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Innovation and New Business Ventures
X
Prof. Dr. Arthur Sybrandy
Cairo, Egypt
January 2007
Dr. A. Sybrandy
The Business Plan– The business plan pulls together the information
developed up to this point and adds more. It’s a written summary of the entrepreneurial• Business venture• Operational and Financial details• Marketing opportunities• Strategy• Management team’s capabilities
– The business plan helps to• Have the entrepreneur take a realistic look at the proposed
business• Guide the venture while in operation• Convince investors to provide capital – equity and loans:
– Reality test– Competitive test– Value test
Dr. A. Sybrandy
Business Plan Advantages– Reality check
• Details not part of the feasibility analysis may show additional problems. There’s still time to back out!
– May reveal new opportunities on the operational side of the business not revealed by feasibility analysis
– “Living Guide” to the business• All aspects are included• Needs regular (quarterly/semiannually) updating
– Statement of intent to others• Investors• Bankers• Potential management• Strategic partners• Suppliers• Lessors
Dr. A. Sybrandy
Investors– Look more at quality of the founding team and factors that
predict growth They want to increase value of their investment
– They want to know• What deal structure you are offering (equity interest)• How they can liquidate their investment in the future (sell shares)• Whether your team has a proven track record and can make the
venture successful– Common mistakes include
• Projecting growth that exceeds the capability of the founding team• Trying to be a jack-of-all-trades• Projecting business performance beyond industry averages• Underestimating the need for capital• Confusing strategy and tactics• Focusing too much on price• Being proud of not investing cash in the business
Dr. A. Sybrandy
Lenders & Bankers
– More concerned with how you are going to repay the loans they made to you
– They tend to look at gross margins, cash flows, and capital base• Revenues – COGS (Cost of Goods Sold)• Slim margins (5-10%) won’t leave much room for error
– Common errors include• Not supporting the amount of capital required• Using the loan to pay off old debt• Not having any assets to use as collateral• Not showing an ability to repay the loan• Not demonstrating the bank how it is protected in case of
failure• Not demonstrating an adequate stake in the business
Dr. A. Sybrandy
Five Cs of Credit
– Capital• Banks will lend you money when you don’t need it• Banks will look for a strong equity base
– Capacity• Cash Flow (remember, this is not profitability!)• Lenders require the business to be liquid enough to make
payments– Collateral
• Assets to back loans• Banks make very few unsecured loans
– Character• Intangible• Present yourself and your credentials adequately
– Conditions• How big is the opportunity, how risky, etc.
Dr. A. Sybrandy
Business Plan Contents
– Proof of Concept (1 page summary)– Expanded Executive Summary (6 pages)– Business Concept– Management Team– Market Analysis– Process Analysis– Organization Plan– Marketing Plan– Financial Plan– Growth Plan– Appendices– Contingency Plan
Dr. A. Sybrandy
Business Concept
– Business Concept• Product/Service• Customer• Benefit (value proposition)• Distribution
– Purpose of the business• Why you’re in the business
– Core values– Description and uses, unique features/benefits of the
product or service– Primary customer– Spin-offs– Environment impact (if relevant)
Dr. A. Sybrandy
Management Team
– Team itself, with• Knowledge in
– Marketing– Finance– Operations
• Knowledge of industry• Good credit ratings• Network of contacts
– Board of Advisors/Board of Directors– Other parties
• Lawyer• Accountant• Banker• Insurance broker
Dr. A. Sybrandy
Market Analysis
– Industry description– Target market– Competitors– Your product/service differentiation & competitive
advantage– Pricing
Dr. A. Sybrandy
Process Analysis
– Technical description of products/services• Engineering specs where appropriate
– Status of development and related costs• Prototype description
– Distribution channels & Physical distribution plan
Dr. A. Sybrandy
Organization Plan
– Philosophy of management and company culture– Legal structure of the company– Organizational chart
• Especially key management personnel
– Compensation and Policies
Dr. A. Sybrandy
Marketing Plan
– Purpose of the plan differs from feasibility analysis• Market analysis already looked at customer in general; how
they buy, when, where, and how much as background for structuring strategy
– Plan to reach first customer• Niche selected• Customer perceptions of product and company• Tools/Tactics to reach customer• Budget
– Strategy: Who, What, How– Tactics: Specific implementation
Dr. A. Sybrandy
Financial Plan
– Summary of key points and capital requirements• Refers to complete set of statements in appendix
– Needs assessment breakout• Hard costs• Working capital• Start-up
– Break-even analysis and payback period– Plan for funding– Should support all the other claims made in the business
plan, showing that your business can survive and grow in the long run
Dr. A. Sybrandy
Growth Plan
– Looking ahead past the start-up phase• Start-up• Initial growth• High growth• Stable growth
– Possible new markets– Possible new products– Global markets
Dr. A. Sybrandy
Appendices
– Financial Statements• Assumptions underlying the statements• Proforma financial statements
– Process Plan Supporting Documents• Manufacturing or Operating requirements and associated
costs– Marketing Plan Supporting Documents
• Marketing tools• Media plan• Marketing budget
– Organizational Plan Supporting documents• Compensation programs and incentives
– Business plans are more concise these days, putting more information in the appendices
Dr. A. Sybrandy
Contingency Plan
– Sometimes included to show you are aware that things may not go as planned• Reacting to market/demand downturns• Lawsuits, including product liability• Losing a key employee• Etc.
Dr. A. Sybrandy
Executive Summary & Proof of Concept
– Written last, when the plan is done in about 6 pages– Read first by investors, lenders, etc! Making it the most
important part of the whole plan• The summary (and proof of concept) must capture the
reader’s attention immediately (less than 30 seconds)
– Make sure to• Describe concepts• Define customers• Establish market sizes• Show ability to scale out
– You can sometimes use the summary separately, handing it out without the complete plan.
– Proof of concept is a shorter, 1-pager in the front of the plan
Dr. A. Sybrandy
Summary Checklist– Did you immediately grab the reader’s attention? Did
your concept generate excitement?– Is the business concept absolutely clear? (purpose,
customer, value proposition, and distribution strategy)– Is the reader convinced you have the right team?– Does the Industry/Market analysis support the concept
and show demand?– Are you clear on how the product can be produced and
distributed?– Does the organization plan support the objectives? (Form
follows function)– Does the marketing plan clearly show how you are going
to reach customers and create long-term relationships?– The financial plan shows potential of high ROI?– Is the potential for growth clear to the reader?
Dr. A. Sybrandy
Final Tips
– Get started, anywhere (Internet?)– Don’t be discouraged if all information is not instantly
available– Answer key questions– Always include sources– Use outlining/mindmapping
– Make the plan look good• Investors read lots of them, yours has to stand out
– Prepare a presentation• Match presentation to requirements• Be ready to answer questions, but don’t bluff
– Think about your one-minute business plan
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