Entrepreneurs as a whole are largely an optimistic bunch. We have to be!

There are plenty of reasons, day in and day out, to see the glass as half-empty. Yet, we still muster up the intestinal fortitude to carry on.

We choose to remain positive, even in times when mere mortals would curl up and die. Ultimately, that optimism is one of the factors that lead to the success we crave.

However, our optimism is the source of one of the biggest mistakes many, if not most, entrepreneurs make. As we look to the future, we see only sunshine and roses.

We need to realize that the sun may not come out tomorrow. And roses have thorns.

The sun may not come out tomorrow

Almost all entrepreneurs make a critical mistake when thinking about the future. When you look at a graph of their financial forecasts, sales and profits are up, up, up.

It’s unlikely. While the sun may shine most of the time, you can count on cloudy days. A little rain may not dampen your enthusiasm, but it may make your plans all wet.

What’s the solution?

Stress test your projections. Your banker will, if you go for a loan. Venture capitalists will, if you need funding from them. You should do it as well.

Ask yourself a very simple question: “What if…?”

  • What if sales don’t come as projected? Can you still survive? Would you need more time and more money to reach break-even?
  • What if it costs more than you expect to attract customers? Even if you’re a solo entrepreneur and you mostly market through social media, time is money. What if it takes more time?
  • What if your input costs are higher? Can you pass these costs along to your customers? Or will you be required to eat them? Are there substitutes available?
  • What if the economy hits the skids? We know, we know…your business is recession proof. As we’ve learned over the last three recessions, there’s no such thing. All businesses are subject to cycles. How might yours be affected?

Roses have thorns

You can run into problems even when the sun is shining. Business is great! Life is wonderful!

The roses are in full bloom. Then, you go to pick one and get stuck by a thorn.

We once had a venture capitalist tell us that he had never seen an entrepreneur who didn’t underestimate the working capital and capital expenditures required to reach their projections. So, even if things go as planned, have you thought about what it will really take to hit your targets?

As you scale up, you can also plan on inevitable issues arising from the new growth. You may hit “whitewater,” as Les McKeown calls it in his great book, Predictable Success.

You’ve grown past the point of you! You can’t manage every detail anymore. You have to rely on your people. Yet, you may not have built the necessary infrastructure to train them properly.

Many entrepreneurs enter some numbers in a spreadsheet, fill right, and call it a financial plan. Don’t repeat their mistake.

Look hard at your plan. Really think about what goes into your numbers.

It will help you understand where the risk lies in your business. More importantly, it will help you prepare for the inevitable challenges so that you find that pot of gold at the end of the rainbow!

So, what do you think? Have any of your projections come back to bite you? We’d love to hear about them in the comments below.