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Business Planning : 

Business Planning Richard DayMelbourne Ventures 3 August 2007

the Business Plan… : 

the Business Plan… What? Key Messages your reader must take away Typical Contents of a Business Plan Frameworks to guide your thinking Exit Strategy - begin with the end in mind Investment Proposition Random Thoughts

What? : 

What? What is a Business Plan? Dynamic document (not shelf-ware) A story Tool, used as... A thought provoker / reality check A means of capturing ideas An internal roadmap (goals and objectives) Sales tool An investment aid Governance aid Who owns it? CEO / GM / MD(who is held accountable for meeting it) Possible forms of the BP: Operational Plan Strategic Plan Investment Memorandum 2 page summary .ppt presentation

Key Messages you must convey : 

Key Messages you must convey We have a compelling product which meets a need in the market We understand the competition and the market We can execute We can make you a LOT of money

Typical Contents of a Business Plan : 

Typical Contents of a Business Plan Exec Summary (including objectives) Background Problem (what is the market need?) Solution (what is the product / service that will met this need?) Value Proposition / Why this solution (IP, performance, etc)? Market details including Competition Pricing / Marketing / Sales / Distribution Business Model (how make money from the solution) Team (Management and Board) Financials (projections), including use of funds Investment Proposition Next Steps (including Timeframes) Operational Plans

Using a ‘framework’ will organise your thoughts and give you prompts : 

Using a ‘framework’ will organise your thoughts and give you prompts Generic ‘Business Proposal’ The Four P’s of Marketing Benefit-based Model The 4 Investment Risks High Low

Framework 1: ‘Generic’ Business Proposal : 

Framework 1: ‘Generic’ Business Proposal Background Current Situation / Problem Issues Impacts The Solution Elements Benefits Qualitative Quantitative Implementing the Solution $ Time What do you need from me? Background? Current Situation / Problem? The Solution? Benefits of the Solution? Implementing the Solution?

Framework 2: The Four P’s of Marketing : 

Framework 2: The Four P’s of Marketing Features and Characteristics, Design, Packaging, Warranty etc. List price, Discounts, Financing, Leasing Locations, Market coverage, Logistics, Distribution channels, Coverage of Segments Key messages, Advertising, PR, Sponsorships Product Price Place Promotion

Introducing the ‘Rocket’ case study. : 

Introducing the ‘Rocket’ case study. Product: Building Management Software Usage: Management of Air-con, Lift, Electrical, and Fire assets within buildings or infrastructure What is it?: A GUI on a database of drawings, specification sheets and manuals Need? Benefits? Market / Marketing and Distribution? Strategy? Internal structure of company? Internal resources required? Cash required? Facts For Discussion today…

Framework 3.1: Benefit ModelBenefits arise when a need is matched by a feature : 

Framework 3.1: Benefit ModelBenefits arise when a need is matched by a feature Problem/Need/Desire Benefit Feature $ Market Consumers are willing to pay money for a valued ‘benefit’ A ‘benefit’ arises when a feature of a product/service matches a need in the marketplace Product (has features)

Framework 3: Benefit ModelThe External situation drives Internal focus : 

Framework 3: Benefit ModelThe External situation drives Internal focus Problem/Need/Desire Benefit Feature $ Internal focus External situation A simple way to consider a business is to view is as an entity that responds to (and seeks to exploit) situations in the marketplace. The external situation drives the internal focus of the business (its direction, structure and activities)

Framework 3: Benefit Model Step 1: Answer questions prompted by the External Situation : 

Framework 3: Benefit Model Step 1: Answer questions prompted by the External Situation Problem/Need Internal focus Benefit Features External situation What is the need in the marketplace? Exactly what should we sell? What are the benefits that arise for the customer? What form do the benefits take? Are these benefits sustainable? Who are we selling to? How should we price it? How many can we sell? How often can we sell? How long is the sale cycle? Is the market attractive? What barriers will we face? How do we position the product/service? What marketing will we need? How should we access the market? When do we need to launch? Market Examine the external factors to answer questions such as…

