Workshop on Business Planning, presented by professor Robert Warren (University of Manitoba) at the Idea to Product Competition Latin America at FGV. Workshop de planos de negócios apresentado pelo professor Robert Warren (Universidade de Manitoba), durante a competição de inovação Idea to Product Latin America na Fundação Getulio Vargas.

1. Raising External Equity:Know Your Audience Robert Warren I.H. Asper Executive Director for Entrepreneurship University of Manitoba

2. Experience Valuation experience – New York Founder of the Winnipeg Angel Organization Founder Prairie Centre for Business Intelligence Founder of the Manitoba Venture Challenge Supported over 20 equity-backed start-ups 5 exits involving a combined return of over $400 million CAD Currently working with Israeli incubators to launch new ventures

3. Guy Kawasaki The TOP 10 LIES OF ENTREPRENEURS Common Things Heard By Investors

4. An Entrepreneur Enters My Office We’ll easily exceed our projections What’s conservative? Rob’s Rules – Revenue X 0.5 and Expenses X 5 It’s a $50 billion USD market! Total versus addressable market Rob’s Rule - Tell me about the market you can reach An industry leader will buy from us within a week Project Whitecard – I’ve heard this story 5 times Rob’s Rule – Call me when you have a signed purchase agreement

5. Are You Still Here? Person X will join us as soon as we can pay them Rob’s Rules – Will they leave a guaranteed job? Have they heard of you? If they love you so much why aren’t they in now and why aren’t they invested? We have no competition! Is there no market? Rob’s Rule – If it’s a great opportunity they are 10 other people in Brazil doing it and 10 in the US – China and India 30 each

6. Wishing They Would Leave We have other interested investors Rob’s Rule – If you’re telling me this you don’t. The big industry player is too big or too slow Rob’s Rule – They are probably your customer – not to mention your biggest threat. Beware the do nothing approach Our management team is top notch Rob’s Rule – 4 exits that made money

7. I Really Need a Caipirinhas! We have patents! Rob’s Rules – Can you defend them? Do you have a patent strategy? 1% of the market will make us a success! Rob’s Rules – 1% of the market means the investor makes little to no money. Think big. Do you know how tough it is to reach 1%

8. What Do Investors Want? D – Disruptive You need to change the way things work NOVADAQ Technologies I – Innovative Something new and exciting. The iPod. D – Defensible Intellectual property with a number of claims IP strategy – Freedom to Operate Blackberry S – Scalable Can we produce this by the thousands with little effort? Paypal

9. But They Want More Validated Market Rob Adams “If You Build It, Will They Come” Talk to 100 customers – three times (Ready, Aim Fire) Opportunity Competitive assessment – third party Risk Reduction Real management team Staged-Gate Approach to Growth Return 10X minimum Strategy How are you going to take advantage of the opportunity?

10. Validated Market Who are your end-users? Are the end-users the customers? If not, who plays a role in the purchase process? ImrisTechnolgies How much are they willing to pay? How often will they buy? Who are your competitors? What are their relative strengths? Weaknesses? How likely are they to shift? What will it take? Outside validation

11. Risk Reduction Market Market validation – external Beta sales Management Team Industry experience – gets sales quicker Exit experience Set key accomplishments First customer or distributor First re-order Tied to financial requirements

12. Written Plan and Presentations Building on Strengths and Weaknesses

13. Stages in the Contact Process References are the keys Lawyers, successful entrepreneurs, incubator managers, mentors, bankers and accountants Credibility Quick Pitch Elevator One page executive summary Tradeshow Venture showcase Dragon’s Den Written Plan Formal

14. Quick Pitch Goal – Opportunity Identification Market Financial Executive Summary Don’t focus on the product – think return Avoid technical/industry jargon Elevator Pitch Max. Of 60 seconds Pick 4 things you want to cover End - Ask for a follow-up meeting

15. Tradeshow Dragon’s Den Get in front of three or more potential investors More interactive – learn the right questions Tradeshow Opportunity to really go into depth Be prepared to switch between business and technical issues

16. Written Plan Shorter is better – 10 pages maximum 100 plus pages are operational plans Focus on the business and not the technical Technical comes in due diligence Sales brochure Limit the appendices to key financial information Key Components Market Management Merchandise Money

17. Formal Presentation Builds on the written plan Focus on issues that are better presented in-person or have a graphical component Think of it as a 10 minute commercial Key – Question and Answer Section

18. Market

19. Who Are Your Customers? Start with a description of the need Focus on opportunity Develop some identifying questions or attributes Will help you focus on the most likely customer What’s missing in the current options available? Rank in order of importance

20. Focus on Key Customers Who are the largest customers in a segment? Where are they located? How often do they buy? What are they used to spending per unit or per purchase? Identify floor and ceiling prices Why is this critical to a new venture?

