Welcome! Session 4 – July 27, 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.

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 4 Homework Review from Session 3 Bringing It All Together – Writing the Business Plan Attachments and Supporting Documents Milestone Driven Planning Finding and Using an Expert Advisory Board Finishing your Business Plan Accessing Additional SBDC Resources Group Q & A

Homework Review from Session 3

Bringing It All Together – Writing the Business Plan

Attachments and Supporting Documents

Milestone Driven Planning

Finding and Using an Expert Advisory Board

Finishing your Business Plan

Accessing Additional SBDC Resources

Group Q & A

Session 3 Homework Review Develop Your Financial Plan Income Statement, Balance Sheet, Cash Flow 5 Year EBITDA Projections? Startup funding requirements? Pre-money valuation? Revise Your Operating Plan Cost estimates per sales unit and operating expenses that correspond to values in the financial plan Revise Your Marketing Plan Pricing per unit and sales volumes that correspond to revenue estimates and cash flow projections

Develop Your Financial Plan

Income Statement, Balance Sheet, Cash Flow

5 Year EBITDA Projections?

Startup funding requirements?

Pre-money valuation?

Revise Your Operating Plan

Cost estimates per sales unit and operating expenses that correspond to values in the financial plan

Revise Your Marketing Plan

Pricing per unit and sales volumes that correspond to revenue estimates and cash flow projections

Analyzing Your Numbers… Total amount of money needed/raised Angel investor’s expected 5-year ROI Pro forma 5-year EBITDA estimate Valuation (comparable) multiple Projected 5-year value of company Ownership percentage required by Angel Investors at 5-year exit horizon Current (pre-money) valuation of company $_______ - Cash Flow Projections $__________ (30X) – Roughly 100% ROI per year $_______ - Income Statement ___ times earnings - Industry research $__________ - multiply __% - Projected 5-year value of the company divided by the AI’s expected 5-year return amount $____________ - Amount of money raised divided by the AI’s required ownership percentage

Finding Angel Investors… Starting points for finding Angel Investors and other resources… Wharton SBDC Website http://whartonsbdc.wharton.upenn.edu Innovation Philadelphia http://www.IPphila.com Inc.com (“Inc. Magazine”) Website http://www.inc.com/guides/finance/20797.html Google Search Engine Enter these terms - “angel investors” Philadelphia

Starting points for finding Angel Investors and other resources…

Wharton SBDC Website

http://whartonsbdc.wharton.upenn.edu

Innovation Philadelphia

http://www.IPphila.com

Inc.com (“Inc. Magazine”) Website

http://www.inc.com/guides/finance/20797.html

Google Search Engine

Enter these terms - “angel investors” Philadelphia

Reviewing the Business Plan 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? Industry, Buyer & Competitor Analyses Opportunity Product/Service Why this business? Why now? Why you? What are you going to provide and who wants to buy it?

Writing the Business Plan Executive Summary Statement of Purpose – Why are you writing a business plan? Mission Statement – Who do you serve? How? What’s special? The Opportunity – Why now? Why here? Why you? The Strategy – How are you going to capitalize on The Opportunity? Economics – How does the business make money? Exit/Harvest Strategy – How do investors get paid at the end? The Offering – How much of the company is available? For how much?

Executive Summary

Statement of Purpose – Why are you writing a business plan?

Mission Statement – Who do you serve? How? What’s special?

The Opportunity – Why now? Why here? Why you?

The Strategy – How are you going to capitalize on The Opportunity?

Economics – How does the business make money?

Exit/Harvest Strategy – How do investors get paid at the end?

The Offering – How much of the company is available? For how much?

Writing the Business Plan Product / Service Description Description of Business – What exactly is it that you plan to do? Industry Analysis – What is the general business environment like? Buyer Analysis – How much do you know about prospective buyers? Competitor Analysis – How much do you know about other providers? Geographic Analysis – What makes you think this is a good location?

Product / Service Description

Description of Business – What exactly is it that you plan to do?

Industry Analysis – What is the general business environment like?

Buyer Analysis – How much do you know about prospective buyers?

Competitor Analysis – How much do you know about other providers?

Geographic Analysis – What makes you think this is a good location?

Writing the Business Plan Operating, Marketing, and Financial Plans Operating Plan – How will the business be run on a day-to-day basis? Unit Cost Analysis – What are the variable costs associated with one sale? Marketing Plan – How will you drive demand for your product/service? Pricing Analysis – How much are people willing to pay you? Sales Projections – How many units will you be able to sell? Income Statement and Balance Sheet – Do the numbers agree? Cash Flow, Sensitivity, and Break Even – How much do you need?

