Writing a Successful Business Plan

1
Writing a Successful Business Plan

• Professor John Newman
• Babson College

2
What Is a Business Plan?

• IDENTIFICATION AND ARTICULATION OF
• Opportunity, Market, Customers
• Management Capable of Seizing It
• Minimal Required Resources
• Entry Strategy Tangible Vision for Growth
• Financial Requirements, Cash Flow Deal
• Critical Risks Assumptions
• Harvest Options

Source Ed Marram, Babson College
3
Goals of a Business Plan

• Evaluate feasibility of the idea
• Development of strategy
• Entry, early growth, acquisition, LBO, harvest,
  etc.
• Assist in obtaining resources/approval
• Establish credibility

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Sample Business Plan Outline

• Table of Contents
• Executive Summary
• Industry, Products or Services
• Market Research
• Marketing Plan
• Management Team
• Development Plan
• Operations Plan

• Schedule
• Critical Risks
• Financial Plan
• Proposed Offer
• Appendices
• Financial Projections
• Start-up Costs
• Breakeven Chart

5
Elements of a Successful Plan

• Clear description of the idea
• Overview of industry to suggest need/opportunity
• Evidence that demand exists (or can be created or
  stolen)
• Clear description of resource requirements
• marketing, operations, financing
• Background of management team
• Schedule
• Discussion of risks, rewards, and offer

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Sample Business Plan Outline

• Table of Contents
• Executive Summary
• Industry, Products or Services
• Market Research
• Marketing Plan
• Management Team
• Development Plan
• Operations Plan

• Schedule
• Critical Risks
• Financial Plan
• Proposed Offer
• Appendices
• Financial Projections
• Start-up Costs
• Breakeven Chart

7
Business Plans Investor Decision Process

• Market Attractiveness
• Market Need
• Size of Market
• Market Growth
• Access to Market

Expected Return

• Product Differentiation
• Uniqueness
• Product Life
• Profit Margin
• Value Added

Decision to Invest

• Managerial Capabilities
• Management Skills
• Marketing Skills
• Financial Skills
• References

--
Perceived Risk

• Resistance to Threats
• Barriers to Entry
• Obsolescence Risk
• Downside Risk
• Economic Cycle Risk

Entrepreneurship Strategies and Resources
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Key Points to Remember

• General Guidelines
• Clear, concise, professional style
• Well-researched and documented
• Consistent and cohesive
• Business plans are
• Very specific
• Not promotional tools, selling is subtle

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Industry Section

• Industry Overview
• Size, growth rate, segmentation, trends,
  regulatory environment
• Opportunity
• Product Overview
• Competitive Advantage
• Fit with Corporate Objectives
• Entry and Exit Strategies

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Market Research

• Identify Market Area and Size
• Description of Primary Customers
• Who, how many, what they want, what they do
• Research and Support for Demand
• Competitor Analysis
• Positioning map, strengths, weaknesses, likely
  competitive response

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Marketing Plan

• Promotional Strategy
• Support Policies
• Sales Projections
• On-going Evaluation

• Mission Statement
• Product Characteristics
• Features
• Pricing
• Sales/Channel Strategies

The key is to build on your market research ...
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Management Team

• Managerial Positions Required
• Responsibilities
• Biography
• Ownership Structure
• Key Advisors
• Professional Support

13
Design and Development Plans

• Development Status and Tasks
• Costs
• Difficulties and Risks
• Proprietary Issues (partial, not complete)
• Product Improvement and New Products

14
Operations Plan

• Facility and Location Requirements
• Equipment Requirements
• Non-managerial staffing
• Sources of Supply
• Production Process and Controls
• Distribution logistics
• Regulatory and other compliance issues

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Schedule

• Gantt Chart showing
• Tasks
• Time frame
• Cost
• Person responsible

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Critical RisksIdentification, Evaluation,
Mitigation

• Identify major risks (7-10 is typical)
• Look beyond the simplistic (sales fall short)
• Evaluate impact should risk occur
• Describe how the risk will be mitigated and how
  you will respond should it happen

Ask others what holes they see in your plan.
What can go wrong ? Entrepreneurs frequently get
too close to their ideas. You need unbiased views
here ...
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Critical Risks An Example
Key Member of the Management Team is
Injured Evaluation Management is in excellent
health and will refrain from dangerous
activities. Thus, it is considered unlikely that
a member of the management team will be
incapacitated. Contingency The company will
ensure that key members of the management team
undergo physical examinations annually. In
addition, the company will provide key-man life
insurance sufficient to protect outside
investors capital in the event of an emergency.
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Financial Plan

• Start-up Requirements (Investment required)
• Review of Financial Characteristics
• Sales, margins, profits
• Return Measures (IRR, ROI, EVA)
• Be careful not to promise
• Breakeven Concerns
• Sales level, time to cash stability
• Extraordinary financial events

Avoid describing your assumptions. The goal
here is to convey the characteristics of your
business briefly.
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Executive Summary

• Clear description of idea
• Arguments for success
• Overview of Industry, Market, Need, Demand
• Benefits to Customer / Company
• Fit with Company Objectives
• Team
• Financial Characteristics
• Sales, profits, investment, risk and returns

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Appendices(Could Include Such Items As)

• Lists, specs, pictures of products, systems,
  software
• List of customers, suppliers, references
• Appropriate location factors, facilities or
  technical analysis
• Independent reports by technical expert,
  consultants
• Detailed resumes of founders, key managers
• Any critical regulatory, environmental or other
  compliance, licenses or approvals
• Sales or other financials assumptions (in brief)

Source Ed Marram, Babson College
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Key Considerations

• Have a story to tell
• Be confident but objective and dispassionate
• Understand the financial characteristics of your
  business
• Avoid promises and self-aggrandizement
• Tease to stimulate interest, never bore

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Miscellaneous Concerns

• Length is typically 20-40 pages, excl. exhibits
• Required appendices
• Financial statements (3-5 years)
• Statement of Start-up Costs
• Breakeven Chart
• Resumes
• Use bullet points, tables, and small charts
• Dont use first person (I, We, Our)
• Format and Spelling Count (a lot)

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Remember

• A business plan is a specific plan to open a
  new business or to expand an existing one, not
  the writers wishes and dreams !

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Pitfalls and OmissionsVenus Fly Traps for
Entrepreneurs

• Seeking premature approval
• Believing Plan is more important than Orders
• Develop Complete Business Plan First v. Floating
  Trial Balloons
• Selling the plan to the wrong audience
• Selling the plan to the right audience poorly

Source Stephen Spinelli, Babson College
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Pitfalls and OmissionsVenus Fly Traps for
Entrepreneurs

• Phantom or Gingerbread Advisors
• Spreadsheet Diarrhea (Financials Business)
• Poor understanding of product acceptance
• Under-estimation of competitive reaction
• Pricing strategy too low
• Capital requirements too low or undefined

Source Stephen Spinelli, Babson College
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Business PlansWhat Investors Look For

• Evidence of Customer Acceptance Orders
• Evidence of Focus / Niche
• Appreciation of Financial Goals
• Proprietary Position, Exclusivity
• Team with experience, commitment, and integrity

Source Stephen Spinelli, Babson College
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Business PlansWhat Turns Investors Off

• Great Mousetrap Fallacy
• Projects which deviate excessively from industry
  norms
• Unrealistic growth projections
• Inadequate management experience / depth

Source Stephen Spinelli, Babson College