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How to write a business plan_McKinsey_2001

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  • 1. 050301LNZXL756LTDE-P1How to Write a Business Plan Entrepreneurship Challenge Imperial College 6 March 2001 This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.
  • 2. 050301LNZXL756LTDE-P1Contents • Business start-up process • Writing the Business Plan • Constructing the team 1
  • 3. 050301LNZXL756LTDE-P1Contents • Business start-up process • Writing the Business Plan • Constructing the team 2
  • 4. 050301LNZXL756LTDE-P1Stages of a Start-up Stage 1 Stage 2 Stage 3 Established company Start-up and growth Exit of initial Business investors plan preparation Financing decision Business idea Interest of generation investors 3
  • 5. 050301LNZXL756LTDE-P15 key factors for success of innovative start-ups Ideas • Degree of innovation • Scope • Patent Network & exchange • CoachingPeople Traditional service providers • Networking• Inventors • Attorneys • Matchmaking• Entrepreneurs • Patent lawyers • Innovative service provider• Team members • Tax consultants/ – Venture capitalists accountants – Headhunters • Market researchers – Business angels – Start-up consultants Capital • Availability/amount • Needs/responsibilities • Exists for investors 4
  • 6. 050301LNZXL756LTDE-P1Elements of a promising business idea Successful ideas demonstrate how bigThe key to success is CLEAR MARKET OF the market is, the targetsatisfied customers, not CUSTOMER ADEQUATE customers and how thea great product VALUE SIZE product differs from the competition Create a new product orIdeas should be feasible FEASIBILITY SUFFICIENT a new way of deliveringwith realistic time and AND DEGREE OF an existing product – doresource plans PROFITABILITY INNOVATION both and create a new industry “There is nothing in the world as powerful than an idea whose time has come” Victor Hugo 5
  • 7. 050301LNZXL756LTDE-P1Innovation classification scheme New product New industry Innovation • Microsoft • Netscape Product/service Existing industry New business system Convention • Skilled trades • Dell • Engineering offices Convention Innovation Business system 6
  • 8. 050301LNZXL756LTDE-P1Role of traditional service providers Long term success Market researchers MARKET Tax RESEARCH consultantsPatent TAXlawyers PATENTS Professional advisors can help to clear hurdles 7
  • 9. 050301LNZXL756LTDE-P1Role of a venture-capital company • Seed capital (pre start-up) • Start-up capital (at £££ Investments or shortly before start-up) • Expansion capital Capital recovery • Young, growing companies • IPO (Initial Public Offering) 5–8 years post • Sale of stake to Start-up third parties 8
  • 10. 050301LNZXL756LTDE-P1Collective team strength SUCCESS Entrepreneurs Inventors Finance Team Team members members Well constructed teams provide a strong basis for success 9
  • 11. 050301LNZXL756LTDE-P1Network support Academics Entrepreneurs Venture Peers capitalists START-UP Use all connections Service Friends providers Other Sponsors start-ups 10
  • 12. 050301LNZXL756LTDE-P1Contents • Business start-up process • Writing the Business Plan • Constructing the team 11
  • 13. 050301LNZXL756LTDE-P1“Writing a Business Plan forces youinto disciplined thinking, if you do anintellectually honest job. An idea maysound great, but when you put downall the details and numbers, it may fallapart” Eugene Kleiner, Venture Capitalist 12
  • 14. 050301LNZXL756LTDE-P1Characteristics of a successful Business Plan Clear Objective • Well structured • Accurate • Standalone • Positive and critical Your calling card The document the reader will remember you by Consistent Simple • Style • Plain English • Analytical depth • Non-technical terms 13
  • 15. 050301LNZXL756LTDE-P1Elements of a Business Plan Focus of this phase Part of this phase Draft ‘Final’ Business business business concept plan plan 1. Executive summary 2. Product or service 3. Management team Importance 4. Market and competition 5. Marketing and sales 6. Business system and organisation 7. Implementation schedule 8. Opportunities and risks 9. Financial planning and financing 14
  • 16. 050301LNZXL756LTDE-P1Key questions – 1. Executive SummaryBusiness concept Draft business plan ‘Final’ business plan• What is your business • What do you estimate • What are the results of idea? In what way does it your financing needs to your detailed business fulfil the criterion of be? planning? uniqueness? • What are the sales, cost • What are your exact• Who are your target and profit situations? financing needs? customers? • What are the most • How will you delegate• What is the value for those important milestones management tasks? customers? along the way to your • How much production• What market volume goal? capacity is necessary? and growth rates do • What test customers have • How will the you forecast? you approached/could implementation of your• What competitive you approach? business idea be environment do you face? • What distribution organised?• What additional stages of channels will you use? • What are your next development are needed? • What partnerships would concrete steps?• How much investment is you like to enter into? necessary (high level • What opportunities and estimation)? risks do you face?• What long term goals have • What is the picture on you set? patents? 15
  • 17. 050301LNZXL756LTDE-P1Key questions – 2. Product or service Executive • What are the features or functions of the product/service? Summary • Who are the target customers? Product or service • What value propositions does the product/service provide to the customers? (e.g., tabulate customers’ unfulfilled needs and ways the product/service addresses those needs) Management team • What is the revenue model? (i.e., description of revenue sources – advertising revenue, transaction revenue, Market & subscription revenue, flat-fee vs. percentage-based) competition • What is the development status of the product? What remains Marketing to be done to convert the business idea into a tangible product & sales or service? • Has this business model been proven elsewhere? What are Business system some successful examples? & organisation • What is the plan to maintain the loyalty of customers? Implementation schedule Opportunities & risks Financial planning 16
