4 - Business Plans

							4. Business Plans


  Your	
  business	
  plan	
  is	
  more	
  than	
  just	
  a	
  piece	
  of	
  
  paper,	
  it’s	
  the	
  founda5on	
  of	
  your	
  business.	
  


  It’s	
  not	
  only	
  a	
  roadmap	
  for	
  your	
  business	
  strategy,	
  
  it’s	
  a	
  powerful	
  sales	
  tool	
  that	
  will	
  help	
  you	
  get	
  
  funding	
  and	
  develop	
  interest	
  in	
  your	
  product.	
  


  In	
  this	
  chapter	
  I	
  walk	
  through	
  the	
  top	
  ten	
  key	
  
  ques5ons	
  to	
  ask	
  about	
  your	
  
  business	
  that	
  will	
  help	
  you	
  
  develop	
  a	
  winning	
  
  business	
  plan.


  We’ll	
  review	
  key	
  terms	
  
  that	
  are	
  covered	
  in	
  most	
  
  business	
  plans,	
  and	
  
  explore	
  resources	
  that	
  
  will	
  help	
  you	
  perfect	
  your	
  
  pitch.
10 Key Questions To Address



    1)	
  What	
  is	
  the	
  product?	
  Answer	
  in	
  30	
  seconds	
  or	
  less.
    2)	
  What	
  is	
  the	
  unique	
  value	
  proposi8on?	
  What	
  makes	
  you	
  
    different	
  or	
  beGer	
  than	
  your	
  compe5tors?
    3)	
  What’s	
  the	
  market	
  opportunity?	
  What	
  problem	
  are	
  you	
  
    solving?	
  How	
  large	
  is	
  the	
  market	
  opportunity?	
  How	
  many	
  




                                                                                                            Chapter 5: Business Plans
    dollars	
  are	
  spent	
  on	
  it	
  every	
  year?	
  How	
  fast	
  is	
  it	
  growing?
    4)	
  How	
  will	
  this	
  idea	
  make	
  money?	
  Is	
  it	
  a	
  subscrip5on	
  service,	
  
    or	
  do	
  you	
  sell	
  one-­‐off	
  products?	
  Do	
  you	
  make	
  money	
  on	
  ads?
    5)	
  What	
  is	
  your	
  long-­‐term	
  strategy?	
  Where	
  do	
  you	
  see	
  your	
  
    company	
  in	
  5,	
  10	
  or	
  15	
  years?	
  What	
  are	
  the	
  key	
  metrics	
  you	
  
    plan	
  to	
  hit?
    6)	
  How	
  will	
  you	
  sell	
  or	
  market	
  your	
  product?	
  How	
  will	
  you	
  get	
  
    customers?
    7)	
  How	
  much	
  capital	
  do	
  you	
  need	
  to	
  raise	
  in	
  order	
  to	
  become	
  
    profitable?
    8)	
  Who	
  is	
  your	
  team?	
  Why	
  are	
  your	
  skills	
  uniquely	
  qualified	
  for	
  
    this	
  business?
    9)	
  What’s	
  the	
  preliminary	
  evalua8on	
  of	
  your	
  company?	
  
    10)	
  What	
  are	
  the	
  prices	
  for	
  your	
  products?
The Business Plan Deck

 A	
  business	
  plan	
  is	
  a	
  great	
  exercise	
  and	
  guideline	
  for	
  you	
  to	
  follow,	
  but	
  
 most	
  people	
  don’t	
  want	
  to	
  read	
  a	
  huge	
  40	
  page	
  document	
  in	
  order	
  to	
  
 understand	
  what	
  your	
  company	
  does.	
  


 A	
  business	
  plan	
  deck	
  is	
  a	
  visual	
  representa8on	
  of	
  your	
  business	
  plan,	
  
 usually	
  designed	
  on	
  PowerPoint.	
  It’s	
  mainly	
  a	
  sales	
  tool	
  used	
  to	
  pitch	
  
 your	
  business	
  idea	
  to	
  investors.	
  A	
  few	
  keys	
  to	
  you	
  business	
  deck:




                                                                                                                       Chapter 5: Business Plans
 •   Keep	
  it	
  around	
  15	
  slides
 •   Address	
  each	
  of	
  the	
  10	
  ques8ons	
  laid	
  on	
  on	
  the	
  previous	
  page
 •   Spend	
  a	
  few	
  slides	
  on	
  your	
  product,	
  detailing	
  examples
 •   Don’t	
  exceed	
  30	
  words	
  per	
  slide
 •   Include	
  aGrac5ve	
  pictures	
  and	
  graphics




      Business Deck Resources
            If you’re ready to get started making your business deck,
            check out this a business deck template, and be sure to
            avoid these business plan mistakes that will turn off investors.
The Financials

 The	
  part	
  of	
  the	
  business	
  plan	
  that	
  usually	
  trips	
  people	
  up	
  are	
  the	
  
 financials.	
  The	
  key	
  thing	
  you	
  want	
  to	
  iden5fy	
  are	
  your	
  core	
  metrics.	
  