21. Know the Purchase Process How long does it take a customer to make a decision? Who is involved in the purchase decision process? Understand the various roles played Where are they located? When is the last time they made a major change? Why?

22. Benefits What’s the core problem they are looking to solve? Time Cost Quality What are the secondary benefits they seek? What product features will provide these benefits? Value: what is your value added benefit?

23. Competition Direct and indirect Overcomes one of the Top 10 Lies Told by Entrepreneurs Do a threat assessment Consider all pertinent features, e.g. price, market share Who’s a likely competitor? Think similar product in a different market or ease with which they could access a competing product

24. Current Products Advantage and disadvantages Rank based on severity of the threat Are your competitors doing anything that will result in new/improved products? Check patent applications Check local newspaper articles and relevant trade journals Google them US publicly traded companies – 10K’s What’s their past history of innovation?

25. Tell Me More About the Competition Market share Major customers Relationship with opinion leaders Sales Growth and distribution Distribution Methods and core partners Production capabilities

26. Financially Speaking Resources Costs Profitability Profit trend over the last 1, 3, and 5 years

27. Sales and Market Share Two methods available Top - Down Bottom – Up Top – Down Pro: Easy Cons: Prone to error and doesn’t account for your resource constraints Leads to another famous lie told by entrepreneurs Bottom – Up Pro: Produces more accurate and achievable targets Con: Time consuming and requires a better description of the target market

28. Show Your Assumptions Keep track of your resources How many customers can you realistically reach? Trends in the market How much of your growth comes from: Growth in the market? Acquiring customers? Repurchases VC’s love to see recurring revenue

29. Don’t Stop Describe how you’ll monitor the market Avoid being blindsided Competitive intelligence system

30. Market Structure Describe the competitive environment Pure competition or oligopolistic? Buyers - Identify the key players Market power they exert Trends impacting this structure Regulatory Technological changes Consolidation

31. Consider Number of buyers Sensitivity of demand Cost conditions Information gaps Avoid industries with these characteristics: Concentrated Perfectly competitive Mature or declining

32. Market Economics Gross and operating margins Profit potential and durability Discuss barriers to entry Technological and market lead time First Mover Advantage? Fixed, variable and semi-variable costs Benchmark to industry norms Months to break even Months to positive cash flow When will you run out of cash? Asset intensity

33. Who Has the Power? Supplier power How many are there? Do they supply actualotential competitors Payment terms and structure Distributors Terms for getting picked up Credit options Why use a distributor?

34. Regulatory Hurdles Regulatory bodies involved Markets involved Approval process Steps involved and documentation required Understand what can go wrong and prepare Role of consultants Time required for approval What’s the impact on your business if there’s a glitch?

35. Marketing Strategy What is your marketing philosophy? Who are your actual customers? Potential customers? What will you do innovatively? Where will you first introduce your lead product? Why? Will you face any seasonal trends? How can you use government contracts to provide cash flow?

36. Pricing What will you charge? Payback time for the customer? Compare your prices with the competition What’s your gross margin? Is this enough? What net will you end up with?

37. More on Pricing How will your proposed price: Help get your lead product accepted Maintain or increase your market share as competition comes on line Produce profits What’s the relationship between price, market share and profits?

38. Sales Tactics What method will you use? What margins will your pricing policy allow for the other members of the value chain? What are your expected sales per rep? dealer? Discuss a potential selling schedule

39. Advertising and Promotion How will customers know you exist? What are the key tradeshows and journals in your industry? How will you use these? Design a promotional schedule and budget Include expected outcomes of these activities

40. Distribution Describe your proposed channels Is shipping cost an issue? Do you face any special problems in distributing your product? Describe any international regulations you’ll have to address What does it take to ship food products into the US?

41. Management Team

42. The Basics Think of the team as interlocking bricks Lead entrepreneur Supporting team Board of Advisors (can be multiple) External experts – consultants and professionals Who are you? Where do you want to end up? Roles that need to be filled Velma Kelly in Chicago – “I Just Can’t Do It Alone”

43. Lead Entrepreneur Commitment and determination Leadership Opportunity obsession Tolerance of risk, ambiguity and uncertainty Creativity, self-reliance and adaptability Motivation to excel

44. Commitment and Determination Tenacious and decisive, able to recommit/commit quickly Intensely competitive in achieving goals Persistent in solving problems, disciplined Willing to undertake personal sacrifice Immersed

45. Leadership Self-starter; high standards but not a perfectionist Team builder and hero maker; inspires others Treats others as you want to be treated Shares the wealth Honest and reliable; builds trust; practices fairness Not a lone wolf Superior learner and teacher Patient and urgent

