Business plan and startups

1. The business plan and start-ups
(I PART)
http://www.startupmedlab.it
Prof. Domenico Nicolò
Università Mediterranea di Reggio Calabria
domenico.nicolo@unirc.it
a special thanks to Michael Marinovic for reviewing the translation

2. The business plan and start-ups
(I PART)
http://www.startupmedlab.it
Prof. Domenico Nicolò
Università Mediterranea di Reggio Calabria
domenico.nicolo@unirc.it
a special thanks to Michael Marinovic for reviewing the translation

3. The role of the business plan
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The business plan does not reveal the future. But it helps to critically
analyze the business idea:
 Testing the vulnerability of the financial plan
 Evaluating the internal coherence of the plan
 High lighting errors (e.g over-sizing or under-sizing of production /
distribution capacity, organization staff, debt, etc.)
Using this criteria for analysis: either redefine the business plan or throw it
away
Prof. Domenico Nicolò
2

4. Some essential elements of the business plan. (1/3)

The Executive Summary
 A common circumstance : the executive summary is the only element of
the business plan examined by investors.
 If you have the ability to synthetically describe the business model and
the key elements of the plan it means you have clearly focused the
business model (this is also a positive signal for investors, which often
examine only the executive summary)
 It is necessary to briefly describe:
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Business idea (what)
Mission and the strategic objectives (why)
Fundamental principles of organization and management (how)
The sector (or sectors) the company will operate in and market segments
the company will offer the products/services (where)
Profitability of the business and the reasons it can achieve that
profitability.
Funding (equity and loans) that you needed to start/grow your business
Prof. Domenico Nicolò
3

5. Some essential elements of the business plan (2/3)

Product / service or Offer
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Target market
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What are key features of your offer?
Why is it better; what is better; how is it better than product/service offered
by the competition?
What segments of the market does your offer address or depend upon?
What is the growth rate of this market and your market share target?
What are the drivers of growth and average profits in this target market?
The plan to achieve the market target
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What are the key factors, graded by importance, by which customers choose
your products over those of your competitors?
What are the reasons why you will achieve these objectives in market share?
How many years (months) do you believe will be needed to achieve the
objectives of market share?
What is the source of your competitive advantage?
How do you plan to defend your competitive advantage?
It is important to document the assumptions and estimates by specific market
surveys. These are carried out to test the popularity with potential customers.
Prof. Domenico Nicolò
4

6. Some essential elements of the business plan (3/3)

Management team
 Short biography of the team (entrepreneurial experience,
academic degrees, master's, and anything that can make you
appear successful. So even sports awards)

Financial and economics plan
 Investors MUST know:

Duration of when the company will recover the resources
invested.
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Profits produced by the company and reliable evidence for
profit.

The key factor in drawing up the plan, on the basis of credible
and documented assumptions.
 Sensitivity Analysis (what ... if): it is important to point out in
the strategic plan also volatility coefficients (vulnerability) of the
expected results at different prices, sales and variable costs
Prof. Domenico Nicolò
5

7. The reputation as a strategic resource of startups
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Acquisition strategies of resources (human, social, physical and organizational) are
critical to the success or failure of business creation (Chandler-Hanks, 94)
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Businesses attract resources on the basis of ability to provide rewards
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Start-ups generally can not attract the necessary resources on the basis of the results
achieved (value created). The problem can not be overcome by reference to analogies
with similar businesses, because of the innovativeness of their project

Start-ups can only rely on their reputation, which is the judgment of having the social
partners. In particular partners providing a contribution to realize the business idea.

The reputation is an effect and, at the same time, a cause of the creation of value.
Improved reputation reduces the risk perceived by the social partners and, in this
way, the cost and time necessary to attract the resources
Prof. Domenico Nicolò
6

8. Some fundamental determinants of reputation
Products
Team
Services
Human
resources
Distribution
and supply
Awards
Ability
Ability
Rating of
customers.
Skills
Skills
Strategic
alliances
experience
experience
Networks
…
…
…
…
Success of pilot …
experiments
and prototype …
Equity
Loans
Stakeholdelrs
Loans from
Private equity
(Venture
Capital e
Business
Angels)
- banks
- family
- friends
…
Crowdfunding
…
…
…
Prof. Domenico Nicolò
7

9. To create a business is not enough. To have a good
business idea ...
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companies also need:
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Technical and managerial skills
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Financial and material resources
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commitment to implement the business plan quickly, while
performing the activities necessary promptly
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The program of activities or Plan of Action
Prof. Domenico Nicolò
8

10. Uniqueness and individuality of the development
process (1/2)
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The circumstances, situations and phenomena involved in the development
process, both positively and negatively, are numerous and varied in nature
Effects vary while all other conditions are equal. Also in relation to the work
breakdown structure there is variability/changes to take into account and
not ignore
Each development process involving numerous variables of various kinds
that can combine them in new ways making it almost "unique genetic and
functional reality of any business" (Buttà 03, 72)
"By varying factors, their characters and the different combinations with
which to intervene in the process of generation, significantly alters the
genetic, functional and organizational structure of the new entity." (Buttà 03,
72)
Consequently you can not predict the results of the development process,
especially if it is a very innovative start-ups
Prof. Domenico Nicolò
9

