TECHNISCHE UNIVERSITÄT BERLIN
INSTITUT FÜR INFORMATIK
HUMBOLDT-UNIVERSITÄT ZU BERLIN
INSTITUT FÜR INFORMATIK
TECHNICAL ENTREPRENEURSHIP
Vorlesung 2
BUSINESS PLAN
Wintersemester 1999
Leitung: Prof. Dr. Miroslaw Malek
Betreuer: Peter K. Ibach
www.informatik.hu-berlin.de/~rok/entrepreneurship
TE - II - BP - 0
OPPORTUNITY
• Types of startup firms:
– 1) mom-and-pop business (marginal firm, life-style firm)
– 2) high potential firm
– 3) foundation firm
• Types 2) and 3) have at least $500,000 in sales and grow at a
rate of minimum 10% per year.
• 2) and 3) have much bigger success potential than mom-andpop businesses.
• 7 % of 7 million US companies grew over 20 % per year
• Over 1 % of 7 million (80,000) grew over 50 % per year
• Venture capital founded firms have a 60 % plus success
rate
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THE WINDOW OF OPPORTUNITY
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THE DIFFERENCE BETWEEN IDEAS AND
OPPORTUNITIES
SKY IS THE LIMIT
IDEAS
OPPORTUNITIES
GETTING REAL
• 1 - 3 % of ideas are considered opportunities by VC's.
• A good opportunity must be
– attractive
– durable
– timely
• Lemons (loosers) ripen in about 2 1/2 years.
• Pearls (winners) take seven to eight years.
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SALES VOLUME OF U.S. COMPANIES
• 20% of businesses have sales over $ 1M
• 10 % of businesses have sales over $ 2M
• 1.25 % of businesses have sales over $ 10M
• 0.67 % of businesses have sales over $ 25 M
• (U. S. government data for 1980) In 1990 these
figures have doubled
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ONE-YEAR SURVIVAL RATES BY FIRM SIZE
Firm size
Survival percentage
(employees)
0-9
77.8
10-19
85.5
20-99
95.3
100-249
95.2
250 and more
100.0
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FOUR-YEAR SURVIVAL RATES BY FIRM SIZE
Firm size
D&B study
California
(employees)
(1969-76)
study
(1976-80)
0-19
37.4 %
49.9 %
20-49
53.6 %
66.9 %
50-99
55.7 %
66.9 %
100-499
67.7 %
70.0 %
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SIX MOST IMPORTANT FACTORS (FROM VC'S
PERSPECTIVE) FOR SUCCESSFUL COMPANY
•
•
•
•
•
•
1.
2.
3.
4.
5.
6.
•
The management team must have quality, depth and maturity.
the best entrepreneur and the quality of the team (people)
the best entrepreneur and the quality of the team (people)
the best entrepreneur and the quality of the team (people)
the best entrepreneur and the quality of the team (people)
Market potential and marketing
Idea
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MARKET STRUCTURE
• Market structure is characterized by:
–
–
–
–
–
–
–
The number of sellers
The size distribution of sellers
The differentiation of products
The conditions of entry and exit
The number of buyers
The cost conditions
The sensitivity of demand to changes in price
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ENTRY STRATEGIES FOR ENTERING
BUSINESS
•
•
•
•
•
•
Developing a new product or service (innovation)
Developing a similar product or service (imitation)
Buying a franchise
Exploiting an existing product or service
Sponsoring a startup enterprise
Acquiring a going company
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WAYS TO GENERATE IDEAS: WHAT IF ...?
1. WHAT IF it were longer? or smaller? inside out, different
material, color, thinner, lighter, shorter, etc.
2. TURN PROBLEMS INTO PROFITS (eco industry, new
civilization headaches)
3. VISUALIZE (mental pictures)
4. IDENTIIFY NEEDS
5. FORCED CONNECTIONS (e. g., clock radio and wrist watch)
6. KEEP A RECORD OF YOUR IDEAS ("creativity file")
7. CULTIVATE YOUR IDEAS
8. BE RECEPTIVE TO IDEAS
9. STOP BEING PRACTICAL
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WAYS TO GENERATE IDEAS: WHAT IF ...?
