04. Business planning 101


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04. Business planning 101

  1. 1. Business planning From A to F Δρ. Ηρακλής Αγιοβλασίτης
  2. 2. From A to F(unding) A. Defining the plan B. Authoring the plan C. Sales D. Marketing E. Financials F. Funding
  3. 3. A. Defining the plan What is and what is not
  4. 4. 1. What is the business plan? • Plan for the creation and management of business • Goal setting instrument • Connect the dots • Owners’ manual • The map
  5. 5. The map
  6. 6. 2. Why write a business plan? 1. Objective & Critical tool 2. Focus ideas & Feasibility study 3. Business model 4. Communication tool 5. Financial projection 6. Operational tool 7. Inhouse vs Outsourcing
  7. 7. 3. Advantages of great business plans • Fundraising ability • Attracting management team & employees • Setting goals • Easily adapted • Providing indices to measure progress • Continuously updated • Can stand critical review
  8. 8. B. Authoring the plan Templates
  9. 9. No right format
  10. 10. 1. Executive Summary 2. Company Description 3. Market Analysis 4. Organization & Management 5. Marketing & Sales 6. Service or Product Line 7. Funding Request 8. Financials 9. Appendix US Small Business Administration
  11. 11. 1. Executive summary • The mission statement • History of the business • Names of founders and the functions they perform • Location of business • Description of facilities • Products manufactured/services rendered • Banking and investment relationships • Summary of company growth including financial or market highlights • Summary of management’s future plans
  12. 12. 2. Company description • High level look at how all of the different elements of your business fit together o Nature of your business as well as primary factors that you believe will make your business a success • Marketplace needs that you are trying to satisfy o Include the ways in which you plan to satisfy these needs using your products or services. Finally, list the specific individuals and/or organizations that you have identified as having these needs. • Primary success factors (for example): o Ability to satisfy your customers’ needs o Highly efficient methods of delivering your product or service o Outstanding personnel o Key location
  13. 13. 3. Market analysis • Industry description and outlook o Description of your primary industry o Current size of the industry o Historic growth rate, trends and characteristics related to the industry as a whole  What life cycle stage is the industry in?  What is its projected growth rate?  What major customer groups are within the industry?
  14. 14. 3. Market analysis • Competitive analysis o Identify your competition by product line or service as well as by market segment o Assess their strengths and weaknesses o Determine how important your target market is to your competitors o Identify any barriers which may hinder you as you are entering the market • Regulatory restrictions o Current governmental regulatory requirements o As well as any changes that may be upcoming
  15. 15. 4. Organization & Management • Organizational structure o Create an organizational chart with a narrative description • Ownership information o Include legal structure and ownership details • Management profiles o Discuss key people in your company and their backgrounds
  16. 16. 5. Marketing & Sales Strategies • Market penetration strategy o Strategy for growing your business o Horizontal strategy where you would provide the same type of products to different users o Vertical strategy where you would continue providing the same products but would offer them at different levels of the distribution chain • Communication strategy for reaching customers • Sales force strategy o If you are going to have a sales force, do you plan to use internal or independent representatives? o How many salespeople? How will you train your sales force? o What is the compensation for your sales force? • Sales activities o When you are defining your sales strategy, it is important that you break it down into activities.
  17. 17. 6. Service or Product line • Detailed description of your product or service o Specific benefits of your product or service o Ability to meet consumer needs o Advantages your product has over that of the competition o Present development stage your product is in (i.e., idea, prototype, etc.) • Information related to your product’s life cycle • Any copyright, trademark, patent, and trade secret information • Research and development activities you are involved in or are planning to be involved in.
