Presented by Jurek Sikorski Entrepreneur in Residence at LBS Independent Business Adviser Mentor

1. Write a Great Business Plan Presented by Jurek Sikorski Entrepreneur in Residence at LBS Independent Business Adviser Mentor Friday, 6 December 2013

2. Coming up... • The keys to sustaining competitive advantage • What needs to be in the business plan to make it compelling? • What does a great business plan look like? • Guidelines for writing a great business plan • What to do to get ‘investment ready’ • Where to go for help in preparing a business plan Exercise Write a great business plan

3. ‘ Give me a lever long enough and a fulcrum on which to place it and I’ll move the world ’ Write a great business plan

4. The perfect business plan does not exist… • Business plans... rarely survive the first market test • Business plans fall down on having scant information about the market and lack evidence that the customer will buy the product and miss what needs to be included... • Financial projections are always wrong ‘Start-ups are NOT smaller versions of large companies’ Write a great business plan

5. Why are business plans written? • To help you understand an opportunity... and what it will take to exploit it • To recruit prospective partners and team members/employees • To monitor progress and keep you on track following start-up... • To rejuvenate and re-focus a business... • To raise funds for the business Business plans will change and should be regularly reviewed… Write a great business plan

6. When to write a business plan? • Writing a business plan before you have carried out a proper and full assessment of the opportunity is a wasted exercise • What comes first is not the business plan but the assessment... - Avoids impending disaster… - Kick starts the business planning process - Collects real data • The most thorough assessment is that afforded by the seven domain analysis Write a great business plan

7. The seven domain analysis… helps you answer the important question: Will or won’t this business succeed? • The analysis highlights • markets are different from industries • both micro and macro considerations are necessary • key to assessing the team goes beyond the CV to understand vision, ability to execute and connectedness • Are the market and industry attractive • Does idea offer compelling benefits • Can the team deliver Write a great business plan

8. The keys to sustaining a competitive advantage An initial advantage is sustainable when: There is strong intellectual property – patents, trade secretsand IP There are superior organisational processes, capabilities and resources The business model is economically viable – can generate... and not run out of cash Revenue is adequate Customer acquisition and retention costs… are viable Contribution margin is sufficient Operating cash is favourable Write a great business plan – keys to sustaining a competitive advantage

9. How Humira achieved sustainable advantage Delivered strong product advantages and patent protection • Adalimumab, third TNF alpha inhibitorto be approved by the FDA; marketed by Abbvie • Discovered through a collaboration between BASF and Cambridge Antibody Technology with sales of $9bn in 2012 • Abbive has global reach and in market customer support capabilities • Patent protected - first patent application filed in 1996 continues until 2016 • Strong product advantages - rapid onset of action, s/c administration and simple dosing regimen Write a great business plan

10. How eBay achieved sustainable advantage Established an economically viable model An American multi national internet C2C company… In 2012 generated $14bn in revenue from various fees and commissions - investment has been/is very modest Customer acquisition costs are low - customers arrive by word of mouth, no shortage of people who wanted to sell and spends little on advertising Contribution margin is high- cost of goods is low since customers own goods and transactions are paperless Cash cycle is very favourable - sellers pay an insertion fee with range of additional fees up front and there are no receivables and no inventory Became cash flow positive almost from day 1 Write a great business plan

11. How EMI lost the initial advantage... Failed to build the necessary organisational capabilities • In 1973 EMI launched its patented Computerised Axial Tomography (CAT) scanner • EMI rapidly won 75% share of the global market for scanners • Competitors including GE responded robustly with similar CAT scanners without infringing the EMI patents • GE launched its product in 1976 and leveraged significant expertise in manufacturing and in-market capabilities… • EMI plagued by production problems, a law suit and mounting losses was forced into a merger with Thorn Electrical that eventually sold the CAT rights to GE Within 6 years of launching the CAT scanner EMI had gone from market leader… to exiting the business Write a great business plan

