growthink guide

8/8/2019 Growthink Guide

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Growthinks

2001Business Plan Guide

www.growthink.com

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Los Angeles310-823-6505

Palo Alto650-618-1712


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Growthinks 2001 Business Plan Guide www.growthink.com

Table of Contents

Introduction ............................................................................................................... 1Unique Challenges in 2001........................................................................................ 1Business Plans in 2001 ............................................................................................. 1

Executive Summary .............................................................................................. 4Concise Explanation of the Business......................................................................... 4Market Size and Market Need ................................................................................... 4Companys Unique Qualifications .............................................................................. 4

Company Analysis ................................................................................................. 6Company Profile ........................................................................................................ 6Past Accomplishments .............................................................................................. 6Unique Qualifications................................................................................................. 6

Industry Analysis .................................................................................................... 7Market Size................................................................................................................ 7Trends ....................................................................................................................... 7Customers & Competition.......................................................................................... 8Data Sources............................................................................................................. 8Multiple Industries...................................................................................................... 8

Customer Analysis ................................................................................................ 9Customer Identification/Definition .............................................................................. 9

Customer Demographics, Needs Assessment and Decision-Making ........................ 9Multiple Customer Targets & Partners..................................................................... 10The Customers Customer....................................................................................... 10

Competitive Analysis .......................................................................................... 11Defining Competition ............................................................................................... 11The Competition Dilemma ....................................................................................... 11Solving the Dilemma................................................................................................ 11Which Competitors to Include in The Analysis......................................................... 12Describing Competitors and Showing Competitive Advantages .............................. 12

Marketing Plan ...................................................................................................... 13Products and/or Services......................................................................................... 13Promotions .............................................................................................................. 13Price ........................................................................................................................ 14Place........................................................................................................................ 14Customer Retention................................................................................................. 14Partnerships ............................................................................................................ 15


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Growthinks 2001 Business Plan Guide www.growthink.com

Table of Contents(continued)

Operations Plan .................................................................................................... 16Everyday Processes (Short-Term Processes)......................................................... 16Business Milestones (Long-Term Processes) ......................................................... 16

Management Team ............................................................................................. 18Description of Key Team Members.......................................................................... 18Management Team Gaps........................................................................................ 18Description of Board Members ................................................................................ 18

Financial Plan ........................................................................................................ 19Detailed Revenue Streams...................................................................................... 19The Pro-Forma Financial Statements...................................................................... 19Validating Assumptions and Projections.................................................................. 20Sources and Uses of Funds .................................................................................... 20Exit Strategy ............................................................................................................ 20

Appendix .................................................................................................................. 21Other Key Business Plan Issues .................................................................. 22

NDAs ....................................................................................................................... 22Outsourcing the Business Plan Development.......................................................... 22Plan Length ............................................................................................................. 23

Plan Formatting, Charts and Graphics..................................................................... 23Incorporating Investor Feedback ............................................................................. 23

About Growthink ................................................................................................... 24


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1 Growthinks 2001 Business Plan Guide www.growthink.com

IntroductionThe year 2000 was the most prolific year in the history of privateequity funding. In the U.S. alone, a pproximately $150 billion was

invested in privately held ventures1

. The year also saw the firstround of new economy failures, well-funded private and publiccompanies that crumbled due to flawed business models.

Unique Challenges in 2001The year 2000, with its record breaking highs and lows, has createdunique challenges for new and existing ventures seeking to raisecapital in 2001. Investors have become even shrewder and will befar more discerning in selecting only ventures with attainablerevenue models, real competitive barriers to entry, and strongmanagement teams.

Business Plans in 2001A business plan is a roadmap for a growing venture. It also servesto communicate the ventures value proposition to employees,advisors, partners, customers and investors. Business plans are thevehicle by which ventures get in the door, and are the documentsmost heavily scrutinized by investors, particularly in todaysenvironment.

Todays business plans can no longer overestimate market sizes,underestimate competition, or project results over-aggressively.

Rather, they must present realistic game plans for achievingsuccess, including:

! Highlighting past accomplishments : The best indicator of future success is a ventures past track record. The businessplans of previously funded ventures must show whatmilestones they have achieved with those funds. Newventures must show how the past successes of themanagement team will enable the venture to overcomeexpected challenges.

!

Understanding and defining the relevant market :Improper sizing of a ventures target market is a telltalesign of a poorly reasoned business plan. For example,though the U.S. healthcare market is a trillion dollarmarket, there is no venture that could reap $1 trillion inhealthcare sales. Rather, a more meaningful metric is the

1 Growthink Research, January 2001.


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relevant market size , which equals the ventures sales if itwere to capture 100% of its specific niche of the market.Defining and communicating a credible relevant marketsize is far more powerful than presenting generic industryfigures.

! Understanding and catering to customer needs : Manyrecently unsuccessful ventures failed because they did notunderstand the needs of their customers. Understandingtrue customer wants and needs, identifying which targetmarkets most exemplify these needs, and outlining a plan topenetrate these markets are critical to funding andexecution success.

! Proving barriers to entry : A business plan must includestrategies that demonstrate that the venture can and willbuild long-term barriers around its customers. Claiming afirst mover advantage is simply not compelling in todaysfunding environment.

