explain how a business plan can be misused

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Still not sure if you need a business plan? We tell you why you need one and how to avoid the most common business plan mistakes.

explain how a business plan can be misused

Whether you're seeking investors, financing or simply keeping a focus on company goals, it's important that you write a business plan.

Here are five reasons you should write a business plan before you start planning to launch your startup. A business plan will help you:

Keep sight of your vision. In the course of starting a business, you might get bogged down by small details and forget some of the larger priorities. Writing a business plan at the start of forming your business helps you capture that vision that can keep as a written reference point.

Obtain an understanding of your market. Exploring the hard data on an industry you are thinking of joining will give you perspective on where you fit into the market and what you have to do to achieve greater market share.

Identify and understand your competition. Doing a deep dive on your competitors may help you realize ways to make your business more successful, or give you ideas on how to improve.

Set goals and benchmarks. A comprehensive understanding of your financials will permit you to set measurable goals and determine what moves you should make at certain times.

Confirm the math. If you have only a vague idea of what you need to be profitable, going through the exercise of putting together a business plan will help you firm up your numbers so you can make smart business decisions.

Writing a business plan at the start of forming your business helps you capture that vision that can keep as a written reference point.

Business plan mistakes to avoid

You want to put your best foot forward when it comes to introducing your business to people who are not already familiar with it. Reading your business plan may be the first interaction that a potential investor, lender or other interested party has with your company. When writing your business plan, you should avoid the following:

Poor grammar and wording. Not every business person is an eloquent writer, but that’s not an excuse for errors in your text. Seek the help of an editor to review the plan, especially if you struggle with grammar and verbiage. Enlist additional reviewers, such as friends, family, business partners, an attorney or a financial advisor to look over the plan for content, as well. An outside observer will help point out where you need to explain things.

An off-putting style. In a professional business plan, you want to show that you know your stuff. This means avoiding conversational, folksy or funny wording. Instead, you want to be authoritative and realistic to prove that you have a handle on your industry and are reliable. Find other ways of portraying your personality throughout the plan, perhaps through your descriptions of key members of your team or in the company description. Don’t be afraid to showcase what sets you apart, but be sure to do so tastefully and professionally.

Sloppy format. Structure the business plan with clear and defined sections that are easily understandable. Font, style, spacing and margins should be kept consistent. Include supplemental materials, like charts or graphs, in such a way that they do not interrupt the narrative you are building.

Being too vague or too detailed. The business plan should display your aptitude and understanding of your business, just enough where you are not burying your reader in detail or leaving something to be desired. This means you need to understand exactly what your reader needs to know. Being too vague will squander that opportunity. If you feel you have too much information, however, you can always attach supporting documents in an appendix.

Assumptions. Business plans are built on facts. Have your research in order so you’re not basing assertions on assumptions. That will make the plan seem thin and will likely not accomplish your goals.

Ignoring risks. Every business plan should address the risks of starting a business head on. Not stating these risks and how you plan to cope with them can make you or your plan seem naive. Include a contingency plan for how to handle changes in the market.

Ignoring the customer. It's important to get across why you love your business, but you have to bring it back to how your business benefits your customers. Not talking about the customer is a huge oversight when developing a business plan.

See our Complete Guide to Writing a Business Plan

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The Most Common Business Plan Pitfalls and How to Avoid Them

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Top 10 Business Plan Mistakes When it comes to creating a business plan that attracts investors, these tips will help you get it right the first time.

Every business should have a business plan. Unfortunately, despite the fact that many of the underlying businesses are viable, the vast majority of plans are hardly worth the paper they're printed on. Most "bad" business plans share one or more of the following problems:

1. The plan is poorly written. Spelling, punctuation, grammar and style are all important when it comes to getting your business plan down on paper. Although investors don't expect to be investing in a company run by English majors, they are looking for clues about the underlying business and its leaders when they're perusing a plan. When they see one with spelling, punctuation and grammar errors, they immediately wonder what else is wrong with the business. But since there's no shortage of people looking for capital, they don't wonder for long--they just move on to the next plan.

Before you show your plan to a single investor or banker, go through every line of the plan with a fine-tooth comb. Run your spell check--which should catch spelling and punctuation errors, and have someone you know with strong "English teacher" skills review it for grammar problems.

Style is subtler, but it's equally important. Different entrepreneurs write in different styles. If your style is "confident," "crisp," "clean," "authoritative" or "formal," you'll rarely have problems. If, however, your style is "arrogant," "sloppy," "folksy," "turgid" or "smarmy," you may turn off potential investors, although it's a fact that different styles appeal to different investors. No matter what style you choose for your business plan, be sure it's consistent throughout the plan, and that it fits your intended audience and your business. For instance, I once met a conservative Midwest banker who funded an Indian-Japanese fusion restaurant partly because the plan was--like the restaurant concept--upbeat, trendy and unconventional.

2. The plan presentation is sloppy. Once your writing's perfect, the presentation has to match. Nothing peeves investors more than inconsistent margins, missing page numbers, charts without labels or with incorrect units, tables without headings, technical terminology without definitions or a missing table of contents. Have someone else proofread your plan before you show it to an investor, banker or venture capitalist. Remember that while you'll undoubtedly spend months working on your plan, most investors won't give it more than 10 minutes before they make an initial decision about it. So if they start paging through your plan and can't find the section on "Management," they may decide to move on to the next, more organized plan in the stack.

3. The plan is incomplete. Every business has customers, products and services, operations, marketing and sales, a management team, and competitors. At an absolute minimum, your plan must cover all these areas. A complete plan should also include a discussion of the industry, particularly industry trends, such as if the market is growing or shrinking. Finally, your plan should include detailed financial projections--monthly cash flow and income statements, as well as annual balance sheets--going out at least three years.

4. The plan is too vague. A business plan is not a novel, a poem or a cryptogram. If a reasonably intelligent person with a high school education can't understand your plan, then you need to rewrite it. If you're trying to keep the information vague because your business involves highly confidential material, processes or technologies, then show people your executive summary first (which should never contain any proprietary information). Then, if they're interested in learning more about the business, have them sign noncompete and nondisclosure agreements before showing them the entire plan. [Be forewarned, however: Many venture capitalists and investors will not sign these agreements since they want to minimize their legal fees and have no interest in competing with you in any case.]

5. The plan is too detailed. Do not get bogged down in technical details! This is especially common with technology-based startups. Keep the technical details to a minimum in the main plan--if you want to include them, do so elsewhere, say, in an appendix. One way to do this is to break your plan into three parts: a two- to three-page executive summary, a 10- to 20-page business plan and an appendix that includes as many pages as needed to make it clear that you know what you're doing. This way, anyone reading the plan can get the amount of detail he or she wants.

6. The plan makes unfounded or unrealistic assumptions. By their very nature, business plans are full of assumptions. The most important assumption, of course, is that your business will succeed! The best business plans highlight critical assumptions and provide some sort of rationalization for them. The worst business plans bury assumptions throughout the plan so no one can tell where the assumptions end and the facts begin. Market size, acceptable pricing, customer purchasing behavior, time to commercialization--these all involve assumptions. Wherever possible, make sure you check your assumptions against benchmarks from the same industry, a similar industry or some other acceptable standard. Tie your assumptions to facts.

A simple example of this would be the real estate section of your plan. Every company eventually needs some sort of real estate, whether it's office space, industrial space or retail space. You should research the locations and costs for real estate in your area, and make a careful estimate of how much space you'll actually need before presenting your plan to any investors or lenders.

7. The plan includes inadequate research. Just as it's important to tie your assumptions to facts, it's equally important to make sure your facts are, well, facts. Learn everything you can about your business and your industry--customer purchasing habits, motivations and fears; competitor positioning, size and market share; and overall market trends. You don't want to get bogged down by the facts, but you should have some numbers, charts and statistics to back up any assumptions or projections you make. Well-prepared investors will check your numbers against industry data or third party studies--if your numbers don't jibe with their numbers, your plan probably won't get funded.

8. You claim there's no risk involved in your new venture. Any sensible investor understands there's really no such thing as a "no risk" business. There are always risks. You must understand them before presenting your plan to investors or lenders. Since a business plan is more of a marketing tool than anything else, I'd recommend minimizing the discussion of risks in your plan. If you do mention any risks, be sure to emphasize how you'll minimize or mitigate them. And be well prepared for questions about risks in later discussions with investors.

9. You claim you have no competition. It's absolutely amazing how many potential business owners include this statement in their business plans: "We have no competition."

If that's what you think, you couldn't be further from the truth. Every successful business has competitors, both direct and indirect. You should plan for stiff competition from the beginning. If you can't find any direct competitors today, try to imagine how the marketplace might look once you're successful. Identify ways you can compete, and accentuate your competitive advantages in the business plan.

10. The business plan is really no plan at all. A good business plan presents an overview of the business--now, in the short term, and in the long term. However, it doesn't just describe what the business looks like at each of those stages; it also describes how you'll get from one stage to the next. In other words, the plan provides a "roadmap" for the business, a roadmap that should be as specific as possible. It should contain definite milestones--major targets that have real meaning for your business. For instance, reasonable milestones might be "signing the 100th client" or "producing 10,000 units of product." The business plan should also outline all the major steps you need to complete to reach each milestone.

Smoothing Out the Rough Spots Once you know what mistakes not to make, there are still a few steps you need to take to make your business plan "bulletproof." Be sure you . . .

Think it through. You might have a great idea, but have you carefully mapped out all the steps you'll need to take to make the business a reality? Think about building your management team, hiring salespeople, setting up operations, getting your first customer, protecting yourself from lawsuits, outmaneuvering your competition, and so on. Think about cash flow and what measures you can take to minimize your expenses and maximize your revenue.
Do your research. Investigate everything you can about your proposed business before you start writing your business plan--and long before you start the business. You'll also need to continue your research while you write the business plan, since inevitably, things will change as you uncover critical information. And while you're researching, be sure to consult multiple sources since many times the experts will disagree.
Research your potential customers and competitors. Is your product or service something people really want or need, or is it just "cool"? Study your market. Is it growing or shrinking? Could some sort of disruptive technology or regulatory change alter the market in fundamental ways? Why do you think people will buy your product or service? If you don't have any customers or clients yet, you'll need to convince investors that you have something people really want or need, and more important, that they'll buy it at the price you expect.
Get feedback. Obtain as much feedback as you can from trusted friends, colleagues, nonprofit organizations, and potential investors or lenders. You'll quickly find that almost everyone thinks they're an expert and they all could do a better job than you. This may be annoying, but it's just part of the feedback process. You'll know when you're done when you've heard the same questions and criticisms again and again and have a good answer to almost everything anyone can throw at you.
Hire professional help. Find a professional you trust to help guide you through the entire process, fill in knowledge gaps (for instance, if you know marketing but not finance, you should hire a finance expert), provide additional, unbiased feedback, and package your plan in an attractive, professional format.

