The Full Business Plan Paul Kirsch Samuel Zell & Robert H. Lurie Institute For Entrepreneurial Studies January 20, 2006.

The Full Business Plan

Paul KirschSamuel Zell & Robert H. Lurie Institute

For Entrepreneurial StudiesJanuary 20, 2006

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Parts of a Coordinated Message

Core Idea

Executive Summary

PowerPoint

Elevator Pitch

Business

Plan

The Message of your

Business Idea

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Parts of a Coordinated Message• Core Idea

– 5 Breaths

• Executive Summary– 2 – 5 pages generally accepted

• PowerPoint– 8 – 15 minutes

• Elevator Pitch– 1 – 3 minutes– 3 minutes for MBC on 12/9

• Full Business Plan– 15 pages + Financials

SameStuff,

Different Delivery

S.S.D.D.

- 20 pages + up to 10 pages appendices

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The Business Plan

• Always a work in progress– About the process NOT the document

• 20 pages, plus appendices• Ties everything together• Offers clear linkage between ideas

and vision and business entity to bring them to life

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Understand Your Audience

• InvestorsFFF | Banks | Private investors | VCs |

Grantors

• Business partnersBeta customers | Suppliers | Distributors

• Management team– Current – talking from the same script– Potential – need to understand business

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B.P. includes Executive Summary

• What is it?• Market Need or

Pain, Size • Value

Proposition & Business Model

• Competitive Advantage

• Competition & Industry

• Products & Services

• Sales & Marketing• Operations• Management• Risk Mitigation• Action Plan,

Milestones• Key Financials• Exit Strategies

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What Is Your Idea & Why Now?

• Be clear and complete• Plain English but use technical

language, schematics where necessary• Origin of the idea: Paint a picture

– Linear development or disruptive?– Improvement or new?– Evolutionary or revolutionary?

• Connect timeliness of idea to market “pain”

• Staying power and permanence

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Market Need or Pain, Size• What is the pain in the market• Market need drives idea, the product fills

the need– Products do NOT create a market

• Quantify “pain” in terms of true market opportunity– Just how “big” is this opportunity?

• What are potential customers doing now?– A current solution DOES exist

• Connect the listener to the problem

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Market Need or Pain, Size

• Which product, products segments are in the initial focus and planning horizon?– Three to five years is acceptable

• Describe your customers, segments:– Geographic– Demographic– Psychographic– Business, economics, SIC codes

• http://www.osha.gov/pls/imis/sicsearch.html

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Value Proposition & Business Model

• How valuable is your idea to your customers?

• How are you going to extract this value from the marketplace?

• Be specific. Who else do you need to make this happen?

• What is the business model? *

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Value Proposition & Business Model

• What is the business model? *

• *This is really two questions

What do you do?½ of the Business Model Answer

How are you going to make money?½ of the Business Model Answer

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Comp. Adv., Competition & Industry

• What is your #1 competitive advantage?– Intellectual Property– Management Team– Exclusive customer relationships

• How are you going to protect it?– Being the “first mover” IS NOT a

sustainable competitive advantage• Who is your competition?

– Porter’s 5 Forces– Value Chains?– How will they respond?

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Products and Services

• Detailed description• Where in the product life cycle• Where in the development process

– Other R&D concerns?

• IP protection

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Sales, Marketing, Management

• How are you going to sell your product?• What “beta” relationships exist? Why?• Who are your first prospective customers• Be realistic, don’t overpromise or

oversimplify• Highlight team’s ability to deliver. Past

success is a good indicator of future performance

• Be honest about team’s missing skills

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Operations

• What activities will you be doing?• Do any operational components

deliver key advantages?• Important relationships

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Risk Mitigation

• Commonly explored classes of risk– Technical– Market– Competitive– Management– Execution

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Action Plan, Milestones

• Overview of timeline• Demonstrates understanding of KEY

issues• Shows that the team knows what is

whose responsibility– Only items that are your responsibility

can be a milestone

• Easy win: include product launch/first sales in ANY discussion of milestones

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Key Financials• Provide credible financial measures

Sales | Margins | # of Customers | Market share

• Cash flow is king• KNOW you assumptions • “The Good, The Bad and the Likely”• Be realistic, don’t overpromise or

oversimplify

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Key Financials• What do you need NOW?• What are your start-up costs?

Estimating Startup Costs

• Working capital is a legitimate use of funds

• Estimate costs and revenues to the best of your ability

• Allowing a percentage of “cushion” is okay

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Exit• Document “ballpark” returns• Offer feasible exit strategies• What is “typical” in your industry?

– Acquisition– IPO– Management buyout

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Exit• Acquisition

– Who? – How many “who’s”

• IPO– Recent market track record IPO Monitor– What performance measures are

important?• Management buyout is not necessarily

a desireable exit– Dividend payments are viewed similarly

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This is the content portion of the presentation

Questions?

