Chapter 4 Writing a Business Plan Entrepreneurship Successfully

Chapter 4 Writing a Business Plan Entrepreneurship: Successfully Launching New Ventures Diane M. Sullivan, Ph. D. (2011)

What is a Business Plan? l A written document l Describes what a new business plans to accomplish and how it plans to accomplish it l The Business Plan can serve multiple purposes l Inside the firm: help company develop “road map” for executing strategies and plans Our l Outside the firm: introduces potential investors to Focus business opportunity the firm is pursuing and how it Today to pursue it l Generally around 25 - 35 pages long (not including appendices) plans

Guidelines to Consider when Writing a Business Plan l Structure of the Business Plan l For the best impression follow a conventional structure (see p. 109 in text for conventional business plan outline) l Investors are very busy and want to easily find critical information l Software Packages to Assist with Plan Structure l There are software packages available can assist in writing the plan l Palo. Alto Software Business Plan. Pro ($199. 00 retail cost) l Get a FREE copy if enter the UD Business Plan Competition (www. udbpc. com)!!!

Outline of Business Plan l l A suggested outline is as follows Most plans don’t include all elements presented in the text and discussed here l l These are included for completeness Entrepreneurs must decide which elements to include

Outline of Business Plan *This slide modified from Barringer & Ireland (2006)

Basic Business Plan Components 1. Cover Page 2. Table of Contents 3. Executive Summary 4. Description of the Business Opportunity (part 4 a and 4 b) 5. Description of the Industry and Competition 6. Description of the Target Market 7. Marketing Plan 8. R & D (if applicable) and Legal actions taken to protect technology 9. Firm Founding Location 10. Management 11. Financials and Payback/Exit Strategy 12. Critical risks 13. Milestone Schedule 14. Appendices

Cover Page & Table of Contents l. Part 1: Cover page should include: l Name of the company l Address l Phone Number l Date l Contact information for the lead entrepreneur l. Part 2: Table of contents includes the page number to which the Business Plan sections correspond

Part 3: Executive Summary l Should be completed LAST l Short overview (1 -2 pages) of entire business plan; provides everything need to known about venture’s distinctive nature l Sometimes investors ask for executive summary and then full business plan only if executive summary is sufficiently convincing l Generally includes brief overview of: l Opportunity l Industry/Competitors l Target Market l Management Team l Financials l Exit Strategy l Critical Risks

Part 4 a: Description of the Business (1 of 2) l Introduce the business by describing l The opportunity (general description of the product/service offering): Paper thin solar panels l The problem/need addressed (what consumer need are you addressing): Traditional solar panels are too heavy and too fragile for many uses l How the business addresses the problem/need (how does this business address the consumer need): Developed solar panels that are the consistency of film. Thus, they are light weight and can be applied used for nearly any application l Include a brief history of the firm: How the business came to being and its current status l The company’s mission: The purpose of the business is and what criteria should be used to measure performance l Explain the firm’s competitive advantage: Describe how this ventures’ offerings are different/better than existing, analogous, offerings

Part 4 b: Description of the Business (2 of 2) l A brief description of the business model (e. g. , the logic behind the operations of the firm)—Porter’s Value Chain, Porter’s Generic Strategies, Business Model Components l How you get your raw materials and where you store them l How you physically manufacture the product l How your store or warehouse finished products l How you physically distribute/ship finished products to customers l How you execute sales of your product (e. g. , sales force, internet sales, etc. ) l How you help customers after you execute the sale (e. g. , returns, warranty, technical support, etc. ) l How you handle research and development (if applicable) l How you handle accounting, legal, and financial management issues

Part 5: Description of the Industry & Competition (1 of 2) l Discuss important characteristics of the industry (e. g. , size, growth rates, etc. ) l Discuss major trends in the industry (e. g. , sociocultural, technological, political/legal, economic)—forces/trends in the external environment l Discuss how the firm will address factors impacting the industry’s profitability —Porter’s Five Forces: l How much power do raw material suppliers have over firms in the industry? l l Can they force firms to pay high costs for their supplies? How much power do customers have over firms in the industry? l Can they bargain down prices of firms’ products? l How much competition there is in the industry and is competition intense? l Are there may types of products that can serve the same purpose (e. g. , cars, buses, bicycles, planes, rollerblades, etc. all serve the purpose of transportation) l Is it likely that many new firms will try to enter and compete within this industry?