11. Uniqueness and individuality of the development
process (2/2)

It is useful to define:
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Theoretical models of the process of business development are useful
to distinguish workflow process from risk development. This is in
order to prevent the carrying out of activities that may cause waste of
time and money
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Establish principles/directives to be followed while undertaking the
principal activity of business development. This is in order to
increase the chances of designing a healthy and well-functioning
company
Prof. Domenico Nicolò
10

12. Innovation and uncertainty causing the
vulnerability of startups
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With reference to startups: estimating the market demand is very uncertain
if the startups are based on the highly innovative products/services

Since the product/service is new, the time needed to gain the market share
goals are generally much longer than companies operating in traditional
sectors. The initial capital, consequently may be exhausted before the
company is able to reach the break-even
Prof. Domenico Nicolò
11

13. Determinants for the high vulnerability of startups (1/2)
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Lack of entrepreneurial skills and abilities
Lack of managerial skills and abilities
Inability to deal with the constraints imposed by regulations
Lacking knowledge of the market: many startups start the activity too
quickly without making an adequate preliminary study of the market. Often
they are not well understood nor market demand nor the capacity to meet
demand. This is because many of them think that a fast start is in itself a
guarantee of success (impatience)
Inadequate approach to the market: startups very often do not take
advantage of market experts:
 This problem is particularly serious because in the marketing of digital
services fails even specialists
 Often do not capture market opportunities
Prof. Domenico Nicolò
12

14. Determinants for the high vulnerability of startups (2/2)
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Inadequate planning in order to anticipate the solution of the problems
that may arise. Risk Management and Project management, in general,
plays a vital role in improving stability
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Very often business plans are lacking in the section on economic and
financial simulations: they are only concept-plan, rather than real
business plan
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Overemphasis on the product/service, since they are often scientists, not
businessmen, and they consider the most important technology of the
business on the basis of the assumption: "a good product sells itself"
Producing a product/service which is technically sophisticated that
meets the needs of a few professional users, while neglecting the needs
of the mass of consumers which requires instead the ease of use of
products/services

Prof. Domenico Nicolò
13

15. Michael E. Porter (1/3)
Strategy and the internet HBR march 2001
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“Many have argued that the Internet renders strategy obsolete. In reality the opposite
is true. Because the Internet tends to weaken industry profitability without providing
proprietary operational advantages, it is more important than ever for companies
distinguish themselves through strategy. The winners will be those that view the
Internet as a complement to, not a cannibal of, traditional ways of competing”
The Internet-based startups tend to destroy the attractiveness of the sectors in which
they enter
By altering the structure of the sectors they destroy the profitability and the ability of
companies to achieve a sustainable competitive advantage
They tend to move the competition from quality and customer service for the price,
making it harder for everyone to get profits. They tend to gain market share by selling
at prices that do not reflect real costs. If prices are artificially low, demand become
artificially high
This has reduced the barriers to making the business attractive artificially
The result was a fall in investment in the creation of value for the customer
Prof. Domenico Nicolò
14

16. Michael E. Porter (2/3)
Strategy and the internet HBR march 2001
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They tend to leave important technological advantages creating partnerships and
outsourcing relationships
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Some revenues are represented by shares in the capital of other companies, and as
such, are subject to fluctuations
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They are guided by market signals, which can be distorted

Even on the cost side there is often a distortion. The suppliers, lured by the prospect
of achieving partnership with a dot -com, tend to provide products and services at
heavily discounted prices. Many accept shareholdings and stock options as a form of
payment

The capital markets have helped to alter reality overestimating the growth capacity
of the dot-com: investor enthusiasm often turns them away from reality. Investors
have emphasized the importance of revenues, the number of visitors and clicks
approval ratings to sites and other ephemeral performance indicators in place of the
fundamentals
Prof. Domenico Nicolò
15

17. Michael E. Porter (3/3)
Strategy and the internet HBR march 2001
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“The Internet per se will rarely be a competitive advantage. Many of the companies
that succeed will be the ones that use the Internet as a complement to traditional
ways of competing, not those that set their Internet initiatives apart from their
established operations”
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The Internet is a tool, not an industry. It is a powerful tool that all businesses in any
industry should use, but it is not correct to speak of the internet as an e-business
strategy
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Startuppers should always give due consideration to the traditional performance
indicators and the creation of economic value, resisting the temptation to replace
them with parameters illusory

The ability to create real value for the customer is always the indicator of long-term
success
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The drivers of profitability are:

the structure of the industry

sustainable competitive advantage
Prof. Domenico Nicolò
16

18. business plan
(3 years)
budget
(annual)
budget
(annual)
budget
(annual)
interim budget
(monthlyquarterly)
Articulation of time.
Temporal segmentation
Prof. Domenico Nicolò
17

19. Strategic Business
Unit
Responsibility
Centers
- operating segments
- geographical areas
Activities
Cross-funtional processess
“Spatial” segmentation.
Articulation of Space.
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20. business plan
(3 years)
Strategic
Business
Unit
Responsibility
Centers
Activities
Cross-funtional
processess
budget
(annual)
budget
(annual)
budget
(annual)
interim budget
(monthlyquarterly)
“Time-Space” segmentation
Prof. Domenico Nicolò
19

21. business plan
(3 years)
budget
(annual)
budget
(annual)
budget
(annual)
interim budget
(monthlyquarterly)
Firm
Infrastructure,
Human
Resource
Management,
Tecnology
Development,
Procurement
Sales
budget
Inbound logistics
Operations
Prof. Domenico Nicolò
Outbound
Logistics
Marketing &
Sales
After-sales
Service
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