Writing a business plan is hard work--many people spend a year or more writing their plan. In the early, drafting stages, business plan software can be very helpful. But the hard part is developing a coherent picture of the business that makes sense, is appealing to others and provides a reasonable road map for the future. Your products, services, business model, customers, marketing and sales plan, internal operations, management team and financial projections must all tie together seamlessly. If they don't, you may not ever get your business off the ground.

Andrew Clarke is the CEO of Ground Floor Partners , a business consulting firm that helps early-stage, small and middle-market businesses grow through design and execution of sound business strategies.

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10 Common Business Plan Mistakes and How to Avoid Them

There is plenty of information available via books and seminars on how to write a good business plan. And yet, many companies, especially start-ups, make serious mistakes in business plan writing that could have been avoided with more knowledge and effort.

As a business plan contest reviewer, I see a number of typical mistakes coming up again and again. Here are 10 of the most common business plan mistakes I have come across:

1. Boring Executive Summary

Investors, bankers, and other business plan readers usually start looking at the executive summary. It should highlight the most important points of the business plan in a pithy way. The business plan should provide a convincing story on how a a highly competent team will provide products or services to precisely defined target markets based on a consistent strategy. Moreover, it should share the company’s vision on how their products or services will make the world of their customers better in a profitable way.

In reality, many executive summaries are lackluster and incomplete summaries of a business idea whose implementation remains unclear. Sometimes, it is just cut and paste of some sections from the introduction and some other parts.

Losing the busy reader already in this part could mean that investors never care to go through the whole document. They may be missing some hidden gems. However, it is the job of the business plan writer to present these gems convincingly in the executive summary.

2. Lack of Focus

Many business plans are lacking a clear focus in defining their target markets and how the envisage products and services are competitive in serving the market needs better than others. Especially for innovative start-ups there is a risk of not focusing enough on a clearly define product/service segment and target market.

The result are often business plans describing a ‘me too’ business whose reason for existence does not become clear, not to speak of electrifying potential investors or customers.

3. Superficial Definition of Target Customers

Understanding who your target customers are and how your product adds value for them is crucial. That includes a granular segmentation of target customers and how the company’s products and services will satisfy the different needs of these different customer groups.

Many business plans, however, keep the definition of target customers very general. For example, saying that your travel app is aimed for everyone who is traveling may sound great first, because this is a very large number of people. However, different groups of travelers have different needs. Without clearly defining these needs in a differentiated way, the result will either be an app with the lowest common denominator of functionality needed by most, or it may be at risk of becoming overly complex, as it tries to please everyone.

4. Overly Optimistic Evaluation of Market Size and Opportunities

Entrepreneurs need to be optimistic to start a business in the first place. However, there is fine line between being upbeat about your business prospects and presenting a distorted view of the market size which is more driven by dreams than data. It can be related to a superficial definition of the target customers. If you think, for example, that 20% of all travelers worldwide will use your app, you would need to have a lot of supporting evidence to credibly convey how you will achieve that. It is not bad for an entrepreneur to think big. However, if you, for example, overestimate the readiness of people to buy your product, you may end up with dream figures you cannot achieve.

5. Underestimating the Competition

Many start-ups are too much self-centered. Being convinced of your product or service is certainly a good attitude. However, there is risk that this could distort your view of how it matches up against products and services of competitors who have been in the market for some time. In addition, some entrepreneurs also overlook or underestimate the possibility of new entrants who could increase competitive pressure.

6. Underestimating Business Risks

Understandably, entrepreneurs focus on exploiting opportunities. Some, however, underestimate or even neglect serious business risks that could endanger the existence of the company. Ignoring the risks will not make them disappear. Instead, it will leave the company unprepared, if a risk materializes. Apart from risk caused by changing demand trends, increasing competition, or unexpected increase of production there are also political and regulatory risks to be considered. If you have, for example, an export-oriented business, you need to take into account global trends like increasing protectionism and regulatory barriers in your target markets.

7. Too Detailed Description of the Product or Service

Especially innovative technology start-ups, often led by engineers, are really excited about the technical details of their product or service. It is part of a credible story to provide enough details so the reader understands that the product or service is well designed. However, if it drifts into jargon and technical details not relevant for understanding the business impact or innovative edge of a product, then details can become a distraction or even barrier, putting off the reader.

8. Unrealistic Financial Projections

This mistake is related to false assumptions on, for example, market size, competitive pressure, and financial risks. Nobody knows the future, and projections can, thus, not be exact. However, they can be based on real data related to general market trends and past revenue and cost development.

9. Unconvincing Presentation of the Executive Team

Quite often, there are just a couple of portrait photos and CVs pasted into the business plan without explaining to the reader, why exactly this team is complementary in their competencies specifically for running the particular business presented in the plan. Investors can get very critical, if they see that important competencies in an executive team are lacking. For example, if a group of engineers without business experience is launching a start-up, there will be questions on how competence gaps in areas like financial management and marketing will be covered.

10. Lack of Review

A team working enthusiastically on a business plan is at risk of false, overly optimistic assumptions and other mistakes that can easily be overlooked, if you are immersed in the process. Thus, not having a review of the business plan by an experienced consultant or a friendly business partner who has been there can lead to mistakes with detrimental effects. A review can help find flaws in the overall business rationale, market and customer definition, or the financial projections. Even if you are not looking for external funding, not having your business plan reviewed is a serious omission.

How to Avoid Business Plan Mistakes

The simple answer would be to be aware of these mistakes and make sure not to do them. However, it is not that easy. Even if you are aware of potential mistakes, it does not automatically mean you are capable of avoiding them. It is like with people who have bad eating habits. They know all about healthy eating and are fully aware of their mistakes. And yet the still continue making these mistakes.

This is where coaching comes in. You can either try self-coaching in the executive team, which requires a high level of awareness, openness and self-distance. Or you can hire an external coach to help you discover your blind spots, become aware of unproductive habits and attitudes like, e.g., over-optimism, and change them.

I would be interested to receive comments from entrepreneurs on what mistakes they have made in business plan writing and how they fixed them.

What is a Business Plan? Definition and Resources

Clipboard with paper, calculator, compass, and other similar tools laid out on a table. Represents the basics of what is a business plan.

9 min. read

Updated March 4, 2024

If you’ve ever jotted down a business idea on a napkin with a few tasks you need to accomplish, you’ve written a business plan — or at least the very basic components of one.

The origin of formal business plans is murky. But they certainly go back centuries. And when you consider that 20% of new businesses fail in year 1 , and half fail within 5 years, the importance of thorough planning and research should be clear.

But just what is a business plan? And what’s required to move from a series of ideas to a formal plan? Here we’ll answer that question and explain why you need one to be a successful business owner.

What is a business plan?

Definition: Business plan is a description of a company's strategies, goals, and plans for achieving them.

A business plan lays out a strategic roadmap for any new or growing business.

Any entrepreneur with a great idea for a business needs to conduct market research , analyze their competitors , validate their idea by talking to potential customers, and define their unique value proposition .

The business plan captures that opportunity you see for your company: it describes your product or service and business model , and the target market you’ll serve.

It also includes details on how you’ll execute your plan: how you’ll price and market your solution and your financial projections .

Reasons for writing a business plan

If you’re asking yourself, ‘Do I really need to write a business plan?’ consider this fact:

Companies that commit to planning grow 30% faster than those that don’t.

Creating a business plan is crucial for businesses of any size or stage.

If you plan to raise funds for your business through a traditional bank loan or SBA loan , none of them will want to move forward without seeing your business plan. Venture capital firms may or may not ask for one, but you’ll still need to do thorough planning to create a pitch that makes them want to invest.

But it’s more than just a means of getting your business funded . The plan is also your roadmap to identify and address potential risks.

It’s not a one-time document. Your business plan is a living guide to ensure your business stays on course.

Related: 14 of the top reasons why you need a business plan

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What research shows about business plans

Numerous studies have established that planning improves business performance:

71% of fast-growing companies have business plans that include budgets, sales goals, and marketing and sales strategies.
Companies that clearly define their value proposition are more successful than those that can’t.
Companies or startups with a business plan are more likely to get funding than those without one.
Starting the business planning process before investing in marketing reduces the likelihood of business failure.

The planning process significantly impacts business growth for existing companies and startups alike.

Read More: Research-backed reasons why writing a business plan matters

When should you write a business plan?

No two business plans are alike.

Yet there are similar questions for anyone considering writing a plan to answer. One basic but important question is when to start writing it.

A Harvard Business Review study found that the ideal time to write a business plan is between 6 and 12 months after deciding to start a business.

But the reality can be more nuanced – it depends on the stage a business is in, or the type of business plan being written.

Ideal times to write a business plan include:

When you have an idea for a business
When you’re starting a business
When you’re preparing to buy (or sell)
When you’re trying to get funding
When business conditions change
When you’re growing or scaling your business

Read More: The best times to write or update your business plan

How often should you update your business plan?

As is often the case, how often a business plan should be updated depends on your circumstances.

A business plan isn’t a homework assignment to complete and forget about. At the same time, no one wants to get so bogged down in the details that they lose sight of day-to-day goals.

But it should cover new opportunities and threats that a business owner surfaces, and incorporate feedback they get from customers. So it can’t be a static document.

For an entrepreneur at the ideation stage, writing and checking back on their business plan will help them determine if they can turn that idea into a profitable business .

And for owners of up-and-running businesses, updating the plan (or rewriting it) will help them respond to market shifts they wouldn’t be prepared for otherwise.

It also lets them compare their forecasts and budgets to actual financial results. This invaluable process surfaces where a business might be out-performing expectations and where weak performance may require a prompt strategy change.

The planning process is what uncovers those insights.

Related Reading: 10 prompts to help you write a business plan with AI

How long should your business plan be?

Thinking about a business plan strictly in terms of page length can risk overlooking more important factors, like the level of detail or clarity in the plan.

Not all of the plan consists of writing – there are also financial tables, graphs, and product illustrations to include.

But there are a few general rules to consider about a plan’s length:

Your business plan shouldn’t take more than 15 minutes to skim.
Business plans for internal use (not for a bank loan or outside investment) can be as short as 5 to 10 pages.

A good practice is to write your business plan to match the expectations of your audience.

