商业计划书中文版
商业计划书标准版本第一部分：公司背景设立背景公司定位第二部分：公司概况股权结构与实收资本股权结构实收资本有关注册资料公司名称：注册时间：注册地点：注册资金：法人代表：总经理：经营范围：决策管理组织结构公司主要人员简况决策人员董事长：董事总经
简介：TableofContents1.TheRoutefromConcepttoCompany…………………………………………………………………….21.1.Successfactors………………………………………………………………………………………………21.2.Stagesofdevelopment………………………………………………………………………………….32.TheBusinessIdea……………………………………………………………………………………………………62.1.Developingabusinessidea…………………………………………………………………………..62.2.Elementsofapromisingbusinessidea………………………………………………………….72.3.Protectingyourbusinessidea……………………………………………………………………..102.4.Presentingyourideatoinvestors………………………………………………………………..113.TheBusinessPlan………………………………………………………………………………………………….133.1.Advantagesofabusinessplan…………………………………………………………………….133.2.Characteristicsofasuccessfulbusinessplan……………………………………………….133.3.Theinvestor’spointofview………………………………………………………………………..153.4.Tipsonpreparingaprofessionalbusinessplan…………………………………………..174.StructureandKeyElementsofaBusinessPlan……………………………………………………..194.1.Executivesummary…………………………………………………………………………………….194.2.Productorservice……………………………………………………………………………………….214.3.Managementteam………………………………………………………………………………………224.4.Marketandcompetition……………………………………………………………………………..244.5.Marketingandsales…………………………………………………………………………………….274.6.Businesssystemandorganization………………………………………………………………324.7.Implementationschedule……………………………………………………………………………364.8.Opportunitiesandrisks………………………………………………………………………………384.9.Financialplanningandfinancing………………………………………………………………..381 1.THEROUTEFROMCONCEPTTOCOMPANYNew,innovativecompaniesgenerallytrytogrowfromstart-upsintoestablishedcompanieswithin5years.Buttheycanseldomfinancetheiractivitiesalonealongtheway.Rather,theyaredependentonprofessionalinvestorswithconsiderablefinancialclout.Forentrepreneurs,financingisacriticalquestion–thebusinessplanmustthusbeconsideredfromthepointofviewofpotentialinvestorsrightfromtheoutset.1.1.SuccessfactorsSuccessfulcompaniesarisefromacombinationoffiveelements(Exhibit2).KEYFACTORSFORSUCCESSOFINNOVATIVESTART-UPSIdeas•Degreeofinnovation•Scope•PatentNetworkandexchange•CoachingTraditionalservicePeople•Networkingproviders•Inventors•Teambuilding•Attorneys•Entrepreneurs•Innovativeserviceprovider•Patentlawyers•Team–Venturecapitalists•Taxconsultants/members–Headhuntersaccountants–Angelinvestors•Market–High-techstart-upresearchersconsultantsCapital•Availability/amount•Needs/responsibilities•ExitsforinvestorsExhibit21.Nobusinessconcept,nobusinessHavinganideaisjustthebeginningofthecreativeprocess.Manyentrepreneursareinitiallyinfatuatedwiththeirinspiration,losingsightofthefactthattheirideaisthepointofdepartureforalongprocessofdevelopmentwhichmustface–andwithstand–toughchallengesbeforeitcanenjoyfinancingandmarketsuccessasamaturebusinessconcept.2.MoneymattersWithoutsomebodywhoinvestsmoneyintotheideatogrowitintoaviablebusiness,thisbusinesswillneverbecomeareality.Fromearlyon,therefore,muchattentionmustbepaidtoconvincinginvestorstoprovidethenecessaryfunding.2 3.Noentrepreneurs,noenterpriseGrowingnewfirmsisnotaone-personjob.Itcanonlysucceedwithateamof,usually,threetofiveentrepreneurswhosetalentsarecomplementary.Puttingtogetherwell-functioningteamsisadifficultprocess–onethattakestime,energy,andanunderstandingofhumannature.Donotloseanytimeinputtingyourteamtogetherandworkonperfectingitthroughouttheentirestart-upprocess.Thecharacteristicsofahigh-performancemanagementteamarediscussedinmoredetailinsection6.3ofthisGuide.4.TraditionalserviceproviderswillhelpyouclearthefirsthurdlesYouwilloftenneedtheadviceofprofessionalserviceproviders,suchaspatentlawyers,taxadvisors,andmarketresearchers-especiallyatthebeginning.Gettingtherightinformationearly(e.g.,forregisteringapatent)canhaveconsequencesforlatersuccessorfailure.5.Strongnetworksarea”shotinthearm”foreverynewcompanyProfessionalguidanceforpotentialentrepreneursthroughanetworkofsponsors,entrepreneurs,venturecapitalists,andserviceprovidersisdecisiveintransformingviableideasintorealcompanies.PrimeexamplesforsuchregionalnetworkscanbefoundinSiliconValleyandtheBostonarea.1.2.StagesofdevelopmentThetypicalprogressionofthestart-upanddevelopmentofgrowingcompaniesintoestablishedfirmscanbesubdividedintothreestages.Theendofeachstageservesasamilestoneforventurecapitalistsbywhichtogaugethestatusoftheirinvestment.Beingfamiliarwitheachstageandthechallengesitposesmayspareyouwastedenergyanddisappointment.Pleasenote,however,thatthethreestagesinthedevelopmentofafunctioningstart-updonotmatchthethreephasesinthedevelopmentofabusinessplanwithintheframeworkofthiscompetition(seeExhibit3).Ifyouintendtobesuccessful,thisstart-upprocessshouldinfluencebothyouractivitiesastheinitiatorofabusinessconceptandyourpathtowardformingyourowncompany.Toalargeextent,itisthedemandsofinvestorsthatwilldeterminehowyoumustapproachtheindividualstagesofthestart-up.STAGESOFSTART-UPDEVELOPMENTEstablishedcompanyStart-upExitofandgrowthinitialinvestorsBusinessplanFinancingpreparationdecisionsBusinessideaInterestofgenerationinvestorsExhibit33 Stage1:BusinessideagenerationThebeginningistheinspiration–yoursolutiontoaproblem.Itmustbeevaluatedtodetermineifitdeliversanactualcustomervalue,whetherthemarketisbigenough,andjusthowbigitwillbe.Theideaitselfhasnointrinsiceconomicvalue.Itacquireseconomicvalueonlyafterithasbeensuccessfullytransformedintoaconceptwithaplanandimplemented.Youwillneedtostartputtingtogetheryourteamassoonaspossible,findingpartnerswhocandevelopyourproductorserviceuntilitisreadyformarket(oratleastuntilshortlybefore).Inthecaseofproducts,thisstageusuallyinvolvesafunctioningprototype.Youwillmostlikelyhavetodowithoutventurecapitalduringthisstage.Youwillstillbefinancingyourplanwithyourownmoney,helpfromfriends,perhapsstateresearchsubsidies,contributionsfromfoundations,orothergrants.Investorsrefertothisas”seedmoney,”asyourideaisstillaseedling,notyetexposedtotheharshclimateofcompetition.Yourobjectiveatthisstageistopresentyourbusinessconceptandmarket–whichformsthefoundationofyournewcompany–soclearlyandconciselyastopiquetheinterestofpotentialinvestorsinhelpingyoucultivateyourideafurther.Stage2:BusinessplanpreparationAtthisstage,itismostimportanttofocusonthebigpicture:Don’tlosesightoftheforestforthetrees!Thebusinessplanitselfwillhelpyoutofocusasyoumustconsiderandweightherisksinvolved,prepareforanycontingency,andlearntoanticipateavarietyofpossiblesituationsor”scenarios.”Youwillneedtolaydownplansandcreateabudgetforthekeyactivitiesofthebusiness–fordevelopment,production,marketing,distribution,andfinance.Naturally,youwillneedtomakemanydecisions,suchaswhichcustomersorsegmentswillyoutarget?Whatpricewillyouaskforyourproductorservice?Whatisthebestlocationforyourbusiness?Willyouhandleproductionyourselforoutsourceittothirdparties?Andsoon.Inpreparingthebusinessplan,youwillcomeincontactwithmanypeopleoutsideyourstart-upteam.Inadditiontoinvestors,youwilltalktomanyspecialists,includingattorneys,taxadvisors,experiencedentrepreneurs,andexperts.Thebusinessplancompetitionorganizerswillhelpyougetintouchwithjusttherightpeople.Youwillalsohavetobeginreachingouttoyourpotentialcustomers(i.e.,bymeansofconsumersurveys)tomakeinitialassessmentsofyourmarket.Alwayskeepinmindthatcustomeracceptanceisanessentialprerequisitetothesuccessofyourcompany!Scoutaboutforpossiblesuppliersandperhapscloseyourfirstagreements.Youwillalsowanttobecomeawareofwhoyourcompetitorsare.Thiswholeprocesswillnotcomecheap.Theteammustcontinuetoearnalivingwhilerunningarudimentaryoperationandperfectingaprototype.Yetatthisstage,youshouldalsobeabletoestimateyourexpenses.Financingwillgenerallystillbeprovidedfromthesamesourcesyoureliedonduringstageone,althoughsomeinvestorsmaybewillingtomaketheoccasionaladvance.Thisstageconcludessuccessfullyforyouasanewentrepreneurwhenaninvestorexpressesawillingnesstofinanceyourundertaking.Stage3:Start-upandgrowth4 Nowthattheconceptualworkislargelycomplete,itistimetostartimplementingyourbusinessplan.Yourrolenowchangesfromthatofarchitecttothatofbuilder.Businesssuccessmustnowbesoughtandachievedinthemarket.Thedayofreckoninghascomewhenyouwilllearnwhetheryourbusinessconceptwasagoodand,ultimately,profitableone.InvestorexitenroutetobecominganestablishedcompanyThepulloutofyourinitialinvestorsisacompletelynormalstepinthedevelopmentofastart-up.Forifeverythinghasgonewell,yourriskyventurewillhavegraduallybecomeastableenterprise(seeExhibit4).Inthecourseofitsshortlife,youhavecreatedanumberofjobsandwooedmanycustomerswithyourinnovativesolutiontotheirproblem.Yourcommitmentispayingoffasthevalueofyourbusinessincreases.Aprofitableexithasbeentheobjectivefortheventurecapitalistfromtheoutset.Capitalrecoverycanhappeninverydifferentways.Normally,thebusinessissoldtoacompetitor,supplier,orcustomer.Oritislistedonthestockexchange(the”initialpublicoffering”orIPO).Itisalsopossibleforinvestorswhowantouttobepaidoffbytheotherpartners.5 2.THEBUSINESSIDEA”Thereisnothingintheworldaspowerfulasanideawhosetimehascome.”VictorHugoTheabovestatementundoubtedlyappliestoideasforstartinganewbusiness.Buthowdoyoucomeupwithsuchanidea?Andhowcanyouknowiftheideaforthebusinesswillhaveapromisingfuture?Studiesshowthatthelion’sshareoforiginalandsuccessfulbusinessideasweregeneratedbypeoplewhohadalreadyhadseveralyearsofrelevantexperience.GordonMooreandRobertNoyce,forexample,hadanumberofyearsatFairchildSemiconductorsbehindthembeforeteamingupwithAndyGrovetoformIntel.ButtherearealsoexamplesofrevolutionaryideasbroughttolifebymerenovicesasSteveJobsandSteveWozniakdemonstratedwhentheydroppedoutofcollegetostartAppleComputer.2.1.DevelopingabusinessideaIneconomicterms,asparkofgeniusisworthless,nomatterhowbrilliantitmaybe.Foranideatogrowintoamaturebusinessconcept,itmustbedevelopedandrefined,usuallybymanydifferentpeople.TheinitialideamustfirstpassaquickplausibilitycheckBeforeyoufollowuponanidea,youshouldevaluateitinlightofits(1)customervalue,(2)marketchances,and(3)degreeofinnovation,aswellasconsideringwhetheritwillbeboth(4)feasibleandprofitable.·Talkyourideaoverwithfriends,professors,experts,andpotentialcustomers.Thebroaderthesupportyoufindforyouridea,thebetteryouwillbeabletodescribeitsbenefitsandmarketopportunities.Youwillthenbewellpreparedwhenthetimecomestodiscussyourprojectwithprofessionalinvestors.·Isyourideareallynovel?Hassomeoneelsealreadydevelopeditorevenappliedtopatentit?·Willitbepossibletodevelopyourideainareasonableperiodoftimeandwithajustifiablelevelofresources?IttakesatleastfourweekstodevelopabusinessideaConsideringthemultiplestagesofdevelopment,itisimprobable–andfairlyunrealistic–thatyouwillspendfewerthanfourweeksdevelopingyourconcept.Generally,abusinessideaisnotworthyofbeingfinanceduntilitissoconcretethatitcanbelaunchedinthemarketintheforeseeablefutureatreasonablerisk.Investorstalkofthe”seedphase”ofabusinessconcept,6 whichusuallyhastobefinancedwith”soft”money(i.e.,fromsourcesthatasyetplacenohardandfastdemandsonthesuccessoftheidea).Theseedphasecantakelonger,inparticulariftheideaisaheadofitstime.Althoughtheperfectproducthasbeenfound,itcannotyetbemarketedbecausethedevelopmentofcomplementarytechnologiesorsystemsisstillintheworks.OneexampleistheInternet.Theideasformarketingproductsandservicescameearly,butalackofsecurityintheavailablepaymentsystemshamperedanddelayeditscommercialexploitationforsometime.2.2.ElementsofapromisingbusinessideaAbusinessideacanbeconsideredpromisingifithasthefollowingfourelements(Exhibit5):ELEMENTSOFAPROMISINGBUSINESSIDEA12ClearMarketofcustomeradequatesizevalueFeasibilitySufficientanddegreeofprofitabilityinnovation43Exhibit551.ClearcustomervalueThekeytosuccessinthemarketplaceissatisfiedcustomers,notgreatproducts.Customersspendtheirhard-earnedmoneytomeetaneedorsolveaproblem.Thefirstprinciplefordevelopingasuccessfulbusinessideaisthatitclearlyshowswhichneeditwillfulfillandhowitwilldoso.Initially,manyentrepreneurshavetheproductandthetechnicaldetailsofdesignandmanufactureinmindwhentheyspeakoftheirsolution.Notsofortheinvestor–theinvestorfirstlooksattheideafromtheperspectiveofthemarket.Forinvestors,customervaluetakestoppriority,andeverythingelseissecondary.What’sthedifference?Ifinnovatorssay,”ournewdevicecanperform200operationsperminute,”or”ournewdevicehas25%fewerparts,”theyarefocusingontheproduct.Bycontrast,saying,”ournewdevicewillsavethecustomeraquarterofthetimeand,therefore,20%ofthecosts,”or”ournewsolutioncanboostproductivitybyupto25%,”adoptsthecustomer’spointofview.Theproductismerelyameansofdeliveringvaluetocustomers.Thecustomervalueofaproductorserviceexpresseswhatisnovelorbetterabouttheitemwhencomparedtocompetitiveoffersoralternativesolutions.Assuch,itplaysakeyrolein7 settingyourproductapartfromothers–acoreissueinmarketing,aswewilllearn–andisessentialtothemarketsuccessofyourbusinessconcept.Try,wheneverpossible,toalsoexpressthecustomervalueinfigures.Marketingtheorystatesthatthecustomervaluemustbeformulatedintoauniquesellingproposition,orUSP.Thismeanstwothings:Firstofall,yourbusinessconceptmustbepresentedinawaythatmakessense(sellingproposition)tothecustomer.Manystart-upsfailbecausethecustomerdoesnotunderstandtheadvantageofusingtheproductorserviceand,asaresult,doesnotbuyit.Secondly,yourproductmustbeunique.Customersshouldn’tchoosejustanysolutionthathitsthemarket–theyshouldchooseyours.Youmust,therefore,persuadethemthatyourproductoffersagreaterbenefitoraddedvalue.Onlythenwillyourcustomersgiveyouanedge.Indescribingyourbusinessconcept,youneednotpresentafullyformulatedUSP,butitshouldbemoreorlessobvioustopotentialinvestors.2.MarketofadequatesizeAbusinessideawillhaveeconomicvalueonlywhenitsucceedsinthemarket.Thissecondprincipleofasuccessfulideademonstrateshowbigthemarketisfortheproductoffered,whichtargetgroup(s)itisdesignedfor,andtowhatdegreeitwilldifferfromthecompetition.Adetailedanalysisofthemarketisnotyetnecessaryatthispoint.Estimates,derivedfromverifiablebasicdata,willsuffice.Sourcescouldincludeofficialstatistics,informationfromassociations,articlesintradejournals,thetradepress,andtheInternet.Itshouldbepossibletodrawareasonableconclusionaboutthesizeofthetargetmarketfromthisbasicdata.Itissufficientforyoutosummarizetheresultsofthisinvestigationinyourpresentationofthebusinessidea.Thesameistrueforyourtargetcustomers;youwillonlyneedaloosedefinitionofwhotheywillbe.Describewhyyourbusinessideawillprovideaspecialvaluetothisgroupinparticular,andwhythisgroupisfinanciallythemostinterestingtoyou.Youwillalwaysfacecompetition–bothdirect,fromcompaniesthatofferasimilarproduct,andindirect,fromsubstituteproductsthatcanalsofulfillthecustomer’sneed.Apastamanufacturercompetesnotonlywithotherpastamanufacturers,butalsowithmanufacturersofriceandpotatoproductsandbakeriesand,moregenerally,withmanufacturersofallotherfoodstuffs.Yourbusinessideawillneedtodemonstratethatyouhaveunderstoodwhoyourcompetitorsare.Namethem–anddescribewhyandhowyoucantaketheleadwithyourbusinessidea.3.SufficientdegreeofinnovationBusinessideascanbeclassifiedalongtwodimensions-products/servicesandbusinesssystems.Ineachofthesecategories,youcandevelopsomethingneworcapitalizeonsomethingthatalreadyexists.Simplified,abusinesssystemisawayofunderstandinghowaproductorserviceisdeveloped,manufactured,andmarketed(Exhibit6).Theterminnovationisgenerallyusedinthecontextofnewproducts,whicharemadewithconventionalproductionmethodsanddeliveredtothecustomerthroughexistingdistribution8 channels.Microsoft,forinstance,developedDOS,makinguseoftheIBMsalesorganizationtobringittothemarket.Innovationsinbusinesssystemsarelessobvious,butjustasimportant.ThesuccessofDellisattributedtosignificantcostsavingsthankstoanewformofdirectdistributionandanovelproductionprocessinwhichacomputerisproducedonlyafteritisordered,andintheshortestpossibletimeframe.Indevelopingnewproducts,improvementofthemulti-layereddimension”customervalue”isattheforefront.Innovationsinthebusinesssystemaretargetedatlowercostsandfasterprocesses,savingswhichcanthenbepassedontothecustomerintheformoflowerprices.Itisrarethatbothtypesofinnovation–inproductandbusinesssystem–canbecombinedtocreateacompletelynewindustry.NetscapecontributedsignificantlytothesuccessoftheWorldWideWebbydistributingitsnewbrowserovertheInternetfreeofcharge.Indoingso,Netscapepassedupinitialsalesrevenuesbut,throughtheincreasednumberofvisitorstoitsWebsite,succeededinraisingadvertisingrevenues.4.FeasibilityandprofitabilityFinally,toarriveatanactualstart-up,thefeasibilityofthebusinessideamustbeassessed.Inadditiontospecificfactorsthatcouldmaketheprojectnotfeasible(e.g.,legalconsiderations,standards),theassessmentmayincludethetimeandresourcesneededtocarryouttheproject.Theconstructionofhotelsonthemoonmaybetechnicallyfeasible,forexample,buttheircost-benefitratioisunreasonable.Interwovenwiththefeasibilitycriterionisprofitability.Acompanymustbeabletogeneratelong-termprofit.Thisfourthelementofasuccessfulbusinessideashouldthusindicatehowmuchmoneycanbemadeandhow.Traditionally,profitcalculationsforabusinessaremadeasfollows:Acompanybuysmaterialorservices,therebyincurringcosts.Italsosellsproductsorservicestocustomers,thereby9 earningrevenues.Ifyourbusinessfollowsthispattern,itisnotnecessarytoprovideanygreaterdetailinthedescriptionofyouridea.Do,however,makeroughestimatesofanticipatedexpensesandprofits.Oneruleofthumbforgrowingcompaniesisthatthestart-upphaseshouldgenerategrossprofits(revenuesminusdirectproductcosts)of40%to50%.Butmanybusinessesdonotfunctionaccordingtothistraditionalmodel.McDonald’s,forexample,earnsitsmoneyfromthelicensingfeesitchargesfranchisers.TherestaurantownerpaysMcDonald’sforthenameandthewaytherestaurantisrun.Ifyourbusinessideaisbasedonthiskindofinnovationinprofitgeneration,youshoulddetailitinyourbusinessidea.KEYQUESTIONS:Businessidea!Whowillbuyyourproduct?!Whyshouldcustomersbuytheproduct?Whatneeddoesitfulfill?!Howwilltheproductbedistributedtothecustomer?!What,exactly,isinnovativeaboutyourbusinessconcept?!Howisthebusinessconceptunique?Isitprotectedbypatent?!Howistheproductbetterthancomparablealternatives?!Whatcompetitiveadvantageswillthenewcompanyhave,andwhycan’tacompetitorsimplycopythem?!Canmoneybemadewiththeproduct?Whatcostswillbeincurred,whatpricewillbeasked?2.3.ProtectingyourbusinessideaOnlyafewideasaregenuinelyingenious.Truebreakthroughsaretheresultofhardworkand,therefore,cannotbeeasilyreplicated.Acompromisemustbefoundtoprotecttheidea,whiledisclosingsufficientinformationtotestitsviability.PatentingEarlypatentingisrecommended,especiallyinthecaseofnewproductsorprocesses.Gettheadviceofexperiencedpatentlawyers:Thefuturesuccessofyourbusinesscandependonapatent,and,ineveryindustry,therearepowerfulcompetitorswiththemeanstokeepanunfavorablepatentfrombeinggranted.Butsomedegreeofcautionisadvisedasapatentcanalsomissthemarkwhenitcomestoprotectingyourideabymakingtheideapublic.Besuretokeepinmindifthepatentcanbeimproveduponeasily–andthusthwarted.TherecipeforCoca-Cola,forexample,isstill”secret”andhasneverbeenpatentedbecausethepatentcanbecircumventedwithaveryfew,neutral-tastingchanges.Confidentialityagreement10 Lawyers,trustees,andbankemployeesareallrequiredbylawtomaintainconfidentialityvis-à-vistheirclients’businesses.Venturecapitalistsalsohaveaninterestinkeepingthingsunderwraps,assomeonewithareputationfor”poaching”ideaswillnotbemadeprivytonewideasanytimeagainsoon.Thesameistrueforprofessionalconsultants.Aconfidentialityagreementcanbeeffectiveinsomecases.ThecoachesandorganizersinvolvedinEnterPrizearerequiredtosignaconfidentialityagreement;judgesareencouragedtodoso.But,likeeverylegaldocument,ithasitslimits,andtherearegrayareasthatcouldmakeitdifficulttoproveaviolationoftheagreementincourt.QuickimplementationYourbestprotectionagainstintellectualpropertytheftisprobablytoimplementyourplanasquicklyaspossible.Agreatdealofworkmustbedonebetweendreamingupanideaandopeningforbusiness.Thiseffortcankeeppotentialcopycatsatbay,becauseintheend,it’scrossingthefinishlinefirstthatmakesyouthewinner,nothavingthefastestshoes!2.4.PresentingyourideatoinvestorsHowyoupresentyourbusinessideatoaninvestorwillputallyourpreviouseffortstothetest.Itiscriticaltoattractattentionandpiqueinterestthroughcontentandprofessionalappearance.Goodventurecapitalistsarepresentedwithupto40businessideasperweek,andtheirtimeislimited.Insubmittingthebusinessidea,neitherfanfarenorawealthofdetailsisasimportantasaclearandthoughtfulpresentation.Example1:Thehardsell”Ihaveagreatideaforanew,customer-friendlymethodofpaymentwithabigfuture.Thisissomethingeverybodyhasalwayswanted.Youcouldearnalotofmoneyfromthis…”Theinvestorthinks,”Thatsoundslikealotofhotair.I’veheardofahundredsuchmiraclesolutionsbefore…Next!”Example2:Thetechnicalapproach”Ihaveanideaforacomputerizedmachinerycontrolsystem.Thekeyisthefully-integratedSSPchipwith12GByteRAMandtheasymmetricalXXP-baseddirectcontrolunit.Ittookme5yearstodevelopthis.”Theinvestorthinks,”Techie.Inlovewithtechnology.She’sherownmarket…Next!”Example3:Theentrepreneur”Ihaveanideathatwillenablecompanieswithupto100employeestosave3%to5%oftheircosts.Initialcost-priceanalyseshaveconvincedmethataspreadof40%to60%shouldbepossible.IhavefoundafocusedadvertisingchannelthroughtheAssociationofSmallandMedium-sizedBusinessesandtheABCMagazine.Theproductwillbedistributedbydirectsale.”Theinvestorthinks,”Aha!Shehasidentifiedthecustomervalue,andevenworkedoutthefigures!She’sthoughtaboutthemarketandtheprofitpotentialandknowshowshewillgettheproducttohercustomers.NowI’dliketogetalookattheproduct…”Theseexamplesdemonstratewhyclarityshouldbeyourforemostgoal.Itisbesttoassumethatinvestorsarenotfamiliarwiththetechnologyofyourproductortheindustryjargon.Theyarealsonotlikelytotakethetimetolookupanunknowntermoridea.Describingyourconcept11 clearlyandincisivelyisyournextgoal.Youmustbeabletoconveythebasicmechanicsofyourbusinessideatoaninvestorwithcredibility.Therewillbeplentyoftimeatalaterpointfordetaileddescriptionsandexhaustivefinancialcalculations.FormalrequirementsofabusinessconceptpresentationTitlepageNameoftheproductorserviceNameoftheperson(s)submittingConfidentialitynoticeIllustration,whereappropriate,oftheproductorserviceinactionBody4to7pages(includingaone-pageexecutivesummary)ClearstructurewithheadingsandindentationsasvisualorganizersCharts,illustrations,tablesMaximumof4illustrations,placedintheappendixUseonlyifnecessaryforcomprehensionMakereferencetotheillustrationsinthetextSimple,clearpresentationUniformformatThispageintentionallyblank12 3.THEBUSINESSPLAN”Writingabusinessplanforcesyouintodisciplinedthinking,ifyoudoanintellectuallyhonestjob.Anideamaysoundgreat,butwhenyouputdownallthedetailsandnumbers,itmayfallapart.”EugeneKleiner,VentureCapitalistThemodestterm”businessplan”doesnotreallydojusticetothisveryimportantbusinesstool.ThebusinessplanwasfirstusedintheU.S.asmeansofacquiringfundsfromprivateinvestorsandventurecapitalistswhothenparticipateinthecompanyasco-ownersandprovidethecapital.Thepresentationofthistypeofstart-upstrategyhasbecomeamandatorycourtesywhenseekingtodobusinesswithanypartners,includingcustomers,suppliers,anddistributors,tosaynothingofventurecapitalistsandbanks.Butbusinessplansarenotonlyusedbystart-ups;evenmajorcorporationsrelyincreasinglyonproject-specificbusinessplanstohelpthemmakeinternalinvestmentdecisions.3.1.AdvantagesofabusinessplanThegreatimportanceattachedtothebusinessplaniswelljustified.Withit,entrepreneurscanprovethattheyareinapositiontoarticulateandhandlethediverseaspectsofstart-upsandtheirmanagement.Properlyconceivedandexecuted,thebusinessplanbecomesakeydocumentforevaluatingandmanaginganoperation.Abusinessplandetailstheoverallentrepreneurialconceptbehindaplannedbusiness.Itgivesanexactsummaryoftheeconomiccircumstances,thetargetsset,andtheresourcesnecessary.Thebusinessplanforcesentrepreneurstothinkthroughtheirideassystematically:Itidentifiesgapsinknowledge,demandsdecisions,andpromotestheformulationofawell-structuredandfocusedstrategy.Duringitspreparation,oneaftertheother,alternativeapproachescometolightandareevaluated,andpitfallsareidentified.Withitsclearanalysisofthesituation,thebusinessplanbecomesaninvaluabletoolforovercomingproblemsandcontributessubstantiallytoboostingefficiencyandeffectiveness.3.2.CharacteristicsofasuccessfulbusinessplanHowabusinessplanisdesigneddependsonwhatkindofventureisenvisionedandwhattheplanshouldaccomplish.Ifaplanisbeingwrittenforastart-up,forexample,itwillnecessarilyhaveadifferentstructurethanonethataimstolaunchanexistingcompanyintoanewsegment.Despitesuchdifferences,businessplanshaveanumberofthingsincommon.Theyaretoprovideaclearandcomprehensiveevaluationoftheopportunitiesandrisksposedbytheoperation.Thisisnosmalltask,andcompletingitwillrequirecarefulattentiontocertainstandardsofdesignandcontent.Thefollowingsuggestionsandguidelinesshouldhelpyoumakeyourplansuccessful.13 AgoodbusinessplanimpresseswithitsclarityReadersshouldbeabletofindsuitableanswerstotheirquestions.Itshouldbeeasyforreaderstofindthetopicsinwhichtheyareparticularlyinterested.Thismeansthebusinessplanmusthaveaclearstructuretoenablereaderstomaneuverandchoosewhattheywouldliketoread.Itisnotthevolumeofanalysisanddata,butrathertheorganizationofthestatementsandaconcentrationontheessentialargumentsthatwillpersuadeyourreaders.Anytopicthatcouldbeofinteresttothereadershould,therefore,bediscussedfully,butconcisely.Atotallengthofabout30pages,giveortake5orso,isgenerallyappropriate.Abusinessplanisnotreadinthepresenceoftheauthor,whocouldanswerquestionsandprovideexplanations.Forthisreason,thetextmustbeunambiguousandspeakforitself.Eachplanshouldbepresentedtoatestaudience,ifatallpossible,beforeitisfinallysubmitted.Competitioncoaches,forexample,canhelpweedoutconfusingpassagesorindicateareasstillinneedofediting.AgoodbusinessplanconvinceswithitsobjectivitySomepeoplegetcarriedawaywhentheyaredescribingwhattheyfeelisagoodidea.Whilethereissomethingtobesaidforenthusiasm,youshouldtrytokeepyourtoneobjectiveandgivethereaderachancetocarefullyweighyourarguments.Aplanwrittenlikeglowingadvertisingcopyismorelikelytoirritatethanappealtoyourreaders,makingthemsuspicious,skeptical,orotherwiseunreceptive.Equallydangerousisbeingtoocriticalofyourownprojectinresponsetovariouspastmiscalculationsormistakes.Thisapproachwillraisequestionsaboutyourabilityandmotivation.Tothebestofyourknowledge,thedatapresentedshouldbeaccurate.Weaknessesshouldneverbementionedwithoutintroducingmethodstocorrectthemorplanstodoso.Thisdoesnotmeanthatfundamentalweaknessesshouldbehidden,justthatinpreparingyourplan,youshoulddevelopapproachestoremedythemandpresentwithclarity.AgoodbusinessplancanbeunderstoodbythetechnicallaymanSomeentrepreneursbelievethattheycanimpresstheirreaderswithprofusetechnicaldetail,elaborateblueprints,andthesmallprintofananalysis.Theyaremistaken.Onlyrarelyaretechnicalexpertscalledtoevaluatethisdatacarefully.Inmostcases,asimplifiedexplanation,sketch,orphotographisappreciated.Iftechnicaldetailsontheproductormanufacturingprocessmustbeincluded,youshouldputthemintheappendix.AgoodbusinessplaniswritteninoneconsistentstyleSeveralpeopleusuallyworktogethertoproducethebusinessplan.Intheend,thisworkmustbeintegratedtoavoidcreatingapatchworkquiltofvaryingstylesandanalyticaldepth.Forthisreason,itisbesttohaveonepersoneditthefinalversion.AgoodbusinessplanisyourcallingcardFinally,yourbusinessplanshouldhaveauniformvisuallayout.Thefonts,forexample,shouldbeconsistentwiththestructureandcontents,effectivegraphicsneatlyintegratedand,perhaps,aheaderwiththe(future)companylogoused.14 3.3.Theinvestor’spointofviewTheentirestart-upprocessmustfocusonsuccessfulcapitalacquisition.Professionalinvestorsarethefirstrealacidtestofthechancesyourbusinessconceptwillhave.Addressyourcommunicationentirelytothem,andlearntothinkliketheydo.Theywillnotbesatisfiedwithameredescriptionofyourbusinessconcept,evenifitisbrilliant.Whatisventurecapital?Venturecapitalisthemoneythatismadeavailablebyventurecapitalcompaniesorindividualstofinancenewbusinesses.Typically,suchprojectshaveahighchanceofbeingprofitable,whilefacinganequalriskofincurringloss.Experienceshowsthatof10businessesfinancedwithventurecapital,onlyonewilltriumph,threewillmanagetoekeoutanexistence,threewillwasteaway,andthreewillbeatotalloss.Itisonlynaturalforventurecapitaliststodoeverythingintheirpowertogenerateprofitsinlinewiththeriskventured.Accordingly,theybackupaprojectveryintenselyinordertoharnessasmuchpotentialaspossible(Exhibit7).VENTURECAPITALPARTICIPATIONINTHEVARIOUSSTART-UPPHASESTransitiontoEarlyphaseGrowthphaseestablishedcompanySeedStart-upGrowthBridgestageExitstageWhenBeforeAtorshortlyAtfirstor6-12monthsAsarule,5-8?start-upafterstart-upsecondbeforeIPOyearsafterstart-growthspurt,upIPOstillfaroffWhatMainlytoE.g.,forTofinanceTocoverRecoveryoffor?developproductgrowthfinancialinvestedventurebusinessdevelopment,needsuntilcapitalforconceptinitialsaleofstockreinvestmentinfurthermarketingtopublicmorestart-upsactivitiesExhibit7Whatdoventurecapitalistslookfor?Venturecapitalistslookforanumberofimportantpiecesofinformationinabusinessplan:·Managementexperienceandcompetence.Allinvestorspayparticularattentiontowhowillbemanagingtheenterprise.Whenallissaidanddone,theabilityofmanagementtoimplementtheconceptisamajordeterminantofwhetherabusinesssurvivesorfails.Particularlyinindustrieswhereinnovationiscritical,thefocusisonthepropermixofallnecessarymanagementskillsthatonepersonalonewillrarelyhave.Entrepreneurial15 experienceismorehighlyvaluedthanacademicdegrees.Anothertestofaworthwhileinvestmentistheabilityofmanagementtoworkasateam.·Awell-definedand,wherepossible,quantifiablecustomervalue.Initssimplestform,thismeansloweringthecostofdeliveringanexistingvalueorcreatinganewvalue,ifthiscanbeachievedatreasonablecost.·Innovativeproductorservicerange.Theproduct,service,and/orbusinesssystemmustpossessahighdegreeofinnovation.·Thepossibilitytoprotect/sustaintheinnovation.Animportantcompetitiveadvantagetoyourcompanycouldbeapatentedidea.·Agrowingand/orlargemarket.Venturecapitalistspreferstart-upsthatdemonstrateapotentialtoachievesignificantsalesofapproximately$30millionwithin5years.·Aneffectiveconceptforcapturingaclearlydefinedtargetcustomersegment.Potentialinvestorswanttoseethatyouhaveaclearunderstandingofyourmarketandhowyouintendtoreachyourcustomers.Yourforecastsandestimatesshouldbebasedonwell-founded,persuasiveassumptionsandfacts.·Afar-sightedanalysisofthecompetition.Investorsaren’tnaive–sodon’teventrytoclaimthatyourproducthasnocompetition.Acompleteandobjectivedescriptionofexistingandpotentialfuturecompetitors,however,showsthatyouareawareoftherisksyouaretakingwhich,inturn,willinspireconfidenceinyou.Hereagain,havinganideathatcanbeprotectedbylaw(patented,trademarked)isanadvantage.·Acarefulweighingoftherisksandopportunities.Investorshatesurprises,especiallynegativeones.Arealisticdescriptionoftherisksyoufaceandhowyouplantoovercomethemisfarmorecrediblethanlookingatthefuturethroughrose-coloredglasses.·Detailpossibleexitroutes.Investorswanttoknowfromtheoutsetwhentheircommitmentwillendandhowtheywillrecovertheirinvestment.Generatingaprofitisalwaystheobjectandthepurposeofinvestorparticipation.Themoreproductiveoptionsyoucanshowthemforhowtodothis,thebetter.Themainpossibilitiesincludegoingpublicorsellingsharestotheotherpartnersortoothercompanies.Whatdoventurecapitalistsdoforthenewcompany?Venturecapitalistsplayanumberofroles(seeExhibit8).Buttheywillalsotakeoverthereinsifthebusinessdoesnotachieveitstargets.Howshouldyouchooseaventurecapitalist?Venturecapitalistsgenerallyexpecttohaveahighstakeinthenewcompany.Inreturn,theyprovidesupportthatgoesfarbeyondafinancialcommitmentandoftenshoulderagreatdealof16 responsibilityforthesuccessoftheventure.Butpotentialinvestorsdodiffer,andthecompanyteamshouldknowitsinvestorswell.Ifyouwouldratherown20%ofa$100millioncompanythan80%ofa$5millionoperation,youwillhavetochooseyourinvestoraccordingtomorecriteriathanjustwhowillprovidethemostmoneyatthebestrate.POSSIBLEROLESOFVENTURECAPITALCOMPANIESCoachesandSpecialistsinmotivatorsoftheformingnewstart-upteamcompaniesPossiblerolesofventurecapitalistsAdvisorsinGatewaystoaachievingsuccessnetworkof(saleoftheexperiencedcompany,IPO)entrepreneursExhibit8233.4.TipsonpreparingaprofessionalbusinessplanInvestorsareinterestedinthefinishedplan,nottheprocessyouwentthroughtoproduceit.Theyprefertoseeawell-prepareddocumentfromwhichtheycangainagoodsenseoftherisksandopportunitiesinvolvedonthefirstread-through.Whenpreparingyourplan,thethemesofcustomervalueandpotentialreturnshouldrunthroughthedescriptionsofyourbusinessobjectives.Thethreephasesofthecompetitionprovideageneralstructureforpreparingyourplan.Thethreephasesbuildupononeanothersuchthatthecontributionforapreviousphasewillbecomeamajorportionofthefollowingphase,supplementedwithadditionalelements.Howyoucarryouttheworkwithineachphaseisuptoyou.Thefollowingtipsaredesignedtohelpyou.PlanyourapproachDrawingupabusinessplanisaverycomplexundertaking.Manyvariablesmustbeconsideredandanalyzedsystematically,inalogicalorder.Adetailedoutlineshouldbemadeassoonasthefirstideasarelaiddown.Itissmarttodoyourplanningalongthelinesofabusinessplan,oraccordingtoyourbusinesssystem(e.g.,R&D,production,marketing,sales,delivery,andadministration).Youshouldalsonumberyourtopicsandnoteanyreferences.Usingawordprocessingprogramwithaspreadsheetishelpful.Allreferencematerialshouldbesortedbytopic.Dothesamewithnotesfromdiscussions.17 TailorkeyquestionstoyourspecificprojectUsingasetofquestionsishelpfulinpreparingyourbusinessplan.Whichquestionsshouldbeaskedandwhichanswersincludedintheplanisdeterminedbythetypeofvaluecreated,theproduct,service,ordegreeoftechnologicalsophistication,andwhatthereadersneedtoknow.YoucanusethesamplequestionsprovidedinthisGuidetowriteyourownseriesofquestions.Thesequestionsareonlyexamplesdesignedtogetyouthinking;theyshouldnotbetakenasanexhaustivelistofpossiblequestions.Inotherwords,youareneitherrequiredtoanswereachquestion,normustyoureplytoallquestionsinequaldepth.Itisuptoyoutodecidewhichquestionsarerelevanttoyourundertakingandnecessarytounderstandit.Youmustalsoconsiderwhetherthereareotherquestionstobeansweredbeyondthosethathavebeenprovided.FocusonthefinalproductInprojectsofthiskind,thereisalwaysadangerofgettinglostinthedetailsofeachanalysis.Stepbackfromtimetotimeandaskyourselfwhetherthedataprovidedisnotalreadysufficientandwhetherfurtheranalysiswillreallybebeneficial.Wealsorecommendthatyoulimitthelengthoftheresultsforeachofthethreecompetitionphases.Youwillsavealotoftimeandenergyifyousticktotherecommendedlengthsfromthebeginningofyourplanning.SeeksupportearlyGatheringsupportfrommanydifferentpartieswillbeimportantinthiscompetition.Teamingupearlyisonesuchformofsupport.Teamswithcomplementarytechnicalandentrepreneurialexperiencecandelegateassignmentsaccordingtothetalentsoftheindividualteammembers.Thiswillhelpensurethattheworkwillbeperformedefficiently.Donothesitatetoseekhelpfromoutsidesourcesassoonasyouneedit.ContactexpertsandexperiencedentrepreneurswhomyoumeetatcompetitioneventsorcalltheEnterPrizeofficeforassistance.KeeptestingyourplanAwinningentrywillbeeasytounderstandandfollow.Therefore,itisimportanttopresentyourideatoatestaudiencealongtheway.Peopleoutsidethecompetitionwhocritiqueyourplanbeforeyousubmititcanidentifyweaknessesandevengiveyourworkfreshimpetus.18 4.STRUCTUREANDKEYELEMENTSOFABUSINESSPLANDespitetheirmanydifferences,allbusinessplanshavecertainelementsincommonthatallpotentialinvestorsexpecttofind(Exhibit9).Additionally,anappendixisoftenincludedthatcontainsdetailedinformation,oftenpresentedintheformoftablesorgraphs.Withinthismoreorlessrequiredstructure,thebusinessplanisfreetogrowinitsowndirection.Atthebeginning,youwillonlyworkonafewkeyelementsandindividualtopics.Newelementsareaddedwitheachadditionalphase,whilethetopicsfromthepreviousphasesareexpanded,and,gradually,theplanfillswithcontent.Attheendofthethirdphase,theindividualanalysesformawholewhoseindividualpartscorrespondtooneanother.ELEMENTSOFABUSINESSPLANFocusofthisphasePartofthisphasePhase1Phase2Phase31Executivesummary2Productorservice3Managementteam4Marketandcompetition5Marketingandsales6Businesssystemandorganization7Implementationschedule8Opportunitiesandrisks9FinancialplanningandfinancingExhibit94.1.Executivesummary”Agoodexecutivesummarygivesmeasenseofwhythisisaninterestingventure.Ilookforaveryclearstatementofthelong-termmission,anoverviewofthepeople,thetechnology,andthefittomarket.”AnnWinblad,VentureCapitalistTheexecutivesummaryisdesignedtopiquetheinterestofdecisionmakers.Itshouldcontainabriefoverviewofthemostimportantaspectsofthebusinessplan.Inparticular,itshouldhighlighttheproductorservice,thevaluetothecustomer,therelevantmarkets,managementexpertise,financingrequirements,andpossiblereturnoninvestment.19 Venturecapitalistslookattheexecutivesummaryfirst,thoughtheyusuallyjustskimit.Thequalityofthesummaryitselfisnotlikelytomaketheminvestinyourproject,yetitcanconvincethemnotto.Aclear,objective,andconcisedescriptionofyourintendedstart-up,whichmustbeeasytocomprehend,especiallybythetechnicallayperson,willshowthemthatyouknowyourbusiness.Thereforeprepareyoursummarywiththeutmostcare;itmaywelldecidewhethertherestofyourbusinessplanisread.Theexecutivesummaryisanindependentelementofthebusinessplan:Donotconfuseitwiththeintroductionofyourbusinessconceptonthetitlepage.Lookatyourexecutivesummarywithacriticaleye–repeatedly–especiallyafterallotheraspectsofyourbusinessplanhavebeencompleted.Askyourselfifyouhavedescribedyourbusinessideaasclearly,compellingly,andconciselyasyoucan.Yourreadersshouldbeabletoreadandcomprehendthesummaryinfiveto10minutes.Testit.Giveyourexecutivesummarytosomeonewhohasnopreviousknowledgeofyourbusinessconceptoritstechnicalorscientificbasis.KEYQUESTIONS:ExecutivesummaryPhase1!Whatisyourbusinessidea?Inwhatwaydoesitfulfillthecriterionofuniqueness?!Whoareyourtargetcustomers?!Whatisthevalueforthosecustomers?!Whatmarketvolumeandgrowthratesdoyouforecast?!Whatcompetitiveenvironmentdoyouface?!Whatadditionalstagesofdevelopmentareneeded?!Howmuchinvestmentisnecessary(estimated)?!Whatlong-termgoalshaveyouset?Phase2!Howhighdoyouestimateyourfinancingneeds?!Whatarethesales,cost,andprofitsituations?!Whatarethemostimportantmilestonesalongthewaytoyourgoal?!Whattestcustomershaveyouapproached/couldyouapproach?!Whatdistributionchannelswillyouuse?!Whatpartnershipswouldyouliketoenterinto?!Whatopportunitiesandrisksdoyouface?!Whatisthepictureonpatents?Phase3!Summarizetheresultsofyourdetailedbusinessplanningandstateyourexactfinancingneeds!!Howwillyoudelegatemanagementtasks?!Howmuchproductioncapacityisnecessary?!Howwilltheimplementationofyourbusinessideabeorganized?!Listyournext,concretesteps!20 4.2.Productorservice”Ifyoudon’tknowwhatthecustomervalueis,thewholething’sawasteoftime.”BrunoWeiss,EntrepreneurYourbusinessplanderivesfromaninnovativeproductorserviceanditsvaluetotheendconsumer.Itisimportanttoindicatehowyourproductdiffersfromthosethatarenoworwillbeonthemarket.Ashortdescriptionofhowfardevelopmenthasprogressedandwhatstillneedstobedoneisalsoessential.CustomervalueItdoesn’tmakeanysensetostartupanewbusinessunlesstheproductorserviceissuperiortocurrentmarketofferings.Besuretodiscussindetailthefunctiontheproductorservicefulfillsandthevaluethecustomerwillgainfromit.Ifcomparableproductsandservicesarealreadyavailablefromyourcompetitors,youmustconvincinglysubstantiatetheaddedvalueyourcustomerswillreceivefromyourstart-up.Todoso,putyourselfintheplaceofthecustomerandweightheadvantagesanddisadvantagesofyourproductovertheothersverycarefully,applyingthesamecriteriatoall.Ifyouareofferingarangeofinnovativeproductsorservices,categorizethemintologicalbusinessareasaccordingtoproductorcustomer.Definethebusinessareasindetailsothereisnooverlap.Developmentstatusoftheproduct/serviceInexplainingthisissue,imagineyouaretheventurecapitalistwhowantstominimizetheriskinvolvedinparticipating.Trytorefrainfromincludingtechnicaldetailsanddescribeeverythingassimplyaspossible.Afinishedprototypewillshowyourpotentialinvestorthatyouareuptomeetingthetechnicalchallenge.Ifitenhancestheunderstandingofyourproduct,includeaphotoorsketchinyourbusinessplan.Itisevenbettertohaveapilotcustomerwhoalreadyusesyourproductorservice.Youshouldalsoexplainthenatureoftheinnovationitselfandtheedgeyouhaveovercompetitors.Thisisthepointatwhichyoushouldaddressthesubjectofpatentsforprotectionfromduplicationorimitation,ortheprotectionofamodelthroughregistration.Iftherearestillproblemsorissuestocoverregardingdevelopment,besuretomentionthemandhowyouintendtoovercomethesedifficulties.Regulatoryrequirementsonproductsandservicesposeanothersetofrisks.Noteanypermitsyouhaveobtained,haveappliedfor,orwillapplyfor,suchasthoseoftechnicalcontrolassociations,thepostalservice,orthedepartmentofhealth.21 KEYQUESTIONS:ProductorservicePhase1!Whatendcustomerswillyouaddress?!Whatarethecustomer’sneeds?!Whatcustomervaluedoesyourproduct/serviceprovide?!Whatisthenatureofyourinnovation?Whatisthecurrentstatusoftechnicaldevelopment?!Whatpartnershipsarenecessarytoachievefullcustomervalue?!Whatcompetitorproductsalreadyexistorareunderdevelopment?!Isyourproduct/servicepermittedbylaw?!Whataretheprerequisitesfordevelopmentandmanufacturing?!Whatstageofdevelopmenthasyourproductorservicereached?!Doyouhavepatentsorlicenses?!Whatfurtherdevelopmentstepsdoyouplantotake?Whatmilestonesmustbereached?Phase2!Whatversionsofyourproducts/servicesaredesignedforwhatcustomergroupsandapplications?!Whatpatents/licensesdothecompetitorshave?!Doyouneedtoobtainlicensesand,ifso,fromwhomandatwhatcost?!Whatkindofservice/maintenancewillyouoffer?!Whatproductorserviceguaranteeswillyougrant?!Comparethestrengthsandweaknessesofcomparableproducts/serviceswithyoursinanoverview!Phase3!Whatresources(time,personnel,materials)doyourequireforeachsubsequentdevelopment?!Whatshareofsalesdoyouexpectfromyourvariousproducts/services(ifapplicable)?Why?!Whatincomefromroyalties/salesdoyouestimatefrompossiblymarketingthepropertyrights?Whowouldbeyourlicensees/buyers?4.3.Managementteam”Iinvestinpeople,notideas.”EugeneKleiner,VentureCapitalistThemanagementsectionisoftenthefirstpartoftheplanthatventurecapitaliststurntoafterreadingtheexecutivesummary.Theywanttoknowwhetherthemanagementteamiscapableofrunningapromisingbusiness.Entrepreneursfrequentlyunderestimatethesignificanceofthisquestionandmakethemistakeofskimpingoncontentandmakingdowithmeaninglessphrases.22 Takethetimetodescribeyourmanagementteamwell.Whendiscussingmanagement’squalifications,besuretoemphasizethosethatareparticularlyimportantforimplementingyourspecificplans.Professionalexperienceandpastsuccesscarrymoreweightthanacademicdegrees.Ifkeypositionsaretobegiventoinexperiencedstaffmembers,explainthisdecisionindetail.CHARACTERISTICSOFAPOWERFULMANAGEMENTTEAM!Commonvision:Everybodywantstosucceed!Complementaryattributesandstrengths!Atleastthree,butusuallynomorethansix,people!Stickstogetherthroughthickandthin!Stayingpower,evenwhentherearesetbacks-regroupsandmakesasecondoreventhirdattempttoclearthehurdleAlsoexplainhowtheresponsibilitiesinthecompanyaretobedelegatedandindicatewhichpositionsstillrequirereinforcements.Itisparticularlyhelpfultocomparetheassignmentstobefilledwiththeskillprofilesofcurrentteammembers.Donothesitatetonameyourmostinfluentialadvisors.Noonewillhaveallthequalificationsandexperiencenecessarytofoundacompany.Considerableinvolvementonthepartofadvisorssuchasexperiencedentrepreneurs,accountants,PRfirms,ormanagementconsultantsisasignofprofessionalismandwillreassuretheventurecapitalistthatyouhaveallthecontactsyoumayneed.WHATPROFESSIONALINVESTORSLOOKFOR!Hastheteamalreadyworkedtogether?!Doteammembershaverelevantexperience?!Dothefoundersknowtheirweaknessesandaretheywillingtomakeupforthem?!Havethefoundersagreedontheirfutureroles?Areownershipissuessettled?!Hasthemanagementteamagreedonacommongoal,orarethereunderlyingdifferencesofopinion?!Dotheindividualteammembersfullybacktheproject?Finally,althoughthemanagementteamwillnotbeevaluateduntilthethirdphaseofthebusinessplancompetition,itisadvisabletobeginlookingforsuitablepartnersassoonaspossible.Bringingtogetherjusttherightpeopletoforma”dreamteam,”sotospeak,isimmenselyimportantforlaterbusinesssuccessand,therefore,requiresagreatdealoftimeandcare.23 KEYQUESTIONS:ManagementteamPhase3!Whoarethemembersofyourmanagementteamandwhatdistinguishesthem:education,professionalexperience,success,standinginthebusinessworld?!Whatexperienceorabilitiesdoestheteampossessthatwillbeusefulforimplementingyourconceptandsettingupyourcompany?!Whatexperienceorabilitiesarelacking?Howwillthegapsbeclosed?Bywhom?!Whatgoalsdotheteammemberspursuebystartingupthebusiness?!Howhighisthemotivationofeachindividualteammember?4.4.Marketandcompetition”Ifthereisnocompetition,thereisprobablynomarket.”BrianWoodThoroughunderstandingofyourcustomersandtheirneedsisthefoundationofeverysuccessfulbusiness.Foritisthecustomerswhogiveyourcompanyareasonforbeing.Andintheend,bybuying–ornotbuying–yourproduct,orservice,theywilldecideifandhowsuccessfulyourcompanywillbe.Onlythosecustomerswhoareconvincedtheyaregettingagreatervaluethantheywouldfromacompetingproduct,orbynotbuyingaproductatall,willbuyyourproduct.Knowingyourmarketandcompetitionwellisthuscriticaltothesuccessofyourundertaking.MarketsizeandgrowthAdramaticincreaseinthevalueofthecompanycanbeexpectedonlyifthemarketholdsgreatpotential.Themarketsizeshouldbepresentedinfiguresrepresentingthenumberofcustomers,unitsales,andtotaldollarsinsales.Yourexpectationsformarketgrowtharecritical.Youshouldalsoindicatewhatmainfactorsarenowinfluencingormayinfluencethegivenindustrysegment.Showwhatfactorswillaffectdevelopments(technology,legislativeinitiatives,etc.)andwhatrelevancethesefactorshaveforyourbusiness.Workwithafocusinordertosaveyourselfsomeenergy:Workwithhypotheses,makealistofquestionsyouwantanswered,whatinformationyouwillneed,andwhereyoumightfindit.Theexternaldatanecessaryforananalysisareofteneasiertoobtainthanyoumightthink.Becreativeanddetermined;makeuseofallpossiblesourcesincludingtradeliterature(journals,marketstudies,scholarlyessays),industrydirectories,associationsandgovernmentagencies(statisticsoffices,chambersofcommerce,patentoffices),banksforindustrysurveys,databases,theInternet(keepyoursearchesfocused),and,ofcourse,interviews.Itoftenhelpstocallaround.Usingashortdiscussionoutlinewillincreaseyourefficiencyandproductivity,aswellasthewillingnessofyourpartytodiscloseinformation.24 Thiscollectionofindividualpiecesofdataseldomprovidesadirectanswertoyourquestions–youwillhavetodrawwell-foundedconclusionsormakesoundestimates.Whenmakinganestimate,observethefollowing:·Buildonasolidfoundation.Theremaybemanyunknowns,butifyourelyoneasilyverifiablefigures,yourestimatewillbehardertotopple.·Thinklogically.Anestimateshouldbealogicalconclusion(i.e.,itshouldnothaveanyleapsinlogicordependonunspecifiedassumptions).·Compareyoursources.Checkyourfacts,suchasstatementsmadeinaninterview,withanumberofdifferentsourcesifatallpossible.·Becreative.Theshortestdistancetoyourgoalisnotalwaysastraightline.Forexample,whenavariableisunknown,lookforasubstitutevariablethatrelatestotheoneyouneed.·Checkforplausibility.Foreachestimate,askyourself,”Doesthisresultreallymakesense?”MarketsegmentationFollowupyourgeneralexplanationswithyourchoiceoftargetcustomerandyourplannedmarketsuccess(salesvolumes,salesrevenues,marketshare,andprofit).Todothis,youmustsegmentyourmarket.Thechoiceofsegmentationcriteriaisuptoyou,aslongasyouarecertainthatthenumberofcustomersineachsegment-aswellastheirbehavior-canbedetermined,andthatthecustomerswithineachsegmentcanbereachedbymeansofthesamemarketingstrategy.Possiblecustomersegmentationcriteriafortheconsumergoodsmarkets:!Location:country,urban/rural(populationdensity)!Demographics:age,sex,income,profession,companysize!Lifestyle:techies,counterculture,activeseniors!Behavior:frequencyofproductuse,productapplication!Buyinghabits:brandpreferences,priceconsciousnessPossiblecustomersegmentationcriteriaforindustrialgoodsmarkets:!Demographics:companysize,industry,location!Operations:technologyemployed(e.g.,digital,analog)!Buyinghabits:centralizedordecentralizedpurchasing,purchasingcriteria,supplieragreements!Situationalfactors:urgencyofneed,ordersize25 Definethepotentialsalesrevenuesforagivenperiodpersegment.Takeyoursalesstrategyandthebehaviorofthecompetitionintoconsideration.Dependingontheindustry,youmayalsowanttoallowforpriceerosion.CompetitionDefinethestrengthsandweaknessesofyourcompetitors.Todothis,evaluateyourmajorpotentialcompetitorsusingthesamecriteria,suchassalesvolumeandrevenues(pricing),growth,marketshare,costpositioning,productlines,customersupport,targetgroups,anddistributionchannels.Intheinterestofbrevity,forgotheuseofagreatdealofdetail.Evaluateyourowncompanyaccordingtothesesamecriteriaandmakeacomparisonastohowsustainableyourcompetitiveadvantagewillbe.Positioningvis-à-visthecompetitionWhyshouldapotentialcustomerbuyyourproductandnotthatofyourcompetitor?Becauseitoffersgreatervalue(insomeaspectthatisimportanttothecustomer)thancompetingproducts;becauseitisobjectivelyoremotionally”better;”or,asmarketingexpertswouldsay,youhavedevelopedavaluepropositionoruniquesellingpropositionforyourbusinessidea.Formulatingthisvaluepropositionandanchoringitfirmlyinthemindofthecustomeristhemaintaskofmarketingcommunication.Marketingexpertstalkaboutthepositioningofaproduct,brand,orbusiness.Well-positionedproductsleaveconsumerswithaparticularimpression.Themostimportantguidelineforpositioningis,therefore,tolookattheproductfromthecustomer’spointofview.Thepointistomeetaneedbetter,nottopresentnewproductattributes.Theadvantagetothecustomermustbeimmediatelyclear,memorable,andimportant.Atthesametime,yourpositioningmustbedistinctivefromthatofcompetitors.Onlythencancustomersconnectthevaluepropositionthatyouofferwiththenameofyourproductorbusinessandbuyyourproduct.Thefollowingguidelinesmayhelp:·Identifyrelevantcustomerneedsorproblems·Defineclearcustomersegmentsofsufficientsize·Designanattractiverangeofproductsandservices·Makeyourselfuniquethroughdifferentiationfromthecompetition·Addressthesubjectiveperceptionofthecustomer·EnsurecustomersatisfactionevenafterpurchaseBecausepositioningissocriticaltothemarketsuccessand,therefore,tothelong-termsuccessofyourbusiness,youshouldpayparticularattentiontoit.Persuasivepositioningwillnotcomeaboutimmediately,itwillbearesultofintenseeffortandwillneedfrequentrevisiontoachievethemaximumeffect.Thepointofdepartureforpositioningistheproductitself.Additionalinsightwillbefoundasyourefineandmodifyyourproductduringdevelopmentandrespondtonewrevelationsasaresultofcustomersurveys.26 KEYQUESTIONS:MarketandcompetitionPhase1!Howistheindustrydeveloping?!Whatfactorsaredecisiveforsuccessinyourindustry?!Whatroledoinnovationandtechnologicaladvancesplay?!Howwillyousegmentthemarket?!Whatmarketvolumesdotheindividualmarketsegmentshave,nowandinthefuture(roughestimates)?!Whoareyourtargetcustomergroups?!Whatcustomerexamplescanyougive?!Whatmajorcompetitorsoffersimilarproducts/services?!Whatnewdevelopmentscanbeexpectedfromcompetitors?!Howsustainablewillyourcompetitiveedgebe?Phase2!Whatmarketvolume(valueandamount)doyouestimateforyourindividualmarketsegmentsoverthenext5years?!Whatwillinfluencegrowthinthemarketsegments?!Whatisyourestimateofcurrentandfutureprofitabilityoftheindividualmarketsegments?!Whatmarketsharesdoyouholdineachmarketsegment?!Whatsegmentsareyoutargeting?!Whoareyourreferencecustomers?Howdoyouplantogetreferencecustomers?!Whatroledoservice,consulting,maintenance,andretailsalesplay?!Howmuchdoyoudependonlargecustomers?!Whatarethekeybuyingfactorsforcustomers?!Howdoesthecompetitionoperate?Whatstrategiesarepursued?!Whatarethebarrierstomarketentryandhowcantheybeovercome?!Whatmarketsharedoesyourcompetitionhaveinthevariousmarketsegments?!Whattargetgroupsdoyourcompetitorsaddress?!Howprofitableareyourcompetitors?!Whatareyourcompetitorsmarketingstrategies?!Whatdistributionchannelsdoyourcompetitorsuse?!Howsustainablewillyourcompetitiveedgebe?Why?!Howwillcompetitorsreacttoyourmarketlaunch?Howwillyourespondtothisreaction?!Comparethestrengthsandweaknessesofyourmajorcompetitorswithyourownintheformofanoverview!4.5.Marketingandsales”Marketingisfartooimportanttobelefttothemarketingdepartment.”DavidPackard,Entrepreneur27 Keyelementsofawell-conceivedbusinessconceptarewell-plannedmarketingandsalesactivities.Theyrequireapersuasivedescriptionofyourstrategiesformarketlaunch,marketing,andthemeasuresplannedforsalespromotion.Askeletonframeworktofollowisthatofthefour”Ps”:product,price,place,andpromotion.1.ProductYouroriginalproductideahasalreadygivenyousomesenseofthecharacteristicsofyourproduct.Afteracloseranalysisoftheneedsofvariouscustomersegments,younowmustevaluatewhetheryourproductactuallymeetsthemortowhatextentitmayrequireadaptation.Thisraisesthequestionofwhetheryoushouldmanufactureonesingleproductforallsegmentsorwhetheryouwanttoadjusttheproducttomeettheneedsofindividualsegments.2.PriceThebasisforanattainablepriceisthewillingnessofcustomerstopaythepriceaskedofthem.Thiscontradictstheconventionalwisdomthatpriceisderivedfromcosts.Ofcourse,costisaconsiderablefactor,butthecost-priceratioonlybecomescriticalwhenthepriceaskedwillnotcovercostswithintheforeseeablefuture.Inthiscase,itisadvisabletogetoutofthebusinessasquicklyaspossibleor,betteryet,nevertogointothebusinessinthefirstplace.Thepriceyoucanaskdependsentirelyonhowmuchthevalueofyourproductisworthtothecustomer.Youhavedefined,andperhapsquantified,thecustomervalueinthebusinessconceptorproductdescription.Nowdefineapricebracketbasedonthequantifiedcustomervalueofyourproduct.Youcanverifyandrefineyourassumptionsthroughdiscussionswithpotentialcustomers.Thepricingstrategyyouchoosedependsonyourgoal:Doyouwanttopenetratethemarketquicklybygoingwithalowprice(penetrationstrategy)?Or,doyouwanttogeneratethehighestpossiblereturnfromtheout-set(skimmingstrategy)?Newcompaniesgenerallypursuetheskimmingstrategyforgoodreason:·Anewproductispositionedas”better”thanpreviousoptions,soahigherpricecanbejustified.·Higherpricesgenerallyleadtohigherprofitmarginsandallowthenewcompanytofinanceitsowngrowth.Newinvestmentscanbefinancedoutofprofitsandoutsideinvestorsarenolongerneeded.·Unliketheskimmingstrategy,thepenetrationstrategygenerallyrequireshighinitialinvestmentinorderforsupplytomeetthehighdemand.Thisheightenedinvestmentriskissomethinginvestorsusuallyprefertoavoid.Certainsituationsmakefollowingapenetrationstrategythebetterchoice:·Settinganewstandard.NetscapedistributeditsInternetbrowserfreeofcharge,thussettingastandard.WiththeMacintosh,however,Apple28 followedaskimmingstrategyandmissedthechancetoestablishtheMacasthenewstandard.·Highfixedcosts.Businesseswithhighfixedcostsareforcedtofindawideaudienceasquicklyaspossibletomakethosecostsworthwhile.FixedcostsatFederalExpress,forexample,forairtransportandsortingfacilities,arethesamewhethertheydeliverthousandsormanymillionsofletters.·Competition.Iftheentrybarriersarelowandtoughcompetitionislikely,apenetrationstrategyisthebestwaytobefasterthanthecompetitionincapturingalargemarketshare.Suchcasesnaturallyalsoraisethequestionastowhetherthistypeofbusinessisappropriateforastart-up.3.PlaceYourproductorservicewillsomehowhavetoreachthecustomerphysically.Althoughthismaysoundsimple,itinvolvesanothermonumentalmarketingdecision:Inwhatway,viawhichdistributionchannel,doyouwanttodeliveryourproduct?Thechoiceofdistributionchannelisinfluencedbyvariousfactors,suchashowmanypotentialcustomerswillyouhave?Aretheycompaniesorindividuals?Howdotheyprefertoshop?Doestheproductrequireexplanation?Isitinanupperorlowerpricebracket?Basically,youwillhavetoconsiderwhetheryourcompanywillhandledistributionitself,orwhetheraspecializedoperationwillhandleitforyou.Thissortof”make-or-buy”decisionwillhaveasignificantimpactonboththeorganizationandthebusinesssystemofyourenterprise.Thechoiceofdistributionchannelisthuscloselyrelatedtoothermarketingdecisionsandwill,inturn,affectothermeasures.Distributioncanberoughlycategorizedintotwoforms:directormulti-channel.Technologicaldevelopments,particularlyininformationtechnology,havegreatlyexpandedthespectrumofdistributionchannelsoverthepastfewyears.Hereisaselection:·Third-partyretailers.Productsaresoldviaretailerswhohaveeasyaccesstopotentialcustomers.Here,itisimportanttoacquireagoodshelfposition,whichisobviouslyalsosoughtbythecompetitionandisaccordinglyexpensive.Theproductmustalsoofferretailersanattractiveprofitiftheyaretoincludeitintheirrangeatall.·Outsideagents.Specializedcompaniesactasagentsforthedistributionofproductsfromvariousmanufacturers.Theytakeoverthefunctionofthein-housesalesperson.Outsideagentsarerelativelyexpensive,althoughonlyforthesalestheyconcludesuccessfully.Theymakenocommissioniftheydonotselltheproduct,makingthemanattractivechannelfornewcompaniessinceriskislimited.Goodagents,however,arenotalwayseasytofind.·Franchising.Abusinessconceptisputintopracticeindependentlybyafranchiseewhopaysalicensingfee,wherebythefranchisermaintainscontrolofthebusinesspolicies(McDonald’sisanexample).Franchisingenables29 rapidgeographicgrowth,whileensuringcontrolofthesalesconceptwithouthugepersonalinvestment.·Wholesalers.Itcanbedifficultforasmallcompanytomaintaincontactwithalargenumberofretailers.Awholesalerwhohasgoodcontactstotheretailtradecantakeoverthisactivity,helpingtoimprovemarketpenetrationwhileloweringdistributioncosts.Ontheotherhand,wholesalersoftendemandacutfortheirefforts.·Stores.Sellinginyourownstoreisagoodchoicewhenthedesignofthepurchasingexperienceiscentraltotheproduct,andonlyasmallnumberofstoresisnecessarytocoverthemarket.Independentshopswillrequireinvestment,butwillalsoallowthegreatestcontroloverdistribution.