05 entrepreneurship - developing the business plan

Pere Joan Ribas Barceló

The Business Plan

Entrepreneurship and Innovation

Course

What Is a Business Plan?

A business plan is a written narrative, typically 25 to 35 pages long and describes what a new business plans to accomplish.

Business Plan

Dual-Use Document

1.  Inside the firm, the plan helps the company develop a “road map” to follow in executing its strategies and plans.

2. Outside the firm, it introduces potential investors and other stakeholders to the business opportunity the firm is pursuing and how it plans to pursue it.

Business Plan

The Business Plan should address two fundamental issues

1. Does a business opportunity exist?

2. Do you have the capability and strategy for pursuing the opportunity?

Living document

§  The business plan is a living document

§  Business planning is NOT a sequential process

§  Entrepreneurs are continuously updating and revising their business plan

§  Each major revision should be kept and filed for review

§  The importance of the business plan isn’t the final product, but the:

LEARNING PROCESS

How long ?

It depends…

…of the audience Lawyer, Investors, customers, potential workers/ managers…

Executive Summary

10 Pages (MAX)

Business Plan

25-35 Pages

Extended Business Plan

50-60 Pages

Operational Plan

80-100 Pages

Qualities of a good Business Plan

§ It is short and straight to the point

§ Can be visualized

§ Clearly outlines the risks associated

§ Presents clear evidence of the viability of the proposed business

PLAN STRUCTURE

2. Business opportunity

3. Analysis of the

environment

1. Executive Summary

4. Business Description

5. Financial Projections

6. Project Timeline

7. Risks and exits

8. Supporting Documents


§ MOST IMPORTANT PART OF YOUR BUSINESS PLAN

§  It should capture the essence of the business

§  It should stand as alone document

§  Interesting enough so the reader will continue reading

Summarize the key points of your business venture


§ Describe your business and how it’s different from other businesses.

§ Overview of the team (experience and skills).

§ Potential competitors.

§ How much money you need to raise and how much profit should investors expect.

Summarize the key points of your business venture


§  Mission Statement

§  Details of your analysis of the perceived opportunity.

§  Target Market Analysis (customers, market size, … )

§  Product / Service

§  The Team


§  Our mission is to organize the world’s information and make it universally accessible and useful.

§  Our mission is to provide a global trading platform where practically anyone can trade practically anything.

§  Our mission is to build a place where people can come to find and discover anything they might want to buy online.

§  Our mission and values are to help people and businesses throughout the world realize their full potential.

3. Analysis of the environment

§ PEST Analysis

§ Competitor Analysis (number, size, strengths and weaknesses, …)

ENVIRONMENT ECONOMIC POLITICAL

TECHNOLOGICAL

SOCIAL

§  Industry Analysis (trends, growth rate, …)

4. Marketing Plan

§ How will you enter the market?

§ How will you expand?

§ How will you advertise your product/service?

5. Financial Data & Projections

§  Including a 3 to 5 year projections

§ Projected profit and loss statements

§ Cash flows and balance sheets

§ Break even

§ Sensibility analysis



§ Projected profit an loss statements


§ Break even



-$ 300.000

-$ 200.000

-$ 100.000

$ 0

$ 100.000

$ 200.000

$ 300.000

$ 400.000

YEAR 1 YEAR 2 YEAR 3 YEAR 4

6. Project Timeline


§ Projected profit an loss statements


§ Break even



7. Risk Analysis

– What risks does your company face?

– How do you prepare for these risks and how is their impact minimized?

– What is the quantitative impact of each risk?

– How does the company survive if the worst scenario is realized?

The business plan should answer

The Business Plan Should Seek To Anticipate And Address The Biggest Risks In Advance

Things never turn out the way they were planned to …

… thus alternative routes and backup plans should be developed well in advance …

… and still there will be further surprises!

Examples

–  A key person leaves the company –  Conflicts arise between key persons –  Key positions cannot be filled –  Launch of product is delayed –  Costs are bigger than estimated –  Follow-up funding is difficult to get

–  Sales is only half of the expected volume

–  Competitors bring better and cheaper products to the market earlier than expected

–  A distribution partner terminates the agreement

–  A subcontractor is unable to deliver

–  The technology cannot be patented

Internal risks

External risks

A Sensitivity Analysis Is Needed For The Biggest Risk Factors

Considerations –  Identify factors with

greatest effect on key variables such as capital need

–  Draw up scenarios around these factors

–  Define the actions to be taken if the risk is realized

–  Manage risks by following-up intermediary goals/milestones

300 000

240 000

40 000

35 000

10 000

Market share –10%

Borrowing +3%

Salary costs +20%

Production costs +10%

Sales price –10%

Increased capital need

Scenarios Are Useful For Risk Analysis

Net cumulative cash flow

Year

0

1 2 3 4 5

Best case

Base case

Worst case Capital need

Payback time

Breakeven

8. Supporting Documentation

§ Charts

§ Graphs

§ Tables

§ Photographs

§ Plans

§ Evidence of your research

Back up your descriptions, assumptions and projections

Even A Perfect Plan Is Only A Plan…

Worth remembering:

§  Things never go exactly as planned

§  The predictions will not be correct

§  “Some days everything goes right, on others nothing works…”

§  “A long journey is completed taking one step at a time”

Expectations

Time Today

Goal in 3-5 years

Exit Plan

THE PROCESS AS A TRY AND FAIL:

§  Plan A fail most of the time (70% or more), Good entrepreneurs zig zag in other projects (Plan B) to move forward. Therefore, we need a high degree of tolerance towards failure.

§  Budget allocation: If we know that we are not going to get it right, don’t put all the eggs in the same basket.

§  PRODUCT: Test if people will like it, measure the market, gather as much data as you can about customers.

§  CORRECTING MISTAKES: you might need to tune, tweak or modify the product after launching it . Therefore, we need to save some money to have enough room to do it

§  NEXT QUESTION: Start thinking about what you need next. How it might evolve.

Source: P. Gallagher “Getting down to Business” and L. Elkins “Tips for Preparing a Business Plan”

BUSINESS PLAN CHECK LISTS

The 10 Most Important Questions a Business Plan Should Answer

1.  Is the business just an idea, or is it an opportunity with real potential?

2.  Is the product or service viable? Does it add significant value to the customer? Was a feasibility analysis completed?

3.  Does the firm have an exciting and sensible business model? Will other firms be able to easily copy it?

4.  Is the industry in which the product or service will be competing growing, stable, or declining?

5.  Does the firm have a well-defined target market?

6.  Is the management team experienced, skilled, and up to the task of launching the new firm?

7.  Are the financial projections realistic, and do they project a bright future for the firm? What rate of return can investors expect?

8.  Is the firm organized in an appropriate manner? Are its strategy and business practices legal and ethical?

9.  How will the firm’s competitors react to its entrance into their markets?

10. What are the critical risks, and does the team have contingency plans?

THE McKINSEY CHECK LIST

§  What is new and innovative in your business idea?

§  How unique is your business idea?

§  Who is the client?

§  Why should somebody buy your product or service?

§  Why is the ”product” better than similar products already on the market?

§  What is your competitive advantage, and why could/would it not be copied by competitors?

§  Can the business idea be produced, and how much would that cost?

§  How would the product reach the customers?

§  How would you earn money on the product, what are the costs and what is the price that can be charged?

§  How big is the market?

Thank you for your attention

Pere Joan Ribas Barceló

Entrepreneurship and Innovation

Course