Many people dream of becoming an entrepreneur — and making the millions that can come with owning a business. The only problem: There’s a huge gap between dreams and what it takes to make them a reality. That’s probably the main reason why 8 in 10 new businesses fail within 18 months of opening their doors.
To navigate this gap and stack the cards in your favor, you need a plan — and a good one, at that — but you already know that. While most people realize they need a plan, they usually forget that it needs to cover certain key ingredients. Don’t drag your feet: Just like a builder will demand a blueprint before beginning construction, aspiring business owners shouldn’t rush into a new venture without planning to succeed.
Here are three things that must be done before sitting down to write that business plan:
1. Know your stuff
Getting information is relatively easy in today’s internet-fueled world. The hardest part is removing the media spin, promotional copy, and unverifiable statements. Russia, for example, has been a hard sell for investors lately, largely due to the constant news on hacking. But this may not be relevant when it comes to buying public stock of Russian-based companies.
Gather as much market-based data as you can, and perform what some call a “practicality analysis.” A study by Informatica reveals that incorrect or antiquated data leads 46 percent of companies to make bad decisions that cost them billions of dollars. Simply put, being uninformed — or even poorly informed — comes at a price.
Be selective about where you pull information from. Rely only on data from research organizations and credible sources, as well as information that has been confirmed by multiple sources. As a rule, don’t build, manage, or invest in something you don’t understand well.
2. Lock in the money
Businesses don’t work without money. In fact, a CB Insights analysis revealed that lack of consistent cash flow (cited in 29 percent of startup failures) is the second-most common reason startups shut down, just behind lack of market need.
Whether you’re bootstrapping or asking a VC to fund your startup, be sure you know where the money will come from. Otherwise, you won’t have enough fuel to grow the business. Many big strategies hinge on having sufficient working capital to get them operational.
If financial resources are limited, see whether you qualify for a development loan program. Some of these loan programs require special certification or qualifiers regarding the business, such as being woman- or minority-owned or coming from a disadvantaged, underrepresented part of the country. Do your research, and check with the U.S. Small Business Administration for help.
3. Find focus
Distraction is the demise of many an entrepreneur. According to the CB Insights study, 13 percent of young businesses suffer from lack of focus, which is the 11th-most common reason for startup failures.
While some believe they multitask well, most people — especially entrepreneurs — are easily distracted. If you’re unable to continuously focus on the key drivers of your business, you probably won’t make it to the end.
Do a simple self-analysis to pinpoint your motivations and expectations, and then identify the personal skills and experience you bring to the business. Determine how your venture will build on your core competencies, and use those competencies to market your ability to deliver what no other business can.
Break it down to money, focus, and knowledge, otherwise known by the acronym MFK. Those are three variables integral to any business’s long-term health, so prioritizing them is an absolute must. Blend that with a comprehensive, thoughtful business plan, and you’ll be one of the startups standing when the dust settles.