1January, 2007

Business Plan to LaunchHow Strategically Planning your Business is

good preparation for the Business Plan Competition

Karen ThorntonDirector, Hillman Entrepreneurs

Associate Director, MTECH Ventures

2January, 2007

Balance is ImportantRemember your Audience

• Technical

• Market

• Business

3January, 2007

Technical

• technical concept analysis ---– Define the concept fully – Demonstrate that performance assumptions are

viable – Assess critical barriers to production – Survey the state-of-the-art of the technology – Estimate the costs. From the one-time R&D to the

recurring production costs- and everything in between for the stages of prototyping

4January, 2007

Market• Demonstrate the product’s uniqueness and

sustainable in a competitive marketplace.– Identify three unique features or benefits of the

product – Identify the competition – Establish customer requirements for the product – Identify potential market barriers – Identify market distribution channels – Identify product pricing criteria

5January, 2007

Market Research• Demonstrate that there is market justification for the

product.– Describe the market environment – Identify economic and industry trends – Quantify the size of the market – Identify the market segments – Analyze market segment size, growth rate, competitive

environment – Analyze business capabilities for market share, competitive

position, product capabilities, resource capabilities

6January, 2007

Market Strategy

• What the market approach will be– Define competitive advantage of the enterprise

and the product – Define marketing objectives (product, markets,

image, service levels, business results, market share and sales levels)

– Select target markets – Identify target market niche – Select product features – Select price

7January, 2007

Market Sales Approach• Obtain a quantitative and qualitative market response

to the product by analyzing limited sales performance and a qualitative analysis of customer response.– Conduct limited product sales or get endorsements from

potential customers– Quantify the volume, rate, and demographics of sales – Design and implement a customer survey – Analyze customer feedback (price, design, function,

packaging, delivery) – Transmit design modifications to technicians

8January, 2007

Business Model

• Venture Assessment - Define business model and demonstrate that the concept will generate a profit; that you are capable of taking the product to market.– Identify financial, physical, and human resources

required for commercialization – Identify the status of intellectual property requirements – Establish a positive profit potential

9January, 2007

Business – Economic feasibility• Develop a financial model based on integration of the

technical product information and the market study into one or more break-even financial models.– Develop financial scenarios– break-even analysis based upon unit prices, volume of

sales, and costs – Determine whether the business opportunity presents

sufficient profit margins to justify a business venture– Assess the merits of licensing the opportunity compared to

venturing

10January, 2007

Business – Strategic Planning

• Develop a complete business plan.– Finalize intellectual property requirements – Finalize business organization structure – Select a board of directors (or advisory team) – Finalize agreements on any concurrent break-

through technology requirements critical to commercialization

– Develop a formal financial plan that includes the strategy and timing of present and future funding rounds

11January, 2007

Major Causes of Product Failure

• Inadequate market analysis 24%• Product problems or defects 16• Lack of effective marketing effort 14• Higher costs than anticipated 10• Competitive strength or reaction 9• Poor timing of introduction 8• Technical or production problems 6• All other causes 13

12January, 2007

What the Judges Look For

• Value proposition • Competitive advantages • Does the idea make sense • Do the revenue and profit model make sense • Who are the first customers?• What are the switching costs? • Is there protectable intellectual property? • Time to market and pay-off • Will the business be around in five years? • Is the executive summary clear and well-written?

13January, 2007

What VCs Look For

• Scalability

• High Sales Growth over Short time frame

• Look at 3 year’s earnings where Margins Improve

• Plan for Efficiently using Capital

• Strong Management Team

14January, 2007

Idea to Market

Google Internet CD’s Answering Machines

Color

TV

Radio

3 years

$100M

Revenues

3 Years

90M

Users

10 Years

64%

Market

10 Years

15% Market

10 Years 3%

Market

30 Years 60M Users

15January, 2007

Finding a Good Idea

• Is it differentiated in some way from existing competitors?

• Entrepreneurs figure out how to offer products and services faster, cheaper, in better quality, in unique combinations, creating a better known brand name, etc.

16January, 2007

Technologies of the Future

• Nanotechnology & MEMS (micro-electro-mechanical devices) (Medical advances, airbags and other automotive needs)

• Security software/hardware (9/11 and terrorism)• Wireless applications (LAN and WAN)• Cheaper, faster LAN technology (fatter pipes)• Network management software/apps• Storage of data, video, audio• Be a Visionary - Create your own technology

roadmap for the home, wireless consumer, office, etc. Where are there voids?

