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Business Plan to Launch How Strategically Planning your Business is good preparation for the Business Plan Competition Karen Thornton Director, Hillman Entrepreneurs Associate Director, MTECH Ventures. Balance is Important Remember your Audience. Technical Market Business. Technical.

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slide1

Business Plan to Launch

How Strategically Planning your Business is good preparation for the Business Plan Competition

Karen Thornton

Director, Hillman Entrepreneurs

Associate Director, MTECH Ventures

technical
Technical
  • technical concept analysis ---
    • Define the concept fully
    • Demonstrate that performance assumptions are viable
    • Assess critical barriers to production
    • Survey the state-of-the-art of the technology
    • Estimate the costs. From the one-time R&D to the recurring production costs- and everything in between for the stages of prototyping
market
Market
  • Demonstrate the product’s uniqueness and sustainable in a competitive marketplace.
    • Identify three unique features or benefits of the product
    • Identify the competition
    • Establish customer requirements for the product
    • Identify potential market barriers
    • Identify market distribution channels
    • Identify product pricing criteria
market research
Market Research
  • Demonstrate that there is market justification for the product.
    • Describe the market environment
    • Identify economic and industry trends
    • Quantify the size of the market
    • Identify the market segments
    • Analyze market segment size, growth rate, competitive environment
    • Analyze business capabilities for market share, competitive position, product capabilities, resource capabilities
market strategy
Market Strategy
  • What the market approach will be
    • Define competitive advantage of the enterprise and the product
    • Define marketing objectives (product, markets, image, service levels, business results, market share and sales levels)
    • Select target markets
    • Identify target market niche
    • Select product features
    • Select price
market sales approach
Market Sales Approach
  • Obtain a quantitative and qualitative market response to the product by analyzing limited sales performance and a qualitative analysis of customer response.
    • Conduct limited product sales or get endorsements from potential customers
    • Quantify the volume, rate, and demographics of sales
    • Design and implement a customer survey
    • Analyze customer feedback (price, design, function, packaging, delivery)
    • Transmit design modifications to technicians
business model
Business Model
  • Venture Assessment - Define business model and demonstrate that the concept will generate a profit; that you are capable of taking the product to market.
    • Identify financial, physical, and human resources required for commercialization
    • Identify the status of intellectual property requirements
    • Establish a positive profit potential
business economic feasibility
Business – Economic feasibility
  • Develop a financial model based on integration of the technical product information and the market study into one or more break-even financial models.
    • Develop financial scenarios
    • break-even analysis based upon unit prices, volume of sales, and costs
    • Determine whether the business opportunity presents sufficient profit margins to justify a business venture
    • Assess the merits of licensing the opportunity compared to venturing
business strategic planning
Business – Strategic Planning
  • Develop a complete business plan.
    • Finalize intellectual property requirements
    • Finalize business organization structure
    • Select a board of directors (or advisory team)
    • Finalize agreements on any concurrent break-through technology requirements critical to commercialization
    • Develop a formal financial plan that includes the strategy and timing of present and future funding rounds
major causes of product failure
Major Causes of Product Failure
  • Inadequate market analysis 24%
  • Product problems or defects 16
  • Lack of effective marketing effort 14
  • Higher costs than anticipated 10
  • Competitive strength or reaction 9
  • Poor timing of introduction 8
  • Technical or production problems 6
  • All other causes 13
what the judges look for
What the Judges Look For
  • Value proposition
  • Competitive advantages
  • Does the idea make sense
  • Do the revenue and profit model make sense
  • Who are the first customers?
  • What are the switching costs?
  • Is there protectable intellectual property?
  • Time to market and pay-off
  • Will the business be around in five years?
  • Is the executive summary clear and well-written?
what vcs look for
What VCs Look For
  • Scalability
  • High Sales Growth over Short time frame
  • Look at 3 year’s earnings where Margins Improve
  • Plan for Efficiently using Capital
  • Strong Management Team
finding a good idea
Finding a Good Idea
  • Is it differentiated in some way from existing competitors?
  • Entrepreneurs figure out how to offer products and services faster, cheaper, inbetter quality, in unique combinations, creating a better known brand name, etc.
technologies of the future
Technologies of the Future
  • Nanotechnology & MEMS (micro-electro-mechanical devices) (Medical advances, airbags and other automotive needs)
  • Security software/hardware (9/11 and terrorism)
  • Wireless applications (LAN and WAN)
  • Cheaper, faster LAN technology (fatter pipes)
  • Network management software/apps
  • Storage of data, video, audio
  • Be a Visionary - Create your own technology roadmap for the home, wireless consumer, office, etc. Where are there voids?
innovation in the old economy
Innovation in the “Old Economy”
  • Look at every link in the supply chain. Where can you innovate? – (Henry Ford’s assembly line)
    • Supplies/components/labor
    • Storage/distribution/transportation (GPS on trucks, RFID on inventory)
    • Sales/marketing/brand name (creative or innovative packaging - toothpaste containers, soap containers )
    • Customer service (Disney, Marriott, Nordstrom's)
    • Market analysis: timing of new products/ services and geographic expansion
ways to differentiate
Ways to Differentiate
  • How do YOU choose what you buy? Why are you a loyal customer? Differentiation:
    • Price
    • Service
    • Brand name
  • Look at markets you know well; how can you offer a better solution for a lower price?
  • Many big competitors ignore small, niche markets instead seeking “scalable” markets. (That niche can become your opportunity.)
so you have an idea how to build a business
Business is based on Customers