46. Opportunity Obsession Intimate knowledge of customers’ needs and wants Market driven Obsessed with value creation and enhancement

47. Tolerance of Risk Calculated risk taker Risk minimizer Risk sharer Manages paradoxes and contradictions Tolerates uncertainty and lack of structure Tolerates stress and conflict Able to resolve problems and integrate solutions

48. Creativity Non-conventional, open-minded, lateral thinker Restless with the status quo Able to adapt and change; creative problem solver Quick learner No fear of failure Able to conceptualize and “sweat details”

49. Motivation to Excel Goal and results oriented; high but realistic goals Drive to achieve and grow Low need for status and power Interpersonally supporting (versus competitive) Aware of strengths and weaknesses Has perspective and sense of humour

50. Lead Entrepreneur: Desirable Attributes Capacity to inspire Values Energy, health and emotional stability Creativity and innovativeness Intelligence

51. Avoid Being . . . Macho Perfectionist Impulsive Authoritarian Know it all Invulnerable Outer control Dependent on others

52. Management Competencies Administrative Law and taxes Marketing Operations/Production Finance

53. Administrative Problem solving Communications Planning Decision making Project management Negotiating Managing outside professionals Personnel administration

54. Law and Taxes Corporate and securities law Contract law IP laws Tax law Real estate law Bankruptcy law

55. Marketing Market research and evaluation Marketing planning Product pricing Sales management Direct selling Service management Distribution management Product management New product planning

56. Operations/Production Manufacturing management Inventory control Cost analysis and control Quality control Production scheduling and flow Purchasing Job evaluation

57. Finance Raising capital Managing cash flow Credit and collection management Public and private offerings Ability to read and prepare financial statements

58. The Team Cohesion Teamwork Integrity Commitment to the long haul Harvest mind-set Commitment to value creation Equal inequality Fairness Sharing of the harvest

59. Building a TeamBuilds Off the Lead Entrepreneur Relevant industry, market and technological know-how Contacts and networks Look for “A” team players People that will sacrifice and commit Risks and rewards Define roles

60. Rewards and Incentives Lead – you’ll have to give up some of the pie Rewards Differentiation Performance Flexibility Timing

61. Determining Value Idea Business plan preparation Commitment and risk Skills, experience, track record or contacts Responsibility

62. Board of Directors Fill some of the gaps still in existence Networks Experience raising cash Be objective and take your time Used as part of an investment package Define expectations and minimum requirements 9-10 days of time per year are required

63. Other Issues Technical board of directors Reviews your scientific progress Informal board of advisors Good place to look for potential board members Liability Harassment Beware unsophisticated investors and their expectations Time and risk You’ll need lots of director time and offer plenty of risk

64. Merchandise

65. Merchandise What is it? Discuss the key features and their importance How is it used? Primary and secondary uses What pain are you addressing? Where do you derive value? What differentiates you from the others? What’s the customer’s payback period?

66. Ups and Downs What are the downsides of your product? What is your current state of development? How long and how much will it take you to complete development? Do you have any type of technology lead? How long is it? What is your IP?

67. Development Status and Tasks What competencies or expertise is needed to finish development? List customer involvement in the product’s development What’s the greatest risk in your product development process? How will you lessen this risk? What will it cost if your product is delayed? Airbus 380 – a costly wiring problem

68. Proprietary Issues IP Contractual agreements giving you exclusive rights What happens if these disappear? Costs Business impact – Will you still have a business?

69. Operational Issues Operating cycle Lead/lag times impacting your business Seasonal variations Potential impact on revenues, costs, profits Is geography an issue in your business decision process?

70. Facilities and Equipment What do you need to produce your product? Purchase or lease Impact on profitability Is there a tipping point? Describe the production process Discuss how costs and inventory levels vary over different sales figures Quality issues

71. Money

72. Money - Requirements How much do you need? When do you need it? What’s it for? When will I get it back? How will I get it back?

73. Money - Reporting Cash Flow Timing issues Tie to your financial requirements Income Statement Balance Sheet Importance of industry norms Prepare under a variety of conditions Realize the investor has their own ideas

74. Valuation Know your comparables What value will produce the needed return to an investor? Typically looking for a minimum of 10X Portfolio management issue Use a couple of methods Free cash flow Multiple of sales or earnings Produce a range of values – back to comparables Be prepared to negotiate – value is in the eyes of the purchaser

75. Questions and Comments Robert WarrenI.H. Asper Executive Director for EntrepreneurshipStu Clark Centre for EntrepreneurshipUniversity of ManitobaWinnipeg, Manitoba, Canada R3P 1E3Robert_Warren@Umanitoba.ca