Write a Great Business Plan Friday, 6 December 2013 Presented by

Write a Great Business Plan
Presented by
Jurek Sikorski
Entrepreneur in Residence at LBS
Independent Business Adviser
Mentor
Friday, 6 December 2013
Coming up...
The keys to sustaining competitive advantage
What needs to be in the business plan to make it
compelling?
What does a great business plan look like?
Guidelines for writing a great business plan
What to do to get ‘investment ready’
Where to go for help in preparing a business plan
Exercise
Write a great business plan
‘ Give me a lever long
enough and a fulcrum on
which to place it and I’ll
move the world ’
Write a great business plan
The perfect business plan does not
exist…
Business plans... rarely survive the first
market test
Business plans fall down on having scant
information about the market and lack
evidence that the customer will buy
the product and miss what needs to be
included...
Financial projections are always
wrong
‘Start-ups are NOT
smaller versions of
large companies’
Write a great business plan
Why are business plans written?
To help you understand an
opportunity... and what it will take
to exploit it
To recruit prospective partners and
team members/employees
To monitor progress and keep you
on track following start-up...
To rejuvenate and re-focus a Business plans will
business...
change and should
To raise funds for the business be regularly
reviewed…
Write a great business plan
When to write a business plan?
Writing a business plan before you
have carried out a proper and full
assessment of the opportunity is a
wasted exercise
What comes first is not the
business plan but the assessment...
- Avoids impending disaster…
- Kick starts the business planning process
- Collects real data
The most thorough assessment is
that afforded by the seven domain
analysis
Write a great business plan
The seven domain analysis… helps
you answer the important question:
Will or won’t this business succeed?
The analysis highlights
markets are different from
industries
both micro and macro
considerations are necessary
key to assessing the team
goes beyond the CV to
understand vision, ability to
execute and connectedness
 Are the market and industry attractive
 Does idea offer compelling benefits
 Can the team deliver
Write a great business plan
The keys to sustaining a competitive
advantage
An initial advantage is sustainable when:
1. There is strong intellectual property – patents, trade secrets
and IP
2. There are superior organisational processes, capabilities and
resources
3. The business model is economically viable – can generate...
and not run out of cash
1.
2.
3.
4.
Revenue is adequate
Customer acquisition and
retention costs… are viable
Contribution margin is sufficient
Operating cash is favourable
Write a great business plan – keys to sustaining a competitive advantage
How Humira achieved sustainable
advantage
Delivered strong product advantages and patent protection
• Adalimumab, third TNF alpha inhibitor to be approved by the
FDA; marketed by Abbvie
• Discovered through a collaboration between BASF and
Cambridge Antibody Technology with sales of $9bn in 2012
• Abbive has global reach and in market customer support
capabilities
• Patent protected - first patent application filed in 1996
continues until 2016
• Strong product advantages - rapid onset of action, s/c
administration and simple dosing regimen
Write a great business plan
How eBay achieved sustainable
advantage
Established an economically viable model
• An American multi national internet C2C company…
• In 2012 generated $14bn in revenue from various fees and
commissions - investment has been/is very modest
• Customer acquisition costs are low - customers arrive by
word of mouth, no shortage of people who wanted to sell
and spends little on advertising
• Contribution margin is high - cost of goods is low since
customers own goods and transactions are paperless
• Cash cycle is very favourable - sellers pay an insertion fee
with range of additional fees up front and there are no
receivables and no inventory Became cash flow positive almost from day 1
Write a great business plan
How EMI lost the initial advantage...
Failed to build the necessary organisational capabilities
• In 1973 EMI launched its patented Computerised Axial
Tomography (CAT) scanner
• EMI rapidly won 75% share of the global market for scanners
• Competitors including GE responded robustly with similar
CAT scanners without infringing the EMI patents
• GE launched its product in 1976 and leveraged significant
expertise in manufacturing and in-market capabilities…
• EMI plagued by production problems, a law suit and
mounting losses was forced into a merger with Thorn
Electrical that eventually sold the CAT rights to GE
Within 6 years of launching the CAT scanner EMI had gone
from market leader… to exiting the business
Write a great business plan
Does Pizza Rossa have a sustainable
advantage?
Exercise
Based on your reading of the Executive Summary...
What is Pizza Rossa’s sustainable advantage?
Work in pairs and take 10 minutes
Feedback to the group
Write a great business plan
A framework for compiling content to
write a great business plan
Team
Opportunity
• The team starting
and running the new
venture, suppliers…
and channel
partners
• A profile of the
business, the product
it will sell and the
market it will sell to,
the competition it
will face and how it
will deliver the
product
Context
Risk/Reward
• The big picture
describing the
political, economic,
social-cultural,
technological, legal
and environmental
forces impacting the
business
• Assessment of what
can go wrong and
how the team can
respond and address
effectively
The framework describes the attributes of a
successful business…
Write a great business plan - framework
Team – Who are these people?
