art of business planning

Art of Business PlanningDarlene Newman, Founder, Ivy Capital Technologies

Email: [email protected]

Copyright 2011, Ivy Capital Technologies

Who am I?

Someone who loves the art of starting up. . .

Classically Trained• Bachelors of Science from the top seeded McGuire Entrepreneurship

Program at the University of Arizona• MBA from the University of Oxford in venture capital and social

entrepreneurship

Practical Experience• Helped launch over 7 startups• Competed in over 10 business plan competitions• Worked with three venture capital funds• Taught business plan development at

Fordham University and the Grace Institute

• Now I spend my days helping entrepreneurs launch new businesses

Why do a business plan?

If you want to drive from NYC to Las Vegas, would you use a navigational tool?

Of course, and starting a business is no different! A business plan should;

Act as a blue print for your business, a roadmap to help you get to where you want to go

Serve as a feasibility study for the chances of success and growth Define your purpose, your competition and your management team

Act as a communication tool for investors, suppliers, employees and others interested in your business

Be a strong reality check!

Who should write it?

The founder of the business should ALWAYS write the business plan. . .

Why? You are the one that knows the most about the business idea and needs to know the most about the direction it’s going. . .

What can you do to help ease the pain of writing it? There are many resources that are available to help guide you;

• Business Planning Software: www.Bplans.com

• Templates and guidelines: www.Wickedstart.com or www.Bplans.com

• Consultants: Various companies and individuals to help, although you should do most of the work

http://www.bplans.com/

http://www.wickedstart.com/

http://www.bplans.com/

The role of a business plan

A good business plan is a compelling storyboard about your business

In short, it explains. . .

Who you are Why you are in business What you do and how you do it Where you operate How you will generate money Who your customers are Why your business is needed!

Where do I start?

“The secret of getting ahead is getting started. The secret of getting started is breaking your complex overwhelming tasks into small manageable tasks,

and then starting on the first one”

– Mark Twain

Structure of a business plan

Break it down in to key, manageable sections;

• Executive Summary• Table of Contents• Vision and Mission Statement• Industry and Product Description• Market Analysis and Competitive Advantage• Marketing and Sales Plan• Operating Plan• Management Team• Risk and Contingency Plan• Financial Plan• Summary and Conclusion• Appendix



Executive summary

The executive summary is the most important part of your business plan

Why? Most people will make a decision about your company simply by reading the executive summary

It should provide a snapshot of your business plan, including who you are, what you do and why you’ll be successful

It should be less than two pages, single space

It should be the last thing you write, pulling it all together in a clearly and concisely

No. of Pages 2

Executive summary template available at https://docs0.google.com/document/d/1zX_eg39hyjkk-FSEFNDj_-ii6ijuIjxtVkpBtfLq1g4/edit?hl=en&authkey=CPWjvokE#

Vision and mission statement

In short, the mission and vision provide your company with direction

• Vision: Where do you see your business in the future? Think in terms of something you’ll always strive for, but never quite reach. . .

• Mission: Where do you see your over the next few years? Think in terms of the goals that will get you to achieve your vision. . .

No. of Pages ½

Vision statement in use

When preparing you vision statement, think “BIG”

YES: We provide “state-of-the-art” duplication technology for schools

NO: We provide duplication technology for schools

YES: We “bring high-quality music” to the home NO: We install record players and speakers

“Organize the world’s information and make it universally accessible and useful”

The mission statement

Think in terms of “goals” that are measureable

Mission statements should. . . Summarize the core competencies of your business Give employees a sense of purpose Help to concentrate your efforts on the desired focal points

Test of a good mission statement. . . It should be simple and precise No more than one to three sentences Act as an internal guideline, not public Cover a two-year timeframe Stretching but realistic

The Industry and Product Description section of the business plan should include;

Industry analysis Company description Product and / or service description Key accomplishments

Section details No. of Pages 2

“A problem well-defined is a problem half-solved” - John Dewey

Knowing your industry helps determine

The viability of the business Your potential for growth Who your competitors are Who your target market is

Importance of knowing your industry

Gives the “Big Picture” of what NEED your company fills and WHY you’ll be successful

What about the industry makes it attractive for new entrants

Chief characteristics: Industry profile, size, growth, barriers to entry, etc.

Major players: Competitors you’re up against, both direct and indirect, where do you fit among those competitors

Industry analysis basics

Trends: Where is the industry going Problems: What are the challenges facing

the industry Opportunities: Where can new players

enter the market

Company & product basics

Describe, to the most basic user, what you do and what you sell

At a minimum;

Describe your company in easy to understand language Cover the basics of your product or service;

“What” you sell “Where” will you sell it “How” you will sell it “Why” it exists as designed

What’s your pricing Provide diagram, graphics or examples

The Market Analysis and Competitor section of the business plan should include;

Market Opportunity Target Market / Customer Profile Competition Competitive Advantage


“Keep Your Friends Close and Your Enemies Closer”

At a minimum this section should cover;

Your friends. . . Who are you selling to Why are you selling to them

Your enemies. . . Who are you up against What makes you better

Why do I care. . .

