WRITING A BUSINESS PLAN - Pearsoncmg.com

WRITING A BUSINESS PLAN

VAUGHAN EVANS

FINANCIAL TIMES

HOW TO WIN BACKING TO START UP OR GROW YOUR BUSINESS

Essential Guides

BUSINESS

Cover image ©Robin MacDougall/

Getty Images

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FT EssentialGuides

ABOUT THE AUTHOR

Vaughan Evans is well placed to act as your guide in business planning, having worked on both sides of the table. He has been advising fi nanciers on whether they should back businesses for over twenty-fi ve years. He has also written many successful business plans tailored to meeting the concerns of backers.

An independent strategy consultant (www.managingstrategicrisk.com),specialising in business planning for corporate clients (www.backablebusinessplan.com) and strategic due diligence for private equity, he worked for many years at management consultants Arthur D. Little and investment bankers Bankers Trust. An economics graduate of Cambridge University and an Alfred P. Sloan fellow with distinction of London Business School, he is the author of the Backing You! series of books (www.backingu.com) and an inspirational speaker.

The task-focused, results-orientated guide to writing a business plan that really works.

The Financial Times Essential Guide to Writing a Business Plan gives you:

• The essential knowledge you need to write a winning business plan – quickly and without fuss

• Guidance on how to focus throughout on the plan’s purpose – to win backing

• Samples of what a good plan looks like, so you can benchmark your own as you write it

• Checklists, tips, examples and milestones to ensure you’re on target

• Prompts to refl ect on, evaluate and learn from your experience

With advice that’s instantly applicable, whether your business is a start-up or a more established company looking to grow, this is the one guide you need to create a credible and persuasive plan.

FT Essential Guides

WRITING ABUSINESS PLAN

YOUR ESSENTIAL GUIDE TO BUSINESS PLANNING

Whether you seek fi nancial backing or board consent, The Financial Times Essential Guide to Writing a Business Plan will give you the critical knowledge you need to get the go-ahead. By focusing clearly on your objective, it will help you to convey the necessary evidence and address your backer’s concerns. It will also help you develop your planning skills for the future by showing you how to coach yourself and improve your performance.

Written by a seasoned practitioner with years of experience in both writing and evaluating business plans for funding, it will help you formulate a coherent, consistent and convincing plan with your backer’s needs in mind. Follow its guidance and your plan will have every chance of winning the support you need for your business to succeed.

FINANCIAL TIMES ESSENTIAL GUIDES: THE KNOW-HOW YOU NEED TO GET THE RESULTS YOU WANT

‘I particularly like this book’s emphasis on market and competitive analysis – often we entrepreneurs tend to go with our gut feeling rather than proper analysis. Evans gets the priorities behind business planning right.’

Anthony Karibian, co-founder, XLN Telecom Ltd (exited September 2010)

‘Vaughan Evans’ excellent book shines a light on what suppliers of capital expect in a business plan and why. It is an invaluable resource for all managers and budding entrepreneurs.’Hugh Lenon, Managing Partner, Phoenix Equity Partners, and Chairman of the British Venture Capital Association, 2010

‘Evans has nailed it! Clear, readable, no-nonsense thinking about the fundamentals every business plan must address. If writing a business plan is your next step, this book’s for you.’John Mullins, Professor at London Business School and author of The New Business Road Test

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Praise for The Financial Times Essential Guide to Writing a Business Plan

‘Vaughan Evans provides a thorough yet practical guide to writing a business plan. I particularly like his emphasis on market demand and com-petitive analysis because often we entrepreneurs tend to go with our gut feel rather than proper analysis. Miscalculate these two critical areas and you will probably enter the wrong business. I have been there before and no matter how good your team or execution is, it will be an uphill battle to convince investors if those two areas aren’t compelling. Evans gets the pri-orities behind business planning right.’

Anthony Karibian, co-founder, Euroffice Ltd and XLN Telecom Ltd (both sold September 2010) and latest start-up, B. Online

‘Raising capital is rarely straightforward. Evans’ excellent book shines a light on what suppliers of capital expect in a business plan and why. It is an invaluable resource for all managers and budding entrepreneurs.’

Hugh Lenon, Managing Partner, Phoenix Equity Partners, and Chairman of the British Venture Capital Association, 2010

‘Evans has nailed it! Clear, readable, no-nonsense thinking about the fun-damentals every business plan must address. If writing a business plan is your next step, this book’s for you.’

John W. Mullins, Associate Professor of Management and Chair in Entrepreneurship, London Business School, and author of The New Business

Road Test and Getting to Plan B

‘This guide cuts to the heart of what needs to go into a business plan – in any number of different scenarios. It is admirably clear and cleverly illustrated by real-life examples. It ought to be required reading for anyone contemplating any form of investment, even if they think they know it all already.’

James Brocklebank, Managing Director, Advent International

‘At last! A book that explains how to write the kind of business plan that investors and lenders actually want to read. A clear and concise book – I haven’t seen one that approaches the subject so straightforwardly. Evans uses his vast experience in advising real companies and financiers to make this guide authoritative and authentic, yet also practical and easy to follow.’

James Courtenay, Global Head, Project and Export Finance, Standard Chartered Bank

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‘Where was this book when I was producing business plans? With his extensive experience and unique style Vaughan Evans has produced a com-prehensive, clear guide which unravels the mystique of business planning. Peppered with good examples it is an essential reference for those contem-plating a start-up as well as existing businesses moving to their next phase of growth.’

Grahame Hughes, co-founder, Haven Power Ltd (exited 2010)

‘Many investors say they back people, not businesses. Yes and no. People matter, of course. But so too do the markets the company addresses, the nature of the competition that’s waiting around the corner, the value proposition the company brings to market... That is what a business plan should focus on and that is what is set out so lucidly in this book. It is written for managers and entrepreneurs to present to investors by someone who knows only too well what investors need to know.’

David Williamson, Managing Director, Nova Capital Management

‘Vaughan Evans’s considerable experience in creating business plans and evaluating them on behalf of investors is very much in evidence in this eminently readable book. From my private equity perspective, a plan sub-mitted along these guidelines will stand out from the rest. It will speak the language of potential investors.’

James Pitt, Partner, Lexington Partners

‘The fact that most new businesses fail is well known. The distinctive fea-ture of Writing a Business Plan is the recognition that most businesses fail even before they are launched – they fail to attract financial backing. Vaughan Evans’s emphasis on rigorous strategy analysis as the foundation for any business plan is based in practicality. His emphasis on understand-ing customers, recognising competition and appraising resources is relevant to all the critical phases of new enterprise creation: attracting backers, launching the business and developing it into a self-sustaining enterprise. This book offers a robust, realistic and readable framework for successful business planning.’

Robert M. Grant, Eni Professor of Strategic Management, Bocconi Univeristy, Milan and author of Contemporary Strategy Analysis

‘We engage advisers like Vaughan Evans to forensically examine the business proposition of a potential investee company. Evans himself has been doing this for years and focuses in his book on analysing those issues which are most critical to driving enterprise value – market growth, competition and a robust, distinctive strategy. Follow his advice, tackle those issues head on in your busi-ness plan and you’ll be taking your first step towards getting funding.’

Ken Lawrence, Partner, Gresham Private Equity

‘A good business plan does not get you the backing, it gives you an oppor-tunity. It raises the right issues, which later you need to address with your backer. With a bad business plan, you are dead on arrival. Follow Evans’s book and you’ll get a good one.’

Jose Maria Maldonado, Partner, Bridgepoint Capital (Spain)

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‘Vaughan Evans knows the way an investor’s mind works – the delib-erations of risk and return over major issues – and here he introduces the reader to this mindset. The result will be a business plan that will have pre-empted all the key questions likely to be demanded by investors. Now they are in print. This is an invaluable guide for a private equity backed growth company such as ours.’

Stephen Lawrence, Chief Executive, Protocol Education Ltd

‘Whether a start-up, early stage or mature business, this book provides essential and in-depth guidance on how to prepare a compelling business plan. With an emphasis on achieving credibility with the various read-ers of the plan, the guide offers more than just a template for producing a business plan. It brings together valuable real life examples as well as some priceless advice on strategic and operational issues. It should prove an invaluable tool for any company, large or small, that needs to produce a credible business plan.’

