Business Plan Workshop Final

Business Plan Workshop : Business Plan Workshop


Agenda : Agenda Introductions Overview of a Business Plan (10 – 10:10 AM) Drilling into the detail: (10 –11:20 AM) Executive Summary Strategy The Market The Product Sales and Promotion Financial Statements Example Business Plan Presentation (11:20 – 11:30 AM) Lunch (11:30 – 12:00 PM) Team Breakout Session – Workshop (12 – 1:30 PM) Summary Presentations from Teams (1:30 – 2:30 PM) Q & A and feedback forms


Introduction : Introduction What is a business plan? A Business Plan is the document you create that details your business’ history, current standing and future plans The business plan is the first document that most investors will see about your company


Introduction : Introduction As an Entrepreneur – at what stage should you write a business plan? How does investing generally work? Angel/Seed, Series A, Series B, etc … How does ownership work as an entrepreneur: Your idea Investor’s stakes Exit Strategy


Sections of a Business Plan : Sections of a Business Plan Executive Summary The Company Strategy History Management Team The Market Product and/or Service Sales and Promotion Applying Technology Business Risks Summary Financial and Operating Statements Appendix


Executive Summary : Executive Summary A brief synopsis--two pages maximum--of the business concept Provides a clear initial understanding of your business and its validity Needs to stand on its own as a description of your business Must capture the reader’s attention making them want to learn more It is not: An abstract An introduction A preface A random collection of highlights It will help you: Crystallize your thoughts Set priorities Provide foundation for the complete plan


Executive Summary : Executive Summary An example (portion): Intellichild.com “IntelliChild.com offers bright children an entertaining place to interact with each other, the Web, educators, and the world in general. It generates traffic first, valuation for investors, and eventually commerce and profits. It is a healthy place for kids to play, for parents and schools to buy, and a creative and fair work environment for employees. The IntelliChild.com e-commerce project is the natural evolution for the IntelliChild.com Internet presence. The site will market and sell selected toys, books, and software products. It will also produce Web products and Web applications that will increase market share, promote name recognition, and maximize efficiency.”


Executive Summary : Executive Summary An example (portion): Take Five Sports Bar and Grill “Take Five Sports Bar and Grill has established a successful presence in the food and beverage service industry. The flagship location in suburban [Anytown] will gross in excess of $2 million in sales in its first year of operation, ending July 1996. First year operations will produce a net profit of $445,000. This will be generated from an investment of $625,000 in initial capital. Since 10 months of operations have already been completed the confidence level for final first year numbers is extremely high. The first 10 months of start-up costs, sales revenues, and operating expenses are actual. Expansion plans are already underway. Owner funding and internally generated cash flow will enable additional stores to open. Sales projections for the next four years are based upon current planned store openings. Site surveys have been completed and prime locations have been targeted for store expansion. The sales figures and projections presented here are based upon an additional four store locations at the most premium sites available in the [Anytown] Metro market area as well as a prime resort location in Destin, Florida. This plan will result in sales revenues growing to $25 million by FY2000 and generating net income in excess of $5.6 million.”


The Company : The Company This section addresses the key elements of your company: Your strategy Your identity Your philosophy It is about your future, past, and present


The Company’s Strategy : The Company’s Strategy Strategy is a buzzword that is often overused by consultants Strategy is: Your company's approach to producing and selling its products/services Your goals to maximizing success – success is defined as maximizing shareholder value Your "business model"--its approach to the market and sales, and how will that change? It is critical that your strategy is realistic - if your business has grown at 10% a year for the past four years, and you now project 50% annual growth, you must to justify the change


What is Strategy? : What is Strategy? Operational Effectiveness Doing things right Focus on improving overall execution and efficiency of the firm Goal is to imitate the “best of breed,” by benchmarking, adopting “best practices,” or outsourcing. This is necessary to maximize profits, but is not sufficient to create competitive advantage on its own. Strategy Doing the right things Focus on strategic exploitation of unique opportunities in the market Goal is to be different from competitors, with a mix of activities and products that delivers a unique source of economic value. This is the key to competitive advantage


What is Strategy? : What is Strategy? Position What distinguishes our offerings. Customers Who we sell to. Scope How many things we sell. Where we sell them. Products What we sell. The CEO can be thought of as the “evangelist’ for and “guardian” of the business model. But all employee decisions impact its success and should be guided by it.