 How	
  will	
  you	
  iden5fy	
  when	
  you’ve	
  been	
  successful?	
  What	
  metrics	
  will	
  
 you	
  use	
  to	
  benchmark	
  your	
  
 success?


 Whether	
  or	
  not	
  you’re	
  
                                                         Quick Tip




                                                                                                              Chapter 5: Business Plans
 math	
  oriented,	
  it’s	
  cri5cal	
  
 that	
  you	
  understand	
  the	
  
 basic	
  assump8ons	
  that	
  
                                                            For a jumping-off
 drive	
  you	
  financial	
  model.	
  
                                                            point, check out this
                                                            spreadsheet of
 You	
  may	
  choose	
  to	
  hire	
  a	
  
                                                            Financial Model
 consultant	
  or	
  get	
  other	
  
                                                            Projections.
 help	
  wri5ng	
  your	
  business	
  
 plan,	
  but	
  it’s	
  s5ll	
  cri5cal	
  
 that	
  you	
  understand	
  the	
  
 financial	
  drivers	
  that	
  will	
  
                                                            Let the COO of
 ul5mately	
  lead	
  to	
  the	
  
 success	
  of	
  your	
  business.	
                       Docstoc guide you
                                                            through creating
                                                            accurate financial
 If	
  you	
  don’t	
  have	
  a	
  strong	
  
                                                            forecasts in this helpful
 grasp	
  on	
  this,	
  you	
  won’t	
  be	
  
 able	
  to	
  properly	
  operate	
                        video.
 your	
  business.
Vocabulary:	
  Terms	
  to	
  Know

Assets:	
  A	
  resource	
  with	
  economic	
  value	
  that	
  an	
  individual,	
  corpora5on	
  or	
  
country	
  owns	
  with	
  the	
  expecta5on	
  that	
  it	
  will	
  provide	
  future	
  benefit

Business	
  Plan	
  Deck:	
  A	
  slideshow	
  breaking	
  down	
  a	
  business	
  model,	
  oTen	
  
using	
  powerpoint

Budge8ng:	
  A	
  financial	
  plan	
  and	
  a	
  list	
  of	
  all	
  planned	
  expenses	
  and	
  
revenues,	
  used	
  to	
  provide	
  a	
  forecast	
  of	
  revenues,	
  and	
  enable	
  cost	
  
constraints

Capital	
  Expenditure	
  (CAPEX):	
  Funds	
  used	
  by	
  a	
  company	
  to	
  acquire	
  or	
  




                                                                                                                    Chapter 5: Business Plans
upgrade	
  physical	
  assets	
  such	
  as	
  property,	
  industrial	
  buildings	
  or	
  
equipment

COS/COGS:	
  Cost	
  of	
  goods	
  sold	
  (or	
  cost	
  of	
  sales),	
  meaning	
  the	
  cost	
  of	
  
purchasing	
  materials,	
  developing	
  and	
  finishing	
  your	
  product

CPA:	
  Cost	
  per	
  acquisi5on

Current	
  Assets:	
  Assets	
  that	
  can	
  be	
  converted	
  into	
  cash	
  within	
  one	
  year	
  in	
  
the	
  normal	
  course	
  of	
  business,	
  including	
  money,	
  accounts	
  receivable,	
  
inventory,	
  marketable	
  securi5es,	
  prepaid	
  expenses	
  and	
  other	
  liquid	
  assets	
  

Current	
  Liabili8es:	
  A	
  company's	
  debts	
  or	
  obliga5ons	
  that	
  are	
  due	
  within	
  
one	
  year.	
  Current	
  liabili5es	
  appear	
  on	
  the	
  company's	
  balance	
  sheet	
  and	
  
include	
  short	
  term	
  debt,	
  accounts	
  payable,	
  accrued	
  liabili5es	
  and	
  other	
  
debts

Differen8a8on:	
  A	
  marke5ng	
  process	
  that	
  showcases	
  the	
  differences	
  
between	
  products

Equity:	
  On	
  a	
  company's	
  balance	
  sheet,	
  the	
  amount	
  of	
  the	
  funds	
  
contributed	
  by	
  the	
  owners	
  (the	
  stockholders)	
  plus	
  the	
  retained	
  earnings	
  