Vince O’Brien, Director, Montagu Private Equity and Chairman of the British Venture Capital Association, 2005

‘“You can get it if you really want”, but only if you have a good plan to get you there. Writing a business plan is one of the most important jobs anyone in business has to do at some point in their working lives. And yet in almost twenty years of reading business plans as an investor I only rarely come across a good one. In this well written book Vaughan Evans has pro-duced an insightful and practical guide to writing a business plan, born from a wealth of experience. Follow it and you stand a much better chance of getting “what you really, really want”.’

Andrew Ferguson, Managing Director, Baird Capital Partners Europe Limited

‘Business planning in large organisations is sometimes done by rote, an extension of the budgeting process. Evans is right. It should be done prop-erly or not at all. Properly means in-depth analysis of markets and the business proposition. This succinct, punchy book shows managers how to do it properly.’

Christine Harvey, former Director of Business Analysis and Planning, GlaxoSmithKline R&D

‘We receive dozens of business plans a year from SMEs. If entrepreneurs invest the time to read this book, it will make our life simpler and their chances of obtaining finance so much higher.’

Peter Wright, Investment Director, Finance Wales

‘This book provides an essential toolkit for anyone needing to assemble a business plan, with their ideas presented in a concise, no-nonsense way. Lively, contemporary case studies and essential tips, coupled with easy to follow writing, make it a perfect read for all levels of experience.’

Bill Priestley, Managing Director, LGV Capital Limited

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‘The first question I always ask when looking at a business concept is “do they have a well thought out plan?”. If not, then it’s normally “decision made”. Getting backing for your business is about selling a well thought through concept and ensuring you provide the reader with the information and analysis needed in a clear and convincing manner. This book is written from the viewpoint of the potential backer, targeting his/her key questions. It provides a no-nonsense, easy-to-follow guide that will ensure you deliver a persuasive plan.’

Robert Samuelson, Executive Director Group Strategy, Virgin Media

‘As a private equity investor we see many business plans that fail to meet the “Seven C’s” outlined in Vaughan Evans’ excellent book. If you are seek-ing financial backing, this step-by-step guide is the place to start.’

Paul Gough, Partner, STAR Capital Partners Limited.

‘Over the years there have been many guides to what you should put in a business plan. The crucial difference with Evans’ book is that it tells you why and how as well. It does so in crystal clear, jargon-free language, from an author whose experience in sifting the strategic wheat from the chaff on behalf of top investors is second-to-none. Not only will putting his advice into practice enhance your funding prospects – it will help you think more incisively about your business as well.’

Richard Kemp, Managing Partner, Sephton Capital

‘Let’s get real: the majority of so-called business plans we see are built of straw. They can be toppled over by an investor’s puff. Build a business plan with bricks, one that can withstand the hurricane of investor analysis, and you may get funding. Evans shows you how to build.’

Jonathan Derry-Evans, Partner, Manfield Partners

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The Financial Times Essential Guide to Writing a Business Plan

How to win backing to start up or grow your business

Vaughan Evans

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PEARSON EDUCATION LIMITED

Edinburgh GateHarlow CM20 2JETel: +44 (0)1279 623623Fax: +44 (0)1279 431059Website: www.pearson.com/uk

First published in Great Britain in 2011

© Vaughan Evans 2011

The right of Vaughan Evans to be identified as author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988.

Pearson Education is not responsible for the content of third-party internet sites.

ISBN: 978-0-273-75798-6

British Library Cataloguing-in-Publication DataA catalogue record for this book is available from the British Library

Library of Congress Cataloging-in-Publication DataEvans, Vaughan, 1951- The Financial times essential guide to writing a business plan : how to win backing to start up or grow your business / Vaughan Evans. p. cm. Includes index. ISBN 978-0-273-75798-6 (pbk.) 1. Business planning. 2. Proposal writing in business. 3. Business enterprises--Planning. I. Financial times (London, England) II. Title. III. Title: Writing a business plan. HD30.28.E83 2011 658.4’01--dc23 2011030715

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical,photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published, without the prior consent of the publisher.

10 9 8 7 6 5 4 3 2 115 14 13 12 11

Typeset in 8.75/12pt Stone serif by 30Printed and bound in Great Britain by Ashford Colour Press Ltd, Gosport

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To Putnik and his Luxurious Pillow Company

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Introduction / xiii

part 1 Preparing your plan

1 Essential preparation / 3

Result / 4

Need / 12

Preparation / 17

part 2 Writing your plan

2 The business / 27

Background / 28

Business mix by segment / 33

Segmentation in a start-up / 37

3 Market demand / 41

Market size / 43

Market growth / 45

Market demand for a start-up / 52

Market demand risks and opportunities / 53

4 Competition / 58

Your competitors / 60

Competitive intensity / 62

Competition in a start-up / 67

Industry competition risks and opportunities / 69

Contents

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x Contents

5 Strategy / 74

Competitive position / 76

Strategy / 80

Strategy in a start-up / 87

Strategic risks and opportunities / 89

6 Resources / 98

Management / 101

Marketing / 104

Operations and capital expenditure / 107

Resource risks and opportunities / 114

7 Financials and forecasts / 117

Historic financials / 118

Market-driven sales forecasts / 121

Competition-driven margin forecasts / 127

Funding the plan / 130

Full financial forecasts / 132

Forecasts in a start-up / 140

Financial risks and opportunities / 143

8 Risk, opportunity and sensitivity / 155

Meet the Suns and Clouds chart / 157

What the suns and clouds tell you / 159

Sensitivity testing / 167

9 Conclusion / 173

Conclusion / 174

Executive summary / 177

Investment highlights / 180

part 3 Reviewing your plan

10 Monitoring and evaluating / 185

Monitoring your plan / 186

Evaluating your plan / 187

Beware these characters! / 188

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Contents xi

Postscript: 12 hot potatoes / 191

Appendices / 200

Appendix A: Deriving competitive position / 200

Appendix B: Structured interviewing of customers / 217

Index / 222

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‘John, we need a business plan. Can I leave it with you?’ asks the boss, contemplating only one possible answer.

You’re pretty good at your job in sales or marketing or finance. But you’ve never written a business plan. Where do you start?

Try this. Ask your boss what the plan is for. The chances are that the firm needs it to obtain some sort of backing – from the board, from the bank, from an investor.

Or you may run your own company. You need to expand. You could just about finance it yourself or through your existing bank facilities, but you could do with some extra cushion. Your need a plan for your backer, in this case your bank.

Or you may be planning serious expansion, possibly acquisition. You need a plan for your equity investor.

Or you may be launching your own start-up business. You need a plan for your venture capital or business angel backer.

In all these cases, let this book be your guide. It is written from the perspective of a backer. Every word on every page is designed to help your business achieve the backing you seek.

You don’t need an encyclopaedia for a business plan. And you don’t need an encyclopaediac guide to help you write one.

Indeed, your backer would walk out of the room if you presented them with such a plan. They want the meat, and having to chew through the fat will make them back off, not back you.

It’s the message that counts, not the detail. Size is not important.

You need a plan that is clear and concise, and easy for your backer to read and understand. You need a plan that is coherent, consistent and convincing, furnishing your backer with the evidence and the argument needed for go-ahead.

Introduction

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xiv Introduction

You need the essentials of a business plan.

This is the book for you. It is tailored to meet the needs of your backer. Many business planning guides lead you through the proc-ess from the perspective of what you as a manager or entrepreneur would wish to say about your business.

Not this guide. It is customer-driven, not supplier-driven. It works backwards from the backer to the planner – from what your backer needs to know about your business to what you need to research and analyse to address their needs.

And who is this book for, who is this ‘planner’? You are someone who has been tasked with producing a backable business plan. As described above, you may be a manager in a medium-sized business handed the task by the managing director. Or you may be the owner of a smaller business – and you have delegated the task . . . to yourself.

You may even be a manager in a large company who wants to cut to the chase and draw up a short, sharp, backable plan, an essential plan, rather than a long-winded, interminable tome complete with pages of spreadsheets that will be out of date by the time the report lands on the boss’s desk.

Or you may be an entrepreneur starting out on a new venture. Again, this is the guide for you, one which helps you spell out the very essence of your backable proposition.

The book is set out in three parts:

1 Preparing your plan

2 Writing your plan

3 Reviewing your plan

Part 1 sets out what you need to do before you get going, the essen-tial preparation. First, we will get a fix on what a good plan looks like – why a backer would consider a plan to be backable. We will then contrast that with a bad plan – a plan that fails to address any of a backer’s concerns.

