Business Plan to Launch How Strategically Planning your Business is good preparation for the Business Plan Competition Karen Thornton Director, Hillman Entrepreneurs Associate Director, MTECH Ventures
Balance is ImportantRemember your Audience • Technical • Market • Business
Technical • technical concept analysis --- • Define the concept fully • Demonstrate that performance assumptions are viable • Assess critical barriers to production • Survey the state-of-the-art of the technology • Estimate the costs. From the one-time R&D to the recurring production costs- and everything in between for the stages of prototyping
Market • Demonstrate the product’s uniqueness and sustainable in a competitive marketplace. • Identify three unique features or benefits of the product • Identify the competition • Establish customer requirements for the product • Identify potential market barriers • Identify market distribution channels • Identify product pricing criteria
Market Research • Demonstrate that there is market justification for the product. • Describe the market environment • Identify economic and industry trends • Quantify the size of the market • Identify the market segments • Analyze market segment size, growth rate, competitive environment • Analyze business capabilities for market share, competitive position, product capabilities, resource capabilities
Market Strategy • What the market approach will be • Define competitive advantage of the enterprise and the product • Define marketing objectives (product, markets, image, service levels, business results, market share and sales levels) • Select target markets • Identify target market niche • Select product features • Select price
Market Sales Approach • Obtain a quantitative and qualitative market response to the product by analyzing limited sales performance and a qualitative analysis of customer response. • Conduct limited product sales or get endorsements from potential customers • Quantify the volume, rate, and demographics of sales • Design and implement a customer survey • Analyze customer feedback (price, design, function, packaging, delivery) • Transmit design modifications to technicians
Business Model • Venture Assessment - Define business model and demonstrate that the concept will generate a profit; that you are capable of taking the product to market. • Identify financial, physical, and human resources required for commercialization • Identify the status of intellectual property requirements • Establish a positive profit potential
Business – Economic feasibility • Develop a financial model based on integration of the technical product information and the market study into one or more break-even financial models. • Develop financial scenarios • break-even analysis based upon unit prices, volume of sales, and costs • Determine whether the business opportunity presents sufficient profit margins to justify a business venture • Assess the merits of licensing the opportunity compared to venturing
Business – Strategic Planning • Develop a complete business plan. • Finalize intellectual property requirements • Finalize business organization structure • Select a board of directors (or advisory team) • Finalize agreements on any concurrent break-through technology requirements critical to commercialization • Develop a formal financial plan that includes the strategy and timing of present and future funding rounds
Major Causes of Product Failure • Inadequate market analysis 24% • Product problems or defects 16 • Lack of effective marketing effort 14 • Higher costs than anticipated 10 • Competitive strength or reaction 9 • Poor timing of introduction 8 • Technical or production problems 6 • All other causes 13
What the Judges Look For • Value proposition • Competitive advantages • Does the idea make sense • Do the revenue and profit model make sense • Who are the first customers? • What are the switching costs? • Is there protectable intellectual property? • Time to market and pay-off • Will the business be around in five years? • Is the executive summary clear and well-written?
What VCs Look For • Scalability • High Sales Growth over Short time frame • Look at 3 year’s earnings where Margins Improve • Plan for Efficiently using Capital • Strong Management Team
Finding a Good Idea • Is it differentiated in some way from existing competitors? • Entrepreneurs figure out how to offer products and services faster, cheaper, inbetter quality, in unique combinations, creating a better known brand name, etc.
Technologies of the Future • Nanotechnology & MEMS (micro-electro-mechanical devices) (Medical advances, airbags and other automotive needs) • Security software/hardware (9/11 and terrorism) • Wireless applications (LAN and WAN) • Cheaper, faster LAN technology (fatter pipes) • Network management software/apps • Storage of data, video, audio • Be a Visionary - Create your own technology roadmap for the home, wireless consumer, office, etc. Where are there voids?
Innovation in the “Old Economy” • Look at every link in the supply chain. Where can you innovate? – (Henry Ford’s assembly line) • Supplies/components/labor • Storage/distribution/transportation (GPS on trucks, RFID on inventory) • Sales/marketing/brand name (creative or innovative packaging - toothpaste containers, soap containers ) • Customer service (Disney, Marriott, Nordstrom's) • Market analysis: timing of new products/ services and geographic expansion
Ways to Differentiate • How do YOU choose what you buy? Why are you a loyal customer? Differentiation: • Price • Service • Brand name • Look at markets you know well; how can you offer a better solution for a lower price? • Many big competitors ignore small, niche markets instead seeking “scalable” markets. (That niche can become your opportunity.)
Business is based on Customers Strategic Marketing focuses on the satisfaction of customer needs, wants and requirements; Customers will buy what they want even when they don’t buy what they need. Your job is to determine what those “wants” are So you Have an Idea- How to build a Business
What? Who? How much? When? Pay what? Market Research Puzzle • Need Market Research for your Business Plan • Market research is a puzzle. Determine who is the customer, what they want, when they’ll buy, how much they’ll buy, and what they’ll pay to determine if viable demand exists. • Draw conclusions only when the puzzle is completed!
Is there a customer? • Find out if there is a customer …and who it is. • Think “outside the box.” • Customers can be created where there were no customers before • ---through creating demand where there was none (Starbucks and new coffee drinkers) • through innovation (new product or service- or other innovation) • An Entrepreneur Looks for New Opportunities– • bottled water • Pre- 1968 -- Elite product- bottled Perrier (founded in 1863) • Today - bottled water appears in everyone’s home • Why?
