How to write a business plan

1

• How to write a business plan
• Peter Madden
• Palmerston Projects

2
About Palmerston Projects

• Formed in 2000 to help commercialise technology
  and intellectual property
• Mostly work with start-ups and early stage
  companies
• Provide corporate services not science
• This includes marketing, financial and full
  business plans and information memoranda
• Assist with fundraising but are not finance
  brokers
• Often run the business in conjunction with IP
  founders

About Palmerston Projects
3
About Palmerston Projects

• Projects Include
• Bionomics Ltd ASX Listed
• Microbric Pty Ltd the Advertiser i-bots and
  2004 E-Challenge finalist
• Lync Software Pty Ltd Backed by Playford
  Capital
• Solstice Media publisher of the Independent
  Weekly
• Fisher Creek Rock Dust internal project
  commercialising volcanic rock dust with
  significant agronomic properties

About Palmerston Projects
4
Defining Your Market

• Key Component 1

5

• What am I selling? What problem am I solving?
• What does that product or service / solution look
  like?
• What features does it have, can I provide all
  those features or do I need to bundle with others
• How is it priced what market can bare v cost to
  produce market
• How am I going to distribute this product /
  service direct, through distributors, licence
• How am I going to get my customers to hear of
  this, want to assess and trial and then buy.

Defining Your Market
6
Defining Your Market

• Having Reckoned You Can Solve The Worlds
  Problems ask
• What problem am I solving / what compelling need
  will I be fulfilling
• Why is it a problem hypothesize or establish it
• How are we going to solve that problem
• What is driving this solution or for people to
  acquire it
• How are we going to make money the business
  model
• Why us IP rights, industry backing etc
• Most new businesses require their potential
  customers to change their behaviour, are you
  capable of doing that?

7

• New ideas have to start somewhere specific, a
  niche.
• Determined by who has the compelling need where
  the cost benefit at the outset is the greatest,
  AND,
• Who can I get to with the resources I have, AND,
• Who will act as a good reference for my next
  (perhaps) more exciting market segment
• There are many potential market entry spots, only
  one or a few will be optimal given resource
  constraints

Where do I start
8
Marketing

• Focus all efforts at one point of market entry
  this may not be the biggest market and build
  from there. You cant serve multiple markets at
  the outset
• Build the product in all its features that the
  market wants the complete consumer product not
  the clunky prototype that works in the lab
• Dont compete on price but features

9
How Do I Test Market Plan

• Talk to potential customers
• Do basic research on-line, data bases, reports
• Do specific market research quantitative and
  qualitative
• Determine in your possible customer base who
  actually makes the purchase decision and why
  may not be person you are talking to who thinks
  your idea is terrific.

10
Market

• What am I selling? What problem am I solving?
• What does that product or service / solution look
  like?
• What features does it have, can I provide all
  those features or do I need to bundle with
  others?
• How is it priced what market can bare v cost to
  produce market?
• How am I going to distribute this product /
  service direct, through distributors, licence?
• How am I going to get my customers to hear of
  this, want to assess and trial and then buy?

11
Iterate The Process, Over and Over

• That Sounds Boring lets just go for it!
• Product launches cost time and money and have
  morale implications
• Not knowing your market which segment to attack
  first and why can leave you drained of cash,
  time and motivation.
• Investors will want to know you have thoroughly
  assessed the situation as they are the ones
  footing the bill for a botched launch.

12
How Are You Going To Make Money?

• Key Component 2

13
Revenue Model

• Having determined price to the end user, how are
  you going make money
• Who bares risk of production and distribution
• What economies of scale do you need (to minimise
  item costs)
• How much of end price do you have to give up to
  generate any sales to manufacturers,
  distributors
• Do you just look to licence and earn royalties
• Assess the scope of the firm
• Those activities in whole production,
  distribution and sales process you can undertake
  yourself
• -Those activities for which you have a special
  ability IP
• Assess what costs you have to bare and how much
  capital will be needed to implement your plan
  (can you get that capital.)