Then we’ll consider the various purposes of business plans – whether for a start-up, for raising equity or debt finance, or just for approval by the board. Or you may need a plan for the sale of the business to a trade or private equity buyer, or for a joint venture with a strategic part-ner. Finally, we look at using business planning as a managerial tool.

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Introduction xv

Part 1 concludes by setting out what needs to be done before kick-off – research in particular, but also organisation. Research may need to be conducted in assessing market size and growth trends, what your competitors are up to and what your customers expect of your busi-ness, both now and in the future.

Under organisation, we look at what you need to prepare in terms of the business planning team, the optimal timetable, the tools you can use, the contents of the plan, what to put in the appendices, the length of the report and the pitfalls of the drafting process.

Part 2 contains the meat of the report, the essentials. This is what your backer needs to know about your business. Chapters 2–9 are ordered with exactly the same structure as your recommended business plan. So this book’s Chapter 3, on market demand, for example, will have the same title as Chapter 3 of your business plan. Chapter 4 of your plan will be on competition, as in this book, with subsequent chapters on strategy, resources, forecasts and risk the same as in this book.

Your plan will be tailed by a conclusion in Chapter 9 and topped by an executive summary in Chapter 1 – as shown in the chart below.

This book Your business plan

Part 1 Preparing your plan

Chapter 1 Essential preparation Chapter 1 Executive summary

Part 2 Writing your plan

Chapter 2 The business Chapter 2 The business

Chapter 3 Market demand Chapter 3 Market demand

Chapter 4 Competition Chapter 4 Competition

Chapter 5 Strategy Chapter 5 Strategy

Chapter 6 Resources Chapter 6 Resources

Chapter 7 Financials and forecasts Chapter 7 Financials and forecasts

Chapter 8 Risk, opportunity and sensitivity

Chapter 8 Risk, opportunity and sensitivity

Chapter 9 Conclusion Chapter 9 Conclusion

Part 3 Reviewing your plan

Chapter 10 Monitoring and evaluating

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xvi Introduction

This book Your business plan

Appendices

Appendix A Deriving competitive position

Appendix A Market data

Appendix B Structured interviewing of customers

Appendix B Competition data

Appendix C Competitive position data

Appendix D Management CVs

Appendix E Marketing plan

Appendix F Operations data

Appendix G Environment, health and safety data

Appendix H Financial data

In Part 3 we look at how you should review your business plan and hopefully learn lessons on what went well and how things can be improved next time round.

In summary, this is a guide to writing a business plan that addresses what a backer requires of such a plan.

Assuming your business proposition is sound, and I am sure it is, this book shows you how to write a business plan that will win backing to start up or grow your business.

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3Market demand

‘‘The only function of economic forecasting is to make

astrology look respectable.

John Kenneth Galbraith

In this chapter

OO Market size

OO Market growth

– The web of information

– The four-stage process for demand forecasting

OO Market demand for a start-up

OO Market demand risks and opportunities

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The analysis of market demand must come right up front in your business plan. It is the crux of the plan. If there aren’t enough buyers of the type of products or services you offer, at

the right price, you won’t meet your plan.

Your backer wants to know, before all else, who these buyers are, how much they are buying, how much they are paying, why they are buying, what has been influencing them, how those influences may change and how much they are likely to buy in the future.

And they want to know all this in each of your main business segments.

If you can make this chapter of your plan convincing, you may have a backer. If not, you won’t.

I have seen so many business plans where analysis of market demand is hedged, sidelined or compressed into a couple of paragraphs in a chapter devoted to the company’s oh-so stellar positioning.

Most of those plans were written for the sale of a company. Potential backers either walked away or made an offer at a much lower price.

Your backer wants the market demand situation laid out as it is, clearly and concisely. If market demand prospects are not great, be they flat or even mildly declining, tell it like it is. Don’t try to obscure the reality.

If your backer has to find out for themselves that the reality differs from that presented in your business plan, you have no backer.

Of course, a backer would prefer to invest in a business that addresses a growing market. However, fortunes have also been made through backing winners in a declining but consolidating market.

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3 O Market demand 43

Let’s be clear. This chapter considers demand not just for your prod-uct or service, but for all providers of products or services with whom you compete. It looks at overall demand in the marketplace.

Any market is made up of demand and supply. When demand and supply are in balance, that’s good news for all concerned. When demand outstrips supply, that’s good for the suppliers – though usu-ally only for a while, until more supplies and/or suppliers arrive. When demand falls and supply exceeds demand, that’s bad news for suppliers. You’re one of those suppliers.

We are going to apply those fundamentals to the market for your product or service. We will look at market supply in the next chap-ter, but we’ll start with market demand in this one. We’ll try to forecast where market demand is headed over the next few years.

Your backer will also want to know what the risks are of things turning out worse than expected. And, conversely, what the opportu-nities are for things to turn out better than expected.

Market size

If your business is called Tesco, you will subscribe to a market research organisation. You will feed it data at the end of each period and receive results within a week or two on the overall size of the UK grocery market, its growth since the previous period and whether your market share has gone up or down from around 30%.

And so it is with most large organisations. Yet many medium-sized companies too will enjoy a similar relationship with a niche market research house or industry association. I have worked in some wholly obscure niches of the British economy over the years and it never ceases to amaze me how companies with a turnover of just £10 mil-lion still receive good, regular, informative market data from an external, independent research house serving that company and most of its competitors.

But for small companies this data may be punitively expensive to acquire, may not be directly relevant or may not exist.

Tough. You have to have a go; you have to make an estimate. Your backer will need to know whether you are a big fish in a small pond, or vice versa. Suppose you are a mega fish in a tiny pond, but one that can be protected from other waters. Your backer would like to hear that.

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44 Writing your plan

And they will want to know how that market size has changed over the last few years. So you’ll have to construct a market estimate not only for today, but also for, say, three years ago.

It is not that difficult. You know what your turnover is in a particular business segment. What about competitor A? Bigger or smaller than you in that segment, would you say? By how much bigger? Twice, three times? 50% bigger? And B? And C D, E, F? Perhaps G is too small to warrant inclusion in this segment, but let’s allow 10% for G and anyone else we haven’t thought of.

Add up all their highly approximate turnovers and, hey presto, you have an estimate of market size in that segment!

Now do the same again for three years ago. Start as before with your actual revenues three years ago (or less if your business is younger than that). Think carefully whether competitor A is doing more business in that segment now than before. By how much more? By proportionately as much as your revenues have grown in that time? How about B? Build up a market size estimate for three years ago.

Compare the two estimates and you have a rough and ready approximation of market growth over a three-year period. Evaluate the compound growth rate and you have an estimate, crude in the extreme, perhaps, but an indicator nevertheless, of average annual growth in that segment.

Believe me, this is better than nothing. Your backer will be impressed that you have tried to create some information out of nothing. And it gives them some sort of basis upon which to work, to do some checking.

One caveat. Make sure you identify the relevant market size. It has to be that of the particular segment you are examining. If you run a deli grocery in an off-high street location in Bristol, putting down the size of the UK grocery market as your addressable market will not be helpful. It’s fine for Tesco, not for you.

Finally, here’s a simple example of constructing market size, adapted from one I did recently for a client, company A, which sold £30 mil-lion of equipment in a specific segment in 2010. The CEO figured that competitor B’s sales were significantly higher, say by one-third. Competitor C’s were smaller, but only just, say 10% below those of A. D’s were much smaller, less than half, say 40% of A’s. Then there were two or three much smaller players.

The market size in this segment in 2010 was therefore 30 (A) + 40 (B) + 27 (C) + 12 (D) + 10 (other) = £119 million, very roughly indeed.

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This gave A an estimated market share of 25% – a useful indicator for the next chapter.

The CEO thought that the relative shares of A and B had stayed more or less the same over the past three years, but C had gained share after its plant extension and D had stalled due to its poor reputation for product reliability. We knew A’s sales in 2007 were £24 million, so we estimated market size in 2007 at 24 (A) + 32 (B) + 18 (C) + 12 (D) + 8 (other) = £94 million.

On the basis of our informed guesstimates, the market in this seg-ment seemed to have grown from around £94 million in 2007 to £119 million in 2010, an average annual growth rate of around 8%. Again, very rough, but nevertheless very useful in framing the subse-quent business plan analysis.

