The Business Plan 285where this is indeed true, but I caution against using it as a key assumption of
your venture’s success. Most entrepreneurs passionately believe that they are
offering something new and wonderful that is clearly different from what
is currently being offered. They are confident that existing competition won’t
attack their niche in the near future. The risk that this assessment is wrong
should be acknowledged. One counter to this threat is that the venture has
room in its gross margin and cash available to withstand and fight such attacks.
You should also identify some strategies to protect and reposition yourself
should an attack occur.
Time and Cost to Development
As mentioned in the development plan section, many factors can delay and add
to the expense of developing your product. The business plan should identify
the factors that may hinder development. For instance, during the extended
high-tech boom of the late nineties and into the new century, there has been
an acute shortage of skilled software engineers. One way to counter the result-
ing risk in hiring and retaining the most qualified professionals might be to
outsource some development to the underemployed engineers in India. Com-
pensation, equity participation, f lexible hours, and other benefits that the firm
could offer might also minimize the risk.
Operating Expenses
Operating expenses have a way of growing beyond expectations. Sales and ad-
ministration, marketing, and interest expenses are some of the areas that the
entrepreneur needs to monitor and manage. The business plan should highlight
how these expenses were forecast (comparable companies and detailed analy-
sis) but also discuss contingencies such as slowing the hiring of support person-
nel, especially if development or other key tasks take longer than expected.
Availability and Timing of Financing
I can’t stress enough how important cash f low is to the survival and growth of
a new venture. One major risk that most new ventures face is that they will
have difficulty obtaining needed financing, both equity and debt. If the cur-
rent business plan is meant to attract investors and is successful, that first cap-
ital infusion isn’t a near-term risk, but most ventures will need multiple rounds
of financing. If the firm fails to make progress (or meet key milestones), it may
not be able to secure additional rounds of financing on favorable terms. To mit-
igate this risk, the firm could identify alternative sources that are viable or
strategies to slow the “burn rate.”^6
There are a number of other risks that might apply to your business. Ac-
knowledge them and discuss how you can overcome them. Doing so generates
confidence in your investors.