Lecture 2: Executive Summary & Business Plan

Dr Bernard LeongCTO & Co-founder

MPS 812 Course Taught in:

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The Big Picture

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Layout  of  Business  Plan  &  Execu4ve  Summary• Execu&ve  Summary• Introduc&on  -­‐  Type  of  Business• Problem  &  Opportunity• Technology/Service/Product• Management  Team• Business  Strategy  &  Route  to  Market• Opera&ons  (Timelines  &  Milestones)• Financials  and  Valua&on• Exit  Strategy

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The  Mantra• Name  of  your  Company/Project/Idea.• Logo  and  Tagline.• Mission  Statement

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Type  of  Business•What  is  the  Industry?• Product  or  Service  based?• How  Product  or  Service  delivers?•Who  are  the  customers  to  your  business?  B2B,  B2C?

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Industry Sample  Introduc2on

Materials  Engineering  ProductMaterialSoX  aims  to  be  the  provider  in  crea&ng  proprietary  fabrics  that  can  withstand  harsh  condi&ons.  We  sell  our  fabrics  to  the  users  in  the  defence  and  coal/mining  industry.

IT  based  Product

RealTime  is  a  Singapore  based  company  that  focuses  on  delivering  an  innova&ve  real  &me  adver&sing  solu&on  to  brands.  Our  chief  consumers  are  brand  marketers  and  digital  marke&ng  agencies.  

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Problem  &  Opportunity

• You  are  selling  the  solu&on  to  a  problem.•What  is  the  “blue  ocean”  you  are  exploi&ng?• Is  there  any  interest  in  your  business  lately?• Lies,  Damn  Lies  &  Sta&s&cs

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Opportunity Example  Descrip2on

Facts/Sta&s&cs/News

Recently,  the  Singapore  government  has  allocated  S$13.5B  into  high  technology  research  and  development  and  placed  their  efforts  in  three  industries:  biomedical  sciences  (S$5.75B),  renewable  energies  and  digital  media.  The  solu&on  we  proposed  is  in  the  life  sciences  market,  where  we  can  reduce  drug  development  process  by  a  half  with  our  technology.

 Es&mate

Based  on  the  assump&on  that  Singtel  has  sold  a  100K  iPhones,  we  es&mate  each  smart  phone  will  purchase  about  5-­‐10  applica&ons  and  spent  on  average  S$10  on  them  each  month.  

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Technology  or  Idea• You  must  make  your  technology  or  idea  understandable  to  your  audience.• For  an  execu4ve  summary,  never  put  too  much  jargon  into  your  descrip4on.• Make  comparisons  on  how  your  solu4on  can  increase  produc4vity  and  efficiency.

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Technology Example  Descrip2on

Materials

MaterialSoX  uses  an  improved  composite  ceramic  material  to  build  fibres  which  can  efficiently  hold  vehicles  on  muddy  grounds.  Our  solu&on  supercedes  the  present  ones  with  half  the  cost  but  twice  the  material  strength  to  hold  vehicles  above  muddy  grounds.

Digital  Media

Our  solu&on  uses  a  proprietary  based  algorithm  developed  to  resolve  blurred  objects  of  movies  in  a  format  1000  &mes  beher  than  the  formats  which  are  adopted  by  the  industry.  

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Team• Diversified  and  Complementary  Skill  Sets.• Get  Grey  Hairs  and  put  them  in  your  advisory  board.  • Don’t  give  too  much  4tles  to  your  team.  • Be  mature  about  your  experience.

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People Example  Descrip2on

Experienced

John  Ho  is  the  CEO  of  MaterialSoX.  Prior  to  joining  this  company,  he  was  the  Vice  President,  Sales  in  Nippon  Fabrics,  a  MNC  specializing  in  fabrics.  His  experience  with  the  market  will  help  to  generate  sales  lead  for  the  company.  

Young  Rookie

Larry  Pang  is  the  founder  of  Project  AceFire.  Currently  a  second  year  undergraduate,  he  has  spent  a  year  working  in  Prof  Johnston’s  mul&media  laboratory.  He  will  act  as  the  CTO  of  AceFire  and  will  seek  to  find  a  CEO  who  can  mentor  and  guide  the  team.  

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Route  to  Market

•Who  are  your  customers  and  how  do  you  reach  them?• 80-­‐20  rule  on  market  segmenta&on?•What  are  the  marke&ng  channels  on  your  product?•What  is  the  market  size  that  your  product  size  is  likely  to  reach?

