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Realism vs. Optimism in the Business Plan
The most important function of a business plan is to create interest among investors so that they write a check. In achieving this goal, business plan writers are often challenged by determining the proper level of optimism in their plan. That is, they must create a compelling story to investors while maintaining credibility.
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Optimism shows investors that a company is confident
about the market opportunity, its ability to execute on the opportunity,
etc. Over-optimism, however, leads investors to believe that the
management team does not fully understand the opportunity or the tough
road ahead. As such, business plans must be sure to limit over-optimism
and show investors they are realistic and credible.
Realism, the opposite of over-optimism, should be used in business plans
to portray sobriety and credibility to investors. Realism should manifest
itself in management team bios that tell the actual accomplishments of
managers, rather than fluff. It should manifest itself in credible market
forecasts and sober assumptions of the company抯 growth.
While business plans must excite investors so they take action, if they
are too optimistic, investors will discount their merit. Conversely, if
they are too sober, investors may not feel they will get an adequate
return on their investment. As such, business plans should present a
compelling, optimistic picture, but continuously refer to hard facts and
realistic assumptions to build credibility and genuine excitement
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