Market growth

This is the big question. Is demand in each of your main business segments going to grow? Will it be bigger in a few years’ time, or smaller? Or more or less the same?

It’s not the only question, of course. Equally important, as we will see in the next two chapters, is the nature of the competition you’re going to face and how you’re placed to compete.

But it’s all a question of odds. You have a better chance of prospering in a market that’s growing than one that’s shrinking.

So how do you find out where market demand is headed? You need to weave your own web of information.

The web of information

I’ve been advising clients on market trends for 35 years. In the old days, you used to have to call up trade associations, write to com-panies active in the market asking for their annual reports, visit reference libraries to wade through reams of trade magazines and journals, and so forth. Or you might have to purchase an expen-sive market research report, often only of tangential relevance to the market you were researching.

Now it’s a breeze. All you have to do is switch on your laptop, click on to your internet connection, pop into Google or Yahoo!, and type in the name of your market alongside such words as ‘market,’ ‘growth,’ ‘forecasts’ and ‘trends.’

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You’ll find that Google comes up with hundreds – maybe thousands – of websites to visit. Most of them will be irrelevant. One, two or more will be spot on. You’ll begrudge having to waste time trawling through dozens of useless sites – but think of the hours and hours of effort you’re saving compared to the old days.

You just need some patience and perseverance to systematically wade through the referred sites. Open up a Word file, and whenever you come across an article on a website that seems useful, copy it and drop it into your document.

You’re weaving your own web of information on your market.

You may find that your search directs you to reports produced by specialist market research companies. These should be used as a last resort. Some can be quite good, reflecting the direct access they may have had to market participants and observers, but too many turn out to be bland. And expensive. Better to do your own digging around on the web first.

There are some good news websites where you can search directly on market trends without having to subscribe. The BBC’s website (www.

bbc.co.uk) is a hugely informative, internationally focused resource and doesn’t cost a penny. Similarly international in outlook, the website of The Economist (www.economist.com) offers a free search on articles less than a year old, but subscription is needed for older articles. The websites of the main broadsheet national and regional newspapers are also good sources, such as The Guardian (www.

guardianunlimited.co.uk), which is free and requires no registration. There are also The Times (www.timesonline.co.uk), Daily Telegraph (www.telegraph.co.uk), Independent (www.independent.co.uk), Western Mail (www.icwales.icnetwork.co.uk), Scotsman (www.scots-

man.com) and Irish Times (www.irishtimes.com), some of which require registration. The Financial Times website (www.ft.com) offers a wealth of financial, company and market information, but to search through back copies requires you to subscribe.

You can also find out much about the companies working in your market. Many will have their own websites that you can tap into. Smaller companies tend to use their websites just as product or serv-ice showcases, but some may provide snippets of information on where the market is heading, such as a press release summarising a recent speech by the CEO to a trade conference. Publicly quoted companies will attach their annual reports, in which you’ll be able to find the company’s views on market trends.

M03_EVANS7986_01_SE_C03.indd 46 25/08/2011 13:56


Another good source of market information on the web is online trade magazines. Typically they will have at least some sections open to the public without subscription, which can often be expensive. If you work in the automotive industry, for example, you could look up www.automotivenews.com. If you’re in the wine business – lucky you – how about www.wine-spirit.com? Whatever sector you work in, there is sure to be an online trade magazine.

Essentialexample

GoApe’smarketdemand

The market for activity-based holidays has been growing steadily for

two decades. Drivers of this growth have been increased personal

disposable income, the high income elasticity of vacationing, leading

to the taking of multiple holidays a year, increasing concern with

health and fitness in our increasingly sedentary and overweight society

and growing awareness of and participation in adrenaline-fuelled

activities – themselves encouraged by the extreme activity taking

place during the most sedentary of leisure pastimes, the video game.

The European market can be segmented into geographical location,

facilities provided, age group targeted and intended length of stay.

Leading operators include PGL, with their UK and continental

activity holidays aimed at the one-week pre-teen or teenage

resident, and Kingswood’s Camp Beaumont or Supercamps, aimed

at the youthful day visitor. One facility typically present at a PGL

camp is the high zip wire, enabling the harnessed visitor to zoom

down from a height to the ground safely. But this tends to be just

one of an array of enticing offerings, from a climbing wall to quad

bikes, abseiling to mountain biking, kayaking to raft building.

Go Ape opened in Thetford Forest in 2002 and focused essentially

on one such activity – the zip wire – and set it, or rather them, in a

forest environment, connected by above ground, treetop wooden

walkways, ladders, bridges, tunnels and landing nets. It was a quality,

niche offering, targeted at the PGL audience and their parents, and

was an immediate award winner. There are now 26 Go Ape centres

in the UK and one recently opened in the US. Sales reached

£11 million in 2009, having grown by 44% a year since 2006. Go

Ape addressed a growing market, found an untapped niche within it

and exploited it with a top quality, readily replicable offering.

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The four-stage process for demand forecasting

There is a four-step process you need to follow in any assessment of market demand trends. Get this process right and all falls logically into place. Get it out of step and you may end up with a misleading answer. You need to apply these steps for each of your main business segments. The four steps are as follows:

1 Assess past growth – check how market demand has grown in the past.

2 Assess past drivers of growth – identify what has been driving that growth in the past.

3 Assess changes in drivers – assess whether there will be any change in influence of these and other drivers in the future.

4 Forecast future growth – forecast market demand growth, based on the influence of future drivers.

Let’s look at each of these briefly, then at some examples.

1 Assess past growth

This is where it would be good to get some facts and figures. It’s sur-prising how the most straightforward of searches can reveal recent growth rates in the markets you’re looking for.

Be careful not to fall into the trap of relying on one recent number. Just because demand for a service jumped by, say, 8% last year doesn’t mean that trend growth in that market has been 8% each year. The latest year may have been an aberration. The previous year might have seen a dip in the market, followed by the 8% recovery.

You should try to get an average annual growth rate over a number of recent years, preferably the last three or four. As long as there haven’t been serious annual ups and downs you can usually get a usable approximation of average annual growth by calculating the overall percentage change in, say, the last four years and then annu-alising it. If there have been ups and downs, you should smooth them out with three-year moving averages before calculating the per-centage change.

If yours is such a niche market that there is little or no data to be found, that can’t be helped. Useful information can still be uncov-ered. You just need to find out whether the market has been growing quickly, growing slowly, holding flat, declining slowly or declining quickly. We can define growing slowly as moving along at the same pace as the economy as a whole (gross domestic product or GDP in

M03_EVANS7986_01_SE_C03.indd 48 25/08/2011 13:56


economics-speak), which is roughly 2–2.5% a year in the long run in Britain and most other large Western economies. That’s in ‘real’ terms – in other words, in terms of tangible, wealth-creating growth. On top of that sits inflation, typically around the same 2–2.5% a year these days, although it has been much higher in the past. Slow growth in terms of ‘money of the day,’ or in ‘nominal’ terms, can therefore be taken as roughly 5% a year in the long run. Actual data on GDP growth can be extracted from government statistics if that is helpful. Interestingly, real GDP growth in 2010–11 has been low, but inflation has been higher, so nominal GDP growth has again been around the 5% a year mark.

2 Assess past drivers of growth

Once you have uncovered some information on recent market demand growth, you need to find out what has been influencing that trend. Typical factors that influence demand in many markets are as follows:

OO Per capita income growth.

OO Population growth in general.

OO Population growth specific to a market (for example, of pensioners or baby boomers, or general population growth in a particular area).

OO Some aspect of government policy.

OO Changing awareness, perhaps from high levels of promotion by competing providers.

OO Business structural shifts (such as towards outsourcing).

OO Price change.

OO Fashion, even a craze.

OO Weather – seasonal variations, but maybe even the longer-term effects of climate change.

Not all of these drivers will be relevant for all your business seg-ments. You need to pick those that are the most important. There may also be factors that are purely specific to your market. Fashion, fads in particular, can have a huge effect on some markets.

3 Assess changes in drivers

Now you need to assess how each of these drivers is going to develop over the next few years. Are things going to carry on more or less as before for a particular driver? Or are things going to change signifi-cantly for that driver?

