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9. PROOF OF CONCEPT: A NEW APPROACH TO BUSINESS PLANS. Learning Objectives. Describe how to move from a feasible concept to a proof of concept. Identify stakeholder interests. Explain the components of a compelling executive summary. Discuss how to organize a business plan effectively.

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Presentation Transcript
learning objectives
Learning Objectives
  • Describe how to move from a feasible concept to a proof of concept.
  • Identify stakeholder interests.
  • Explain the components of a compelling executive summary.
  • Discuss how to organize a business plan effectively.
  • Describe how to successfully pitch a new business.
from feasibility to proof of concept
From Feasibility to Proof of Concept
  • Proof of concept (POC):
    • Evidence that a technology, product, business model or idea is feasible
    • Two types of POC:
      • Technology or product POC
      • Business model POC
the micro strategy approach to proof of concept
The Micro Strategy Approach to Proof of Concept
  • Entrepreneur’s Micro Strategy for Proof of Concept consists of three primary elements:
    • Outcomes: near-term goals the entrepreneur is attempting to achieve
    • Assets: human, social, physical, and financial needed to achieve the desired outcomes
    • Actions: tasks entrepreneur must undertake to achieve the necessary outcomes
micro strategy decision making
Micro Strategy Decision Making
  • Today’s environment necessitates a greater use of intuitive decision making.
  • Avoid potential failure points by conducting a premortem.
  • Common failure points:
    • Pattern recognition bias (“We always do it that way”)
    • Overly optimistic forecast of markets
proof of concept
Proof of Concept
  • Proof of concept with a prototype
    • Entrepreneur develops clear understanding of customer needs.
    • Changes can be made early in the process when they are less costly.
    • The prototype reduces the risk of failure.
  • Proof of concept with a website
    • Avoid the single page marked “under construction.”
    • Avoid posting proprietary information that is not patented or trademarked.
proof of concept cont d
Proof of Concept (cont’d)
  • Proof of concept with purchase orders and customer sales
    • Customers that pay up front save company on inventory costs and fund manufacturing costs.
investors interests
Investors Interests
  • Rate of growth
  • Return on investment
  • Degree of risk
  • Degree of protection
bankers lenders interests
Bankers’ & Lenders’ Interests
  • Company margins and cash flow projections
  • The amount of money needed
  • The kind of positive impact the loan will have on the business
  • The kinds of assets the business has for collateral
  • How the business will repay the loan
  • How the bank will be protected if the business does not meet its projections
  • The entrepreneur’s stake in the business
strategic partners interests
Strategic Partners’ Interests
  • Licenses for manufacturing and assembly
  • Supply of raw materials in exchange for equity interest
  • Formal or informal partnership agreements
creating a compelling story
Creating a Compelling Story
  • In an executive summary:
    • Convey the compelling story quickly and memorably.
    • Highlight the critical elements of the business that provide a competitive advantage.
    • Present a coherent path to profitability and success that make sense.
    • Demonstrate that the team can successfully execute the plan.
creating a compelling story cont d
Creating a Compelling Story (cont’d)
  • Should answer these questions:
    • What is the compelling story?
    • What pain is being addressed?
    • How is the venture solving the problem?
    • What is this venture’s competitive advantage?
    • Can this venture make money?
    • Can the founding team serve that need?
    • Why is now the right time to launch this venture?
    • What is the team seeking from investors?
the full business plan strategy and structure
The Full Business Plan: Strategy and Structure
  • Tasks to guide the preparation of the plan:
    • Identify who is responsible for what.
    • Develop a timeline based on tasks identified.
    • Hold the team to the timeline and work diligently to get the plan done.
components of business plan
Components of Business Plan
  • Executive Summary
  • The Business
  • Founding/Management team
  • Industry/market analysis
  • Product/service development
  • Operations plan
  • Organization plan
  • Marketing plan
  • Financial plan
  • Growth plan
  • Contingency plan & harvest strategy
  • Timeline to launch
  • Appendices
  • Endnotes
financial plan
Financial Plan
  • Complete set of financial statements:
    • Statement of cash flows
    • Income statement
    • Balance sheet
  • Key ratios to gauge progress
    • Current ratio
    • Profit margin
    • Return on Investment (ROI)
    • Inventory turnover
mistakes in developing the business plan
Mistakes in Developing the Business Plan
  • Projected rapid growth that requires capabilities beyond those of the founding team
  • Envisioning a three-ring circus with only one ringleader
  • Reporting performance that exceeds industry averages
  • Using price as a market strategy for a product/service
  • Not investing capital in their own businesses
successfully pitching the business
Successfully Pitching the Business
  • Keep the presentation to less than 30 minutes
  • Tell a compelling story first
  • Do not use a podium to speak
  • Move about without distracting the audience
  • Maintain eye contact with everyone
  • Make the visual aids simple
  • Use live demonstrations
  • CEO should do the presentation
  • Practice in advance
answering questions
Answering Questions
  • Investors like to ask what they already know the answer to.
  • Trick questions are likely.
  • Don’t be afraid to not know the answer.
  • Founding team can join the CEO for questions.
new venture action plan
New Venture Action Plan
  • Develop a micro strategy approach to achieving proof of concept.
  • Identify the stakeholders in the business and their interests.
  • Create a compelling executive summary and pitch.
  • Plan the development of a full business plan.