Business Plan The Business Definition The offer what will the - - PowerPoint PPT Presentation

Business Plan

The Business Definition

• The offer—what will the business
• ffer the customers?
• Target market—who will it serve?
• Production and delivery capability—

how will it provide the products and services it sells?

Types of Business

• Manufacturing—makes tangible products

and sells them through distributors or directly

• Wholesale—buys in bulk from

manufacturers and sells smaller quantities to retailers

• Retail—sells individual items to consumers
• Service—sells expertise/entertainment

and/or time and resources to consumers

How Are Ventures Actually Formed ?

• Entrepreneurs respond to attractive opportunities

by forming new ventures.

• The method of enterprising is to plan with

audacity and execute with vigor. Christian Bovee

• To get profit without risk, experience without

danger, and reward without work, is as impossible as it is to live without being born. A.P. Gouthev

• Development of a business plan enables the

entrepreneur to examine the opportunity critically.

What is a Business Model?

• Model
• A model is a plan or diagram that’s used to make or

describe something

• Business Model
• A firm’s business model is its plan or diagram for:

how it competes, uses its resources, structures its relationships, interfaces with customers, and creates value to sustain itself on the basis of the profits it generates

• The term “business model” is used to include all the

activities that define how a firm competes in the marketplace

How Business Models Emerge

The Value Chain

The business model is the logic that will allow a venture to: Capture the market opportunity; Mitigate risks; Identify the required resource set; and Create value for investors and founders.

The Value Chain

• Entrepreneurs look at the value chain of a product or a service to

pinpoint where the value chain can be made more effective or to spot where additional “value” can be added

• This type of analysis may focus on:
• A single primary activity such as marketing and sales
• The interface between one stage of the value chain and

another, such as the interface between operations and

• utgoing logistics
• One of the support activities, such as human resource

management

Technology Development Product Design Logistics & Manufacturing Marketing Sales & Distribution Service

Custom er Concept

Sequence of business activities for transforming inputs into outputs that customers value

Business Plan Framework

Opportunity

Customers Strategy Business Model People The team Capabilities Attitude Reputation

Deal

Rewards and risks Incentives Ownership Harvest

Resources

Financial Physical Intellectual Business Plan

+

Story

Elements of a Scenario

Key issues & questions Driving force

Story

Logic: Rationale for the Story Outcomes: Conclusion of the Story Learning: Understanding & decisions

Three Stages of the Story

• Set the stage
• Current situation and players
• Introduce dramatic conflict
• Significant challenge
• Life and business in delicate

balance

• Reach resolution
• New value equation

The Problem/Opportunity/Need

• Define the problem or need in the

market

• Describe how significant or prevalent

the problem may be

• If appropriate, describe why now is the

right time for a solution

• Provide a “problem” scenario that

provides a basis for your company’s product or service

The Solution

• Clearly and succinctly describe the company’s product
• r service that will address the problem
• Illustrate the company’s solution with graphics,

pictures or videos as necessary (keep this very simple)

• Provide brief list of features, benefits and advantages
• What is the value proposition for the customer

(How well will the product or service solve the problem)?

• Cost savings, convenience, reliability, etc. (be

specific)

• Describe “barriers to entry” created by your product

(e.g., patents)

Sample Feature-Benefits Table

Features Benefits

What’s the Company’s Value Proposition and Why Will It Win?

• What We Do?
• For [prospective customers]
• Who want to [statement of the need or opportunity]
• Our product is [how your technology meets the need]
• Why We’ll win
• Unlike [primary competitive alternative]
• Our product [statement of primary differentiation]
• As supported by [means-ends framework]
• And protected by [IP, unique relationships etc.]
• Will result in superior benefit

Elements of a Business Plan

• A document that sets out the basic idea

underlying a business and related start-up considerations

• Identifies the nature and context of the

business opportunity

• Presents the entrepreneur’s approach to

exploiting the opportunity

• Identifies factors affecting the venture’s success
• Serves as the entrepreneur’s tool for raising

capital

Writing a business plan is an ongoing process, not just the means to an end product or outcome

Primary Functions of a Business Plan

• To provide a clearly articulated statement of

goals and strategies for internal use

• Imposes discipline on the entrepreneur and

management team

• To serve as a selling document to be shared with
• utsiders
• Provides a credible overview for prospective

customers, suppliers, and investors

• Helps secure favourable credit terms from

suppliers

• Opens approaches to sources of financing

Users of Business Plans

New Venture Business Plan Stakeholders Suppliers Employees Outsiders Investors Customers Firm’s Management Insiders