M03_EVANS7986_01_SE_C03.indd 49 25/08/2011 13:56


Will, for instance, immigration continue to drive local population growth? Is the government likely to hike up a local tax? Could this market become less fashionable?

The most important driver is, of course, the economic cycle. If it seems that the economy is poised for a nosedive, that could have a serious impact on demand in your business over the next year or two – assuming your business is relatively sensitive (or ‘elastic’, in economics-speak) to the economic cycle. Or maybe your business is relatively inelastic, like, for example, the food industry. You need to think carefully about the timing of the economic cycle and the elas-ticity of your business in your business plan.

4 Forecast future growth

This is the fun bit. You’ve assembled all the information on past trends and drivers. Now you can weave it all together, sprinkle it with a large dose of judgement, and you have a forecast of market demand – not without risk, not without uncertainty, but a systemati-cally derived forecast nevertheless.

Let’s take a simple example. Your business offers a relatively new service to the elderly. Step 1: you find that the market has been growing at 5–10% per year over the last few years. Step 2: you iden-tify the main drivers as (a) per capita income growth, (b) growth in the elderly population and (c) growing awareness of the service by elderly people. Step 3: you believe income growth will continue as before, the elderly population will grow even faster in the future and that awareness can only get more widespread. Step 4: you conclude that growth in your market will accelerate and could reach over 10% per year over the next few years.

And now an example of how not to do it. Many years ago I was doing some work with a crane manufacturer in the North of England and came across a draft business plan. In the section on market demand, its young author had stated that there was no data to be found any-where on UK demand for cranes. So, for the purposes of the financial forecasts, he assessed real growth in the crane market to be the same as for UK engineering output, forecast by the OECD at 2.4% per year.

Oops! The mistake is one of exclusion. Yes, macro-economic demand was an important driver of demand in the crane market. But there were three or four other drivers of equal importance, on which there was, admittedly, no hard and fast data but plenty of anecdotal evi-dence. They included evidence of destocking, a thriving second-hand market and, above all, an imminent downturn in high-rise construc-tion activity.

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None of these drivers bore any relation to engineering output as a whole and their combined impact served to translate a 2.4% per year crane market growth forecast into one of steep decline, possibly at 10% per year for two or three years.

The moral of this tale is to make sure that all drivers are taken into account, irrespective of whether hard data can be found on them. Use your judgement.

Essentialtip

The demand forecasting process is simple and rational. How did

demand grow in the past? What influenced that growth? Will

those influences change? So how will demand grow in the future?

Get this process right and you will leap over your backer’s first

credibility hurdle.

Essentialexample

LOVEFiLM’smarketdemand

Video on Demand has been the Holy Grail of the media world for

two decades – and it still hasn’t quite arrived. LOVEFiLM has

arguably been the next best thing. Video on Demand is when you

can turn on your TV, scroll down a library of dozens, hundreds or

thousands of films and TV programmes, click on your choice and

watch it, when you want to, for as long as you want to. The BBC’s

iPlayer and the ITV and Channel 4 equivalents satisfy part of that

demand, but if it is movies you want, LOVEFiLM is one solution. You

don’t have to walk down to the video rental shop; you just fill in an

order online and the DVD will arrive by post in a day or two – or you

can stream it directly on to your Sony PlayStation 3 console. It is a

clever way of serving a market demand that is huge and arguably

still awaiting the killer offering.

Online Rentals, later rebranded as LOVEFiLM, started up in 2002

and has reached 1.4 million members across the UK, Scandinavia

and Germany. Tighter cost control has seen profits jump from

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Market demand for a start-up

This chapter of your plan may well be the most difficult of all to write in a start-up. Yours may be a new product or service designed to convey a customer benefit not previously realisable. In which case, how do you define the market? What is market demand for a product that has not previously existed? What is its size? What are its growth prospects?

On the other hand, your start-up may be in a market that’s already well defined – like the Dart Valley Guest House and Oriental Spa, which will be unique and distinctive, but fits snugly into an already buoyant market for three- and four-star tourism in the West Country.

Or you may be opening a boutique selling designer childrenswear on the high street. Again that is a definable, existing market, to be researched in the same way as set out above.

But what if your product or service is indeed something that has not existed before? How can you convince your backer that there will be buyers for your offering, and at that price? You need evidence.

You’ll have to do some test marketing. If yours is a business-to-business proposition, get on the phone and set up meetings with prospective corporate buyers. Explain the benefits of your product and why at that price they have a bargain.

Keep a record of these meetings and analyse the findings. Write a report drawing out key conclusions from the discussions, with each supported by bulleted evidence – whether comments from named customers, comments from third parties quoted in the press or data dug up off the web. Collate them into a short and sharp market research report, which will be Appendix A of your business plan. It will be the first appendix, because it will be the single most impor-tant item of evidence your backer will look for.

If yours is a business-to-consumer product or service, test it on the high street. Get out your clipboard, stand outside an Asda or a Waitrose, depending on your target customer, and talk to people. If

£1.1 million in 2007 to £16 million, on sales of £97 million, in 2009.

LOVEFiLM is a classic case of spotting an unmet need in the

marketplace and crafting a solution that goes much of the way

towards meeting it.

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you’re offering a product, show them. If it’s a service, explain lucidly but swiftly its benefits.

Again, collate the responses, analyse them, draw firm conclusions, support them with quotes and data, and stick the market research report in your Appendix A.

Now, based on those responses, make an estimate of your poten-tial market size. Imagine there are many suppliers of your product or service and that the whole country is aware of its existence, then what would the market size be? How does that compare with the market size for products or services not that different from the ones you’ll be offering? Does your estimate make sense?

And how about market demand growth? If your start-up is serving an existing market, you can use the same four-stage process for demand forecasting that an established business would use.

If your start-up is for a new market, you may try the same four-stage process, but in reality this will not be the prime consideration of your backer. They will be concerned with the existence of such a market in the first place. Any growth on top of discovering and serv-ing a new market will be icing on the cake.

Market demand risks and opportunities

You have now come to a reasonable forecast of what’s likely to happen to market demand in your key business segments over the next few years. However, your backer needs to know a little more than that. You’ve assessed what’s most likely to happen. But what are the risks of something happening to market demand that could make things worse than that? What could happen to make things much worse? How likely are these risks to happen?

On the other hand, what could make things better than you have forecast? What could make things much better? How likely are these opportunities to happen?

Essentialtip

If your plan is for a start-up, test the market. Pick up the phone or

get out and talk to people. Do some primary market research.

Amass, digest and analyse pertinent data. Be armed for the

inevitable grilling from your backer.

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Your backer is going to be very interested in these risks and opportu-nities. They are going to use your market demand forecasts to help assess whether your financial forecasts in Chapter 7 of your plan are reasonable. Then they will look at all the risks and opportunities around those forecasts in Chapter 8. And market demand issues will be the first set to be factored in.

Identify the main half a dozen risks that might affect your market demand forecasts, then assess them from two perspectives:

OO How likely are they to take place – a low, medium or high likelihood?

OO If they do occur, how big an impact will they have – a low, medium or large impact?

Now do the same for the opportunities you have identified.

Are any of these risks or opportunities ‘big’ issues? We’ll define a ‘big’ risk (or opportunity) as one where:

OO the likelihood of occurrence is medium (or high) and impact is high

OO the likelihood of occurrence is high and impact is medium(or high).

Any big issues of market demand need to be set out clearly in your business plan. If it is a big risk, you must set out how you are going to address it and mitigate its impact. If it is a big opportunity, you must elucidate on how you plan to exploit it.

EssentialcasestudyTheDartValleyGuestHouse&OrientalSpabusinessplan,2011

Chapter3:Marketdemand

As a former management consultant, Dick Jones knows his first

port of call for data on tourism trends. He clicks on to the

VisitBritain website and among the useful information he soon digs

up is the following:

OO The average UK adult resident took 2.1 tourism trips of one

night or more away from home within the UK in 2009.

OO Of 230 million holiday visitor nights by UK residents spent in

2009, 69 million, or 30%, were in the West Country.

M03_EVANS7986_01_SE_C03.indd 54 25/08/2011 13:56


OO The latter spent £3.4 billion in nominal terms (2009 money), or

£49 per person per night.

OO Average length of stay was three nights.

OO There were a further 4.7 million business visitor nights to the

West Country, with each spending an average of £95 per night.

OO Holiday visitor nights to the West Country have grown by 2.9%

per year since 2006 and their total spending by 4.7% per year.

