Swat Tank Talk: Writing a Business Plan January 15, 2013 Eliot Ingram 93.

Swat Tank Talk:Writing a Business PlanJanuary 15, 2013Eliot Ingram ’93

Agenda• Goals• Marketing mix• Reverse income statement• Feasibility study• Business plan• Conclusion

Eliot Ingram - Background• Swarthmore College, Econ/PoliSci double major

(1993)

• MCS, education start-up (1993 – 97)

• Wharton MBA, Entrepreneurial Mgmt major (1997 – 99)

• Vcall, VC-backed internet start-up (1999 – 00)

• Clear Admit, education consulting/publishing firm (2001 – present)

What Is Your Goal for Your Business?

• What is your exit strategy?• How long do you want to run the business?• How long do you want your business to run

independently?• Who is the natural acquirer of your business?

• Do you want to grow a:• Small/niche/lifestyle business?• Large, scalable business?

What Is Your Goal for Your B-Plan?

• Internal/personal goals• Help you test assumptions• Think through strategic alternatives

• External goals (funding considerations)• Use plan to raise money from outside investors

Steps to Take Before Writing Your Plan

• Marketing mix exercise (3 Cs & 4 Ps)

• Reverse income statement exercise

• Feasibility plan

Marketing Mix: 3 Cs• Customers • Who are they?• How many are there? (market size)• What are their needs?

• Competitors • What firms are trying to meet the needs of the

customers?

• Company (you)• How will you deliver a service that better meets

customer needs?

Marketing Mix: 4 Ps• Product• How will you tweak your product or service to

better meet the needs of customers?

• Price• How will you set prices?• How does your pricing compare to similar services?

• Promotion• How will you get the word out that you have a great

product at a great price?

• Placement (distribution)• How will you deliver your product or service to the

customer?

Reverse Income Statement• What it is/why use it?• A quick way to check financial assumptions

• Start with your profit goal and work backwards• Profit goal• Cost assumptions• Revenue goal given profit goal & cost assumptions• Different Combination of Revenue – Cost = Profit• Different Combination of fixed and variable costs =

Costs• Different Combination of Price * Quantity =

Revenue

Reverse Income Statement Example (Part 1)• Assume profit goal is $100,000 per year• What revenue – cost of good sold combination is

realistic for your proposed business?• $200,000 - $100,000 = $100,000 (50% gross profit

margin)• $300,000 - $200,000 = $100,000 (33% gross profit

margin)• $400,000 - $300,000 = $100,000 (25% gross profit

margin)• $1,000,000 - $900,000 = $100,00 (10% gross profit

margin)

Reverse Income Statement Example (Part 2)• What Price*Quantity options make sense in order

for your business idea to generate $1 million in revenue?• 100 customers paying $10,000 each?• 1000 customers paying $1000 each?• 10,000 customers paying $100 each?• 50,000 customers paying $20 each?

• Market size• What is the size of your target market?

• $50 million market?• $100 million market?• $500 million market?

• What % of market size is needed to achieve # customers?• Ideally you serve a large market ($100 million+)

Reverse Income Statement Example (Part 3)• Costs• What are the estimated fixed costs?• What are the estimated variable costs/unit?

• Breakeven Volume = Fixed Cost/(Price/Unit – VC/Unit)• Assume $3000 fixed costs• Assume $1/unit of variable costs• Price point of $4/unit• BEV = $3000/(4-1) = 1000 units sold to achieve

BEV

• A key milestone is to become cash flow positive from operations (when incoming cash from operations exceeds outflowing cash from operations)• Breakeven Volume is a key way to determine when

you will achieve positive cash flow

Feasibility Study• What it is?• 1-2 page written plan• 1-page description of market size/financials

• Why use it?• A quick way to assess a new business idea• Might do this for 4-5 ideas before determining

which business idea to write up into a 30+ page business plan

Feasibility Study: Questions to Answer

• Succinctly describe your idea. • Who and how big is the potential market for your

product or service?• What are the advantages/disadvantages over your

competitors? How do you differentiate yourself?• What research did you rely on?• Itemize your start-up costs and your source funds.• What can you do to improve the business sales

volume?• Discuss your risks and strategies for managing these

risks.• Discuss the feasibility for you to implement this idea.

See AlumNet Feasibility Study Example

Summary of Pre-Business Plan Steps

• Marketing mix• Help with marketing and strategy sections of

business plan

• Reverse income statement • Help with strategy and financials sections of

business plan

• Feasibility study• Provides overview for business plan

Business Plan Outline • Summary/vision• Market analysis• Competitive analysis• Strategy• Products/services• Marketing and sales• Operations/key personnel• Financials

Summary/Vision• Summary of business idea

• Vision for your company

Market Analysis• Market size/market growth rate

• Market customer segments/target customer profile

• Customer needs

(Use marketing mix 3 Cs in this section)

Competitive Analysis• Key competitors • Who are they?

• Competitive landscape• Fragmentation: Few large players vs lots of small

players?

• Changes in industry• Any consolidation happening?

• How well are they meeting the customer needs?

(Use marketing mix 3 Cs in this section)

Strategy• Complete a SWOT Analysis• Strengths• Weaknesses• Opportunity• Threats

• What is your strategy for serving the customers better than existing competitors? • How is your product faster/better/cheaper?

(Use marketing mix 3 Cs in this section)

Products/Services• Describe your product/service

• How do you position it relative to competing products?

• Do you have a product roadmap for developing a suite of products?

• Are you creating a product or a company with products?

(Use marketing mix 4 Ps in this section)

Marketing/Sales• Price• What prices will you charge? Will you offer any

discounts based on volume, time of purchase, etc?

• Promotion• How will you get the word out that you have a great

product at the right price?

• Placement/distribution• How will you deliver your service to your

customers?

(Use marketing mix 4 Ps for this section)

Operations/Key Personnel• Key personnel/qualifications• Include bios on founders/key advisors

• Organizational structure• How will you organize your firm to market, produce

and deliver services to customers?

Financials• Assumptions• Income statement (P&L) projection• Revenue - Cost of Goods Sold = Gross Profit• Gross Profit –Overhead = Pre Tax Operating Profit• Operating Profit – Capex = Pre Tax Profit• Pre Tax Profit – Taxes = Net Profit

• Cash flow statement• Cash from operations (similar to P&L)• Cash from investments (buying/selling equipment =

Capex)• Cash from financing (raising debt/equity)

• Balance Sheet = Assets – Liabilities = Shareholder Equity

(Use reverse income statement for this section)

Partners• Advisory board

• Beta customers

• Distributors

• Marketing channel partners

• Legal/Accounting

Financing Your Venture• Bootstrapping/self fund

• Prepayments from customers

• Debt (secured vs. unsecured)

• Equity• Friends/family• Angel investors• Venture capitalists• Strategics

Conclusion• Think carefully about your business goals

• Business plan is a snapshot in time• Always out of date

• More about the process of creating the plan, not the plan itself

Reference Materials• Marketing mix document• Business plan outline• Developing a discovery-driven plan• See document• See link:

http://faculty.msb.edu/homak/HomaHelpSite/WebHelp/Discovery_Driven_Planning_-_Annotated.pdf

• Feasibility study example (AlumNet)

Contact Info• Feel free to contact me if you have questions• Eliot Ingram

Clear Admit, [email protected]