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“ENTREPRENEURSHIP & BUSINESS PLANNING”

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  1. © G. Guerra “I2C” “ENTREPRENEURSHIP & BUSINESS PLANNING” Introduction to Business Assessment and Planning -Cl1,l2- Gianni Guerra Incubatore I3P Politecnico di Torino, Tel. 011-5647255; 3487900554 gianni.guerra@polito.it

  2. Business Plan Developing Outline (Developing=Writing) • Whatis it, what does it do ? • Why is necessary (who benefit)? • Whohas to developed it ? • Whenit has to be developed ? • Whereithas to be developed ? • How (content and style) ? (R. Kipling “six honest servants”)

  3. Business Plan What is a Business Plan? IT ISA WRITTEN DOCUMENT WITH CONFIDENTIAL AND PROPRIETARY INFORMATIONS WHICH MAP OUTBEFOREHAND A COMPANYBASIC ELEMENTS FROMBUSINESS IDEA TOOPERATIONAL AND ORGATIONAL STRUCTURE OF THEACTIVITY TOECONOMIC/FINANCIAL OUTCOMES OVER A SPECIFICPERIOD OF TIME

  4. Test business assumptions Assure operational coordination Communicate corporate strategy Set management objectives To communicate with board of directors, advisors, consultants Recruit & motivate employees Secure financing What does it do? (what the use of it, why write it) • Identify weaknesses in a plan that requires further research and analysis…find out where your plan is weak

  5. “3 WHY?’” of a Business Plan I. TO ENABLE THE ENTREPRENEUR TO TAKE THE RISKS RELATED TO CARRYING OUT A BUSINESS IDEA During the plan development, the entrepreneur is compelled to deeply examine every specific issue of the future company: it is probable that doing so, he will discover planty of bad elements and that he try to fix them. If some problems cannot be solved or reveal relevant implications, the fact that have been discovered allow comunque the entrepreneur to adopt the relevant initiatives (comprise not to go on) before take financial engagements.

  6. “3 WHY?’” of a Business Plan II. TO CONVINCE OTHER PEOPLE EXTERNAL TO THE COMPANY TO TAKE PART IN THE RISK INVOLVED IN THE THE IDEA (BP AS A MEAN OF INVESTMENT EVALUATION) • Lifestyle companies • High growth companies

  7. “3 WHY?’” of a Business Plan III. TO PROVIDE THE ENTREPRENEUR WITH A GUIDING TOOL FOR THE UNDERTAKED MANAGEMENT PATH (BP AS A “MANAGEMENT TOOL”) MISSION VISION VALUES PLANS AIMS/PURPOSES/ STRAT. OBJECTIVES PRESENT POSITION (GOALS) (what else: nothing than to react) TIME

  8. “BUSINESS PLAN” NECESSARY BUT NON ENOUGH 1° Consideration: THE WORLD BEST BUSINESS PLAN WILL NEVER BE ABLE TO TURN A FLAWNED IDEA IN A SUCCESS COMPANY 2° Consideration: A GOOD BUSINESS PLAN DOESN’T MEAN THE SUCCESS FORMULA BUT CAN BE DETERMINANT IN REDUCING THE FAILURE PROBABILITIES Idea Plan Execution Results

  9. Who has to prepared it ? THE ENTREPRENEUR HIMSELF It can be helpful, in the process of preparing it, to have professional input and evaluations from accountants, consultants, lawyers... Pg.4 O’Donnell

  10. Entrepreneurs are most often doers rather than proposal writers. They would rather be on the battelfield -the cutting edge of business- than behind the lines planning their assault. In addition, many entrepreneurs have difficulty articulating the business concepts that have often become second nature to them. Whatever difficulty the preparation of a business plan may present, a plan is an absolute necessity for any business.

  11. CONTINOUS IMPROVEMENT GOALS/OBJ. REDEFINITION GOALS/ OBJECTIVES CONTROLS& RECOVERY A. PLANS EXECUTION When? PLANNING is the complete and continous process directed to improve business operations in the light of existing oportunities

  12. When ? PLANNING NEEDS TO BE DYNAMIC (all the more reason for management control) Rule n° 1: do it in a WORD PROCESSORand using SPREADSHEETS.

  13. Where ? Planning a new business involve much of the work “on the field”, to speak with potential customers, to gather informations on competitors, to gather the most of possible data related to investment and expenses that have to be supported. The “writing work” means the least part of this activity and mainly deal with the figure translation of gathered informations and the project economic/financial assessment.

