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-What's up, guys? Daniel McKenna here. Today, Clay Clark will be sitting down with the highly intelligent and successful David Nilssen He'll be talking with us about the 15 most common mistakes entrepreneurs make whenthey start a business and are writing a business plan.
If you do not already know who David Nilssen is, David Nilssen is the co-founder and CEO of Guidant Financial. So starting the company with just two people who shared a laptop, the company has now helped to fund over 10,000 small business owners. Guidant Financial has helped to connect small business owners to over $4 billion of capital that has been used to create over 60,000 jobs throughout the United States.
In this lesson, David Nilssen is going to bring some knowledge about the most common mistakes entrepreneurs make when they're putting together their business plan. So you can actively avoid these or fix any problems you might have currently. Make sure you pay attention in this lesson, take notes, turn those notes into action items, so you can apply what you're learning here to your life or your business. Time for lesson, let's go.
-David, I appreciate you for letting me visit you out here in beautiful Seattle. This was a great trip. There's a lot of water, mountains; it's beautiful, my friend.
-Yeah, Seattle's an awesome place.
-How long have you been here?
-I've been here since 1982.
-Yeah, a long time.
-And since '82, just to give a little context, you've helped over-- when did you start Guidant Financial, what year did you start?
-We started 2003.
-So, since 2003, you guys have helped over 10,000 businesses gain access to over $4 billion of capital, creating, I think we said, 60,000 jobs?
-Yep, 60,000 domestic jobs.
-Domestic jobs, that's huge. That's US jobs-- unbelievable. So I'm excited to talk with you. I honestly am pumped up about this, because, as a business consultant, it's kind of weird, but I started off as a DJ, which is kind of like a carnival guy.
So you're working at the carnival. Nothing wrong with that, if you're working at the carnival. We all start somewhere. And then you kind of evolve, and people say, could you help me with my business? Then I became a consultant, that kind of thing.
And but there's still the inner DJ in me. There's still that bad business plan just waiting to be pitched. And so I relate to people that have bad business plans, but I also want to help them. And I know that you see these all the time, so we're going to get into it.
But before I do that, I have one question I want to ask you. I know your name is spelled differently. I know it's David Nilssen. But are you at all semi-related to the TV movie star Leslie Nielsen?
-Even though it's spelled--
-No, don't call me Shirley. -The reason why I ask is because I feel like these are the kinds of things that happen on business plans, where it just doesn't even make sense sometimes. So we're going to get into it, so here we go.
-Not a good start, by the way, if you're spelling your own name wrong.
-Yeah, well-- all right, so here we go. So business plan, this is the definition from our good friends at Investopedia-- a written document that describes in detail how a new business is going to achieve its goals. A business plan will lay out a written plan from a marketing, financial, and operational viewpoint.
My friend, when you're talking about a business plan, without getting into all of the specific details, bottom line, in your mind, what should it include?
-So a clearly stated goal-- what are we trying to accomplish-- clearly defined strategy, strong market analysis, demonstrating that the team that is building this business is the right team to build this business, a strong financial plan, and a good marketing strategy. Competitive analysis is probably something that I'd also add there.
-And again, I mean, when you see a business plan, we're going to go over the common mistakes that you see all the time. I've seen it as a business consultant, but not nearly like you have. So I'm going to go ahead and deep dive into these.
Common mistake number one-- they're grammatical disaster. Somebody took a sabbatical from grammatical. They just started spelling everything wrong. Do you see this a lot?
-You do, and what it tells us is their attention to detail. I mean if they're missing the simple things, you wonder how prepared they are, how deliberate they are about their plan, or whether this was thrown together at the last minute, or whether they're taking it seriously.
-So if you see somebody who has a ton of stuff spelled wrong, you're going to be like, well, their attention to detail here is a little bit off. And maybe when it comes to paying us back, they might be off. Or maybe when it comes to providing the service they promised, they might be a little off.
-I think it more talks to are they going to shortcut the process and does it increase my risk? I mean, at the end of the day, the tools are out there, whether you use Google Docs or Microsoft Office, they tell you when you spell things wrong. They highlight the sentences that don't seem that they're structured with correct grammar. So it's hard for me to imagine somebody, who would come into a presentation ready to talk about the business and why they're an entrepreneur, that we should be taking seriously, if they're not utilizing the very simple tools that are available to them.
-How long should a business plan be? What's the maximum where you're going, hey stop. Because you want to spell check it; you want to get it right. But I think some people have these massive documents, where it's a huge. It's a huge undertaking. Some people have small ones. How long should a business plan be in terms of numbers of pages?