! Developing realistic financial assumptions : Many investorsskip straight to the financial section of the business plan. Itis critical that the assumptions and projections in thissection be realistic. Plans that show penetration, operatingmargin and revenues per employee figures that are poorlyreasoned, internally inconsistent or simply unrealisticgreatly damage the credibility of the entire business plan. Incontrast, sober, well-reasoned financial assumptions andprojections communicate operational maturity andcredibility.

Growthinks 2001 Business Plan Guide details the key elementsrequired by todays sophisticated investors. It is organized by tenkey business plan sections as follows:

1. Executive Summary2. Company Analysis3. Industry Analysis4. Customer Analysis5. Competitive Analysis6. Marketing Plan7. Operations Plan8. Management Team9. Financial Plan10. Appendix


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In 2001, it is more crucial then ever to present investors with aprofessional and compelling business plan. A great business plandistinguishes a venture from the tens of thousands of other venturesseeking to raise capital in 2001, and signals to investors that theventure is well thought-out and poised for success.


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Executive SummaryMost investors are inundated with business plans, and often givethem no more than a cursory review. Accordingly, it is critical that

the first page of the Executive Summary stimulates and motivatesthe investor to learn more about the venture.

The first page of the Executive Summary must include thefollowing:

! A concise explanation of the business! A description of the market size and market need for the

business! A discussion of how the company is uniquely qualified to

fulfill this need

Concise Explanation of the Business Believe it or not, after reading the first page of most business plans,investors often do not understand the business in which thecompany is operating! This is particularly true when a company isinvolved in a complex, highly technical business. It may seemobvious, but it is critical to remember that investors cannot investin what they do not understand. The Executive Summary mustsimplify the definition of the business to develop interest andpromote a clear understanding. The rest of the plan can tell the full,complex story.

Clearly defining a business often requires simplification. Forinstance, an online book seller could also be presented as a firminvolved in the procurement and distribution of written materialsacross a wide geographic spectrum. Obviously the formerdescription is more effective in setting the stage for the investor tolearn what is unique about the venture.

Market Size and Market Need It is critical to show investors that the venture is positioned in alarge and growing market and that there is a clear and compelling

need for the product or service. As such, it is important to definethe market by referencing credible sources as to its size andprojected growth. In 2001, it is especially critical that the planprove the customers ability and willingness to pay for this need.

Companys Unique Qualifications Once the investor understands the business and agrees there is aneed for the ventures products and services, the final step is


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demonstrating that the venture has an unfair competitiveadvantage in the market. Examples of unfair advantages couldinclude a world-class management team, proprietary technology,proven operational systems, key partnerships, long-term contractswith major customers, as well as other successes-to-date. The planmust document and detail these compelling advantages.

Investors have varied opinions regarding the best length of anExecutive Summary. Some prefer a one-page summary, whileothers feel that a three to four page summary is more appropriate.Including these critical elements in the first page of the businessplan satisfies the needs of virtually all investors. After reading thispage, investors can finish reading the Executive Summary or jumpstraight to the other sections.

Growthink believes that an Executive Summary should include oneto three additional pages that boil down the essential elements of the business plan. This includes paragraphs addressing each of thefollowing:

! Customer Analysis : What specific customer segments theventure is targeting and their demographic profiles

! Competition : Who the ventures direct competitors are andthe ventures key competitive advantages

! Marketing Plan : How the venture will effectively penetrateits target market

! Financial Plan : Summarizing the financial projections of the venture

! Management Team : Biographies of key management teamand Board members


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Company AnalysisThe Executive Summary entices the investor to learn more aboutthe venture. The Company Analysis in turn educates the reader

regarding the ventures history.

Company Profile This section should start with a detailed profile of the ventureincluding its:

! Date of formation! Legal structure (LLC vs. C-Corp., etc.)! Office location(s)! Business stage (start-up vs. undergoing R&D vs. serving

customers, etc.)

Past Accomplishments The next section of the Company Analysis should include a chartof the ventures past accomplishments, including descriptions anddates when:

! Prior funding rounds were received! Products and services were launched! Revenue milestones were reached (e.g., date when sales

surpassed the million dollar mark)! Key partnerships were executed!

Key customer contracts were secured! Key employees were hired

This information is critical to investors as it indicates the venturesability to execute upon a previous game plan. Attaining milestonesis an excellent indicator for potential investors that their moneywill be used to create value and lead to a liquidity event.

Unique Qualifications Finally, the Company Analysis should detail why the venture isuniquely qualified to succeed. This is often referred to as the

ventures unfair competitive advantage. This advantage couldinclude a world-class management team, proprietary technology,proven operational systems, key partnerships, long-term contractswith major customers, as well as other successes-to-date.


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Industry AnalysisThe Industry Analysis describes the landscape in which a ventureis/will be operating. It serves to prove to the reader that there is a

genuine need in the market for the companys products andservices, that the market is large enough to support substantial salesby the company, and that the industry parameters support thecompanys strategy.

Market Size A good starting point is to discuss the marketplace in which theventures products and services are offered and the size of thismarketplace. Critical to this analysis is determining the relevant market size . The relevant market size equals a ventures sales if itwere to capture 100% of its specific niche of the market.

For instance, if a company develops Internet appliances fordoctors, the relevant market size clearly is not the trillion dollarhealthcare market. Rather it is the size (in units and dollars) of computer and Internet appliance sales to doctors, since it is theseproducts against which the venture competes. Arriving at therelevant market size is rarely easy, and often requires peeling manylayers off a huge total industry size.

