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

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

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 Product Differentiation Uniqueness Product Life Profit Margin Value Added Managerial Capabilities Management Skills Marketing Skills Financial Skills References Resistance to Threats Barriers to Entry Obsolescence Risk Downside Risk Economic Cycle Risk

Expected Return

+
Decision to Invest

Perceived 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
Promotional Strategy Support Policies Sales Projections On-going Evaluation

Mission Statement Product Characteristics Features Pricing Sales/Channel Strategies

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

Sales level, time to cash stability

Breakeven Concerns

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 Dont 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 writers 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