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1
Objective of a “Winning” Plan
Create a business thatprovides potential customers
a better (value - price) propositionthan competitors
while managing costs and expensesso as to make profits (earnings)
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Writing a winning business plan (Part I) Uses of plan Important characteristics Turn-offs and turn-ons Investor criteria Questions answered by plan Research before writing Elements and outline of business plan Executive summary
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Uses of business plan Game plan for
company Raising capital Document for
credibility with vendors, customers
Operations plan Performance
measurement
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Essential characteristics Most important: succinct Length: 30 pp + financials + appendix 1st draft: write too much, then pare down Eliminate work for reader Stand out from the crowd Legal issue: disclose all material info Note: INVESTOR LOOKS FOR KEYS TO
SUCCESS
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Differentiate your plan Most business
plans seen by investors and bankers are pathetic
An outstanding business plan is a great differentiator
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Investor/banker turn-offs “Pre-packaged” plan Product/service/technology orientation Insufficient research of market Insufficient knowledge of competition Unrealistic financial projections Failure to examine risks Unreasonable valuation Spelling, grammar, arithmetic errors
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Investor/banker turn-ons Executive summary compelling reader to study
plan Market opportunity that gives company
distinct competitive advantage Evidence of market acceptance Proprietary position Management team which can execute Producible and saleable product Reasonable valuation Achievable/believable projections – satisfying
investor ROI expectations
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Key questions answered by a winning business plan
What need will you satisfy and how large is that need?
How will you satisfy that need, and how will you make money doing it?
What are the prospects for success? What do you need to do it? What’s in it for the investor?
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Research before writing (1) What can company become in short and
long runs? Why does opportunity exist? How long
will it last? Is there a bullet proof business model? Who will be the first customer; why will
customer buy; how many will he buy? Why and how will company withstand
competition?
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Research before writing (2) What are three most important
assumptions on which success is based? How to test them?
What is upside potential and downside risk?
What has to happen to reach cash flow break-even?
How sensitive are projections to key assumptions?
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Vision An informed and forward-looking
statement of purpose defining the long-term destiny of the company
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Mission statement
More complete description of company’s goals and customers, incorporating vision statement
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Value proposition The monetary worth of the benefits
a customer pays for a product or service
Five key values: Product Price Access Service Experience
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Business model Description of the business and how
it will work economically; set of planned assumptions about how a company will create value for all its stakeholders
Elements: Customer selection Value proposition Differentiation and control Scope of product and activities
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Stuck? Write a “mini-plan” first Two-page plan which answers:
What is concept? How will you market it? How much will it cost to produce/deliver? What will happen when sales begin?
Write down assumptions Test assumptions Give yourself time to discover
mistakes
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Elements of business plan (1) Executive summary Opportunity: quality, growth potential Vision: mission, objective, core concept Product/service: value proposition, business
model Context: industry, timeliness, regulations Strategy: entry, marketing, operations, market
analysis Organization: structure, culture, talent
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Elements of business plan (2) Entrepreneurial team: capabilities,
commitment Financial plan: assumptions, cash flow, P&L Required resources: financial, physical, human Uncertainties and risks Financial return: ROI Harvest: return of cash to investors, founders,
and employees
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Outline of winning business plan (1) Cover/title page Executive summary Tables of contents, illustrations, tables I. Company description II. Products and/or services III. Market description IV. Competition V. Marketing strategy
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Outline of winning business plan (2) VI. Management team, organization,
staffing, facilities VII. Financial plan VIII.Investment and ownership IX. Critical risks Appendices (separately bound)
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Executive summary (1) Most important part of plan!!! Assume five-minute reader Therefore, 3-4 pages long Standalone “mini-plan”
Most critical paragraphs: The pain How the pain is going to be cured
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Executive summary (2)
1. Purpose of plan2. Summary description of business3. Opportunity/pain and strategy4. Market analysis5. R&D and production plans6. Management team7. Financial summary
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Executive summary (3) 1. Purpose of plan
Attract investors/bankers or internal tool
What’s in it for investor/banker “Credibility-builders” (customers…)
2. Summary description of business One-sentence description Needs to be satisfied – the pain How needs will be satisfied
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Executive summary (3) 3. Opportunity and strategy
Marketing and sales strategies Distinctive advantage
4. Market analysis Target market Size, demographics, growth rate Market trends
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Executive summary (4) 5. R&D and production plans
Current status and milestones Proprietary status
6. Management team Founders, key people, board
members Relevant experience
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Executive summary (5) 7. Financial summary
Capitalization table Prior funding and valuations Required current funding and use of
funds Summarized actual and pro forma
financials for 5 years (annualized): P&L: revenues, net income Cash flow: cash position at each year-end
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Writing a winning business plan (Part II) Body of plan
Some thoughts on financial forecasting
Appendices Turning business plan into
PowerPoint presentation
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Roadmap for building plan
1. Opportunity/pain2. Solution: product or service3. Context, strategy, time horizon4. Organizational, financial, and other
resources needed and available5. Financial returns to participants
and risks
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Body of plan Cover/title page
Company name, address, phone number, e-mail address, web site
CEO name as contact Date Control number Proprietary statement
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Sample proprietary statement “Proprietary and confidential. Not
for discussion or disclosure without written permission of XYZ, Inc.”
