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The Full Business Plan

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

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The Full Business Plan

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  1. The Full Business Plan Paul Kirsch Samuel Zell & Robert H. Lurie Institute For Entrepreneurial Studies January 20, 2006

  2. Executive Summary Core Idea Elevator Pitch Business Plan Power Point Parts of a Coordinated Message The Message of your Business Idea

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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? *

  11. 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

  12. 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?

  13. Products and Services • Detailed description • Where in the product life cycle • Where in the development process • Other R&D concerns? • IP protection

  14. 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

  15. Operations • What activities will you be doing? • Do any operational components deliver key advantages? • Important relationships

  16. Risk Mitigation • Commonly explored classes of risk • Technical • Market • Competitive • Management • Execution

  17. 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

  18. 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

  19. 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

  20. Exit • Document “ballpark” returns • Offer feasible exit strategies • What is “typical” in your industry? • Acquisition • IPO • Management buyout

  21. 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

  22. This is the content portion of the presentation Questions?

  23. Other information, advice and things to keep in mind while developing your plan

  24. 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.

  25. 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

  26. 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

  27. 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

  28. 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

  29. 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”

  30. 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

  31. 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

  32. ½ of the Business Model Answer • What do you do? Value Proposition & Business Model Technology Raw Materials Product Design Mfg Marketing Sales Distribution

  33. 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

  34. 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.

  35. 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

  36. 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

  37. 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.

  38. 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?

  39. 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.

  40. 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)

  41. Sensitivity Analysis

  42. Next Session:Presenting Your Business Plan February 3, 2006 12:00 – 1:30 E0540

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