Company Confidential The Art and Science of Writing and Presenting a Business PlanCompany ConfidentialCompany Confidential Why create a Business Plan? • Most importantly, for you & your team – You need one for a startup – You need one for a corporation – The actual process of planning is the key. • It consolidates management direction. • It provides debate & finally consensus. – It’s used as a guide when speed bumps happen. – It’s your company & your personal scorecard. Source: Jack Derby, Derby ManagementCompany Confidential Why else? • No Business Plan…No money. – The Six Stages of Successful Sources: • FF&A: Friends, Family & Acquaintances • Private angels • Venture capitalists • Corporate investors • Strategic partners • BanksCompany Confidential Writing a plan is tough work • It requires disciplined balance – It’s visionary, but logical. – It’s financially perfect, but flexible. – It’s for today, but also for 3-5 years out – It’s a formal Plan, but it’s easy to read. – It’s creative, but it follows The Rules.Company Confidential How do you start? • Pay attention to The Do’s & Don’ts. – Above all else… • Be compelling • Be brief, focused, & deliberate • Focus on customers & how you will sell them. • Provide market research & hard data • Be innovative & describe barriers to others. • Create an experienced management teamCompany Confidential The 25 Do’s… • Be brief & direct & detailed. • Get to the bottom line quickly. • Identify what the business is immediately • Identify the business model immediately. • Focus on your customers. • Define what’s compelling. • Define what’s unique.Company Confidential The 25 Do’s… • Be realistic with yourself. • Remember, you're investing your career. • Define long term objectives for 3 to 5 years. • Describe the 3 to 4 primary strategies. • Focus on your sales model & channel strategies. • Include your ecommerce strategies. • Make realistic, but exciting, projections.Company Confidential The 25 Do’s… • Support strategies with detailed tactics. • Substantiate with accepted market research. • Discuss very objectively your risks. • Answer the question of why customers buy. • Describe the barriers to entry for others • Convince your reader about success.Company Confidential The 25 Do’s… • State how much money you will need. • Define exactly how the funds will be used. • State clearly your exit strategy. • Stick with proven and accepted plan formats. • Don't try to be cute!Company Confidential The 15 Don’ts… • Write about history. Focus on the future. • Focus only on you & your technology. • Use highly technical buzz & descriptions. • Forget about objective customer research. • Make unsubstantiated statements or claims. • Create revenues that you won’t make. • Include detailed budgets.Company Confidential The 15 Don’ts… • Forget what makes your plan different… – Experienced management – Large and growing markets – Proven sales models & channels – Experienced sales penetration tactics. – Innovative technologiesCompany Confidential The 15 Don’ts… • Assume anything. • Forget what your reader wants. • Define valuations in the actual plan. • Attempt to write the business plan alone. • Extend the process more than two months. • Include copies of resumes & technical papers. • Forget to proofread, proofread & proofread.Company Confidential Don’t just start writing • Preparation…The Key to Success. – What’s my Vision? – Can I say it so that anyone understands it? – What business are we in today? – What about in 3 years? – Are we really innovative? – What about in 3 years?Company Confidential Don’t just start writing… • Preparation…The Key to Success. – What do we really know about… • Our future product roadmap • What our service offerings could be. • The market data, trends, & forecasts. • The new technologies in development • The competition • Who are our customers will be in 3 years?Company Confidential One more preparation task… • Think about your starting assumptions. – Externally, what do I think will happen about… • Economic trends • Markets that I am entering • Technology changes • RegulationsCompany Confidential One more preparation task… • Define your starting assumptions – Internally, what do I want & expect for… • Sales revenue growth rates • Product costs and margins • Sales expense percentages • G&A expense percentages • Receivables, payables, financing, & capital models.Company Confidential Now, you can finally start writing. • What you need… – A quiet place and time. – All of your data easily available. – Start working by yourself. – Get the content down quickly. – Send a first rough draft to others quickly. – Write draft after draft after draft after…..Company Confidential You have two options today • The Traditional Business Plan – 7-8 sections – 20-30 pages with financials – More detail: markets, products & technologies • Business Plan Lite – 2 sections: – 8-10 pages with financials – An extended Executive