  18. 18. 7. Funding request • Current funding requirement • Future funding requirements o Typically the next five years o At least three years of revenue generating years • How you will use the funds you receive? • Long-range financial strategies
  19. 19. Cash flow analysis
  20. 20. 8. Financials • Historic and prospective financial statements o Income statements o Balance sheets o Cash flow statements • For each year you have been in business
  21. 21. 9. Appendix • Resumes • Credit history (personal & business) • Product pictures • Letters of reference • Details of market studies • Magazine articles or book references • Licenses, permits, or patents • Legal documents • Copies of leases • Building permits • Contracts • List of business consultants, including attorney and accountant
  22. 22. Sequoia Capital Yahoo Google Electronic Arts Cisco Paypal Linkedin
  23. 23. Sequoia Capital Business Plan template 1. Company Purpose • Define the company/business in a single declarative sentence 2. Problem • Describe the pain of the customer (or the customer’s customer) • Outline how the customer addresses the issue today • Include research and evidence of the problem
  24. 24. Sequoia Capital Business Plan template 3. Solution • Demonstrate your company’s value proposition to make the customer’s life better • Show where your product physically sits 4. Why now • Set-up the historical evolution of your category • Define recent trends that make your solution possible
  25. 25. Sequoia Capital Business Plan template 5. Market size • Identify the current and expected customers • How many dollars are spent on goods & services like yours • What are the trends (opportunities & threats)? 6. Competition • List competitors • List competitive advantages
  26. 26. Sequoia Capital Business Plan template 7. Product or service • Functionality, features, architecture, etc. • Development and describe the roadmap • Illustrate via o Sketches o Pictures o 3D renderings • Intellectual property
  27. 27. Sequoia Capital Business Plan template 8. Business model • Revenue model with pricing strategy • Average account size and lifetime value • Sales and distribution model • Key partnerships and suppliers
  28. 28. Sequoia Capital Business Plan template 9. Team Founders and management Board of directors Board of advisors 10. Financials Income statement, cash flow statement, and balance sheet 11. Closing
  29. 29. In any case Watch out for the audience! • Attention span: 20 pages
  30. 30. Summary Do • Consider prevailing formats for your plan • Adapt pending the audience • Be clear, specific, and convincing Don’t write a: • long • confusing mess with • no convincing path to profitability, • limited understanding, and • a weak team
  31. 31. Best practice • Have a main business plan • Update it regularly • 5-year P&L >>> Adapt!
  32. 32. C. Sales Assumptions: Realistic or Imaginary?
  33. 33. Sales 1. Managing the sales pipeline • Generating leads • Planning • Closing sales 2. Building one-to-one relationships • Customer data • Regular, targeted communication 3. Establishing a sales budget
  34. 34. Lead Selling Sold Leads-to-Sales Call %? Sales Call-to-Close %? 1. The sales pipeline
  35. 35. Lead Selling Sold Cold calling - Plan, prepare, practice - Warm-up Networking - Personal and professional - Build and maintain the network
  36. 36. Lead Selling Sold Cold calling - Plan, prepare, practice - Warm-up Networking - Personal and professional - Build and maintain the network – Sell solutions, not products – Guide meetings – Understand the influencers – Keep your head up
  37. 37. Lead Selling Sold Cold calling - Plan, prepare, practice - Warm-up Networking - Personal and professional - Build and maintain the network – Sell solutions, not products – Guide meetings – Understand the influencers – Keep your head up – Show them the money – Ask for the sale – Offer payment terms or discounts – Build a referenceable customer – Budget for next year
  38. 38. 2. One-to-one relationships Maximize sales by picking the BEST customers Collect customer information • Know your customer • Study prospective and current customers • Setup a database Customize the sales approach • Build individual profiles • Get personal Incentive Loyalty card Sign-up scheme
  39. 39. 3. Establishing a sales budget Start with sales costs as a percentage of sales • $10 product price • $7 expenses (not including sales cost) • $3 profit (not including sales cost) • $0 to $3 (0 to 30%) is sales cost; estimate $3 • For a 1,000 product forecast in yr. 1; sales budget = $3,000 Consider the lifetime value of the customer • Factor in revenues from recurring purchases Opportunity costs of various sales approaches
  40. 40. Sales: to plan or not to plan? • Revenue goals are realized through a series of well planned steps • Sales and marketing budgets are dependent on proper sales forecasts • Managing the sales pipeline is critical to plan and implement the sales strategy
  41. 41. D. Marketing Not advertising
  42. 42. Marketing 1. Explore customer needs and wants 2. Build a marketing plan that addresses these needs and wants – Now and in the future 3. Define a marketing mix that works – And that is adaptable 4. Pricing: how to
  43. 43. 1. Customer and problem - Who are the customers? - What are their problems? - Confirm/revise your assumptions about • Types of customers • Needs and wants • “Day in the life” • ROI for customer • Minimum and desired feature sets • Willingness to pay
  44. 44. 2. Marketing Plan 1. Product/service description and features, 2. Promotion and advertising details, 3. Pricing model • Business model • Prices 4. Placement/distribution and sales plan. • Sales methods to include personal selling and/or sales channels, etc.
