PITFALLS

Authors Kuratko and Hodgetts provide a list of the most common pitfalls in assembling a commercial business plan.11 They are failing to communicate realistic goals, failing to anticipate problems, lack of evident commitment or dedication to the venture, lack of experience, and failure to demonstrate market niche. These pitfalls are just as important in the case of social enterprise business plans. Unrealistic goals and a lack of niche generally relate to a lack of adequate demand—and suggest a flawed business model. Failing to anticipate problems and roadblocks stems from an overall lack of experience and a failure to seek the help of someone who can fill this gap. A lack of evident dedication is probably the worst pitfall of all for a social venture because the returns to noncommercial enterprises are usually denominated in nonfinancial terms. Stakeholders expect that one of these nonfinancial returns is fulfillment, even pleasure, from the social entrepreneur. As such, a lack of obvious dedication is tantamount to saying the enterprise will have a low payoff. A business plan should exhibit enthusiasm and total commitment.

Authors Baron and Shane add a few more pitfalls to the business plan mix.12 First, appearance is important. They note that stakeholders tend to be put off by business plans that are sloppy, or too “slick.” Second, potential supporters of a venture lose interest in a business plan that fails to get right to the point of the enterprise or make clear why anyone would want to support it. Third, stakeholders can sense when financial projections are unrealistic or inappropriately optimistic. Fourth, it must be clear where a venture is in terms of its development—whether it has already begun, or is still purely an identified opportunity. Finally, supporters have to understand the qualifications of the venture’s leaders before they will become involved.

Summary

• • The social entrepreneur needs a way to represent the venture to the outside world. The tool for doing this is the business plan, which is a document detailing the enterprise.
• • The business plan is intended for the use of actual and potential funders, government officials, the community-at-large, the social entrepreneur, actual and potential staff and volunteers, and board members.
• • Business plans have nine basic ingredients: a summary, a description of the enterprise, information about the management and leadership teams, an analysis of the market and industry, the plan for marketing and fundraising, the financial plan, the venture’s goals and objectives, a realistic assessment of risks, and supporting documents.
• • The most common pitfalls in preparing a business plan are failing to communicate realistic goals, failing to anticipate problems, lack of evident commitment or dedication to the venture, lack of experience, and failure to demonstrate market niche.

Key Terms

• • business plan
• • target market
• • business plan pitfalls

End-of-Chapter Questions

You and a partner have just come up with what you believe is a brilliant social venture idea, which you have evidence is also an opportunity. Your enterprise is called LearningSite.org, and it is dedicated to providing parents of kids with learning disabilities the learning tools their children can use—but which are often hard to find in public schools. A major foundation has taken an interest in your project and asked you for a business plan before they will provide the enterprise with seed funding.

• 1. Your partner volunteers to “crank out” the business plan for LearningSite.org—whatever it takes to get the money. Explain why this may not be the best approach.
• 2. You don’t have a business model for LearningSite.org yet, either. Should you try and create one before writing the business plan? Why or why not?
• 3. Looking at the first draft of the business plan, you see that your partner omitted discussion of the risks from key personnel leaving LearningSite.org, or of not getting sufficient funding after the foundation grant finishes. You point this out, but your partner argues that this would “just open a can of worms.” Comment.
• 4. You are debating whether or not to have LearningSite.org’s business plan professionally designed by a graphic design firm. It will be expensive, but it will look great. Should you do it? Discuss the costs and benefits.