GE 393 – Business Plan Workshop “A GOOD BUSINESS PLAN” September 12, 2001

1. GE 393 – Business Plan Workshop • “A GOOD BUSINESS PLAN” • September 12, 2001 EMT-20010214-001 /BF

2. Today’s Discussion • Overview – What is a Good Business Plan • Business Plan Outline • Helpful Hints • The “Elevator Pitch” EMT-20010214-001 /BF

3. Why Do Entrepreneurs Need To Develop a Business Plan…. • Serves as a roadmap for your business • Necessary to raise capital from investors • Reality check……protect you and others from proceeding with an idea that doesn’t make good “business sense” EMT-20010214-001 /BF

4. A Good Business Plan Should Be Attractive to Investors • A business plan that is thorough, fact-based, and well-written is not necessarily a “good” business plan………. • ….However, a business plan that is thorough, fact-based, well-written, and attractive to investors is typically a “good” business plan EMT-20010214-001 /BF

5. What Do Investors Typically Look for In a Good Business Plan? • High margin product/service in a high growth market • Addresses an “unmet” customer need for which customers are willing to pay a premium • Idea that is competitively “advantaged” - Differentiated from competitors • High “positive” cash flow….sooner the better • Financially and competitively sustainable - High barriers to entry, minimal threat of substitution - No threat of margin erosion • A GREAT MANAGEMENT TEAM - Experienced with proven track record - Relevant industry or technical expertise EMT-20010214-001 /BF

6. Many Investors Will Focus On Specific Attributes to Screen the Idea EXAMPLES Most Attractive Least Attractive Revenue Stream Advertising Transaction fee Product Sales Brand Equity High Switching Costs “First-Mover” Market Protection Competitive Advantage No other competitors Lower Cost Operations Unique operational Processes or technology EMT-20010214-001 /BF

7. Savvy Investors Can Spot a Weak Business Plan Quickly, Particularly When the Entrepreneur Has Not Done His/Her Homework • Target market is unclear or undefined • “Hockey Stick” revenue and profit projections with no clear marketing plan that explains how to achieve the projections • Unreasonable pricing assumptions, perceived value to customers • Little or no understanding of the competitive landscape (current competitors and future entrants) • Unrealistic cash flow projections, particularly underestimating working capital and capital expenditures over time • Significant risks not identified EMT-20010214-001 /BF

8. Although the Structure and Content Can Vary, At a Minimum, Most Business Plans Contain the Following Sections • Executive Summary • Management Team • Product/Service Plan • Marketing Plan • Operating Plan • Financial Plan • Appendix Other Common Sections May Include: Market, Risks/Contingency Plan, Design/Product Development Plan, Competition, Legal/Regulatory Compliance EMT-20010214-001 /BF

9. The Executive Summary Is Often the Most Important Section of the Business Plan…It’s Usually the First Section Read and Used as a Screen Executive Summary • Description of the business • Opportunity/value proposition • Target market • Competitive Advantage(s) • Economics • Management Team • Financing • Is it unique or different? • Does it address an unmet customer need that customers value? • Is the market large and/or high growth? • Is there a sustainable competitive edge? • Is there high profit potential? Can positive cash flow be realized within 2-3 years? • Does the management team have experience, relevant intellectual capital, and a proven track record • Does the equity or debt financing needed offer an attractive rate of return? EMT-20010214-001 /BF

10. A Weak Management Team Can be a “Deal Stopper” No Matter How Good the Business Idea Management Team • Experience • Knowledge/intellectual capital • Track Record • Balance of strength • Integrity • Does the management team have relevant new venture or business experience? • Does the management team have the right technical, marketing, strategic, operating, and financial skills • Does the management team have a proven track record? • Is the strength of the management team balanced or centered on one executive? • Is the management team trustworthy and exhibit high ethical standards? EMT-20010214-001 /BF

11. The Product/Service Plan Should Be Tailored to Reader with the Appropriate Level of Technical Detail Product/Service Plan • Product/service description • Unique features or attributes • Stage of development • Proprietary rights • Barriers to entry/reengineering • Is the product/service clearly defined? • Are there unique features of the product that create/add significant value? • Is the current state of development articulated along with future research and development needs? • Does the product/service have proprietary aspects that cannot be easily copied? • Are there barriers to entry and minimal threat of substitutes or product reengineering? EMT-20010214-001 /BF

12. The Marketing Section is Usually One of the Most Difficult Sections to Prepare But One of the Most Important Marketing Plan • Target Market and Size • Industry Profile/Dynamics • Competitive Dynamics • Pricing • Market Penetration Strategy • Is the target market (segments) clearly defined and sized? • Are the profit characteristics of the industry attractive (operating profit margin) • What is the level of competition and threat from new entrants? • What is the perceived value to customers? Is the pricing structure in line with the market’s perceived value? • Is there a solid marketing plan with appropriate promotional and branding strategies? EMT-20010214-001 /BF