If you’re walking into a bank looking for a loan, your plan should match the formal, professional style that a loan officer would expect . But if you’re writing it for stakeholders on your own team—shorter and less formal (even just a few pages) could be the better way to go.

The length of your plan may also depend on the stage your business is in.

For instance, a startup plan won’t have nearly as much financial information to include as a plan written for an established company will.

Read More: How long should your business plan be?

What information is included in a business plan?

The contents of a plan business plan will vary depending on the industry the business is in.

After all, someone opening a new restaurant will have different customers, inventory needs, and marketing tactics to consider than someone bringing a new medical device to the market.

But there are some common elements that most business plans include:

Executive summary: An overview of the business operation, strategy, and goals. The executive summary should be written last, despite being the first thing anyone will read.
Products and services: A description of the solution that a business is bringing to the market, emphasizing how it solves the problem customers are facing.
Market analysis: An examination of the demographic and psychographic attributes of likely customers, resulting in the profile of an ideal customer for the business.
Competitive analysis: Documenting the competitors a business will face in the market, and their strengths and weaknesses relative to those competitors.
Marketing and sales plan: Summarizing a business’s tactics to position their product or service favorably in the market, attract customers, and generate revenue.
Operational plan: Detailing the requirements to run the business day-to-day, including staffing, equipment, inventory, and facility needs.
Organization and management structure: A listing of the departments and position breakdown of the business, as well as descriptions of the backgrounds and qualifications of the leadership team.
Key milestones: Laying out the key dates that a business is projected to reach certain milestones , such as revenue, break-even, or customer acquisition goals.
Financial plan: Balance sheets, cash flow forecast , and sales and expense forecasts with forward-looking financial projections, listing assumptions and potential risks that could affect the accuracy of the plan.
Appendix: All of the supporting information that doesn’t fit into specific sections of the business plan, such as data and charts.

Read More: Use this business plan outline to organize your plan

Different types of business plans

A business plan isn’t a one-size-fits-all document. There are numerous ways to create an effective business plan that fits entrepreneurs’ or established business owners’ needs.

Here are a few of the most common types of business plans for small businesses:

One-page plan : Outlining all of the most important information about a business into an adaptable one-page plan.
Growth plan : An ongoing business management plan that ensures business tactics and strategies are aligned as a business scales up.
Internal plan : A shorter version of a full business plan to be shared with internal stakeholders – ideal for established companies considering strategic shifts.

Business plan vs. operational plan vs. strategic plan

What questions are you trying to answer?
Are you trying to lay out a plan for the actual running of your business?
Is your focus on how you will meet short or long-term goals?

Since your objective will ultimately inform your plan, you need to know what you’re trying to accomplish before you start writing.

While a business plan provides the foundation for a business, other types of plans support this guiding document.

An operational plan sets short-term goals for the business by laying out where it plans to focus energy and investments and when it plans to hit key milestones.

Then there is the strategic plan , which examines longer-range opportunities for the business, and how to meet those larger goals over time.

Read More: How to use a business plan for strategic development and operations

Business plan vs. business model

If a business plan describes the tactics an entrepreneur will use to succeed in the market, then the business model represents how they will make money.

The difference may seem subtle, but it’s important.

Think of a business plan as the roadmap for how to exploit market opportunities and reach a state of sustainable growth. By contrast, the business model lays out how a business will operate and what it will look like once it has reached that growth phase.

Learn More: The differences between a business model and business plan

Moving from idea to business plan

Now that you understand what a business plan is, the next step is to start writing your business plan .

If you’re stuck, start with a one-page business plan and check out our collection of over 550 business plan examples for inspiration. They’re broken out over dozens of industries—you can even copy and paste sections into your plan and rewrite them with information specific to your business.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

Table of Contents

Reasons to write a business plan
Business planning research
When to write a business plan
When to update a business plan
Information to include
Business vs. operational vs. strategic plans

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Use This Simple Business Plan Outline to Organize Your Plan

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Do This One Thing Before You Write Your Business Plan

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How to Use These Common Business Ratios

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What Is a Business Plan? Definition and Planning Essentials Explained

Posted february 21, 2022 by kody wirth.

What is a business plan? It’s the roadmap for your business. The outline of your goals, objectives, and the steps you’ll take to get there. It describes the structure of your organization, how it operates, as well as the financial expectations and actual performance.

A business plan can help you explore ideas, successfully start a business, manage operations, and pursue growth. In short, a business plan is a lot of different things. It’s more than just a stack of paper and can be one of your most effective tools as a business owner.

Let’s explore the basics of business planning, the structure of a traditional plan, your planning options, and how you can use your plan to succeed.

What is a business plan?

A business plan is a document that explains how your business operates. It summarizes your business structure, objectives, milestones, and financial performance. Again, it’s a guide that helps you, and anyone else, better understand how your business will succeed.

Why do you need a business plan?

The primary purpose of a business plan is to help you understand the direction of your business and the steps it will take to get there. Having a solid business plan can help you grow up to 30% faster and according to our own 2021 Small Business research working on a business plan increases confidence regarding business health—even in the midst of a crisis.

These benefits are directly connected to how writing a business plan makes you more informed and better prepares you for entrepreneurship. It helps you reduce risk and avoid pursuing potentially poor ideas. You’ll also be able to more easily uncover your business’s potential. By regularly returning to your plan you can understand what parts of your strategy are working and those that are not.

That just scratches the surface for why having a plan is valuable. Check out our full write-up for fifteen more reasons why you need a business plan .

What can you do with your plan?

So what can you do with a business plan once you’ve created it? It can be all too easy to write a plan and just let it be. Here are just a few ways you can leverage your plan to benefit your business.

Test an idea

Writing a plan isn’t just for those that are ready to start a business. It’s just as valuable for those that have an idea and want to determine if it’s actually possible or not. By writing a plan to explore the validity of an idea, you are working through the process of understanding what it would take to be successful.

The market and competitive research alone can tell you a lot about your idea. Is the marketplace too crowded? Is the solution you have in mind not really needed? Add in the exploration of milestones, potential expenses, and the sales needed to attain profitability and you can paint a pretty clear picture of the potential of your business.

Document your strategy and goals

For those starting or managing a business understanding where you’re going and how you’re going to get there are vital. Writing your plan helps you do that. It ensures that you are considering all aspects of your business, know what milestones you need to hit, and can effectively make adjustments if that doesn’t happen.

With a plan in place, you’ll have an idea of where you want your business to go as well as how you’ve performed in the past. This alone better prepares you to take on challenges, review what you’ve done before, and make the right adjustments.

Pursue funding

Even if you do not intend to pursue funding right away, having a business plan will prepare you for it. It will ensure that you have all of the information necessary to submit a loan application and pitch to investors. So, rather than scrambling to gather documentation and write a cohesive plan once it’s relevant, you can instead keep your plan up-to-date and attempt to attain funding. Just add a use of funds report to your financial plan and you’ll be ready to go.

The benefits of having a plan don’t stop there. You can then use your business plan to help you manage the funding you receive. You’ll not only be able to easily track and forecast how you’ll use your funds but easily report on how it’s been used.

Better manage your business

A solid business plan isn’t meant to be something you do once and forget about. Instead, it should be a useful tool that you can regularly use to analyze performance, make strategic decisions, and anticipate future scenarios. It’s a document that you should regularly update and adjust as you go to better fit the actual state of your business.

Doing so makes it easier to understand what’s working and what’s not. It helps you understand if you’re truly reaching your goals or if you need to make further adjustments. Having your plan in place makes that process quicker, more informative, and leaves you with far more time to actually spend running your business.

What should your business plan include?

The content and structure of your business plan should include anything that will help you use it effectively. That being said, there are some key elements that you should cover and that investors will expect to see.

Executive summary

The executive summary is a simple overview of your business and your overall plan. It should serve as a standalone document that provides enough detail for anyone—including yourself, team members, or investors—to fully understand your business strategy. Make sure to cover the problem you’re solving, a description of your product or service, your target market, organizational structure, a financial summary, and any necessary funding requirements.

This will be the first part of your plan but it’s easiest to write it after you’ve created your full plan.

Products & Services

When describing your products or services, you need to start by outlining the problem you’re solving and why what you offer is valuable. This is where you’ll also address current competition in the market and any competitive advantages your products or services bring to the table. Lastly, be sure to outline the steps or milestones that you’ll need to hit to successfully launch your business. If you’ve already hit some initial milestones, like taking pre-orders or early funding, be sure to include it here to further prove the validity of your business.

Market analysis

A market analysis is a qualitative and quantitative assessment of the current market you’re entering or competing in. It helps you understand the overall state and potential of the industry, who your ideal customers are, the positioning of your competition, and how you intend to position your own business. This helps you better explore the long-term trends of the market, what challenges to expect, and how you will need to initially introduce and even price your products or services.

Check out our full guide for how to conduct a market analysis in just four easy steps .

Marketing & sales

Here you detail how you intend to reach your target market. This includes your sales activities, general pricing plan, and the beginnings of your marketing strategy. If you have any branding elements, sample marketing campaigns, or messaging available—this is the place to add it.

Additionally, it may be wise to include a SWOT analysis that demonstrates your business or specific product/service position. This will showcase how you intend to leverage sales and marketing channels to deal with competitive threats and take advantage of any opportunities.

Check out our full write-up to learn how to create a cohesive marketing strategy for your business.

Organization & management

This section addresses the legal structure of your business, your current team, and any gaps that need to be filled. Depending on your business type and longevity, you’ll also need to include your location, ownership information, and business history. Basically, add any information that helps explain your organizational structure and how you operate. This section is particularly important for pitching to investors but should be included even if attempted funding is not in your immediate future.

Financial projections

Possibly the most important piece of your plan, your financials section is vital for showcasing the viability of your business. It also helps you establish a baseline to measure against and makes it easier to make ongoing strategic decisions as your business grows. This may seem complex on the surface, but it can be far easier than you think.

Focus on building solid forecasts, keep your categories simple, and lean on assumptions. You can always return to this section to add more details and refine your financial statements as you operate.

Here are the statements you should include in your financial plan:

Sales and revenue projections
Profit and loss statement
Cash flow statement
Balance sheet

The appendix is where you add additional detail, documentation, or extended notes that support the other sections of your plan. Don’t worry about adding this section at first and only add documentation that you think will be beneficial for anyone reading your plan.

Types of business plans explained

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. So, to get the most out of your plan, it’s best to find a format that suits your needs. Here are a few common business plan types worth considering.

Traditional business plan

The tried-and-true traditional business plan is a formal document meant to be used for external purposes. Typically this is the type of plan you’ll need when applying for funding or pitching to investors. It can also be used when training or hiring employees, working with vendors, or any other situation where the full details of your business must be understood by another individual.