Strategic Marketing focuses on the satisfaction of customer needs, wants and requirements;

Customers will buy what they want even when they don’t buy what they need.

Your job is to determine what those “wants” are

So you Have an Idea- How to build a Business
market research puzzle

What?

Who?

How much?

When?

Pay what?

Market Research Puzzle
  • Need Market Research for your Business Plan
  • Market research is a puzzle. Determine who is the customer, what they want, when they’ll buy, how much they’ll buy, and what they’ll pay to determine if viable demand exists.
  • Draw conclusions only when the puzzle is completed!
is there a customer
Is there a customer?
  • Find out if there is a customer …and who it is.
  • Think “outside the box.”
  • Customers can be created where there were no customers before
    • ---through creating demand where there was none (Starbucks and new coffee drinkers)
    • through innovation (new product or service- or other innovation)
  • An Entrepreneur Looks for New Opportunities–
    • bottled water
    • Pre- 1968 -- Elite product- bottled Perrier (founded in 1863)
    • Today - bottled water appears in everyone’s home
    • Why?
what do the customers need
What do the customers need?
  • Looking at your target customer- what do they want or need? (May not be the same as what you perceive they need… Classic Coke?)
    • Price v. performance
    • Aesthetics v. features
  • An Entrepreneurs asks, “What’s causing them pain?”
how do you find out
How do you Find Out?
  • GO ASK --Surveys, focus groups, and interviews.
  • Analyze comparable (existing or proposed) products/services to determine shortcomings.
  • Some needs are consistent in every market (faster, better, cheaper…the entrepreneur's mantra):
when will customers purchase
When will customers purchase?
  • So, you know WHO the customer is and WHAT they want, but WHEN will they buy?
  • A customer will buy an innovative product once its value proposition exceeds the value proposition of existing product
    • New cell phone features– Want it NOW even though current phone they have works perfectly well
    • desktops to laptops – next move - laptops to tablet PCs – what after that – hand-held computers with power of desktop?
published market research
Published market research
  • Often cited in trade publications, newspapers, and magazines.
  • Look for trends – try to be ahead of the trend– visionary…..
  • First to market – but not too soon.

(Apple’s Newton – 1980’s)

what volume will customers purchase
What volume will customers purchase?
  • Calculating potential Market Share
    • If your product is truly differentiated, it will replace an existing product over time (14.4 modems – eventually replaced by 28.8 .. And so on with advances in modem speeds. DVDs replaced VHS… which replaced Betamax)
  • If you create a new market altogether, estimated volume is more difficult, though possible. (iPod)
what will customers pay
What will customers pay?
  • Determining pricing is critical for planning a business and evaluating feasibility.
  • Three ways to determine pricing:
    • Comparables
    • Ask the customer
    • Bottoms-up/ROI method (Return On Investment)
  • When interviewing or surveying, ask what price they pay now and price they would pay.
what other factors impact demand
What other factors impact demand?
  • The economy impacts everyone.
  • Financial health of customer sector.
  • Unexpected roadblocks

(macro-economic forces)

    • Big SUVs- gas prices
    • Real estate- Interest rates
competitive analysis
Competitive analysis
  • Demand (knowing there is a Customer) is only half the picture; can you achieve competitive differentiation needed to capture those customers?
  • Identify and segment the competitors
  • Analyzing competitors
opportunity analysis
Opportunity Analysis

Internal Analysis

(Company)

External Analysis

(Competition, customers)

