Writing a Successful Business Plan Professor John Newman Babson College

Writing a Successful Business Plan
Professor John Newman
Babson College
What Is a Business Plan?
IDENTIFICATION AND ARTICULATION OF:
 Opportunity, Market, Customers
 Management Capable of Seizing It
 Minimal Required Resources
 Entry Strategy & Tangible Vision for Growth
 Financial Requirements, Cash Flow & Deal
 Critical Risks & Assumptions
 Harvest Options
Source: Ed Marram, Babson College
Goals of a Business Plan
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Evaluate feasibility of the idea
Development of strategy
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Entry, early growth, acquisition, LBO,
harvest, etc.
Assist in obtaining resources/approval
Establish credibility
Sample Business Plan Outline
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Table of Contents
Executive Summary
Industry, Products or
Services
Market Research
Marketing Plan
Management Team
Development Plan
Operations Plan
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Schedule
Critical Risks
Financial Plan
Proposed Offer
Appendices
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Financial Projections
Start-up Costs
Breakeven Chart
Elements of a Successful Plan
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Clear description of the idea
Overview of industry to suggest need/opportunity
Evidence that demand exists (or can be created or
stolen)
Clear description of resource requirements:
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marketing, operations, financing
Background of management team
Schedule
Discussion of risks, rewards, and offer
Sample Business Plan Outline
Table
of Contents
Executive Summary
Industry, Products or
Services
Market Research
Marketing Plan
Management Team
Development Plan
Operations Plan
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Schedule
Critical Risks
Financial Plan
Proposed Offer
Appendices
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Financial Projections
Start-up Costs
Breakeven Chart
Business Plans: Investor Decision Process
Market Attractiveness
•Market Need
•Size of Market
•Market Growth
•Access to Market
Product Differentiation
•Uniqueness
•Product Life
•Profit Margin
•Value Added
Managerial Capabilities
•Management Skills
•Marketing Skills
•Financial Skills
•References
Resistance to Threats
•Barriers to Entry
•Obsolescence Risk
•Downside Risk
•Economic Cycle Risk
Expected
Return
+
Decision
to Invest
Perceived
Risk
--
Entrepreneurship: Strategies and Resources
Key Points to Remember
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General Guidelines
 Clear, concise, professional style
 Well-researched and documented
 Consistent and cohesive
Business plans are:
 Very specific
 Not promotional tools, selling is subtle
Industry Section
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Industry Overview
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Size, growth rate, segmentation, trends,
regulatory environment
Opportunity
Product Overview
Competitive Advantage
Fit with Corporate Objectives
Entry and Exit Strategies
Market Research
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Identify Market Area and Size
Description of Primary Customers
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Who, how many, what they want, what they do
Research and Support for Demand
Competitor Analysis
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Positioning map, strengths, weaknesses, likely
competitive response
Marketing Plan
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Mission Statement
Product Characteristics
 Features
 Pricing
Sales/Channel Strategies
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Promotional Strategy
Support Policies
Sales Projections
On-going Evaluation
The key is to build on your market research ...
Management Team
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Managerial Positions Required
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Responsibilities
Biography
Ownership Structure
Key Advisors
Professional Support
Design and Development Plans
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Development Status and Tasks
Costs
Difficulties and Risks
Proprietary Issues (partial, not complete)
Product Improvement and New Products
Operations Plan
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Facility and Location
Requirements
Equipment Requirements
Non-managerial staffing
Sources of Supply
Production Process and
Controls
Distribution logistics
Regulatory and other
compliance issues
Schedule
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Gantt Chart showing:
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Tasks
Time frame
Cost
Person responsible
Critical Risks:
Identification, Evaluation, Mitigation
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Identify major risks (7-10 is typical)
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Look beyond the simplistic (sales fall short)
Evaluate impact should risk occur
Describe how the risk will be mitigated and
how you will respond should it happen
Ask others what holes they see in your plan. What can go wrong ?
Entrepreneurs frequently get too close to their ideas.
You need unbiased views here ...
Critical Risks:
An Example
Key Member of the Management Team is Injured
Evaluation: Management is in excellent health and will refrain
from dangerous activities. Thus, it is considered unlikely that a
member of the management team will be incapacitated.
Contingency: The company will ensure that key members of
the management team undergo physical examinations
annually.
In addition, the company will provide key-man life insurance
sufficient to protect outside investors’ capital in the event of an
emergency.
Financial Plan
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Start-up Requirements (Investment required)
Review of Financial Characteristics
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Return Measures (IRR, ROI, EVA)
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Be careful not to promise
Breakeven Concerns
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Sales, margins, profits
Sales level, time to cash stability
Extraordinary financial events
Avoid describing your assumptions. The goal here
is to convey the characteristics of your business briefly.
Executive Summary
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Clear description of idea
Arguments for success
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Overview of Industry, Market, Need, Demand
Benefits to Customer / Company
Fit with Company Objectives
Team
Financial Characteristics
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Sales, profits, investment, risk and returns
Appendices:
(Could Include Such Items As)
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Lists, specs, pictures of products, systems, software
List of customers, suppliers, references
Appropriate location factors, facilities or technical
analysis
Independent reports by technical expert, consultants
Detailed resumes of founders, key managers
Any critical regulatory, environmental or other
compliance, licenses or approvals
Sales or other financials assumptions (in brief)
Source: Ed Marram, Babson College
Key Considerations
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Have a “story to tell”
Be confident but objective and dispassionate
Understand the financial characteristics of your
business
Avoid promises and self-aggrandizement
Tease to stimulate interest, never bore
Miscellaneous Concerns
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Length is typically 20-40 pages, excl. exhibits
Required appendices
 Financial statements (3-5 years)
 Statement of Start-up Costs
 Breakeven Chart
 Resumes
Use bullet points, tables, and small charts
Don’t use first person (“I”, “We”, “Our”)
Format and Spelling Count (a lot)
Remember:
A business plan is a
specific plan to open a
new business or to
expand an existing
one, not the writer’s
wishes and dreams !
Pitfalls and Omissions:
Venus Fly Traps for Entrepreneurs
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Seeking premature approval
Believing Plan is more important than Orders
Develop Complete Business Plan First v.
Floating Trial Balloons
Selling the plan to the wrong audience
Selling the plan to the right audience poorly
Source: Stephen Spinelli, Babson College
Pitfalls and Omissions:
Venus Fly Traps for Entrepreneurs
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Phantom or Gingerbread Advisors
Spreadsheet Diarrhea (Financials = Business)
Poor understanding of product acceptance
Under-estimation of competitive reaction
Pricing strategy too low
Capital requirements too low or undefined
Source: Stephen Spinelli, Babson College
Business Plans:
What Investors Look For
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Evidence of Customer Acceptance: Orders
Evidence of Focus / Niche
Appreciation of Financial Goals
Proprietary Position, Exclusivity
Team with experience, commitment, and
integrity
Source: Stephen Spinelli, Babson College
Business Plans:
What Turns Investors Off
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Great Mousetrap Fallacy
Projects which deviate excessively from
industry norms
Unrealistic growth projections
Inadequate management experience / depth
Source: Stephen Spinelli, Babson College