1

Development of a Business Plan –

Pulling It All TogetherPresented by Ellen Kirton

Director, MAC Small Business Development Center

2

Start with the End in Mind!Building a business plan takes commitment, perseverance and belief in what you are trying to accomplish. Remember that the plan ultimately is yours! Make it your own.

All your preparation will end up pulled together on one page called an Executive Summary.

This should not be a “binder” that you put on your back shelf to gather dust, it should be a living breathing document.

3

For yourself – There is a great deal of time and effort in a well prepared business plan and one of the important goals is that it become an important operating document for the company which is then regularly reviewed and updated

For others – Initially you need one to get a business started properly and get it funded and then as you grow, you want to grow wisely. A strong business plan can help you attract the right hires as well as partners

Why do you need a business plan?

4

Today you will be learning how to first be sure to have a pitch that will get the essence of your message out. To potential partners, investors, lenders, etc.

Then you next add details that then becomes an operating plan for success and can also help you look for access to capital

Most importantly, once completed, implement all that hard work!

How do you build a business plan?

5

Where do you use a business plan?

For yourself – this is a blueprint for either starting your business, growing your business or improving your business. Also, once completed, it becomes an important comparison to actual tool

For others – A lender will require many elements of a business plan to consider advancing you a loanAn investor who can help fund your start-up or growthYour management team. This can be a great roadmap they can not only follow but participate in it’s success

6

“a technique that quickly translates business ideas into business plans”

PITCH-THEN-PLAN

7

A good business plan is a detailed version of a pitch

As opposed to a pitch being a distilled version of a business plan

If you get the pitch right, you’ll get the plan right

ALSO

Why Pitch-Then-Plan?

8

Your pitch initially is more important than your business plan, as it will determine whether your idea has merit early on by those reviewing it

And/or it can generate further interest. Few sophisticated investors will read an entire business plan as the first step

A pitch is easier to fix than a business plan because it contains less text.

Why The Pitch First?

9

1) The technical skills necessary to produce the goods or services one wishes to sell,

2) The ability to market one’s goods and services, and

3) The ability to financially manage one’s affairs

Three Important Components to a Successful Company:

10

This false belief in a “team-of-one” could be the cause for the massive failure rate of small businesses in the first five years.

If you want to maximize the chances of success in starting a business, there is probably only one significant factor to leverage: the person who is most capable of enlisting the support of others, the

team-builder, is the most likely to succeed

No “team of one”

11

Your pitch should contain no more than 10 PowerPoint slides.

1) The Idea 2) The Business Model 3) The Customer 4) The Competition 5) The Message 6) The Sales Approach 7) The Inner Workings 8) The Management Team 9) The Money Forecast 10) The Next Steps

The Business Plan Pitch

12

Talk about the opportunity you have discovered and the big idea you have for the business

All good ideas share at least one of three goals:

◦ They make life for the customer easier (efficiency)◦ They make life for the customer better (effectiveness) ◦ They allow the customer to do new things (innovation)

#1 The Idea

13

Outcomes to a Great Idea

1) Make the world a better place2) Increase the quality of life3) Right a terrible wrong4) Prevent the end of something good

14

Sam Walton, Wal-Mart: Serving small, out-of-the-way, rural towns

Michael Dell, Dell Computer: Sell computer, then build computer

Howard Schultz, Starbucks: The concept of the third place—it’s not work, it’s not home.

Steve Jobs, Apple Computer: The computer for the rest of us.

Jack Welch, GE: Be Number 1 or Number 2 in every market we serve or get out.

Herb Kelleher, Southwest Airlines: Democratizing the skies by being THE low-cost airline

Simple Expressions of “one big thing” Ideas for their companies!

15

This is the purpose of the business and how it makes money!

While the “idea” described the opportunity you discovered, the business model

answers the question “So what?”

#2 The Business Model

16

A business model describes the purpose of the business and how it makes money

Talk about the timeless reason why your business should exist beyond just making money

Complete this sentence, “The purpose of our business is to…”

Talk about how you make money and how you deliver your idea to the customer

The Business Model Continued..

