premise that someone’s status (i.e. wealth, fame…etc) may not necessarily be related to what they did as a start-up – and that therefore their advice is not sound.  Here is a key excerpt from the post.You can read the whole post here.

1. Maybe the thing they did really didn’t cause them to get rich. A lot of startup stories are after-the-fact rationalizations or outright myths. As they say in Latin (and on the “West Wing”):Post hoc ergo propter hoc. In other words, just because something takes place after something else, doesn’t mean the two have a causal relationship.

2. Maybe they got lucky. After all, as my grandmother used to say, “Even a blind pig eventually finds a truffle.”

3. Maybe they did the thing they said and it was actually a bad idea, but they were in the right place at the right time. A lot of powerful businesses (especially network-effects businesses) are largely resilient to incompetence.

4. Maybe the thing they did worked, but only in conjunction with some other unnamed factor. For example, many visionaries partner with a heads-down, practical type.

5. Maybe the thing they did worked, but it only under certain circumstances. For example, perhaps it worked in their industry and not in yours, or only in certain phases of growth, or for certain kinds of teams.

6. Maybe the thing they did used to work, but it doesn’t anymore. For example, perhaps competitors now know how to counter such a move.

7. Maybe the thing they did worked, but for a different reason than they think. For example, perhaps it was the feedback of their customers, not their grand original idea, that was key to success.

8. Maybe they didn’t really do the thing they said they did. Most of the mythological startup stories are highly misleading. Many of us remember the past the way we wish it had been rather than the way it actually was.

9. Maybe they’re not really rich and/or famous. A lot of startup energy goes into what I call “success theater” –- that is, convincing the world that you and your startup is successful. Next time you’re listening to a guru, ask yourself: How do I really know that they’re successful? What is their definition of success? What’s mine?

10. Maybe they have an agenda. Ask yourself: Does this person stand to benefit if I follow this advice? The VCs I know and trust are honest and very pro-entrepreneur, but I routinely hear others give advice that entrepreneurs should be suspicious of. Fundamentally, their incentives are based on having a portfolio of startups. As an entrepreneur, you have a portfolio of one. Think about that the next time a VC advises you to swing for the fences.

I tend to agree with most of this.  I see a lot of this in the startup world – bad advice from people that really have no business handing out advice.  And I REALLY see a lot of number 9 – “success theater” as they call it.  So many start ups exude a ton of energy, maybe get a little bit of hype, but really have barely any substance or success behind the business.  The point is, be careful who you take advice from and how seriously you take that advice.

What do you think?  Received any bad startup advice lately?

There are a lot of things to consider when you decide to start a business – here is a simple check list of some things to consider and get you started. While not all of these are required at the very beginning stages of your business, these are all things that you should consider at some point during the startup or growth of your business.

Legal entity structure decision (consult your attorney and CPA)

• Sole proprietor
• Partnership
• LLC
• Regular C corporation
• Tax entity decision: should your LLC or C corporation file as an S-Corporation
• How many owners are there and what is their ownership percentage? Are legal agreement in place?

Have you chosen a lawyer and a CPA to assist and advise you? Do you have other key advisors? Who is your insurance agent?

Banking Relationship

• Do you have your business account(s) set up?
• Will your business require any special banking arrangements such as multiple types of accounts, international transactions, etc.

Have you developed a basic business plan that includes

• What does your business do and what makes it different?
• Is there a market for what you do?
• What obstacles do you anticipate and how will you overcome them (risk factors)?
• Is there a financial plan that includes the balance sheet, income statement, cash flow projections and break even analysis?
• What are your sources of funding?
• How are you going to pay yourself

Current business systems in place or to put in place

• Accounting systems including software, security, policies, procedures, controls and asset management
• Human capital management – HR systems and payroll
• Cash management systems and controls
• Tax management, sales and use tax, employment tax, income tax
• Key performance metrics identified and measurement systems.

Sources and uses of cash

• Start up capital (cash) required
• Working capital needs (cash needed to fund operations)
• Are your sales and expense projections realistic?
• Will you need to fund inventory?
• What other assets will you need to acquire?
• What is the lag time from the sale to actual cash received?
• How do you anticipate paying back loans to the business?