Trends Once the plan has defined the relevant market size, it should

discuss industry trends and how those trends relate to the venture.Questions to answer include:

! How has the relevant market size changed over the past oneto five years?

! What is the projected growth of the relevant market?! What factors will affect this growth? General economic

factors? Changing regulatory conditions? Changingconsumer needs? Etc.

It is important to remember that the Industry Analysis is not merely

a research report each fact, figure and projection should supportthe ventures prospects for success. For example, consider anonline market research firm that relies exclusively on opt-in (i.e.,the consumer chooses to participate) responses. This venturesbusiness plan would not only explain new and proposed Internetprivacy regulations, but how this supports the ventures long-termcompetitive position. In addition, the plan should explain how theventure would overcome trends that do not support the venture. For


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example, showing how the venture will succeed in an uncertaineconomic climate relieves investor concern and will enhance thesuccess of the business plan.

While the facts and figures in the Industry Analysis should bepresented to support the venture, it is critical that the data presentedbe believable and verifiable as investors (if interested inproceeding) will conduct extensive due diligence on the businessplan.

Customers & Competition Even though the business plan includes specific sections forCustomer and Competitive Analysis, an overview of these twoparameters should also be included in the Industry Analysis.

Regarding customers, the Industry Analysis should discuss who thekey customer groups are and the size of each. The specific needs,wants and demographic profiles of the customers in which theventure will target will be detailed in the Customer Analysis.

Regarding competition, the Industry Analysis should discuss thekey categories of competitors and the general competitivelandscape. The Competitive Analysis section will detail the keycompetitors.

Data Sources The Industry Analysis contains many facts, figures and futureprojections. For this data to be credible, it should be sourcedthrough an independent research firm whenever possible. Theopinions of the ventures management are simply inadequate toconvince a sophisticated investor, and reliance on anecdotal datacan greatly detract from the overall credibility of the plan.

For general market sizes and trends, Growthink suggests citing atleast two independent research firms.

Multiple Industries Most ventures compete in multiple industries. The company that

manufactures and markets Internet appliances for doctors, asmentioned above, competes within the healthcare industry, theInternet appliance industry and the Internet connectivity industry(includes computer manufacturers, ISPs, etc.). In addition tofocusing on defining and assessing the relevant market as detailedabove, the Industry Analysis should include descriptions of all of the markets in which the venture competes.


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Customer AnalysisThe Customer Analysis assesses the customer segment(s) that theventure serves. In this section, the venture must convey the needs

of its target customers. It must then show how its products andservices satisfy these needs to an extent that the customer will payfor them.

Customer Identification/Definition The first step of the Customer Analysis is to define exactly whichcustomers the venture is serving. This requires specificity. It is notadequate to say the venture is targeting small businesses, forexample, because there are several million of these types of customers. Rather, the plan must identify precisely the customers itis serving, such as small businesses with 10 to 50 employees based

in large metropolitan cities on the West Coast.

Customer Demographics, Needs Assessment and Decision-Making Once the plan has clearly identified and defined the ventures targetcustomers, it is necessary to explain the demographics of thesecustomers. Questions to be answered include:

! How many potential customers fit the given definition? Isthis customer base growing or decreasing?

! What is the average revenues/income of these customers?! Where are these customers geographically based?

After explaining the customers demographics, the plan must thendetail the needs of these customers. Conveying customer needscould take the form of past actions (X% have purchased a similarproduct in the past), future projections (when interviewed, X% saidthat they would purchase product/service Y) and/or implications(because X% use a product/service which our product/serviceenhances, then X% need our product/service).

The business plan must also detail the drivers of the customersdecision-making. Sample questions to answer include:

! Do customers find price to be more important than thequality of the product or service?

! Are customers looking for the highest level of reliability?Or will they have their own support and just seek a basiclevel of service?


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There is one last critical step in the Customer Analysis -- showingan understanding of the actual decision-making process. Examplesof questions to be answered here include:

! Will the customer consult others in their organizationbefore making a decision?

! Will the customer seek multiple bids?! Will the product/service require significant operational

changes (e.g., will the client have to invest time to learnnew technologies? Will the product/service cause othermembers within the organization to lose their jobs? etc.)

It is essential to truly understand customers to develop a successfulmarketing strategy. As such, sophisticated investors requirecomprehensive profiles of a ventures target customers.

Multiple Customer Targets & Partners Most businesses target multiple customer types or segments. Eachcustomer segment that is critical to the business model must bedetailed in this section. In addition, if partners are critical to theventures marketing success, the plan must detail the specificpartners the venture seeks, the wants and needs of these partners,and how the partners decision-making process works.

The Customers Customer Many ventures must include an assessment of their customerscustomer in their business plan. Consider web developmentcompanies that primarily served online retailers. When end-customers did not purchase the projected amounts from theseonline retailers, some went out of business. As a result, the webdevelopment businesses lost customers and inherited significantfinancial difficulties.

In cases like these, it is important to show an understanding of theend-customers who ultimately drive the business success. While acomprehensive needs assessment of end-customers is not critical,the plan must show how a business customers are well positionedto meet their customers needs now and in the future.


