The Full Business Plan Paul Kirsch Samuel Zell & Robert H. Lurie Institute For Entrepreneurial Studies January 20, 2006
Executive Summary Core Idea Elevator Pitch Business Plan Power Point Parts of a Coordinated Message The Message of your Business Idea
Parts of a Coordinated Message • Core Idea • 5 Breaths • Executive Summary • 2 – 5 pages generally accepted • PowerPoint • 8 – 15 minutes • Elevator Pitch • 1 – 3 minutes • 3 minutes for MBC on 12/9 • Full Business Plan • 15 pages + Financials S.S.D.D. SameStuff, Different Delivery - 20 pages + up to 10 pages appendices
The Business Plan • Always a work in progress • About the process NOT the document • 20 pages, plus appendices • Ties everything together • Offers clear linkage between ideas and vision and business entity to bring them to life
Understand Your Audience • Investors FFF | Banks | Private investors | VCs | Grantors • Business partners Beta customers | Suppliers | Distributors • Management team • Current – talking from the same script • Potential – need to understand business
B.P. includes Executive Summary • Products & Services • Sales & Marketing • Operations • Management • Risk Mitigation • Action Plan, Milestones • Key Financials • Exit Strategies • What is it? • Market Need or Pain, Size • Value Proposition & Business Model • Competitive Advantage • Competition & Industry
What Is Your Idea & Why Now? • Be clear and complete • Plain English but use technical language, schematics where necessary • Origin of the idea: Paint a picture • Linear development or disruptive? • Improvement or new? • Evolutionary or revolutionary? • Connect timeliness of idea to market “pain” • Staying power and permanence
Market Need or Pain, Size • What is the pain in the market • Market need drives idea, the product fills the need • Products do NOT create a market • Quantify “pain” in terms of true market opportunity • Just how “big” is this opportunity? • What are potential customers doing now? • A current solution DOES exist • Connect the listener to the problem
Market Need or Pain, Size • Which product, products segments are in the initial focus and planning horizon? • Three to five years is acceptable • Describe your customers, segments: • Geographic • Demographic • Psychographic • Business, economics, SIC codes • http://www.osha.gov/pls/imis/sicsearch.html
Value Proposition & Business Model • How valuable is your idea to your customers? • How are you going to extract this value from the marketplace? • Be specific. Who else do you need to make this happen? • What is the business model? *
Value Proposition & Business Model • What is the business model? * • *This is really two questions What do you do? ½ of the Business Model Answer How are you going to make money? ½ of the Business Model Answer
Comp. Adv., Competition & Industry • What is your #1 competitive advantage? • Intellectual Property • Management Team • Exclusive customer relationships • How are you going to protect it? • Being the “first mover” IS NOT a sustainable competitive advantage • Who is your competition? • Porter’s 5 Forces • Value Chains? • How will they respond?
Products and Services • Detailed description • Where in the product life cycle • Where in the development process • Other R&D concerns? • IP protection
Sales, Marketing, Management • How are you going to sell your product? • What “beta” relationships exist? Why? • Who are your first prospective customers • Be realistic, don’t overpromise or oversimplify • Highlight team’s ability to deliver. Past success is a good indicator of future performance • Be honest about team’s missing skills
Operations • What activities will you be doing? • Do any operational components deliver key advantages? • Important relationships
Risk Mitigation • Commonly explored classes of risk • Technical • Market • Competitive • Management • Execution
Action Plan, Milestones • Overview of timeline • Demonstrates understanding of KEY issues • Shows that the team knows what is whose responsibility • Only items that are your responsibility can be a milestone • Easy win: include product launch/first sales in ANY discussion of milestones
Key Financials • Provide credible financial measures Sales | Margins | # of Customers | Market share • Cash flow is king • KNOW you assumptions • “The Good, The Bad and the Likely” • Be realistic, don’t overpromise or oversimplify
Key Financials • What do you need NOW? • What are your start-up costs? Estimating Startup Costs • Working capital is a legitimate use of funds • Estimate costs and revenues to the best of your ability • Allowing a percentage of “cushion” is okay
Exit • Document “ballpark” returns • Offer feasible exit strategies • What is “typical” in your industry? • Acquisition • IPO • Management buyout
Exit • Acquisition • Who? • How many “who’s” • IPO • Recent market track record IPO Monitor • What performance measures are important? • Management buyout is not necessarily a desireable exit • Dividend payments are viewed similarly
Other information, advice and things to keep in mind while developing your plan
Format • Cover page (not included in page total) • Company name • All team member names, and full contact information for at least team leader • Body of plan – 20 pages - includes the executive summary and summary financial data • Appendices – not to exceed 10 pages • Include only when they support the findings, statements and observations in the plan. No new information. • Judges may not be able to read all the material in the appendices. Therefore, the text portion must contain all pertinent information in a clear and concise manner.