  14. All organizations needplans Who need/benefit? • High/low/no-tech ventures • Profit/non profit organization • Start up • Expansion programs • …….

  15. Is an art, not a science Every plan is unique There is no “ideal” standard format It is a practiced skill, it can be learned There are some “best practices” “Developing” is different than “writing” It is a never ending process Everyone is an expert; has an opinion How? (content and style)

  16. General guidelines • Lenght 20/30 pages +annexes • Period covered: 3/5 years • Data no more old than 3/5 years (theren’t a “perfect” lenght. test: it can and will be easely read in a session? )

  17. Business Plan Reference Content PURPOSE EXECUTIVE SUMMARY (Synthesis) 1-VENTURE DESCRIPTION 10-ECONOMIC AND FINANCIAL PLAN 2- ENTREPRENEURIAL/ MANAGERIAL TEAM 9-IMPLEMENTATION PLAN 3-MARKET ANALYSIS 8-RISK/VULNERABILITY MASTERING PLAN 4-INDUSTRY ANALYSIS 7-THE ORGANIZATIONAL/ LEGAL PLAN 5-MARKETING STRATEGY 6-OPERATION PLAN (VALUE CHAIN) 5-PRODUCTS PLAN

  18. PURPOSE EX. SUMMARY VENTURE DESCRIPTION ECONOMIC AND FINANCIAL PLAN ENTREPRENEURIAL/ MAN. TEAM PURPOSE INDUSTRY ANALYSYS IMPLETATION PLAN MARKET ANALYSYS SUSTAINABLE ADVANTAGE MARKETING STRATEGY ORGANIZATIONAL PLAN VALUE CHAIN (COMPANY STRUCTURE) • Nothing irritates more than a Business Plan from what it isn’t clearly understandable what is the proposal made to the receiver of it. • Therefore it is advisable to avoid gereric positions and to highlight it’s own proposal in a direct way. • WHAT IT IS OFFERED • WHAT IS REQUESTED Potential purposes: - Definition of Business objectives and Strategies to achieve them. - Management control guideline definition - Baseline definition for agreement with potential partners - Loans/risk capital investments request/proposal support - Business plans competitions

  19. PURPOSE EX. SUMMARY VENTURE DESCRIPTION ECONOMIC AND FINANCIAL PLAN ENTREPRENEURIAL/ MAN. TEAM Executive Summary INDUSTRY ANALYSYS IMPLETATION PLAN MARKET ANALYSYS SUSTAINABLE ADVANTAGE MARKETING STRATEGY ORGANIZATIONAL PLAN VALUE CHAIN (COMPANY STRUCTURE) IT CHARACTERIZES AND HIGHLIGHTS IN A CONCISE AND CONCRETE WAY THE BUSINESS PLAN ESSENCE. Indeed it is a syntetic version of the whole business plan not a simple foreword not an introduction!!!

  20. PURPOSE EX. SUMMARY VENTURE DESCRIPTION Executive Summary ECONOMIC AND FINANCIAL PLAN ENTREPRENEURIAL/ MAN. TEAM INDUSTRY ANALYSYS IMPLETATION PLAN MARKET ANALYSYS SUSTAINABLE ADVANTAGE MARKETING STRATEGY ORGANIZATIONAL PLAN VALUE CHAIN (COMPANY STRUCTURE) It must allow the readers to gather a first general idea of the paper : after the reading, the potential interested persons must have in mind a sufficient precise picture of what it will be presented in more details in the plan. • Fast proposal understanding, • Attention attraction capability, • Immediate interest stiring up capability

  21. Always gets read first It’s the “acid test” of your writing skills Often sent to investors by itself If it doesn’t create enough reader interest, the full plan is never read 2 to 3 pages maximum If can’t arouse interest in 2-3 pgs, how can you market & sell your product? Most VC won’t open attachements PURPOSE EX. SUMMARY Executive Summary VENTURE DESCRIPTION ECONOMIC AND FINANCIAL PLAN ENTREPRENEURIAL/ MAN. TEAM INDUSTRY ANALYSYS IMPLETATION PLAN MARKET ANALYSYS SUSTAINABLE ADVANTAGE MARKETING STRATEGY ORGANIZATIONAL PLAN VALUE CHAIN (COMPANY STRUCTURE) • Garage Technology Ventures (www.garage.com) uses a one page summary approach. • Tech Coast Angels (www.techcoastangels.org) uses a one page format (Bob Foster UCLA/ASM)

