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  • A young businessman started his own firm. He had just rented a beautiful office and had it furnished with antiques. Sitting there, he saw a man come into the outer office. Wishing to appear busy and important, the businessman picked up the phone and started to pretend he had a big deal in the works. He threw huge figures around and made giant commitments. Finally, he hung up the phone and asked the visitor, "Can I help you?" The man said, "Yeah, I'm here to install the phones..."
  • Merck – Serve humanity by alleviating pain and suffering Masaru Ibuka -
  • Spreadsheet business plans – give me a second and I will change the spreadsheet
  • Buffet – Simple and Understandable
  • Agenda

    1. 1. 28 March 2004 Business Planning: An Investor’s Perspective Mentors Meet at Eureka! 2004
    2. 2. Agenda <ul><li>Entrepreneurship defined </li></ul><ul><li>Building Blocks of Entrepreneurship </li></ul><ul><li>Elements of a Business Plan </li></ul><ul><li>Financial Modeling </li></ul>
    3. 3. Entrepreneurship Defined <ul><li>“ The assumption of risk and responsibility in designing and implementing a business strategy or starting a business” </li></ul><ul><li>“ Self-employment of any sort” </li></ul><ul><li>“ Entrepreneurship is the process of identifying, developing, and bringing a vision to life. The vision may be an innovative idea, an opportunity, or simply a better way to do something” </li></ul>Entrepreneurship is the process of moving the market away from equilibrium in the pursuit of opportunity amidst risk and uncertainty
    4. 4. Agenda <ul><li>Entrepreneurship defined </li></ul><ul><li>Building Blocks of Entrepreneurship </li></ul><ul><li>Elements of a Business Plan </li></ul><ul><li>Financial Modeling </li></ul>
    5. 5. 1. Clarity on Core Purpose <ul><li>What legacy are we trying to leave behind through our entrepreneurial pursuits? </li></ul><ul><li>What is the real objective behind the venture? </li></ul><ul><ul><li>Riches and fame? </li></ul></ul><ul><ul><li>Philanthropy? </li></ul></ul><ul><ul><li>Create an institution that constantly challenges mindsets and defines new ways of doing things? </li></ul></ul>E.g. Make money, have fun and do good for India What legacy are we trying to leave behind through our entrepreneurial pursuits?
    6. 6. 2. A Sound Business Model <ul><li>Business models evolve with time </li></ul><ul><li>However, the foundation of business models needs to be sound </li></ul><ul><ul><li>Does the product or service fill a real market need today? </li></ul></ul><ul><ul><li>Are we avoiding the “if I can build it, I can sell it” pitfall? </li></ul></ul><ul><ul><li>Avoid believing in “spreadsheet business plans”? </li></ul></ul><ul><ul><li>Are risk factors objectively understood and effectively addressed? </li></ul></ul><ul><ul><li>How realistic are the assumptions? Illustrate with comparable indicators. </li></ul></ul>What is the best strategy today to achieve the core purpose given the prevalent market dynamics The key is to be consistently objective and market driven
    7. 7. 3. Execution Capability <ul><li>Investors bet first on people’s ability to execute and then their ability to generate great ideas </li></ul><ul><ul><li>Evolving the right strategy is an integral element of execution capability </li></ul></ul><ul><li>An objective and rational assessment of capability and the task on hand is critical to success </li></ul>What makes you the best suited to execute the business model?