Why all this focus on uniqueness? : Why all this focus on uniqueness? The “holy grail” of business strategy is find a way to win business other than lowering price. Why? Because price competition is a lose/lose game. It doesn’t stop until profits drop to zero. Only with a unique competitive advantage can firms generate sustained economic profitability. So, strategy is about identifying and evaluating potential sources of competitive advantage.


Examples of competitive advantage : Examples of competitive advantage Carve out a niche market position: Deliver unique economic value by serving customers and performing activities that competitors are unable to match. Emphasis is on focus of activities: aimed at dominating a particular market niche within the broader industry. Example: Enterprise Rent-A-Car Exploit distinctive resources: Deliver unique economic value by exploiting strategic resources (assets/capabilities) that competitors do not have. Emphasis is on breadth of activities: aimed at re-using distinctive resource in many different products and markets. Example: Walmart


Enterprise Rent-A-Car : Enterprise Rent-A-Car Privately held company located in St. Louis, Missouri, with about $4.7 billion in revenue and 40,000 employees in 2000. Largest rental car company in the United States. Number 1 in revenue, fleet size, and locations. 25 percent annual growth for over 10 years Widely believed to be number 1 in profitability. “An industry adage states that there are two types of rental car companies: those that lose money and Enterprise.” – Jordan Hymnowitz, industry analyst with Montgomery Securities


Enterprise has a unique position in a highly competitive industry : Enterprise has a unique position in a highly competitive industry The “Airport 7” (Hertz, Avis, National, Budget, Alamo, Dollar, Thrifty) Positioned as car for use on travel (~60% of the rental car market). Reliance on costly rewards programs to garner loyalty with end customers Ubiquitous airport locations; few non-airport branches. Large fleet that turns over frequently: cars remain on road for short periods of time. High prices Enterprise Rent-A-Car Company, Inc. Positioned as replacement car for repairs or body work(~40% of the rental car market). Cultivates relationships with body shops, insurance agents, and auto dealers. Fewer airport locations; many non-airport branches. Smaller fleet: sophisticated computer network keeps track of cars. Cars remain on road longer. Low prices (30 percent below Airport 7)


Value Creation and Value Capture Framework - “B, C, P, and Q” : Value Creation and Value Capture Framework - “B, C, P, and Q” “Q” – Number of Consumers “B” – Consumer Benefit = Maximum Willingness to Pay “P” – Price Charged “C” – Firm Cost B – P = “Consumer Surplus” P – C = “Value Captured” B - C = “Value Created”


So, profitable business strategies generally do one of the following: : So, profitable business strategies generally do one of the following: Increase B. Decrease C. Find ways to avoid price competition. Each of these can generate a competitive advantage. Then, the even bigger challenge is how to sustain the advantage over time.


The Company – your history : The Company – your history This is the background of the business This is usually brief and should include: How you came up with the idea for the business The date you were founded, how long you have been in business Key milestone dates – first product, first customer How have you succeeded – rounds of financing Basic principles you use to run your business Do not: Spend 10 slides discussing your PhD


The Company – your team : The Company – your team A key part of your company is the management team This should include: CEO / president (the visionary in the company) CFO (a finance person) COO (an operations manager) VP Sales VP Marketing CTO / VP engineering / VP R&D You may not have all the roles filled out, and if not state that you are looking to fill out the role


The Company – your team : The Company – your team This team must have what it takes to enable the company to fulfill its strategy Investors look very closely at the management team, and evaluates the likelihood of success based on what the members of the team have accomplished in the past When describing the management team make the most of your resources – education, work experience and capabilities The two most common management team problems are: The "one-man-band" syndrome. The company has no management team because the president won't delegate or bring qualified senior people aboard Everyone comes from same background