·Ownsalesstaff.Salesagentsareabovealldeployedwhentheproductiscomplex(e.g.,capitalgoods),requiringextensiveknowledgeoftheproduct.Face-to-facecustomervisitsareexpensive;thenumberofcustomersmustbefairlysmall.Havingyourownsalesstaffasthedistributionchannelisrelativelyexpensiveandonlyworthwhileforinvolvedproducts.·Directmail.Selectcustomersreceiveamailingthroughthepostalservice.Addressescanbepurchasedfromdatabasecompaniesandsortedaccordingtodesiredcriteria.Thesuccessofthedirectmailingdependsonwhetherthereaderfeelsanimmediateappeal–otherwise,itlandsinthewastebasket.·Callcenter.Throughadvertising,customersareinvitedtoorderaproductbytelephone.Simpleproductscanbedistributedtomanycustomersinthisway,withnoneedtosetupstoresthroughouttheentiresalesregion.Youcanalsohiretheservicesofspecializedcallcenteroperators.·Internet.TheInternetisarelativelynewmarketingchannel,throughwhichaglobalmarketcanbereachedatminimalcost.4.PromotionBeforepotentialcustomerscanappreciateyourproduct,theyhavetohearaboutit.Andtoachievethis,youmustadvertisetoattractattention,inform,persuade,andinspireconfidence.Thosearetheobjectivesofcommunication.Communicationmustexplainthevalueofyourproductorservicetoyourcustomers,aswellasconvincecustomersthatyourproductmeetstheirneedsbetterthancompetingoralternativesolutions.Therearevariouswaysofgettingthecustomer’sattention:·Classicadvertising:newspapers,magazines,tradejournals,radio,TV,movietheaters·Directmarketing:directmailtoselectcustomers,telephonemarketing,Internet·Publicrelations:articlesinprintmediaaboutyourproduct,businessoryou,writtenbyyouorajournalist30 ·Exhibitions,tradefairs·CustomervisitsCommunicationisexpensive,somakethemostofit.Calculateexactlyhowmuchadvertisingyoucanaffordpersaleandchooseyourcommunicationmessagesandmediaaccordingly.Focusedcommunicationyieldsthebestresults.Whenyouaddressyourcustomers,focusonthepeoplewhomakethepurchasingdecisionorhavethegreatestinfluenceonthepurchasingdecision.KEYQUESTIONS:MarketingandsalesPhase1!Whatfinalsalepricedoyouwanttocharge(estimated)?Whatcriteriadidyouusetoarriveatthisfinalsaleprice?Howhighistheprofitmargin(estimated)?!Whatsalesvolumesandsalesrevenuesareyouaimingfor(estimated)?Phase2!Inwhichpartialmarketsegmentswillyoumakeyourmarketentry?Howdoyouplantoturnthis“toehold”intoahigh-volumebusiness?!Whatsalesvolumesareyoutargeting(detaileddatabymarketsegment)?!Describethetypicalprocessofsellingyourproduct/service.Who,amongyourbuyers,ultimatelymakesthepurchasingdecision?!Whattargetgroupswillyoureachbywhatmeansofdistribution?!Doyouwanttopenetratethemarketquicklywithalowprice,orbringinthehighestreturnfromthestart?Explainyourdecision!!Howwillyoudrawtheattentionofyourtargetgroupstoyourproductorservice?!Howwillyouwooreferencecustomers?!Howmuch,intimeandresources,willitcosttoacquireacustomer?!Whatadvertisingmaterialswillyouusetodoso?!Whatpartdoservice,maintenance,andhotlinesplay?!Howdifficultwillitbeand/orwhatwillitcosttocreatelong-lastingcustomerloyalty?!Whatotherplanningstepsarenecessaryintherun-uptolaunchingyourproduct/service?Drawupaschedulewiththemostimportantmilestones!Phase3!Whatdemands(employeenumber,qualifications,andoutfitting)musttheoperationmeetinordertoeffectivelyimplementitsmarketingstrategy?Whatisyourestimatedexpenditureforthisarea?!Howwillsalesvolumeandoperatingresultsbespreadoutamongthevariousdistributionchannels(estimated)?!Whichmarketshareperdistributionchanneldoyouplantocapture?!Whatareyourexpenses?Atlaunch–andlater.!Whatpricewillyouchargeforyourproduct/servicepertargetgroupanddistributionchannel?!Whatpaymentpolicieswillyoulaydown?31 4.6.Businesssystemandorganization”Organizationsexisttoenableordinarypeopletodoextraordinarythings.”TedLevitt,Editor,HarvardBusinessReviewBusinesssystemEveryentrepreneurialassignmentiscomprisedoftheinterplayofanumberofindividualactivities.Whentheyarepresentedsystematicallyinrelationtooneanother,abusinesssystemresults.Thebusinesssystemmodelmapsouttheactivitiesnecessarytoprepareanddeliverafinalproducttoacustomer.Forclarity’ssake,theyaregroupedintofunctionalblocks.Devisingabusinesssystemisagoodwaytounderstandthebusinessactivitiesofacompany,thinkthemthroughsystematically,anddisplaythemwithtransparency.AgenericbusinesssystemcommontonearlyallindustriesandenterprisesisshowninExhibit10.GENERICBUSINESSSYSTEMResearchandProductionMarketingSalesServicedevelopmentExhibit10Usetheabovemodelasthestartingpointfordesigningyourownbusinesssystem.Youwillneedtoadaptittoyourownsituationandmakeitconcreteinordertoputitintopractice.Foramanufacturer,forexample,itmaybeusefultosubdividetheproductioncategoryintoseparatestages,suchaspurchasing,rawmaterialsprocessing,componentmanufacture,andassembly.Youmayalsoneedtoseparatesalesintologistics,wholesaledistribution,andretailsales,forexample.Anindividualplanwillbeappropriatetoeachcase,dependingontheindustryinwhichyouoperateand,ofcourse,thebusinessitself.Thebusinesssystemofacomputermanufacturerwillbeverydifferentfromthatofafastfoodchain.Andthebusinesssystemofadepartmentstoremaylookquitedifferentfromthatofadirectmerchandisingcompanyalthoughbothwillsellmanyofthesameproducts.Therearenogeneralrulesorstandardsforabusinesssystem.Yourownsystemshouldbelogical,complete,andusefulforplanning–justdon’tletitgettoocomplicated.Concentrateonthemajoractivitiesinyourbusinesssystem.Ateamofthreetofivewillnotbeabletocoveralltasksthemselves,eitherbecausetheydonothavetheabilitiesorbecausetheycouldnotdosowiththenecessaryefficiency.Togetherwithyourmanagementteam,thinkcarefullyaboutwhatactivitiesreallycreatesomethingnewandhowyouandyourstaffcanbestmakeuseofyourtimetocreatethehighestvalueforyourcustomerandgetaheadofthecompetition.Thebuzzwordhereisfocus.Onceyouhavedeterminedwhichactivitiesmakeup32 yourbusinesssystem,choosethosewhichyoucanexecutebetterthananyoneelse.Atrendtowardspecializationcanbeobservedinmanyindustries.Specializationisparticularlyimportantforstart-ups.Theyshouldconcentratealltheirenergyonjustafewselectactivitiesinthebusinesssystem.Atthebeginning,evensoftwaregiantMicrosoftconcentratedsolelyonthedevelopmentoftheDOS,leavingallotheractivitiesinthebusinesssystemuptoIBM.OrganizationInadditiontoabusinesssystem,youwillneedtoconsiderseveralotherorganizationalissues.Itisessentialthattasksandresponsibilitiesbeclearlydelegatedandthatyoudesignasimpleorganizationwithfewlevels.Therestwillfollowasneededduringoperation.Yourorganizationmustbeflexibleandalwaysadaptabletonewcircumstances.Bepreparedtoreorganizeyourcompanyrepeatedlyduringthefirstfewyears.Decidewhoisresponsibleforwhatineachbusinessarea(delegationoftasksandresponsibilities).Assoonasyouhavesetuptheinterdisciplinaryfunctions-suchasamanagement,humanresources,finance,andadministration-you’llbeupandrunning.Ifyoukeepyourorganizationsimple,eachstaffmemberwillknowwhichassignmentsheorshemustcompleteandcancarrythemoutindependently.Ontheotherhand,everyoneshouldbeinapositiontofillinforanotherteammemberforashorttimeifnecessary.(SeeExhibit11)SAMPLESTART-UPORGANIZATIONManagingDirectorMr.DuxResearchandProductionMarketingFinanceHumanDevelopmentResourcesandAdministrationMr.InventMr.FacitMs.OratoriaMr.PecuniaMr.DuxExhibit11BusinesslocationDescribebrieflythechoiceoflocationforyourbusiness.Donotenterintoalong-termrentalagreement,asyourbusinessmayhavetomoveinresponsetothegrowthyouanticipate.Youmayhavetomakethismovefairlyquickly.”Makeorbuy”andpartnershipdecisionsOnceyouhavedeterminedthecoreofyourbusinessandhavedrawnupthenecessarybusinesssystem,youwillhavetothinkaboutwhowillbestcarryouttheindividualactivities.Activitiesoutsideyourchosenfocusshouldbehandledbythirdparties.Butsupportingactivitieswithinthenewcompanydonotnecessarilyhavetobecarriedoutbyyou.Thesemayinclude33 bookkeepingorhumanresources.Foreachactivity,thequestiontoaskis:Dowedoitourselves,orhavesomeoneelsedoit-tomakeortobuy?Make-or-buydecisionsneedtobeconsciousdecisionstakenafterweighingtheadvantagesanddisadvantages.Supplierpartnerships,forexample,cannotbedissolvedfromonedaytothenext,andsomepartnerscannoteasilybereplacedif,forsomereason,theyarenolongeravailable.Whenconsideringmake-or-buydecisions,relyonthefollowingcriteria:·Strategicsignificance.Thoseaspectsofperformancethatmakeamajorcontributiontoyourcompetitiveadvantageareofstrategicimportancetoyourbusiness.Theymustremainunderyourcontrol.Atechnologycompanycouldhardlyrelinquishresearchanddevelopment,andaconsumergoodsmanufacturerwouldnevergiveawayitsmarketingactivities.·Suitability.Everybusinessactivitydemandsspecificabilitiesthatmaynotbeavailablewithinthemanagementteam.Yourteammust,therefore,considerwhetherinspecificinstancesitisbesttocarryoutaparticulartask,acquiringthenecessaryabilities,orwhetheritwouldbebettertohandoverthetasktoaspecializedcompany.Specialistsmaynotonlybeabletocarryouttheassignmentbetter,theymayalsobeabletoofferacostadvantagethankstohigherproductionvolumes.·Availability.Beforeyoumakeadecisiontobuy,youneedtofindoutwhethertheproductorserviceisavailableintheformorwiththespecificationsyourequire.Negotiate,wheneverpossible,withseveralsuppliers.Youwillusuallyfindthebesttermsinthiswayandwilllearnmoreabouttheserviceyouarebuying.Often,youcanhelpasupplierimproveitsperformance.Ifyoucannotfindsomeonetosupplywhatyouneed,youmayfindabusinesspartnerwhoiswillingtoacquirethenecessaryskillstodoso.Thequestionforastart-upishowyouwanttocooperatewithothercompanies.Everypartnershiphasitsadvantagesanddisadvantages.·Informal,non-bindingpartnershipsrepresentnogreatobligationforeitherside.Bothpartiescanendthepartnershipquicklyandeasily.Buttheymustalsolivewiththeknowledgethatsupplyordemandcoulddryupjustasquickly.Furthermore,supplierswillnotbeabletomeetallthespecialneedsofacustomersincetheycannotselltailoredproductstoalltheircustomers.Casualpartnershipsaretypicalformassproducts,every-dayservices,andstandardizedcomponentsforwhichreplacementbuyersandsellersareeasilyfound.·Closepartnershipsaresometimescharacterizedbyahighdegreeofinterdependence.Theyaretypicalofhighlyspecializedproductsandservicesorhightradevolumes.Inthesesituations,itisusuallydifficultforbothsidestochangepartnersortobuyorselllargequantitiesofspecialparts34 withinashorttimeperiod.Theadvantageforbothsidesisthesecurityofabindingrelationshipandthepossibilityofconcentratingonone’sownstrengths,whilebenefitingfromthestrengthsofpartners.Inorderforapartnershiptodevelopintoasuccessfulbusinessrelationship,anumberoffactorsmustbeconsidered:·Win-winsituation.Bothsidesmustbeabletogainafairadvantagefromtherelationship.Withoutanincentiveforbothsides,apartnershipcannotbesustained.·Risksandinvestments.Partnershipsinvolverisksthatareusuallybrushedasidewhenbusinessisgoingwell.Asupplierwithanexclusivityagreementcan,forexample,endupinadifficultsituationifthebuyersuddenlycutsbackproductionandpurchasesfewercomponents.Thisisespeciallytrueifthesupplierhasacquiredspecializedproductiontoolingthatcannotimmediatelybeusedforotherordersandbuyers.Conversely,abuyercanfacedifficultiesifamajorsupplierceasestodeliver(bankruptcy,fire,strike,etc.).Suchrisksandpossiblefinancialconsequencesmustbethoughtthroughfromtheoutsetandperhapsregulatedbycontract.·Dissolution.Asininterpersonalrelationships,businessrelationscanalsosuffertensionandresultinirreconcilabledifferences.Makesuretolaydownindetailunderwhichconditionsapartnercanwithdrawfromapartnership.Whenworkingonyourbusinessplan,itisnottooearlytobeginthinkingaboutwhomyoumaywanttocooperatewithandwhatformthismaytake.Partnershipswillallowayoungcompanytobenefitfromthestrengthsofestablishedcompaniesandfocusondevelopingtheirownstrengths.Throughpartnerships,youcanusuallygrowfasterthanyoucouldonyourown.KEYQUESTIONS:BusinesssystemandorganizationPhase2!Whatdoesthebusinesssystemforyourproduct/servicelooklike?!Whatactivitiesdoyouwanttohandleyourself?!Wherewillthefocusofyourownactivitieslie?!Whatbusinessfunctionsmakeupyourorganization,andhowisitstructured?!Whatresourcesdoyouneed(quantitativeandqualitative)tocreateyourproduct/service?!Howhighisyourneedfortechnicalinput(rawmaterials,materialstocreateyourservice)?!Whatwillyoumake,whatwillyoubuy?!Whichpartnerswillyouworkwith?Whataretheadvantagesofworkingtogetherforyouandyourpartners?Phase3!Wherewillyoulocateyourbusiness?35 !Whatcapacityforproductmanufactureandserviceproductiondoyouplan(numberofunits)?!Howmuchwillproductionanddeliveryofyourproduct/servicecost?!How,andatwhatcost,canyouadjustyourcapacityintheshortterm?!Whatmeasuresareplannedforqualityassurance?!Ifyouneedawarehouse,howwillyouorganizeyourinventory?!Howmuchofyourproducthastobeputinstorage?!Howareyourcostsstructured(fixed,variable)?4.7.Implementationschedule”Businessislikechess:Tobesuccessful,youmustanticipateseveralmovesinadvance.”WilliamA.Sahlmann,ProfessorInvestorswanttoknowhowyouenvisionthedevelopmentofyourbusiness.Arealistic5-yearplanwillinspirecredibilityamonginvestorsandbusinesspartners.Moreover,itwillhelpyouthinkthroughyourvariousactivitiesandinterdependencies.Youwillendangeryourbusinessifyouattempttoreachyourtargetswithfaultyand,aboveall,overlyoptimisticplanning.DrawingupyourimplementationscheduleConcentrateonthemostmajormilestonesandthemostimportantinterdependentevents.Thefollowingthreeelementswillusuallysuffice:·Ganttimplementationschedule(forasampleGantttimeline,seeCityScapecasestudy)·Majormilestones·ImportantconnectionsandinterdependenciesbetweentheworkassignmentgroupingsHumanresourcesplanningAsyournewbusinesstakesoff,systematicpersonnelplanningwillbecomemoreandmoreindispensable.Growthwillrequireyoutorecruitnewemployeeswhowillhavetobetrainedandintegratedintothebusiness.Maintainingasimplystructuredworkingenvironmentwillhelpyoudrawupclearjobdescriptionsandseekjusttherightemployees.Keepinmindthataqualified,specializedworkforcemaybedifficulttofindevenintimesofhighunemployment.Youwilloftennotbeabletoavoid”stealing”goodemployeesfromcompetitors.Includecostsinyourpersonnelplanninginordertoarriveatthetotalcostofhumanresources(wagesandindirectlaborcosts)fortheincomestatementinyourbusinessplan.Thecostofpersonneldependsonanumberoffactors,suchastheindustryitself,employeequalifications,andage.Additionally,indirectlaborcostscanamounttoover50%ofthewage.36 InvestmentanddepreciationplanningInvestmentanddepreciationplanningincludesallinvestmentsthatmaybecapitalizedandthecorrespondingwrite-offs.Theamountofdepreciationdependsontheservicelifeplannedfortheproperty.Usually,propertyiswrittenoffinfullover4to10yearsinequalannualamounts(straight-linemethod).Investmentsaretobeincludedintheliquiditycalculation,andthetotalamountofannualwrite-offslistedintheplannedincomestatement.KEYQUESTIONS:ImplementationschedulePhase3!Whatarethemostimportantmilestonesforthedevelopmentofyourbusiness,andwhenmusttheybereached?!Howdoyouplantostructuretheworktoreachthesetargets?!Whichtasksandmilestonesareinterdependent?!Forwhichtasks/milestonesdoyouanticipatebottlenecks?!Howmanynewemployeeswillyouneedintheindividualbusinessareasoverthenext5years?Whatwillthiscost?!Howmuchrealcapitalisnecessarytoachieveinitialsales?!Listyourplannedshort-terminvestments!!Listyourplannedlonger-term(3to5years)investments!!Whatinvestmentswillberequiredwhenwhichmilestonesarereached?!Howhighistheannualdepreciationforeachinvestment?37 4.8.Opportunitiesandrisks”Oneofthegreatestmythsaboutentrepreneursisthattheyareallriskseekers.Allsanepeoplewanttoavoidrisk”WilliamA.Sahlmann,ProfessorTheobjectofthisexerciseistoidentifyamarginoferrorfordeparturesfromyourassumptions.Ifpossiblewithreasonableeffort,itisadvisabletodrawupbest-caseandworst-casescenariosinvolvingkeyparameterstoidentifytheopportunitiesandrisks.Thesecalculationswillallowventurecapitaliststojudgehowrealisticyourplansare,andtobetterassesstheriskoftheirinvestment.Changevariousparametersinthescenarios(suchaspriceorsalesvolumes)tosimulatehowachangeinconditionsmightaffectyourkeyfigures(sensitivityanalysis).KEYQUESTIONS:OpportunitiesandrisksPhase2!Whatbasicrisks(market,competition,technology)doesyourbusinessventureface?!Whatmeasureswillyoutaketocountertheserisks?!Whatextraordinaryopportunities/businesspossibilitiesdoyouseeforyourcompany?!Howcouldanexpansionofyourcapitalbasehelp?Phase3!Whatwillyourplanninglooklikeforthenext5financialyearsunderbothabestandworstcasescenario?!Whateffectwillthishaveonyourneedforcapitalandyourreturn?!Inyourview,howrealisticarethesescenarios?!Whatconsequencesdotheyhaveonyourbusinessplanning?4.9.Financialplanningandfinancing”Planningsubstituteschaosformistakes.”UnknownFinancialplanningassistsyouinevaluatingwhetheryourbusinessconceptwillbeprofitableandcanbefinanced.Tothisend,theresultsofallprecedingchaptersmustbecompiledandconsolidated.Projectedgrowthinvalueresultsfromtheplannedcashflowsfromyouroperativebusiness.Thesearerevealedthroughliquidityplanning,whichalsoprovides38 informationonyourvariousfinancingneeds.Inaddition,theprofitsituationofyourbusinesscanbeseenintheincomestatement.Thisstatementisalsonecessaryaccordingtocommercialandtaxlaw.Therearemanywaystopresentthefigures.Theappendixcontainssampletablesofhowtoperformliquidityplanningandmakeupanincomestatement,aswellasabalancesheet.Minimumrequiredoffinancialplanninginyourbusinessplan:!Acashflowcalculation(liquidityplanning),incomestatement,balancesheet!Forecastsover3to5years,atleast1yearbeyondthepointofbreakingeven,thatis,beyondthegenerationofpositivecashflow!Detailedfinancialplanningforthefirst2years(monthlyorquarterly),thereafterannually!Allfiguresmustbebasedonreasonableassumptions(onlythemainassumptionsneedtobedescribedintheplan)PlannedincomestatementWhetheracompany’sassetsgrowordiminishdependsonthebottomlineattheendofayear.Theincomestatementcanhelpyouforecastthis.Incontrasttoliquidityplanning(=plannedcashflow),anincomestatementfocusesontheissueofwhethertransactionsleadtoanincrease(=revenue)oradecrease(=expense)inthenetworthofyourbusiness(definedasthesumofallassetsminusdebt).Gothroughyourentirebusinessplananddecidewhetheryourassumptionswillleadtorevenuesorexpensesand,ifso,howhightheywillbe.Ifyouareindoubtabouttheexactamountofcostsyourbusinesswillincur,gatherquotesandestimates.Donotforgettocoverthecostofyourpersonallivingexpenses.Inthecaseofalimitedliabilitycompany,thiswouldbethesalaryofyourgeneralmanager.Listwrite-offsinyourinvestmentanddepreciationplanning.Thecostofinvestmentsthemselves(i.e.,thepurchasepriceoftheinvestment)isnotincludedintheincomestatement,becausetheamountpaidoutdoesnotleadtoachangeinthenetworthofthebusiness.Materialcostscompriseallexpensesforrawmaterials,auxiliaries,expendablesupplies,andpurchasedgoodsandservices.Yourplannedhumanresourcesexpenditureincludeswagesandsalariesplussocialsecuritycontributionsandtaxesandislistedunderpersonnelcosts.Forthepurposeofsimplification,thecategory”othercosts”istreatedasacollectiveitem,includingamongotherthings,rent,insurance,officesupplies,postage,advertising,andlegalcounsel.Whenassigningindividualrevenuesandexpensesstrictlyobservelegalregulations.Finally,calculatethedifferencebetweenallrevenueandexpensesinafinancialyear,bywhichyouwillarriveatanannualnetprofit/loss.Thiswillgiveyouanoverviewoftheoperatingresult,butitwillnotgiveyouareliableassessmentofyourlevelofliquidfunds.Forthis,youwillneedliquidityplanning.39 Salesofyourproductorservicemaybebookedinthecurrentfinancialyear,eventhoughpaymentdoesnotoccuruntilthenext;youwillneedtolistthesalesrevenueeventhoughthemoneyhasnotyetbeendepositedintoyouraccounts.Thesameistrueforexpenses.Theincomestatementisgenerallyplannedinannualintervals.Toenhancetheaccuracyofyourplanningforthefirstyear,youshouldmakemonthlyforecasts,andquarterlyforecastsforthesecondyear.Forthethird,fourth,andfifthyears,continuetomakeannualprojections.YoucanmakeuseofthetablescontainedintheappendixofthisGuidetolistthefigures.LiquidityplanningYourcompanymusthaveacertainamountofcashonhandatanygiventimeinordertoavoidbecominginsolvent,whichleadstobankruptcythatwillmeanthefinancialruinofyourbusiness.Detailedliquidityplanningshouldhelpensureapositivecashflow.Theprincipleissimple:Receiptsarecompareddirectlytodisbursements.Pleasenotethatwritingorreceivinganinvoicedoesnotmeanthatthemoneyisalreadyinyouraccountorthatyouhavepaidthebill.Liquidityplanningisconcernedwiththedateofpaymentwhenthemoneyactuallycomesinorgoesout.Thus,liquidityplanninginvolvesonlythosetransactionsthatcauseachangeinyourcashreserves.Depreciation,liabilities,andnon-marketoutputarenotincluded.Layouttheamountandtimingofallthepaymentsyouexpect.Yourcompanyissolventwhenthesumofitsreceiptsisgreaterthanthesumofitsdisbursementsatanygiventime.Youwillhavetodrawoncapitalforthosetimeswhenthisplanningdoesnotcoverallexpenses.Thesumofalltheseindividualpaymentswillequalthetotalcapitalrequiredforthatplanninginterval.Thefartheryoulookintothefuture,themoreuncertainyourplanningwillbe.Liquidityplanningshouldthusbecarriedouteverymonthforthefirstyear,quarterlyforthesecondyearandonlyannuallyforthethird,fourthandfifthyears.TheappendixofthisGuidecontainstablesyoucanuseforanexactcompilationofthefigures.ProjectedbalancesheetVenturecapitalistsareinterestedinseeinghowyourassetsareexpectedtogrowasrepresentedonaprojectedbalancesheet.Here,thetypeandvalueoftheassetsareplacedontheassetsideofthebalancesheetacrossfromthesourceofthecapitalontheliabilitiesside.Aswiththeincomestatement,thereisastandardaccountingformat,requiredbylaw,forbalancesheets.Theyarepreparedatannualintervals.Again,theappendixofthisGuidecontainstablesyoucanuseforanexactcompilationofthefigures.FinancingneedsLiquidityplanningenablesyoutodeterminetheamountofcapitalyouwillneedandwhenyouwillneedit,butitdoesnotindicatehowtheseneedswillbemet.Webasicallydistinguishbetweenequity(investorshaveastakeinthebusiness)andloancapital(whichisborrowedfromoutsidesources).Selecttherightmixforyourbusinessfromthemyriadsourcesoffinancingavailabletoyou(Exhibit12).”Youcan’tgetsomethingfornothing,”thesayinggoes-andthesameistrueofmoney.Yourfamilymayasklittleinreturnforfinancialassistance;professionallendersaremoredemanding.40 Allthemanagementteamcanofferinvestorsfortheircashisapromise–notexactlyagoodpositionfromwhichtonegotiate.Nevertheless,youhaveagoodchanceofbeingSOURCESOFCAPITALATVARIOUSSTAGESOFDEVELOPMENTSeedphaseStart-upGrowthEstablishmentPersonalsavingsFamilyloansGovernmentgrantsIndividuals(usinessangelsVenturecapitalMortgagesLeasesBankloansStockexchangeExhibit12financiallysuccessfulifbusinessgoeswell,becauseprofessionalinvestorsalsohaveaninterestintopperformancefromtheteam.Beclearaboutyourneedsandexpectationsandthoseofyourinvestors.Ifyouareseekingalong-termcommitmentandaresatisfiedwithasmallcompany,youareprobablywelladvisedtomakeuseoffamilyfundsandloansfromfriendsandbanks.Youwillretainamajorityshareholding,butyouaresignificantlyrestrictingyourchancesforgrowth.If,however,youdesirerapidexpansion,youwillwanttoprocureventurecapital.Venturecapitalistswillgenerallyexpecttoobtainalargeshareofthecompany.Youmay,infact,havetorelinquishthemajorityoftheequity.Professionalinvestors,however,arenotinterestedinmanagingthebusinessaslongasyoumeetyourtargets,eveniftheyhavethemajorityshareholding.Theyhave,afterall,investedinthemanagementteaminordertoleadittosuccess.Theywillsupportyouactivelywiththeirmanagementskillsandcontributespecialtyknowledge,suchaslegalormarketingexpertise,ties,andcontacts.Adealcanbeverycomplicated.Itisalwaysadvisabletocontactexperiencedentrepreneursandgettheexpertadviceoftrustees,taxadvisors,andlawyers.Youmayalsowanttogatheranumberofbidsfromvariousinvestors.Donotbeputoffbycomplicatedarrangements.Thereareusuallylegitimatereasonsforthem,suchastaxbreaks,controlofthefundsinvested,etc.Beabsolutelycertain,however,thatyouunderstandallthedetailsofthedeal.Calculatingtheinvestor’sreturn41 Investorsevaluatethesuccessofaninvestmentbythereturntheygetonthecapitalinvested.Asaresult,anticipatedreturnshouldbeapparentataglanceinthebusinessplan.IntheCityScapecasestudy,forexample,investorsputatotalof$2.5millionintotheenterpriseduringitsfirst3years($0.9,$1.1,and$0.5million,respectively).After5years,andlistingonthestockexchange,realisticproceedsofapproximately$25millionareexpected.Howhighisthereturninthiscase?(Exhibit13)CALCULATINGTHERETURN$Millions25.00-1.06Year0Year1Year200Seriesofcashflows-0.90-0.53Year3Year4Year5-1.06Discountfactor1.000.580.340.200.110.07Discountedvalueof-0.90-0.62-0.18001.70Total0cashflowsatIRRof72%Exhibit13Fromthepointofviewoftheinvestor,allfundscontributedtoanewcompanyresultfirstinnegativecashflows.Afterabusinessbreakseven,positivecashflowswillnotimmediatelybepaidoutintheshapeofdividends,butwillbefirstusedtostrengthenthebalancesheet.Cashwillbereturnedtotheinvestorsatrealization.Becausecashflowswilloccuroverseveralyears,theymustbediscounted,thatis,calculatedbacktothepresent(interestandcompoundinterestcalculation).Thediscountfactorsforthevariousyearscanbearrivedatusingthefollowingformuladiscountfactor=1(1+r)Twherebyr=thediscountrateinpercentandT=theyearinwhichthecashflowtakesplace.Tocalculatethereturn,theinternalrateofreturn(IRR)methodisused.TheIRRisthediscountrateatwhichthesumofallpositiveandnegativecashflows,discountedatpresent,resultsinzero.TheIRRfortheCityScapeprojectexampleis72%.Thatmeansthattheinvestorsgetanannualreturnof72%ontheircapital.Thisisareasonablereturnconsideringtheriskinvolved.MostcalculatorsandspreadsheetshaveaspecialIRRfunctionwithwhichtocalculatetheIRR(inExcelthisistheIRR()function).Itcanalsobecalculatedbyhand.42 Valuationofacompany(i.e.,workingouthowmuchamarketispreparedtopayforshareswhenabusinessgoespublic)isanartinitself.Asimpleruleofthumbisthatthevalueissixtoeighttimesthecashflowornetprofit(aftertaxes)ofthebusinessintheyearofinitialpublicoffering.InthecaseofCityScape,afactorofsixmultipliedbythenetprofitinthefifthyear($4.2million)wasused,whichresultsinavaluationof$25.2million.Ifyouhavenoexperienceinfinancialplanning,consultingwithcoachesorexperts(e.g.,taxconsultantsoraccountants)ishighlyrecommended.Inparticular,discusstheissuesofturnoversalesandincometaxes,whichhavebeensimplifiedhere,withataxadvisoratoneofthecompetitioneventslistedatthefrontofthisGuide.Notethatmostbusinessventuresfailduetolackoffinancialplanning.Ifyoudon’thavesomeonewiththenecessaryskillsonyourteamalready,startlooking!KEYQUESTIONS:FinancialplanningandfinancingPhase3!Howwillyourrevenues,expenses,andincomedevelop?!Howwillyourcashflowdevelop?Whenwillyouexpecttobreakeven(=sumofallrevenuesgreaterthanthesumofallexpenses)?!Howhighisyourneedforfinancingbasedonyourliquidityplanning?!Howmuchcashisneededintheworstcasescenario?!Whatassumptionsunderlieyourfinancialplanning?!Whichsourcesofcapitalareavailabletoyoutocoveryourfinancingneeds?!Whatdealareyouofferingpotentialinvestors?!Whatreturncaninvestorsexpect?!Howwilltheyrealizeaprofit(exitoptions)?Thispageintentionallyblank43
简介：TableofContents1.TheRoutefromConcepttoCompany…………………………………………………………………….21.1.Successfactors………………………………………………………………………………………………21.2.Stagesofdevelopment………………………………………………………………………………….32.TheBusinessIdea……………………………………………………………………………………………………62.1.Developingabusinessidea…………………………………………………………………………..62.2.Elementsofapromisingbusinessidea………………………………………………………….72.3.Protectingyourbusinessidea……………………………………………………………………..102.4.Presentingyourideatoinvestors………………………………………………………………..113.TheBusinessPlan………………………………………………………………………………………………….133.1.Advantagesofabusinessplan…………………………………………………………………….133.2.Characteristicsofasuccessfulbusinessplan……………………………………………….133.3.Theinvestor’spointofview………………………………………………………………………..153.4.Tipsonpreparingaprofessionalbusinessplan…………………………………………..174.StructureandKeyElementsofaBusinessPlan……………………………………………………..194.1.Executivesummary…………………………………………………………………………………….194.2.Productorservice……………………………………………………………………………………….214.3.Managementteam………………………………………………………………………………………224.4.Marketandcompetition……………………………………………………………………………..244.5.Marketingandsales…………………………………………………………………………………….274.6.Businesssystemandorganization………………………………………………………………324.7.Implementationschedule……………………………………………………………………………364.8.Opportunitiesandrisks………………………………………………………………………………384.9.Financialplanningandfinancing………………………………………………………………..381 1.THEROUTEFROMCONCEPTTOCOMPANYNew,innovativecompaniesgenerallytrytogrowfromstart-upsintoestablishedcompanieswithin5years.Buttheycanseldomfinancetheiractivitiesalonealongtheway.Rather,theyaredependentonprofessionalinvestorswithconsiderablefinancialclout.Forentrepreneurs,financingisacriticalquestion–thebusinessplanmustthusbeconsideredfromthepointofviewofpotentialinvestorsrightfromtheoutset.1.1.SuccessfactorsSuccessfulcompaniesarisefromacombinationoffiveelements(Exhibit2).KEYFACTORSFORSUCCESSOFINNOVATIVESTART-UPSIdeas•Degreeofinnovation•Scope•PatentNetworkandexchange•CoachingTraditionalservicePeople•Networkingproviders•Inventors•Teambuilding•Attorneys•Entrepreneurs•Innovativeserviceprovider•Patentlawyers•Team–Venturecapitalists•Taxconsultants/members–Headhuntersaccountants–Angelinvestors•Market–High-techstart-upresearchersconsultantsCapital•Availability/amount•Needs/responsibilities•ExitsforinvestorsExhibit21.Nobusinessconcept,nobusinessHavinganideaisjustthebeginningofthecreativeprocess.Manyentrepreneursareinitiallyinfatuatedwiththeirinspiration,losingsightofthefactthattheirideaisthepointofdepartureforalongprocessofdevelopmentwhichmustface–andwithstand–toughchallengesbeforeitcanenjoyfinancingandmarketsuccessasamaturebusinessconcept.2.MoneymattersWithoutsomebodywhoinvestsmoneyintotheideatogrowitintoaviablebusiness,thisbusinesswillneverbecomeareality.Fromearlyon,therefore,muchattentionmustbepaidtoconvincinginvestorstoprovidethenecessaryfunding.2 3.Noentrepreneurs,noenterpriseGrowingnewfirmsisnotaone-personjob.Itcanonlysucceedwithateamof,usually,threetofiveentrepreneurswhosetalentsarecomplementary.Puttingtogetherwell-functioningteamsisadifficultprocess–onethattakestime,energy,andanunderstandingofhumannature.Donotloseanytimeinputtingyourteamtogetherandworkonperfectingitthroughouttheentirestart-upprocess.Thecharacteristicsofahigh-performancemanagementteamarediscussedinmoredetailinsection6.3ofthisGuide.4.TraditionalserviceproviderswillhelpyouclearthefirsthurdlesYouwilloftenneedtheadviceofprofessionalserviceproviders,suchaspatentlawyers,taxadvisors,andmarketresearchers-especiallyatthebeginning.Gettingtherightinformationearly(e.g.,forregisteringapatent)canhaveconsequencesforlatersuccessorfailure.5.Strongnetworksarea”shotinthearm”foreverynewcompanyProfessionalguidanceforpotentialentrepreneursthroughanetworkofsponsors,entrepreneurs,venturecapitalists,andserviceprovidersisdecisiveintransformingviableideasintorealcompanies.PrimeexamplesforsuchregionalnetworkscanbefoundinSiliconValleyandtheBostonarea.1.2.StagesofdevelopmentThetypicalprogressionofthestart-upanddevelopmentofgrowingcompaniesintoestablishedfirmscanbesubdividedintothreestages.Theendofeachstageservesasamilestoneforventurecapitalistsbywhichtogaugethestatusoftheirinvestment.Beingfamiliarwitheachstageandthechallengesitposesmayspareyouwastedenergyanddisappointment.Pleasenote,however,thatthethreestagesinthedevelopmentofafunctioningstart-updonotmatchthethreephasesinthedevelopmentofabusinessplanwithintheframeworkofthiscompetition(seeExhibit3).Ifyouintendtobesuccessful,thisstart-upprocessshouldinfluencebothyouractivitiesastheinitiatorofabusinessconceptandyourpathtowardformingyourowncompany.Toalargeextent,itisthedemandsofinvestorsthatwilldeterminehowyoumustapproachtheindividualstagesofthestart-up.STAGESOFSTART-UPDEVELOPMENTEstablishedcompanyStart-upExitofandgrowthinitialinvestorsBusinessplanFinancingpreparationdecisionsBusinessideaInterestofgenerationinvestorsExhibit33 Stage1:BusinessideagenerationThebeginningistheinspiration–yoursolutiontoaproblem.Itmustbeevaluatedtodetermineifitdeliversanactualcustomervalue,whetherthemarketisbigenough,andjusthowbigitwillbe.Theideaitselfhasnointrinsiceconomicvalue.Itacquireseconomicvalueonlyafterithasbeensuccessfullytransformedintoaconceptwithaplanandimplemented.Youwillneedtostartputtingtogetheryourteamassoonaspossible,findingpartnerswhocandevelopyourproductorserviceuntilitisreadyformarket(oratleastuntilshortlybefore).Inthecaseofproducts,thisstageusuallyinvolvesafunctioningprototype.Youwillmostlikelyhavetodowithoutventurecapitalduringthisstage.Youwillstillbefinancingyourplanwithyourownmoney,helpfromfriends,perhapsstateresearchsubsidies,contributionsfromfoundations,orothergrants.Investorsrefertothisas”seedmoney,”asyourideaisstillaseedling,notyetexposedtotheharshclimateofcompetition.Yourobjectiveatthisstageistopresentyourbusinessconceptandmarket–whichformsthefoundationofyournewcompany–soclearlyandconciselyastopiquetheinterestofpotentialinvestorsinhelpingyoucultivateyourideafurther.Stage2:BusinessplanpreparationAtthisstage,itismostimportanttofocusonthebigpicture:Don’tlosesightoftheforestforthetrees!Thebusinessplanitselfwillhelpyoutofocusasyoumustconsiderandweightherisksinvolved,prepareforanycontingency,andlearntoanticipateavarietyofpossiblesituationsor”scenarios.”Youwillneedtolaydownplansandcreateabudgetforthekeyactivitiesofthebusiness–fordevelopment,production,marketing,distribution,andfinance.Naturally,youwillneedtomakemanydecisions,suchaswhichcustomersorsegmentswillyoutarget?Whatpricewillyouaskforyourproductorservice?Whatisthebestlocationforyourbusiness?Willyouhandleproductionyourselforoutsourceittothirdparties?Andsoon.Inpreparingthebusinessplan,youwillcomeincontactwithmanypeopleoutsideyourstart-upteam.Inadditiontoinvestors,youwilltalktomanyspecialists,includingattorneys,taxadvisors,experiencedentrepreneurs,andexperts.Thebusinessplancompetitionorganizerswillhelpyougetintouchwithjusttherightpeople.Youwillalsohavetobeginreachingouttoyourpotentialcustomers(i.e.,bymeansofconsumersurveys)tomakeinitialassessmentsofyourmarket.Alwayskeepinmindthatcustomeracceptanceisanessentialprerequisitetothesuccessofyourcompany!Scoutaboutforpossiblesuppliersandperhapscloseyourfirstagreements.Youwillalsowanttobecomeawareofwhoyourcompetitorsare.Thiswholeprocesswillnotcomecheap.Theteammustcontinuetoearnalivingwhilerunningarudimentaryoperationandperfectingaprototype.Yetatthisstage,youshouldalsobeabletoestimateyourexpenses.Financingwillgenerallystillbeprovidedfromthesamesourcesyoureliedonduringstageone,althoughsomeinvestorsmaybewillingtomaketheoccasionaladvance.Thisstageconcludessuccessfullyforyouasanewentrepreneurwhenaninvestorexpressesawillingnesstofinanceyourundertaking.Stage3:Start-upandgrowth4 Nowthattheconceptualworkislargelycomplete,itistimetostartimplementingyourbusinessplan.Yourrolenowchangesfromthatofarchitecttothatofbuilder.Businesssuccessmustnowbesoughtandachievedinthemarket.Thedayofreckoninghascomewhenyouwilllearnwhetheryourbusinessconceptwasagoodand,ultimately,profitableone.InvestorexitenroutetobecominganestablishedcompanyThepulloutofyourinitialinvestorsisacompletelynormalstepinthedevelopmentofastart-up.Forifeverythinghasgonewell,yourriskyventurewillhavegraduallybecomeastableenterprise(seeExhibit4).Inthecourseofitsshortlife,youhavecreatedanumberofjobsandwooedmanycustomerswithyourinnovativesolutiontotheirproblem.Yourcommitmentispayingoffasthevalueofyourbusinessincreases.Aprofitableexithasbeentheobjectivefortheventurecapitalistfromtheoutset.Capitalrecoverycanhappeninverydifferentways.Normally,thebusinessissoldtoacompetitor,supplier,orcustomer.Oritislistedonthestockexchange(the”initialpublicoffering”orIPO).Itisalsopossibleforinvestorswhowantouttobepaidoffbytheotherpartners.5 2.THEBUSINESSIDEA”Thereisnothingintheworldaspowerfulasanideawhosetimehascome.”VictorHugoTheabovestatementundoubtedlyappliestoideasforstartinganewbusiness.Buthowdoyoucomeupwithsuchanidea?Andhowcanyouknowiftheideaforthebusinesswillhaveapromisingfuture?Studiesshowthatthelion’sshareoforiginalandsuccessfulbusinessideasweregeneratedbypeoplewhohadalreadyhadseveralyearsofrelevantexperience.GordonMooreandRobertNoyce,forexample,hadanumberofyearsatFairchildSemiconductorsbehindthembeforeteamingupwithAndyGrovetoformIntel.ButtherearealsoexamplesofrevolutionaryideasbroughttolifebymerenovicesasSteveJobsandSteveWozniakdemonstratedwhentheydroppedoutofcollegetostartAppleComputer.2.1.DevelopingabusinessideaIneconomicterms,asparkofgeniusisworthless,nomatterhowbrilliantitmaybe.Foranideatogrowintoamaturebusinessconcept,itmustbedevelopedandrefined,usuallybymanydifferentpeople.TheinitialideamustfirstpassaquickplausibilitycheckBeforeyoufollowuponanidea,youshouldevaluateitinlightofits(1)customervalue,(2)marketchances,and(3)degreeofinnovation,aswellasconsideringwhetheritwillbeboth(4)feasibleandprofitable.·Talkyourideaoverwithfriends,professors,experts,andpotentialcustomers.Thebroaderthesupportyoufindforyouridea,thebetteryouwillbeabletodescribeitsbenefitsandmarketopportunities.Youwillthenbewellpreparedwhenthetimecomestodiscussyourprojectwithprofessionalinvestors.·Isyourideareallynovel?Hassomeoneelsealreadydevelopeditorevenappliedtopatentit?·Willitbepossibletodevelopyourideainareasonableperiodoftimeandwithajustifiablelevelofresources?IttakesatleastfourweekstodevelopabusinessideaConsideringthemultiplestagesofdevelopment,itisimprobable–andfairlyunrealistic–thatyouwillspendfewerthanfourweeksdevelopingyourconcept.Generally,abusinessideaisnotworthyofbeingfinanceduntilitissoconcretethatitcanbelaunchedinthemarketintheforeseeablefutureatreasonablerisk.Investorstalkofthe”seedphase”ofabusinessconcept,6 whichusuallyhastobefinancedwith”soft”money(i.e.,fromsourcesthatasyetplacenohardandfastdemandsonthesuccessoftheidea).Theseedphasecantakelonger,inparticulariftheideaisaheadofitstime.Althoughtheperfectproducthasbeenfound,itcannotyetbemarketedbecausethedevelopmentofcomplementarytechnologiesorsystemsisstillintheworks.OneexampleistheInternet.Theideasformarketingproductsandservicescameearly,butalackofsecurityintheavailablepaymentsystemshamperedanddelayeditscommercialexploitationforsometime.2.2.ElementsofapromisingbusinessideaAbusinessideacanbeconsideredpromisingifithasthefollowingfourelements(Exhibit5):ELEMENTSOFAPROMISINGBUSINESSIDEA12ClearMarketofcustomeradequatesizevalueFeasibilitySufficientanddegreeofprofitabilityinnovation43Exhibit551.ClearcustomervalueThekeytosuccessinthemarketplaceissatisfiedcustomers,notgreatproducts.Customersspendtheirhard-earnedmoneytomeetaneedorsolveaproblem.Thefirstprinciplefordevelopingasuccessfulbusinessideaisthatitclearlyshowswhichneeditwillfulfillandhowitwilldoso.Initially,manyentrepreneurshavetheproductandthetechnicaldetailsofdesignandmanufactureinmindwhentheyspeakoftheirsolution.Notsofortheinvestor–theinvestorfirstlooksattheideafromtheperspectiveofthemarket.Forinvestors,customervaluetakestoppriority,andeverythingelseissecondary.What’sthedifference?Ifinnovatorssay,”ournewdevicecanperform200operationsperminute,”or”ournewdevicehas25%fewerparts,”theyarefocusingontheproduct.Bycontrast,saying,”ournewdevicewillsavethecustomeraquarterofthetimeand,therefore,20%ofthecosts,”or”ournewsolutioncanboostproductivitybyupto25%,”adoptsthecustomer’spointofview.Theproductismerelyameansofdeliveringvaluetocustomers.Thecustomervalueofaproductorserviceexpresseswhatisnovelorbetterabouttheitemwhencomparedtocompetitiveoffersoralternativesolutions.Assuch,itplaysakeyrolein7 settingyourproductapartfromothers–acoreissueinmarketing,aswewilllearn–andisessentialtothemarketsuccessofyourbusinessconcept.Try,wheneverpossible,toalsoexpressthecustomervalueinfigures.Marketingtheorystatesthatthecustomervaluemustbeformulatedintoauniquesellingproposition,orUSP.Thismeanstwothings:Firstofall,yourbusinessconceptmustbepresentedinawaythatmakessense(sellingproposition)tothecustomer.Manystart-upsfailbecausethecustomerdoesnotunderstandtheadvantageofusingtheproductorserviceand,asaresult,doesnotbuyit.Secondly,yourproductmustbeunique.Customersshouldn’tchoosejustanysolutionthathitsthemarket–theyshouldchooseyours.Youmust,therefore,persuadethemthatyourproductoffersagreaterbenefitoraddedvalue.Onlythenwillyourcustomersgiveyouanedge.Indescribingyourbusinessconcept,youneednotpresentafullyformulatedUSP,butitshouldbemoreorlessobvioustopotentialinvestors.2.MarketofadequatesizeAbusinessideawillhaveeconomicvalueonlywhenitsucceedsinthemarket.Thissecondprincipleofasuccessfulideademonstrateshowbigthemarketisfortheproductoffered,whichtargetgroup(s)itisdesignedfor,andtowhatdegreeitwilldifferfromthecompetition.Adetailedanalysisofthemarketisnotyetnecessaryatthispoint.Estimates,derivedfromverifiablebasicdata,willsuffice.Sourcescouldincludeofficialstatistics,informationfromassociations,articlesintradejournals,thetradepress,andtheInternet.Itshouldbepossibletodrawareasonableconclusionaboutthesizeofthetargetmarketfromthisbasicdata.Itissufficientforyoutosummarizetheresultsofthisinvestigationinyourpresentationofthebusinessidea.Thesameistrueforyourtargetcustomers;youwillonlyneedaloosedefinitionofwhotheywillbe.Describewhyyourbusinessideawillprovideaspecialvaluetothisgroupinparticular,andwhythisgroupisfinanciallythemostinterestingtoyou.Youwillalwaysfacecompetition–bothdirect,fromcompaniesthatofferasimilarproduct,andindirect,fromsubstituteproductsthatcanalsofulfillthecustomer’sneed.Apastamanufacturercompetesnotonlywithotherpastamanufacturers,butalsowithmanufacturersofriceandpotatoproductsandbakeriesand,moregenerally,withmanufacturersofallotherfoodstuffs.Yourbusinessideawillneedtodemonstratethatyouhaveunderstoodwhoyourcompetitorsare.Namethem–anddescribewhyandhowyoucantaketheleadwithyourbusinessidea.3.SufficientdegreeofinnovationBusinessideascanbeclassifiedalongtwodimensions-products/servicesandbusinesssystems.Ineachofthesecategories,youcandevelopsomethingneworcapitalizeonsomethingthatalreadyexists.Simplified,abusinesssystemisawayofunderstandinghowaproductorserviceisdeveloped,manufactured,andmarketed(Exhibit6).Theterminnovationisgenerallyusedinthecontextofnewproducts,whicharemadewithconventionalproductionmethodsanddeliveredtothecustomerthroughexistingdistribution8 channels.Microsoft,forinstance,developedDOS,makinguseoftheIBMsalesorganizationtobringittothemarket.Innovationsinbusinesssystemsarelessobvious,butjustasimportant.ThesuccessofDellisattributedtosignificantcostsavingsthankstoanewformofdirectdistributionandanovelproductionprocessinwhichacomputerisproducedonlyafteritisordered,andintheshortestpossibletimeframe.Indevelopingnewproducts,improvementofthemulti-layereddimension”customervalue”isattheforefront.Innovationsinthebusinesssystemaretargetedatlowercostsandfasterprocesses,savingswhichcanthenbepassedontothecustomerintheformoflowerprices.Itisrarethatbothtypesofinnovation–inproductandbusinesssystem–canbecombinedtocreateacompletelynewindustry.NetscapecontributedsignificantlytothesuccessoftheWorldWideWebbydistributingitsnewbrowserovertheInternetfreeofcharge.Indoingso,Netscapepassedupinitialsalesrevenuesbut,throughtheincreasednumberofvisitorstoitsWebsite,succeededinraisingadvertisingrevenues.4.FeasibilityandprofitabilityFinally,toarriveatanactualstart-up,thefeasibilityofthebusinessideamustbeassessed.Inadditiontospecificfactorsthatcouldmaketheprojectnotfeasible(e.g.,legalconsiderations,standards),theassessmentmayincludethetimeandresourcesneededtocarryouttheproject.Theconstructionofhotelsonthemoonmaybetechnicallyfeasible,forexample,buttheircost-benefitratioisunreasonable.Interwovenwiththefeasibilitycriterionisprofitability.Acompanymustbeabletogeneratelong-termprofit.Thisfourthelementofasuccessfulbusinessideashouldthusindicatehowmuchmoneycanbemadeandhow.Traditionally,profitcalculationsforabusinessaremadeasfollows:Acompanybuysmaterialorservices,therebyincurringcosts.Italsosellsproductsorservicestocustomers,thereby9 earningrevenues.Ifyourbusinessfollowsthispattern,itisnotnecessarytoprovideanygreaterdetailinthedescriptionofyouridea.Do,however,makeroughestimatesofanticipatedexpensesandprofits.Oneruleofthumbforgrowingcompaniesisthatthestart-upphaseshouldgenerategrossprofits(revenuesminusdirectproductcosts)of40%to50%.Butmanybusinessesdonotfunctionaccordingtothistraditionalmodel.McDonald’s,forexample,earnsitsmoneyfromthelicensingfeesitchargesfranchisers.TherestaurantownerpaysMcDonald’sforthenameandthewaytherestaurantisrun.Ifyourbusinessideaisbasedonthiskindofinnovationinprofitgeneration,youshoulddetailitinyourbusinessidea.KEYQUESTIONS:Businessidea!Whowillbuyyourproduct?!Whyshouldcustomersbuytheproduct?Whatneeddoesitfulfill?!Howwilltheproductbedistributedtothecustomer?!What,exactly,isinnovativeaboutyourbusinessconcept?!Howisthebusinessconceptunique?Isitprotectedbypatent?!Howistheproductbetterthancomparablealternatives?!Whatcompetitiveadvantageswillthenewcompanyhave,andwhycan’tacompetitorsimplycopythem?!Canmoneybemadewiththeproduct?Whatcostswillbeincurred,whatpricewillbeasked?2.3.ProtectingyourbusinessideaOnlyafewideasaregenuinelyingenious.Truebreakthroughsaretheresultofhardworkand,therefore,cannotbeeasilyreplicated.Acompromisemustbefoundtoprotecttheidea,whiledisclosingsufficientinformationtotestitsviability.PatentingEarlypatentingisrecommended,especiallyinthecaseofnewproductsorprocesses.Gettheadviceofexperiencedpatentlawyers:Thefuturesuccessofyourbusinesscandependonapatent,and,ineveryindustry,therearepowerfulcompetitorswiththemeanstokeepanunfavorablepatentfrombeinggranted.Butsomedegreeofcautionisadvisedasapatentcanalsomissthemarkwhenitcomestoprotectingyourideabymakingtheideapublic.Besuretokeepinmindifthepatentcanbeimproveduponeasily–andthusthwarted.TherecipeforCoca-Cola,forexample,isstill”secret”andhasneverbeenpatentedbecausethepatentcanbecircumventedwithaveryfew,neutral-tastingchanges.Confidentialityagreement10 Lawyers,trustees,andbankemployeesareallrequiredbylawtomaintainconfidentialityvis-à-vistheirclients’businesses.Venturecapitalistsalsohaveaninterestinkeepingthingsunderwraps,assomeonewithareputationfor”poaching”ideaswillnotbemadeprivytonewideasanytimeagainsoon.Thesameistrueforprofessionalconsultants.Aconfidentialityagreementcanbeeffectiveinsomecases.ThecoachesandorganizersinvolvedinEnterPrizearerequiredtosignaconfidentialityagreement;judgesareencouragedtodoso.But,likeeverylegaldocument,ithasitslimits,andtherearegrayareasthatcouldmakeitdifficulttoproveaviolationoftheagreementincourt.QuickimplementationYourbestprotectionagainstintellectualpropertytheftisprobablytoimplementyourplanasquicklyaspossible.Agreatdealofworkmustbedonebetweendreamingupanideaandopeningforbusiness.Thiseffortcankeeppotentialcopycatsatbay,becauseintheend,it’scrossingthefinishlinefirstthatmakesyouthewinner,nothavingthefastestshoes!2.4.PresentingyourideatoinvestorsHowyoupresentyourbusinessideatoaninvestorwillputallyourpreviouseffortstothetest.Itiscriticaltoattractattentionandpiqueinterestthroughcontentandprofessionalappearance.Goodventurecapitalistsarepresentedwithupto40businessideasperweek,andtheirtimeislimited.Insubmittingthebusinessidea,neitherfanfarenorawealthofdetailsisasimportantasaclearandthoughtfulpresentation.Example1:Thehardsell”Ihaveagreatideaforanew,customer-friendlymethodofpaymentwithabigfuture.Thisissomethingeverybodyhasalwayswanted.Youcouldearnalotofmoneyfromthis…”Theinvestorthinks,”Thatsoundslikealotofhotair.I’veheardofahundredsuchmiraclesolutionsbefore…Next!”Example2:Thetechnicalapproach”Ihaveanideaforacomputerizedmachinerycontrolsystem.Thekeyisthefully-integratedSSPchipwith12GByteRAMandtheasymmetricalXXP-baseddirectcontrolunit.Ittookme5yearstodevelopthis.”Theinvestorthinks,”Techie.Inlovewithtechnology.She’sherownmarket…Next!”Example3:Theentrepreneur”Ihaveanideathatwillenablecompanieswithupto100employeestosave3%to5%oftheircosts.Initialcost-priceanalyseshaveconvincedmethataspreadof40%to60%shouldbepossible.IhavefoundafocusedadvertisingchannelthroughtheAssociationofSmallandMedium-sizedBusinessesandtheABCMagazine.Theproductwillbedistributedbydirectsale.”Theinvestorthinks,”Aha!Shehasidentifiedthecustomervalue,andevenworkedoutthefigures!She’sthoughtaboutthemarketandtheprofitpotentialandknowshowshewillgettheproducttohercustomers.NowI’dliketogetalookattheproduct…”Theseexamplesdemonstratewhyclarityshouldbeyourforemostgoal.Itisbesttoassumethatinvestorsarenotfamiliarwiththetechnologyofyourproductortheindustryjargon.Theyarealsonotlikelytotakethetimetolookupanunknowntermoridea.Describingyourconcept11 clearlyandincisivelyisyournextgoal.Youmustbeabletoconveythebasicmechanicsofyourbusinessideatoaninvestorwithcredibility.Therewillbeplentyoftimeatalaterpointfordetaileddescriptionsandexhaustivefinancialcalculations.FormalrequirementsofabusinessconceptpresentationTitlepageNameoftheproductorserviceNameoftheperson(s)submittingConfidentialitynoticeIllustration,whereappropriate,oftheproductorserviceinactionBody4to7pages(includingaone-pageexecutivesummary)ClearstructurewithheadingsandindentationsasvisualorganizersCharts,illustrations,tablesMaximumof4illustrations,placedintheappendixUseonlyifnecessaryforcomprehensionMakereferencetotheillustrationsinthetextSimple,clearpresentationUniformformatThispageintentionallyblank12 3.THEBUSINESSPLAN”Writingabusinessplanforcesyouintodisciplinedthinking,ifyoudoanintellectuallyhonestjob.Anideamaysoundgreat,butwhenyouputdownallthedetailsandnumbers,itmayfallapart.”EugeneKleiner,VentureCapitalistThemodestterm”businessplan”doesnotreallydojusticetothisveryimportantbusinesstool.ThebusinessplanwasfirstusedintheU.S.asmeansofacquiringfundsfromprivateinvestorsandventurecapitalistswhothenparticipateinthecompanyasco-ownersandprovidethecapital.Thepresentationofthistypeofstart-upstrategyhasbecomeamandatorycourtesywhenseekingtodobusinesswithanypartners,includingcustomers,suppliers,anddistributors,tosaynothingofventurecapitalistsandbanks.Butbusinessplansarenotonlyusedbystart-ups;evenmajorcorporationsrelyincreasinglyonproject-specificbusinessplanstohelpthemmakeinternalinvestmentdecisions.3.1.AdvantagesofabusinessplanThegreatimportanceattachedtothebusinessplaniswelljustified.Withit,entrepreneurscanprovethattheyareinapositiontoarticulateandhandlethediverseaspectsofstart-upsandtheirmanagement.Properlyconceivedandexecuted,thebusinessplanbecomesakeydocumentforevaluatingandmanaginganoperation.Abusinessplandetailstheoverallentrepreneurialconceptbehindaplannedbusiness.Itgivesanexactsummaryoftheeconomiccircumstances,thetargetsset,andtheresourcesnecessary.Thebusinessplanforcesentrepreneurstothinkthroughtheirideassystematically:Itidentifiesgapsinknowledge,demandsdecisions,andpromotestheformulationofawell-structuredandfocusedstrategy.Duringitspreparation,oneaftertheother,alternativeapproachescometolightandareevaluated,andpitfallsareidentified.Withitsclearanalysisofthesituation,thebusinessplanbecomesaninvaluabletoolforovercomingproblemsandcontributessubstantiallytoboostingefficiencyandeffectiveness.3.2.CharacteristicsofasuccessfulbusinessplanHowabusinessplanisdesigneddependsonwhatkindofventureisenvisionedandwhattheplanshouldaccomplish.Ifaplanisbeingwrittenforastart-up,forexample,itwillnecessarilyhaveadifferentstructurethanonethataimstolaunchanexistingcompanyintoanewsegment.Despitesuchdifferences,businessplanshaveanumberofthingsincommon.Theyaretoprovideaclearandcomprehensiveevaluationoftheopportunitiesandrisksposedbytheoperation.Thisisnosmalltask,andcompletingitwillrequirecarefulattentiontocertainstandardsofdesignandcontent.Thefollowingsuggestionsandguidelinesshouldhelpyoumakeyourplansuccessful.13 AgoodbusinessplanimpresseswithitsclarityReadersshouldbeabletofindsuitableanswerstotheirquestions.Itshouldbeeasyforreaderstofindthetopicsinwhichtheyareparticularlyinterested.Thismeansthebusinessplanmusthaveaclearstructuretoenablereaderstomaneuverandchoosewhattheywouldliketoread.Itisnotthevolumeofanalysisanddata,butrathertheorganizationofthestatementsandaconcentrationontheessentialargumentsthatwillpersuadeyourreaders.Anytopicthatcouldbeofinteresttothereadershould,therefore,bediscussedfully,butconcisely.Atotallengthofabout30pages,giveortake5orso,isgenerallyappropriate.Abusinessplanisnotreadinthepresenceoftheauthor,whocouldanswerquestionsandprovideexplanations.Forthisreason,thetextmustbeunambiguousandspeakforitself.Eachplanshouldbepresentedtoatestaudience,ifatallpossible,beforeitisfinallysubmitted.Competitioncoaches,forexample,canhelpweedoutconfusingpassagesorindicateareasstillinneedofediting.AgoodbusinessplanconvinceswithitsobjectivitySomepeoplegetcarriedawaywhentheyaredescribingwhattheyfeelisagoodidea.Whilethereissomethingtobesaidforenthusiasm,youshouldtrytokeepyourtoneobjectiveandgivethereaderachancetocarefullyweighyourarguments.Aplanwrittenlikeglowingadvertisingcopyismorelikelytoirritatethanappealtoyourreaders,makingthemsuspicious,skeptical,orotherwiseunreceptive.Equallydangerousisbeingtoocriticalofyourownprojectinresponsetovariouspastmiscalculationsormistakes.Thisapproachwillraisequestionsaboutyourabilityandmotivation.Tothebestofyourknowledge,thedatapresentedshouldbeaccurate.Weaknessesshouldneverbementionedwithoutintroducingmethodstocorrectthemorplanstodoso.Thisdoesnotmeanthatfundamentalweaknessesshouldbehidden,justthatinpreparingyourplan,youshoulddevelopapproachestoremedythemandpresentwithclarity.AgoodbusinessplancanbeunderstoodbythetechnicallaymanSomeentrepreneursbelievethattheycanimpresstheirreaderswithprofusetechnicaldetail,elaborateblueprints,andthesmallprintofananalysis.Theyaremistaken.Onlyrarelyaretechnicalexpertscalledtoevaluatethisdatacarefully.Inmostcases,asimplifiedexplanation,sketch,orphotographisappreciated.Iftechnicaldetailsontheproductormanufacturingprocessmustbeincluded,youshouldputthemintheappendix.AgoodbusinessplaniswritteninoneconsistentstyleSeveralpeopleusuallyworktogethertoproducethebusinessplan.Intheend,thisworkmustbeintegratedtoavoidcreatingapatchworkquiltofvaryingstylesandanalyticaldepth.Forthisreason,itisbesttohaveonepersoneditthefinalversion.AgoodbusinessplanisyourcallingcardFinally,yourbusinessplanshouldhaveauniformvisuallayout.Thefonts,forexample,shouldbeconsistentwiththestructureandcontents,effectivegraphicsneatlyintegratedand,perhaps,aheaderwiththe(future)companylogoused.14 3.3.Theinvestor’spointofviewTheentirestart-upprocessmustfocusonsuccessfulcapitalacquisition.Professionalinvestorsarethefirstrealacidtestofthechancesyourbusinessconceptwillhave.Addressyourcommunicationentirelytothem,andlearntothinkliketheydo.Theywillnotbesatisfiedwithameredescriptionofyourbusinessconcept,evenifitisbrilliant.Whatisventurecapital?Venturecapitalisthemoneythatismadeavailablebyventurecapitalcompaniesorindividualstofinancenewbusinesses.Typically,suchprojectshaveahighchanceofbeingprofitable,whilefacinganequalriskofincurringloss.Experienceshowsthatof10businessesfinancedwithventurecapital,onlyonewilltriumph,threewillmanagetoekeoutanexistence,threewillwasteaway,andthreewillbeatotalloss.Itisonlynaturalforventurecapitaliststodoeverythingintheirpowertogenerateprofitsinlinewiththeriskventured.Accordingly,theybackupaprojectveryintenselyinordertoharnessasmuchpotentialaspossible(Exhibit7).VENTURECAPITALPARTICIPATIONINTHEVARIOUSSTART-UPPHASESTransitiontoEarlyphaseGrowthphaseestablishedcompanySeedStart-upGrowthBridgestageExitstageWhenBeforeAtorshortlyAtfirstor6-12monthsAsarule,5-8?start-upafterstart-upsecondbeforeIPOyearsafterstart-growthspurt,upIPOstillfaroffWhatMainlytoE.g.,forTofinanceTocoverRecoveryoffor?developproductgrowthfinancialinvestedventurebusinessdevelopment,needsuntilcapitalforconceptinitialsaleofstockreinvestmentinfurthermarketingtopublicmorestart-upsactivitiesExhibit7Whatdoventurecapitalistslookfor?Venturecapitalistslookforanumberofimportantpiecesofinformationinabusinessplan:·Managementexperienceandcompetence.Allinvestorspayparticularattentiontowhowillbemanagingtheenterprise.Whenallissaidanddone,theabilityofmanagementtoimplementtheconceptisamajordeterminantofwhetherabusinesssurvivesorfails.Particularlyinindustrieswhereinnovationiscritical,thefocusisonthepropermixofallnecessarymanagementskillsthatonepersonalonewillrarelyhave.Entrepreneurial15 experienceismorehighlyvaluedthanacademicdegrees.Anothertestofaworthwhileinvestmentistheabilityofmanagementtoworkasateam.·Awell-definedand,wherepossible,quantifiablecustomervalue.Initssimplestform,thismeansloweringthecostofdeliveringanexistingvalueorcreatinganewvalue,ifthiscanbeachievedatreasonablecost.·Innovativeproductorservicerange.Theproduct,service,and/orbusinesssystemmustpossessahighdegreeofinnovation.·Thepossibilitytoprotect/sustaintheinnovation.Animportantcompetitiveadvantagetoyourcompanycouldbeapatentedidea.·Agrowingand/orlargemarket.Venturecapitalistspreferstart-upsthatdemonstrateapotentialtoachievesignificantsalesofapproximately$30millionwithin5years.·Aneffectiveconceptforcapturingaclearlydefinedtargetcustomersegment.Potentialinvestorswanttoseethatyouhaveaclearunderstandingofyourmarketandhowyouintendtoreachyourcustomers.Yourforecastsandestimatesshouldbebasedonwell-founded,persuasiveassumptionsandfacts.·Afar-sightedanalysisofthecompetition.Investorsaren’tnaive–sodon’teventrytoclaimthatyourproducthasnocompetition.Acompleteandobjectivedescriptionofexistingandpotentialfuturecompetitors,however,showsthatyouareawareoftherisksyouaretakingwhich,inturn,willinspireconfidenceinyou.Hereagain,havinganideathatcanbeprotectedbylaw(patented,trademarked)isanadvantage.·Acarefulweighingoftherisksandopportunities.Investorshatesurprises,especiallynegativeones.Arealisticdescriptionoftherisksyoufaceandhowyouplantoovercomethemisfarmorecrediblethanlookingatthefuturethroughrose-coloredglasses.