Have you considered how the changing business environment may affect your business?

• How is your business impacted by government regulations?
• Do you need to be concerned about license issues?
• How easy is it for a competitor to enter your market?
• Does your market have long term viability?
• What impact would an economic downturn have on your business? Could you downsize quickly if required?
• Is your business location crucial to your success?
• Are your products or services price sensitive?
• Could your cash flow support a rapid expansion?

A very common question I get from entrepreneurs involves the timing of actually incorporating or organizing (depending on whether a corporation or LLC is formed) a formal business entity through which to conduct business.  There are lots of factors to consider. Last year I read an interesting “decision matrix” by Ryan Reynolds, which takes into consideration factors such as:

• The number of founders.
• The degree of risk of experiencing some sort of lawsuit.
• Whether your start-up is seeking outside fundings.
• Whether and what sorts of contracts you are signing.

I tend to agree with this these factors for the most part – at least as a way to quantify the need (for those people that like to quantify things before making a decision).   Typically, though, I will recommend that a business incorporate or form an LLC as early in the process as possible (assuming the cost is not prohibitive – and it shouldn’t be so long as you find counsel that can help you do so for a reasonable fee).  For entrepreneurs that are serious about their business endeavor, forming a business entity is usually the first step toward making things “official.”  When someone goes through the process of organizing an LLC, opening a bank account, retaining an attorney, retaining an accountant…etc…what was once an abstract business plan or hobby becomes more tangible…and a platform is created from which to focus and launch the business (not to mention the obvious legal advantages such as limited liability that are discussed elsewhere on this blog).   What it really boils down to is this – when you are serious about starting up and executing a new business, that is when you should seriously consider spending the time and money to incorporate or organize a formal business entity (corporation of LLC).

What about Tech Startups that run lean?

I do deal with a ton of tech startups, and in the past few years, those guys have sort of flipped the script on the startup model by spending lots of time developing an application way before even thinking about formalizing the business entity.  Sometimes this can be ok – but problems can arise when you have, for example, 2 founder-types and 2 developer-types.  With no written agreements in place, and everyone involved working on a shoestring (or no) budget, how do the 4 “partners” know everyone will be on board with an operating agreement or founders vesting agreement once something is on the table?  What if the “partners” can’t come to an agreement on equity levels and vesting schedules?  Good luck trying to find investment capital if there is a founders dispute.

Drop Dead Time

Assuming your startup and its founders are all in perfect harmony on equity and vesting issues, the drop dead date for incorporating your business should be BEFORE you start dealing with 3rd parties (vendors, customers, investors, landlords…etc).  Don’t make the mistake of signing contracts without having set up a formal business entity – if you do – that means YOU are on the hook for any liabilities or obligations created by those contracts.

Before you launch your new startup in Indiana, check out these 3 startup tips to get you going down the right track:

Find a Technical Co-Founder – If you are starting a new business in 2011 you absolutely need a technical Co-founder. This means you need someone that can code, a computer programmer, a Mark Zuckerberg. In 2011, big ideas don’t mean much. You can’t raise capital with a big idea, you need a working prototype. You don’t want to outsource all of your product or web development because you are likely to find that the developers took short cuts that will cost you dearly in the long run.

Find a Niche – Successful companies do not start out by trying to be all things to all people. When Mark Zuckerberg started Facebook he was focused on the college student niche. Facebook dominated the college social networking arena first and then expanded from there. In the same way you should start your business by focusing on a particular group of people. Establish yourself as “the expert” in a smaller niche and then be on the lookout for logical expansions.

Find Time to Work on the Business – Most entrepreneurs get sucked into accepting every job that comes their way. They are so busy working in the business, that they don’t have time to build and grow the business. As an entrepreneur you might have to say no to a job or two each month in order to spend time evangelizing your products and services, and hiring talent to take on that extra work. You can only work so many hours each year, so if you are committed to growing your business then you will need to take a step back, hire the right people, and strategically position your business for continued growth.

Building a startup is not for the faint of heart. It takes patience, and the ability to keep driving forward even when the future is uncertain. In 2011, make sure to keep these 3 startup tips in mind as you set out to change the world