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Market  Research:  Customers• Who  are  the  customers  for  the  products  or  services?  Iden4fy  common  characteris4cs  &  behavior.• Who  and  where  the  major  purchasers  for  the  products  are  in  each  market  segment?• Indicate  the  rela4ve  reach  for  customers  and  how  they  purchase  the  product  or  service,  and  what  influences  their  buying  decision.

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Market  Size  &  Trends• The  size  of  the  market  based  on  market  segment,  demographic  by  sex,  region  or  country  and  poten4al  profitability.

• The  poten4al  annual  growth  for  at  least  3  years  or  the  compound  annual  growth  rate  (CAGR)  of  the  business  based  on  industry.

• Major  factors  affec4ng  market  growth,  for  e.g.  industry  trends,  socio-­‐economic  trends,  popula4on  changes,  government  regula4on.    

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Compe&&on  &  Compe&&ve  Edges

• Realis4c  assessments  of  compe4tors  based  on  strengths  &  weaknesses.  Iden4fy  disrup4ve  or  alterna4ve  products/services.

• Unique  Selling  Point:  how  does  your  product  differ  from  exis4ng  products  and  what’s  the  addi4onal  requirements.

• Unfair  Advantage:  How  do  you  use  your  strength  to  covet  market  share  for  your  product/service?

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Es4mate  Market  Share,  Sales  &  Evalua4on• Determine  the  scalability  of  the  product.• Iden4fy  possible  partnerships,  clients  and  trends  of  sales  per  unit  in  the  next  3  years.  • Evalua4on  based  on  profitability  and  plan  for  expansions  for  the  produc4on  facility  or  manpower  into  other  markets.

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How  to  Es&mate  Market  Size• Start  with  simple,  reasonable  and  valid  assump&ons.• Approximate  to  the  closest  figure  (10K,  1M)?• Prac&ce  makes  perfect  by  making  es&mates  to  problems.

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Prac&ce  Problems• What  is  the  average  number  of  internet  users  are  there  per  household  in  Singapore?  (Hint:  Think  about  how  many  people  per  household.)• How  many  hospitals  are  there  in  the  first  &er  ci&es  in  China?  (Hint:  define  the  first  &er  ci&es  -­‐  how  many  of  them,  then  work  out  how  many  hospitals  per  city  on  average  based  on  a  certain  radius?• How  many  seats  are  there  on  a  A380?  (Think  from  the  numbering  of  seats)

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• How  many  seats  are  there  on  a  A380?  (Think  from  the  numbering  of  seats):–Start  from  seat  number  30-­‐65  in  economy  class,  take  an  average  of  10  seats  =  350  seats.–First  Class:  4  seats  per  land  and  only  4  rows  =  16  seats–Business  Class:  6  seats  per  row,  and  15  rows  =  90  seats–Economy  class  on  2nd  floor  =  11  x  8  =  88  seats  

• Total  number  of  seats  =  544  seats• Actual  number:  450-­‐654  (depending  on  which  airline).  

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Route  to  Market

•Who  are  your  customers  and  how  do  you  reach  them?• 80-­‐20  rule  on  market  segmenta&on?•What  are  the  marke&ng  channels  on  your  product?•What  is  the  market  size  that  your  product  size  is  likely  to  reach?

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4  Ps  of  Marke4ng

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Business  Strategies

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Business  Strategies

• How  do  you  generate  revenues  and  subsequently  profits  for  your  business?•What  is  your  business  model?• How  are  the  revenue  sources  available  for  your  startup?•What  business  strategies  do  you  use  to  generate  revenues?

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Business  Model• Business  Model:  the  summa4on  of  the  core  business  decisions  &  trade-­‐offs  employed  by  a  company  to  earn  a  profit.• Business  decisions  and  trade-­‐offs  fall  in  4  groups:–Revenue  Sources–Cost  Drivers– Investment  Size–Cri4cal  Success  Factors

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Revenue  Sources• How  many  different  revenue  streams  will  the  business  model  generate?  • What  is  the  source  of  each  revenue  stream  (sales,  service  fees,  adver4sing,  subscrip4on)?• What  is  the  rela4ve  size  &  importance  of  each  revenue  stream?• How  quickly  is  each  revenue  stream  likely  to  grow?

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Case  Study:  Travel  Search  Engine  

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Consumers Travel  Agent Flights  -­‐  Air  Tickets

Revenue  Stream:  Travel  Agent  charges  a  referral  fee,  an  admin  fee  from  the  consumers.

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Case  Study:  Travel  Search  Engine  

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Consumers Travel  Search  Engine Flights  -­‐  Air  Tickets

Revenue  Stream:  Online  adver&sing  which  replaces  the  consumer’s  admin  fee,  and  possible  referral  fee.  