17

eBay: Our purpose is to provide a global trading platform where practically anyone can trade practically anything. We charge a listing fee plus a commission

ING Direct: The purpose of ING Direct is to help people save money. We offer customers higher rates on their savings and lower rates on their mortgages by keeping our costs low. We have no bankers, no ATMs, and no branches, and only do business through the internet and the mail

Business Model Examples

18

Apple iTunes: The purpose of Apple iTune is to let people enjoy music everywhere, anytime. We sell popular music downloads over the internet for $.99 per song. We pay music label $.82 per download leaving us with a margin of $.17 per song

Microsoft: The purpose of Microsoft is to put a computer on every desk and in every pocket. We sell computer operating systems and application programs by charging a software license fee on each copy

Business Model Examples Continued

19

Retail Sales

Resellers

Internet Sales

The Business Model How Revenue is Driven

20

Ask yourself, “Who has my money in their pockets?”

Talk about the groups of customers that will be attracted to your idea

Ask: ◦ Who do we serve? ◦ What do we know about them?

#3 The Customer

21

Specific Example:

The customer for Chipotle’s is between the ages of 25 and 54 and has a desire for a healthy menu without sacrificing speed. They desire:

1) Focus on freshness with products made to order 2) Focus on innovative flavors 3) Focus on consumer choice extended to complete control of product content 4) Focus on health, including whole-grain, and organic, as well as trans-fat and MSG free ingredients

The Customer: Examples

22

Our customers are busy executives and sales persons who frequently travel more than 20 weeks a year. They are road warriors who seek products that express their positions of status and achievement

Our customers are high-school students who need additional teaching help outside the traditional classroom. They seek products that increase their self-confidence relative to the performance of their peers.

We reduce the risk of fraud for regional commercial banks in their online transactions. Our customers seek partners with strong reputations.

The Customer: General Examples

23

Start out by identifying (by name) your three to four most significant competitors and the story that they are trying to tell in a few words or phrases.

Then describe precisely how you are uniquely different

Describe yourself differently than your competitors, if you do, then you’re saying you’re different

#4 The Competition

24

Talk about the three to four main competitors trying to win your customers

Never dismiss the competition Everyone wants to hear why you’re good, not why the

competition is bad Talk about the story each competitor tells and then talk

about how your story is either different or more important

The Competition Continued

25

Minute Clinic has three competitors: The emergency room is always available and can treat any

number of illnesses, but is expensive and slow Local primary care physicians treat a large number of

illnesses but are available limited hours Off-the-shelf diagnostic tests are inexpensive but can

diagnose only one condition per test. We are fast and conveniently located in a pharmacy and can treat 12 of the most common ailments

We use nurse practitioners making it extremely low-cost.

The Competition Example:

26

Importance of Competition:Many entrepreneurs believe that investors want to hear that the venture has no competition. Unfortunately, sophisticated investors reach one or both of the following conclusions if entrepreneurs make such claims:

1) There’s no competition because there is no market. If there were a market, there would be others trying to win it, or….

2) The founders are so naive that they can’t even use Google to figure out that ten other companies are doing the same thing

27

Competitive Alternatives:Also, if you’re competing against a large, established competitor, build a case for these kinds of alternatives:

1) Partnering with the competition (ie: licensing your product with them)

2) Flying under its radar, or

3) Addressing a niche that it can’t or won’t address.

28

Competitive Stories being told:1) Think Amazon.com (Earth’s Biggest Selection) versus

Woot.com (Which sells only one product each day but at a deep discount)

2) Think Coke (classic) versus Pepsi (youth)

3) PC (reliable business applications) versus Mac (digital lifestyle)

4) Think Italian racing bikes (speed) versus Trek bikes (comfort)

5) Little Miss Matched selling three mismatched socks versus a pair

6) Goodyear has a blimp. But just because everyone knows your name doesn’t mean everyone knows your story. Michelin has a brand that tells a story—safety

29

#5 The Message

Once you have identified the various competitors out there trying to win your

customers and the stories they are telling, it’s time to talk about the message you

will deliver to the customer

30

A Great Message is A Great Story:

