entrepreneurs see change as the norm and as healthy. usually they do not bring about change...

Entrepreneurs see change as the norm and as healthy. Usually they do not bring about change themselves. But-and this defines entrepreneur and entrepreneurship-the entrepreneur always searches for change, responds to it and exploits it as an opportunity. Peter Drucker

Creating The Winning Business Plan

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Derby Management, LLC 399 Boylston Street Boston, MA 02116 www.derbymanagement.comJack Derby [email protected] 617-504-4222

Derby Management Proprietary Content-2010 ©

Kaufmann Foundation, July 2009 on Company Founders• Age: around 40• 95.1% Bachelors, 47% graduate degrees• 75% top 30% of high school, 52.4% in top 10%• 67% top 30% of undergraduate, 37.5% in top 10%• 71.5% from middle class families• Birth order: 2.2; siblings: 3.1• 51.9% were first in family to start a business• 69.9% are married; 59.7% have first child• 52% thought about becoming entrepreneurs in college

– 24.5% extremely interested; of these, 47% >1 business.• 74.8% want to build wealth• 60.3% do not want to work for others• 37.8% have an entrepreneur role model• 18.1% have developed a technology to commercialize

You’re an entrepreneur, if…

Derby Management Proprietary Content-2010 © 3

• Jack Derby

– 20 year successful track record of coaching over 400 companies.– 19 year successful track record in medical devices as Executive Vice

President of Becton Dickinson Medical Systems, CEO of Datamedix Corporation and President of Litton Medical Systems.

– 3 years, President, CB Sports– Co-founded 9 companies; Current director of 8 – Raised over $645 million in venture and private equity– Ex General Partner, Kestrel Ventures– Director: AMS, Beacon, Brainshark, Hybricon, Rome, Ntirety, Alliance– Activities…

• Chairman, Association of Corporate Growth• Director Emeritus, Associated Industries of Massachusetts• Ex Chair, MIT Enterprise Forum- Distinguished Service Award• Ex Vice Chair, SBANE- Pro Bono Publico Award• Member & Director of Common Angels• Lecturer, MIT, Business Planning; Sales & Marketing• Professor, Tufts, Entrepreneurship-Sales & Marketing


A Business Planning Architecture


The Art of War…

The art of war is of vital importance to the state. It

is a matter of life and death, a road either to safety

or to ruin. Hence under no circumstance can it be

neglected.

General Sun Tzu

The Art of War


The Importance of Business Plans…

The general who wins a battle makes many

calculations in his temple before the battle is

fought. The general who loses a battle makes but

few calculations beforehand. Thus do many

calculations lead to victory, and few calculations

to defeat; how many more do no calculations at

all! It is by attention to this point that I can

foresee who is likely to win or lose. - General Sun Tzu

The Art of War


Just What Are Business Plans?

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Vision: Future State in 24-36 plus months

Strategies: Primary Directions in 1-18 months

Tactics: Operating Plans in 1-6-12 months Every Tactic has Objectives

Objectives: Measurements in 1-6-12 months.

Planning Terms & Timelines

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The Chris Columbus Plan Process…

Pre-planning…

• I have a pretty good Vision • I will bring back gold and riches• I need some money and ships• I am not too sure how to get there• I am also not sure of how long it will take• But, I’ll be back soon…

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The Chris Columbus Plan Process…

Post Planning Follow Up…

• I’m not too sure where we went• I do know it was not where we expected to be • There were a lot of strange people there• It took a lot longer than I expected.• I did not bring back the gold that I said I would• I’d like some more money & ships to try again



“Vision without action is hallucination’ jack derby



Vision CEO & BOD

Strategies All Managers

Tactics & Objectives All Employees

Actions

Operations

Business Planning Architecture

24 months

1-12 months

1-18 months

CommonMistake #2

CommonMistake #1

CommonMistake #3



Marketing& Market Analysis

Plans

Company Business

Plan

Product & Services

Plans

A Business Planning Architecture( Everything needs to fit )

