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The Full Business Plan
Paul KirschSamuel Zell & Robert H. Lurie Institute
For Entrepreneurial StudiesJanuary 20, 2006
2
Parts of a Coordinated Message
Core Idea
Executive Summary
PowerPoint
Elevator Pitch
Business
Plan
The Message of your
Business Idea
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Parts of a Coordinated Message• Core Idea
– 5 Breaths
• Executive Summary– 2 – 5 pages generally accepted
• PowerPoint– 8 – 15 minutes
• Elevator Pitch– 1 – 3 minutes– 3 minutes for MBC on 12/9
• Full Business Plan– 15 pages + Financials
SameStuff,
Different Delivery
S.S.D.D.
- 20 pages + up to 10 pages appendices
4
The Business Plan
• Always a work in progress– About the process NOT the document
• 20 pages, plus appendices• Ties everything together• Offers clear linkage between ideas
and vision and business entity to bring them to life
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Understand Your Audience
• InvestorsFFF | Banks | Private investors | VCs |
Grantors
• Business partnersBeta customers | Suppliers | Distributors
• Management team– Current – talking from the same script– Potential – need to understand business
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B.P. includes Executive Summary
• What is it?• Market Need or
Pain, Size • Value
Proposition & Business Model
• Competitive Advantage
• Competition & Industry
• Products & Services
• Sales & Marketing• Operations• Management• Risk Mitigation• Action Plan,
Milestones• Key Financials• Exit Strategies
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What Is Your Idea & Why Now?
• Be clear and complete• Plain English but use technical
language, schematics where necessary• Origin of the idea: Paint a picture
– Linear development or disruptive?– Improvement or new?– Evolutionary or revolutionary?
• Connect timeliness of idea to market “pain”
• Staying power and permanence
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Market Need or Pain, Size• What is the pain in the market• Market need drives idea, the product fills
the need– Products do NOT create a market
• Quantify “pain” in terms of true market opportunity– Just how “big” is this opportunity?
• What are potential customers doing now?– A current solution DOES exist
• Connect the listener to the problem
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Market Need or Pain, Size
• Which product, products segments are in the initial focus and planning horizon?– Three to five years is acceptable
• Describe your customers, segments:– Geographic– Demographic– Psychographic– Business, economics, SIC codes
• http://www.osha.gov/pls/imis/sicsearch.html
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Value Proposition & Business Model
• How valuable is your idea to your customers?
• How are you going to extract this value from the marketplace?
• Be specific. Who else do you need to make this happen?
• What is the business model? *
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Value Proposition & Business Model
• What is the business model? *
• *This is really two questions
What do you do?½ of the Business Model Answer
How are you going to make money?½ of the Business Model Answer
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Comp. Adv., Competition & Industry
• What is your #1 competitive advantage?– Intellectual Property– Management Team– Exclusive customer relationships
• How are you going to protect it?– Being the “first mover” IS NOT a
sustainable competitive advantage• Who is your competition?
– Porter’s 5 Forces– Value Chains?– How will they respond?
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Products and Services
• Detailed description• Where in the product life cycle• Where in the development process
– Other R&D concerns?
• IP protection
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Sales, Marketing, Management
• How are you going to sell your product?• What “beta” relationships exist? Why?• Who are your first prospective customers• Be realistic, don’t overpromise or
oversimplify• Highlight team’s ability to deliver. Past
success is a good indicator of future performance
• Be honest about team’s missing skills
16
Operations
• What activities will you be doing?• Do any operational components
deliver key advantages?• Important relationships
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Risk Mitigation
• Commonly explored classes of risk– Technical– Market– Competitive– Management– Execution
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Action Plan, Milestones
• Overview of timeline• Demonstrates understanding of KEY
issues• Shows that the team knows what is
whose responsibility– Only items that are your responsibility
can be a milestone
• Easy win: include product launch/first sales in ANY discussion of milestones
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Key Financials• Provide credible financial measures
Sales | Margins | # of Customers | Market share
• Cash flow is king• KNOW you assumptions • “The Good, The Bad and the Likely”• Be realistic, don’t overpromise or
oversimplify
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Key Financials• What do you need NOW?• What are your start-up costs?
Estimating Startup Costs
• Working capital is a legitimate use of funds
• Estimate costs and revenues to the best of your ability
• Allowing a percentage of “cushion” is okay
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Exit• Document “ballpark” returns• Offer feasible exit strategies• What is “typical” in your industry?
– Acquisition– IPO– Management buyout
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Exit• Acquisition
– Who? – How many “who’s”
• IPO– Recent market track record IPO Monitor– What performance measures are
important?• Management buyout is not necessarily
a desireable exit– Dividend payments are viewed similarly
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Format• Cover page (not included in page total)
– Company name– All team member names, and full contact information
for at least team leader
• Body of plan – 20 pages - includes the executive summary and summary financial data
• Appendices – not to exceed 10 pages– Include only when they support the findings,
statements and observations in the plan. No new information.
