How to prepare an effective business plan

TiE AhmedabadSept. 25, 2010

Agenda• Introductions – What do you want out of this?• Why, When to write a business plan?• The Market Need• Market Size• Competition• Your USP• Go-to-market • Value Systems• Building the team• Financial planning• Fund Raising• Executive Summary

Why write a Business Plan

• To discuss, debate, argue, challenge your thought process

• Convince yourself and others it will be a long term sustainable, differentiated and profitable venture

Determining the Market Need

• What problem are you trying to solve• Objectively think about who will buy your

service product– Is there problem really unsolved, perception?– Why did they not find/have a solution

• Will they buy• Why will they spend• What are the alternatives (competition)

How to determine market need

• Interview as many relevant people as you can– Surveys, etc.

• Prepare questions you want to ask– Targeted, specific, not open ended

• What do you think about setting up an ice-cream parlor business in the hot city of Ahmedabad? vs.

• Why would you buy from a particular ice-cream parlor and how many times have you bought in the last 6 months

• What have you bought, average spend?• Get insights into people’s buying patterns, spend threshold

Determine Market Size

• Total available market• Likely to buy market size– Got to go after it if wildly successful

• Your estimated share (geography, value proposition, brand, awareness, etc.)

• Spend per purchasing unit (customer, company, etc.)

• Go online, research publications– Read, think, validate all third party data

Competition

• The most under estimated factor in a business• “I am not aware of anyone with the exact similar

idea”… – But a lot of them are quite close!

• Think Local, National, International competition• Study/Estimate their financials, reasons for success,

more importantly their failures• Competition websites, brochures, advertising– Pay attention, they say a lot– Most times, we are too busy with our own problems

Your USP

• “Have one thing in your service that you can claim is the best in the world, either it is the best quality, most widely available, best price, anything but one thing that you believe is the best in the world”– In-person discussion with Mr. Narayana Murthy

after the IIM-A convocation in Ahmedabad, 2001

Articulate the USP

• Market Assessment and Need• Why ‘your’ product/service will be ‘needed’• What do you provide that is– Different– Innovative– That can stand the test of time– Based on real feedback/interviews

• Remove emotion, ask yourself whether it is emotion or reasoning!

Go-to-market• Clearly communicate who you are (USP)

– Naturals Ice-cream - fresh ingredients, no preservatives (no discussion of price, locations, variety)

• How will you reach your end customer in all the clutter– Small pilot, word-of-mouth– Investment in sales and marketing– Partners or direct

• 4 Ps of marketing– Product (features, specifications, look, feel)– Pricing (wholesale, retail, partners)– Promotion (media, trade shows, public events, etc.)– Place (channels, direct, etc.)

Constantly Measure Success

• Well defined goals (timeline in financial plan)• Actual vs. budget• Objective satisfaction surveys (informal,

formal) are key

Value Systems

• Your business is an extension of yourself• Certain ground rules of acceptable and more

importantly non-acceptable behavior• Define your Vision Statement about the company• Mission statement on how you will deliver the

vision• Define your company’s value system– Glue that ties everything together

Building the Team• Identify people with similar values

– Every business will run into problems– Adversity reveals character, does not build it– Right people on the bus (Good to Great)

• Assimilate varying skill sets– Technical, Marketing, Sales, Finance, General Mgmt.

• Demarcate roles and responsibilities clearly• Then argue, discuss, debate, challenge

– Against issues, not individual• If someone does not work out, do not prolong the agony

– Give it enough time though and be objective throughout• Remember, we all make mistakes

Financial Planning

• “There is hardly any plan I have seen which has had more revenues and less expenses than in the plan (45 years on Wall Street)– Rohit Desai, Chairman, Desai Capital Mgmt. Inc.

Financial Planning• Think through every possible reason why a revenue would not

happen and discard it!• Think through every possible spend and more and include it!• Include the registration cost of this workshop and petrol spend

(format provided)• Ask friends on what you have missed out, include cost of treating

them for lunch for their inputs in preparing the business plan• No revenue or cost is insignificant• For financial planning, the God is in the detail• Get yourself audited by an independent third party auditor

(uncle or father’s friend not recommended)

Cost of Sales and Expenses - Sample• Total resources required • Total Revenue • Payroll Cost• Agents• Team leaders, Supervisors, Managers, Directors• Overtime• QA• Staff Welfare Expenses• Rentals • Electricity expenses• Connectivity Charges • Cost of Sales • Gross Margin % to Sales • Site G & A • Corp G & A • Corp Sales & Marketing• Location Sales & Marketing• EBIDTA % to Sales • Depreciation• Net Income % to Sales

Travel Expenses - Sample• Separate for domestic and international• Location• Name the location• Visit per month to different places - planned Can be replicated for as many

trips • Cost of Travel (Specify Mode) Air / Taxi • Accommodation Days • Accommodation Rate per day• Other per day Cost (per diem)• No. of Travel Days/Month (estimate)• Local Conv. Calculation - TAXI km per day X $ .. y no. of Days or any other

basis • Total Traveling expenses

Fund Raising

• “Raise money like a king, spend like a pauper”– Wilfe Corrigan, Founder & CEO, LSI Logic

VC Perspective

• Do they invest by the business plan?• First – “Do I trust this entrepreneur”?• Second – “Are the macro conditions right”?• Third – “Evaluate the number crunchers

outcome” (business plan)

What do VCs Require• Initial document

– No more than 10 – 12 slides with an executive summary– Will not read more– Elevator pitch

• “If you can’t arouse my interest in 2-3 minutes, most likely, I will not read your bulky document”

– Clearly state risk• Be ready with unexpected twist of events/developments in the company’s

timeline• Plan for that• Articulate that in the plan

– Most likely they have heard about it, they see hundreds in a year and fund a few

Equity Distribution

• Do not waste much time negotiating equity with VCs

• Focus on raising the right amount– Always helps to have some for contingency

• Set aside some for current and future employees

• Focus on owning a small portion of a big pie rather than a large portion of a small pie!

Executive Summary

• One page and absolutely no more• Most all VCs will not read past the executive

summary• Has to capture the imagination and convince

this will make money• Comes first in the plan, but is written last

Executive Summary

• Business Idea and market need• Competitive scenario• USP (Sustainable, differentiated and profitable)• Team behind the venture• Value systems you will put in place• Financials• Key Risks and Mitigation• Your passion to make it successful!

Remember

• If everyone loves it, maybe it is too common• If a lot of people doubt it, there is a chance!• Entrepreneurs have to have some element of

eccentricity and extremely strong self-belief and optimism to be successful– Kaushal Mehta

Go make it happen!

• Entrepreneurship is a wonderful and most fulfilling experience/journey

• No one every losses• You only win – experience and/or money• Carpe diem! – Seize the moment, seize the opportunity– Go make it happen!

Thank you!