The Business Plan

1
The Business Plan
2
What Well Do Today

• Review Major Business Plan Sections
• Discuss the Importance of the Plan
• See Some Basic Tips in Writing a Plan
• Consider Next Steps

3
PRIVATE PLACEMENT MEMORANDUM

• Overall appearance
• Length no more than 25 pages plus pro-forma
  financials (most likely scenario only).
• Double spaced
• No mistakes

4
What is a Business Plan?

• A Business Plan Indicates
• Why the company exits
• What the founder intends to achieve
• How the company will succeed.

5
Why Create a Plan?

• A Business Plan is a Sales Tool
• Investors
• Customers
• Employees
• A Business Plan is a Management Tool
• Direction
• Benchmarks

6
What Should be Included?

• Cover Page
• Table of Contents
• Executive Summary
• Company Description
• Market Analysis
• Industry Analysis
• Strategic Plan

• Marketing Plan
• Operations Plan
• Organization Plan
• Growth Plan and Potential Risks
• Financial Plan
• Appendices

7
Executive Summary

• Brief description of the business
• Brief description of the expertise
• Overview of the target market
• Overview of the business strategy
• The offering

8
Business Description

• The vision and core values
• The business concept
• Purpose
• Unique benefits
• Primary customers
• Business model

9
Market Analysis

• Market Description
• Market Trends
• Target Market
• Primary market
• Customer profile
• Demographics
• Psychographics

10
Industry Analysis

• Industry description
• Industry status and trends
• Direct competitors
• Industry product differentiation
• Industry technology
• Entry Barriers

11
Strategic Plan

• Strategic objectives
• Strategic resources
• Competitive advantage
• Low cost
• Differentiation
• Scope
• Product
• Market

12
Marketing Plan

• Product
• Pricing
• Promotion
• Distribution

13
Operational Plan

• Key technology
• Production/service process
• Research and development
• Facilities
• Suppliers

14
Organizational Plan

• Roles and responsibilities
• Management team background
• Legal form of organization
• Partners or principal shareholders
• Compensation and benefits

15
Growth Plan and Critical Risks

• Growth Strategies
• Product/service development
• Market development
• Time frame
• Critical risks
• Financial
• Operational

16
Financial Plan

• Must show that the teams has thought through key
  drivers of the business model
• Include break-even and sensitivity analysis

17
Financial Plan

• Pro forma income statement
• Sales forecast
• Startup expenses
• Operating expenses
• Administrative expenses
• Projected profits

18
Financial Plan (cont.)

• Pro forma balance sheet
• Assets required for operations
• Debt used to buy the assets
• Equity from the initial owners investments

19
Financial Plan (cont.)

• Pro forma cash flow statement
• Operating cash flow
• Investing cash flow
• Financing cash flow

20
Financial Plan (cont.)

• Offering
• Amount requested
• Return to investors
• Timing of the investment
• Exit strategy

21
Appendices

• Financial Statements
• Competitive Grid
• Organizational Chart
• Resumes of Key Individuals
• Flowchart of critical processes
• Facility layout
• Others

22
HOW MUCH MONEY DOES IT TAKE?

• Pro-Forma Financial Statements ? why do we
  prepare them?
• Cash Budget ? captures seasonality as well
• Bottom Line ? what is maximum cash need, allowing
  for error

23
GET IT WHILE ITS HOT!Entrepreneur Viewpoint

• If you want to fly to financial paradise, have
  enough gas to make the trip as there are no good
  service stations on the way.
• There are exceptions, and the world is not
  perfect. In general it is wise to get all the
  money you need up front because if you have to go
  back for more it is likely to be terribly
  expensive. Also, when you call for more, it may
  not be there.

24
Investor Viewpoint

• When doing a high-tech start-up, such as a
  bio-tech, high-tech or Internet firm, the usual
  practice is to stage the financing. The total
  financing is broken into several parts, with
  clearly defined targets to be achieved. This is,
  assuming, that there is no doubt about the fact
  that the money will be there when needed.

25
Dynamic Components of the Entrepreneurial Process

• The People
• Right experience, skills, and attitudes
• The Opportunity
• Does it make sense?

26
Dynamic Components of the Entrepreneurial Process

• The External Context
• Is it favorable and is the opportunity adaptable
• The Deal
• FIT ? the degree to which all four components are
  integrated together

27
Dynamic Components of the Entrepreneurial Process

• Remember there must be a balanced emphasis on
  anticipating (v. predicting)
• ? pattern recognition
• Current decisions affect future ones ? the notion
  of options
• Reward/risk ratio

28
Identifiable Attributes of Successful Ventures

• Relevant, skilled team that is proven and worked
  together
• Sustainable business model with multiple options
  for expansion that are unique to the venture
• Number of ways to extract value

29
Identifiable Attributes of Successful Ventures

• The context is favorable (Macro Reg)
• The deals provide the correct incentives to all
  parties under various scenarios
• Investors add value as well as capital.

30
People

• Most investors will not invest in unsolicited
  plans
• Successful venture founders are known and they
  know
• They know the industry
• They are known in the industry
• Ideas are a dime a dozen only execution
  skills count

31
Opportunity

• Is the market large and rapidly growing
• Does the industry have lots of potential to
  create and protect value
• VCs focus on three determinants of venture
  success people, people, and people
• The problem is to judge ideas and people and
  their combination

32
Customers

• Who is the customer
• How does customer make decisions
• Cost of acquiring customers
• Cost of supporting customers
• Ease of retaining customers

33
Types of Business Models

• Expand range of products to existing customer
  base
• Sell ammunition to all sides of the war without
  end
• Razors and razor blades
• Arbitrage businesses
• BEWARE Invention is fraught with danger

34
Opportunity

• Business plan must address competition
• Management must be dynamic, anticipating several
  moves in advanced
• Appropriate tools are probability distributions
  and cash flow diagrams to determine expected
  values

35
Context

• Opportunities exist in a context
• Macro economy
• Regulation
• Technology
• Context has a tremendous impact on
  entrepreneurial ventures
• The team must be versed in how context affects
  the venture

36
Deals

• Entrepreneur minimize dilution i.e. maximize
  value
• Investor minimize value i.e. maximize claim
• From whom you raise capital is often more
  important than the terms

37
Deals

• Founders want the money up front, while investors
  want to stage the funding to effectively buy
  information
• Financing decision within the start-up firm has
  two elements
• Capital raising decision
• Hiring decision