The bottom line is this: Don’t try to change someone’s worldview, instead, identify a population with a certain worldview and frame your message in terms of that worldview

Most often you’re charged with competing with someone who has already succeeded with a message that’s taken hold

The best alternative strategy is to find a different community, with adifferent worldview that wants to hear a different message

If you can build your entire organization around delivering a particular story, you’ve dramatically increased the chances that this story will actually get told

31

Examples of Messages That WorkLifeLock: “My name is Todd Davis. This is my social security number 457-55-5462. Yes, that really is my social security number. No I'm not crazy. I'm just sure our system works. Just like we have with mine, LifeLock helps protect your personal information. And it's GUARANTEED.“

Subway: “Meet Jared. He used to weigh 425 pounds, but today he weighs only 180 thanks to what he calls the “Subway diet.” Eating only two Subway Sandwiches a day combined with an exercise program worked for Jared. We’re not saying it will work for you. But it worked for Jared. Subway—Eat Fresh.”

The Nature Conservatory helps protect precious landscapes by buying them.” Instead of buying faceless, statistical acres it talks about “landscapes.” Five landscapes per year sounds more realistic than 2 million acres and it’s more concrete.

32

#6 The Sales Approach

Talk about how you are going to reach your customers and present your message.

Try to convince the audience that you have an effective go-to-market approach that won’t break the bank.

Your task here is to simply decide what leverage points and contact spheres exist for talking with your customers and to identify what types of media you can master and are best suited for your message and for your customer.

33

The Sales Approach – Promotional Tactics

Public Relations Media Relations Press Kits Newsletters Press Releases Special Events Speaking Engagements Sponsorships Community Relations and Philanthropy

34

The Sales Approach - Advertising

Websites Social Media Email Advertising Direct Mail Trade Shows Yellow Pages Newspaper Magazines Radio Television and Cable Outdoor Advertising Specialty Advertising

35

Contact SpheresYou should also think in terms of contact spheres. Contact spheres are hubs or gatekeepers who could provide you direct access to groups of your customers who have already self-organized for a purpose.

They are businesses that are symbiotic and noncompetitive to you. For example: a lawyer, an accountant, a financial planner and a banker. All of them have clients with overlapping similar needs. They can all work with and refer each other easily.

Another good example is the wedding contact sphere: a florist, a photographer, a travel agent and a jeweler. A referral for one of them becomes a referral for all of them.

You should immediately determine what professions fit within your contact spheres and start developing relationships with them.

36

Examples of Sales ApproachSmallBizU: “A majority of the customers for our educational software can be reachedthrough our website, the direct mailing of promotional kits, and through two national tradeshows and four primary regional shows.”

K9 Fashions: “K9 Fashions will educate our customer about our custom-made petfashions through five primary contact spheres (all of which will be paid affiliates): doggroomers, local veterinarian offices, AKC pet clubs, kennels, and breeders. We will alsouse direct mail catalogs sent using purchased mailing lists for our targeted marketregions.”

Dream Dinners: “Dream Dinners will reach our customers (defined as working womenbetween the ages of 28 and 45) through monthly “Girls Night Out” Parties, customerhosted parties (ranging from 6 to 12 women), referral and frequent-user programs,cooking classes conducted by regional top chefs, cookbook signings with major chefs,and quarterly community relations events where we will partner with local food shelters todonate food prepared by volunteers from our store. We will also advertise heavily in thelocal newspaper, The Guardian, in their Sunday Food and Entertaining section.

37

For this section, you talk about the work you do and how you make things. It’s a discussion about

the internal operations of your business

People Places Things Time

#7 Inner Workings

38

1) People: How many, skill sets, full or part time,

salaried/hourly, pay ranges, roles & responsibilities

2) Places: Facility, distribution

3) Things: Machinery, equipment, furniture. Cost and use

4) Time: How to complete an order? Hours of operation. Time to get product/service to clients

Inner Workings

39

Inner Workings Examples

Tele-Health Services will require a 24x7x365 operations center based in Columbus to serve Southern Indiana cities. In order to deal with the demand of securing 2,000 new customer accounts each year, we will require 5 Service Technicians for installation (8AM-5PM), 6 Maintenance & Training Staff to support the central facility (in 3 shifts), 1 Administrative Support Staff, and an IT Staff person. All remote monitoring equipment will be leased on a month basis from Teleproducts USA for $17.50 per month.