  22. PURPOSE EX. SUMMARY VENTURE DESCRIPTION Executive Summary ECONOMIC AND FINANCIAL PLAN ENTREPRENEURIAL/ MAN. TEAM INDUSTRY ANALYSYS IMPLETATION PLAN MARKET ANALYSYS SUSTAINABLE ADVANTAGE MARKETING STRATEGY ORGANIZATIONAL PLAN VALUE CHAIN (COMPANY STRUCTURE) • Although it come before, executive summary should be prepared after having completed the preparation of BP other parts. (indeed, only after having meditate and defined the whole document we are in a position to make an effective and concise syntesis) • Otherwise it could be a reiterative process: -You first write a “best effort” version -Then you’ll update it as you more fully develop other parts of the plan - Final version will look very different

  23. Also known as “Company/Venture Introduction” Second most important part of the plan Amplifies and expands on what’s in the Executive Summary, but not as detailed as rest of the plan 1-3 pages These few pages together must present an exciting, compelling investment opportunity PURPOSE EX. SUMMARY VENTURE DESCRIPTION 1-Venture/Company Description ECONOMIC AND FINANCIAL PLAN ENTREPRENEURIAL/ MAN. TEAM INDUSTRY ANALYSYS IMPLETATION PLAN MARKET ANALYSYS SUSTAINABLE ADVANTAGE MARKETING STRATEGY ORGANIZATIONAL PLAN VALUE CHAIN (COMPANY STRUCTURE) • Condense several pages of each plan section (marketing, operations, financials, etc.) into a single paragraph or two (Bob Foster UCLA/ASM)

  24. PURPOSE EX. SUMMARY VENTURE DESCRIPTION 1-The Value Proposition ECONOMIC AND FINANCIAL PLAN ENTREPRENEURIAL TEAM INDUSTRY ANALYSYS IMPLETATION PLAN MARKET ANALYSYS SUSTAINABLE ADVANTAGE MARKETING STRATEGY ORGANIZATIONAL PLAN VALUE CHAIN (COMPANY STRUCTURE) Most business plans are focused on the entrepreneur, their idea, and why the idea is wonderful. They are me-focused or my-idea-focused rather than customer focused. People do matter -true- but investors don’t really care very much about you and your idea, at least not at the beginning. What investors care about is solving significant customers problems or needs that offer significant profit and growth potential. Technology Product Market Needs (pains/wants) Benefits Problems Value Proposition Focus here

  25. PURPOSE EX. SUMMARY VENTURE DESCRIPTION 2-Entrepreneurial Managerial Team E.M. TEAM ECONOMIC AND FINANCIAL PLAN INDUSTRY ANALYSYS IMPLETATION PLAN MARKET ANALYSYS SUSTAINABLE ADVANTAGE MARKETING STRATEGY ORGANIZATIONAL PLAN VALUE CHAIN (COMPANY STRUCTURE) Shown that you (team) can deliver results. Many investors pay more attentions to people than in ideas/plan • Mission, aspirations, propensity for risk • Ability to execute on CSFs TEAM DOMAIN • Connectedness • up, down, across value chain

  26. PURPOSE EX. SUMMARY VENTURE DESCRIPTION 3/4-MARKET&INDUSTRY ANALYSIS E.M. TEAM ECONOMIC AND FINANCIAL PLAN MARKET A. IMPLETATION PLAN INDUSTRY A. SUSTAINABLE ADVANTAGE ORGANIZATIONAL PLAN MARKETING STRATEGY VALUE CHAIN (COMPANY STRUCTURE) • A MARKET consists of a group of current and/or potential customers having the willingness and ability to buy products –goods or services- to satisfy a particular class of wants or needs. Thus, markets consist of buyers -people or organizations and their needs- not products • An INDUSTRY consist of sellers –typically organizations- that offer product or classes of products that are similar and close substitutes for one another.

  27. PURPOSE TECHNOLOGIES/ FUNCTIONALITIES BUSINESS (SBU) PRODUCTS CUSTOMERS BENEFITS MARKETS Value Proposition PAINS/ NEEDS/ WANTS PROBLEMS EX. SUMMARY VENTURE DESCRIPTION THE STRATEGIC BUSINESS UNIT E.M. TEAM ECONOMIC AND FINANCIAL PLAN MARKET A. IMPLETATION PLAN INDUSTRY A. SUSTAINABLE ADVANTAGE ORGANIZATIONAL PLAN MARKETING STRATEGY VALUE CHAIN (COMPANY STRUCTURE)