OO A total of 470,000 overseas visitors stayed in Devon in 2009

(480,000 in 2006), for an average of 3.7 nights and with each

spending an average of £105 per night.

Dick has found so much useful information on aggregate market

demand that his problem will be keeping his Appendix A to a

manageable three to four pages.

But Dick needs to delve a bit deeper. He needs to find visitor trends

in Devon, not just in the West Country, and preferably in the Torbay

area. The Devon County Council website comes to his rescue,

although with data ending at 2007:

OO Visitors spent 2.89 million nights in Torbay serviced

accommodation (itself 37% of total visitor nights), 35%

of all Devon, with South Hams at 0.62 million nights and

7.5% respectively.

Now all Dick needs is some data on spa tourism, but that is hard to

find. One problem lies in the definition of a spa – which can range

from a facility offering a sauna adjacent to the fitness suite to the

full works of multiple pools and treatment rooms. There are some

market research reports available, but Dick is not convinced that

the steep expense would be worth it.

Dick is ready for his Chapter 3 conclusions:

OO Taking visitor nights in Torbay and South Hams serviced

accommodation at 3.72 million in 2009 (3.51 million in 2007,

growing, say, at the West Country’s 2.9% per year), at West

Country spend per night (£49), addressed market size can be

estimated at around £180 million.

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OO Market growth (West Country) has been around 3% per year in

visitor nights and 4.5% per year in spend.

OO Main long-term drivers have been per capita income growth, the

growing propensity to take multiple short breaks and the steadily

improving range of visitor facilities and attractions in Devon.

OO The main short-term driver has been the financial crisis-induced

recession which has stimulated the taking of ‘staycation’

holidays at the expense of beach holidays in the Mediterranean.

OO This short-term driver could shift into reverse as the economy

picks up.

OO Dick therefore forecasts market growth over the next three years

at 1–2% per year in visitor nights and 3–4% per year in spend.

OO Larger and higher-star hotels can be expected to fare better

than the average during the economic recovery as visitors

reverse their trading down.

OO Hotels offering special premium facilities such as spas should

fare likewise.

OO The main risk facing Devon hoteliers is a double dip recession

of such severity that even the staycation trend is negated, but

Dick deems this to be of low likelihood.

Given how market demand has remained reasonably healthy during

two very difficult years for the economy, Dick feels a backer will not

have too many concerns over this chapter of his plan. But what of

Dart Valley’s competition for this £180 million market? That’s for the

next chapter.

M03_EVANS7986_01_SE_C03.indd 56 25/08/2011 13:56


Essentialchecklistonmarketdemand

Set out for each of your main business segments, succinctly but

convincingly, your assessments of the following:

OO Market size – find a source or perhaps craft it yourself.

OO Market demand growth in recent years – likewise.

OO Demand drivers and how these are changing.

OO Forecasts of future market demand – based on future

demand drivers.

OO Market demand risks and opportunities.

This will all be done on three to four pages of A4. Supporting data –

for example, tables showing market size by segment for each of the

last three years and/or composition or trend data on key demand

drivers – can be loaded into Appendix A.

If your business is a start-up in a new market niche, concentrate in

Chapter 3 on the rationale for the very existence of that niche. The

market research you have conducted to underpin that rationale will

be your Appendix A.

M03_EVANS7986_01_SE_C03.indd 57 25/08/2011 13:56

accounts 119, 132acquisitions 32, 194added value 194advertising 104, 105agricultural commodities 195annual reports 46appendices 22–3, 52–3, 57, 73, 114Apple 81Arab Spring 193Asian market 192, 193–4, 195 attractiveness of market 83–4

background to business 28–40balance sheets 119–20, 132, 136–40,

152–4banks 14, 15, 137, 165, 168bargaining power 65–6, 69, 73,

108–9barriers to exit and entry 64, 65, 73BBC 46, 79, 194Beatles’, risks and opportunities

161–4big risks 54, 70, 89, 115, 156, 165,

168biofuels 195boards of directors 14–16, 102branding in investment 89Brazil 192, 193, 195 BRIC countries 192, 193, 195 budget 132, 186–7business mix by segment 33–40, 57

call centres 197capital expenditure 32, 65, 107–8,

111, 120, 132, 189carbon footprint 198case study on Dart Valley Guest

House and Oriental Spa business plan

background to business 38–40 balance sheets 152–3 business mix by segment 38–40 cash flow forecasts 150–1 competition 70 conclusion to plan 175–6 established businesses,

successful plans for 5–12 executive summaries 177–80 financials and forecasts 141,

144–54 interviews of customers 181–2 market demand 52, 54–6 openers 29 profit and loss accounts 125,

148–9 resources 115–16 risks and opportunities 168–71 sensitivity testing 168–71 start-up businesses 10 strategy 90–6cash flow 120, 135–6, 150–1, 167, 172cash flow statements 119, 132, 135,

137, 143, 154

Index

Z03_EVANS7986_01_SE_INDEX.indd 222 25/08/2011 14:39

Index 223

Index

changes in drivers, assessment of 48, 49–51

charities 198China 192, 193, 194, 195 clarity 7, 8–9, 17, 126–7, 159, 191coherence 8–9, 17, 126–7, 159, 191commodity prices 195community engagement 198Comparethemarket.com 106, 199competition 58–73 acquisitions 194 advantage 31, 74–5, 80–1, 88–9,

97, 103, 112, 194 appendices 73 Asian market 193–4 assessment of position 76–7 attractiveness of market 83 bargaining power 65–6, 69, 73 barriers to exit and entry 64, 65,

73 capabilities of competitors 9 case study on Dart Valley Guest

House 70 competitive position 200–16conciseness 7, 8–9, 17, 126–7, 159,

191conclusion to plan 174Confidential Information

Memorandum (CIM) 180consistency 124consultants 19–20, 23, 100contents of plans 20, 21–2, 191convincing, plans must be 8–9, 17,

126–7, 159, 191corporate social responsibility 198costs 9, 66, 80–1, 104, 109, 120, 199credibility 8–9, 17, 126–7, 159, 191credit committees of banks 14, 15credit crunch 192 customer power 63, 65–6, 69, 73 customer purchasing criteria

(CPCs), identification and weight of 76, 201–5

customer retention rates 77–8 deluded 190 direct competition 68, 88 distribution 112 effectiveness and efficiency 202–3 employees 65, 73 external pressures 63, 64, 73 forecasts 121–2, 124, 126–30,

141, 143 global competition 193–4 governments 64 improvements in process 89 indirect competition 60, 68–9, 88 inflation 64 information technology 113 intensity 9, 20, 62–9, 73, 83, 127 internal rivalry 63–4, 66, 69, 73 investments 65, 82 key success factors (KSF) 76, 81–2,

206 length of plans 22, 73 location of facilities and sales/

service teams 62 logistics 112 loners 189 management 103 manufacturing 111 margin forecasts 127–30 market demand 43, 63–4, 73 market-driven sales forecasts

121–2, 124, 126 market growth 44 market research 17 market share/size 44, 62, 213 new entrants 63, 65, 66, 73, 99 number of players 63, 65, 66, 73 offshore outsourcing 196 operating and/or net profit

margin 62, 67 operational processes as barrier

to entry 65 opportunities 69–70, 161 overall competitive intensity 66–7 outsourcing 195–6


224 Index

credit crunch (continued) patents 69, 88 peers 60–2, 212 physical assets deployed 62 pie charts 62 planned profit improvement

measures 128, 130 Porter’s five forces model 63–6 positioning 62, 76–85, 97, 141,

143 premises 204 pricing 62, 64, 67, 69, 73, 81,

105, 128, 204–5 profit margin 127–8, 130 quality control 113–13 range of products and services

203–4 rating performance 212 regulation 64, 114 relationships 204 research and development 112 response 68, 88 restrictive practices 64 risk 8, 69–70, 161 sales 61 seasonal or irregular overcapacity

