Innovation and New Business Ventures

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Prof. Dr. Arthur Sybrandy

Cairo, Egypt

January 2007

Dr. A. Sybrandy

The Business Plan– The business plan pulls together the information

developed up to this point and adds more. It’s a written summary of the entrepreneurial• Business venture• Operational and Financial details• Marketing opportunities• Strategy• Management team’s capabilities

– The business plan helps to• Have the entrepreneur take a realistic look at the proposed

business• Guide the venture while in operation• Convince investors to provide capital – equity and loans:

– Reality test– Competitive test– Value test

Dr. A. Sybrandy

Business Plan Advantages– Reality check

• Details not part of the feasibility analysis may show additional problems. There’s still time to back out!

– May reveal new opportunities on the operational side of the business not revealed by feasibility analysis

– “Living Guide” to the business• All aspects are included• Needs regular (quarterly/semiannually) updating

– Statement of intent to others• Investors• Bankers• Potential management• Strategic partners• Suppliers• Lessors

Dr. A. Sybrandy

Investors– Look more at quality of the founding team and factors that

predict growth They want to increase value of their investment

– They want to know• What deal structure you are offering (equity interest)• How they can liquidate their investment in the future (sell shares)• Whether your team has a proven track record and can make the

venture successful– Common mistakes include

• Projecting growth that exceeds the capability of the founding team• Trying to be a jack-of-all-trades• Projecting business performance beyond industry averages• Underestimating the need for capital• Confusing strategy and tactics• Focusing too much on price• Being proud of not investing cash in the business

Dr. A. Sybrandy

Lenders & Bankers

– More concerned with how you are going to repay the loans they made to you

– They tend to look at gross margins, cash flows, and capital base• Revenues – COGS (Cost of Goods Sold)• Slim margins (5-10%) won’t leave much room for error

– Common errors include• Not supporting the amount of capital required• Using the loan to pay off old debt• Not having any assets to use as collateral• Not showing an ability to repay the loan• Not demonstrating the bank how it is protected in case of

failure• Not demonstrating an adequate stake in the business

Dr. A. Sybrandy

Five Cs of Credit

– Capital• Banks will lend you money when you don’t need it• Banks will look for a strong equity base

– Capacity• Cash Flow (remember, this is not profitability!)• Lenders require the business to be liquid enough to make

payments– Collateral

• Assets to back loans• Banks make very few unsecured loans

– Character• Intangible• Present yourself and your credentials adequately

– Conditions• How big is the opportunity, how risky, etc.

Dr. A. Sybrandy

Business Plan Contents

– Proof of Concept (1 page summary)– Expanded Executive Summary (6 pages)– Business Concept– Management Team– Market Analysis– Process Analysis– Organization Plan– Marketing Plan– Financial Plan– Growth Plan– Appendices– Contingency Plan

Dr. A. Sybrandy

Business Concept

– Business Concept• Product/Service• Customer• Benefit (value proposition)• Distribution

– Purpose of the business• Why you’re in the business

– Core values– Description and uses, unique features/benefits of the

product or service– Primary customer– Spin-offs– Environment impact (if relevant)

Dr. A. Sybrandy

Management Team

– Team itself, with• Knowledge in

– Marketing– Finance– Operations

• Knowledge of industry• Good credit ratings• Network of contacts

– Board of Advisors/Board of Directors– Other parties

• Lawyer• Accountant• Banker• Insurance broker

Dr. A. Sybrandy

Market Analysis

– Industry description– Target market– Competitors– Your product/service differentiation & competitive

advantage– Pricing

Dr. A. Sybrandy

Process Analysis

– Technical description of products/services• Engineering specs where appropriate

– Status of development and related costs• Prototype description

– Distribution channels & Physical distribution plan

Dr. A. Sybrandy

Organization Plan

– Philosophy of management and company culture– Legal structure of the company– Organizational chart

• Especially key management personnel

– Compensation and Policies

Dr. A. Sybrandy

Marketing Plan

– Purpose of the plan differs from feasibility analysis• Market analysis already looked at customer in general; how

they buy, when, where, and how much as background for structuring strategy

– Plan to reach first customer• Niche selected• Customer perceptions of product and company• Tools/Tactics to reach customer• Budget

– Strategy: Who, What, How– Tactics: Specific implementation

Dr. A. Sybrandy

Financial Plan

– Summary of key points and capital requirements• Refers to complete set of statements in appendix

– Needs assessment breakout• Hard costs• Working capital• Start-up

– Break-even analysis and payback period– Plan for funding– Should support all the other claims made in the business

plan, showing that your business can survive and grow in the long run

Dr. A. Sybrandy

Growth Plan

– Looking ahead past the start-up phase• Start-up• Initial growth• High growth• Stable growth

– Possible new markets– Possible new products– Global markets

Dr. A. Sybrandy

Appendices

– Financial Statements• Assumptions underlying the statements• Proforma financial statements

– Process Plan Supporting Documents• Manufacturing or Operating requirements and associated

costs– Marketing Plan Supporting Documents

• Marketing tools• Media plan• Marketing budget

– Organizational Plan Supporting documents• Compensation programs and incentives

– Business plans are more concise these days, putting more information in the appendices

Dr. A. Sybrandy

Contingency Plan

– Sometimes included to show you are aware that things may not go as planned• Reacting to market/demand downturns• Lawsuits, including product liability• Losing a key employee• Etc.

Dr. A. Sybrandy

Executive Summary & Proof of Concept

– Written last, when the plan is done in about 6 pages– Read first by investors, lenders, etc! Making it the most

important part of the whole plan• The summary (and proof of concept) must capture the

reader’s attention immediately (less than 30 seconds)

– Make sure to• Describe concepts• Define customers• Establish market sizes• Show ability to scale out

– You can sometimes use the summary separately, handing it out without the complete plan.

– Proof of concept is a shorter, 1-pager in the front of the plan

Dr. A. Sybrandy

Summary Checklist– Did you immediately grab the reader’s attention? Did

your concept generate excitement?– Is the business concept absolutely clear? (purpose,

customer, value proposition, and distribution strategy)– Is the reader convinced you have the right team?– Does the Industry/Market analysis support the concept

and show demand?– Are you clear on how the product can be produced and

distributed?– Does the organization plan support the objectives? (Form

follows function)– Does the marketing plan clearly show how you are going

to reach customers and create long-term relationships?– The financial plan shows potential of high ROI?– Is the potential for growth clear to the reader?

Dr. A. Sybrandy

Final Tips

– Get started, anywhere (Internet?)– Don’t be discouraged if all information is not instantly

available– Answer key questions– Always include sources– Use outlining/mindmapping

– Make the plan look good• Investors read lots of them, yours has to stand out

– Prepare a presentation• Match presentation to requirements• Be ready to answer questions, but don’t bluff

– Think about your one-minute business plan