  28. PURPOSE EX. SUMMARY VENTURE DESCRIPTION 5-MARKETING STRATEGY ECONOMIC AND FINANCIAL PLAN E.M. TEAM INDUSTRY ANALYSYS IMPLETATION PLAN MARKET ANALYSYS SUSTAINABLE ADVANTAGE ORGANIZATIONAL PLAN MARKETING STRATEGY VALUE CHAIN (COMPANY STRUCTURE) - I - MARKET - II - COMPETITION - III - MARKET OBJECTIVES AND STRATEGY PRODUCT PRICING PROMOTION PLACING - IV - MARKETING MIX

  29. Clear description of the product What it does and how it’s made Is it patented or patent pending? Licensed? What stage of development? Alpha? Beta? Why will customers buy your product as opposed to others? Future product plans? When PURPOSE EX. SUMMARY VENTURE DESCRIPTION Product section of plan must include: ECONOMIC AND FINANCIAL PLAN E.M. TEAM INDUSTRY ANALYSYS IMPLETATION PLAN MARKET ANALYSYS SUSTAINABLE ADVANTAGE ORGANIZATIONAL PLAN MARKETING STRATEGY VALUE CHAIN (COMPANY STRUCTURE)

  30. Describe what you’re selling If it’s new, have to give it a frame of reference….”name it and frame it” Saleslogix example Present advantages over current products Explain why customers will buy it; what’s the value to them? PURPOSE EX. SUMMARY VENTURE DESCRIPTION ECONOMIC AND FINANCIAL PLAN E.M. TEAM INDUSTRY ANALYSYS IMPLETATION PLAN MARKET ANALYSYS SUSTAINABLE ADVANTAGE ORGANIZATIONAL PLAN MARKETING STRATEGY VALUE CHAIN (COMPANY STRUCTURE)

  31. INFRASTRUCTURAL ACTIVITIES HUMAN RESOURCES MANAGEMENT EC. MARGIN INDIRECT ACTIVITIES TECHNOLOGY DEVELOPMENT PROCUREMENT EC. MARGIN INCOMING LOGISTICS MARKETING & SELING SERVICES OUTGOING LOGISTICS PRODUCTION DIRECT ACTIVITIES PURPOSE EX. SUMMARY VENTURE DESCRIPTION ECONOMIC AND FINANCIAL PLAN E.M. TEAM 6- Operation Plan (Value Chain) INDUSTRY ANALYSYS IMPLETATION PLAN MARKET ANALYSYS SUSTAINABLE ADVANTAGE ORGANIZATIONAL PLAN MARKETING STRATEGY VALUE CHAIN - M. Porter Model -

  32. PURPOSE EX. SUMMARY VENTURE DESCRIPTION ECONOMIC AND FINANCIAL PLAN E.M. TEAM 7- ORGANIZATION/LEGAL PLAN INDUSTRY ANALYSYS IMPLETATION PLAN MARKET ANALYSYS SUSTAINABLE ADVANTAGE ORGANIZATION PLAN MARKETING STRATEGY VALUE PLAN • orizontal: activities/processes • vertical: organizational structure

  33. PURPOSE EX. SUMMARY VENTURE DESCRIPTION ECONOMIC AND FINANCIAL PLAN E.M. TEAM 8-RISK/VULNERAB. MASTERING PLAN INDUSTRY ANALYSYS IMPLETATION PLAN RISKS PLAN MARKET ANALYSYS MARKETING STRATEGY ORGANIZATION PLAN VALUE PLAN IMPACT low high high RFG RFC PROBABILITY RFB RFH RFD RFA RFE low RFF (risk matrix)

  34. PURPOSE EX. SUMMARY VENTURE DESCRIPTION 6 BASIC METHODS FOR RISK CONTROLLING AND REDUCING ECONOMIC AND FINANCIAL PLAN E.M. TEAM INDUSTRY ANALYSYS IMPLETATION PLAN RISKS PLAN MARKET ANALYSYS MARKETING STRATEGY ORGANIZATION PLAN VALUE PLAN FINANCIAL CONSEQUEN. DAMAGE EVENT 1 Elusion 2 Prevenction 4 Assurance 5 Transfer 6 Retention 3 Protection

  35. PURPOSE EX. SUMMARY VENTURE DESCRIPTION ECONOMIC AND FINANCIAL PLAN E.M. TEAM 9-IMPLEMENTATION PLAN IMPLEMENTATION PLAN INDUSTRY ANALYSYS MARKET ANALYSYS RISKS PLAN MARKETING STRATEGY ORGANIZATION PLAN VALUE PLAN Milestones - Funding agreements - Prototype development - First market test - Production&selling start up - Activity enlargement - …………………..