14
Finance Model

• Someone has to financially sponsor the
  implementation of the Business Plan
• Possible candidates are
• Equity 3Fs - Family, Friends Fools
• High Net Worth Individuals
• Industry individuals companies
• Venture Capitalists
• Joint Venturers
• Debt Bank / Mortgage non business assets
• Hire Purchase / Equipment Loan
• Other Government Grant
• Unless you have non business assets to pledge,
  banks are much interested. All will want risks
  minimised.

15
Sources Of Funds

• There Are Many Sources Of Funds
• Not all funds providers have the same motives
  cf Govt grants with personal guarantees
• Understand what may drive each particular funds
  provider
• Understand which funds providers may fit your
  current development stage
• While you want to succeed financially, you must
  ride same wave as investors
• Cant repay old loans until very late
• Everyone (bar the Govt) wants their money back
  with a return

16
Sources Of Funds

• Source Capital Stage
• Mortgage, Guarantees 1st 100-200k
• Friends Family 1st 100200k
• Private Investors Known Next 100 900k
• Industry Market Development
• Private Investors Unknown From 500k- 1
  million
• VC Funds From 2 10m
• IPO From 3m
• Government Grants All Stages

17
Source of Funds

• Further Comments
• There are all sorts of Government Grants not
  just COMET and Commercial Ready
• Dont ask wealthy people you know to invest
  unless you have made investment / sacrifice
• Dont ask wealthy people you dont know to invest
  unless the industry has invested in it / there is
  high stakeholder interest
• Enormously hard to raise money, especially from
  150k - 1 million
• Dont know what motivates Venture Capitalists

18
Who Are Your Partners/Stakeholders?

• Key Component 3

19
The Stakeholder Concept

• Stakeholders Are
• People you need to develop your business idea
  over the next few years
• Advisers, directors
• Industry gurus
• Industry players
• IP owners / founders
• Funds providers creditors, banks, grants bodies
• Investors
• An IM should be written for all these people but
  perhaps tweaked in presentation for each.

20
Stakeholders

• You need good advisers, be they consultants,
  prospective directors, industry gurus and
  probably all of these
• You need these people on-side before you seek
  money they are the first sell
• Quit worrying about people stealing your IP. This
  problem is a myth in Australia if you can half
  judge people

21
Stakeholders

• If you dont like what you are hearing, think
  long and hard before rejecting it or them
• Investors come in all shapes and sizes see
  later
• Dont get hung up on investment returns your
  forecasts will always be wrong most
  stakeholders back the concept and the people, not
  the presented numbers

22
Stakeholders Finance

• Stakeholders Will Ask Themselves
• Is this the type of business / person I want to
  be involved with?
• What will be my return on investment?
• Investment can include time not just money
• Returns can include the challenge, the general
  good, the quality of the people as well as
  financial rewards.
• Dont pitch for the bleeding heart but cover it
  in your messages
• You never know what motive a prospective
  stakeholder really has when you sit down with
  them the first time.

23
Define Your Risks How They Get Mitigated

• Key Component 4

24
Risks

• There are business risks at all levels including
• Product production, pricing, promotion
• Finance
• Legal liabilities
• An IM / Business Plan should include a Risks
  section.
• Major risks should be identified and the response
  to mitigate them explained
• Understanding your risks and how you can mitigate
  them helps craft all other elements of your plan.
• All Business Should Aim To Dominate A Market
  Segment and Do With No Risks Assumed

25
Risks

• The IM should contemplate what you dont know as
  a major risk
• Dont pretend you know everything, all answers to
  all questions you dont and every potential
  stakeholder knows that
• A Risks section deals with the legal liability
  issue as well as sending the message you
  recognise the issues before you
• State (for early stage companies) that one
  investment outcome is the loss of all their money

26

• Stuff

27
Who Should Write?

• Business Plan
• Some say if not written by owner, they wont be
  read it
• We say, should be written together with someone
  who knows what should be in such a document and
  how they will be read.
• Traditionally scientists have little idea about
  writing IMs

28
Final Thoughts

• There is no magical, sure-win type of IM or
  Business Plan
• You must believe in your story before you present
  it. If you dont, keep asking and answering
  questions that trouble you
• Is this a good punt for someone or am I just
  trying this on
• Make sure spelling, grammar and numbers are okay
  / add up
• New businesses are hard work based on
  relationships and integrity, because, for the
  most part, you have nothing else to sell
• Good luck this State needs you to succeed