·Detailpossibleexitroutes.Investorswanttoknowfromtheoutsetwhentheircommitmentwillendandhowtheywillrecovertheirinvestment.Generatingaprofitisalwaystheobjectandthepurposeofinvestorparticipation.Themoreproductiveoptionsyoucanshowthemforhowtodothis,thebetter.Themainpossibilitiesincludegoingpublicorsellingsharestotheotherpartnersortoothercompanies.Whatdoventurecapitalistsdoforthenewcompany?Venturecapitalistsplayanumberofroles(seeExhibit8).Buttheywillalsotakeoverthereinsifthebusinessdoesnotachieveitstargets.Howshouldyouchooseaventurecapitalist?Venturecapitalistsgenerallyexpecttohaveahighstakeinthenewcompany.Inreturn,theyprovidesupportthatgoesfarbeyondafinancialcommitmentandoftenshoulderagreatdealof16 responsibilityforthesuccessoftheventure.Butpotentialinvestorsdodiffer,andthecompanyteamshouldknowitsinvestorswell.Ifyouwouldratherown20%ofa$100millioncompanythan80%ofa$5millionoperation,youwillhavetochooseyourinvestoraccordingtomorecriteriathanjustwhowillprovidethemostmoneyatthebestrate.POSSIBLEROLESOFVENTURECAPITALCOMPANIESCoachesandSpecialistsinmotivatorsoftheformingnewstart-upteamcompaniesPossiblerolesofventurecapitalistsAdvisorsinGatewaystoaachievingsuccessnetworkof(saleoftheexperiencedcompany,IPO)entrepreneursExhibit8233.4.TipsonpreparingaprofessionalbusinessplanInvestorsareinterestedinthefinishedplan,nottheprocessyouwentthroughtoproduceit.Theyprefertoseeawell-prepareddocumentfromwhichtheycangainagoodsenseoftherisksandopportunitiesinvolvedonthefirstread-through.Whenpreparingyourplan,thethemesofcustomervalueandpotentialreturnshouldrunthroughthedescriptionsofyourbusinessobjectives.Thethreephasesofthecompetitionprovideageneralstructureforpreparingyourplan.Thethreephasesbuildupononeanothersuchthatthecontributionforapreviousphasewillbecomeamajorportionofthefollowingphase,supplementedwithadditionalelements.Howyoucarryouttheworkwithineachphaseisuptoyou.Thefollowingtipsaredesignedtohelpyou.PlanyourapproachDrawingupabusinessplanisaverycomplexundertaking.Manyvariablesmustbeconsideredandanalyzedsystematically,inalogicalorder.Adetailedoutlineshouldbemadeassoonasthefirstideasarelaiddown.Itissmarttodoyourplanningalongthelinesofabusinessplan,oraccordingtoyourbusinesssystem(e.g.,R&D,production,marketing,sales,delivery,andadministration).Youshouldalsonumberyourtopicsandnoteanyreferences.Usingawordprocessingprogramwithaspreadsheetishelpful.Allreferencematerialshouldbesortedbytopic.Dothesamewithnotesfromdiscussions.17 TailorkeyquestionstoyourspecificprojectUsingasetofquestionsishelpfulinpreparingyourbusinessplan.Whichquestionsshouldbeaskedandwhichanswersincludedintheplanisdeterminedbythetypeofvaluecreated,theproduct,service,ordegreeoftechnologicalsophistication,andwhatthereadersneedtoknow.YoucanusethesamplequestionsprovidedinthisGuidetowriteyourownseriesofquestions.Thesequestionsareonlyexamplesdesignedtogetyouthinking;theyshouldnotbetakenasanexhaustivelistofpossiblequestions.Inotherwords,youareneitherrequiredtoanswereachquestion,normustyoureplytoallquestionsinequaldepth.Itisuptoyoutodecidewhichquestionsarerelevanttoyourundertakingandnecessarytounderstandit.Youmustalsoconsiderwhetherthereareotherquestionstobeansweredbeyondthosethathavebeenprovided.FocusonthefinalproductInprojectsofthiskind,thereisalwaysadangerofgettinglostinthedetailsofeachanalysis.Stepbackfromtimetotimeandaskyourselfwhetherthedataprovidedisnotalreadysufficientandwhetherfurtheranalysiswillreallybebeneficial.Wealsorecommendthatyoulimitthelengthoftheresultsforeachofthethreecompetitionphases.Youwillsavealotoftimeandenergyifyousticktotherecommendedlengthsfromthebeginningofyourplanning.SeeksupportearlyGatheringsupportfrommanydifferentpartieswillbeimportantinthiscompetition.Teamingupearlyisonesuchformofsupport.Teamswithcomplementarytechnicalandentrepreneurialexperiencecandelegateassignmentsaccordingtothetalentsoftheindividualteammembers.Thiswillhelpensurethattheworkwillbeperformedefficiently.Donothesitatetoseekhelpfromoutsidesourcesassoonasyouneedit.ContactexpertsandexperiencedentrepreneurswhomyoumeetatcompetitioneventsorcalltheEnterPrizeofficeforassistance.KeeptestingyourplanAwinningentrywillbeeasytounderstandandfollow.Therefore,itisimportanttopresentyourideatoatestaudiencealongtheway.Peopleoutsidethecompetitionwhocritiqueyourplanbeforeyousubmititcanidentifyweaknessesandevengiveyourworkfreshimpetus.18 4.STRUCTUREANDKEYELEMENTSOFABUSINESSPLANDespitetheirmanydifferences,allbusinessplanshavecertainelementsincommonthatallpotentialinvestorsexpecttofind(Exhibit9).Additionally,anappendixisoftenincludedthatcontainsdetailedinformation,oftenpresentedintheformoftablesorgraphs.Withinthismoreorlessrequiredstructure,thebusinessplanisfreetogrowinitsowndirection.Atthebeginning,youwillonlyworkonafewkeyelementsandindividualtopics.Newelementsareaddedwitheachadditionalphase,whilethetopicsfromthepreviousphasesareexpanded,and,gradually,theplanfillswithcontent.Attheendofthethirdphase,theindividualanalysesformawholewhoseindividualpartscorrespondtooneanother.ELEMENTSOFABUSINESSPLANFocusofthisphasePartofthisphasePhase1Phase2Phase31Executivesummary2Productorservice3Managementteam4Marketandcompetition5Marketingandsales6Businesssystemandorganization7Implementationschedule8Opportunitiesandrisks9FinancialplanningandfinancingExhibit94.1.Executivesummary”Agoodexecutivesummarygivesmeasenseofwhythisisaninterestingventure.Ilookforaveryclearstatementofthelong-termmission,anoverviewofthepeople,thetechnology,andthefittomarket.”AnnWinblad,VentureCapitalistTheexecutivesummaryisdesignedtopiquetheinterestofdecisionmakers.Itshouldcontainabriefoverviewofthemostimportantaspectsofthebusinessplan.Inparticular,itshouldhighlighttheproductorservice,thevaluetothecustomer,therelevantmarkets,managementexpertise,financingrequirements,andpossiblereturnoninvestment.19 Venturecapitalistslookattheexecutivesummaryfirst,thoughtheyusuallyjustskimit.Thequalityofthesummaryitselfisnotlikelytomaketheminvestinyourproject,yetitcanconvincethemnotto.Aclear,objective,andconcisedescriptionofyourintendedstart-up,whichmustbeeasytocomprehend,especiallybythetechnicallayperson,willshowthemthatyouknowyourbusiness.Thereforeprepareyoursummarywiththeutmostcare;itmaywelldecidewhethertherestofyourbusinessplanisread.Theexecutivesummaryisanindependentelementofthebusinessplan:Donotconfuseitwiththeintroductionofyourbusinessconceptonthetitlepage.Lookatyourexecutivesummarywithacriticaleye–repeatedly–especiallyafterallotheraspectsofyourbusinessplanhavebeencompleted.Askyourselfifyouhavedescribedyourbusinessideaasclearly,compellingly,andconciselyasyoucan.Yourreadersshouldbeabletoreadandcomprehendthesummaryinfiveto10minutes.Testit.Giveyourexecutivesummarytosomeonewhohasnopreviousknowledgeofyourbusinessconceptoritstechnicalorscientificbasis.KEYQUESTIONS:ExecutivesummaryPhase1!Whatisyourbusinessidea?Inwhatwaydoesitfulfillthecriterionofuniqueness?!Whoareyourtargetcustomers?!Whatisthevalueforthosecustomers?!Whatmarketvolumeandgrowthratesdoyouforecast?!Whatcompetitiveenvironmentdoyouface?!Whatadditionalstagesofdevelopmentareneeded?!Howmuchinvestmentisnecessary(estimated)?!Whatlong-termgoalshaveyouset?Phase2!Howhighdoyouestimateyourfinancingneeds?!Whatarethesales,cost,andprofitsituations?!Whatarethemostimportantmilestonesalongthewaytoyourgoal?!Whattestcustomershaveyouapproached/couldyouapproach?!Whatdistributionchannelswillyouuse?!Whatpartnershipswouldyouliketoenterinto?!Whatopportunitiesandrisksdoyouface?!Whatisthepictureonpatents?Phase3!Summarizetheresultsofyourdetailedbusinessplanningandstateyourexactfinancingneeds!!Howwillyoudelegatemanagementtasks?!Howmuchproductioncapacityisnecessary?!Howwilltheimplementationofyourbusinessideabeorganized?!Listyournext,concretesteps!20 4.2.Productorservice”Ifyoudon’tknowwhatthecustomervalueis,thewholething’sawasteoftime.”BrunoWeiss,EntrepreneurYourbusinessplanderivesfromaninnovativeproductorserviceanditsvaluetotheendconsumer.Itisimportanttoindicatehowyourproductdiffersfromthosethatarenoworwillbeonthemarket.Ashortdescriptionofhowfardevelopmenthasprogressedandwhatstillneedstobedoneisalsoessential.CustomervalueItdoesn’tmakeanysensetostartupanewbusinessunlesstheproductorserviceissuperiortocurrentmarketofferings.Besuretodiscussindetailthefunctiontheproductorservicefulfillsandthevaluethecustomerwillgainfromit.Ifcomparableproductsandservicesarealreadyavailablefromyourcompetitors,youmustconvincinglysubstantiatetheaddedvalueyourcustomerswillreceivefromyourstart-up.Todoso,putyourselfintheplaceofthecustomerandweightheadvantagesanddisadvantagesofyourproductovertheothersverycarefully,applyingthesamecriteriatoall.Ifyouareofferingarangeofinnovativeproductsorservices,categorizethemintologicalbusinessareasaccordingtoproductorcustomer.Definethebusinessareasindetailsothereisnooverlap.Developmentstatusoftheproduct/serviceInexplainingthisissue,imagineyouaretheventurecapitalistwhowantstominimizetheriskinvolvedinparticipating.Trytorefrainfromincludingtechnicaldetailsanddescribeeverythingassimplyaspossible.Afinishedprototypewillshowyourpotentialinvestorthatyouareuptomeetingthetechnicalchallenge.Ifitenhancestheunderstandingofyourproduct,includeaphotoorsketchinyourbusinessplan.Itisevenbettertohaveapilotcustomerwhoalreadyusesyourproductorservice.Youshouldalsoexplainthenatureoftheinnovationitselfandtheedgeyouhaveovercompetitors.Thisisthepointatwhichyoushouldaddressthesubjectofpatentsforprotectionfromduplicationorimitation,ortheprotectionofamodelthroughregistration.Iftherearestillproblemsorissuestocoverregardingdevelopment,besuretomentionthemandhowyouintendtoovercomethesedifficulties.Regulatoryrequirementsonproductsandservicesposeanothersetofrisks.Noteanypermitsyouhaveobtained,haveappliedfor,orwillapplyfor,suchasthoseoftechnicalcontrolassociations,thepostalservice,orthedepartmentofhealth.21 KEYQUESTIONS:ProductorservicePhase1!Whatendcustomerswillyouaddress?!Whatarethecustomer’sneeds?!Whatcustomervaluedoesyourproduct/serviceprovide?!Whatisthenatureofyourinnovation?Whatisthecurrentstatusoftechnicaldevelopment?!Whatpartnershipsarenecessarytoachievefullcustomervalue?!Whatcompetitorproductsalreadyexistorareunderdevelopment?!Isyourproduct/servicepermittedbylaw?!Whataretheprerequisitesfordevelopmentandmanufacturing?!Whatstageofdevelopmenthasyourproductorservicereached?!Doyouhavepatentsorlicenses?!Whatfurtherdevelopmentstepsdoyouplantotake?Whatmilestonesmustbereached?Phase2!Whatversionsofyourproducts/servicesaredesignedforwhatcustomergroupsandapplications?!Whatpatents/licensesdothecompetitorshave?!Doyouneedtoobtainlicensesand,ifso,fromwhomandatwhatcost?!Whatkindofservice/maintenancewillyouoffer?!Whatproductorserviceguaranteeswillyougrant?!Comparethestrengthsandweaknessesofcomparableproducts/serviceswithyoursinanoverview!Phase3!Whatresources(time,personnel,materials)doyourequireforeachsubsequentdevelopment?!Whatshareofsalesdoyouexpectfromyourvariousproducts/services(ifapplicable)?Why?!Whatincomefromroyalties/salesdoyouestimatefrompossiblymarketingthepropertyrights?Whowouldbeyourlicensees/buyers?4.3.Managementteam”Iinvestinpeople,notideas.”EugeneKleiner,VentureCapitalistThemanagementsectionisoftenthefirstpartoftheplanthatventurecapitaliststurntoafterreadingtheexecutivesummary.Theywanttoknowwhetherthemanagementteamiscapableofrunningapromisingbusiness.Entrepreneursfrequentlyunderestimatethesignificanceofthisquestionandmakethemistakeofskimpingoncontentandmakingdowithmeaninglessphrases.22 Takethetimetodescribeyourmanagementteamwell.Whendiscussingmanagement’squalifications,besuretoemphasizethosethatareparticularlyimportantforimplementingyourspecificplans.Professionalexperienceandpastsuccesscarrymoreweightthanacademicdegrees.Ifkeypositionsaretobegiventoinexperiencedstaffmembers,explainthisdecisionindetail.CHARACTERISTICSOFAPOWERFULMANAGEMENTTEAM!Commonvision:Everybodywantstosucceed!Complementaryattributesandstrengths!Atleastthree,butusuallynomorethansix,people!Stickstogetherthroughthickandthin!Stayingpower,evenwhentherearesetbacks-regroupsandmakesasecondoreventhirdattempttoclearthehurdleAlsoexplainhowtheresponsibilitiesinthecompanyaretobedelegatedandindicatewhichpositionsstillrequirereinforcements.Itisparticularlyhelpfultocomparetheassignmentstobefilledwiththeskillprofilesofcurrentteammembers.Donothesitatetonameyourmostinfluentialadvisors.Noonewillhaveallthequalificationsandexperiencenecessarytofoundacompany.Considerableinvolvementonthepartofadvisorssuchasexperiencedentrepreneurs,accountants,PRfirms,ormanagementconsultantsisasignofprofessionalismandwillreassuretheventurecapitalistthatyouhaveallthecontactsyoumayneed.WHATPROFESSIONALINVESTORSLOOKFOR!Hastheteamalreadyworkedtogether?!Doteammembershaverelevantexperience?!Dothefoundersknowtheirweaknessesandaretheywillingtomakeupforthem?!Havethefoundersagreedontheirfutureroles?Areownershipissuessettled?!Hasthemanagementteamagreedonacommongoal,orarethereunderlyingdifferencesofopinion?!Dotheindividualteammembersfullybacktheproject?Finally,althoughthemanagementteamwillnotbeevaluateduntilthethirdphaseofthebusinessplancompetition,itisadvisabletobeginlookingforsuitablepartnersassoonaspossible.Bringingtogetherjusttherightpeopletoforma”dreamteam,”sotospeak,isimmenselyimportantforlaterbusinesssuccessand,therefore,requiresagreatdealoftimeandcare.23 KEYQUESTIONS:ManagementteamPhase3!Whoarethemembersofyourmanagementteamandwhatdistinguishesthem:education,professionalexperience,success,standinginthebusinessworld?!Whatexperienceorabilitiesdoestheteampossessthatwillbeusefulforimplementingyourconceptandsettingupyourcompany?!Whatexperienceorabilitiesarelacking?Howwillthegapsbeclosed?Bywhom?!Whatgoalsdotheteammemberspursuebystartingupthebusiness?!Howhighisthemotivationofeachindividualteammember?4.4.Marketandcompetition”Ifthereisnocompetition,thereisprobablynomarket.”BrianWoodThoroughunderstandingofyourcustomersandtheirneedsisthefoundationofeverysuccessfulbusiness.Foritisthecustomerswhogiveyourcompanyareasonforbeing.Andintheend,bybuying–ornotbuying–yourproduct,orservice,theywilldecideifandhowsuccessfulyourcompanywillbe.Onlythosecustomerswhoareconvincedtheyaregettingagreatervaluethantheywouldfromacompetingproduct,orbynotbuyingaproductatall,willbuyyourproduct.Knowingyourmarketandcompetitionwellisthuscriticaltothesuccessofyourundertaking.MarketsizeandgrowthAdramaticincreaseinthevalueofthecompanycanbeexpectedonlyifthemarketholdsgreatpotential.Themarketsizeshouldbepresentedinfiguresrepresentingthenumberofcustomers,unitsales,andtotaldollarsinsales.Yourexpectationsformarketgrowtharecritical.Youshouldalsoindicatewhatmainfactorsarenowinfluencingormayinfluencethegivenindustrysegment.Showwhatfactorswillaffectdevelopments(technology,legislativeinitiatives,etc.)andwhatrelevancethesefactorshaveforyourbusiness.Workwithafocusinordertosaveyourselfsomeenergy:Workwithhypotheses,makealistofquestionsyouwantanswered,whatinformationyouwillneed,andwhereyoumightfindit.Theexternaldatanecessaryforananalysisareofteneasiertoobtainthanyoumightthink.Becreativeanddetermined;makeuseofallpossiblesourcesincludingtradeliterature(journals,marketstudies,scholarlyessays),industrydirectories,associationsandgovernmentagencies(statisticsoffices,chambersofcommerce,patentoffices),banksforindustrysurveys,databases,theInternet(keepyoursearchesfocused),and,ofcourse,interviews.Itoftenhelpstocallaround.Usingashortdiscussionoutlinewillincreaseyourefficiencyandproductivity,aswellasthewillingnessofyourpartytodiscloseinformation.24 Thiscollectionofindividualpiecesofdataseldomprovidesadirectanswertoyourquestions–youwillhavetodrawwell-foundedconclusionsormakesoundestimates.Whenmakinganestimate,observethefollowing:·Buildonasolidfoundation.Theremaybemanyunknowns,butifyourelyoneasilyverifiablefigures,yourestimatewillbehardertotopple.·Thinklogically.Anestimateshouldbealogicalconclusion(i.e.,itshouldnothaveanyleapsinlogicordependonunspecifiedassumptions).·Compareyoursources.Checkyourfacts,suchasstatementsmadeinaninterview,withanumberofdifferentsourcesifatallpossible.·Becreative.Theshortestdistancetoyourgoalisnotalwaysastraightline.Forexample,whenavariableisunknown,lookforasubstitutevariablethatrelatestotheoneyouneed.·Checkforplausibility.Foreachestimate,askyourself,”Doesthisresultreallymakesense?”MarketsegmentationFollowupyourgeneralexplanationswithyourchoiceoftargetcustomerandyourplannedmarketsuccess(salesvolumes,salesrevenues,marketshare,andprofit).Todothis,youmustsegmentyourmarket.Thechoiceofsegmentationcriteriaisuptoyou,aslongasyouarecertainthatthenumberofcustomersineachsegment-aswellastheirbehavior-canbedetermined,andthatthecustomerswithineachsegmentcanbereachedbymeansofthesamemarketingstrategy.Possiblecustomersegmentationcriteriafortheconsumergoodsmarkets:!Location:country,urban/rural(populationdensity)!Demographics:age,sex,income,profession,companysize!Lifestyle:techies,counterculture,activeseniors!Behavior:frequencyofproductuse,productapplication!Buyinghabits:brandpreferences,priceconsciousnessPossiblecustomersegmentationcriteriaforindustrialgoodsmarkets:!Demographics:companysize,industry,location!Operations:technologyemployed(e.g.,digital,analog)!Buyinghabits:centralizedordecentralizedpurchasing,purchasingcriteria,supplieragreements!Situationalfactors:urgencyofneed,ordersize25 Definethepotentialsalesrevenuesforagivenperiodpersegment.Takeyoursalesstrategyandthebehaviorofthecompetitionintoconsideration.Dependingontheindustry,youmayalsowanttoallowforpriceerosion.CompetitionDefinethestrengthsandweaknessesofyourcompetitors.Todothis,evaluateyourmajorpotentialcompetitorsusingthesamecriteria,suchassalesvolumeandrevenues(pricing),growth,marketshare,costpositioning,productlines,customersupport,targetgroups,anddistributionchannels.Intheinterestofbrevity,forgotheuseofagreatdealofdetail.Evaluateyourowncompanyaccordingtothesesamecriteriaandmakeacomparisonastohowsustainableyourcompetitiveadvantagewillbe.Positioningvis-à-visthecompetitionWhyshouldapotentialcustomerbuyyourproductandnotthatofyourcompetitor?Becauseitoffersgreatervalue(insomeaspectthatisimportanttothecustomer)thancompetingproducts;becauseitisobjectivelyoremotionally”better;”or,asmarketingexpertswouldsay,youhavedevelopedavaluepropositionoruniquesellingpropositionforyourbusinessidea.Formulatingthisvaluepropositionandanchoringitfirmlyinthemindofthecustomeristhemaintaskofmarketingcommunication.Marketingexpertstalkaboutthepositioningofaproduct,brand,orbusiness.Well-positionedproductsleaveconsumerswithaparticularimpression.Themostimportantguidelineforpositioningis,therefore,tolookattheproductfromthecustomer’spointofview.Thepointistomeetaneedbetter,nottopresentnewproductattributes.Theadvantagetothecustomermustbeimmediatelyclear,memorable,andimportant.Atthesametime,yourpositioningmustbedistinctivefromthatofcompetitors.Onlythencancustomersconnectthevaluepropositionthatyouofferwiththenameofyourproductorbusinessandbuyyourproduct.Thefollowingguidelinesmayhelp:·Identifyrelevantcustomerneedsorproblems·Defineclearcustomersegmentsofsufficientsize·Designanattractiverangeofproductsandservices·Makeyourselfuniquethroughdifferentiationfromthecompetition·Addressthesubjectiveperceptionofthecustomer·EnsurecustomersatisfactionevenafterpurchaseBecausepositioningissocriticaltothemarketsuccessand,therefore,tothelong-termsuccessofyourbusiness,youshouldpayparticularattentiontoit.Persuasivepositioningwillnotcomeaboutimmediately,itwillbearesultofintenseeffortandwillneedfrequentrevisiontoachievethemaximumeffect.Thepointofdepartureforpositioningistheproductitself.Additionalinsightwillbefoundasyourefineandmodifyyourproductduringdevelopmentandrespondtonewrevelationsasaresultofcustomersurveys.26 KEYQUESTIONS:MarketandcompetitionPhase1!Howistheindustrydeveloping?!Whatfactorsaredecisiveforsuccessinyourindustry?!Whatroledoinnovationandtechnologicaladvancesplay?!Howwillyousegmentthemarket?!Whatmarketvolumesdotheindividualmarketsegmentshave,nowandinthefuture(roughestimates)?!Whoareyourtargetcustomergroups?!Whatcustomerexamplescanyougive?!Whatmajorcompetitorsoffersimilarproducts/services?!Whatnewdevelopmentscanbeexpectedfromcompetitors?!Howsustainablewillyourcompetitiveedgebe?Phase2!Whatmarketvolume(valueandamount)doyouestimateforyourindividualmarketsegmentsoverthenext5years?!Whatwillinfluencegrowthinthemarketsegments?!Whatisyourestimateofcurrentandfutureprofitabilityoftheindividualmarketsegments?!Whatmarketsharesdoyouholdineachmarketsegment?!Whatsegmentsareyoutargeting?!Whoareyourreferencecustomers?Howdoyouplantogetreferencecustomers?!Whatroledoservice,consulting,maintenance,andretailsalesplay?!Howmuchdoyoudependonlargecustomers?!Whatarethekeybuyingfactorsforcustomers?!Howdoesthecompetitionoperate?Whatstrategiesarepursued?!Whatarethebarrierstomarketentryandhowcantheybeovercome?!Whatmarketsharedoesyourcompetitionhaveinthevariousmarketsegments?!Whattargetgroupsdoyourcompetitorsaddress?!Howprofitableareyourcompetitors?!Whatareyourcompetitorsmarketingstrategies?!Whatdistributionchannelsdoyourcompetitorsuse?!Howsustainablewillyourcompetitiveedgebe?Why?!Howwillcompetitorsreacttoyourmarketlaunch?Howwillyourespondtothisreaction?!Comparethestrengthsandweaknessesofyourmajorcompetitorswithyourownintheformofanoverview!4.5.Marketingandsales”Marketingisfartooimportanttobelefttothemarketingdepartment.”DavidPackard,Entrepreneur27 Keyelementsofawell-conceivedbusinessconceptarewell-plannedmarketingandsalesactivities.Theyrequireapersuasivedescriptionofyourstrategiesformarketlaunch,marketing,andthemeasuresplannedforsalespromotion.Askeletonframeworktofollowisthatofthefour”Ps”:product,price,place,andpromotion.1.ProductYouroriginalproductideahasalreadygivenyousomesenseofthecharacteristicsofyourproduct.Afteracloseranalysisoftheneedsofvariouscustomersegments,younowmustevaluatewhetheryourproductactuallymeetsthemortowhatextentitmayrequireadaptation.Thisraisesthequestionofwhetheryoushouldmanufactureonesingleproductforallsegmentsorwhetheryouwanttoadjusttheproducttomeettheneedsofindividualsegments.2.PriceThebasisforanattainablepriceisthewillingnessofcustomerstopaythepriceaskedofthem.Thiscontradictstheconventionalwisdomthatpriceisderivedfromcosts.Ofcourse,costisaconsiderablefactor,butthecost-priceratioonlybecomescriticalwhenthepriceaskedwillnotcovercostswithintheforeseeablefuture.Inthiscase,itisadvisabletogetoutofthebusinessasquicklyaspossibleor,betteryet,nevertogointothebusinessinthefirstplace.Thepriceyoucanaskdependsentirelyonhowmuchthevalueofyourproductisworthtothecustomer.Youhavedefined,andperhapsquantified,thecustomervalueinthebusinessconceptorproductdescription.Nowdefineapricebracketbasedonthequantifiedcustomervalueofyourproduct.Youcanverifyandrefineyourassumptionsthroughdiscussionswithpotentialcustomers.Thepricingstrategyyouchoosedependsonyourgoal:Doyouwanttopenetratethemarketquicklybygoingwithalowprice(penetrationstrategy)?Or,doyouwanttogeneratethehighestpossiblereturnfromtheout-set(skimmingstrategy)?Newcompaniesgenerallypursuetheskimmingstrategyforgoodreason:·Anewproductispositionedas”better”thanpreviousoptions,soahigherpricecanbejustified.·Higherpricesgenerallyleadtohigherprofitmarginsandallowthenewcompanytofinanceitsowngrowth.Newinvestmentscanbefinancedoutofprofitsandoutsideinvestorsarenolongerneeded.·Unliketheskimmingstrategy,thepenetrationstrategygenerallyrequireshighinitialinvestmentinorderforsupplytomeetthehighdemand.Thisheightenedinvestmentriskissomethinginvestorsusuallyprefertoavoid.Certainsituationsmakefollowingapenetrationstrategythebetterchoice:·Settinganewstandard.NetscapedistributeditsInternetbrowserfreeofcharge,thussettingastandard.WiththeMacintosh,however,Apple28 followedaskimmingstrategyandmissedthechancetoestablishtheMacasthenewstandard.·Highfixedcosts.Businesseswithhighfixedcostsareforcedtofindawideaudienceasquicklyaspossibletomakethosecostsworthwhile.FixedcostsatFederalExpress,forexample,forairtransportandsortingfacilities,arethesamewhethertheydeliverthousandsormanymillionsofletters.·Competition.Iftheentrybarriersarelowandtoughcompetitionislikely,apenetrationstrategyisthebestwaytobefasterthanthecompetitionincapturingalargemarketshare.Suchcasesnaturallyalsoraisethequestionastowhetherthistypeofbusinessisappropriateforastart-up.3.PlaceYourproductorservicewillsomehowhavetoreachthecustomerphysically.Althoughthismaysoundsimple,itinvolvesanothermonumentalmarketingdecision:Inwhatway,viawhichdistributionchannel,doyouwanttodeliveryourproduct?Thechoiceofdistributionchannelisinfluencedbyvariousfactors,suchashowmanypotentialcustomerswillyouhave?Aretheycompaniesorindividuals?Howdotheyprefertoshop?Doestheproductrequireexplanation?Isitinanupperorlowerpricebracket?Basically,youwillhavetoconsiderwhetheryourcompanywillhandledistributionitself,orwhetheraspecializedoperationwillhandleitforyou.Thissortof”make-or-buy”decisionwillhaveasignificantimpactonboththeorganizationandthebusinesssystemofyourenterprise.Thechoiceofdistributionchannelisthuscloselyrelatedtoothermarketingdecisionsandwill,inturn,affectothermeasures.Distributioncanberoughlycategorizedintotwoforms:directormulti-channel.Technologicaldevelopments,particularlyininformationtechnology,havegreatlyexpandedthespectrumofdistributionchannelsoverthepastfewyears.Hereisaselection:·Third-partyretailers.Productsaresoldviaretailerswhohaveeasyaccesstopotentialcustomers.Here,itisimportanttoacquireagoodshelfposition,whichisobviouslyalsosoughtbythecompetitionandisaccordinglyexpensive.Theproductmustalsoofferretailersanattractiveprofitiftheyaretoincludeitintheirrangeatall.·Outsideagents.Specializedcompaniesactasagentsforthedistributionofproductsfromvariousmanufacturers.Theytakeoverthefunctionofthein-housesalesperson.Outsideagentsarerelativelyexpensive,althoughonlyforthesalestheyconcludesuccessfully.Theymakenocommissioniftheydonotselltheproduct,makingthemanattractivechannelfornewcompaniessinceriskislimited.Goodagents,however,arenotalwayseasytofind.·Franchising.Abusinessconceptisputintopracticeindependentlybyafranchiseewhopaysalicensingfee,wherebythefranchisermaintainscontrolofthebusinesspolicies(McDonald’sisanexample).Franchisingenables29 rapidgeographicgrowth,whileensuringcontrolofthesalesconceptwithouthugepersonalinvestment.·Wholesalers.Itcanbedifficultforasmallcompanytomaintaincontactwithalargenumberofretailers.Awholesalerwhohasgoodcontactstotheretailtradecantakeoverthisactivity,helpingtoimprovemarketpenetrationwhileloweringdistributioncosts.Ontheotherhand,wholesalersoftendemandacutfortheirefforts.·Stores.Sellinginyourownstoreisagoodchoicewhenthedesignofthepurchasingexperienceiscentraltotheproduct,andonlyasmallnumberofstoresisnecessarytocoverthemarket.Independentshopswillrequireinvestment,butwillalsoallowthegreatestcontroloverdistribution.·Ownsalesstaff.Salesagentsareabovealldeployedwhentheproductiscomplex(e.g.,capitalgoods),requiringextensiveknowledgeoftheproduct.Face-to-facecustomervisitsareexpensive;thenumberofcustomersmustbefairlysmall.Havingyourownsalesstaffasthedistributionchannelisrelativelyexpensiveandonlyworthwhileforinvolvedproducts.·Directmail.Selectcustomersreceiveamailingthroughthepostalservice.Addressescanbepurchasedfromdatabasecompaniesandsortedaccordingtodesiredcriteria.Thesuccessofthedirectmailingdependsonwhetherthereaderfeelsanimmediateappeal–otherwise,itlandsinthewastebasket.·Callcenter.Throughadvertising,customersareinvitedtoorderaproductbytelephone.Simpleproductscanbedistributedtomanycustomersinthisway,withnoneedtosetupstoresthroughouttheentiresalesregion.Youcanalsohiretheservicesofspecializedcallcenteroperators.·Internet.TheInternetisarelativelynewmarketingchannel,throughwhichaglobalmarketcanbereachedatminimalcost.4.PromotionBeforepotentialcustomerscanappreciateyourproduct,theyhavetohearaboutit.Andtoachievethis,youmustadvertisetoattractattention,inform,persuade,andinspireconfidence.Thosearetheobjectivesofcommunication.Communicationmustexplainthevalueofyourproductorservicetoyourcustomers,aswellasconvincecustomersthatyourproductmeetstheirneedsbetterthancompetingoralternativesolutions.Therearevariouswaysofgettingthecustomer’sattention:·Classicadvertising:newspapers,magazines,tradejournals,radio,TV,movietheaters·Directmarketing:directmailtoselectcustomers,telephonemarketing,Internet·Publicrelations:articlesinprintmediaaboutyourproduct,businessoryou,writtenbyyouorajournalist30 ·Exhibitions,tradefairs·CustomervisitsCommunicationisexpensive,somakethemostofit.Calculateexactlyhowmuchadvertisingyoucanaffordpersaleandchooseyourcommunicationmessagesandmediaaccordingly.Focusedcommunicationyieldsthebestresults.Whenyouaddressyourcustomers,focusonthepeoplewhomakethepurchasingdecisionorhavethegreatestinfluenceonthepurchasingdecision.KEYQUESTIONS:MarketingandsalesPhase1!Whatfinalsalepricedoyouwanttocharge(estimated)?Whatcriteriadidyouusetoarriveatthisfinalsaleprice?Howhighistheprofitmargin(estimated)?!Whatsalesvolumesandsalesrevenuesareyouaimingfor(estimated)?Phase2!Inwhichpartialmarketsegmentswillyoumakeyourmarketentry?Howdoyouplantoturnthis“toehold”intoahigh-volumebusiness?!Whatsalesvolumesareyoutargeting(detaileddatabymarketsegment)?!Describethetypicalprocessofsellingyourproduct/service.Who,amongyourbuyers,ultimatelymakesthepurchasingdecision?!Whattargetgroupswillyoureachbywhatmeansofdistribution?!Doyouwanttopenetratethemarketquicklywithalowprice,orbringinthehighestreturnfromthestart?Explainyourdecision!!Howwillyoudrawtheattentionofyourtargetgroupstoyourproductorservice?!Howwillyouwooreferencecustomers?!Howmuch,intimeandresources,willitcosttoacquireacustomer?!Whatadvertisingmaterialswillyouusetodoso?!Whatpartdoservice,maintenance,andhotlinesplay?!Howdifficultwillitbeand/orwhatwillitcosttocreatelong-lastingcustomerloyalty?!Whatotherplanningstepsarenecessaryintherun-uptolaunchingyourproduct/service?Drawupaschedulewiththemostimportantmilestones!Phase3!Whatdemands(employeenumber,qualifications,andoutfitting)musttheoperationmeetinordertoeffectivelyimplementitsmarketingstrategy?Whatisyourestimatedexpenditureforthisarea?!Howwillsalesvolumeandoperatingresultsbespreadoutamongthevariousdistributionchannels(estimated)?!Whichmarketshareperdistributionchanneldoyouplantocapture?!Whatareyourexpenses?Atlaunch–andlater.!Whatpricewillyouchargeforyourproduct/servicepertargetgroupanddistributionchannel?!Whatpaymentpolicieswillyoulaydown?31 4.6.Businesssystemandorganization”Organizationsexisttoenableordinarypeopletodoextraordinarythings.”TedLevitt,Editor,HarvardBusinessReviewBusinesssystemEveryentrepreneurialassignmentiscomprisedoftheinterplayofanumberofindividualactivities.Whentheyarepresentedsystematicallyinrelationtooneanother,abusinesssystemresults.Thebusinesssystemmodelmapsouttheactivitiesnecessarytoprepareanddeliverafinalproducttoacustomer.Forclarity’ssake,theyaregroupedintofunctionalblocks.Devisingabusinesssystemisagoodwaytounderstandthebusinessactivitiesofacompany,thinkthemthroughsystematically,anddisplaythemwithtransparency.AgenericbusinesssystemcommontonearlyallindustriesandenterprisesisshowninExhibit10.GENERICBUSINESSSYSTEMResearchandProductionMarketingSalesServicedevelopmentExhibit10Usetheabovemodelasthestartingpointfordesigningyourownbusinesssystem.Youwillneedtoadaptittoyourownsituationandmakeitconcreteinordertoputitintopractice.Foramanufacturer,forexample,itmaybeusefultosubdividetheproductioncategoryintoseparatestages,suchaspurchasing,rawmaterialsprocessing,componentmanufacture,andassembly.Youmayalsoneedtoseparatesalesintologistics,wholesaledistribution,andretailsales,forexample.Anindividualplanwillbeappropriatetoeachcase,dependingontheindustryinwhichyouoperateand,ofcourse,thebusinessitself.Thebusinesssystemofacomputermanufacturerwillbeverydifferentfromthatofafastfoodchain.Andthebusinesssystemofadepartmentstoremaylookquitedifferentfromthatofadirectmerchandisingcompanyalthoughbothwillsellmanyofthesameproducts.Therearenogeneralrulesorstandardsforabusinesssystem.Yourownsystemshouldbelogical,complete,andusefulforplanning–justdon’tletitgettoocomplicated.Concentrateonthemajoractivitiesinyourbusinesssystem.Ateamofthreetofivewillnotbeabletocoveralltasksthemselves,eitherbecausetheydonothavetheabilitiesorbecausetheycouldnotdosowiththenecessaryefficiency.Togetherwithyourmanagementteam,thinkcarefullyaboutwhatactivitiesreallycreatesomethingnewandhowyouandyourstaffcanbestmakeuseofyourtimetocreatethehighestvalueforyourcustomerandgetaheadofthecompetition.Thebuzzwordhereisfocus.Onceyouhavedeterminedwhichactivitiesmakeup32 yourbusinesssystem,choosethosewhichyoucanexecutebetterthananyoneelse.Atrendtowardspecializationcanbeobservedinmanyindustries.Specializationisparticularlyimportantforstart-ups.Theyshouldconcentratealltheirenergyonjustafewselectactivitiesinthebusinesssystem.Atthebeginning,evensoftwaregiantMicrosoftconcentratedsolelyonthedevelopmentoftheDOS,leavingallotheractivitiesinthebusinesssystemuptoIBM.OrganizationInadditiontoabusinesssystem,youwillneedtoconsiderseveralotherorganizationalissues.Itisessentialthattasksandresponsibilitiesbeclearlydelegatedandthatyoudesignasimpleorganizationwithfewlevels.Therestwillfollowasneededduringoperation.Yourorganizationmustbeflexibleandalwaysadaptabletonewcircumstances.Bepreparedtoreorganizeyourcompanyrepeatedlyduringthefirstfewyears.Decidewhoisresponsibleforwhatineachbusinessarea(delegationoftasksandresponsibilities).Assoonasyouhavesetuptheinterdisciplinaryfunctions-suchasamanagement,humanresources,finance,andadministration-you’llbeupandrunning.Ifyoukeepyourorganizationsimple,eachstaffmemberwillknowwhichassignmentsheorshemustcompleteandcancarrythemoutindependently.Ontheotherhand,everyoneshouldbeinapositiontofillinforanotherteammemberforashorttimeifnecessary.(SeeExhibit11)SAMPLESTART-UPORGANIZATIONManagingDirectorMr.DuxResearchandProductionMarketingFinanceHumanDevelopmentResourcesandAdministrationMr.InventMr.FacitMs.OratoriaMr.PecuniaMr.DuxExhibit11BusinesslocationDescribebrieflythechoiceoflocationforyourbusiness.Donotenterintoalong-termrentalagreement,asyourbusinessmayhavetomoveinresponsetothegrowthyouanticipate.Youmayhavetomakethismovefairlyquickly.”Makeorbuy”andpartnershipdecisionsOnceyouhavedeterminedthecoreofyourbusinessandhavedrawnupthenecessarybusinesssystem,youwillhavetothinkaboutwhowillbestcarryouttheindividualactivities.Activitiesoutsideyourchosenfocusshouldbehandledbythirdparties.Butsupportingactivitieswithinthenewcompanydonotnecessarilyhavetobecarriedoutbyyou.Thesemayinclude33 bookkeepingorhumanresources.Foreachactivity,thequestiontoaskis:Dowedoitourselves,orhavesomeoneelsedoit-tomakeortobuy?Make-or-buydecisionsneedtobeconsciousdecisionstakenafterweighingtheadvantagesanddisadvantages.Supplierpartnerships,forexample,cannotbedissolvedfromonedaytothenext,andsomepartnerscannoteasilybereplacedif,forsomereason,theyarenolongeravailable.Whenconsideringmake-or-buydecisions,relyonthefollowingcriteria:·Strategicsignificance.Thoseaspectsofperformancethatmakeamajorcontributiontoyourcompetitiveadvantageareofstrategicimportancetoyourbusiness.Theymustremainunderyourcontrol.Atechnologycompanycouldhardlyrelinquishresearchanddevelopment,andaconsumergoodsmanufacturerwouldnevergiveawayitsmarketingactivities.·Suitability.Everybusinessactivitydemandsspecificabilitiesthatmaynotbeavailablewithinthemanagementteam.Yourteammust,therefore,considerwhetherinspecificinstancesitisbesttocarryoutaparticulartask,acquiringthenecessaryabilities,orwhetheritwouldbebettertohandoverthetasktoaspecializedcompany.Specialistsmaynotonlybeabletocarryouttheassignmentbetter,theymayalsobeabletoofferacostadvantagethankstohigherproductionvolumes.·Availability.Beforeyoumakeadecisiontobuy,youneedtofindoutwhethertheproductorserviceisavailableintheformorwiththespecificationsyourequire.Negotiate,wheneverpossible,withseveralsuppliers.Youwillusuallyfindthebesttermsinthiswayandwilllearnmoreabouttheserviceyouarebuying.Often,youcanhelpasupplierimproveitsperformance.Ifyoucannotfindsomeonetosupplywhatyouneed,youmayfindabusinesspartnerwhoiswillingtoacquirethenecessaryskillstodoso.Thequestionforastart-upishowyouwanttocooperatewithothercompanies.Everypartnershiphasitsadvantagesanddisadvantages.·Informal,non-bindingpartnershipsrepresentnogreatobligationforeitherside.Bothpartiescanendthepartnershipquicklyandeasily.Buttheymustalsolivewiththeknowledgethatsupplyordemandcoulddryupjustasquickly.Furthermore,supplierswillnotbeabletomeetallthespecialneedsofacustomersincetheycannotselltailoredproductstoalltheircustomers.Casualpartnershipsaretypicalformassproducts,every-dayservices,andstandardizedcomponentsforwhichreplacementbuyersandsellersareeasilyfound.·Closepartnershipsaresometimescharacterizedbyahighdegreeofinterdependence.Theyaretypicalofhighlyspecializedproductsandservicesorhightradevolumes.Inthesesituations,itisusuallydifficultforbothsidestochangepartnersortobuyorselllargequantitiesofspecialparts34 withinashorttimeperiod.Theadvantageforbothsidesisthesecurityofabindingrelationshipandthepossibilityofconcentratingonone’sownstrengths,whilebenefitingfromthestrengthsofpartners.Inorderforapartnershiptodevelopintoasuccessfulbusinessrelationship,anumberoffactorsmustbeconsidered:·Win-winsituation.Bothsidesmustbeabletogainafairadvantagefromtherelationship.Withoutanincentiveforbothsides,apartnershipcannotbesustained.·Risksandinvestments.Partnershipsinvolverisksthatareusuallybrushedasidewhenbusinessisgoingwell.Asupplierwithanexclusivityagreementcan,forexample,endupinadifficultsituationifthebuyersuddenlycutsbackproductionandpurchasesfewercomponents.Thisisespeciallytrueifthesupplierhasacquiredspecializedproductiontoolingthatcannotimmediatelybeusedforotherordersandbuyers.Conversely,abuyercanfacedifficultiesifamajorsupplierceasestodeliver(bankruptcy,fire,strike,etc.).Suchrisksandpossiblefinancialconsequencesmustbethoughtthroughfromtheoutsetandperhapsregulatedbycontract.·Dissolution.Asininterpersonalrelationships,businessrelationscanalsosuffertensionandresultinirreconcilabledifferences.Makesuretolaydownindetailunderwhichconditionsapartnercanwithdrawfromapartnership.Whenworkingonyourbusinessplan,itisnottooearlytobeginthinkingaboutwhomyoumaywanttocooperatewithandwhatformthismaytake.Partnershipswillallowayoungcompanytobenefitfromthestrengthsofestablishedcompaniesandfocusondevelopingtheirownstrengths.Throughpartnerships,youcanusuallygrowfasterthanyoucouldonyourown.KEYQUESTIONS:BusinesssystemandorganizationPhase2!Whatdoesthebusinesssystemforyourproduct/servicelooklike?!Whatactivitiesdoyouwanttohandleyourself?!Wherewillthefocusofyourownactivitieslie?!Whatbusinessfunctionsmakeupyourorganization,andhowisitstructured?!Whatresourcesdoyouneed(quantitativeandqualitative)tocreateyourproduct/service?!Howhighisyourneedfortechnicalinput(rawmaterials,materialstocreateyourservice)?!Whatwillyoumake,whatwillyoubuy?!Whichpartnerswillyouworkwith?Whataretheadvantagesofworkingtogetherforyouandyourpartners?Phase3!Wherewillyoulocateyourbusiness?35 !Whatcapacityforproductmanufactureandserviceproductiondoyouplan(numberofunits)?!Howmuchwillproductionanddeliveryofyourproduct/servicecost?!How,andatwhatcost,canyouadjustyourcapacityintheshortterm?!Whatmeasuresareplannedforqualityassurance?!Ifyouneedawarehouse,howwillyouorganizeyourinventory?!Howmuchofyourproducthastobeputinstorage?!Howareyourcostsstructured(fixed,variable)?4.7.Implementationschedule”Businessislikechess:Tobesuccessful,youmustanticipateseveralmovesinadvance.”WilliamA.Sahlmann,ProfessorInvestorswanttoknowhowyouenvisionthedevelopmentofyourbusiness.Arealistic5-yearplanwillinspirecredibilityamonginvestorsandbusinesspartners.Moreover,itwillhelpyouthinkthroughyourvariousactivitiesandinterdependencies.Youwillendangeryourbusinessifyouattempttoreachyourtargetswithfaultyand,aboveall,overlyoptimisticplanning.DrawingupyourimplementationscheduleConcentrateonthemostmajormilestonesandthemostimportantinterdependentevents.Thefollowingthreeelementswillusuallysuffice:·Ganttimplementationschedule(forasampleGantttimeline,seeCityScapecasestudy)·Majormilestones·ImportantconnectionsandinterdependenciesbetweentheworkassignmentgroupingsHumanresourcesplanningAsyournewbusinesstakesoff,systematicpersonnelplanningwillbecomemoreandmoreindispensable.Growthwillrequireyoutorecruitnewemployeeswhowillhavetobetrainedandintegratedintothebusiness.Maintainingasimplystructuredworkingenvironmentwillhelpyoudrawupclearjobdescriptionsandseekjusttherightemployees.Keepinmindthataqualified,specializedworkforcemaybedifficulttofindevenintimesofhighunemployment.Youwilloftennotbeabletoavoid”stealing”goodemployeesfromcompetitors.Includecostsinyourpersonnelplanninginordertoarriveatthetotalcostofhumanresources(wagesandindirectlaborcosts)fortheincomestatementinyourbusinessplan.Thecostofpersonneldependsonanumberoffactors,suchastheindustryitself,employeequalifications,andage.Additionally,indirectlaborcostscanamounttoover50%ofthewage.36 InvestmentanddepreciationplanningInvestmentanddepreciationplanningincludesallinvestmentsthatmaybecapitalizedandthecorrespondingwrite-offs.Theamountofdepreciationdependsontheservicelifeplannedfortheproperty.Usually,propertyiswrittenoffinfullover4to10yearsinequalannualamounts(straight-linemethod).Investmentsaretobeincludedintheliquiditycalculation,andthetotalamountofannualwrite-offslistedintheplannedincomestatement.KEYQUESTIONS:ImplementationschedulePhase3!Whatarethemostimportantmilestonesforthedevelopmentofyourbusiness,andwhenmusttheybereached?!Howdoyouplantostructuretheworktoreachthesetargets?!Whichtasksandmilestonesareinterdependent?!Forwhichtasks/milestonesdoyouanticipatebottlenecks?!Howmanynewemployeeswillyouneedintheindividualbusinessareasoverthenext5years?Whatwillthiscost?!Howmuchrealcapitalisnecessarytoachieveinitialsales?!Listyourplannedshort-terminvestments!!Listyourplannedlonger-term(3to5years)investments!!Whatinvestmentswillberequiredwhenwhichmilestonesarereached?!Howhighistheannualdepreciationforeachinvestment?37 4.8.Opportunitiesandrisks”Oneofthegreatestmythsaboutentrepreneursisthattheyareallriskseekers.Allsanepeoplewanttoavoidrisk”WilliamA.Sahlmann,ProfessorTheobjectofthisexerciseistoidentifyamarginoferrorfordeparturesfromyourassumptions.Ifpossiblewithreasonableeffort,itisadvisabletodrawupbest-caseandworst-casescenariosinvolvingkeyparameterstoidentifytheopportunitiesandrisks.Thesecalculationswillallowventurecapitaliststojudgehowrealisticyourplansare,andtobetterassesstheriskoftheirinvestment.Changevariousparametersinthescenarios(suchaspriceorsalesvolumes)tosimulatehowachangeinconditionsmightaffectyourkeyfigures(sensitivityanalysis).KEYQUESTIONS:OpportunitiesandrisksPhase2!Whatbasicrisks(market,competition,technology)doesyourbusinessventureface?!Whatmeasureswillyoutaketocountertheserisks?!Whatextraordinaryopportunities/businesspossibilitiesdoyouseeforyourcompany?!Howcouldanexpansionofyourcapitalbasehelp?Phase3!Whatwillyourplanninglooklikeforthenext5financialyearsunderbothabestandworstcasescenario?!Whateffectwillthishaveonyourneedforcapitalandyourreturn?!Inyourview,howrealisticarethesescenarios?!Whatconsequencesdotheyhaveonyourbusinessplanning?4.9.Financialplanningandfinancing”Planningsubstituteschaosformistakes.”UnknownFinancialplanningassistsyouinevaluatingwhetheryourbusinessconceptwillbeprofitableandcanbefinanced.Tothisend,theresultsofallprecedingchaptersmustbecompiledandconsolidated.Projectedgrowthinvalueresultsfromtheplannedcashflowsfromyouroperativebusiness.Thesearerevealedthroughliquidityplanning,whichalsoprovides38 informationonyourvariousfinancingneeds.Inaddition,theprofitsituationofyourbusinesscanbeseenintheincomestatement.Thisstatementisalsonecessaryaccordingtocommercialandtaxlaw.Therearemanywaystopresentthefigures.Theappendixcontainssampletablesofhowtoperformliquidityplanningandmakeupanincomestatement,aswellasabalancesheet.Minimumrequiredoffinancialplanninginyourbusinessplan:!Acashflowcalculation(liquidityplanning),incomestatement,balancesheet!Forecastsover3to5years,atleast1yearbeyondthepointofbreakingeven,thatis,beyondthegenerationofpositivecashflow!Detailedfinancialplanningforthefirst2years(monthlyorquarterly),thereafterannually!Allfiguresmustbebasedonreasonableassumptions(onlythemainassumptionsneedtobedescribedintheplan)PlannedincomestatementWhetheracompany’sassetsgrowordiminishdependsonthebottomlineattheendofayear.Theincomestatementcanhelpyouforecastthis.Incontrasttoliquidityplanning(=plannedcashflow),anincomestatementfocusesontheissueofwhethertransactionsleadtoanincrease(=revenue)oradecrease(=expense)inthenetworthofyourbusiness(definedasthesumofallassetsminusdebt).Gothroughyourentirebusinessplananddecidewhetheryourassumptionswillleadtorevenuesorexpensesand,ifso,howhightheywillbe.Ifyouareindoubtabouttheexactamountofcostsyourbusinesswillincur,gatherquotesandestimates.Donotforgettocoverthecostofyourpersonallivingexpenses.Inthecaseofalimitedliabilitycompany,thiswouldbethesalaryofyourgeneralmanager.Listwrite-offsinyourinvestmentanddepreciationplanning.Thecostofinvestmentsthemselves(i.e.,thepurchasepriceoftheinvestment)isnotincludedintheincomestatement,becausetheamountpaidoutdoesnotleadtoachangeinthenetworthofthebusiness.Materialcostscompriseallexpensesforrawmaterials,auxiliaries,expendablesupplies,andpurchasedgoodsandservices.Yourplannedhumanresourcesexpenditureincludeswagesandsalariesplussocialsecuritycontributionsandtaxesandislistedunderpersonnelcosts.Forthepurposeofsimplification,thecategory”othercosts”istreatedasacollectiveitem,includingamongotherthings,rent,insurance,officesupplies,postage,advertising,andlegalcounsel.Whenassigningindividualrevenuesandexpensesstrictlyobservelegalregulations.Finally,calculatethedifferencebetweenallrevenueandexpensesinafinancialyear,bywhichyouwillarriveatanannualnetprofit/loss.Thiswillgiveyouanoverviewoftheoperatingresult,butitwillnotgiveyouareliableassessmentofyourlevelofliquidfunds.Forthis,youwillneedliquidityplanning.39 Salesofyourproductorservicemaybebookedinthecurrentfinancialyear,eventhoughpaymentdoesnotoccuruntilthenext;youwillneedtolistthesalesrevenueeventhoughthemoneyhasnotyetbeendepositedintoyouraccounts.Thesameistrueforexpenses.Theincomestatementisgenerallyplannedinannualintervals.Toenhancetheaccuracyofyourplanningforthefirstyear,youshouldmakemonthlyforecasts,andquarterlyforecastsforthesecondyear.Forthethird,fourth,andfifthyears,continuetomakeannualprojections.YoucanmakeuseofthetablescontainedintheappendixofthisGuidetolistthefigures.LiquidityplanningYourcompanymusthaveacertainamountofcashonhandatanygiventimeinordertoavoidbecominginsolvent,whichleadstobankruptcythatwillmeanthefinancialruinofyourbusiness.Detailedliquidityplanningshouldhelpensureapositivecashflow.Theprincipleissimple:Receiptsarecompareddirectlytodisbursements.Pleasenotethatwritingorreceivinganinvoicedoesnotmeanthatthemoneyisalreadyinyouraccountorthatyouhavepaidthebill.Liquidityplanningisconcernedwiththedateofpaymentwhenthemoneyactuallycomesinorgoesout.Thus,liquidityplanninginvolvesonlythosetransactionsthatcauseachangeinyourcashreserves.Depreciation,liabilities,andnon-marketoutputarenotincluded.Layouttheamountandtimingofallthepaymentsyouexpect.Yourcompanyissolventwhenthesumofitsreceiptsisgreaterthanthesumofitsdisbursementsatanygiventime.Youwillhavetodrawoncapitalforthosetimeswhenthisplanningdoesnotcoverallexpenses.Thesumofalltheseindividualpaymentswillequalthetotalcapitalrequiredforthatplanninginterval.Thefartheryoulookintothefuture,themoreuncertainyourplanningwillbe.Liquidityplanningshouldthusbecarriedouteverymonthforthefirstyear,quarterlyforthesecondyearandonlyannuallyforthethird,fourthandfifthyears.TheappendixofthisGuidecontainstablesyoucanuseforanexactcompilationofthefigures.ProjectedbalancesheetVenturecapitalistsareinterestedinseeinghowyourassetsareexpectedtogrowasrepresentedonaprojectedbalancesheet.Here,thetypeandvalueoftheassetsareplacedontheassetsideofthebalancesheetacrossfromthesourceofthecapitalontheliabilitiesside.Aswiththeincomestatement,thereisastandardaccountingformat,requiredbylaw,forbalancesheets.Theyarepreparedatannualintervals.Again,theappendixofthisGuidecontainstablesyoucanuseforanexactcompilationofthefigures.FinancingneedsLiquidityplanningenablesyoutodeterminetheamountofcapitalyouwillneedandwhenyouwillneedit,butitdoesnotindicatehowtheseneedswillbemet.Webasicallydistinguishbetweenequity(investorshaveastakeinthebusiness)andloancapital(whichisborrowedfromoutsidesources).Selecttherightmixforyourbusinessfromthemyriadsourcesoffinancingavailabletoyou(Exhibit12).”Youcan’tgetsomethingfornothing,”thesayinggoes-andthesameistrueofmoney.Yourfamilymayasklittleinreturnforfinancialassistance;professionallendersaremoredemanding.40 Allthemanagementteamcanofferinvestorsfortheircashisapromise–notexactlyagoodpositionfromwhichtonegotiate.Nevertheless,youhaveagoodchanceofbeingSOURCESOFCAPITALATVARIOUSSTAGESOFDEVELOPMENTSeedphaseStart-upGrowthEstablishmentPersonalsavingsFamilyloansGovernmentgrantsIndividuals(usinessangelsVenturecapitalMortgagesLeasesBankloansStockexchangeExhibit12financiallysuccessfulifbusinessgoeswell,becauseprofessionalinvestorsalsohaveaninterestintopperformancefromtheteam.Beclearaboutyourneedsandexpectationsandthoseofyourinvestors.Ifyouareseekingalong-termcommitmentandaresatisfiedwithasmallcompany,youareprobablywelladvisedtomakeuseoffamilyfundsandloansfromfriendsandbanks.Youwillretainamajorityshareholding,butyouaresignificantlyrestrictingyourchancesforgrowth.If,however,youdesirerapidexpansion,youwillwanttoprocureventurecapital.Venturecapitalistswillgenerallyexpecttoobtainalargeshareofthecompany.Youmay,infact,havetorelinquishthemajorityoftheequity.Professionalinvestors,however,arenotinterestedinmanagingthebusinessaslongasyoumeetyourtargets,eveniftheyhavethemajorityshareholding.Theyhave,afterall,investedinthemanagementteaminordertoleadittosuccess.Theywillsupportyouactivelywiththeirmanagementskillsandcontributespecialtyknowledge,suchaslegalormarketingexpertise,ties,andcontacts.Adealcanbeverycomplicated.Itisalwaysadvisabletocontactexperiencedentrepreneursandgettheexpertadviceoftrustees,taxadvisors,andlawyers.Youmayalsowanttogatheranumberofbidsfromvariousinvestors.Donotbeputoffbycomplicatedarrangements.Thereareusuallylegitimatereasonsforthem,suchastaxbreaks,controlofthefundsinvested,etc.Beabsolutelycertain,however,thatyouunderstandallthedetailsofthedeal.Calculatingtheinvestor’sreturn41 Investorsevaluatethesuccessofaninvestmentbythereturntheygetonthecapitalinvested.Asaresult,anticipatedreturnshouldbeapparentataglanceinthebusinessplan.IntheCityScapecasestudy,forexample,investorsputatotalof$2.5millionintotheenterpriseduringitsfirst3years($0.9,$1.1,and$0.5million,respectively).After5years,andlistingonthestockexchange,realisticproceedsofapproximately$25millionareexpected.Howhighisthereturninthiscase?(Exhibit13)CALCULATINGTHERETURN$Millions25.00-1.06Year0Year1Year200Seriesofcashflows-0.90-0.53Year3Year4Year5-1.06Discountfactor1.000.580.340.200.110.07Discountedvalueof-0.90-0.62-0.18001.70Total0cashflowsatIRRof72%Exhibit13Fromthepointofviewoftheinvestor,allfundscontributedtoanewcompanyresultfirstinnegativecashflows.Afterabusinessbreakseven,positivecashflowswillnotimmediatelybepaidoutintheshapeofdividends,butwillbefirstusedtostrengthenthebalancesheet.Cashwillbereturnedtotheinvestorsatrealization.Becausecashflowswilloccuroverseveralyears,theymustbediscounted,thatis,calculatedbacktothepresent(interestandcompoundinterestcalculation).Thediscountfactorsforthevariousyearscanbearrivedatusingthefollowingformuladiscountfactor=1(1+r)Twherebyr=thediscountrateinpercentandT=theyearinwhichthecashflowtakesplace.Tocalculatethereturn,theinternalrateofreturn(IRR)methodisused.TheIRRisthediscountrateatwhichthesumofallpositiveandnegativecashflows,discountedatpresent,resultsinzero.TheIRRfortheCityScapeprojectexampleis72%.Thatmeansthattheinvestorsgetanannualreturnof72%ontheircapital.Thisisareasonablereturnconsideringtheriskinvolved.MostcalculatorsandspreadsheetshaveaspecialIRRfunctionwithwhichtocalculatetheIRR(inExcelthisistheIRR()function).Itcanalsobecalculatedbyhand.42 Valuationofacompany(i.e.,workingouthowmuchamarketispreparedtopayforshareswhenabusinessgoespublic)isanartinitself.Asimpleruleofthumbisthatthevalueissixtoeighttimesthecashflowornetprofit(aftertaxes)ofthebusinessintheyearofinitialpublicoffering.InthecaseofCityScape,afactorofsixmultipliedbythenetprofitinthefifthyear($4.2million)wasused,whichresultsinavaluationof$25.2million.Ifyouhavenoexperienceinfinancialplanning,consultingwithcoachesorexperts(e.g.,taxconsultantsoraccountants)ishighlyrecommended.Inparticular,discusstheissuesofturnoversalesandincometaxes,whichhavebeensimplifiedhere,withataxadvisoratoneofthecompetitioneventslistedatthefrontofthisGuide.Notethatmostbusinessventuresfailduetolackoffinancialplanning.Ifyoudon’thavesomeonewiththenecessaryskillsonyourteamalready,startlooking!KEYQUESTIONS:FinancialplanningandfinancingPhase3!Howwillyourrevenues,expenses,andincomedevelop?!Howwillyourcashflowdevelop?Whenwillyouexpecttobreakeven(=sumofallrevenuesgreaterthanthesumofallexpenses)?!Howhighisyourneedforfinancingbasedonyourliquidityplanning?!Howmuchcashisneededintheworstcasescenario?!Whatassumptionsunderlieyourfinancialplanning?!Whichsourcesofcapitalareavailabletoyoutocoveryourfinancingneeds?!Whatdealareyouofferingpotentialinvestors?!Whatreturncaninvestorsexpect?!Howwilltheyrealizeaprofit(exitoptions)?Thispageintentionallyblank43