Strengths

Weaknesses

Opportunities

Threats

Company’s ability to CAPITALIZE on Opportunity

(Product/Company Fit)

Attractiveness of Opportunity

(Product/Market Fit)

STRATEGIC WINDOW

determining direct costs
Determining direct costs
  • To estimate direct costs:
    • Build from the bottom-up; estimate every component needed, labor required, and obtain costs through interviews and web searching.
    • Analyze comparable product costs, if available.
  • If it costs more to make it than to sell it, you don’t have a business. Look for something else.
    • Software margins avg. 60%, high upfront R&D.
    • Services margins avg. 50%, hard to retain customers
    • Engineered products margins vary, 20%-80%!
    • Very low margins- (single digits) groceries, computers, airlines
add the puzzle pieces

What?

Who?

How much?

When?

Pay what?

Add the puzzle pieces
  • Should you launch this business?
  • Does viable demand exist?
  • Can you be different than competitors?
  • Will your products/services make money?
slide36

P.S.U.C.F.

  • Problem – Big and painful
  • Solution – Clear and unique
  • Unfair Advantages – Team , go-to-market, distribution, IP, etc.
  • Competition – Buyer’s options
  • Financials – Needs, funds use, risk vs. return
p roblem
Problem
  • How many buyers?
  • How painful is it to the market?
  • How is the problem dealt with today?
s olution
Solution
  • Basics of your solution
  • Basic unique advantage
  • Define the scale of the advantage
u nfair advantages
Unfair Advantages
  • Legal and ethical but “UNFAIR”!!
  • Think creatively here:
    • Intellectual property?
    • Unique processes?
    • Unique position?
    • Unique relationships?
    • Unique distribution or go-to-market advantage?
    • Unique advantage in operations?
    • Sustainable price point advantage?
c ompetition
Competition
  • How else can prospective buyers fix problems or find satisfaction?
    • Your competitor's solution?
    • Build it in-house?
    • Wait? Status Quo?
    • Pretend it does not exist?
    • Deflect problem to a supplier etc?
    • Ask their present solutions provider to adapt a “temporary” solution?

Competition is ANYTHING that hinders sales !!!

f inancials
Financials
  • Money you need to succeed
  • Planned use of funds
  • Major milestones
  • High level 3-5 year financial projections
  • Possible “exit” scenarios and returns

Why would an investor care to invest?

elevator pitch
Elevator Pitch
  • Up to 1 minute verbal ‘sales’ pitch describing your concept and why someone should pay attention to you
  • Use visual imagery and analogy to “paint pictures”, gain immediate understanding, and generate excitement
  • Keep it simple; avoid unnecessary details
  • Write it down, revise, and practice until you have it “right”. Then do it again!

40,000 Feet…

investor presentation
Investor Presentation
  • Typically 10 to 12 slides – 20 minutes worth
  • Exciting visual demonstration of PSUCF
  • Show important elements of the business plan
  • Use case examples or testimonials instead of dry theory
  • Have more detailed Q&A slides ready
  • Practice delivery
  • Be passionate!

10,000 Feet…

business plan
Business Plan
  • Typically 10 to 15 pages
  • Details exactly how the company will materialize
  • Explains the market size and the competitive environment with supporting evidence
  • Describes why your team is the right team to capitalize on this opportunity
  • Serves as an “owner’s manual” for the company

1,000 Feet…

why write a business plan
Why write a business plan?
  • Writing forces the person (team) preparing the plan to look at the business in an objective and critical manner
  • Helps to focus ideas and serves as a feasibility study of the business’s chances for success and growth
  • Finished plan serves as an operational tool to define the company’s present status and future possibilities
  • Helps manage the business and prepare for success
  • Serves as a strong communication tool for the business
    • Defines your purpose, your competition, your management and personnel
  • Provides the basis for your financing proposal
what is a business plan
What is a “business plan”?
  • The plan for the creation and management of the business.
  • With special attention to:
    • Marketing plan describing match of strategy and products to current and future markets
    • Operations plan discussing processes
    • Financial plan assessing all costs and financial requirements
four interdependent success factors
Four Interdependent Success Factors

People

Context

Opportunity

Risk & Reward

How to Write a Great Business Plan

who are these people anyway
Who are these people, anyway?
  • Who else needs to be on their team?
  • Are they prepared to recruit high-quality people?
  • How will they respond to adversity?
  • Do they have the ability to make hard decisions?
  • How committed are they to this venture?
  • What are their motivations?
  • Where are the founder from?
  • Where have they been educated?
  • Where have they worked?
  • What have they accomplished?
  • What is their reputation?
  • What is their directly relevant experience?
  • What skills, abilities, and knowledge do they have?
  • How realistic are they about their venture’s risks and rewards?