10. TRY SOMETHING NEW
11. BE PROGRESSIVE, NOT REGRESSIVE
12. BRAINSTORMING
13. IMPROVE EXISTING IDEAS
14. BRAINWRITING
15. SERENDIPITY TECHNIQUE ("BY CHANCE")
16. CREATIVE UNHAPPINESS
17. MIND MAPPING
18. SPEAK UP AND LISTEN
19. GAME STRATEGY METHOD (CHESS, JIGSAW, etc.)
20. JOIN BUSINESS OR ENTREPRENEURS ORGANIZATIONS
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MIND MAPPING
CHOOSING A BUSINESS
5-POINT SCALE ASSESSMENT
INSURANCE
STRATEGIC
PLANNING
SELFASSESSMENT
PERMITS
PATENTS/
TRADE
MARKS
BUSINESS
LOCATION
LEGAL
ISSUES
BUSINESS
IDEA
LICENCES
GENERATING
IDEAS
MARKETING
BUSINESS
PLAN
TAXATION
PPC TECHNIQUE
POSITIVES
POSSIBILITIES
CONCERNS
PERSONNEL
SWOT ANALYSIS
STRENGTHS
WEAKNESSES
OPPORTUNITIES
THREATS
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FINANCING
WRITING A SUCCESSFUL BUSINESS PLAN
DEFINING A BUSINESS PLAN
• A good definition: A business plan is a document that
convincingly demonstrates the ability of your business to sell
enough of its product or service to make a satisfactory profit and
be attractive to potential backers.
• A better definition: A business plan is a selling document that
conveys the excitement and promise of your business to any
potential backers or stakeholders.
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EIGHT REASONS FOR WRITING A
BUSINESS PLAN
1.
2.
3.
4.
5.
6.
7.
8.
To sell yourself on the business - "sanity check".
To obtain bank financing.
To obtain investment funds.
To arrange strategic alliances.
To obtain large contracts.
To attract key employees.
To complete mergers and acquistions.
To motivate and focus your management team.
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TYPES OF PLANS
• The Summary Business Plan - up to ten pages
• The Executive Summary - up to two pages
• The Full Business Plan - 10 - 50 pages
• The Operational Business Plan - 40 - 200 pages
GETTING STARTED TO WRITE
BRAINSTORMING
• Step 1 Posing the Right Questions or Subjects
• Step 2 Providing Bite-Size Answers
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WHAT SHOULD THE BUSINESS PLAN COVER
1.
2.
3.
4.
5.
6.
7.
8.
COVER PAGE
TABLE OF CONTENTS
EXECUTIVE SUMMARY
THE COMPANY
THE MARKET
THE PRODUCT/SERVICE
SALES AND PROMOTION
FINANCES (CASH FLOW, INCOME/LOSS,
BALANCE SHEET)
9. APPENDICES (e. g., EXECUTIVES
PROFILES)
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ALTERNATIVE CONTENTS
1.
2.
3.
4.
5.
6.
7.
8.
9.
COVER PAGE
SUMMARY
TABLE OF CONTENS
INTRODUCTION
DESCRIPTION OF VENTURE
MARKETING STRATEGY
FINANCIAL STRATEGY
FINANCIAL SCENARIOS
OPERATING STRATEGY
• APPENDICES
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BUSINESS PLAN TARGETING SUMMARY
Stakeholder
Banker
Investor
Issues to
emphasize
Issues to
deemphasize
Length
Cash flow, assets,
Fast growth, hot
10-20 pp.
solid growth
market
Fast growth, potential
Assets
20-40 pp.
Sales force, assets
20-40 pp.
Fast growth,hot
20-40 pp.
large market,
management team
Strategic partner
Synergy, proprietary
products
Large customer
Stability, service
market
Key employees
Security, opportunity
Technology
20-40 pp.