Operating, Marketing, and Financial Plans

Operating Plan – How will the business be run on a day-to-day basis?

Unit Cost Analysis – What are the variable costs associated with one sale?

Marketing Plan – How will you drive demand for your product/service?

Pricing Analysis – How much are people willing to pay you?

Sales Projections – How many units will you be able to sell?

Income Statement and Balance Sheet – Do the numbers agree?

Cash Flow, Sensitivity, and Break Even – How much do you need?

Business Planning is an Iterative Process… Tell the story… (Draft your narrative sections) Run the numbers… (Develop your Financial Plan) Verify the story… (Examine the narrative sections) 1 2 3

Attachments and Supporting Documents Executive team résumés, C.V.’s, professional certifications/licenses, and letters of recommendation Patents, trademarks, plans, drawings, and other documentation of intellectual capital related to the business model Flow charts (explaining business processes) Lease agreements and real estate appraisals Agreements (or letters of intent) with customers, suppliers, and business partners. Brochures and marketing collateral examples, web page printout Market research reports, analyst reports, and news articles Glossary of terms specific to your business model List of current investors/owners (capitalization schedule) Your Milestone Plan (next slide)

Executive team résumés, C.V.’s, professional certifications/licenses, and letters of recommendation

Patents, trademarks, plans, drawings, and other documentation of intellectual capital related to the business model

Flow charts (explaining business processes)

Lease agreements and real estate appraisals

Agreements (or letters of intent) with customers, suppliers, and business partners.

Brochures and marketing collateral examples, web page printout

Market research reports, analyst reports, and news articles

Glossary of terms specific to your business model

List of current investors/owners (capitalization schedule)

Your Milestone Plan (next slide)

Milestone Driven Planning (MDP) Identify the big milestones between “right now” and your objective. Develop a process map describing the important steps you must take and the achievements you expect along the way. Relate your map to time – put milestones on the calendar. Product/Service Development Milestones Operating Plan Milestones Marketing and Sales Milestones Funding and Revenue Milestones What questions do you need to answer along the way? What are the go/no-go decision points? HINT - Use your financial plan to work backward from a key business goal HINT - Bracket regular intervals (3, 6, 12, and 24 months) HINT - List what must happen in each period to move the business forward Use MDP as a Report Card to yourself and financing sources

Identify the big milestones between “right now” and your objective.

Develop a process map describing the important steps you must take and the achievements you expect along the way.

Relate your map to time – put milestones on the calendar.

Product/Service Development Milestones

Operating Plan Milestones

Marketing and Sales Milestones

Funding and Revenue Milestones

What questions do you need to answer along the way?

What are the go/no-go decision points?

HINT - Use your financial plan to work backward from a key business goal

HINT - Bracket regular intervals (3, 6, 12, and 24 months)

HINT - List what must happen in each period to move the business forward

Use MDP as a Report Card to yourself and financing sources

Milestone Driven Planning (MDP)

- 10 Minute Break -

Types of Expert Advisory Boards Types Of Advisory Boards Form a group of your most strategic customers. Invite them to offer perspective concerning your products, competitors, or industry trends. Unlike a User Group, this type of Advisory Board is intended to build relationships with the customers or segments that will most directly impact the future of your company. Best for companies whose customers' success depends upon the company's product or service delivery. Select people who are qualified to evaluate your specific business model. The Business Advisory Board can provide direction and provide much needed “reality checks” as you plan your strategy. These outside experts should be drawn from various business disciplines (finance, marketing and sales, legal, operations, technology, etc.) Ideal for entrepreneurs who need an outside, highly knowledgeable viewpoint. Influencers in the industry assemble to discuss the critical issues facing the industry, including lobbying efforts. This group can be instrumental in bringing an outside understanding of the industry to develop thought leadership and define industry standards May include key suppliers, functional specialists, journalists, analysts, and academicians. Source: Geehan Advisory Boards www.geehanadvisoryboards.com Customer Advisory Board Business Advisory Board Industry Advisory Board

Form a group of your most strategic customers.

Invite them to offer perspective concerning your products, competitors, or industry trends.

Unlike a User Group, this type of Advisory Board is intended to build relationships with the customers or segments that will most directly impact the future of your company.

Best for companies whose customers' success depends upon the company's product or service delivery.

Select people who are qualified to evaluate your specific business model.

