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8/3/2019 Mckinsey How to Write a Business Plan
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How to Write a Business
Plan
How to Write a Business
Plan
This report is solely for the use of client personnel. No part of it may be circulated, quoted, orreproduced for distribution outside the client organization without prior written approval from
McKinsey & Company. This material was used by McKinsey & Company during an oral
presentation; it is not a complete record of the discussion.
Innovation ChallengeInnovations Foundation
Toronto, Canada2001
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ContentsContents
Business start-up process
Writing the Business Plan
Constructing the team
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ContentsContents
Business start-up process
Writing the Business Plan
Constructing the team
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Stages of a Start-upStages of a Start-up
Stage 1 Stage 2 Stage 3
Businessidea
generation
Businessplan
preparation
Start-upand growth
Established
company
Interest ofinvestors
Financingdecision
Exit ofinitial
investors
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5 key factors for success of innovative start-ups5 key factors for success of innovative start-ups
Ideas Degree of innovation Scope Patent
Traditional service providers Attorneys Patent lawyers Tax consultants/
accountants Market researchers
People Inventors Entrepreneurs Team members
Capital Availability/amount Needs/responsibilities Exists for investors
Network & exchange Coaching Networking Matchmaking Innovative service provider Venture capitalists Headhunters Business angels Start-up consultants
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Elements of a promising business ideaElements of a promising business idea
CLEARCUSTOMER
VALUE
MARKET OFADEQUATE
SIZE
FEASIBILITYAND
PROFITABILITY
Successful ideasdemonstrate how bigthe market is, the targetcustomers and how the
product differs from thecompetition
SUFFICIENTDEGREE OFINNOVATION
Create a new product ora new way of deliveringan existing product doboth and create a new
industry
Ideas should be feasiblewith realistic time andresource plans
The key to success issatisfied customers, nota great product
There is nothing in the world aspowerful than an idea whose time has
comeVictor Hugo
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Innovation classification schemeInnovation classification scheme
New product
Microsoft
New industry
Netscape
Existing industry
Skilled trades
Engineering offices
New business system
Dell
Convention Innovation
Business system
Con
vention
I
nnovation
Product/service
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Role of traditional service providersRole of traditional service providers
Patentlawyers
Taxconsultants
Market
researchers
PATENTS
TAX
MARKETRESEARCH
Professional advisors can help toclear hurdles
Longterm
success
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Role of a venture-capital companyRole of a venture-capital company
$$$
IPO (Initial PublicOffering)
Sale of stake tothird parties
Seed capital (pre
start-up) Start-up capital (at
or shortly beforestart-up)
Expansion capital
Young, growingcompanies
Capital
recovery
Investments
58 years postStart-up
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Collective team strengthCollective team strength
Well constructed teamsprovide a strong basis for
success
Teammembers
Inventors
Entrepreneurs
Teammembers
Finance
SUCCESS
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Network supportNetwork support
START-UP
Venture
capitalists
Friends
SponsorsOther
start-ups
Serviceproviders
Peers
EntrepreneursAcademics
Use allconnections
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ContentsContents
Business start-up process
Writing the Business Plan
Constructing the team
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Writing a Business Plan forces youinto disciplined thinking, if you do an
intellectually honest job. An idea maysound great, but when you put downall the details and numbers, it may fallapart
Eugene Kleiner, Venture Capitalist
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Characteristics of a successful Business PlanCharacteristics of a successful Business Plan
Your calling card
The document the readerwill remember you by
Objective
Accurate
Positive and critical
Clear
Well structured
Standalone
Simple
Plain English
Non-technical terms
Consistent
Style
Analytical depth
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Elements of a Business PlanElements of a Business Plan
5. Marketing and sales
6. Business system and organisation
7. Implementation schedule
Businessconcept
Draftbusiness
plan
Finalbusiness
plan
Focus of this phase
Part of this phase
Importance
1. Executive summary
2. Product or service
3. Management team
4. Market and competition
8. Opportunities and risks
9. Financial planning and financing
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Key questions 1. Executive SummaryKey questions 1. Executive Summary
What is your business idea?In what way does it fulfilthe criterion of uniqueness?
Who are your targetcustomers?
What is the value for thosecustomers?
What market volumeand growth rates doyou forecast?
What competitiveenvironment do you face?
What additional stages of
development are needed? How much investment isnecessary (high levelestimation)?
What long term goals haveyou set?
What are the results ofyour detailed businessplanning?
What are your exactfinancing needs?
How will you delegatemanagement tasks?
How much productioncapacity is necessary?
How will theimplementation of yourbusiness idea beorganised?
What are your nextconcrete steps?
What do you estimateyour financing needs tobe?
What are the sales, costand profit situations?
What are the mostimportant milestonesalong the way to your goal?
What test customers haveyou approached/couldyou approach?
What distributionchannels will you use?
What partnerships wouldyou like to enter into? What opportunities and
risks do you face? What is the picture on
patents?
Business concept Draft business plan Final business plan
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Key questions 2. Product or serviceKey questions 2. Product or service
Executive
Summary
Product or service
Management team
Market &competition
Marketing& sales
Business system& organisation
Implementationschedule
Opportunities &risks
Financial planning
What are the features or functions of the product/service?
Who are the target customers?