Merger &
Past accomplishments
Future outlook
20-40 pp
acquisition
specialist
TE - II - BP - 18
CRITERIA FOR EVALUATING VENTURE
OPPORTUNITIES (1)
Attractiveness
Criterion
Higher Potential
Lower Potential
Market Issues
Need
Identified
Unfocused
Customers
Reachable; receptive
Payback to user
Less than one year
Unreachable or loyal to
others
Three years plus
Value added or created
High
Low
Product life
Durable; beyond time to
recover investment plus
profit
Imperfect competition or
emerging industry
Perishable; less than time
to recover investment
Market structure
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Perfect competition or
highly concentrated or
mature industry or declining
industry
CRITERIA FOR EVALUATING VENTURE
OPPORTUNITIES (2)
Attractiveness
Criterion
Higher Potential
Lower Potential
Market Issues (continued)
Market size
$100 million sales
Market growth rate
Growing at 30% to 50% or
more
40% to 50% or more;
durable
20% or more; leader
Gross margins
Market share attainable
(year 5)
Cost structure
Low cost provider
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Unknown or less than $10
million sales or multibillion
Contracting or less than
10%
Less than 20%; fragile
Less than 5%
Declining cost
CRITERIA FOR EVALUATING VENTURE
OPPORTUNITIES (3)
Attractiveness
Criterion
Higher Potential
Lower Potential
Economic/harvest issues
Profits after tax
10% to 15% or more;
durable
Less than 20%; fragile
Break even
Under 2 years
More than 3 years
Positive cash flow
Under 2 years
More than 3 years
ROI potential
Value
25% or more/year; high
value
High strategic value
15%-20% or less/ year; low
value
Low strategic value
Capital requirements
Low to moderate; fundable
Very high; unfundable
Exit mechanism
Present or envisioned
harvest options
Undefinded; illiquid
investment
Time to:
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CRITERIA FOR EVALUATING VENTURE
OPPORTUNITIES (4)
Attractiveness
Criterion
Higher Potential
Lower Potential
Competitive advantages issues
Fixed and variable costs:
Production
Lowest
Highest
Marketing
Lowest
Highest
Distribution
Lowest
Highest
Prices
Moderate to strong
Weak
Costs
Moderate to strong
Weak
Channels of
supply/resources
Channels of distribution
Moderate to strong
Weak
Moderate to strong
Weak
Degree of control:
TE - II - BP - 22
CRITERIA FOR EVALUATING VENTURE
OPPORTUNITIES (5)
Attractiveness
Criterion
Higher Potential
Lower Potential
Competitive advantages issues (continued)
Barrier to entry:
Proprietary protection/
regulation advantage
Response/lead time
advantage in technology,
product, market innovation,
people, location, resources
or capacity
Legal contractual
advantage
Contacts and networks
Have or can gain
None
Resilient and responsive;
have or can gain
None
Proprietary or exclusive
None
Well developed; highquality; accessible
Crude; limited inaccessible
TE - II - BP - 23
CRITERIA FOR EVALUATING VENTURE
OPPORTUNITIES (6)
Attractiveness
Criterion
Higher Potential
Lower Potential
Management team issues
Team
Competitor`s mind set and
strategies
Fatal flaws
Existing, strong proven
performance
Competitive; few; not selfdestructive
Fatal flaw issue
Weak or solo entrepreneur
None
One or more
TE - II - BP - 24
Dumb
BUSINESS PLAN A MORE DETAILED
TABLE OF CONTENTS
Cover Page
Executive Summary
1. Introduction-Industry, the company and its products
1
2
– The industry
– The company
– The products or services
2. Market research and analysis
–
–
–
–
–
A.
B.
C.
D.
E.
Customers
Market Size and Trends
Competition
Estimated Market share and sales
Ongoing Market evaluation
TE - II - BP - 25
3
BUSINESS PLAN A MORE DETAILED
TABLE OF CONTENTS (continued)
3. Marketing plan
–
–
–
–
–
A.
B.
C.
D.
E.
6
Overall marketing strategy
Pricing
Sales tactics
Service and warranty policies
Advertising and promotion
4. Design and development plans
–
–
–
–
A. Development status and tasks
B. Difficulties and Risks
C. Product improvement and New products
D. Costs
TE - II - BP - 26
8
BUSINESS PLAN A MORE DETAILED
TABLE OF CONTENTS (continued)
5. Manufacturing and operations plan
–
–
–
–
A.
