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Creating the BUSINESS PLAN

CHAPTER 7. Creating the BUSINESS PLAN. 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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Creating the BUSINESS PLAN

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  1. CHAPTER 7 Creating the BUSINESS PLAN

  2. 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. Learning Objectives

  3. 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 From Feasibility to Proof of Concept

  4. Figure 9.1 Spectrum of POC Approaches

  5. 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 The Micro Strategy Approach to Proof of Concept

  6. 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 Micro Strategy Decision Making

  7. 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

  8. Proof of concept with purchase orders and customer sales • Customers that pay up front save company on inventory costs and fund manufacturing costs. Proof of Concept (cont’d)

  9. Rate of growth Return on investment Degree of risk Degree of protection Investors Interests

  10. 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 Bankers’ & Lenders’ Interests

  11. Licenses for manufacturing and assembly Supply of raw materials in exchange for equity interest Formal or informal partnership agreements Strategic Partners’ Interests

  12. 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

  13. 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? Creating a Compelling Story (cont’d)

  14. 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. The Full Business Plan: Strategy and Structure

  15. 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

  16. 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 Financial Plan

  17. 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 Mistakes in Developing the Business Plan

  18. 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 Successfully Pitching the Business

  19. 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. Answering Questions

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