Slides for the autumn Business School 2014 - 2015

1. Establishing an effective
Business plan
More than just a checklist …
Matthijs Hammer
Senior lecturer Innovative Entrepreneurship
School of Business, Building & Technology
Research Center for Innovation & Entrepreneurship

2. Menu
• What is a business plan / venture plan?
• The three important questions
• The importance of a ‘Business model’
• Different formats
• Now it is your turn!

3. What is a Business plan?
“a plan for the business”
Nothing more or less from an entrepreneurial point of
view

4. The three important
questions
• What?
• Why?
• How?

5. What?
What, is it you want to do?
– Be as specific as possible.
– Indicate the added value.
– Brief description.
– Elevator pitch.
– Normal language, slang.

6. Why?
Why you going to do it?
• Is it needed?
• Inspiration.
• Higher (social) values.
• The your ultimate goal.
• The Why (Simon Sinek)
http://www.ted.com/talks/simon_sinek_how_great_leaders_ins
pire_action?language=nl

7. How?
• Make it plausible (feasibility, competitors,
legal)
• Show the mechanisms.
• What are your (unique) resources.
• With whom? (Stakeholders)
• Predict the future in a way of:
– Financial
– Material
– Market (development)

8. Different formats
• Chamber of Commerce
• Banks & accountants
• Saxion Center for Entrepreneurship
(Barry Koelman)
• Your own design
Take into account:
• Recognisability
• Verifiability
• Logic
• Existing knowledge

9. Different formats
Minimal requirements:
• What is it?
• Why is it needed / important?
• How it will made happen?
• Feature / design the future by:
– Models
– Calculations
– Scheme / draught
• Who is / are doing the action?

10. How it works?
• For whom the plan is written for?
• Which setting?
• What is your goal?
Every target / target group favour its own type of
plan.
Less is more, more less!
It starts with: the (brilliant / award winning) idea!

11. A business model
Chesbrough & Rosenbloom (2002, 532): The
business model provides a coherent framework
that takes technological chracteristics and
potentials as inputs, and converts them
through customers and markets into economic
outputs. The business model is thus conceived
as a focusing device that mediates between
technology development and economic value
creation.
Technical
Inputs
Economic
Outputs
Business
Model

12. Elements of a model

13. The Business model Canvas

14. Starting a business in
practice
Recognise
opportunity
Have an idea
Consideration
Planning?
Access & gain
resources
Business &
product
development
Social
connection
Survival?
Early trading
Launch

15. Principles of a succesfull
business
• Realistic planning
• Control over costs and cashflow
• Generating turnover
• Funding
And…
• A simple idea
• Teamwork to make it happen

16. Ingredients of effective
planning
• The plan is a projection, not reality
• Research: use real information not assumptions
• Set realistic targets for sales and production
• Teamwork – get everyone involved in planning
• Plans should be dynamic not static – markets and
other factors will change
• ‘Planning’ is more important than ‘having a plan’
• Always consider and plan for the downside

17. What is your business model?
• Who are your target customers?
• What value is created for them?
• Why will they buy the product from you?
• How is it superior to its competitors?
• How will you produce, market and distribute it?
• How and when will it generate cash and profits?
• What financial investment is required?
• Can you draw a simple diagram to show the process?

18. CUSTOMER GROUP
PROJECTED GROWTH
Sales
Year 2 =
Year 3 =
BUSINESS MODEL
SALES INCOME
Total income=
VARIABLE COSTS
Variable costs per customer =
Total variable costs =
FIXED COSTS
Finance costs
Premises, facilities, insurance
Salaries
Other fixed costs
Total fixed costs =
CUSTOMER BENEFITS
Gross profit margin:
Net profit margin:
Breakeven sales:
Total costs:
Gross profit:
Net profit before tax:

19. A simple business model
(Example of Busmode Ltd)
PROJECTED GROWTH
Gain 300 customers/year in
years 2-3
Lose 25% past customers/year
Increase charges 5%/year
Sales
Year 2 = £425000
Year 3 = £634000
CUSTOMER BENEFITS
200 x improved communications
systems
100 x start e-business
100 x managed CRM system
100 x time saved within businesses
Gross profit margin: 83%
Net profit margin: 32%
Breakeven sales: £110844
CUSTOMER GROUP
Micro-small businesses buy
integrated
web/e-business/comms/CRM service
They pay £50 month flat fee + traffic
charges on 1 year contract
BUSMODE LTD
SALES INCOME
200 customers in year 1
£50 month each = £120,000
+ £25 month average traffic = £60,000
Total income= £180,000
VARIABLE COSTS
Marketing costs £100 to attract each
customer = £20,000
Variable costs £50 per customer = £10,000
Total variable costs = £30,000
FIXED COSTS
Repayment on £100,000 financing of IT
system = £28,000
Premises, facilities, insurance = £24,000
Salaries (2 people) = £40,000
Total fixed costs = £92,000
Total costs: £122,000
Gross profit: £150,000
Net profit before tax: £58,000