This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix. We recommend only starting with this business plan format if you plan to immediately pursue funding and already have a solid handle on your business information.

Business model canvas

The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea.

The structure ditches a linear structure in favor of a cell-based template. It encourages you to build connections between every element of your business. It’s faster to write out and update, and much easier for you, your team, and anyone else to visualize your business operations. This is really best for those exploring their business idea for the first time, but keep in mind that it can be difficult to actually validate your idea this way as well as adapt it into a full plan.

One-page business plan

The true middle ground between the business model canvas and a traditional business plan is the one-page business plan. This format is a simplified version of the traditional plan that focuses on the core aspects of your business. It basically serves as a beefed-up pitch document and can be finished as quickly as the business model canvas.

By starting with a one-page plan, you give yourself a minimal document to build from. You’ll typically stick with bullet points and single sentences making it much easier to elaborate or expand sections into a longer-form business plan. This plan type is useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Now, the option that we here at LivePlan recommend is the Lean Plan . This is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance.

It holds all of the benefits of the single-page plan, including the potential to complete it in as little as 27-minutes . However, it’s even easier to convert into a full plan thanks to how heavily it’s tied to your financials. The overall goal of Lean Planning isn’t to just produce documents that you use once and shelve. Instead, the Lean Planning process helps you build a healthier company that thrives in times of growth and stable through times of crisis.

It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

Try the LivePlan Method for Lean Business Planning

Now that you know the basics of business planning, it’s time to get started. Again we recommend leveraging a Lean Plan for a faster, easier, and far more useful planning process.

To get familiar with the Lean Plan format, you can download our free Lean Plan template . However, if you want to elevate your ability to create and use your lean plan even further, you may want to explore LivePlan.

It features step-by-step guidance that ensures you cover everything necessary while reducing the time spent on formatting and presenting. You’ll also gain access to financial forecasting tools that propel you through the process. Finally, it will transform your plan into a management tool that will help you easily compare your forecasts to your actual results.

Check out how LivePlan streamlines Lean Planning by downloading our Kickstart Your Business ebook .

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Do you REALLY need a business plan?

The top three questions that I get asked most frequently as a professional business plan writer will probably not surprise you:

What is the purpose of a business plan – why is it really required?
How is it going to benefit my business if I write a business plan?
Is a business plan really that important – how can I actually use it?

Keep reading to get my take on what the most essential advantages of preparing a business plan are—and why you may (not) need to prepare one.

The importance, purpose and benefit of a business plan is in that it enables you to validate a business idea, secure funding, set strategic goals – and then take organized action on those goals by making decisions, managing resources, risk and change, while effectively communicating with stakeholders.

Let’s take a closer look at how each of the important business planning benefits can catapult your business forward:

1. Validate Your Business Idea

The process of writing your business plan will force you to ask the difficult questions about the major components of your business, including:

External: industry, target market of prospective customers, competitive landscape
Internal: business model, unique selling proposition, operations, marketing, finance

Business planning connects the dots to draw a big picture of the entire business.

And imagine how much time and money you would save if working through a business plan revealed that your business idea is untenable. You would be surprised how often that happens – an idea that once sounded so very promising may easily fall apart after you actually write down all the facts, details and numbers.

While you may be tempted to jump directly into start-up mode, writing a business plan is an essential first step to check the feasibility of a business before investing too much time and money into it. Business plans help to confirm that the idea you are so passionate and convinced about is solid from business point of view.

Take the time to do the necessary research and work through a proper business plan. The more you know, the higher the likelihood that your business will succeed.

2. Set and Track Goals

Successful businesses are dynamic and continuously evolve. And so are good business plans that allow you to:

Priorities: Regularly set goals, targets (e.g., sales revenues reached), milestones (e.g. number of employees hired), performance indicators and metrics for short, mid and long term
Accountability: Track your progress toward goals and benchmarks
Course-correction: make changes to your business as you learn more about your market and what works and what does not
Mission: Refer to a clear set of values to help steer your business through any times of trouble

Essentially, business plan is a blueprint and an important strategic tool that keeps you focused, motivated and accountable to keep your business on track. When used properly and consulted regularly, it can help you measure and manage what you are working so hard to create – your long-term vision.

As humans, we work better when we have clear goals we can work towards. The everyday business hustle makes it challenging to keep an eye on the strategic priorities. The business planning process serves as a useful reminder.

3. Take Action

A business plan is also a plan of action . At its core, your plan identifies where you are now, where you want your business to go, and how you will get there.

Planning out exactly how you are going to turn your vision into a successful business is perhaps the most important step between an idea and reality. Success comes not only from having a vision but working towards that vision in a systematic and organized way.

A good business plan clearly outlines specific steps necessary to turn the business objectives into reality. Think of it as a roadmap to success. The strategy and tactics need to be in alignment to make sure that your day-to-day activities lead to the achievement of your business goals.

4. Manage Resources

A business plan also provides insight on how resources required for achieving your business goals will be structured and allocated according to their strategic priority. For example:

Large Spending Decisions

Assets: When and in what amount will the business commit resources to buy/lease new assets, such as computers or vehicles.
Human Resources: Objectives for hiring new employees, including not only their pay but how they will help the business grow and flourish.
Business Space: Information on costs of renting/buying space for offices, retail, manufacturing or other operations, for example when expanding to a new location.

Cash Flow It is essential that a business carefully plans and manages cash flows to ensure that there are optimal levels of cash in the bank at all times and avoid situations where the business could run out of cash and could not afford to pay its bills.

Revenues v. Expenses In addition, your business plan will compare your revenue forecasts to the budgeted costs to make sure that your financials are healthy and the business is set up for success.

5. Make Decisions

Whether you are starting a small business or expanding an existing one, a business plan is an important tool to help guide your decisions:

Sound decisions Gathering information for the business plan boosts your knowledge across many important areas of the business:

Industry, market, customers and competitors
Financial projections (e.g., revenue, expenses, assets, cash flow)
Operations, technology and logistics
Human resources (management and staff)
Creating value for your customer through products and services

Decision-making skills The business planning process involves thorough research and critical thinking about many intertwined and complex business issues. As a result, it solidifies the decision-making skills of the business owner and builds a solid foundation for strategic planning , prioritization and sound decision making in your business. The more you understand, the better your decisions will be.

Planning Thorough planning allows you to determine the answer to some of the most critical business decisions ahead of time , prepare for anticipate problems before they arise, and ensure that any tactical solutions are in line with the overall strategy and goals.

If you do not take time to plan, you risk becoming overwhelmed by countless options and conflicting directions because you are not unclear about the mission , vision and strategy for your business.

6. Manage Risk

Some level of uncertainty is inherent in every business, but there is a lot you can do to reduce and manage the risk, starting with a business plan to uncover your weak spots.

You will need to take a realistic and pragmatic look at the hard facts and identify:

Major risks , challenges and obstacles that you can expect on the way – so you can prepare to deal with them.
Weaknesses in your business idea, business model and strategy – so you can fix them.
Critical mistakes before they arise – so you can avoid them.

Essentially, the business plan is your safety net . Naturally, business plan cannot entirely eliminate risk, but it can significantly reduce it and prepare you for any challenges you may encounter.

7. Communicate Internally

Attract talent For a business to succeed, attracting talented workers and partners is of vital importance.

A business plan can be used as a communication tool to attract the right talent at all levels, from skilled staff to executive management, to work for your business by explaining the direction and growth potential of the business in a presentable format.

Align performance Sharing your business plan with all team members helps to ensure that everyone is on the same page when it comes to the long-term vision and strategy.

You need their buy-in from the beginning, because aligning your team with your priorities will increase the efficiency of your business as everyone is working towards a common goal .

If everyone on your team understands that their piece of work matters and how it fits into the big picture, they are more invested in achieving the objectives of the business.

It also makes it easier to track and communicate on your progress.

Share and explain business objectives with your management team, employees and new hires. Make selected portions of your business plan part of your new employee training.

8. Communicate Externally

Alliances If you are interested in partnerships or joint ventures, you may share selected sections of your plan with the potential business partners in order to develop new alliances.

Suppliers A business plan can play a part in attracting reliable suppliers and getting approved for business credit from suppliers. Suppliers who feel confident that your business will succeed (e.g., sales projections) will be much more likely to extend credit.

In addition, suppliers may want to ensure their products are being represented in the right way .

Professional Services Having a business plan in place allows you to easily share relevant sections with those you rely on to support the organization, including attorneys, accountants, and other professional consultants as needed, to make sure that everyone is on the same page.

Advisors Share the plan with experts and professionals who are in a position to give you valuable advice.

Landlord Some landlords and property managers require businesses to submit a business plan to be considered for a lease to prove that your business will have sufficient cash flows to pay the rent.

Customers The business plan may also function as a prospectus for potential customers, especially when it comes to large corporate accounts and exclusive customer relationships.

9. Secure Funding

If you intend to seek outside financing for your business, you are likely going to need a business plan.

Whether you are seeking debt financing (e.g. loan or credit line) from a lender (e.g., bank or financial institution) or equity capital financing from investors (e.g., venture or angel capital), a business plan can make the difference between whether or not – and how much – someone decides to invest.

Investors and financiers are always looking at the risk of default and the earning potential based on facts and figures. Understandably, anyone who is interested in supporting your business will want to check that you know what you are doing, that their money is in good hands, and that the venture is viable in the long run.

Business plans tend to be the most effective ways of proving that. A presentation may pique their interest , but they will most probably request a well-written document they can study in detail before they will be prepared to make any financial commitment.

That is why a business plan can often be the single most important document you can present to potential investors/financiers that will provide the structure and confidence that they need to make decisions about funding and supporting your company.

Be prepared to have your business plan scrutinized . Investors and financiers will conduct extensive checks and analyses to be certain that what is written in your business plan faithful representation of the truth.

10. Grow and Change

It is a very common misconception that a business plan is a static document that a new business prepares once in the start-up phase and then happily forgets about.

But businesses are not static. And neither are business plans. The business plan for any business will change over time as the company evolves and expands .

In the growth phase, an updated business plan is particularly useful for:

Raising additional capital for expansion

Seeking financing for new assets , such as equipment or property
Securing financing to support steady cash flows (e.g., seasonality, market downturns, timing of sale/purchase invoices)
Forecasting to allocate resources according to strategic priority and operational needs
Valuation (e.g., mergers & acquisitions, tax issues, transactions related to divorce, inheritance, estate planning)

Keeping the business plan updated gives established businesses better chance of getting the money they need to grow or even keep operating.