17January, 2007

Innovation in the “Old Economy”• Look at every link in the supply chain. Where can you

innovate? – (Henry Ford’s assembly line)– Supplies/components/labor – Storage/distribution/transportation (GPS on trucks,

RFID on inventory)– Sales/marketing/brand name (creative or innovative

packaging - toothpaste containers, soap containers )– Customer service (Disney, Marriott, Nordstrom's)– Market analysis: timing of new products/ services and

geographic expansion

18January, 2007

Ways to Differentiate

• How do YOU choose what you buy? Why are you a loyal customer? Differentiation:– Price– Service– Brand name

• Look at markets you know well; how can you offer a better solution for a lower price?

• Many big competitors ignore small, niche markets instead seeking “scalable” markets. (That niche can become your opportunity.)

19January, 2007

So you Have an Idea- How to build a Business

• Business is based on Customers

• Strategic Marketing focuses on the satisfaction of customer needs, wants and requirements;

• Customers will buy what they want even when they don’t buy what they need.

• Your job is to determine what those “wants” are

20January, 2007

Market Research Puzzle• Need Market Research for

your Business Plan

• Market research is a puzzle. Determine who is the customer, what they want, when they’ll buy, how much they’ll buy, and what they’ll pay to determine if viable demand exists.

• Draw conclusions only when the puzzle is completed!

Wh

o? What?

How much?

Pay what?

When?

21January, 2007

Is there a customer?

• Find out if there is a customer …and who it is. • Think “outside the box.”• Customers can be created where there were no customers

before– ---through creating demand where there was none (Starbucks and new

coffee drinkers) – through innovation (new product or service- or other innovation)

• An Entrepreneur Looks for New Opportunities–– bottled water– Pre- 1968 -- Elite product- bottled Perrier (founded in 1863) – Today - bottled water appears in everyone’s home– Why?

22January, 2007

What do the customers need?

• Looking at your target customer- what do they want or need? (May not be the same as what you perceive they need… Classic Coke?)– Price v. performance– Aesthetics v. features

• An Entrepreneurs asks, “What’s causing them pain?”

23January, 2007

How do you Find Out?

• GO ASK --Surveys, focus groups, and interviews.

• Analyze comparable (existing or proposed) products/services to determine shortcomings.

• Some needs are consistent in every market (faster, better, cheaper…the entrepreneur's mantra):

24January, 2007

When will customers purchase?• So, you know WHO the customer is and WHAT

they want, but WHEN will they buy?• A customer will buy an innovative product once

its value proposition exceeds the value proposition of existing product– New cell phone features– Want it NOW even though

current phone they have works perfectly well

– desktops to laptops – next move - laptops to tablet PCs – what after that – hand-held computers with power of desktop?

25January, 2007

Published market research

• Often cited in trade publications, newspapers, and magazines.

• Look for trends – try to be ahead of the trend– visionary…..

• First to market – but not too soon.

(Apple’s Newton – 1980’s)

26January, 2007

What volume will customers purchase?

• Calculating potential Market Share– If your product is truly differentiated, it will

replace an existing product over time (14.4 modems – eventually replaced by 28.8 .. And so on with advances in modem speeds. DVDs replaced VHS… which replaced Betamax)

• If you create a new market altogether, estimated volume is more difficult, though possible. (iPod)

27January, 2007

What will customers pay?

• Determining pricing is critical for planning a business and evaluating feasibility.

• Three ways to determine pricing:– Comparables– Ask the customer– Bottoms-up/ROI method (Return On

Investment)

• When interviewing or surveying, ask what price they pay now and price they would pay.

28January, 2007

What other factors impact demand? • The economy impacts

everyone.• Financial health of customer

sector. • Unexpected roadblocks

(macro-economic forces)

– Big SUVs- gas prices

– Real estate- Interest rates

29January, 2007

Competitive analysis – For Your Business Plan

30January, 2007

Competitive analysis

• Demand (knowing there is a Customer) is only half the picture; can you achieve competitive differentiation needed to capture those customers?

• Identify and segment the competitors• Analyzing competitors

31January, 2007

Opportunity Analysis

Internal Analysis

(Company)

External Analysis

(Competition, customers)

Strengths Weaknesses Opportunities Threats

Company’s ability to CAPITALIZE on Opportunity

(Product/Company Fit)

Attractiveness of Opportunity

(Product/Market Fit)

STRATEGIC WINDOW

32January, 2007

Organize the information

• Use a matrix to analyze competitors.

Firm Tech. Descript.

Marketing/sales

Mgmt. team

Financial resources

Overall assess.