B.
C.
D.
Geographic Location
Facilities and improvements
Strategy and plans
Labor Force
6. Management team
–
–
–
–
–
–
A.
B.
C.
d.
E.
F.
9
11
Organization
Key management Personnel
Management compensation and ownership
Board of directors
Management assistance and training needs
Supporting professoinal services
TE - II - BP - 27
BUSINESS PLAN A MORE DETAILED
TABLE OF CONTENTS (continued)
7. Overall schedule
13
8. Critical risks and problems
15
9. Community benefits
16
– A. Economic benefits
– B. Human development
– C. Community development
10. The financial plan
–
–
–
–
–
A.
B.
C.
D.
E.
17
Profit and loss forecast
Pro forma cash flows analysis
Pro forma balance sheets
Breakeven chart
Cost control
TE - II - BP - 28
BUSINESS PLAN A MORE DETAILED
TABLE OF CONTENTS (continued)
PRO FORMA INCOME STATEMENTS
PRO FORMA CASH FLOWS STATEMENTS
PRO FORMA BALANCE SHEETS
BREAKEVEN CHART
11. PROPOSED COMPANY OFFERING
–
–
–
–
A. Desired financing
B. Securities offering
C. Capitalization
D. Use of funds
TE - II - BP - 29
24
1
2
3
EXHIBIT 1
PRO FORMA INCOME STATEMENTS (1)
1st Year - Months
2nd Year - Quarters
4
5
6
7
8
9 10 11 12
1Q
2Q
3Q
4Q
Sales
Less:
Discounts
Less:
Bad Debt Provision
Less:
Materials Used
Direct Labor
Manufacturing Overhead (2)
Other Manufacturing
Expense (Leased Equip.)
Total Cost of Goods Sold
Gross Profit (or Loss)
Less:
Sales Expense
Engineering Expense
General and Administrative
Expense (3)
Operating Profit (or Loss)
Other Expense (e.g.,
Less:
interest, depreciation)
Profit Before Taxes (or Loss)
Income Tax Provision
Profit (Loss) After Taxes
(1) See also the Financial Statement Guidelines you received at the workshop, to decide which is more appropriate for your venture.
(2) Includes rent, utilities, fringe benefits, telephone.
(3) Includes office supplies, accounting and legal services, management, etc.
TE - II - BP - 30
3rd Year - Quarters
1Q
2Q
3Q
4Q
1
2
3
EXHIBIT 2
PRO FORMA CASH FLOWS
1st Year - Months
4
5
6
7
8
9 10 11 12
1Q
Cash Balance: Opening
Add:
Cash Receipts
Collection of Accounts
Misc. Receipts
Bank Loan Proceeds
Sale of Stock
Total Receipts
Less:
Disbursements
Trade Payables
Direct Labor
Manufacturing Overhead
Leased Equipment
Sales Expense
Warranty Expense
General and Administrative
Expense
Fixed Asset Additions
Income Tax
Loan Interest @___%
Loan Repayments
Other Payments
Total Disbursements
Cash Increase (or Decrease)
Cash Balance: Closing
TE - II - BP - 31
2nd Year - Quarters
2Q
3Q
4Q
3rd Year - Quarters
1Q
2Q
3Q
4Q
EXHIBIT 3
PRO FORMA BALANCE SHEET
1st Year - Quarters
2nd Year
1Q
2Q
3Q
4Q
ASSETS
Current
Marketable Securities
Accounts Receivable
Inventories
Raw Materials and Supplies
Work in Process
Finished Goods
Total Inventory
Prepaid Items
Total Current Assets
Plant and Equipment
Less:
Accumulated
Depreciation
Net Plant and Equipment
Deferred Charges
Other Assets (Identify)
TOTAL ASSETS
LIABILITIES AND STOCKHOLDER'S EQUITY
Notes Payable to Banks
Accounts Payable
Accruals
Federal and State Taxes
Other
TOTAL CURRENT LIABILITIES
Long Term Notes
Other Liabilities
Common Stock
Capital Surplus
Retained Earnings
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
TE - II - BP - 32
3rd Year