Business plan and startups (english)


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Business plan and startups

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Business plan and startups (english)

  1. 1. The business plan and start-ups (I PART) Prof. Domenico Nicolò Università Mediterranea di Reggio Calabria a special thanks to Michael Marinovic for reviewing the translation
  2. 2. The business plan and start-ups (I PART) Prof. Domenico Nicolò Università Mediterranea di Reggio Calabria a special thanks to Michael Marinovic for reviewing the translation
  3. 3. The role of the business plan   The business plan does not reveal the future. But it helps to critically analyze the business idea:  Testing the vulnerability of the financial plan  Evaluating the internal coherence of the plan  High lighting errors (e.g over-sizing or under-sizing of production / distribution capacity, organization staff, debt, etc.) Using this criteria for analysis: either redefine the business plan or throw it away Prof. Domenico Nicolò 2
  4. 4. Some essential elements of the business plan. (1/3)  The Executive Summary  A common circumstance : the executive summary is the only element of the business plan examined by investors.  If you have the ability to synthetically describe the business model and the key elements of the plan it means you have clearly focused the business model (this is also a positive signal for investors, which often examine only the executive summary)  It is necessary to briefly describe:       Business idea (what) Mission and the strategic objectives (why) Fundamental principles of organization and management (how) The sector (or sectors) the company will operate in and market segments the company will offer the products/services (where) Profitability of the business and the reasons it can achieve that profitability. Funding (equity and loans) that you needed to start/grow your business Prof. Domenico Nicolò 3
  5. 5. Some essential elements of the business plan (2/3)  Product / service or Offer    Target market     What are key features of your offer? Why is it better; what is better; how is it better than product/service offered by the competition? What segments of the market does your offer address or depend upon? What is the growth rate of this market and your market share target? What are the drivers of growth and average profits in this target market? The plan to achieve the market target       What are the key factors, graded by importance, by which customers choose your products over those of your competitors? What are the reasons why you will achieve these objectives in market share? How many years (months) do you believe will be needed to achieve the objectives of market share? What is the source of your competitive advantage? How do you plan to defend your competitive advantage? It is important to document the assumptions and estimates by specific market surveys. These are carried out to test the popularity with potential customers. Prof. Domenico Nicolò 4
  6. 6. Some essential elements of the business plan (3/3)  Management team  Short biography of the team (entrepreneurial experience, academic degrees, master's, and anything that can make you appear successful. So even sports awards)  Financial and economics plan  Investors MUST know:  Duration of when the company will recover the resources invested.  Profits produced by the company and reliable evidence for profit.  The key factor in drawing up the plan, on the basis of credible and documented assumptions.  Sensitivity Analysis (what ... if): it is important to point out in the strategic plan also volatility coefficients (vulnerability) of the expected results at different prices, sales and variable costs Prof. Domenico Nicolò 5
  7. 7. The reputation as a strategic resource of startups  Acquisition strategies of resources (human, social, physical and organizational) are critical to the success or failure of business creation (Chandler-Hanks, 94)  Businesses attract resources on the basis of ability to provide rewards  Start-ups generally can not attract the necessary resources on the basis of the results achieved (value created). The problem can not be overcome by reference to analogies with similar businesses, because of the innovativeness of their project  Start-ups can only rely on their reputation, which is the judgment of having the social partners. In particular partners providing a contribution to realize the business idea.  The reputation is an effect and, at the same time, a cause of the creation of value. Improved reputation reduces the risk perceived by the social partners and, in this way, the cost and time necessary to attract the resources Prof. Domenico Nicolò 6
  8. 8. Some fundamental determinants of reputation Products Team Services Human resources Distribution and supply Awards Ability Ability Rating of customers. Skills Skills Strategic alliances experience experience Networks … … … … Success of pilot … experiments and prototype … Equity Loans Stakeholdelrs Loans from Private equity (Venture Capital e Business Angels) - banks - family - friends … Crowdfunding … … … Prof. Domenico Nicolò 7
  9. 9. To create a business is not enough. To have a good business idea ...  companies also need:  Technical and managerial skills  Financial and material resources  commitment to implement the business plan quickly, while performing the activities necessary promptly  The program of activities or Plan of Action Prof. Domenico Nicolò 8
  10. 10. Uniqueness and individuality of the development process (1/2)      The circumstances, situations and phenomena involved in the development process, both positively and negatively, are numerous and varied in nature Effects vary while all other conditions are equal. Also in relation to the work breakdown structure there is variability/changes to take into account and not ignore Each development process involving numerous variables of various kinds that can combine them in new ways making it almost "unique genetic and functional reality of any business" (Buttà 03, 72) "By varying factors, their characters and the different combinations with which to intervene in the process of generation, significantly alters the genetic, functional and organizational structure of the new entity." (Buttà 03, 72) Consequently you can not predict the results of the development process, especially if it is a very innovative start-ups Prof. Domenico Nicolò 9
