22 January 2008, London Entrepreneurs’ Challenge

1. 22 January 2008, London Entrepreneurs’ Challenge Tim Barnes, Executive Director, UCL Advances How to Write a Business Plan

2. How do new companies develop?

3. Spin-Out Stage The Innovation Process Project Evaluation Spin-out Formation Seed stage Development Research Growth Strategic choice on how to commercialise R&D IP Assessment & protection Incubation & development of business plan Opportunity search/ Awareness creation Funding process Source: Adapted from Clarysse and Moray, 2003 Research TTO Start-up VC and sales

4. Developing a New Business From an Idea £ $ € ! Established company Start-up and growth Exit of initial investors Business plan preparation Financing decision Business idea generation Interest of investors

5. The fear of uncertainty • We are programmed to avoid pain • In modern terms, fear of ‘failure’, or looking bad • Any significant life change is a source of pain • Changing schools • Changing partners • Changing careers • We will never entirely overcome this fear • So, what CAN we do?

6. Planning for success

7. In the “Real-World”… • “Writing a Business Plan forces you into disciplined thinking, if you do an intellectually honest job. An idea may sound great, but when you put down all the details and numbers, it may fall apart” • Eugene Kleiner, Venture Capitalist

8. Business plans are written for many reasons • To help you understand an opportunity and how to exploit it • To recruit prospective team members and partners • To monitor progress (KPI’s) • To re-focus a business following startup • To raise funding from investors • BIG IDEA - Your plan will change with time!

9. The Ideal Plan - Content • Explains what you want to do and why • Takes the reader from opportunity to proposition • Defines the customer and market • Understands the key drivers in making the business work • Clarifies the business model • Inspires confidence about people and the ability to execute

10. Convey a clear picture early! • This is the market opportunity • This is my product/service • These are the key benefits • This is the evidence for those benefits • These are the people who will make it happen • Where is the problem that people will pay for us to fix?

11. A summary of summaries • Aim: • To create a condensed version of the full business plan (think c.10%, e.g. 3 pages to 30) • The Idea Potential template is a summary of an idea - there may not be another document yet, but your aims are similar • Provide a ‘hook’ that will draw in the reader • Give a framework for considering the idea • Impact • A summary is more than a shorter version of the whole • It should make clear the main impact of the proposal • It needs to lead to a decision

12. Writing a business plan

13. Key questions - Executive Summary Business concept Draft business plan ‘Final’ business plan What is your business idea? In what way does it fulfil the criterion of uniqueness? Who are your target customers? What is the value for those customers? What market volume and growth rates do you forecast? What competitive environment do you face? What additional stages of development are needed? How much investment is necessary (high level estimation)? What long term goals have you set? What do you estimate your financing needs to be? What are the sales, cost and profit situations? What are the most important milestones along the way to your goal? What test customers have you approached/could you approach? What distribution channels will you use? What partnerships would you like to enter into? What opportunities and risks do you face? What is the picture on patents? What are the results of your detailed business planning? What are your exact financing needs? How will you delegate management tasks? How much production capacity is necessary? How will the implementation of your business idea be organised? What are your next concrete steps?

14. Key questions – Product or service • What are the features or functions of the product/service? • Who are the target customers? • What value propositions does the product/service provide to the customers? (e.g., tabulate customers’ unfulfilled needs and ways the product/service addresses those needs) • What is the revenue model? (i.e., description of revenue sources – advertising revenue, transaction revenue, subscription revenue, flat-fee vs. percentage-based) • What is the development status of the product? What remains to be done to convert the business idea into a tangible product or service? • Has this business model been proven elsewhere? What are some successful examples? • What is the plan to maintain the loyalty of customers? Executive Summary Product or service Implementation schedule Market & competition Marketing& sales Business system & organisation Management team Opportunities & risks Financial planning

15. Key questions – Implementation Executive Summary Product or service • What is the detailed short term implementation plan? (e.g., Gantt chart showing detailed activities by month) • Who is responsible for each of the tasks? • What are major milestones? • What are interdependencies between tasks? • What is the 5-year implementation plan? (e.g., Gantt chart showing activities by quarter) • Who is responsible for each of the tasks? • What are major milestones? • What are possible long term options for the business? Implementation schedule Market & competition Marketing& sales Business system & organisation Management team Opportunities & risks Financial planning

16. Key questions – Market and competition Executive Summary Product or service Implementation schedule • What is the potential market size for the product/service? (e.g., calculation derived from number of target customers, units sold, value of sales) • What is the expected market growth and which major factors influence that growth? • Who are the likely competitors? What do they offer? • What are the strengths and weaknesses of competitors? What is your competitive positioning vis-à-vis competitors? (i.e, a table of competitors and their ratings across key criteria – e.g., time to launch, technological capability, access to proprietary technology, privileged relationship with suppliers and customers) Market & competition Marketing& sales Business system & organisation Management team Opportunities & risks Financial planning