The Company – your team : The Company – your team Advisory Boards are a critical component for a successful business Find industry experts, leaders, professors, financiers to be on your Board of Advisors They provide credibility to your product and strategy Use them for ideas and sanity checks – they are a valuable part of your team


The Market : The Market This is the most important and longest section of your plan The “market” is the place where you plan to sell your products The “market” is defined by: Your targeted customers (individuals or companies) The size of that group today The size it is expected to be in the future The portion of it that your product/service will capture ($, and space)


The Market : The Market The goal for this section is: Demonstrate the demand for your product Prove that this demand is growing Show that your product or service can capture enough of the market to support your company


Market Research : Market Research What is the value of Market Research? Good business decisions can be made without Marketing Research (eg. Sony Walkman succeeded) Marketing Research provides value because it offers a process within which business alternatives can be objectively evaluated, so that more good decisions and fewer bad decisions can be made


Market Research : Market Research Market Research is used to determine three things: Are there enough potential customers to support your business and the growth you expect? Is the market growing or shrinking? Can your product provide the potential customers with an opportunity for delight or reduce a source of dissatisfaction?


Market Research : Market Research Two types of market research: Primary Research: Conducting/commissioning your own research Using Focus groups, surveys, observation There is no substitute for actually talking to potential buyers of your product and understanding how your product or service will meet their needs. Secondary research: Using pre-existing research data industry profiles, trade journals, census data, and demographic data. Available online, from industry associations, chambers of commerce, government agencies and vendors


Market Research : Market Research Market Research should address the questions your investors are wondering: What is the total size of your market? (Domestic and Int’l) What percent share of the market do you expect to acquire? What is the level of demand in target market for your offering? What is the growth potential and opportunity for a business of your size? (Define growth as either a percentage or in total dollar volume)


Market Research – Web Analytics Market : Market Research – Web Analytics Market


Market Research – Customer Segment : Market Research – Customer Segment What are the defining characteristics (aka “demographics”) of your target customers? You may have more than one customer group. Identify the most important groups. Then, for each customer group, construct what is called a demographic profile: Age Gender Location Income level Social class and occupation Education For business customers, the demographic factors might be: Industry (or portion of an industry) Location Size of firm Quality, technology, and price preferences


Market Research – Customer Segment : Market Research – Customer Segment A real-life bad example: Company pushing mobile devices to deliver messaging around medication schedules by providing a music service (yahoo) and adding targeted messaging around that Selling a $120 device (devices 2+ yrs old), with $45 per month subscription Selling to families w/ > $75K annual income Only people who can afford the device are those with >75K income Those people have iPods etc – why would they buy this older, limiting device People who would take the device cannot afford it


Market Research – Customer Segment : Market Research – Customer Segment A real-life better example: Webtrends – the first real commercial provider for web analytics software Targeted small companies, basic web sites and departments within large companies To avoid all the necessary due diligence required with purchasing large $ software products, they sold their base product for about $5,000 Foot in the door in almost every company, and then they expanded their offering for large companies that could amount to $150,000 Clearly understood their initial customers, the issues with new technology, the decision makers and the value of becoming an entrenched technology over time


Market Research – Barriers to Entry : Market Research – Barriers to Entry What are the greatest entry barriers you face in entering this market with your new company? And how will you overcome them? Some typical barriers include: High capital costs High production costs High marketing costs Consumer acceptance and brand recognition Training and skills Unique technology and patents Unions Shipping costs Tariff barriers and quotas How could changes to the following impact your company? Technology innovations Government regulations Economic Recession / Boom New competitors


Market Research – Competitive Analysis : Market Research – Competitive Analysis Determine what products and companies will compete with you List your major competitors Will they compete with you across the board, or just for certain products, certain customers, or in certain locations? Describe their limitations and how your company will counter the competition Will you have important indirect competitors? (For example, video rental stores compete with theaters, although they are different types of businesses.) How will your products or services compare with the competition? How will your prices compare with the competition?