Write it Yourself Focus on:

The People, the Opportunity / Business Model Risk and Reward

Common Business Plan Flaws

• Overly optimistic financial projections, inadequate competitive

analysis and/or weak environmental assessments

• Vague marketing strategies
• Lack of research
• Unprofessional presentation
• Hazy timelines, vague risk assessment

Plans That Create Unfavourable Reactions

• Show an infatuation with the product or service and downplay

market needs or acceptance

• Are based on financial projections at odds with accepted industry

norms

• Have unrealistic growth projections
• Contain a need for custom or applications engineering, which

makes substantial growth difficult

Business Plan Overview

• Title Page
• Table of Contents
• Executive Summary
• Mission Statement

and Goals

• Company Overview
• Products and/or

Services Plan

• Marketing Plan
• Operating Plan
• Financial Plan
• Management Plan

Appendix of Supporting Documents

Resumes; Detailed financial projections; Product specifications, photos; Advertising & promotion samples; Contracts; Other supportive materials

Specialized Plans within the Business Plan

• Products and/or Services Plan
• Describes the product and/or service to be provided and explains its

merits

• Marketing Plan
• Describes the user benefits of the product or service and the type of

market that exists

• Management Plan
• Describes the new firm’s organizational structure and the backgrounds of

its key players

• Operating Plan
• Offers information on how the product will be produced or a service

provided, including descriptions of the new firm’s facilities, labour, raw materials, and processing requirements

• Financial Plan
• Provides an account of the new firm’s financial needs and sources of

financing and a projection of its revenues, costs, and profits

• Pro forma statements—Reports that project a firm’s financial condition

Research to Support the Plan

• Both primary and secondary research must be carried out

by the writer of the business plan

• Secondary Research
• Secondary published sources
• Books, published reports, newspaper, journal articles,

statistics databases, and Internet sites

• Primary Research
• Derived directly from people
• Experts in the field, professionals such as lawyers and

accountants, industry contacts such as trade association representatives or suppliers and potential customers

New Venture Framework

Building A New Business Opportunity Vision Access to Distinctive Capabilities of Resources Competencies the Team Innovation Business Industry

• r

Strategy Context Novelty Talent Structure Processes Profitability

Step

• 1. Identify and screen opportunities. Create a vision and concept statement and build an

initial core entrepreneurial team. Describe the initial ideas about the value proposition and the business model.

• 2. Refine the concept, determine feasibility and prepare a mission statement. Research the

business idea and prepare a set of scenarios. Draft the outline of a business plan and an executive summary.

• 3. Prepare a complete Business Plan with a financial plan, and the legal organization suitable

for the venture.

• 4. Determine the amount of financial, physical and human resources required. Prepare a

financial model for the business and determine the necessary resources. Prepare a plan for acquiring these resources.

• 5. Secure the necessary resources and capabilities from investors as well

as new talent and alliances. Launch the organization

The 5-Step Process of Establishing a New Venture

A business plan is a document that describes the opportunity, product, context, strategy, team, required resources, financial return, and harvest of a business venture.

Milestones Management

• Making financing decisions contingent upon completion of specific

events (not dates) to make Go, No Go or Redirection decisions

• Avoid costly mistiming errors
• Revaluation of the entire venture
• Disciplining to a specific achievement

Illustration:

• Completion of product development
• Completion of a prototype machine that costs no more than _____;

with direct cost of _____;

• Which can produce _____ items per day;
• Meets regulatory requirements and can be operated by ____ .

Typical Milestones

• Formulation of the basic idea for the new

venture

• Completion of prototype
• Raising seed capital
• Conducting pilot operations
• Market testing
• Start-up of operations
• Bellwether sale
• Fist competitive action
• First redesign
• First significant price change

Stage-wise Requirements of Funds

• Seed
• Series A
• Series B
• Series C
• Formulation of initial team &

completion of business plan

• Product development completed
• Product test and customer acceptance

proven

• Launch product into market

Stage Milestone = expected outcome

Critical Risks and Contingencies

• Reveal all material and relevant information
• List every reason why someone would
• not want to consider investment in the new venture

Specific risks that a venture is subject to:

• Failure to produce the products and services promised
• Failure to meet production deadlines or sales forecasts
• Problems with suppliers and distributors
• Unforeseen industry trends
• Unforeseen political, economic or social events
• Problems of inexperienced management
• Problems of unproven and undeveloped technology
• Difficulties in raising additional finance

Common Mistakes or Gaps in Business Plan

• Solutions or technologies looking for a problem
• Unclear or incomplete business model and value

proposition

• Incomplete competitor analysis and marketing plan
• Inadequate description of the uncertainties and risks
• Gaps in capabilities required of the team
• Inadequate description of revenue and profit drivers
• Limited or no description of the metrics of the business
• Lack of focus and a sound mission
• Too many top-down assumptions such as “we will get 1 %
• f market share”
• Limited confirmation of customer demand or pain

The Ten Topics that a Venture Capitalist Cares About

• Problem/opportunity
• Your solution
• Business model
• Underlying magic/technology
• Marketing and sales
• Competition
• Team
• Projections and milestones
• Status and timeline
• Summary and call to action

Sources of Capital

• Founders
• Family
• Friends
• NIDHI/PRAYAS
• DBT/BIRAC/BIG
• Professional Investors —

Angels

• Venture Capitalists
• Banks
• Leasing Companies

Principle: Many kinds of sources for investment capital for a new enterprise exist and should be compared and managed carefully.

• Established

Companies

• Public Stock

Offering

• Government

Grants and Credits

• Customer

Prepayments

• Pension Funds
• Insurance

Companies

31

• High risk
• High return
• Long term
• Equity
• Illiquidity
• Often investments in new technology,

new marketing concepts or new product application possibilities

• Close involvement of investor

Characteristics of Venture Capital

Characteristics of An Attractive Venture Capital Investment

• Potential to Become a Leading Firm in a High Growth Industry with

few competitors.

• Highly Competent and Committed Management Team and High

Human Capital (Talent).

• Strong competitive Abilities and a Sustainable Competitive

Advantage.

• Viable Exit or Harvest Strategy.
• Reasonable Valuation of the New Venture.
• Outstanding Opportunity.
• Founders Capital Invested in the Venture.
• Recognizes Competitors and Has a Solid Competitive Strategy.
• A sound business plan showing how cash flow turns positive within

a few years.

• Demonstrated progress on the product design and good sales

potential.

I ssues to be resolved w ithin the Term s of the Deal

• Percent Ownership for the Investor Group
• Timing of Investment
• Control Exerted by Investor
• Vesting Periods for Ownership by the Entrepreneur Team
• Rights to Require an IPO, Registration Rights
• Type of Security
• Reservation of Ownership for Employees (Stock Option Pool)
• Anti-dilution Provisions
• Milestones of Achievement, if there are multiple tranches

(steps) to the investment

• Stock Option Plans

Issues to Be Resolved Within the Terms of the Deal

34

How the Money Flows

Investors Private Equity Fund Company Cash Equity Fundraising Returns (Cash) Third Party / Stock Market Equity Cash

35

The Investment Process

Deal Flow Generation Assessment & selection Monitoring Deal making Exit

Deals

• Big winners
• Winners
• Sideways
• Workouts
• Losers
• Wipe-outs

What VCs look for

Mindset

• Staying power
• Ability to handle risk
• Verbal ability
• Detail orientation
• Compatible personality

Past Experience

• Market

knowledge

• Track record
• Leadership

Check and Ask Yourself

• Write for your audience
• Show that you have “skin in the game”
• Be clear and concise
• Use current data and reports
• Use a consistent, easy-to-read format
• Number and label throughout
• Present the plan professionally
• Unique and Sizeable

Opportunity

• Unique product or service
• Competitive Advantage,

Strengths

• Marketing Approach,

Customers, Sales Pipeline

• Intellectual property
• Management team

In Sum

• All opportunities have promise
• All have vulnerabilities
• A good business plan
• Doesn't whitewash the vulnerabilities
• It proves the entrepreneurial team knows
• The good
• The bad
• The ugly
• that the venture faces ahead
• And has capacity to overcome them

A Sample Ten-Slide Presentation

• Company name, presenter name, contact information
• Description of the problem: the need and the market
• Solution: the product and its key benefits
• Business model and profitability
• Competition and strategy
• Technology and related processes
• Marketing and sales plans
• Leadership team and prior experience
• Financial projections summary
• Current status and funds required

10/20/30 Rule

10 : Slides 20 : Minutes 30 : Font

Thank You