    8. 8. Agenda <ul><li>Entrepreneurship defined </li></ul><ul><li>Building Blocks of Entrepreneurship </li></ul><ul><li>Elements of a Business Plan </li></ul><ul><li>Financial Modeling </li></ul>
    9. 9. Issues to keep in mind <ul><li>A business plan is the means to an end and not an end in itself </li></ul><ul><li>Be honest and objective – helps build credibility </li></ul><ul><ul><li>Present what you genuinely believe in - avoid creating smoke screens </li></ul></ul><ul><li>Understand your audience </li></ul><ul><li>Aim for simplicity and clarity of thought </li></ul><ul><li>Focus on fundamentals </li></ul><ul><li>Illustrate concepts and assumptions with existing parallels </li></ul><ul><li>Strike the right balance between detail and succinctness </li></ul>
    10. 10. Elements of a Business Plan <ul><li>Executive Summary </li></ul><ul><li>Company Overview </li></ul><ul><li>Market Opportunity </li></ul><ul><li>The Business Proposition / Offering </li></ul><ul><li>Competition and Differentiation </li></ul><ul><li>Customer acquisition strategy </li></ul><ul><li>Management team </li></ul><ul><li>Commercial Model & Financial Outlook </li></ul><ul><li>Risk Factors </li></ul><ul><li>Why invest? </li></ul>
    11. 11. Let’s build a business… <ul><li>Retail chain of pharmacy/medical stores in India that leverages economies of scale, branding and technology to provide various retail pharmaceutical services to consumers </li></ul>
    12. 12. Executive Summary <ul><li>You don’t get a second chance to create the first impression! </li></ul><ul><li>Should contain salient points of the business </li></ul><ul><li>Should deliver a clear message on why the business plan is worth pursuing further for an investor </li></ul><ul><li>Succinctness is key – avoid exceeding 3-4 pages in length </li></ul>
    13. 13. Company Overview <ul><li>Elevator pitch </li></ul><ul><li>Most difficult to articulate because of the urge to share as much about the company upfront as possible </li></ul><ul><li>Impact is key – focus on the most attractive characteristics of the business plan </li></ul><ul><li>Should take less than a minute to present </li></ul>
    14. 14. Market Opportunity <ul><li>Macro view of: </li></ul><ul><ul><li>Market landscape </li></ul></ul><ul><ul><li>Emerging trends </li></ul></ul><ul><ul><li>Existing need-gaps </li></ul></ul><ul><ul><li>Size of addressable market </li></ul></ul><ul><li>Objective </li></ul><ul><ul><li>Educating the investor on the industry </li></ul></ul><ul><ul><li>Hypothesis building – should naturally lead into the raison d'etre for the business </li></ul></ul>
    15. 15. Our business… <ul><li>Stable non-cyclical business </li></ul><ul><li>Ever increasing market, especially after WTO stipulations push prices of drugs up </li></ul><ul><li>Extremely fragmented </li></ul><ul><ul><li>Little cost benefits for consumers </li></ul></ul><ul><ul><li>Quality of experience (personalization, cleanliness, etc.) leaves much to be desired </li></ul></ul><ul><ul><li>Reliability and availability issues </li></ul></ul><ul><ul><li>Lack of availability of “orphan” and imported drugs </li></ul></ul><ul><ul><li>Drug cos. do not have good visibility on inventory – increases expiration costs </li></ul></ul><ul><li>Opportunity to provide value added services through loyalty programs, pharmacy benefits plans, etc. </li></ul><ul><li>Total market size – 12-15% of the total Indian pharmaceutical market </li></ul>
    16. 16. The Proposition / Offering <ul><li>Crux of the business plan </li></ul><ul><li>Clear articulation of: </li></ul><ul><ul><li>What is the type of business? </li></ul></ul><ul><ul><li>What is the value proposition for the customer? </li></ul></ul><ul><ul><li>How do you deliver the value? </li></ul></ul><ul><li>Demystify the offering </li></ul><ul><ul><li>Use analogies or graphical representations to elucidate </li></ul></ul>
    17. 17. Our business… <ul><li>A clean, reliable and low priced chemist for the buyer that aims for customer delight by offering pharmacy benefits plans </li></ul><ul><li>A more efficient distribution system for pharma companies </li></ul><ul><li>The above is made possible through: </li></ul><ul><ul><li>Access to capital </li></ul></ul><ul><ul><li>Economies of scale </li></ul></ul><ul><ul><li>Branding </li></ul></ul><ul><ul><li>Technology </li></ul></ul>