64 segments 60, 62, 74, 76–7, 80, 82,

84–9, 97, 127–8, 215 service provision 111 start-up businesses 13, 31 storage 112 strategy 62 strengthening competitive

advantage 81–2, 89 strong points 77 substitution, ease of 63, 65, 66, 73 summary profiles of competitors,

contents of 61–2 supplier power 66, 73 supply 63–4, 66 sustainable advantage 81, 88 switching costs 66 taxation 64

technology 65, 113 threat of new entrants 63, 65, 66,

73, 88 time, competing over 215–16 trade unions 64 training or engaging scarce

personnel as barrier to entry 65

variation by segment 60 weak points 77 who are the competitors 60–2,

212credit crunch and its aftermath 114,

192–3, 195, 199curriculums vitae 102customers benefit 38 branding in customer

relationships 89 business-to-business ventures 89 customer purchasing criteria

(CPCs), identification and weight of 76, 200

customer relations management software 100

groups, distinctiveness of 33–4 identification 13 interviews 220 loss of customers 120 market research 17, 18 marketing 105 needs 219 offshore outsourcing 197 power 63, 65–6, 69, 73 repeat business 105 resources 112–13 retention rates 77–8 satisfaction 105 start-up businesses 13 support 197 surveys 13, 17, 18, 30, 105

debt finance 14–15, 130–2Decca 161–2


Index 225

defensibility 87–8deluded 190demand see market demanddifferentiation strategy 80–2, 104directors 15–16, 102dispensability spectrum 101distinctiveness 8, 13, 33–4distribution 104–5, 112drafting plans 23, 33–40Dragons’ Den 86, 159dreamers 188–9due diligence 101Dyson’s resources 110, 197

EAT 61, 78e-commerce 65, 167 effectiveness 202employees 9, 65, 109entrepreneurs 103entry, barriers to 65, 73environment 114, 198equity finance 12–13, 15, 130–1,

180, 194established businesses clarity and conciseness 7 case study on Dart Valley Guest

House 5–12 competitors, capabilities of 9 costs 9 executive summaries 5–12 historic financials 118–19 management 101–2 market demand drivers 9 marketing 104–6 result and outcomes of plans 4–9 risk 7–8, 9 successful plans 5–12ethics 31, 198evaluation of plans 187–8exaggerations 9, 74–5, 180Excel 20, 137, 167executive summaries 5–12, 29,

177–81exit, barriers to 64, 73

feedback 221financials and forecasts accounts 119, 132 anomalies, examples of 120 assessment of past growth 48–9 background to business 32, 40 balance sheets 119–20, 132,

136–40, 152–4 bottom-up approach 121, 122 budget 132, 186–7 capital expenditure 32, 120, 132 case study on Dart Valley Guest

House 141, 144–54 cash flow 132, 135–6 cash flow statements 119, 132,

135, 137, 143, 154 changes in drivers, assessment of

48, 49–51 competition 121–2, 124, 126–30,

141, 143 conclusion to plan 175 consistency 124 contents of plans 20–1 control 113–14 cost of goods sold, increase in 120 deluded 190 demand forecasting 48–52 dreamers 188–9 established businesses 118–19 four-stage process 48–52 fraud 114 full financial forecasts 132–40 funding of plans 132 future growth, forecasting 48,

50–1 gross profits 120 historic financials 118–20 historic performance 126 hockey stock forecasts 126, 189–90 invoices 114 irrelevance, avoiding 154 length of plans 22 loss of customers 120


226 Index

financials and forecasts (continued) macho 189–90 magicians 189 market demand 48–54, 57, 121,

124, 126 market-driven sales forecasts

121–7 market growth 48–52, 141 market reference 141 market share 141 operating margins 175 operating profits 120 opportunities 54, 143–4, 167–8,

172 overheads 132 past drivers of growth, assessment

of 49 pricing 62 profit and loss accounts 32, 119,

120, 132–5, 143, 154 profit margins 119, 143 recent financial history 32 revenues 121–2, 175 risks 8, 21, 54, 143–4, 156, 167–8,

172 sales 32, 119, 121–7, 133, 143 segments 121, 124, 126 small and medium-sized

enterprises 141, 143 software 167 spurious accuracy, avoiding 154 start-ups 33, 11, 140–3, 154 stock building 114 strategy 80 tax avoidance 199 top-down approach 121, 122 working capital, counter-intuitive

trends in 120food commodities 195fraud 114funding of plans 130–2

Global Compact (UN) 198global competition 193–4, 197

goals 30–1, 40, 80Gocompare.com 105–6, 199Google 45–6government’s influence on

competition 64gross domestic product (GDP) 49

historic financials 118–20historic performance 126hockey stock forecasts 126, 189–90‘hot potatoes’, list of 191–9human resources, heads of 102

India 192, 193, 195 inflation 49, 64, 105, 193information technology see

technology interest 14, 131internal rivalry 63–4, 66, 69, 73international, going 193–4, 197Internet 45–7, 197–9interviews of customers feedback and thanks 221 interviewees 218 needs of customers 219–20 performance 220 questionnaires 219 storyline 219 structured interviews 220investments 65, 82, 89, 115, 180–2invoices 114iTunes 60, 65

joint ventures 15

key managers 102key success factors (KSF) 76, 81–2,

87, 99, 102, 109, App A

length of plans 22–3, 57, 73, 110, 175, 177, 181

lessons, learning 188location 32, 62


Index 227

logistics 112Lonely Planet 78–9, 194loners 189LOVEFiLM’s market demand 51–2low-cost strategy 80–1, 104

macho 189–90magicians 189management 32, 99–104, 114, 116managerial tools, business plans as

13, 186manufacturing 109, 111, 113, 195–6market demand 41–57 attractiveness of market 83 case study on Dart Valley Guest

House 52, 54–6 competition 43 conclusion to plan 174 contents of plans 20, 21–2 demand drivers 57 drivers 9 established businesses, successful

plans for 9 forecasts 48–54, 57, 121–2 influences 42 length of plans 22 market growth 9, 44–53, 57,

63–4, 73, 83 market research 17, 57 market size 43–5, 57 meetings with buyers 52 new market niches 57 opportunities 43, 53–6, 57, 161 past drivers of growth 49 profit and loss accounts 154 recession 8 risk 8, 43, 53–6, 57, 161 start-ups 52–3, 57 strategy 83, 89 supply 43, 63 test marketing 52–3 unmet needs 52market-driven sales forecasts 121–7

market growth average growth rate 48 competition 44, 61 demand forecasting 48–52 drivers 135 facts and figures 48 forecasts 48, 50–1, 121, 124, 126,

141 GDP 49 inflation 49 Internet 45–7 market demand 9, 53, 63–4, 73,

83 market research 45–6 news websites 46 niche markets 48–9 past growth, assessment of 48–9 profit and loss accounts 135 segments 45–6 slow growth 48–9 supply 63 web of information 45–7market leaders, becoming 30market research 17, 18, 38, 43–6, 57,

74, 89, 97market size/share 43–5, 57, 63–4, 73,

83, 87–8, 141marketing 33–4, 65, 104–7, 14, 116,

198–9mezzanine providers 15mission of companies 30monitoring plans 186–7, 188

naming systems for drafting 23need for business plans 12–18, 31negotiations 109new entrants 63, 64, 66, 73, 88new market niches 57new products 111–12newspaper websites 46niche markets 48–9Nokia’s business mix 36–7notable landmarks 32


228 Index

objectives 30–1, 40offshoring outsourcing 196–7oil, price of 193online trade magazines 47openers 29, 40operating margins 32, 62, 67,

189–90operating profits 133operations 65, 99, 107–8, 114, 116opportunities balance of risks and opportunities

159, 160–4 banks 165, 168 big opportunities, definition of 57 cash flow, impact on 167, 172 case study on Dart Valley Guest

House 168–71 competition 69–70, 161 conclusion to plan 175 contents of plans 20–1 credit crunch 193 downside cases 168 extraordinary risks 159–60 financials 143–4 forecasts 54, 167–8, 172 impact of risks and opportunities

158 investors 165 likelihood of occurrence 158–60,

172 market demand 43, 53–6, 57, 161 relative impact 167 resources 114–15, 116 risk 154, 157–72 sensitivity testing 21, 168–71, 172 seven C’s 159 showstopper risks 159–60, 172 specific impact 167 strategy 74, 78, 89, 97 Suns and Clouds chart 157–72organisation 18–23outcomes of plans 4–12outsourcing 109, 111, 113, 195–7overcapacity 64

overheads 132, 133oversupply 63–4

passion 103–4patents 69, 88performance 126, 220pie charts 35–6, 62pilot surveys 13planned profit improvement

measures 128, 130planning teams 18–19Porter’s five forces model 63–6, 81PowerPoint 20, 22–3premises 204preparation of plans 3–23presentations 20, 22–3, 104Pret A Manger 61, 78, 81pricing appendices 108 commodity prices 195 competition 62, 64, 67, 69, 73,