Sales Plans

FinanceMetrics

& Review=Strategy

Engineering &

Manufacturing

Service Plans

Management’s Job is One Simple Thing: Create Highly Scaleable Growth

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Planning Architecture…

Common Business Planning Mistakes…

• Terminology is not understood and shifts back and forth• A lack of process consistency • A lack of timely follow up & review

– Even understanding the most timelines will be late

The biggest mistake is always…

• A lack of consistency on the part of the CEO



Great Business Planning should provide…

• A common architecture for the future• Agreed upon & well understood strategies• A socialized common management language• Detailed tactics with measurements• Absolute total consensus • Ownership & Accountability on everyone’s part• Responsibility as a senior manager

Successful Planning Architecture


What’s my responsibility?

So that at the end…

• Vision is totally aligned with Strategies & Tactics• Your goals are married with your managers• Your managers have accepted responsibility• Your managers have accepted accountability• There is an interlaced environment of objectives.• There is a common architecture of metrics & rewards

Vision CEO & BOD



Actions

Operations

Business Planning Architecture

24 months

1-12 months

1-18 months

CommonMistake #2

CommonMistake #1

CommonMistake #3

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What does this process look like?

Two components…

• Your own planning • Your Company’s planning

Somewhat the same in concept…

But very different in impact and importance…



What does this process look like?

My own plan…

• A Personal Business Plan • You owe it to yourself to develop one

– It’s written out once a year typically in January– It’s typically just for you – It defines…

• Personal Success Measures• Critical timelines: 5 years & 1 year.• Critical Improvement Factors

– You review it every six months 18



The Five Stages of Growth



Success

Growth

Stability

Survival

Concept

The question is… Where are you along this path?



• It is very critical to objectively determine where you are

• Equally critical to understand that shifts will occur with time– Growth metrics today will not be the same in two years – As a result, you must plan for scalability

• Processes put in place now that will be cost effective• People put in place now who can expand

• This becomes an overall benchmark of where you are along your planning horizon



Success

Growth

Stability

Survival

Concept

What this really means is…• There must be metrics at every stage• Businesses must reach Stability at a minimum• In order to succeed every business must grow

• Positive cash flow• “A” level managers hired• Strategies locked down• Tactical plans in place• Repeatable processes


Early Stage Value Creation Cycle PHASE 1Create Effective Models

PHASE 2Build the Business

PHASE 3Scale the Organization

Founder CEO

Early Stage CEO

Expansion Management

Years 1-2 Survival

Years 3-6 Growth

Years 2-3Stability

Idea

Venture $

Seed $

StrategicInvestments

RevenueGrowth

Angel $

CustomerValidation

Profitability

Exit


Value Creation Model…

PHASE 1Create Effective Models

PHASE 2Build the Business

PHASE 3Scale the Organization

Founder CEO

Early StageCEO & Team

Expansion Management

Years 1-2 Survival

Years 5 to ? Growth

Years 2-5Stability

Idea

Venture $

Seed $

StrategicInvestments

RevenueGrowth

Angel $

CustomerValidation

Profitability

Exit

Sales Channel Decisions

Early Market Strategies & Initial Tactics

Formal Marketing Plan-Products, Tactics, Leads

Formal Sales Plans-Processes, Tactics, & People

Revised & Expanded Marketing & Sales Processes & Plans

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The Art of Creating… The Winning Business Plan


Business Plan Architecture


The Classic Problems of Product Adoption …

It’s easy to find these people. The question is whether your product gets defined by them

Continue to ask whether they represent the true customer? Make sure that you’re focused on the E Majority

The Dreaded GAP

eats resources & slows progress.

Need to be making critical decisions about extending product life and new product design to repeat the curve.

Critical decisions on pricing, protecting marketing resources and optimizing Sales

• Low touch • Spend very little • Increase prices



simple


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What’s included?

• 7-9 Sections…

1. Executive Summary2. Introduction to the business3. Definition of products & services 4. Overview of markets5. Overview of sales & marketing plans6. Overview of products and roadmap7. Summary of manufacturing & operations8. Management team bios 9. Four pages of financials


Why create a Business Plan?

