New VenturePlan and Prep Process
Major factors in planning for business Planning worksheets Overview of startup process Q & A
Plans are nothing; planning is everything. - Dwight D. Eisenhower
Agenda
Planning for business, not writing business plan
Emphasize projections, not written narrative Test of new presentation content
Participant expectations◦ Type business being considered◦ Desired takeaways
Expectations
The Ms of Business
Now Future Evidence Impact Contingencies Action
Framework for the M Topics
the method, approach, or system that will be used to obtain money for your products or services
MODEL
World is not likely to beat a path to your door Best quality does not always win Convenience of transactions is becoming
more important Lots of ingenious products with anemic sales Needed to explain the business
*Expect that technical feasibility of product/service has been proven
MODEL
Describe the problem. Explain current solution(s). What are pitfalls? What is the customer pain? Describe the preferred solution. Explain benefits to your solution - not just features. Summarize how the product/service is produced and flows to
market. Offer meaningful evidence that your solution is preferred/desired. Discuss functional performance. Describe customer response to prototypes/demonstrations. Provide measures of how capabilities are superior. Define magnitude, seriousness, cost of problem. Quantify how solution reduces problem or improves situation. Describe IP status.
MODEL
Describe each of specific product(s)/service(s) and bundles/packages that will be developed to produce revenue streams for the business.
Project typical frequency and quantity of customer purchase for each type of revenue stream.
Explain your strategy for maintaining proprietary information and competitive advantage.
Know and clearly communicate the type of business you are conducting - manufacturing, wholesaling/distribution, or retailing.
Essential Elements for MODEL
the people or organizations that will pay for your product or service
MARKET
Your market creates revenue or sales Strong, continuing market sustains
revenue/sales Large and growing market offers greater
economic potential, helps attract investment, and indicates more promising future
MARKET
Characterize initial market - demographics. Describe behavior of initial market - psychographics. Describe anticipated future market, changes expected? Obtain evidence of what motivates market’s behavior. May provide information about industry trends or sales of
competing/alternative products/services. Quantify how target market will produce revenue/sales for
proposed product/service. Identify competitors, contingencies and threats (never
none), all competitors/substitutes both direct and indirect. Compare in chart contrasting your solution with
competition based on important purchase decision factors.
MARKET
Describe target market(s) and specific market segments that are most relevant for your enterprise.
Numerically quantify the addressable (initially feasible) target market size for each revenue stream.
Estimate the unit sales that can be logically justified for each revenue stream based on target market - monthly for initial year and quarterly/annually for years 2 - 5.
Explain introductory and long-term/continuing sales strategy.
Know and clearly explain whether you are selling to consumers, businesses, or government.
Essential Elements for MARKET
the amount of profit your business will generate to keep the founders motivated, to repay the investors, and provide for growth
MARGIN
Most businesses operate on very small profit margins
If profit margins are large, competitors will enter
Many founders do not understand pricing and distribution channels
MARGIN
Document price and profit information for similar. Describe how similar products/services are priced and
sold. Detail components used in cost of goods for your
product/service - materials and labor cost. Describe expected pricing and selling methodology Obtain competitor pricing and industry margin. Justify your cost estimates with actual quotes. Contrast your projections against industry standards -
justify any significant differences. Anticipate competitor response (existing and potential). Explain protection measures that may deter competition. Consider other factors influencing.
MARGIN
Project your cost of goods sold: estimate raw material and labor cost to produce a unit/bundle.
Establish prices for proposed units/bundles for each revenue stream.
Establish projections for revenue (price per unit * unit sales) - preferred to market share percentages, OK to validate projections through market share estimates.
Understand basics: Sales/Revenue – Cost of Goods = Gross Margin – Operating Expenses = Profit
Essential Elements for MARGIN
the group of people with talent, experience, and commitment to start and run the business
MANAGEMENT
Owner cannot do everything needed Even if owner can do everything at the
beginning, to grow, others will be needed Easy to become confused about best suited
role for founders Complementary skills and extended
networks make the business stronger Investors fund people, more than ideas
MANAGEMENT
Inventory and plan to utilize founder’s strengths and capacity. Determine what needs to be accomplished. Define essential characteristics for chief executive. Identify current talent/skill gaps and those needed within 3
years. Determine how to supplement founder’s abilities. Complete management needs thru advisors, contracts, hiring. Develop organizational chart and job descriptions. Obtain resumes/credentials, conduct interviews, seek referrals. Research competitive salaries/wages, consider incentive pay. Project hiring needs and estimate cost. Challenges of attracting to existing business location. Difficulty offering pay commensurate with value. Effective utilization of founder(s) abilities.
MANAGEMENT
Establish hiring priorities by creating to do list, then group into “jobs” by common tasks or around people/founder(s) strengths.
Identify tasks that can be contracted/outsourced.
Project staffing budget. Build advisory team to supplement existing
capabilities and fill gaps.
Essentials for MANAGEMENT
the resources, financial and otherwise, that are required to start and operate the business
MONEY
Almost all businesses require initial investment
Resources are needed to get started, survive, and grow
Most businesses need much more money than anticipated
Access to capital determines rate of growth Money is expensive
MONEY
Quantify resources invested in venture, categorize as sunk cost or asset with value and calculate cost/value of each.
Estimate pre-venture and startup needs (one-time and ongoing) plus cost of these items, include cost of financing.
Project the business needs and cost of items through initial 3-5 years of operation.
Document assumptions for all estimates and include footnotes with projections.
Combine estimate of revenues and expenses to create basic cash based budget presented in conventional format.
Prepare what-if budget scenarios integrating contingencies.
MONEY
Project revenue - monthly for initial year and quarterly/annually years 2 - 5.
Project cost of goods - monthly year 1 and quarterly/annually years 2 - 5.
Project operating expenses - monthly year 1 and quarterly/annually years 2 - 5.
Identify potential sources of funding/financing for the venture.
Essential Elements for MONEY
the passion and inspiration that compels the founders to persist against incredible odds and tremendous obstacles
MOTIVATION
Begin with an exit strategy Need to know where you are going to get
there Entrepreneurship is a full-contact sport, be
prepared to commit absolutely everything Best to pursue only those things so totally
engrossing that you would do them without pay or the promise of any tangible reward
Most overnight successes represent decades of grueling work, punishing hours, and enormous sacrifice
MOTIVATION
Inventory meaningful outcomes already achieved for venture. Describe personal factors compelling your decision/desire to
launch venture. Highlight significant next steps for venture along with
resources/funds needed to reach them, and how success will be measured at each step, more detailed 1st year.
Describe personal rewards expected – ultimate personal goals for founder(s).
Explain preferred business exit scenario. Provide examples of commitment – demonstrated personal
investment of time, talent, and money. Measures demonstrating you have “skin in the game”. Foreseeable obstacles and challenges related to personal
commitment of founder(s) and key management.
MOTIVATION
Establish timeline with measures of success for major steps - investment needs, hiring, product/service introduction, sales levels, break-even, exit.
Essentials for MOTIVATION
#1 Estimate Cost of Goods #2 Potential Revenue Streams #3 Potential Business Revenue Operating Expense Estimate
Worksheets
Forms of Organization Choosing a Business Name Federal Registrations State Registrations Local Registrations
BASIC STARTUP PROCEDURES
Kathy Wyatt, DirectorTechnology Business Development CenterLouisiana Tech UniversityP.O. Box 3145, Ruston, LA 71272Phone: (318) 257-3537Fax: (318) 257-4442Email: [email protected]
Questions?
Planning for Your Business
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