17. Key questions – Marketing and sales Executive Summary Product or service Implementation schedule Market & competition Marketing& sales • What are the specific plans to promote the product/service? • How will the product/service be distributed? Which partners will be needed in the distribution channel? • What will be the pricing strategy? (e.g., how much will you charge for different customer segments, quantities) Business system & organisation Management team Opportunities & risks Financial planning

18. Key questions – Business organisation Executive Summary Product or service • What is the proposed organisational structure of the company? • How will this organisational structure help achieve business goals? • What skills will be required and what is the hiring plan? (e.g., a table that shows total number of positions and the functional description of positions, skills required for top 3 positions in each department) • What is the scope of the business? (i.e. what will be performed internally and what will be outsourced?) • Have strategic partnerships been identified? If yes, how will these partners be secured? If no, what is the plan to get partners? • Have key vendors been identified? If yes, how will these vendors be secured? If no, what is the plan to get vendors? Implementation schedule Market & competition Marketing& sales Business system & organisation Management team Opportunities & risks Financial planning

19. Key questions – Management team Executive Summary Product or service Implementation schedule • Who are the founders/founder groups and what are their qualifications, experience and past achievements • How critical is the idea originator to the future success of the venture? • How are the management responsibilities shared among the team? (e.g., a table of team members with their position and key activities/responsibilities) • What is the plan to reinforce management team in the future? (e.g., schedule of future management hiring and skills required) Market & competition Marketing& sales Business system & organisation Management team Opportunities & risks Financial planning

20. Key questions – Opportunities and risks Executive Summary Product or service Implementation schedule • What are the best case and worst case scenarios for the 5-year financial projections? What are the key assumptions on the key parameters? (e.g., market shares, profit margin) – refer to Appendix for example • What does the sensitivity analysis show? (i.e., by varying key assumptions in isolation) • What mitigating steps are planned in order to minimise risks? Market & competition Marketing& sales Business system & organisation Management team Opportunities & risks Financial planning

21. A sample ‘Risk Table’

22. Key questions – Financial planning Executive Summary Product or service • For the next 5 years (and at least 1 year beyond breakeven point), what are the projections for • Income statement (includes detailed revenue source as described in the business model) • Cash flow statement • Company valuation, utilising • Discounted cash flow analysis • Revenue multiples • Balance sheet • What are the key assumption used in the financial pro-forma? (e.g., cost of capital, market share, margin) • What are the financial requirements for the business and what sources of financing have been identified? (e.g., financial schedule with amount needed and possible financing sources) Implementation schedule Market & competition Marketing& sales Business system & organisation Management team Opportunities & risks Financial planning

23. Going a bit further! • The best business plans move beyond the snap shot to … • The dynamics of competition • A view of how competitors will respond to your entry • Other potential entrants • Supporting evidence • Research • Quotes • Questionnaires and surveys

24. Common business plan mistakes • Saying that the company has no competition or underestimating the strength of competitors • No clear business model • Disorganised and internally contradictory plan • Miscalculation of market share and market size

25. Mistakes continued • Being too close to the product • Providing excessive detail • Assuming that customer benefits are self-evident • Failing to assess durability and sustainability • Market (web) data unsupported by evidence

26. And still more mistakes! • Equating a large, growing market with ease of gaining share • Too many spreadsheets • Endless analyses • Disproportionate time devoted to financials in presentations • Ignoring risk, particularly as volume builds • Inappropriate organisational structure

27. Summary! • Building a business plan is building an argument about the future • Arguments need to be clear, consistent, supported • Test your argument against sceptical questions: • What if fewer people buy? • What if costs double? • What if schedules are missed?

28. Summary continued • Remember your audience: • Investors want you to persuade them that you’ll earn more for them than something else • They are investing in you and your business idea! • Business partners and prospective employees want to know that you will still be around in six months and what you will be doing

29. What entrepreneurs need to understand “People keep trying to be perfect – and never start anything. Don’t worry, be crappy” Guy Kawasaki • The 80:20 rule

30. Conclusion • If you are interested in starting a company: • Don’t publish! Get help first • Take part in the E-Challenge… • Speak to the university to check your IP position • Summarise your idea • Refine it • Find the right IP protection • Find the right managers • Find the money Get going…!

31. Good Luck! …and remember that the plan you start with will never be the one you finish with…

32. 22 January 2008, London Entrepreneurs’ Challenge Tim Barnes, Executive Director, UCL Advances How to Write a Business Plan Questions?