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Business Plan Refining

1st October 2009

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Basic questionBasic question

Why do we buy products and services?

- Because they offer solutions to our problems (needs)- Also, we tend to substitute lower quality solutions with higher quality

solutions most often

The implication is that we buy new products and services when we are dissatisfied in different degrees with the existing

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Why Customers get Dissatisfied?Why Customers get Dissatisfied?

Basically, customer needs are dynamic, influenced by

- age, income, habits, interests, knowledge about things available elsewhere etc

Accordingly, customer problems are also dynamic When existing solutions fail, customers get dissatisfied, and look for

alternatives

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OpportunityOpportunity

I was seldom able to recognise an opportunity, until it ceased to be one --- Mark Twain

Opportunity - arising out of dissatisfaction

The solution should- create or add significant value- by addressing a significant problem- have money making characteristics- good fit with the promoting team

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Opportunity to Business

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Low Criticality

High Criticality

High Discontentment

Low Discontentment

(1)Today’s

star

(4)Challenges in

innovation

(3)Distant Star

(2)Opportunity for

tomorrow

Discontentment – Criticality Matrix ™

™ Prof Ramachandran, ISB

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Opportunity at each value linkOpportunity at each value link

Product Awareness

Product Features

Buying Process

Delivery Process

Consumption

Disposal

H CL C

L D

H D

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All Ideas are not successful either

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The Business PlanThe Business Plan

The design of the business plan depends on the kind of venture envisaged and what the plan should accomplish.

- Impress with CLARITY- Convince with its OBJECTIVITY- Create INTEREST- Understandable by technical layman- Written in one consistent style

“ Writing a business plan forces you into disciplined thinking. An idea may sound great, but when you put down all the details and numbers, it may fall apart”

Eugene Kleiner, Venture Capitalist

Plan your approach, tailor key questions, focus on final product and test your plans

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Stake holder - EntrepreneurStake holder - Entrepreneur

Preparing a detailed plan helps

- Clarify the thoughts/ ideas- Synthesize a successful plan of action- Helps not to miss out anything- A road map for achieving the goal- Helps in identifying gaps in resources- Helps in phasing/ scheduling implementation- Put down a set of assumptions that can be revisited- Helps to understand the risk profile- Communicate effectively and evoke interest in investors

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Stake holder - InvestorStake holder - Investor

Venture capitalist examines plans for enhancing value of his investment through appreciation and looks for

INNOVATIVE product or service range Well-defined /quantifiable Customer benefits Experience and competence of the team Growing or Large market size/ potential Possibility to protect/ sustain the innovation Effective strategies for capturing value Analysis of competition Careful weighing of risks and opportunities Possible exit routes

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Stake holder - Debt financierStake holder - Debt financier

Debt provider examines a business plan for returns (both of interest and principal) and looks for

Experience and competence of the promoters Market size/ potential Effective strategy for capturing the target customer Analysis of factors of production Weighing of risks and opportunities Profitability Collateral

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Limitations of Business PlanLimitations of Business Plan

It is only a plan

Based on several assumptions

Only a road map

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Elements of a Business Elements of a Business PlanPlan

5. Marketing and sales

6. Business system and organisation

7. Implementation schedule

1. Executive summary

2. Product or service

3. Management team

4. Market and competition

8. Opportunities and risks

9. Financial planning and financing

Businessconcept

Draftbusiness

plan

‘Final’business

plan

Focus of this phase Part of this phase

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A typical business plan - 1A typical business plan - 1

1. Business Context

The idea / genesisWhy this is requiredWho will benefit and how

2. The OpportunityCustomer pain pointsIs the need critical Are customers waiting

3. The Solution Product/ serviceBenefit/ Value, UniquenessIs there IP value

4 Market Size EstimationTarget segments, market sizeWhat they will pay for the solutionAny test customers/ feedback

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A typical business plan - 2A typical business plan - 2

5. Competitive PositioningSimilar products/ servicesTheir advantages/ disadvantagesHow does your offering compare

6. Market StrategiesMarket entry barriersEntry strategiesAlliances and partnerships

7. Roll out PlanResources required – technology, people, production, distribution Implementation schedule, Mile stones

8. The TeamThe team, Fit with the projectProfile of the management teamLong term goal

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A typical business plan - 2A typical business plan - 2

9.Investment DetailsProject CostSource of Funds(Is phased investment planned)

10. Profitability ProjectionsEstimated income, profitBEP, IRR, Sensitivity analysisHow will you/investors realize returns

11. Risk EvaluationRisks perceivedRisk mitigation strategies

12. Preparedness for launchWhat have been done?What needs to be done?

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Business Plan - StrucutreBusiness Plan - Strucutre

One Page Summary Executive Summary

- Not exceeding 3-4 pages Full Business Plan

- Not exceeding 30 pages, including appendices Communicate effectively

- Use charts and diagrams rather than words- Give references for all data - Others cannot know what you think unless you

write it down

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BUSINESS IDEABUSINESS IDEA

A promising business idea will have the following elements

- Clear Customer Value

- Market of adequate size

- Sufficient degree of innovation

- Feasibility and Profitability

There is nothing in the world as powerful as an idea whose time has come”

----- Victor Hugo

It is critical to attract attention and interest through presenting the idea with clarity and credibility

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Elements of BP – One page Elements of BP – One page summarysummary

Should contain the most important aspects- Market opportunity and value to the customer- Innovativeness, uniqueness of the offering- Management expertise/ competence- Financing requirements and Profitability- Readiness to launch the project- Risk analysis and growth prospects

“ A good executive summary gives me a sense of why this is an interesting venture. I look for a very clear statement of long-term mission, an overview of people, the technology and the fit to market” Venture Capitalist