Business plan is also an excellent tool for planning an exit as it would include the strategy and timelines for a transfer to new ownership or dissolution of the company.

Also, if you ever make the decision to sell your business or position yourself for a merger or an acquisition , a strong business plan in hand is going to help you to maximize the business valuation.

Valuation is the process of establishing the worth of a business by a valuation expert who will draw on professional experience as well as a business plan that will outline what you have, what it’s worth now and how much will it likely produce in the future.

Your business is likely to be worth more to a buyer if they clearly understand your business model, your market, your assets and your overall potential to grow and scale .

Business Plan Benefits: What are the benefits of a business plan?

A business plan benefits businesses by serving as a strategic tool outlining the steps and resources required to achieve goals and make business ideas succeed, as well as a communication tool allowing businesses to articulate their strategy to stakeholders that support the business.

Business Plan Importance: Why is business plan important?

The importance of a business plan lies in it being a roadmap that guides the decisions of a business on the road to success, providing clarity on all aspects of its operations. This blueprint outlines the goals of the business and what exactly is needed to achieve them through effective management.

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Misleading Statistics Examples – Discover The Potential For Misuse of Statistics & Data In The Digital Age

Table of Contents

1) What Is A Misleading Statistic?

2) Are Statistics Reliable?

3) Misleading Statistics Examples In Real Life

4) How Can Statistics Be Misleading

5) How To Avoid & Identify The Misuse Of Statistics?

Statistical analyses have historically been a stalwart of the high-tech and advanced business industries, and today they are more important than ever. With the rise of advanced technology and globalized operations, statistical analyses grant businesses insight into solving the extreme uncertainties of the market. Studies foster informed decision-making, sound judgments, and actions carried out on the weight of evidence, not assumptions.

As businesses are often forced to follow a difficult-to-interpret market roadmap, statistical methods can help with the planning that is necessary to navigate a landscape filled with potholes, pitfalls, and hostile competition. Statistical studies can also assist in the marketing of goods or services, and in understanding each target market’s unique value drivers. In the digital age, these capabilities are only further enhanced and harnessed through the implementation of advanced technology and business intelligence software . If all this is true, what is the problem with statistics?

Actually, there is no problem per se – but there can be. Statistics are infamous for their ability and potential to exist as misleading and bad data . To get this journey started, let's look at a misleading statistics definition.

What Is A Misleading Statistic?

Misleading statistics refers to the misuse of numerical data either intentionally or by error. The results provide deceiving information that creates false narratives around a topic. Misuse of statistics often happens in advertisements, politics, news, media, and others.

Given the importance of data in today’s rapidly evolving digital world, it is important to be familiar with the basics of misleading statistics and oversight. As an exercise in due diligence, we will review some of the most common forms of misuse of statistics, and various alarming (and sadly, common) misleading statistics examples from public life.

Are Statistics Reliable?

73.6% of statistics are false . Really? No, of course, it’s a made-up number (even though such a study would be interesting to know – but again, could have all the flaws it tries at the same time to point out). Statistical reliability is crucial in order to ensure the precision and validity of the analysis. To make sure the reliability is high, there are various techniques to perform – the first of them being the control tests, which should have similar results when reproducing an experiment in similar conditions. These controlling measures are essential and should be part of any experiment or survey – unfortunately, that isn’t always the case.

While numbers don’t lie, they can in fact be used to mislead with half-truths. This is known as the “misuse of statistics.” It is often assumed that the misuse of statistics is limited to those individuals or companies seeking to gain profit from distorting the truth, be it economics, education, or mass media.

However, the telling of half-truths through study is not only limited to mathematical amateurs. A 2009 investigative survey by Dr. Daniele Fanelli from The University of Edinburgh found that 33.7% of scientists surveyed admitted to questionable research practices, including modifying results to improve outcomes, subjective data interpretation, withholding analytical details, and dropping observations because of gut feelings…. Scientists!

While numbers don’t always have to be fabricated or misleading, it is clear that even society’s most trusted numerical gatekeepers are not immune to the carelessness and bias that can arise with statistical interpretation processes. There are different ways in which statistics can be misleading that we will detail later. The most common one is of course correlation versus causation, which always leaves out another (or two or three) factors that are the actual causation of the problem. Drinking tea increases diabetes by 50%, and baldness raises the cardiovascular disease risk up to 70%! Did we forget to mention the amount of sugar put in the tea or the fact that baldness and old age are related – just like cardiovascular disease risks and old age?

So, can statistics be manipulated? They sure can. Do numbers lie? You can be the judge.

Misleading Statistics Examples In Real Life

Now that we’ve put the misuse of statistics in context, let’s look at various digital age examples of statistics that are misleading across five distinct, but related, spectrums: media and politics, news, advertising, science, and healthcare. While certain topics listed here are likely to stir emotion depending on one’s point of view, their inclusion is for data demonstration purposes only.

1) Examples of misleading statistics in politics

Misleading statistics example in politics: propaganda graph without y-axis created by an anti-abortion group to mislead judgement

Misleading statistics in politics are quite common. On Sept. 29, 2015, Republicans from the U.S. Congress questioned Cecile Richards, the president of Planned Parenthood, regarding the misappropriation of $500 million in annual federal funding. The above graph/chart was presented as a point of emphasis.

Representative Jason Chaffetz of Utah explained: “In pink, that’s the reduction in the breast exams, and the red is the increase in the abortions. That’s what’s going on in your organization.”

Based on the structure of the chart, it does in fact appear to show that the number of abortions since 2006 experienced substantial growth, while the number of cancer screenings substantially decreased. The intent is to convey a shift in focus from cancer screenings to abortion. The chart points appear to indicate that 327,000 abortions are greater in inherent value than 935,573 cancer screenings. Yet, closer examination will reveal that the chart has no defined y-axis. This means that there is no definable justification for the placement of the visible measurement lines.

Politifact, a fact-checking advocacy website, reviewed Rep. Chaffetz’s numbers via a comparison with Planned Parenthood’s own annual reports. Using a clearly defined scale, here is what the information looks like:

Correct data visualization showing the planned parenthood as it is with a clearly defined scale and an existing y-axis

And like this with another valid scale:

Demonstrating planned parenthood with another valide scale

Once placed within a clearly defined scale, it becomes evident that while the amount of cancer screenings has in fact decreased, it still far outnumbers the amount of abortion procedures performed yearly. As such, this is a great misleading statistics example, and some could argue bias considering that the chart originated not from the Congressman, but from Americans United for Life, an anti-abortion group. This is just one of many examples of misleading statistics in the media and politics.

2) Examples of misleading statistics in healthcare

Just like other industries or areas that we will cover on this list of examples, the healthcare industry is not free of the misuse of statistics. Although this controversy happened around 1996, the case of Purdue Pharma and their highly addictive drug OxyContin is still affecting thousands of American citizens and has already taken the lives of thousands of others to this date, all due to the misuse of statistics as a marketing tactic.

The case started when the giant pharmaceutical company, Purdue Pharma, launched its new product OxyContin, which they advertised as a safe, non-addictive opioid that was highly effective for pain relief. Once hearing this statement, doctors were skeptical, as they knew how dangerously addictive opioids could be to treat chronicle pain.

Amongst various videos of “success cases” of patients, merchandising, and unethical messaging included in Purdue’s marketing strategy to advertise OxyContin as a safe drug, there was a very interesting graph, used to prove to doctors that the drug was non-addictive because it stayed on the patient’s blood over time avoiding symptoms of withdrawal. The problem was, the graph, which is depicted below, was built with a y-axis on a logarithmic scale instead of a linear one, making it look like the rate of change is smaller than it actually is.

OxyContin deceptive chart as an example of misleading statistics in healthcare

It was this unethical and misleading graph, which was also FDA approved, that helped in initiating one of the biggest health crises in the US, opioid addiction. Although in 2007 the company was forced to pay a $600 million fine for its criminal actions, the consequences of this are still seen to date. This a sad representation of how dangerous misinformation can be.

3) Misleading COVID statistics

This list of misleading statistics fallacy examples would not be complete without referencing the COVID-19 pandemic. During the initial stages of COVID, the general public was forced to consume scientific information in the form of data visualizations to stay informed about the current developments of the virus. But this didn’t come easy. The lack of statistical literacy from the public, paired with the fact that organizations didn’t always share accurate statistical information, lead to widespread misrepresentation of data.

Christopher Engledowl & Travis Weiland wrote an insightful article called “Data (Mis)representation and COVID-19: Leveraging Misleading Data Visualizations For Developing Statistical Literacy Across Grades 6–16”. There, they speak about two use cases in which COVID-19 information was used in a misleading way. Let’s look at one of them closely.

In May 2020, around 5 months after COVID-19 started spreading around the world, the US Georgia Department of Public Health posted a chart that aimed at showing the top 5 counties that had the highest COVID-19 cases in the past 15 days and the number of cases over time.

Examples of misleading statistics in healthcare: Georgia Department Of Public Health misleading COVID-19 graph

Source : Vox

Now, if we take a closer look at this chart we can find a few mistakes that make the information very misleading. First of all, the X-axis does not have a label, even though according to the chart, it is meant to show the number of cases over time, this doesn't happen.

Another issue, and maybe the worst of them all, is that the dates under the bars are not ordered chronologically. Instead, we see the dates between April and May interspersed with the aim of making viewers of this graph believe that the cases are gradually decreasing. This is paired with the fact that counties are not always depicted in the same order, but instead in descending order of cases. This is with the same aim of making it seem like the cases are dropping.

The graph generated a big controversy on social media, especially on Twitter, where users pointed out that the Georgia Health Department had repeatedly used misleading statistics during the COVID-19 outbreak. As an answer to the issue, Candice Broce , the communications director for Giorgia’s Governor. Brian Kemp's said: "The x-axis was set up that way to show descending values to more easily demonstrate peak values and counties on those dates, our mission failed. We apologize. It is fixed". The graph was later republished with organized dates and counties. You can see the updated version below.

Georgia Department Of Public Health misleading COVID-19 graph updated version

Source: Business Insider

This is one of the many controversial examples of misleading COVID statistics that illustrates the authorities' responsibility to inform their audience accurately. In critical scenarios such as a global pandemic, this becomes even more important as misinformation can lead to a higher spread and more deaths. To avoid situations like this, there is a bunch of healthcare analytics software that assists analysts and average users in the creation of stunning and accurate visualizations for their data.

