Business Planning

Paulo Soares de Pinho

FEUNL

March, 19 2014

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Key Elements

• The Opportunity

• The Context

• The Team

• The Deal

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It is not the technology - only

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Business Plans

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The Business Plan

• At startup phase the business plan becomes a critical element of the entrepreneurial venture – To attract financing

• To determine financial needs

• To determine pre and post-money valuations and capital structure

– To show that entrepreneur has carefully evaluated the opportunity • Market size; competitive products; competitors

• Strategic and financial aspects

• Adequate risk evaluation

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Why is the Business Plan so important?

• Business plan is a crucial exercise – For entrepreneurs

• To evaluate CAPEX and OPEX requirements

• To determine financing needs

• To value their venture

– For finance-providers, to evaluate entrepreneurs: • how much do they know about their business, market size,

etc?

• How careful were they at estimating their sales potential, margins, CAPEX, OPEX and financing needs?

• Have they clearly anticipated sources of risk?

• How much attention did they pay to important details?

“Plans are

nothing.

Planning is

everything”

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The Opportunity and its business model

• The Vision

– Clearly specify your vision for the new venture, i.e., your ambitions for your venture

– Vision characteristics

• Short / focused statement

• Able to survive the friction of time – but adjustable

• Unique – special to your venture

• Purpose: provides rationale for venture’s existence

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Vision statements

• BMW Vision Statement (an old one) – To become most successful premium manufacturer in the car

industry.

• Pepsi Co Vision Statement – PepsiCo’s responsibility is to continually improve all aspects

of the world in which we operate – environment, social, economic – creating a better tomorrow than today.

– Our vision is put into action through programs and a focus on environmental stewardship, activities to benefit society, and a commitment to build shareholder value by making PepsiCo a truly sustainable company.

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The Venture’s Mission statement

• The mission statement will describe the company’s goals, products / services and target customers as well as the deliverables for the different stakeholders. – Characteristics:

• Short: 100 words or less • Should provide a clear path to achieve company’s vision • Clear, concise explanation of company’s purpose, values, goals,

customers (Channels?),

• A Mission Statement defines the company's business, its objectives and its approach to reach those objectives. A Vision Statement describes the desired future position of the company. Elements of Mission and Vision Statements are often combined to provide a statement of the company's purposes, goals and values. However, sometimes the two terms are used interchangeably.

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Product’s Value Proposition

• Clearly state the value your offer to your customers – Product: superior product characteristics that are valued by

the clients – Access: How does the consumer get access to it – Service: What service you offer besides the product – Security: how safe is your product – Other benefits – Price: how does your price compare with the benefit you

offer to the customer?

• In short, lists your customers’ perceived benefits from your product and how much they have to pay for them (of course, you need to listen to them first)

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Some value-propositions

• Starbucks – We provide a friendly, comfortable, well-located place

offering a wide range of fresh, customized coffees, teas and other beverages for the person who enjoys a good experience and a good beverage.

• Google search engine – Fast, relevant results for the most ill-described query.

• Amazon.com (an old one) – An easily accessible internet site that is convenient all

of the time to provide a wide selection of books, CD’s and videos at a fair price to the busy, computer-literated customer

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The Business Model • Customer Selection

• Value Proposition

• Competitive Advantage

• Products and services

• Organisational Design

• Value capture

• Talent

• Who is the customer? • Is our offer relevant to this group?

• What are our products unique benefits?

• What are our sources of competitive

advantage? Is it sustainable? • How do we differentiate ourselves? • What is our product range? • What elements of the value-chain we want to

control and which do we outsource?

• What is our organisation architecture?

• How do we capture part of the value created? • How do we protect profitability

• How do we recruit and retain talent?

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Business Plan: Contents

• Executive Summary • The Market

– Including the marketing plan

• The technology, product or service – Including info on “proof of concept” and IP issues

• Management Team • Business Operations • Financial Projections • Details on the Use of Funds • Exit Possibilities

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Executive Summary

• Two pages (3 already too long) • In the first paragraph you must capture the attention of a

potential financial investor • Explain what is different about your opportunity, how big is

the market potential, how fast can your company grow; what is your vision

• What is the Value Proposition • Who are the competitors, how will they react, substitute

products and services, etc • Why are you the right team for this opportunity? • Think of it as the main guide to your elevator pitch

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The product

• Why is your innovation relevant?

