Developing a business plan
I. What is a business plan?
• Why they are needed
• Why it is important
II. How they are created
• Research
• Reflection
III. Overview of the main sections
• Executive summary, finances, business
description
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
The Small Business Act defines a small business as
“independently owned and operated and … not dominant
in its field of operation”
This size varies from industry to industry
Subsector 425: Wholesale Electronic Markets and Agents and Brokers
425110 Business to Business Electronic Markets 100
Subsector 519: Other Information Services
519120 Libraries and Archives $7.0
Sector 54 Professional, Scientific and Technical Services
Subsector 541:Professional, Scientific and Technical Services
519130 Internet Publishing, Broadcasting, Web Search Portals 500
541611 Administrative, General Management Consulting Services $7.0
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
In 2010 there were ~27.9 million small businesses
representing 99.9% of the nation's employers
64% of net new private-sector jobs,
49.2% of private-sector employment,
42.9% of private-sector payroll,
46% of private-sector output,
43% of high-tech employment,
98% of firms exporting goods
33% of exporting value
These firms are the engines of innovation in the US
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
Small business types
Home-based business 52.0%
Franchise 2.0%
Sole proprietor 73.2%
Corporation 19.5%
Employer business 21.5%
Nonemployer (business without employees) 78.5%
Small firms accounted for 11.8 million (64%) of the 18.5
million net new jobs created 1993-2011
67% of new jobs since the recession began in 2009
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
2009: ~552,600 new employer firms opened and 660,900
firms closed
This is a 10% annual turnover
~61,00 bankruptcies
Survival rates
70% new employer firms survive at least 2 years,
50% at least 5 years
33% at least 10 years
25% stay in business 15 years or more
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
Credit conditions are improving
Mid-2010, commercial banks eased tight lending and
loans under $1 million totalled $695 billion
VC investment increased in mid-2010
Small businesses rely heavily on owner investment and
bank credit, averaging about $80,000/yr
Startups rely equally on owners’ cash and bank credit
Young firms receive 75% of their funds from banks via
loans, credit cards, and lines of credit
10% of startups and about a 30% of young firms do not
use capital injections
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
VC funds raised $20.6 billion in 2012, 10% more than
2011
Concentrated into 182 funds, down 3% from 2011
55 new funds formed in 2012
$8.1 billion invested in 812 companies, the highest total
since Q2 of 2001
Strong emphasis on mobile investments and seed
funding
22% of all deals happened at the seed stage Q2 1012,
compared to 12% from Q2 2011
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
Deals
46% were internet companies
17% were healthcare startups
13% (102 deals) was in the mobile sector, an all-time
high, with 30% of those companies involved in photo or
video technology
Two different types of funds
Large firms investing across stages and industry
sectors
Smaller early stage, industry/region specific firms
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
gigaom2.files.wordpress.com/2012/07/mobileinvestment.jpg
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
goldenstateoutlook.files.wordpress.com/2012/04/top-10-states.jpg
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
There are 474,239 small businesses in Indiana
109,079 small employers in 2009 (<500) employing 1.2
million workers
94.4% of the state’s employers
76.9% had no paid employees
Most in construction, retail, health care and social
services, professional, scientific and technical
services (34.5%)
~50% male owned, ~25% female owned, ~25% jointly
owned
www.sba.gov/sites/default/files/in11_0.pdf
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
www.businessplanshawaii.com/Business-Plan-In-Trash.gif
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
A business plan is a document which:
Sets out your company's plans
Shows how those plans can be achieved
Demonstrates that the planned outcome meets the
requirements of the reader
It sells the business to financial and other backers
By effectively selling the business as a whole, it makes
a strong case for specific projects
Corporate Finance Advisory Services. (2010). How to write an effective business plan:
Lifting you up towards your success. Deloitte and Touche.