How to Write a Great Business Plan

the opportunity of a lifetime
The opportunity of a lifetime?
  • Who is the new venture’s customer?
  • How does the customer make decisions about buying this product or service?
  • To what degree is the product or service a compelling purchase for the customer?
  • How much does it cost (in time and resources) to acquire a customer?
  • How much does it cost to produce and deliver the product or service?
  • How much does it cost to support a customer?
  • How easy is it to retain a customer?

How to Write a Great Business Plan

advantages of great business plans
Advantages of great business plans
  • Yardstick to measure performance
  • Starting point for operations, marketing, and financial plans
  • Demonstrates focus and the plan for profits
  • Connects all of the elements of the company
  • Can assist in attracting management team and employees
  • Greatly improves fundraising ability
disadvantages of great business plans
Disadvantages of great business plans
  • Requires significant research and thought
  • Must stand up to criticism and challenges
  • Requires your honest, critical appraisal
  • Needs regular, recurring updates
  • Demands acceptance by the management team
1 cover sheet
1. Cover Sheet
  • Company name
  • Team members
  • One person’s contact information
  • Date
  • Statement of confidentiality
    • “All material presented herein is reserved to this audience. Notes or distribution is prohibited without written consent.”
2 positioning template
2. Positioning Template
  • Sentence #1For (target customer)who (statement of the need or opportunity),the (product/service name) is a (product/service category)that (statement of benefit).
  • Sentence #2Unlike (primary competitive alternative),our product (statement of primary differentiation).
3 market overview
3. Market Overview
  • Describe the market you are serving.
  • Who is your customer
  • What is the market need or problem?
  • How big is the total market?
  • How fast is it growing?
4 competition
4. Competition
  • What competing solutions and alternatives are available to your market in lieu of your products and/or services?
  • Current competitors (list and describe your venture's advantages and disadvantages compared to each).
  • Expected competitors (list and describe your venture's advantages and disadvantages compared to each).
  • What are the barriers to entry into your target market?
  • How is your venture differentiated from existing and potential competitors?
5 6 your solution
5 & 6. Your Solution
  • Introduce your product in detail
  • Show a picture or diagram
  • Describe the primary benefits
  • How does it solve the customer’s problem?
7 8 sales and marketing strategy
7 & 8. Sales and Marketing Strategy
  • How will your product be sold?
  • Where will it be sold?
  • By whom will it be sold?
  • What are the price points?
  • How will you promote the product?
  • What new products will be available later?
9 management
9. Management
  • Board of Directors: A group of typically 3-5 persons, including founders and senior managers (e.g. CEO, CTO, CFO) which often has “control” over the business.
  • Advisory Board: A group of typically 3-7 persons with diverse business and technical expertise, strong reputations, and deep networks of investors and customers. Advisory Boards play no day-to-day role in a company, but serve to provide advice and credibility to the company.
  • Chief executive officer: the CEO oversees all strategic and operational aspects of the company
  • Chief technology officer: oversees R&D, prototyping, product development, and technical service
  • Chief marketing officer: leads determining what products customers want or need, when, what they will pay, and how to build awareness and sell to customers
  • Chief financial officer: oversees billings, collections, and all accounting matters, as well as fundraising
9 financial forecasts
9. Financial Forecasts
  • Key Assumption 1
  • Key Assumption 2
10 investment opportunity
10. Investment Opportunity
  • How much money are you requesting? In debt and/or equity?
  • Be specific as to how the funds will be used, such as to pay salaries, fund product development, etc.
  • How far will the funds take your venture (e.g., 6 months) and what major milestones will be accomplished with these funds (e.g., product prototype developed, specific revenue goals achieved, etc.)?
  • What subsequent funding will be required and when?
  • Describe how investors will recoup their investment and within what anticipated time frame.
11 thank you
11. Thank You
  • Statement on the opportunity and new venture potential
  • Company name
  • One person’s contact information
business plan outline
Business Plan Outline
  • Executive Summary
  • Reader’s Digest Version
  • Often the only thing read unless very compelling
  • Make the value proposition compelling!
company overview background
Company Overview & Background
  • Begin with the “Elevator Pitch”, the hook. Fast, Efficient, Clear, Exciting