SummaryCompany Confidential The traditional plan • Certainly preferred by sophisticated VCs – Provides an opportunity to provide clear details – Brings out the richness of the business idea. – Details the business and sales models • What follows here is the traditional format – 7-8 sections – 20-30 pagesCompany Confidential Business Plan Lite • A result of the times – Today, time to read is the driver. • Requires you to… – Be an excellent writer – Provide great detail with very well chosen words – Get your points across succinctly & with clarity. • Sections 1 & 2 & 7 create the BP LiteCompany Confidential What’s included? Vision Strategies TacticsOperations ActionsCompany Confidential What’s included? • 7-8 Sections… – Executive Summary – Introduction to the business – Definition of your products & services – Overview of your markets – Overview of your sales & marketing plansCompany Confidential What’s included? – Overview of product development roadmap – Summary of manufacturing & operations – Bios of your management team – Four pages of financials – Brief appendices if necessaryCompany Confidential • 2-3 pages – Make it compelling… • Your Idea • Your Markets • Your business and sales models • Your competitive advantages • Your management team • Your use of the funds Section 1: The Executive SummaryCompany ConfidentialCompany Confidential Section 2. What’s the Business? • This section is focused on… – The Business Opportunity – The Markets – The Technology – The ProductsCompany Confidential Section 2. What’s the Business? • This section must define… – a clear Vision – clear strategies – a well defined business model – a dedicated, believable Mission – a strong sense of management experienceCompany Confidential Section 2. What’s the Business? • The products & their value add services – features & benefits, innovation, technology • The markets – research data – competition • The customers – who they are & their needsCompany Confidential Section 3: Sales & Marketing • The most important section – 3.1 What’s the Market? • Customer analysis & their needs • Worldwide market size & trends • Competitive strengths & weaknesses • Value creation for your products & servicesCompany Confidential Section 3: Sales & Marketing • 3.2 The Marketing Plan – What are your marketing strategies? • What are the data points to measure success? • What is your price positioning & why? • What are your primary tactics in years 1 & 2? • What are your primary events in year 1?Company Confidential Section 3: Sales & Marketing • 3.3 The Sales Plan – What’s your Sales strategy? • What standard channels will you use? • Is there an innovative channel? • What are your penetration tactics? – What’s your sales model? – What’s your hiring & training plan? – What’s your measurement & reporting?Company Confidential Section 4: Engineering and R&D • What are your core technologies? – Provide sufficient, but not numbing, detail. • What is your development status? – Describe your primary milestones. – Be conservative. – Assume development will be late. • Detail the technical team’s background.Company Confidential Section 4: Engineering and R&D • What is your strategy for future products? – Define in text with graphics your roadmap – Define common platforms and architectures. • What your IP & patent strategy? – What is your IP strategy? – If you have patents, provide a status table. – If not, define why not in a positive manner.Company Confidential Section 5: Operations/Manufacturing • What’s your Manufacturing strategy? – Outsource or not? – Why & why not? • What is core in Manufacturing? • What are your unique capabilities • What are your unique processes?Company Confidential Section 5: Operations/Manufacturing • Focus on your customers in your… –Distribution strategy –Quality strategy –Value added services that you will employCompany Confidential Section 5: Operations/Manufacturing • What is your Customer Support strategy? – Customer order fulfillment tactics – Primary objectives • Delivery • Response time – Primary policies – Outsource or not? – Future services that you will provide?Company Confidential Section 6: Senior Management • Management – The #1 reason that investors do not invest. – Experience counts first. – Dedication counts second. – Ability to rapidly learn is third – Too strong an ego is a negative.Company Confidential Section 7: The Financials • The Rule: Everything Must Hang Together – Your vision and strategies in text must tie in. – Your market growth objectives must tie in. – Your business and sales models must tie in. – Your margin percentages must tie in. – Your cost of goods must tie in. – Your expenses must reflect standard percentages.Company Confidential Section 7: The Financials • You need… – P&L’s • 1st year by month • 2nd year by quarter • 3rd year by year – Balance Sheets for each year – Cash Flows for each year – 3-4 pieces of paper onlyCompany Confidential