www.deloitte.com/assets/DcomLuxembourg/Local%20Assets/Documents/Brochures/English/2010/lu_writebusinesspl
an_01042010.pdf
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
It should emphasize the strengths of a company
It should be realistic about its problems, risks, and
obstacles, while offering solutions to these issues
A business plan must do the following:
Discuss the company’s goals for the near-term and
long-term future
Show how the goals can be achieved
Demonstrate that realization of the plan will satisfy the
reader’s requirements
Deloitte and Touche. (2003). Writing an Effective Business Plan. 4th Edition.
www.mitarabcompetition.com/images/pdf/writing-an-effective-business.pdf/
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
A business plan is a blueprint
Outline of the main components of the business
Core value proposition
Description of the business idea
How the business will operate
Financial requirements
Organizational managerial requirements
Description of the business environment
Explanation of the main reasons the business will be
successful
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
A business plan is a blueprint
Outline of the main components of the business
Core value proposition
Description of the business idea
How the business will operate
Financial requirements
Organizational managerial requirements
Description of the business environment
Explanation of the main reasons the business will be
successful
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
A business plan that is carefully thought through:
Allows you to evaluate every aspect of the business
Requires a pre-operating assessment including
working capital needs
Provides a chance to anticipate the unexpected,
including unforeseen opportunities
Is a sales tool to use to obtain financing
Sets goals and is an important management tool
Requires a careful assessment of the competitive
environment
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
There are three kinds of business plans:
External: objective is to persuade private investors or
bankers that a business is suitable for investing in or
lending to
Internal: developed by managers and staff of existing
businesses
Objective is to make the business more successful
Start-up: objective is explore the feasibility of a new
business and what is needed to get the business off the
ground
Our focus
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
External audiences
Investment funds
Private equity investors and VC firms typically do not
back companies without written plans
They look for evidence of high growth and ROI through
an IPO, sale of the company, or management buyback:
Track records of company, market, and key executives
Feasibility of achieving the forecasts
Uniqueness of the product and its technology
Quality of the management
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
Venture capitalists are often the most critical readers of a
business plan
They invest in riskier situations band usually have a
limited background knowledge of your company
Out of 100 plans
60 rejected after a quick scan
25 rejected after reading the plan more closely
10 rejected after reading and due diligence
3 failed negotiations
2 funded
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
VCs want a substantial ROI, usually 25-60% per annum
compound, depending on the risk of a project
Given a 35% ROI, VCs would want to earn 4.5 times the
original investment, before inflation, over a five year
period
They usually want an "exit route"
They want to know how they will get their money back,
and when
IPO, acquisition or management buy-back
A typical period for an exit will be between three and
seven years
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
Bank financing
Bankers focus on when and how principal and interest
will be repaid and collateral to cover any loan losses
They also focus on how a company will survive
possible setbacks
They are requiring business plans be included in a loan
applicable package
Careful attention paid to the financial statements and
projections
A high quality business pla helps a company stand out
in the intense competition for loan funds
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
Strategic alliances
Arrangements covering joint R&D, product development,
and marketing
Can be important for some young, growing companies
Often includes financial backing and access to wellestablished distribution channels
These may last three years or more
Strategic partners want to examine the company’s
business plan before committing to long-term
arrangements
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
Mergers and acquisitions
Companies are looking to acquisitions to expand and to
divestitures to gain liquidity
Start-ups look to M&A as an exit strategy
Companies seeking acquisition candidates use the
candidates' business plans as one of their first screening
tools
Whether it is a startup or another company's divested
division
Managers of an acquisition candidate who want to stay
on want to see the business plan of the acquirer
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
Customer and distributor relationships
For many growth companies, obtaining a large customer
or gaining a commitment from a major distributor can be
an important milestone
Can establish steady cash flow
Can build a loyal customer base
Large, well-known organizations are often reluctant to
enter into arrangements with companies that are an
unknown entity
A convincing business plan helps to dispel doubts
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
Internal audiences
Top-level management
A business plan enables management to plan company
growth and anticipate changes in a structured way
They can determine whether the plan is consistent with
long-term financial and market goals
The process of preparing a business plan is at least as
important as the plan itself
It forces management to think through the business in
detail and to set objectives
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
Lower level management and employees
The plan commits the entire management team to the
same goals
The process of working out the plan’s objectives forces
management to reconcile different visions of where the
company is and where it is headed
A written business plan can be an important internal
document for companies with multiple locations and
operations
Helps employees throughout the company to have a
common sense of the vision, mission, and goals
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
Why is it important?
