Week 4 Business Plan[1]

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XLB18-6 Entrepreneurship Lecture 4 Business Plan Bedfordshire Business School University of Bedfordshire

7 Key Tests of Opportunity:

7 Key Tests of Opportunity Does the opportunity match my experience, skills and interests? Can I recruit and lead the team needed to exploit the opportunity? Do the resource needs of the opportunity shorten the odds on success? Is the timing of the opportunity right? Does the opportunity constitute a scalable and saleable business? Does the opportunity offer good margin potential? Am I developing an opportunity or simply an idea ?

10 Key Questions for a Plan:

10 Key Questions for a Plan Where are you now ? What is your product or service ? What is your market ? How will you reach your market? Whom will you be competing against? How will your product be produced ? Who are the people ? What are you financial projections ? How much money do you need? What are the risks ?

The Market Plan:

The Market Plan

Two Big Questions:

Two Big Questions WHY is this market attractive? HOW will this product connect to that market?

Questions to ask yourself:

Questions to ask yourself Size Is my market large enough to allow different competitors the opportunity to serve different segments without getting in each other’s way? Growth What are the predictors for my market’s short-term growth rates? (Recent rate of growth) What are the predictors for your market’s long-term growth rate?

More Specific Questions::

More Specific Questions: What sort of business do you want? Big growth potential or lifestyle/niche player? In how many ways have you measured the size and segments of your market? How fast has it grown over the last 3 / 5 / 7 years? How quickly will it grow in 0.5 / 2 / 5 / 10 years? What trends can you identify as relevant, and what effect will they have on your business: economic, demographic, socio-cultural technological, regulatory, technological, regulatory, environmental, etc….

Big Question 1::

Big Question 1: WHY is this market attractive?

What investors want to know:

What investors want to know What return will I get? Most ventures fail, so each success must be very big 10x investment over 5 years 60% annual return No (legal) businesses ever do this well Fast early growth in large market Then move on to the next stage SCALE

Convert Interest into Sales:

Convert Interest into Sales Every new venture has to build a bridge to its market; how is your bridge constructed? Answer this directly, specifying HOW you are going to get to your market and HOW much it will cost, given the PRODUCT itself the marketing and PROMOTION activities you plan the PRICING strategy you plan

Convert Interest into Sales:

Convert Interest into Sales Other more specific considerations: Selling tactics Choice of sales method – in house sales force, out-sourced sales force, telemarketing, etc Role of wholesalers and retailers Mix of methods and their rationale Promotional techniques Mechanics of promotion: direct mail, trade fairs, media coverage, “pounding the pavement”, WOM targeting potential customers Promotional budget Distribution methods Order processing and fulfilment Physical stockholding and despatch Use of outsourcing Projected volumes and variations CONSIDER: COST and FIT of everything

Big Question 2::

Big Question 2: HOW will you connect to your market?

What investors want to know:

What investors want to know Can they do it? Have they thought about HOW to do it? Are they considering appropriate details? Does the economic model work? Have they got a contingency plan? SUSTAINABILITY

Operational Plan Where you should be by now:

Operational Plan Where you should be by now What are you selling fairly evolved Who will buy it fairly evolved HOW will it happen today

HOW will it happen? The Business Model:

HOW will it happen? The Business Model Identify macro environment Identify Key Success Factors MATCH macro environment to KSFs MATCH value proposition to business model

MATCH value to business:

MATCH value to business Macro Environment Use a Pestel, Porter or similar analysis In SUMMARY form (details in appendix) KSFs The industry / Product / Service The Company and the Concept The People Entry and Growth Strategy Whatever they are, make them sound clear and connect to each other

Simplistic Example:

Simplistic Example “Growth in this industry has been 10% per year for the past two years; sales which match that will result in expanding margins.” Month 1 12 24 Sales 100 110 121 COS 50 50 50 Profit 50 60 71 Margin 50% 55% 59%