4) Misleading statistics in advertising

Colgate toothpaste tubes as an example for misleading statistics in advertising

Next, in our list of bad statistics examples, we have the case of a popular toothpaste brand. In 2007, Colgate was ordered by the Advertising Standards Authority (ASA) of the U.K. to abandon their claim: “More than 80% of Dentists recommend Colgate.” The slogan in question was positioned on an advertising billboard in the U.K. and was deemed to be in breach of U.K. advertising rules.

The claim, which was based on surveys of dentists and hygienists carried out by the manufacturer, was found to be misrepresentative as it allowed the participants to select one or more toothpaste brands. The ASA stated that the claim “… would be understood by readers to mean that 80 percent of dentists recommend Colgate over and above other brands, and the remaining 20 percent would recommend different brands.”

The ASA continued, “Because we understood that another competitor’s brand was recommended almost as much as the Colgate brand by the dentists surveyed, we concluded that the claim misleadingly implied 80 percent of dentists recommend Colgate toothpaste in preference to all other brands.” The ASA also claimed that the scripts used for the survey informed the participants that the study was being performed by an independent research company, which was inherently false.

Based on the misuse techniques we covered, it is safe to say that this sleight off-hand technique by Colgate is a clear example of misleading statistics in advertising, and would fall under faulty polling and outright bias.

5) Misleading statistics examples in the news

Misuse of statistics is present everywhere and news outlets are no exception. American network Fox News has been under scrutiny several times throughout the years for showing misleading statistics graphs that seem to purposely portray a conclusion that is not accurate. The most recent case happened not too long ago in September 2021. During one of Fow New’s broadcasts, anchor Tucker Carlson displayed a graph saying that the number of Americans identifying as Christians had collapsed over the last decade.

Examples of misleading statistics in the news: Fox News misleading graph about Americans that identify as Christians

Source : www.rawstory.com

In the image above, we can see a graph showing 77% of Christian Americans in 2009, a number that decreased to 65% in 2019. Now, if the issue here is not obvious enough, we can see that the Y-axis in this chart starts from 58% and ends at 78%, making the 12% drop from 2009 to 2019 look way more significant than it actually is.

As mentioned, this is not the only time Fox News has been criticized because of these situations. Examples of misuse of statistics in the media are very common. Columbia Journalism School professor Bill Grueskin even made a lesson to its students about the topic and used several misleading charts from the US news show as an example of what not to do when presenting data. Grueskin shared some of these insightful examples of misleading statistics in the news in a Twitter thread that became very popular. We took a very obvious one to show you below.

For the presidential run of 2012, the news network showed the graph below where we see a pie chart displaying a total of 193% which is clearly wrong and misleading as the total should be 100%.

A second example of misleading statistics in the news coming from a pie chart in Fox News

Source: Bill Grueskin

6) Misleading statistics in the media

Television is not the only media platform that can provide examples of bad statistics in the news. In 2006, The Times, a popular UK newspaper, printed a story about how they were the leading paper both online and in print in the UK. The article, titled “The Times leaves the rest behind” started by displaying a graphic of the exponential growth of The Times website visitors from 2004 to 2006. Which saw an increase of millions of visitors in just a couple of years, so far, everything looks normal.

The issue comes with the second graph that is displayed in the article, in which we see a comparison of full-price sales between The Times and one of its biggest competitors, the Daily Telegraph. At a glance, the chart makes you believe that The Times has twice as many full-price subscriptions as its competitor. However, a closer look shows that the X-axis starts at 420,000 instead of 0. Making the difference between the two publications a lot bigger than what it actually is, which is just 10%.

Source : statisticshowto.com

Now, you might argue that The Times is telling the truth, as they are actually leading over their competitors. Regardless, many people will look at the graph and get a different idea of what the actual difference is, which is an unethical and dangerous practice. Just like we saw with Fox News examples, the manipulation of the axes can completely change the way the information on a graph is perceived. We will discuss this specific case in more detail later in the post.

7) Misleading statistics in science

Much like abortion, global warming is another politically charged topic that is likely to arouse emotions. It also happens to be a topic that is vigorously endorsed by both opponents and proponents via studies. Let’s take a look at some of the evidence for and against.

It is generally agreed upon that the global mean temperature in 1998 was 58.3 degrees Fahrenheit. This is according to NASA’s Goddard Institute for Space Studies . In 2012, the global mean temperature was measured at 58.2 degrees. It is, therefore, argued by global warming opponents that, as there was a 0.1-degree decrease in the global mean temperature over a 14-year period, global warming is disproved.

The below graph is the one most often referenced to disprove global warming. It demonstrates the change in air temperature (Celsius) from 1998 to 2012.

Misleading statistics example about the global air warming from 1998-2012

It is worth mentioning that 1998 was one of the hottest years on record due to an abnormally strong El Niño wind current. It is also worth noting that, as there is a large degree of variability within the climate system, temperatures are typically measured with at least a 30-year cycle. The below chart expresses the 30-year change in global mean temperatures.

Chart illustrating global air warming from 1980-2012

And now have a look at the trend from 1900 to 2012:

Chart illustrating global air warming from 1900-2012

While the long-term data may appear to reflect a plateau, it clearly paints a picture of gradual warming. Therefore, using the first graph, and only the first graph, to disprove global warming is a perfect misleading statistics example.

8) Misleading crime statistics

Rather its politicians trying to make a point for their own interest or just someone not understanding the information behind the graphs and charts they create, crime statistics are not free of being misleading. A controversial representation of this happened in 2014 when a graph depicting the number of murders committed using firearms in Florida from 1990 to 2010 was published in the context of the “Stand Your Ground” law, enacted in 2005 to give people the right to use deadly force for self-defense.

At a first glance, the graph, which is displayed below, shows a descending trend that starts the year the law was enacted, concluding that “Stand Your Grown” is responsible for the apparent drop in the number of murders committed using firearms in the years after it was implemented. However, when taking a closer look at the graph, we can see that the y-axis is reversed, starting with the highest numbers at the bottom and reaching 0 at the top.

Gun deaths in Florida as an example of misleading crime statistics

Source : livescience.com

Taking that into account, what the graph is actually showing is an increase in deaths using firearms after the law was enacted. Now, as we learned throughout this post, we can’t say with certainty that the law caused the rise in deaths as there are other factors that could influence that number. There is also no evidence to say that the Florida Law Enforcement Department was purposely deceiving the public. However, at the time this graph was published, many media publications interpreted the graph as if the deaths dropped, showing how damaging the misuse of graphs and numbers can be.

How Can Statistics Be Misleading

Blackboard displaying the common types of misuse of statistics

Remember, misuse of statistics can be accidental or purposeful. While a malicious intent to blur lines with misleading statistics will surely magnify bias, the intent is not necessary to create misunderstandings. The misuse of statistics is a much broader problem that now permeates multiple industries and fields of study. Here are a few potential mishaps that commonly lead to misuse:

1) Faulty polling

The manner in which questions are phrased can have a huge impact on the way an audience answers them. Specific wording patterns have a persuasive effect and induce respondents to answer in a predictable manner. For example, on a poll seeking tax opinions, let’s look at the two potential questions:

- Do you believe that you should be taxed so other citizens don’t have to work?

- Do you think that the government should help those people who cannot find work?

These two questions are likely to provoke far different responses, even though they deal with the same topic of government assistance. These are examples of “loaded questions.”

A more accurate way of wording the question would be, “Do you support government assistance programs for unemployment?” or, (even more neutrally) “What is your point of view regarding unemployment assistance?”

The latter two examples of the original questions eliminate any inference or suggestion from the poller, and thus, are significantly more impartial. Another unfair method of polling is to ask a question, but precede it with a conditional statement or a statement of fact. Staying with our example, that would look like this: “Given the rising costs to the middle class, do you support government assistance programs?”

A good rule of thumb is to always take polling with a grain of salt and to try to review the questions that were actually presented. They provide great insight, often more so than the answers.

2) Flawed correlations

The problem with correlations is this: if you measure enough variables, eventually it will appear that some of them correlate. As one out of twenty will inevitably be deemed significant without any direct correlation, studies can be manipulated (with enough data) to prove a correlation that does not exist or that is not significant enough to prove causation.

To illustrate this point further, let’s assume that a study has found a correlation between an increase in car accidents in the state of New York in the month of June (A), and an increase in bear attacks in the state of New York in the month of June (B).

That means there will likely be six possible explanations:

- Car accidents (A) cause bear attacks (B)

- Bear attacks (B) cause car accidents (A)

- Car accidents (A) and bear attacks (B) partly cause each other

- Car accidents (A) and bear attacks (B) are caused by a third factor (C)

- Bear attacks (B) are caused by a third factor (C) which correlates to car accidents (A)

- The correlation is only chance

Any sensible person would easily identify the fact that car accidents do not cause bear attacks. Each is likely a result of a third factor, that being: an increased population, due to the high tourism season in the month of June. It would be preposterous to say that they cause each other... and that is exactly why it is our example. It is easy to see a correlation.

But, what about causation? What if the measured variables were different? What if it was something more believable, like Alzheimer’s and old age? Clearly, there is a correlation between the two, but is there causation? Many would falsely assume, yes, solely based on the strength of the correlation. Tread carefully, for either knowingly or ignorantly, correlation hunting will continue to exist within statistical studies.

3) Data fishing

This misleading data example is also referred to as “data dredging” (and related to flawed correlations). It is a data mining technique where extremely large volumes of data are analyzed for the purpose of discovering relationships between different points. Seeking a relationship between data isn’t a misuse per se, however, doing so without a hypothesis is.

Data dredging is a self-serving technique often employed for the unethical purpose of circumventing traditional data mining techniques, in order to seek additional conclusions that do not exist. This is not to say that there is no proper use of data mining, as it can in fact lead to surprise outliers and interesting analyses. However, more often than not, data dredging is used to assume the existence of relationships without further study.

Oftentimes, data fishing results in studies that are highly publicized due to their important or outlandish findings. These studies are very soon contradicted by other important or outlandish findings. These false correlations often leave the general public very confused and searching for answers regarding the significance of causation and correlation.

Likewise, another common practice with data is omission, meaning that after looking at a large data set of answers, you only pick the ones that are supporting your views and findings and leave out those that contradict them. As mentioned at the beginning of this article, it has been shown that a third of the scientists admitted that they had questionable research practices, including withholding analytical details and modifying results...! But then again, we are facing a study that could itself fall into this 33% of questionable practices, faulty polling, and selective bias... It becomes hard to believe any analysis!