    18. 18. Competition & Differentiation <ul><li>Avoid the “we have no competition” syndrome </li></ul><ul><li>Define dimensions of competitiveness </li></ul><ul><ul><li>Cost, Technology, Quality, Brand, … </li></ul></ul><ul><li>Provide a clear and objective picture of your competitive position </li></ul><ul><ul><li>As it exists today </li></ul></ul><ul><ul><li>What are the entry barriers for the business? Will it attract significant competition in a short timeframe? </li></ul></ul><ul><ul><li>What will be the impact on the business from increased competition? </li></ul></ul><ul><ul><li>What are the switching costs? How sticky is the proposition? </li></ul></ul>
    19. 19. Our business… <ul><li>Who is the competition? </li></ul><ul><ul><li>Single medical stores or retail medical associations? </li></ul></ul><ul><li>Dimensions of competitive advantage include: </li></ul><ul><ul><li>Cost </li></ul></ul><ul><ul><li>Retail experience (personalization, cleanliness, etc.) </li></ul></ul><ul><ul><li>Reliability </li></ul></ul><ul><ul><li>Availability </li></ul></ul><ul><ul><li>Value added services </li></ul></ul><ul><li>Entry barriers </li></ul><ul><ul><li>Capital </li></ul></ul><ul><ul><li>Scale </li></ul></ul><ul><ul><li>Understanding how the economics of the business work </li></ul></ul><ul><li>Is the proposition defensible? </li></ul><ul><ul><li>Scale - ubiquity </li></ul></ul><ul><ul><li>Loyalty programs </li></ul></ul><ul><ul><li>Pharmacy benefits plans </li></ul></ul>
    20. 20. Customer Acquisition Strategy <ul><li>Market Approach Strategy needs to be clearly thought through </li></ul><ul><ul><li>Carpet bombing seldom works </li></ul></ul><ul><ul><ul><li>Start-up ventures are constrained for capital, and management bandwidth </li></ul></ul></ul><ul><ul><ul><li>You cannot be everything to everyone </li></ul></ul></ul><ul><ul><li>Clarity on type of organizations to be targeted </li></ul></ul><ul><ul><ul><li>Elephant hunting versus Micro-marketing </li></ul></ul></ul><ul><ul><ul><li>End customer or through intermediaries </li></ul></ul></ul><ul><ul><li>Clarity on who exactly is the decision maker </li></ul></ul><ul><ul><ul><li>E.g. sales pitch will need to be very different for a CFO and CTO of a target organization </li></ul></ul></ul><ul><ul><ul><li>E.g. a housewife goes through a very different decision making cycle than her husband </li></ul></ul></ul><ul><li>Explore strategic partnerships and inorganic (M&A) options to scale </li></ul>
    21. 21. Our business… <ul><li>Geographic strategy </li></ul><ul><ul><li>Regional (N/S/E/W) versus national (all-India) </li></ul></ul><ul><ul><li>National (India) versus overseas (South East Asia) </li></ul></ul><ul><li>Location of stores </li></ul><ul><ul><li>Close to (or in) hospitals </li></ul></ul><ul><ul><li>Ubiquity of stores </li></ul></ul><ul><li>Company owned versus franchises </li></ul>
    22. 22. Management Team <ul><li>Contents </li></ul><ul><ul><li>Profiles of top management team including promoter managers </li></ul></ul><ul><ul><li>Board of advisors, if any </li></ul></ul><ul><li>A good management team will have: </li></ul><ul><ul><li>Demonstrated capability / track record </li></ul></ul><ul><ul><li>Relevance to the business proposition </li></ul></ul><ul><ul><li>Balanced skill set – aligned to the critical success factors of the business </li></ul></ul><ul><ul><li>Resilience and emotional fortitude at the top </li></ul></ul><ul><li>Chalk out an organization structure that is scaleable and takes into account the current gaps in the team </li></ul>
    23. 23. Our business… <ul><li>Skill set required </li></ul><ul><ul><li>Retail merchandising experience </li></ul></ul><ul><ul><li>Operations (especially distribution) </li></ul></ul><ul><ul><li>Relationships with large pharmaceutical cos. </li></ul></ul><ul><ul><li>Experience of administering pharmacy benefits plans (critical to understand the economics) </li></ul></ul><ul><ul><li>CFO / Financial controller </li></ul></ul>
    24. 24. Financial Outlook <ul><li>High level summary of economics of the proposition </li></ul><ul><ul><li>Scalability of top line and bottom line </li></ul></ul><ul><ul><li>Capital requirement and deployment plan </li></ul></ul><ul><ul><li>Current financial status </li></ul></ul><ul><ul><ul><li>Revenue, costs, burn rate </li></ul></ul></ul><ul><ul><li>Visibility on forward-looking revenue projections </li></ul></ul>Critical to strike the right balance between ambition and realism in this section