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Body of plan Executive summary
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Body of plan I. Company description
History Legal establishment Nature of business Strategic mission statement The vision Overall and specific objectives
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Body of plan II. Products and/or services
Description Application and value to customers Underlying technology Proprietary status Current/future products or services Development/go-to-market schedule Distinctive competence/differentiation Revenue model
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Body of plan III. Market analysis
Total market Target market Where are customers? How will you
reach them? Identify first 3-5 customers (by name) Market trends
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Body of plan IV. Competition
List of competitors Competitors’ characteristics,
strengths, weaknesses, market shares Summary table of competing
products Your competitive advantage Your barriers to entry
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Body of plan V. Marketing and sales strategies
Promotion and advertising Pricing strategy Distribution channels Sales forecasts and budgets SWOT analysis
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Body of plan VI. Management team, organization,
staffing, facilities Management team bios Organization chart Brief job descriptions Board of Directors Board of Advisors Staffing plan/schedule Facility plan/ schedule Service providers: bank/attorney/accountant
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Body of plan VII. Financial plan (actual and pro
forma) Financials:
Cash flow: Year 1: monthly Year 2: quarterly Years 3-5: annual
P&L: Same as cash flow
Balance sheet: Years 1-2: quarterly Years 3-5: annual
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Creating a financial plan The numbers tell you how your
business is run…
…not why.
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Creating a financial plan/forecast Learn the basic language of accounting Quantify present and future operations
with numbers Project realistically Use financial forecasts to:
Plan cash needs Measure performance with ratio analysis Study effect on profitability of: marketing,
R&D, production, etc., costs
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Needed in financial plan Cash flow Operating (Profit & Loss)
statement Balance sheet
Ratios and “magic numbers” Assumptions
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Cash flow forecast Changes in company’s cash from:
Operations, investments, financing Collections from:
Operations, sale of assets, new financing Disbursements to:
Purchase of assets, debt repayment, cost of operations
Cash flow = Collections - Disbursements
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Profit & loss statement
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Balance sheet
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Ratio analysis Tests of profitability:
Return on investment (ROI) = net income/tangible net worth
Return on equity (ROE) = net income/owners’ equity
Return on sales (profit margin) = net income/gross sales
Inventory turnover = cost of goods sold/average inventory
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Ratio analysis (2) Tests of financial health:
Current ratio = current assets/current liabilities
Working capital turnover = sales/(current assets-current liabilities)
Debt-to-equity = total debt/total equity
Collection period = days in year/receivables turnover
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Notes on financial plan Most business plans waste too much
time/space on numbers Most important: business model with
key drivers, such as (for example): Manufacturing: yield on production process Magazine publishing: renewal rate Software: distribution channels
Most important info: when company will become cash flow positive
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Body of plan VIII. Ownership and investment
Current ownership (cap table) Capital needs and use of funds Past investment(s) and valuation(s) Stock option plan Exit for investors
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Body of plan IX. Critical risks (examples)
Cost overruns, delays Supplier, distributor problems Competitive price-cutting Capital shortages Limited operating history Limited management experience Dependence on key management
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Appendices (bind separately) Photos/sketches of product Test results/testimonials Documentation of proprietary status Published industry/market studies Price list/catalog/data sheet Advertisements/press releases Brochures Full resumes of management team
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Summary of keys to winning business plan Easy to read Clear explanation of market pain and
company’s cure Market-driven company comes across Exploits company’s uniqueness and
competitors’ weaknesses Realistic business model Attractive, but realistic, projections Spend majority of time on executive summary Prepare one-page teaser to send with
executive summary
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Oral presentation of plan to investors
Investor’s issues: Can I trust entrepreneur? Do I believe entrepreneur? Does entrepreneur appear
capable of executing plan? Does team have talent and
experience to make it happen?
Can I make money on my investment in a reasonable time?
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Oral presentation Use PowerPoint:
Turn Executive Summary into bullet points
Aim for 20-minute presentation (without Q&A) = 10-12 slides
Slides should not be excessively busy: max. 12 lines/slide
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Oral presentation outline Slide 1: Title (name, logo, presentation to …) Slide 2: Business description, history Slide 3: Management team, BOD Slide 4: Market pain and cure strategy Slide 5: Competitive advantage/barriers to entry Slide 6: Market analysis Slide 7: Sales strategy Slide 8: Product/service description Slide 9: Financial plan Slide 10: Investment and use of proceeds
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Key Considerations in Developing a Winning Plan Importance of people/skills/resources Assessment: identifying “good” ideas Targeting specific customers/segments Dealing with the “whole” product Differentiation from competitors Risk analysis and reduction Investor payback
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Business Planning is an Iterative Process…
Tell the story…(Draft your narrative sections)
Run the numbers…(Develop your Financial Plan)
Verify the story…(Examine the narrative sections)
1
2
3
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Reviewing the Business Plan Model
Cost Projections Sales Projections
Pro Forma Financial Statements
Operating Plan Marketing Plan
Financial Plan
What will it cost to produce your product or service?
What will it cost to sell any given amount of your product or service?
How will your business make money? How much? For how long? Risks?
Industry, Buyer & Competitor
Analyses
Opportunity Product/ServiceWhy this business? Why now? Why you?
What are you going to provide and who wants to buy it?