Developing a Business Plan Stephen Auvil Sr Vice

Developing a Business Plan Stephen Auvil Sr. Vice President Technology Transfer & Commercialization Maryland Technology Development Corporation (TEDCO) sauvil@tedco. md

Overview • • General Information Business Plan Outline Financing Financial Modeling • Example: • Vusion, Inc. (http: //www. businessplans. org/businessplans. html)

Why Learn About Business Planning? • Required for your Project • Not just for Entrepreneurs • Intrepreneur • Engineer in Industry • Faculty Member • Social Projects • Business Plan Competitions (fun & money)

Purposes of Business Plans • • Planning Budgeting/Forecasting Feasibility of a Business – (Convince yourself) Investment (Convince others) The business plan is most often used as a sales document.

Characteristics of Business Plans • You get out of it what you put in • Dynamic/Iterative – You will never be finished • Tells a story – It should be an interesting read – Logical flow • Convey information effectively • Use bullets, tables, diagrams, etc. • 25 -30 page maximum

General Overview A business plan must answer a number of questions. • • • What is the problem/need? What is your solution? Who has the need? How big is the need? What value does your solution offer compared with other solutions? What are its competitive advantages? How will you provide your solution to those that have the need? Why will they purchase your solution? How much money will you make?

Basic Business Plan Outline I. III. IV. Cover Sheet Table of Contents Executive Summary Business Summary a. The problem b. The solution c. The company V. Market Analysis a. Industry Analysis b. Customers c. Competition VI. Operations a. Product Development/Manufacturing b. Intellectual Property/Regulation c. Marketing Strategy VII. Management VIII. Financial Plan/Exit/Financials with Assumptions

Cover Sheet • • Name of your Company Contact Information Confidentiality Notice Revision Number/Date

Table of Contents • Use your BP outline • Helps investors find things • Make sure your pages are numbered • Tables & Charts

Executive Summary • This is written last • 2 – 3 pages maximum • Summarize the critical points of your plan – your BP outline This might be the only section of the plan read by an investor

Business Summary: The Problem Defining the Problem/Need • Magnitude of the problem – Quantitative • Monetize the Problem – Money lost • People involved – Those with the problem • Current approaches to address the problem • How these approaches fall short Ensure that you have a good understanding of the problem and not just a result of the problem.

Business Summary: The Solution Describe the Solution • Describe the technology solution BRIEFLY • Use non-technical language • Describe how your products will use the technology • A technical description should be prepared, but not included in the plan • Emphasize the advantages of the technology and its degree of disruption

Business Summary: The Solution Characteristics of a Good Solution • Platform/Fundamental Technology • Supports multiple products • Difficult to ‘design-around’ • Disruptive Technology • Intellectual Property Protection • Secured Patents/Trade Secrets • IP space is not crowded • Clear translation into Products or Services • Cooperation of the Inventor/Technical Expert

Business Summary: The Company Describe the Company • • • Type of Corporation When founded and by whom One sentence overview/Mission statement Company history (short for a start-up) Describe the products/solutions that will be offered to address the market need

Market Analysis Overview • • Industry Analysis Identifying Target Markets Profiling Customers Competitive Analysis This is the heart of your business plan.

Market Analysis: Research Begin with Market Research • Primary Research (You do it) • Interviews/Dialogue • Focus Groups • Surveys • Observations • Secondary Research (Someone else does it) • Publications • Analysts’ Reports • World Wide Web

Market Analysis: Research Market Research Resources • • • Phone Google Library Indexes Newspapers & Press Releases Associations & Foundations Standard & Poor’s Industry Analysis Forrester & Gartner – Analysts’ Reports SEC – EDGAR (www. sec. gov) US Census Bureau (www. census. gov) Private Marketing Reports Trade Shows Reference sources in your BP.

Market Analysis: Industry Analysis • Describe industry in which your company will operate – NAICS Classification • Industry Trends • Government regulation/Barriers to entry • Growth projections • Division of market share among competitors Opportunities often arise from changes.

Market Analysis: Customers Who is your Customer? • Consumer or Business (or Government)? • If Consumer: • Location, age, gender, occupation, income level, education level, etc. • If Business: • Industry sector, corporate structure, revenue level, number of employees, etc.

