BUSINESS PLANS FOR EQUITY INVESTORS

1. BUSINESS PLANS FOR EQUITY INVESTORS -Randy Harmon, NJ Small Business Development Centers, Rutgers Business School NJSBDC.com/scitech Business Plan Article-www.njbiz.com/guide

2. I DID IT! I’VE GOT IT!MAYBE I SHOULD GO INTO BUSINESS -Science and technology based businesses are typically founded by one or more technical professionals with little business experience -They are vulnerable to overemphasizing the technology… If we build it, they will come -First step in considering launching a technology-based business is to ask yourself: Who is going to care about this technology and why? -What CUSTOMER problem am I going to solve, what unmet need am I going to fill? Is it already being filled? -Whose pain am I going to ease? -Will they care enough to pay for my solution/product at a price at which I can afford to make it available?

3. RESEARCH, RESEARCH, ANDMORE RESEARCH -Preliminary market research including the industry you are in and the industries you are targeting, customers, and competitors -Determine approximately how much money you are going to need to launch the business and carry it to the break-even point • Begin thinking about where this money is going to come from and the requirements for accessing this money -Conduct a preliminary patent search to make sure that you are not about to set out to reinvent someone else’s wheel -Consider the legal aspects and implications of setting up a business -YOUR OBJECTIVE IS TO CONDUCT SUFFICIENTLY DETAILED AND COMPREHENSIVE RESEARCH TO ENABLE YOU TO COMPLETE A WRITTEN BUSINESS PLAN

4. MISSION STATEMENT -What the company does, what business you are in -What industry you are in -Customers and markets -What the company aspires to become -Maximum of 2-4 sentences

5. WHERE’S THE BEEF?WHAT’S COMPELLING? -What unmet need does this fill? -Why is this important? -Why will customers care? -Why should investors care? -Why you will be successful

6. ELEVATOR PITCH -Networking is one of an entrepreneur’s most important activities -Typically a one minute description of the BUSINESS OPPORTUNITY in LAYMAN’S terms -No more than 15 seconds on the technology and product -Entrepreneurs should also have a 10-15 second networking pitch, which can be elaborated on if the listener is interested

7. ELEVATOR PITCH ADDRESS EACH POINT BELOW WITH 1 OR 2 SENTENCES AND THEN COMBINE AND SELECT YOUR BEST 10-14: -What the company does/what business you are in -Who you do it to- customers and markets -What the company aspires to become -What unmet need/customer problem do you solve? -Brief product/service description, 2 sentences max, non-technical terms -Why this is important/why customers will care/customer benefits -Why should investors care/what is compelling? -One or two exceptional milestones that demonstrate momentum is building. -What you are presently looking for (i.e. financing, guidance, team members) -Why you will be successful

8. BUSINESS PLAN -The FINAL EXAM test of the adequacy of your research -One of the most important steps in preparing to launch a new business -Describes what a business does, where it is going, how it is going to get there, and the resources it is going to require -It will only be as good as the depth and the quality of your research -Generally a prerequisite for formal debt and equity investors -

9. 3 PURPOSES -Extraction: Extracts, translates and expands upon an idea for a company from the entrepreneur’s head turning it into a written outline and roadmap for how to run a business -Most effective exercise you will go through -Communication: Communicates business to prospective advisors, management team members, investors, strategic partners and employees -Management: Effective management tool -Serves as a benchmark -Dynamic, living document

10. BUSINESS PLAN OUTLINE -Executive Summary -Company Description -Market Analysis -Product/Technology/ Service -Competitive Analysis -Marketing and Sales Plan -Management and Operations -Long Term Development and Risk Analysis -Financial Plan

11. EXECUTIVE SUMMARY -Most important component of plan -Should convey the essence of your business IN LAYMAN’S LANGUAGE and summarize the most important information contained in each section of the plan -Starts with the mission statement -Essentially an expansion of your elevator pitch -Identifies how much money you are looking to raise, your planned use of the funds, earnings projections and an exit strategy -Typically read first by investors and bankers, screening tool -Should arouse curiosity and be compelling -You want to demonstrate through a few significant milestones that a momentum is building -Should be completed last and run no more than 2 to 3 pages in length

12. A GOOD EXECUTIVE SUMMARY AND BUSINESS PLAN ARE LIKE THE FOUNDATION OF A BUILDING -Build reader’s understanding of business opportunity block by block -Each block must build upon and fit with one before it -Must flow smoothly and be easy to read

13. COMPANY DESCRIPTION -Company founding (who, what, when, why?) -Structure -Compelling information about origins of company -Current status -Anticipated pathway to market entry and profitability -Introduction to complex technologies and their significance

14. MILESTONES -Significant achievements to date -You want to be able to demonstrate that a momentum is building -The number and significance of them determines their placement in the plan

15. MARKET ANALYSIS -Investors expect entrepreneurs to know their markets at least as well as anyone else and to demonstrate that understanding in the Market, Competitive Analysis and Marketing and Sales Plan sections of the plan -Tend to be worst written sections of plan

16. MARKET -Identify, describe and quantify your market opportunity -Bigger is better, but begin by targeting niches -Discuss targeted markets including size, growth and other trends, as well as how they are likely to be impacted by economic trends -Explain rationale for targeting niches and identify unmet needs -Demonstrate dynamics of how market works including the buying and selling process and who makes decisions -Identify and discuss barriers to entry -Profile your average customer