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Competitive AnalysisDefining Competition The Competitive Analysis section is the most misunderstood

section of the business plan, mainly because companies andinvestors often define the term competitor differently.Companies frequently define competitors as firms offeringsimilar products and services. Since every product or service isunique in some ways, many companies convey in their businessplans that they have few or no competitors.

Investors use a far more discerning definition of competition,defining it as any service or product that a customer can use tofulfill the same need(s) as the company fulfills. This includes firmsthat offer similar products, substitute products and other customer

options (such as performing the service or building the productthemselves). Under this broad definition, any business plan thatclaims there are no competitors greatly undermines the credibilityof the management team.

The Competition Dilemma In identifying competitors, companies often find themselves in adifficult position. On one hand, they want to show that they areunique (even under the investors broad definition) and list no orfew competitors. However, this has a negative connotation. If no orfew companies are in a market space, it implies that there may not

be a large enough customer need to support the companysproducts and/or services. On the other hand, should there be toomany competitors, then the market may be too saturated to supportthe profitability of a new entrant.

Solving the Dilemma Solving the competition dilemma is relatively simple if the CustomerAnalysis is completed properly. That section reveals the customerwants and needs that the venture is fulfilling. Any company (or self-action) that also serves these needs is a competitor.

There are typically categories of competitors that compete invarying degrees with a ventures product/service offerings. Assuch, the competition section should include sections for direct andindirect competitors. Direct competitors are those that serve thesame target market with similar products and services. Indirectcompetitors are those that serve the same target market withdifferent products and services, or a different target market withsimilar products and services.


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Which Competitors to Include in the Analysis As mentioned above, sophisticated investors will conductsubstantial due diligence, including conducting their owncompetitive analysis, before infusing capital into a venture. Assuch, it is critical not to omit or downplay a competitor simplybecause it may reflect poorly on the ventures opportunity.

There are often few direct competitors and many indirectcompetitors. As such, as a general rule, the plan should describeeach direct competitor and sub-categorize the indirect competitors(and describe the sub-category as a whole).

A final point to keep in mind in listing competitors is that listingpublic companies in a competitive space if often a good sign. Apublic company implies that the market size is big and also givesthe investor the assurance that if management executes well, theventure has substantial profit and liquidity potential.

Describing Competitors and Showing Competitive Advantages The next step is to describe competitors, particularly directcompetitors. In doing so, it is important not to simply mentioninformation about the competitor and its customers, productsand/or services. Rather, the plan must also explain eachcompetitors strengths and weaknesses and the key drivers of competitive differentiation in the marketplace.

In explaining competitors weaknesses, be sure to use objectiveinformation. Growthink has reviewed business plans that assertthat the competition does not know what it is doing or is not assmart as us. This obviously positions the ventures management asimmature and nave, particularly if the competitors have strongtrack records. On the other hand, it is incredibly powerful to offermarket research results that prove the competition fails to satisfycustomer needs.

Note that serving a customer need or segment that the competitionis not is often a valid area of competitive differentiation. If this is

the case, the Customer Analysis section must thoroughly detailthese needs and segments.

Finally, in describing competitive advantages, it is important todemonstrate how the ventures business model creates barriers toentry. Barriers to entry are reasons why customers will not leaveonce acquired.


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Marketing PlanThe Marketing Plan demonstrates how a venture will penetrate themarket with its products and services. The Marketing Plan should

include the four Ps Product, Promotions, Price, and Place.

Products and/or Services The first P stands for Product, but includes all products andservices that the company offers. This section of the business planshould detail all the features of the products and services, how theywork, their unique/proprietary attributes, etc. For products that arepatented and/or technical in nature, drawings and backup materialsshould be presented in the Appendix.

Most growing ventures offer certain products and services today

but expect to offer more in the future. It is important to mentionboth current and future products/services here, but to focusprimarily on the short-to-intermediate term horizon.

Promotions Promotions include each of the activities that induce a customer tobuy the companys products and services. Promotional activitiescould include advertising, public relations (PR), free samples,discounts, direct mail, telemarketing, partnerships, etc.

This section of the business plan discusses which promotions will

be used and how they will be used. For instance, if partnershipswill be used to secure new customers, the plan must explain whichcompanies are partners, how they will be able to provide newcustomers, how the partnership will work (from operational/ financial standpoints), etc.

This section must be as specific as possible, particularly as itrelates to discussing future promotions. To say that a company isgoing to generate PR in trade magazines is simply too vague.Rather, the plan must explain the type of article/feature that may bewritten about the firm and why, which specific trade journals that

will be targeted and/or the projected publication dates.In discussing how the company will promote itself, it is importantto discuss how the company will position itself. This positioningstatement details the attributes that customers will assign to thecompany, its products and services. The choice of promotionalactivities must support this positioning. For example, discounts


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might not be consistent with a desire to be considered an upscalebrand.

Price This section of the plan should detail the price point(s) at which theventures products and services will be sold. If the products/ services are sold as bundles, these should be detailed in thissection. Rationale for the pricing should be given when applicable(e.g., why the company has chosen an initiation fee plus monthlymembership fees versus a one-time lifetime membership fee).

Place The final P refers to Place or Distribution and explains howa companys products and/or services will be delivered tocustomers. This section is crucial because if customers cannotaccess products and services, they cannot purchase them.

This section is especially critical for high-growth, capital-constrained ventures. Attaining profit-effective distributionchannels is often the most vexing challenge for these businesses.