(or	
  losses)
Execu8ve	
  Summary:	
  A	
  short	
  sec5on	
  of	
  a	
  business	
  plan	
  that	
  summarizes	
  
the	
  plan,	
  in	
  such	
  a	
  way	
  that	
  readers	
  can	
  rapidly	
  become	
  acquainted	
  
with	
  the	
  full	
  plan	
  	
  

Financials:	
  A	
  summary	
  form	
  of	
  a	
  company's	
  earnings	
  statement,	
  
balance	
  sheet	
  and	
  cash	
  flow	
  statement

Liabili8es:	
  The	
  aggregate	
  of	
  all	
  debts	
  an	
  individual	
  or	
  company	
  is	
  liable	
  
for.	
  Calculated	
  by	
  summing	
  all	
  short	
  and	
  long-­‐term	
  debt,	
  along	
  with	
  any	
  
off	
  balance	
  sheet	
  liabili5es	
  that	
  have	
  been	
  incurred.	
  

Mone8za8on:	
  To	
  convert	
  into	
  money.

Net	
  Income	
  (Profit):	
  Business	
  revenues	
  minus	
  expenses,	
  a	
  more	
  
accurate	
  view	
  of	
  your	
  revenue.

Opera8ng	
  Expenses:	
  A	
  category	
  of	
  expenditure	
  that	
  a	
  business	
  incurs	
  




                                                                                                                 Chapter 5: Business Plans
as	
  a	
  result	
  of	
  performing	
  its	
  normal	
  business	
  opera5ons.

Product:	
  The	
  thing	
  produced	
  by	
  labor	
  or	
  effort,	
  to	
  be	
  sold	
  and	
  
distributed	
  for	
  profit.

Profit	
  Margin:	
  A	
  measurement	
  of	
  business	
  profitability	
  determined	
  by	
  
calcula5ng	
  the	
  net	
  profit	
  as	
  a	
  percentage	
  of	
  the	
  revenue.	
  (Net	
  Income	
  /
Revenue)	
  x	
  (100)

Sales	
  Profit	
  (Gross	
  Profit):	
  A	
  company's	
  revenue	
  minus	
  its	
  cost	
  of	
  goods	
  
sold.

Segmenta8on:	
  A	
  marke5ng	
  term	
  referring	
  to	
  the	
  dividing	
  of	
  
prospec5ve	
  buyers	
  into	
  groups	
  (segments)	
  that	
  have	
  common	
  needs	
  
and	
  will	
  respond	
  similarly	
  to	
  a	
  marke5ng	
  ac5on.

Service:	
  Intangible	
  equivalent	
  of	
  goods,	
  to	
  be	
  commodi5zed	
  and	
  sold	
  
for	
  a	
  business

Target	
  Customer	
  (Target	
  Market):	
  The	
  consumers	
  a	
  company	
  wants	
  to	
  
sell	
  its	
  products	
  and	
  services	
  to,	
  and	
  to	
  whom	
  it	
  directs	
  its	
  marke5ng	
  
efforts.	
  
Resources Recap

• 	
  Business	
  Plans	
  
       • 	
  Business	
  Plan	
  Starter	
  Kit	
  (legal	
  document	
  package)
    • 	
  Business	
  Plans:	
  Perfect	
  the	
  Pitch	
  (course)
    • 	
  Business	
  Plan	
  Template	
  (document)
    • 	
  Market	
  research	
  for	
  a	
  business	
  plan	
  (video)
    • Evalua5ng	
  market	
  size	
  and	
  compe55on	
  (video)
    • 	
  Product	
  descrip5on	
  for	
  a	
  business	
  plan	
  (video)




                                                                                    Chapter 5: Business Plans
• 	
  Business	
  Plan	
  Deck
       • 	
  Business	
  Plan	
  Presenta5on	
  Template	
  (PPT)
    • 	
  How	
  to	
  create	
  a	
  winning	
  pitch	
  deck	
  (video)
    • 	
  Mistakes	
  to	
  avoid	
  in	
  your	
  business	
  plan	
  (video)


• 	
  Financials
       • 	
  Financial	
  Model	
  Projec5ons	
  (document)
    • 	
  Crea5ng	
  accurate	
  financial	
  forecasts	
  (video)
    • 	
  Accurately	
  determining	
  business	
  plan	
  expenses	
  (video)
    • 	
  Mistakes	
  to	
  avoid	
  with	
  financial	
  projec5ons	
  (video)