You can’t be everything to everyone so. . .

Understand your target market and what motivates them;

Who: Who’s going to buy what you have (i.e. age, demographics, etc. . . be narrow and specific)

How: How do they buy it now, or will they most likely go to buy it in the future (i.e. retail store, Internet, etc.)

Where: Where do they go to find information about it (i.e. magazines, television, social network sites, etc.)

What: Is the motivation for buying (i.e. necessity or a luxury) When: When do they go to buy it (i.e. when needed, when desired, etc.) How often: What’s the frequency in which they purchase it (i.e. daily,

monthly, seasonally)

The target market, who are they?

It’s amazing what you can find with just a little bit of leg work

Libraries Trade Associations Business Periodicals State and Federal Resources Local Resources (Chamber of Commerce, SBDCs, BICs) Professional Research Companies Studying the Competition Surveys (focus groups and interviews) Observations

The market, where do I look?

Knowing who your competing against and how they do what they do is important

What should you know about your competition;

Who they are, both direct and indirect? What do they offer, products and services? Years they’ve been in business? What are their price points? What are their strengths? What are their weaknesses? Recent trends?

The competition, need to know. . .

Consider Creating a Matrix

You need to be better, faster or cheaper in a way that is difficult to replicate

No idea is truly unique, so what makes yours better?

Uncompromising obsession with “One Thing” that’s hard to replicate (e.g. Apple & design)

Personal authority on the subject (e.g. Dell) The “Dream Team” that has expertise hard to bring together (e.g.

Google) Existing customers that give you unparallel information (e.g.

Facebook)

Competitive advantage, what’s yours?

The Marketing and Sales Plan section of the business plan should include;

Unique Value Proposition Pricing Strategy Sales and Distribution Plan Marketing Plan Budget


First thing you need to do is determine your secret ingredient, your “special sauce”

Develop your unique value proposition in two phases;

Your unique value proposition

1. Internally : You and your senior management team need to decide what makes you unique from your competitors

2. Externally: Craft your value proposition into an outbound message to your market

Better Faster Cheaper

Pricing is not only a key to your sales success but also for the health of your startup

Your pricing strategy depends on the following key factors;

First, determine the PER UNIT COST of your product or service, then, compare your products and services to COMPARABLE OFFERINGS

from other companies, and finally, understand what VALUE your product or service offers the

CUSTOMER

How to price your product / service

Intro Packages Free offerings or samples

Possible pricing structures

Bundled packaging Flat price Subscription

How you are going to move products from creation to consumption, cost-effectively

Distribution decisions have significant implications for Product margins and profits Marketing budgets Final retail pricing Sales management practices

Possible distribution channels Wholesale Retail (Physical / Online) Distributors Sales Force

What’s your distribution strategy?

Distribution partners are a great way for a small business to enter a market

Marketing is EVERYTHING you do to promote your business!

Don’t brush through your marketing plan, include at a minimum;

What specific marketing mediums will you use to reach your customer? What are the costs of each?

How often will each be used? What will they cost? Why did you choose these marketing avenues over others?

What marketing materials will you need? What will it cost you? (brochures, website, etc)

Who will design your marketing materials? What will they cost? What is the cost of marketing materials per prospect or client Detail out your budget – is it realistic? What is your customer acquisition cost (cost to acquire each customer)

Marketing plan basics

The Operating Plan section of the business plan should include;

Design and development Production / Operations process Start-up schedule Regulatory and intellectual property (IP) Capital requirements and budget


The operational plan should layout exactly how you will operate; Design & Development: Outline how your product is designed

and how you foresee getting your design into a working prototype Production & Operation Processes: Outline the process by

which you will produce, distribute and sell your product or service, include; Facilities and equipment you’ll need Quality assurance processes Labor requirements

Startup Schedule: How long will it take to get your product market ready and what are your key milestones you want to hit?

Intellectual Property: Will you file for patent, trademarks / service mark?

Budget: What will it take to startup and maintain operations?

The operational plan

The Management Team section of the business plan should include;

Legal structureKey executive team membersExecutive compensation and ownershipBoard of directorsBoard of advisors and / or consultantsOrganization chart (if appropriate)

Section Details No. of Pages 2

Importance of this section

It’s not only about who’s on your team, but how their skills will contribute to the bottom line

Include key management and their profile;Role they play in the companyStrengths that align with the company’s product or servicePrior startup successes

If management team needs more strength, consider other ways in which to fill the gaps;Board of directors: Equity and voting rightsBoard of advisors: Possible equity but no voting rightsConsultants: Paid, no equity or voting rights

Section Details

The Risk & Contingency section of the business plan should include;

Risks: The key risks facing the companyContingencies: The plans to avoid them

No. of Pages 1

Being prepared is important. . .