The ten ‘team’ related questions every business plan should answer
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Where have the team members been educated/worked and for whom?
What have they accomplished – professionally and personally?
How well do they know the products, customers and competition?
What skills, knowledge, experience do they have that is relevant to the opportunity?
Have they worked together before?
How realistic are they about the venture’s chances of success?
Who else needs to be on the team?
Do they know the risks? How will they respond to manage these?
Do they have the mettle to make the tough decisions?
How committed are they to this venture and what are their motivations
Investors look for a team that is known…
‘When writing a business plan
feature people prominently and
talk about them exhaustively’
Write a great business plan - framework
Opportunity – of a lifetime or is it?
The ten questions about the opportunity every business plan should answer
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Who is the customer?
How many customers are there for your product/service?
How does the customer make decisions about buying your product/service?
In what ways is the product/service better than the competition?
How will your product/service be priced?
Questions about competitors:
- Who are the competitors?
How will the product be sold and delivered?
- What are their S&Ws
What IP does the product have?
- How will they respond?
What has to be done to retain the customer?
- How does the venture reply?
How much does it cost to acquire a customer? - What scope for collaboration?
How much does it cost to produce your product/service?
What are the cash flow implications of pursuing an opportunity?
Address ‘how the business will expand its range of
products and services, customer base and
geographical scope?’…
Write a great business plan - framework
Opportunities exist in a Context
Context is the range of external forces - from the political,
economic, social-cultural and technological to the
environmental and legal such as the regulations that
govern manufacture and sale of products
Context can have a tremendous impact on every aspect of
the entrepreneurship process – the context
can make it easy or difficult to start
(and fund) a company
Every business plan should explain the
context... and what management might do if
context becomes unfavourable
Write a great business plan - framework
Context – does it help or hamper?
The 10 questions you need to answer about how the macro environmental forces
impact your business
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How does the current economic climate impact your business?
What are the legal regulations that govern the sale of your product/service?
What is the government strategy for your industry?
Does your product/service require a product licence or CE mark?
What are the technological advances that help/hinder your business?
What future changes are anticipated in your industry that will affect your business?
How can the management influence the context e.g. lobbying via trade association?
How does the business impact its environment and what should the business be doing
How socially responsible is the business/should the business be?
What funding is available to your industry and potentially your business?
Write a great business plan - framework
Risk and Reward
Time to positive cash flow
15%
Probability
Potential Reward
Risk is unavoidable
‘the plan must unflinchingly confront
the risks ahead in terms of the team,
opportunity and context’…
What class of investment?
-100%
15%
45%
90%
Annual Rate of Return
Write a great business plan - framework
Risk and Reward – how are these
managed?
The 10 questions asked by the investors
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What are the main risks facing the business?
How will you deal with a new competitor (‘GE entrant’)?
What happens when your partner leaves?
The business plan should
What happens is you are unable to secure a patent? candidly talk about the end of
What is the breakeven if sales grow at half the rate? the process… and address the
question ‘how will the investor
Why would J&J not develop a better device?
get money out of the business,
What will you do if your break even is delayed?
assuming the business is
What happens if your costs rise by 25%?
successful?’
What is the return I can expect after 5 years?
What is the exit strategy?
Write a great business plan - framework
Collecting that information helps you build
your business model...
Rapid Lateral Flow Immunochromatographic Technology
Key Partners
Key Activities
Local Distributors
Manufacture and supply of
test
Hospitals and clinics
Commercial reagent
suppliers
Porous paper supplier
Customer Relationships
Customer Segments
Rapid tests (<30 mins)
Sales team
Africa and other TID
endemic regions
Marketing and selling of
tests
Accurate (>99%)
Technical support
Recruitment and training
of distributors
No equipment required
Doctors, nurses and nonskilled ancillary staff –
need an accurate test
Key Resources
Low cost (~£1/test)
Education events
Channels
Working capital
Enable early treatment
Local distributors/NGOs
Scientific/commercial staff
– develop and market tests
Simple 3 step operation
Wholesalers
Patented technology
WHO
Investors - VCs
Facility landlord
Value Proposition
Knowledge and expertise
Cost Structure
Field clinics, homes and
clinical laboratories –
need a simple test
Local Ministry of Health –
test has to be affordable
Revenue Streams
Cost of sales (<25p/test)
Facility (£25k pa)
Price set at between
£0.50p - £0.60p /test FOB
Salaries (£250k pa)
Marketing (£100k pa)
Revenue £1m rising to over
£25m by year 5
Business Model Generation: Alexander
Osterwalder & YvesPigneur 2010
Gross Margin: min. 50%
Customer Development
What does a great business plan look
like?