Examples of distribution methods include:

! Retail location! Website! Another website host (e.g., products/services sold

through/hosted by another website -- application serviceprovider/private label model)

! Another retail location (e.g., products/services sold througha third-partys retail location)

! Another website location (e.g., products/services soldthrough another website)

! Direct mail catalogs

Many companies have multiple distribution methods to delivertheir products and services to customers and each should bedetailed here.

Customer Retention The four Ps mostly discuss attracting customers. Marketingdepartments must also develop long-term, revenue-generatingrelationships with customers. The methods through which themarketing department plans to retain customers should also bedetailed in the Marketing Plan. Such methods could includeimplementing customer relationship management (CRM) tools,building network externalities (e.g., the more people that use the


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product or service the harder it is for a competitor to penetrate themarket), ongoing value-added services, etc.

Partnerships Forging partnerships to improve market penetration has becomecommonplace, particularly for new economy businesses. And,most new economy ventures proudly mention their manypartnerships in their business plans.

The fact is that, regardless of whom the partnership is with,partnerships by themselves are meaningless. What are meaningfulare the terms of the partnership. For instance, while it sounds greatto have a partnership with a major search engine, the details of thepartnership are what investors find important. For instance,investors will look poorly upon a partnership in which the searchengine earns 40% commissions on customers it refers. On the otherhand, investors would look favorably upon a more equitablepartnership.

As such, if partnerships are a key part of the marketing plan, besure to detail the specifics of the partnerships. This includes howthe partnership will work, the type of customer leads expected fromeach partner, etc.

The next section, the Operations Plan, details the resources needed,the processes employed, and the milestones for executing theMarketing Plan.


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Operations PlanUp until this point, the business plan has defined and scoped thecompanys vision, described the companys history, assessed the

industry, customers and competition and mapped out a marketingplan to attract customers. The Operations Plan presents theCompanys action plan for executing this vision.

The Operations Plan details 1) the processes that must beperformed to serve customers every day (short-term processes) and2) the overall business milestones that the company must attain tobe successful (long-term processes).

Everyday Processes (Short-Term Processes)Every company has processes to provide its customers with

products and services. For instance, Wal Mart has a uniquedistribution system to effectively move products from itswarehouses, to its stores, and finally to its customers homes.Technology products manufacturers have processes to convert rawmaterials into finished products. And service-oriented businesseshave processes to identify new areas of customer interest, tocontinually update service features, etc.

The processes that a venture uses to serve its customers are whattransform a business plan from concept to reality. Anyone can havea concept. And more importantly, investors do not invest in

concepts -- they invest in reality. Reality is proving that themanagement team can execute the concept better than anyone else,and the Operations Plan is where the plan proves this.

While the Marketing Plan lays out the plan for attractingcustomers, the Operations Plan should lay out the key operationalprocesses for serving them. Charts supplemented with text areoften the best way to explain the key relationships between theparties involved in ultimately serving the customers. These partiescould include departments within an organization, partners,suppliers, distributors/resellers, etc.

Business Milestones (Long-Term Processes)The second piece of the Operations Plan is proving that the teamwill execute the long-term company vision. This is best presentedas a chart. On the left side, list the key milestones that theCompany must reach and on the right, the target date for achievingthem. Like the chart in the Company Analysis (detailing past


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accomplishments) these new milestones should include expecteddates when:

! New products and services will be introduced to themarketplace

! Revenue milestones will be attained (e.g., date when saleswill surpass million dollar mark)

! Key partnerships will be executed! Key customer contracts will be secured! Key financial events will occur (future funding rounds,

IPO, etc.)! Key employees will be hired

Additional text should be used, where necessary, to support theprojections laid out in the chart.

The milestone projections presented in the Operations Plan must beconsistent with the projections in the Financial Plan. In both areas,it is important to be aggressive but credible. Presenting a plan inwhich the venture grows too quickly will show the naivet of themanagement team, while presenting too conservative a growth planwill often fail to excite the potential investor (who will require ahigh rate of return over a relatively short time period).


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Management TeamEven the best new concept or existing plan will fail if executedpoorly. The Management Team section of the business plan must

prove to the investor why the key company personnel areeminently qualified to execute on the business model.

Description of Key Team Members The Management Team section should include biographies of keyteam members and detail their responsibilities. Biographies shouldinclude the past positions that the individuals have held andspecific successes in each. These successes could includelaunching and growing new businesses or managing divisions of established companies. Biographies should also includeeducational backgrounds and other pertinent information.

Team member biographies should be tailored to the venturesgrowth stage. For instance, a start-up venture should emphasize itsmanagements success launching and growing ventures. A moremature venture should emphasize how team members havesuccessfully operated within the framework of larger enterprises.

Management Team Gaps Depending upon the stage of the venture, key functional areas maybe missing from the team. This is acceptable provided that the planclearly defines the roles that these individuals will play and

identifies the key characteristics of the individuals that will behired. However, it is generally not favorable if personnel aremissing for ultra-critical roles. For example, a plan that isfundamentally a marketing play should not seek financing withouta stellar marketing team.

Description of Board Members The Management Team section should also include biographies of the ventures Advisory Board and/or Board of Directors. Whilehaving well-known advisors/board members adds credibility, it ishighly effective to explain how these advisors will directly impact

the venture through strategic advice and/or providing conduits tokey clients, partners, suppliers, etc.


