Lecture 2: Business Plan

1
EntrepreneurshipUnternehmensgründung im
Informationszeitalter

• Lecture 2 Business Plan
• Leitung Prof. Dr. Miroslaw Malek
• Betreuer Peter K. Ibach
• HUMBOLDT-UNIVERSITÄT ZU BERLIN
• INSTITUT FÜR INFORMATIK

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Opportunity

• Types of startup firms
• 1) mom-and-pop business (marginal firm,
  life-style firm)
• 2) high potential firm
• 3) foundation firm
• Types 2) and 3) have at least 500,000 in sales
  and grow at a rate of minimum 10 per year
  (p.y.).
• 2) and 3) have much bigger success potential than
  mom-and-pop businesses.
• 7 of 7 million US companies grew over 20 p.y.
• Over 1 of 7 million (80,000) grew over 50 p.y.
• Venture capital founded firms have a 60 plus
  success rate

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From Ideas to Successful Business
4
The Window of Opportunity
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The Difference between Ideas and Opportunities
(2)

• 1 - 3 of ideas are considered opportunities by
  VC's.
• A good opportunity must be
• attractive
• durable
• timely
• Pearls (winners) take seven to eight years.
• Lemons (loosers) ripen in about 2 1/2 years

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Sales Volume of U.S. Companies

• 20 of businesses have sales over 1M
• 10 of businesses have sales over 2M
• 1.25 of businesses have sales over 10M
• 0.67 of businesses have sales over 25 M
• (U. S. government data for 1980) In 1990 these
  figures have doubled

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One Year Survival Rates by Firm Size
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Four-year Survival Rates by Firm Size
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Factors (Vc's Perspective) for Successful Company

• the best entrepreneur and the quality of the team
  (people)
• the best entrepreneur and the quality of the team
  (people)
• the best entrepreneur and the quality of the team
  (people)
• the best entrepreneur and the quality of the team
  (people)
• Market potential and marketing
• Idea
• The management team must have quality, depth and
  maturity.

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Market Structure

• Market structure is characterized by
• The number of sellers
• The size distribution of sellers
• The differentiation of products
• The conditions of entry and exit
• The number of buyers
• The cost conditions
• The sensitivity of demand to changes in price

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Entry Strategies for entering Business

• Developing a new product or service (innovation)
• Developing a similar product or service
  (imitation)
• Buying a franchise
• Exploiting an existing product or service
• Sponsoring a startup enterprise
• Acquiring a going company

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Ways to generate Ideas What if ...?

• What if it were longer? or smaller? inside out,
  different Material, Color, Thinner, Lighter,
  Shorter, etc.
• Turn Problems into Profits (eco Industry, new
  Civilization Headaches)
• Visualize (Mental Pictures)
• Identify Needs
• Forced Connections (e. g., Clock Radio and Wrist
  Watch)

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Ways to generate Ideas What if...?

• Keep a Record of your Ideas ("Creativity File")
• Cultivate your Ideas
• Be receptive to Ideas
• Stop being Practical
• Try something new
• Be progressive, not regressive
• Brainstorming
• Improve existing Ideas

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Ways to generate Ideas What if...?

• Brainwriting
• Serendipity Technique (by Chance")
• Creative Unhappiness
• Mind Mapping
• Speak up and listen
• Game Strategy Method (Chess, Jigsaw, etc.)
• Join Business or Entrepreneurs Organizations

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Mind Mapping
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Writing and Defining a Business Plan

• A good definition A business plan is a document
  that convincingly demonstrates the ability of
  your business to sell enough of its product or
  service to make a satisfactory profit and be
  attractive to potential backers.
• A better definition A business plan is a selling
  document that conveys the excitement and promise
  of your business to any potential backers or
  stakeholders.

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Eight Reasons for Writing a Business Plan

• To sell yourself on the business - "sanity
  check".
• To obtain bank financing.
• To obtain investment funds.
• To arrange strategic alliances.
• To obtain large contracts.
• To attract key employees.
• To complete mergers and acquisitions.
• To motivate and focus your management team.

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Types of Plans

• The Summary Business Plan - up to ten pages
• The Executive Summary - up to two pages
• The full Business Plan - 10 - 50 pages
• The Operational Business Plan - 40 - 200 pages
• Getting Started to Write
• Brainstorming
• Step 1 Posing the Right Questions or Subjects
• Step 2 Providing Bite-Size Answers

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What should the Business Plan cover

• Cover Page
• Table of Contents
• Executive Summary
• The Company
• The Market
• The Product/service
• Sales and Promotion
• Finances (Cash Flow, Income/Loss, Balance Sheet)
• Appendices (e. g., Executives Profiles)

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Alternative Contents

• Cover Page
• Summary
• Table of Contens
• Introduction
• Description of Venture
• Marketing Strategy
• Financial Strategy
• Financial Scenarios
• Operating Strategy
• Appendices

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Business Plan Targeting Summary
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Criteria for evaluating Venture Opportunities (1)
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Criteria for evaluating Venture Opportunities (2)
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Criteria for evaluating Venture Opportunities (3)
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Criteria for evaluating Venture Opportunities (4)
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Criteria for evaluating Venture Opportunities (5)
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Criteria for evaluating Venture Opportunities (6)
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Business Plan a more detailed Table of Contents
(1)

• Cover Page
• Executive Summary
• Introduction-Industry, the company and its
  products
• The industry
• The company
• The products or services
• Market research and analysis
• Customers
• Market Size and Trends
• Competition
• Estimated Market share and sales
• Ongoing Market evaluation

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Business Plan a more detailed Table of Contents
(2)

• Marketing plan
• Overall marketing strategy
• Pricing
• Sales tactics
• Service and warranty policies
• Advertising and promotion
• Design and development plans
• Development status and tasks
• Difficulties and Risks
• Product improvement and new products
• Costs

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Business Plan a more detailed Table of Contents
(3)

• Manufacturing and operations plan
• Geographic Location
• Facilities and improvements
• Strategy and plans
• Labor Force
• Management team
• Organization
• Key management Personnel
• Management compensation and ownership
• Board of directors
• Management assistance and training needs
• Supporting professoinal services

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Business Plan a more detailed Table of Contents
(4)

• Overall schedule
• Critical risks and problems
• Community benefits
• Economic benefits
• Human development
• Community development
• The financial plan
• Profit and loss forecast
• Pro forma cash flows analysis
• Pro forma balance sheets
• Breakeven chart
• Cost control

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Business Plan a more detailed Table of Contents
(5)

• Pro Forma Income Statements
• Pro Forma Cash Flows Statements
• Pro Forma Balance Sheets
• Breakeven Chart
• PROPOSED COMPANY OFFERING 24
• Desired financing
• Securities offering
• Capitalization
• Use of funds

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Exhibit 1 Pro Forma Income Statements
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German version of a sales plan
. . . . . . . . . .
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German Version of a five year overview