  • 18. 050301LNZXL756LTDE-P1Key questions – 3. Management team Executive Summary Product or service • Who are the founders/founder groups and what are their qualifications, experience and past achievements • How critical is the idea originator to the future success of the Management team venture? Market & • How are the management responsibilities shared among the team? (e.g., a table of team members with their position and competition key activities/responsibilities) Marketing • What is the plan to reinforce management team in the future? & sales (e.g., schedule of future management hiring and skills required) Business system & organisation Implementation schedule Opportunities & risks Financial planning 17
  • 19. 050301LNZXL756LTDE-P1Key questions – 4. Market & competition Executive Summary Product or service Management team • What is the potential market size for the product/service? (e.g., calculation derived from number of target customers, units sold, value of sales) Market & competition • What is the expected market growth and which major factors influence that growth? Marketing & sales • Who are the likely competitors? What do they offer? • What are the strengths and weaknesses of competitors? What Business system is your competitive positioning vis-à-vis competitors? (i.e, a & organisation table of competitors and their ratings across key criteria – e.g., time to launch, technological capability, access to proprietary Implementation technology, privileged relationship with suppliers and schedule customers) Opportunities & risks Financial planning 18
  • 20. 050301LNZXL756LTDE-P1Key questions – 5. Marketing & sales Executive Summary Product or service Management team Market & • What are the specific plans to promote the product/service? competition • How will the product/service be distributed? Which partners Marketing will be needed in the distribution channel? & sales • What will be the pricing strategy? (e.g., how much will you charge for different customer segments, quantities) Business system & organisation Implementation schedule Opportunities & risks Financial planning 19
  • 21. 050301LNZXL756LTDE-P1Key questions – 6. Business systems & Executive organisation Summary Product or service Management team • What is the proposed organisational structure of the company? Market & • How will this organisational structure help achieve business competition goals? Marketing • What skills will be required and what is the hiring plan? (e.g., a table that shows total number of positions and the & sales functional description of positions, skills required for top 3 Business system positions in each department) & organisation • What is the scope of the business? (i.e. what will be performed internally and what will be outsourced?) Implementation schedule • Have strategic partnerships been identified? If yes, how will these partners be secured? If no, what is the plan to get Opportunities & partners? risks • Have key vendors been identified? If yes, how will these vendors be secured? If no, what is the plan to get vendors? Financial planning 20
  • 22. 050301LNZXL756LTDE-P1Key questions – 7. Implementation schedule Executive Summary Product or service Management team Market & competition Marketing • What is the detailed short term implementation plan? (e.g., & sales Gantt chart showing detailed activities by month) – Who is responsible for each of the tasks? Business system – What are major milestones? & organisation – What are interdependencies between tasks? Implementation • What is the 5-year implementation plan? (e.g., Gantt chart schedule showing activities by quarter) – Who is responsible for each of the tasks? Opportunities & – What are major milestones? risks • What are possible long term options for the business? Financial planning 21
  • 23. 050301LNZXL756LTDE-P1Key questions – 8. Opportunities & risk Executive Summary Product or service Management team Market & competition Marketing & sales Business system • What are the best case and worst case scenarios for the 5-year & organisation financial projections? What are the key assumptions on the key parameters? (e.g., market shares, profit margin) – refer to Implementation Appendix for example schedule • What does the sensitivity analysis show? (i.e., by varying key Opportunities & assumptions in isolation) risks • What mitigating steps are planned in order to minimise risks? Financial planning 22
  • 24. 050301LNZXL756LTDE-P1Key questions – 9. Financial planning & financing Executive Summary Product or service Management team Market & competition • For the next 5 years (and at least 1 year beyond breakeven point), what are the projections for Marketing – Income statement (includes detailed revenue source as & sales described in the business model) – Cash flow statement Business system – Company valuation, utilising & organisation · Discounted cash flow analysis · Revenue multiples Implementation – Balance sheet schedule • What are the key assumption used in the financial proforma? Opportunities & (e.g., cost of capital, market share, margin) risks • What are the financial requirements for the business and what sources of financing have been identified? (e.g., financial Financial planning schedule with amount needed and possible financing sources) 23
  • 25. 050301LNZXL756LTDE-P1Contents • Business start-up process • Writing the Business Plan • Constructing the team 24
  • 26. 050301LNZXL756LTDE-P1“Invest in people, not ideas” Eugene Kleiner, Venture Capitalist 25
  • 27. 050301LNZXL756LTDE-P1Characteristics of a powerful management team • Common vision – everybody wants to succeed • Complementary attitudes and strengths • At least 3, but usually no more than 6 people • Sticks together through thick and thin • Staying power, even when there are setbacks 26
  • 28. 050301LNZXL756LTDE-P1Criteria applied by investors • Has the team already worked together? • Do team members have relevant experience? • Do the founders know their weaknesses and are they willing to make up for them? • Have the founders agreed on their future roles and are ownership issues settled? • Has the management team agreed on a common goal, or are there underlying differences of opinion? • Do the team members fully back the project? 27
  • 29. 050301LNZXL756LTDE-P1GOODLUCK 28