copyright 2004, charles o. heller1 class 7: writing a winning business plan (part i) uses of plan...

Copyright 2004, Charles O. Heller

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Class 7: Writing a winning business plan (Part I) Uses of plan Important characteristics Turn-offs and turn-ons Investor criteria Questions answered by plan Research before writing Elements and outline of business plan Executive summary


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Remember this:

Other than your last will and testament,

the most important document will ever write is your business plan!


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Uses of business plan Game plan for

company Raising capital Document for

credibility with vendors, customers

Operations plan Performance

measurement


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Essential characteristics Most important: succinct Length: 30 pp + financials + appendix 1st draft: write too much, then pare down Eliminate work for reader Stand out from the crowd Legal issue: disclose all material info Note: INVESTOR LOOKS FOR KEYS TO

SUCCESS


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Differentiate your plan Most business

plans seen by investors and bankers are pathetic

An outstanding business plan is a great differentiator


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Investor/banker turn-offs “Pre-packaged” plan Product/service/technology orientation Insufficient research of market Insufficient knowledge of competition Unrealistic financial projections Failure to examine risks Unreasonable valuation Spelling, grammar, arithmetic errors


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Investor/banker turn-ons Executive summary compelling reader to study

plan Market opportunity that gives company

distinct competitive advantage Evidence of market acceptance Proprietary position Management team which can execute Producible and saleable product Reasonable valuation Achievable/believable projections – satisfying

investor ROI expectations


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Key questions answered by a winning business plan

What need will you satisfy and how large is that need?

How will you satisfy that need, and how will you make money doing it?

What are the prospects for success? What do you need to do it? What’s in it for the investor?


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Research before writing (1) What can company become in short and

long runs? Why does opportunity exist? How long

will it last? Is there a bulletprooof business model? Who will be the first customer; why will

customer buy; how many will he buy? Why and how will company withstand

competition?


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Research before writing (2) What are three most important

assumptions on which success is based? How to test them?

What is upside potential and downside risk?

What has to happen to reach cash flow break-even?

How sensitive are projections to key assumptions?


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Vision An informed and forward-looking

statement of purpose defining the long-term destiny of the company

“We help people trade practically anything on earth through an online system.”


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Mission statement More complete description of company’s

goals and customers, incorporating vision statement

“We help people trade practically anything on earth. eBay was founded with the belief that people are basically good. We believe that each of our customers, whether a buyer or seller, is an individual who deserves to be treated with respect. We will continue to enhance the online experiences of all – collectors, hobbyists, dealers, small business, unique item seekers, bargain hunters, opportunistic sellers, and browsers. The growth of the eBay community comes from meeting, and exceeding the expectations of, these special people.”


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Value proposition The monetary worth of the benefits

a customer pays for a product or service

Five key values: Product Price Access Service Experience


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Business model Description of the business and how it

will work economically; set of planned assumptions about how a company will create value for all its stakeholders

Elements: Customer selection Value proposition Differentiation and control Scope of product and activities Value capture for profit Value for talent


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Stuck? Write a “mini-plan” first Two-page plan which answers:

What is concept? How will you market it? How much will it cost to produce/deliver? What will happen when sales begin?

Write down assumptions Test assumptions Give yourself time to discover

mistakes


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Elements of business plan (1) Executive summary Opportunity: quality, growth potential Vision: mission, objective, core concept Product/service: value proposition, business

model Context: industry, timeliness, regulations Strategy: entry, marketing, operations, market

analysis Organization: structure, culture, talent


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Elements of business plan (2) Entrepreneurial team: capabilities,

commitment Financial plan: assumptions, cash flow, P&L Required resources: financial, physical, human Uncertainties and risks Financial return: ROI Harvest: return of cash to investors, founders,

and employees


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Outline of winning business plan (1) Cover/title page Executive summary Tables of contents, illustrations, tables I. Company description II. Products and/or services III. Market description IV. Competition V. Marketing strategy


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Outline of winning business plan (2) VI. Management team, organization,

staffing, facilities VII. Financial plan VIII.Investment and ownership IX. Critical risks Appendices (separately bound)


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Executive summary (1) Most important part of plan!!! Assume five-minute reader Therefore, 3-4 pages long Standalone “mini-plan”

Most critical paragraphs: The pain How the pain is going to be cured


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Executive summary (2)

1. Purpose of plan2. Summary description of business3. Opportunity/pain and strategy4. Market analysis5. R&D and production plans6. Management team7. Financial summary


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Executive summary (3) 1. Purpose of plan

Attract investors/bankers or internal tool What’s in it for investor/banker “Credibility-builders” (customers,

betas…) 2. Summary description of business

One-sentence description Needs to be satisfied – the pain How needs will be satisfied


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Executive summary (3) 3. Opportunity and strategy

Marketing and sales strategies Distinctive advantage

4. Market analysis Target market Size, demographics, growth rate Market trends


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Executive summary (4) 5. R&D and production plans

Current status and milestones Proprietary status

6. Management team Founders, key people, board

members Relevant experience


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Executive summary (5) 7. Financial summary

Capitalization table Prior funding and valuations Required current funding and use of

funds Summarized actual and pro forma

financials for 5 years (annualized): P&L: revenues, net income Cash flow: cash position at each year-end


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Assignment for teams

1. Write vision statement2. Write mission statement3. Write executive summary

following format of hand-out

Due date: in class, October 29

copyright 2004, charles o. heller1 class 7: writing a winning business plan (part i) uses of plan...

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