TEDROGERS

SCHOOL OFMANAGEMENT

RYERSONUNIVERSITY

Business Plan SeminarDr. Dave Valliere

Entrepreneurship & Strategy

Investor’s Screening Criteria

• How much money can be made?• How quickly can it be made?• How will it be made?• How much investment is required?• How liquid is the investment?• How involved do I have to get?• Who else is involved?

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What Investors Like

• Large and rapidly expanding market• Complete team of “stars”, with proven

track records• “10X” improvement• Compelling strategy, competitive

advantage, and business model• Sustainability

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What Scares Them Off• High risk, relative to the expected returns• Seeking too much capital, or too little

– High tides hide the rocks• Quibbling over deal terms• Lack of commitment, integrity, realism• Weak managers

– Poorly thought out Bizplans– Lack of Investor’s Perspective

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Your Business Opportunities

• An opportunity is not just an idea– “it can be done” is insufficient– “is it worth doing?”

• Think big, high-potential– Not “what can I do with what I have?”– Instead, “what will it take to do the right thing,

and how can I get it?”– People like to back winners

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Opportunity Evaluation

• What product or service will be sold?• Who will it be sold to?• How much will it cost to produce? Average selling? • How big is the target market?• What percentage of that market must be penetrated to

reach $50 million in sales?• Who is the direct and indirect competition?• What is the sustainable competitive advantage? • Who is on the team?• Is the product complete? If not, when?

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DEVELOPING THE PLAN

• It doesn’t matter how flashy the document or the presentation, if the ideas are lame or half-baked

• You should want to wirebrush it more than anyone else– Not the case? Then you are wasting your time

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The Business Plan

• Audience: people with resources to invest– Financial, talent, relationships

• Help these investors understand the business– Why they should invest their resources

• Typically “poor” and not well-received– Not thought through– Ignores the key questions for investors

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Bizplan Answers

• Why does the market care?– the only problem money can’t solve

• What is your competitive advantage?– how you can sustain it

• Can you handle your Unforeseen Killer Variables?– by definition, you won’t know your UKVs

• Can you make money at it?

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Bizplan Contents• Executive Summary• Customer Need & Market Opportunity• Business Strategy & Key Milestones• Marketing Plan• Operations Plan• Management & Key Personnel• Financial Projections & Requirements• Appendices

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Some Questions You Need to Think Through

• Market• Competitors• Pricing• Customers• Suppliers• Service

• Regulatory Issues• Location• Risks• Physical Assets• People Assets• Financial

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Which ones are most important in YOUR business?

Financial Forecasting

• Project your expected sales• Associated COS• Infrastructure ramp-up, staff, and G&A• Working capital policy implications• Fixed asset requirements• Adjust for timings, depreciation, interest,

taxes• Cashflow with negative balance• Impact of various financing scenarios

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Sensitivity Analysis• What assumptions in your business are

reasonable to vary?– Pricing trends– Duration of sale cycle– Magnitude and timing of revenues– Launch expenses– Cost of key supplies– Lead time to hire staff– Working capital days– Cost and lead time for financing…

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Scenarios

• Monthly for first 1 or 2 years• Yearly for 5 years• Most likely case

– Credibility test: how realistic are you?• Best case

– Credibility test: how good can it get without dreaming in Technicolor?

• Worst case– Credibility test: can you face up squarely?

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General Tips• Model the dependencies

– COS= f(sales), G&A = f(staff), Pricing = f(time)• Avoid specious precision

– Use $000s– Follow GAAP

• Summarize into charts– Sales hockey stick– Cashflow and profit J-curves– Key ratios (which ones do you think?)

• Investors love/hate hockey sticks– Watch for synchronization

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PACKAGING THE PLAN

• The most important sales document you will ever produce

• Understand the how/why of the reader• What does the artifact signal about you?

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How to Read a Bizplan

• Executive summary– 2 pages max– Are they out to lunch?

• Team bios at the end– Any credibility?

• Market description– Real need?

• Everything else

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Appearances Matter

• How many pages?• Binding?• Colour?• Multimedia?

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Details Matter

• Spelling, grammar• Page numbers, TOC• Organization, headings• Consistency between figures and text• What belongs in an appendix?

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LIFE’S A PITCH

• What are you really selling?• What does your ability to pitch say about other

important things?– Communicate– Connect with people– Persuade and convince– Understand the audience– Anticipate objections– Handle unforeseen problems

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Understand the Investor Perspective

• Understand the judges as your customer – your product is your company– Judges are sophisticated, BS-proof sounding boards

• The judges want to help you to– See the truth, for better or worse– Iron out the bugs in your plan/pitch– Avoid going after the wrong opportunity– Survive after the $25k runs out– Raise even more money from professional sources– Become rich and famous (remember those who helped you :)

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The Basic Idea…

• You are a group of people who– Have identified something that solves a

problem for somebody willing to pay– Have a plan to

• Create the company• Build and market the solution• Use an initial investment wisely• Protect yourselves from competitors

– Can adapt to changing situations– Are smart and get things done

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Be Prepared

• Complete, concise business plan with good executive summary

• Be prepared to market your company to the judges

• Be “Up” and show the “Fire in the Belly”• Be realistic in terms of your requirements• Anticipate additional information which may be

required – and be ready!• Don’t BS judges, or yourself…

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Be Realistic

Have a realistic idea of:• Your strengths and weaknesses• The amount of money you will need to achieve

your objectives– Seeking too little is worse than seeking too much!

• The amount of time required to fill the gaps in your plan– Raising more money, hiring good people, landing

reference customers

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Judges Ask Themselves

• Screening Criteria– Is it worth it?

• Use of proceeds– VA or overhead?

• Spending enough to ensure success– Thinking big but realistically?

• Depth of market knowledge– How do people buy?

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Judges Evaluate You

• How good is the selected Opportunity?– Should we encourage this student to go for it,

or think of something even better?• How good is the Plan?

– Has this student really thought it through?• How likely is this business to survive?

– What happens when the prize is spent?

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Go for the Close

• Recap your main messages• Ask for what you want!

– There’s more available than just the $25k• Mine the valuable feedback

– Pay attention to what questions get asked– Hot leads and referrals

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