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Financial PlanThe Financial Plan explains how the execution of the venturesvision will reap great financial rewards for the investor. As such, it

is the section that investors often spend the most time scrutinizing.

Detailed Revenue Streams The Financial Plan should verbally present the revenue model of the company including each area in which the company derivesrevenue. These revenue streams could include, among others:

! Sales of products/services! Referral revenues! Advertising sales! Licensing/royalty/commission fees!

Data sales

The relative importance and timeliness of each revenue streamshould be noted to help investors better judge the venture. Forinstance, the investor may not believe in the ventures ability toimmediately generate significant sales of its data. This would be aproblem if this were the ventures core revenue stream. However,by noting in the plan that data sales will only comprise 2% of totalrevenue and will not commence until Year 3, the investorsconcerns would be alleviated.

The Pro-Forma Financial Statements The Financial Plan must numerically detail the revenue modelthrough past (if applicable) and pro-forma (projected) IncomeStatements, Balance Sheets and Cash Flow Statements. It is criticalthat the figures used in these statement flow from the analyses inevery other section of the business plan . For instance, therelevant market size (Industry Analysis) should be reflected, asshould competitors operating margins (Competitive Analysis),customer acquisition costs (Marketing Plan), employeerequirements (Operations Plan), etc.

A summary of the financial projections should be presented in thetext portion of the plan, while full projections should appear in theAppendix. For existing ventures, the Financial Plan should noteany significant deviations (e.g., increases in margins) between pastand projected results.


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Validating Assumptions and Projections The Financial Plan must also detail the key assumptions such aspenetration rates, operating margins, headcount, etc. It is criticalthat these assumptions are feasible. For instance, if the company iscategorized as a networking infrastructure firm, and the businessplan projects 80% operating margins, investors will raise a red flag.This is because investors can readily access the operating marginsof publicly-traded networking infrastructure firms and find thatnone have operating margins this high.

As mentioned in the Competitive Analysis section, while everyventure is unique, each bears similarities to other ventures.Accessing and basing financial projections on those of similarfirms will greatly validate the realism and maturity of the financialprojections.

Sources and Uses of Funds The Financial Plan should detail the sources and uses of funds. Thesources of funds primarily include outside investments (e.g., equityinvestments, bank loans, etc.) and operating revenues. Uses of funds could include expenses involved with marketing, staffing,technology development, office space, etc.

Exit Strategy All investors greatly desire and are motivated by a clear picture of the ventures exit strategy, or the timing and method through whichthey can cash in on their investment. This picture best comes intofocus when the key valuation and liquidity drivers of the ventureare clearly delineated. An excellent method to accomplish this isthrough descriptions of comparable firms that have had successfulliquidity events, either through acquisition, merger of publicofferings.

The most common exit strategies in business plans are IPOs oracquisitions. While the method of exit is not always crucial, theinvestor often wants to see the decision to better understand themanagement teams motivation and commitment to building long-term value.


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AppendixThe Appendix is used to support the rest of the business plan.Every business plan should have a full set of financial projections

in the Appendix, with the summary of these financials in theExecutive Summary and the Financial Plan.

Other documentation that could appear in the Appendix include:

! Technology: Technical drawings, patent information, etc.

! Partnership and/or Customer Letters: Letters from partnersand/or customers stating their interest in working with theventure can add enormous credibility and validation.

!

Expanded Competitor Reviews: Most ventures have severaldirect and/or indirect competitors. While the CompetitiveAnalysis section of the plan reviews the most directcompetitors, adding a more thorough list and description inthe Appendix shows that management truly understands theplayers in the market.

! Customer Lists: Including a list of key customers that theventure is serving in addition to their status and/or type orquantity of product/service being offered.


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Other Key Business Plan IssuesFive topics which are often discussed in the business plandevelopment and capital raising process are 1) Nondisclosure

Agreements (NDAs) and/or Confidentiality Agreements, 2)outsourcing the business plan development, 3) the length of thebusiness plan, 4) plan formatting, charts and graphics and 5) howto incorporate investor feedback.

NDAs Most investors will not sign NDAs. This is because a businessstrategy and/or concept are typically not confidential. It is possiblethat a key partnership is confidential, for example, but for the mostpart the execution of the strategy and concept is what will make thecompany successful.

In addition, if the concept and/or strategy are confidential, thisoften implies that there are no barriers to competitive entry. If afterlaunch, a competitor or host of competitors can quickly copy theconcept, then the business model is probably not sustainable.

On the other hand, proprietary technology is confidential.However, the business plan should not discuss the confidentialaspects of the technology. Rather, the business plan should discussthe benefits of the technology and how these benefits fulfill a largecustomer need. An interested investor will review the actual

technology during the due diligence process. At this point, adiscussion regarding signing an NDA would be appropriate.

Outsourcing the Business Plan Development The business plan is a very personal document in that it explainsthe intimate details of a business. On one hand, because it is sopersonal many companies prefer to complete the business planthemselves. On the other hand, because it is so personal mostcompanies fail to present the company in a way that outsiders canunderstand. This is because the management team is so close tothe venture that they have trouble explaining it in terms that

outsiders can quickly grasp.An independent business plan development team serves the samepurpose as an outside PR or advertising agency typically does itexpertly determines the ventures value proposition and conveys itmost concisely and compellingly to the target audience. Anindependent business plan development team also providesadvantages including:


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! Allowing the management team to focus on growing thebusiness rather than spending the hundreds of hours it takesto develop an investor-quality business plan.