简介：TableofContents1.TheRoutefromConcepttoCompany…………………………………………………………………….21.1.Successfactors………………………………………………………………………………………………21.2.Stagesofdevelopment………………………………………………………………………………….32.TheBusinessIdea……………………………………………………………………………………………………62.1.Developingabusinessidea…………………………………………………………………………..62.2.Elementsofapromisingbusinessidea………………………………………………………….72.3.Protectingyourbusinessidea……………………………………………………………………..102.4.Presentingyourideatoinvestors………………………………………………………………..113.TheBusinessPlan………………………………………………………………………………………………….133.1.Advantagesofabusinessplan…………………………………………………………………….133.2.Characteristicsofasuccessfulbusinessplan……………………………………………….133.3.Theinvestor’spointofview………………………………………………………………………..153.4.Tipsonpreparingaprofessionalbusinessplan…………………………………………..174.StructureandKeyElementsofaBusinessPlan……………………………………………………..194.1.Executivesummary…………………………………………………………………………………….194.2.Productorservice……………………………………………………………………………………….214.3.Managementteam………………………………………………………………………………………224.4.Marketandcompetition……………………………………………………………………………..244.5.Marketingandsales…………………………………………………………………………………….274.6.Businesssystemandorganization………………………………………………………………324.7.Implementationschedule……………………………………………………………………………364.8.Opportunitiesandrisks………………………………………………………………………………384.9.Financialplanningandfinancing………………………………………………………………..381 1.THEROUTEFROMCONCEPTTOCOMPANYNew,innovativecompaniesgenerallytrytogrowfromstart-upsintoestablishedcompanieswithin5years.Buttheycanseldomfinancetheiractivitiesalonealongtheway.Rather,theyaredependentonprofessionalinvestorswithconsiderablefinancialclout.Forentrepreneurs,financingisacriticalquestion–thebusinessplanmustthusbeconsideredfromthepointofviewofpotentialinvestorsrightfromtheoutset.1.1.SuccessfactorsSuccessfulcompaniesarisefromacombinationoffiveelements(Exhibit2).KEYFACTORSFORSUCCESSOFINNOVATIVESTART-UPSIdeas•Degreeofinnovation•Scope•PatentNetworkandexchange•CoachingTraditionalservicePeople•Networkingproviders•Inventors•Teambuilding•Attorneys•Entrepreneurs•Innovativeserviceprovider•Patentlawyers•Team–Venturecapitalists•Taxconsultants/members–Headhuntersaccountants–Angelinvestors•Market–High-techstart-upresearchersconsultantsCapital•Availability/amount•Needs/responsibilities•ExitsforinvestorsExhibit21.Nobusinessconcept,nobusinessHavinganideaisjustthebeginningofthecreativeprocess.Manyentrepreneursareinitiallyinfatuatedwiththeirinspiration,losingsightofthefactthattheirideaisthepointofdepartureforalongprocessofdevelopmentwhichmustface–andwithstand–toughchallengesbeforeitcanenjoyfinancingandmarketsuccessasamaturebusinessconcept.2.MoneymattersWithoutsomebodywhoinvestsmoneyintotheideatogrowitintoaviablebusiness,thisbusinesswillneverbecomeareality.Fromearlyon,therefore,muchattentionmustbepaidtoconvincinginvestorstoprovidethenecessaryfunding.2 3.Noentrepreneurs,noenterpriseGrowingnewfirmsisnotaone-personjob.Itcanonlysucceedwithateamof,usually,threetofiveentrepreneurswhosetalentsarecomplementary.Puttingtogetherwell-functioningteamsisadifficultprocess–onethattakestime,energy,andanunderstandingofhumannature.Donotloseanytimeinputtingyourteamtogetherandworkonperfectingitthroughouttheentirestart-upprocess.Thecharacteristicsofahigh-performancemanagementteamarediscussedinmoredetailinsection6.3ofthisGuide.4.TraditionalserviceproviderswillhelpyouclearthefirsthurdlesYouwilloftenneedtheadviceofprofessionalserviceproviders,suchaspatentlawyers,taxadvisors,andmarketresearchers-especiallyatthebeginning.Gettingtherightinformationearly(e.g.,forregisteringapatent)canhaveconsequencesforlatersuccessorfailure.5.Strongnetworksarea”shotinthearm”foreverynewcompanyProfessionalguidanceforpotentialentrepreneursthroughanetworkofsponsors,entrepreneurs,venturecapitalists,andserviceprovidersisdecisiveintransformingviableideasintorealcompanies.PrimeexamplesforsuchregionalnetworkscanbefoundinSiliconValleyandtheBostonarea.1.2.StagesofdevelopmentThetypicalprogressionofthestart-upanddevelopmentofgrowingcompaniesintoestablishedfirmscanbesubdividedintothreestages.Theendofeachstageservesasamilestoneforventurecapitalistsbywhichtogaugethestatusoftheirinvestment.Beingfamiliarwitheachstageandthechallengesitposesmayspareyouwastedenergyanddisappointment.Pleasenote,however,thatthethreestagesinthedevelopmentofafunctioningstart-updonotmatchthethreephasesinthedevelopmentofabusinessplanwithintheframeworkofthiscompetition(seeExhibit3).Ifyouintendtobesuccessful,thisstart-upprocessshouldinfluencebothyouractivitiesastheinitiatorofabusinessconceptandyourpathtowardformingyourowncompany.Toalargeextent,itisthedemandsofinvestorsthatwilldeterminehowyoumustapproachtheindividualstagesofthestart-up.STAGESOFSTART-UPDEVELOPMENTEstablishedcompanyStart-upExitofandgrowthinitialinvestorsBusinessplanFinancingpreparationdecisionsBusinessideaInterestofgenerationinvestorsExhibit33 Stage1:BusinessideagenerationThebeginningistheinspiration–yoursolutiontoaproblem.Itmustbeevaluatedtodetermineifitdeliversanactualcustomervalue,whetherthemarketisbigenough,andjusthowbigitwillbe.Theideaitselfhasnointrinsiceconomicvalue.Itacquireseconomicvalueonlyafterithasbeensuccessfullytransformedintoaconceptwithaplanandimplemented.Youwillneedtostartputtingtogetheryourteamassoonaspossible,findingpartnerswhocandevelopyourproductorserviceuntilitisreadyformarket(oratleastuntilshortlybefore).Inthecaseofproducts,thisstageusuallyinvolvesafunctioningprototype.Youwillmostlikelyhavetodowithoutventurecapitalduringthisstage.Youwillstillbefinancingyourplanwithyourownmoney,helpfromfriends,perhapsstateresearchsubsidies,contributionsfromfoundations,orothergrants.Investorsrefertothisas”seedmoney,”asyourideaisstillaseedling,notyetexposedtotheharshclimateofcompetition.Yourobjectiveatthisstageistopresentyourbusinessconceptandmarket–whichformsthefoundationofyournewcompany–soclearlyandconciselyastopiquetheinterestofpotentialinvestorsinhelpingyoucultivateyourideafurther.Stage2:BusinessplanpreparationAtthisstage,itismostimportanttofocusonthebigpicture:Don’tlosesightoftheforestforthetrees!Thebusinessplanitselfwillhelpyoutofocusasyoumustconsiderandweightherisksinvolved,prepareforanycontingency,andlearntoanticipateavarietyofpossiblesituationsor”scenarios.”Youwillneedtolaydownplansandcreateabudgetforthekeyactivitiesofthebusiness–fordevelopment,production,marketing,distribution,andfinance.Naturally,youwillneedtomakemanydecisions,suchaswhichcustomersorsegmentswillyoutarget?Whatpricewillyouaskforyourproductorservice?Whatisthebestlocationforyourbusiness?Willyouhandleproductionyourselforoutsourceittothirdparties?Andsoon.Inpreparingthebusinessplan,youwillcomeincontactwithmanypeopleoutsideyourstart-upteam.Inadditiontoinvestors,youwilltalktomanyspecialists,includingattorneys,taxadvisors,experiencedentrepreneurs,andexperts.Thebusinessplancompetitionorganizerswillhelpyougetintouchwithjusttherightpeople.Youwillalsohavetobeginreachingouttoyourpotentialcustomers(i.e.,bymeansofconsumersurveys)tomakeinitialassessmentsofyourmarket.Alwayskeepinmindthatcustomeracceptanceisanessentialprerequisitetothesuccessofyourcompany!Scoutaboutforpossiblesuppliersandperhapscloseyourfirstagreements.Youwillalsowanttobecomeawareofwhoyourcompetitorsare.Thiswholeprocesswillnotcomecheap.Theteammustcontinuetoearnalivingwhilerunningarudimentaryoperationandperfectingaprototype.Yetatthisstage,youshouldalsobeabletoestimateyourexpenses.Financingwillgenerallystillbeprovidedfromthesamesourcesyoureliedonduringstageone,althoughsomeinvestorsmaybewillingtomaketheoccasionaladvance.Thisstageconcludessuccessfullyforyouasanewentrepreneurwhenaninvestorexpressesawillingnesstofinanceyourundertaking.Stage3:Start-upandgrowth4 Nowthattheconceptualworkislargelycomplete,itistimetostartimplementingyourbusinessplan.Yourrolenowchangesfromthatofarchitecttothatofbuilder.Businesssuccessmustnowbesoughtandachievedinthemarket.Thedayofreckoninghascomewhenyouwilllearnwhetheryourbusinessconceptwasagoodand,ultimately,profitableone.InvestorexitenroutetobecominganestablishedcompanyThepulloutofyourinitialinvestorsisacompletelynormalstepinthedevelopmentofastart-up.Forifeverythinghasgonewell,yourriskyventurewillhavegraduallybecomeastableenterprise(seeExhibit4).Inthecourseofitsshortlife,youhavecreatedanumberofjobsandwooedmanycustomerswithyourinnovativesolutiontotheirproblem.Yourcommitmentispayingoffasthevalueofyourbusinessincreases.Aprofitableexithasbeentheobjectivefortheventurecapitalistfromtheoutset.Capitalrecoverycanhappeninverydifferentways.Normally,thebusinessissoldtoacompetitor,supplier,orcustomer.Oritislistedonthestockexchange(the”initialpublicoffering”orIPO).Itisalsopossibleforinvestorswhowantouttobepaidoffbytheotherpartners.5 2.THEBUSINESSIDEA”Thereisnothingintheworldaspowerfulasanideawhosetimehascome.”VictorHugoTheabovestatementundoubtedlyappliestoideasforstartinganewbusiness.Buthowdoyoucomeupwithsuchanidea?Andhowcanyouknowiftheideaforthebusinesswillhaveapromisingfuture?Studiesshowthatthelion’sshareoforiginalandsuccessfulbusinessideasweregeneratedbypeoplewhohadalreadyhadseveralyearsofrelevantexperience.GordonMooreandRobertNoyce,forexample,hadanumberofyearsatFairchildSemiconductorsbehindthembeforeteamingupwithAndyGrovetoformIntel.ButtherearealsoexamplesofrevolutionaryideasbroughttolifebymerenovicesasSteveJobsandSteveWozniakdemonstratedwhentheydroppedoutofcollegetostartAppleComputer.2.1.DevelopingabusinessideaIneconomicterms,asparkofgeniusisworthless,nomatterhowbrilliantitmaybe.Foranideatogrowintoamaturebusinessconcept,itmustbedevelopedandrefined,usuallybymanydifferentpeople.TheinitialideamustfirstpassaquickplausibilitycheckBeforeyoufollowuponanidea,youshouldevaluateitinlightofits(1)customervalue,(2)marketchances,and(3)degreeofinnovation,aswellasconsideringwhetheritwillbeboth(4)feasibleandprofitable.·Talkyourideaoverwithfriends,professors,experts,andpotentialcustomers.Thebroaderthesupportyoufindforyouridea,thebetteryouwillbeabletodescribeitsbenefitsandmarketopportunities.Youwillthenbewellpreparedwhenthetimecomestodiscussyourprojectwithprofessionalinvestors.·Isyourideareallynovel?Hassomeoneelsealreadydevelopeditorevenappliedtopatentit?·Willitbepossibletodevelopyourideainareasonableperiodoftimeandwithajustifiablelevelofresources?IttakesatleastfourweekstodevelopabusinessideaConsideringthemultiplestagesofdevelopment,itisimprobable–andfairlyunrealistic–thatyouwillspendfewerthanfourweeksdevelopingyourconcept.Generally,abusinessideaisnotworthyofbeingfinanceduntilitissoconcretethatitcanbelaunchedinthemarketintheforeseeablefutureatreasonablerisk.Investorstalkofthe”seedphase”ofabusinessconcept,6 whichusuallyhastobefinancedwith”soft”money(i.e.,fromsourcesthatasyetplacenohardandfastdemandsonthesuccessoftheidea).Theseedphasecantakelonger,inparticulariftheideaisaheadofitstime.Althoughtheperfectproducthasbeenfound,itcannotyetbemarketedbecausethedevelopmentofcomplementarytechnologiesorsystemsisstillintheworks.OneexampleistheInternet.Theideasformarketingproductsandservicescameearly,butalackofsecurityintheavailablepaymentsystemshamperedanddelayeditscommercialexploitationforsometime.2.2.ElementsofapromisingbusinessideaAbusinessideacanbeconsideredpromisingifithasthefollowingfourelements(Exhibit5):ELEMENTSOFAPROMISINGBUSINESSIDEA12ClearMarketofcustomeradequatesizevalueFeasibilitySufficientanddegreeofprofitabilityinnovation43Exhibit551.ClearcustomervalueThekeytosuccessinthemarketplaceissatisfiedcustomers,notgreatproducts.Customersspendtheirhard-earnedmoneytomeetaneedorsolveaproblem.Thefirstprinciplefordevelopingasuccessfulbusinessideaisthatitclearlyshowswhichneeditwillfulfillandhowitwilldoso.Initially,manyentrepreneurshavetheproductandthetechnicaldetailsofdesignandmanufactureinmindwhentheyspeakoftheirsolution.Notsofortheinvestor–theinvestorfirstlooksattheideafromtheperspectiveofthemarket.Forinvestors,customervaluetakestoppriority,andeverythingelseissecondary.What’sthedifference?Ifinnovatorssay,”ournewdevicecanperform200operationsperminute,”or”ournewdevicehas25%fewerparts,”theyarefocusingontheproduct.Bycontrast,saying,”ournewdevicewillsavethecustomeraquarterofthetimeand,therefore,20%ofthecosts,”or”ournewsolutioncanboostproductivitybyupto25%,”adoptsthecustomer’spointofview.Theproductismerelyameansofdeliveringvaluetocustomers.Thecustomervalueofaproductorserviceexpresseswhatisnovelorbetterabouttheitemwhencomparedtocompetitiveoffersoralternativesolutions.Assuch,itplaysakeyrolein7 settingyourproductapartfromothers–acoreissueinmarketing,aswewilllearn–andisessentialtothemarketsuccessofyourbusinessconcept.Try,wheneverpossible,toalsoexpressthecustomervalueinfigures.Marketingtheorystatesthatthecustomervaluemustbeformulatedintoauniquesellingproposition,orUSP.Thismeanstwothings:Firstofall,yourbusinessconceptmustbepresentedinawaythatmakessense(sellingproposition)tothecustomer.Manystart-upsfailbecausethecustomerdoesnotunderstandtheadvantageofusingtheproductorserviceand,asaresult,doesnotbuyit.Secondly,yourproductmustbeunique.Customersshouldn’tchoosejustanysolutionthathitsthemarket–theyshouldchooseyours.Youmust,therefore,persuadethemthatyourproductoffersagreaterbenefitoraddedvalue.Onlythenwillyourcustomersgiveyouanedge.Indescribingyourbusinessconcept,youneednotpresentafullyformulatedUSP,butitshouldbemoreorlessobvioustopotentialinvestors.2.MarketofadequatesizeAbusinessideawillhaveeconomicvalueonlywhenitsucceedsinthemarket.Thissecondprincipleofasuccessfulideademonstrateshowbigthemarketisfortheproductoffered,whichtargetgroup(s)itisdesignedfor,andtowhatdegreeitwilldifferfromthecompetition.Adetailedanalysisofthemarketisnotyetnecessaryatthispoint.Estimates,derivedfromverifiablebasicdata,willsuffice.Sourcescouldincludeofficialstatistics,informationfromassociations,articlesintradejournals,thetradepress,andtheInternet.Itshouldbepossibletodrawareasonableconclusionaboutthesizeofthetargetmarketfromthisbasicdata.Itissufficientforyoutosummarizetheresultsofthisinvestigationinyourpresentationofthebusinessidea.Thesameistrueforyourtargetcustomers;youwillonlyneedaloosedefinitionofwhotheywillbe.Describewhyyourbusinessideawillprovideaspecialvaluetothisgroupinparticular,andwhythisgroupisfinanciallythemostinterestingtoyou.Youwillalwaysfacecompetition–bothdirect,fromcompaniesthatofferasimilarproduct,andindirect,fromsubstituteproductsthatcanalsofulfillthecustomer’sneed.Apastamanufacturercompetesnotonlywithotherpastamanufacturers,butalsowithmanufacturersofriceandpotatoproductsandbakeriesand,moregenerally,withmanufacturersofallotherfoodstuffs.Yourbusinessideawillneedtodemonstratethatyouhaveunderstoodwhoyourcompetitorsare.Namethem–anddescribewhyandhowyoucantaketheleadwithyourbusinessidea.3.SufficientdegreeofinnovationBusinessideascanbeclassifiedalongtwodimensions-products/servicesandbusinesssystems.Ineachofthesecategories,youcandevelopsomethingneworcapitalizeonsomethingthatalreadyexists.Simplified,abusinesssystemisawayofunderstandinghowaproductorserviceisdeveloped,manufactured,andmarketed(Exhibit6).Theterminnovationisgenerallyusedinthecontextofnewproducts,whicharemadewithconventionalproductionmethodsanddeliveredtothecustomerthroughexistingdistribution8 channels.Microsoft,forinstance,developedDOS,makinguseoftheIBMsalesorganizationtobringittothemarket.Innovationsinbusinesssystemsarelessobvious,butjustasimportant.ThesuccessofDellisattributedtosignificantcostsavingsthankstoanewformofdirectdistributionandanovelproductionprocessinwhichacomputerisproducedonlyafteritisordered,andintheshortestpossibletimeframe.Indevelopingnewproducts,improvementofthemulti-layereddimension”customervalue”isattheforefront.Innovationsinthebusinesssystemaretargetedatlowercostsandfasterprocesses,savingswhichcanthenbepassedontothecustomerintheformoflowerprices.Itisrarethatbothtypesofinnovation–inproductandbusinesssystem–canbecombinedtocreateacompletelynewindustry.NetscapecontributedsignificantlytothesuccessoftheWorldWideWebbydistributingitsnewbrowserovertheInternetfreeofcharge.Indoingso,Netscapepassedupinitialsalesrevenuesbut,throughtheincreasednumberofvisitorstoitsWebsite,succeededinraisingadvertisingrevenues.4.FeasibilityandprofitabilityFinally,toarriveatanactualstart-up,thefeasibilityofthebusinessideamustbeassessed.Inadditiontospecificfactorsthatcouldmaketheprojectnotfeasible(e.g.,legalconsiderations,standards),theassessmentmayincludethetimeandresourcesneededtocarryouttheproject.Theconstructionofhotelsonthemoonmaybetechnicallyfeasible,forexample,buttheircost-benefitratioisunreasonable.Interwovenwiththefeasibilitycriterionisprofitability.Acompanymustbeabletogeneratelong-termprofit.Thisfourthelementofasuccessfulbusinessideashouldthusindicatehowmuchmoneycanbemadeandhow.Traditionally,profitcalculationsforabusinessaremadeasfollows:Acompanybuysmaterialorservices,therebyincurringcosts.Italsosellsproductsorservicestocustomers,thereby9 earningrevenues.Ifyourbusinessfollowsthispattern,itisnotnecessarytoprovideanygreaterdetailinthedescriptionofyouridea.Do,however,makeroughestimatesofanticipatedexpensesandprofits.Oneruleofthumbforgrowingcompaniesisthatthestart-upphaseshouldgenerategrossprofits(revenuesminusdirectproductcosts)of40%to50%.Butmanybusinessesdonotfunctionaccordingtothistraditionalmodel.McDonald’s,forexample,earnsitsmoneyfromthelicensingfeesitchargesfranchisers.TherestaurantownerpaysMcDonald’sforthenameandthewaytherestaurantisrun.Ifyourbusinessideaisbasedonthiskindofinnovationinprofitgeneration,youshoulddetailitinyourbusinessidea.KEYQUESTIONS:Businessidea!Whowillbuyyourproduct?!Whyshouldcustomersbuytheproduct?Whatneeddoesitfulfill?!Howwilltheproductbedistributedtothecustomer?!What,exactly,isinnovativeaboutyourbusinessconcept?!Howisthebusinessconceptunique?Isitprotectedbypatent?!Howistheproductbetterthancomparablealternatives?!Whatcompetitiveadvantageswillthenewcompanyhave,andwhycan’tacompetitorsimplycopythem?!Canmoneybemadewiththeproduct?Whatcostswillbeincurred,whatpricewillbeasked?2.3.ProtectingyourbusinessideaOnlyafewideasaregenuinelyingenious.Truebreakthroughsaretheresultofhardworkand,therefore,cannotbeeasilyreplicated.Acompromisemustbefoundtoprotecttheidea,whiledisclosingsufficientinformationtotestitsviability.PatentingEarlypatentingisrecommended,especiallyinthecaseofnewproductsorprocesses.Gettheadviceofexperiencedpatentlawyers:Thefuturesuccessofyourbusinesscandependonapatent,and,ineveryindustry,therearepowerfulcompetitorswiththemeanstokeepanunfavorablepatentfrombeinggranted.Butsomedegreeofcautionisadvisedasapatentcanalsomissthemarkwhenitcomestoprotectingyourideabymakingtheideapublic.Besuretokeepinmindifthepatentcanbeimproveduponeasily–andthusthwarted.TherecipeforCoca-Cola,forexample,isstill”secret”andhasneverbeenpatentedbecausethepatentcanbecircumventedwithaveryfew,neutral-tastingchanges.Confidentialityagreement10 Lawyers,trustees,andbankemployeesareallrequiredbylawtomaintainconfidentialityvis-à-vistheirclients’businesses.Venturecapitalistsalsohaveaninterestinkeepingthingsunderwraps,assomeonewithareputationfor”poaching”ideaswillnotbemadeprivytonewideasanytimeagainsoon.Thesameistrueforprofessionalconsultants.Aconfidentialityagreementcanbeeffectiveinsomecases.ThecoachesandorganizersinvolvedinEnterPrizearerequiredtosignaconfidentialityagreement;judgesareencouragedtodoso.But,likeeverylegaldocument,ithasitslimits,andtherearegrayareasthatcouldmakeitdifficulttoproveaviolationoftheagreementincourt.QuickimplementationYourbestprotectionagainstintellectualpropertytheftisprobablytoimplementyourplanasquicklyaspossible.Agreatdealofworkmustbedonebetweendreamingupanideaandopeningforbusiness.Thiseffortcankeeppotentialcopycatsatbay,becauseintheend,it’scrossingthefinishlinefirstthatmakesyouthewinner,nothavingthefastestshoes!2.4.PresentingyourideatoinvestorsHowyoupresentyourbusinessideatoaninvestorwillputallyourpreviouseffortstothetest.Itiscriticaltoattractattentionandpiqueinterestthroughcontentandprofessionalappearance.Goodventurecapitalistsarepresentedwithupto40businessideasperweek,andtheirtimeislimited.Insubmittingthebusinessidea,neitherfanfarenorawealthofdetailsisasimportantasaclearandthoughtfulpresentation.Example1:Thehardsell”Ihaveagreatideaforanew,customer-friendlymethodofpaymentwithabigfuture.Thisissomethingeverybodyhasalwayswanted.Youcouldearnalotofmoneyfromthis…”Theinvestorthinks,”Thatsoundslikealotofhotair.I’veheardofahundredsuchmiraclesolutionsbefore…Next!”Example2:Thetechnicalapproach”Ihaveanideaforacomputerizedmachinerycontrolsystem.Thekeyisthefully-integratedSSPchipwith12GByteRAMandtheasymmetricalXXP-baseddirectcontrolunit.Ittookme5yearstodevelopthis.”Theinvestorthinks,”Techie.Inlovewithtechnology.She’sherownmarket…Next!”Example3:Theentrepreneur”Ihaveanideathatwillenablecompanieswithupto100employeestosave3%to5%oftheircosts.Initialcost-priceanalyseshaveconvincedmethataspreadof40%to60%shouldbepossible.IhavefoundafocusedadvertisingchannelthroughtheAssociationofSmallandMedium-sizedBusinessesandtheABCMagazine.Theproductwillbedistributedbydirectsale.”Theinvestorthinks,”Aha!Shehasidentifiedthecustomervalue,andevenworkedoutthefigures!She’sthoughtaboutthemarketandtheprofitpotentialandknowshowshewillgettheproducttohercustomers.NowI’dliketogetalookattheproduct…”Theseexamplesdemonstratewhyclarityshouldbeyourforemostgoal.Itisbesttoassumethatinvestorsarenotfamiliarwiththetechnologyofyourproductortheindustryjargon.Theyarealsonotlikelytotakethetimetolookupanunknowntermoridea.Describingyourconcept11 clearlyandincisivelyisyournextgoal.Youmustbeabletoconveythebasicmechanicsofyourbusinessideatoaninvestorwithcredibility.Therewillbeplentyoftimeatalaterpointfordetaileddescriptionsandexhaustivefinancialcalculations.FormalrequirementsofabusinessconceptpresentationTitlepageNameoftheproductorserviceNameoftheperson(s)submittingConfidentialitynoticeIllustration,whereappropriate,oftheproductorserviceinactionBody4to7pages(includingaone-pageexecutivesummary)ClearstructurewithheadingsandindentationsasvisualorganizersCharts,illustrations,tablesMaximumof4illustrations,placedintheappendixUseonlyifnecessaryforcomprehensionMakereferencetotheillustrationsinthetextSimple,clearpresentationUniformformatThispageintentionallyblank12 3.THEBUSINESSPLAN”Writingabusinessplanforcesyouintodisciplinedthinking,ifyoudoanintellectuallyhonestjob.Anideamaysoundgreat,butwhenyouputdownallthedetailsandnumbers,itmayfallapart.”EugeneKleiner,VentureCapitalistThemodestterm”businessplan”doesnotreallydojusticetothisveryimportantbusinesstool.ThebusinessplanwasfirstusedintheU.S.asmeansofacquiringfundsfromprivateinvestorsandventurecapitalistswhothenparticipateinthecompanyasco-ownersandprovidethecapital.Thepresentationofthistypeofstart-upstrategyhasbecomeamandatorycourtesywhenseekingtodobusinesswithanypartners,includingcustomers,suppliers,anddistributors,tosaynothingofventurecapitalistsandbanks.Butbusinessplansarenotonlyusedbystart-ups;evenmajorcorporationsrelyincreasinglyonproject-specificbusinessplanstohelpthemmakeinternalinvestmentdecisions.3.1.AdvantagesofabusinessplanThegreatimportanceattachedtothebusinessplaniswelljustified.Withit,entrepreneurscanprovethattheyareinapositiontoarticulateandhandlethediverseaspectsofstart-upsandtheirmanagement.Properlyconceivedandexecuted,thebusinessplanbecomesakeydocumentforevaluatingandmanaginganoperation.Abusinessplandetailstheoverallentrepreneurialconceptbehindaplannedbusiness.Itgivesanexactsummaryoftheeconomiccircumstances,thetargetsset,andtheresourcesnecessary.Thebusinessplanforcesentrepreneurstothinkthroughtheirideassystematically:Itidentifiesgapsinknowledge,demandsdecisions,andpromotestheformulationofawell-structuredandfocusedstrategy.Duringitspreparation,oneaftertheother,alternativeapproachescometolightandareevaluated,andpitfallsareidentified.Withitsclearanalysisofthesituation,thebusinessplanbecomesaninvaluabletoolforovercomingproblemsandcontributessubstantiallytoboostingefficiencyandeffectiveness.3.2.CharacteristicsofasuccessfulbusinessplanHowabusinessplanisdesigneddependsonwhatkindofventureisenvisionedandwhattheplanshouldaccomplish.Ifaplanisbeingwrittenforastart-up,forexample,itwillnecessarilyhaveadifferentstructurethanonethataimstolaunchanexistingcompanyintoanewsegment.Despitesuchdifferences,businessplanshaveanumberofthingsincommon.Theyaretoprovideaclearandcomprehensiveevaluationoftheopportunitiesandrisksposedbytheoperation.Thisisnosmalltask,andcompletingitwillrequirecarefulattentiontocertainstandardsofdesignandcontent.Thefollowingsuggestionsandguidelinesshouldhelpyoumakeyourplansuccessful.13 AgoodbusinessplanimpresseswithitsclarityReadersshouldbeabletofindsuitableanswerstotheirquestions.Itshouldbeeasyforreaderstofindthetopicsinwhichtheyareparticularlyinterested.Thismeansthebusinessplanmusthaveaclearstructuretoenablereaderstomaneuverandchoosewhattheywouldliketoread.Itisnotthevolumeofanalysisanddata,butrathertheorganizationofthestatementsandaconcentrationontheessentialargumentsthatwillpersuadeyourreaders.Anytopicthatcouldbeofinteresttothereadershould,therefore,bediscussedfully,butconcisely.Atotallengthofabout30pages,giveortake5orso,isgenerallyappropriate.Abusinessplanisnotreadinthepresenceoftheauthor,whocouldanswerquestionsandprovideexplanations.Forthisreason,thetextmustbeunambiguousandspeakforitself.Eachplanshouldbepresentedtoatestaudience,ifatallpossible,beforeitisfinallysubmitted.Competitioncoaches,forexample,canhelpweedoutconfusingpassagesorindicateareasstillinneedofediting.AgoodbusinessplanconvinceswithitsobjectivitySomepeoplegetcarriedawaywhentheyaredescribingwhattheyfeelisagoodidea.Whilethereissomethingtobesaidforenthusiasm,youshouldtrytokeepyourtoneobjectiveandgivethereaderachancetocarefullyweighyourarguments.Aplanwrittenlikeglowingadvertisingcopyismorelikelytoirritatethanappealtoyourreaders,makingthemsuspicious,skeptical,orotherwiseunreceptive.Equallydangerousisbeingtoocriticalofyourownprojectinresponsetovariouspastmiscalculationsormistakes.Thisapproachwillraisequestionsaboutyourabilityandmotivation.Tothebestofyourknowledge,thedatapresentedshouldbeaccurate.Weaknessesshouldneverbementionedwithoutintroducingmethodstocorrectthemorplanstodoso.Thisdoesnotmeanthatfundamentalweaknessesshouldbehidden,justthatinpreparingyourplan,youshoulddevelopapproachestoremedythemandpresentwithclarity.AgoodbusinessplancanbeunderstoodbythetechnicallaymanSomeentrepreneursbelievethattheycanimpresstheirreaderswithprofusetechnicaldetail,elaborateblueprints,andthesmallprintofananalysis.Theyaremistaken.Onlyrarelyaretechnicalexpertscalledtoevaluatethisdatacarefully.Inmostcases,asimplifiedexplanation,sketch,orphotographisappreciated.Iftechnicaldetailsontheproductormanufacturingprocessmustbeincluded,youshouldputthemintheappendix.AgoodbusinessplaniswritteninoneconsistentstyleSeveralpeopleusuallyworktogethertoproducethebusinessplan.Intheend,thisworkmustbeintegratedtoavoidcreatingapatchworkquiltofvaryingstylesandanalyticaldepth.Forthisreason,itisbesttohaveonepersoneditthefinalversion.AgoodbusinessplanisyourcallingcardFinally,yourbusinessplanshouldhaveauniformvisuallayout.Thefonts,forexample,shouldbeconsistentwiththestructureandcontents,effectivegraphicsneatlyintegratedand,perhaps,aheaderwiththe(future)companylogoused.14 3.3.Theinvestor’spointofviewTheentirestart-upprocessmustfocusonsuccessfulcapitalacquisition.Professionalinvestorsarethefirstrealacidtestofthechancesyourbusinessconceptwillhave.Addressyourcommunicationentirelytothem,andlearntothinkliketheydo.Theywillnotbesatisfiedwithameredescriptionofyourbusinessconcept,evenifitisbrilliant.Whatisventurecapital?Venturecapitalisthemoneythatismadeavailablebyventurecapitalcompaniesorindividualstofinancenewbusinesses.Typically,suchprojectshaveahighchanceofbeingprofitable,whilefacinganequalriskofincurringloss.Experienceshowsthatof10businessesfinancedwithventurecapital,onlyonewilltriumph,threewillmanagetoekeoutanexistence,threewillwasteaway,andthreewillbeatotalloss.Itisonlynaturalforventurecapitaliststodoeverythingintheirpowertogenerateprofitsinlinewiththeriskventured.Accordingly,theybackupaprojectveryintenselyinordertoharnessasmuchpotentialaspossible(Exhibit7).VENTURECAPITALPARTICIPATIONINTHEVARIOUSSTART-UPPHASESTransitiontoEarlyphaseGrowthphaseestablishedcompanySeedStart-upGrowthBridgestageExitstageWhenBeforeAtorshortlyAtfirstor6-12monthsAsarule,5-8?start-upafterstart-upsecondbeforeIPOyearsafterstart-growthspurt,upIPOstillfaroffWhatMainlytoE.g.,forTofinanceTocoverRecoveryoffor?developproductgrowthfinancialinvestedventurebusinessdevelopment,needsuntilcapitalforconceptinitialsaleofstockreinvestmentinfurthermarketingtopublicmorestart-upsactivitiesExhibit7Whatdoventurecapitalistslookfor?Venturecapitalistslookforanumberofimportantpiecesofinformationinabusinessplan:·Managementexperienceandcompetence.Allinvestorspayparticularattentiontowhowillbemanagingtheenterprise.Whenallissaidanddone,theabilityofmanagementtoimplementtheconceptisamajordeterminantofwhetherabusinesssurvivesorfails.Particularlyinindustrieswhereinnovationiscritical,thefocusisonthepropermixofallnecessarymanagementskillsthatonepersonalonewillrarelyhave.Entrepreneurial15 experienceismorehighlyvaluedthanacademicdegrees.Anothertestofaworthwhileinvestmentistheabilityofmanagementtoworkasateam.·Awell-definedand,wherepossible,quantifiablecustomervalue.Initssimplestform,thismeansloweringthecostofdeliveringanexistingvalueorcreatinganewvalue,ifthiscanbeachievedatreasonablecost.·Innovativeproductorservicerange.Theproduct,service,and/orbusinesssystemmustpossessahighdegreeofinnovation.·Thepossibilitytoprotect/sustaintheinnovation.Animportantcompetitiveadvantagetoyourcompanycouldbeapatentedidea.·Agrowingand/orlargemarket.Venturecapitalistspreferstart-upsthatdemonstrateapotentialtoachievesignificantsalesofapproximately$30millionwithin5years.·Aneffectiveconceptforcapturingaclearlydefinedtargetcustomersegment.Potentialinvestorswanttoseethatyouhaveaclearunderstandingofyourmarketandhowyouintendtoreachyourcustomers.Yourforecastsandestimatesshouldbebasedonwell-founded,persuasiveassumptionsandfacts.·Afar-sightedanalysisofthecompetition.Investorsaren’tnaive–sodon’teventrytoclaimthatyourproducthasnocompetition.Acompleteandobjectivedescriptionofexistingandpotentialfuturecompetitors,however,showsthatyouareawareoftherisksyouaretakingwhich,inturn,willinspireconfidenceinyou.Hereagain,havinganideathatcanbeprotectedbylaw(patented,trademarked)isanadvantage.·Acarefulweighingoftherisksandopportunities.Investorshatesurprises,especiallynegativeones.Arealisticdescriptionoftherisksyoufaceandhowyouplantoovercomethemisfarmorecrediblethanlookingatthefuturethroughrose-coloredglasses.·Detailpossibleexitroutes.Investorswanttoknowfromtheoutsetwhentheircommitmentwillendandhowtheywillrecovertheirinvestment.Generatingaprofitisalwaystheobjectandthepurposeofinvestorparticipation.Themoreproductiveoptionsyoucanshowthemforhowtodothis,thebetter.Themainpossibilitiesincludegoingpublicorsellingsharestotheotherpartnersortoothercompanies.Whatdoventurecapitalistsdoforthenewcompany?Venturecapitalistsplayanumberofroles(seeExhibit8).Buttheywillalsotakeoverthereinsifthebusinessdoesnotachieveitstargets.Howshouldyouchooseaventurecapitalist?Venturecapitalistsgenerallyexpecttohaveahighstakeinthenewcompany.Inreturn,theyprovidesupportthatgoesfarbeyondafinancialcommitmentandoftenshoulderagreatdealof16 responsibilityforthesuccessoftheventure.Butpotentialinvestorsdodiffer,andthecompanyteamshouldknowitsinvestorswell.Ifyouwouldratherown20%ofa$100millioncompanythan80%ofa$5millionoperation,youwillhavetochooseyourinvestoraccordingtomorecriteriathanjustwhowillprovidethemostmoneyatthebestrate.POSSIBLEROLESOFVENTURECAPITALCOMPANIESCoachesandSpecialistsinmotivatorsoftheformingnewstart-upteamcompaniesPossiblerolesofventurecapitalistsAdvisorsinGatewaystoaachievingsuccessnetworkof(saleoftheexperiencedcompany,IPO)entrepreneursExhibit8233.4.TipsonpreparingaprofessionalbusinessplanInvestorsareinterestedinthefinishedplan,nottheprocessyouwentthroughtoproduceit.Theyprefertoseeawell-prepareddocumentfromwhichtheycangainagoodsenseoftherisksandopportunitiesinvolvedonthefirstread-through.Whenpreparingyourplan,thethemesofcustomervalueandpotentialreturnshouldrunthroughthedescriptionsofyourbusinessobjectives.Thethreephasesofthecompetitionprovideageneralstructureforpreparingyourplan.Thethreephasesbuildupononeanothersuchthatthecontributionforapreviousphasewillbecomeamajorportionofthefollowingphase,supplementedwithadditionalelements.Howyoucarryouttheworkwithineachphaseisuptoyou.Thefollowingtipsaredesignedtohelpyou.PlanyourapproachDrawingupabusinessplanisaverycomplexundertaking.Manyvariablesmustbeconsideredandanalyzedsystematically,inalogicalorder.Adetailedoutlineshouldbemadeassoonasthefirstideasarelaiddown.Itissmarttodoyourplanningalongthelinesofabusinessplan,oraccordingtoyourbusinesssystem(e.g.,R&D,production,marketing,sales,delivery,andadministration).Youshouldalsonumberyourtopicsandnoteanyreferences.Usingawordprocessingprogramwithaspreadsheetishelpful.Allreferencematerialshouldbesortedbytopic.Dothesamewithnotesfromdiscussions.17 TailorkeyquestionstoyourspecificprojectUsingasetofquestionsishelpfulinpreparingyourbusinessplan.Whichquestionsshouldbeaskedandwhichanswersincludedintheplanisdeterminedbythetypeofvaluecreated,theproduct,service,ordegreeoftechnologicalsophistication,andwhatthereadersneedtoknow.YoucanusethesamplequestionsprovidedinthisGuidetowriteyourownseriesofquestions.Thesequestionsareonlyexamplesdesignedtogetyouthinking;theyshouldnotbetakenasanexhaustivelistofpossiblequestions.Inotherwords,youareneitherrequiredtoanswereachquestion,normustyoureplytoallquestionsinequaldepth.Itisuptoyoutodecidewhichquestionsarerelevanttoyourundertakingandnecessarytounderstandit.Youmustalsoconsiderwhetherthereareotherquestionstobeansweredbeyondthosethathavebeenprovided.FocusonthefinalproductInprojectsofthiskind,thereisalwaysadangerofgettinglostinthedetailsofeachanalysis.Stepbackfromtimetotimeandaskyourselfwhetherthedataprovidedisnotalreadysufficientandwhetherfurtheranalysiswillreallybebeneficial.Wealsorecommendthatyoulimitthelengthoftheresultsforeachofthethreecompetitionphases.Youwillsavealotoftimeandenergyifyousticktotherecommendedlengthsfromthebeginningofyourplanning.SeeksupportearlyGatheringsupportfrommanydifferentpartieswillbeimportantinthiscompetition.Teamingupearlyisonesuchformofsupport.Teamswithcomplementarytechnicalandentrepreneurialexperiencecandelegateassignmentsaccordingtothetalentsoftheindividualteammembers.Thiswillhelpensurethattheworkwillbeperformedefficiently.Donothesitatetoseekhelpfromoutsidesourcesassoonasyouneedit.ContactexpertsandexperiencedentrepreneurswhomyoumeetatcompetitioneventsorcalltheEnterPrizeofficeforassistance.KeeptestingyourplanAwinningentrywillbeeasytounderstandandfollow.Therefore,itisimportanttopresentyourideatoatestaudiencealongtheway.Peopleoutsidethecompetitionwhocritiqueyourplanbeforeyousubmititcanidentifyweaknessesandevengiveyourworkfreshimpetus.18 4.STRUCTUREANDKEYELEMENTSOFABUSINESSPLANDespitetheirmanydifferences,allbusinessplanshavecertainelementsincommonthatallpotentialinvestorsexpecttofind(Exhibit9).Additionally,anappendixisoftenincludedthatcontainsdetailedinformation,oftenpresentedintheformoftablesorgraphs.Withinthismoreorlessrequiredstructure,thebusinessplanisfreetogrowinitsowndirection.Atthebeginning,youwillonlyworkonafewkeyelementsandindividualtopics.Newelementsareaddedwitheachadditionalphase,whilethetopicsfromthepreviousphasesareexpanded,and,gradually,theplanfillswithcontent.Attheendofthethirdphase,theindividualanalysesformawholewhoseindividualpartscorrespondtooneanother.ELEMENTSOFABUSINESSPLANFocusofthisphasePartofthisphasePhase1Phase2Phase31Executivesummary2Productorservice3Managementteam4Marketandcompetition5Marketingandsales6Businesssystemandorganization7Implementationschedule8Opportunitiesandrisks9FinancialplanningandfinancingExhibit94.1.Executivesummary”Agoodexecutivesummarygivesmeasenseofwhythisisaninterestingventure.Ilookforaveryclearstatementofthelong-termmission,anoverviewofthepeople,thetechnology,andthefittomarket.”AnnWinblad,VentureCapitalistTheexecutivesummaryisdesignedtopiquetheinterestofdecisionmakers.Itshouldcontainabriefoverviewofthemostimportantaspectsofthebusinessplan.Inparticular,itshouldhighlighttheproductorservice,thevaluetothecustomer,therelevantmarkets,managementexpertise,financingrequirements,andpossiblereturnoninvestment.19 Venturecapitalistslookattheexecutivesummaryfirst,thoughtheyusuallyjustskimit.Thequalityofthesummaryitselfisnotlikelytomaketheminvestinyourproject,yetitcanconvincethemnotto.Aclear,objective,andconcisedescriptionofyourintendedstart-up,whichmustbeeasytocomprehend,especiallybythetechnicallayperson,willshowthemthatyouknowyourbusiness.Thereforeprepareyoursummarywiththeutmostcare;itmaywelldecidewhethertherestofyourbusinessplanisread.Theexecutivesummaryisanindependentelementofthebusinessplan:Donotconfuseitwiththeintroductionofyourbusinessconceptonthetitlepage.Lookatyourexecutivesummarywithacriticaleye–repeatedly–especiallyafterallotheraspectsofyourbusinessplanhavebeencompleted.Askyourselfifyouhavedescribedyourbusinessideaasclearly,compellingly,andconciselyasyoucan.Yourreadersshouldbeabletoreadandcomprehendthesummaryinfiveto10minutes.Testit.Giveyourexecutivesummarytosomeonewhohasnopreviousknowledgeofyourbusinessconceptoritstechnicalorscientificbasis.KEYQUESTIONS:ExecutivesummaryPhase1!Whatisyourbusinessidea?Inwhatwaydoesitfulfillthecriterionofuniqueness?!Whoareyourtargetcustomers?!Whatisthevalueforthosecustomers?!Whatmarketvolumeandgrowthratesdoyouforecast?!Whatcompetitiveenvironmentdoyouface?!Whatadditionalstagesofdevelopmentareneeded?!Howmuchinvestmentisnecessary(estimated)?!Whatlong-termgoalshaveyouset?Phase2!Howhighdoyouestimateyourfinancingneeds?!Whatarethesales,cost,andprofitsituations?!Whatarethemostimportantmilestonesalongthewaytoyourgoal?!Whattestcustomershaveyouapproached/couldyouapproach?!Whatdistributionchannelswillyouuse?!Whatpartnershipswouldyouliketoenterinto?!Whatopportunitiesandrisksdoyouface?!Whatisthepictureonpatents?Phase3!Summarizetheresultsofyourdetailedbusinessplanningandstateyourexactfinancingneeds!!Howwillyoudelegatemanagementtasks?!Howmuchproductioncapacityisnecessary?!Howwilltheimplementationofyourbusinessideabeorganized?!Listyournext,concretesteps!20 4.2.Productorservice”Ifyoudon’tknowwhatthecustomervalueis,thewholething’sawasteoftime.”BrunoWeiss,EntrepreneurYourbusinessplanderivesfromaninnovativeproductorserviceanditsvaluetotheendconsumer.Itisimportanttoindicatehowyourproductdiffersfromthosethatarenoworwillbeonthemarket.Ashortdescriptionofhowfardevelopmenthasprogressedandwhatstillneedstobedoneisalsoessential.CustomervalueItdoesn’tmakeanysensetostartupanewbusinessunlesstheproductorserviceissuperiortocurrentmarketofferings.Besuretodiscussindetailthefunctiontheproductorservicefulfillsandthevaluethecustomerwillgainfromit.Ifcomparableproductsandservicesarealreadyavailablefromyourcompetitors,youmustconvincinglysubstantiatetheaddedvalueyourcustomerswillreceivefromyourstart-up.Todoso,putyourselfintheplaceofthecustomerandweightheadvantagesanddisadvantagesofyourproductovertheothersverycarefully,applyingthesamecriteriatoall.Ifyouareofferingarangeofinnovativeproductsorservices,categorizethemintologicalbusinessareasaccordingtoproductorcustomer.Definethebusinessareasindetailsothereisnooverlap.Developmentstatusoftheproduct/serviceInexplainingthisissue,imagineyouaretheventurecapitalistwhowantstominimizetheriskinvolvedinparticipating.Trytorefrainfromincludingtechnicaldetailsanddescribeeverythingassimplyaspossible.Afinishedprototypewillshowyourpotentialinvestorthatyouareuptomeetingthetechnicalchallenge.Ifitenhancestheunderstandingofyourproduct,includeaphotoorsketchinyourbusinessplan.Itisevenbettertohaveapilotcustomerwhoalreadyusesyourproductorservice.Youshouldalsoexplainthenatureoftheinnovationitselfandtheedgeyouhaveovercompetitors.Thisisthepointatwhichyoushouldaddressthesubjectofpatentsforprotectionfromduplicationorimitation,ortheprotectionofamodelthroughregistration.Iftherearestillproblemsorissuestocoverregardingdevelopment,besuretomentionthemandhowyouintendtoovercomethesedifficulties.Regulatoryrequirementsonproductsandservicesposeanothersetofrisks.Noteanypermitsyouhaveobtained,haveappliedfor,orwillapplyfor,suchasthoseoftechnicalcontrolassociations,thepostalservice,orthedepartmentofhealth.21 KEYQUESTIONS:ProductorservicePhase1!Whatendcustomerswillyouaddress?!Whatarethecustomer’sneeds?!Whatcustomervaluedoesyourproduct/serviceprovide?!Whatisthenatureofyourinnovation?Whatisthecurrentstatusoftechnicaldevelopment?!Whatpartnershipsarenecessarytoachievefullcustomervalue?!Whatcompetitorproductsalreadyexistorareunderdevelopment?!Isyourproduct/servicepermittedbylaw?!Whataretheprerequisitesfordevelopmentandmanufacturing?!Whatstageofdevelopmenthasyourproductorservicereached?!Doyouhavepatentsorlicenses?!Whatfurtherdevelopmentstepsdoyouplantotake?Whatmilestonesmustbereached?Phase2!Whatversionsofyourproducts/servicesaredesignedforwhatcustomergroupsandapplications?!Whatpatents/licensesdothecompetitorshave?!Doyouneedtoobtainlicensesand,ifso,fromwhomandatwhatcost?!Whatkindofservice/maintenancewillyouoffer?!Whatproductorserviceguaranteeswillyougrant?!Comparethestrengthsandweaknessesofcomparableproducts/serviceswithyoursinanoverview!Phase3!Whatresources(time,personnel,materials)doyourequireforeachsubsequentdevelopment?!Whatshareofsalesdoyouexpectfromyourvariousproducts/services(ifapplicable)?Why?!Whatincomefromroyalties/salesdoyouestimatefrompossiblymarketingthepropertyrights?Whowouldbeyourlicensees/buyers?4.3.Managementteam”Iinvestinpeople,notideas.”EugeneKleiner,VentureCapitalistThemanagementsectionisoftenthefirstpartoftheplanthatventurecapitaliststurntoafterreadingtheexecutivesummary.Theywanttoknowwhetherthemanagementteamiscapableofrunningapromisingbusiness.Entrepreneursfrequentlyunderestimatethesignificanceofthisquestionandmakethemistakeofskimpingoncontentandmakingdowithmeaninglessphrases.22 Takethetimetodescribeyourmanagementteamwell.Whendiscussingmanagement’squalifications,besuretoemphasizethosethatareparticularlyimportantforimplementingyourspecificplans.Professionalexperienceandpastsuccesscarrymoreweightthanacademicdegrees.Ifkeypositionsaretobegiventoinexperiencedstaffmembers,explainthisdecisionindetail.CHARACTERISTICSOFAPOWERFULMANAGEMENTTEAM!Commonvision:Everybodywantstosucceed!Complementaryattributesandstrengths!Atleastthree,butusuallynomorethansix,people!Stickstogetherthroughthickandthin!Stayingpower,evenwhentherearesetbacks-regroupsandmakesasecondoreventhirdattempttoclearthehurdleAlsoexplainhowtheresponsibilitiesinthecompanyaretobedelegatedandindicatewhichpositionsstillrequirereinforcements.Itisparticularlyhelpfultocomparetheassignmentstobefilledwiththeskillprofilesofcurrentteammembers.Donothesitatetonameyourmostinfluentialadvisors.Noonewillhaveallthequalificationsandexperiencenecessarytofoundacompany.Considerableinvolvementonthepartofadvisorssuchasexperiencedentrepreneurs,accountants,PRfirms,ormanagementconsultantsisasignofprofessionalismandwillreassuretheventurecapitalistthatyouhaveallthecontactsyoumayneed.WHATPROFESSIONALINVESTORSLOOKFOR!Hastheteamalreadyworkedtogether?!Doteammembershaverelevantexperience?!Dothefoundersknowtheirweaknessesandaretheywillingtomakeupforthem?!Havethefoundersagreedontheirfutureroles?Areownershipissuessettled?!Hasthemanagementteamagreedonacommongoal,orarethereunderlyingdifferencesofopinion?!Dotheindividualteammembersfullybacktheproject?Finally,althoughthemanagementteamwillnotbeevaluateduntilthethirdphaseofthebusinessplancompetition,itisadvisabletobeginlookingforsuitablepartnersassoonaspossible.Bringingtogetherjusttherightpeopletoforma”dreamteam,”sotospeak,isimmenselyimportantforlaterbusinesssuccessand,therefore,requiresagreatdealoftimeandcare.23 KEYQUESTIONS:ManagementteamPhase3!Whoarethemembersofyourmanagementteamandwhatdistinguishesthem:education,professionalexperience,success,standinginthebusinessworld?!Whatexperienceorabilitiesdoestheteampossessthatwillbeusefulforimplementingyourconceptandsettingupyourcompany?!Whatexperienceorabilitiesarelacking?Howwillthegapsbeclosed?Bywhom?!Whatgoalsdotheteammemberspursuebystartingupthebusiness?!Howhighisthemotivationofeachindividualteammember?4.4.Marketandcompetition”Ifthereisnocompetition,thereisprobablynomarket.”BrianWoodThoroughunderstandingofyourcustomersandtheirneedsisthefoundationofeverysuccessfulbusiness.Foritisthecustomerswhogiveyourcompanyareasonforbeing.Andintheend,bybuying–ornotbuying–yourproduct,orservice,theywilldecideifandhowsuccessfulyourcompanywillbe.Onlythosecustomerswhoareconvincedtheyaregettingagreatervaluethantheywouldfromacompetingproduct,orbynotbuyingaproductatall,willbuyyourproduct.Knowingyourmarketandcompetitionwellisthuscriticaltothesuccessofyourundertaking.MarketsizeandgrowthAdramaticincreaseinthevalueofthecompanycanbeexpectedonlyifthemarketholdsgreatpotential.Themarketsizeshouldbepresentedinfiguresrepresentingthenumberofcustomers,unitsales,andtotaldollarsinsales.Yourexpectationsformarketgrowtharecritical.Youshouldalsoindicatewhatmainfactorsarenowinfluencingormayinfluencethegivenindustrysegment.Showwhatfactorswillaffectdevelopments(technology,legislativeinitiatives,etc.)andwhatrelevancethesefactorshaveforyourbusiness.Workwithafocusinordertosaveyourselfsomeenergy:Workwithhypotheses,makealistofquestionsyouwantanswered,whatinformationyouwillneed,andwhereyoumightfindit.Theexternaldatanecessaryforananalysisareofteneasiertoobtainthanyoumightthink.Becreativeanddetermined;makeuseofallpossiblesourcesincludingtradeliterature(journals,marketstudies,scholarlyessays),industrydirectories,associationsandgovernmentagencies(statisticsoffices,chambersofcommerce,patentoffices),banksforindustrysurveys,databases,theInternet(keepyoursearchesfocused),and,ofcourse,interviews.Itoftenhelpstocallaround.Usingashortdiscussionoutlinewillincreaseyourefficiencyandproductivity,aswellasthewillingnessofyourpartytodiscloseinformation.24 Thiscollectionofindividualpiecesofdataseldomprovidesadirectanswertoyourquestions–youwillhavetodrawwell-foundedconclusionsormakesoundestimates.Whenmakinganestimate,observethefollowing:·Buildonasolidfoundation.Theremaybemanyunknowns,butifyourelyoneasilyverifiablefigures,yourestimatewillbehardertotopple.·Thinklogically.Anestimateshouldbealogicalconclusion(i.e.,itshouldnothaveanyleapsinlogicordependonunspecifiedassumptions).·Compareyoursources.Checkyourfacts,suchasstatementsmadeinaninterview,withanumberofdifferentsourcesifatallpossible.·Becreative.Theshortestdistancetoyourgoalisnotalwaysastraightline.Forexample,whenavariableisunknown,lookforasubstitutevariablethatrelatestotheoneyouneed.·Checkforplausibility.Foreachestimate,askyourself,”Doesthisresultreallymakesense?”MarketsegmentationFollowupyourgeneralexplanationswithyourchoiceoftargetcustomerandyourplannedmarketsuccess(salesvolumes,salesrevenues,marketshare,andprofit).Todothis,youmustsegmentyourmarket.Thechoiceofsegmentationcriteriaisuptoyou,aslongasyouarecertainthatthenumberofcustomersineachsegment-aswellastheirbehavior-canbedetermined,andthatthecustomerswithineachsegmentcanbereachedbymeansofthesamemarketingstrategy.Possiblecustomersegmentationcriteriafortheconsumergoodsmarkets:!Location:country,urban/rural(populationdensity)!Demographics:age,sex,income,profession,companysize!Lifestyle:techies,counterculture,activeseniors!Behavior:frequencyofproductuse,productapplication!Buyinghabits:brandpreferences,priceconsciousnessPossiblecustomersegmentationcriteriaforindustrialgoodsmarkets:!Demographics:companysize,industry,location!Operations:technologyemployed(e.g.,digital,analog)!Buyinghabits:centralizedordecentralizedpurchasing,purchasingcriteria,supplieragreements!Situationalfactors:urgencyofneed,ordersize25 Definethepotentialsalesrevenuesforagivenperiodpersegment.Takeyoursalesstrategyandthebehaviorofthecompetitionintoconsideration.Dependingontheindustry,youmayalsowanttoallowforpriceerosion.CompetitionDefinethestrengthsandweaknessesofyourcompetitors.Todothis,evaluateyourmajorpotentialcompetitorsusingthesamecriteria,suchassalesvolumeandrevenues(pricing),growth,marketshare,costpositioning,productlines,customersupport,targetgroups,anddistributionchannels.Intheinterestofbrevity,forgotheuseofagreatdealofdetail.Evaluateyourowncompanyaccordingtothesesamecriteriaandmakeacomparisonastohowsustainableyourcompetitiveadvantagewillbe.Positioningvis-à-visthecompetitionWhyshouldapotentialcustomerbuyyourproductandnotthatofyourcompetitor?Becauseitoffersgreatervalue(insomeaspectthatisimportanttothecustomer)thancompetingproducts;becauseitisobjectivelyoremotionally”better;”or,asmarketingexpertswouldsay,youhavedevelopedavaluepropositionoruniquesellingpropositionforyourbusinessidea.Formulatingthisvaluepropositionandanchoringitfirmlyinthemindofthecustomeristhemaintaskofmarketingcommunication.Marketingexpertstalkaboutthepositioningofaproduct,brand,orbusiness.Well-positionedproductsleaveconsumerswithaparticularimpression.Themostimportantguidelineforpositioningis,therefore,tolookattheproductfromthecustomer’spointofview.Thepointistomeetaneedbetter,nottopresentnewproductattributes.Theadvantagetothecustomermustbeimmediatelyclear,memorable,andimportant.Atthesametime,yourpositioningmustbedistinctivefromthatofcompetitors.Onlythencancustomersconnectthevaluepropositionthatyouofferwiththenameofyourproductorbusinessandbuyyourproduct.Thefollowingguidelinesmayhelp:·Identifyrelevantcustomerneedsorproblems·Defineclearcustomersegmentsofsufficientsize·Designanattractiverangeofproductsandservices·Makeyourselfuniquethroughdifferentiationfromthecompetition·Addressthesubjectiveperceptionofthecustomer·EnsurecustomersatisfactionevenafterpurchaseBecausepositioningissocriticaltothemarketsuccessand,therefore,tothelong-termsuccessofyourbusiness,youshouldpayparticularattentiontoit.Persuasivepositioningwillnotcomeaboutimmediately,itwillbearesultofintenseeffortandwillneedfrequentrevisiontoachievethemaximumeffect.Thepointofdepartureforpositioningistheproductitself.Additionalinsightwillbefoundasyourefineandmodifyyourproductduringdevelopmentandrespondtonewrevelationsasaresultofcustomersurveys.26 KEYQUESTIONS:MarketandcompetitionPhase1!Howistheindustrydeveloping?!Whatfactorsaredecisiveforsuccessinyourindustry?!Whatroledoinnovationandtechnologicaladvancesplay?!Howwillyousegmentthemarket?!Whatmarketvolumesdotheindividualmarketsegmentshave,nowandinthefuture(roughestimates)?!Whoareyourtargetcustomergroups?!Whatcustomerexamplescanyougive?!Whatmajorcompetitorsoffersimilarproducts/services?!Whatnewdevelopmentscanbeexpectedfromcompetitors?!Howsustainablewillyourcompetitiveedgebe?Phase2!Whatmarketvolume(valueandamount)doyouestimateforyourindividualmarketsegmentsoverthenext5years?!Whatwillinfluencegrowthinthemarketsegments?!Whatisyourestimateofcurrentandfutureprofitabilityoftheindividualmarketsegments?!Whatmarketsharesdoyouholdineachmarketsegment?!Whatsegmentsareyoutargeting?!Whoareyourreferencecustomers?Howdoyouplantogetreferencecustomers?!Whatroledoservice,consulting,maintenance,andretailsalesplay?!Howmuchdoyoudependonlargecustomers?!Whatarethekeybuyingfactorsforcustomers?!Howdoesthecompetitionoperate?Whatstrategiesarepursued?!Whatarethebarrierstomarketentryandhowcantheybeovercome?!Whatmarketsharedoesyourcompetitionhaveinthevariousmarketsegments?!Whattargetgroupsdoyourcompetitorsaddress?!Howprofitableareyourcompetitors?!Whatareyourcompetitorsmarketingstrategies?!Whatdistributionchannelsdoyourcompetitorsuse?!Howsustainablewillyourcompetitiveedgebe?Why?!Howwillcompetitorsreacttoyourmarketlaunch?Howwillyourespondtothisreaction?!Comparethestrengthsandweaknessesofyourmajorcompetitorswithyourownintheformofanoverview!4.5.Marketingandsales”Marketingisfartooimportanttobelefttothemarketingdepartment.”DavidPackard,Entrepreneur27 Keyelementsofawell-conceivedbusinessconceptarewell-plannedmarketingandsalesactivities.Theyrequireapersuasivedescriptionofyourstrategiesformarketlaunch,marketing,andthemeasuresplannedforsalespromotion.Askeletonframeworktofollowisthatofthefour”Ps”:product,price,place,andpromotion.1.ProductYouroriginalproductideahasalreadygivenyousomesenseofthecharacteristicsofyourproduct.Afteracloseranalysisoftheneedsofvariouscustomersegments,younowmustevaluatewhetheryourproductactuallymeetsthemortowhatextentitmayrequireadaptation.Thisraisesthequestionofwhetheryoushouldmanufactureonesingleproductforallsegmentsorwhetheryouwanttoadjusttheproducttomeettheneedsofindividualsegments.2.PriceThebasisforanattainablepriceisthewillingnessofcustomerstopaythepriceaskedofthem.Thiscontradictstheconventionalwisdomthatpriceisderivedfromcosts.Ofcourse,costisaconsiderablefactor,butthecost-priceratioonlybecomescriticalwhenthepriceaskedwillnotcovercostswithintheforeseeablefuture.Inthiscase,itisadvisabletogetoutofthebusinessasquicklyaspossibleor,betteryet,nevertogointothebusinessinthefirstplace.Thepriceyoucanaskdependsentirelyonhowmuchthevalueofyourproductisworthtothecustomer.Youhavedefined,andperhapsquantified,thecustomervalueinthebusinessconceptorproductdescription.Nowdefineapricebracketbasedonthequantifiedcustomervalueofyourproduct.Youcanverifyandrefineyourassumptionsthroughdiscussionswithpotentialcustomers.Thepricingstrategyyouchoosedependsonyourgoal:Doyouwanttopenetratethemarketquicklybygoingwithalowprice(penetrationstrategy)?Or,doyouwanttogeneratethehighestpossiblereturnfromtheout-set(skimmingstrategy)?Newcompaniesgenerallypursuetheskimmingstrategyforgoodreason:·Anewproductispositionedas”better”thanpreviousoptions,soahigherpricecanbejustified.·Higherpricesgenerallyleadtohigherprofitmarginsandallowthenewcompanytofinanceitsowngrowth.Newinvestmentscanbefinancedoutofprofitsandoutsideinvestorsarenolongerneeded.·Unliketheskimmingstrategy,thepenetrationstrategygenerallyrequireshighinitialinvestmentinorderforsupplytomeetthehighdemand.Thisheightenedinvestmentriskissomethinginvestorsusuallyprefertoavoid.Certainsituationsmakefollowingapenetrationstrategythebetterchoice:·Settinganewstandard.NetscapedistributeditsInternetbrowserfreeofcharge,thussettingastandard.WiththeMacintosh,however,Apple28 followedaskimmingstrategyandmissedthechancetoestablishtheMacasthenewstandard.·Highfixedcosts.Businesseswithhighfixedcostsareforcedtofindawideaudienceasquicklyaspossibletomakethosecostsworthwhile.FixedcostsatFederalExpress,forexample,forairtransportandsortingfacilities,arethesamewhethertheydeliverthousandsormanymillionsofletters.·Competition.Iftheentrybarriersarelowandtoughcompetitionislikely,apenetrationstrategyisthebestwaytobefasterthanthecompetitionincapturingalargemarketshare.Suchcasesnaturallyalsoraisethequestionastowhetherthistypeofbusinessisappropriateforastart-up.3.PlaceYourproductorservicewillsomehowhavetoreachthecustomerphysically.Althoughthismaysoundsimple,itinvolvesanothermonumentalmarketingdecision:Inwhatway,viawhichdistributionchannel,doyouwanttodeliveryourproduct?Thechoiceofdistributionchannelisinfluencedbyvariousfactors,suchashowmanypotentialcustomerswillyouhave?Aretheycompaniesorindividuals?Howdotheyprefertoshop?Doestheproductrequireexplanation?Isitinanupperorlowerpricebracket?Basically,youwillhavetoconsiderwhetheryourcompanywillhandledistributionitself,orwhetheraspecializedoperationwillhandleitforyou.Thissortof”make-or-buy”decisionwillhaveasignificantimpactonboththeorganizationandthebusinesssystemofyourenterprise.Thechoiceofdistributionchannelisthuscloselyrelatedtoothermarketingdecisionsandwill,inturn,affectothermeasures.Distributioncanberoughlycategorizedintotwoforms:directormulti-channel.Technologicaldevelopments,particularlyininformationtechnology,havegreatlyexpandedthespectrumofdistributionchannelsoverthepastfewyears.Hereisaselection:·Third-partyretailers.Productsaresoldviaretailerswhohaveeasyaccesstopotentialcustomers.Here,itisimportanttoacquireagoodshelfposition,whichisobviouslyalsosoughtbythecompetitionandisaccordinglyexpensive.Theproductmustalsoofferretailersanattractiveprofitiftheyaretoincludeitintheirrangeatall.·Outsideagents.Specializedcompaniesactasagentsforthedistributionofproductsfromvariousmanufacturers.Theytakeoverthefunctionofthein-housesalesperson.Outsideagentsarerelativelyexpensive,althoughonlyforthesalestheyconcludesuccessfully.Theymakenocommissioniftheydonotselltheproduct,makingthemanattractivechannelfornewcompaniessinceriskislimited.Goodagents,however,arenotalwayseasytofind.·Franchising.Abusinessconceptisputintopracticeindependentlybyafranchiseewhopaysalicensingfee,wherebythefranchisermaintainscontrolofthebusinesspolicies(McDonald’sisanexample).Franchisingenables29 rapidgeographicgrowth,whileensuringcontrolofthesalesconceptwithouthugepersonalinvestment.·Wholesalers.Itcanbedifficultforasmallcompanytomaintaincontactwithalargenumberofretailers.Awholesalerwhohasgoodcontactstotheretailtradecantakeoverthisactivity,helpingtoimprovemarketpenetrationwhileloweringdistributioncosts.Ontheotherhand,wholesalersoftendemandacutfortheirefforts.·Stores.Sellinginyourownstoreisagoodchoicewhenthedesignofthepurchasingexperienceiscentraltotheproduct,andonlyasmallnumberofstoresisnecessarytocoverthemarket.Independentshopswillrequireinvestment,butwillalsoallowthegreatestcontroloverdistribution.·Ownsalesstaff.Salesagentsareabovealldeployedwhentheproductiscomplex(e.g.,capitalgoods),requiringextensiveknowledgeoftheproduct.Face-to-facecustomervisitsareexpensive;thenumberofcustomersmustbefairlysmall.Havingyourownsalesstaffasthedistributionchannelisrelativelyexpensiveandonlyworthwhileforinvolvedproducts.·Directmail.Selectcustomersreceiveamailingthroughthepostalservice.Addressescanbepurchasedfromdatabasecompaniesandsortedaccordingtodesiredcriteria.Thesuccessofthedirectmailingdependsonwhetherthereaderfeelsanimmediateappeal–otherwise,itlandsinthewastebasket.·Callcenter.Throughadvertising,customersareinvitedtoorderaproductbytelephone.Simpleproductscanbedistributedtomanycustomersinthisway,withnoneedtosetupstoresthroughouttheentiresalesregion.Youcanalsohiretheservicesofspecializedcallcenteroperators.·Internet.TheInternetisarelativelynewmarketingchannel,throughwhichaglobalmarketcanbereachedatminimalcost.4.PromotionBeforepotentialcustomerscanappreciateyourproduct,theyhavetohearaboutit.Andtoachievethis,youmustadvertisetoattractattention,inform,persuade,andinspireconfidence.Thosearetheobjectivesofcommunication.Communicationmustexplainthevalueofyourproductorservicetoyourcustomers,aswellasconvincecustomersthatyourproductmeetstheirneedsbetterthancompetingoralternativesolutions.Therearevariouswaysofgettingthecustomer’sattention:·Classicadvertising:newspapers,magazines,tradejournals,radio,TV,movietheaters·Directmarketing:directmailtoselectcustomers,telephonemarketing,Internet·Publicrelations:articlesinprintmediaaboutyourproduct,businessoryou,writtenbyyouorajournalist30 ·Exhibitions,tradefairs·CustomervisitsCommunicationisexpensive,somakethemostofit.Calculateexactlyhowmuchadvertisingyoucanaffordpersaleandchooseyourcommunicationmessagesandmediaaccordingly.Focusedcommunicationyieldsthebestresults.Whenyouaddressyourcustomers,focusonthepeoplewhomakethepurchasingdecisionorhavethegreatestinfluenceonthepurchasingdecision.KEYQUESTIONS:MarketingandsalesPhase1!Whatfinalsalepricedoyouwanttocharge(estimated)?Whatcriteriadidyouusetoarriveatthisfinalsaleprice?Howhighistheprofitmargin(estimated)?!Whatsalesvolumesandsalesrevenuesareyouaimingfor(estimated)?Phase2!Inwhichpartialmarketsegmentswillyoumakeyourmarketentry?Howdoyouplantoturnthis“toehold”intoahigh-volumebusiness?!Whatsalesvolumesareyoutargeting(detaileddatabymarketsegment)?!Describethetypicalprocessofsellingyourproduct/service.Who,amongyourbuyers,ultimatelymakesthepurchasingdecision?!Whattargetgroupswillyoureachbywhatmeansofdistribution?!Doyouwanttopenetratethemarketquicklywithalowprice,orbringinthehighestreturnfromthestart?Explainyourdecision!!Howwillyoudrawtheattentionofyourtargetgroupstoyourproductorservice?!Howwillyouwooreferencecustomers?!Howmuch,intimeandresources,willitcosttoacquireacustomer?!Whatadvertisingmaterialswillyouusetodoso?!Whatpartdoservice,maintenance,andhotlinesplay?!Howdifficultwillitbeand/orwhatwillitcosttocreatelong-lastingcustomerloyalty?!Whatotherplanningstepsarenecessaryintherun-uptolaunchingyourproduct/service?Drawupaschedulewiththemostimportantmilestones!Phase3!Whatdemands(employeenumber,qualifications,andoutfitting)musttheoperationmeetinordertoeffectivelyimplementitsmarketingstrategy?Whatisyourestimatedexpenditureforthisarea?!Howwillsalesvolumeandoperatingresultsbespreadoutamongthevariousdistributionchannels(estimated)?!Whichmarketshareperdistributionchanneldoyouplantocapture?!Whatareyourexpenses?Atlaunch–andlater.!Whatpricewillyouchargeforyourproduct/servicepertargetgroupanddistributionchannel?!Whatpaymentpolicieswillyoulaydown?31 4.6.Businesssystemandorganization”Organizationsexisttoenableordinarypeopletodoextraordinarythings.”TedLevitt,Editor,HarvardBusinessReviewBusinesssystemEveryentrepreneurialassignmentiscomprisedoftheinterplayofanumberofindividualactivities.Whentheyarepresentedsystematicallyinrelationtooneanother,abusinesssystemresults.Thebusinesssystemmodelmapsouttheactivitiesnecessarytoprepareanddeliverafinalproducttoacustomer.Forclarity’ssake,theyaregroupedintofunctionalblocks.Devisingabusinesssystemisagoodwaytounderstandthebusinessactivitiesofacompany,thinkthemthroughsystematically,anddisplaythemwithtransparency.AgenericbusinesssystemcommontonearlyallindustriesandenterprisesisshowninExhibit10.GENERICBUSINESSSYSTEMResearchandProductionMarketingSalesServicedevelopmentExhibit10Usetheabovemodelasthestartingpointfordesigningyourownbusinesssystem.Youwillneedtoadaptittoyourownsituationandmakeitconcreteinordertoputitintopractice.Foramanufacturer,forexample,itmaybeusefultosubdividetheproductioncategoryintoseparatestages,suchaspurchasing,rawmaterialsprocessing,componentmanufacture,andassembly.Youmayalsoneedtoseparatesalesintologistics,wholesaledistribution,andretailsales,forexample.Anindividualplanwillbeappropriatetoeachcase,dependingontheindustryinwhichyouoperateand,ofcourse,thebusinessitself.Thebusinesssystemofacomputermanufacturerwillbeverydifferentfromthatofafastfoodchain.Andthebusinesssystemofadepartmentstoremaylookquitedifferentfromthatofadirectmerchandisingcompanyalthoughbothwillsellmanyofthesameproducts.Therearenogeneralrulesorstandardsforabusinesssystem.Yourownsystemshouldbelogical,complete,andusefulforplanning–justdon’tletitgettoocomplicated.Concentrateonthemajoractivitiesinyourbusinesssystem.Ateamofthreetofivewillnotbeabletocoveralltasksthemselves,eitherbecausetheydonothavetheabilitiesorbecausetheycouldnotdosowiththenecessaryefficiency.Togetherwithyourmanagementteam,thinkcarefullyaboutwhatactivitiesreallycreatesomethingnewandhowyouandyourstaffcanbestmakeuseofyourtimetocreatethehighestvalueforyourcustomerandgetaheadofthecompetition.Thebuzzwordhereisfocus.Onceyouhavedeterminedwhichactivitiesmakeup32 yourbusinesssystem,choosethosewhichyoucanexecutebetterthananyoneelse.Atrendtowardspecializationcanbeobservedinmanyindustries.Specializationisparticularlyimportantforstart-ups.Theyshouldconcentratealltheirenergyonjustafewselectactivitiesinthebusinesssystem.Atthebeginning,evensoftwaregiantMicrosoftconcentratedsolelyonthedevelopmentoftheDOS,leavingallotheractivitiesinthebusinesssystemuptoIBM.OrganizationInadditiontoabusinesssystem,youwillneedtoconsiderseveralotherorganizationalissues.Itisessentialthattasksandresponsibilitiesbeclearlydelegatedandthatyoudesignasimpleorganizationwithfewlevels.Therestwillfollowasneededduringoperation.Yourorganizationmustbeflexibleandalwaysadaptabletonewcircumstances.Bepreparedtoreorganizeyourcompanyrepeatedlyduringthefirstfewyears.Decidewhoisresponsibleforwhatineachbusinessarea(delegationoftasksandresponsibilities).Assoonasyouhavesetuptheinterdisciplinaryfunctions-suchasamanagement,humanresources,finance,andadministration-you’llbeupandrunning.Ifyoukeepyourorganizationsimple,eachstaffmemberwillknowwhichassignmentsheorshemustcompleteandcancarrythemoutindependently.Ontheotherhand,everyoneshouldbeinapositiontofillinforanotherteammemberforashorttimeifnecessary.