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Business 16 Stanford Department of Continuing Education Class # 1, 9/21/09

Business 16 Stanford Department of Continuing Education Class # 1, 9/21/09. What Is A Business Plan, And What Good Is It Anyway?. Housekeeping:.

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Business 16 Stanford Department of Continuing Education Class # 1, 9/21/09

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  1. Business 16Stanford Department of Continuing EducationClass # 1, 9/21/09 What Is A Business Plan, And What Good Is It Anyway?

  2. Housekeeping: Doug Kelly, M.D.General Partner, Alloy Venturesdoug@alloyventures.comSlides: www.alloyventures.com/class.htmlBusiness plans due last day of classPartnering on plans encouragedGrades are not; requires BP & final presentationMotivation, Groundrules, Ethics, Politeness, Excuses, & Making Life Easy On Yourselves

  3. Why do start-ups fail? • Poor risk management • Market risk • Technical risk • Competitive risk • Intellectual property risk • Management risk • Distribution risk • Regulatory risk • Financing risk • Liquidity risk • Risk is inversely proportional to value and your ownership.

  4. If you are unwilling do enough research to thoroughly assess and quantitate these risks, and start a company anyway, you are an idiot and you should drop this class right now.

  5. Why are start-ups like helicopters?

  6. Would you pilot a helicopter without taking lessons first? • Of course not. But you have to commit to doing it right. • It takes qualities and skills that you may not have and that you will have to develop. • Everybody is in the same boat here, so don’t get too smug.

  7. Qualities and Skills? • The 2 most important qualities and skills are humility and losing your fear of humiliation. • Once you admit that there is a lot you don’t know, and you are not afraid to ask for help, you can begin the tough work of asking a lot of people questions to help you in your risk assessment. • Satisfactory answers to these questions, organized in a compelling way are called a Business Plan.

  8. Portrait of a failed entrepreneuras a young bonehead • “I don’t need a business plan” • “My business is growing/changing too fast to write a plan” • “It is obviously such a good plan I don’t need one” • “I’m afraid if it got into the wrong hands someone would steal my idea” • “I’m just the technical guy; I don’t know anything about business. I’ll let somebody else do it.” • “My mom never bought me that book on how to write a business plan at Borders”

  9. Excuses of a failed entrepreneuras an old bonehead • “Sales just never took off.” • “We ran out of money because our investors chickened out.” • “I had a board full of idiots who were always wasting time with meetings and stupid questions.” • “Somebody else had a patent.” • “The guy that wrote our plan was way over-optimistic.” • “It was everybody else’s fault.”

  10. Other reasons for a business plan • It’s more for you than anybody else such as VCs. • It allows you to organize your thoughts. • It allows you to see what you are missing. • It shows others that you have a rational organized process. • It becomes a historical document to let you see what you were thinking at the time. • It is a recruiting tool.

  11. Why a business plan? • It keeps you honest • It is a starting point for a tactical operating plan • It is a document that justifies the existence of a company • It is a critical document that assesses pros and cons • It is a roadmap for strategic focus

  12. Why a business plan? • It is a money-raising document that represents what kind of founder you are • It outlines financial & operational milestones and specifies capital requirements for each

  13. What do I need to write a business plan? • Research, research, research • Honesty, honesty, honesty • Guts, and the aforementioned humility • Determination that if it does not hold together, change the model or kill the plan • Recognition that it is cheaper to kill a marginal idea than to try to make it work

  14. What do I need to write a business plan? • Do your financial homework • Talk to your customers • Talk to your competitors • Realize you can never do enough work on your plan • Remember that it is a living document

  15. Remember: • You need to determine the criteria that qualify you company as a success or a failure. Your potential employees and investors sure will. • If your plan doesn’t scream success, KILL IT AND TRY ANOTHER BUSINESS. • Talk to your everybody, customers, competitors. • Realize you can never do enough work on your plan, and that it is a living document. • The better you understand your business and the more external confirmation you have, the higher your odds of success.

  16. What are the parts of a business plan? • Executive summary/use of funds • The problem/the market • The solution (your business proposition) • Market and trends • Competitors • Sales strategy and distribution • Intellectual property (patents, trade secrets, unfair competitive advantage) • Government regulation

  17. What are the parts of a business plan? • Exit/liquidity • People (key employees, advisors) • Financials (Capitalization chart, 5 years of income statements, balance sheets, cash flows) • Appendix

  18. Executive summary • 1 or 2 pages • Summary of business plan with all sections • Your one chance to grab the reader • Avoid hyperbole • The more quantitative you are, the better • Cite your sources • How much you want to raise/use of funds

  19. The problem • Describe what the customers’ itch is • Current solutions • Current costs/size of market opportunity • Who cares?

  20. The solution • What can you do? • How much does it cost? • Who says it is important? • Discusses specific attributes • Describes the logic behind this solution • Establishes the credibility of your due diligence • Is it a marginal improvement or revolutionary?

  21. The solution • Will competitors get to it if you don’t? • What makes your solution unique? • Is it a must have or a nice to have? • Does it allow my customer to do it better/faster/cheaper? • How do you keep from getting pulverized? • What makes you so smart? • Developmental milestones, timelines and costs, uses of cash

  22. The solution • Strategy & tactics

  23. The Market • How big? • How is it divided? • Who owns what? • Who are your customers? • How are they organized? • What are the politics of their organization? • Who are your early adopters?

  24. The Market • What are their motivations? • Why should they buy from a new supplier and not a trusted brand? • What influences their buying decision? • Where is your niche? • Total vs. Addressable vs. other • Growth • Changes due to technology or other reasons

  25. Competitors • Current competition and their future trends. • Future potential competitors. • Competitive response to your success. • Remember, the status quo is a competitor. • If you think you don’t have any competitors, you took your mom too seriously when she said you were the smartest kid in the whole world. Think harder. • Charts, showing the competitive landscape and competitive product attributes are useful.

  26. Sales Strategy & Distribution • How am I going to sell, direct or through distributors? • How am I going to price? • Can I support my own sales staff? • Can I access my customers? How much will it cost? Alternatives? • How much profit will I have to give to the channel?

  27. Sales Strategy & Distribution • How much will each salesman have to sell? • How do my competitors’ salesmen do it? • How are my competitors’ salesmen organized? • What prevents my distributor from competing with me? • What are their incentives? • What prevents them from selling competitive products?

  28. Intellectual property • Patents • Trade secrets • Know-how • Contract/agreements • Unfair competitive advantage

  29. Government Regulation • FDA, FCC, others

  30. Exit/Liquidity • Going public (ugh). • Selling your company/merging/getting acquired. • Participating in an ongoing revenue stream.

  31. People • Key employees (CEO, CFO, VPs, Sr. technical people, inventors) • Board members/investors • Scientific Advisory Board • Business Advisory Board • Lawyers • Accountants

  32. Financials • Should tell you how much money you need to reach your milestones • Should justify why this is a good business/investment • Should allow you to do sensitivity analysis and ask “what if I am a quarter ahead or behind?”

  33. Financials • Capitalization chart, 5 years of income statements, balance sheets, cash flows • Should be able to show why each round of financing is a good investment

  34. Appendix • Technical documents • User illusion/customer scenario

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