What do the customers need? • Looking at your target customer- what do they want or need? (May not be the same as what you perceive they need… Classic Coke?) • Price v. performance • Aesthetics v. features • An Entrepreneurs asks, “What’s causing them pain?”
How do you Find Out? • GO ASK --Surveys, focus groups, and interviews. • Analyze comparable (existing or proposed) products/services to determine shortcomings. • Some needs are consistent in every market (faster, better, cheaper…the entrepreneur's mantra):
When will customers purchase? • So, you know WHO the customer is and WHAT they want, but WHEN will they buy? • A customer will buy an innovative product once its value proposition exceeds the value proposition of existing product • New cell phone features– Want it NOW even though current phone they have works perfectly well • desktops to laptops – next move - laptops to tablet PCs – what after that – hand-held computers with power of desktop?
Published market research • Often cited in trade publications, newspapers, and magazines. • Look for trends – try to be ahead of the trend– visionary….. • First to market – but not too soon. (Apple’s Newton – 1980’s)
What volume will customers purchase? • Calculating potential Market Share • If your product is truly differentiated, it will replace an existing product over time (14.4 modems – eventually replaced by 28.8 .. And so on with advances in modem speeds. DVDs replaced VHS… which replaced Betamax) • If you create a new market altogether, estimated volume is more difficult, though possible. (iPod)
What will customers pay? • Determining pricing is critical for planning a business and evaluating feasibility. • Three ways to determine pricing: • Comparables • Ask the customer • Bottoms-up/ROI method (Return On Investment) • When interviewing or surveying, ask what price they pay now and price they would pay.
What other factors impact demand? • The economy impacts everyone. • Financial health of customer sector. • Unexpected roadblocks (macro-economic forces) • Big SUVs- gas prices • Real estate- Interest rates
Competitive analysis • Demand (knowing there is a Customer) is only half the picture; can you achieve competitive differentiation needed to capture those customers? • Identify and segment the competitors • Analyzing competitors
Opportunity Analysis Internal Analysis (Company) External Analysis (Competition, customers) Strengths Weaknesses Opportunities Threats Company’s ability to CAPITALIZE on Opportunity (Product/Company Fit) Attractiveness of Opportunity (Product/Market Fit) STRATEGIC WINDOW
Use a matrix to analyze competitors. Organize the information
Determining direct costs • To estimate direct costs: • Build from the bottom-up; estimate every component needed, labor required, and obtain costs through interviews and web searching. • Analyze comparable product costs, if available. • If it costs more to make it than to sell it, you don’t have a business. Look for something else. • Software margins avg. 60%, high upfront R&D. • Services margins avg. 50%, hard to retain customers • Engineered products margins vary, 20%-80%! • Very low margins- (single digits) groceries, computers, airlines
What? Who? How much? When? Pay what? Add the puzzle pieces • Should you launch this business? • Does viable demand exist? • Can you be different than competitors? • Will your products/services make money?
P.S.U.C.F. • Problem – Big and painful • Solution – Clear and unique • Unfair Advantages – Team , go-to-market, distribution, IP, etc. • Competition – Buyer’s options • Financials – Needs, funds use, risk vs. return
Problem • How many buyers? • How painful is it to the market? • How is the problem dealt with today?
Solution • Basics of your solution • Basic unique advantage • Define the scale of the advantage
Unfair Advantages • Legal and ethical but “UNFAIR”!! • Think creatively here: • Intellectual property? • Unique processes? • Unique position? • Unique relationships? • Unique distribution or go-to-market advantage? • Unique advantage in operations? • Sustainable price point advantage?
Competition • How else can prospective buyers fix problems or find satisfaction? • Your competitor's solution? • Build it in-house? • Wait? Status Quo? • Pretend it does not exist? • Deflect problem to a supplier etc? • Ask their present solutions provider to adapt a “temporary” solution? Competition is ANYTHING that hinders sales !!!
Financials • Money you need to succeed • Planned use of funds • Major milestones • High level 3-5 year financial projections • Possible “exit” scenarios and returns Why would an investor care to invest?
Elevator Pitch • Up to 1 minute verbal ‘sales’ pitch describing your concept and why someone should pay attention to you • Use visual imagery and analogy to “paint pictures”, gain immediate understanding, and generate excitement • Keep it simple; avoid unnecessary details • Write it down, revise, and practice until you have it “right”. Then do it again! 40,000 Feet…
Investor Presentation • Typically 10 to 12 slides – 20 minutes worth • Exciting visual demonstration of PSUCF • Show important elements of the business plan • Use case examples or testimonials instead of dry theory • Have more detailed Q&A slides ready • Practice delivery • Be passionate! 10,000 Feet…
Business Plan • Typically 10 to 15 pages • Details exactly how the company will materialize • Explains the market size and the competitive environment with supporting evidence • Describes why your team is the right team to capitalize on this opportunity • Serves as an “owner’s manual” for the company 1,000 Feet…
Why write a business plan? • Writing forces the person (team) preparing the plan to look at the business in an objective and critical manner • Helps to focus ideas and serves as a feasibility study of the business’s chances for success and growth • Finished plan serves as an operational tool to define the company’s present status and future possibilities • Helps manage the business and prepare for success • Serves as a strong communication tool for the business • Defines your purpose, your competition, your management and personnel • Provides the basis for your financing proposal
What is a “business plan”? • The plan for the creation and management of the business. • With special attention to: • Marketing plan describing match of strategy and products to current and future markets • Operations plan discussing processes • Financial plan assessing all costs and financial requirements
Four Interdependent Success Factors People Context Opportunity Risk & Reward How to Write a Great Business Plan