Format • Limited to 20 pages, including the executive summary and summary financial data. • Typed, double-spaced • 12-point font • 1-1-1-1 margins • Numbered pages • In total, the plan is limited to 30 pages. • Hard copies of business plans should be professionally bound. • Soft copies of business plans should be in a SINGLE .pdf document
To Stand Out… • Captivating idea with growth potential • Sustainable competitive advantage • Strong, core team • Logical go-to-market strategy • Sound financial plan • Don’t give evaluators a reason to mistrust or disbelieve plan or the authors
Typical Pitfalls • Core idea not linked to market need • Gross over-simplification of the issues • No credible go-to-market strategy • The “1% market share” objective • Team composition and experience • Sources and uses of funds • Unclear role for the audience, investor
Challenges • Many plans are product- or technology- centered rather than market-driven • FIX: Focus on the real, supported market need • Many plans are usually written in an academic style (read: boring) • FIX: Put your passion for the business in the plan
Challenges • Many entrepreneurs address preparing the plan and giving the pitch as a necessary evil • FIX: Treat “marketing” your company as essential as “running” your company • FIX: View these opportunities for feedback as invaluable instances that will be difficult if not impossible to duplicate in the “real world”
Challenges • Oft-heard: “no way to do this in 20 pages” • FIX: Succinct and concise understanding AND presentation of key issues is paramount • FIX: View assembly of plan and presentation as much a communication challenge as it is a business issue • NOTE: teams have NO option
This is YOUR story • Infuse delivery with personality and passion • Not a “right” way to tell the story • Different aspects of a plan will be emphasized differently for different types of businesses
½ of the Business Model Answer • What do you do? Value Proposition & Business Model Technology Raw Materials Product Design Mfg Marketing Sales Distribution
½ of the Business Model Answer • How do you make money? Value Proposition & Business Model Can you use a diagram for each of these? • Retail sales: direct to wholesalers • Internet sales: direct to customer • B2B: commercial purchase on terms • Licensing: per unit revenue, payable (?) • Consulting: fee for service or impact • Services: per unit charges
Business Model • Business Model integrates • Value created for the users • Target market • the purpose of the product to those users • Value chain • Sharing value across the network • Competitive strategy • Specify the revenue generation mechanisms • cost structure, margins REF: Open Innovation, Henry Chesbrough © 2003.
Value Chain Implications • Creating and Capturing Value • Number and power of players • Amount and type of “value” to be shared YourCompany Lower Tiers Tier Ones OEMs Dealers Individual Drivers
Estimating Startup Costs • Working it backwards from the Steady-state numbers: • Obtain steady state costs (GS&A, etc, as % of sales from industry data) • Make costs constant over transition • Add development costs • Ramp down develop costs while ramping up operating costs Costs Sales Development Transition Modest Growth Time
Top-Down & Bottoms-Up Forecasts • Top down and bottom up forecasts are complementary • One is a reality checks for the other • Top-down forecasts: • Usually industry analysts’ worldwide estimates for a large market, which are then split into segments by major product group, region or vertical industry • Bottoms-up forecasts: • Build up revenue forecasts by defining the key underlying variables and estimating how they will change over the next 3-5 years.
Top-Down & Bottoms-Up Forecasts • Are the assumptions realistic & believable • Market timing & adoption rate assumptions are critical • Does the methodology reflect deep understanding of the target market segments? • How “close” are the to bottom-up and top-down perspectives?
Mullins’ Assessment Framework Market Domain Industry Domain Market Attractiveness Industry Attractiveness Macro-level Missions, aspirations, Propensity for risk Ability to execute CSFs TEAM DOMAIN Connectedness up, down, and across value chain Micro-level Target segments benefits and attractiveness Sustainable advantage REF: The New Business Road Test, John Mullins © 2003.
The Critical Success Factors • Which assumptions are critical to the success of your business? • What are the “big levers”? • Sensitivity analysis • Typically time (to develop and through the transition) • Market size (total sales)
Next Session:Presenting Your Business Plan February 3, 2006 12:00 – 1:30 E0540