Strategic Business Planning Part 2Presentation Transcript
Welcome! Session 2 – July 13, 2004 Instructor - Kevin Hawley [email_address]
The Wharton SBDC is part of Wharton Entrepreneurial Programs and the Sol C. Snider Entrepreneurial Research Center. The Wharton Small Business Development Center is in part financed by a grant from the Commonwealth of Pennsylvania, Department of Community and Economic Development. The Wharton SBDC is funded under Cooperative Agreement No. 4-603001-2-0040-24 by the U.S. Small Business Administration. The support given by the U.S. Small Business Administration through such funding does not an expressed or implied endorsement of any of the co-sponsors’ or participants’ opinions, findings, conclusions, recommendations, products, or services.
All SBDC programs are non-discriminatory and open to the public. Reasonable arrangements for persons with disabilities will be made if requested at least two (2) weeks in advance. Please contact Dr. M. Therese Flaherty, Director, Wharton Small Business Development Center, University of Pennsylvania, 433 Vance Hall, Philadelphia, PA 19104, (215) 898-8635.
Agenda – Session 2
Recap from Session 1 and Handouts
Value Proposition Interview Results
Analysis of Industry and Competitors
Sales Projections and Marketing Plan
Preparation for Next Session and Homework
Recap – Session 1
The Executive Summary
A 1-2 page high-level overview of your business
Typically the last part of the business plan to be completed!
The Mission Statement
Brief – Flexible – Memorable
Market – Contribution - Distinction
Product and Service Descriptions
What are you selling? Who wants to buy it?
Benefits and features
Writing and Testing Your Value Proposition
Session 1 Homework Review
Revise and refine the Executive Summary
Finish drafting your Product/Service descriptions
Finish writing your questions to test your Value Proposition
Interviews - test your assumptions with customers and suppliers
Draft your Business Description
Draft your Management Team Overview
Interview Results: Field Testing Assumptions About Your Value Proposition
Interview your customers to validate your assumptions about the following:
Why do your customers purchase from you?
What do they perceive as your “value add” to the purchase?
How is your value differentiated when compared to other providers?
How long will you be able to maintain that distinction? Why?
Interview your suppliers to validate your assumptions about the following:
Why will customers purchase from you?
What will they perceive as your “value add” to the purchase?
How will your value be differentiated or unique when compared to other providers or substitute products/services?
How long will you be able to maintain that distinction? Why?
Discussion: Interview Results
Perception vs. Reality vs. Vision
Your perceptions about the business model
Customer and supplier perceptions
Did the interviews reveal a different reality for your customers and suppliers?
Has your vision for the business changed?
Refining your Value Proposition
Refining Your Value Proposition
From the perspective of your target market:
Does your plan solve a problem?
Does your plan save money?
Does your plan create new efficiencies?
Does your plan present a more attractive alternative to current options?
From the perspective of your suppliers:
Does your plan present strong competitive advantages?
Does your plan appear to be sustainable?
Have you come up with a strong set of features that create the benefits customers in today’s market want?
- 10 Minute Break -
Analyzing Your Industry
Who Defines Your Industry?
Your Competition, the Government, and Wall Street
professional associations, guilds/unions, trade publications, conventions
licensure and/or certification requirements
NAICS (North American Industry Classification System)
Analyst research, tracking, and reporting categories
Key Metrics and Trends
How are companies compared to one another in your industry?
Are you using comparable metrics in developing your business plan?
Identify the most significant financial and operational measurements for your industry and plot the trends over the last 5-10 years – insight?
Concentrations of Effort and Resources
Geographic locations and trends
Acquisitions and divestitures
Recent innovations, new business lines, product/service changes
Which customer groups are regarded as most valuable? Least valuable?
Michael Porter’s “Five Forces” Model
This is a general model of the environment in which companies operate that suggests what factors strategists should monitor. They key factors are buyers, suppliers, competitors, new companies that might enter the market, and new products or technologies that might replace those on which your organization depends. The model is defined in Michael Porter's book Competitive Strategy.