For you as a company manager, it…

• Communicates your strategic direction• Communicates your tactics • Communicates your objectives• Communicates your department’s objectives • Communicates your budget requirements• Provides for common agreement & buy-in• Provides common language

Vision CEO & BOD



Actions

Operations

24 months

1-12 months

1-18 months

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Why create a Business Plan?

• For you as an entrepreneur, it…

– Provides the same as a company manager

– And …

…provides an architecture for investors

Marketing& Market Analysis

Plans

Company Business

Plan

Product & Services

Plans

A Business Planning Architecture( Everything needs to fit )

Sales Plans

FinanceMetrics

& Review=Strategy

Engineering &

Manufacturing

Service Plans

Management’s Job is growth, guidance & review32



For the Team…

• Most importantly, for you & your team – The actual process of planning is the key.

• It consolidates management direction. • It provides debate & finally consensus.

– It is a guide when speed bumps happen.– It is your company & personal scorecard.

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No Business Plan, No

– Larger corporations• Plans are the foundation of your budgeting• Business plans are the keys to your objectives

– Smaller companies• Plans are the foundation for outside investors

– Private angels – Venture capitalists– Corporate investors & strategic partners– Banks

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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 to 5 years out– It’s a formal Plan, but it’s easy to read.– It’s creative, but it follows The Rules.

Very


Rules Preparation Start Writing


The Traditional Business Plan…

• An Executive Summary• 7-9 sections• 20-30 pages with financials

• Provides clear details• Brings out the richness of the business idea.• Details the market opportunity & complexity• Details the business and sales models


What’s included?

• 7-9 Sections…



How do you start?

Pay attention to The Rules…

– Be compelling– Be brief, focused, & deliberate– Focus on the markets & on your customers – Provide solid market research & hard data– Be innovative and provide unique value – Define an experienced management team

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Rules…

Be brief & direct & detailed.

• Identify what the business is immediately

• Identify the business model immediately.

• Define the products & their technologies

• Detail the markets

• Identify your customers.

• Identify the sales model immediately

What?

Where?

Who & How?

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Rules…

• Be realistic with yourself. – This is your Plan, your Career, your Time & Money

• Define your 1 and your 3 year objectives• Describe your 3 to 4 primary strategies.• Always focus on…

– the cash – growth in margin – growth in revenue.

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Don’t just start writing…

Preparation is The Key to Success.

– Question everything…• What’s our Vision?• Can we explain it to others ?• What business are we in today?• Who are our customers in 3 years ?• How are we going to sell them? • Do we have a 3 year product map?

Vision

Strategies

Tactics

Business Plan Focus


• Preparation is The Key to Success.

– What do we really know about…

• Our market & customer targets?• Market data, trends, & forecasts?• Competition?• New technologies in development?

Don’t just start writing…


Classic Product Adoption Life Cycle…

It would be wonderful if this really happened !


Building a Solid Business Plan

Growth is Never a Straight Line

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One more preparation task…

• Analysis of assumptions…

– Internally, what do we want for…• Revenue, margin and profit growth rates• Cost of goods• Sales acquisition costs & Sales channel models• Hiring rates and ramp speed• Technology investment rates• Product costs & expected margins• G&A expense percentages• Receivables, payables, and financing costs

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Now, you can start writing…

What you need…

– A quiet place and time.– All of your data easily available.– Start writing by yourself. Not a team effort.– Get the content down quickly.– Send a first rough draft to others quickly. – Write draft after draft after draft after…..

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What’s included?

• 7-9 Sections…



The Financial Section…

What Professional Investors Expect

Lots of numbers is not the answer !


The Financial Section Must Support…

The Key Questions are about Customers & Sales…

• Who will buy?

• What will they buy?

• How will they buy? How do they want to buy?

• Why will they buy?

• Why will they buy from you?

• What will they pay for it?


