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"The practice of entrepreneurship"
How to write a strong Business Plan
Sylvain Santamarta
October 29th 2010
Today's objectives
Discuss an example of business plan in a real case situation
Provide some best practices on business plan writing
Provide some checklists that can support the writing of a robust plan
Reflect on the key challenges faced by entrepreneurs when building their plan
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1
The case
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2
Agenda
Introduction
Executive Summary
Business idea & product
Management team
Marketing plan
Operating model
Financing plan
Implementation
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3
The plan is the critical element between idea & realisation
It is the pre-requisite for funding, implementation and ultimately value creation
Business idea
Business plan
Implementation
Strategie
• Addresses a need
• Implements
the plan
1.
2.
3.
• Is innovative
• Realises
the value
created
by the idea
• Can be implemented
with profits
2001
Capital providers
2003
2003
Due diligence
• Profitability
• Lenders
• Venture capitalists
• Strength of
mgt team
• Risks & feasibility
• Current shareholders
• Planning
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The business plan has three main functions
Planning
Information
Process is extremely useful for
the entrepreneur
Plan demonstrates economic
viability of the venture
Marketing
Plan helps key stakeholders
build a view on the venture
• Formalizes a business idea
• Identifies and values a need
• Equity investors
• Pushes to test viability
• Shows alignment between
team capabilities & realisation
needs
• Banks
• Forces to address weaknesses
• Requires an implementation
plan
• Potential employees
• Demonstrates investment
attractiveness
Business plan forces the entrepreneur to think
systematically about the venture
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Structure and form are key to articulate a strong business
case
Some key features...
...will ensure that the plan fulfils its functions
relevant
contains everything an investor needs to know to approve the financing - no
more, no less.
structured
has a clear structure in the components of the plan
understandable
is written in clear and concise language: avoid unnecessary digressions and
overly technical language
short
has a maximum of 30 pages (guideline)
reader-friendly
is written with a minimum font size 11, line spacing, 1.5 and 2.5cm margin
(guideline)
appealing
contains simple, clear and informative graphs and tables
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Seven components are usually part of a strong business plan
General guidelines
Business Plan
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1
Executive Summary
2
Business idea & product
3
Management team
4
Marketing plan
5
Operating model
6
Financing plan
7
Implementation
7
Agenda
Introduction
Executive Summary
Business idea & product
Management team
Marketing plan
Operating model
Financing plan
Implementation
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1
Executive summary is the first impression given
Its purpose...
...defines its content
Concise summary of the business plan
Competence & structure of management team
Value proposition through product or service
• Simple and understandable
• Focused on essentials
Benefits & competitive advantage provided by
product or service
Targeted market with characteristics & potential
Opportunity to interest investors
• First impression
• First selection criteria
Implementation steps & timetable of project
milestones
Opportunities & Risks
Expected return
Should be written last!
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1
Executive summary – check list
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•
What is the business idea?
•
Who are the core team members?
•
What is the target market and who are the expected customers?
•
What is the value proposition for the customer?
•
How will the product be marketed and distributed?
•
What are the expected revenues, growth, costs, profits?
•
What are the expected investments?
•
What are the key opportunities and risks?
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Agenda
Introduction
Executive Summary
Business idea & product
Management team
Marketing plan
Operating model
Financing plan
Implementation
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2
Three main elements are explained in this section
Value proposition
• A problem is solved/ a need is
addressed for potential
customers
• Value proposition is the focus –
not the product
• Value proposition is unique and
offers advantages over
alternative solutions
Market
Economic rationale
• Market size is estimated based
on plausible assumptions, and
basic data
• Rationale for willingness to pay
is clear
• Target segments are presented
• Costs, revenue and profits are
estimated
• Differentiation against
alternative solutions is
explained
"Unique Selling Proposition"
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2
Protection of the idea must also be demonstrated
Patent
"protect the idea & product"
Confidentiality agreements
"protects the business while implementing"
Swift implementation
"protects against competition catch-up"
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Provide potential investors comfort that value
creation is possible and will not be
immediately hampered by competition
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2
Business and Product – Checklist
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•
What need does the product fulfil? which problem does it solve?