Section 7: The Financials • You need to list your… – Primary assumptions – Primary categories for the use of the funds – What are the primary risks? • Other than the normal of early stage companies • If nothing specific, do not list any. – What’s your exit strategy?Company Confidential Section 8: The appendices • Provide only the compelling things… – Product data sheets for primary products – Any critical publication. – Do not provide resumes. – Do not include patents.Company Confidential Where do I go for help? • Good textbooks – Rich, Gumpert – Anything from HBS Press – Anything from Inc. • Inc Magazine & inc.com • Startup.wsj.com • MIT Enterprise Forum workshopsCompany Confidential Where do I go for help? • MIT Enterprise Forum seminars • Entrepreneurship schools – MIT Sloan , Babson, HBS, Smith • Professional Mentors & Coaches • Venture capital investors • The big CPA firms: – PWC, Deloitte, Ernst. • The big law firms – Cooley, Mintz Levin, Hale • INC, Fortune Small BusinessCompany Confidential Goals for a Successful Venture • Evidence of customer acceptance of the product – Letters of reference – Data generated at their facilities – Abstracts – White paper • An appreciation of the investors needs – Investors want a 1.6^n (n=years before cash out) – It includes 50% ROI and 10% inflation – Time horizon is 3-7 years • Evidence of focus through concentration of a limited number of products and services – Don’t chase butterflies • Proprietary position – Patents, trade secrets, etc. • Exit Strategy – What do you want to do in 3-5 years? – Be acquired, go public.Company Confidential Important Things to Keep in Mind • What is the value of the product – Questions to ask-• How much does it save the customer($ and non$) • How much does it earn the customer ($ and non$) • What non monetary benefits do customers realize • Be market driven, not product driven • It is easier to sell in an already established field than in a new market • Investors want their money to be productive – Producing and selling the product – Therefore, develop the product with other funds – You are better off developing the product by any means necessary • Management Matters – Don’t be a one person band – Find people w/complimentary skills – Hire gray hairs or no hairs – Pay all key folks the same – Have employment agreement, limiting disclosure and competition – Describe employment agreement in management sectionCompany Confidential Financials – Avoid too many spread sheets – Real numbers are usually 20-80% right from original estimates – Most VC seek a min of 20 million of sales revenue in 5 years – Include income statement, cash flow forecast, balance sheet, break-even analysis – Look at 10K and annual reports of companies in the same space – Make a critical staffing chart and describe when they are coming inCompany Confidential Investor Presentation – First Impressions • Eye contact • Hand shake • Dress like you can be trusted with their money • Impressions are made within first few seconds • Once impression is made, it is virtually irreversible – Introduce management team – Have executive team (2-3) partake in presentation – Don’t dim lights – Talk about the market or need first! – Present technology half way through – Important things in presentation (order of importance) • Market • User benefits • How investment will grow for them – Practice, practice, and practiceCompany Confidential What Matters • Who you run with – Legal advisors – Business advisors – Key Executives – Investors • Your performance record – Nothing predicts future performance like historical performance – Don’t burn bridges • Integrity – Reputation: Your most valuable assetCompany Confidential The Top Ten Lies Told By Entrepreneurs (okay…really eleven) 1. “Our projections are conservative.” 2. “(Insert reputable market research firm) says our market will be $50 billion in 2010.” 3. “(Insert Fortune 50 company name) is going to sign our purchase order next week.” 4. “Key employees are set to join us as soon as we get funded.” 5. “No one is doing what we're doing.” 6. “No one can do what we're doing.” 7. “Hurry because several other venture capital firms are interested.” 8. “(Insert Fortune 50 company name) is too big/dumb/slow to be a threat.” 9. “We have a proven management team.” 10. “Patents make our product defensible.” 11. “All we have to do is get 1% of the market.” Source: Guy KawasakiCompany Confidential The Top Ten Lies Told By Venture Capitalists (okay…really nine) 1. “I liked your company, but my partners didn't.” 2. “If you get a lead, we will follow.” 3. “Show us some traction, and we'll invest.” 4. “We love to co-invest with other venture capitalists.” 5. “We're investing in your team.” 6. “I have lots of bandwidth to dedicate to your company.” 7. “This is a vanilla term sheet.” 8. “We can open up doors for you at our client companies.” 9. “We like early-stage investing.” Source: Guy Kawasaki