(SeeExhibit11)SAMPLESTART-UPORGANIZATIONManagingDirectorMr.DuxResearchandProductionMarketingFinanceHumanDevelopmentResourcesandAdministrationMr.InventMr.FacitMs.OratoriaMr.PecuniaMr.DuxExhibit11BusinesslocationDescribebrieflythechoiceoflocationforyourbusiness.Donotenterintoalong-termrentalagreement,asyourbusinessmayhavetomoveinresponsetothegrowthyouanticipate.Youmayhavetomakethismovefairlyquickly.”Makeorbuy”andpartnershipdecisionsOnceyouhavedeterminedthecoreofyourbusinessandhavedrawnupthenecessarybusinesssystem,youwillhavetothinkaboutwhowillbestcarryouttheindividualactivities.Activitiesoutsideyourchosenfocusshouldbehandledbythirdparties.Butsupportingactivitieswithinthenewcompanydonotnecessarilyhavetobecarriedoutbyyou.Thesemayinclude33 bookkeepingorhumanresources.Foreachactivity,thequestiontoaskis:Dowedoitourselves,orhavesomeoneelsedoit-tomakeortobuy?Make-or-buydecisionsneedtobeconsciousdecisionstakenafterweighingtheadvantagesanddisadvantages.Supplierpartnerships,forexample,cannotbedissolvedfromonedaytothenext,andsomepartnerscannoteasilybereplacedif,forsomereason,theyarenolongeravailable.Whenconsideringmake-or-buydecisions,relyonthefollowingcriteria:·Strategicsignificance.Thoseaspectsofperformancethatmakeamajorcontributiontoyourcompetitiveadvantageareofstrategicimportancetoyourbusiness.Theymustremainunderyourcontrol.Atechnologycompanycouldhardlyrelinquishresearchanddevelopment,andaconsumergoodsmanufacturerwouldnevergiveawayitsmarketingactivities.·Suitability.Everybusinessactivitydemandsspecificabilitiesthatmaynotbeavailablewithinthemanagementteam.Yourteammust,therefore,considerwhetherinspecificinstancesitisbesttocarryoutaparticulartask,acquiringthenecessaryabilities,orwhetheritwouldbebettertohandoverthetasktoaspecializedcompany.Specialistsmaynotonlybeabletocarryouttheassignmentbetter,theymayalsobeabletoofferacostadvantagethankstohigherproductionvolumes.·Availability.Beforeyoumakeadecisiontobuy,youneedtofindoutwhethertheproductorserviceisavailableintheformorwiththespecificationsyourequire.Negotiate,wheneverpossible,withseveralsuppliers.Youwillusuallyfindthebesttermsinthiswayandwilllearnmoreabouttheserviceyouarebuying.Often,youcanhelpasupplierimproveitsperformance.Ifyoucannotfindsomeonetosupplywhatyouneed,youmayfindabusinesspartnerwhoiswillingtoacquirethenecessaryskillstodoso.Thequestionforastart-upishowyouwanttocooperatewithothercompanies.Everypartnershiphasitsadvantagesanddisadvantages.·Informal,non-bindingpartnershipsrepresentnogreatobligationforeitherside.Bothpartiescanendthepartnershipquicklyandeasily.Buttheymustalsolivewiththeknowledgethatsupplyordemandcoulddryupjustasquickly.Furthermore,supplierswillnotbeabletomeetallthespecialneedsofacustomersincetheycannotselltailoredproductstoalltheircustomers.Casualpartnershipsaretypicalformassproducts,every-dayservices,andstandardizedcomponentsforwhichreplacementbuyersandsellersareeasilyfound.·Closepartnershipsaresometimescharacterizedbyahighdegreeofinterdependence.Theyaretypicalofhighlyspecializedproductsandservicesorhightradevolumes.Inthesesituations,itisusuallydifficultforbothsidestochangepartnersortobuyorselllargequantitiesofspecialparts34 withinashorttimeperiod.Theadvantageforbothsidesisthesecurityofabindingrelationshipandthepossibilityofconcentratingonone’sownstrengths,whilebenefitingfromthestrengthsofpartners.Inorderforapartnershiptodevelopintoasuccessfulbusinessrelationship,anumberoffactorsmustbeconsidered:·Win-winsituation.Bothsidesmustbeabletogainafairadvantagefromtherelationship.Withoutanincentiveforbothsides,apartnershipcannotbesustained.·Risksandinvestments.Partnershipsinvolverisksthatareusuallybrushedasidewhenbusinessisgoingwell.Asupplierwithanexclusivityagreementcan,forexample,endupinadifficultsituationifthebuyersuddenlycutsbackproductionandpurchasesfewercomponents.Thisisespeciallytrueifthesupplierhasacquiredspecializedproductiontoolingthatcannotimmediatelybeusedforotherordersandbuyers.Conversely,abuyercanfacedifficultiesifamajorsupplierceasestodeliver(bankruptcy,fire,strike,etc.).Suchrisksandpossiblefinancialconsequencesmustbethoughtthroughfromtheoutsetandperhapsregulatedbycontract.·Dissolution.Asininterpersonalrelationships,businessrelationscanalsosuffertensionandresultinirreconcilabledifferences.Makesuretolaydownindetailunderwhichconditionsapartnercanwithdrawfromapartnership.Whenworkingonyourbusinessplan,itisnottooearlytobeginthinkingaboutwhomyoumaywanttocooperatewithandwhatformthismaytake.Partnershipswillallowayoungcompanytobenefitfromthestrengthsofestablishedcompaniesandfocusondevelopingtheirownstrengths.Throughpartnerships,youcanusuallygrowfasterthanyoucouldonyourown.KEYQUESTIONS:BusinesssystemandorganizationPhase2!Whatdoesthebusinesssystemforyourproduct/servicelooklike?!Whatactivitiesdoyouwanttohandleyourself?!Wherewillthefocusofyourownactivitieslie?!Whatbusinessfunctionsmakeupyourorganization,andhowisitstructured?!Whatresourcesdoyouneed(quantitativeandqualitative)tocreateyourproduct/service?!Howhighisyourneedfortechnicalinput(rawmaterials,materialstocreateyourservice)?!Whatwillyoumake,whatwillyoubuy?!Whichpartnerswillyouworkwith?Whataretheadvantagesofworkingtogetherforyouandyourpartners?Phase3!Wherewillyoulocateyourbusiness?35 !Whatcapacityforproductmanufactureandserviceproductiondoyouplan(numberofunits)?!Howmuchwillproductionanddeliveryofyourproduct/servicecost?!How,andatwhatcost,canyouadjustyourcapacityintheshortterm?!Whatmeasuresareplannedforqualityassurance?!Ifyouneedawarehouse,howwillyouorganizeyourinventory?!Howmuchofyourproducthastobeputinstorage?!Howareyourcostsstructured(fixed,variable)?4.7.Implementationschedule”Businessislikechess:Tobesuccessful,youmustanticipateseveralmovesinadvance.”WilliamA.Sahlmann,ProfessorInvestorswanttoknowhowyouenvisionthedevelopmentofyourbusiness.Arealistic5-yearplanwillinspirecredibilityamonginvestorsandbusinesspartners.Moreover,itwillhelpyouthinkthroughyourvariousactivitiesandinterdependencies.Youwillendangeryourbusinessifyouattempttoreachyourtargetswithfaultyand,aboveall,overlyoptimisticplanning.DrawingupyourimplementationscheduleConcentrateonthemostmajormilestonesandthemostimportantinterdependentevents.Thefollowingthreeelementswillusuallysuffice:·Ganttimplementationschedule(forasampleGantttimeline,seeCityScapecasestudy)·Majormilestones·ImportantconnectionsandinterdependenciesbetweentheworkassignmentgroupingsHumanresourcesplanningAsyournewbusinesstakesoff,systematicpersonnelplanningwillbecomemoreandmoreindispensable.Growthwillrequireyoutorecruitnewemployeeswhowillhavetobetrainedandintegratedintothebusiness.Maintainingasimplystructuredworkingenvironmentwillhelpyoudrawupclearjobdescriptionsandseekjusttherightemployees.Keepinmindthataqualified,specializedworkforcemaybedifficulttofindevenintimesofhighunemployment.Youwilloftennotbeabletoavoid”stealing”goodemployeesfromcompetitors.Includecostsinyourpersonnelplanninginordertoarriveatthetotalcostofhumanresources(wagesandindirectlaborcosts)fortheincomestatementinyourbusinessplan.Thecostofpersonneldependsonanumberoffactors,suchastheindustryitself,employeequalifications,andage.Additionally,indirectlaborcostscanamounttoover50%ofthewage.36 InvestmentanddepreciationplanningInvestmentanddepreciationplanningincludesallinvestmentsthatmaybecapitalizedandthecorrespondingwrite-offs.Theamountofdepreciationdependsontheservicelifeplannedfortheproperty.Usually,propertyiswrittenoffinfullover4to10yearsinequalannualamounts(straight-linemethod).Investmentsaretobeincludedintheliquiditycalculation,andthetotalamountofannualwrite-offslistedintheplannedincomestatement.KEYQUESTIONS:ImplementationschedulePhase3!Whatarethemostimportantmilestonesforthedevelopmentofyourbusiness,andwhenmusttheybereached?!Howdoyouplantostructuretheworktoreachthesetargets?!Whichtasksandmilestonesareinterdependent?!Forwhichtasks/milestonesdoyouanticipatebottlenecks?!Howmanynewemployeeswillyouneedintheindividualbusinessareasoverthenext5years?Whatwillthiscost?!Howmuchrealcapitalisnecessarytoachieveinitialsales?!Listyourplannedshort-terminvestments!!Listyourplannedlonger-term(3to5years)investments!!Whatinvestmentswillberequiredwhenwhichmilestonesarereached?!Howhighistheannualdepreciationforeachinvestment?37 4.8.Opportunitiesandrisks”Oneofthegreatestmythsaboutentrepreneursisthattheyareallriskseekers.Allsanepeoplewanttoavoidrisk”WilliamA.Sahlmann,ProfessorTheobjectofthisexerciseistoidentifyamarginoferrorfordeparturesfromyourassumptions.Ifpossiblewithreasonableeffort,itisadvisabletodrawupbest-caseandworst-casescenariosinvolvingkeyparameterstoidentifytheopportunitiesandrisks.Thesecalculationswillallowventurecapitaliststojudgehowrealisticyourplansare,andtobetterassesstheriskoftheirinvestment.Changevariousparametersinthescenarios(suchaspriceorsalesvolumes)tosimulatehowachangeinconditionsmightaffectyourkeyfigures(sensitivityanalysis).KEYQUESTIONS:OpportunitiesandrisksPhase2!Whatbasicrisks(market,competition,technology)doesyourbusinessventureface?!Whatmeasureswillyoutaketocountertheserisks?!Whatextraordinaryopportunities/businesspossibilitiesdoyouseeforyourcompany?!Howcouldanexpansionofyourcapitalbasehelp?Phase3!Whatwillyourplanninglooklikeforthenext5financialyearsunderbothabestandworstcasescenario?!Whateffectwillthishaveonyourneedforcapitalandyourreturn?!Inyourview,howrealisticarethesescenarios?!Whatconsequencesdotheyhaveonyourbusinessplanning?4.9.Financialplanningandfinancing”Planningsubstituteschaosformistakes.”UnknownFinancialplanningassistsyouinevaluatingwhetheryourbusinessconceptwillbeprofitableandcanbefinanced.Tothisend,theresultsofallprecedingchaptersmustbecompiledandconsolidated.Projectedgrowthinvalueresultsfromtheplannedcashflowsfromyouroperativebusiness.Thesearerevealedthroughliquidityplanning,whichalsoprovides38 informationonyourvariousfinancingneeds.Inaddition,theprofitsituationofyourbusinesscanbeseenintheincomestatement.Thisstatementisalsonecessaryaccordingtocommercialandtaxlaw.Therearemanywaystopresentthefigures.Theappendixcontainssampletablesofhowtoperformliquidityplanningandmakeupanincomestatement,aswellasabalancesheet.Minimumrequiredoffinancialplanninginyourbusinessplan:!Acashflowcalculation(liquidityplanning),incomestatement,balancesheet!Forecastsover3to5years,atleast1yearbeyondthepointofbreakingeven,thatis,beyondthegenerationofpositivecashflow!Detailedfinancialplanningforthefirst2years(monthlyorquarterly),thereafterannually!Allfiguresmustbebasedonreasonableassumptions(onlythemainassumptionsneedtobedescribedintheplan)PlannedincomestatementWhetheracompany’sassetsgrowordiminishdependsonthebottomlineattheendofayear.Theincomestatementcanhelpyouforecastthis.Incontrasttoliquidityplanning(=plannedcashflow),anincomestatementfocusesontheissueofwhethertransactionsleadtoanincrease(=revenue)oradecrease(=expense)inthenetworthofyourbusiness(definedasthesumofallassetsminusdebt).Gothroughyourentirebusinessplananddecidewhetheryourassumptionswillleadtorevenuesorexpensesand,ifso,howhightheywillbe.Ifyouareindoubtabouttheexactamountofcostsyourbusinesswillincur,gatherquotesandestimates.Donotforgettocoverthecostofyourpersonallivingexpenses.Inthecaseofalimitedliabilitycompany,thiswouldbethesalaryofyourgeneralmanager.Listwrite-offsinyourinvestmentanddepreciationplanning.Thecostofinvestmentsthemselves(i.e.,thepurchasepriceoftheinvestment)isnotincludedintheincomestatement,becausetheamountpaidoutdoesnotleadtoachangeinthenetworthofthebusiness.Materialcostscompriseallexpensesforrawmaterials,auxiliaries,expendablesupplies,andpurchasedgoodsandservices.Yourplannedhumanresourcesexpenditureincludeswagesandsalariesplussocialsecuritycontributionsandtaxesandislistedunderpersonnelcosts.Forthepurposeofsimplification,thecategory”othercosts”istreatedasacollectiveitem,includingamongotherthings,rent,insurance,officesupplies,postage,advertising,andlegalcounsel.Whenassigningindividualrevenuesandexpensesstrictlyobservelegalregulations.Finally,calculatethedifferencebetweenallrevenueandexpensesinafinancialyear,bywhichyouwillarriveatanannualnetprofit/loss.Thiswillgiveyouanoverviewoftheoperatingresult,butitwillnotgiveyouareliableassessmentofyourlevelofliquidfunds.Forthis,youwillneedliquidityplanning.39 Salesofyourproductorservicemaybebookedinthecurrentfinancialyear,eventhoughpaymentdoesnotoccuruntilthenext;youwillneedtolistthesalesrevenueeventhoughthemoneyhasnotyetbeendepositedintoyouraccounts.Thesameistrueforexpenses.Theincomestatementisgenerallyplannedinannualintervals.Toenhancetheaccuracyofyourplanningforthefirstyear,youshouldmakemonthlyforecasts,andquarterlyforecastsforthesecondyear.Forthethird,fourth,andfifthyears,continuetomakeannualprojections.YoucanmakeuseofthetablescontainedintheappendixofthisGuidetolistthefigures.LiquidityplanningYourcompanymusthaveacertainamountofcashonhandatanygiventimeinordertoavoidbecominginsolvent,whichleadstobankruptcythatwillmeanthefinancialruinofyourbusiness.Detailedliquidityplanningshouldhelpensureapositivecashflow.Theprincipleissimple:Receiptsarecompareddirectlytodisbursements.Pleasenotethatwritingorreceivinganinvoicedoesnotmeanthatthemoneyisalreadyinyouraccountorthatyouhavepaidthebill.Liquidityplanningisconcernedwiththedateofpaymentwhenthemoneyactuallycomesinorgoesout.Thus,liquidityplanninginvolvesonlythosetransactionsthatcauseachangeinyourcashreserves.Depreciation,liabilities,andnon-marketoutputarenotincluded.Layouttheamountandtimingofallthepaymentsyouexpect.Yourcompanyissolventwhenthesumofitsreceiptsisgreaterthanthesumofitsdisbursementsatanygiventime.Youwillhavetodrawoncapitalforthosetimeswhenthisplanningdoesnotcoverallexpenses.Thesumofalltheseindividualpaymentswillequalthetotalcapitalrequiredforthatplanninginterval.Thefartheryoulookintothefuture,themoreuncertainyourplanningwillbe.Liquidityplanningshouldthusbecarriedouteverymonthforthefirstyear,quarterlyforthesecondyearandonlyannuallyforthethird,fourthandfifthyears.TheappendixofthisGuidecontainstablesyoucanuseforanexactcompilationofthefigures.ProjectedbalancesheetVenturecapitalistsareinterestedinseeinghowyourassetsareexpectedtogrowasrepresentedonaprojectedbalancesheet.Here,thetypeandvalueoftheassetsareplacedontheassetsideofthebalancesheetacrossfromthesourceofthecapitalontheliabilitiesside.Aswiththeincomestatement,thereisastandardaccountingformat,requiredbylaw,forbalancesheets.Theyarepreparedatannualintervals.Again,theappendixofthisGuidecontainstablesyoucanuseforanexactcompilationofthefigures.FinancingneedsLiquidityplanningenablesyoutodeterminetheamountofcapitalyouwillneedandwhenyouwillneedit,butitdoesnotindicatehowtheseneedswillbemet.Webasicallydistinguishbetweenequity(investorshaveastakeinthebusiness)andloancapital(whichisborrowedfromoutsidesources).Selecttherightmixforyourbusinessfromthemyriadsourcesoffinancingavailabletoyou(Exhibit12).”Youcan’tgetsomethingfornothing,”thesayinggoes-andthesameistrueofmoney.Yourfamilymayasklittleinreturnforfinancialassistance;professionallendersaremoredemanding.40 Allthemanagementteamcanofferinvestorsfortheircashisapromise–notexactlyagoodpositionfromwhichtonegotiate.Nevertheless,youhaveagoodchanceofbeingSOURCESOFCAPITALATVARIOUSSTAGESOFDEVELOPMENTSeedphaseStart-upGrowthEstablishmentPersonalsavingsFamilyloansGovernmentgrantsIndividuals(usinessangelsVenturecapitalMortgagesLeasesBankloansStockexchangeExhibit12financiallysuccessfulifbusinessgoeswell,becauseprofessionalinvestorsalsohaveaninterestintopperformancefromtheteam.Beclearaboutyourneedsandexpectationsandthoseofyourinvestors.Ifyouareseekingalong-termcommitmentandaresatisfiedwithasmallcompany,youareprobablywelladvisedtomakeuseoffamilyfundsandloansfromfriendsandbanks.Youwillretainamajorityshareholding,butyouaresignificantlyrestrictingyourchancesforgrowth.If,however,youdesirerapidexpansion,youwillwanttoprocureventurecapital.Venturecapitalistswillgenerallyexpecttoobtainalargeshareofthecompany.Youmay,infact,havetorelinquishthemajorityoftheequity.Professionalinvestors,however,arenotinterestedinmanagingthebusinessaslongasyoumeetyourtargets,eveniftheyhavethemajorityshareholding.Theyhave,afterall,investedinthemanagementteaminordertoleadittosuccess.Theywillsupportyouactivelywiththeirmanagementskillsandcontributespecialtyknowledge,suchaslegalormarketingexpertise,ties,andcontacts.Adealcanbeverycomplicated.Itisalwaysadvisabletocontactexperiencedentrepreneursandgettheexpertadviceoftrustees,taxadvisors,andlawyers.Youmayalsowanttogatheranumberofbidsfromvariousinvestors.Donotbeputoffbycomplicatedarrangements.Thereareusuallylegitimatereasonsforthem,suchastaxbreaks,controlofthefundsinvested,etc.Beabsolutelycertain,however,thatyouunderstandallthedetailsofthedeal.Calculatingtheinvestor’sreturn41 Investorsevaluatethesuccessofaninvestmentbythereturntheygetonthecapitalinvested.Asaresult,anticipatedreturnshouldbeapparentataglanceinthebusinessplan.IntheCityScapecasestudy,forexample,investorsputatotalof$2.5millionintotheenterpriseduringitsfirst3years($0.9,$1.1,and$0.5million,respectively).After5years,andlistingonthestockexchange,realisticproceedsofapproximately$25millionareexpected.Howhighisthereturninthiscase?(Exhibit13)CALCULATINGTHERETURN$Millions25.00-1.06Year0Year1Year200Seriesofcashflows-0.90-0.53Year3Year4Year5-1.06Discountfactor1.000.580.340.200.110.07Discountedvalueof-0.90-0.62-0.18001.70Total0cashflowsatIRRof72%Exhibit13Fromthepointofviewoftheinvestor,allfundscontributedtoanewcompanyresultfirstinnegativecashflows.Afterabusinessbreakseven,positivecashflowswillnotimmediatelybepaidoutintheshapeofdividends,butwillbefirstusedtostrengthenthebalancesheet.Cashwillbereturnedtotheinvestorsatrealization.Becausecashflowswilloccuroverseveralyears,theymustbediscounted,thatis,calculatedbacktothepresent(interestandcompoundinterestcalculation).Thediscountfactorsforthevariousyearscanbearrivedatusingthefollowingformuladiscountfactor=1(1+r)Twherebyr=thediscountrateinpercentandT=theyearinwhichthecashflowtakesplace.Tocalculatethereturn,theinternalrateofreturn(IRR)methodisused.TheIRRisthediscountrateatwhichthesumofallpositiveandnegativecashflows,discountedatpresent,resultsinzero.TheIRRfortheCityScapeprojectexampleis72%.Thatmeansthattheinvestorsgetanannualreturnof72%ontheircapital.Thisisareasonablereturnconsideringtheriskinvolved.MostcalculatorsandspreadsheetshaveaspecialIRRfunctionwithwhichtocalculatetheIRR(inExcelthisistheIRR()function).Itcanalsobecalculatedbyhand.42 Valuationofacompany(i.e.,workingouthowmuchamarketispreparedtopayforshareswhenabusinessgoespublic)isanartinitself.Asimpleruleofthumbisthatthevalueissixtoeighttimesthecashflowornetprofit(aftertaxes)ofthebusinessintheyearofinitialpublicoffering.InthecaseofCityScape,afactorofsixmultipliedbythenetprofitinthefifthyear($4.2million)wasused,whichresultsinavaluationof$25.2million.Ifyouhavenoexperienceinfinancialplanning,consultingwithcoachesorexperts(e.g.,taxconsultantsoraccountants)ishighlyrecommended.Inparticular,discusstheissuesofturnoversalesandincometaxes,whichhavebeensimplifiedhere,withataxadvisoratoneofthecompetitioneventslistedatthefrontofthisGuide.Notethatmostbusinessventuresfailduetolackoffinancialplanning.Ifyoudon’thavesomeonewiththenecessaryskillsonyourteamalready,startlooking!KEYQUESTIONS:FinancialplanningandfinancingPhase3!Howwillyourrevenues,expenses,andincomedevelop?!Howwillyourcashflowdevelop?Whenwillyouexpecttobreakeven(=sumofallrevenuesgreaterthanthesumofallexpenses)?!Howhighisyourneedforfinancingbasedonyourliquidityplanning?!Howmuchcashisneededintheworstcasescenario?!Whatassumptionsunderlieyourfinancialplanning?!Whichsourcesofcapitalareavailabletoyoutocoveryourfinancingneeds?!Whatdealareyouofferingpotentialinvestors?!Whatreturncaninvestorsexpect?!Howwilltheyrealizeaprofit(exitoptions)?Thispageintentionallyblank43
简介：TableofContents1.TheRoutefromConcepttoCompany…………………………………………………………………….21.1.Successfactors………………………………………………………………………………………………21.2.Stagesofdevelopment………………………………………………………………………………….32.TheBusinessIdea……………………………………………………………………………………………………62.1.Developingabusinessidea…………………………………………………………………………..62.2.Elementsofapromisingbusinessidea………………………………………………………….72.3.Protectingyourbusinessidea……………………………………………………………………..102.4.Presentingyourideatoinvestors………………………………………………………………..113.TheBusinessPlan………………………………………………………………………………………………….133.1.Advantagesofabusinessplan…………………………………………………………………….133.2.Characteristicsofasuccessfulbusinessplan……………………………………………….133.3.Theinvestor’spointofview………………………………………………………………………..153.4.Tipsonpreparingaprofessionalbusinessplan…………………………………………..174.StructureandKeyElementsofaBusinessPlan……………………………………………………..194.1.Executivesummary…………………………………………………………………………………….194.2.Productorservice……………………………………………………………………………………….214.3.Managementteam………………………………………………………………………………………224.4.Marketandcompetition……………………………………………………………………………..244.5.Marketingandsales…………………………………………………………………………………….274.6.Businesssystemandorganization………………………………………………………………324.7.Implementationschedule……………………………………………………………………………364.8.Opportunitiesandrisks………………………………………………………………………………384.9.Financialplanningandfinancing………………………………………………………………..381 1.THEROUTEFROMCONCEPTTOCOMPANYNew,innovativecompaniesgenerallytrytogrowfromstart-upsintoestablishedcompanieswithin5years.Buttheycanseldomfinancetheiractivitiesalonealongtheway.Rather,theyaredependentonprofessionalinvestorswithconsiderablefinancialclout.Forentrepreneurs,financingisacriticalquestion–thebusinessplanmustthusbeconsideredfromthepointofviewofpotentialinvestorsrightfromtheoutset.1.1.SuccessfactorsSuccessfulcompaniesarisefromacombinationoffiveelements(Exhibit2).KEYFACTORSFORSUCCESSOFINNOVATIVESTART-UPSIdeas•Degreeofinnovation•Scope•PatentNetworkandexchange•CoachingTraditionalservicePeople•Networkingproviders•Inventors•Teambuilding•Attorneys•Entrepreneurs•Innovativeserviceprovider•Patentlawyers•Team–Venturecapitalists•Taxconsultants/members–Headhuntersaccountants–Angelinvestors•Market–High-techstart-upresearchersconsultantsCapital•Availability/amount•Needs/responsibilities•ExitsforinvestorsExhibit21.Nobusinessconcept,nobusinessHavinganideaisjustthebeginningofthecreativeprocess.Manyentrepreneursareinitiallyinfatuatedwiththeirinspiration,losingsightofthefactthattheirideaisthepointofdepartureforalongprocessofdevelopmentwhichmustface–andwithstand–toughchallengesbeforeitcanenjoyfinancingandmarketsuccessasamaturebusinessconcept.2.MoneymattersWithoutsomebodywhoinvestsmoneyintotheideatogrowitintoaviablebusiness,thisbusinesswillneverbecomeareality.Fromearlyon,therefore,muchattentionmustbepaidtoconvincinginvestorstoprovidethenecessaryfunding.2 3.Noentrepreneurs,noenterpriseGrowingnewfirmsisnotaone-personjob.Itcanonlysucceedwithateamof,usually,threetofiveentrepreneurswhosetalentsarecomplementary.Puttingtogetherwell-functioningteamsisadifficultprocess–onethattakestime,energy,andanunderstandingofhumannature.Donotloseanytimeinputtingyourteamtogetherandworkonperfectingitthroughouttheentirestart-upprocess.Thecharacteristicsofahigh-performancemanagementteamarediscussedinmoredetailinsection6.3ofthisGuide.4.TraditionalserviceproviderswillhelpyouclearthefirsthurdlesYouwilloftenneedtheadviceofprofessionalserviceproviders,suchaspatentlawyers,taxadvisors,andmarketresearchers-especiallyatthebeginning.Gettingtherightinformationearly(e.g.,forregisteringapatent)canhaveconsequencesforlatersuccessorfailure.5.Strongnetworksarea”shotinthearm”foreverynewcompanyProfessionalguidanceforpotentialentrepreneursthroughanetworkofsponsors,entrepreneurs,venturecapitalists,andserviceprovidersisdecisiveintransformingviableideasintorealcompanies.PrimeexamplesforsuchregionalnetworkscanbefoundinSiliconValleyandtheBostonarea.1.2.StagesofdevelopmentThetypicalprogressionofthestart-upanddevelopmentofgrowingcompaniesintoestablishedfirmscanbesubdividedintothreestages.Theendofeachstageservesasamilestoneforventurecapitalistsbywhichtogaugethestatusoftheirinvestment.Beingfamiliarwitheachstageandthechallengesitposesmayspareyouwastedenergyanddisappointment.Pleasenote,however,thatthethreestagesinthedevelopmentofafunctioningstart-updonotmatchthethreephasesinthedevelopmentofabusinessplanwithintheframeworkofthiscompetition(seeExhibit3).Ifyouintendtobesuccessful,thisstart-upprocessshouldinfluencebothyouractivitiesastheinitiatorofabusinessconceptandyourpathtowardformingyourowncompany.Toalargeextent,itisthedemandsofinvestorsthatwilldeterminehowyoumustapproachtheindividualstagesofthestart-up.STAGESOFSTART-UPDEVELOPMENTEstablishedcompanyStart-upExitofandgrowthinitialinvestorsBusinessplanFinancingpreparationdecisionsBusinessideaInterestofgenerationinvestorsExhibit33 Stage1:BusinessideagenerationThebeginningistheinspiration–yoursolutiontoaproblem.Itmustbeevaluatedtodetermineifitdeliversanactualcustomervalue,whetherthemarketisbigenough,andjusthowbigitwillbe.Theideaitselfhasnointrinsiceconomicvalue.Itacquireseconomicvalueonlyafterithasbeensuccessfullytransformedintoaconceptwithaplanandimplemented.Youwillneedtostartputtingtogetheryourteamassoonaspossible,findingpartnerswhocandevelopyourproductorserviceuntilitisreadyformarket(oratleastuntilshortlybefore).Inthecaseofproducts,thisstageusuallyinvolvesafunctioningprototype.Youwillmostlikelyhavetodowithoutventurecapitalduringthisstage.Youwillstillbefinancingyourplanwithyourownmoney,helpfromfriends,perhapsstateresearchsubsidies,contributionsfromfoundations,orothergrants.Investorsrefertothisas”seedmoney,”asyourideaisstillaseedling,notyetexposedtotheharshclimateofcompetition.Yourobjectiveatthisstageistopresentyourbusinessconceptandmarket–whichformsthefoundationofyournewcompany–soclearlyandconciselyastopiquetheinterestofpotentialinvestorsinhelpingyoucultivateyourideafurther.Stage2:BusinessplanpreparationAtthisstage,itismostimportanttofocusonthebigpicture:Don’tlosesightoftheforestforthetrees!Thebusinessplanitselfwillhelpyoutofocusasyoumustconsiderandweightherisksinvolved,prepareforanycontingency,andlearntoanticipateavarietyofpossiblesituationsor”scenarios.”Youwillneedtolaydownplansandcreateabudgetforthekeyactivitiesofthebusiness–fordevelopment,production,marketing,distribution,andfinance.Naturally,youwillneedtomakemanydecisions,suchaswhichcustomersorsegmentswillyoutarget?Whatpricewillyouaskforyourproductorservice?Whatisthebestlocationforyourbusiness?Willyouhandleproductionyourselforoutsourceittothirdparties?Andsoon.Inpreparingthebusinessplan,youwillcomeincontactwithmanypeopleoutsideyourstart-upteam.Inadditiontoinvestors,youwilltalktomanyspecialists,includingattorneys,taxadvisors,experiencedentrepreneurs,andexperts.Thebusinessplancompetitionorganizerswillhelpyougetintouchwithjusttherightpeople.Youwillalsohavetobeginreachingouttoyourpotentialcustomers(i.e.,bymeansofconsumersurveys)tomakeinitialassessmentsofyourmarket.Alwayskeepinmindthatcustomeracceptanceisanessentialprerequisitetothesuccessofyourcompany!Scoutaboutforpossiblesuppliersandperhapscloseyourfirstagreements.Youwillalsowanttobecomeawareofwhoyourcompetitorsare.Thiswholeprocesswillnotcomecheap.Theteammustcontinuetoearnalivingwhilerunningarudimentaryoperationandperfectingaprototype.Yetatthisstage,youshouldalsobeabletoestimateyourexpenses.Financingwillgenerallystillbeprovidedfromthesamesourcesyoureliedonduringstageone,althoughsomeinvestorsmaybewillingtomaketheoccasionaladvance.Thisstageconcludessuccessfullyforyouasanewentrepreneurwhenaninvestorexpressesawillingnesstofinanceyourundertaking.Stage3:Start-upandgrowth4 Nowthattheconceptualworkislargelycomplete,itistimetostartimplementingyourbusinessplan.Yourrolenowchangesfromthatofarchitecttothatofbuilder.Businesssuccessmustnowbesoughtandachievedinthemarket.Thedayofreckoninghascomewhenyouwilllearnwhetheryourbusinessconceptwasagoodand,ultimately,profitableone.InvestorexitenroutetobecominganestablishedcompanyThepulloutofyourinitialinvestorsisacompletelynormalstepinthedevelopmentofastart-up.Forifeverythinghasgonewell,yourriskyventurewillhavegraduallybecomeastableenterprise(seeExhibit4).Inthecourseofitsshortlife,youhavecreatedanumberofjobsandwooedmanycustomerswithyourinnovativesolutiontotheirproblem.Yourcommitmentispayingoffasthevalueofyourbusinessincreases.Aprofitableexithasbeentheobjectivefortheventurecapitalistfromtheoutset.Capitalrecoverycanhappeninverydifferentways.Normally,thebusinessissoldtoacompetitor,supplier,orcustomer.Oritislistedonthestockexchange(the”initialpublicoffering”orIPO).Itisalsopossibleforinvestorswhowantouttobepaidoffbytheotherpartners.5 2.THEBUSINESSIDEA”Thereisnothingintheworldaspowerfulasanideawhosetimehascome.”VictorHugoTheabovestatementundoubtedlyappliestoideasforstartinganewbusiness.Buthowdoyoucomeupwithsuchanidea?Andhowcanyouknowiftheideaforthebusinesswillhaveapromisingfuture?Studiesshowthatthelion’sshareoforiginalandsuccessfulbusinessideasweregeneratedbypeoplewhohadalreadyhadseveralyearsofrelevantexperience.GordonMooreandRobertNoyce,forexample,hadanumberofyearsatFairchildSemiconductorsbehindthembeforeteamingupwithAndyGrovetoformIntel.ButtherearealsoexamplesofrevolutionaryideasbroughttolifebymerenovicesasSteveJobsandSteveWozniakdemonstratedwhentheydroppedoutofcollegetostartAppleComputer.2.1.DevelopingabusinessideaIneconomicterms,asparkofgeniusisworthless,nomatterhowbrilliantitmaybe.Foranideatogrowintoamaturebusinessconcept,itmustbedevelopedandrefined,usuallybymanydifferentpeople.TheinitialideamustfirstpassaquickplausibilitycheckBeforeyoufollowuponanidea,youshouldevaluateitinlightofits(1)customervalue,(2)marketchances,and(3)degreeofinnovation,aswellasconsideringwhetheritwillbeboth(4)feasibleandprofitable.·Talkyourideaoverwithfriends,professors,experts,andpotentialcustomers.Thebroaderthesupportyoufindforyouridea,thebetteryouwillbeabletodescribeitsbenefitsandmarketopportunities.Youwillthenbewellpreparedwhenthetimecomestodiscussyourprojectwithprofessionalinvestors.·Isyourideareallynovel?Hassomeoneelsealreadydevelopeditorevenappliedtopatentit?·Willitbepossibletodevelopyourideainareasonableperiodoftimeandwithajustifiablelevelofresources?IttakesatleastfourweekstodevelopabusinessideaConsideringthemultiplestagesofdevelopment,itisimprobable–andfairlyunrealistic–thatyouwillspendfewerthanfourweeksdevelopingyourconcept.Generally,abusinessideaisnotworthyofbeingfinanceduntilitissoconcretethatitcanbelaunchedinthemarketintheforeseeablefutureatreasonablerisk.Investorstalkofthe”seedphase”ofabusinessconcept,6 whichusuallyhastobefinancedwith”soft”money(i.e.,fromsourcesthatasyetplacenohardandfastdemandsonthesuccessoftheidea).Theseedphasecantakelonger,inparticulariftheideaisaheadofitstime.Althoughtheperfectproducthasbeenfound,itcannotyetbemarketedbecausethedevelopmentofcomplementarytechnologiesorsystemsisstillintheworks.OneexampleistheInternet.Theideasformarketingproductsandservicescameearly,butalackofsecurityintheavailablepaymentsystemshamperedanddelayeditscommercialexploitationforsometime.2.2.ElementsofapromisingbusinessideaAbusinessideacanbeconsideredpromisingifithasthefollowingfourelements(Exhibit5):ELEMENTSOFAPROMISINGBUSINESSIDEA12ClearMarketofcustomeradequatesizevalueFeasibilitySufficientanddegreeofprofitabilityinnovation43Exhibit551.ClearcustomervalueThekeytosuccessinthemarketplaceissatisfiedcustomers,notgreatproducts.Customersspendtheirhard-earnedmoneytomeetaneedorsolveaproblem.Thefirstprinciplefordevelopingasuccessfulbusinessideaisthatitclearlyshowswhichneeditwillfulfillandhowitwilldoso.Initially,manyentrepreneurshavetheproductandthetechnicaldetailsofdesignandmanufactureinmindwhentheyspeakoftheirsolution.Notsofortheinvestor–theinvestorfirstlooksattheideafromtheperspectiveofthemarket.Forinvestors,customervaluetakestoppriority,andeverythingelseissecondary.What’sthedifference?Ifinnovatorssay,”ournewdevicecanperform200operationsperminute,”or”ournewdevicehas25%fewerparts,”theyarefocusingontheproduct.Bycontrast,saying,”ournewdevicewillsavethecustomeraquarterofthetimeand,therefore,20%ofthecosts,”or”ournewsolutioncanboostproductivitybyupto25%,”adoptsthecustomer’spointofview.Theproductismerelyameansofdeliveringvaluetocustomers.Thecustomervalueofaproductorserviceexpresseswhatisnovelorbetterabouttheitemwhencomparedtocompetitiveoffersoralternativesolutions.Assuch,itplaysakeyrolein7 settingyourproductapartfromothers–acoreissueinmarketing,aswewilllearn–andisessentialtothemarketsuccessofyourbusinessconcept.Try,wheneverpossible,toalsoexpressthecustomervalueinfigures.Marketingtheorystatesthatthecustomervaluemustbeformulatedintoauniquesellingproposition,orUSP.Thismeanstwothings:Firstofall,yourbusinessconceptmustbepresentedinawaythatmakessense(sellingproposition)tothecustomer.Manystart-upsfailbecausethecustomerdoesnotunderstandtheadvantageofusingtheproductorserviceand,asaresult,doesnotbuyit.Secondly,yourproductmustbeunique.Customersshouldn’tchoosejustanysolutionthathitsthemarket–theyshouldchooseyours.Youmust,therefore,persuadethemthatyourproductoffersagreaterbenefitoraddedvalue.Onlythenwillyourcustomersgiveyouanedge.Indescribingyourbusinessconcept,youneednotpresentafullyformulatedUSP,butitshouldbemoreorlessobvioustopotentialinvestors.2.MarketofadequatesizeAbusinessideawillhaveeconomicvalueonlywhenitsucceedsinthemarket.Thissecondprincipleofasuccessfulideademonstrateshowbigthemarketisfortheproductoffered,whichtargetgroup(s)itisdesignedfor,andtowhatdegreeitwilldifferfromthecompetition.Adetailedanalysisofthemarketisnotyetnecessaryatthispoint.Estimates,derivedfromverifiablebasicdata,willsuffice.Sourcescouldincludeofficialstatistics,informationfromassociations,articlesintradejournals,thetradepress,andtheInternet.Itshouldbepossibletodrawareasonableconclusionaboutthesizeofthetargetmarketfromthisbasicdata.Itissufficientforyoutosummarizetheresultsofthisinvestigationinyourpresentationofthebusinessidea.Thesameistrueforyourtargetcustomers;youwillonlyneedaloosedefinitionofwhotheywillbe.Describewhyyourbusinessideawillprovideaspecialvaluetothisgroupinparticular,andwhythisgroupisfinanciallythemostinterestingtoyou.Youwillalwaysfacecompetition–bothdirect,fromcompaniesthatofferasimilarproduct,andindirect,fromsubstituteproductsthatcanalsofulfillthecustomer’sneed.Apastamanufacturercompetesnotonlywithotherpastamanufacturers,butalsowithmanufacturersofriceandpotatoproductsandbakeriesand,moregenerally,withmanufacturersofallotherfoodstuffs.Yourbusinessideawillneedtodemonstratethatyouhaveunderstoodwhoyourcompetitorsare.Namethem–anddescribewhyandhowyoucantaketheleadwithyourbusinessidea.3.SufficientdegreeofinnovationBusinessideascanbeclassifiedalongtwodimensions-products/servicesandbusinesssystems.Ineachofthesecategories,youcandevelopsomethingneworcapitalizeonsomethingthatalreadyexists.Simplified,abusinesssystemisawayofunderstandinghowaproductorserviceisdeveloped,manufactured,andmarketed(Exhibit6).Theterminnovationisgenerallyusedinthecontextofnewproducts,whicharemadewithconventionalproductionmethodsanddeliveredtothecustomerthroughexistingdistribution8 channels.Microsoft,forinstance,developedDOS,makinguseoftheIBMsalesorganizationtobringittothemarket.Innovationsinbusinesssystemsarelessobvious,butjustasimportant.ThesuccessofDellisattributedtosignificantcostsavingsthankstoanewformofdirectdistributionandanovelproductionprocessinwhichacomputerisproducedonlyafteritisordered,andintheshortestpossibletimeframe.Indevelopingnewproducts,improvementofthemulti-layereddimension”customervalue”isattheforefront.Innovationsinthebusinesssystemaretargetedatlowercostsandfasterprocesses,savingswhichcanthenbepassedontothecustomerintheformoflowerprices.Itisrarethatbothtypesofinnovation–inproductandbusinesssystem–canbecombinedtocreateacompletelynewindustry.NetscapecontributedsignificantlytothesuccessoftheWorldWideWebbydistributingitsnewbrowserovertheInternetfreeofcharge.Indoingso,Netscapepassedupinitialsalesrevenuesbut,throughtheincreasednumberofvisitorstoitsWebsite,succeededinraisingadvertisingrevenues.4.FeasibilityandprofitabilityFinally,toarriveatanactualstart-up,thefeasibilityofthebusinessideamustbeassessed.Inadditiontospecificfactorsthatcouldmaketheprojectnotfeasible(e.g.,legalconsiderations,standards),theassessmentmayincludethetimeandresourcesneededtocarryouttheproject.Theconstructionofhotelsonthemoonmaybetechnicallyfeasible,forexample,buttheircost-benefitratioisunreasonable.Interwovenwiththefeasibilitycriterionisprofitability.Acompanymustbeabletogeneratelong-termprofit.Thisfourthelementofasuccessfulbusinessideashouldthusindicatehowmuchmoneycanbemadeandhow.Traditionally,profitcalculationsforabusinessaremadeasfollows:Acompanybuysmaterialorservices,therebyincurringcosts.Italsosellsproductsorservicestocustomers,thereby9 earningrevenues.Ifyourbusinessfollowsthispattern,itisnotnecessarytoprovideanygreaterdetailinthedescriptionofyouridea.Do,however,makeroughestimatesofanticipatedexpensesandprofits.Oneruleofthumbforgrowingcompaniesisthatthestart-upphaseshouldgenerategrossprofits(revenuesminusdirectproductcosts)of40%to50%.Butmanybusinessesdonotfunctionaccordingtothistraditionalmodel.McDonald’s,forexample,earnsitsmoneyfromthelicensingfeesitchargesfranchisers.TherestaurantownerpaysMcDonald’sforthenameandthewaytherestaurantisrun.Ifyourbusinessideaisbasedonthiskindofinnovationinprofitgeneration,youshoulddetailitinyourbusinessidea.KEYQUESTIONS:Businessidea!Whowillbuyyourproduct?!Whyshouldcustomersbuytheproduct?Whatneeddoesitfulfill?!Howwilltheproductbedistributedtothecustomer?!What,exactly,isinnovativeaboutyourbusinessconcept?!Howisthebusinessconceptunique?Isitprotectedbypatent?!Howistheproductbetterthancomparablealternatives?!Whatcompetitiveadvantageswillthenewcompanyhave,andwhycan’tacompetitorsimplycopythem?!Canmoneybemadewiththeproduct?Whatcostswillbeincurred,whatpricewillbeasked?2.3.ProtectingyourbusinessideaOnlyafewideasaregenuinelyingenious.Truebreakthroughsaretheresultofhardworkand,therefore,cannotbeeasilyreplicated.Acompromisemustbefoundtoprotecttheidea,whiledisclosingsufficientinformationtotestitsviability.PatentingEarlypatentingisrecommended,especiallyinthecaseofnewproductsorprocesses.Gettheadviceofexperiencedpatentlawyers:Thefuturesuccessofyourbusinesscandependonapatent,and,ineveryindustry,therearepowerfulcompetitorswiththemeanstokeepanunfavorablepatentfrombeinggranted.Butsomedegreeofcautionisadvisedasapatentcanalsomissthemarkwhenitcomestoprotectingyourideabymakingtheideapublic.Besuretokeepinmindifthepatentcanbeimproveduponeasily–andthusthwarted.TherecipeforCoca-Cola,forexample,isstill”secret”andhasneverbeenpatentedbecausethepatentcanbecircumventedwithaveryfew,neutral-tastingchanges.Confidentialityagreement10 Lawyers,trustees,andbankemployeesareallrequiredbylawtomaintainconfidentialityvis-à-vistheirclients’businesses.Venturecapitalistsalsohaveaninterestinkeepingthingsunderwraps,assomeonewithareputationfor”poaching”ideaswillnotbemadeprivytonewideasanytimeagainsoon.Thesameistrueforprofessionalconsultants.Aconfidentialityagreementcanbeeffectiveinsomecases.ThecoachesandorganizersinvolvedinEnterPrizearerequiredtosignaconfidentialityagreement;judgesareencouragedtodoso.But,likeeverylegaldocument,ithasitslimits,andtherearegrayareasthatcouldmakeitdifficulttoproveaviolationoftheagreementincourt.QuickimplementationYourbestprotectionagainstintellectualpropertytheftisprobablytoimplementyourplanasquicklyaspossible.Agreatdealofworkmustbedonebetweendreamingupanideaandopeningforbusiness.Thiseffortcankeeppotentialcopycatsatbay,becauseintheend,it’scrossingthefinishlinefirstthatmakesyouthewinner,nothavingthefastestshoes!2.4.PresentingyourideatoinvestorsHowyoupresentyourbusinessideatoaninvestorwillputallyourpreviouseffortstothetest.Itiscriticaltoattractattentionandpiqueinterestthroughcontentandprofessionalappearance.Goodventurecapitalistsarepresentedwithupto40businessideasperweek,andtheirtimeislimited.Insubmittingthebusinessidea,neitherfanfarenorawealthofdetailsisasimportantasaclearandthoughtfulpresentation.Example1:Thehardsell”Ihaveagreatideaforanew,customer-friendlymethodofpaymentwithabigfuture.Thisissomethingeverybodyhasalwayswanted.Youcouldearnalotofmoneyfromthis…”Theinvestorthinks,”Thatsoundslikealotofhotair.I’veheardofahundredsuchmiraclesolutionsbefore…Next!”Example2:Thetechnicalapproach”Ihaveanideaforacomputerizedmachinerycontrolsystem.Thekeyisthefully-integratedSSPchipwith12GByteRAMandtheasymmetricalXXP-baseddirectcontrolunit.Ittookme5yearstodevelopthis.”Theinvestorthinks,”Techie.Inlovewithtechnology.She’sherownmarket…Next!”Example3:Theentrepreneur”Ihaveanideathatwillenablecompanieswithupto100employeestosave3%to5%oftheircosts.Initialcost-priceanalyseshaveconvincedmethataspreadof40%to60%shouldbepossible.IhavefoundafocusedadvertisingchannelthroughtheAssociationofSmallandMedium-sizedBusinessesandtheABCMagazine.Theproductwillbedistributedbydirectsale.”Theinvestorthinks,”Aha!Shehasidentifiedthecustomervalue,andevenworkedoutthefigures!She’sthoughtaboutthemarketandtheprofitpotentialandknowshowshewillgettheproducttohercustomers.NowI’dliketogetalookattheproduct…”Theseexamplesdemonstratewhyclarityshouldbeyourforemostgoal.Itisbesttoassumethatinvestorsarenotfamiliarwiththetechnologyofyourproductortheindustryjargon.Theyarealsonotlikelytotakethetimetolookupanunknowntermoridea.Describingyourconcept11 clearlyandincisivelyisyournextgoal.Youmustbeabletoconveythebasicmechanicsofyourbusinessideatoaninvestorwithcredibility.Therewillbeplentyoftimeatalaterpointfordetaileddescriptionsandexhaustivefinancialcalculations.FormalrequirementsofabusinessconceptpresentationTitlepageNameoftheproductorserviceNameoftheperson(s)submittingConfidentialitynoticeIllustration,whereappropriate,oftheproductorserviceinactionBody4to7pages(includingaone-pageexecutivesummary)ClearstructurewithheadingsandindentationsasvisualorganizersCharts,illustrations,tablesMaximumof4illustrations,placedintheappendixUseonlyifnecessaryforcomprehensionMakereferencetotheillustrationsinthetextSimple,clearpresentationUniformformatThispageintentionallyblank12 3.THEBUSINESSPLAN”Writingabusinessplanforcesyouintodisciplinedthinking,ifyoudoanintellectuallyhonestjob.Anideamaysoundgreat,butwhenyouputdownallthedetailsandnumbers,itmayfallapart.”EugeneKleiner,VentureCapitalistThemodestterm”businessplan”doesnotreallydojusticetothisveryimportantbusinesstool.ThebusinessplanwasfirstusedintheU.S.asmeansofacquiringfundsfromprivateinvestorsandventurecapitalistswhothenparticipateinthecompanyasco-ownersandprovidethecapital.Thepresentationofthistypeofstart-upstrategyhasbecomeamandatorycourtesywhenseekingtodobusinesswithanypartners,includingcustomers,suppliers,anddistributors,tosaynothingofventurecapitalistsandbanks.Butbusinessplansarenotonlyusedbystart-ups;evenmajorcorporationsrelyincreasinglyonproject-specificbusinessplanstohelpthemmakeinternalinvestmentdecisions.3.1.AdvantagesofabusinessplanThegreatimportanceattachedtothebusinessplaniswelljustified.Withit,entrepreneurscanprovethattheyareinapositiontoarticulateandhandlethediverseaspectsofstart-upsandtheirmanagement.Properlyconceivedandexecuted,thebusinessplanbecomesakeydocumentforevaluatingandmanaginganoperation.Abusinessplandetailstheoverallentrepreneurialconceptbehindaplannedbusiness.Itgivesanexactsummaryoftheeconomiccircumstances,thetargetsset,andtheresourcesnecessary.Thebusinessplanforcesentrepreneurstothinkthroughtheirideassystematically:Itidentifiesgapsinknowledge,demandsdecisions,andpromotestheformulationofawell-structuredandfocusedstrategy.Duringitspreparation,oneaftertheother,alternativeapproachescometolightandareevaluated,andpitfallsareidentified.Withitsclearanalysisofthesituation,thebusinessplanbecomesaninvaluabletoolforovercomingproblemsandcontributessubstantiallytoboostingefficiencyandeffectiveness.3.2.CharacteristicsofasuccessfulbusinessplanHowabusinessplanisdesigneddependsonwhatkindofventureisenvisionedandwhattheplanshouldaccomplish.Ifaplanisbeingwrittenforastart-up,forexample,itwillnecessarilyhaveadifferentstructurethanonethataimstolaunchanexistingcompanyintoanewsegment.Despitesuchdifferences,businessplanshaveanumberofthingsincommon.Theyaretoprovideaclearandcomprehensiveevaluationoftheopportunitiesandrisksposedbytheoperation.Thisisnosmalltask,andcompletingitwillrequirecarefulattentiontocertainstandardsofdesignandcontent.Thefollowingsuggestionsandguidelinesshouldhelpyoumakeyourplansuccessful.13 AgoodbusinessplanimpresseswithitsclarityReadersshouldbeabletofindsuitableanswerstotheirquestions.Itshouldbeeasyforreaderstofindthetopicsinwhichtheyareparticularlyinterested.Thismeansthebusinessplanmusthaveaclearstructuretoenablereaderstomaneuverandchoosewhattheywouldliketoread.Itisnotthevolumeofanalysisanddata,butrathertheorganizationofthestatementsandaconcentrationontheessentialargumentsthatwillpersuadeyourreaders.Anytopicthatcouldbeofinteresttothereadershould,therefore,bediscussedfully,butconcisely.Atotallengthofabout30pages,giveortake5orso,isgenerallyappropriate.Abusinessplanisnotreadinthepresenceoftheauthor,whocouldanswerquestionsandprovideexplanations.Forthisreason,thetextmustbeunambiguousandspeakforitself.Eachplanshouldbepresentedtoatestaudience,ifatallpossible,beforeitisfinallysubmitted.Competitioncoaches,forexample,canhelpweedoutconfusingpassagesorindicateareasstillinneedofediting.AgoodbusinessplanconvinceswithitsobjectivitySomepeoplegetcarriedawaywhentheyaredescribingwhattheyfeelisagoodidea.Whilethereissomethingtobesaidforenthusiasm,youshouldtrytokeepyourtoneobjectiveandgivethereaderachancetocarefullyweighyourarguments.Aplanwrittenlikeglowingadvertisingcopyismorelikelytoirritatethanappealtoyourreaders,makingthemsuspicious,skeptical,orotherwiseunreceptive.Equallydangerousisbeingtoocriticalofyourownprojectinresponsetovariouspastmiscalculationsormistakes.Thisapproachwillraisequestionsaboutyourabilityandmotivation.Tothebestofyourknowledge,thedatapresentedshouldbeaccurate.Weaknessesshouldneverbementionedwithoutintroducingmethodstocorrectthemorplanstodoso.Thisdoesnotmeanthatfundamentalweaknessesshouldbehidden,justthatinpreparingyourplan,youshoulddevelopapproachestoremedythemandpresentwithclarity.AgoodbusinessplancanbeunderstoodbythetechnicallaymanSomeentrepreneursbelievethattheycanimpresstheirreaderswithprofusetechnicaldetail,elaborateblueprints,andthesmallprintofananalysis.Theyaremistaken.Onlyrarelyaretechnicalexpertscalledtoevaluatethisdatacarefully.Inmostcases,asimplifiedexplanation,sketch,orphotographisappreciated.Iftechnicaldetailsontheproductormanufacturingprocessmustbeincluded,youshouldputthemintheappendix.AgoodbusinessplaniswritteninoneconsistentstyleSeveralpeopleusuallyworktogethertoproducethebusinessplan.Intheend,thisworkmustbeintegratedtoavoidcreatingapatchworkquiltofvaryingstylesandanalyticaldepth.Forthisreason,itisbesttohaveonepersoneditthefinalversion.AgoodbusinessplanisyourcallingcardFinally,yourbusinessplanshouldhaveauniformvisuallayout.Thefonts,forexample,shouldbeconsistentwiththestructureandcontents,effectivegraphicsneatlyintegratedand,perhaps,aheaderwiththe(future)companylogoused.14 3.3.Theinvestor’spointofviewTheentirestart-upprocessmustfocusonsuccessfulcapitalacquisition.Professionalinvestorsarethefirstrealacidtestofthechancesyourbusinessconceptwillhave.Addressyourcommunicationentirelytothem,andlearntothinkliketheydo.Theywillnotbesatisfiedwithameredescriptionofyourbusinessconcept,evenifitisbrilliant.Whatisventurecapital?Venturecapitalisthemoneythatismadeavailablebyventurecapitalcompaniesorindividualstofinancenewbusinesses.Typically,suchprojectshaveahighchanceofbeingprofitable,whilefacinganequalriskofincurringloss.Experienceshowsthatof10businessesfinancedwithventurecapital,onlyonewilltriumph,threewillmanagetoekeoutanexistence,threewillwasteaway,andthreewillbeatotalloss.Itisonlynaturalforventurecapitaliststodoeverythingintheirpowertogenerateprofitsinlinewiththeriskventured.Accordingly,theybackupaprojectveryintenselyinordertoharnessasmuchpotentialaspossible(Exhibit7).VENTURECAPITALPARTICIPATIONINTHEVARIOUSSTART-UPPHASESTransitiontoEarlyphaseGrowthphaseestablishedcompanySeedStart-upGrowthBridgestageExitstageWhenBeforeAtorshortlyAtfirstor6-12monthsAsarule,5-8?start-upafterstart-upsecondbeforeIPOyearsafterstart-growthspurt,upIPOstillfaroffWhatMainlytoE.g.,forTofinanceTocoverRecoveryoffor?developproductgrowthfinancialinvestedventurebusinessdevelopment,needsuntilcapitalforconceptinitialsaleofstockreinvestmentinfurthermarketingtopublicmorestart-upsactivitiesExhibit7Whatdoventurecapitalistslookfor?Venturecapitalistslookforanumberofimportantpiecesofinformationinabusinessplan:·Managementexperienceandcompetence.Allinvestorspayparticularattentiontowhowillbemanagingtheenterprise.Whenallissaidanddone,theabilityofmanagementtoimplementtheconceptisamajordeterminantofwhetherabusinesssurvivesorfails.Particularlyinindustrieswhereinnovationiscritical,thefocusisonthepropermixofallnecessarymanagementskillsthatonepersonalonewillrarelyhave.Entrepreneurial15 experienceismorehighlyvaluedthanacademicdegrees.Anothertestofaworthwhileinvestmentistheabilityofmanagementtoworkasateam.·Awell-definedand,wherepossible,quantifiablecustomervalue.Initssimplestform,thismeansloweringthecostofdeliveringanexistingvalueorcreatinganewvalue,ifthiscanbeachievedatreasonablecost.·Innovativeproductorservicerange.Theproduct,service,and/orbusinesssystemmustpossessahighdegreeofinnovation.·Thepossibilitytoprotect/sustaintheinnovation.Animportantcompetitiveadvantagetoyourcompanycouldbeapatentedidea.·Agrowingand/orlargemarket.Venturecapitalistspreferstart-upsthatdemonstrateapotentialtoachievesignificantsalesofapproximately$30millionwithin5years.·Aneffectiveconceptforcapturingaclearlydefinedtargetcustomersegment.Potentialinvestorswanttoseethatyouhaveaclearunderstandingofyourmarketandhowyouintendtoreachyourcustomers.Yourforecastsandestimatesshouldbebasedonwell-founded,persuasiveassumptionsandfacts.·Afar-sightedanalysisofthecompetition.Investorsaren’tnaive–sodon’teventrytoclaimthatyourproducthasnocompetition.Acompleteandobjectivedescriptionofexistingandpotentialfuturecompetitors,however,showsthatyouareawareoftherisksyouaretakingwhich,inturn,willinspireconfidenceinyou.Hereagain,havinganideathatcanbeprotectedbylaw(patented,trademarked)isanadvantage.·Acarefulweighingoftherisksandopportunities.Investorshatesurprises,especiallynegativeones.Arealisticdescriptionoftherisksyoufaceandhowyouplantoovercomethemisfarmorecrediblethanlookingatthefuturethroughrose-coloredglasses.