12. Does Pizza Rossa have a sustainable advantage? Exercise Based on your reading of the Executive Summary... What is Pizza Rossa’s sustainable advantage? Work in pairs and take 10 minutes Feedback to the group Write a great business plan

13. A framework for compiling content to write a great business plan • Risk/Reward • Assessment of what can go wrong and how the team can respond and address effectively The framework describes the attributes of a successful business… Write a great business plan - framework

14. Team – Who are these people? The ten ‘team’ related questions every business plan should answer • Where have the team members been educated/worked and for whom? • What have they accomplished – professionally and personally? • How well do they know the products, customers and competition? • What skills, knowledge, experience do they have that is relevant to the opportunity? • Have they worked together before? • How realistic are they about the venture’s chances of success? • Who else needs to be on the team? • Do they know the risks? How will they respond to manage these? • Do they have the mettle to make the tough decisions? • How committed are they to this venture and what are their motivations Investors look for a team that is known… • ‘When writing a business plan feature people prominently and talk about them exhaustively’ Write a great business plan - framework

15. Opportunity – of a lifetime or is it? The ten questions about the opportunity every business plan should answer • Who is the customer? • How many customers are there for your product/service? • How does the customer make decisions about buying your product/service? • In what ways is the product/service better than the competition? • How will your product/service be priced? • How will the product be sold and delivered? • What IP does the product have? • What has to be done to retain the customer? • How much does it cost to acquire a customer? • How much does it cost to produce your product/service? • Questions about competitors: • Who are the competitors? • What are their S&Ws • How will they respond? • How does the venture reply? • What scope for collaboration? What are the cash flow implications of pursuing an opportunity? Address ‘how the business will expand its range of products and services, customer base and geographical scope?’… Write a great business plan - framework

16. Opportunities exist in a Context • Context is the range of external forces- from the political, economic, social-cultural and technological to the environmental and legal such as the regulations that govern manufacture and sale of products • Context can have a tremendous impact on every aspect of the entrepreneurship process – the context can make it easy or difficult to start (and fund) a company • Every business plan should explain the context... and what management might do if context becomes unfavourable Write a great business plan - framework

17. Context – does it help or hamper? The 10 questions you need to answer about how the macro environmental forces impact your business • How does the current economic climate impact your business? • What are the legal regulations that govern the sale of your product/service? • What is the government strategy for your industry? • Does your product/service require a product licence or CE mark? • What are the technological advances that help/hinder your business? • What future changes are anticipated in your industry that will affect your business? • How can the management influence the context e.g. lobbying via trade association? • How does the business impact its environment and what should the business be doing • How socially responsible is the business/should the business be? • What funding is available to your industry and potentially your business? Write a great business plan - framework

18. Risk and Reward Time to positive cash flow Potential Reward 15% Probability What class of investment? Risk is unavoidable -100% 15% 45% 90% Annual Rate of Return ‘the plan must unflinchingly confront the risks ahead in terms of the team, opportunity and context’… Write a great business plan - framework

19. Risk and Reward – how are these managed? The 10 questions asked by the investors • What are the main risks facing the business? • How will you deal with a new competitor (‘GE entrant’)? • What happens when your partner leaves? • What happens is you are unable to secure a patent? • What is the breakeven if sales grow at half the rate? • Why would J&J not develop a better device? • What will you do if your break even is delayed? • What happens if your costs rise by 25%? • What is the return I can expect after 5 years? • What is the exit strategy? The business plan should candidly talk about the end of the process… and address the question ‘how will the investor get money out of the business, assuming the business is successful?’ Write a great business plan - framework