! Providing a reality check regarding how investors mightrespond.

! Making sure the business plan includes all of the keyelements the investor seeks.

! Improving the market research and strategy developmentpresented in the business plan.

Plan Length How long should the business plan be? A business plan needs to bewhatever length is required to excite the investor, prove thatmanagement truly understands the market, and details theexecution strategy. Growthink has found that 15 to 25 pages of textare sufficient to accomplish this. Any more and the time-constrained investor will be forced to skim certain sections of theplan, even if they are generally interested, which could lead themto miss essential elements. Any less and the investor will think thatthe business has not been fully thought through, or will simply nothave enough information to make an investment decision.

Many management teams feel that their venture is too complex todescribe in 15 to 25 pages. While this is sometimes true, the businessplan is not meant to tell the whole story. Rather, the venture must beboiled down into its essential elements. If the investor is interested,there will be plenty of additional time to tell the whole story.

Plan Formatting, Charts and Graphics Business plans, like other marketing communications documents,should be visually appealing and easy-to-read. This can beaccomplished by using charts and graphics and by formatting theplan for readability. These techniques will enable the investor tomore quickly and easily understand the ventures value proposition.

Incorporating Investor Feedback Investors, like the rest of us, have different tastes. One investormay love a concept and/or business plan while the next may hate

both. It is important to understand this as business plans areworking documents and are always undergoing iterations.

Management teams must not rush to incorporate each potentialinvestors comments. Instead, have several investors, partners andother business colleagues review the plan and provide feedback.Then incorporate common concerns and probe other comments todetermine if they are valid.


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About GrowthinkIntroduction

Growthink is a strategic consulting firm focused on growing ventures ofall sizes. Since August 1999, we have completed over 75 strategicbusiness plan development projects, researched and assessed over 200markets and micro-markets, developed over 50 financial models, andenhanced over 100 marketing, operational and business strategies.Growthink has offices in Los Angeles and Palo Alto, and a nationwidenetwork of investors, partners and clients.

Founders Dave Lavinsky has a history of successfully launching and growing businessesof all sizes. He has consulted businesses ranging from concept-stageentrepreneurs to new divisions of billion-dollar corporations. Dave has alsolaunched three of his own ventures including two consulting practices and a foodmanufacturing and marketing firm. In addition to his entrepreneurial endeavors,Dave has professional management consulting, marketing consulting and marketresearch experience with PIRA Energy Group, FIND/SVP, BPA International andThe NPD Group. In these positions, Dave has served a myriad of business-to-business and business-to-consumer markets. Dave earned his bachelors degreefrom the University of Virginia and his MBA from the Anderson School ofManagement at UCLA.

Jay Turo has a strong entrepreneurial, professional sales and financialbackground. Most impressively, Jay has built and sold two companies in the pastfive years: Hyannis Ice Cream, Inc. and Least Cost Routing, Inc. At Hyannis IceCream, Jay turned a small seasonal startup into a leading regional distributorshipwith over $2 million in retail sales. At Least Cost Routing, Jay positioned the firmto profit from the Telecommunications Act of 1996, building the firm's switch andoperational infrastructure. Jay also has extensive financial sales, analysis, and

managerial experience, primarily at Prudential Securities. Jay earned hisbachelors degree from Stanford University and his MBA from the AndersonSchool of Management at UCLA

Project Team Leaders All Growthink projects are managed by our Project Team Leaders. Eachleader has combination of entrepreneurial experience, consultingsuccess, functional expertise and top intellectual capabilities.

Cindy Yi has for-profit and not-for-profit management experience with a specialtyin operations management. Most recently, Cindy served at Los Angeles' UnionRescue Mission where she managed and streamlined several organizationalprocesses. Her experience also includes positions with Ernst & Young's

Performance Improvement division, and consulting for E-trade and SunMicrosystems, where she helped develop marketing strategies. Cindy earned herbachelors degree from Pomona College and her masters degree in IndustrialEngineering and Engineering Management from Stanford University.

David Batty has extensive experience launching and growing entrepreneurialventures across Southern California. In addition to writing business plans andraising capital for new companies, he has provided on-going financial andoperational advice to successful multi-million dollar technology start-ups in thestreaming media and home automation markets. His tenure as a stock analyst inthe technology sector for Security Research Associates gave David the tools


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necessary to transform business concepts into successful companies. Davidearned his bachelors degree from Stanford University and his MBA from theAnderson School of Management at UCLA.

Dominic Riebli has a strong corporate finance background within theentertainment field, with his past experience including work as a Senior FinancialAnalyst at Paramount Pictures and a staff accountant at Columbia TriStar. AtParamount, Dominic performed extensive budgeting and forecasting for theTelevision Group and participated in the post-acquisition valuation of SpellingTelevision. His entrepreneurial experience includes work with Flick 2, Ltd., asports marketing firm founded by National Basketball Association Hall of FamerAlex English. During his tenure, Dominic was a general manager for The CharlieWard Basketball Camp for Girls. Dominic graduated Academic All-Ivy in Footballfrom Columbia University.