Part 5 (cont’d): Description of the Industry & Competition (2 of 2) l Discuss In what stage of the lifecycle is the industry? —industry structures l Is it an industry that is declining becoming obsolete (e. g. , VCRs, Walkmans)? l Discuss what implications the lifecycle stage has for the business l Discuss the competition and how the firm will fair relative to competitors (competitor analysis)—competitor analysis grid l How many firms are vying for the same target customers as your firm? l Does your firm possess any distinctive resources or capabilities allowing you to ward off competitors? l Intellectual property (e. g. , patents on your technology) l Advantageous access to raw materials (e. g. , can get supplies at a lower cost)

Part 6: Description of the Target Market l Describe exactly who the firm will target—Concept Statement, Concept Test, Usability Test l Use primary research (e. g. , surveys, focus groups, interviews) to find out l About how many customers you are likely to capture l l l Try to determine how likely people will be to purchase your products l Discuss what their profile looks like (e. g. , age, household income, education level, gender, employment status, etc. ) l Discuss their preferences for a product like yours and how you address them l Discuss the price that they perceive is appropriate for your product Use secondary research (e. g. , databases, articles, competitors’ websites, US Census data, trade association documents, etc. ) find: l What competitors’ customers “look like” l What customers are willing to pay for competitors’ products l About how many units are sold in a year If the firm has secured a contract with an important customer, discuss

Finding Industry, Competitive, & Customer Data l Research Databases in the Roesch Library (http: //library. udayton. edu/) like: l Hoovers (general industry information) l Standard & Poor’s Net. Advantage (industry and company information) l Mintel Reports (research reports on industry and market information) l Business Source Complete (scholarly and popular press articles about industries, and consumers) l Industry Trade Association websites (can often find industry trade association names in Hoovers database) l Competitors’ websites, annual reports, SEC filings, etc. l When on a firm’s website, look for a link that says something like “investor relations”, “about the company”, or “company information” l Will direct you to internal firm publications (as long as it is a public company)

Part 7: Marketing Plan l Describe how you plan to create awareness about your business. Discuss the four P’s of marketing: l Person: Who you are targeting—this is covered in the target market description l Pricing: How are your offerings going to be priced? How does this compare to competitors? If it is significantly different, why? l Promotion: How are you going to generate awareness about your business? What types of advertising, promotions, etc. are you going to use and why? l Placement: How are you distributing your product (e. g. , where/how to do customer physically purchase your product? ). Internet? Retail store? Other direct sales? Catalogs? Sales teams? Discuss why you chose this/these distribution channels.

Part 8: Research & Development l This section is particularly important for technologically sophisticated products l Discuss the technical details of the product l Discuss the current status of the design (e. g. , prototype stage) l For tech-intense offerings, investors really like to see progress on prototypes l Provide details as to what has been accomplished and what is yet to be accomplished l Discuss time and financial implications for future prototype development and R&D—be sure to clarify how estimates were developed

Part 8 (cont’d): Legal Concerns l Another very important section for firms where IP is relevant (can alternatively be covered in the management description) l Investors are very concerned about how firms will protect their rights to their developments l Discuss the status of intellectual property (IP) protection l Have you secured a patent attorney? If so, discuss who they are and what the status of the patent is. l If you have not, discuss the timeline and procedures for pursuing IP l Search the US Patent office database for existing patents/patents pending (www. uspto. gov)

Part 9: Firm Location l Discuss where the business will be headquartered and the reasons l Was the location chosen because of some advantage? l Located in a firm cluster (e. g. , Silicon Valley) l Located near important suppliers l Located near large customers/customer groups l The area has many employees with the necessary qualifications l There are some tax or other financial benefits (e. g. , cost of land/living is cheap, etc. ) l Other benefits like zoning needs, regulations, access to distribution channels, etc. are favorable l Look at the Small Business Administration website (www. sba. gov) to start gathering information about different state’s dis/advantages

Part 10: Management Description l Discuss the legal form of the business (e. g. , corporation, sole proprietorship, partnership, LLC, etc. ) l Discuss why this legal form was chosen l Other resource-related, legal (e. g. , IP), etc information included here—VRIO l Describe the members who compose the management team l l The key people in charge of the business l What is their background (e. g. , education, employment, etc. )? l Make the case for why they are qualified to start and run this type of business l Discuss the roles (e. g. , CEO, CFO, CIO, etc. ) of each team member Describe other important “human” resources l Composition of the board of directors (if a corporation) l Composition of the board of advisors (if applicable) l If the firm has been endorsed by a reputable person/firm, discuss this l l Has Bill Gates provided positive feedback about the firm? Discuss the potential need and plan for recruiting future human resources