Competitor 1

Competitor 2

Competitor 3

Competitor 4

33January, 2007

Determining direct costs• To estimate direct costs:

– Build from the bottom-up; estimate every component needed, labor required, and obtain costs through interviews and web searching.

– Analyze comparable product costs, if available.

• If it costs more to make it than to sell it, you don’t have a business. Look for something else.– Software margins avg. 60%, high upfront R&D.– Services margins avg. 50%, hard to retain customers– Engineered products margins vary, 20%-80%!– Very low margins- (single digits) groceries, computers,

airlines

34January, 2007

Add the puzzle pieces

• Should you launch this business?

• Does viable demand exist? • Can you be different than

competitors?• Will your products/services

make money?

Wh

o?

What?

How much?

Pay what?

When?

35January, 2007

The PLAN

36January, 2007

• Problem – Big and painful

• Solution – Clear and unique

• Unfair Advantages – Team , go-to-market, distribution, IP, etc.

• Competition – Buyer’s options

• Financials – Needs, funds use, risk vs. return

P.S.U.C.F.

37January, 2007

Problem

• How many buyers?• How painful is it to the market?• How is the problem dealt with today?

38January, 2007

Solution

• Basics of your solution• Basic unique advantage• Define the scale of the advantage

39January, 2007

Unfair Advantages

• Legal and ethical but “UNFAIR”!!• Think creatively here:

– Intellectual property?

– Unique processes?

– Unique position?

– Unique relationships?

– Unique distribution or go-to-market advantage?

– Unique advantage in operations?

– Sustainable price point advantage?

40January, 2007

Competition

• How else can prospective buyers fix problems or find satisfaction?

– Your competitor's solution?

– Build it in-house?

– Wait? Status Quo?

– Pretend it does not exist?

– Deflect problem to a supplier etc?

– Ask their present solutions provider to adapt a “temporary” solution?

Competition is ANYTHING that hinders sales !!!

41January, 2007

Financials

• Money you need to succeed• Planned use of funds• Major milestones• High level 3-5 year financial projections• Possible “exit” scenarios and returns

Why would an investor care to invest?

42January, 2007

Elevator Pitch

• Up to 1 minute verbal ‘sales’ pitch describing your concept and why someone should pay attention to you

• Use visual imagery and analogy to “paint pictures”, gain immediate understanding, and generate excitement

• Keep it simple; avoid unnecessary details• Write it down, revise, and practice until you have it

“right”. Then do it again!

40,000 Feet…

43January, 2007

• Typically 10 to 12 slides – 20 minutes worth• Exciting visual demonstration of PSUCF• Show important elements of the business plan• Use case examples or testimonials instead of dry

theory• Have more detailed Q&A slides ready • Practice delivery• Be passionate!

Investor Presentation

10,000 Feet…

44January, 2007

• Typically 10 to 15 pages• Details exactly how the company will materialize• Explains the market size and the competitive

environment with supporting evidence• Describes why your team is the right team to

capitalize on this opportunity• Serves as an “owner’s manual” for the company

Business Plan

1,000 Feet…

45January, 2007

The Business Plan

46January, 2007

How to Write a Great Business Plan

47January, 2007

How to Write a Great Business Plan

48January, 2007

Why write a business plan?

• Writing forces the person (team) preparing the plan to look at the business in an objective and critical manner

• Helps to focus ideas and serves as a feasibility study of the business’s chances for success and growth

• Finished plan serves as an operational tool to define the company’s present status and future possibilities

• Helps manage the business and prepare for success• Serves as a strong communication tool for the business

– Defines your purpose, your competition, your management and personnel

• Provides the basis for your financing proposal

49January, 2007

What is a “business plan”?

• The plan for the creation and management of the business.

• With special attention to:– Marketing plan describing match of strategy and

products to current and future markets– Operations plan discussing processes– Financial plan assessing all costs and financial

requirements

50January, 2007

Four Interdependent Success Factors

People

Opportunity Context

Risk & Reward

How to Write a Great Business Plan

51January, 2007

Who are these people, anyway?• Where are the founder from?• Where have they been educated?• Where have they worked?• What have they accomplished?• What is their reputation?• What is their directly relevant

experience?• What skills, abilities, and

knowledge do they have?• How realistic are they about

their venture’s risks and rewards?

How to Write a Great Business Plan

• Who else needs to be on their team?

• Are they prepared to recruit high-quality people?

• How will they respond to adversity?

• Do they have the ability to make hard decisions?

• How committed are they to this venture?

• What are their motivations?

52January, 2007

The opportunity of a lifetime?

