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Writing a Successful Business Plan. Professor John Newman Babson College. What Is a Business Plan?. IDENTIFICATION AND ARTICULATION OF: Opportunity, Market, Customers Management Capable of Seizing It Minimal Required Resources Entry Strategy & Tangible Vision for Growth

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Writing a successful business plan l.jpg

Writing a Successful Business Plan

Professor John Newman

Babson College


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What Is a Business Plan?

  • IDENTIFICATION AND ARTICULATION OF:

  • Opportunity, Market, Customers

  • Management Capable of Seizing It

  • Minimal Required Resources

  • Entry Strategy & Tangible Vision for Growth

  • Financial Requirements, Cash Flow & Deal

  • Critical Risks & Assumptions

  • Harvest Options

Source: Ed Marram, Babson College


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Goals of a Business Plan

  • Evaluate feasibility of the idea

  • Development of strategy

    • Entry, early growth, acquisition, LBO, harvest, etc.

  • Assist in obtaining resources/approval

  • Establish credibility


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Table of Contents

Executive Summary

Industry, Products or Services

Market Research

Marketing Plan

Management Team

Development Plan

Operations Plan

Schedule

Critical Risks

Financial Plan

Proposed Offer

Appendices

Financial Projections

Start-up Costs

Breakeven Chart

Sample Business Plan Outline


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Elements of a Successful Plan

  • Clear description of the idea

  • Overview of industry to suggest need/opportunity

  • Evidence that demand exists (or can be created or stolen)

  • Clear description of resource requirements:

    • marketing, operations, financing

  • Background of management team

  • Schedule

  • Discussion of risks, rewards, and offer


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Sample Business Plan Outline

  • Table of Contents

  • Executive Summary

  • Industry, Products or Services

  • Market Research

  • Marketing Plan

  • Management Team

  • Development Plan

  • Operations Plan

  • Schedule

  • Critical Risks

  • Financial Plan

  • Proposed Offer

  • Appendices

    • Financial Projections

    • Start-up Costs

    • Breakeven Chart


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Business Plans: Investor Decision Process

  • Market Attractiveness

    • Market Need

    • Size of Market

    • Market Growth

    • Access to Market

Expected Return

  • Product Differentiation

    • Uniqueness

    • Product Life

    • Profit Margin

    • Value Added

+

Decision to Invest

  • Managerial Capabilities

    • Management Skills

    • Marketing Skills

    • Financial Skills

    • References

--

Perceived Risk

  • Resistance to Threats

    • Barriers to Entry

    • Obsolescence Risk

    • Downside Risk

    • Economic Cycle Risk

Entrepreneurship: Strategies and Resources


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Key Points to Remember

  • General Guidelines

    • Clear, concise, professional style

    • Well-researched and documented

    • Consistent and cohesive

  • Business plans are:

    • Very specific

    • Not promotional tools, selling is subtle


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Industry Section

  • Industry Overview

    • Size, growth rate, segmentation, trends, regulatory environment

    • Opportunity

  • Product Overview

  • Competitive Advantage

  • Fit with Corporate Objectives

  • Entry and Exit Strategies


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Market Research

  • Identify Market Area and Size

  • Description of Primary Customers

    • Who, how many, what they want, what they do

  • Research and Support for Demand

  • Competitor Analysis

    • Positioning map, strengths, weaknesses, likely competitive response


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Marketing Plan

  • Mission Statement

  • Product Characteristics

    • Features

    • Pricing

  • Sales/Channel Strategies

  • Promotional Strategy

  • Support Policies

  • Sales Projections

  • On-going Evaluation

The key is to build on your market research ...