Part 11: Financials l Demonstrate the financial viability of the business l Begin by explaining the funding needed during the next three to five years along and how the funds will be used l Describe where the funds will come from (e. g. , self, family, loans, investors) l Include realistic financial projections l How fast you expect to go through the funds before turning a profit (called the “burn rate”) l When do you expect to turn a profit and at what rate do you expect profits to grow? l In the body of the Business Plan, you will include summary tables and prose that describes the financial situation l In your appendices, you include supporting and detailed financial statements to back up this discussion. Always include: l Assumption sheet: The assumptions you made in coming up with the projections l Income statement: Shows the estimated income and expenses over a year l Cash flows statement: Shows how the company is paying for its operations l Financial indicators: Financial ratios that indicate the “health” of the business

Part 11 (continued): Payback/Exit Strategy l. Discuss how and when you anticipate investors will recoup their money. Examples: l Go public (IPO), investors cash out l Liquidity event (e. g. , sell to another company), investors cash out l Internal cash flows pay back investors l Discuss the timeframe expected for investor exit l Discuss likelihood and assumptions that lead to exit strategy

Part 12: Critical Risks l Businesses do not operate in a vacuum l They face uncertain futures and new ventures are based on many assumptions as to “how the game will be play out” l Must be realistic about potential risks and courses of action to combat potential risks l Discuss likely risks/problems that the firm might face and how the firm would deal with them. l Examples: l Financial projections are somehow flawed l Unable to obtain patent protection l Assumptions about consumer preferences flawed l Speed and processes used to manufacture products flawed l Competitive responses are different from what expected

Part 13: Milestone Schedule l Discuss timeline and actions for achieving business activities l Initial funding received l Prototype completion l Additional funding received l Manufacturing capabilities solidified l Advertising campaign designed and launch l Initial sales achieved l Expected time to breakeven l Actions taken to turn profit l Estimates for growth actions (e. g. , expansions, increase production, increase R&D, etc. )

Part 14: Appendices l Supporting, detailed, documents that expand on Business Plan text l Common items included: l Pictures of the product/prototype l Management team resumes l Patent, IP, legal documentation l Surveys and summary data used to study target market l Financial statements l Other supporting documents that will help make your case for how this is going to become a lucrative business

Other Resources to Help l Small Business Administration (www. sba. gov) l l FREE advising at regional office; FREE help identify sources of financing, FREE help write business plan, other FREE business help Small Business Development Centers (SBDC) (http: //www. odod. state. oh. us/edd/osb/sbdc/default. htm) l l l Help with doing business in local regions Business Incubators (http: //www. techincubator. org/index. html) l Provide free or greatly discounted office space, R&D laboratories, administrative support, consulting, etc. l Most good-sized cities have at least one incubator l Many favor high-tech businesses A variety of helpful business plan website links can be found at the following: http: //www. sba. udayton. edu/entrepreneur/business_plan_links. asp l Free Sample Business Plans (http: //www. bplans. com/sample_business_plans/index. cfm) l Many other helpful business-related websites can be found at: http: //sba. udayton. edu/entrepreneur/

Presenting the Business Plan to Investors l Making a Presentation to Investors l If the business plan elicits interests of investors, next step to present the plan in person l The first meeting is generally very short (e. g. , about one hour) l The investor will generally ask the firm to make a 20 - to 30 - minute Power. Point presentation and then ask question l l #1 rule—follow instructions given to you by investor(s) l Be sure to create PPT slides that will fit the time slot allocated (e. g. , if given 30 -minutes for presentation, make sure it’s no longer than 30 minutes) l Presentation should be smooth and well rehearsed l Slides should be sharp and not cluttered with material If still interested after initial meeting/presentation, the firm will be asked back for another meeting

Presenting the Business Plan to Investors l Most important issues to cover in PPT presentation 1. The Company: 1 -slide; overview of company and target market 2. Opportunity (problem solved/need fulfilled): 2 -3 slides; this is the “heart” of the presentation 3. Solution: 1 -2 slides; explain how problem solved/need fulfilled 4. Management Team Strength: 1 -2 slides; briefly explain each manager’s qualifications 5. Intellectual Property (IP): 1 -slide; what IP firm owns or that is pending 6. Industry, Target Market (TM), Competition: 2 -3 slides; briefly review the industry, its TM, and direct/indirect competitors; explain how the firm will compete against established firms 7. Financials: 2 -3 slides; briefly discuss the financials; stress when firm will achieve profitability; how much capital to get to profitability; when expect to break even. 8. Offering, Payback, and Exit Strategy: 1 -slide; discuss how much money requested anticipated exit strategy