4) Misleading data visualization

Insightful graphs and charts include a very basic, but essential, grouping of elements. Whatever the types of graphs and charts you choose to use, it must convey:

- The scales used

- The starting value (zero or otherwise)

- The method of calculation (e.g., dataset and time period)

Absent these elements, visual data representations should be viewed with a grain of salt, taking into account the common data visualization mistakes one can make. Intermediate data points should also be identified and context is given if it would add value to the information presented. With the increasing reliance on intelligent solution automation for variable data point comparisons, best practices (i.e., design and scaling) should be implemented prior to comparing data from different sources, datasets, times, and locations.

5) Purposeful and selective bias

The next of our most common examples for misuse of statistics and misleading data is, perhaps, the most serious. Purposeful bias is the deliberate attempt to influence findings without even feigning professional accountability. Bias is most likely to take the form of data omissions or adjustments to prove a specific point.

The selective bias is slightly more discreet for those who do not read the small lines. It usually falls down on the sample of people surveyed. For instance, the nature of the group of people surveyed: asking a class of college students about the legal drinking age, or a group of retired people about the elderly care system. You will end up with a statistical error called “selective bias”. To avoid this issue, you should always pick a random sample of people whose background may or may not be related to the topic of the survey.

Businesses and analysts are exposed to making biases when a single person is doing an entire analysis. Whether this person notices or not, they might be providing an inaccurate or manipulated picture to confirm a specific conclusion. This can lead to poor decision-making due to misinformation.

6) Percentage change in combination with a small sample size

Another way of creating misleading statistics, also linked with the choice of sample discussed above, is the size of said sample. When an experiment or a survey is led on a totally not significant sample size, not only will the results be unusable, but the way of presenting them - namely as percentages - will be totally misleading.

Asking a question to a sample size of 20 people, where 19 answers "yes" (=95% say for yes) versus asking the same question to 1,000 people and 950 answers "yes" (=95% as well): the validity of the percentage is clearly not the same. Providing solely the percentage of change without the total numbers or sample size will be totally misleading. xkdc's comic illustrates this very well, to show how the "fastest-growing" claim is a totally relative marketing speech:

xkcd comic mocking the "fastest-growing" argument

Likewise, the needed sample size is influenced by the kind of question you ask, the statistical significance you need (clinical study vs business study), and the statistical technique. If you perform a quantitative analysis, sample sizes under 200 people are usually invalid.

7) Truncating an axis

Truncating an axis is another way in which statistics can be misleading. When creating a graph to portray a statistic, it is natural to assume that the X and Y axes start at zero. Truncating axes means doing the opposite. For example, starting the axes in a predefined value so that it will affect the way the graph is perceived to achieve a certain conclusion. This technique is often used in politics to exaggerate a result that would otherwise be much less interesting.

Let’s put this into perspective with an example of the misuse of statistics in advertising. The image below shows a graph advertising KFC’s crispy chicken twister wrap and comparing its calories with other brands with a similar product. As we can see, the X axes here start from 590 instead of zero. This makes it appear that KFC’s wrap has half the calories as the ones from Taco Bell, Burger King, or Wendy’s when is actually just 70 calories less.

Misleading statistics example of a graph truncating an axis

Source : Reddit “Data Is Ugly”

This is a clear situation in which the axes are manipulated to show a specific result that is misleading. Truncating axes is a very dangerous false statistics practice, as it can help create wrong narratives around important topics. In this case, it can create the wrong idea of a product being healthier than it actually is.

8) Strategically picking the time period

Another common misuse of statistics is strategically picking the time period to show a result. This is a case of misleading statistics that can be done purposely, to achieve a specific result, or accidentally. For example, picking only a good-performing month to build a sales report will portray a misleading picture of the overall sales performance.

Purposely or not, the time periods we choose to portray will affect the way viewers perceive the data. For instance, showing a value for 3 months can show radically different trends than showing it over a year. The image below is a great example of this misleading practice. You can see a graph that shows the UK National debt from 1995 to 2016. If you see this graph, you would obviously think the UK’s national debt is higher than ever.

Misuse of data example: a graph showing UK's national debt

Source : www.economicshelp.org

However, when you look at a longer time period such as 1910 to 2015 (image below) we realize that the debt is actually very low comparing it to other years. Making this a clear example of how the time period that we chose to portray can significantly change the way people will perceive the information.

UK's national debt example of a graph that is used in the correct way

9) Simpson’s Paradox

According to a definition by the Stanford Encyclopedia of Philosophy, a Simpson’s Paradox is a statistical phenomenon where “an association between two variables in a population emerges, disappears or reverses when the population is divided into subpopulations”. Now, you might be wondering, how can this be misleading?

Well, a Simpson’s Paradox can happen when an analyst doesn’t look at the complete scope of the data. When this paradox goes unnoticed, it can significantly influence the way the data is interpreted, leaving room to believe a certain conclusion or assumption is an absolute truth, when it could change by looking at it from a different perspective.

Let’s explain this better with an example . Imagine you are in need of risky emergency surgery and have to choose between going to hospitals A or B to get it. Doing a quick research, you find that 900 out of 1000 patients that went into surgery at Hospital A survived, while 800 out of 1000 survived at Hospital B. Now, the obvious answer is going for option A. However, when considering other factors such as the health conditions in which patients arrived at the hospitals we can drive other conclusions. For instance, of 100 patients that arrived in poor condition in Hospital A, 30 survived. On the other side, of 400 patients that arrived in poor condition at Hospital B, 210 survived at a survival rate of 52.5%.

While initially, the trend was going towards choosing option A, when grouping surviving patients considering other variables the trend changed to option B. This is a Simpson’s Paradox at its finest, and it happens when the data hides a conditional variable that can significantly influence the results.

How To Avoid & Identify The Misuse Of Statistics?

Now that we’ve looked at examples and common cases of misuse of statistics, you might be wondering, how do I avoid all of this? A first good thing would be, of course, to stand in front of an honest survey/experiment/research – pick the one you have beneath your eyes –, that has applied the correct techniques of collection and interpretation of data . But you cannot know until you ask yourself a couple of questions and analyze the results you have in between your hands.

Who is doing the research?

As an entrepreneur and former consultant, Mark Suster advises in an article , you should wonder who did the primary research of said analysis. Independent university study group, lab-affiliated research team, consulting company? From there naturally stems the question: who paid them? As no one works for free, it is always interesting to know who sponsors the research. Likewise, what are the motives behind it? What did the scientist or statisticians try to figure out? Finally, how big was the sample set, and who was part of it? How inclusive was it?

These are important questions to ponder and answer before spreading everywhere skewed or biased results – even though it happens all the time, because of amplification. A typical example of amplification often happens with newspapers and journalists, who take one piece of data and need to turn it into headlines – thus often out of its original context. No one buys a magazine where it states that next year, the same thing is going to happen in XYZ market as this year – even though it is true. Editors, clients, and people want something new, not something they know; that’s why we often end up with an amplification phenomenon that gets echoed and more than it should.

Is the sample size big enough?

As we mentioned earlier, the sample size is of utmost importance when it comes to deciding the worth of a study or its results. If the sample size of the study is too small to prove its conclusion then you should be responsible enough and not use these results as an absolute truth as this paves the way for future misinformation. If you still want to use the data to make a point, you can make sure to mention the small sample size as a disclaimer. That said, a bigger sample size is always better, as it highlights statistical differences more accurately.

Is the language being used objective and formal?

The power of words is huge, therefore, carefully looking at the way a study is written is another great practice to assess its quality. No matter how good a study might be, if it's not written using objective and formal language, then it is at risk to mislead. Researchers should not allow their values, their bias, or their views to impact their research, analysis, or findings, therefore, looking at the way questions and findings are formulated is a good practice.

Are the visuals being used correctly?

If you are the one performing the analysis, for instance generating reports for your job, you can ask yourself a few relevant questions to avoid using misleading statistics. For example, are visualizations representing the data accurately? (labels are clear, axes begin at 0, right chart type, etc) Is the research represented honestly and in an impartial manner? What information is missing from this data? You can also ask someone external to your research to look at the data, someone biased to the topic that can confirm your results are not misleading.

As you saw throughout this post, illustrated with some insightful bad statistics examples, using data in a misleading way is very easy. If you follow all the steps mentioned above, you should be able to make a clear analysis and correct use of data.

Misuse of Statistics - A Summary

To the question "can statistics be manipulated?", we can address 8 methods often used - on purpose or not - that skew the analysis and the results. Here are common types of misuse of statistics:

Faulty polling
Flawed correlations
Data fishing
Misleading data visualization
Purposeful and selective bias
Using percentage change in combination with a small sample size
Truncating an axis
Strategically picking the time period

Now that you know them, it will be easier to spot them and question all the stats that are given to you every day. Likewise, in order to ensure you keep a certain distance to the studies and surveys you read, remember the questions to ask yourself - who researched and why, who paid for it, and what was the sample.

Transparency and Data-Driven Business Solutions

While it is quite clear that statistical data has the potential to be misused, it can also ethically drive market value in the digital world. Big data has the ability to provide digital age businesses with a roadmap for efficiency and transparency, and eventually, profitability. Advanced technology solutions like online reporting software can enhance statistical data models, and provide digital age businesses with a step up on their competition.

Whether for market intelligence, customer experience, or business reporting, the future of data is now. Take care to apply data responsibly, ethically, and visually, and watch your transparent corporate identity grow. Revisit this insightful list of bad statistics examples from time to time to remind you of the importance of using data in a proper way!

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Bad Data Visualization: 5 Examples of Misleading Data

Professional looking at bad data visualizations on computer screens

28 Jan 2021

Data visualization , the process of creating visual representations of data, offers businesses various benefits. One of the most powerful is the ability to communicate with data to a wider audience both internally and externally. This, in turn, enables more stakeholders to make data-driven decisions .

In recent years, a proliferation of data visualization tools has made it easier than ever for professionals without a data background to create graphics and charts.

While this has primarily been a positive development, it’s likely given rise to one specific problem: poor or otherwise inaccurate data visualization. Just as well-crafted data visualizations benefit organizations that generate and use them, poorly crafted ones create several problems.

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Data Visualization Mistakes to Avoid

When generating data visualizations, it can be easy to make mistakes that lead to faulty interpretation, especially if you’re just starting out. Below are five common mistakes you should be aware of and some examples that illustrate them.

1. Using the Wrong Type of Chart or Graph

There are many types of charts or graphs you can leverage to represent data visually. This is largely beneficial because it allows you to include some variety in your data visualizations. It can, however, prove detrimental if you choose a graph that isn’t well suited to the insights you’re trying to illustrate.

Some graphs and charts work well for communicating specific types of information, but not others. Problems can arise when you try visualizing data using an unsuitable format.

