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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 Xxxxx-xx/Footer 1 The case Xxxxx-xx/Footer 2 Agenda Introduction Executive Summary Business idea & product Management team Marketing plan Operating model Financing plan Implementation Xxxxx-xx/Footer 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 Xxxxx-xx/Footer 4 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 Xxxxx-xx/Footer 5 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 Xxxxx-xx/Footer 6 Seven components are usually part of a strong business plan General guidelines Business Plan Xxxxx-xx/Footer 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 Xxxxx-xx/Footer 8 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! Xxxxx-xx/Footer 9 1 Executive summary – check list Xxxxx-xx/Footer • 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? 10 Agenda Introduction Executive Summary Business idea & product Management team Marketing plan Operating model Financing plan Implementation Xxxxx-xx/Footer 11 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" Xxxxx-xx/Footer 12 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" Xxxxx-xx/Footer Provide potential investors comfort that value creation is possible and will not be immediately hampered by competition 13 2 Business and Product – Checklist Xxxxx-xx/Footer • 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? 14 Agenda Introduction Executive Summary Business idea & product Management team Marketing plan Operating model Financing plan Implementation Xxxxx-xx/Footer 15 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 Xxxxx-xx/Footer 16 3 Management team – Checklist Xxxxx-xx/Footer • 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? 17 Agenda Introduction Executive Summary Business idea & product Management team Marketing plan Operating model Financing plan Implementation Xxxxx-xx/Footer 18 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 Xxxxx-xx/Footer 19 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... Xxxxx-xx/Footer 20 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 Xxxxx-xx/Footer 21 4 A B Market and competitive landscape – Checklist Xxxxx-xx/Footer • 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) 22 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 Xxxxx-xx/Footer 23 4 C Marketing mix – checklist Xxxxx-xx/Footer • 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? 24 Agenda Introduction Executive Summary Business idea & product Management team Marketing plan Operating model Financing plan Implementation Xxxxx-xx/Footer 25 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 Xxxxx-xx/Footer 26 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 Xxxxx-xx/Footer 27 5 Operating model – checklist Xxxxx-xx/Footer • 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? 28 Agenda Introduction Executive Summary Business idea & product Management team Marketing plan Operating model Financing plan Implementation Xxxxx-xx/Footer 29 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 Xxxxx-xx/Footer • 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 30 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 Xxxxx-xx/Footer • 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? 31 Agenda Introduction Executive Summary Business idea & product Management team Marketing plan Operating model Financing plan Implementation Xxxxx-xx/Footer 32 7 Implementation, opportunities & risks – checklist Xxxxx-xx/Footer • 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? 33 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 Xxxxx-xx/Footer 34