  45. 45. 3. Marketing mix (4Ps) Product • Brand • Features • Design • Quality • Packaging • Warranties • Returns policy • Functions
  46. 46. 3. Marketing mix (4Ps) Product • Brand • Features • Design • Quality • Packaging • Warranties • Returns policy • Functions Price • List price • Discounts • Credit terms • Payment period
  47. 47. 3. Marketing mix (4Ps) Product • Brand • Features • Design • Quality • Packaging • Warranties • Returns policy • Functions Price • List price • Discounts • Credit terms • Payment period Promotion • Public relations • Advertising • Sales force • Direct messages
  48. 48. 3. Marketing mix (4Ps) Product • Brand • Features • Design • Quality • Packaging • Warranties • Returns policy • Functions Price • List price • Discounts • Credit terms • Payment period Promotion • Public relations • Advertising • Sales force • Direct messages Place • Channels • Locations • Inventory • Fulfillment
  49. 49. 4. Pricing Key considerations are – Your cost (direct costs plus overhead to including marketing, salaries, etc.) – Competitor prices (current and future) >> Research Suggested approach – Price just below (10-20% less) comparable competitors, and offer better service than them. – If your product is significantly better, it’s OK to charge more than competitors.
  50. 50. 4. Pricing >>> Competition • Benchmark against which to evaluate prices • Even new innovations have competitors – Customer’s may not choose to adopt the new technology – Competitive substitutes • Cross-Price elasticity of demand – % change in one product’s sales due to a % change in a price of another product • Increase in complementary competitors may increase prices
  51. 51. 4. Pricing >>> Customers Price ceiling is determined by customer’s perception of value & competitive options • Product Benefits − Functional: attractive to users − Operational: reliability, durability, efficiency − Financial: credit terms, leasing options − Personal: psychological satisfaction • Costs − Monetary: price, transportation, installation − Nonmonetary: product failure, obsolescence
  52. 52. 4. Pricing >>> New Revenue Streams – New uses for existing products – Offer whole product (end-to-end solution) – Offer product bundles – New, less price-sensitive, segments – Offer product derivatives under a price lining strategy – IP > outright sale vs licensing > single vs multiple users > pay-per-use vs subscription
  53. 53. E. Financials Do the math!
  54. 54. 1. Objective • 95% percent of start-ups fail due to: o Lack of MONEY o Lack of TIME • Managing finances effectively can help you from running out of money prematurely and from spending money at the wrong time
  55. 55. 2. Who do they help? • Investors understand o The profit potential of your firm o How much money you need to get there o On what timeline and for what purpose • Entrepreneurs understand o Level of risk/reward for your venture o Value of your company (and in turn, your percent ownership) when it’s time to raise capital for the venture
  56. 56. 3. How do they look? 1. Income statement ₋ Summarizes revenues and expenses 2. Cash flow statement ₋ Sum of retained earnings minus the deprecation provision made by the firm 3. Balance sheet ₋ Summarizes the assets, liabilities, and shareholders’ equity at a specific point in time
  57. 57. 4. Income statements Revenue (Sales) – Money paid to the company by customers in exchange for the sale of a product or service by the company Costs of Goods Sold (COGS) – Direct costs to produce each product or offer each service – For a product, all components and manufacturing costs – For a service, all costs of fulfillment; all labor costs. – Costs of goods sold are often variable as component and manufacturing costs drop as volume increases.
  58. 58. 5. Income statements • Revenue forecasts: What can we sell, given the market, our pricing, and our capability? • COGS forecasts: How will our costs of goods sold change as our revenues change?
  59. 59. 6. Income statements SG&A forecasts: What marketing/sales effort do we need to reach our revenue goals? What infrastructure do we need to support our business? • How much money do we need to accomplish growth?
  60. 60. Sales forecast
  61. 61. Income statement
  62. 62. • Reports cash receipts and payments • Lists all cash going in and out by category 1. Operating activities: Cash changes by operating the company 2. Investing activities: Cash changes from buying/selling assets (equipment, building) 3. Financing activities: Cash changes by borrowing funds, selling stock, paying dividends, reducing debt, etc. 2. Statement of cash flows
  63. 63. Cash flow
  64. 64. Current Assets (liquid in less than a year) Fixed Assets Other Assets Cash and equivalents Accounts receivable Inventories 3. Balance sheet Property, plant and equipment (minus Depreciation) Intangibles (minus depreciation) Investment securities Total assets = Total liabilities + Shareholder’s equity Current Liabilities (payable in less than a year) Long-term liabilities Shareholder’s equity Accounts payable Accrued expenses Short term debt Common stock Additional paid-in capital Retained earnings Bank loans Bond issued
  65. 65. Balance sheet
  66. 66. Summary • Financials statements are a valuable tool to both investors and entrepreneurs • Critical to determine how much money you need when and for what purpose • Quantifying the risk and reward is an early step to determining if to launch the venture
  67. 67. F. Financial capital Show me the money!