External Factors to consider at a high level : 

External Factors to consider at a high level Key Players and Events Demand (nature and extent) Competition (nature and extent) Environment (PEST) Cost structure of Industry Trends and Driving Forces Opportunities / Threats (an outcome of the above points)

External Factors to consider…Nature & Extent of Demand : 

External Factors to consider…Nature & Extent of Demand Nature of Demand Who – Define the customer? What – is the product or service? Where – Wholesale/retail? Purchase decision made? In value chain? When – Seasonal patterns, lead times? Why – why purchase? How – how purchase: tender? point-of-sale? cash? internet? Extent of Demand Market size and shares? Customer Segments and needs? Competitors? Trends? Gaps in Services? Substitute products / services?

External Factors to consider…Nature and Extent of Competition : 

External Factors to consider…Nature and Extent of Competition Nature of Competition Power of Buyers? Power of Suppliers? Threat of new entrants? Threat of Substitutes? Rivalry amongst existing competitors? Cost structure of the industry? Extent of Competition # of competitors Market shares Strategy and differentiation (Competitive Advantage) Strengths and Weaknesses Likely reaction

External Factors to consider…PEST : 

External Factors to consider…PEST PEST Political Economic Social Technological Trends and Driving forces

Framework 3: Benefit Model Step 1: Answer questions prompted by the External Situation : 

Framework 3: Benefit Model Step 1: Answer questions prompted by the External Situation Problem/Need Internal focus Benefit Features External situation What is the need in the marketplace? Exactly what should we sell? What are the benefits that arise for the customer? What form do the benefits take? Are these benefits sustainable? Who are we selling to? How should we price it? How many can we sell? How often can we sell? How long is the sale cycle? Is the market attractive? What barriers will we face? How do we position the product/service? What marketing will we need? How should we access the market? When do we need to launch? Examine the external factors to answer questions such as… Market

Framework 3: Benefit ModelStep 2: Use the External Situation to drive Internal Focus : 

Framework 3: Benefit ModelStep 2: Use the External Situation to drive Internal Focus Problem/Need Internal focus Benefit Features $ External situation When will incur these all of costs (at what stage of the development cycle)? When do we need money, and how much? How much will it cost us to produce our product / deliver our service? What pricing model should we use? What distribution model should we use? How much will it cost us to access the market? How will we raise awareness of our product with our target market? Given your understanding of the external situation, determine how the you will structure your business and design it’s functions/parameters so that it can meet the markets needs What is our strategy? What company structure do we need? What resources do we need (FPHOT)? How many staff do we need at what point? How much will admin expenses be? How much will product development be? How much will marketing expenses be? Product

Internal Factors to consider at a high level : 

Internal Factors to consider at a high level Key Players and Events Financials & Costs Company structure Resources (FPHOT) Financial Physical Human Organisational Technological Marketing Mix (4P’s) Strategy and Competitive Advantage Strengths and Weaknesses

Internal Factors to consider…in more detail : 

Internal Factors to consider…in more detail Business Functions: Management Finance Admin Marketing R & D Manufacturing Service delivery Maintenance Customer Service Logistics Sales Financials: ROI, Margins and Profitability Capital Expenditure Pricing model Price Elasticity Sensitivity Analysis Costs: Fixed and Variable Inventory Labour & Materials Distribution Plant Utilisation / Capacity Economies of Scale Quality

Framework 3: Benefit ModelStep 2: Use the External Situation to drive Internal Focus : 