Tortillas Supremas will be located in a leased building in Indianapolis, Indiana. Two tortilla making machines and two vehicles for delivery will be leased. Two full time employees will work the tortilla making machine. Two employees, working 20 hours per week at $9.00 per hour, will deliver the finished product.

40

#8 The Management

Critical Area!

41

The Management Team

For this section, talk about the key players who will manage the business. For each management team member, you should briefly mention their credentials (why they are qualified to run thisbusiness) and mention their roles and responsibilities. Make sure that your team completes the “management trinity”:

1) Who will oversee the work—management expertise

2) Who will oversee sales—marketing expertise

3) Who will take care of the money—financial expertise

42

The Management Team

Talk about the key players who will manage your business. Does not have to be employees! These could include:

Board of directors Advisory boards ConsultantsMajor investors

Also, talk about any professionals like lawyers, accountants, bankers, or insurance agents that will assist you in running the business.

43

The Management Team Examples:

Jack Handy, Founder: Mr. Handy graduated cum laude from Ball State University. He has founded two previous ventures. He will oversee the day-to-day management responsibilities.

Judy Stanwicki, Vice President of MarketingMs. Stanwicki has managed the marketing functions for two Fortune 1000 companies.She will oversee all strategic marketing and partner development for the company.

Mr. Handy will be forming a management advisory board which contains both deep market experience and functional management expertise. The five person advisory board, which will meet quarterly, will include…

44

#9 The Money

Talk about how much money you need to get started or if in business, how much you need to get to the next stage.

List the major categories of costs and estimate their amountTalk about the money you expect to take in during the first or current year. Show how you came up with that number (units times prices) Assumptions are critical!Talk about the money you expect to spend out during this yearThink about people, product costs, space, equipment, etc.

45

Premier Uniforms requires $150,000 in initial start-up funds roughly broken down into $20K for working capital, $100K in inventory, and $30K in equipment and leasehold improvements.

We anticipate acquiring 120 accounts in the first year (10 per month) with an average annual contract amount of $15,000 per account resulting in $180,000 in annual sales.

Our expenses are primarily payroll (50%), rent and facilities (30%), and administrative expenses (20%) which should total approximately $120,000. We are projecting a first year profit of $60,000.

The Money Examples

46

Use a bottom-up model. Here’s an example:

Each salesperson can make ten phone sales a day that get through to a prospect

There are 240 working days per year Five percent of the sales calls will convert within six

months Each successful sale will bring in $240 worth of business We can bring on board five sales people Ten calls/day X 240 days/year X 5% success rate X

$240/sale X 5 salespeople = $144,000 in sales in the first year

Projections Strategy

47

Lenders want to see:Seasoned cash flowGood credit scoresCollateral

Investors want to see:Return on their investmentViable product/serviceQuality Management Team who can get it done

Lenders/Investors Needs

48

Translate all this into actions or they forever stay dreams

On your finished business plan, the Executive Summary should be the first page

#10 The Next Steps – The Plan

49

The Idea

Talk about the opportunity you have discovered and the big idea you have for the business

50

The Business Model

This is the purpose of the business and how it makes money!

51

The Customer

Who do we serve? What do we know about them?

52

The Competition

Start out by identifying your three to four most significant competitors Then describe precisely how you are uniquely different

53

The Message

Talk about the message you will deliver to the customer

54

The Sales Approach

Talk about how you are going to reach your customers and present your message

55

Inner Workings

The internal operations of your business, people – places – things - time

56

The Management

1) Who will oversee the work—management expertise2) Who will oversee sales – marketing expertise3) Who will take care of the money—financial expertise

57

The Money

Talk about how much money you need to get started or if in business, how much you need to get to the next stage.

58

The Next Steps (Action Plan)

Translate this into actions or they forever stay dreams

59

Now You Have Something To Talk About!