  68. 68. Where does startup money come from?
  69. 69. Bootstrapping Why? • Owned by founders • Easy ownership terms • Controlled by founders • Lower pressure • Little time spent on fundraising
  70. 70. Bootstrapping Why NOT? • May constrain growth due to limited capital • Lack of funding commitment for future • Loss of advice and social capital from professional investors
  71. 71. Questions to answer • How much money you need? • What will the money will be used for? • At what stage is your business in? • What is your capacity to repay the money?
  72. 72. Advantages – No share of ownership required – More borrowing allows for potentially greater return on equity – During periods of low interest rates, the opportunity cost is justified since the cost of borrowing is low Disadvantages – Regular (monthly) interest payments are required. – Continual cash-flow problems can be intensified because of payback responsibility. – Heavy use of debt can inhibit growth and development. Debt vs Equity - Ownership (equity) in the companies is sold to investors. - High risk - unsecured! >> Term sheets
  73. 73. The funding gap
  74. 74. The funding gap >>> Solved (?) 1. Angel investors 2. Crowd-funding 3. Grants • National Programmes o Microloans • European programmes o The SME Instrument
  75. 75. Concept & Feasibility Assessment Innovation R&D activities Commercialisation Phase 2 Phase 3 Market • Feasibility of concept • Risk assessment • IP regime • Partner search • Design study • Development, prototype, testing • Miniaturisation/design • Clinical trials • Etc. • Facilitate access to private finance • Support via networking , training, coaching, knowledge sharing, dissemination Lump sum: ~ 50.000 € ~ 6 months Output-based payments: 1 to 5 M€ 12 to 36 months No direct funding Phase 1 Idea SME Instrument
  76. 76.  10% budget of SME instruments ~5200 proposals funded-10% success rate  Funding: lump sum 50.000 €  Duration: ~ 6 months  Target group: Innovative SMEs  Single company support possible  Other organisations= subcontracting  Input: idea/concept – Business Plan 1 (~10 pages)  Activities: Feasibility of concept; Risk assessment; IP regime; Partner search; Design study; Pilot application….  Output: elaborated “Business Plan 2”  Call: always open with 4 cut-off dates/year (first cut-off dates for Phase 1 around June 2014- 18/06/2013)  Evaluation: 2 evaluators, remote, quality threshold  Time to(TT) contract: 8-12 weeks H2020 - New SME instrument Phase 1: Concept & Feasibility Assessment
  77. 77.  90% budget of SMEs instruments (~1700 proposals of 1,5 Mio. € ; success rate ~30 to 50%)  Funding: 1 to 5 Mio. € / Duration: 12 to 24 months  Target group: Innovative SMEs Single company support possible / Other organisations= subcontracting  Input: business plan 2 + description of activities under phase 2 (~30 pages)  Activities: Development; Prototyping; Testing, Piloting; miniaturisation, scaling-up, market replication, research  Output: “Investor-ready Business plan 3”  Call: always open with 4 cut-off dates/year (first cut-off for Phase 2: 24/09/2014)  Evaluation: 3 evaluators, remote, quality threshold  TT contract: 150 days H2020 - New SME instrument Phase 2: R&D, demonstration, market replication
  78. 78.  2% budget of SME instrument  No direct funding  Promote instrument as quality label for successful projects Objective: Provide support and facilitate access to Private finance EU financing instruments (debt & equity facility) Networking, training, information addressing IP management, knowledge sharing, dissemination… Connection to public procurement activities  Key account Management will be carried out by EENs & coaching by external specialists H2020 – New SME instrument Phase 3: Commercialisation & Coaching
  79. 79. Open calls
  80. 80. 1. Space-SME-2014-1: SME Instrument 2. ICT-37-2014-1: Open Disruptive Innovation Scheme (implemented through the SME instrument) 3. NMP-25-2014-1: Accelerating the uptake of nanotechnologies, advanced materials or advanced manufacturing and processing technologies by SMEs 4. PHC-12-2014-1: Clinical validation of biomarkers and/or diagnostic medical devices 5. SFS-08-2014-1: Resource-efficient eco-innovative food production and processing 6. BG-12-2014-1: Supporting SMEs efforts for the development - deployment and market replication of innovative solutions for blue growth 7. SIE-01-2014-1: Stimulating the innovation potential of SMEs for a low carbon energy system 8. IT-1-2014-1: Small business innovation research for Transport 9. SC5-20-2014-1: Boosting the potential of small businesses for eco-innovation and a sustainable supply of raw materials 10. DRS-17-2014-1: Critical infrastructure protection topic 7: SME instrument topic: “Protection of Urban soft targets and urban critical infrastructures” 11. BIOTEC-5a-2014-1: SME boosting biotechnology-based industrial processes driving competitiveness and sustainability Open calls
  81. 81. 18/06/2014 24/09/2014 17/12/2014 Deadlines Phase 1