Operations Plan:

Operations Plan Operating Cycle Geographic Location Facilities and Improvement Strategy and Plans KEY Regulatory and Legal Issues

Prioritising Information:

Prioritising Information Prioritise your info in Three Categories: Essential : without this the plan makes no sense Good to Know : directly supports and gives context to your essential points Interesting : provides a higher level of understanding of market dynamics, industry, etc. but may not relate directly to the nuts and bolts. PUT IN APPENDIX . Advance vs enhance

The last building block:

The last building block Financial data is not the business plan Aim: set out the financial implications of your strategy provide measurement evidence financial requirements Keep the details to the appendices sales forecast cash flow P & L and balance sheet breakeven analysis Data required minimum 2 years Cash flow monthly P & L quarterly balance sheet end of year Break-even


Financial narrative in the plan should relate to: key assumptions, especially sales growth sensitivity of forecast to any variables that may affect price, volume, etc. hence pessimistic to optimistic Cash flow hence cash requirements and related factors Capital investment and payback Financial requirements and where financing will go Warning!! Make sure the figures line up against the industry Do not be over optimistic – sales growth trends, number of months (years?) to breakeven Make sure all the figures hang together – this reflects the other parts of the plan & how “joined up” they are

Relating back the strategy to the financials :

Relating back the strategy to the financials Get operational quickly - cash Get to break-even quickly to generate cash Revenue – emphasise VALUE through CONCRETE messages re performance and solving problems & INTANGIBLE service re personal selling and committed people in key places Costs – don’t underestimate costs, e.g. in marketing and have a contingency in place for the unexpected (risk assessment) Be flexible as possible over resourcing and get people who can grow with the business Remember: Cash is reality, Profit is sanity, Sales are vanity


REMEMBER……… The numbers in the plan do not really matter, but the economics of the value proposition and the business model matter enormously The PROCESS of thinking must be captured somehow: notes, assumptions, appendices, etc…. BUT The PRODUCT must be clear, concise and connected

A pause for reflection…:

A pause for reflection… Gaining market acceptance, finding space and developing suppliers all test the same thing: Your credibility An essential skill in overcoming these obstacles is to be able to sell your business and your vision for it. Entrepreneurial success lies in creating the illusion of reality instead of reality itself!

Forecasts are Never accurate:

Forecasts are Never accurate Sales fall below budget product releases run late Costs are higher than expected Learning benefits feed through very gradually Break-even timetables lengthen In a new venture forecasting uncertainties are compounded by: Little or no historical information with which to work No real evidence of the pattern of sales or market activity No benchmark against which to test projections The inherent riskiness of applying previous experience in a new venture context

Chasing Turnover:

Chasing Turnover Imagine a situation in which… Your forecasts are unravelling Costs are running ahead of budget Cash is tight, break-even is not in sight, etc. etc…. How would you respond? MAKE SALES

Chasing Turnover:

Chasing Turnover But, beware the danger of “buying” turnover by… Launching too many special pricing offers Increasing discounts too far Selling to customers you normally wouldn’t deal with Extending the product/service range too far Not charging for support/after-sales service Doing too many of these at once In other words, don’t put too much pressure on margins…now or in the future.

Chasing Turnover:

Chasing Turnover Beware also the “ cost complexity spiral ” The overhead is killing us in the market By adding more products we’ll spread the overhead Adding more products increases complexity & costs

Chasing Turnover:

Chasing Turnover Building the business successfully entails… Learning to say no: a real sign of maturity Protecting margins while generating sales Maintaining clarity of purpose and focus Keeping financial disciplines tight And, being continually on guard against the impact of break-even creeping away from you

Internet Sources:

Internet Sources www.bplans.com www.us.deloitte.com/growth www.mit.edu/entforum www.Business-Plans.com/bplans.html www2.inc.com/writing-a-business-plan/ www.businessplans.org www.sba.gov/starting/indexbusplans.html

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