Writing a Successful Business Plan Professor John Newman Babson College
What Is a Business Plan? • IDENTIFICATION AND ARTICULATION OF: • Opportunity, Market, Customers • Management Capable of Seizing It • Minimal Required Resources • Entry Strategy & Tangible Vision for Growth • Financial Requirements, Cash Flow & Deal • Critical Risks & Assumptions • Harvest Options Source: Ed Marram, Babson College
Goals of a Business Plan • Evaluate feasibility of the idea • Development of strategy • Entry, early growth, acquisition, LBO, harvest, etc. • Assist in obtaining resources/approval • Establish credibility
Table of Contents Executive Summary Industry, Products or Services Market Research Marketing Plan Management Team Development Plan Operations Plan Schedule Critical Risks Financial Plan Proposed Offer Appendices Financial Projections Start-up Costs Breakeven Chart Sample Business Plan Outline
Elements of a Successful Plan • Clear description of the idea • Overview of industry to suggest need/opportunity • Evidence that demand exists (or can be created or stolen) • Clear description of resource requirements: • marketing, operations, financing • Background of management team • Schedule • Discussion of risks, rewards, and offer
Sample Business Plan Outline • Table of Contents • Executive Summary • Industry, Products or Services • Market Research • Marketing Plan • Management Team • Development Plan • Operations Plan • Schedule • Critical Risks • Financial Plan • Proposed Offer • Appendices • Financial Projections • Start-up Costs • Breakeven Chart
Business Plans: Investor Decision Process • Market Attractiveness • Market Need • Size of Market • Market Growth • Access to Market Expected Return • Product Differentiation • Uniqueness • Product Life • Profit Margin • Value Added + Decision to Invest • Managerial Capabilities • Management Skills • Marketing Skills • Financial Skills • References -- Perceived Risk • Resistance to Threats • Barriers to Entry • Obsolescence Risk • Downside Risk • Economic Cycle Risk Entrepreneurship: Strategies and Resources
Key Points to Remember • General Guidelines • Clear, concise, professional style • Well-researched and documented • Consistent and cohesive • Business plans are: • Very specific • Not promotional tools, selling is subtle
Industry Section • Industry Overview • Size, growth rate, segmentation, trends, regulatory environment • Opportunity • Product Overview • Competitive Advantage • Fit with Corporate Objectives • Entry and Exit Strategies
Market Research • Identify Market Area and Size • Description of Primary Customers • Who, how many, what they want, what they do • Research and Support for Demand • Competitor Analysis • Positioning map, strengths, weaknesses, likely competitive response
Marketing Plan • Mission Statement • Product Characteristics • Features • Pricing • Sales/Channel Strategies • Promotional Strategy • Support Policies • Sales Projections • On-going Evaluation The key is to build on your market research ...
Management Team • Managerial Positions Required • Responsibilities • Biography • Ownership Structure • Key Advisors • Professional Support
Design and Development Plans • Development Status and Tasks • Costs • Difficulties and Risks • Proprietary Issues (partial, not complete) • Product Improvement and New Products
Operations Plan • Facility and Location Requirements • Equipment Requirements • Non-managerial staffing • Sources of Supply • Production Process and Controls • Distribution logistics • Regulatory and other compliance issues
Schedule • Gantt Chart showing: • Tasks • Time frame • Cost • Person responsible
Critical Risks:Identification, Evaluation, Mitigation • Identify major risks (7-10 is typical) • Look beyond the simplistic (sales fall short) • Evaluate impact should risk occur • Describe how the risk will be mitigated and how you will respond should it happen Ask others what holes they see in your plan. What can go wrong ? Entrepreneurs frequently get too close to their ideas. You need unbiased views here ...
Critical Risks: An Example Key Member of the Management Team is Injured Evaluation: Management is in excellent health and will refrain from dangerous activities. Thus, it is considered unlikely that a member of the management team will be incapacitated. Contingency: The company will ensure that key members of the management team undergo physical examinations annually. In addition, the company will provide key-man life insurance sufficient to protect outside investors’ capital in the event of an emergency.
Financial Plan • Start-up Requirements (Investment required) • Review of Financial Characteristics • Sales, margins, profits • Return Measures (IRR, ROI, EVA) • Be careful not to promise • Breakeven Concerns • Sales level, time to cash stability • Extraordinary financial events Avoid describing your assumptions. The goal here is to convey the characteristics of your business briefly.
Executive Summary • Clear description of idea • Arguments for success • Overview of Industry, Market, Need, Demand • Benefits to Customer / Company • Fit with Company Objectives • Team • Financial Characteristics • Sales, profits, investment, risk and returns
Appendices:(Could Include Such Items As) • Lists, specs, pictures of products, systems, software • List of customers, suppliers, references • Appropriate location factors, facilities or technical analysis • Independent reports by technical expert, consultants • Detailed resumes of founders, key managers • Any critical regulatory, environmental or other compliance, licenses or approvals • Sales or other financials assumptions (in brief) Source: Ed Marram, Babson College
Key Considerations • Have a “story to tell” • Be confident but objective and dispassionate • Understand the financial characteristics of your business • Avoid promises and self-aggrandizement • Tease to stimulate interest, never bore
Miscellaneous Concerns • Length is typically 20-40 pages, excl. exhibits • Required appendices • Financial statements (3-5 years) • Statement of Start-up Costs • Breakeven Chart • Resumes • Use bullet points, tables, and small charts • Don’t use first person (“I”, “We”, “Our”) • Format and Spelling Count (a lot)
Remember: A business plan is a specific plan to open a new business or to expand an existing one, not the writer’s wishes and dreams !
Pitfalls and Omissions:Venus Fly Traps for Entrepreneurs • Seeking premature approval • Believing Plan is more important than Orders • Develop Complete Business Plan First v. Floating Trial Balloons • Selling the plan to the wrong audience • Selling the plan to the right audience poorly Source: Stephen Spinelli, Babson College
Pitfalls and Omissions:Venus Fly Traps for Entrepreneurs • Phantom or Gingerbread Advisors • Spreadsheet Diarrhea (Financials = Business) • Poor understanding of product acceptance • Under-estimation of competitive reaction • Pricing strategy too low • Capital requirements too low or undefined Source: Stephen Spinelli, Babson College
Business Plans:What Investors Look For • Evidence of Customer Acceptance: Orders • Evidence of Focus / Niche • Appreciation of Financial Goals • Proprietary Position, Exclusivity • Team with experience, commitment, and integrity Source: Stephen Spinelli, Babson College
Business Plans:What Turns Investors Off • Great Mousetrap Fallacy • Projects which deviate excessively from industry norms • Unrealistic growth projections • Inadequate management experience / depth Source: Stephen Spinelli, Babson College