·Detailpossibleexitroutes.Investorswanttoknowfromtheoutsetwhentheircommitmentwillendandhowtheywillrecovertheirinvestment.Generatingaprofitisalwaystheobjectandthepurposeofinvestorparticipation.Themoreproductiveoptionsyoucanshowthemforhowtodothis,thebetter.Themainpossibilitiesincludegoingpublicorsellingsharestotheotherpartnersortoothercompanies.Whatdoventurecapitalistsdoforthenewcompany?Venturecapitalistsplayanumberofroles(seeExhibit8).Buttheywillalsotakeoverthereinsifthebusinessdoesnotachieveitstargets.Howshouldyouchooseaventurecapitalist?Venturecapitalistsgenerallyexpecttohaveahighstakeinthenewcompany.Inreturn,theyprovidesupportthatgoesfarbeyondafinancialcommitmentandoftenshoulderagreatdealof16 responsibilityforthesuccessoftheventure.Butpotentialinvestorsdodiffer,andthecompanyteamshouldknowitsinvestorswell.Ifyouwouldratherown20%ofa$100millioncompanythan80%ofa$5millionoperation,youwillhavetochooseyourinvestoraccordingtomorecriteriathanjustwhowillprovidethemostmoneyatthebestrate.POSSIBLEROLESOFVENTURECAPITALCOMPANIESCoachesandSpecialistsinmotivatorsoftheformingnewstart-upteamcompaniesPossiblerolesofventurecapitalistsAdvisorsinGatewaystoaachievingsuccessnetworkof(saleoftheexperiencedcompany,IPO)entrepreneursExhibit8233.4.TipsonpreparingaprofessionalbusinessplanInvestorsareinterestedinthefinishedplan,nottheprocessyouwentthroughtoproduceit.Theyprefertoseeawell-prepareddocumentfromwhichtheycangainagoodsenseoftherisksandopportunitiesinvolvedonthefirstread-through.Whenpreparingyourplan,thethemesofcustomervalueandpotentialreturnshouldrunthroughthedescriptionsofyourbusinessobjectives.Thethreephasesofthecompetitionprovideageneralstructureforpreparingyourplan.Thethreephasesbuildupononeanothersuchthatthecontributionforapreviousphasewillbecomeamajorportionofthefollowingphase,supplementedwithadditionalelements.Howyoucarryouttheworkwithineachphaseisuptoyou.Thefollowingtipsaredesignedtohelpyou.PlanyourapproachDrawingupabusinessplanisaverycomplexundertaking.Manyvariablesmustbeconsideredandanalyzedsystematically,inalogicalorder.Adetailedoutlineshouldbemadeassoonasthefirstideasarelaiddown.Itissmarttodoyourplanningalongthelinesofabusinessplan,oraccordingtoyourbusinesssystem(e.g.,R&D,production,marketing,sales,delivery,andadministration).Youshouldalsonumberyourtopicsandnoteanyreferences.Usingawordprocessingprogramwithaspreadsheetishelpful.Allreferencematerialshouldbesortedbytopic.Dothesamewithnotesfromdiscussions.17 TailorkeyquestionstoyourspecificprojectUsingasetofquestionsishelpfulinpreparingyourbusinessplan.Whichquestionsshouldbeaskedandwhichanswersincludedintheplanisdeterminedbythetypeofvaluecreated,theproduct,service,ordegreeoftechnologicalsophistication,andwhatthereadersneedtoknow.YoucanusethesamplequestionsprovidedinthisGuidetowriteyourownseriesofquestions.Thesequestionsareonlyexamplesdesignedtogetyouthinking;theyshouldnotbetakenasanexhaustivelistofpossiblequestions.Inotherwords,youareneitherrequiredtoanswereachquestion,normustyoureplytoallquestionsinequaldepth.Itisuptoyoutodecidewhichquestionsarerelevanttoyourundertakingandnecessarytounderstandit.Youmustalsoconsiderwhetherthereareotherquestionstobeansweredbeyondthosethathavebeenprovided.FocusonthefinalproductInprojectsofthiskind,thereisalwaysadangerofgettinglostinthedetailsofeachanalysis.Stepbackfromtimetotimeandaskyourselfwhetherthedataprovidedisnotalreadysufficientandwhetherfurtheranalysiswillreallybebeneficial.Wealsorecommendthatyoulimitthelengthoftheresultsforeachofthethreecompetitionphases.Youwillsavealotoftimeandenergyifyousticktotherecommendedlengthsfromthebeginningofyourplanning.SeeksupportearlyGatheringsupportfrommanydifferentpartieswillbeimportantinthiscompetition.Teamingupearlyisonesuchformofsupport.Teamswithcomplementarytechnicalandentrepreneurialexperiencecandelegateassignmentsaccordingtothetalentsoftheindividualteammembers.Thiswillhelpensurethattheworkwillbeperformedefficiently.Donothesitatetoseekhelpfromoutsidesourcesassoonasyouneedit.ContactexpertsandexperiencedentrepreneurswhomyoumeetatcompetitioneventsorcalltheEnterPrizeofficeforassistance.KeeptestingyourplanAwinningentrywillbeeasytounderstandandfollow.Therefore,itisimportanttopresentyourideatoatestaudiencealongtheway.Peopleoutsidethecompetitionwhocritiqueyourplanbeforeyousubmititcanidentifyweaknessesandevengiveyourworkfreshimpetus.18 4.STRUCTUREANDKEYELEMENTSOFABUSINESSPLANDespitetheirmanydifferences,allbusinessplanshavecertainelementsincommonthatallpotentialinvestorsexpecttofind(Exhibit9).Additionally,anappendixisoftenincludedthatcontainsdetailedinformation,oftenpresentedintheformoftablesorgraphs.Withinthismoreorlessrequiredstructure,thebusinessplanisfreetogrowinitsowndirection.Atthebeginning,youwillonlyworkonafewkeyelementsandindividualtopics.Newelementsareaddedwitheachadditionalphase,whilethetopicsfromthepreviousphasesareexpanded,and,gradually,theplanfillswithcontent.Attheendofthethirdphase,theindividualanalysesformawholewhoseindividualpartscorrespondtooneanother.ELEMENTSOFABUSINESSPLANFocusofthisphasePartofthisphasePhase1Phase2Phase31Executivesummary2Productorservice3Managementteam4Marketandcompetition5Marketingandsales6Businesssystemandorganization7Implementationschedule8Opportunitiesandrisks9FinancialplanningandfinancingExhibit94.1.Executivesummary”Agoodexecutivesummarygivesmeasenseofwhythisisaninterestingventure.Ilookforaveryclearstatementofthelong-termmission,anoverviewofthepeople,thetechnology,andthefittomarket.”AnnWinblad,VentureCapitalistTheexecutivesummaryisdesignedtopiquetheinterestofdecisionmakers.Itshouldcontainabriefoverviewofthemostimportantaspectsofthebusinessplan.Inparticular,itshouldhighlighttheproductorservice,thevaluetothecustomer,therelevantmarkets,managementexpertise,financingrequirements,andpossiblereturnoninvestment.19 Venturecapitalistslookattheexecutivesummaryfirst,thoughtheyusuallyjustskimit.Thequalityofthesummaryitselfisnotlikelytomaketheminvestinyourproject,yetitcanconvincethemnotto.Aclear,objective,andconcisedescriptionofyourintendedstart-up,whichmustbeeasytocomprehend,especiallybythetechnicallayperson,willshowthemthatyouknowyourbusiness.Thereforeprepareyoursummarywiththeutmostcare;itmaywelldecidewhethertherestofyourbusinessplanisread.Theexecutivesummaryisanindependentelementofthebusinessplan:Donotconfuseitwiththeintroductionofyourbusinessconceptonthetitlepage.Lookatyourexecutivesummarywithacriticaleye–repeatedly–especiallyafterallotheraspectsofyourbusinessplanhavebeencompleted.Askyourselfifyouhavedescribedyourbusinessideaasclearly,compellingly,andconciselyasyoucan.Yourreadersshouldbeabletoreadandcomprehendthesummaryinfiveto10minutes.Testit.Giveyourexecutivesummarytosomeonewhohasnopreviousknowledgeofyourbusinessconceptoritstechnicalorscientificbasis.KEYQUESTIONS:ExecutivesummaryPhase1!Whatisyourbusinessidea?Inwhatwaydoesitfulfillthecriterionofuniqueness?!Whoareyourtargetcustomers?!Whatisthevalueforthosecustomers?!Whatmarketvolumeandgrowthratesdoyouforecast?!Whatcompetitiveenvironmentdoyouface?!Whatadditionalstagesofdevelopmentareneeded?!Howmuchinvestmentisnecessary(estimated)?!Whatlong-termgoalshaveyouset?Phase2!Howhighdoyouestimateyourfinancingneeds?!Whatarethesales,cost,andprofitsituations?!Whatarethemostimportantmilestonesalongthewaytoyourgoal?!Whattestcustomershaveyouapproached/couldyouapproach?!Whatdistributionchannelswillyouuse?!Whatpartnershipswouldyouliketoenterinto?!Whatopportunitiesandrisksdoyouface?!Whatisthepictureonpatents?Phase3!Summarizetheresultsofyourdetailedbusinessplanningandstateyourexactfinancingneeds!!Howwillyoudelegatemanagementtasks?!Howmuchproductioncapacityisnecessary?!Howwilltheimplementationofyourbusinessideabeorganized?!Listyournext,concretesteps!20 4.2.Productorservice”Ifyoudon’tknowwhatthecustomervalueis,thewholething’sawasteoftime.”BrunoWeiss,EntrepreneurYourbusinessplanderivesfromaninnovativeproductorserviceanditsvaluetotheendconsumer.Itisimportanttoindicatehowyourproductdiffersfromthosethatarenoworwillbeonthemarket.Ashortdescriptionofhowfardevelopmenthasprogressedandwhatstillneedstobedoneisalsoessential.CustomervalueItdoesn’tmakeanysensetostartupanewbusinessunlesstheproductorserviceissuperiortocurrentmarketofferings.Besuretodiscussindetailthefunctiontheproductorservicefulfillsandthevaluethecustomerwillgainfromit.Ifcomparableproductsandservicesarealreadyavailablefromyourcompetitors,youmustconvincinglysubstantiatetheaddedvalueyourcustomerswillreceivefromyourstart-up.Todoso,putyourselfintheplaceofthecustomerandweightheadvantagesanddisadvantagesofyourproductovertheothersverycarefully,applyingthesamecriteriatoall.Ifyouareofferingarangeofinnovativeproductsorservices,categorizethemintologicalbusinessareasaccordingtoproductorcustomer.Definethebusinessareasindetailsothereisnooverlap.Developmentstatusoftheproduct/serviceInexplainingthisissue,imagineyouaretheventurecapitalistwhowantstominimizetheriskinvolvedinparticipating.Trytorefrainfromincludingtechnicaldetailsanddescribeeverythingassimplyaspossible.Afinishedprototypewillshowyourpotentialinvestorthatyouareuptomeetingthetechnicalchallenge.Ifitenhancestheunderstandingofyourproduct,includeaphotoorsketchinyourbusinessplan.Itisevenbettertohaveapilotcustomerwhoalreadyusesyourproductorservice.Youshouldalsoexplainthenatureoftheinnovationitselfandtheedgeyouhaveovercompetitors.Thisisthepointatwhichyoushouldaddressthesubjectofpatentsforprotectionfromduplicationorimitation,ortheprotectionofamodelthroughregistration.Iftherearestillproblemsorissuestocoverregardingdevelopment,besuretomentionthemandhowyouintendtoovercomethesedifficulties.Regulatoryrequirementsonproductsandservicesposeanothersetofrisks.Noteanypermitsyouhaveobtained,haveappliedfor,orwillapplyfor,suchasthoseoftechnicalcontrolassociations,thepostalservice,orthedepartmentofhealth.21 KEYQUESTIONS:ProductorservicePhase1!Whatendcustomerswillyouaddress?!Whatarethecustomer’sneeds?!Whatcustomervaluedoesyourproduct/serviceprovide?!Whatisthenatureofyourinnovation?Whatisthecurrentstatusoftechnicaldevelopment?!Whatpartnershipsarenecessarytoachievefullcustomervalue?!Whatcompetitorproductsalreadyexistorareunderdevelopment?!Isyourproduct/servicepermittedbylaw?!Whataretheprerequisitesfordevelopmentandmanufacturing?!Whatstageofdevelopmenthasyourproductorservicereached?!Doyouhavepatentsorlicenses?!Whatfurtherdevelopmentstepsdoyouplantotake?Whatmilestonesmustbereached?Phase2!Whatversionsofyourproducts/servicesaredesignedforwhatcustomergroupsandapplications?!Whatpatents/licensesdothecompetitorshave?!Doyouneedtoobtainlicensesand,ifso,fromwhomandatwhatcost?!Whatkindofservice/maintenancewillyouoffer?!Whatproductorserviceguaranteeswillyougrant?!Comparethestrengthsandweaknessesofcomparableproducts/serviceswithyoursinanoverview!Phase3!Whatresources(time,personnel,materials)doyourequireforeachsubsequentdevelopment?!Whatshareofsalesdoyouexpectfromyourvariousproducts/services(ifapplicable)?Why?!Whatincomefromroyalties/salesdoyouestimatefrompossiblymarketingthepropertyrights?Whowouldbeyourlicensees/buyers?4.3.Managementteam”Iinvestinpeople,notideas.”EugeneKleiner,VentureCapitalistThemanagementsectionisoftenthefirstpartoftheplanthatventurecapitaliststurntoafterreadingtheexecutivesummary.Theywanttoknowwhetherthemanagementteamiscapableofrunningapromisingbusiness.Entrepreneursfrequentlyunderestimatethesignificanceofthisquestionandmakethemistakeofskimpingoncontentandmakingdowithmeaninglessphrases.22 Takethetimetodescribeyourmanagementteamwell.Whendiscussingmanagement’squalifications,besuretoemphasizethosethatareparticularlyimportantforimplementingyourspecificplans.Professionalexperienceandpastsuccesscarrymoreweightthanacademicdegrees.Ifkeypositionsaretobegiventoinexperiencedstaffmembers,explainthisdecisionindetail.CHARACTERISTICSOFAPOWERFULMANAGEMENTTEAM!Commonvision:Everybodywantstosucceed!Complementaryattributesandstrengths!Atleastthree,butusuallynomorethansix,people!Stickstogetherthroughthickandthin!Stayingpower,evenwhentherearesetbacks-regroupsandmakesasecondoreventhirdattempttoclearthehurdleAlsoexplainhowtheresponsibilitiesinthecompanyaretobedelegatedandindicatewhichpositionsstillrequirereinforcements.Itisparticularlyhelpfultocomparetheassignmentstobefilledwiththeskillprofilesofcurrentteammembers.Donothesitatetonameyourmostinfluentialadvisors.Noonewillhaveallthequalificationsandexperiencenecessarytofoundacompany.Considerableinvolvementonthepartofadvisorssuchasexperiencedentrepreneurs,accountants,PRfirms,ormanagementconsultantsisasignofprofessionalismandwillreassuretheventurecapitalistthatyouhaveallthecontactsyoumayneed.WHATPROFESSIONALINVESTORSLOOKFOR!Hastheteamalreadyworkedtogether?!Doteammembershaverelevantexperience?!Dothefoundersknowtheirweaknessesandaretheywillingtomakeupforthem?!Havethefoundersagreedontheirfutureroles?Areownershipissuessettled?!Hasthemanagementteamagreedonacommongoal,orarethereunderlyingdifferencesofopinion?!Dotheindividualteammembersfullybacktheproject?Finally,althoughthemanagementteamwillnotbeevaluateduntilthethirdphaseofthebusinessplancompetition,itisadvisabletobeginlookingforsuitablepartnersassoonaspossible.Bringingtogetherjusttherightpeopletoforma”dreamteam,”sotospeak,isimmenselyimportantforlaterbusinesssuccessand,therefore,requiresagreatdealoftimeandcare.23 KEYQUESTIONS:ManagementteamPhase3!Whoarethemembersofyourmanagementteamandwhatdistinguishesthem:education,professionalexperience,success,standinginthebusinessworld?!Whatexperienceorabilitiesdoestheteampossessthatwillbeusefulforimplementingyourconceptandsettingupyourcompany?!Whatexperienceorabilitiesarelacking?Howwillthegapsbeclosed?Bywhom?!Whatgoalsdotheteammemberspursuebystartingupthebusiness?!Howhighisthemotivationofeachindividualteammember?4.4.Marketandcompetition”Ifthereisnocompetition,thereisprobablynomarket.”BrianWoodThoroughunderstandingofyourcustomersandtheirneedsisthefoundationofeverysuccessfulbusiness.Foritisthecustomerswhogiveyourcompanyareasonforbeing.Andintheend,bybuying–ornotbuying–yourproduct,orservice,theywilldecideifandhowsuccessfulyourcompanywillbe.Onlythosecustomerswhoareconvincedtheyaregettingagreatervaluethantheywouldfromacompetingproduct,orbynotbuyingaproductatall,willbuyyourproduct.Knowingyourmarketandcompetitionwellisthuscriticaltothesuccessofyourundertaking.MarketsizeandgrowthAdramaticincreaseinthevalueofthecompanycanbeexpectedonlyifthemarketholdsgreatpotential.Themarketsizeshouldbepresentedinfiguresrepresentingthenumberofcustomers,unitsales,andtotaldollarsinsales.Yourexpectationsformarketgrowtharecritical.Youshouldalsoindicatewhatmainfactorsarenowinfluencingormayinfluencethegivenindustrysegment.Showwhatfactorswillaffectdevelopments(technology,legislativeinitiatives,etc.)andwhatrelevancethesefactorshaveforyourbusiness.Workwithafocusinordertosaveyourselfsomeenergy:Workwithhypotheses,makealistofquestionsyouwantanswered,whatinformationyouwillneed,andwhereyoumightfindit.Theexternaldatanecessaryforananalysisareofteneasiertoobtainthanyoumightthink.Becreativeanddetermined;makeuseofallpossiblesourcesincludingtradeliterature(journals,marketstudies,scholarlyessays),industrydirectories,associationsandgovernmentagencies(statisticsoffices,chambersofcommerce,patentoffices),banksforindustrysurveys,databases,theInternet(keepyoursearchesfocused),and,ofcourse,interviews.Itoftenhelpstocallaround.Usingashortdiscussionoutlinewillincreaseyourefficiencyandproductivity,aswellasthewillingnessofyourpartytodiscloseinformation.24 Thiscollectionofindividualpiecesofdataseldomprovidesadirectanswertoyourquestions–youwillhavetodrawwell-foundedconclusionsormakesoundestimates.Whenmakinganestimate,observethefollowing:·Buildonasolidfoundation.Theremaybemanyunknowns,butifyourelyoneasilyverifiablefigures,yourestimatewillbehardertotopple.·Thinklogically.Anestimateshouldbealogicalconclusion(i.e.,itshouldnothaveanyleapsinlogicordependonunspecifiedassumptions).·Compareyoursources.Checkyourfacts,suchasstatementsmadeinaninterview,withanumberofdifferentsourcesifatallpossible.·Becreative.Theshortestdistancetoyourgoalisnotalwaysastraightline.Forexample,whenavariableisunknown,lookforasubstitutevariablethatrelatestotheoneyouneed.·Checkforplausibility.Foreachestimate,askyourself,”Doesthisresultreallymakesense?”MarketsegmentationFollowupyourgeneralexplanationswithyourchoiceoftargetcustomerandyourplannedmarketsuccess(salesvolumes,salesrevenues,marketshare,andprofit).Todothis,youmustsegmentyourmarket.Thechoiceofsegmentationcriteriaisuptoyou,aslongasyouarecertainthatthenumberofcustomersineachsegment-aswellastheirbehavior-canbedetermined,andthatthecustomerswithineachsegmentcanbereachedbymeansofthesamemarketingstrategy.Possiblecustomersegmentationcriteriafortheconsumergoodsmarkets:!Location:country,urban/rural(populationdensity)!Demographics:age,sex,income,profession,companysize!Lifestyle:techies,counterculture,activeseniors!Behavior:frequencyofproductuse,productapplication!Buyinghabits:brandpreferences,priceconsciousnessPossiblecustomersegmentationcriteriaforindustrialgoodsmarkets:!Demographics:companysize,industry,location!Operations:technologyemployed(e.g.,digital,analog)!Buyinghabits:centralizedordecentralizedpurchasing,purchasingcriteria,supplieragreements!Situationalfactors:urgencyofneed,ordersize25 Definethepotentialsalesrevenuesforagivenperiodpersegment.Takeyoursalesstrategyandthebehaviorofthecompetitionintoconsideration.Dependingontheindustry,youmayalsowanttoallowforpriceerosion.CompetitionDefinethestrengthsandweaknessesofyourcompetitors.Todothis,evaluateyourmajorpotentialcompetitorsusingthesamecriteria,suchassalesvolumeandrevenues(pricing),growth,marketshare,costpositioning,productlines,customersupport,targetgroups,anddistributionchannels.Intheinterestofbrevity,forgotheuseofagreatdealofdetail.Evaluateyourowncompanyaccordingtothesesamecriteriaandmakeacomparisonastohowsustainableyourcompetitiveadvantagewillbe.Positioningvis-à-visthecompetitionWhyshouldapotentialcustomerbuyyourproductandnotthatofyourcompetitor?Becauseitoffersgreatervalue(insomeaspectthatisimportanttothecustomer)thancompetingproducts;becauseitisobjectivelyoremotionally”better;”or,asmarketingexpertswouldsay,youhavedevelopedavaluepropositionoruniquesellingpropositionforyourbusinessidea.Formulatingthisvaluepropositionandanchoringitfirmlyinthemindofthecustomeristhemaintaskofmarketingcommunication.Marketingexpertstalkaboutthepositioningofaproduct,brand,orbusiness.Well-positionedproductsleaveconsumerswithaparticularimpression.Themostimportantguidelineforpositioningis,therefore,tolookattheproductfromthecustomer’spointofview.Thepointistomeetaneedbetter,nottopresentnewproductattributes.Theadvantagetothecustomermustbeimmediatelyclear,memorable,andimportant.Atthesametime,yourpositioningmustbedistinctivefromthatofcompetitors.Onlythencancustomersconnectthevaluepropositionthatyouofferwiththenameofyourproductorbusinessandbuyyourproduct.Thefollowingguidelinesmayhelp:·Identifyrelevantcustomerneedsorproblems·Defineclearcustomersegmentsofsufficientsize·Designanattractiverangeofproductsandservices·Makeyourselfuniquethroughdifferentiationfromthecompetition·Addressthesubjectiveperceptionofthecustomer·EnsurecustomersatisfactionevenafterpurchaseBecausepositioningissocriticaltothemarketsuccessand,therefore,tothelong-termsuccessofyourbusiness,youshouldpayparticularattentiontoit.Persuasivepositioningwillnotcomeaboutimmediately,itwillbearesultofintenseeffortandwillneedfrequentrevisiontoachievethemaximumeffect.Thepointofdepartureforpositioningistheproductitself.Additionalinsightwillbefoundasyourefineandmodifyyourproductduringdevelopmentandrespondtonewrevelationsasaresultofcustomersurveys.26 KEYQUESTIONS:MarketandcompetitionPhase1!Howistheindustrydeveloping?!Whatfactorsaredecisiveforsuccessinyourindustry?!Whatroledoinnovationandtechnologicaladvancesplay?!Howwillyousegmentthemarket?!Whatmarketvolumesdotheindividualmarketsegmentshave,nowandinthefuture(roughestimates)?!Whoareyourtargetcustomergroups?!Whatcustomerexamplescanyougive?!Whatmajorcompetitorsoffersimilarproducts/services?!Whatnewdevelopmentscanbeexpectedfromcompetitors?!Howsustainablewillyourcompetitiveedgebe?Phase2!Whatmarketvolume(valueandamount)doyouestimateforyourindividualmarketsegmentsoverthenext5years?!Whatwillinfluencegrowthinthemarketsegments?!Whatisyourestimateofcurrentandfutureprofitabilityoftheindividualmarketsegments?!Whatmarketsharesdoyouholdineachmarketsegment?!Whatsegmentsareyoutargeting?!Whoareyourreferencecustomers?Howdoyouplantogetreferencecustomers?!Whatroledoservice,consulting,maintenance,andretailsalesplay?!Howmuchdoyoudependonlargecustomers?!Whatarethekeybuyingfactorsforcustomers?!Howdoesthecompetitionoperate?Whatstrategiesarepursued?!Whatarethebarrierstomarketentryandhowcantheybeovercome?!Whatmarketsharedoesyourcompetitionhaveinthevariousmarketsegments?!Whattargetgroupsdoyourcompetitorsaddress?!Howprofitableareyourcompetitors?!Whatareyourcompetitorsmarketingstrategies?!Whatdistributionchannelsdoyourcompetitorsuse?!Howsustainablewillyourcompetitiveedgebe?Why?!Howwillcompetitorsreacttoyourmarketlaunch?Howwillyourespondtothisreaction?!Comparethestrengthsandweaknessesofyourmajorcompetitorswithyourownintheformofanoverview!4.5.Marketingandsales”Marketingisfartooimportanttobelefttothemarketingdepartment.”DavidPackard,Entrepreneur27 Keyelementsofawell-conceivedbusinessconceptarewell-plannedmarketingandsalesactivities.Theyrequireapersuasivedescriptionofyourstrategiesformarketlaunch,marketing,andthemeasuresplannedforsalespromotion.Askeletonframeworktofollowisthatofthefour”Ps”:product,price,place,andpromotion.1.ProductYouroriginalproductideahasalreadygivenyousomesenseofthecharacteristicsofyourproduct.Afteracloseranalysisoftheneedsofvariouscustomersegments,younowmustevaluatewhetheryourproductactuallymeetsthemortowhatextentitmayrequireadaptation.Thisraisesthequestionofwhetheryoushouldmanufactureonesingleproductforallsegmentsorwhetheryouwanttoadjusttheproducttomeettheneedsofindividualsegments.2.PriceThebasisforanattainablepriceisthewillingnessofcustomerstopaythepriceaskedofthem.Thiscontradictstheconventionalwisdomthatpriceisderivedfromcosts.Ofcourse,costisaconsiderablefactor,butthecost-priceratioonlybecomescriticalwhenthepriceaskedwillnotcovercostswithintheforeseeablefuture.Inthiscase,itisadvisabletogetoutofthebusinessasquicklyaspossibleor,betteryet,nevertogointothebusinessinthefirstplace.Thepriceyoucanaskdependsentirelyonhowmuchthevalueofyourproductisworthtothecustomer.Youhavedefined,andperhapsquantified,thecustomervalueinthebusinessconceptorproductdescription.Nowdefineapricebracketbasedonthequantifiedcustomervalueofyourproduct.Youcanverifyandrefineyourassumptionsthroughdiscussionswithpotentialcustomers.Thepricingstrategyyouchoosedependsonyourgoal:Doyouwanttopenetratethemarketquicklybygoingwithalowprice(penetrationstrategy)?Or,doyouwanttogeneratethehighestpossiblereturnfromtheout-set(skimmingstrategy)?Newcompaniesgenerallypursuetheskimmingstrategyforgoodreason:·Anewproductispositionedas”better”thanpreviousoptions,soahigherpricecanbejustified.·Higherpricesgenerallyleadtohigherprofitmarginsandallowthenewcompanytofinanceitsowngrowth.Newinvestmentscanbefinancedoutofprofitsandoutsideinvestorsarenolongerneeded.·Unliketheskimmingstrategy,thepenetrationstrategygenerallyrequireshighinitialinvestmentinorderforsupplytomeetthehighdemand.Thisheightenedinvestmentriskissomethinginvestorsusuallyprefertoavoid.Certainsituationsmakefollowingapenetrationstrategythebetterchoice:·Settinganewstandard.NetscapedistributeditsInternetbrowserfreeofcharge,thussettingastandard.WiththeMacintosh,however,Apple28 followedaskimmingstrategyandmissedthechancetoestablishtheMacasthenewstandard.·Highfixedcosts.Businesseswithhighfixedcostsareforcedtofindawideaudienceasquicklyaspossibletomakethosecostsworthwhile.FixedcostsatFederalExpress,forexample,forairtransportandsortingfacilities,arethesamewhethertheydeliverthousandsormanymillionsofletters.·Competition.Iftheentrybarriersarelowandtoughcompetitionislikely,apenetrationstrategyisthebestwaytobefasterthanthecompetitionincapturingalargemarketshare.Suchcasesnaturallyalsoraisethequestionastowhetherthistypeofbusinessisappropriateforastart-up.3.PlaceYourproductorservicewillsomehowhavetoreachthecustomerphysically.Althoughthismaysoundsimple,itinvolvesanothermonumentalmarketingdecision:Inwhatway,viawhichdistributionchannel,doyouwanttodeliveryourproduct?Thechoiceofdistributionchannelisinfluencedbyvariousfactors,suchashowmanypotentialcustomerswillyouhave?Aretheycompaniesorindividuals?Howdotheyprefertoshop?Doestheproductrequireexplanation?Isitinanupperorlowerpricebracket?Basically,youwillhavetoconsiderwhetheryourcompanywillhandledistributionitself,orwhetheraspecializedoperationwillhandleitforyou.Thissortof”make-or-buy”decisionwillhaveasignificantimpactonboththeorganizationandthebusinesssystemofyourenterprise.Thechoiceofdistributionchannelisthuscloselyrelatedtoothermarketingdecisionsandwill,inturn,affectothermeasures.Distributioncanberoughlycategorizedintotwoforms:directormulti-channel.Technologicaldevelopments,particularlyininformationtechnology,havegreatlyexpandedthespectrumofdistributionchannelsoverthepastfewyears.Hereisaselection:·Third-partyretailers.Productsaresoldviaretailerswhohaveeasyaccesstopotentialcustomers.Here,itisimportanttoacquireagoodshelfposition,whichisobviouslyalsosoughtbythecompetitionandisaccordinglyexpensive.Theproductmustalsoofferretailersanattractiveprofitiftheyaretoincludeitintheirrangeatall.·Outsideagents.Specializedcompaniesactasagentsforthedistributionofproductsfromvariousmanufacturers.Theytakeoverthefunctionofthein-housesalesperson.Outsideagentsarerelativelyexpensive,althoughonlyforthesalestheyconcludesuccessfully.Theymakenocommissioniftheydonotselltheproduct,makingthemanattractivechannelfornewcompaniessinceriskislimited.Goodagents,however,arenotalwayseasytofind.·Franchising.Abusinessconceptisputintopracticeindependentlybyafranchiseewhopaysalicensingfee,wherebythefranchisermaintainscontrolofthebusinesspolicies(McDonald’sisanexample).Franchisingenables29 rapidgeographicgrowth,whileensuringcontrolofthesalesconceptwithouthugepersonalinvestment.·Wholesalers.Itcanbedifficultforasmallcompanytomaintaincontactwithalargenumberofretailers.Awholesalerwhohasgoodcontactstotheretailtradecantakeoverthisactivity,helpingtoimprovemarketpenetrationwhileloweringdistributioncosts.Ontheotherhand,wholesalersoftendemandacutfortheirefforts.·Stores.Sellinginyourownstoreisagoodchoicewhenthedesignofthepurchasingexperienceiscentraltotheproduct,andonlyasmallnumberofstoresisnecessarytocoverthemarket.Independentshopswillrequireinvestment,butwillalsoallowthegreatestcontroloverdistribution.·Ownsalesstaff.Salesagentsareabovealldeployedwhentheproductiscomplex(e.g.,capitalgoods),requiringextensiveknowledgeoftheproduct.Face-to-facecustomervisitsareexpensive;thenumberofcustomersmustbefairlysmall.Havingyourownsalesstaffasthedistributionchannelisrelativelyexpensiveandonlyworthwhileforinvolvedproducts.·Directmail.Selectcustomersreceiveamailingthroughthepostalservice.Addressescanbepurchasedfromdatabasecompaniesandsortedaccordingtodesiredcriteria.Thesuccessofthedirectmailingdependsonwhetherthereaderfeelsanimmediateappeal–otherwise,itlandsinthewastebasket.·Callcenter.Throughadvertising,customersareinvitedtoorderaproductbytelephone.Simpleproductscanbedistributedtomanycustomersinthisway,withnoneedtosetupstoresthroughouttheentiresalesregion.Youcanalsohiretheservicesofspecializedcallcenteroperators.·Internet.TheInternetisarelativelynewmarketingchannel,throughwhichaglobalmarketcanbereachedatminimalcost.4.PromotionBeforepotentialcustomerscanappreciateyourproduct,theyhavetohearaboutit.Andtoachievethis,youmustadvertisetoattractattention,inform,persuade,andinspireconfidence.Thosearetheobjectivesofcommunication.Communicationmustexplainthevalueofyourproductorservicetoyourcustomers,aswellasconvincecustomersthatyourproductmeetstheirneedsbetterthancompetingoralternativesolutions.Therearevariouswaysofgettingthecustomer’sattention:·Classicadvertising:newspapers,magazines,tradejournals,radio,TV,movietheaters·Directmarketing:directmailtoselectcustomers,telephonemarketing,Internet·Publicrelations:articlesinprintmediaaboutyourproduct,businessoryou,writtenbyyouorajournalist30 ·Exhibitions,tradefairs·CustomervisitsCommunicationisexpensive,somakethemostofit.Calculateexactlyhowmuchadvertisingyoucanaffordpersaleandchooseyourcommunicationmessagesandmediaaccordingly.Focusedcommunicationyieldsthebestresults.Whenyouaddressyourcustomers,focusonthepeoplewhomakethepurchasingdecisionorhavethegreatestinfluenceonthepurchasingdecision.KEYQUESTIONS:MarketingandsalesPhase1!Whatfinalsalepricedoyouwanttocharge(estimated)?Whatcriteriadidyouusetoarriveatthisfinalsaleprice?Howhighistheprofitmargin(estimated)?!Whatsalesvolumesandsalesrevenuesareyouaimingfor(estimated)?Phase2!Inwhichpartialmarketsegmentswillyoumakeyourmarketentry?Howdoyouplantoturnthis“toehold”intoahigh-volumebusiness?!Whatsalesvolumesareyoutargeting(detaileddatabymarketsegment)?!Describethetypicalprocessofsellingyourproduct/service.Who,amongyourbuyers,ultimatelymakesthepurchasingdecision?!Whattargetgroupswillyoureachbywhatmeansofdistribution?!Doyouwanttopenetratethemarketquicklywithalowprice,orbringinthehighestreturnfromthestart?Explainyourdecision!!Howwillyoudrawtheattentionofyourtargetgroupstoyourproductorservice?!Howwillyouwooreferencecustomers?!Howmuch,intimeandresources,willitcosttoacquireacustomer?!Whatadvertisingmaterialswillyouusetodoso?!Whatpartdoservice,maintenance,andhotlinesplay?!Howdifficultwillitbeand/orwhatwillitcosttocreatelong-lastingcustomerloyalty?!Whatotherplanningstepsarenecessaryintherun-uptolaunchingyourproduct/service?Drawupaschedulewiththemostimportantmilestones!Phase3!Whatdemands(employeenumber,qualifications,andoutfitting)musttheoperationmeetinordertoeffectivelyimplementitsmarketingstrategy?Whatisyourestimatedexpenditureforthisarea?!Howwillsalesvolumeandoperatingresultsbespreadoutamongthevariousdistributionchannels(estimated)?!Whichmarketshareperdistributionchanneldoyouplantocapture?!Whatareyourexpenses?Atlaunch–andlater.!Whatpricewillyouchargeforyourproduct/servicepertargetgroupanddistributionchannel?!Whatpaymentpolicieswillyoulaydown?31 4.6.Businesssystemandorganization”Organizationsexisttoenableordinarypeopletodoextraordinarythings.”TedLevitt,Editor,HarvardBusinessReviewBusinesssystemEveryentrepreneurialassignmentiscomprisedoftheinterplayofanumberofindividualactivities.Whentheyarepresentedsystematicallyinrelationtooneanother,abusinesssystemresults.Thebusinesssystemmodelmapsouttheactivitiesnecessarytoprepareanddeliverafinalproducttoacustomer.Forclarity’ssake,theyaregroupedintofunctionalblocks.Devisingabusinesssystemisagoodwaytounderstandthebusinessactivitiesofacompany,thinkthemthroughsystematically,anddisplaythemwithtransparency.AgenericbusinesssystemcommontonearlyallindustriesandenterprisesisshowninExhibit10.GENERICBUSINESSSYSTEMResearchandProductionMarketingSalesServicedevelopmentExhibit10Usetheabovemodelasthestartingpointfordesigningyourownbusinesssystem.Youwillneedtoadaptittoyourownsituationandmakeitconcreteinordertoputitintopractice.Foramanufacturer,forexample,itmaybeusefultosubdividetheproductioncategoryintoseparatestages,suchaspurchasing,rawmaterialsprocessing,componentmanufacture,andassembly.Youmayalsoneedtoseparatesalesintologistics,wholesaledistribution,andretailsales,forexample.Anindividualplanwillbeappropriatetoeachcase,dependingontheindustryinwhichyouoperateand,ofcourse,thebusinessitself.Thebusinesssystemofacomputermanufacturerwillbeverydifferentfromthatofafastfoodchain.Andthebusinesssystemofadepartmentstoremaylookquitedifferentfromthatofadirectmerchandisingcompanyalthoughbothwillsellmanyofthesameproducts.Therearenogeneralrulesorstandardsforabusinesssystem.Yourownsystemshouldbelogical,complete,andusefulforplanning–justdon’tletitgettoocomplicated.Concentrateonthemajoractivitiesinyourbusinesssystem.Ateamofthreetofivewillnotbeabletocoveralltasksthemselves,eitherbecausetheydonothavetheabilitiesorbecausetheycouldnotdosowiththenecessaryefficiency.Togetherwithyourmanagementteam,thinkcarefullyaboutwhatactivitiesreallycreatesomethingnewandhowyouandyourstaffcanbestmakeuseofyourtimetocreatethehighestvalueforyourcustomerandgetaheadofthecompetition.Thebuzzwordhereisfocus.Onceyouhavedeterminedwhichactivitiesmakeup32 yourbusinesssystem,choosethosewhichyoucanexecutebetterthananyoneelse.Atrendtowardspecializationcanbeobservedinmanyindustries.Specializationisparticularlyimportantforstart-ups.Theyshouldconcentratealltheirenergyonjustafewselectactivitiesinthebusinesssystem.Atthebeginning,evensoftwaregiantMicrosoftconcentratedsolelyonthedevelopmentoftheDOS,leavingallotheractivitiesinthebusinesssystemuptoIBM.OrganizationInadditiontoabusinesssystem,youwillneedtoconsiderseveralotherorganizationalissues.Itisessentialthattasksandresponsibilitiesbeclearlydelegatedandthatyoudesignasimpleorganizationwithfewlevels.Therestwillfollowasneededduringoperation.Yourorganizationmustbeflexibleandalwaysadaptabletonewcircumstances.Bepreparedtoreorganizeyourcompanyrepeatedlyduringthefirstfewyears.Decidewhoisresponsibleforwhatineachbusinessarea(delegationoftasksandresponsibilities).Assoonasyouhavesetuptheinterdisciplinaryfunctions-suchasamanagement,humanresources,finance,andadministration-you’llbeupandrunning.Ifyoukeepyourorganizationsimple,eachstaffmemberwillknowwhichassignmentsheorshemustcompleteandcancarrythemoutindependently.Ontheotherhand,everyoneshouldbeinapositiontofillinforanotherteammemberforashorttimeifnecessary.(SeeExhibit11)SAMPLESTART-UPORGANIZATIONManagingDirectorMr.DuxResearchandProductionMarketingFinanceHumanDevelopmentResourcesandAdministrationMr.InventMr.FacitMs.OratoriaMr.PecuniaMr.DuxExhibit11BusinesslocationDescribebrieflythechoiceoflocationforyourbusiness.Donotenterintoalong-termrentalagreement,asyourbusinessmayhavetomoveinresponsetothegrowthyouanticipate.Youmayhavetomakethismovefairlyquickly.”Makeorbuy”andpartnershipdecisionsOnceyouhavedeterminedthecoreofyourbusinessandhavedrawnupthenecessarybusinesssystem,youwillhavetothinkaboutwhowillbestcarryouttheindividualactivities.Activitiesoutsideyourchosenfocusshouldbehandledbythirdparties.Butsupportingactivitieswithinthenewcompanydonotnecessarilyhavetobecarriedoutbyyou.Thesemayinclude33 bookkeepingorhumanresources.Foreachactivity,thequestiontoaskis:Dowedoitourselves,orhavesomeoneelsedoit-tomakeortobuy?Make-or-buydecisionsneedtobeconsciousdecisionstakenafterweighingtheadvantagesanddisadvantages.Supplierpartnerships,forexample,cannotbedissolvedfromonedaytothenext,andsomepartnerscannoteasilybereplacedif,forsomereason,theyarenolongeravailable.Whenconsideringmake-or-buydecisions,relyonthefollowingcriteria:·Strategicsignificance.Thoseaspectsofperformancethatmakeamajorcontributiontoyourcompetitiveadvantageareofstrategicimportancetoyourbusiness.Theymustremainunderyourcontrol.Atechnologycompanycouldhardlyrelinquishresearchanddevelopment,andaconsumergoodsmanufacturerwouldnevergiveawayitsmarketingactivities.·Suitability.Everybusinessactivitydemandsspecificabilitiesthatmaynotbeavailablewithinthemanagementteam.Yourteammust,therefore,considerwhetherinspecificinstancesitisbesttocarryoutaparticulartask,acquiringthenecessaryabilities,orwhetheritwouldbebettertohandoverthetasktoaspecializedcompany.Specialistsmaynotonlybeabletocarryouttheassignmentbetter,theymayalsobeabletoofferacostadvantagethankstohigherproductionvolumes.·Availability.Beforeyoumakeadecisiontobuy,youneedtofindoutwhethertheproductorserviceisavailableintheformorwiththespecificationsyourequire.Negotiate,wheneverpossible,withseveralsuppliers.Youwillusuallyfindthebesttermsinthiswayandwilllearnmoreabouttheserviceyouarebuying.Often,youcanhelpasupplierimproveitsperformance.Ifyoucannotfindsomeonetosupplywhatyouneed,youmayfindabusinesspartnerwhoiswillingtoacquirethenecessaryskillstodoso.Thequestionforastart-upishowyouwanttocooperatewithothercompanies.Everypartnershiphasitsadvantagesanddisadvantages.·Informal,non-bindingpartnershipsrepresentnogreatobligationforeitherside.Bothpartiescanendthepartnershipquicklyandeasily.Buttheymustalsolivewiththeknowledgethatsupplyordemandcoulddryupjustasquickly.Furthermore,supplierswillnotbeabletomeetallthespecialneedsofacustomersincetheycannotselltailoredproductstoalltheircustomers.Casualpartnershipsaretypicalformassproducts,every-dayservices,andstandardizedcomponentsforwhichreplacementbuyersandsellersareeasilyfound.·Closepartnershipsaresometimescharacterizedbyahighdegreeofinterdependence.Theyaretypicalofhighlyspecializedproductsandservicesorhightradevolumes.Inthesesituations,itisusuallydifficultforbothsidestochangepartnersortobuyorselllargequantitiesofspecialparts34 withinashorttimeperiod.Theadvantageforbothsidesisthesecurityofabindingrelationshipandthepossibilityofconcentratingonone’sownstrengths,whilebenefitingfromthestrengthsofpartners.Inorderforapartnershiptodevelopintoasuccessfulbusinessrelationship,anumberoffactorsmustbeconsidered:·Win-winsituation.Bothsidesmustbeabletogainafairadvantagefromtherelationship.Withoutanincentiveforbothsides,apartnershipcannotbesustained.·Risksandinvestments.Partnershipsinvolverisksthatareusuallybrushedasidewhenbusinessisgoingwell.Asupplierwithanexclusivityagreementcan,forexample,endupinadifficultsituationifthebuyersuddenlycutsbackproductionandpurchasesfewercomponents.Thisisespeciallytrueifthesupplierhasacquiredspecializedproductiontoolingthatcannotimmediatelybeusedforotherordersandbuyers.Conversely,abuyercanfacedifficultiesifamajorsupplierceasestodeliver(bankruptcy,fire,strike,etc.).Suchrisksandpossiblefinancialconsequencesmustbethoughtthroughfromtheoutsetandperhapsregulatedbycontract.·Dissolution.Asininterpersonalrelationships,businessrelationscanalsosuffertensionandresultinirreconcilabledifferences.Makesuretolaydownindetailunderwhichconditionsapartnercanwithdrawfromapartnership.Whenworkingonyourbusinessplan,itisnottooearlytobeginthinkingaboutwhomyoumaywanttocooperatewithandwhatformthismaytake.Partnershipswillallowayoungcompanytobenefitfromthestrengthsofestablishedcompaniesandfocusondevelopingtheirownstrengths.Throughpartnerships,youcanusuallygrowfasterthanyoucouldonyourown.KEYQUESTIONS:BusinesssystemandorganizationPhase2!Whatdoesthebusinesssystemforyourproduct/servicelooklike?!Whatactivitiesdoyouwanttohandleyourself?!Wherewillthefocusofyourownactivitieslie?!Whatbusinessfunctionsmakeupyourorganization,andhowisitstructured?!Whatresourcesdoyouneed(quantitativeandqualitative)tocreateyourproduct/service?!Howhighisyourneedfortechnicalinput(rawmaterials,materialstocreateyourservice)?!Whatwillyoumake,whatwillyoubuy?!Whichpartnerswillyouworkwith?Whataretheadvantagesofworkingtogetherforyouandyourpartners?Phase3!Wherewillyoulocateyourbusiness?35 !Whatcapacityforproductmanufactureandserviceproductiondoyouplan(numberofunits)?!Howmuchwillproductionanddeliveryofyourproduct/servicecost?!How,andatwhatcost,canyouadjustyourcapacityintheshortterm?!Whatmeasuresareplannedforqualityassurance?!Ifyouneedawarehouse,howwillyouorganizeyourinventory?!Howmuchofyourproducthastobeputinstorage?!Howareyourcostsstructured(fixed,variable)?4.7.Implementationschedule”Businessislikechess:Tobesuccessful,youmustanticipateseveralmovesinadvance.”WilliamA.Sahlmann,ProfessorInvestorswanttoknowhowyouenvisionthedevelopmentofyourbusiness.Arealistic5-yearplanwillinspirecredibilityamonginvestorsandbusinesspartners.Moreover,itwillhelpyouthinkthroughyourvariousactivitiesandinterdependencies.Youwillendangeryourbusinessifyouattempttoreachyourtargetswithfaultyand,aboveall,overlyoptimisticplanning.DrawingupyourimplementationscheduleConcentrateonthemostmajormilestonesandthemostimportantinterdependentevents.Thefollowingthreeelementswillusuallysuffice:·Ganttimplementationschedule(forasampleGantttimeline,seeCityScapecasestudy)·Majormilestones·ImportantconnectionsandinterdependenciesbetweentheworkassignmentgroupingsHumanresourcesplanningAsyournewbusinesstakesoff,systematicpersonnelplanningwillbecomemoreandmoreindispensable.Growthwillrequireyoutorecruitnewemployeeswhowillhavetobetrainedandintegratedintothebusiness.Maintainingasimplystructuredworkingenvironmentwillhelpyoudrawupclearjobdescriptionsandseekjusttherightemployees.Keepinmindthataqualified,specializedworkforcemaybedifficulttofindevenintimesofhighunemployment.Youwilloftennotbeabletoavoid”stealing”goodemployeesfromcompetitors.Includecostsinyourpersonnelplanninginordertoarriveatthetotalcostofhumanresources(wagesandindirectlaborcosts)fortheincomestatementinyourbusinessplan.Thecostofpersonneldependsonanumberoffactors,suchastheindustryitself,employeequalifications,andage.Additionally,indirectlaborcostscanamounttoover50%ofthewage.36 InvestmentanddepreciationplanningInvestmentanddepreciationplanningincludesallinvestmentsthatmaybecapitalizedandthecorrespondingwrite-offs.Theamountofdepreciationdependsontheservicelifeplannedfortheproperty.Usually,propertyiswrittenoffinfullover4to10yearsinequalannualamounts(straight-linemethod).Investmentsaretobeincludedintheliquiditycalculation,andthetotalamountofannualwrite-offslistedintheplannedincomestatement.KEYQUESTIONS:ImplementationschedulePhase3!Whatarethemostimportantmilestonesforthedevelopmentofyourbusiness,andwhenmusttheybereached?!Howdoyouplantostructuretheworktoreachthesetargets?!Whichtasksandmilestonesareinterdependent?!Forwhichtasks/milestonesdoyouanticipatebottlenecks?!Howmanynewemployeeswillyouneedintheindividualbusinessareasoverthenext5years?Whatwillthiscost?!Howmuchrealcapitalisnecessarytoachieveinitialsales?!Listyourplannedshort-terminvestments!!Listyourplannedlonger-term(3to5years)investments!!Whatinvestmentswillberequiredwhenwhichmilestonesarereached?!Howhighistheannualdepreciationforeachinvestment?37 4.8.Opportunitiesandrisks”Oneofthegreatestmythsaboutentrepreneursisthattheyareallriskseekers.Allsanepeoplewanttoavoidrisk”WilliamA.Sahlmann,ProfessorTheobjectofthisexerciseistoidentifyamarginoferrorfordeparturesfromyourassumptions.Ifpossiblewithreasonableeffort,itisadvisabletodrawupbest-caseandworst-casescenariosinvolvingkeyparameterstoidentifytheopportunitiesandrisks.Thesecalculationswillallowventurecapitaliststojudgehowrealisticyourplansare,andtobetterassesstheriskoftheirinvestment.Changevariousparametersinthescenarios(suchaspriceorsalesvolumes)tosimulatehowachangeinconditionsmightaffectyourkeyfigures(sensitivityanalysis).KEYQUESTIONS:OpportunitiesandrisksPhase2!Whatbasicrisks(market,competition,technology)doesyourbusinessventureface?!Whatmeasureswillyoutaketocountertheserisks?!Whatextraordinaryopportunities/businesspossibilitiesdoyouseeforyourcompany?!Howcouldanexpansionofyourcapitalbasehelp?Phase3!Whatwillyourplanninglooklikeforthenext5financialyearsunderbothabestandworstcasescenario?!Whateffectwillthishaveonyourneedforcapitalandyourreturn?!Inyourview,howrealisticarethesescenarios?!Whatconsequencesdotheyhaveonyourbusinessplanning?4.9.Financialplanningandfinancing”Planningsubstituteschaosformistakes.”UnknownFinancialplanningassistsyouinevaluatingwhetheryourbusinessconceptwillbeprofitableandcanbefinanced.Tothisend,theresultsofallprecedingchaptersmustbecompiledandconsolidated.Projectedgrowthinvalueresultsfromtheplannedcashflowsfromyouroperativebusiness.Thesearerevealedthroughliquidityplanning,whichalsoprovides38 informationonyourvariousfinancingneeds.Inaddition,theprofitsituationofyourbusinesscanbeseenintheincomestatement.Thisstatementisalsonecessaryaccordingtocommercialandtaxlaw.Therearemanywaystopresentthefigures.Theappendixcontainssampletablesofhowtoperformliquidityplanningandmakeupanincomestatement,aswellasabalancesheet.Minimumrequiredoffinancialplanninginyourbusinessplan:!Acashflowcalculation(liquidityplanning),incomestatement,balancesheet!Forecastsover3to5years,atleast1yearbeyondthepointofbreakingeven,thatis,beyondthegenerationofpositivecashflow!Detailedfinancialplanningforthefirst2years(monthlyorquarterly),thereafterannually!Allfiguresmustbebasedonreasonableassumptions(onlythemainassumptionsneedtobedescribedintheplan)PlannedincomestatementWhetheracompany’sassetsgrowordiminishdependsonthebottomlineattheendofayear.Theincomestatementcanhelpyouforecastthis.Incontrasttoliquidityplanning(=plannedcashflow),anincomestatementfocusesontheissueofwhethertransactionsleadtoanincrease(=revenue)oradecrease(=expense)inthenetworthofyourbusiness(definedasthesumofallassetsminusdebt).Gothroughyourentirebusinessplananddecidewhetheryourassumptionswillleadtorevenuesorexpensesand,ifso,howhightheywillbe.Ifyouareindoubtabouttheexactamountofcostsyourbusinesswillincur,gatherquotesandestimates.Donotforgettocoverthecostofyourpersonallivingexpenses.Inthecaseofalimitedliabilitycompany,thiswouldbethesalaryofyourgeneralmanager.Listwrite-offsinyourinvestmentanddepreciationplanning.Thecostofinvestmentsthemselves(i.e.,thepurchasepriceoftheinvestment)isnotincludedintheincomestatement,becausetheamountpaidoutdoesnotleadtoachangeinthenetworthofthebusiness.Materialcostscompriseallexpensesforrawmaterials,auxiliaries,expendablesupplies,andpurchasedgoodsandservices.Yourplannedhumanresourcesexpenditureincludeswagesandsalariesplussocialsecuritycontributionsandtaxesandislistedunderpersonnelcosts.Forthepurposeofsimplification,thecategory”othercosts”istreatedasacollectiveitem,includingamongotherthings,rent,insurance,officesupplies,postage,advertising,andlegalcounsel.Whenassigningindividualrevenuesandexpensesstrictlyobservelegalregulations.Finally,calculatethedifferencebetweenallrevenueandexpensesinafinancialyear,bywhichyouwillarriveatanannualnetprofit/loss.Thiswillgiveyouanoverviewoftheoperatingresult,butitwillnotgiveyouareliableassessmentofyourlevelofliquidfunds.Forthis,youwillneedliquidityplanning.39 Salesofyourproductorservicemaybebookedinthecurrentfinancialyear,eventhoughpaymentdoesnotoccuruntilthenext;youwillneedtolistthesalesrevenueeventhoughthemoneyhasnotyetbeendepositedintoyouraccounts.Thesameistrueforexpenses.Theincomestatementisgenerallyplannedinannualintervals.Toenhancetheaccuracyofyourplanningforthefirstyear,youshouldmakemonthlyforecasts,andquarterlyforecastsforthesecondyear.Forthethird,fourth,andfifthyears,continuetomakeannualprojections.YoucanmakeuseofthetablescontainedintheappendixofthisGuidetolistthefigures.LiquidityplanningYourcompanymusthaveacertainamountofcashonhandatanygiventimeinordertoavoidbecominginsolvent,whichleadstobankruptcythatwillmeanthefinancialruinofyourbusiness.Detailedliquidityplanningshouldhelpensureapositivecashflow.Theprincipleissimple:Receiptsarecompareddirectlytodisbursements.Pleasenotethatwritingorreceivinganinvoicedoesnotmeanthatthemoneyisalreadyinyouraccountorthatyouhavepaidthebill.Liquidityplanningisconcernedwiththedateofpaymentwhenthemoneyactuallycomesinorgoesout.Thus,liquidityplanninginvolvesonlythosetransactionsthatcauseachangeinyourcashreserves.Depreciation,liabilities,andnon-marketoutputarenotincluded.Layouttheamountandtimingofallthepaymentsyouexpect.Yourcompanyissolventwhenthesumofitsreceiptsisgreaterthanthesumofitsdisbursementsatanygiventime.Youwillhavetodrawoncapitalforthosetimeswhenthisplanningdoesnotcoverallexpenses.Thesumofalltheseindividualpaymentswillequalthetotalcapitalrequiredforthatplanninginterval.Thefartheryoulookintothefuture,themoreuncertainyourplanningwillbe.Liquidityplanningshouldthusbecarriedouteverymonthforthefirstyear,quarterlyforthesecondyearandonlyannuallyforthethird,fourthandfifthyears.TheappendixofthisGuidecontainstablesyoucanuseforanexactcompilationofthefigures.ProjectedbalancesheetVenturecapitalistsareinterestedinseeinghowyourassetsareexpectedtogrowasrepresentedonaprojectedbalancesheet.Here,thetypeandvalueoftheassetsareplacedontheassetsideofthebalancesheetacrossfromthesourceofthecapitalontheliabilitiesside.Aswiththeincomestatement,thereisastandardaccountingformat,requiredbylaw,forbalancesheets.Theyarepreparedatannualintervals.Again,theappendixofthisGuidecontainstablesyoucanuseforanexactcompilationofthefigures.FinancingneedsLiquidityplanningenablesyoutodeterminetheamountofcapitalyouwillneedandwhenyouwillneedit,butitdoesnotindicatehowtheseneedswillbemet.Webasicallydistinguishbetweenequity(investorshaveastakeinthebusiness)andloancapital(whichisborrowedfromoutsidesources).Selecttherightmixforyourbusinessfromthemyriadsourcesoffinancingavailabletoyou(Exhibit12).”Youcan’tgetsomethingfornothing,”thesayinggoes-andthesameistrueofmoney.Yourfamilymayasklittleinreturnforfinancialassistance;professionallendersaremoredemanding.40 Allthemanagementteamcanofferinvestorsfortheircashisapromise–notexactlyagoodpositionfromwhichtonegotiate.Nevertheless,youhaveagoodchanceofbeingSOURCESOFCAPITALATVARIOUSSTAGESOFDEVELOPMENTSeedphaseStart-upGrowthEstablishmentPersonalsavingsFamilyloansGovernmentgrantsIndividuals(usinessangelsVenturecapitalMortgagesLeasesBankloansStockexchangeExhibit12financiallysuccessfulifbusinessgoeswell,becauseprofessionalinvestorsalsohaveaninterestintopperformancefromtheteam.Beclearaboutyourneedsandexpectationsandthoseofyourinvestors.Ifyouareseekingalong-termcommitmentandaresatisfiedwithasmallcompany,youareprobablywelladvisedtomakeuseoffamilyfundsandloansfromfriendsandbanks.Youwillretainamajorityshareholding,butyouaresignificantlyrestrictingyourchancesforgrowth.If,however,youdesirerapidexpansion,youwillwanttoprocureventurecapital.Venturecapitalistswillgenerallyexpecttoobtainalargeshareofthecompany.Youmay,infact,havetorelinquishthemajorityoftheequity.Professionalinvestors,however,arenotinterestedinmanagingthebusinessaslongasyoumeetyourtargets,eveniftheyhavethemajorityshareholding.Theyhave,afterall,investedinthemanagementteaminordertoleadittosuccess.Theywillsupportyouactivelywiththeirmanagementskillsandcontributespecialtyknowledge,suchaslegalormarketingexpertise,ties,andcontacts.Adealcanbeverycomplicated.Itisalwaysadvisabletocontactexperiencedentrepreneursandgettheexpertadviceoftrustees,taxadvisors,andlawyers.Youmayalsowanttogatheranumberofbidsfromvariousinvestors.Donotbeputoffbycomplicatedarrangements.Thereareusuallylegitimatereasonsforthem,suchastaxbreaks,controlofthefundsinvested,etc.Beabsolutelycertain,however,thatyouunderstandallthedetailsofthedeal.Calculatingtheinvestor’sreturn41 Investorsevaluatethesuccessofaninvestmentbythereturntheygetonthecapitalinvested.Asaresult,anticipatedreturnshouldbeapparentataglanceinthebusinessplan.IntheCityScapecasestudy,forexample,investorsputatotalof$2.5millionintotheenterpriseduringitsfirst3years($0.9,$1.1,and$0.5million,respectively).After5years,andlistingonthestockexchange,realisticproceedsofapproximately$25millionareexpected.Howhighisthereturninthiscase?(Exhibit13)CALCULATINGTHERETURN$Millions25.00-1.06Year0Year1Year200Seriesofcashflows-0.90-0.53Year3Year4Year5-1.06Discountfactor1.000.580.340.200.110.07Discountedvalueof-0.90-0.62-0.18001.70Total0cashflowsatIRRof72%Exhibit13Fromthepointofviewoftheinvestor,allfundscontributedtoanewcompanyresultfirstinnegativecashflows.Afterabusinessbreakseven,positivecashflowswillnotimmediatelybepaidoutintheshapeofdividends,butwillbefirstusedtostrengthenthebalancesheet.Cashwillbereturnedtotheinvestorsatrealization.Becausecashflowswilloccuroverseveralyears,theymustbediscounted,thatis,calculatedbacktothepresent(interestandcompoundinterestcalculation).Thediscountfactorsforthevariousyearscanbearrivedatusingthefollowingformuladiscountfactor=1(1+r)Twherebyr=thediscountrateinpercentandT=theyearinwhichthecashflowtakesplace.Tocalculatethereturn,theinternalrateofreturn(IRR)methodisused.TheIRRisthediscountrateatwhichthesumofallpositiveandnegativecashflows,discountedatpresent,resultsinzero.TheIRRfortheCityScapeprojectexampleis72%.Thatmeansthattheinvestorsgetanannualreturnof72%ontheircapital.Thisisareasonablereturnconsideringtheriskinvolved.MostcalculatorsandspreadsheetshaveaspecialIRRfunctionwithwhichtocalculatetheIRR(inExcelthisistheIRR()function).Itcanalsobecalculatedbyhand.42 Valuationofacompany(i.e.,workingouthowmuchamarketispreparedtopayforshareswhenabusinessgoespublic)isanartinitself.Asimpleruleofthumbisthatthevalueissixtoeighttimesthecashflowornetprofit(aftertaxes)ofthebusinessintheyearofinitialpublicoffering.InthecaseofCityScape,afactorofsixmultipliedbythenetprofitinthefifthyear($4.2million)wasused,whichresultsinavaluationof$25.2million.Ifyouhavenoexperienceinfinancialplanning,consultingwithcoachesorexperts(e.g.,taxconsultantsoraccountants)ishighlyrecommended.Inparticular,discusstheissuesofturnoversalesandincometaxes,whichhavebeensimplifiedhere,withataxadvisoratoneofthecompetitioneventslistedatthefrontofthisGuide.Notethatmostbusinessventuresfailduetolackoffinancialplanning.Ifyoudon’thavesomeonewiththenecessaryskillsonyourteamalready,startlooking!KEYQUESTIONS:FinancialplanningandfinancingPhase3!Howwillyourrevenues,expenses,andincomedevelop?!Howwillyourcashflowdevelop?Whenwillyouexpecttobreakeven(=sumofallrevenuesgreaterthanthesumofallexpenses)?!Howhighisyourneedforfinancingbasedonyourliquidityplanning?!Howmuchcashisneededintheworstcasescenario?!Whatassumptionsunderlieyourfinancialplanning?!Whichsourcesofcapitalareavailabletoyoutocoveryourfinancingneeds?!Whatdealareyouofferingpotentialinvestors?!Whatreturncaninvestorsexpect?!Howwilltheyrealizeaprofit(exitoptions)?Thispageintentionallyblank43
简介：TableofContents1.TheRoutefromConcepttoCompany…………………………………………………………………….21.1.Successfactors………………………………………………………………………………………………21.2.Stagesofdevelopment………………………………………………………………………………….32.TheBusinessIdea……………………………………………………………………………………………………62.1.Developingabusinessidea…………………………………………………………………………..62.2.Elementsofapromisingbusinessidea………………………………………………………….72.3.Protectingyourbusinessidea……………………………………………………………………..102.4.Presentingyourideatoinvestors………………………………………………………………..113.TheBusinessPlan………………………………………………………………………………………………….133.1.Advantagesofabusinessplan…………………………………………………………………….133.2.Characteristicsofasuccessfulbusinessplan……………………………………………….133.3.Theinvestor’spointofview………………………………………………………………………..153.4.Tipsonpreparingaprofessionalbusinessplan…………………………………………..174.StructureandKeyElementsofaBusinessPlan……………………………………………………..194.1.Executivesummary…………………………………………………………………………………….194.2.Productorservice……………………………………………………………………………………….214.3.Managementteam………………………………………………………………………………………224.4.Marketandcompetition……………………………………………………………………………..244.5.Marketingandsales…………………………………………………………………………………….274.6.Businesssystemandorganization………………………………………………………………324.7.Implementationschedule……………………………………………………………………………364.8.Opportunitiesandrisks………………………………………………………………………………384.9.Financialplanningandfinancing………………………………………………………………..381 1.THEROUTEFROMCONCEPTTOCOMPANYNew,innovativecompaniesgenerallytrytogrowfromstart-upsintoestablishedcompanieswithin5years.Buttheycanseldomfinancetheiractivitiesalonealongtheway.Rather,theyaredependentonprofessionalinvestorswithconsiderablefinancialclout.Forentrepreneurs,financingisacriticalquestion–thebusinessplanmustthusbeconsideredfromthepointofviewofpotentialinvestorsrightfromtheoutset.1.1.SuccessfactorsSuccessfulcompaniesarisefromacombinationoffiveelements(Exhibit2).KEYFACTORSFORSUCCESSOFINNOVATIVESTART-UPSIdeas•Degreeofinnovation•Scope•PatentNetworkandexchange•CoachingTraditionalservicePeople•Networkingproviders•Inventors•Teambuilding•Attorneys•Entrepreneurs•Innovativeserviceprovider•Patentlawyers•Team–Venturecapitalists•Taxconsultants/members–Headhuntersaccountants–Angelinvestors•Market–High-techstart-upresearchersconsultantsCapital•Availability/amount•Needs/responsibilities•ExitsforinvestorsExhibit21.Nobusinessconcept,nobusinessHavinganideaisjustthebeginningofthecreativeprocess.Manyentrepreneursareinitiallyinfatuatedwiththeirinspiration,losingsightofthefactthattheirideaisthepointofdepartureforalongprocessofdevelopmentwhichmustface–andwithstand–toughchallengesbeforeitcanenjoyfinancingandmarketsuccessasamaturebusinessconcept.2.MoneymattersWithoutsomebodywhoinvestsmoneyintotheideatogrowitintoaviablebusiness,thisbusinesswillneverbecomeareality.Fromearlyon,therefore,muchattentionmustbepaidtoconvincinginvestorstoprovidethenecessaryfunding.2 3.Noentrepreneurs,noenterpriseGrowingnewfirmsisnotaone-personjob.Itcanonlysucceedwithateamof,usually,threetofiveentrepreneurswhosetalentsarecomplementary.Puttingtogetherwell-functioningteamsisadifficultprocess–onethattakestime,energy,andanunderstandingofhumannature.Donotloseanytimeinputtingyourteamtogetherandworkonperfectingitthroughouttheentirestart-upprocess.Thecharacteristicsofahigh-performancemanagementteamarediscussedinmoredetailinsection6.3ofthisGuide.4.TraditionalserviceproviderswillhelpyouclearthefirsthurdlesYouwilloftenneedtheadviceofprofessionalserviceproviders,suchaspatentlawyers,taxadvisors,andmarketresearchers-especiallyatthebeginning.Gettingtherightinformationearly(e.g.,forregisteringapatent)canhaveconsequencesforlatersuccessorfailure.5.Strongnetworksarea”shotinthearm”foreverynewcompanyProfessionalguidanceforpotentialentrepreneursthroughanetworkofsponsors,entrepreneurs,venturecapitalists,andserviceprovidersisdecisiveintransformingviableideasintorealcompanies.PrimeexamplesforsuchregionalnetworkscanbefoundinSiliconValleyandtheBostonarea.1.2.StagesofdevelopmentThetypicalprogressionofthestart-upanddevelopmentofgrowingcompaniesintoestablishedfirmscanbesubdividedintothreestages.Theendofeachstageservesasamilestoneforventurecapitalistsbywhichtogaugethestatusoftheirinvestment.Beingfamiliarwitheachstageandthechallengesitposesmayspareyouwastedenergyanddisappointment.Pleasenote,however,thatthethreestagesinthedevelopmentofafunctioningstart-updonotmatchthethreephasesinthedevelopmentofabusinessplanwithintheframeworkofthiscompetition(seeExhibit3).Ifyouintendtobesuccessful,thisstart-upprocessshouldinfluencebothyouractivitiesastheinitiatorofabusinessconceptandyourpathtowardformingyourowncompany.Toalargeextent,itisthedemandsofinvestorsthatwilldeterminehowyoumustapproachtheindividualstagesofthestart-up.STAGESOFSTART-UPDEVELOPMENTEstablishedcompanyStart-upExitofandgrowthinitialinvestorsBusinessplanFinancingpreparationdecisionsBusinessideaInterestofgenerationinvestorsExhibit33 Stage1:BusinessideagenerationThebeginningistheinspiration–yoursolutiontoaproblem.Itmustbeevaluatedtodetermineifitdeliversanactualcustomervalue,whetherthemarketisbigenough,andjusthowbigitwillbe.Theideaitselfhasnointrinsiceconomicvalue.Itacquireseconomicvalueonlyafterithasbeensuccessfullytransformedintoaconceptwithaplanandimplemented.Youwillneedtostartputtingtogetheryourteamassoonaspossible,findingpartnerswhocandevelopyourproductorserviceuntilitisreadyformarket(oratleastuntilshortlybefore).Inthecaseofproducts,thisstageusuallyinvolvesafunctioningprototype.Youwillmostlikelyhavetodowithoutventurecapitalduringthisstage.Youwillstillbefinancingyourplanwithyourownmoney,helpfromfriends,perhapsstateresearchsubsidies,contributionsfromfoundations,orothergrants.Investorsrefertothisas”seedmoney,”asyourideaisstillaseedling,notyetexposedtotheharshclimateofcompetition.Yourobjectiveatthisstageistopresentyourbusinessconceptandmarket–whichformsthefoundationofyournewcompany–soclearlyandconciselyastopiquetheinterestofpotentialinvestorsinhelpingyoucultivateyourideafurther.Stage2:BusinessplanpreparationAtthisstage,itismostimportanttofocusonthebigpicture:Don’tlosesightoftheforestforthetrees!Thebusinessplanitselfwillhelpyoutofocusasyoumustconsiderandweightherisksinvolved,prepareforanycontingency,andlearntoanticipateavarietyofpossiblesituationsor”scenarios.”Youwillneedtolaydownplansandcreateabudgetforthekeyactivitiesofthebusiness–fordevelopment,production,marketing,distribution,andfinance.Naturally,youwillneedtomakemanydecisions,suchaswhichcustomersorsegmentswillyoutarget?Whatpricewillyouaskforyourproductorservice?Whatisthebestlocationforyourbusiness?Willyouhandleproductionyourselforoutsourceittothirdparties?Andsoon.Inpreparingthebusinessplan,youwillcomeincontactwithmanypeopleoutsideyourstart-upteam.Inadditiontoinvestors,youwilltalktomanyspecialists,includingattorneys,taxadvisors,experiencedentrepreneurs,andexperts.Thebusinessplancompetitionorganizerswillhelpyougetintouchwithjusttherightpeople.Youwillalsohavetobeginreachingouttoyourpotentialcustomers(i.e.,bymeansofconsumersurveys)tomakeinitialassessmentsofyourmarket.Alwayskeepinmindthatcustomeracceptanceisanessentialprerequisitetothesuccessofyourcompany!Scoutaboutforpossiblesuppliersandperhapscloseyourfirstagreements.Youwillalsowanttobecomeawareofwhoyourcompetitorsare.Thiswholeprocesswillnotcomecheap.Theteammustcontinuetoearnalivingwhilerunningarudimentaryoperationandperfectingaprototype.Yetatthisstage,youshouldalsobeabletoestimateyourexpenses.Financingwillgenerallystillbeprovidedfromthesamesourcesyoureliedonduringstageone,althoughsomeinvestorsmaybewillingtomaketheoccasionaladvance.Thisstageconcludessuccessfullyforyouasanewentrepreneurwhenaninvestorexpressesawillingnesstofinanceyourundertaking.Stage3:Start-upandgrowth4 Nowthattheconceptualworkislargelycomplete,itistimetostartimplementingyourbusinessplan.Yourrolenowchangesfromthatofarchitecttothatofbuilder.Businesssuccessmustnowbesoughtandachievedinthemarket.Thedayofreckoninghascomewhenyouwilllearnwhetheryourbusinessconceptwasagoodand,ultimately,profitableone.InvestorexitenroutetobecominganestablishedcompanyThepulloutofyourinitialinvestorsisacompletelynormalstepinthedevelopmentofastart-up.Forifeverythinghasgonewell,yourriskyventurewillhavegraduallybecomeastableenterprise(seeExhibit4).Inthecourseofitsshortlife,youhavecreatedanumberofjobsandwooedmanycustomerswithyourinnovativesolutiontotheirproblem.Yourcommitmentispayingoffasthevalueofyourbusinessincreases.Aprofitableexithasbeentheobjectivefortheventurecapitalistfromtheoutset.Capitalrecoverycanhappeninverydifferentways.Normally,thebusinessissoldtoacompetitor,supplier,orcustomer.Oritislistedonthestockexchange(the”initialpublicoffering”orIPO).Itisalsopossibleforinvestorswhowantouttobepaidoffbytheotherpartners.5 2.THEBUSINESSIDEA”Thereisnothingintheworldaspowerfulasanideawhosetimehascome.”VictorHugoTheabovestatementundoubtedlyappliestoideasforstartinganewbusiness.Buthowdoyoucomeupwithsuchanidea?Andhowcanyouknowiftheideaforthebusinesswillhaveapromisingfuture?Studiesshowthatthelion’sshareoforiginalandsuccessfulbusinessideasweregeneratedbypeoplewhohadalreadyhadseveralyearsofrelevantexperience.GordonMooreandRobertNoyce,forexample,hadanumberofyearsatFairchildSemiconductorsbehindthembeforeteamingupwithAndyGrovetoformIntel.ButtherearealsoexamplesofrevolutionaryideasbroughttolifebymerenovicesasSteveJobsandSteveWozniakdemonstratedwhentheydroppedoutofcollegetostartAppleComputer.2.1.DevelopingabusinessideaIneconomicterms,asparkofgeniusisworthless,nomatterhowbrilliantitmaybe.Foranideatogrowintoamaturebusinessconcept,itmustbedevelopedandrefined,usuallybymanydifferentpeople.TheinitialideamustfirstpassaquickplausibilitycheckBeforeyoufollowuponanidea,youshouldevaluateitinlightofits(1)customervalue,(2)marketchances,and(3)degreeofinnovation,aswellasconsideringwhetheritwillbeboth(4)feasibleandprofitable.