Analyzing Your Competition
Competitors Inside and Outside Your Industry
For competitors in your industry
Those who operate in the same location
Those who could (and may be likely to) begin operating in your location
Potential new competitors
Companies currently serving the same group of customers
Companies currently working with the same group of suppliers
The “kids in the garage”, “profit hounds”, and corporate venturing
Location, Customers, Size, Strength, Agility
How many other companies are there within the same geographic area you expect to attract your customers?
How many customers in total are in that defined area? What, when, and how much do they buy? How are new customers created?
How is market share divided among existing competitors? Is market share relatively stable or has it shifted in recent years? How does market share relate to revenue and profit in this industry and location? How would customers describe the reputations of the top competitors? Examine the competition’s current “actual” mission statements and value propositions?
How quickly have competitors responded to changes in the past? Are they positioned to innovate or adapt their business models as new opportunities and challenges arise?
Building the Business Model Cost Projections Sales Projections Pro Forma Financial Statements Operating Plan Marketing Plan Financial Plan What will it cost to produce your product or service? What will it cost to sell any given amount of your product or service? How will your business make money? How much? For how long? Risks?
What will it cost to produce your product/service?
“ Plant, property, and equipment” costs
For simplification, include costs related to where you will work and the durable equipment you need to perform the work
Management and Employees
Other recurring expenses
Packaging, storage, shipping, distribution
Travel and entertainment
Accounting, taxation, and legal services
Other expenses specific to your business?
Regulatory fees, permits, or licenses?
Start thinking about the timing of these expenses – are they every month? Fixed or variable costs? Lease vs. buy? Do the costs fluctuate or are they generally stable? Start with narrative overview – assign numbers to the narrative as a 2 nd step!!
How many units of your product/service do you plan to sell?
Understanding volume and fully-allocated unit costs
Given the number of units you can produce in your first 3/6/9/12 months, what are your unit costs expected to be?
Total fixed and variable expenses from operating plan, divided by the projected number of units you will sell in your first 3/6/9/12 months
Understanding the effects of pricing
Price elasticity and current pricing ranges
Positioning and target markets
Go back to your value proposition!
Relative strengths and weaknesses, pro’s and con’s
Strategic basis for selection
Seasonality? Business cycles? Geography? Demographics?
Start thinking about how you will explain and defend the numbers In your sales projections – remember to test your assumptions wherever possible!
- Using the Sales and Cost Assumptions Worksheet
What will it cost to sell any given amount of your product/service?
Rule #1 – Don’t confuse marketing with sales!
Marketing builds awareness and acceptance of your product
Strong sales strategy has to back up each marketing initiative!
Who exactly needs to be made aware of your product/service?
Market research – how do these customers prefer to be reached?
Direct mail? Email? Via retail outlets and promotion? Television or radio advertising? Print ads in magazines? Articles in the WSJ? Relative CPM?
Response rates and conversion to sale ratios
Evaluate costs relative to their ROI and prioritize accordingly
Promotion and Public Relations
Designed to develop public awareness of your Value Proposition
Promote the benefits, not the features
Always suggest the next step for your customer!
The weakest assumptions in most plans are those about what will be effective in reaching customers – choose a strategy, test the results, then determine your next steps. Remember – every marketing initiative needs a strong follow-up sales effort!
Timing Example - Operations, Marketing, and Sales Interactions in the Financial Statements Operating Expenses Marketing Expenses Revenues (Sales) January February March April May June Fictional example for illustration purposes only! Sales Related Operating Expenses Fulfillment Related Operating Expenses
Develop a draft of your Operating Plan
Start with the narrative overview and move into estimates of expenses
Provide a month-by-month estimate of operating expenses for the next three years
Develop a draft of your Sales Projections
Define units of sale, unit costs, and explain your pricing strategy
Provide a month-by-month estimate of sales (# of units and price) for the next three years
Develop a draft of your Marketing Plan
Research your industry’s metrics – how do established companies in this industry spend money to reach customers?
Provide a month-by-month estimate of marketing expenses for the next three years
Questions about the assignments?
Next Session (Session 3)
Developing the Financial Plan
Bringing the operating, marketing, and sales plans together
Analyzing Your Sales Projections
What bankers, investors, and MBA’s will do with your plan
Understanding and Describing Cash Flow
Or, how much money you really need to start your business
Preparing to Write the Actual Business Plan
How to put all of the pieces together from Sessions 1-3