81, 105, 128 forecasts 62, 128 inflation 64, 105 market share 62 marketing 105 oil 193 outsourcing 196 oversupply 64 positioning 105 raw materials 110, 195 reductions 62 strategy 81, 105priorities 99–100private equity 101products business-to-customer products or

services 52–3 new products 111–12 marketing 104 range 203profit balance sheets 140


Index 229

business mix by segment 34–5 costs 9 competitive-driven margin

forecasts 127–8, 130 forecasts 143 gross profits 120 main contributors 34–5 margin 62, 67, 119, 127–8, 130,

140, 143 net profit margin 62, 67 operating profits 120 planned profit improvement

measures 128, 130profit and loss accounts 15, 132,

133–5 aggregate numbers 32 balance sheets 137 case study on Dart Valley Guest

House 135, 148–9 cash flow statements 154 financials 32 forecasts 132–5, 143, 154 growth, drivers for 135 historical financials 119, 120 market demand 154 operating profit 133 overheads 132, 133 sales forecasts 133project plans 15–16promotion 105purchasing customer purchasing criteria

(CPCs), identification and weight of 76, 201

key success factors 109 length 110 negotiation 109 raw materials 110 resources 109–10 strategy 76, 91–2, 97 supplies 109 value chain 109purpose and need for of business

plans 12–18, 31

quality control 113–14questionnaires 219

rating performance 212raw materials 108, 110, 195recession 8, 192–3, 195, 199regulatory compliance 64, 114, 198relationships 204repeat business 105research market research 17, 18, 38, 43–6,

57, 74, 89, 97 research and development 100,

111–12resources 32–3, 40, 98–116, 174 acquisitions 32 background to business 32–3, 40 big risks 115 capital expenditure 107–8 case study on Dart Valley Guest

House 115–16 conclusion to plan 174 consultants 100 contents of plans 20, 21 customer relations management

software 100 customer service 112–13 delegation 99 distribution 112 financial control 113–14 goals 80 governance 32 information technology and

systems 113 key success factors (KSFs) 99 length of plans 22 location and scale of main

business infrastructure 32 logistics 112 management 32, 99–104, 114, 116 manufacturing 111, 113 marketing 99–101, 104–7, 114,

116


230 Index

resources (continued) notable landmarks 32 operations 99, 107–8, 114, 116 opportunities 114–15, 116 ownership 32 people, backing 100 priority 99–100 purchasing 109–10 quality control 113–14 regulatory compliance 114 research and development 100,

111–12 risks 114–15, 116 service provision 111 sole traders 32 start-ups 32 storage 112 strategy 80, 82–3 supplies 100, 108–9 supply chain 100 technical support 112–13 timeline charts 31–3 value chain 100–1restrictive practices 64result and outcomes of plans 4–12revenues 121–2, 175risk attractiveness of market 83 balance of risks and opportunities

159, 160–4 banks 165, 168 big risks 54, 70, 89, 115, 156,

165, 168 case study on Dart Valley Guest

House 168–71 competition 8, 69–70, 161 conclusion to plan 175 CIM 180 contents of plans 20, 21 convincing, plan must be 8 credit crunch 193 debt finance 14 downside cases 168

equity finance 13 established businesses, successful

plans for 7–8, 9 extraordinary risks 159–60 financials 8, 54, 143–4 forecasts 21, 54, 156, 167–8, 172 impact of risks and opportunities

158 investors 165 length of plans 22 likelihood of occurrence 156,

158–60, 172 market demand 8, 43, 53–6, 57,

161 mitigation161 opportunities 154, 157–72 relative impact 167 resources 114–15, 116 sensitivity testing 21,168–71, 172 seven C’s 159 showstopper risks 159–60, 172 specific impact 167 strategy 8, 78, 83, 89, 97 Suns and Clouds chart 157–72Roots, Levi 86, 103Russia 192, 193, 195

sale of businesses 15sales competition 61 forecasts 133, 143 market-driven sales forecasts

121–7 operating margins 32 profit margins 119security for finance 14segments business mix 33–40 competition 60, 62, 74, 76–7, 80,

82, 84–9, 127–8 market-driven sales forecasts 121,

124, 126


Index 231

market size 44 strategy 74, 76–7, 80, 82, 84–9,

97 variation by segments 60seasonal or irregular overcapacity 64sensitivity testing 21, 168–71, 172,

175service provision 52–3, 109, 111seven C’s (clear, crisp, concise,

consistent, coherent, credible and

convincing) 8–9, 17, 126–7, 159, 191

showstopper risks 159–60, 172size/share of market 43–5, 57, 63–4,

73, 83, 87–8, 141small and medium-sized enterprises

(SMEs) 16, 18–19, 31, 46, 141, 143, 186

SMART 30, 31social media marketing 198–9social performance 198software 20, 22–3, 100, 137–8, 167 sole traders 32South Korea 194spreadsheet software 20, 22–3stagflation 193stakeholders 198start-ups business mix by segment 37–40 case study on Dart Valley Guest

House 10 competition 13, 31 debt finance 13 equity finance 13, 130–1 financials 33 forecasts 140–3,154 goals 31 historical financials 119 identification of customers 13 management 102–4 market demand 52–3, 57 market research 12

marketing 106–7 new markets 53 pilot surveys 13 planning teams 18–19 resources 32 result and outcomes of plans

10–12 successful plans 10–13 test marketing 53 value proposition, distinctive 13storage 112strategy 74–97 attractiveness of market 83–4 background to business 31, 40 big risks 89 boosting strategic position 82–5 branding in investment 89 case study on Dart Valley Guest

House 90–6 competition 31, 74–85, 88–9, 97 conclusion to plan 174 consultants 23 contents of plans 20, 21 customer purchasing criteria

(CPCs), identification and weight of 76

customer relationships, branding in 89

defensibility 87–8 definition 80, 88 differentiation 80–2 exaggeration 74–5 exit and entry 84–5, 88–9 forecasts 80 generic strategies 80–2, 97, 104 goals 80 heads of strategy 102 improvements in process 89 investments 82, 89 key success factors (KSF),

identification and weight of 76, 81–2, 87

length of plans 22–3


232 Index

strategy (continued) low-cost differentiation 80–1, 104 market demand 83, 89 market research 74, 89, 97 market risk 83 market share 87–8 opportunities 74, 78, 89, 97 patents 88 Porter’s five forces model 81 pricing 81, 105 purchasing criteria 76, 91–2, 97 resources 80, 82–3 risk 8, 78, 83, 89, 97 segments 74, 76–7, 80, 82, 84–9,

97 size of market 83 start-ups 31, 87–9 strategic business units (SBUs) 85 strategic position 83–5 strengthening competitive

advantage 81–2, 89 strengths 74–5, 77–8, 81 sustainable competitive advantage

81, 88 SWOT analysis 77–8 threats 77–8 weaknesses 75, 77–8, 81strengths 74–5, 77–8, 81substitution 63, 65, 66, 73summary profiles of competitors,

contents of 61–2Suns and Clouds chart and risks and

opportunities 157–72supplies and suppliers 43, 63–4, 66,

73, 100, 108–9surveys 13, 17, 18, 30, 105switching costs 66, 109SWOT analysis 77–8

tax 64, 199team drafting 23

team leaders 18–19technology e-commerce 65, 167 head of technology 102 Internet 45–7, 197–9 software 20, 22–3, 100, 137–8,

167 technical support 112–13 websites 46–7, 106, 198–9Tesco 43, 44, 60test marketing 52–3threats new entrants 63, 64, 66, 73 SWOT 77–8timetable 19–20timeline charts 31–3Tinopolis’s business mix 34–5tools 20 see also technologytrade magazines 47trade unions 64, 198triple bottom line 198

UN Global Compact 198undersupply 64unmet needs 38, 52

value chain 100–1, 107, 109values 31venture capital 103, 131vision of company 30

weaknesses 75, 77–8, 81web of information 45–7websites 46–7, 106, 198–9Woolworths 60, 65, 165–7working capital, counter-intuitive

trends in 120writing plans 23, 33–40

Zavvi 60, 65, 167


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