I really like Martin Zwilling’s post here yesterday, 10 things that make a business plan fundable. That made me think about this list, the opposite, things that make a plan not fundable. Before I start, though, I second Martin’s motion on the use of business plans:

People ask me if they really need ANY business plan, unless they are looking for an outside investor. In fact, a business plan is needed more by you than investors, as the blueprint for your company, team communication, and progress metrics. Things that make it investment-grade for outside investors will also benefit you, since you are the ultimate investor.

I liked all of Martin’s points in that post, but, since sometimes the other side of the coin is just as interesting, here’s my list of reasons why not. These are my 10 things that make business plans notfundable, in my assumed order of importance.

1. Problems with the founders. Investors bet on people, specific people, more than on businesses, markets, ideas, or products. They want a team with startup experience except in some very rare exceptions, like technical geniuses; and even then, they are going to want to bring in people with experience.Founders with questionable character or background or behavior don’t get funded. For example, I saw a founder tell investors, during a pitch session, that  some investors screwed him and his previous partners were dishonest. And getting too aggressive too quickly is a problem.
   
   And a founder who fudges the truth, thinking nobody will notice, has to be very good at it, or very lucky, because when this comes out investors assume that lies never exist alone. They assume a single significant lie is a tip of an iceberg. Being wrong, by the way, happens all the time; and that’s not the same as lying.

   Sweat equity can be a problem. Founders making no money at all is a problem for many investors, because — while the bravado is impressive — it isn’t realistic over the long term. And of course founders making more than market-justified salaries is a problem too.

2. The next [whatever]. Investors immediately mistrust “the next” Facebook, Netflix, Twitter, Instagram, or whatever. While it’s true that this happens sometimes (Google was the next Yahoo, for example) it’s extremely rare, while this kind of claim is extremely common. Big disruptive successes create new markets, they don’t copy other successes in existing markets. And being a better Facebook, Netflix, or Twitter isn’t usually convincing either, because those claims ignore the critical mass problem of getting attention with something new when something is already there and huge in the same market.
3. Missing the problems-and-solutions story. Investors want to see the problems and solutions, for themselves, through the stories you tell about them. They really want a good story of a buyer really needing what you’re selling, and a good story means one they can evaluate themselves, and believe in. Identify a buyer and personalize the story of solving a need.
4. Missing the market story. Sure, investors want to see your research and numbers, but believability is more important, and markets become believable when investors see them immediately in their imagination. If the needs and solution story applies to lots and lots of people, and everybody recognizes that fact, then you’ve won the investors at that point. Filling the imagined market with research numbers is good, but numbers alone don’t convince anybody.
5. No imaginable exit.  Investors need to believe founders want to grow and then create an exit. The founders themselves don’t need to exit, but it it looks like they’ve got a beautiful business that can live and grow forever without ever needing more money, then that’s great for them but not for their investors. Investors need to believe they’ll get a return on their investment.
6. Stupid profitability. Projecting absurdly high profits doesn’t mean it’s a profitable business; it means somebody doesn’t understand the business well enough to know its costs and expenses.
7. Tops-down projections. Lots of plans build sales by taking a small percentage of a huge market, but that’s never convincing. Build sales on assumptions like web traffic, channels, events, sales locations, or combinations on those. The bottoms-up projections, with assumptions laid out clearly, are the only way. Martin wrote yesterday: “Avoid any statements like ‘All we have to do is get 1% of the market.’” Amen to that one.
8. No Competition. The only businesses that have no competition are businesses that nobody wants. Even if you are as good as that implies, then you’re going to have competition after you launch.
9. Nothing defensible. You need a secret sauce. Usually that’s some technology of your own, sometimes it’s a market position, but there has to be something to give you some barriers to keep everybody else, especially bigger and more powerful players, from jumping in on top of you.
10. Empty broad claims. Supposedly “game changing” or “disruptive,” for example. Of the hundred or so business plans I’ve read so far this year, easily two third of them had one or the other of these claims. Fewer than five had an interesting shot at it. When a plan really is disruptive or game changing, investors will say so themselves. They want that too. But if they say so instead of you, that’s 100 times better.

While we talk about business plans being fundable, it’s not really the plan that gets funded. I agree with Martin when he writes:

The best plans are not usually the fanciest or the longest. They are not measured by the quantity of impressive graphics or the size of the revenue projections.

What people invest in is not the document, but its content and the people who will execute it.