Market Analysis: Customers Who is your Customer? • • Who makes the purchasing decision? How often do they buy? Who uses the product? How will you reach them? Your customer should decide what your product is/does – consider the Lean Start-up Model.

Market Analysis: Customers Identifying a Target Market Total Population Potential/ Demand Market Addressable Market You can have more than one Target Market. 2 nd Target Market Segments/ Niches 1 st Target Market Penetrated Market

Market Analysis: Customers Identifying a Target Market Total Population All neonates Potential/ Demand Market Addressable Market At-risk neonates Hospitals & Clinics Example for an Incubator Market Segments/ Niches 1 st Target Market Clinics in Rural India

Market Analysis: Customers Market Segmentation – Addressable Market So, Why Rural India? Region/ Budget $500 $1 K – $10 K $50 K U. S. No Mkt Ohmeda GE Europe No Mkt Ohmeda GE India A. Shields China A. Shields

Market Analysis: Competition Competitive Analysis • Describe Competing Products & Companies • SWOT Analysis Strengths Weaknesses • Strengths • Weaknesses Opportunities Threats • Opportunities • Threats • Use a table for comparison • (Next Slide) • Describe how you will compete & why customers will purchase your product IN YOUR TARGET MARKET SEGMENT

Market Analysis: Competition Competitive Analysis – Vusion, Inc. Technology Chemical On-Line Real-Time Sensing Analysis Single Multiple Sensing Medium Liquid Sensing Medium Gas Price Electronic Tongue yes X X $60, 000 Electronic Nose yes X X $15, 000 Physical Property Meters and Single Chemical Sensors yes X X X $1, 000 - $5, 000 Gas Chromatography yes no X X X $20, 000 - $50, 000 Mass Spectrometry yes no X X $50, 000 - $100, 000 Raman Spectrometry yes no X X $100, 000+ High Performance Liquid Chromatography yes no X X $100, 000 +

Operations • How are you going to get from here to there? • How are you going to develop your product? • How are you going to pay for that development? • Who will make your product? • If you, how much will it cost to scale-up? • How will you get customers? • How are you going to get products to your customers? • What are your responsibilities post-sales?

Operations: Marketing Strategy • • • Business/Revenue Model Strategy for Market Entry Strategic Partnerships Expansion Strategy – New Market Segments The 4 P’s: • Pricing – What price will you charge? • Positioning – High-end or low price? • Promotion – Advertising? • Place – Distribution Channels?

Operations: Product Development Timeline Month Task 1 Design Fabrication 2 3 $15 K 4 5 6 7 8 9 10 11 12 $50 K $20 K $15 K $10 K Data Acquisition Hardware & Software Testing Preliminary Data Collection We are Here

Operations: Product Development Building Value with Development Phase III Start Milestone 1 Milestone 2 Value Inflection Points Milestone 3 $$$ Company Value $$ $ Time Investment Windows

Operations: Manufacturing Options Option A: Outsource All Production Option B: In-house Assembly High COGS Low Capital Investment Option C: Complete Manufacturing

Operations: Manufacturing Strategy • • Location of Plant (e. g. , U. S. /China/India) Subassembly Partnerships Costs of Parts Quality Control Environmental Issues Capital Investment Needed Scale-up Strategy

Operations: Manufacturing Distribution Channels • Who are your distribution partners? • What distribution rights will you offer? B 2 C Markets Manufacturer Wholesaler Retailer Consumer Mfgr. Rep. Distributor Business B 2 B Markets Manufacturer

Operations: IP Protection/Regulation Intellectual Property & Regulatory • • Secured Intellectual Property/Patents Patent Strategy & Cost Implications Freedom to Operate Other Forms of IP – Trade Secrets/ Trademarks etc. • Regulatory Barriers • FDA/GMP • CE/UL • ISO 9001: 2015 • What else?