You’ve basically created your 10 page PowerPoint Presentation which you can show to those whose opinions you trust, a starting dialogue with prospective partners or investors and you yourself

see the merit of your enterprise before moving forward with a significant investment of time, effort and money.

60

Let’s Get Detailed!

This starts with research as follows, but not all inclusive:

Conduct an internet searchGet legal and accounting adviceIf looking for an investor, learn the process (ie: GUST)Marketing researchIdentifying mentorsVisit the competitionTalk with prospective customersSummarize marketing data If applicable, build a prototype

61

The Industry (Idea)

Name and describe the market or industry that you will work within—in other words, the chosen “sandbox” where you will play

For industry descriptions see the North American Industry Classification System (NAICS) at www.census.gov/naics or industries at a glance at http://www.bls.gov/bls/industry.htm

Talk about any industry trends and changes

Talk about whether the industry is growing and, if so, by how much

62

The Industry Example (Idea)

Tortillas Supremas competes in the “Bakeries and Tortilla Manufacturing” category, which is a part of the “Food Manufacturing” industry. There is a huge and growing demand for fresh and authentic tortillas in the targeted market fueled by rapid growth in Mexican population—the regional Hispanic population grew by 117% to 215,000 (150,000 Mexicans) from 1990 to 2000. Nationally, tortilla sales have grown at an annual rate of 12% since 1996.

63

Talk about the product or service that you will sell Talk about what sets the product or service apart

from what is currently being sold to customers Talk about any ways you can protect the product

or service from being easily copied by the competition.

Present any product pictures, drawings, or renderings you might have

The Product (Business Model)

64

Product Uniqueness(Business Model)

The uniqueness of your product will be critical in a successful launch. As you’ve done your homework, looking at other competitors and seeing where your product is different and will have appeal, it’s time now to describe why.

It could be you’re a low cost provider, higher quality, new and innovative approach to either an existing technology or a new one. Whatever it is that you have uncovered, it’s important to describe it succinctly but with that “wow” factor.

65

The idea for a market study is to tell the “story of the market” in numbers starting with the big picture and then narrowing down the data to a more detailed view

Talk specifically about where your customers are located. Are they within a city, county, state, region, nation, or international place? Talk about the numbers of customers in the market and possibly even what they spend on your kind of products and services

The Market(Customer)

66

Talk about your targeted customers. Remember, you can segment customers by type, buying behavior, location, and so on.

Describe who they are by discussing some of the following things:◦ Demographics (characteristics they share in common)◦ Buying Behavior (how and why they buy the product) ◦ Size (numbers of them / dollars they spend)◦ Projected Sales◦ Trends (growth / opportunities)

Target Market(Customer)

67

The "Frequent Guest" target market consists of people and households within 7 miles of the restaurant. They are ages 21 to 54 with $54,000 in average household income. They make frequent but small purchases of around 5 times per year at about $9.00 per patron. They number in size at about 58,600 residents living in 20,000 households and represent $58 million local market for restaurant sales. This target market is projected to generate $400,000 in sales and is forecasted for slow to moderate growth, spending less on meals away from home on average.

Target Market Example(Customer)

68

Include in a matrix:

Description Demographics Buying Behavior Size Projected Sales Trends

If multiple markets, apply to each……

Target Market Descriptions(Customer)

69

For each target market, talk about how you will customize your marketing efforts to fit their needs.

The Message: What message will you use for this target market? The Pricing: Will the pricing have to be different for this targeted

customer? Product Customization: Will the product or service have to be

customized for this customer? Distribution: How will the product get to this customer?

Target Market Strategies(Customer)

70

Talk about how you specifically create value different from the competition.

Ask these four questions:

Which factors should be reduced well below the industry standard?

Which of the factors that the industry takes for granted should be eliminated?

Which factors should be raised well above the industry’s standard?

Which factors should be created that the industry has never offered?

Competitor Matrix

71

Company We can do they can't We can't do, they can

This simple analysis will quickly point out again your uniqueness and

why they should buy your product/service rather than the competitions.

Competitor Matrix

72

To create your marketing schedule, review the specific media you said that you would use on your Sales Approach section of your Pitch and begin conducting research into media costs.

