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The elements of a good business plan

Ramin Dilmaghanian

Investment ExecutiveSussex Place Investment Management Ltd

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A Brief History……….

• First Degrees in Civil and Structural Engineering from Imperial College, London.

• IT experience gained at Andersen Consulting

• Followed by MBA at London Business School• Bias towards entrepreneurial activities and

new venture development• Now in charge of £4m Combined London

Colleges University Challenge Seed Fund

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Commercialisation of Research

• Traditionally research has not been undertaken with a view to commercialisation

• Good ideas can be exploited provided a number of conditions are met

• The steps in commercialisation are:– To identify the opportunity– To write a plan describing how the

opportunity is to be exploited

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Idea vs. Opportunity

• Ideas are NOT the same as opportunities– Ideas last forever

– Opportunities are perishable – Ideas are free– Opportunities require work

• Window of Opportunity depends on changes and shifts in Technology, Demographics , Legislation, Competitors and Consumers.

• Entrepreneurs shape and exploit opportunities where others see chaos

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7 Tests of an Opportunity

1. Does the opportunity match the experience, skills and interests of the entrepreneur?

2. Can the entrepreneur recruit and lead the team needed to exploit the opportunity?

3. Do the resource needs of the opportunity shorten the odds on success?

4. Is the timing of the opportunity right?5. Does the opportunity constitute a scaleable (and

saleable) business?6. Does the opportunity offer good margin potential?7. Is the entrepreneur developing an opportunity or

simply an idea?

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In Brief

• If your exploitation plan claims an opportunity that can be exploited, you will need to show that you have thought about

– who will buy

– why they will buy

– how many will buy

– why they’ll continue to buy over time

– why they’ll buy from here rather than somewhere else

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Why Write an Exploitation Plan?

1. to help you understand an opportunity and what it will take to exploit it

2. to recruit prospective partners and senior colleagues

3. to monitor progress and keep on track following start-up

4. to enable you either to raise investment finance yourself, or to locate and sign up others who will understand the opportunity you have identified and be interested in exploiting it.

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10 Questions A Business Plan Should Answer

• has a company been formed?; if ‘yes’ when and by whom

• completed a design or developed a prototype

• developed or launched its first product/service

• secured customer commitment or orders

• generated any revenue; if so, how much, where from, etc.

• secured finance from any source

1. Where is the project now?

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10 Questions A Business Plan Should Answer

2. Describe the product or service

• how is the proposed product or service anchored in a real market opportunity?

• what are the specific benefits and value that a customer will derive from using your product?

• how can these benefits be demonstrated and measured?

• why the customer will purchase on an ongoing basis?

• the distinctive advantages of the product and why it is a potential winner.

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Typical Mistakes at this stage include

• being so close to the product that you cannot describe it clearly

• providing excessive product detail - this can follow later

• assuming that the customer benefits are self-evident - they may only be so to you

• failing to assess the durability of the advantage - how easily might others replicate it?

• not understanding what combination of skills are necessary to exploit the opportunity

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Very early on in the plan a clear picture has to emerge

This is the “Idea”

This is the market opportunity

This is the product

These are the key benefits: the value proposition

This is the evidence that substantiates the value

proposition

And these are the resources that will make it

happen

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10 Questions A Business Plan Should Answer

3. What is the nature of the market

• market size, segmentation

• actual and projected growth rates in target market

• market context - relevant environmental, regulatory, technological, demographic/social changes

And how do people make money in this market?

• price, range, discount structure

• nature and number of substitutes

• the ease or difficulty of gaining market entry

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In addressing these issues beware of

• market data unsupported by factual evidence

• lack of basic, first-hand market research

• equating a large, growing market with ease of gaining share

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10 Questions A Business Plan Should Answer

4. How will you reach the market?• Every new venture has to build a bridge to its market. How is the bridge to be constructed?

• To answer this you’ll need to define a strategy in respect of:

• Marketing and promotion – (who is the target audience? readers, library managers, or local authorities)

• Selling – (who has the purchasing decision? teacher, librarian, reader or local authority).

• Distribution (routes to market)

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10 Questions A Business Plan Should Answer

5. Who will you be competing against?

• identity, size, financial results, etc.

• product range and performance

• market reputation - quality, service, image

• market positioning - price, support, selling methods

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10 Questions A Business Plan Should Answer

6. How will the product/service be produced?• what’s involved in producing the product or delivering the service?

• resources required to do this: labour, material, facilities, etc.

• capital expenditure - amount and phasing

• which activities will be controlled in-house (e.g. design or assembly) and which you’ll subcontract

• what it will take to gear up production post start-up

• status of any agreements with suppliers

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10 Questions A Business Plan Should Answer

7. Who are the people?• directly relevant industry, market experience and skills

• accomplishments and track record; viz. P&L responsibility

• range, depth and quality of relevant contacts: customers, suppliers, key personnel, etc.

• experience that the team has had in working together

• status and nature of commitment of both yourself and the team

• key recruits still to be found

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10 Questions A Business Plan Should Answer

8. What are the financial projections• core assumptions behind the financial model

• the link between these assumptions and your market data

• key financial indicators - projected cash flow, maximum cash requirement,

summary P&L, balance sheet

• your expected base case and the rationale for it

• the potential downside (what happens if everything goes wrong) and

upside

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10 Questions A Business Plan Should Answer

9. What are the funding requirements of the project or business?

• how much money is needed

• what it’s needed for: staff, premises, capex, R&D, market testing, etc.

• when and in what stages it’s required

• the key milestones against which funds will be drawn down

• the form in which the finance is required

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10 Questions A Business Plan Should Answer

10.What are the risks of undertaking this project?

• list all risks relevant to key aspects of the business: product/service, market, technology, management team

• identify those risks that are more/less critical

• work out precisely what you can do to ameliorate key risks

• keep refining the list - and your intended actions - until you’re left with a clear summary of the core risks; i.e. those that present the greatest threat but where you can do least to mitigate them, at least before start-up

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Summary

• Is this an idea or an opportunity?• What is the nature of the

opportunity?• Why write a business plan• Ten questions your business plan

should answer.