The nature of your data usually dictates the format of your visualization. The most important characteristic is whether the data is qualitative (it describes or categorizes) or quantitative (meaning, it’s measurable). Qualitative data tends to be better suited to bar graphs and pie charts, while quantitative data is best represented in formats like charts and histograms.

2. Including Too Many Variables

The point of generating a data visualization is to tell a story. As such, it’s your job to include as much relevant information as possible—while excluding irrelevant or unnecessary details. Doing so ensures your audience pays attention to the most important data.

For this reason, in conceptualizing your data visualization, you should first seek to identify the necessary variables. The number of variables you select will then inform your visualization’s format. Ask yourself: Which format will help communicate the data in the clearest manner possible?

A pie chart that compares too many variables, for example, will likely make it difficult to see the differences between values. It might also distract the viewer from the point you’re trying to make.

3. Using Inconsistent Scales

If your chart or graph is meant to show the difference between data points, your scale must remain consistent. If your visualization’s scale is inconsistent, it can cause significant confusion for the viewer.

For example, if you generate a pictogram that uses images to represent a measure of data within a bar graph, the images should remain the same size from column to column.

chart on the left that demonstrates consistent scaling by using icons that are the same size versus chart on the right the shows inconsistent scaling by using icons that aren't the same size

4. Unclear Linear vs. Logarithmic Scaling

The easiest way to understand the difference between a linear scale and a logarithmic one is to look at the axes that each is built on. When a chart is built on a linear scale, the value between any two points along either axis is always equal and unchanging. When a chart is built on a logarithmic scale, the value between any two points along either axis changes according to a particular pattern.

While logarithmic scaling can be an effective means of communicating data, it must be clear that it’s being used in the graphic. When this is unclear, the viewer may, by default, assume they’re looking at a linear scale, which is more common. This can cause confusion and understate your data’s significance.

For example, the two graphics below communicate the same data. The primary difference is that the graphic on the left is built on a linear scale, while the one on the right is built on a logarithmic one.

This isn’t to say logarithmic scaling shouldn’t be used; simply that, when it’s used, it must be clearly stated and communicated to the viewer.

5. Poor Color Choices

Used carefully, color can make it easier for the viewer to understand the data you’re trying to communicate. When used incorrectly, however, it can cause significant confusion. It’s important to understand the story you’re hoping to tell with your data visualization and choose your colors wisely.

Some common issues that arise when incorporating color into your visualizations include:

Using too many colors, making it difficult for the reader to quickly understand what they’re looking at
Using familiar colors (for example, red and green) in surprising ways
Using colors with little contrast
Not accounting for viewers who may be colorblind

Consider a bar graph that’s meant to show changes in a technology’s adoption rate. Some of the bars indicate increases in adoption, while others indicate decreases. If you use red to represent increases and green to indicate decreases, it might confuse the viewer, who’s likely accustomed to red meaning negative and green meaning positive.

As another example, consider a US map chart that shows virus infection rates from state to state, with colors representing different concentrations of positive cases. Typically, map charts leverage different shades within the same color family. The lighter the shade, the fewer the cases in that state; the darker the shade, the more cases there are. If you go against this assumption and use a darker color to indicate fewer cases, it could confuse the viewer.

map chart showing virus infection rates in the United States; darker shades indicate more cases, while lighter shades indicate less

The Impact of Poor Data Visualization

While an inaccurate chart may seem like a small error in the grand scheme of your organization, it can have profound repercussions.

By their nature, inaccurate data visualizations lead your audience to have an inaccurate understanding of the data that’s presented in them. This misunderstanding can lead to faulty insights and poor business decisions—all under the guise that they’re backed by data.

Taken to the extreme, a chart or graph that’s improperly formatted could lead to legal or regulatory issues. For example, a misleading data visualization included in a financial report could cause investors to buy or sell shares of company stock.

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For these reasons, a firm understanding of data science is an essential skill for professionals. Knowing when data is accurate and complete, and being able to identify discrepancies between numbers and any visualizations created from them, is a must-have in today’s business environment. An online course centered around business analytics can be an effective way to build these skills .

Do you want to further your data literacy? Download our Beginner’s Guide to Data & Analytics to find out how you can leverage data for professional and organizational success.

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17 Key Business Plan Mistakes to Avoid in 2024
12. Inconsistent information and mistakes. This almost goes without saying, but make sure to proofread your plan before you send it out. Beyond ensuring that you use proper grammar and spelling, make sure that any numbers that you mention in your plan are the same ones that you have in your financial projections.
Common Mistakes to Avoid When Writing a Business Plan
Crafting a business plan is a delicate balancing act. It demands a deep understanding of your market, a clear value proposition, realistic financial projections, a competent team, and the flexibility to adapt to changing circumstances. All too frequently, an entrepreneur or business owner may lean on a business plan template or outsourced ...
11 Common Business Plan Mistakes to Avoid in 2024
Business plans can be different things: they are sometimes just sales documents to explain a new business. They can also be flexible Lean Plans, detailed action plans, financial plans, marketing plans, and even personnel plans. They can be used to start a business, or just run a business better. Develop the plan that best suits your business ...
7 Common Business Plan Mistakes
An outside observer will help point out where you need to explain things. An off-putting style. In a professional business plan, you want to show that you know your stuff. This means avoiding conversational, folksy or funny wording. Instead, you want to be authoritative and realistic to prove that you have a handle on your industry and are ...
The Most Common Business Plan Pitfalls and How to Avoid Them
Every company benefits from an updated business plan. While it seems necessary for start-ups, it applies to established firms, too. An efficiently written business plan keeps the whole business on track in the process of execution of the company's strategy and reaching its business goals. Business plan mistakes can result in anything ranging from small […]
8 Reasons Why Business Plans Fail and Hinder Growth
The top 8 reasons business plans fail. 1. Bad business ideas. Nobody likes to talk about it, but the main reason why business plans fail is bad ideas. Most ideas look great on paper—but all too often, companies realize they have invested in a bad idea once it is too late. To avoid this, smart businesses are using "user-driven development ...
Top 10 Business Plan Mistakes
Unfortunately, despite the fact that many of the underlying businesses are viable, the vast majority of plans are hardly worth the paper they're printed on. Most "bad" business plans share one or ...
10 Common Business Plan Mistakes and How to Avoid Them
Here are 10 of the most common business plan mistakes I have come across: 1. Boring Executive Summary. Investors, bankers, and other business plan readers usually start looking at the executive summary. It should highlight the most important points of the business plan in a pithy way. The business plan should provide a convincing story on how a ...
Developing A Business Plan? 11 Common Mistakes New ...
8. Analysis Paralysis. A common mistake I see is analysis paralysis. Although a business plan is important, doing is more important. Too many entrepreneurs get trapped in the preparation. Their ...
Mistakes to avoid when building your business plan
Entrepreneurs will typically need to make assumptions about three key areas when writing a business plan: Sales, variable costs and fixed costs. "In the simplest form, you're projecting what sales you'll need to cover fixed and variable costs," LaBossière says. "Entrepreneurs often fail to include detailed assumptions that are clearly broken down.
10 Common Business Plan Mistakes
Set yourself up for success by learning how to avoid these ten common business plan mistakes. 1. Unrealistic Financial Projections. Lenders and investors expect to see a realistic picture of where your business is now and where you hope it goes. One of the most common business plan mistakes is overestimating the value of your company.
Avoid these 5 common business plan mistakes
Too much information. 3. Not enough information about risks and competition. 4. Unclear or unfocused writing. 5. Formatting issues. You've worked hard to put together a business plan for your new venture. You've followed expert advice and included sections that address your business and industry, your strategy for reaching your goals, your ...
What is a Business Plan? Definition + Resources
A Harvard Business Review study found that the ideal time to write a business plan is between 6 and 12 months after deciding to start a business. But the reality can be more nuanced - it depends on the stage a business is in, or the type of business plan being written. Ideal times to write a business plan include: When you have an idea for a ...
What Is a Business Plan? Definition and Essentials Explained
It's the roadmap for your business. The outline of your goals, objectives, and the steps you'll take to get there. It describes the structure of your organization, how it operates, as well as the financial expectations and actual performance. A business plan can help you explore ideas, successfully start a business, manage operations, and ...
11 Important Business Plan Benefits & Purposes
Let's take a closer look at how each of the important business planning benefits can catapult your business forward: 1. Validate Your Business Idea. The process of writing your business plan will force you to ask the difficult questions about the major components of your business, including: External: industry, target market of prospective ...
7 Examples of Data Misuse and How to Prevent It
Don't fall for the cheap tactics of bad actors. Confirm URLs before submitting personal data, don't click links from email addresses you don't recognize, and use complex passwords. 3. Be selective. For organizations and individuals alike, putting your faith in the wrong partner can have disastrous results.
Misleading Statistics
Based on the misuse techniques we covered, it is safe to say that this sleight off-hand technique by Colgate is a clear example of misleading statistics in advertising, and would fall under faulty polling and outright bias. 5) Misleading statistics examples in the news . Misuse of statistics is present everywhere and news outlets are no exception.
What is Data Misuse and How to Prevent It
Data misuse is the use of information in ways it wasn't intended for. User agreements, corporate policies, data privacy laws, and industry regulations all set conditions for how data can be collected and used. Data misuse violates these requirements. Unlike data theft, data misuse doesn't necessarily happen as a result of a cyberattack or ...
Bad Data Visualization: 5 Examples of Misleading Data
Data visualization, the process of creating visual representations of data, offers businesses various benefits.One of the most powerful is the ability to communicate with data to a wider audience both internally and externally. This, in turn, enables more stakeholders to make data-driven decisions.. In recent years, a proliferation of data visualization tools has made it easier than ever for ...
22 Misuses of Statistics
A misuse of statistics is a pattern of unsound statistical analysis. These are variously related to data quality, statistical methods and interpretations. Statistics are occasionally misused to persuade, influence and sell. Misuse can also result from mistakes of analysis that result in poor decisions and failed strategies.
Business Code of Ethics (With Definition and Examples)
A business code of ethics is a set of rules that outline the ethical values a business implements in its policies and expects its staff to adhere to. The principles outline the mission and values of an organisation and can aid in guiding a business's decision-making and distinguishing right from wrong. In some industries, such as finance, law ...
4 Ways Statistics Can Be Misused
Many statistics, no matter how affecting, don't engage us closely with the issue at hand. That's why they're so easily misused or just plain made up. Here's our guide to using statistics more wisely, and the errors to avoid. 1. "He uses statistics as a drunken man uses a lamppost - for support, not illumination.".