What value propositions does the product/service provide tothe customers? (e.g., tabulate customers unfulfilled needsand ways the product/service addresses those needs)
What is the revenue model? (i.e., description of revenuesources advertising revenue, transaction revenue,
subscription revenue, flat-fee vs. percentage-based) What is the development status of the product? What remains
to be done to convert the business idea into a tangible productor service?
Has this business model been proven elsewhere? What aresome successful examples?
What is the plan to maintain the loyalty of customers?
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Key questions 3. Management teamKey questions 3. Management team
Executive
Summary
Product or service
Management team
Market &competition
Marketing& sales
Business system& organisation
Implementationschedule
Opportunities &risks
Financial planning
Who are the founders/founder groups and what are theirqualifications, experience and past achievements
How critical is the idea originator to the future success of theventure?
How are the management responsibilities shared among the
team? (e.g., a table of team members with their position andkey activities/responsibilities)
What is the plan to reinforce management team in the future?(e.g., schedule of future management hiring and skills required)
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Key questions 4. Market & competitionKey questions 4. Market & competition
Executive
Summary
Product or service
Management team
Market &competition
Marketing& sales
Business system& organisation
Implementationschedule
Opportunities &risks
Financial planning
What is the potential market size for the product/service? (e.g.,calculation derived from number of target customers, unitssold, value of sales)
What is the expected market growth and which major factorsinfluence that growth?
Who are the likely competitors? What do they offer?
What are the strengths and weaknesses of competitors? Whatis your competitive positioning vis--vis competitors? (i.e, atable of competitors and their ratings across key criteria e.g.,
time to launch, technological capability, access to proprietarytechnology, privileged relationship with suppliers andcustomers)
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Key questions 5. Marketing & salesKey questions 5. Marketing & sales
Executive
Summary
Product or service
Management team
Market &competition
Marketing& sales
Business system& organisation
Implementationschedule
Opportunities &risks
Financial planning
What are the specific plans to promote the product/service? How will the product/service be distributed? Which partners
will be needed in the distribution channel?
What will be the pricing strategy? (e.g., how much will youcharge for different customer segments, quantities)
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Key questions 6. Business systems &organisation
Key questions 6. Business systems &organisation
Executive
Summary
Product or service
Management team
Market &competition
Marketing& sales
Business system& organisation
Implementationschedule
Opportunities &risks
Financial planning
What is the proposed organisational structure of the company?
How will this organisational structure help achieve businessgoals?
What skills will be required and what is the hiring plan?(e.g., a table that shows total number of positions and thefunctional description of positions, skills required for top 3positions in each department)
What is the scope of the business? (i.e. what will beperformed internally and what will be outsourced?)
Have strategic partnerships been identified? If yes, how willthese partners be secured? If no, what is the plan to getpartners?
Have key vendors been identified? If yes, how will thesevendors be secured? If no, what is the plan to get vendors?
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Key questions 7. Implementation scheduleKey questions 7. Implementation schedule
Executive
Summary
Product or service
Management team
Market &competition
Marketing& sales
Business system& organisation
Implementationschedule
Opportunities &risks
Financial planning
What is the detailed short term implementation plan? (e.g.,Gantt chart showing detailed activities by month)
Who is responsible for each of the tasks? What are major milestones? What are interdependencies between tasks?
What is the 5-year implementation plan? (e.g., Gantt chartshowing activities by quarter)
Who is responsible for each of the tasks? What are major milestones?
What are possible long term options for the business?
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Key questions 8. Opportunities & riskKey questions 8. Opportunities & risk
Executive
Summary
Product or service
Management team
Market &competition
Marketing& sales
Business system& organisation
Implementationschedule
Opportunities &risks
Financial planning
What are the best case and worst case scenarios for the5-yearfinancial projections? What are the key assumptions on the
key parameters? (e.g., market shares, profit margin) refer toAppendix for example
What does the sensitivity analysis show? (i.e., by varying keyassumptions in isolation)
What mitigating steps are planned in order to minimise risks?
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Key questions 9. Financial planning & financingKey questions 9. Financial planning & financing
ExecutiveS
ummary
Product or service
Management team
Market &competition
Marketing& sales
Business system& organisation
Implementationschedule
Opportunities &risks
Financial planning
For the next 5 years (and at least 1 year beyond breakevenpoint), what are the projections for
Income statement (includes detailed revenue source asdescribed in the business model)
Cash flow statement Company valuation, utilising
Discounted cash flow analysis
Revenue multiples Balance sheet
What are the key assumption used in the financial proforma?(e.g., cost of capital, market share, margin)
What are the financial requirements for the business and whatsources of financing have been identified? (e.g., financialschedule with amount needed and possible financing sources)
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ContentsContents
Business start-up process
Writing the Business Plan
Constructing the team
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Invest in people, not ideasEugene Kleiner, Venture Capitalist
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Characteristics of a powerful management teamCharacteristics of a powerful management team
Common vision everybody wants to succeed
Complementary attitudes and strengths
At least 3, but usually no more than 6 people
Sticks together through thick and thin
S
taying power, even when there are setbacks
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Criteria applied by investorsCriteria applied by investors
Has the team already worked together?
Do team members have relevant experience?
Do the founders know their weaknesses and are
they willing to make up for them?
Have the founders agreed on their future rolesand are ownership issues settled?
Has the management team agreed on a commongoal, or are there underlying differences ofopinion?
Do the team members fully back the project?
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GOOD
LUCK