Planning and preparation can minimize the risks
involved in starting a business
It involves evaluating your strengths and weaknesses
as a potential owner and/or manager of a small
business
It precisely defines the business, identifies its goals,
and serves as the firm's resume
It helps allocate resources properly, handle unforeseen
complications, and act as a decision making aid
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
What it means to run a small business
Intrinsic motivation
It’s your responsibility to develop and complete
projects and organize your (and employees) time
Interpersonal skills
You have to develop working relationships with
different people: customers, vendors, staff, bankers,
lawyers, accountants, consultants
You have to deal with demanding clients, unreliable
vendors, cranky partners if the business requires it
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
Decision making
You have to make decisions constantly - often quickly,
independently, and under pressure
Stamina
Business ownership can be exciting, but can often
require six or seven day 12 hour work weeks
Planning and organizing
Poor planning is responsible for most business failures
Good organization of financials, inventory, schedules,
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
Commitment
Running a business can wear you down emotionally
Burn out is an issue because the success of their
business is yours
Strong motivation helps you through slowdowns and
crises
Your network
It’s hard on family and friends
May involve adjusting to a lower standard of living or
increased financial risk in the short-term
S643: Digital Entrepreneurship Spring ‘13
I. What is a business plan?
Why do small business fail?
Poor market analysis leads to misjudging demand
moving into the wrong markets
Poor pricing decisions, competition and low sales
Lack of experience, poor credit arrangements
Poor location, poor inventory management
Over-investment in fixed assets, insufficient capital
Personal use of business funds
Poor accounting practices
Bad decision making under conditions of growth
S643: Digital Entrepreneurship Spring ‘13
Developing a business plan
I. What is a business plan?
• Why they are needed
• Why it is important
II. How they are created
• Research
• Reflection
III. Overview of the main sections
• Executive summary, finances, business
description
S643: Digital Entrepreneurship Spring ‘13
II. How they are created
thereisnobox.files.wordpress.com/2007/07/strategic_plan.jpg
S643: Digital Entrepreneurship Spring ‘13
II. How they are created
Research
Strategic planning is a management tool used to
Help an organization do a better job
Ensure that members of the organization are working
toward the same goals
Assess and adjust the organization's direction in
response to a changing environment
A disciplined effort to produce fundamental decisions
and actions that shape and guide what an organization
is, what it does and why, with a focus on the future
S643: Digital Entrepreneurship Spring ‘13
II. How they are created
Research
Strategic planning involves matching the strengths of the
business to available market opportunities
Effective planning means collecting, screening, and
analyzing information about the business environment
It also requires a clear understanding of the business
Finding a niche and understanding resource demands
Focus on strengths and weaknesses
Developing a clear mission, goals, and objectives
To do this well takes time and effort
S643: Digital Entrepreneurship Spring ‘13
II. How they are created
Strategic planning
Identify the business’ purpose (mission statement)
The client needs that will be met with the product or
services
Select the goals the organization must reach to
accomplish the mission
Identify specific approaches or strategies that must be
implemented to reach each goal
Identify specific action plans to implement each
strategy
Monitor and update the plan
S643: Digital Entrepreneurship Spring ‘13
II. How they are created
Research
Begin with a needs assessment
What is the product or service?
Is it an innovation or an improvement upon an existing
product or service?
Is there a market for the product or service (can one be
created?)
Does it meet an unserved or underserved need?
Can it meet unserved demand in an existing market?
How can it compete in this market (price, quality,
features, convenience, service…)
S643: Digital Entrepreneurship Spring ‘13
II. How they are created
Then some hard questions
Are there causes (restrictions, monopolies, shortages)
that make required factors of production unavailable
(unreasonable cost, scarce skills, energy, material,
technology, or personnel)?