  82. 82. Specific Challenge: The challenge is to provide support to a large set of early stage high risk innovative SMEs in the ICT sector. Focus will be on SME proposing innovative ICT concept, product and service applying new sets of rules, values and models which ultimately disrupt existing markets. The objective of the ODI is threefold: • Nurture promising innovative and disruptive ideas; • Support their prototyping, validation and demonstration in real world conditions; • Help for wider deployment or market uptake. Proposed projects should have a potential for disruptive innovation and fast market up-take in ICT. In particular it will be interesting for entrepreneurs and young innovative companies that are looking for swift support to their innovative ideas. The ODI objective will support the validation, fast prototyping and demonstration of disruptive innovation bearing a strong EU dimension. Scope: ODI will be implemented through the SME instrument which consists of three separate phases and a coaching and mentoring service for beneficiaries. Participants can apply to Phase 1 with a view to applying to Phase 2 at a later date, or directly to Phase 2. ICT-37
  83. 83. In phase 1, a feasibility study shall be developed verifying the technological/practical as well as economic viability of an innovation idea/concept with considerable novelty to the industry sector in which it is presented (new products, processes, design, services and technologies or new market applications of existing technologies). The activities could, for example, comprise risk assessment, market study, user involvement, Intellectual Property (IP) management, innovation strategy development, partner search, feasibility of concept and the like to establish a solid high- potential innovation project aligned to the enterprise strategy and with a European dimension. Bottlenecks in the ability to increase profitability of the enterprise through innovation must be detected and analysed during phase 1 and addressed during phase 2 to increase the return in investment in innovation activities. The proposal should contain an initial business plan based on the proposed idea/concept. The proposal should give the specifications of the elaborated business plan, which is to be the outcome of the project and the criteria for success. Funding will be provided in the form of a lump sum of EUR 50.000. Projects should last around 6 months. ICT-37
  84. 84. In phase 2, innovation projects will be supported that address the specific challenge ODI and that demonstrate high potential in terms of company competitiveness and growth underpinned by a strategic business plan. Activities should focus on innovation activities such as demonstration, testing, prototyping, piloting, scaling-up, miniaturisation, design, market replication and the like aiming to bring an innovation idea (product, process, service etc) to industrial readiness and maturity for market introduction, but may also include some research. For technological innovation a Technology Readiness Levels of 6 or above (or similar for non-technological innovations) are envisaged; please see part G of the General Annexes. Proposals shall be based on an elaborated business plan either developed through phase 1 or another means. Particular attention must be paid to IP protection and ownership; applicants will have to present convincing measures to ensure the possibility of commercial exploitation ('freedom to operate'). Proposals shall contain a specification for the outcome of the project, including a first commercialisation plan, and criteria for success. The Commission considers that proposals requesting a contribution from the EU of between EUR 0.5 and 2.5 million would allow phase 2 to be addressed appropriately. Nonetheless, this does not preclude submission and selection of proposals requesting other amounts. Projects should last between 12 and 24 months. ICT-37
  85. 85. Expected impact: · Enhancing profitability and growth performance of SMEs by combining and transferring new and existing knowledge into innovative, disruptive and competitive solutions seizing European and global business opportunities. · Market uptake and distribution of ICT innovations. · Increase of private investment in innovation, notably through private co-investments and/or follow-up investments in successfully supported SMEs. · The expected impact should be clearly substantiated in qualitative and quantitative terms (e.g. on turnover, employment, market seize, IP management, sales, return on investment and profit). ICT-37
  86. 86. One pager How can we help?
  87. 87. • ICT-37 Topic/ Grant • Brand name Title/ Aconym • What we are planning to do Objective • 5 Key questions Background • + Who wants them (Impact) Results • How? Phases Consortium Cost/Duration
  88. 88. 5 Key Questions • Why bother? • Why at a European Level? • Is it already available? • Why now? • Why you?
  89. 89. Impact – 5 more key questions • What will come out of the project? (Expected results) • Who wants these results? (Lead users) • Why do they want these results? • How do you plan to tell the Lead users about the results? • What further development steps will be required?
  90. 90. Εθνικό Κέντρο Τεκμηρίωσης www.ekt.gr Δρ. Ηρακλής Αγιοβλασίτης E: agiovlasitis@ekt.gr T: @hercagio P: 210 727 3921