The Business Advisory Board can provide direction and provide much needed “reality checks” as you plan your strategy.

These outside experts should be drawn from various business disciplines (finance, marketing and sales, legal, operations, technology, etc.)

Ideal for entrepreneurs who need an outside, highly knowledgeable viewpoint.

Influencers in the industry assemble to discuss the critical issues facing the industry, including lobbying efforts.

This group can be instrumental in bringing an outside understanding of the industry to develop thought leadership and define industry standards

May include key suppliers, functional specialists, journalists, analysts, and academicians.

Finding and Using Expert Advisory Boards Networking, Networking, Networking People you come into contact with everyday People your current contacts can introduce you to People featured in local newspapers, professional journals, convention keynote speakers, etc. Academic faculty, faculty recommendations Use every opportunity to find people to talk to about your business – follow up on all expressions of interest! Appropriate Roles for Advisory Boards Boards help you learn and to stay informed Boards help you evaluate options and understand risks Boards can help you meet prospective customers Boards can provide context for your decisions, but don’t let advisory boards make your decisions!

Networking, Networking, Networking

People you come into contact with everyday

People your current contacts can introduce you to

People featured in local newspapers, professional journals, convention keynote speakers, etc.

Academic faculty, faculty recommendations

Use every opportunity to find people to talk to about your business – follow up on all expressions of interest!

Appropriate Roles for Advisory Boards

Boards help you learn and to stay informed

Boards help you evaluate options and understand risks

Boards can help you meet prospective customers

Boards can provide context for your decisions, but don’t let advisory boards make your decisions!

Finishing Your Business Plan How much progress have you made during this class? Which sections have been the easiest to write? The most difficult? What do you have left to do? What needs to be done first? What can you do now? What requires additional research/assistance? When will your first draft (all sections) be completed? What would have helped you prepare for this class? How could this class itself have helped you move forward more?

How much progress have you made during this class?

Which sections have been the easiest to write? The most difficult?

What do you have left to do?

What needs to be done first?

What can you do now?

What requires additional research/assistance?

When will your first draft (all sections) be completed?

What would have helped you prepare for this class?

How could this class itself have helped you move forward more?

Accessing Additional SBDC Resources From this point forward, you’ll get the most out of your contact with the Small Business Development Center if you: Have completed a first draft of your business plan Have specific questions about sections of your business plan Need to improve your skills in a specific area Have completed a list of specific objectives or goals to accomplish over the next three months (Milestones)

From this point forward, you’ll get the most out of your contact with the Small Business Development Center if you:

Have completed a first draft of your business plan

Have specific questions about sections of your business plan

Need to improve your skills in a specific area

Have completed a list of specific objectives or goals to accomplish over the next three months (Milestones)

Accessing Additional SBDC Resources The Wharton Small Business Development Center website http://whartonsbdc.wharton.upenn.edu/Index.htm Wharton SBDC Answer Desk We maintain an answer desk to aid with your business questions. Our answer desk is just a phone call away. Wharton SBDC Resource Center There are many great resources on the web. We have compiled a list of the web resources for small businesses we find the most useful. Entrepreneur’s Guides Local Business Assistance Organizations Wharton SBDC Consultants Additional Wharton SBDC courses Events for entrepreneurs

The Wharton Small Business Development Center website

http://whartonsbdc.wharton.upenn.edu/Index.htm

Wharton SBDC Answer Desk

We maintain an answer desk to aid with your business questions. Our answer desk is just a phone call away.

Wharton SBDC Resource Center

There are many great resources on the web. We have compiled a list of the web resources for small businesses we find the most useful.

Entrepreneur’s Guides

Local Business Assistance Organizations

Wharton SBDC Consultants

Additional Wharton SBDC courses

Events for entrepreneurs

Group Questions and Answers Q & A

Homework Assignments Finish your Business Plans! Complete your Milestone Plans! Stay motivated, stay optimistic, and stay focused. “ Discuss – Write – Review – Repeat” Setbacks are to be expected – persistence counts ! Try to keep an objective view of your progress. Your are your own first employee. Your are also your own boss. How effective are you at leading that first employee?! Good luck in your new ventures!

Finish your Business Plans!

Complete your Milestone Plans!

Stay motivated, stay optimistic, and stay focused.

“ Discuss – Write – Review – Repeat”

Setbacks are to be expected – persistence counts !

Try to keep an objective view of your progress.

Your are your own first employee.

Your are also your own boss.

How effective are you at leading that first employee?!

Good luck in your new ventures!