-Yeah, length is a difficult one. I've seen some really great business plans that are under 10 pages. I've seen some that are over 50. I think it's all over the board. I think what really needs to be demonstrated, though, is that they have clearly thought through all the major components and have a strong compelling reason for why they're taking the approach
Learn how to start a business from mentors like David
-OK. We're moving on to common mistake number two-- the team appears to not have what it takes. Example that I see often-- a guy says, our company is going to grow from here to here, and I've teamed up with this guy. And I look at this guy.
And who's this guy? This guy is Johnny Starts-a-Lot-of-Businesses. Hasn't had any success. Here we go again. The partner says, well, that's my brother.
There may be nothing wrong with your brother, but maybe there's something. When we look at a team that doesn't appear to have it takes, what does that mean in your mind, if someone doesn't have what it takes? What kind of things indicate they have the wrong team?
-So I think technician's a great example. There's a book out there called "The E-Myth." Michael Gerber wrote it. And he tells a story throughout the book about a baker, a woman who has technical experience in baking. And because she loves baking, she wants to open a bakery so she can bake all day long.
The reality is, as the entrepreneur, you're often not the one sitting there getting to bake all day long. Right? You're dealing with inventory or cost of goods. You're dealing with operational issues, and finance, and accounting, and marketing, and sales, and all the things that are not related to what you love. So I think the first thing we do is assess, does this person have the technical expertise in the areas that we expect them to play in their role? At least that's one thing.
The other is just simply is the team around them showing a pattern for success, even if it's in unrelated industries? And one of the ways that you can actually supplement that risk is by hiring. So one of the things that we tell people if they're looking to open a restaurant, whether it's a franchise or not, somebody on their team has to have restaurant management experience in order for a lender to take them seriously. So even though they may not be a founding partner, you can hire in that expertise to supplement the risk.
-This is a really big idea here, and I want to dive into this just for a minute here. Let's say that I'm watching this, and I have a really great technical skill. So let's go with the bakery example.
I can just bake like you wouldn't believe. I've got processes. I have systems. I can teach you to bake, too. I could hire you, and in a week from now you're baking like I bake. We've got a system. It's a great product.
And I know none of us have opened up multiple locations. No one in our team has that. So you're saying that I can go out there and find somebody who does have the skill, and just hire them-- bring them on; grow through acquisition-- and now my team looks better when I present my business plan?
-Absolutely. Yeah. The initial team doesn't necessarily mean the founding team.
-OK. Now the next most common mistake we see, mistake number three, is solving a problem that the world isn't willing to pay to solve. So they have a product where you're like, whoa, what is that product? I don't want to mention specific people-- because obviously, confidentiality-- but have you seen some business plans where you go, I don't know if people actually would pay for that?
-Yeah. We see that all the time. So one of the things that I do is I invest in a lot of start-ups. Personally, like an angel investor. And oftentimes people come up with a plan where they've got the greatest idea, and I actually believe it's a great idea. But the right product at the wrong time is still the wrong product.
And I see that all the time. I see someone. They've got a great idea, and we think it's got potential. But the market's not yet ready. Or the market isn't large enough, or hasn't developed to a place where we know.
So oftentimes what we'll tell people is to go back and validate some of their assumptions. Do a small test. Take something to market and see how the market responds to it.
-Let's say that somebody has great feedback on an early stage. So let's give an example. They come to you with the idea, and you say, nope. Good product, wrong time. Because you want to make money on your investments, obviously. So you say, not right now.
Guy comes back a year later with now 1,000 customers that love the product. Here's the screaming review. Here's the actual reviews. I want to scale it. Will you look at it again with a different set of eyes?
-All day long. And in fact, I'll pay a multiple on what they asked originally because of it.
-So somebody who comes to us pre-revenue and says, hey, I have this idea. And we say, you know what? We're not ready to take that risk with you. Go validate that market.
They come back a year later, and they've demonstrated significant success or traction. The value of that business is greater than when it was a concept, and that's OK.
-That's awesome. That's awesome. So if you're watching this, and you've been told your idea wasn't a great idea right now, or no, it doesn't mean no forever. It just means come back maybe later with more proof that your product's something that people will pay for.
-Now, moving on to common mistake number four-- the supporting research is weak. I see this a lot, where you see an entrepreneur comes in, and they say, 80% of Americans surveyed said they want this. And you're like, well, where did this survey occur? Who did the survey? Well, some dudes and I. Do you see a lot of times where you see poor research that's justifying the need for something? Is this common?
-All day long. The problem that we run into, though, is we're in an age of transparency, right? You Google something; you can find information that helps you present a good case. But it also helps you discredit that information. So it's a double-edged sword.
We see people come in all the time that are asserting data based on a survey that they did. Surveys from your own work is going to be perceived with different credibility than a third party, who has more objective perspective. So yeah, I think the market research is very important, because it helps an investor or lending institution determine the market size, the opportunity, and validate the business opportunity itself.