20. Rapid Lateral Flow Immunochromatographic Technology Collecting that information helps you build your business model... Key Partners Key Activities Customer Relationships Customer Segments • Value Proposition Rapid tests (<30 mins) Local Distributors Manufacture and supply of test Sales team Africa and other TID endemic regions Accurate (>99%) Marketing and selling of tests Hospitals and clinics Technical support Doctors, nurses and non-skilled ancillary staff – need an accurate test No equipment required Key Resources Channels Commercial reagent suppliers Recruitment and training of distributors Education events Low cost (~£1/test) Porous paper supplier Field clinics, homes and clinical laboratories – need a simple test Working capital Local distributors/NGOs Enable early treatment Investors - VCs Scientific/commercial staff – develop and market tests Wholesalers Simple 3 step operation Local Ministry of Health – test has to be affordable Facility landlord Knowledge and expertise WHO Patented technology Cost of sales (<25p/test) Price set at between £0.50p - £0.60p /test FOB Gross Margin: min. 50% Facility (£25k pa) Cost Structure Revenue Streams Salaries (£250k pa) Marketing (£100k pa) Revenue £1m rising to over £25m by year 5 Business Model Generation: Alexander Osterwalder & YvesPigneur 2010 Customer Development

21. What does a great business plan look like?

22. Guidelines for writing a business plan Write a great business plan – guidelines for writing a business plan

23. What are the red flags? • Team that is not committed to the plan • Absence of hard evidence and poorly cited business • Defining the market too broadly • Overly aggressive or unsupported financial forecasts • Sloppiness in any area Write a great business plan – Guidelines for writing a business plan

24. What do investors look for... Team Full time management team (of at least two people); worked Expertise (and experience in the sector) Commitment (a vested interest in the success of the business... time and finance) People they like and trust and who are receptive to their input Determination and a bias for action Low starting salaries (at the start until business is profitable) Honesty (no surprises) Business High Return (IRR of >50% pa) Proven concept with preference for sales Realistic financial projections High growth potential (business is scalable) IP (knowhow, patent(s), designs) secured in the business Risk profile and management Business in a sector in which investor has experience Investment ready Exit route Deal Tax Relief (when investing in a business that qualifies for (S)EIS relief) Realistic valuation (an unrealistic valuation is a common deal-killer) Matches investment criteria Fair investment terms Simple shareholder structure ‘Business plans are rejected because founders fail to demonstrate these requirements’ Writing a great business plan – what investors look for

25. Business plan has to demonstrate the venture is ‘investment ready’ • To be ‘investment ready’ you need to: • give a total commitment to the venture • have a compelling and persuasive value proposition • be looking for fast growth/scale rapidly • have a proven need for your product or service... • demonstrate deep knowledge of your market and industry • understand the investment process... • know your financials and what investors look for • be able to present your business credibly • have an experienced team • be ready to invest yourself Writing a great business plan – investment ready

26. Presenting the business plan to investors • First meeting is generally short (usually no no more than an hour) • Investor will ask for/expect a presentation 20-30 minutes followed by questions • Expect the investor to be very critical but don’t be discouraged • In the first meeting investors typically focus on whether a real opportunity exists and whether the team can pull off the venture • If the investor is interested the founders will be asked back to meet with partners • Use PowerPoint • Limit to 12 slides • Speak plainly … • Check you have answered the questions • Define next steps Write a great business plan to attract private funding –presenting to investors

27. Where to go in preparing a business plan – Further reading • ‘Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers’ by Alexander Osterwalder and Yves Pigneur (2010) • ‘FT Essential Guide to Writing a Business Plan: How to Win Backing to Start Up or Grow Your Business’ by Vaughan Evans (2011) • ‘Why the Lean Start-up changes everything’ by Steve Blank HBR May 2013 • ‘The New Business Road Test’ by John Mullins (2010) • ‘How to Write a Great Business Plan’ by William Sahlman HBR Jul-Aug 1997 • ‘Entrepreneurship: Successfully Launching New Ventures’ by Barringer & Ireland (2010) Chapter 4 Writing a Business Plan • ‘How to Research your Market’ by EzeVidra (2013) http://www.vccafe.com/2013/05/12/lean-market-research-for-startups/ Check out the British Library Business and IP Centre Write a great business plan – where to go for help in preparing a business plan

28. Jurek Sikorski Email: j.sikorski@btinternet.com Mob: 07889 720735 LinkedIn: http://uk.linkedin.com/in/jureksikorski