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Business  Strategy Example  Descrip2on

Partnerships/Licencing

MaterialSoX  engages  directly  with  known  industry  partners  in  the  fabric  industry.  The  company  does  not  deal  directly  with  customer  base  but  sells  via  resellers  or  fabric  distributors.  One  alterna&ve  strategy  to  generate  revenues  is  done  via  licensing  of  the  proprietary  technology  to  other  fabric  producing  companies.

Freemium  Model

Real&me  offers  the  customers  a  free  beta  version  of  the  soXware  with  limited  features  so  that  they  can  en&ce  them  to  buy  the  premium  version  (with  addi&onal  features)  of  the  soXware.  The  company  is  currently  in  nego&a&ons  on  strategic  rela&ons  with  different  gaming  companies.

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Risks  &  Barriers  to  Entry

•Who  are  your  compe&tors?• How  do  you  prevent  your  compe&tors  trumping  you?•What  are  the  problems  you  face  against  them?• Don’t  assume  that  you  are  the  only  one  or  have  indefensible  patents.

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Barriers  to  Entry/Compe2tors Example  Descrip2on

Tradi&onal  Industry  Mindset

MaterialSoX  faces  the  risk  of  a  saturated  and  tradi&onal  ceramics  industry  mindset  not  to  adopt  new  technologies.  To  mi&gate  the  risk,  the  company  will  launch  marke&ng  campaigns  and  present  the  product  in  various  conferences  to  provide  industry  players  an  awareness  of  the  product.

Unique  Selling  Point

The  compression  format  of  RealTime  soXware  cannot  be  replicated  based  on  the  proprietary  algorithm  used  in  performing  the  compression.  We  are  in  the  process  of  paten&ng  the  product  to  act  as  a  deterrence  against  our  compe&tors.

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SWOT  Analysis

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Financials

• How  much  do  you  need?• How  much  equity  you  want  to  give?• How  do  you  raise  that  amount  of  money?• Can  you  bootstrap  without  raising  funds?

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Investment  Size• How  much  cash  is  required  to  launch  the  business  model?• How  much  working  capital  is  required  to  sustain  the  business?• What  are  the  4mings  of  these  cash  needs?• Will  the  cash  expended  produce  a  sustainable  and  profitable  business  en4ty?

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Financials Example  Descrip2on

Fundraising

MaterialSoX  seeks  US$300K  as  an  ini&al  investment  to  build  a  proof  of  concept  and  will  raise  US$2M  to  bring  the  prototype  to  market.  The  company  generates  revenues  via  sales  in  producing  fabric  for  the  defence  and  coal/mining  industries.  

Bootstrapping

Real&me  generates  revenues  via  the  number  of  purchases  made  on  the  premium  version  and  online  adver&sing  with  the  huge  traffic  generated  by  visits  from  the  site.  The  company  seeks  to  bootstrap  via  hiqng  1M  sales  target  within  two  years.  

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Who do you raise funds from?

• Friends, Family and Fools.

• Business Angels.

• Super Angels*

• Venture Capitalists.

• Government Institutions.

• Foundations and Agencies.

• Private Equity Firms

• Banks

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Source:  Meng  Weng  Wong  and  published  on  SGEntrepreneurs.comhhp://sgentrepreneurs.com/dummys-­‐guide/2009/03/05/a-­‐map-­‐on-­‐venture-­‐capital-­‐in-­‐singapore/

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Exit  Strategy• What  happens  to  the  company  in  3  to  5  years  4me?•  Possible  Exits:– Ini4al  Public  Offerings  (IPO)–Trade  sale/Merger/Management  Buyout–Family/Company  Succession–Wind  it  Down!

• Exit  Strategy  depends  on  industry  that  the  start-­‐up  is  in.

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Exit  Strategy Example  Descrip2on

Trade  Sale/BuyoutMaterialSoX  hopes  to  exit  in  3  years  with  a  profit  margin  of  20M  via  a  trade  sale  to  a  larger  player  within  the  industry,  for  example,  Cepheus  Ceramics.  

IPO RealTime  seeks  to  IPO  in  3  years  as  an  exit  strategy.  

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References• McKinsey & Co., “Starting Up”

• Robert et al, “New Business Ventures & the Entrepreneur”

• Kotler et al, “Marketing Management: An Asian Perspective”

• Megginson & Byrd, “Small Business Management”

• Timmons & Spinelli, “New Venture Creation”

• Thompson, Strickland & Gamble, “Crafting & Executing Strategy”

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