Management • Investors Invest in People not Technology • Why are you and your team qualified to start the company? • Bios on all key people • Founders • Scientific Advisors • Business/Industry Advisors

Financial Plan/Exit/Financials with Assumptions Financing Options • Personal funds – “Boot strapping” • Loans/Debt Financing • Home Equity, etc. • Savings • Credit Cards • Non-dilutive Sources • Grants (SBIR, TEDCO, MIPS, etc. ) • Partners/Sponsored Research • Revenue

Financial Plan/Exit/Financials with Assumptions Financing Options • Dilutive Sources • Friends, Family, & (Fools) - (The 3 F’s) • Angel Investors • Investment (ROI) • Interest in Area • Venture Capitalists • Investment (other people’s money) • 10 X Return/5 Years • Fast Growth/Large Revenues Only • 1% Funding Rate

Financial Plan/Exit/Financials with Assumptions Financing – Dilutive Equity Math Pre-Money Seed Stage Series A Series B Investment: $0 $2 M $5 M $10 M Valuation: $0 $4 M $20 M $80 M 100% 50% 25% 12. 5% You/Investors $2 M $5 M $10. 24 M Round: Ownership: Control: Your Share $: $0

Financial Plan/Exit/Financials with Assumptions Financing Options – Local Sources • TEDCO – Seed Investment • Convertible Note • Up to $100 K • Other Programs (MII) • Maryland Industrial Partnership (MIPS) • Matching program 10/90 for start-ups • Up to $100 K • TEDCO – Maryland Venture Fund • ~$20 Million to Invest • SBIR/STTR Program • Phase I – Up to $75 K - $100 K • Phase II – Up to $750 K - $1 M • Others: Video Lottery Terminal Funds

Financial Plan/Exit/Financials with Assumptions Sources of Seed Capital for Small High Tech Firms Entrepreneur Personal Savings Family & Friends Angels Venture Capitalists 74% 5% 7% 5% Non-financial Corporations Commercial Banks Public Stock Issues 6% 0% 3% Source: Ed Roberts. Entrepreneurs in High Tech: Lessons from MIT & Beyond. Oxford Press. 1991.

Financial Plan/Exit/Financials with Assumptions Exit Strategy Options • Initial Public Offering (IPO) • Dependent on Financial Markets • Acquisition • Who would be a good Acquisition Partner? • What prices are being paid for similar companies? How are the investors (VCs) going to get cash out of your company?

Financial Plan/Exit/Financials with Assumptions Financial Statements • Balance Sheet • Assets = Liabilities + Shareholder’s Equity • Income Statement • Revenues, Expenses, Income • Cash Flows Statement • Cash on hand

Financial Plan/Exit/Financials with Assumptions Income Statement (Thousands $) 2008 REVENUE: Product A 10, 000 Product B 50, 000 Product C Total Revenue 5, 000 65, 000 COSTS OF GOODS SOLD: Product A 5, 000 Product B 20, 000 Product C Total Costs of Goods Sold 2, 000 27, 000 OPERATING EXPENSES: Salaries 4, 000 Fringe Benefits 1, 000 Facilities Expense 2, 500 Phone/Internet/Website Office/Shop Supplies Legal Fees Accounting Fees Marketing Expenses Total Operating Expenses EBIT 750 1, 000 800 2, 700 13, 550 24, 450

Financial Plan/Exit/Financials with Assumptions Cash Flow Statement of Cash Flows (Thousands $) FY 09 – Q 1 Cash BOP 20, 000 Net Income/(loss) 20, 450 Decrease change in AR 15, 000 Increase change in financing 50, 000 Increase change in depreciation Cash EOP 7, 000 112, 450

Financial Plan/Exit/Financials with Assumptions Building a Financial Model • Linked Spreadsheets • Allows different scenarios • Five-year Projections • Monthly for 1 st Year • Quarterly for years 2 – 5 • Start with financial statements and work backward • Keep track of all of your assumptions – these are your variables

Financial Plan/Exit/Financials with Assumptions Building a Financial Model • Start with revenue projections • Conservative vs. aggressive • Tie to marketing expenses • Bottom up/Top down approaches • Estimate COGS • Develop a salary schedule • Develop marketing expense model • Estimate other expenses • Facility • Equipment • General Operating Expenses

Thank You THANK YOU!! Stephen Auvil Sr. Vice President Technology Transfer & Commercialization Maryland Technology Development Corporation (TEDCO) sauvil@tedco. md