It is not an abstract of your business plan but is an opportunity to present your case clearly, compellingly

and concisely

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Executive summaryExecutive summary

Customer pain point you are addressing Value created by your solution Structure of market – size, competition Business model Resources required to create and deliver Team and capabilities Revenue model Investment and returns Risks and mitigation strategies

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Elements of BP - Product / Elements of BP - Product / ServiceService

Indicate and substantiate the additional value to the customer

- The product/ service concept- What customer need is proposed to be fulfilled- How your product/ service differs from those that are now or will be available

in the market- Ability to protect/ sustain the innovation - Stage of development of the product/ services- Quality specifications / regulatory requirements

“If you don’t know what the customer benefit is, the whole thing is a waste of time” Bruno Weiss, Entrepreneur

Pitch on what customer will require and how you will continuously provide that

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Elements of BP - Entrepreneur teamElements of BP - Entrepreneur team

Capability of the management team to run a promising business

- The core entrepreneur(s)

- Professional experience and past successes- Genesis of the project idea- The management team

The company description

- Legal name and form of ownership

- Mission and objectives

- Location and geographical information

“I invest in management and not in their plans”Eugene Kleiner, Venture Capitalist

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Elements of BP - Target marketElements of BP - Target market

Foundation of every successful business is clear understanding of customer and their needs. Hence provide details of- Market segment(s) being targeted

- Demographic/ geographic profile

- Buying sensitivities and behavior

- Purchasing patterns/ requirements

- Potential revenues in each market segment

- Special strategies required to reach out to the segment

If you don’t know for whom you toil, how will you survive?

anonymous

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Elements of BP - Market analysisElements of BP - Market analysis

The company can achieve a dramatic increase in value only if the market holds great potential. Hence describe:- Size and growth trends and forecasts

- Maturity of the industry

- Vulnerability to economic factors

- Seasonality factors

- Technological factors

- Regulatory issues

- Supply and distribution requirements

- Influencing factors that will have an impact on your business

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Elements of BP - CompetitionElements of BP - Competition

Show how sustainable your competitive advantage is- Competing products/ services

- Competitive position, market share distribution

- Strengths and weaknesses of competitors

- Barriers to entry

- Possible future competition

- Positioning vis-à-vis the competition

If there is no competition, there is probably no market

Brian Wood

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Elements of BP - Marketing & Sales Elements of BP - Marketing & Sales StrategyStrategy

Well-planned marketing and sales activities is imperative for success of the project. - Product features for different market segments

- Pricing of products/ services (value pricing/ skimming strategy/

penetration strategy)

- Distribution channel (Internet/ Franchising/ Wholesaler- Retailer

network/ Own sales staff/ Direct marketing/ Own stores)

- Promotion (Internet/ Direct mailing/ Advertisement/ Trade fairs)

- Strategic partnerships

- Sales assumptions

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Elements of BP - OperationsElements of BP - Operations

The nitty-gritty of the supply chain and its management- Source of technology, Manufacturing process

- Plant, equipment, facilities, infrastructure

- Recruitment, training and retaining personnel

- Input materials - sources, costs

- Order fulfillment and customer service

- Quality control

- Safety, health and environmental concerns

- Research and Development

- Management information systems

- Assumptions on output rates, costs

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Elements of BP - Implementation Elements of BP - Implementation scheduleschedule

Prepare a realistic three-to-five year plan to inspire credibility

- Identify major milestones- Plan for aggregating resources- Ramp up plan- Human resources planning- Investment scheduling- Strategic partnerships- Market launch, sales campaigns- Prepare a Gantt chart for tracking the progress

Business is like chess. To be successful, anticipate & plan several moves in advanceanonymous

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Elements of BP - Financial PlanElements of BP - Financial Plan

To evaluate whether the business concept will be profitable and worth investing in

Prepare- Project Cost and Sources of funds- Projected Income & Expenditure statements- Break- even analysis- Projected cash flow statements- Pro forma Balance Sheets- Return on investment

Details of assumptions and sensitivity analysis

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FundingFunding

Long term requirements are to be funded from- Equity- Term loans

Working capital requirements are to be funded from- Equity (NWC)- Sundry creditors- Advances- Unpaid expenses- Bank borrowings

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Working CapitalWorking Capital

Funds required to- carry required level of current assets, to enable the enterprise

to carry on its operations at the expected levels uninterruptedly.

Depends on - Level of operations- Nature or type of activity

Need for working capital is self-renewing and perpetual in nature.

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Raw materials

WIP / SFGFinished goods

Debtors

Cash

Operating Cycle

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Elements of BP - Risk evaluationElements of BP - Risk evaluation

Prepare best-case and worst-case scenarios involving key parameters of the business to help assess

- Market risks- Competition risks- Technology risks- Regulatory risks- Financial risks- Management risks

What measures are proposed to counter these risks Sensitivity analysis of key factors (price or sales

volumes) in the assumptions to simulate the impact of changes

All sane people want to avoid risksanonymous

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Elements of BP - Growth & Exit Elements of BP - Growth & Exit plansplans

The investors look for returns. Provide details of

• Company’s long term goals

• Growth Strategies

• Milestones in achievements

• Exit plans

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Conclusion

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To SummarizeTo Summarize

5. Marketing and sales

6. Business system and organisation

7. Implementation schedule

1. Executive summary

2. Product or service

3. Management team

4. Market and competition

8. Opportunities and risks

9. Financial planning and financing

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Creating a venture – some truthsCreating a venture – some truths

Entrepreneurial opportunities are rarely found; they have to be found and created

There is no such thing as a bad idea; only poor execution

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THANK YOU

Kannan_AM@isb.edu