  11. 11. Uniqueness and individuality of the development process (2/2)  It is useful to define:  Theoretical models of the process of business development are useful to distinguish workflow process from risk development. This is in order to prevent the carrying out of activities that may cause waste of time and money  Establish principles/directives to be followed while undertaking the principal activity of business development. This is in order to increase the chances of designing a healthy and well-functioning company Prof. Domenico Nicolò 10
  12. 12. Innovation and uncertainty causing the vulnerability of startups  With reference to startups: estimating the market demand is very uncertain if the startups are based on the highly innovative products/services  Since the product/service is new, the time needed to gain the market share goals are generally much longer than companies operating in traditional sectors. The initial capital, consequently may be exhausted before the company is able to reach the break-even Prof. Domenico Nicolò 11
  13. 13. Determinants for the high vulnerability of startups (1/2)      Lack of entrepreneurial skills and abilities Lack of managerial skills and abilities Inability to deal with the constraints imposed by regulations Lacking knowledge of the market: many startups start the activity too quickly without making an adequate preliminary study of the market. Often they are not well understood nor market demand nor the capacity to meet demand. This is because many of them think that a fast start is in itself a guarantee of success (impatience) Inadequate approach to the market: startups very often do not take advantage of market experts:  This problem is particularly serious because in the marketing of digital services fails even specialists  Often do not capture market opportunities Prof. Domenico Nicolò 12
  14. 14. Determinants for the high vulnerability of startups (2/2)  Inadequate planning in order to anticipate the solution of the problems that may arise. Risk Management and Project management, in general, plays a vital role in improving stability  Very often business plans are lacking in the section on economic and financial simulations: they are only concept-plan, rather than real business plan  Overemphasis on the product/service, since they are often scientists, not businessmen, and they consider the most important technology of the business on the basis of the assumption: "a good product sells itself" Producing a product/service which is technically sophisticated that meets the needs of a few professional users, while neglecting the needs of the mass of consumers which requires instead the ease of use of products/services  Prof. Domenico Nicolò 13
  15. 15. Michael E. Porter (1/3) Strategy and the internet HBR march 2001       “Many have argued that the Internet renders strategy obsolete. In reality the opposite is true. Because the Internet tends to weaken industry profitability without providing proprietary operational advantages, it is more important than ever for companies distinguish themselves through strategy. The winners will be those that view the Internet as a complement to, not a cannibal of, traditional ways of competing” The Internet-based startups tend to destroy the attractiveness of the sectors in which they enter By altering the structure of the sectors they destroy the profitability and the ability of companies to achieve a sustainable competitive advantage They tend to move the competition from quality and customer service for the price, making it harder for everyone to get profits. They tend to gain market share by selling at prices that do not reflect real costs. If prices are artificially low, demand become artificially high This has reduced the barriers to making the business attractive artificially The result was a fall in investment in the creation of value for the customer Prof. Domenico Nicolò 14
  16. 16. Michael E. Porter (2/3) Strategy and the internet HBR march 2001  They tend to leave important technological advantages creating partnerships and outsourcing relationships  Some revenues are represented by shares in the capital of other companies, and as such, are subject to fluctuations  They are guided by market signals, which can be distorted  Even on the cost side there is often a distortion. The suppliers, lured by the prospect of achieving partnership with a dot -com, tend to provide products and services at heavily discounted prices. Many accept shareholdings and stock options as a form of payment  The capital markets have helped to alter reality overestimating the growth capacity of the dot-com: investor enthusiasm often turns them away from reality. Investors have emphasized the importance of revenues, the number of visitors and clicks approval ratings to sites and other ephemeral performance indicators in place of the fundamentals Prof. Domenico Nicolò 15
  17. 17. Michael E. Porter (3/3) Strategy and the internet HBR march 2001  “The Internet per se will rarely be a competitive advantage. Many of the companies that succeed will be the ones that use the Internet as a complement to traditional ways of competing, not those that set their Internet initiatives apart from their established operations”  The Internet is a tool, not an industry. It is a powerful tool that all businesses in any industry should use, but it is not correct to speak of the internet as an e-business strategy  Startuppers should always give due consideration to the traditional performance indicators and the creation of economic value, resisting the temptation to replace them with parameters illusory  The ability to create real value for the customer is always the indicator of long-term success  The drivers of profitability are:  the structure of the industry  sustainable competitive advantage Prof. Domenico Nicolò 16
  18. 18. business
plan (3
 (annual) budget
 (annual) budget
 (annual) interim
budget (monthlyquarterly) Articulation of time. Temporal segmentation Prof. Domenico Nicolò 17
  19. 19. Strategic
Business Unit Responsibility Centers -
segments -
areas Activities Cross-funtional
processess “Spatial” segmentation. Articulation of Space. 18
  20. 20. business
plan (3
 Business Unit Responsibility Centers Activities Cross-funtional
 processess budget
 (annual) budget
 (annual) budget
 (annual) interim
budget (monthlyquarterly) “Time-Space” segmentation Prof. Domenico Nicolò 19
  21. 21. business
plan (3
 (annual) budget
 (annual) budget
 (annual) interim
budget (monthlyquarterly) Firm
 Procurement Sales budget Inbound
logistics Operations Prof. Domenico Nicolò Outbound
 Logistics Marketing
 Sales After-sales
 Service 20