Are capital requirements for entry or continuing
operations excessive?
Is adequate financing hard to obtain?
Are there potential detrimental environmental effects?
Are there factors that prevent effective marketing?
Hopefully the answers are “no”!!
S643: Digital Entrepreneurship Spring ‘13
II. How they are created
Then reflection on the purpose of the plan
It defines and focuses your objective using appropriate
information and analysis
It sets out a vision and specific goals for the business
It can be a selling tool in dealing with important
relationships including lenders, investors and banks
The business planning process can uncover omissions
and/or weaknesses in the planning process
It can be used to solicit opinions and advice from
people, including those in your intended field of
business, who will freely give you invaluable advice
S643: Digital Entrepreneurship Spring ‘13
Developing a business plan
I. What is a business plan?
• Why they are needed
• Why it is important
II. How they are created
• Research
• Reflection
III. Overview of the main sections
• Executive summary, finances, business
description
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
www.fecconsulting.com/images/business_plan_image_8rzk.gif
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Executive summary
This is an overview of the business’ core value
proposition, main products and or services and capital
requirements
A concise clear explanation of the business and how it
will operate
A description of the market size and market need
A discussion of how the business is qualified to fulfill
this need
Description of the business’ competitive advantage
Forecast of future growth and development
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Executive summary: the value proposition
A business or marketing statement summarizing why a
customer should buy a product or use a service
Goal: to convince them that your product or service
will add more value or better solve a problem than
other similar offerings
Superior features or operation
Clear differentiation
Companies use this statement to target customers who
will benefit most from using the product or service
It is concise and appeals to the customer’s thinking
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Executive summary: the value proposition’s benefits
Strong value propositions describe tangible results:
Increased revenues
Faster time to market
Decreased costs
Improved operational efficiency
Increased market share
Decreased employee turnover
Improved customer retention levels
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Executive summary: the value proposition should
Be closely tied to the product or service
Address the existing or projected market need
Be based on careful research
Differentiate the business from competitors
Clearly articulate the tangible benefits and value for
customers
Explain what the business does and who you are
simply and clearly
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Executive summary: the value proposition should be
More than product explanations
It is common for a value proposition to describe what
that company is selling or doing
Quantifiable and specific
These types of statements give potential customers
easily understandable information about the business
Instantly credible
The potential customer must quickly understand why
you are different
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Executive summary: examples of value propositions
“You get a better website from or professional
experience”
www.waztech.com/home/default.asp
“We give you more reasons to shop with confidence:
great support, service and prices
www.bestbuy.com/
“We make inefficient markets efficient. We provide a
forum that's an efficient market for buyers and sellers
to connect, for products that typically don't have an
efficient distribution system.” Whitman - Ebay
www.businessweek.com/bw50/content/mar2003/a3826090.htm
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Financing proposal
A description of the capital requirements for starting
and sustaining the business
It summarizes the more detailed financial information
provided later in the business plan
What is needed to cover raw materials, salaries,
equipment, rent (fixed assets), marketing (variable
assets)
Budgets: cash flow projections, revenue projections
Requires research and reflection
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Financing proposal
Determine the amount of money needed for the
business
Be as specific as possible
Explain what the money will be used for
Specify the returns that can be expected
Explain the type of financing being requested
Debt: you are borrowing the money - this must be paid
back on a schedule
Equity: people are investing in your business - they
expect a piece of the business
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Financing proposal
Determine the length of financing
Short-term: to meet temporary or seasonal working
capital needs
Repaid as revenues are generated
Intermediate: installment loan with periodic repayment
Used to purchase fixed assets that depreciate
Long-term debt: equity financing to be held for more
than a year
Used when there is a shortfall or to finance large
projects
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Financing proposal
Explain the repayment schedule
Propose a timetable and amounts of loan payments
Propose milestones on the way to profitability for
investors
This indicates awareness of the lender’s constraints
or investor’s timetable
Makes clear how revenues will be used during the
period of the debt or investment
List collateral
Indicate your investment
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Business description
Narrative about the basic nature and purpose of the
business
What it is, what it does, how it is done, who does it
Where it is now ad where is it going (and when)
Provides basic information that the reader needs to
determine whether it is worth studying the plan
Identify the firm: name, address, contacts
Describe the history
Present the mission statement as broad strategic goals
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Business description
Writing a mission statement
What is the primary business of the firm?
