5 Reasons Investors Reject Your Business Plan – And How to Fix It!

When you’re raising capital, your business plan is your company’s first impression. Its presentation and content needs to be flawless. The process of creating one isn’t easy, and not everyone succeeds on the first try. In fact, rejection is common among entrepreneurs who are trying to raise capital.

It can be challenging to identify why an investor has rejected your business plan and how you can make it more appealing next time.

But the struggle will pay off once you learn from the experience so that you have a much better chance of success the next time around. Here are five reasons why investors reject a business plan and how you can address these issues in future attempts.

1. Your idea is not differentiated enough

If your product or service does not stand out from the crowd, an investor will reject your business plan as a matter of course. This is because you are unlikely to command a high profit margin when everyone is offering more or less the same thing. Your strategy must, then, include a way to differentiate your product from other offerings in your industry — and to achieve such a distinction quickly enough to sustain a competitive advantage.

Be honest about your product or service’s limitations and potential shortcomings, too. This will demonstrate a critical self-awareness that investors appreciate. One way to differentiate your product might be to focus on its cost. If, for example, you are developing a new artificial intelligence system, you might focus on the fact that it costs far less than other comparable systems on the market.

Your other option is to focus on the customer experience with your product. If you’re in the business of selling car parts, for example, you can highlight the ease of use of your website or mobile app.

2. Your company’s growth strategy is weak

A business plan must include a strategic plan with dates that takes your company from start-up to a certain level of profitability. Your growth strategy must include a clear path from start-up to profitability. If you are not clear about how you will grow your business, you will not be able to convince an investor that your company is worth investing in.

One way to approach this is to break it down into three stages: the start-up phase, the build-out phase, and the scale-up phase. During the start-up phase, you will focus on bringing your product or service to market. During the build-out phase, your focus will be on maintaining your product or service while also seeking out new opportunities. During the scale-up phase, you will focus on maximizing your profits and minimizing your expenses.

Another way to strengthen your growth strategy is to be specific about the rate at which you expect your company to grow as we explained in this post. For example, if you are selling an e-commerce product, your growth strategy might include the rate at which you expect to add new customers each month or year. Be careful, though, not to over-promise in this area.

3. Investors do not believe your revenue projections

Revenue is the lifeblood of any company. If your revenue projections are insufficient, investors will reject your business plan. To ensure that your revenue projections are realistic, come up with a conservative estimate first.

Then, once you have a baseline figure, add a level of growth that you think you can achieve. To make your revenue projections more believable, consider these tips:

– Include a breakdown of your current revenue streams

– Describe the market trends that will help you achieve your projected growth

– Highlight any upcoming events (e.g., new legislation) that will help you increase revenue

– Explain what you’re doing to increase your market share

– Include an overview of your marketing plan to expand your reach

– Offer proof that you have a strong customer retention rate.

You can read more about pitching techniques here.

4. Your management team does not inspire confidence

If your management team does not inspire confidence in investors, they will reject your business plan. Investors will look to see if you have a track record of success: Are you a proven leader who has achieved success in the past? Do you have a proven team of experts who will support you and bring an array of skills and expertise to the table? How long have these people been working together as a team?

If these questions leave you feeling a bit daunted, don’t despair. There are things you can do to strengthen your management team and improve your chances of securing funding:

– Find a mentor who can help you bolster your management team

– Hire a professional financial advisor to create a model that shows how your company will turn a profit

– Hire a professional marketing expert who can create a marketing plan that will grow your customer base

– Hire a professional accountant or financial advisor to help you forecast your company’s future.

As we explain in this post, investors including VCs look closely at your team, its capabilities, experiences and motivation.

5. You have a poor marketing plan

Investors want to know that your company has a strong marketing plan. They want to see that you understand your customers and that you have a realistic plan to reach them.

To strengthen your marketing plan, be sure to include the following:

– The geographical location of your customers: Are they mostly local clients, or do you want to reach a global audience?

– The size of your target market: What is the population of your primary market?

– The demographics of your target audience: What are their age, gender, and other demographics?

– The type of customers you want to attract: What are their interests, hobbies, and other traits?

– The channels you want to use to reach your customers: What are their primary ways of communicating, such as social media, search engines, and more?

– The message you want to convey to your audience: What do you want your customers to know about you?

Conclusion

Rejection is common when entrepreneurs are trying to raise capital. It can be challenging to identify why an investor has rejected your business plan and how you can make it more appealing next time. However, the struggle will pay off once you learn from the experience so that you have a much better chance of success the next time around.