Be sure to include circulation numbers, ad costs, number of spots, ad sizes, and any design and development costs. projections later on. The goal is to arrive at a total marketing and advertising budget for the year—a number which will be carried over to your financial projections.

Marketing Schedule(Sales Approach)

73

This is part of the Inner Workings, or operations. With technology today, many companies have a telecommuting staff. And many companies are work at home offices

If however, you’re more retail or service oriented and need an office, your location for visibility to clients, traffic patterns, accessibility and costs are important things to consider

Location, Location, Location(Inner Workings)

74

As part of the management of any business, the management team needs to always be aware of risk. In addition to describing your chosen legal structure for the business, you should also discuss what other kinds of risk management strategies you will employ. The most basic and obvious is insurance.

As mentioned before, management and their decisions weigh heavily in both investor and lender decisions.

Management Items

75

In the Money Forecast section of your Pitch, you talked about the amount of money that was required to get the plan rolling. Now, you will be taking it to one more level of detail by creating a detailed listing of your start-up funds

Your listing of funds should be broken into two separate categories: Fixed assets and Working Capital. Fixed assets include items such as land and buildings, vehicles, furniture, office equipment, and fixtures. Working capital, on the other hand, are those monies that once spent, are gone

Funding(The Money)

76

After you complete your Required Funds table, you’ll be ready to finish your plan by presenting your capital strategy.

Your plan’s capital strategy simply takes the total amount of funding you need and breaks it down as to who will be providing the money. There are essentially only three broad categories where you can get money: from yourself and other partners (the owner’s injection), from outside investors (equity), or from lenders (debt).

Capital Strategy

77

Total Amount Required $300,000

Investors(3 @ $25K each getting a % of the company) $ 75,000

Bank Loan $200,000

Owners $25,000

Capital Strategy Example

78

If you think back to your Pitch and Plan, you’ll see that a number of the sections contain financial related information such as…

The Business Model: prices, product costs, and margins

Market Research: sales forecasts for each target market

The Marketing Schedule: marketing and advertising expenses

The Inner Workings and The Location: salary, wage, and occupancy expenses

Risk Management: insurance costs Capital Strategy: loan payments and dividends

The Numbers

79

The Numbers - Projections

Funds NeededSalaries and WagesFixed Operating ExpensesProjected Sales ForecastCash Flow Forecast

Basically you’re building a projected Profit & Loss and a Cash Flow Statement. Again, ASSUMPTIONS are important. If there isn’t substance behind the numbers, they won’t be taken seriously.

80

Executive Summary

Putting it All Together -

This is a one page document that includes:

Mission StatementCompany Information – short statement, founders and their rolesBusiness Growth HighlightsYour product/serviceMarketing strategy overviewHigh level financial statementSummarize your request

81

Resources

There are some great resources for assembling your Business Plan if you haven’t already started, want to revise or finish what you have started or need to have ready for submission for access to capital, etc. Of course you have the outline in your package today

www.sba.gov/content/business-plan - You will get an outline and then can also click on each of the elements of the planAZCI has many mentors who also have workshops on the various components of a business plan including the pitchMicrobusiness Advancement Center – Has a 10 week course on writing a business planMAC Small Business Development Center – one on one no cost counseling to work with you not only on the plan itself, but how to implement it effectively and successfully

82

Resources Continued

In addition, you can go online to the library and see sample business plans. All you need is your library card. You go to the Home Page and type in Business Plans. There are a good variety. It is like opening a book online.

Remember, at the end of the day, by building a business plan, the most helpful thing that will occur first, is that YOU will be convinced that you have a plan that can work before you show it to anyone else.

Also, be sure to have a team! This was reiterated a number of times, because I believe you can all see, there are many areas where an expert could definitely help in certain sections of the plan.

83

MAC Small Business Development Center – Serving Pima and Santa Cruz Counties

Ellen Kirton Director◦ Ekirton.sbdc@mac-sa.org◦ 520-620-1241 x 112◦ 330 N Commerce Park Loop #160◦ Tucson, AZ 85745

Contact Information