What is the key purpose of the business?
Where will the business be in 1, 3, and 5 years?
What strategy will be used to move the business
forward?
What is the market sector in which the business will
compete?
Location of market (geographic or virtual)
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
www.savagechickens.com/images/chickenmission.jpg
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Business description
A mission statement lays out the firm’s ideology and
goals
Core goals: to what goals is the business committed?
Core values: what is it that the people in the
organization believe?
Excellent customer service, innovative technology,
creativity, integrity, social responsibility
Core purpose: what is the main line of business
Vision: what does the business want to achieve
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Business description: example of a mission statement
The Coca-Cola Promise: The Coca-Cola Company
exists to benefit and refresh everyone it touches. The
basic proposition of our business is simple, solid, and
timeless. When we bring refreshment, value, joy and
fun to our stakeholders, then we successfully nurture
and protect our brands, particularly Coca-Cola. That is
the key to fulfilling our ultimate obligation to provide
consistently attractive returns to the owners of our
business.
Abrahams, J. (2007). 101 Mission Statements From Top Companies. Ten Speed Press,
40
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Business description: example of a mission statement
The following are some examples of brief mission
statements from real enterprises
3M: To solve unsolved problems innovatively
Mary Kay Cosmetics: To give unlimited opportunity to
women
Merck: To preserve and improve human life
Wal-Mart: Save money. Live better
Walt Disney: To make people happy
Target: Expect more. Pay less
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Business description
Market description
Who is the target market and what do you know about
them?
Why will they want to buy your product or service?
Describe the business’ operations
How is the product created?
What are the steps involved in delivering the service?
What is the work flow?
What is the source of competitive advantage?
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Business description
Human resources
Who are the top management team and key personnel
and why are they qualified?
Financial summary
What are the projections for return on investment?
What is the timetable for profitability?
Exit strategy
What is the long-term goal of the business?
Going public? Getting purchased? Industry player?
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Planning the plan
Understand what information should be included
Decide on section headings and prepare an index
Decide who is to co-ordinate and write the plan
Agree who provides the necessary information:
management or advisers
Gather information for each topic and jot down ideas
Organise the information logically
Start writing
Challenge the assumptions and expect revisions
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Do not use jargon
The plan should wherever possible be written in
layman’s terms avoiding the use of jargon
If the business is technical, include a glossary of the
terms as an appendix
Do not repeat yourself
Keep the plan to a reasonable length
Support your claims
Where you have made claims or assumptions which
may not be readily accepted by your proposed reader,
include reasonable evidence
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Confidentiality
If you are not prepared to reveal your secrets at an
early stage, an option is to send the summary to the
potential investor or lender
Disclose the remainder to your plan if serious interest
is expressed
Do mark your business plan "Confidential”.
Do not be selective
Ensure that all risks are discussed
Do not just select those for which you have a ready
answer
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
A second opinion
It is important to have your plan objectively reviewed
before submitting it to your potential investor
Suitable reviewers would include your accountant,
lawyer or trusted business colleague
At least two people not directly involved with your
company should review it
First appearances count
A reader should be attracted by the appearance of the
plan so pay attention to layout and graphics
S643: Digital Entrepreneurship Spring ‘13
III. Overview of the main sections
Deloitte and Touche’s four do's and one don't:
Do provide an index
Do provide a summary
Do number each copy
Do show who the business plan is submitted by
Don’t produce too many copies (or don’t number them)
S643: Digital Entrepreneurship Spring ‘13