Jason Neely has outstanding experience in advertising, design andcommunications. He has held managerial positions in subsidiaries of leadingglobal agencies BBDO and True North Communications. His entrepreneurialexperience includes launching, managing and selling a successful apparelbusiness. Jason earned his bachelors degree in International MarketingManagement from Otago University in New Zealand. He completed his MBA with

distinction at Victoria University in New Zealand and at the Anderson School ofManagement at UCLA.

Justin Williams came to growthink with extensive experience in municipal andcorporate finance. Most recently, Justin worked as a Financial Analyst withSalomon Smith Barney where he was involved in over $5 billion in fiberoptic andwireless telecommunications offerings. His entrepreneurial experience includeswork with a team of developers and consultants to bring economic developmentto San Francisco's Mission Bay and Bayview Hunters Point neighborhoods.Justin received his bachelors degree from Stanford University.

Karen Gorny brings a strong technical, analytical and financial background togrowthink. As a financial analyst for Hughes Electronics, she worked on equityand debt offerings, developed relationships with investors and investment banks,and negotiated and developed annual budgets and forecasts. She also prepared

extensive competitor analyses, cost-savings and working capital efficiencystudies for the company. Karen also has an extensive engineering background,which includes managing design teams at Northrop-Grumman Corporation'sAircraft Division. Karen earned her bachelors degrees in Aerospace andMechanical Engineering from the University of Michigan and her MBA from theAnderson School of Management at UCLA.

Michael Howell has a strong entrepreneurial and financial background. Heserved as an associate for CrownCastle International, a $6 billion wirelesscommunications infrastructure consolidator. At Crown, Michael performedvaluation analysis on potential acquisitions, and assisted in the creation ofbusiness plans and road show presentations. Michael also recently honed hisentrepreneurial skills through assisting in the launch of On Site Dental, aninnovative dental service provider, offering care to residents of nursing homes,children in foster care and other underserved groups. Over a six month period, hecreated a program that was caring for 5,000 to 10,000 children, many of whomhad never been seen by a dentist before. Michael earned his bachelors degreecum laude from Harvard University.

Ruth Kwon has great hands-on Internet entrepreneurial experience. As one ofthe founding members of Gobi, Inc., Ruth has experience in the operations andfulfillment management of a company from concept to execution, from nocustomers to tens of thousands. During her tenure there, she also managedcustomer service and retention programs, and traveled to Hyderabad, India toincorporate an overseas office for software development and electronic support.


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While at Gobi, she worked with Greenfield Online and the advertising agency,M&C Saatchi, in conducting a market study about the attitudes and behaviors ofAmericans toward technology. Ruth has also worked as a generalist associate atD. E. Shaw & Co, LLP, a securities and investment firm in New York. She earnedher bachelors' degrees cum laude at Yale University. She speaks proficientKorean and Spanish.

Sarah Weldon has over ten years' experience in international businessdevelopment, management consulting, and cross-cultural training. Most recently,she founded Allegra, an international consulting firm specializing in strategicpartnerships between U.S. and European high technology, telecommunications,and consumer products firms. Her clients have included Microsoft, OsicomTechnologies, Patagonia, and a division of American Express. She has also heldpositions in marketing, sales and public relations for the West Coast bureau ofthe French Government for foreign direct investment, USAssist, Inc., and Vie deFrance Corporation. Fluent in French and Spanish, Sarah earned her bachelorsdegree at Georgetown University's School of Foreign Service; her mastersdegree in International Relations from the Institut Europeen, Nice, France, andher MBA from the Anderson School of Management at UCLA.

Sarbjit Singh has great expertise in managing and analyzing complex financial

transactions and assessing and developing company strategies. As a SeniorConsultant for PricewaterhouseCoopers, LLP, he performed valuation, marketanalysis and strategic services for insurance, retail and financial services clients.Sarbjit's other experience includes positions at Andersen Consulting where heinitiated technology-based reengineering programs for public and private sectorclients. Sarbjit earned his bachelors degrees in Finance and Government atGeorgetown University where he was a cum laude graduate and a Rhodesscholarship candidate. He earned both his MBA and JD degrees from EmoryUniversity. Sarbjit is a published author in the areas of sports business and law.

Market Research Practice Corey Lavinsky directs Growthinks Market Research Practice.

Corey Lavinsky, in addition to providing legal counsel to growthink and itsclients, specializes in assessing complex markets and presenting succinct actionplans. Corey gained his expertise at the prestigious St. Louis law firm of Klutho,Cody & Kilo, P.C. where for the past decade, he served as the firm's primarycontact for large-scale research and writing projects for products liability andcommercial cases. Corey earned his bachelors degree from the State Universityof New York at Binghamton and his JD from the University of Missouri School ofLaw, where he was a member of the Missouri Law Review.


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Growthink clients include today and tomorrow's leaders in all business sectors.Below is a representative list of our clients.

BeHere Media and Entertainment

Campus Pipeline Education Services

Cryoport Healthcare/ Biotechnology

eCandy Retail Services

Etronica Media and Entertainment Greater Relations

Relationship Services

IM C Professional Services

iPhenom Internet Infrastructure

Learnframe Internet Infrastructure

Lendstar Retail Services

Snaparoo Professional/Retail

Services

Soneta.comInternet

Infrastructure

Telverse Communications

uSCOPE.com Healthcare/ Biotechnology

VitalCareers.com Healthcare/ Biotechnology

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