Business Plan Financials …

• Present the punchline, know the details– Average selling price per unit, average cost per unit– Customer payback period– Revenue per salesperson; revenue per customer– Days Sales Outstanding and Days Payable Outstanding– Overall revenue per person– Components of cost as a %, (material, labor, & OHD)– Industry metrics– Compensation plans/ key manager salaries

• Exhibit confidence & passion, show humility• Sell the 5 year plan, deliver on a solid 6 month plan• Hide a few rabbits, you’re likely to need them


Assembling a Bottoms-Up Plan

80 % of your effort should be spent on the top line

• Define the market opportunity– revenues, potential customers, units available

• Project an achievable penetration rate– What is your go to market plan?

• Revenue– ASP per unit – consider product cost and distribution

• Depict the economics surrounding a single sale– How will the customer measure ROI?– What is the economic impact to you? Price, cost, futures?

• Define the model and scale it!


Assessing Your Margins…

• Gross margin plan must be bottoms up– Labor, Materials, Overhead

• Operating costs– Benchmark whenever possible– Build manpower plan functionally– Compensation & benefits will represent 70% of costs

• So plan headcount carefully– Spend a modest amount of time on the remaining costs– Cash flow is all about timing– Plan to pay fast & collect slow, execute the

opposite

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Forecast Content / Format

Investors expect to see…

• Five-year summary projections • Full, cohesive set of financial statements

• Statements should correlate • Changes in each statement should agree

• Statements that are supported by monthly detail • Until breakeven point / profitability, • Then quarterly for two years and yearly thereafter

• List of major assumptions


The Balance Sheet…

• Define very conservative A/R and A/P days.

• Consider level of inventory and capital expenditures required to support sales projections.

• Investor focus: Demonstrate fiscal restraint Limit capital expenditures (consider renting / leasing) Save money for marketing and selling

expenses.

Building Assumptions & Projections


Building Assumptions & Projections

Statement of Cash Flows…

• Consider level of funding required to achieve all milestones• Mirror timing of funding requirements as stated in plan• Investor focus:

• Cash breakeven and periodic need for additional funding• Very important to make realistic forecast so that initial funding

request covers capital needs until critical milestone achievement


Sensitivity Analysis…

Models must be able to quickly assess cash impact of…

• What happens if sales are +/- 20%?• What if unit sell ramp is slower?• What if average sell price is 20% less than planned?• What if we accelerate Sales hiring?• What if product development is delayed?• What if a management change is necessary?


Typical Finance Presentation Formats


Presentation of Forecasts

(in thousands) Year 1 Year 2 Year 3 Year 4 Year 5

Product Sales 1,197$ 3,699$ 7,500$ 16,685$ 37,349$ Service Revenue 81 572 1,509 2,499 3,934

Total Revenue 1,278 4,271 9,009 19,184 41,283

Cost of SalesProduct Cost 638 1,699 3,330 6,390 14,365 Service Cost 41 286 755 1,250 1,967

Total Cost of Sales 679 1,985 4,085 7,640 16,332

Gross Margin 599 2,286 4,924 11,544 24,951

Operating ExpensesResearch & Development 270 462 618 1,158 1,958 Sales, General & Administrative 1,816 2,489 3,759 5,914 10,142

Total Operating Expense 2,086 2,951 4,377 7,072 12,100

Income (Loss) Before Interest and Taxes (1,487) (665) 547 4,472 12,851

Interest Expense - - - - 5 Interest Income 33 21 44 118 340

Income (Loss) Before Taxes (1,454) (644) 591 4,590 13,186

Tax Expense - - - 1,231 5,268

Net Income (Loss) (1,454)$ (644)$ 591$ 3,359$ 7,918$

Start-Up, Inc.Income Statement




AssetsCash 365$ 657$ 548$ 363$ 2,332$ Accounts Receivable, Net 256 1,452 2,152 5,522 10,991 Inventory 211 910 1,317 2,782 6,777

Total Current Assets 832 3,019 4,017 8,667 20,100

Property, Plant & Equipment, Net 50 87 133 215 324 Other Long-Term Assets, Net 3 1 - - -