•
What are the details of the value proposition?
•
How does the market look like? Who is the customer for this product
and why shall he or she buy the product?
•
To what extent the product is innovative, stands out from existing
products and provides a competitive advantage?
•
How will the competitive advantage be protected?
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Agenda
Introduction
Executive Summary
Business idea & product
Management team
Marketing plan
Operating model
Financing plan
Implementation
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3
The management team is essential to success
Investors will particularly scrutinize the strength of the team
A strong team built...
• Complementary skills of the members
• Ability to work together
• Roles
• Structure
• Ownership
...around competent
and motivated individuals
• Brief Introduction of each team member and
presentation of career (full CV attached)
• Special skills and aptitude
• Relevant Experience
• External consultants if applicable
• Skills gaps and how (and by whom) they are
closed
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3
Management team – Checklist
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•
Who are the members of the corporate team, what is their background
(education, work experience, previous success)?
•
What skills do they possess that are relevant for the implementation of
the business idea and to the growth of the venture?
•
Are all critical skills generally available? if not how will the capability
gaps be addressed?
•
Have the team members already collaborated? what is their track
record?
•
Does the team stand behind the project and show motivation?
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Agenda
Introduction
Executive Summary
Business idea & product
Management team
Marketing plan
Operating model
Financing plan
Implementation
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4
Marketing plan is the result of a strategic logic
It is articulated around three logical steps seeking to identify a competitive positioning
A
B
Understand market and
competitive landscape
What is the market for the
business idea?
What is the competition?
what are their strengths and
weaknesses?
C
Define target market
What is the targeted
segment?
• based on the needs best
addressed
• based on what competition
offers or could offer
Establish marketing-mix
What is the relationship to
the customer through
• the product
• the price
• the promotion
• the place (or distribution)
What is the optimal position
to maintain a competitive
advantage?
Market and competition
Marketing and Sales strategy
Marketing plan
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4
A
Some key questions to build a comprehensive picture of
Market and competitive landscape
1. Market Analysis (Macro)
•
What is the geographical target market?
•
What are the relevant economic characteristics / trends (wealth, purchasing power, population structure,
habits, etc.. )
2. Sector Analysis
•
What is the current industry situation? Sales / growth
•
How is the industry as a whole? Trends / forecasts?
•
What are the key industry drivers?
•
What is the role of innovation and progress in the industry?
•
What are the barriers to entry?
3. Competitive Analysis
•
Who are the competitors? Does the venture have an advantage?
•
What is the income situation of the competition? Why?
•
What relevant developments are expected in the sector? technology, acquisitions...
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4
B
A strong rationale must defend the target segment choice
1. Customer analysis
•
Description of the various potential customer groups
2. Business environment
•
Description if relevant of specific factors in the business environment that could affect venture
3. Choice of positioning and differentiation
•
Choice to address relevant needs or problems for specific customers
•
Position coherent with critical buying criteria
•
Unique offering compared to competition
•
Attractive product or service addressing both rationality and emotions
•
Choice of after sales service
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4
A
B
Market and competitive landscape – Checklist
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•
How big is the market, the relevant segment and the expected
growth? What are the key market drivers and how does the venture
will leverage them?
•
The plan describes in detail the targeted segments: size, growth,
characteristics, target customers
•
Who are the competitors? what are their position and results (sales,
market share, growth rate, profitability)? What are your venture
strengths and weaknesses and is there any risk of substitution?
•
The plan describes the target customer and identify their buying
criteria (quality, service, advice, prices, innovation, environment...)?
•
What is the venture position and differentiation against competition?
Is the value proposition clear, concise and recognisable by the
customer? What are the venture goals (market share, growth,
profitability)
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4
C
The marketing mix defines the market access and the
relationship to the customer
Marketing-Mix
4 P's
Product
Price
Promotion
Place
(Distribution)
Quality
Price
Advertising
Market Coverage
Features
Discount
Endorsement
Locations
Extras
Payment terms
Public Relations
Logistics
Design & look
Demand elasticity
Inventories
Name & branding
Wholesalers
Packaging
Retailers
Warranties & services
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4
C
Marketing mix – checklist
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•
Is the product adapted to the customer? which direct benefits does it
bring to the customer? Does the product design reflect the marketing
strategy?