-What was interesting for me as we were building Thrive-- I met with a guy named Bill Chaufty every Thursday. He's kind of my business Yoda. He'd help scale a company from a $20 million business to a $2 billion company called HRH Insurance. And he would say, do your research.
I'm thinking, why do I have to do my research? It's gold! People need practical education. They're paying $50,000 a year to go to a private school. Of course they're going to pay $50. Bah!
And he would say, do your research. And I would go back and do my research. And what I found is I started getting more pumped up, because I found independent research that showed how many people are searching for some education that's the gap between formal and practical. And so doing that research helped me.
But then other times, earlier in my career, there was different ideas where I would do the research and I'm like, this is a bad idea. I was like, pummeling myself with bad-- so it's almost like that research helps you validate or discredit the way you do it.
-Absolutely. Well, I mean the challenge is we always love our own idea. Right? I feel like this is a great idea. Why? Because I made it up, and I love it.
CLAY CLARK: I feel good.
-But the reality is when you go out to the market and you start to validate that, you may find differently.
-Now, common mistake number six-- overestimating the size of your market. They say, well, people like candy. There are people in every country. There's three billion people over here, a billion people over here. There's 4 billion people that want to buy my candy. Even babies want my candy. We have this utopic view of that. How often do you see this, where someone has their potential market size just way out of control?
-Not as often as you'd think. That's one where I don't see people overestimate the size of the market. The challenge is what we see is they'll use other markets to validate it.
So if I've got your example of the candy industry. Well, yes, the candy is industry is huge. So if you're going to go into candy, then really, go to market, differentiation, product is going to become very important. But if you are in baby products, using candy industry as an applicable or relevant example, and by attribution that means that this industry should be large, that doesn't work.
-OK. Now number seven. This is one of my favorite ones here. This is fabulous. The plan is mind-bogglingly detailed and hard to understand. I guess an example I would see.
I see a lot of entrepreneurs will come in, and can talk to you for a full hour, and still you have no idea what they're talking about. And there's other people who can say it in just a few sentences. Talk to me about how bad it can be if your business plan has too much detail.
-So I'm going to speak to both spectrums. Because I just recently got pitched on a medical device business. I met with a guy for an hour, and after that hour, I tried to regurgitate back to him what he did and how they were going to do it.
And I was completely off base. He used so much industry jargon. He was sniper rifle specific on every little detail. And ultimately, I don't think he really understood his value prop well enough yet. Doesn't mean it's a bad plan. It just means it needs to evolve a little bit more.
I've also seen on the opposite side Pollyanna pitches. Where, oh, my gosh, everything is cupcakes and roses. This thing can't fail. They don't pay attention to some of the risks. They haven't thought through some of the details. So I see both sides and I think there's risks.
-So now this ties into move number eight, which is the too vague thing.
-To me, the vague one is always a concern when there's zero clarity as to who your teammates are. Well, these guys. We're working with these guys, and those people. Very broad. Or we're going to be marketing to this these people, and that people, and this people. And there's no detail in the plan.
DAVID NILSSEN: Yeah.
-And again, I don't want to quote you on the specific number of pages a business plan should have. But for the guy or gal watching this, and they're going, my plan is only three pages long. Or my plan is 100 pages long. If you could just say, hey, it really was a general rule. You want to get down to about 25 or less.
-I would say 25 or less on the plan. Your financial projections, depending on the type of business, could add some additional appendices there, but yeah. I mean, you want to show that you don't overlook important details, but you also want to demonstrate that you're not going to get lost in all the details. Because running a business, you have to be able to make great decisions with imperfect data.
CLAY CLARK: Yeah.
-But you have to do the best you can to get the data that you need to make that decision.
-Now this is one here. Move number nine. This one has been hard for me, because as we're building Thrive-- it's online education for entrepreneurs. The idea is it's mentorship from millionaires and success stories, but for entrepreneurs. It's not for non-entrepreneurs.
So I remember talking to a family member of mine about Thrive. And they're like, I don't know why anyone would ever want education without a degree. And you talk to this person, and they really are passionate, but they would never start a business. And if I change the Thrive platform to appeal to them, and try to appeal to the entrepreneur, it would appeal to no one. It would be just sort of blah.
If Guidant tried to focus on everything, you would be nothing. How important is it to know your niche and to stay there? To appeal to a certain group?
-Extremely important. We've talked about this before in some of our previous conversations. Simplicity scales. Focus scales. Clarity scales. Complexity, confusion-- those things do not scale. So I think it's very important that you know your market, you understand their needs, and you deliver on their expectations.
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