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Management Team

  • Managerial Positions Required

    • Responsibilities

    • Biography

  • Ownership Structure

  • Key Advisors

  • Professional Support


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Design and Development Plans

  • Development Status and Tasks

  • Costs

  • Difficulties and Risks

  • Proprietary Issues (partial, not complete)

  • Product Improvement and New Products


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Operations Plan

  • Facility and Location Requirements

  • Equipment Requirements

  • Non-managerial staffing

  • Sources of Supply

  • Production Process and Controls

  • Distribution logistics

  • Regulatory and other compliance issues


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Schedule

  • Gantt Chart showing:

    • Tasks

    • Time frame

    • Cost

    • Person responsible


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Critical Risks:Identification, Evaluation, Mitigation

  • Identify major risks (7-10 is typical)

    • Look beyond the simplistic (sales fall short)

  • Evaluate impact should risk occur

  • Describe how the risk will be mitigated and how you will respond should it happen

Ask others what holes they see in your plan. What can go wrong ? Entrepreneurs frequently get too close to their ideas.

You need unbiased views here ...


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Critical Risks: An Example

Key Member of the Management Team is Injured

Evaluation: Management is in excellent health and will refrain from dangerous activities. Thus, it is considered unlikely that a member of the management team will be incapacitated.

Contingency: The company will ensure that key members of the management team undergo physical examinations annually.

In addition, the company will provide key-man life insurance sufficient to protect outside investors’ capital in the event of an emergency.


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Financial Plan

  • Start-up Requirements (Investment required)

  • Review of Financial Characteristics

    • Sales, margins, profits

  • Return Measures (IRR, ROI, EVA)

    • Be careful not to promise

  • Breakeven Concerns

    • Sales level, time to cash stability

  • Extraordinary financial events

Avoid describing your assumptions. The goal here

is to convey the characteristics of your business briefly.


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Executive Summary

  • Clear description of idea

  • Arguments for success

    • Overview of Industry, Market, Need, Demand

    • Benefits to Customer / Company

    • Fit with Company Objectives

  • Team

  • Financial Characteristics

    • Sales, profits, investment, risk and returns


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Appendices:(Could Include Such Items As)

  • Lists, specs, pictures of products, systems, software

  • List of customers, suppliers, references

  • Appropriate location factors, facilities or technical analysis

  • Independent reports by technical expert, consultants

  • Detailed resumes of founders, key managers

  • Any critical regulatory, environmental or other compliance, licenses or approvals

  • Sales or other financials assumptions (in brief)

Source: Ed Marram, Babson College


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Key Considerations

  • Have a “story to tell”

  • Be confident but objective and dispassionate

  • Understand the financial characteristics of your business

  • Avoid promises and self-aggrandizement

  • Tease to stimulate interest, never bore


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Miscellaneous Concerns

  • Length is typically 20-40 pages, excl. exhibits

  • Required appendices

    • Financial statements (3-5 years)

    • Statement of Start-up Costs

    • Breakeven Chart

    • Resumes

  • Use bullet points, tables, and small charts

  • Don’t use first person (“I”, “We”, “Our”)

  • Format and Spelling Count (a lot)


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Remember:

A business plan is a specific plan to open a new business or to expand an existing one, not the writer’s wishes and dreams !


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Pitfalls and Omissions:Venus Fly Traps for Entrepreneurs

  • Seeking premature approval

  • Believing Plan is more important than Orders

  • Develop Complete Business Plan First v. Floating Trial Balloons

  • Selling the plan to the wrong audience

  • Selling the plan to the right audience poorly

Source: Stephen Spinelli, Babson College


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Pitfalls and Omissions:Venus Fly Traps for Entrepreneurs

  • Phantom or Gingerbread Advisors

  • Spreadsheet Diarrhea (Financials = Business)

  • Poor understanding of product acceptance

  • Under-estimation of competitive reaction

  • Pricing strategy too low

  • Capital requirements too low or undefined

Source: Stephen Spinelli, Babson College


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Business Plans:What Investors Look For

  • Evidence of Customer Acceptance: Orders

  • Evidence of Focus / Niche

  • Appreciation of Financial Goals

  • Proprietary Position, Exclusivity

  • Team with experience, commitment, and integrity

Source: Stephen Spinelli, Babson College


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Business Plans:What Turns Investors Off

  • Great Mousetrap Fallacy

  • Projects which deviate excessively from industry norms

  • Unrealistic growth projections

  • Inadequate management experience / depth

Source: Stephen Spinelli, Babson College


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