– Judges may not be able to read all the material in the appendices. Therefore, the text portion must contain all pertinent information in a clear and concise manner.
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Format• Limited to 20 pages, including the executive
summary and summary financial data. – Typed, double-spaced– 12-point font– 1-1-1-1 margins– Numbered pages
• In total, the plan is limited to 30 pages.• Hard copies of business plans should be
professionally bound. • Soft copies of business plans should be in a
SINGLE .pdf document
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To Stand Out…
• Captivating idea with growth potential• Sustainable competitive advantage• Strong, core team • Logical go-to-market strategy• Sound financial plan
• Don’t give evaluators a reason to mistrust or disbelieve plan or the authors
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Typical Pitfalls• Core idea not linked to market need• Gross over-simplification of the issues• No credible go-to-market strategy• The “1% market share” objective• Team composition and experience• Sources and uses of funds• Unclear role for the audience, investor
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Challenges• Many plans are product- or
technology- centered rather than market-driven
– FIX: Focus on the real, supported market need
• Many plans are usually written in an academic style (read: boring)
– FIX: Put your passion for the business in the plan
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Challenges• Many entrepreneurs address
preparing the plan and giving the pitch as a necessary evil
– FIX: Treat “marketing” your company as essential as “running” your company
– FIX: View these opportunities for feedback as invaluable instances that will be difficult if not impossible to duplicate in the “real world”
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Challenges
• Oft-heard: “no way to do this in 20 pages”– FIX: Succinct and concise understanding
AND presentation of key issues is paramount
– FIX: View assembly of plan and presentation as much a communication challenge as it is a business issue
– NOTE: teams have NO option
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This is YOUR story
• Infuse delivery with personality and passion
• Not a “right” way to tell the story• Different aspects of a plan will be
emphasized differently for different types of businesses
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½ of the Business Model Answer
• What do you do? Value Proposition & Business Model
Distribution Sales Marketing Mfg Product Design
Technology
Raw Materials
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½ of the Business Model Answer
• How do you make money? Value Proposition & Business Model
Can you use a diagram for each of these?– Retail sales: direct to wholesalers– Internet sales: direct to customer– B2B: commercial purchase on terms– Licensing: per unit revenue, payable (?)– Consulting: fee for service or impact– Services: per unit charges
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Business Model
• Business Model integrates– Value created for the users– Target market
• the purpose of the product to those users
– Value chain – Sharing value across the network– Competitive strategy– Specify the revenue generation
mechanisms• cost structure, margins
REF: Open Innovation, Henry Chesbrough © 2003.
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Value Chain Implications• Creating and Capturing Value
– Number and power of players– Amount and type of “value” to be shared
Individual Drivers
Dealers OEMs Tier
Ones Lower Tiers
YourCompany
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Estimating Startup CostsSales
TimeDevelopment Transition Modest Growth
Working it backwards from the Steady-state numbers:• Obtain steady state costs (GS&A, etc, as % of sales from industry data)• Make costs constant over transition• Add development costs • Ramp down develop costs while ramping up operating costs
Costs
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• Top down and bottom up forecasts are complementary
• One is a reality checks for the other• Top-down forecasts:
– Usually industry analysts’ worldwide estimates for a large market, which are then split into segments by major product group, region or vertical industry
• Bottoms-up forecasts: – Build up revenue forecasts by defining the key
underlying variables and estimating how they will change over the next 3-5 years.
Top-Down & Bottoms-Up Forecasts
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Top-Down & Bottoms-Up Forecasts
• Are the assumptions realistic & believable
• Market timing & adoption rate assumptions are critical
• Does the methodology reflect deep understanding of the target market segments?
• How “close” are the to bottom-up and top-down perspectives?
41
Mullins’ Assessment Framework
TEAMDOMAIN
Connectedness up, down, and across value chain
Ability to execute
CSFs
Missions, aspiration
s,Propensity
for risk
Market Domain Industry Domain
Macro-level
Micro-level
REF: The New Business Road Test, John Mullins © 2003.
MarketAttractiveness
IndustryAttractiveness
Target segments
benefits and attractiveness
Sustainable
advantage
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The Critical Success Factors
• Which assumptions are critical to the success of your business?
• What are the “big levers”?– Sensitivity analysis– Typically time (to develop and through
the transition)– Market size (total sales)
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Sensitivity Analysis
Value
14%
25%
3%
-1%
36%
14%
-2%
58
40
40
11%
40%
5%
5%
25%
10%
2%
45
32
50
$- $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00
Time to max sales
Projected Sales max
Development Costs
COGS
SG&A as % of sales
Sales acquisition timing
Research Income Growth
DSO
Inventory Days
DPO
Low
HighBase Value: $41.67
12%
35%
4%
3%
35%
12%
1%
50
33
45
Base