Executive
Summary
Management
Team
Company/Product
Description
Market Analysis
Industry Analysis
• Short overview of the business plan (max. two pages)
• Provides reader with everything he/she needs to know
• Features a brief profile of each member of the team
• Includes duties, experience and whether work’d together before
• Details history, mission, ownership, products and partnerships
• Presents current status and milestones achieved
• Describes the target market and how products meet needs
• Reviews the PESTLE trends and how these impact customers
• Features a description in terms of size, growth, revenues
• Includes details of competitors and industry trends
Marketing Plan
• Sets out how to market and sell the products/services
• Defines the price, promotion mix, sales process and distribution
Operating Plan
• Outlines how the business will be run and products produced
• Describes front stage (customer facing) and back stage activities
Product
Development Plan
Financials, Funding
and Risk Analysis
• Describes stage of product development, IP and timelines
• Details challenges and current risks and partnerships
• Presents financial projections viz. cash flow with assumptions
• Details funds sought, IRR, exit options and risk management
Guidelines for writing a business plan
Structure
• Follow a conventional structure…
• Investors want a plan where they can easily
find critical information
• Avoid software packages and external writers
Content
• Provide clear information on important TOCR
aspects of the business; limit to 20-30 pages
• Have plan reviewed for spelling, grammar and
completeness…
Style
• Look professional but not give impression a
lot of money has been spent on it
• Avoid getting carried away with design
elements
Write a great business plan – guidelines for writing a business plan
What are the red flags?
Team that is not committed to the plan
Absence of hard evidence and poorly cited business
Defining the market too broadly
Overly aggressive or unsupported financial forecasts
Sloppiness in any area
Write a great business plan – Guidelines for writing a business plan
What do investors look for...
Team
Full time management
team (of at least two
people); worked
Expertise (and
experience in the
sector)
Commitment (a vested
interest in the success
of the business... time
and finance)
People they like and
trust and who are
receptive to their input
Determination and a
bias for action
Low starting salaries
(at the start until
business is profitable)
Honesty (no surprises)
Business
Deal
High Return (IRR of >50%
pa)
Proven concept with
preference for sales
Realistic financial
projections
High growth potential
(business is scalable)
IP (knowhow, patent(s),
designs) secured in the
business
Risk profile and
management
Business in a sector in
which investor has
experience
Investment ready
Exit route
Tax Relief (when
investing in a business
that qualifies for (S)EIS
relief)
Realistic valuation (an
unrealistic valuation is
a common deal-killer)
Matches investment
criteria
Fair investment terms
Simple shareholder
structure
‘Business plans are
rejected because
founders fail to
demonstrate these
requirements’
Writing a great business plan – what investors look for
Business plan has to demonstrate the
venture is ‘investment ready’
To be ‘investment ready’ you need to:
give a total commitment to the venture
have a compelling and persuasive value proposition
be looking for fast growth/scale rapidly
have a proven need for your product or service...
demonstrate deep knowledge of your market and industry
understand the investment process...
know your financials and what investors look for
be able to present your business credibly
have an experienced team
be ready to invest yourself
Writing a great business plan – investment ready
Presenting the business plan to
investors
First meeting is generally short (usually
no more than an hour)
no
Investor will ask for/expect a presentation
20-30 minutes followed by questions
Expect the investor to be very critical but don’t be discouraged
In the first meeting investors typically focus on whether
a real opportunity exists and whether the team- Use PowerPoint
can pull off the venture
- Limit to 12 slides
If the investor is interested the founders
will be asked back to meet with partners
- Speak plainly …
- Check you have
answered the questions
- Define next steps
Write a great business plan to attract private funding –presenting to investors
Where to go in preparing a business
plan – Further reading
‘Business Model Generation: A Handbook for Visionaries, Game Changers, and
Challengers’ by Alexander Osterwalder and Yves Pigneur (2010)
‘FT Essential Guide to Writing a Business Plan: How to Win Backing to Start Up or
Grow Your Business’ by Vaughan Evans (2011)
‘Why the Lean Start-up changes everything’ by Steve Blank HBR May 2013
‘The New Business Road Test’ by John Mullins (2010)
‘How to Write a Great Business Plan’ by William Sahlman HBR Jul-Aug 1997
‘Entrepreneurship: Successfully Launching New Ventures’ by Barringer & Ireland
(2010) Chapter 4 Writing a Business Plan
Check out the British
Library Business and IP
‘How to Research your Market’ by Eze Vidra (2013)
Centre
http://www.vccafe.com/2013/05/12/lean-market-research-for-startups/
Write a great business plan – where to go for help in preparing a business plan
Jurek Sikorski
Email: [email protected]
Mob: 07889 720735
LinkedIn: http://uk.linkedin.com/in/jureksikorski