• Who is the new venture’s customer?• How does the customer make decisions about buying

this product or service?• To what degree is the product or service a compelling

purchase for the customer?• How much does it cost (in time and resources) to

acquire a customer?• How much does it cost to produce and deliver the

product or service?• How much does it cost to support a customer?• How easy is it to retain a customer?

How to Write a Great Business Plan

53January, 2007

Advantages of great business plans

• Yardstick to measure performance

• Starting point for operations, marketing, and financial plans

• Demonstrates focus and the plan for profits

• Connects all of the elements of the company

• Can assist in attracting management team and employees

• Greatly improves fundraising ability

54January, 2007

Disadvantages of great business plans• Requires significant research and thought

• Must stand up to criticism and challenges

• Requires your honest, critical appraisal

• Needs regular, recurring updates

• Demands acceptance by the management team

55January, 2007

Format for Business Plans & Investor Presentations

56January, 2007

1. Cover Sheet

• Company name

• Team members

• One person’s contact information

• Date

• Statement of confidentiality– “All material presented herein is reserved to this

audience. Notes or distribution is prohibited without written consent.”

57January, 2007

2. Positioning Template• Sentence #1

For (target customer)who (statement of the need or opportunity),the (product/service name) is a (product/service category)that (statement of benefit).

• Sentence #2

Unlike (primary competitive alternative),our product (statement of primary differentiation).

58January, 2007

3. Market Overview

• Describe the market you are serving. • Who is your customer• What is the market need or problem?• How big is the total market?• How fast is it growing?

59January, 2007

4. Competition

• What competing solutions and alternatives are available to your market in lieu of your products and/or services?

• Current competitors (list and describe your venture's advantages and disadvantages compared to each).

• Expected competitors (list and describe your venture's advantages and disadvantages compared to each).

• What are the barriers to entry into your target market?

• How is your venture differentiated from existing and potential competitors?

60January, 2007

5 & 6. Your Solution

• Introduce your product in detail• Show a picture or diagram• Describe the primary benefits• How does it solve the customer’s problem?

61January, 2007

7 & 8. Sales and Marketing Strategy

• How will your product be sold?

• Where will it be sold?

• By whom will it be sold?

• What are the price points?

• How will you promote the product?

• What new products will be available later?

62January, 2007

9. Management

• Chief executive officer: the CEO oversees all strategic and operational aspects of the company

• Chief technology officer: oversees R&D, prototyping, product development, and technical service

• Chief marketing officer: leads determining what products customers want or need, when, what they will pay, and how to build awareness and sell to customers

• Chief financial officer: oversees billings, collections, and all accounting matters, as well as fundraising

• Board of Directors: A group of typically 3-5 persons, including founders and senior managers (e.g. CEO, CTO, CFO) which often has “control” over the business.

• Advisory Board: A group of typically 3-7 persons with diverse business and technical expertise, strong reputations, and deep networks of investors and customers. Advisory Boards play no day-to-day role in a company, but serve to provide advice and credibility to the company.

63January, 2007

9. Financial Forecasts

e2006 e2007 e2008 e2009

Revenues $100

A 80

B 20

Expenses 70

1 30

2 25

3 15

EBITDA 30

Operating Margin 30%

• Key Assumption 1• Key Assumption 2

64January, 2007

10. Investment Opportunity

• How much money are you requesting? In debt and/or equity?

• Be specific as to how the funds will be used, such as to pay salaries, fund product development, etc.

• How far will the funds take your venture (e.g., 6 months) and what major milestones will be accomplished with these funds (e.g., product prototype developed, specific revenue goals achieved, etc.)?

• What subsequent funding will be required and when?

• Describe how investors will recoup their investment and within what anticipated time frame.

65January, 2007

11. Thank You

• Statement on the opportunity and new venture potential

• Company name

• One person’s contact information

66January, 2007

Business Plan Outline

• Executive Summary

• Reader’s Digest Version

• Often the only thing read unless very compelling

• Make the value proposition compelling!

67January, 2007

Company Overview & Background

• Begin with the “Elevator Pitch”, the hook. Fast, Efficient, Clear, Exciting

• Keep the content consistent with external information • Founding history• Significant milestones expected success factors• Strategic partnerships• Mission statement.• Strategy and philosophy to investors.

68January, 2007

Products & Technology

• Simple and easily understandable• Unique or competitive advantages. • Benefit to the end-user.• How customers will use the product. • Why they will need (want) or pay for such a

product.• Explain why there will be an extremely high-

demand in the near future.• Where will they buy, how will they buy it, what is

their “switch” motivation.