Competitive Comparison : Competitive Comparison Use Competitive Analysis tables (shown below) to compare your company with your competitors. Be honest here. Don’t try to be all things to all people. Target your niche and focus on the features and benefits you offer


Your Niche : Your Niche Now that you have systematically analyzed the market for your offering – your industry, your product, your customers, and the competition, you should have a clear picture of where your company fits into the world In one short paragraph, define your niche, your unique corner of the market – the piece of the pie that you will own and that will drive your revenue


Marketing – Product Features : Marketing – Product Features In the Products and Services section, you will describe your products and services as you see them Now describe them from your customers’ point of view Features and Benefits List all of your major products or services. For each product or service: Describe the most important features. What is special about it? Describe the benefits. That is, what will the product do for the customer? Note the difference between features and benefits


The Product - Description : The Product - Description Describe your product or service as completely as possible Include features, important technical specifications, patent (current or pending) information Technical specifications, drawings, photos, brochures, and other bulky items belong in Appendices What factors will give your offering a competitive advantage? (e.g. level of quality or unique and proprietary features) Describe whether the product will be produced in-house (What is your COO’s producing expertise) or outsourced (Give details about your manufacturing partner) How do you plan to scale quickly as demand grows? What is your plan B in case of an unexpected production delay?


Product Pricing : Product Pricing This is a challenging issue for any business It's partly a function of what your target customer is willing to pay and partly a function of what the competition can charge Having the lowest price is not necessarily a good policy. It robs you of needed profit margin; customers may not care as much about price as you think; and large competitors can under-price you anyway. Usually you will do better to have average prices and compete on quality and service Remember: Goal is to capture the maximum Value –> “(P)rice – (C)ost”


Product Service / Maintenance : Product Service / Maintenance Your company cannot have one product, and cannot survive without ongoing service/maintenance for that product Customers are going to ask for enhancements, guarantees, new features Its possible to turn after-sales service into a separate profit center e.g. Labview Describe exactly how you will provide after-sales service--and who will pay for it Explain what warranties, guarantees, repair service, and quality control mechanisms you will have in place


Sales and Promotion : Sales and Promotion Sales and Promotion is different from Marketing Marketing focuses on finding out how to appeal to your target customer and reaching out to them…it is the “what” and “who” …Sales and Promotion focuses on “how” you convince your customers to buy from you. You should have an overall sales and promotion strategy For example, you may plan to rely heavily on direct mail to generate leads for your in-house sales force, with advertising as a supplementary "brand-building" exercise. Such an overview should introduce this section of the plan


Sales and Promotion : Sales and Promotion Explain and justify your selling approach or approaches: An in-house sales force Independent sales reps (Avon, Amway model) Indirect sales through partners/agents (IBM, Car dealerships) Direct mail (mail order, Web, catalog) Wholesale (grocery stores, retailers) Consider methods other than paid advertising, such as trade shows, catalogs, dealer incentives, word of mouth and network of friends or professionals Public relations tends to be more cost-effective than advertising Advertising is more manageable, but also more costly Promotions include giveaways, special events, and discounts for referrals


Advertising : Advertising Here are some questions to consider about advertising: What kind of advertising mix can you use to best reach your target market? What creative strategy will you use to get your point across to your target market? Are there other advertising campaigns that are similar to the one you have in mind? If so, you might want to include some examples in an appendix. What are the major criteria you will use to select an advertising agency or public relations agency?


The Web Influence : The Web Influence The Internet--both the Web and e-mail--has become an important sales channel for many companies You should provide information about whether the Internet will be a sales channel for you Explain how you will sell via the internet Explain how you might advertise using the internet – google ad-words etc Describe how your sales approach will supplement your conventional efforts If you don't see the Internet as being important to you, you should explain why not.