– Is it a disruptive innovation?

• Is it going to completely change an industry / sector?

• How really new is it? What are current alternatives?

– To which use is it meant?

– How much value it creates to potential customers?

• At which price can be sold?

– What alternative uses it may have?

• Detail main characteristics / specifications

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The Product: Intellectual property

• Who owns the IP? – Yourselves? A University?

– Is it transferable? How?

– Who owns the IP in case your firm becomes insolvent?

• Is (are) there any patent(s)? – How strong are they?

– Do we have to invest to get stronger IP protection?

– Do you own the patent or just the rights to use it via a royalty?

– If answer is yes, can we buy the patent?

IP rights and ownership

are usually among the

most critical issues for

VC investment

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The people • Who are the founders?

– What have they accomplished in the past?

– Have they worked together as a team in the past?

– Are they friends / relatives? How many are they? (too many/few)?

– Who else (what skills) should join the team?

• Do they possess the right skills for this Opportunity? – Technological; Marketing; Managerial

• Whom do they know? (what is their reputation?) – What doors may be open by these contacts?

• How committed are they? – Their own initial investment (cash, time, opportunity costs)

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The Market

• Target Market – What is the relevant target market?

– How large is it?

– How attractive is it?

• Margins (and ability to protect them); costs; technological stability;

• Market growth; margins; threats, etc

– What share of the market can be captured?

– What are the growth prospects?

• Can we ride on its growth?

– How easy it is to enter and capture a share of it?

• Who is your competition? What are their strengths? Any soft-spots?

Be flexible: your

product may have

alternative

uses/markets.

Search for the best

alternative

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The opportunity (cont)

• The customer – Who is he/she? – How does he (or who does) make decisions?

• Or who actually makes the decision to buy the product

– What needs can we serve? and how? – How to market/position the product (4 p’s…) – How to attract customers? (at which cost?) – How to retain, cross-sell and evaluate (CRM)? – How much does it costs to support? – How to monitor customer satisfaction and

anticipate future needs?

Try to think on the

opportunity from the

customer’s perspective (rather

than your own)

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The Market: Marketing Plan

• Must detail your marketing strategy – All previous discussion about the relevant target

market, and the customer;

– How is the product/service going to be positioned

– How will be promoted

– Wow will access distribution channels • Need strategic partnerships (investors)?

– How will handle competitors and competitive products and services

– Specific actions to achieve specific results

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Business Operations

• Manufacturing (if applicable): – Outsourced; in-house; production technology – Costs; sourcing raw materials, etc – Quality control

• Company’s own R&D – Research facilities; Available grants

• Delivery to end customers or distributors • Human resources

– People to be hired (and when); – Remuneration, etc…

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Financial Projections

• Sales Plan – Units & prices per year & channel

• Costs – Cost of goods sold

– Other overhead

• R&D and product development – Expenses and time-plan

• Working capital requirements

• Fixed capital investments

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Financial Projections

• Pro-forma income statements based upon previously presented projections and assumptions – Detail sales revenue (by product, sales channel, customer group, etc);

detail prices, etc – Detail costs (CGS, admin, marketing & sales, personnel) and show

coherence with previous assumptions

• Investment plan – Detail R&D, fixed investment, etc

• Pro-forma balance sheets based upon income statement and your financing plans – Detail financing stages; What financing and who from – Detail Working capital management and assumptions

• Pro-forma Cash-flow statements • A valuation exercise?

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Room for Dessert

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Case analysis

• How do you evaluate the business (1-5)? – What do you like about it? – What do you don’t? – What are the major risks?

• How do you evaluate the business plan (1-5)? – What do you like about it? – What do you don’t? – How reasonable are the financial forecasts?

• Who are the “target investors” for this business plan? – What kind of deal is proposed to them?

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