20. Is the business a sound
investment proposition?
• Growth potential?
• Perceived risk?
• Return on investment: profit stream?
• Competition and differentiation?
• Breakeven
• Timescale
• Potential exit routes
• The people – capability and incentives

21. The growth business plan:
typical contents
• Summary of the business proposition
• Vision, goals and targets
• Market opportunity: research, analysis and plan
• Product/service concept
• Business model or process
• SWOT analysis in relation to competitors and
differentiation from them
• People: who will run the business, track records
• How the business will operate: capabilities, resources,
people, processes
• Financials: investment and working capital requirements,
breakeven, pricing, gross and net margins, cashflow,
return on investment

22. Vision
• What do you want to achieve?
• what business are you in ?
• How do you see the business in 2–5 years’ time?
• What is the purpose of the business?
• What are the values? Start with yours.
• Is it memorable and inspirational?
• Can it be understood by everyone in the business?
• Dreams need numbers to make them into business
goals

23. Opportunity
• What are the most attractive opportunities for the
business?
• Current market opportunities – exist now
• Future opportunities – need to create
• Why are they attractive for the business?
• What is the business model?
• What factors drive profitability?
• What investments are needed?
• What are the projected returns?

24. SWOT analysis:
risk and advantage
A look from the inside and the outside in relation to the
competition:
– How is the business stronger?
– Where is the business weaker?
– What opportunities can you exploit?
– What threats can you identify?

25. Risk factors
• Market risk: customer demand, volatility, competitor
action
• Technical risk: performance, production capacity and
responsiveness to demand
• Financial risk: investment, cost control, increase or
reduction over time

26. Marketing and sales plan
• Your SWOT compared to competitors
• Success factors and buying triggers
• Current and future clients – groups or segments
• Market matrix
• Products and services in relation to client groups
• Pricing (incentives etc)
• Place (route to market, delivery, distribution)
• Promotion and selling (How you will reach and retain
clients)
• Marketing budget and action plan
• Sales targets

27. Operations plan
• Products and services to be provided
• Sales order and key processes/systems
• Maximising use of capacity
• Continuous improvement – eg:
– Quality, customer service
– Efficiency – use of resources, time reductions
– Effectiveness of processes, ‘make or buy’
– Economy – cost savings
– Use of information, measurement

28. Project plan
Activity 1 2 3 4 5 6 7 8 9 10
Customer research
Competitor research
Analysis
Planning
Product development
Suppliers & logistics
Design promotionals
Production
Sales campaign
Launch
Sales
Review
Launching a new product or service

29. People plan
• Leadership
• Team roles, areas for development
• Organisation – structure, responsibilities
• Capabilities and knowledge needed in the business
• How to develop or acquire these?
– Plan to develop existing staff
– Recruitment plan
– Motivation and rewards

30. Financial plan
• Business model
• Financial objectives, years 1, 2  5?
• Cash flow forecasts
• Profit and loss (P&L) forecasts
• Funding requirements:
– Capital expenditure, acquisition
– Working capital
– Sources of funding, return on investment
• Assumptions
– Break-even analysis, pricing
– Risks
• Balance sheet
See ‘Financial Planner’ toolkit on page 264 of Entrepreneurship: from
opportunity to action

31. Pricing - the three ‘Cs’
• Cost: lower limit, full cost or marginal?
• Customers: upper limit, how high will (or can) they go?
• Competitors: how good are they? How do you
compare? (This determines how high you can go and
your price position in the market)

32. Key questions in ‘pitching’
the plan to sell the idea
• Who is the plan written for?
• What do you aim to achieve from presenting the plan?
• What are you prepared to exchange to gain what you
need?
• What are the listeners’ needs and expectations? (e.g. are
they looking for investment or lending opportunities,
technology or distribution partnerships?)
• Do you know your audience – what is their investment
history, in which types of ventures? What are their
investment objectives or lending criteria?
• How can you fine-tune your presentation of the plan to
meet their needs?
• How can you reassure them of your credibility
and capability of making it happen?

33. Characteristics of an effective
venture plan
Twelve features of an effective venture plan:
1. Demonstrates a clear opportunity which has not yet been exploited
2. Displays strong customer attraction and differentiation from
competitors
3. Shows significant, quantified growth potential in identified markets
4. Demonstrates a credible strategy and plan to exploit the
opportunity
5. Deploys innovation which can be shown to work effectively
6. Has unique aspects which can be prevented from copying (control
of IPR [Intellectual Property Rights])
7. Success factors with risks identified and minimised
8. Investment required is shown with realistic return on investment
9. Timescale to breakeven and anticipated profit stream are realistic
10. Financial planning is accurately costed and realistic
11. Potential exit routes and timescales for investors are shown
12. The venture team demonstrate capability and motivation