Applying Technology : Applying Technology For non-software or technology based companies you need to add a section that addresses how you will leverage technology This can be to improve operations, improve communication, create “knowledge” environments where people can share ideas – e.g. Bank of America, improved marketing, reduce HR costs by participating in online programs Describe how your company plans to use technology to improve its overall efficiency and effectiveness


Business Risks : Business Risks In this section of the business plan, you will try to point out key potential business risks you face in opening or operating your small business. Your challenge is to communicate those risks with the right perspective. They should be described accurately, but not in a scary way so as to potentially scare prospective investors. Here are some questions to consider: If your business is a new concept, will your target market be willing to try something new? How will you convince them to change their current way of thinking? What do you plan to do if you do not meet your projections for sales or profits? What if your competition tries to undermine your entry into the field? What operating problems might occur? And be prepared on how to potentially address them


Finances : Finances This is where you present your company's financial history and projections Do not be overly creative in this section of your plan You should be "vanilla-flavored“ – Present your finances in the standardized manner to which accountants and investors are accustomed Provide past results (if applicable), and two to three years of projections (pro forma)


Financial Summary - example : Financial Summary - example Dolly's Bike Shops State the financial goal for Dolly’s Bike Shops: The shop-opening schedule for Dolly's Bike Shop is to have 17 shops open after year 5 with sales volume at the end of year 5 at $17.6 million. Support goals based on conservative estimates of the expectations for market receptivity, expenses, and other factors. Specifically detail plans for opening add’l bike shops for each quarter by quarter over the next five-years. Include all expenses of getting your business up and going.


Finance – Cash Flow : Finance – Cash Flow Cash flow refers to the amounts of cash being received and spent by a business during a defined period of time, sometimes tied to a specific project. This is very important for describing the health of the business because although you may have made $1000 in sales, you still may have to wait to collect that cash (due to the terms you have with the customer).


Finance – Income Statement : Finance – Income Statement Income statements for companies indicate how Revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into Net Income (the result after all revenues and expenses have been accounted for, also known as the "bottom line"). Also called Profit and Loss Account (P&L)


Finance – Balance Sheet : Finance – Balance Sheet A balance sheet is a statement of the book value of a business at a particular date A balance sheet is often described as a "snapshot" of the company's financial condition on a given date. Of the basic financial statements, the balance sheet is the only statement which applies to a single point in time, instead of a period of time


Appendices : Appendices Appendices should include any items relevant to your business plan and work as support material This might include: market research data surveys of competitors' pricing references for the management team a media plan sample advertising programs consulting firm reports detailed technical specs


Summary : Summary Business Plan Overview Breakout: Lunch Groups- start working on your mini-biz plan Presenting your mini biz plans Q & A


Judges : Judges Jeff Coney Jeff Coney serves as Northwestern University's Director of New Business Initiatives and leads the day-to-day operation of ITEC- Evanston. In this capacity, he helps to define an overall strategy for faculty-initiated startups, assists university faculty and researchers in commercializing technology, and works with various regional based early stage technology companies. Prior to joining the University, Coney spent 14 years as a local software entrepreneur. He co-founded Facility Management Systems, Inc., a local software company, which was sold in 1996. He has also had prior employment with Niku Corporation, Metropolitan Structures, The City of Chicago and Arthur Andersen. Mr. Coney holds B. A. and MBA degrees from Northwestern and is a CPA. He also holds a Certificate in Web Commerce from DePaul University. In 2003, he was named to I-Street? Top 100 in Chicago Technology.


Judges : Judges Bret Johnson Bret Johnson is the director of the Homeland Security Innovation and Entrepreneurship Center (HSIEC) at Northwestern University. Bret is responsible for managing HSIEC services, creating partnerships and generating programming for the center in conjunction with the Illinois entrepreneurial community, and leading business and market intelligence initiatives for the center. Previously, Bret served as assistant director of the Illinois Technology Enterprise Center (ITEC) at Northwestern University, in Evanston, Ill., from 2000 to 2005. There, he helped launch and build programming for Illinois’ first ITEC. Bret provided strategic guidance and technology commercialization assistance to companies in the areas of advanced materials, communications, software and other physical science related technologies. Prior to joining ITEC, Bret held positions in a variety of industries including satellite manufacturing, defense electronics and telecommunications at GE Astrospace, Northrop-Grumman and 3COM. He received a Master of Arts in Science, Technology and Public Policy from The George Washington University with a focus on technological management and innovation, technology policy and space policy. He also holds a BS in Mechanical Engineering from Rensselaer Polytechnic Institute and a Master of Science in Aeronautics and Astronautics from Stanford University.


Appendix : Appendix Appendix