17. PRODUCT/TECHNOLOGY/SERVICE -Describe your product thoroughly in layman’s terms -Define acronyms and scientific terms -What are its unique features? -What benefits will it deliver to customers? -Focus on what makes this a compelling business opportunity, not on how the technology works -Include more robust technical discussion as warranted as an attachment -Discuss your intellectual property position -New product pipeline

18. COMPETITIVE ANALYSISCREDIBILITY BUILDER OR KILLER -Identify and discuss your competitors -EVERY PRODUCT HAS COMPETITION -At a minimum, your competition is NO SOLUTION -What is the basis for competition? (technology, price, features, quality, service, advertising) -Competitors strengths and weaknesses -What are your strengths and weaknesses compared to your competitors? -What is your competitive advantage and how sustainable is it? -How may your competitors respond to your entry to the market? -Are there any developing technologies which could disrupt the competitive field?

19. COMPETITIVE MATRIX -Matrixes allow the presentation of lots of information in a useable format -X Axis-Critical evaluation criteria -Y Axis-Key competitors or groups

20. COMPETITIVE MATRIX Criteria 1 Criteria 2 Criteria 3 Price Speed Useful life Competitor 1 $ 28,000 8 units/hr 7 years Competitor 2 $ 37,000 10 units/hr 10 years Competitor 3 $ 31,000 10 units/hr 8 years You Inc. $ 33,000 12 units/hr 10 years

21. MARKET VALIDATION -Sales -Beta testing -Business Partnerships -Testimonies from prospective customers and industry leaders

22. MARKETING AND SALES PLAN HOW YOU WILL SPREAD THE WORD ABOUT YOUR PRODUCT, GET IT INTO THE HANDS OF YOUR CUSTOMERS AND CLOSE THE SALE -Pricing strategy including gross margins and how they compare with competitors -Marketing communications strategy and message -Public relations -Advertising -How you will distribute your product -Will you have your own sales force? -Discuss market entry strategy beginning with first sale -How you will maintain and increase market share -Warrantees and customer service

23. SOONER OR LATER, MOST ENTREPRENEURS WILL HAVE TO BUILD A MANAGEMENT TEAM -Few people have or can develop all the skills required for a successful technology-based business -There is not going to be enough of you to go around -Management, Management, Management -Experience, Experience, Experience -Equity investors invest in people, particularly teams of people, at least as much as they do the business concept -All venture capital backed businesses will have to build a management team -Entrepreneur’s dilemma -Business advisory boards -Creative teambuilding

24. MANAGEMENT AND OPERATIONS -Describe each team member’s responsibilities, training, strengths and relevant prior experience -Appropriate composition of the team depends on the stage of development of the company and whether and how soon equity financing will be sought -Discuss plans for rounding out an incomplete team -Discuss advisors and significant outside resource organizations -Identify the owners of the business -Staffing plan -How will the product be produced, packaged and delivered -Facilities -Equipment

25. LONG TERM DEVELOPMENT &RISK ANALYSIS -Describe the long term development of your company, its products and your exit strategy -Identify risks both inherent in your venture and the broader business environment and demonstrate that you have a plan to address potential problems -Universal truths of entrepreneurship

26. FINANCIAL ANALYSIS -What is the company’s current financial status? -Capital requirements- both short and long term -Use of funds -Sources of funding (R&D grants, bank loans, equity, other) -Source of repayment -Projected net income and cash flow for the first 3 years -Not worth the paper they’re written on -Explanation of assumptions underlying projections -Bottom up versus top down financial projections -Break-even point -Discuss financial ratios- are they in line with industry norms?

27. EXHIBITS -FINANCIAL -Pro forma income statements -Pro forma cash flow -Pro forma balance sheets -Break-Even Analysis -Historical financial statements, if available -SUPPORTING DOCUMENTATION -Resumes -Market research information -Documentation of customer demand -Supplemental technical discussions -Product literature

28. READY, SET,… STOP! -Avoid approaching investors directly, get referred -Avoid approaching investors too early -Milestones -Market validation

29. NJ SMALL BUSINESS DEVELOPMENT CENTERS (NJSBDC)OF RUTGERS BUSINESS SCHOOL -Part of a national public, private and academic partnership -Free business counseling, consulting, and affordable business training -Funded in part by the U.S. Small Business Administration and the NJ Commerce and Economic Growth Commission -11 regional centers and 18 satellite offices across NJ -More than 200,000 small business owners, prospective entrepreneurs and business professionals served since 1979 -Serve businesses from pre-startup stage to those with 500 employees -Specialty programs in international trade, government procurement, manufacturing, E-business, & technology commercialization

30. NJ SMALL BUSINESS DEVELOPMENT CENTERS (NJSBDC) Services include help with: -Business plans -Marketing plans -Financial statements -Loan packages -Record keeping -Taxes -E-commerce NJSBDC Web Site: www.NJSBDC.com SBA Web site: www.sba.gov

31. RUTGERS RESOURCES -NJSBDC DIRECTOR OF E-BUSINESS • Reviews and evaluations of small business web sites • Nat Bender 973-353-1924 -RUTGERS INTERFUNCTIONAL TEAM CONSULTING PROGRAM • 2 semester business development projects • Teams of 5-7 second year MBA students • Business plans, market research, marketing plans • January, May and September start dates • Paul Belliveau- 973-353-1126