•
What is the price strategy? what is the rationale behind the suggested
price?
•
What is the distribution strategy? what are the channels used? how is
the distribution network organised (type, number, size, location)
•
Which customers (and through which channels) will be targeted by
promotion? what is the promotion budget?
•
Is the overall marketing mix coherent? how does it contribute to the
achievement of the overall growth and profitability targets?
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Agenda
Introduction
Executive Summary
Business idea & product
Management team
Marketing plan
Operating model
Financing plan
Implementation
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5
Operating model: four main elements to consider
Corporate Philosophy
• Vision
• Values
• Objectives
Operating model itself
• Description of the system that will lead to the delivery of product or service
• Which activities are completed inside and outside the business?
• Cost model
• Business Organization
– Structure - Roles and responsibilities
– Key processes
– People
Location
Legal form
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The business model operationalizes your strategy
It is the combination of value proposition and operating model
Result of your 4P
Value proposition
Product/ service offering
Target
segment(s)
Revenue
model
Business model
Value chain
Cost model
Organization
Operating model
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5
Operating model – checklist
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•
How does the organisation look like or is expected to look like?
•
What is the cost model?
•
Which activities will be undertaken by the venture and which will be
outsourced?
•
What is the expected legal form of the venture?
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Agenda
Introduction
Executive Summary
Business idea & product
Management team
Marketing plan
Operating model
Financing plan
Implementation
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6
Financial plan will be a critical element for investors
Entrepreneur must defend their interests and yet present realistic and credible forecasts
P&L
Balance sheet
Cash flow
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• Presents expected profitability
• Highlights critical assumptions
– willingness to pay & costs
– growth
• Informs of the capital intensity of
the business
• Investors will stress
test the plan
– assumptions
robustness
– sensitivities
– funding needs
• Plan is a starting point
for negotiations
– access to critical data
– expected return
– equity value
• Presents the funding needs
• Informs of expected return
• Highlights sensitivity of plan to
assumptions
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6
Financial planning – checklist
The P&L account states the likely success of the venture
•
What price can be realistically achieved?
•
How high will be the sales volumes at that price?
•
Have all the costs been taken into account? (eg personnel, depreciation,
interest, taxes, material)
The Cash Flow statement highlights the financing sources and the
expected capital spending
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•
What are the possible sources of capital? (equity or debt, private
investors vs Venture Capitalists)
•
What can be leased, what must be bought?
•
How fast does the cash flow turn positive?
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Agenda
Introduction
Executive Summary
Business idea & product
Management team
Marketing plan
Operating model
Financing plan
Implementation
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7
Implementation, opportunities & risks – checklist
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•
What is the long term vision? where will be the venture in 5 and 10
years?
•
What are the key steps and group of activities that will get the company
towards its ambitions?
•
What are the key milestones in the development of the venture? when
will they be achieved?
•
What is the business three year plan of activities? what are the
downside and upside scenarii?
•
How do these scenarii affect the capital requirements?
•
What are the three main issues that the company could face in the three
years to come? how could they affect the firm? what are the possible
countermeasures?
•
What could on the other hand boost the company's success?
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Literature
Heucher, M., D. Ilar, T. Kubr, H. Marchesi und M. Waldner (2002): Planen, gründen,
wachsen. 3. aktualis. Aufl. Ueberreuter Wirt., Zürich
Ludolph, Lichtenberg (2002): Der Businessplan. Econ Ullstein Verlag, München
Steuck, Joachim W.: Businessplan, Berlin 2004
Stutely, Richard: Der professionelle Businessplan. Ein Praxisleitfaden für Manager und
Unternehmensgründer, München 2002
Seiler, A. (1999): Financial Management – BWL in der Praxis II. Orell Füssli, Zürich
Seiler, A. (2000): Planning – BWL in der Praxis III. Orell Füssli, Zürich
Seiler, A. (2000): Marketing – BWL in der Praxis IV. Orell Füssli, Zürich
Seiler, A. (2001): Accounting – BWL in der Praxis I. Orell Füssli, Zürich
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