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
“Plans are
nothing.
Planning is
everything”
– 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?
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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, computerliterated customer
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The Business Model
• Customer Selection
•
•
Who is the customer?
Is our offer relevant to this group?
• Value Proposition
•
What are our products unique benefits?
• Competitive Advantage
•
• Products and services
•
•
•
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?
• Organisational Design
•
What is our organisation architecture?
• Value capture
•
•
How do we capture part of the value created?
How do we protect profitability
• Talent
•
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?
IP rights and ownership
are usually among the
most critical issues for
VC investment
– 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?
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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
Be flexible: your
product may have
alternative
uses/markets.
Search for the best
alternative
– 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 softspots?
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The opportunity (cont)
• The customer
Try to think on the
opportunity from the
customer’s perspective (rather
than your own)
– 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?
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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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