  36. PURPOSE EX. SUMMARY VENTURE DESCRIPTION ECONOMIC AND FINANCIAL PLAN E.M. TEAM 9-IMPLEMENTATION PLAN IMPLEMENTATION PLAN INDUSTRY ANALYSYS MARKET ANALYSYS RISKS PLAN MARKETING STRATEGY ORGANIZATION PLAN VALUE PLAN

  37. PURPOSE EX. SUMMARY ECO.FIN PLAN VENTURE DESCRIPTION E.M. TEAM 10-FINANCIAL PLAN IMPLEMENTATION PLAN INDUSTRY ANALYSYS MARKET ANALYSYS RISKS PLAN MARKETING STRATEGY ORGANIZATION PLAN VALUE PLAN WHILE THE OTHER SECTIONS OF BUSINESS PLAN GIVE THE VENTURE GLOBAL PICTURE, THE ECONOMIC/FINANCIAL SECTION ENABLE: • THE RISK CAPITAL INVESTOR TO UNDERSTAND • THE RETURN HE CAN OBTAIN. • THE DEBT INVESTOR TO EVALUATE THE COMPANY ABILITY TO PAY BACK THE LOANS. In several ways the economic/financial section of the Business Plan is the least flexible. Even if the figures are different, the schemes or templates put in the plan are always the same and are given in a way that is to a great extent a standard.

  38. 10 Cash flow Risk&Rewards Probability inflow Time Profitability outflow

  39. Business opportunity assessment MARKET DOMAIN INDUSTRY DOMAIN Market attractiveness Industry attractiveness MACRO LEVEL Ability to execute on CSFs Mission, aspirations, propensity for risk Business Plan TEAM DOMAIN Target segment benefits and attractiveness Sustainable advantage Connectedness up, down, across value chain MICRO LEVEL THE BUSINESS OPPORTUNITY ASSESSMENT (what to do before you write a Business Plan) John W. Mullins, “The New Business Road Test”, FT Prentice Hall

  40. Quickly and effectively communicate your vision for a new venture Excite and motivate people to action Be selected & read first...before other plans that are poorly written Increase your chances of funding Not overcome a “non viable” business venture with a losing business model STYLE A well written plan:

  41. Won’t get read…..period Can ruin an otherwise good, solid business concept Normally results in venture not being funded Reflects negatively on: the entrepreneurs their advisors, directors those who recommend the venture STYLE A poorly written plan :

  42. Pyramid concept of Business Plan Main text Business plan document Appendixes Business plans Have 3 sections 3 ring binder • Details plan for: • Market analysis • Sales plans • Financials • Mfg plans • Facilities plans

  43. The business plan document • Typically called the “Business Plan” • Summary of the “Total Business Plan” • Apendix for the important backup detail -financial spreadsheet -management resumes • Don’t bore the reader with every details of all your research results and analysis - no amortization schedules, please

  44. Detail plans (“The 3 ring notebook”) • Where you put the research results • Binder with sections for: - markrt, markrt strategies, sales plan - manufacturing, facilities • Examples sales plan: - sales rep job description - sales rep compensation plan - lead generation plan - sales cycle assumptions - sales rep headcount plan

  45. (3/10) STYLE (pyramid concept of Business Plan) Company Name One sentence Description Elevator Statement Executive Summary Marketing &Sales Financials Rest of Business Plan document Appendices

  46. One sentence description: “Thomas Bros. Maps produces high quality street maps for metropolitan areas of the western U.S.” Elevator statement: “TBM produces high quality street maps for metropolitan areas of the western U.S. Unlike Rand McNally and other similar competitors, TBM’s maps are completely updated every year and have the highest positional map accuracy of +/- 10 feet.” AKA business or positioning statement STYLE

  47. Detailed analysis & worksheets Backup data to support plan sections Example: Sales Section Job description of sales Sales rep compensation plan Sales cycle assumptions Sales rep headcount plan APPENDIX

  48. APPENDIX • The appendices may be bound as a separate volume. • They will include the following: • marketing support and collateral • CVs of key staff • IPR, patents, etc. • letters of support or contract intent • plans in full • financial projections

  49. XXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXX ………………... TEXT SPREADSHEETS/ TEMPLATES DIAGRAMS STYLE FLOW-DIAGRAMS

  50. Date plans and Executive Summaries Present on front page: Name of Company and contact name Address, telephone numbers email and web site addresses Label each page as “confidential information” Always: STYLE