This morning I start my annual business plan marathon. This is my day as a semi-finals judge at the University of Oregon’s New Venture Championship. From here I go to Houston next week for Rice University’s million-dollar business plan competition, and then in early may to Austin for the University of Texas’ Venture Labs competition.
I call it my business plan marathon because it includes reading several dozen business plans and watching several dozen business pitches. It also incudes reading some plans for the University of Notre Dame business plan competition, and plans submitted to the Willamette Angel Conference, where I’m a member investor. All of this happens between now and May 12.
I do enjoy reading business plans, and I enjoy even more meeting the entrepreneurs, watching them pitch, and asking questions. These events are good for everyone involved.
As I was reading plans in preparation, I found that one error I’ve complained about before — the totally unrealistic profits — is still quite common. Way too many of these business plans project profits at 40, 50, 60% and even higher, as if the way to show a good business is to project very high profitability.
The extremely high profits in the projections leaves me very unimpressed. Real businesses are happy to make 5 or 10% profit on sales when they do real well, maybe more when they are new, innovative, and spectacularly profitable. Nobody makes the high rates that show up too often in business plan contests.
Those sky-high projections don’t mean you have a great business plan or a great business; no, what they really mean, to me at least, is that you don’t really know the business you’re getting into. You don’t have a good grasp of normal costs and expenses.