  • Keep the content consistent with external information
  • Founding history
  • Significant milestones expected success factors
  • Strategic partnerships
  • Mission statement.
  • Strategy and philosophy to investors.
products technology
Products & Technology
  • Simple and easily understandable
  • Unique or competitive advantages.
  • Benefit to the end-user.
  • How customers will use the product.
  • Why they will need (want) or pay for such a product.
  • Explain why there will be an extremely high-demand in the near future.
  • Where will they buy, how will they buy it, what is their “switch” motivation.
market definition
Market Definition
  • Customers
  • Size
  • Trends
  • Influences on market
  • ALL the things you learn from the market research and analysis
competitive analysis1
Competitive Analysis
  • Identifying competitors-
    • Direct competitors
    • Substitute products
    • Any patents (protection you have- they have)
  • Competitor profile
    • SWOT
    • Porter’s Five Forces
market positioning
Market Positioning
  • How is your product or service different than your competitors’ product or service?
  • What is your value proposition? (how do you answer the question “Why should I buy your product or service?”)
marketing plan
Marketing Plan
  • Pricing Strategy
  • Funding Strategies
  • Service Model- warranty policy and what is the cost?
  • Sales, marketing, promotion plan? (advertising, public relations, trade shows, direct mail, etc.)
  • Market entry strategy? (Distribution, target markets, promotion, location, reputation)
distribution channels
Distribution Channels
  • Direct sales: Will you have a dedicated sales force, use the Internet, etc. ?
  • What are the wholesale channels available and will you use them?
  • Is there a Reseller network and will you use it?
sales approach and proposition
Sales Approach and Proposition
  • Sales Approach
    • Sales people -- employees or independent contractors?
    • Who generates leads?
    • Who works with prospects and closing sale?.
  • How will sales people be compensated?
    • base salary vs. commission, etc.
  • Describe the sales cycle
    • Who is the buyer?
    • How do you take them to the next level of interest?
    • What are the major stages of selling this product/service?
  • Demonstrated interest by potential buyers—from those with 1)authority, 2)need, 3)capability, and 4)interest
management the team
Management – The TEAM
  • One paragraph for each key founder/executive
  • Summarize key hires needed -immediate, intermediate and long-term. Note limits of founding staff.
  • Assess weaknesses; Cite when and where company will need changes in management.
  • List outside board members.
  • Adage: Investors prefer an “A” team with a “B” idea to the “A” idea with a “B” team to execute.
  • It is all about EXECUTION!
implementation plan
Implementation Plan
  • HOW and WHEN will you execute this strategy.
    • Research and development
    • Facility requirements
    • Labor requirements
    • Subcontracted production
    • Capital requirements
    • Quality control
    • Critical processes
    • Production planning
    • Inventory control
financials
Financials
  • Summaries only. Detailed spreadsheets are in appendices. Are the assumptions believable?
  • Funding sought
  • Equity/Debt – amount, terms -- % given up / % interest
  • Sales Targets; Revenue growth; Gross Profit
  • Operating expenses
  • Net income; Cash flow; Balance Sheet
  • Table showing total headcount by period
  • Cover 3 to 5 years.
  • Use of funds
  • Subsequent funding rounds required
  • Exit Strategies! (How and when do the investors get liquid again?)
    • Acquisition
    • Management buyout
    • IPO
  • Relevant ratios – ROI (Return on Investment), Breakeven, etc.
appendices
Appendices
  • Resumes for each founder/executive.
  • Detailed financial statements or worksheets
  • Detailed product or technical description and patent grants.
  • Relevant research material or articles.
  • Sample of Marketing or Promotional materials.
websites and resources to help
Websites and Resources to help

Tech Model

  • http://asbdc.ualr.edu/technology/commercialization/the_model.asp

Pro Forma Statements

  • http://www.sheridanc.on.ca/~nowell/justime/proforma.htm
  • Financial Model Template Available on request
time line
Time Line
  • Feb. 11  Submission of Executive Summaries electronically due by midnight    
  • Feb. 19  Semifinalists Announcement:  The top executive summaries are selected for an invitation to write the business plan.   
  • March 18  Business Plans Due (only for Semifinalists)   
  • March 26  Finalist Announcement-- The top business plans will be selected for invitations to develop investor presentations.   
  • April 15  Investor Presentations due by midnight    
  • April 27 Oral Presentations by Finalists
slide82

Karen S. Thornton, MBA

Director, Hillman Entrepreneurs Program

Associate Director, MTECH Ventures

University of Maryland, College Park, Maryland

301 405 3677

karent@umd.edu