69January, 2007

Market Definition

• Customers

• Size

• Trends

• Influences on market

• ALL the things you learn from the market research and analysis

70January, 2007

Competitive Analysis

• Identifying competitors-– Direct competitors– Substitute products– Any patents (protection you have- they have)

• Competitor profile– SWOT – Porter’s Five Forces

71January, 2007

Market Positioning

• How is your product or service different than your competitors’ product or service?

• What is your value proposition? (how do you answer the question “Why should I buy your product or service?”)

72January, 2007

Marketing Plan

• Pricing Strategy• Funding Strategies• Service Model- warranty policy and what is the

cost?• Sales, marketing, promotion plan? (advertising,

public relations, trade shows, direct mail, etc.)• Market entry strategy? (Distribution, target

markets, promotion, location, reputation)

73January, 2007

Distribution Channels

• Direct sales: Will you have a dedicated sales force, use the Internet, etc. ?

• What are the wholesale channels available and will you use them?

• Is there a Reseller network and will you use it?

74January, 2007

Sales Approach and Proposition

• Sales Approach– Sales people -- employees or independent contractors?– Who generates leads? – Who works with prospects and closing sale?.

• How will sales people be compensated? – base salary vs. commission, etc.

• Describe the sales cycle– Who is the buyer? – How do you take them to the next level of interest? – What are the major stages of selling this product/service?

• Demonstrated interest by potential buyers—from those with 1)authority, 2)need, 3)capability, and 4)interest

75January, 2007

Management – The TEAM

• One paragraph for each key founder/executive • Summarize key hires needed -immediate,

intermediate and long-term. Note limits of founding staff.

• Assess weaknesses; Cite when and where company will need changes in management.

• List outside board members.• Adage: Investors prefer an “A” team with a

“B” idea to the “A” idea with a “B” team to execute.

• It is all about EXECUTION!

76January, 2007

Implementation Plan

• HOW and WHEN will you execute this strategy.

– Research and development

– Facility requirements

– Labor requirements

– Subcontracted production

– Capital requirements

– Quality control

– Critical processes

– Production planning

– Inventory control

77January, 2007

Financials

• Summaries only. Detailed spreadsheets are in appendices. Are the assumptions believable?

• Funding sought• Equity/Debt – amount, terms -- % given up / % interest• Sales Targets; Revenue growth; Gross Profit• Operating expenses• Net income; Cash flow; Balance Sheet• Table showing total headcount by period• Cover 3 to 5 years. • Use of funds• Subsequent funding rounds required• Exit Strategies! (How and when do the investors get liquid again?)

– Acquisition– Management buyout– IPO

• Relevant ratios – ROI (Return on Investment), Breakeven, etc.

78January, 2007

Appendices

• Resumes for each founder/executive.• Detailed financial statements or worksheets• Detailed product or technical description and

patent grants.• Relevant research material or articles.• Sample of Marketing or Promotional materials.

79January, 2007

Websites and Resources to help

Tech Model • http://asbdc.ualr.edu/technology/commercialization/the_model.asp

Pro Forma Statements• http://www.sheridanc.on.ca/~nowell/justime/proforma.htm• Financial Model Template Available on request

80January, 2007

TECHNOLOGY COMMERCIALIZATION MODEL

http://asbdc.ualr.edu/technology/commercialization/the_model.asp  Technical Market Business

Investigation

Technology Concept Analysis

Market Needs Assessment Venture Assessment

Development Phase

Feasibility

Technology Feasibility Market Study Economic Feasibility

PlanningEngineering

Prototype Strategic Marketing Strategic Business Plan

Introduction

Pre-Production Prototype Market Validation Business Start-Up

Commercial Phase

Full Scale Production Production

Sales and Distribution Business Growth

Maturity Production Support

Market Diversification Business Maturity

© 1999 H. Randall Goldsmith, Ph.D

81January, 2007

Time Line• Feb. 11  Submission of Executive Summaries

electronically due by midnight    • Feb. 19  Semifinalists Announcement:  The top

executive summaries are selected for an invitation to write the business plan.   

• March 18  Business Plans Due (only for Semifinalists)   • March 26  Finalist Announcement-- The top business

plans will be selected for invitations to develop investor presentations.   

• April 15  Investor Presentations due by midnight    • April 27  Oral Presentations by Finalists

82January, 2007

Karen S. Thornton, MBA

Director, Hillman Entrepreneurs Program

Associate Director, MTECH Ventures

University of Maryland, College Park, Maryland

301 405 3677

karent@umd.edu