·Talkyourideaoverwithfriends,professors,experts,andpotentialcustomers.Thebroaderthesupportyoufindforyouridea,thebetteryouwillbeabletodescribeitsbenefitsandmarketopportunities.Youwillthenbewellpreparedwhenthetimecomestodiscussyourprojectwithprofessionalinvestors.·Isyourideareallynovel?Hassomeoneelsealreadydevelopeditorevenappliedtopatentit?·Willitbepossibletodevelopyourideainareasonableperiodoftimeandwithajustifiablelevelofresources?IttakesatleastfourweekstodevelopabusinessideaConsideringthemultiplestagesofdevelopment,itisimprobable–andfairlyunrealistic–thatyouwillspendfewerthanfourweeksdevelopingyourconcept.Generally,abusinessideaisnotworthyofbeingfinanceduntilitissoconcretethatitcanbelaunchedinthemarketintheforeseeablefutureatreasonablerisk.Investorstalkofthe”seedphase”ofabusinessconcept,6 whichusuallyhastobefinancedwith”soft”money(i.e.,fromsourcesthatasyetplacenohardandfastdemandsonthesuccessoftheidea).Theseedphasecantakelonger,inparticulariftheideaisaheadofitstime.Althoughtheperfectproducthasbeenfound,itcannotyetbemarketedbecausethedevelopmentofcomplementarytechnologiesorsystemsisstillintheworks.OneexampleistheInternet.Theideasformarketingproductsandservicescameearly,butalackofsecurityintheavailablepaymentsystemshamperedanddelayeditscommercialexploitationforsometime.2.2.ElementsofapromisingbusinessideaAbusinessideacanbeconsideredpromisingifithasthefollowingfourelements(Exhibit5):ELEMENTSOFAPROMISINGBUSINESSIDEA12ClearMarketofcustomeradequatesizevalueFeasibilitySufficientanddegreeofprofitabilityinnovation43Exhibit551.ClearcustomervalueThekeytosuccessinthemarketplaceissatisfiedcustomers,notgreatproducts.Customersspendtheirhard-earnedmoneytomeetaneedorsolveaproblem.Thefirstprinciplefordevelopingasuccessfulbusinessideaisthatitclearlyshowswhichneeditwillfulfillandhowitwilldoso.Initially,manyentrepreneurshavetheproductandthetechnicaldetailsofdesignandmanufactureinmindwhentheyspeakoftheirsolution.Notsofortheinvestor–theinvestorfirstlooksattheideafromtheperspectiveofthemarket.Forinvestors,customervaluetakestoppriority,andeverythingelseissecondary.What’sthedifference?Ifinnovatorssay,”ournewdevicecanperform200operationsperminute,”or”ournewdevicehas25%fewerparts,”theyarefocusingontheproduct.Bycontrast,saying,”ournewdevicewillsavethecustomeraquarterofthetimeand,therefore,20%ofthecosts,”or”ournewsolutioncanboostproductivitybyupto25%,”adoptsthecustomer’spointofview.Theproductismerelyameansofdeliveringvaluetocustomers.Thecustomervalueofaproductorserviceexpresseswhatisnovelorbetterabouttheitemwhencomparedtocompetitiveoffersoralternativesolutions.Assuch,itplaysakeyrolein7 settingyourproductapartfromothers–acoreissueinmarketing,aswewilllearn–andisessentialtothemarketsuccessofyourbusinessconcept.Try,wheneverpossible,toalsoexpressthecustomervalueinfigures.Marketingtheorystatesthatthecustomervaluemustbeformulatedintoauniquesellingproposition,orUSP.Thismeanstwothings:Firstofall,yourbusinessconceptmustbepresentedinawaythatmakessense(sellingproposition)tothecustomer.Manystart-upsfailbecausethecustomerdoesnotunderstandtheadvantageofusingtheproductorserviceand,asaresult,doesnotbuyit.Secondly,yourproductmustbeunique.Customersshouldn’tchoosejustanysolutionthathitsthemarket–theyshouldchooseyours.Youmust,therefore,persuadethemthatyourproductoffersagreaterbenefitoraddedvalue.Onlythenwillyourcustomersgiveyouanedge.Indescribingyourbusinessconcept,youneednotpresentafullyformulatedUSP,butitshouldbemoreorlessobvioustopotentialinvestors.2.MarketofadequatesizeAbusinessideawillhaveeconomicvalueonlywhenitsucceedsinthemarket.Thissecondprincipleofasuccessfulideademonstrateshowbigthemarketisfortheproductoffered,whichtargetgroup(s)itisdesignedfor,andtowhatdegreeitwilldifferfromthecompetition.Adetailedanalysisofthemarketisnotyetnecessaryatthispoint.Estimates,derivedfromverifiablebasicdata,willsuffice.Sourcescouldincludeofficialstatistics,informationfromassociations,articlesintradejournals,thetradepress,andtheInternet.Itshouldbepossibletodrawareasonableconclusionaboutthesizeofthetargetmarketfromthisbasicdata.Itissufficientforyoutosummarizetheresultsofthisinvestigationinyourpresentationofthebusinessidea.Thesameistrueforyourtargetcustomers;youwillonlyneedaloosedefinitionofwhotheywillbe.Describewhyyourbusinessideawillprovideaspecialvaluetothisgroupinparticular,andwhythisgroupisfinanciallythemostinterestingtoyou.Youwillalwaysfacecompetition–bothdirect,fromcompaniesthatofferasimilarproduct,andindirect,fromsubstituteproductsthatcanalsofulfillthecustomer’sneed.Apastamanufacturercompetesnotonlywithotherpastamanufacturers,butalsowithmanufacturersofriceandpotatoproductsandbakeriesand,moregenerally,withmanufacturersofallotherfoodstuffs.Yourbusinessideawillneedtodemonstratethatyouhaveunderstoodwhoyourcompetitorsare.Namethem–anddescribewhyandhowyoucantaketheleadwithyourbusinessidea.3.SufficientdegreeofinnovationBusinessideascanbeclassifiedalongtwodimensions-products/servicesandbusinesssystems.Ineachofthesecategories,youcandevelopsomethingneworcapitalizeonsomethingthatalreadyexists.Simplified,abusinesssystemisawayofunderstandinghowaproductorserviceisdeveloped,manufactured,andmarketed(Exhibit6).Theterminnovationisgenerallyusedinthecontextofnewproducts,whicharemadewithconventionalproductionmethodsanddeliveredtothecustomerthroughexistingdistribution8 channels.Microsoft,forinstance,developedDOS,makinguseoftheIBMsalesorganizationtobringittothemarket.Innovationsinbusinesssystemsarelessobvious,butjustasimportant.ThesuccessofDellisattributedtosignificantcostsavingsthankstoanewformofdirectdistributionandanovelproductionprocessinwhichacomputerisproducedonlyafteritisordered,andintheshortestpossibletimeframe.Indevelopingnewproducts,improvementofthemulti-layereddimension”customervalue”isattheforefront.Innovationsinthebusinesssystemaretargetedatlowercostsandfasterprocesses,savingswhichcanthenbepassedontothecustomerintheformoflowerprices.Itisrarethatbothtypesofinnovation–inproductandbusinesssystem–canbecombinedtocreateacompletelynewindustry.NetscapecontributedsignificantlytothesuccessoftheWorldWideWebbydistributingitsnewbrowserovertheInternetfreeofcharge.Indoingso,Netscapepassedupinitialsalesrevenuesbut,throughtheincreasednumberofvisitorstoitsWebsite,succeededinraisingadvertisingrevenues.4.FeasibilityandprofitabilityFinally,toarriveatanactualstart-up,thefeasibilityofthebusinessideamustbeassessed.Inadditiontospecificfactorsthatcouldmaketheprojectnotfeasible(e.g.,legalconsiderations,standards),theassessmentmayincludethetimeandresourcesneededtocarryouttheproject.Theconstructionofhotelsonthemoonmaybetechnicallyfeasible,forexample,buttheircost-benefitratioisunreasonable.Interwovenwiththefeasibilitycriterionisprofitability.Acompanymustbeabletogeneratelong-termprofit.Thisfourthelementofasuccessfulbusinessideashouldthusindicatehowmuchmoneycanbemadeandhow.Traditionally,profitcalculationsforabusinessaremadeasfollows:Acompanybuysmaterialorservices,therebyincurringcosts.Italsosellsproductsorservicestocustomers,thereby9 earningrevenues.Ifyourbusinessfollowsthispattern,itisnotnecessarytoprovideanygreaterdetailinthedescriptionofyouridea.Do,however,makeroughestimatesofanticipatedexpensesandprofits.Oneruleofthumbforgrowingcompaniesisthatthestart-upphaseshouldgenerategrossprofits(revenuesminusdirectproductcosts)of40%to50%.Butmanybusinessesdonotfunctionaccordingtothistraditionalmodel.McDonald’s,forexample,earnsitsmoneyfromthelicensingfeesitchargesfranchisers.TherestaurantownerpaysMcDonald’sforthenameandthewaytherestaurantisrun.Ifyourbusinessideaisbasedonthiskindofinnovationinprofitgeneration,youshoulddetailitinyourbusinessidea.KEYQUESTIONS:Businessidea!Whowillbuyyourproduct?!Whyshouldcustomersbuytheproduct?Whatneeddoesitfulfill?!Howwilltheproductbedistributedtothecustomer?!What,exactly,isinnovativeaboutyourbusinessconcept?!Howisthebusinessconceptunique?Isitprotectedbypatent?!Howistheproductbetterthancomparablealternatives?!Whatcompetitiveadvantageswillthenewcompanyhave,andwhycan’tacompetitorsimplycopythem?!Canmoneybemadewiththeproduct?Whatcostswillbeincurred,whatpricewillbeasked?2.3.ProtectingyourbusinessideaOnlyafewideasaregenuinelyingenious.Truebreakthroughsaretheresultofhardworkand,therefore,cannotbeeasilyreplicated.Acompromisemustbefoundtoprotecttheidea,whiledisclosingsufficientinformationtotestitsviability.PatentingEarlypatentingisrecommended,especiallyinthecaseofnewproductsorprocesses.Gettheadviceofexperiencedpatentlawyers:Thefuturesuccessofyourbusinesscandependonapatent,and,ineveryindustry,therearepowerfulcompetitorswiththemeanstokeepanunfavorablepatentfrombeinggranted.Butsomedegreeofcautionisadvisedasapatentcanalsomissthemarkwhenitcomestoprotectingyourideabymakingtheideapublic.Besuretokeepinmindifthepatentcanbeimproveduponeasily–andthusthwarted.TherecipeforCoca-Cola,forexample,isstill”secret”andhasneverbeenpatentedbecausethepatentcanbecircumventedwithaveryfew,neutral-tastingchanges.Confidentialityagreement10 Lawyers,trustees,andbankemployeesareallrequiredbylawtomaintainconfidentialityvis-à-vistheirclients’businesses.Venturecapitalistsalsohaveaninterestinkeepingthingsunderwraps,assomeonewithareputationfor”poaching”ideaswillnotbemadeprivytonewideasanytimeagainsoon.Thesameistrueforprofessionalconsultants.Aconfidentialityagreementcanbeeffectiveinsomecases.ThecoachesandorganizersinvolvedinEnterPrizearerequiredtosignaconfidentialityagreement;judgesareencouragedtodoso.But,likeeverylegaldocument,ithasitslimits,andtherearegrayareasthatcouldmakeitdifficulttoproveaviolationoftheagreementincourt.QuickimplementationYourbestprotectionagainstintellectualpropertytheftisprobablytoimplementyourplanasquicklyaspossible.Agreatdealofworkmustbedonebetweendreamingupanideaandopeningforbusiness.Thiseffortcankeeppotentialcopycatsatbay,becauseintheend,it’scrossingthefinishlinefirstthatmakesyouthewinner,nothavingthefastestshoes!2.4.PresentingyourideatoinvestorsHowyoupresentyourbusinessideatoaninvestorwillputallyourpreviouseffortstothetest.Itiscriticaltoattractattentionandpiqueinterestthroughcontentandprofessionalappearance.Goodventurecapitalistsarepresentedwithupto40businessideasperweek,andtheirtimeislimited.Insubmittingthebusinessidea,neitherfanfarenorawealthofdetailsisasimportantasaclearandthoughtfulpresentation.Example1:Thehardsell”Ihaveagreatideaforanew,customer-friendlymethodofpaymentwithabigfuture.Thisissomethingeverybodyhasalwayswanted.Youcouldearnalotofmoneyfromthis…”Theinvestorthinks,”Thatsoundslikealotofhotair.I’veheardofahundredsuchmiraclesolutionsbefore…Next!”Example2:Thetechnicalapproach”Ihaveanideaforacomputerizedmachinerycontrolsystem.Thekeyisthefully-integratedSSPchipwith12GByteRAMandtheasymmetricalXXP-baseddirectcontrolunit.Ittookme5yearstodevelopthis.”Theinvestorthinks,”Techie.Inlovewithtechnology.She’sherownmarket…Next!”Example3:Theentrepreneur”Ihaveanideathatwillenablecompanieswithupto100employeestosave3%to5%oftheircosts.Initialcost-priceanalyseshaveconvincedmethataspreadof40%to60%shouldbepossible.IhavefoundafocusedadvertisingchannelthroughtheAssociationofSmallandMedium-sizedBusinessesandtheABCMagazine.Theproductwillbedistributedbydirectsale.”Theinvestorthinks,”Aha!Shehasidentifiedthecustomervalue,andevenworkedoutthefigures!She’sthoughtaboutthemarketandtheprofitpotentialandknowshowshewillgettheproducttohercustomers.NowI’dliketogetalookattheproduct…”Theseexamplesdemonstratewhyclarityshouldbeyourforemostgoal.Itisbesttoassumethatinvestorsarenotfamiliarwiththetechnologyofyourproductortheindustryjargon.Theyarealsonotlikelytotakethetimetolookupanunknowntermoridea.Describingyourconcept11 clearlyandincisivelyisyournextgoal.Youmustbeabletoconveythebasicmechanicsofyourbusinessideatoaninvestorwithcredibility.Therewillbeplentyoftimeatalaterpointfordetaileddescriptionsandexhaustivefinancialcalculations.FormalrequirementsofabusinessconceptpresentationTitlepageNameoftheproductorserviceNameoftheperson(s)submittingConfidentialitynoticeIllustration,whereappropriate,oftheproductorserviceinactionBody4to7pages(includingaone-pageexecutivesummary)ClearstructurewithheadingsandindentationsasvisualorganizersCharts,illustrations,tablesMaximumof4illustrations,placedintheappendixUseonlyifnecessaryforcomprehensionMakereferencetotheillustrationsinthetextSimple,clearpresentationUniformformatThispageintentionallyblank12 3.THEBUSINESSPLAN”Writingabusinessplanforcesyouintodisciplinedthinking,ifyoudoanintellectuallyhonestjob.Anideamaysoundgreat,butwhenyouputdownallthedetailsandnumbers,itmayfallapart.”EugeneKleiner,VentureCapitalistThemodestterm”businessplan”doesnotreallydojusticetothisveryimportantbusinesstool.ThebusinessplanwasfirstusedintheU.S.asmeansofacquiringfundsfromprivateinvestorsandventurecapitalistswhothenparticipateinthecompanyasco-ownersandprovidethecapital.Thepresentationofthistypeofstart-upstrategyhasbecomeamandatorycourtesywhenseekingtodobusinesswithanypartners,includingcustomers,suppliers,anddistributors,tosaynothingofventurecapitalistsandbanks.Butbusinessplansarenotonlyusedbystart-ups;evenmajorcorporationsrelyincreasinglyonproject-specificbusinessplanstohelpthemmakeinternalinvestmentdecisions.3.1.AdvantagesofabusinessplanThegreatimportanceattachedtothebusinessplaniswelljustified.Withit,entrepreneurscanprovethattheyareinapositiontoarticulateandhandlethediverseaspectsofstart-upsandtheirmanagement.Properlyconceivedandexecuted,thebusinessplanbecomesakeydocumentforevaluatingandmanaginganoperation.Abusinessplandetailstheoverallentrepreneurialconceptbehindaplannedbusiness.Itgivesanexactsummaryoftheeconomiccircumstances,thetargetsset,andtheresourcesnecessary.Thebusinessplanforcesentrepreneurstothinkthroughtheirideassystematically:Itidentifiesgapsinknowledge,demandsdecisions,andpromotestheformulationofawell-structuredandfocusedstrategy.Duringitspreparation,oneaftertheother,alternativeapproachescometolightandareevaluated,andpitfallsareidentified.Withitsclearanalysisofthesituation,thebusinessplanbecomesaninvaluabletoolforovercomingproblemsandcontributessubstantiallytoboostingefficiencyandeffectiveness.3.2.CharacteristicsofasuccessfulbusinessplanHowabusinessplanisdesigneddependsonwhatkindofventureisenvisionedandwhattheplanshouldaccomplish.Ifaplanisbeingwrittenforastart-up,forexample,itwillnecessarilyhaveadifferentstructurethanonethataimstolaunchanexistingcompanyintoanewsegment.Despitesuchdifferences,businessplanshaveanumberofthingsincommon.Theyaretoprovideaclearandcomprehensiveevaluationoftheopportunitiesandrisksposedbytheoperation.Thisisnosmalltask,andcompletingitwillrequirecarefulattentiontocertainstandardsofdesignandcontent.Thefollowingsuggestionsandguidelinesshouldhelpyoumakeyourplansuccessful.13 AgoodbusinessplanimpresseswithitsclarityReadersshouldbeabletofindsuitableanswerstotheirquestions.Itshouldbeeasyforreaderstofindthetopicsinwhichtheyareparticularlyinterested.Thismeansthebusinessplanmusthaveaclearstructuretoenablereaderstomaneuverandchoosewhattheywouldliketoread.Itisnotthevolumeofanalysisanddata,butrathertheorganizationofthestatementsandaconcentrationontheessentialargumentsthatwillpersuadeyourreaders.Anytopicthatcouldbeofinteresttothereadershould,therefore,bediscussedfully,butconcisely.Atotallengthofabout30pages,giveortake5orso,isgenerallyappropriate.Abusinessplanisnotreadinthepresenceoftheauthor,whocouldanswerquestionsandprovideexplanations.Forthisreason,thetextmustbeunambiguousandspeakforitself.Eachplanshouldbepresentedtoatestaudience,ifatallpossible,beforeitisfinallysubmitted.Competitioncoaches,forexample,canhelpweedoutconfusingpassagesorindicateareasstillinneedofediting.AgoodbusinessplanconvinceswithitsobjectivitySomepeoplegetcarriedawaywhentheyaredescribingwhattheyfeelisagoodidea.Whilethereissomethingtobesaidforenthusiasm,youshouldtrytokeepyourtoneobjectiveandgivethereaderachancetocarefullyweighyourarguments.Aplanwrittenlikeglowingadvertisingcopyismorelikelytoirritatethanappealtoyourreaders,makingthemsuspicious,skeptical,orotherwiseunreceptive.Equallydangerousisbeingtoocriticalofyourownprojectinresponsetovariouspastmiscalculationsormistakes.Thisapproachwillraisequestionsaboutyourabilityandmotivation.Tothebestofyourknowledge,thedatapresentedshouldbeaccurate.Weaknessesshouldneverbementionedwithoutintroducingmethodstocorrectthemorplanstodoso.Thisdoesnotmeanthatfundamentalweaknessesshouldbehidden,justthatinpreparingyourplan,youshoulddevelopapproachestoremedythemandpresentwithclarity.AgoodbusinessplancanbeunderstoodbythetechnicallaymanSomeentrepreneursbelievethattheycanimpresstheirreaderswithprofusetechnicaldetail,elaborateblueprints,andthesmallprintofananalysis.Theyaremistaken.Onlyrarelyaretechnicalexpertscalledtoevaluatethisdatacarefully.Inmostcases,asimplifiedexplanation,sketch,orphotographisappreciated.Iftechnicaldetailsontheproductormanufacturingprocessmustbeincluded,youshouldputthemintheappendix.AgoodbusinessplaniswritteninoneconsistentstyleSeveralpeopleusuallyworktogethertoproducethebusinessplan.Intheend,thisworkmustbeintegratedtoavoidcreatingapatchworkquiltofvaryingstylesandanalyticaldepth.Forthisreason,itisbesttohaveonepersoneditthefinalversion.AgoodbusinessplanisyourcallingcardFinally,yourbusinessplanshouldhaveauniformvisuallayout.Thefonts,forexample,shouldbeconsistentwiththestructureandcontents,effectivegraphicsneatlyintegratedand,perhaps,aheaderwiththe(future)companylogoused.14 3.3.Theinvestor’spointofviewTheentirestart-upprocessmustfocusonsuccessfulcapitalacquisition.Professionalinvestorsarethefirstrealacidtestofthechancesyourbusinessconceptwillhave.Addressyourcommunicationentirelytothem,andlearntothinkliketheydo.Theywillnotbesatisfiedwithameredescriptionofyourbusinessconcept,evenifitisbrilliant.Whatisventurecapital?Venturecapitalisthemoneythatismadeavailablebyventurecapitalcompaniesorindividualstofinancenewbusinesses.Typically,suchprojectshaveahighchanceofbeingprofitable,whilefacinganequalriskofincurringloss.Experienceshowsthatof10businessesfinancedwithventurecapital,onlyonewilltriumph,threewillmanagetoekeoutanexistence,threewillwasteaway,andthreewillbeatotalloss.Itisonlynaturalforventurecapitaliststodoeverythingintheirpowertogenerateprofitsinlinewiththeriskventured.Accordingly,theybackupaprojectveryintenselyinordertoharnessasmuchpotentialaspossible(Exhibit7).VENTURECAPITALPARTICIPATIONINTHEVARIOUSSTART-UPPHASESTransitiontoEarlyphaseGrowthphaseestablishedcompanySeedStart-upGrowthBridgestageExitstageWhenBeforeAtorshortlyAtfirstor6-12monthsAsarule,5-8?start-upafterstart-upsecondbeforeIPOyearsafterstart-growthspurt,upIPOstillfaroffWhatMainlytoE.g.,forTofinanceTocoverRecoveryoffor?developproductgrowthfinancialinvestedventurebusinessdevelopment,needsuntilcapitalforconceptinitialsaleofstockreinvestmentinfurthermarketingtopublicmorestart-upsactivitiesExhibit7Whatdoventurecapitalistslookfor?Venturecapitalistslookforanumberofimportantpiecesofinformationinabusinessplan:·Managementexperienceandcompetence.Allinvestorspayparticularattentiontowhowillbemanagingtheenterprise.Whenallissaidanddone,theabilityofmanagementtoimplementtheconceptisamajordeterminantofwhetherabusinesssurvivesorfails.Particularlyinindustrieswhereinnovationiscritical,thefocusisonthepropermixofallnecessarymanagementskillsthatonepersonalonewillrarelyhave.Entrepreneurial15 experienceismorehighlyvaluedthanacademicdegrees.Anothertestofaworthwhileinvestmentistheabilityofmanagementtoworkasateam.·Awell-definedand,wherepossible,quantifiablecustomervalue.Initssimplestform,thismeansloweringthecostofdeliveringanexistingvalueorcreatinganewvalue,ifthiscanbeachievedatreasonablecost.·Innovativeproductorservicerange.Theproduct,service,and/orbusinesssystemmustpossessahighdegreeofinnovation.·Thepossibilitytoprotect/sustaintheinnovation.Animportantcompetitiveadvantagetoyourcompanycouldbeapatentedidea.·Agrowingand/orlargemarket.Venturecapitalistspreferstart-upsthatdemonstrateapotentialtoachievesignificantsalesofapproximately$30millionwithin5years.·Aneffectiveconceptforcapturingaclearlydefinedtargetcustomersegment.Potentialinvestorswanttoseethatyouhaveaclearunderstandingofyourmarketandhowyouintendtoreachyourcustomers.Yourforecastsandestimatesshouldbebasedonwell-founded,persuasiveassumptionsandfacts.·Afar-sightedanalysisofthecompetition.Investorsaren’tnaive–sodon’teventrytoclaimthatyourproducthasnocompetition.Acompleteandobjectivedescriptionofexistingandpotentialfuturecompetitors,however,showsthatyouareawareoftherisksyouaretakingwhich,inturn,willinspireconfidenceinyou.Hereagain,havinganideathatcanbeprotectedbylaw(patented,trademarked)isanadvantage.·Acarefulweighingoftherisksandopportunities.Investorshatesurprises,especiallynegativeones.Arealisticdescriptionoftherisksyoufaceandhowyouplantoovercomethemisfarmorecrediblethanlookingatthefuturethroughrose-coloredglasses.·Detailpossibleexitroutes.Investorswanttoknowfromtheoutsetwhentheircommitmentwillendandhowtheywillrecovertheirinvestment.Generatingaprofitisalwaystheobjectandthepurposeofinvestorparticipation.Themoreproductiveoptionsyoucanshowthemforhowtodothis,thebetter.Themainpossibilitiesincludegoingpublicorsellingsharestotheotherpartnersortoothercompanies.Whatdoventurecapitalistsdoforthenewcompany?Venturecapitalistsplayanumberofroles(seeExhibit8).Buttheywillalsotakeoverthereinsifthebusinessdoesnotachieveitstargets.Howshouldyouchooseaventurecapitalist?Venturecapitalistsgenerallyexpecttohaveahighstakeinthenewcompany.Inreturn,theyprovidesupportthatgoesfarbeyondafinancialcommitmentandoftenshoulderagreatdealof16 responsibilityforthesuccessoftheventure.Butpotentialinvestorsdodiffer,andthecompanyteamshouldknowitsinvestorswell.Ifyouwouldratherown20%ofa$100millioncompanythan80%ofa$5millionoperation,youwillhavetochooseyourinvestoraccordingtomorecriteriathanjustwhowillprovidethemostmoneyatthebestrate.POSSIBLEROLESOFVENTURECAPITALCOMPANIESCoachesandSpecialistsinmotivatorsoftheformingnewstart-upteamcompaniesPossiblerolesofventurecapitalistsAdvisorsinGatewaystoaachievingsuccessnetworkof(saleoftheexperiencedcompany,IPO)entrepreneursExhibit8233.4.TipsonpreparingaprofessionalbusinessplanInvestorsareinterestedinthefinishedplan,nottheprocessyouwentthroughtoproduceit.Theyprefertoseeawell-prepareddocumentfromwhichtheycangainagoodsenseoftherisksandopportunitiesinvolvedonthefirstread-through.Whenpreparingyourplan,thethemesofcustomervalueandpotentialreturnshouldrunthroughthedescriptionsofyourbusinessobjectives.Thethreephasesofthecompetitionprovideageneralstructureforpreparingyourplan.Thethreephasesbuildupononeanothersuchthatthecontributionforapreviousphasewillbecomeamajorportionofthefollowingphase,supplementedwithadditionalelements.Howyoucarryouttheworkwithineachphaseisuptoyou.Thefollowingtipsaredesignedtohelpyou.PlanyourapproachDrawingupabusinessplanisaverycomplexundertaking.Manyvariablesmustbeconsideredandanalyzedsystematically,inalogicalorder.Adetailedoutlineshouldbemadeassoonasthefirstideasarelaiddown.Itissmarttodoyourplanningalongthelinesofabusinessplan,oraccordingtoyourbusinesssystem(e.g.,R&D,production,marketing,sales,delivery,andadministration).Youshouldalsonumberyourtopicsandnoteanyreferences.Usingawordprocessingprogramwithaspreadsheetishelpful.Allreferencematerialshouldbesortedbytopic.Dothesamewithnotesfromdiscussions.17 TailorkeyquestionstoyourspecificprojectUsingasetofquestionsishelpfulinpreparingyourbusinessplan.Whichquestionsshouldbeaskedandwhichanswersincludedintheplanisdeterminedbythetypeofvaluecreated,theproduct,service,ordegreeoftechnologicalsophistication,andwhatthereadersneedtoknow.YoucanusethesamplequestionsprovidedinthisGuidetowriteyourownseriesofquestions.Thesequestionsareonlyexamplesdesignedtogetyouthinking;theyshouldnotbetakenasanexhaustivelistofpossiblequestions.Inotherwords,youareneitherrequiredtoanswereachquestion,normustyoureplytoallquestionsinequaldepth.Itisuptoyoutodecidewhichquestionsarerelevanttoyourundertakingandnecessarytounderstandit.Youmustalsoconsiderwhetherthereareotherquestionstobeansweredbeyondthosethathavebeenprovided.FocusonthefinalproductInprojectsofthiskind,thereisalwaysadangerofgettinglostinthedetailsofeachanalysis.Stepbackfromtimetotimeandaskyourselfwhetherthedataprovidedisnotalreadysufficientandwhetherfurtheranalysiswillreallybebeneficial.Wealsorecommendthatyoulimitthelengthoftheresultsforeachofthethreecompetitionphases.Youwillsavealotoftimeandenergyifyousticktotherecommendedlengthsfromthebeginningofyourplanning.SeeksupportearlyGatheringsupportfrommanydifferentpartieswillbeimportantinthiscompetition.Teamingupearlyisonesuchformofsupport.Teamswithcomplementarytechnicalandentrepreneurialexperiencecandelegateassignmentsaccordingtothetalentsoftheindividualteammembers.Thiswillhelpensurethattheworkwillbeperformedefficiently.Donothesitatetoseekhelpfromoutsidesourcesassoonasyouneedit.ContactexpertsandexperiencedentrepreneurswhomyoumeetatcompetitioneventsorcalltheEnterPrizeofficeforassistance.KeeptestingyourplanAwinningentrywillbeeasytounderstandandfollow.Therefore,itisimportanttopresentyourideatoatestaudiencealongtheway.Peopleoutsidethecompetitionwhocritiqueyourplanbeforeyousubmititcanidentifyweaknessesandevengiveyourworkfreshimpetus.18 4.STRUCTUREANDKEYELEMENTSOFABUSINESSPLANDespitetheirmanydifferences,allbusinessplanshavecertainelementsincommonthatallpotentialinvestorsexpecttofind(Exhibit9).Additionally,anappendixisoftenincludedthatcontainsdetailedinformation,oftenpresentedintheformoftablesorgraphs.Withinthismoreorlessrequiredstructure,thebusinessplanisfreetogrowinitsowndirection.Atthebeginning,youwillonlyworkonafewkeyelementsandindividualtopics.Newelementsareaddedwitheachadditionalphase,whilethetopicsfromthepreviousphasesareexpanded,and,gradually,theplanfillswithcontent.Attheendofthethirdphase,theindividualanalysesformawholewhoseindividualpartscorrespondtooneanother.ELEMENTSOFABUSINESSPLANFocusofthisphasePartofthisphasePhase1Phase2Phase31Executivesummary2Productorservice3Managementteam4Marketandcompetition5Marketingandsales6Businesssystemandorganization7Implementationschedule8Opportunitiesandrisks9FinancialplanningandfinancingExhibit94.1.Executivesummary”Agoodexecutivesummarygivesmeasenseofwhythisisaninterestingventure.Ilookforaveryclearstatementofthelong-termmission,anoverviewofthepeople,thetechnology,andthefittomarket.”AnnWinblad,VentureCapitalistTheexecutivesummaryisdesignedtopiquetheinterestofdecisionmakers.Itshouldcontainabriefoverviewofthemostimportantaspectsofthebusinessplan.Inparticular,itshouldhighlighttheproductorservice,thevaluetothecustomer,therelevantmarkets,managementexpertise,financingrequirements,andpossiblereturnoninvestment.19 Venturecapitalistslookattheexecutivesummaryfirst,thoughtheyusuallyjustskimit.Thequalityofthesummaryitselfisnotlikelytomaketheminvestinyourproject,yetitcanconvincethemnotto.Aclear,objective,andconcisedescriptionofyourintendedstart-up,whichmustbeeasytocomprehend,especiallybythetechnicallayperson,willshowthemthatyouknowyourbusiness.Thereforeprepareyoursummarywiththeutmostcare;itmaywelldecidewhethertherestofyourbusinessplanisread.Theexecutivesummaryisanindependentelementofthebusinessplan:Donotconfuseitwiththeintroductionofyourbusinessconceptonthetitlepage.Lookatyourexecutivesummarywithacriticaleye–repeatedly–especiallyafterallotheraspectsofyourbusinessplanhavebeencompleted.Askyourselfifyouhavedescribedyourbusinessideaasclearly,compellingly,andconciselyasyoucan.Yourreadersshouldbeabletoreadandcomprehendthesummaryinfiveto10minutes.Testit.Giveyourexecutivesummarytosomeonewhohasnopreviousknowledgeofyourbusinessconceptoritstechnicalorscientificbasis.KEYQUESTIONS:ExecutivesummaryPhase1!Whatisyourbusinessidea?Inwhatwaydoesitfulfillthecriterionofuniqueness?!Whoareyourtargetcustomers?!Whatisthevalueforthosecustomers?!Whatmarketvolumeandgrowthratesdoyouforecast?!Whatcompetitiveenvironmentdoyouface?!Whatadditionalstagesofdevelopmentareneeded?!Howmuchinvestmentisnecessary(estimated)?!Whatlong-termgoalshaveyouset?Phase2!Howhighdoyouestimateyourfinancingneeds?!Whatarethesales,cost,andprofitsituations?!Whatarethemostimportantmilestonesalongthewaytoyourgoal?!Whattestcustomershaveyouapproached/couldyouapproach?!Whatdistributionchannelswillyouuse?!Whatpartnershipswouldyouliketoenterinto?!Whatopportunitiesandrisksdoyouface?!Whatisthepictureonpatents?Phase3!Summarizetheresultsofyourdetailedbusinessplanningandstateyourexactfinancingneeds!!Howwillyoudelegatemanagementtasks?!Howmuchproductioncapacityisnecessary?!Howwilltheimplementationofyourbusinessideabeorganized?!Listyournext,concretesteps!20 4.2.Productorservice”Ifyoudon’tknowwhatthecustomervalueis,thewholething’sawasteoftime.”BrunoWeiss,EntrepreneurYourbusinessplanderivesfromaninnovativeproductorserviceanditsvaluetotheendconsumer.Itisimportanttoindicatehowyourproductdiffersfromthosethatarenoworwillbeonthemarket.Ashortdescriptionofhowfardevelopmenthasprogressedandwhatstillneedstobedoneisalsoessential.CustomervalueItdoesn’tmakeanysensetostartupanewbusinessunlesstheproductorserviceissuperiortocurrentmarketofferings.Besuretodiscussindetailthefunctiontheproductorservicefulfillsandthevaluethecustomerwillgainfromit.Ifcomparableproductsandservicesarealreadyavailablefromyourcompetitors,youmustconvincinglysubstantiatetheaddedvalueyourcustomerswillreceivefromyourstart-up.Todoso,putyourselfintheplaceofthecustomerandweightheadvantagesanddisadvantagesofyourproductovertheothersverycarefully,applyingthesamecriteriatoall.Ifyouareofferingarangeofinnovativeproductsorservices,categorizethemintologicalbusinessareasaccordingtoproductorcustomer.Definethebusinessareasindetailsothereisnooverlap.Developmentstatusoftheproduct/serviceInexplainingthisissue,imagineyouaretheventurecapitalistwhowantstominimizetheriskinvolvedinparticipating.Trytorefrainfromincludingtechnicaldetailsanddescribeeverythingassimplyaspossible.Afinishedprototypewillshowyourpotentialinvestorthatyouareuptomeetingthetechnicalchallenge.Ifitenhancestheunderstandingofyourproduct,includeaphotoorsketchinyourbusinessplan.Itisevenbettertohaveapilotcustomerwhoalreadyusesyourproductorservice.Youshouldalsoexplainthenatureoftheinnovationitselfandtheedgeyouhaveovercompetitors.Thisisthepointatwhichyoushouldaddressthesubjectofpatentsforprotectionfromduplicationorimitation,ortheprotectionofamodelthroughregistration.Iftherearestillproblemsorissuestocoverregardingdevelopment,besuretomentionthemandhowyouintendtoovercomethesedifficulties.Regulatoryrequirementsonproductsandservicesposeanothersetofrisks.Noteanypermitsyouhaveobtained,haveappliedfor,orwillapplyfor,suchasthoseoftechnicalcontrolassociations,thepostalservice,orthedepartmentofhealth.21 KEYQUESTIONS:ProductorservicePhase1!Whatendcustomerswillyouaddress?!Whatarethecustomer’sneeds?!Whatcustomervaluedoesyourproduct/serviceprovide?!Whatisthenatureofyourinnovation?Whatisthecurrentstatusoftechnicaldevelopment?!Whatpartnershipsarenecessarytoachievefullcustomervalue?!Whatcompetitorproductsalreadyexistorareunderdevelopment?!Isyourproduct/servicepermittedbylaw?!Whataretheprerequisitesfordevelopmentandmanufacturing?!Whatstageofdevelopmenthasyourproductorservicereached?!Doyouhavepatentsorlicenses?!Whatfurtherdevelopmentstepsdoyouplantotake?Whatmilestonesmustbereached?Phase2!Whatversionsofyourproducts/servicesaredesignedforwhatcustomergroupsandapplications?!Whatpatents/licensesdothecompetitorshave?!Doyouneedtoobtainlicensesand,ifso,fromwhomandatwhatcost?!Whatkindofservice/maintenancewillyouoffer?!Whatproductorserviceguaranteeswillyougrant?!Comparethestrengthsandweaknessesofcomparableproducts/serviceswithyoursinanoverview!Phase3!Whatresources(time,personnel,materials)doyourequireforeachsubsequentdevelopment?!Whatshareofsalesdoyouexpectfromyourvariousproducts/services(ifapplicable)?Why?!Whatincomefromroyalties/salesdoyouestimatefrompossiblymarketingthepropertyrights?Whowouldbeyourlicensees/buyers?4.3.Managementteam”Iinvestinpeople,notideas.”EugeneKleiner,VentureCapitalistThemanagementsectionisoftenthefirstpartoftheplanthatventurecapitaliststurntoafterreadingtheexecutivesummary.Theywanttoknowwhetherthemanagementteamiscapableofrunningapromisingbusiness.Entrepreneursfrequentlyunderestimatethesignificanceofthisquestionandmakethemistakeofskimpingoncontentandmakingdowithmeaninglessphrases.22 Takethetimetodescribeyourmanagementteamwell.Whendiscussingmanagement’squalifications,besuretoemphasizethosethatareparticularlyimportantforimplementingyourspecificplans.Professionalexperienceandpastsuccesscarrymoreweightthanacademicdegrees.Ifkeypositionsaretobegiventoinexperiencedstaffmembers,explainthisdecisionindetail.CHARACTERISTICSOFAPOWERFULMANAGEMENTTEAM!Commonvision:Everybodywantstosucceed!Complementaryattributesandstrengths!Atleastthree,butusuallynomorethansix,people!Stickstogetherthroughthickandthin!Stayingpower,evenwhentherearesetbacks-regroupsandmakesasecondoreventhirdattempttoclearthehurdleAlsoexplainhowtheresponsibilitiesinthecompanyaretobedelegatedandindicatewhichpositionsstillrequirereinforcements.Itisparticularlyhelpfultocomparetheassignmentstobefilledwiththeskillprofilesofcurrentteammembers.Donothesitatetonameyourmostinfluentialadvisors.Noonewillhaveallthequalificationsandexperiencenecessarytofoundacompany.Considerableinvolvementonthepartofadvisorssuchasexperiencedentrepreneurs,accountants,PRfirms,ormanagementconsultantsisasignofprofessionalismandwillreassuretheventurecapitalistthatyouhaveallthecontactsyoumayneed.WHATPROFESSIONALINVESTORSLOOKFOR!Hastheteamalreadyworkedtogether?!Doteammembershaverelevantexperience?!Dothefoundersknowtheirweaknessesandaretheywillingtomakeupforthem?!Havethefoundersagreedontheirfutureroles?Areownershipissuessettled?!Hasthemanagementteamagreedonacommongoal,orarethereunderlyingdifferencesofopinion?!Dotheindividualteammembersfullybacktheproject?Finally,althoughthemanagementteamwillnotbeevaluateduntilthethirdphaseofthebusinessplancompetition,itisadvisabletobeginlookingforsuitablepartnersassoonaspossible.Bringingtogetherjusttherightpeopletoforma”dreamteam,”sotospeak,isimmenselyimportantforlaterbusinesssuccessand,therefore,requiresagreatdealoftimeandcare.23 KEYQUESTIONS:ManagementteamPhase3!Whoarethemembersofyourmanagementteamandwhatdistinguishesthem:education,professionalexperience,success,standinginthebusinessworld?!Whatexperienceorabilitiesdoestheteampossessthatwillbeusefulforimplementingyourconceptandsettingupyourcompany?!Whatexperienceorabilitiesarelacking?Howwillthegapsbeclosed?Bywhom?!Whatgoalsdotheteammemberspursuebystartingupthebusiness?!Howhighisthemotivationofeachindividualteammember?4.4.Marketandcompetition”Ifthereisnocompetition,thereisprobablynomarket.”BrianWoodThoroughunderstandingofyourcustomersandtheirneedsisthefoundationofeverysuccessfulbusiness.Foritisthecustomerswhogiveyourcompanyareasonforbeing.Andintheend,bybuying–ornotbuying–yourproduct,orservice,theywilldecideifandhowsuccessfulyourcompanywillbe.Onlythosecustomerswhoareconvincedtheyaregettingagreatervaluethantheywouldfromacompetingproduct,orbynotbuyingaproductatall,willbuyyourproduct.Knowingyourmarketandcompetitionwellisthuscriticaltothesuccessofyourundertaking.MarketsizeandgrowthAdramaticincreaseinthevalueofthecompanycanbeexpectedonlyifthemarketholdsgreatpotential.Themarketsizeshouldbepresentedinfiguresrepresentingthenumberofcustomers,unitsales,andtotaldollarsinsales.Yourexpectationsformarketgrowtharecritical.Youshouldalsoindicatewhatmainfactorsarenowinfluencingormayinfluencethegivenindustrysegment.Showwhatfactorswillaffectdevelopments(technology,legislativeinitiatives,etc.)andwhatrelevancethesefactorshaveforyourbusiness.Workwithafocusinordertosaveyourselfsomeenergy:Workwithhypotheses,makealistofquestionsyouwantanswered,whatinformationyouwillneed,andwhereyoumightfindit.Theexternaldatanecessaryforananalysisareofteneasiertoobtainthanyoumightthink.Becreativeanddetermined;makeuseofallpossiblesourcesincludingtradeliterature(journals,marketstudies,scholarlyessays),industrydirectories,associationsandgovernmentagencies(statisticsoffices,chambersofcommerce,patentoffices),banksforindustrysurveys,databases,theInternet(keepyoursearchesfocused),and,ofcourse,interviews.Itoftenhelpstocallaround.Usingashortdiscussionoutlinewillincreaseyourefficiencyandproductivity,aswellasthewillingnessofyourpartytodiscloseinformation.24 Thiscollectionofindividualpiecesofdataseldomprovidesadirectanswertoyourquestions–youwillhavetodrawwell-foundedconclusionsormakesoundestimates.Whenmakinganestimate,observethefollowing:·Buildonasolidfoundation.Theremaybemanyunknowns,butifyourelyoneasilyverifiablefigures,yourestimatewillbehardertotopple.·Thinklogically.Anestimateshouldbealogicalconclusion(i.e.,itshouldnothaveanyleapsinlogicordependonunspecifiedassumptions).·Compareyoursources.Checkyourfacts,suchasstatementsmadeinaninterview,withanumberofdifferentsourcesifatallpossible.·Becreative.Theshortestdistancetoyourgoalisnotalwaysastraightline.Forexample,whenavariableisunknown,lookforasubstitutevariablethatrelatestotheoneyouneed.·Checkforplausibility.Foreachestimate,askyourself,”Doesthisresultreallymakesense?”MarketsegmentationFollowupyourgeneralexplanationswithyourchoiceoftargetcustomerandyourplannedmarketsuccess(salesvolumes,salesrevenues,marketshare,andprofit).Todothis,youmustsegmentyourmarket.Thechoiceofsegmentationcriteriaisuptoyou,aslongasyouarecertainthatthenumberofcustomersineachsegment-aswellastheirbehavior-canbedetermined,andthatthecustomerswithineachsegmentcanbereachedbymeansofthesamemarketingstrategy.Possiblecustomersegmentationcriteriafortheconsumergoodsmarkets:!Location:country,urban/rural(populationdensity)!Demographics:age,sex,income,profession,companysize!Lifestyle:techies,counterculture,activeseniors!Behavior:frequencyofproductuse,productapplication!Buyinghabits:brandpreferences,priceconsciousnessPossiblecustomersegmentationcriteriaforindustrialgoodsmarkets:!Demographics:companysize,industry,location!Operations:technologyemployed(e.g.,digital,analog)!Buyinghabits:centralizedordecentralizedpurchasing,purchasingcriteria,supplieragreements!Situationalfactors:urgencyofneed,ordersize25 Definethepotentialsalesrevenuesforagivenperiodpersegment.Takeyoursalesstrategyandthebehaviorofthecompetitionintoconsideration.Dependingontheindustry,youmayalsowanttoallowforpriceerosion.CompetitionDefinethestrengthsandweaknessesofyourcompetitors.Todothis,evaluateyourmajorpotentialcompetitorsusingthesamecriteria,suchassalesvolumeandrevenues(pricing),growth,marketshare,costpositioning,productlines,customersupport,targetgroups,anddistributionchannels.Intheinterestofbrevity,forgotheuseofagreatdealofdetail.Evaluateyourowncompanyaccordingtothesesamecriteriaandmakeacomparisonastohowsustainableyourcompetitiveadvantagewillbe.Positioningvis-à-visthecompetitionWhyshouldapotentialcustomerbuyyourproductandnotthatofyourcompetitor?Becauseitoffersgreatervalue(insomeaspectthatisimportanttothecustomer)thancompetingproducts;becauseitisobjectivelyoremotionally”better;”or,asmarketingexpertswouldsay,youhavedevelopedavaluepropositionoruniquesellingpropositionforyourbusinessidea.Formulatingthisvaluepropositionandanchoringitfirmlyinthemindofthecustomeristhemaintaskofmarketingcommunication.Marketingexpertstalkaboutthepositioningofaproduct,brand,orbusiness.Well-positionedproductsleaveconsumerswithaparticularimpression.Themostimportantguidelineforpositioningis,therefore,tolookattheproductfromthecustomer’spointofview.Thepointistomeetaneedbetter,nottopresentnewproductattributes.Theadvantagetothecustomermustbeimmediatelyclear,memorable,andimportant.Atthesametime,yourpositioningmustbedistinctivefromthatofcompetitors.Onlythencancustomersconnectthevaluepropositionthatyouofferwiththenameofyourproductorbusinessandbuyyourproduct.Thefollowingguidelinesmayhelp:·Identifyrelevantcustomerneedsorproblems·Defineclearcustomersegmentsofsufficientsize·Designanattractiverangeofproductsandservices·Makeyourselfuniquethroughdifferentiationfromthecompetition·Addressthesubjectiveperceptionofthecustomer·EnsurecustomersatisfactionevenafterpurchaseBecausepositioningissocriticaltothemarketsuccessand,therefore,tothelong-termsuccessofyourbusiness,youshouldpayparticularattentiontoit.Persuasivepositioningwillnotcomeaboutimmediately,itwillbearesultofintenseeffortandwillneedfrequentrevisiontoachievethemaximumeffect.Thepointofdepartureforpositioningistheproductitself.Additionalinsightwillbefoundasyourefineandmodifyyourproductduringdevelopmentandrespondtonewrevelationsasaresultofcustomersurveys.26 KEYQUESTIONS:MarketandcompetitionPhase1!Howistheindustrydeveloping?!Whatfactorsaredecisiveforsuccessinyourindustry?!Whatroledoinnovationandtechnologicaladvancesplay?!Howwillyousegmentthemarket?!Whatmarketvolumesdotheindividualmarketsegmentshave,nowandinthefuture(roughestimates)?!Whoareyourtargetcustomergroups?!Whatcustomerexamplescanyougive?!Whatmajorcompetitorsoffersimilarproducts/services?!Whatnewdevelopmentscanbeexpectedfromcompetitors?!Howsustainablewillyourcompetitiveedgebe?Phase2!Whatmarketvolume(valueandamount)doyouestimateforyourindividualmarketsegmentsoverthenext5years?!Whatwillinfluencegrowthinthemarketsegments?!Whatisyourestimateofcurrentandfutureprofitabilityoftheindividualmarketsegments?!Whatmarketsharesdoyouholdineachmarketsegment?!Whatsegmentsareyoutargeting?!Whoareyourreferencecustomers?Howdoyouplantogetreferencecustomers?!Whatroledoservice,consulting,maintenance,andretailsalesplay?!Howmuchdoyoudependonlargecustomers?!Whatarethekeybuyingfactorsforcustomers?!Howdoesthecompetitionoperate?Whatstrategiesarepursued?!Whatarethebarrierstomarketentryandhowcantheybeovercome?!Whatmarketsharedoesyourcompetitionhaveinthevariousmarketsegments?!Whattargetgroupsdoyourcompetitorsaddress?!Howprofitableareyourcompetitors?!Whatareyourcompetitorsmarketingstrategies?!Whatdistributionchannelsdoyourcompetitorsuse?!Howsustainablewillyourcompetitiveedgebe?Why?!Howwillcompetitorsreacttoyourmarketlaunch?Howwillyourespondtothisreaction?!Comparethestrengthsandweaknessesofyourmajorcompetitorswithyourownintheformofanoverview!4.5.Marketingandsales”Marketingisfartooimportanttobelefttothemarketingdepartment.”DavidPackard,Entrepreneur27 Keyelementsofawell-conceivedbusinessconceptarewell-plannedmarketingandsalesactivities.Theyrequireapersuasivedescriptionofyourstrategiesformarketlaunch,marketing,andthemeasuresplannedforsalespromotion.Askeletonframeworktofollowisthatofthefour”Ps”:product,price,place,andpromotion.1.ProductYouroriginalproductideahasalreadygivenyousomesenseofthecharacteristicsofyourproduct.Afteracloseranalysisoftheneedsofvariouscustomersegments,younowmustevaluatewhetheryourproductactuallymeetsthemortowhatextentitmayrequireadaptation.Thisraisesthequestionofwhetheryoushouldmanufactureonesingleproductforallsegmentsorwhetheryouwanttoadjusttheproducttomeettheneedsofindividualsegments.2.PriceThebasisforanattainablepriceisthewillingnessofcustomerstopaythepriceaskedofthem.Thiscontradictstheconventionalwisdomthatpriceisderivedfromcosts.Ofcourse,costisaconsiderablefactor,butthecost-priceratioonlybecomescriticalwhenthepriceaskedwillnotcovercostswithintheforeseeablefuture.Inthiscase,itisadvisabletogetoutofthebusinessasquicklyaspossibleor,betteryet,nevertogointothebusinessinthefirstplace.Thepriceyoucanaskdependsentirelyonhowmuchthevalueofyourproductisworthtothecustomer.Youhavedefined,andperhapsquantified,thecustomervalueinthebusinessconceptorproductdescription.Nowdefineapricebracketbasedonthequantifiedcustomervalueofyourproduct.Youcanverifyandrefineyourassumptionsthroughdiscussionswithpotentialcustomers.Thepricingstrategyyouchoosedependsonyourgoal:Doyouwanttopenetratethemarketquicklybygoingwithalowprice(penetrationstrategy)?Or,doyouwanttogeneratethehighestpossiblereturnfromtheout-set(skimmingstrategy)?Newcompaniesgenerallypursuetheskimmingstrategyforgoodreason:·Anewproductispositionedas”better”thanpreviousoptions,soahigherpricecanbejustified.·Higherpricesgenerallyleadtohigherprofitmarginsandallowthenewcompanytofinanceitsowngrowth.Newinvestmentscanbefinancedoutofprofitsandoutsideinvestorsarenolongerneeded.·Unliketheskimmingstrategy,thepenetrationstrategygenerallyrequireshighinitialinvestmentinorderforsupplytomeetthehighdemand.Thisheightenedinvestmentriskissomethinginvestorsusuallyprefertoavoid.Certainsituationsmakefollowingapenetrationstrategythebetterchoice:·Settinganewstandard.NetscapedistributeditsInternetbrowserfreeofcharge,thussettingastandard.WiththeMacintosh,however,Apple28 followedaskimmingstrategyandmissedthechancetoestablishtheMacasthenewstandard.·Highfixedcosts.Businesseswithhighfixedcostsareforcedtofindawideaudienceasquicklyaspossibletomakethosecostsworthwhile.FixedcostsatFederalExpress,forexample,forairtransportandsortingfacilities,arethesamewhethertheydeliverthousandsormanymillionsofletters.·Competition.Iftheentrybarriersarelowandtoughcompetitionislikely,apenetrationstrategyisthebestwaytobefasterthanthecompetitionincapturingalargemarketshare.Suchcasesnaturallyalsoraisethequestionastowhetherthistypeofbusinessisappropriateforastart-up.3.PlaceYourproductorservicewillsomehowhavetoreachthecustomerphysically.Althoughthismaysoundsimple,itinvolvesanothermonumentalmarketingdecision:Inwhatway,viawhichdistributionchannel,doyouwanttodeliveryourproduct?Thechoiceofdistributionchannelisinfluencedbyvariousfactors,suchashowmanypotentialcustomerswillyouhave?Aretheycompaniesorindividuals?Howdotheyprefertoshop?Doestheproductrequireexplanation?Isitinanupperorlowerpricebracket?Basically,youwillhavetoconsiderwhetheryourcompanywillhandledistributionitself,orwhetheraspecializedoperationwillhandleitforyou.Thissortof”make-or-buy”decisionwillhaveasignificantimpactonboththeorganizationandthebusinesssystemofyourenterprise.Thechoiceofdistributionchannelisthuscloselyrelatedtoothermarketingdecisionsandwill,inturn,affectothermeasures.Distributioncanberoughlycategorizedintotwoforms:directormulti-channel.Technologicaldevelopments,particularlyininformationtechnology,havegreatlyexpandedthespectrumofdistributionchannelsoverthepastfewyears.Hereisaselection:·Third-partyretailers.Productsaresoldviaretailerswhohaveeasyaccesstopotentialcustomers.Here,itisimportanttoacquireagoodshelfposition,whichisobviouslyalsosoughtbythecompetitionandisaccordinglyexpensive.Theproductmustalsoofferretailersanattractiveprofitiftheyaretoincludeitintheirrangeatall.·Outsideagents.Specializedcompaniesactasagentsforthedistributionofproductsfromvariousmanufacturers.Theytakeoverthefunctionofthein-housesalesperson.Outsideagentsarerelativelyexpensive,althoughonlyforthesalestheyconcludesuccessfully.Theymakenocommissioniftheydonotselltheproduct,makingthemanattractivechannelfornewcompaniessinceriskislimited.Goodagents,however,arenotalwayseasytofind.·Franchising.Abusinessconceptisputintopracticeindependentlybyafranchiseewhopaysalicensingfee,wherebythefranchisermaintainscontrolofthebusinesspolicies(McDonald’sisanexample).Franchisingenables29 rapidgeographicgrowth,whileensuringcontrolofthesalesconceptwithouthugepersonalinvestment.·Wholesalers.Itcanbedifficultforasmallcompanytomaintaincontactwithalargenumberofretailers.Awholesalerwhohasgoodcontactstotheretailtradecantakeoverthisactivity,helpingtoimprovemarketpenetrationwhileloweringdistributioncosts.Ontheotherhand,wholesalersoftendemandacutfortheirefforts.·Stores.Sellinginyourownstoreisagoodchoicewhenthedesignofthepurchasingexperienceiscentraltotheproduct,andonlyasmallnumberofstoresisnecessarytocoverthemarket.Independentshopswillrequireinvestment,butwillalsoallowthegreatestcontroloverdistribution.·Ownsalesstaff.Salesagentsareabovealldeployedwhentheproductiscomplex(e.g.,capitalgoods),requiringextensiveknowledgeoftheproduct.Face-to-facecustomervisitsareexpensive;thenumberofcustomersmustbefairlysmall.Havingyourownsalesstaffasthedistributionchannelisrelativelyexpensiveandonlyworthwhileforinvolvedproducts.·Directmail.Selectcustomersreceiveamailingthroughthepostalservice.Addressescanbepurchasedfromdatabasecompaniesandsortedaccordingtodesiredcriteria.Thesuccessofthedirectmailingdependsonwhetherthereaderfeelsanimmediateappeal–otherwise,itlandsinthewastebasket.·Callcenter.Throughadvertising,customersareinvitedtoorderaproductbytelephone.Simpleproductscanbedistributedtomanycustomersinthisway,withnoneedtosetupstoresthroughouttheentiresalesregion.Youcanalsohiretheservicesofspecializedcallcenteroperators.·Internet.TheInternetisarelativelynewmarketingchannel,throughwhichaglobalmarketcanbereachedatminimalcost.4.PromotionBeforepotentialcustomerscanappreciateyourproduct,theyhavetohearaboutit.Andtoachievethis,youmustadvertisetoattractattention,inform,persuade,andinspireconfidence.Thosearetheobjectivesofcommunication.Communicationmustexplainthevalueofyourproductorservicetoyourcustomers,aswellasconvincecustomersthatyourproductmeetstheirneedsbetterthancompetingoralternativesolutions.Therearevariouswaysofgettingthecustomer’sattention:·Classicadvertising:newspapers,magazines,tradejournals,radio,TV,movietheaters·Directmarketing:directmailtoselectcustomers,telephonemarketing,Internet·Publicrelations:articlesinprintmediaaboutyourproduct,businessoryou,writtenbyyouorajournalist30 ·Exhibitions,tradefairs·CustomervisitsCommunicationisexpensive,somakethemostofit.Calculateexactlyhowmuchadvertisingyoucanaffordpersaleandchooseyourcommunicationmessagesandmediaaccordingly.Focusedcommunicationyieldsthebestresults.Whenyouaddressyourcustomers,focusonthepeoplewhomakethepurchasingdecisionorhavethegreatestinfluenceonthepurchasingdecision.KEYQUESTIONS:MarketingandsalesPhase1!Whatfinalsalepricedoyouwanttocharge(estimated)?Whatcriteriadidyouusetoarriveatthisfinalsaleprice?Howhighistheprofitmargin(estimated)?!Whatsalesvolumesandsalesrevenuesareyouaimingfor(estimated)?Phase2!Inwhichpartialmarketsegmentswillyoumakeyourmarketentry?Howdoyouplantoturnthis“toehold”intoahigh-volumebusiness?!Whatsalesvolumesareyoutargeting(detaileddatabymarketsegment)?!Describethetypicalprocessofsellingyourproduct/service.Who,amongyourbuyers,ultimatelymakesthepurchasingdecision?!Whattargetgroupswillyoureachbywhatmeansofdistribution?!Doyouwanttopenetratethemarketquicklywithalowprice,orbringinthehighestreturnfromthestart?Explainyourdecision!!Howwillyoudrawtheattentionofyourtargetgroupstoyourproductorservice?!Howwillyouwooreferencecustomers?!Howmuch,intimeandresources,willitcosttoacquireacustomer?!Whatadvertisingmaterialswillyouusetodoso?!Whatpartdoservice,maintenance,andhotlinesplay?!Howdifficultwillitbeand/orwhatwillitcosttocreatelong-lastingcustomerloyalty?!Whatotherplanningstepsarenecessaryintherun-uptolaunchingyourproduct/service?Drawupaschedulewiththemostimportantmilestones!Phase3!Whatdemands(employeenumber,qualifications,andoutfitting)musttheoperationmeetinordertoeffectivelyimplementitsmarketingstrategy?Whatisyourestimatedexpenditureforthisarea?!Howwillsalesvolumeandoperatingresultsbespreadoutamongthevariousdistributionchannels(estimated)?!Whichmarketshareperdistributionchanneldoyouplantocapture?!Whatareyourexpenses?Atlaunch–andlater.!Whatpricewillyouchargeforyourproduct/servicepertargetgroupanddistributionchannel?!Whatpaymentpolicieswillyoulaydown?31 4.6.Businesssystemandorganization”Organizationsexisttoenableordinarypeopletodoextraordinarythings.”TedLevitt,Editor,HarvardBusinessReviewBusinesssystemEveryentrepreneurialassignmentiscomprisedoftheinterplayofanumberofindividualactivities.Whentheyarepresentedsystematicallyinrelationtooneanother,abusinesssystemresults.Thebusinesssystemmodelmapsouttheactivitiesnecessarytoprepareanddeliverafinalproducttoacustomer.Forclarity’ssake,theyaregroupedintofunctionalblocks.Devisingabusinesssystemisagoodwaytounderstandthebusinessactivitiesofacompany,thinkthemthroughsystematically,anddisplaythemwithtransparency.AgenericbusinesssystemcommontonearlyallindustriesandenterprisesisshowninExhibit10.GENERICBUSINESSSYSTEMResearchandProductionMarketingSalesServicedevelopmentExhibit10Usetheabovemodelasthestartingpointfordesigningyourownbusinesssystem.Youwillneedtoadaptittoyourownsituationandmakeitconcreteinordertoputitintopractice.Foramanufacturer,forexample,itmaybeusefultosubdividetheproductioncategoryintoseparatestages,suchaspurchasing,rawmaterialsprocessing,componentmanufacture,andassembly.Youmayalsoneedtoseparatesalesintologistics,wholesaledistribution,andretailsales,forexample.Anindividualplanwillbeappropriatetoeachcase,dependingontheindustryinwhichyouoperateand,ofcourse,thebusinessitself.Thebusinesssystemofacomputermanufacturerwillbeverydifferentfromthatofafastfoodchain.Andthebusinesssystemofadepartmentstoremaylookquitedifferentfromthatofadirectmerchandisingcompanyalthoughbothwillsellmanyofthesameproducts.Therearenogeneralrulesorstandardsforabusinesssystem.Yourownsystemshouldbelogical,complete,andusefulforplanning–justdon’tletitgettoocomplicated.Concentrateonthemajoractivitiesinyourbusinesssystem.Ateamofthreetofivewillnotbeabletocoveralltasksthemselves,eitherbecausetheydonothavetheabilitiesorbecausetheycouldnotdosowiththenecessaryefficiency.Togetherwithyourmanagementteam,thinkcarefullyaboutwhatactivitiesreallycreatesomethingnewandhowyouandyourstaffcanbestmakeuseofyourtimetocreatethehighestvalueforyourcustomerandgetaheadofthecompetition.Thebuzzwordhereisfocus.Onceyouhavedeterminedwhichactivitiesmakeup32 yourbusinesssystem,choosethosewhichyoucanexecutebetterthananyoneelse.Atrendtowardspecializationcanbeobservedinmanyindustries.Specializationisparticularlyimportantforstart-ups.Theyshouldconcentratealltheirenergyonjustafewselectactivitiesinthebusinesssystem.Atthebeginning,evensoftwaregiantMicrosoftconcentratedsolelyonthedevelopmentoftheDOS,leavingallotheractivitiesinthebusinesssystemuptoIBM.OrganizationInadditiontoabusinesssystem,youwillneedtoconsiderseveralotherorganizationalissues.Itisessentialthattasksandresponsibilitiesbeclearlydelegatedandthatyoudesignasimpleorganizationwithfewlevels.Therestwillfollowasneededduringoperation.Yourorganizationmustbeflexibleandalwaysadaptabletonewcircumstances.Bepreparedtoreorganizeyourcompanyrepeatedlyduringthefirstfewyears.Decidewhoisresponsibleforwhatineachbusinessarea(delegationoftasksandresponsibilities).Assoonasyouhavesetuptheinterdisciplinaryfunctions-suchasamanagement,humanresources,finance,andadministration-you’llbeupandrunning.Ifyoukeepyourorganizationsimple,eachstaffmemberwillknowwhichassignmentsheorshemustcompleteandcancarrythemoutindependently.Ontheotherhand,everyoneshouldbeinapositiontofillinforanotherteammemberforashorttimeifnecessary.(SeeExhibit11)SAMPLESTART-UPORGANIZATIONManagingDirectorMr.DuxResearchandProductionMarketingFinanceHumanDevelopmentResourcesandAdministrationMr.InventMr.FacitMs.OratoriaMr.PecuniaMr.DuxExhibit11BusinesslocationDescribebrieflythechoiceoflocationforyourbusiness.Donotenterintoalong-termrentalagreement,asyourbusinessmayhavetomoveinresponsetothegrowthyouanticipate.Youmayhavetomakethismovefairlyquickly.”Makeorbuy”andpartnershipdecisionsOnceyouhavedeterminedthecoreofyourbusinessandhavedrawnupthenecessarybusinesssystem,youwillhavetothinkaboutwhowillbestcarryouttheindividualactivities.Activitiesoutsideyourchosenfocusshouldbehandledbythirdparties.Butsupportingactivitieswithinthenewcompanydonotnecessarilyhavetobecarriedoutbyyou.Thesemayinclude33 bookkeepingorhumanresources.Foreachactivity,thequestiontoaskis:Dowedoitourselves,orhavesomeoneelsedoit-tomakeortobuy?Make-or-buydecisionsneedtobeconsciousdecisionstakenafterweighingtheadvantagesanddisadvantages.Supplierpartnerships,forexample,cannotbedissolvedfromonedaytothenext,andsomepartnerscannoteasilybereplacedif,forsomereason,theyarenolongeravailable.Whenconsideringmake-or-buydecisions,relyonthefollowingcriteria:·Strategicsignificance.Thoseaspectsofperformancethatmakeamajorcontributiontoyourcompetitiveadvantageareofstrategicimportancetoyourbusiness.Theymustremainunderyourcontrol.Atechnologycompanycouldhardlyrelinquishresearchanddevelopment,andaconsumergoodsmanufacturerwouldnevergiveawayitsmarketingactivities.·Suitability.Everybusinessactivitydemandsspecificabilitiesthatmaynotbeavailablewithinthemanagementteam.Yourteammust,therefore,considerwhetherinspecificinstancesitisbesttocarryoutaparticulartask,acquiringthenecessaryabilities,orwhetheritwouldbebettertohandoverthetasktoaspecializedcompany.Specialistsmaynotonlybeabletocarryouttheassignmentbetter,theymayalsobeabletoofferacostadvantagethankstohigherproductionvolumes.