    25. 25. Risk Factors <ul><li>This is the section where the entrepreneur’s objectivity is put to test </li></ul><ul><li>Need to inspire confidence that: </li></ul><ul><ul><li>All the potential risks have been objectively thought through </li></ul></ul><ul><ul><li>Adequate measure have been taken or planned to address the risks </li></ul></ul>Risk Factors <ul><li>Define the business model </li></ul><ul><li>Seek market validation </li></ul><ul><li>Get off the ground </li></ul>Organizational Needs <ul><li>Build revenue traction </li></ul><ul><li>Build processes </li></ul><ul><li>Seek profitability </li></ul><ul><li>Seek financial stability </li></ul><ul><li>Scale business aggressively </li></ul><ul><li>Streamline ops. </li></ul><ul><li>Deliver value to stakeholders </li></ul>Time Evolution of the Firm Seed Stage Early Stage Expansion Stage <ul><li>Market Risk </li></ul><ul><ul><li>How large is the market opportunity? </li></ul></ul><ul><li>Execution Risk </li></ul><ul><ul><li>Can we build a sustainable business? </li></ul></ul><ul><li>Execution Risk </li></ul><ul><ul><li>How much can the business scale? </li></ul></ul><ul><li>Financial Risk </li></ul><ul><ul><li>What exit options are available? </li></ul></ul><ul><li>Concept Risk </li></ul><ul><ul><li>Is this something the market needs and is willing to pay for </li></ul></ul><ul><ul><li>Avoid the “if we can build it, we can sell it” trap </li></ul></ul>
    26. 26. Our business… <ul><li>Market risk </li></ul><ul><ul><li>Threat of competition (backlash from medical retailer associations) </li></ul></ul><ul><ul><li>Pricing power with large pharmaceutical companies? </li></ul></ul><ul><li>Execution risk </li></ul><ul><ul><li>Inability to scale before market gets crowded </li></ul></ul><ul><ul><li>Inability to streamline operations and achieve the right economics of the business before running out of capital </li></ul></ul><ul><li>Financial risk </li></ul><ul><ul><li>Market leader but also a loss leader? </li></ul></ul><ul><ul><li>Will you need to keep raising capital to scale or will future investments be through internal accruals? </li></ul></ul><ul><ul><li>What are the exit options for an investor from such a business? </li></ul></ul>
    27. 27. Why invest? <ul><li>Conclude with a clear articulation of what makes your business proposition a compelling investment opportunity </li></ul><ul><ul><li>Salient points of the business plan that address the issues from the investor’s perspective </li></ul></ul><ul><ul><ul><li>Upside maximization </li></ul></ul></ul><ul><ul><ul><li>Downside mitigation </li></ul></ul></ul><ul><ul><li>What returns can the investor expect, through what routes and in what timeframe? </li></ul></ul>Important to provide the comfort that you are keen to align interests with the investor and embark on a win-win partnership
    28. 28. Agenda <ul><li>Entrepreneurship defined </li></ul><ul><li>Building Blocks of Entrepreneurship </li></ul><ul><li>Elements of a Business Plan </li></ul><ul><li>Financial Modeling </li></ul>
    29. 29. Objective of financial modeling <ul><li>Quantitative understanding of business dynamics </li></ul><ul><ul><li>Scalability </li></ul></ul><ul><ul><li>Level of margins and path to profitability </li></ul></ul><ul><ul><li>Capital requirements and capital efficiency (revenue to capital ratio) </li></ul></ul><ul><li>Run sensitivity analyses of the business </li></ul><ul><li>Back-up to the financial outlook presented in the business plan </li></ul>
    30. 30. Elements of a financial model <ul><li>Assumptions </li></ul><ul><li>Income/P&L Statement </li></ul><ul><li>Cash Flow Statement </li></ul><ul><li>Balance Sheet </li></ul><ul><li>Revenue plan </li></ul><ul><li>Capital Expenditure Schedules </li></ul><ul><li>Operating Expenditure Schedules </li></ul><ul><li>Manpower Plan </li></ul>
    31. 31. VIEW Group: An Overview <ul><li>Investment Strategy: Global Services Opportunity </li></ul><ul><ul><li>Increasingly large opportunity </li></ul></ul><ul><ul><li>Leverages India’s comparative advantages </li></ul></ul><ul><ul><li>Delivers what US companies need in a challenging environment </li></ul></ul><ul><li>The VIEW Group’s differentiating factors </li></ul><ul><ul><li>A team of entrepreneurs </li></ul></ul><ul><ul><li>Proven execution ability in both the US and India </li></ul></ul><ul><ul><li>Proven ability to develop global services companies </li></ul></ul><ul><ul><li>A hands-on approach </li></ul></ul>