Preparing for the “What if” scenario could mean the difference between success & failure

What risks should you focus on;Those with high likelihood of occurrenceFrom that, those with the more sever outcomes

How to handle the contingencies; Speak to people with experience, management team, advisors, mentors

Remember: Anticipating every possible risk factor is neither possible nor practical, so don’t obsess, just be prepared

Section Details

The Financial Plan section of the business plan should include;

Business modelStatement of assumptionsKey financial data Break-even analysisDesired financing and structureUse of fundsValuations and returnExit strategy

No. of Pages 4

How do you plan to make money?

Starting the company is relatively simple, actually making money is completely different

What are all the avenues you plan to generate revenue?Are you B2B or B2C?Are you selling a product or service? Are you going to be home-based / online or will you have a store

front / physical location?

How do you plan on keeping your business afloat?

Are you going to license or offer subscription based pricing or pay as you go?

Are you going to use multi-level marketing / affiliates?

Calculating your assumptions

To come up with your financial projections, start by listing out the basics. . .

Determine your estimated costs for year 1 to 3;

Startup expenses: what do you need before even opening the doors Cost of goods sold (COGS): what does each unit sold cost you? Operating costs: what do you need each month to maintain

operations?

‘BURN RATE’

KNOW your burn rate – what do you spend each month, know it 6, 12 even 18 months out

Calculating your assumptions, con’t

To come up with your financial projections, start by listing out the basics. . .

Determine your estimated revenues for year 1 to 3;

Price per unit: how much will each unit sold bring in terms of revenue

No. of units sold: how many units of your product will you sell each month

Note: may want to base your sales off of your marketing spend

BE REALISTIC!Few companies make money right out of the starting gate

Key financial data basics

Don’t let preparing your pro-forma scare you, but don’t move forward without it

Key statements you’ll need for 1 to 3 years (year 1 monthly)

Income statementCash flow statementBalance sheet (less important)

Preparing your statements

Learn the basics, but let someone help you if you aren’t familiar

Basic income statement and cash flow statements;Simple Income Statement

Revenue $0.00

COGS ($0.00)

Gross Margin $0.00

Operating Expenses ($0.00)

Net Income $0.00

Simple Cash Flow Statement

Operating: covers sales and business expenses +Sales -Expenses Sub Total

Investing: covers asset sales and purchases +Sales -Purchase Sub Total

Financing: covers loan payments / proceeds, and owner investments / withdrawals

+Proceeds+Investments

-Payments-Withdrawals

Sub Total

Total $0.00

Break even. . .

Companies need money to make money and they need to make more than they spend

Make sure you know your break-even point;

Total Sales = Total expenses

Break-Even = Total fixed costs / margin

Margin = Revenue per unit - Cost per unit

Knowing how much you have to sell to cover your costs is key

Desired structure: debt or equity?

There are various ways in which you can fund your startup

Funding sources

Debt: Loans that must be repaid over time, usually with interest. Friends / family

Banks / SBA (Small Business Association)

Equity: Money obtained from investors in exchange for an ownership Friends / family

Angel investors

Venture capitalist

Convertible Debt: Financing is simply a loan that can be turned into equity

Exit strategy

An exit strategy is exactly that; the method by which you “cash out” of the investment

There are several methods by which most entrepreneurs exit;

Let it run dry Sell your shares Liquidate; although not recommended as part of your business plan

if you’re looking for investors IPO (Initial Public Offering): sell shares on the open market Trade Sale: selling to a larger, primarily strategic partner

The Summary and Conclusion section of the business plan should include;

Exactly that, a few paragraphs that summarize and conclude the key points – but not to the level of the executive summary

Section details No. of Pages ½

The Appendix of the business plan should include;


Industry and Company Description Operating Plan

• Sources that support your industry research findings

• Designs of your product / service methodology

• Vendor estimates / contracts• Organization chart

Market Analysis and Competitive Advantage

Management Team

• Sources that support your market research findings

• Primary research findings• Demographic data on your target market• Competitor matrix

• Resumes

Marketing and Sales Plan Financial Plan

• Detailed marketing plan• Marketing material / collateral• Customer contracts / letters of intent• Press coverage

• Detailed five-year pro forma statements• Personal financial statements / credit reports

(bank loans)

Summary

Your business plan should be thorough yet simple and concise;

Aim for 25 pages of content, no more than 15 pages of appendices 1.5 line spacing, except the executive summary Use clear font and fonts size that can be read, Arial, 11 pt or larger Set generous margins Use bullets – makes it easier for people to pinpoint what they need

to know Use simple terms, no big words Use graphics whenever possible

Executive summary template available at https://docs0.google.com/document/d/1zX_eg39hyjkk-FSEFNDj_-ii6ijuIjxtVkpBtfLq1g4/edit?hl=en&authkey=CPWjvokE#

Investor deck template available at https://docs.google.com/present/edit?id=0AaXsMsxhFJBuZGM3YzRnazNfMTdncHJmbmhjeg&hl=en&authkey=CNb3sboK

Questions?

art of business planning

Business

ivy capital technologiesemail

venture capital funds

university of oxford

university of arizona

business plan competitions

grace institute

trained bachelors of

new businesses