Framework 3: Benefit ModelStep 2: Use the External Situation to drive Internal Focus Problem/Need Internal focus Benefit Features $ External situation When will we incur these all of costs (at what stage of the development cycle)? When do we need money, and how much? How much will it cost us to produce our product / deliver our service? What pricing model should we use? What distribution model should we use? How much will it cost us to access the market? How will we raise awareness of our product with our target market? Given your understanding of the external situation, determine how the you will structure your business and design it’s functions/parameters so that it can meet the markets needs What is our strategy? What company structure do we need? What resources do we need (FPHOT)? How many staff do we need at what point? How much will admin expenses be? How much will product development be? How much will marketing expenses be? Product

Framework 3: Benefit ModelStep 3: The ‘Financials’ from your external and internal work : 

Framework 3: Benefit ModelStep 3: The ‘Financials’ from your external and internal work Problem/Need Internal focus Benefit Features External situation Typical expenses: Staff Sales & Marketing Office space & furniture Computers and phones Electricity Admin Travel HR / Finance Typical Sunk costs Patents Tooling Mkt Research R&D Legal fees Other… Revenue - Cost of goods = gross profit - expenses = profit Typical Cost of Goods: Production costs Manufacturing costs Service delivery costs Revenue is derived from external demand and the internal capability to meet it Profit is derived from costs of directly achieving that revenue (cost of goods), and the support costs behind these (expenses) $

Framework 4: The Continuum of Investment Risks : 

Framework 4: The Continuum of Investment Risks People Identified? Under contract? Able to work with others? Appropriately skilled? Financial Capital requirements identified? Milestones met in the past? Cash positive? Profitable? Technological Reached proof of principle? Reached proof of concept? Working prototype produced? Commercial ready product produced? Market Customers identified? Customers contacted & requirements gathered? Validation by market (first sales)? Mass market uptake? …Write your plan in a manner that demonstrates how much risk has been removed / how much progress has been made in each of these 4 areas High is bad Low is good Risk

The Exit Strategy……Begin with the end in mind : 

The Exit Strategy……Begin with the end in mind The Exit Strategy May guide product development May guide marketing focus May guide alliances May guide go-to-market model, May guide pricing May guide distribution May guide sales regions Generic Exit Strategies include: Trade Sale IPO MBO/MBI Private Equity

Investment Proposition : 

Investment Proposition How much cash is required and when? What equity position is being offered for that cash? What is the likely return over what timeframe? What is the proposed exit & when?

Typical Contents of a Business Plan : 

Typical Contents of a Business Plan Exec Summary (including objectives) Background Problem (what is the market need?) Solution (what is the product / service that will met this need?) Value Proposition / Why this solution (IP, performance, etc)? Market details including Competition Pricing / Marketing / Sales / Distribution Business Model (how make money from the solution) Team (Management and Board) Financials (projections), including use of funds Investment Proposition Next Steps (including Timeframes) Operational Plans

Random Thoughts : 

Random Thoughts The Business Plan is only a representation of The Plan You must be able to verbalise The Plan in 20-60 seconds What is your business selling? To whom? Why they will buy it? How the business will make money? What is the Exit Strategy? Understand your audience’s drivers and decision criteria State your assumptions – be able to defend them! Investors back people, NOT ideas or plans

Final Thoughts : 

Final Thoughts It all starts with a need Use a framework Ask lots of questions Don’t be afraid to ask for help Have fun!

Recommended Reading : 

Recommended Reading www.guykawasaki.com Ernst & Young – Outline for a Business Plan

Thank you : 

Thank you

Appendix – Summary of q’s to answer : 

Appendix – Summary of q’s to answer What am I selling? What market am I operating in? (Nature & Extent of demand, competitors & strategies, trends) Why will the market purchase my product / what is the opportunity? Who am I selling it to? How much? How many? How am I getting it to them? (Marketing & Distribution, Channels, Alliances) What is my timeframe? What resources to I need to do this (FPHOT)? How much cash do I need? What am I willing to give away for it? When will I turn a profit / break even? How much money will I make? (Financials include - ROI, IRR, Cash, Bal Sht, P&L) Risks & Mitigators (?)

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