Business Planning
Paulo Soares de Pinho
FEUNL
March, 19 2014
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Key Elements
• The Opportunity
• The Context
• The Team
• The Deal
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It is not the technology - only
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Business Plans
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The Business Plan
• At startup phase the business plan becomes a critical element of the entrepreneurial venture – To attract financing
• To determine financial needs
• To determine pre and post-money valuations and capital structure
– To show that entrepreneur has carefully evaluated the opportunity • Market size; competitive products; competitors
• Strategic and financial aspects
• Adequate risk evaluation
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Why is the Business Plan so important?
• Business plan is a crucial exercise – For entrepreneurs
• To evaluate CAPEX and OPEX requirements
• To determine financing needs
• To value their venture
– For finance-providers, to evaluate entrepreneurs: • how much do they know about their business, market size,
etc?
• How careful were they at estimating their sales potential, margins, CAPEX, OPEX and financing needs?
• Have they clearly anticipated sources of risk?
• How much attention did they pay to important details?
“Plans are
nothing.
Planning is
everything”
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The Opportunity and its business model
• The Vision
– Clearly specify your vision for the new venture, i.e., your ambitions for your venture
– Vision characteristics
• Short / focused statement
• Able to survive the friction of time – but adjustable
• Unique – special to your venture
• Purpose: provides rationale for venture’s existence
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Vision statements
• BMW Vision Statement (an old one) – To become most successful premium manufacturer in the car
industry.
• Pepsi Co Vision Statement – PepsiCo’s responsibility is to continually improve all aspects
of the world in which we operate – environment, social, economic – creating a better tomorrow than today.
– Our vision is put into action through programs and a focus on environmental stewardship, activities to benefit society, and a commitment to build shareholder value by making PepsiCo a truly sustainable company.
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The Venture’s Mission statement
• The mission statement will describe the company’s goals, products / services and target customers as well as the deliverables for the different stakeholders. – Characteristics:
• Short: 100 words or less • Should provide a clear path to achieve company’s vision • Clear, concise explanation of company’s purpose, values, goals,
customers (Channels?),
• A Mission Statement defines the company's business, its objectives and its approach to reach those objectives. A Vision Statement describes the desired future position of the company. Elements of Mission and Vision Statements are often combined to provide a statement of the company's purposes, goals and values. However, sometimes the two terms are used interchangeably.
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Product’s Value Proposition
• Clearly state the value your offer to your customers – Product: superior product characteristics that are valued by
the clients – Access: How does the consumer get access to it – Service: What service you offer besides the product – Security: how safe is your product – Other benefits – Price: how does your price compare with the benefit you
offer to the customer?
• In short, lists your customers’ perceived benefits from your product and how much they have to pay for them (of course, you need to listen to them first)
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Some value-propositions
• Starbucks – We provide a friendly, comfortable, well-located place
offering a wide range of fresh, customized coffees, teas and other beverages for the person who enjoys a good experience and a good beverage.
• Google search engine – Fast, relevant results for the most ill-described query.
• Amazon.com (an old one) – An easily accessible internet site that is convenient all
of the time to provide a wide selection of books, CD’s and videos at a fair price to the busy, computer-literated customer
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The Business Model • Customer Selection
• Value Proposition
• Competitive Advantage
• Products and services
• Organisational Design
• Value capture
• Talent
• Who is the customer? • Is our offer relevant to this group?
• What are our products unique benefits?
• What are our sources of competitive
advantage? Is it sustainable? • How do we differentiate ourselves? • What is our product range? • What elements of the value-chain we want to
control and which do we outsource?
• What is our organisation architecture?
• How do we capture part of the value created? • How do we protect profitability
• How do we recruit and retain talent?
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Business Plan: Contents
• Executive Summary • The Market
– Including the marketing plan
• The technology, product or service – Including info on “proof of concept” and IP issues
• Management Team • Business Operations • Financial Projections • Details on the Use of Funds • Exit Possibilities
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Executive Summary
• Two pages (3 already too long) • In the first paragraph you must capture the attention of a
potential financial investor • Explain what is different about your opportunity, how big is
the market potential, how fast can your company grow; what is your vision
• What is the Value Proposition • Who are the competitors, how will they react, substitute
products and services, etc • Why are you the right team for this opportunity? • Think of it as the main guide to your elevator pitch
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The product
• Why is your innovation relevant?
