Chapter 11
The Business Plan
Copyright © Houghton Mifflin Company 11-2
Overview
• Some truths about business plans
• Feasibility analysis versus business plan
• Types of business plans
• Overview of the components
• Oral presentation
Copyright © Houghton Mifflin Company 11-3
Dispelling Some Myths
• A business plan means you can raise money
• A well-written plan = a better valuation and more money
Copyright © Houghton Mifflin Company 11-4
Some Truths
• There isn’t a customer you don’t have to convince
• Don’t use cliché approaches—hockey stick growth
• Seek the highest valuation needed to get the right amount of capital from the right investor
• Plan to outperform expectations
• Don’t put yourself in the position of having to start the business to answer key questions
ttTimeline
Go Forward/ReworkGo Forward/Rework
Product/Service Development & Management
Product Service Risks/Benefits
Market/Distribution Risks/Benefits
Opportunity Environment—Industry-Concept
Competition Grid
Custom
er
Definiti
on
Market Analysis
Industry Status
Pattern
s of
ChangeConcept
Statement
Financial Risks/Benefits
Team
Feasibility: Test the Concept
Customer Test
IP
Devel
opm
ent
tt
Business Plan: Build the Company From the Inside Out
Marketing
Produ
ctio
n
Finance
Core ContributionsCore Contributions
Core Business
Extended Business
Opportunity Environment
Suppliers
Con
sulta
nts
Mon
ey
Government
Capital Markets
Values Purpose
Mission
Customers
OEMs
Com
petit
ors
Copyright © Houghton Mifflin Company 11-7
Feasibility Study versus Business Plan
• Feasibility = screening opportunities to decide the conditions under which you are willing to go forward
• Business Plan = execution plan for implementing the business
Copyright © Houghton Mifflin Company 11-8
Purpose of the Business Plan
• Reality Check—What’s it going to take?
• Living Guide to the Business
• Statement of intent for third parties– Investors– Bankers/lenders– Potential management– Strategic partners– Suppliers
Copyright © Houghton Mifflin Company 11-9
Bankers/Lenders
• Margins – How much room for error?
• Cash flow– Can you pay them back?
• Qualifications and track record of management team– Do they have what it takes to execute
the plan?
Copyright © Houghton Mifflin Company 11-10
Investors
• Predictors of growth
• Qualifications and track record of the management team
• Deal structure
• Exit
Copyright © Houghton Mifflin Company 11-11
Strategic Partners
• Growth plans indicate potential business
• Ability to pay
• Future management
– Where do they fit in?
Copyright © Houghton Mifflin Company 11-12
Types of Business Plans
• The traditional plan– About 20 pages plus appendices
– Inductive approach
• The e-commerce business plan– Timeline to launch and trigger points for rapid growth
– Technology standards
– Software and hardware needed to operate
– Internet service provider and capabilities
– A storyboard of the product or service
Copyright © Houghton Mifflin Company 11-13
What Every Plan Needs
• What need is being served?
• Do you have a team that can serve that need?
• Why is now the right time to launch this business concept?
• Can you make money at it?
Copyright © Houghton Mifflin Company 11-14
The Components
• The business concept
• The industry/market analysis
• The founding team
• Operational analysis
• Organization plan
• Technology plan
Copyright © Houghton Mifflin Company 11-15
The Components (cont.)
• Marketing plan
• Financial plan
• Contingency plan
• Growth plan
• Deal structure
Copyright © Houghton Mifflin Company 11-16
The Executive Summary
• Arguably the most important part of thebusiness plan
• Stimulates an investor, bankers, or other interested party to read the business plan
• Should be no more than two pages
• Contains the most important points from all sections of the plan
• Must capture the reader’s attention instantly
Copyright © Houghton Mifflin Company 11-17
For a Business Plan to Be Successful…
Copyright © Houghton Mifflin Company 11-18
You Must Tell a Compelling Story
• How do you plan to change the world?
• How will you solve the customer’s pain?
• Who are you?
• What have you done?
Copyright © Houghton Mifflin Company 11-19
You Must Move in with Your Customer
• Talk with the customer
• Shadow the customer
• Put the customer on your development team
Copyright © Houghton Mifflin Company 11-20
You Must Have a Pricing Strategy
• Who’s doing what in your market and why?
• Don’t compete on price; compete on value
• Margins are everything
• Justify what you’re asking
Copyright © Houghton Mifflin Company 11-21
You Must Support What You Claim
• Primary and secondary research
• Cite your sources and interrelate
• Don’t rely on one source
• Talk to strangers
Copyright © Houghton Mifflin Company 11-22
What Business PlansLook Like Today
• Shorter
• Larger appendix
• Bigger focus on intellectual property and other intangible assets
• Demonstrate use of technology as a competitive asset
Copyright © Houghton Mifflin Company 11-23
Technology Plan
• Because technology may be at the core of your concept– IP: patents, trademarks, know-how
• Because technology enables the achievement of business goals– Expands possibilities– Creates efficiencies– Facilitates information sharing
Copyright © Houghton Mifflin Company 11-24
Bottom Line
• The business plan carries your vision
• The business plan is an execution plan
• The business plan demonstrates that you know what you’re doing
Copyright © Houghton Mifflin Company 11-25
Oral Presentation
• Answer the fundamental questions
• Be under a half hour
• Catch the audience’s attention in the first sixty seconds
• Involve the key members of the founding team
• Demonstrate the product or service where possible
Copyright © Houghton Mifflin Company 11-26
Take-Aways
• List what students took away from the discussion in real time