13. The Operating Plan Should Define Day to Day Operations and Contingencies Operating Plan • Production/Product Development • Administrative Systems • Risks/Contingencies • When will the product be ready to “go to market”. Is there adequate production capacity? Are there significant supply chain risks to consider (I.e. single source suppliers)? • Are effective administrative systems and controls in place? (I.e. billing, inventory management, etc.) • Are operating risks fully understood? Are contingency plans in place to ensure operations are not disrupted? EMT-20010214-001 /BF

14. Reasonable Assumptions Based on Information in Preceding Sections Should Drive the Financials Financial Plan • Income Statement • Cash Flow • Are revenue and expense projections based on sound assumptions? • Is the after-tax profit margin > 10% • Are profit margins sustainable and/or growing over time? • Are sources and uses of cash projections (working capital, capital expenditures) reasonable based on the operating and marketing plans? • Does the business have high and ongoing capital expenditure requirements? • Can positive cash flow be achieved within 2 to 3 years? EMT-20010214-001 /BF

15. Helpful Hints Include the Following….. • Know your audience and tailor accordingly • No more than 25-30 pages…with extra detail saved for the appendix • Avoid “fluffy” adjectives such as “best”, “superior”, etc. without supporting justification • Don’t exaggerate the facts, particularly market potential • Know what you don’t know and make sure you spend the time to figure it out • Develop the financials and executive summary sections last EMT-20010214-001 /BF

16. There’s Usually a Preferred Sequence to Developing Sections of the Business Plan. The Financials Should Never Be Developed First! Executive Summary Management Team Financial Plan • Summarizes • aspects • of all the other • sections Product/Service Plan • Market share • Price • # units sold • Operating costs • Capital expenditures • Core competencies/ expertise required Operating Plan Marketing Plan Iterative EMT-20010214-001 /BF

17. Every Good Business Plan Should Be Supported by an Effective “Elevator Pitch” • A five minute pitch with clarity, completeness, and precision that one believes in, even feels the future success of the business • Conveys to investors your company, the overall business case, the customer, the customer’s needs, your catchy solution for meeting those needs, and the numbers….and what’s special about you and your management team • No more than five sentences regarding each topic (less than 10 –slide presentation); trying to impress with more is as counterproductive as giving less information EMT-20010214-001 /BF

18. The Key to a Successful “Elevator Pitch”….Refine, Refine, Refine Remember that telling your story to potential investors is Not the end, but rather the beginning or your story. As Every entrepreneur soon finds out, you will pitch your Story hundreds if not thousands of times to recruit every Employee, every business partner, every service provider, And every reporter. So the better your story, the better Employees, partners, providers, and press coverage you Will attract. Additionally, telling your story to others Causes you to make it better. Make your story as good as You can and refine it more every day! EMT-20010214-001 /BF

19. A Great Case Example of an Effective “Elevator Pitch” is ……. • ?? Computer sells personal computers that are individualized at less cost and greater convenience via build-to-order manufacturing and customer-direct sales. Our customers are consumers. The consumer market is an emerging sector potentially 50 million units annually, it has needs different than the business market, and accordingly is is underserved by industry leaders, Compaq, IBM, and Hewlett-Packard, which target the presently more lucrative business market. Where the business market values blue-chip vendors over price, buys in volume, prefers to work through value-added resellers, and wants preestablished credit lines, consumers are very price sensitive, purchase one computer at a time, prefer to purchase products direct or through retailers, and pay via credit card. • Our offering and strategy cater to the particular needs of consumers: our build-to-order manufacturing and customer-direct sales enable us to offer computers that are very price competitive even when manufactured just one unit at a time, and our billing system is based on purchase via credit cards. In contrast, the major players’ manufacturing economics are predicated on manufacturing large volumes all at once, their value-added reseller channels don’t want to sell to individuals nor do they want the computer vendors to sell around them, and their billing systems were not designed to accept credit cards. • My company has already manufactured and sold more than 50 computers via mail order. I founded ?? Myself in 1984. I’m ??, a former student at the University of Texas, Austin. I left college to pursue ?? Full time. With an infusion of $5 million for manufacturing infrastructure and marketing, my company believes it can sell more than $5 million worth of computers next year and has the potential to sell $150 million annually within five years. The company is located in Round Rock, Texas, near Austin; it was capitalized with my own credit line, and presently has four full-time employees. EMT-20010214-001 /BF

20. Since 1991 Dell Has Experienced 50% Annual Growth in Sales! Today Dell Has Over $25 Billion in Annual Sales. Annual Sales ($000) CAGR = 50% EMT-20010214-001 /BF