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Other information, advice and things to keep in mind while developing your plan

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Format• Cover page (not included in page total)

– Company name– All team member names, and full contact information

for at least team leader

• Body of plan – 20 pages - includes the executive summary and summary financial data

• Appendices – not to exceed 10 pages– Include only when they support the findings,

statements and observations in the plan. No new information.

– Judges may not be able to read all the material in the appendices. Therefore, the text portion must contain all pertinent information in a clear and concise manner.

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Format• Limited to 20 pages, including the executive

summary and summary financial data. – Typed, double-spaced– 12-point font– 1-1-1-1 margins– Numbered pages

• In total, the plan is limited to 30 pages.• Hard copies of business plans should be

professionally bound. • Soft copies of business plans should be in a

SINGLE .pdf document

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To Stand Out…

• Captivating idea with growth potential• Sustainable competitive advantage• Strong, core team • Logical go-to-market strategy• Sound financial plan

• Don’t give evaluators a reason to mistrust or disbelieve plan or the authors

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Typical Pitfalls• Core idea not linked to market need• Gross over-simplification of the issues• No credible go-to-market strategy• The “1% market share” objective• Team composition and experience• Sources and uses of funds• Unclear role for the audience, investor

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Challenges• Many plans are product- or

technology- centered rather than market-driven

– FIX: Focus on the real, supported market need

• Many plans are usually written in an academic style (read: boring)

– FIX: Put your passion for the business in the plan

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Challenges• Many entrepreneurs address

preparing the plan and giving the pitch as a necessary evil

– FIX: Treat “marketing” your company as essential as “running” your company

– FIX: View these opportunities for feedback as invaluable instances that will be difficult if not impossible to duplicate in the “real world”

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Challenges

• Oft-heard: “no way to do this in 20 pages”– FIX: Succinct and concise understanding

AND presentation of key issues is paramount

– FIX: View assembly of plan and presentation as much a communication challenge as it is a business issue

– NOTE: teams have NO option

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This is YOUR story

• Infuse delivery with personality and passion

• Not a “right” way to tell the story• Different aspects of a plan will be

emphasized differently for different types of businesses

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½ of the Business Model Answer

• What do you do? Value Proposition & Business Model

Distribution Sales Marketing Mfg Product Design

Technology

Raw Materials

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½ of the Business Model Answer

• How do you make money? Value Proposition & Business Model

Can you use a diagram for each of these?– Retail sales: direct to wholesalers– Internet sales: direct to customer– B2B: commercial purchase on terms– Licensing: per unit revenue, payable (?)– Consulting: fee for service or impact– Services: per unit charges

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Business Model

• Business Model integrates– Value created for the users– Target market

• the purpose of the product to those users

– Value chain – Sharing value across the network– Competitive strategy– Specify the revenue generation

mechanisms• cost structure, margins

REF: Open Innovation, Henry Chesbrough © 2003.

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Value Chain Implications• Creating and Capturing Value

– Number and power of players– Amount and type of “value” to be shared

Individual Drivers

Dealers OEMs Tier

Ones Lower Tiers

YourCompany

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Estimating Startup CostsSales

TimeDevelopment Transition Modest Growth

Working it backwards from the Steady-state numbers:• Obtain steady state costs (GS&A, etc, as % of sales from industry data)• Make costs constant over transition• Add development costs • Ramp down develop costs while ramping up operating costs

Costs

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• Top down and bottom up forecasts are complementary

• One is a reality checks for the other• Top-down forecasts:

– Usually industry analysts’ worldwide estimates for a large market, which are then split into segments by major product group, region or vertical industry

• Bottoms-up forecasts: – Build up revenue forecasts by defining the key

underlying variables and estimating how they will change over the next 3-5 years.

Top-Down & Bottoms-Up Forecasts

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Top-Down & Bottoms-Up Forecasts

• Are the assumptions realistic & believable

• Market timing & adoption rate assumptions are critical

• Does the methodology reflect deep understanding of the target market segments?

• How “close” are the to bottom-up and top-down perspectives?

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Mullins’ Assessment Framework

TEAMDOMAIN

Connectedness up, down, and across value chain

Ability to execute

CSFs

Missions, aspiration

s,Propensity

for risk

Market Domain Industry Domain

Macro-level

Micro-level

REF: The New Business Road Test, John Mullins © 2003.

MarketAttractiveness

IndustryAttractiveness

Target segments

benefits and attractiveness

Sustainable

advantage

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The Critical Success Factors

• Which assumptions are critical to the success of your business?

• What are the “big levers”?– Sensitivity analysis– Typically time (to develop and through

the transition)– Market size (total sales)

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Sensitivity Analysis

Value

14%

25%

3%

-1%

36%

14%

-2%

58

40

40

11%

40%

5%

5%

25%

10%

2%

45

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$- $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00

Time to max sales

Projected Sales max

Development Costs

COGS

SG&A as % of sales

Sales acquisition timing

Research Income Growth

DSO

Inventory Days

DPO

Low

HighBase Value: $41.67

12%

35%

4%

3%

35%

12%

1%

50

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Base

Next Session:Presenting Your Business

Plan

February 3, 200612:00 – 1:30

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