– Is it a disruptive innovation?
• Is it going to completely change an industry / sector?
• How really new is it? What are current alternatives?
– To which use is it meant?
– How much value it creates to potential customers?
• At which price can be sold?
– What alternative uses it may have?
• Detail main characteristics / specifications
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The Product: Intellectual property
• Who owns the IP? – Yourselves? A University?
– Is it transferable? How?
– Who owns the IP in case your firm becomes insolvent?
• Is (are) there any patent(s)? – How strong are they?
– Do we have to invest to get stronger IP protection?
– Do you own the patent or just the rights to use it via a royalty?
– If answer is yes, can we buy the patent?
IP rights and ownership
are usually among the
most critical issues for
VC investment
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The people • Who are the founders?
– What have they accomplished in the past?
– Have they worked together as a team in the past?
– Are they friends / relatives? How many are they? (too many/few)?
– Who else (what skills) should join the team?
• Do they possess the right skills for this Opportunity? – Technological; Marketing; Managerial
• Whom do they know? (what is their reputation?) – What doors may be open by these contacts?
• How committed are they? – Their own initial investment (cash, time, opportunity costs)
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The Market
• Target Market – What is the relevant target market?
– How large is it?
– How attractive is it?
• Margins (and ability to protect them); costs; technological stability;
• Market growth; margins; threats, etc
– What share of the market can be captured?
– What are the growth prospects?
• Can we ride on its growth?
– How easy it is to enter and capture a share of it?
• Who is your competition? What are their strengths? Any soft-spots?
Be flexible: your
product may have
alternative
uses/markets.
Search for the best
alternative
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The opportunity (cont)
• The customer – Who is he/she? – How does he (or who does) make decisions?
• Or who actually makes the decision to buy the product
– What needs can we serve? and how? – How to market/position the product (4 p’s…) – How to attract customers? (at which cost?) – How to retain, cross-sell and evaluate (CRM)? – How much does it costs to support? – How to monitor customer satisfaction and
anticipate future needs?
Try to think on the
opportunity from the
customer’s perspective (rather
than your own)
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The Market: Marketing Plan
• Must detail your marketing strategy – All previous discussion about the relevant target
market, and the customer;
– How is the product/service going to be positioned
– How will be promoted
– Wow will access distribution channels • Need strategic partnerships (investors)?
– How will handle competitors and competitive products and services
– Specific actions to achieve specific results
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Business Operations
• Manufacturing (if applicable): – Outsourced; in-house; production technology – Costs; sourcing raw materials, etc – Quality control
• Company’s own R&D – Research facilities; Available grants
• Delivery to end customers or distributors • Human resources
– People to be hired (and when); – Remuneration, etc…
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Financial Projections
• Sales Plan – Units & prices per year & channel
• Costs – Cost of goods sold
– Other overhead
• R&D and product development – Expenses and time-plan
• Working capital requirements
• Fixed capital investments
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Financial Projections
• Pro-forma income statements based upon previously presented projections and assumptions – Detail sales revenue (by product, sales channel, customer group, etc);
detail prices, etc – Detail costs (CGS, admin, marketing & sales, personnel) and show
coherence with previous assumptions
• Investment plan – Detail R&D, fixed investment, etc
• Pro-forma balance sheets based upon income statement and your financing plans – Detail financing stages; What financing and who from – Detail Working capital management and assumptions
• Pro-forma Cash-flow statements • A valuation exercise?
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Room for Dessert
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Case analysis
• How do you evaluate the business (1-5)? – What do you like about it? – What do you don’t? – What are the major risks?
• How do you evaluate the business plan (1-5)? – What do you like about it? – What do you don’t? – How reasonable are the financial forecasts?
• Who are the “target investors” for this business plan? – What kind of deal is proposed to them?
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