Total Assets 885$ 3,107$ 4,150$ 8,882$ 20,424$

Liabilities and Stockholders' EquityAccounts Payable 114 282 473 999 2,609 Accrued Expenses 201 349 534 890 1,401 Taxes Payable - - - 308 1,317 Short-Term portion of Long-Term Debt - - - - 20

Total Current Liabilities 315 631 1,007 2,197 5,347

Warranty Reserve 24 74 150 333 747 Long-Term Debt - - - - 60

Total Liabilities 24 74 150 333 807

Stockholders' Equity:Preferred Stock 15 40 40 40 40 Common Stock 5 5 5 5 5 Additional Paid-In Capital 1,980 4,455 4,455 4,455 4,455 Retained Earnings (1,454) (2,098) (1,507) 1,852 9,770

Total Stockholders' Equity 546 2,402 2,993 6,352 14,270

Total Liabilities and Stockholders' Equity 885$ 3,107$ 4,150$ 8,882$ 20,424$

Start-Up, Inc.Balance Sheet




Cash Flows from Operating ActivitiesNet Income (Loss) (1,454)$ (644)$ 591$ 3,359$ 7,918$

Adjustments to net loss to net operating cashDepreciation/Amortization 16 38 66 100 151

Changes in assets and liabilitiesAccounts Receivable, Net (256) (1,196) (700) (3,370) (5,469) Inventory (211) (699) (407) (1,465) (3,995) Other Long-Term Assets (5) - - - - Accounts Payable 114 168 191 526 1,610 Accrued Expenses 201 148 185 356 511 Taxes Payable - - - 308 1,009 Warranty Reserve 24 50 76 183 414

Net Cash (Used In) Provided ByOperating Activities (1,571) (2,135) 2 (3) 2,149

Cash Flows from Investing ActivitiesCapital Expenditures (64) (73) (111) (182) (260)

Net Cash Used in Investing Activities (64) (73) (111) (182) (260)

Cash Flows from Financing ActivitiesProceeds from Long-Term Debt - - - - 100 Repayment of Long-Term Debt - - - - (20) Equity Investment 2,000 2,500 - - -

Net Cash Provided By Financing Activities 2,000 2,500 - - 80

Net change in Cash 365 292 (109) (185) 1,969

Cash, Beginning of Year - 365 657 548 363

Cash, End of Year 365$ 657$ 548$ 363$ 2,332$

Start-Up, Inc.Statement of Cash Flows


Presentation of Forecasts (for inclusion in Executive Summary)

(in thousands, except units) Year 1 Year 2 Year 3 Year 4 Year 5

Headcount 10 17 30 55 100

Unit Sales Forecast 42 137 300 710 1,690

(the following figures are in thousands)

Unit Price 28.5$ 27.0$ 25.0$ 23.5$ 22.1$

Product Revenues 1,197 3,699 7,500 16,685 37,349 Service Revenues 81 572 1,509 2,499 3,934

Total Revenues 1,278 4,271 9,009 19,184 41,283

Unit Cost 15.2 12.4 11.1 9.0 8.5 Unit Margin 13.3 14.6 13.9 14.5 13.6

Product Cost 638 1,699 3,330 6,390 14,365 Service Cost 41 286 755 1,250 1,967

Total Cost 679 1,985 4,085 7,640 16,332

Gross Margin 599 2,286 4,924 11,544 24,951

Income (Loss) Before Interest and Taxes (1,487) (665) 547 4,472 12,851

Net Income (Loss) (1,454)$ (644)$ 591$ 3,359$ 7,918$

Start-Up, Inc.Summary Financial Forecast


Some Examples

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More information about Business Plans


Where to go for more information?

• Kauffman.org• Entrepreneurs.org• SBA.gov

• Successful entrepreneurs in Providence & Boston– Typically volunteer time to young entrepreneurs– Typically organized around universities and not-for-profits


• [email protected]• 617-504-4222• March 26-28th Sales Management Boot Camp• www.derbymanagement.com

Thanks…

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entrepreneurs see change as the norm and as healthy. usually they do not bring about change...

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