·Availability.Beforeyoumakeadecisiontobuy,youneedtofindoutwhethertheproductorserviceisavailableintheformorwiththespecificationsyourequire.Negotiate,wheneverpossible,withseveralsuppliers.Youwillusuallyfindthebesttermsinthiswayandwilllearnmoreabouttheserviceyouarebuying.Often,youcanhelpasupplierimproveitsperformance.Ifyoucannotfindsomeonetosupplywhatyouneed,youmayfindabusinesspartnerwhoiswillingtoacquirethenecessaryskillstodoso.Thequestionforastart-upishowyouwanttocooperatewithothercompanies.Everypartnershiphasitsadvantagesanddisadvantages.·Informal,non-bindingpartnershipsrepresentnogreatobligationforeitherside.Bothpartiescanendthepartnershipquicklyandeasily.Buttheymustalsolivewiththeknowledgethatsupplyordemandcoulddryupjustasquickly.Furthermore,supplierswillnotbeabletomeetallthespecialneedsofacustomersincetheycannotselltailoredproductstoalltheircustomers.Casualpartnershipsaretypicalformassproducts,every-dayservices,andstandardizedcomponentsforwhichreplacementbuyersandsellersareeasilyfound.·Closepartnershipsaresometimescharacterizedbyahighdegreeofinterdependence.Theyaretypicalofhighlyspecializedproductsandservicesorhightradevolumes.Inthesesituations,itisusuallydifficultforbothsidestochangepartnersortobuyorselllargequantitiesofspecialparts34 withinashorttimeperiod.Theadvantageforbothsidesisthesecurityofabindingrelationshipandthepossibilityofconcentratingonone’sownstrengths,whilebenefitingfromthestrengthsofpartners.Inorderforapartnershiptodevelopintoasuccessfulbusinessrelationship,anumberoffactorsmustbeconsidered:·Win-winsituation.Bothsidesmustbeabletogainafairadvantagefromtherelationship.Withoutanincentiveforbothsides,apartnershipcannotbesustained.·Risksandinvestments.Partnershipsinvolverisksthatareusuallybrushedasidewhenbusinessisgoingwell.Asupplierwithanexclusivityagreementcan,forexample,endupinadifficultsituationifthebuyersuddenlycutsbackproductionandpurchasesfewercomponents.Thisisespeciallytrueifthesupplierhasacquiredspecializedproductiontoolingthatcannotimmediatelybeusedforotherordersandbuyers.Conversely,abuyercanfacedifficultiesifamajorsupplierceasestodeliver(bankruptcy,fire,strike,etc.).Suchrisksandpossiblefinancialconsequencesmustbethoughtthroughfromtheoutsetandperhapsregulatedbycontract.·Dissolution.Asininterpersonalrelationships,businessrelationscanalsosuffertensionandresultinirreconcilabledifferences.Makesuretolaydownindetailunderwhichconditionsapartnercanwithdrawfromapartnership.Whenworkingonyourbusinessplan,itisnottooearlytobeginthinkingaboutwhomyoumaywanttocooperatewithandwhatformthismaytake.Partnershipswillallowayoungcompanytobenefitfromthestrengthsofestablishedcompaniesandfocusondevelopingtheirownstrengths.Throughpartnerships,youcanusuallygrowfasterthanyoucouldonyourown.KEYQUESTIONS:BusinesssystemandorganizationPhase2!Whatdoesthebusinesssystemforyourproduct/servicelooklike?!Whatactivitiesdoyouwanttohandleyourself?!Wherewillthefocusofyourownactivitieslie?!Whatbusinessfunctionsmakeupyourorganization,andhowisitstructured?!Whatresourcesdoyouneed(quantitativeandqualitative)tocreateyourproduct/service?!Howhighisyourneedfortechnicalinput(rawmaterials,materialstocreateyourservice)?!Whatwillyoumake,whatwillyoubuy?!Whichpartnerswillyouworkwith?Whataretheadvantagesofworkingtogetherforyouandyourpartners?Phase3!Wherewillyoulocateyourbusiness?35 !Whatcapacityforproductmanufactureandserviceproductiondoyouplan(numberofunits)?!Howmuchwillproductionanddeliveryofyourproduct/servicecost?!How,andatwhatcost,canyouadjustyourcapacityintheshortterm?!Whatmeasuresareplannedforqualityassurance?!Ifyouneedawarehouse,howwillyouorganizeyourinventory?!Howmuchofyourproducthastobeputinstorage?!Howareyourcostsstructured(fixed,variable)?4.7.Implementationschedule”Businessislikechess:Tobesuccessful,youmustanticipateseveralmovesinadvance.”WilliamA.Sahlmann,ProfessorInvestorswanttoknowhowyouenvisionthedevelopmentofyourbusiness.Arealistic5-yearplanwillinspirecredibilityamonginvestorsandbusinesspartners.Moreover,itwillhelpyouthinkthroughyourvariousactivitiesandinterdependencies.Youwillendangeryourbusinessifyouattempttoreachyourtargetswithfaultyand,aboveall,overlyoptimisticplanning.DrawingupyourimplementationscheduleConcentrateonthemostmajormilestonesandthemostimportantinterdependentevents.Thefollowingthreeelementswillusuallysuffice:·Ganttimplementationschedule(forasampleGantttimeline,seeCityScapecasestudy)·Majormilestones·ImportantconnectionsandinterdependenciesbetweentheworkassignmentgroupingsHumanresourcesplanningAsyournewbusinesstakesoff,systematicpersonnelplanningwillbecomemoreandmoreindispensable.Growthwillrequireyoutorecruitnewemployeeswhowillhavetobetrainedandintegratedintothebusiness.Maintainingasimplystructuredworkingenvironmentwillhelpyoudrawupclearjobdescriptionsandseekjusttherightemployees.Keepinmindthataqualified,specializedworkforcemaybedifficulttofindevenintimesofhighunemployment.Youwilloftennotbeabletoavoid”stealing”goodemployeesfromcompetitors.Includecostsinyourpersonnelplanninginordertoarriveatthetotalcostofhumanresources(wagesandindirectlaborcosts)fortheincomestatementinyourbusinessplan.Thecostofpersonneldependsonanumberoffactors,suchastheindustryitself,employeequalifications,andage.Additionally,indirectlaborcostscanamounttoover50%ofthewage.36 InvestmentanddepreciationplanningInvestmentanddepreciationplanningincludesallinvestmentsthatmaybecapitalizedandthecorrespondingwrite-offs.Theamountofdepreciationdependsontheservicelifeplannedfortheproperty.Usually,propertyiswrittenoffinfullover4to10yearsinequalannualamounts(straight-linemethod).Investmentsaretobeincludedintheliquiditycalculation,andthetotalamountofannualwrite-offslistedintheplannedincomestatement.KEYQUESTIONS:ImplementationschedulePhase3!Whatarethemostimportantmilestonesforthedevelopmentofyourbusiness,andwhenmusttheybereached?!Howdoyouplantostructuretheworktoreachthesetargets?!Whichtasksandmilestonesareinterdependent?!Forwhichtasks/milestonesdoyouanticipatebottlenecks?!Howmanynewemployeeswillyouneedintheindividualbusinessareasoverthenext5years?Whatwillthiscost?!Howmuchrealcapitalisnecessarytoachieveinitialsales?!Listyourplannedshort-terminvestments!!Listyourplannedlonger-term(3to5years)investments!!Whatinvestmentswillberequiredwhenwhichmilestonesarereached?!Howhighistheannualdepreciationforeachinvestment?37 4.8.Opportunitiesandrisks”Oneofthegreatestmythsaboutentrepreneursisthattheyareallriskseekers.Allsanepeoplewanttoavoidrisk”WilliamA.Sahlmann,ProfessorTheobjectofthisexerciseistoidentifyamarginoferrorfordeparturesfromyourassumptions.Ifpossiblewithreasonableeffort,itisadvisabletodrawupbest-caseandworst-casescenariosinvolvingkeyparameterstoidentifytheopportunitiesandrisks.Thesecalculationswillallowventurecapitaliststojudgehowrealisticyourplansare,andtobetterassesstheriskoftheirinvestment.Changevariousparametersinthescenarios(suchaspriceorsalesvolumes)tosimulatehowachangeinconditionsmightaffectyourkeyfigures(sensitivityanalysis).KEYQUESTIONS:OpportunitiesandrisksPhase2!Whatbasicrisks(market,competition,technology)doesyourbusinessventureface?!Whatmeasureswillyoutaketocountertheserisks?!Whatextraordinaryopportunities/businesspossibilitiesdoyouseeforyourcompany?!Howcouldanexpansionofyourcapitalbasehelp?Phase3!Whatwillyourplanninglooklikeforthenext5financialyearsunderbothabestandworstcasescenario?!Whateffectwillthishaveonyourneedforcapitalandyourreturn?!Inyourview,howrealisticarethesescenarios?!Whatconsequencesdotheyhaveonyourbusinessplanning?4.9.Financialplanningandfinancing”Planningsubstituteschaosformistakes.”UnknownFinancialplanningassistsyouinevaluatingwhetheryourbusinessconceptwillbeprofitableandcanbefinanced.Tothisend,theresultsofallprecedingchaptersmustbecompiledandconsolidated.Projectedgrowthinvalueresultsfromtheplannedcashflowsfromyouroperativebusiness.Thesearerevealedthroughliquidityplanning,whichalsoprovides38 informationonyourvariousfinancingneeds.Inaddition,theprofitsituationofyourbusinesscanbeseenintheincomestatement.Thisstatementisalsonecessaryaccordingtocommercialandtaxlaw.Therearemanywaystopresentthefigures.Theappendixcontainssampletablesofhowtoperformliquidityplanningandmakeupanincomestatement,aswellasabalancesheet.Minimumrequiredoffinancialplanninginyourbusinessplan:!Acashflowcalculation(liquidityplanning),incomestatement,balancesheet!Forecastsover3to5years,atleast1yearbeyondthepointofbreakingeven,thatis,beyondthegenerationofpositivecashflow!Detailedfinancialplanningforthefirst2years(monthlyorquarterly),thereafterannually!Allfiguresmustbebasedonreasonableassumptions(onlythemainassumptionsneedtobedescribedintheplan)PlannedincomestatementWhetheracompany’sassetsgrowordiminishdependsonthebottomlineattheendofayear.Theincomestatementcanhelpyouforecastthis.Incontrasttoliquidityplanning(=plannedcashflow),anincomestatementfocusesontheissueofwhethertransactionsleadtoanincrease(=revenue)oradecrease(=expense)inthenetworthofyourbusiness(definedasthesumofallassetsminusdebt).Gothroughyourentirebusinessplananddecidewhetheryourassumptionswillleadtorevenuesorexpensesand,ifso,howhightheywillbe.Ifyouareindoubtabouttheexactamountofcostsyourbusinesswillincur,gatherquotesandestimates.Donotforgettocoverthecostofyourpersonallivingexpenses.Inthecaseofalimitedliabilitycompany,thiswouldbethesalaryofyourgeneralmanager.Listwrite-offsinyourinvestmentanddepreciationplanning.Thecostofinvestmentsthemselves(i.e.,thepurchasepriceoftheinvestment)isnotincludedintheincomestatement,becausetheamountpaidoutdoesnotleadtoachangeinthenetworthofthebusiness.Materialcostscompriseallexpensesforrawmaterials,auxiliaries,expendablesupplies,andpurchasedgoodsandservices.Yourplannedhumanresourcesexpenditureincludeswagesandsalariesplussocialsecuritycontributionsandtaxesandislistedunderpersonnelcosts.Forthepurposeofsimplification,thecategory”othercosts”istreatedasacollectiveitem,includingamongotherthings,rent,insurance,officesupplies,postage,advertising,andlegalcounsel.Whenassigningindividualrevenuesandexpensesstrictlyobservelegalregulations.Finally,calculatethedifferencebetweenallrevenueandexpensesinafinancialyear,bywhichyouwillarriveatanannualnetprofit/loss.Thiswillgiveyouanoverviewoftheoperatingresult,butitwillnotgiveyouareliableassessmentofyourlevelofliquidfunds.Forthis,youwillneedliquidityplanning.39 Salesofyourproductorservicemaybebookedinthecurrentfinancialyear,eventhoughpaymentdoesnotoccuruntilthenext;youwillneedtolistthesalesrevenueeventhoughthemoneyhasnotyetbeendepositedintoyouraccounts.Thesameistrueforexpenses.Theincomestatementisgenerallyplannedinannualintervals.Toenhancetheaccuracyofyourplanningforthefirstyear,youshouldmakemonthlyforecasts,andquarterlyforecastsforthesecondyear.Forthethird,fourth,andfifthyears,continuetomakeannualprojections.YoucanmakeuseofthetablescontainedintheappendixofthisGuidetolistthefigures.LiquidityplanningYourcompanymusthaveacertainamountofcashonhandatanygiventimeinordertoavoidbecominginsolvent,whichleadstobankruptcythatwillmeanthefinancialruinofyourbusiness.Detailedliquidityplanningshouldhelpensureapositivecashflow.Theprincipleissimple:Receiptsarecompareddirectlytodisbursements.Pleasenotethatwritingorreceivinganinvoicedoesnotmeanthatthemoneyisalreadyinyouraccountorthatyouhavepaidthebill.Liquidityplanningisconcernedwiththedateofpaymentwhenthemoneyactuallycomesinorgoesout.Thus,liquidityplanninginvolvesonlythosetransactionsthatcauseachangeinyourcashreserves.Depreciation,liabilities,andnon-marketoutputarenotincluded.Layouttheamountandtimingofallthepaymentsyouexpect.Yourcompanyissolventwhenthesumofitsreceiptsisgreaterthanthesumofitsdisbursementsatanygiventime.Youwillhavetodrawoncapitalforthosetimeswhenthisplanningdoesnotcoverallexpenses.Thesumofalltheseindividualpaymentswillequalthetotalcapitalrequiredforthatplanninginterval.Thefartheryoulookintothefuture,themoreuncertainyourplanningwillbe.Liquidityplanningshouldthusbecarriedouteverymonthforthefirstyear,quarterlyforthesecondyearandonlyannuallyforthethird,fourthandfifthyears.TheappendixofthisGuidecontainstablesyoucanuseforanexactcompilationofthefigures.ProjectedbalancesheetVenturecapitalistsareinterestedinseeinghowyourassetsareexpectedtogrowasrepresentedonaprojectedbalancesheet.Here,thetypeandvalueoftheassetsareplacedontheassetsideofthebalancesheetacrossfromthesourceofthecapitalontheliabilitiesside.Aswiththeincomestatement,thereisastandardaccountingformat,requiredbylaw,forbalancesheets.Theyarepreparedatannualintervals.Again,theappendixofthisGuidecontainstablesyoucanuseforanexactcompilationofthefigures.FinancingneedsLiquidityplanningenablesyoutodeterminetheamountofcapitalyouwillneedandwhenyouwillneedit,butitdoesnotindicatehowtheseneedswillbemet.Webasicallydistinguishbetweenequity(investorshaveastakeinthebusiness)andloancapital(whichisborrowedfromoutsidesources).Selecttherightmixforyourbusinessfromthemyriadsourcesoffinancingavailabletoyou(Exhibit12).”Youcan’tgetsomethingfornothing,”thesayinggoes-andthesameistrueofmoney.Yourfamilymayasklittleinreturnforfinancialassistance;professionallendersaremoredemanding.40 Allthemanagementteamcanofferinvestorsfortheircashisapromise–notexactlyagoodpositionfromwhichtonegotiate.Nevertheless,youhaveagoodchanceofbeingSOURCESOFCAPITALATVARIOUSSTAGESOFDEVELOPMENTSeedphaseStart-upGrowthEstablishmentPersonalsavingsFamilyloansGovernmentgrantsIndividuals(usinessangelsVenturecapitalMortgagesLeasesBankloansStockexchangeExhibit12financiallysuccessfulifbusinessgoeswell,becauseprofessionalinvestorsalsohaveaninterestintopperformancefromtheteam.Beclearaboutyourneedsandexpectationsandthoseofyourinvestors.Ifyouareseekingalong-termcommitmentandaresatisfiedwithasmallcompany,youareprobablywelladvisedtomakeuseoffamilyfundsandloansfromfriendsandbanks.Youwillretainamajorityshareholding,butyouaresignificantlyrestrictingyourchancesforgrowth.If,however,youdesirerapidexpansion,youwillwanttoprocureventurecapital.Venturecapitalistswillgenerallyexpecttoobtainalargeshareofthecompany.Youmay,infact,havetorelinquishthemajorityoftheequity.Professionalinvestors,however,arenotinterestedinmanagingthebusinessaslongasyoumeetyourtargets,eveniftheyhavethemajorityshareholding.Theyhave,afterall,investedinthemanagementteaminordertoleadittosuccess.Theywillsupportyouactivelywiththeirmanagementskillsandcontributespecialtyknowledge,suchaslegalormarketingexpertise,ties,andcontacts.Adealcanbeverycomplicated.Itisalwaysadvisabletocontactexperiencedentrepreneursandgettheexpertadviceoftrustees,taxadvisors,andlawyers.Youmayalsowanttogatheranumberofbidsfromvariousinvestors.Donotbeputoffbycomplicatedarrangements.Thereareusuallylegitimatereasonsforthem,suchastaxbreaks,controlofthefundsinvested,etc.Beabsolutelycertain,however,thatyouunderstandallthedetailsofthedeal.Calculatingtheinvestor’sreturn41 Investorsevaluatethesuccessofaninvestmentbythereturntheygetonthecapitalinvested.Asaresult,anticipatedreturnshouldbeapparentataglanceinthebusinessplan.IntheCityScapecasestudy,forexample,investorsputatotalof$2.5millionintotheenterpriseduringitsfirst3years($0.9,$1.1,and$0.5million,respectively).After5years,andlistingonthestockexchange,realisticproceedsofapproximately$25millionareexpected.Howhighisthereturninthiscase?(Exhibit13)CALCULATINGTHERETURN$Millions25.00-1.06Year0Year1Year200Seriesofcashflows-0.90-0.53Year3Year4Year5-1.06Discountfactor1.000.580.340.200.110.07Discountedvalueof-0.90-0.62-0.18001.70Total0cashflowsatIRRof72%Exhibit13Fromthepointofviewoftheinvestor,allfundscontributedtoanewcompanyresultfirstinnegativecashflows.Afterabusinessbreakseven,positivecashflowswillnotimmediatelybepaidoutintheshapeofdividends,butwillbefirstusedtostrengthenthebalancesheet.Cashwillbereturnedtotheinvestorsatrealization.Becausecashflowswilloccuroverseveralyears,theymustbediscounted,thatis,calculatedbacktothepresent(interestandcompoundinterestcalculation).Thediscountfactorsforthevariousyearscanbearrivedatusingthefollowingformuladiscountfactor=1(1+r)Twherebyr=thediscountrateinpercentandT=theyearinwhichthecashflowtakesplace.Tocalculatethereturn,theinternalrateofreturn(IRR)methodisused.TheIRRisthediscountrateatwhichthesumofallpositiveandnegativecashflows,discountedatpresent,resultsinzero.TheIRRfortheCityScapeprojectexampleis72%.Thatmeansthattheinvestorsgetanannualreturnof72%ontheircapital.Thisisareasonablereturnconsideringtheriskinvolved.MostcalculatorsandspreadsheetshaveaspecialIRRfunctionwithwhichtocalculatetheIRR(inExcelthisistheIRR()function).Itcanalsobecalculatedbyhand.42 Valuationofacompany(i.e.,workingouthowmuchamarketispreparedtopayforshareswhenabusinessgoespublic)isanartinitself.Asimpleruleofthumbisthatthevalueissixtoeighttimesthecashflowornetprofit(aftertaxes)ofthebusinessintheyearofinitialpublicoffering.InthecaseofCityScape,afactorofsixmultipliedbythenetprofitinthefifthyear($4.2million)wasused,whichresultsinavaluationof$25.2million.Ifyouhavenoexperienceinfinancialplanning,consultingwithcoachesorexperts(e.g.,taxconsultantsoraccountants)ishighlyrecommended.Inparticular,discusstheissuesofturnoversalesandincometaxes,whichhavebeensimplifiedhere,withataxadvisoratoneofthecompetitioneventslistedatthefrontofthisGuide.Notethatmostbusinessventuresfailduetolackoffinancialplanning.Ifyoudon’thavesomeonewiththenecessaryskillsonyourteamalready,startlooking!KEYQUESTIONS:FinancialplanningandfinancingPhase3!Howwillyourrevenues,expenses,andincomedevelop?!Howwillyourcashflowdevelop?Whenwillyouexpecttobreakeven(=sumofallrevenuesgreaterthanthesumofallexpenses)?!Howhighisyourneedforfinancingbasedonyourliquidityplanning?!Howmuchcashisneededintheworstcasescenario?!Whatassumptionsunderlieyourfinancialplanning?!Whichsourcesofcapitalareavailabletoyoutocoveryourfinancingneeds?!Whatdealareyouofferingpotentialinvestors?!Whatreturncaninvestorsexpect?!Howwilltheyrealizeaprofit(exitoptions)?Thispageintentionallyblank43
简介：TableofContents1.TheRoutefromConcepttoCompany…………………………………………………………………….21.1.Successfactors………………………………………………………………………………………………21.2.Stagesofdevelopment………………………………………………………………………………….32.TheBusinessIdea……………………………………………………………………………………………………62.1.Developingabusinessidea…………………………………………………………………………..62.2.Elementsofapromisingbusinessidea………………………………………………………….72.3.Protectingyourbusinessidea……………………………………………………………………..102.4.Presentingyourideatoinvestors………………………………………………………………..113.TheBusinessPlan………………………………………………………………………………………………….133.1.Advantagesofabusinessplan…………………………………………………………………….133.2.Characteristicsofasuccessfulbusinessplan……………………………………………….133.3.Theinvestor’spointofview………………………………………………………………………..153.4.Tipsonpreparingaprofessionalbusinessplan…………………………………………..174.StructureandKeyElementsofaBusinessPlan……………………………………………………..194.1.Executivesummary…………………………………………………………………………………….194.2.Productorservice……………………………………………………………………………………….214.3.Managementteam………………………………………………………………………………………224.4.Marketandcompetition……………………………………………………………………………..244.5.Marketingandsales…………………………………………………………………………………….274.6.Businesssystemandorganization………………………………………………………………324.7.Implementationschedule……………………………………………………………………………364.8.Opportunitiesandrisks………………………………………………………………………………384.9.Financialplanningandfinancing………………………………………………………………..381 1.THEROUTEFROMCONCEPTTOCOMPANYNew,innovativecompaniesgenerallytrytogrowfromstart-upsintoestablishedcompanieswithin5years.Buttheycanseldomfinancetheiractivitiesalonealongtheway.Rather,theyaredependentonprofessionalinvestorswithconsiderablefinancialclout.Forentrepreneurs,financingisacriticalquestion–thebusinessplanmustthusbeconsideredfromthepointofviewofpotentialinvestorsrightfromtheoutset.1.1.SuccessfactorsSuccessfulcompaniesarisefromacombinationoffiveelements(Exhibit2).KEYFACTORSFORSUCCESSOFINNOVATIVESTART-UPSIdeas•Degreeofinnovation•Scope•PatentNetworkandexchange•CoachingTraditionalservicePeople•Networkingproviders•Inventors•Teambuilding•Attorneys•Entrepreneurs•Innovativeserviceprovider•Patentlawyers•Team–Venturecapitalists•Taxconsultants/members–Headhuntersaccountants–Angelinvestors•Market–High-techstart-upresearchersconsultantsCapital•Availability/amount•Needs/responsibilities•ExitsforinvestorsExhibit21.Nobusinessconcept,nobusinessHavinganideaisjustthebeginningofthecreativeprocess.Manyentrepreneursareinitiallyinfatuatedwiththeirinspiration,losingsightofthefactthattheirideaisthepointofdepartureforalongprocessofdevelopmentwhichmustface–andwithstand–toughchallengesbeforeitcanenjoyfinancingandmarketsuccessasamaturebusinessconcept.2.MoneymattersWithoutsomebodywhoinvestsmoneyintotheideatogrowitintoaviablebusiness,thisbusinesswillneverbecomeareality.Fromearlyon,therefore,muchattentionmustbepaidtoconvincinginvestorstoprovidethenecessaryfunding.2 3.Noentrepreneurs,noenterpriseGrowingnewfirmsisnotaone-personjob.Itcanonlysucceedwithateamof,usually,threetofiveentrepreneurswhosetalentsarecomplementary.Puttingtogetherwell-functioningteamsisadifficultprocess–onethattakestime,energy,andanunderstandingofhumannature.Donotloseanytimeinputtingyourteamtogetherandworkonperfectingitthroughouttheentirestart-upprocess.Thecharacteristicsofahigh-performancemanagementteamarediscussedinmoredetailinsection6.3ofthisGuide.4.TraditionalserviceproviderswillhelpyouclearthefirsthurdlesYouwilloftenneedtheadviceofprofessionalserviceproviders,suchaspatentlawyers,taxadvisors,andmarketresearchers-especiallyatthebeginning.Gettingtherightinformationearly(e.g.,forregisteringapatent)canhaveconsequencesforlatersuccessorfailure.5.Strongnetworksarea”shotinthearm”foreverynewcompanyProfessionalguidanceforpotentialentrepreneursthroughanetworkofsponsors,entrepreneurs,venturecapitalists,andserviceprovidersisdecisiveintransformingviableideasintorealcompanies.PrimeexamplesforsuchregionalnetworkscanbefoundinSiliconValleyandtheBostonarea.1.2.StagesofdevelopmentThetypicalprogressionofthestart-upanddevelopmentofgrowingcompaniesintoestablishedfirmscanbesubdividedintothreestages.Theendofeachstageservesasamilestoneforventurecapitalistsbywhichtogaugethestatusoftheirinvestment.Beingfamiliarwitheachstageandthechallengesitposesmayspareyouwastedenergyanddisappointment.Pleasenote,however,thatthethreestagesinthedevelopmentofafunctioningstart-updonotmatchthethreephasesinthedevelopmentofabusinessplanwithintheframeworkofthiscompetition(seeExhibit3).Ifyouintendtobesuccessful,thisstart-upprocessshouldinfluencebothyouractivitiesastheinitiatorofabusinessconceptandyourpathtowardformingyourowncompany.Toalargeextent,itisthedemandsofinvestorsthatwilldeterminehowyoumustapproachtheindividualstagesofthestart-up.STAGESOFSTART-UPDEVELOPMENTEstablishedcompanyStart-upExitofandgrowthinitialinvestorsBusinessplanFinancingpreparationdecisionsBusinessideaInterestofgenerationinvestorsExhibit33 Stage1:BusinessideagenerationThebeginningistheinspiration–yoursolutiontoaproblem.Itmustbeevaluatedtodetermineifitdeliversanactualcustomervalue,whetherthemarketisbigenough,andjusthowbigitwillbe.Theideaitselfhasnointrinsiceconomicvalue.Itacquireseconomicvalueonlyafterithasbeensuccessfullytransformedintoaconceptwithaplanandimplemented.Youwillneedtostartputtingtogetheryourteamassoonaspossible,findingpartnerswhocandevelopyourproductorserviceuntilitisreadyformarket(oratleastuntilshortlybefore).Inthecaseofproducts,thisstageusuallyinvolvesafunctioningprototype.Youwillmostlikelyhavetodowithoutventurecapitalduringthisstage.Youwillstillbefinancingyourplanwithyourownmoney,helpfromfriends,perhapsstateresearchsubsidies,contributionsfromfoundations,orothergrants.Investorsrefertothisas”seedmoney,”asyourideaisstillaseedling,notyetexposedtotheharshclimateofcompetition.Yourobjectiveatthisstageistopresentyourbusinessconceptandmarket–whichformsthefoundationofyournewcompany–soclearlyandconciselyastopiquetheinterestofpotentialinvestorsinhelpingyoucultivateyourideafurther.Stage2:BusinessplanpreparationAtthisstage,itismostimportanttofocusonthebigpicture:Don’tlosesightoftheforestforthetrees!Thebusinessplanitselfwillhelpyoutofocusasyoumustconsiderandweightherisksinvolved,prepareforanycontingency,andlearntoanticipateavarietyofpossiblesituationsor”scenarios.”Youwillneedtolaydownplansandcreateabudgetforthekeyactivitiesofthebusiness–fordevelopment,production,marketing,distribution,andfinance.Naturally,youwillneedtomakemanydecisions,suchaswhichcustomersorsegmentswillyoutarget?Whatpricewillyouaskforyourproductorservice?Whatisthebestlocationforyourbusiness?Willyouhandleproductionyourselforoutsourceittothirdparties?Andsoon.Inpreparingthebusinessplan,youwillcomeincontactwithmanypeopleoutsideyourstart-upteam.Inadditiontoinvestors,youwilltalktomanyspecialists,includingattorneys,taxadvisors,experiencedentrepreneurs,andexperts.Thebusinessplancompetitionorganizerswillhelpyougetintouchwithjusttherightpeople.Youwillalsohavetobeginreachingouttoyourpotentialcustomers(i.e.,bymeansofconsumersurveys)tomakeinitialassessmentsofyourmarket.Alwayskeepinmindthatcustomeracceptanceisanessentialprerequisitetothesuccessofyourcompany!Scoutaboutforpossiblesuppliersandperhapscloseyourfirstagreements.Youwillalsowanttobecomeawareofwhoyourcompetitorsare.Thiswholeprocesswillnotcomecheap.Theteammustcontinuetoearnalivingwhilerunningarudimentaryoperationandperfectingaprototype.Yetatthisstage,youshouldalsobeabletoestimateyourexpenses.Financingwillgenerallystillbeprovidedfromthesamesourcesyoureliedonduringstageone,althoughsomeinvestorsmaybewillingtomaketheoccasionaladvance.Thisstageconcludessuccessfullyforyouasanewentrepreneurwhenaninvestorexpressesawillingnesstofinanceyourundertaking.Stage3:Start-upandgrowth4 Nowthattheconceptualworkislargelycomplete,itistimetostartimplementingyourbusinessplan.Yourrolenowchangesfromthatofarchitecttothatofbuilder.Businesssuccessmustnowbesoughtandachievedinthemarket.Thedayofreckoninghascomewhenyouwilllearnwhetheryourbusinessconceptwasagoodand,ultimately,profitableone.InvestorexitenroutetobecominganestablishedcompanyThepulloutofyourinitialinvestorsisacompletelynormalstepinthedevelopmentofastart-up.Forifeverythinghasgonewell,yourriskyventurewillhavegraduallybecomeastableenterprise(seeExhibit4).Inthecourseofitsshortlife,youhavecreatedanumberofjobsandwooedmanycustomerswithyourinnovativesolutiontotheirproblem.Yourcommitmentispayingoffasthevalueofyourbusinessincreases.Aprofitableexithasbeentheobjectivefortheventurecapitalistfromtheoutset.Capitalrecoverycanhappeninverydifferentways.Normally,thebusinessissoldtoacompetitor,supplier,orcustomer.Oritislistedonthestockexchange(the”initialpublicoffering”orIPO).Itisalsopossibleforinvestorswhowantouttobepaidoffbytheotherpartners.5 2.THEBUSINESSIDEA”Thereisnothingintheworldaspowerfulasanideawhosetimehascome.”VictorHugoTheabovestatementundoubtedlyappliestoideasforstartinganewbusiness.Buthowdoyoucomeupwithsuchanidea?Andhowcanyouknowiftheideaforthebusinesswillhaveapromisingfuture?Studiesshowthatthelion’sshareoforiginalandsuccessfulbusinessideasweregeneratedbypeoplewhohadalreadyhadseveralyearsofrelevantexperience.GordonMooreandRobertNoyce,forexample,hadanumberofyearsatFairchildSemiconductorsbehindthembeforeteamingupwithAndyGrovetoformIntel.ButtherearealsoexamplesofrevolutionaryideasbroughttolifebymerenovicesasSteveJobsandSteveWozniakdemonstratedwhentheydroppedoutofcollegetostartAppleComputer.2.1.DevelopingabusinessideaIneconomicterms,asparkofgeniusisworthless,nomatterhowbrilliantitmaybe.Foranideatogrowintoamaturebusinessconcept,itmustbedevelopedandrefined,usuallybymanydifferentpeople.TheinitialideamustfirstpassaquickplausibilitycheckBeforeyoufollowuponanidea,youshouldevaluateitinlightofits(1)customervalue,(2)marketchances,and(3)degreeofinnovation,aswellasconsideringwhetheritwillbeboth(4)feasibleandprofitable.·Talkyourideaoverwithfriends,professors,experts,andpotentialcustomers.Thebroaderthesupportyoufindforyouridea,thebetteryouwillbeabletodescribeitsbenefitsandmarketopportunities.Youwillthenbewellpreparedwhenthetimecomestodiscussyourprojectwithprofessionalinvestors.·Isyourideareallynovel?Hassomeoneelsealreadydevelopeditorevenappliedtopatentit?·Willitbepossibletodevelopyourideainareasonableperiodoftimeandwithajustifiablelevelofresources?IttakesatleastfourweekstodevelopabusinessideaConsideringthemultiplestagesofdevelopment,itisimprobable–andfairlyunrealistic–thatyouwillspendfewerthanfourweeksdevelopingyourconcept.Generally,abusinessideaisnotworthyofbeingfinanceduntilitissoconcretethatitcanbelaunchedinthemarketintheforeseeablefutureatreasonablerisk.Investorstalkofthe”seedphase”ofabusinessconcept,6 whichusuallyhastobefinancedwith”soft”money(i.e.,fromsourcesthatasyetplacenohardandfastdemandsonthesuccessoftheidea).Theseedphasecantakelonger,inparticulariftheideaisaheadofitstime.Althoughtheperfectproducthasbeenfound,itcannotyetbemarketedbecausethedevelopmentofcomplementarytechnologiesorsystemsisstillintheworks.OneexampleistheInternet.Theideasformarketingproductsandservicescameearly,butalackofsecurityintheavailablepaymentsystemshamperedanddelayeditscommercialexploitationforsometime.2.2.ElementsofapromisingbusinessideaAbusinessideacanbeconsideredpromisingifithasthefollowingfourelements(Exhibit5):ELEMENTSOFAPROMISINGBUSINESSIDEA12ClearMarketofcustomeradequatesizevalueFeasibilitySufficientanddegreeofprofitabilityinnovation43Exhibit551.ClearcustomervalueThekeytosuccessinthemarketplaceissatisfiedcustomers,notgreatproducts.Customersspendtheirhard-earnedmoneytomeetaneedorsolveaproblem.Thefirstprinciplefordevelopingasuccessfulbusinessideaisthatitclearlyshowswhichneeditwillfulfillandhowitwilldoso.Initially,manyentrepreneurshavetheproductandthetechnicaldetailsofdesignandmanufactureinmindwhentheyspeakoftheirsolution.Notsofortheinvestor–theinvestorfirstlooksattheideafromtheperspectiveofthemarket.Forinvestors,customervaluetakestoppriority,andeverythingelseissecondary.What’sthedifference?Ifinnovatorssay,”ournewdevicecanperform200operationsperminute,”or”ournewdevicehas25%fewerparts,”theyarefocusingontheproduct.Bycontrast,saying,”ournewdevicewillsavethecustomeraquarterofthetimeand,therefore,20%ofthecosts,”or”ournewsolutioncanboostproductivitybyupto25%,”adoptsthecustomer’spointofview.Theproductismerelyameansofdeliveringvaluetocustomers.Thecustomervalueofaproductorserviceexpresseswhatisnovelorbetterabouttheitemwhencomparedtocompetitiveoffersoralternativesolutions.Assuch,itplaysakeyrolein7 settingyourproductapartfromothers–acoreissueinmarketing,aswewilllearn–andisessentialtothemarketsuccessofyourbusinessconcept.Try,wheneverpossible,toalsoexpressthecustomervalueinfigures.Marketingtheorystatesthatthecustomervaluemustbeformulatedintoauniquesellingproposition,orUSP.Thismeanstwothings:Firstofall,yourbusinessconceptmustbepresentedinawaythatmakessense(sellingproposition)tothecustomer.Manystart-upsfailbecausethecustomerdoesnotunderstandtheadvantageofusingtheproductorserviceand,asaresult,doesnotbuyit.Secondly,yourproductmustbeunique.Customersshouldn’tchoosejustanysolutionthathitsthemarket–theyshouldchooseyours.Youmust,therefore,persuadethemthatyourproductoffersagreaterbenefitoraddedvalue.Onlythenwillyourcustomersgiveyouanedge.Indescribingyourbusinessconcept,youneednotpresentafullyformulatedUSP,butitshouldbemoreorlessobvioustopotentialinvestors.2.MarketofadequatesizeAbusinessideawillhaveeconomicvalueonlywhenitsucceedsinthemarket.Thissecondprincipleofasuccessfulideademonstrateshowbigthemarketisfortheproductoffered,whichtargetgroup(s)itisdesignedfor,andtowhatdegreeitwilldifferfromthecompetition.Adetailedanalysisofthemarketisnotyetnecessaryatthispoint.Estimates,derivedfromverifiablebasicdata,willsuffice.Sourcescouldincludeofficialstatistics,informationfromassociations,articlesintradejournals,thetradepress,andtheInternet.Itshouldbepossibletodrawareasonableconclusionaboutthesizeofthetargetmarketfromthisbasicdata.Itissufficientforyoutosummarizetheresultsofthisinvestigationinyourpresentationofthebusinessidea.Thesameistrueforyourtargetcustomers;youwillonlyneedaloosedefinitionofwhotheywillbe.Describewhyyourbusinessideawillprovideaspecialvaluetothisgroupinparticular,andwhythisgroupisfinanciallythemostinterestingtoyou.Youwillalwaysfacecompetition–bothdirect,fromcompaniesthatofferasimilarproduct,andindirect,fromsubstituteproductsthatcanalsofulfillthecustomer’sneed.Apastamanufacturercompetesnotonlywithotherpastamanufacturers,butalsowithmanufacturersofriceandpotatoproductsandbakeriesand,moregenerally,withmanufacturersofallotherfoodstuffs.Yourbusinessideawillneedtodemonstratethatyouhaveunderstoodwhoyourcompetitorsare.Namethem–anddescribewhyandhowyoucantaketheleadwithyourbusinessidea.3.SufficientdegreeofinnovationBusinessideascanbeclassifiedalongtwodimensions-products/servicesandbusinesssystems.Ineachofthesecategories,youcandevelopsomethingneworcapitalizeonsomethingthatalreadyexists.Simplified,abusinesssystemisawayofunderstandinghowaproductorserviceisdeveloped,manufactured,andmarketed(Exhibit6).Theterminnovationisgenerallyusedinthecontextofnewproducts,whicharemadewithconventionalproductionmethodsanddeliveredtothecustomerthroughexistingdistribution8 channels.Microsoft,forinstance,developedDOS,makinguseoftheIBMsalesorganizationtobringittothemarket.Innovationsinbusinesssystemsarelessobvious,butjustasimportant.ThesuccessofDellisattributedtosignificantcostsavingsthankstoanewformofdirectdistributionandanovelproductionprocessinwhichacomputerisproducedonlyafteritisordered,andintheshortestpossibletimeframe.Indevelopingnewproducts,improvementofthemulti-layereddimension”customervalue”isattheforefront.Innovationsinthebusinesssystemaretargetedatlowercostsandfasterprocesses,savingswhichcanthenbepassedontothecustomerintheformoflowerprices.Itisrarethatbothtypesofinnovation–inproductandbusinesssystem–canbecombinedtocreateacompletelynewindustry.NetscapecontributedsignificantlytothesuccessoftheWorldWideWebbydistributingitsnewbrowserovertheInternetfreeofcharge.Indoingso,Netscapepassedupinitialsalesrevenuesbut,throughtheincreasednumberofvisitorstoitsWebsite,succeededinraisingadvertisingrevenues.4.FeasibilityandprofitabilityFinally,toarriveatanactualstart-up,thefeasibilityofthebusinessideamustbeassessed.Inadditiontospecificfactorsthatcouldmaketheprojectnotfeasible(e.g.,legalconsiderations,standards),theassessmentmayincludethetimeandresourcesneededtocarryouttheproject.Theconstructionofhotelsonthemoonmaybetechnicallyfeasible,forexample,buttheircost-benefitratioisunreasonable.Interwovenwiththefeasibilitycriterionisprofitability.Acompanymustbeabletogeneratelong-termprofit.Thisfourthelementofasuccessfulbusinessideashouldthusindicatehowmuchmoneycanbemadeandhow.Traditionally,profitcalculationsforabusinessaremadeasfollows:Acompanybuysmaterialorservices,therebyincurringcosts.Italsosellsproductsorservicestocustomers,thereby9 earningrevenues.Ifyourbusinessfollowsthispattern,itisnotnecessarytoprovideanygreaterdetailinthedescriptionofyouridea.Do,however,makeroughestimatesofanticipatedexpensesandprofits.Oneruleofthumbforgrowingcompaniesisthatthestart-upphaseshouldgenerategrossprofits(revenuesminusdirectproductcosts)of40%to50%.Butmanybusinessesdonotfunctionaccordingtothistraditionalmodel.McDonald’s,forexample,earnsitsmoneyfromthelicensingfeesitchargesfranchisers.TherestaurantownerpaysMcDonald’sforthenameandthewaytherestaurantisrun.Ifyourbusinessideaisbasedonthiskindofinnovationinprofitgeneration,youshoulddetailitinyourbusinessidea.KEYQUESTIONS:Businessidea!Whowillbuyyourproduct?!Whyshouldcustomersbuytheproduct?Whatneeddoesitfulfill?!Howwilltheproductbedistributedtothecustomer?!What,exactly,isinnovativeaboutyourbusinessconcept?!Howisthebusinessconceptunique?Isitprotectedbypatent?!Howistheproductbetterthancomparablealternatives?!Whatcompetitiveadvantageswillthenewcompanyhave,andwhycan’tacompetitorsimplycopythem?!Canmoneybemadewiththeproduct?Whatcostswillbeincurred,whatpricewillbeasked?2.3.ProtectingyourbusinessideaOnlyafewideasaregenuinelyingenious.Truebreakthroughsaretheresultofhardworkand,therefore,cannotbeeasilyreplicated.Acompromisemustbefoundtoprotecttheidea,whiledisclosingsufficientinformationtotestitsviability.PatentingEarlypatentingisrecommended,especiallyinthecaseofnewproductsorprocesses.Gettheadviceofexperiencedpatentlawyers:Thefuturesuccessofyourbusinesscandependonapatent,and,ineveryindustry,therearepowerfulcompetitorswiththemeanstokeepanunfavorablepatentfrombeinggranted.Butsomedegreeofcautionisadvisedasapatentcanalsomissthemarkwhenitcomestoprotectingyourideabymakingtheideapublic.Besuretokeepinmindifthepatentcanbeimproveduponeasily–andthusthwarted.TherecipeforCoca-Cola,forexample,isstill”secret”andhasneverbeenpatentedbecausethepatentcanbecircumventedwithaveryfew,neutral-tastingchanges.Confidentialityagreement10 Lawyers,trustees,andbankemployeesareallrequiredbylawtomaintainconfidentialityvis-à-vistheirclients’businesses.Venturecapitalistsalsohaveaninterestinkeepingthingsunderwraps,assomeonewithareputationfor”poaching”ideaswillnotbemadeprivytonewideasanytimeagainsoon.Thesameistrueforprofessionalconsultants.Aconfidentialityagreementcanbeeffectiveinsomecases.ThecoachesandorganizersinvolvedinEnterPrizearerequiredtosignaconfidentialityagreement;judgesareencouragedtodoso.But,likeeverylegaldocument,ithasitslimits,andtherearegrayareasthatcouldmakeitdifficulttoproveaviolationoftheagreementincourt.QuickimplementationYourbestprotectionagainstintellectualpropertytheftisprobablytoimplementyourplanasquicklyaspossible.Agreatdealofworkmustbedonebetweendreamingupanideaandopeningforbusiness.Thiseffortcankeeppotentialcopycatsatbay,becauseintheend,it’scrossingthefinishlinefirstthatmakesyouthewinner,nothavingthefastestshoes!2.4.PresentingyourideatoinvestorsHowyoupresentyourbusinessideatoaninvestorwillputallyourpreviouseffortstothetest.Itiscriticaltoattractattentionandpiqueinterestthroughcontentandprofessionalappearance.Goodventurecapitalistsarepresentedwithupto40businessideasperweek,andtheirtimeislimited.Insubmittingthebusinessidea,neitherfanfarenorawealthofdetailsisasimportantasaclearandthoughtfulpresentation.Example1:Thehardsell”Ihaveagreatideaforanew,customer-friendlymethodofpaymentwithabigfuture.Thisissomethingeverybodyhasalwayswanted.Youcouldearnalotofmoneyfromthis…”Theinvestorthinks,”Thatsoundslikealotofhotair.I’veheardofahundredsuchmiraclesolutionsbefore…Next!”Example2:Thetechnicalapproach”Ihaveanideaforacomputerizedmachinerycontrolsystem.Thekeyisthefully-integratedSSPchipwith12GByteRAMandtheasymmetricalXXP-baseddirectcontrolunit.Ittookme5yearstodevelopthis.”Theinvestorthinks,”Techie.Inlovewithtechnology.She’sherownmarket…Next!”Example3:Theentrepreneur”Ihaveanideathatwillenablecompanieswithupto100employeestosave3%to5%oftheircosts.Initialcost-priceanalyseshaveconvincedmethataspreadof40%to60%shouldbepossible.IhavefoundafocusedadvertisingchannelthroughtheAssociationofSmallandMedium-sizedBusinessesandtheABCMagazine.Theproductwillbedistributedbydirectsale.”Theinvestorthinks,”Aha!Shehasidentifiedthecustomervalue,andevenworkedoutthefigures!She’sthoughtaboutthemarketandtheprofitpotentialandknowshowshewillgettheproducttohercustomers.NowI’dliketogetalookattheproduct…”Theseexamplesdemonstratewhyclarityshouldbeyourforemostgoal.Itisbesttoassumethatinvestorsarenotfamiliarwiththetechnologyofyourproductortheindustryjargon.Theyarealsonotlikelytotakethetimetolookupanunknowntermoridea.Describingyourconcept11 clearlyandincisivelyisyournextgoal.Youmustbeabletoconveythebasicmechanicsofyourbusinessideatoaninvestorwithcredibility.Therewillbeplentyoftimeatalaterpointfordetaileddescriptionsandexhaustivefinancialcalculations.FormalrequirementsofabusinessconceptpresentationTitlepageNameoftheproductorserviceNameoftheperson(s)submittingConfidentialitynoticeIllustration,whereappropriate,oftheproductorserviceinactionBody4to7pages(includingaone-pageexecutivesummary)ClearstructurewithheadingsandindentationsasvisualorganizersCharts,illustrations,tablesMaximumof4illustrations,placedintheappendixUseonlyifnecessaryforcomprehensionMakereferencetotheillustrationsinthetextSimple,clearpresentationUniformformatThispageintentionallyblank12 3.THEBUSINESSPLAN”Writingabusinessplanforcesyouintodisciplinedthinking,ifyoudoanintellectuallyhonestjob.Anideamaysoundgreat,butwhenyouputdownallthedetailsandnumbers,itmayfallapart.”EugeneKleiner,VentureCapitalistThemodestterm”businessplan”doesnotreallydojusticetothisveryimportantbusinesstool.ThebusinessplanwasfirstusedintheU.S.asmeansofacquiringfundsfromprivateinvestorsandventurecapitalistswhothenparticipateinthecompanyasco-ownersandprovidethecapital.Thepresentationofthistypeofstart-upstrategyhasbecomeamandatorycourtesywhenseekingtodobusinesswithanypartners,includingcustomers,suppliers,anddistributors,tosaynothingofventurecapitalistsandbanks.Butbusinessplansarenotonlyusedbystart-ups;evenmajorcorporationsrelyincreasinglyonproject-specificbusinessplanstohelpthemmakeinternalinvestmentdecisions.3.1.AdvantagesofabusinessplanThegreatimportanceattachedtothebusinessplaniswelljustified.Withit,entrepreneurscanprovethattheyareinapositiontoarticulateandhandlethediverseaspectsofstart-upsandtheirmanagement.Properlyconceivedandexecuted,thebusinessplanbecomesakeydocumentforevaluatingandmanaginganoperation.Abusinessplandetailstheoverallentrepreneurialconceptbehindaplannedbusiness.Itgivesanexactsummaryoftheeconomiccircumstances,thetargetsset,andtheresourcesnecessary.Thebusinessplanforcesentrepreneurstothinkthroughtheirideassystematically:Itidentifiesgapsinknowledge,demandsdecisions,andpromotestheformulationofawell-structuredandfocusedstrategy.Duringitspreparation,oneaftertheother,alternativeapproachescometolightandareevaluated,andpitfallsareidentified.Withitsclearanalysisofthesituation,thebusinessplanbecomesaninvaluabletoolforovercomingproblemsandcontributessubstantiallytoboostingefficiencyandeffectiveness.3.2.CharacteristicsofasuccessfulbusinessplanHowabusinessplanisdesigneddependsonwhatkindofventureisenvisionedandwhattheplanshouldaccomplish.Ifaplanisbeingwrittenforastart-up,forexample,itwillnecessarilyhaveadifferentstructurethanonethataimstolaunchanexistingcompanyintoanewsegment.Despitesuchdifferences,businessplanshaveanumberofthingsincommon.Theyaretoprovideaclearandcomprehensiveevaluationoftheopportunitiesandrisksposedbytheoperation.Thisisnosmalltask,andcompletingitwillrequirecarefulattentiontocertainstandardsofdesignandcontent.Thefollowingsuggestionsandguidelinesshouldhelpyoumakeyourplansuccessful.13 AgoodbusinessplanimpresseswithitsclarityReadersshouldbeabletofindsuitableanswerstotheirquestions.Itshouldbeeasyforreaderstofindthetopicsinwhichtheyareparticularlyinterested.Thismeansthebusinessplanmusthaveaclearstructuretoenablereaderstomaneuverandchoosewhattheywouldliketoread.Itisnotthevolumeofanalysisanddata,butrathertheorganizationofthestatementsandaconcentrationontheessentialargumentsthatwillpersuadeyourreaders.Anytopicthatcouldbeofinteresttothereadershould,therefore,bediscussedfully,butconcisely.Atotallengthofabout30pages,giveortake5orso,isgenerallyappropriate.Abusinessplanisnotreadinthepresenceoftheauthor,whocouldanswerquestionsandprovideexplanations.Forthisreason,thetextmustbeunambiguousandspeakforitself.Eachplanshouldbepresentedtoatestaudience,ifatallpossible,beforeitisfinallysubmitted.Competitioncoaches,forexample,canhelpweedoutconfusingpassagesorindicateareasstillinneedofediting.AgoodbusinessplanconvinceswithitsobjectivitySomepeoplegetcarriedawaywhentheyaredescribingwhattheyfeelisagoodidea.Whilethereissomethingtobesaidforenthusiasm,youshouldtrytokeepyourtoneobjectiveandgivethereaderachancetocarefullyweighyourarguments.Aplanwrittenlikeglowingadvertisingcopyismorelikelytoirritatethanappealtoyourreaders,makingthemsuspicious,skeptical,orotherwiseunreceptive.Equallydangerousisbeingtoocriticalofyourownprojectinresponsetovariouspastmiscalculationsormistakes.Thisapproachwillraisequestionsaboutyourabilityandmotivation.Tothebestofyourknowledge,thedatapresentedshouldbeaccurate.Weaknessesshouldneverbementionedwithoutintroducingmethodstocorrectthemorplanstodoso.Thisdoesnotmeanthatfundamentalweaknessesshouldbehidden,justthatinpreparingyourplan,youshoulddevelopapproachestoremedythemandpresentwithclarity.AgoodbusinessplancanbeunderstoodbythetechnicallaymanSomeentrepreneursbelievethattheycanimpresstheirreaderswithprofusetechnicaldetail,elaborateblueprints,andthesmallprintofananalysis.Theyaremistaken.Onlyrarelyaretechnicalexpertscalledtoevaluatethisdatacarefully.Inmostcases,asimplifiedexplanation,sketch,orphotographisappreciated.Iftechnicaldetailsontheproductormanufacturingprocessmustbeincluded,youshouldputthemintheappendix.AgoodbusinessplaniswritteninoneconsistentstyleSeveralpeopleusuallyworktogethertoproducethebusinessplan.Intheend,thisworkmustbeintegratedtoavoidcreatingapatchworkquiltofvaryingstylesandanalyticaldepth.Forthisreason,itisbesttohaveonepersoneditthefinalversion.AgoodbusinessplanisyourcallingcardFinally,yourbusinessplanshouldhaveauniformvisuallayout.Thefonts,forexample,shouldbeconsistentwiththestructureandcontents,effectivegraphicsneatlyintegratedand,perhaps,aheaderwiththe(future)companylogoused.14 3.3.Theinvestor’spointofviewTheentirestart-upprocessmustfocusonsuccessfulcapitalacquisition.Professionalinvestorsarethefirstrealacidtestofthechancesyourbusinessconceptwillhave.Addressyourcommunicationentirelytothem,andlearntothinkliketheydo.Theywillnotbesatisfiedwithameredescriptionofyourbusinessconcept,evenifitisbrilliant.Whatisventurecapital?Venturecapitalisthemoneythatismadeavailablebyventurecapitalcompaniesorindividualstofinancenewbusinesses.Typically,suchprojectshaveahighchanceofbeingprofitable,whilefacinganequalriskofincurringloss.Experienceshowsthatof10businessesfinancedwithventurecapital,onlyonewilltriumph,threewillmanagetoekeoutanexistence,threewillwasteaway,andthreewillbeatotalloss.Itisonlynaturalforventurecapitaliststodoeverythingintheirpowertogenerateprofitsinlinewiththeriskventured.Accordingly,theybackupaprojectveryintenselyinordertoharnessasmuchpotentialaspossible(Exhibit7).VENTURECAPITALPARTICIPATIONINTHEVARIOUSSTART-UPPHASESTransitiontoEarlyphaseGrowthphaseestablishedcompanySeedStart-upGrowthBridgestageExitstageWhenBeforeAtorshortlyAtfirstor6-12monthsAsarule,5-8?start-upafterstart-upsecondbeforeIPOyearsafterstart-growthspurt,upIPOstillfaroffWhatMainlytoE.g.,forTofinanceTocoverRecoveryoffor?developproductgrowthfinancialinvestedventurebusinessdevelopment,needsuntilcapitalforconceptinitialsaleofstockreinvestmentinfurthermarketingtopublicmorestart-upsactivitiesExhibit7Whatdoventurecapitalistslookfor?Venturecapitalistslookforanumberofimportantpiecesofinformationinabusinessplan:·Managementexperienceandcompetence.Allinvestorspayparticularattentiontowhowillbemanagingtheenterprise.Whenallissaidanddone,theabilityofmanagementtoimplementtheconceptisamajordeterminantofwhetherabusinesssurvivesorfails.Particularlyinindustrieswhereinnovationiscritical,thefocusisonthepropermixofallnecessarymanagementskillsthatonepersonalonewillrarelyhave.Entrepreneurial15 experienceismorehighlyvaluedthanacademicdegrees.Anothertestofaworthwhileinvestmentistheabilityofmanagementtoworkasateam.·Awell-definedand,wherepossible,quantifiablecustomervalue.Initssimplestform,thismeansloweringthecostofdeliveringanexistingvalueorcreatinganewvalue,ifthiscanbeachievedatreasonablecost.·Innovativeproductorservicerange.Theproduct,service,and/orbusinesssystemmustpossessahighdegreeofinnovation.·Thepossibilitytoprotect/sustaintheinnovation.Animportantcompetitiveadvantagetoyourcompanycouldbeapatentedidea.·Agrowingand/orlargemarket.Venturecapitalistspreferstart-upsthatdemonstrateapotentialtoachievesignificantsalesofapproximately$30millionwithin5years.·Aneffectiveconceptforcapturingaclearlydefinedtargetcustomersegment.Potentialinvestorswanttoseethatyouhaveaclearunderstandingofyourmarketandhowyouintendtoreachyourcustomers.Yourforecastsandestimatesshouldbebasedonwell-founded,persuasiveassumptionsandfacts.·Afar-sightedanalysisofthecompetition.Investorsaren’tnaive–sodon’teventrytoclaimthatyourproducthasnocompetition.Acompleteandobjectivedescriptionofexistingandpotentialfuturecompetitors,however,showsthatyouareawareoftherisksyouaretakingwhich,inturn,willinspireconfidenceinyou.Hereagain,havinganideathatcanbeprotectedbylaw(patented,trademarked)isanadvantage.·Acarefulweighingoftherisksandopportunities.Investorshatesurprises,especiallynegativeones.Arealisticdescriptionoftherisksyoufaceandhowyouplantoovercomethemisfarmorecrediblethanlookingatthefuturethroughrose-coloredglasses.·Detailpossibleexitroutes.Investorswanttoknowfromtheoutsetwhentheircommitmentwillendandhowtheywillrecovertheirinvestment.Generatingaprofitisalwaystheobjectandthepurposeofinvestorparticipation.Themoreproductiveoptionsyoucanshowthemforhowtodothis,thebetter.Themainpossibilitiesincludegoingpublicorsellingsharestotheotherpartnersortoothercompanies.Whatdoventurecapitalistsdoforthenewcompany?Venturecapitalistsplayanumberofroles(seeExhibit8).Buttheywillalsotakeoverthereinsifthebusinessdoesnotachieveitstargets.Howshouldyouchooseaventurecapitalist?Venturecapitalistsgenerallyexpecttohaveahighstakeinthenewcompany.Inreturn,theyprovidesupportthatgoesfarbeyondafinancialcommitmentandoftenshoulderagreatdealof16 responsibilityforthesuccessoftheventure.Butpotentialinvestorsdodiffer,andthecompanyteamshouldknowitsinvestorswell.Ifyouwouldratherown20%ofa$100millioncompanythan80%ofa$5millionoperation,youwillhavetochooseyourinvestoraccordingtomorecriteriathanjustwhowillprovidethemostmoneyatthebestrate.POSSIBLEROLESOFVENTURECAPITALCOMPANIESCoachesandSpecialistsinmotivatorsoftheformingnewstart-upteamcompaniesPossiblerolesofventurecapitalistsAdvisorsinGatewaystoaachievingsuccessnetworkof(saleoftheexperiencedcompany,IPO)entrepreneursExhibit8233.4.TipsonpreparingaprofessionalbusinessplanInvestorsareinterestedinthefinishedplan,nottheprocessyouwentthroughtoproduceit.Theyprefertoseeawell-prepareddocumentfromwhichtheycangainagoodsenseoftherisksandopportunitiesinvolvedonthefirstread-through.Whenpreparingyourplan,thethemesofcustomervalueandpotentialreturnshouldrunthroughthedescriptionsofyourbusinessobjectives.Thethreephasesofthecompetitionprovideageneralstructureforpreparingyourplan.Thethreephasesbuildupononeanothersuchthatthecontributionforapreviousphasewillbecomeamajorportionofthefollowingphase,supplementedwithadditionalelements.Howyoucarryouttheworkwithineachphaseisuptoyou.Thefollowingtipsaredesignedtohelpyou.PlanyourapproachDrawingupabusinessplanisaverycomplexundertaking.Manyvariablesmustbeconsideredandanalyzedsystematically,inalogicalorder.Adetailedoutlineshouldbemadeassoonasthefirstideasarelaiddown.Itissmarttodoyourplanningalongthelinesofabusinessplan,oraccordingtoyourbusinesssystem(e.g.,R&D,production,marketing,sales,delivery,andadministration).Youshouldalsonumberyourtopicsandnoteanyreferences.Usingawordprocessingprogramwithaspreadsheetishelpful.Allreferencematerialshouldbesortedbytopic.Dothesamewithnotesfromdiscussions.17 TailorkeyquestionstoyourspecificprojectUsingasetofquestionsishelpfulinpreparingyourbusinessplan.Whichquestionsshouldbeaskedandwhichanswersincludedintheplanisdeterminedbythetypeofvaluecreated,theproduct,service,ordegreeoftechnologicalsophistication,andwhatthereadersneedtoknow.YoucanusethesamplequestionsprovidedinthisGuidetowriteyourownseriesofquestions.Thesequestionsareonlyexamplesdesignedtogetyouthinking;theyshouldnotbetakenasanexhaustivelistofpossiblequestions.Inotherwords,youareneitherrequiredtoanswereachquestion,normustyoureplytoallquestionsinequaldepth.Itisuptoyoutodecidewhichquestionsarerelevanttoyourundertakingandnecessarytounderstandit.Youmustalsoconsiderwhetherthereareotherquestionstobeansweredbeyondthosethathavebeenprovided.FocusonthefinalproductInprojectsofthiskind,thereisalwaysadangerofgettinglostinthedetailsofeachanalysis.Stepbackfromtimetotimeandaskyourselfwhetherthedataprovidedisnotalreadysufficientandwhetherfurtheranalysiswillreallybebeneficial.Wealsorecommendthatyoulimitthelengthoftheresultsforeachofthethreecompetitionphases.Youwillsavealotoftimeandenergyifyousticktotherecommendedlengthsfromthebeginningofyourplanning.SeeksupportearlyGatheringsupportfrommanydifferentpartieswillbeimportantinthiscompetition.Teamingupearlyisonesuchformofsupport.Teamswithcomplementarytechnicalandentrepreneurialexperiencecandelegateassignmentsaccordingtothetalentsoftheindividualteammembers.Thiswillhelpensurethattheworkwillbeperformedefficiently.Donothesitatetoseekhelpfromoutsidesourcesassoonasyouneedit.ContactexpertsandexperiencedentrepreneurswhomyoumeetatcompetitioneventsorcalltheEnterPrizeofficeforassistance.KeeptestingyourplanAwinningentrywillbeeasytounderstandandfollow.Therefore,itisimportanttopresentyourideatoatestaudiencealongtheway.Peopleoutsidethecompetitionwhocritiqueyourplanbeforeyousubmititcanidentifyweaknessesandevengiveyourworkfreshimpetus.18 4.STRUCTUREANDKEYELEMENTSOFABUSINESSPLANDespitetheirmanydifferences,allbusinessplanshavecertainelementsincommonthatallpotentialinvestorsexpecttofind(Exhibit9).Additionally,anappendixisoftenincludedthatcontainsdetailedinformation,oftenpresentedintheformoftablesorgraphs.Withinthismoreorlessrequiredstructure,thebusinessplanisfreetogrowinitsowndirection.Atthebeginning,youwillonlyworkonafewkeyelementsandindividualtopics.Newelementsareaddedwitheachadditionalphase,whilethetopicsfromthepreviousphasesareexpanded,and,gradually,theplanfillswithcontent.Attheendofthethirdphase,theindividualanalysesformawholewhoseindividualpartscorrespondtooneanother.ELEMENTSOFABUSINESSPLANFocusofthisphasePartofthisphasePhase1Phase2Phase31Executivesummary2Productorservice3Managementteam4Marketandcompetition5Marketingandsales6Businesssystemandorganization7Implementationschedule8Opportunitiesandrisks9FinancialplanningandfinancingExhibit94.1.Executivesummary”Agoodexecutivesummarygivesmeasenseofwhythisisaninterestingventure.Ilookforaveryclearstatementofthelong-termmission,anoverviewofthepeople,thetechnology,andthefittomarket.”AnnWinblad,VentureCapitalistTheexecutivesummaryisdesignedtopiquetheinterestofdecisionmakers.Itshouldcontainabriefoverviewofthemostimportantaspectsofthebusinessplan.Inparticular,itshouldhighlighttheproductorservice,thevaluetothecustomer,therelevantmarkets,managementexpertise,financingrequirements,andpossiblereturnoninvestment.19 Venturecapitalistslookattheexecutivesummaryfirst,thoughtheyusuallyjustskimit.Thequalityofthesummaryitselfisnotlikelytomaketheminvestinyourproject,yetitcanconvincethemnotto.Aclear,objective,andconcisedescriptionofyourintendedstart-up,whichmustbeeasytocomprehend,especiallybythetechnicallayperson,willshowthemthatyouknowyourbusiness.Thereforeprepareyoursummarywiththeutmostcare;itmaywelldecidewhethertherestofyourbusinessplanisread.Theexecutivesummaryisanindependentelementofthebusinessplan:Donotconfuseitwiththeintroductionofyourbusinessconceptonthetitlepage.Lookatyourexecutivesummarywithacriticaleye–repeatedly–especiallyafterallotheraspectsofyourbusinessplanhavebeencompleted.Askyourselfifyouhavedescribedyourbusinessideaasclearly,compellingly,andconciselyasyoucan.Yourreadersshouldbeabletoreadandcomprehendthesummaryinfiveto10minutes.Testit.Giveyourexecutivesummarytosomeonewhohasnopreviousknowledgeofyourbusinessconceptoritstechnicalorscientificbasis.KEYQUESTIONS:ExecutivesummaryPhase1!Whatisyourbusinessidea?Inwhatwaydoesitfulfillthecriterionofuniqueness?!Whoareyourtargetcustomers?!Whatisthevalueforthosecustomers?!Whatmarketvolumeandgrowthratesdoyouforecast?!Whatcompetitiveenvironmentdoyouface?!Whatadditionalstagesofdevelopmentareneeded?!Howmuchinvestmentisnecessary(estimated)?!Whatlong-termgoalshaveyouset?Phase2!Howhighdoyouestimateyourfinancingneeds?!Whatarethesales,cost,andprofitsituations?!Whatarethemostimportantmilestonesalongthewaytoyourgoal?!Whattestcustomershaveyouapproached/couldyouapproach?!Whatdistributionchannelswillyouuse?!Whatpartnershipswouldyouliketoenterinto?!Whatopportunitiesandrisksdoyouface?!Whatisthepictureonpatents?Phase3!Summarizetheresultsofyourdetailedbusinessplanningandstateyourexactfinancingneeds!!Howwillyoudelegatemanagementtasks?!Howmuchproductioncapacityisnecessary?!Howwilltheimplementationofyourbusinessideabeorganized?!Listyournext,concretesteps!20 4.2.Productorservice”Ifyoudon’tknowwhatthecustomervalueis,thewholething’sawasteoftime.”BrunoWeiss,EntrepreneurYourbusinessplanderivesfromaninnovativeproductorserviceanditsvaluetotheendconsumer.Itisimportanttoindicatehowyourproductdiffersfromthosethatarenoworwillbeonthemarket.Ashortdescriptionofhowfardevelopmenthasprogressedandwhatstillneedstobedoneisalsoessential.CustomervalueItdoesn’tmakeanysensetostartupanewbusinessunlesstheproductorserviceissuperiortocurrentmarketofferings.Besuretodiscussindetailthefunctiontheproductorservicefulfillsandthevaluethecustomerwillgainfromit.Ifcomparableproductsandservicesarealreadyavailablefromyourcompetitors,youmustconvincinglysubstantiatetheaddedvalueyourcustomerswillreceivefromyourstart-up.Todoso,putyourselfintheplaceofthecustomerandweightheadvantagesanddisadvantagesofyourproductovertheothersverycarefully,applyingthesamecriteriatoall.Ifyouareofferingarangeofinnovativeproductsorservices,categorizethemintologicalbusinessareasaccordingtoproductorcustomer.Definethebusinessareasindetailsothereisnooverlap.Developmentstatusoftheproduct/serviceInexplainingthisissue,imagineyouaretheventurecapitalistwhowantstominimizetheriskinvolvedinparticipating.Trytorefrainfromincludingtechnicaldetailsanddescribeeverythingassimplyaspossible.Afinishedprototypewillshowyourpotentialinvestorthatyouareuptomeetingthetechnicalchallenge.Ifitenhancestheunderstandingofyourproduct,includeaphotoorsketchinyourbusinessplan.Itisevenbettertohaveapilotcustomerwhoalreadyusesyourproductorservice.Youshouldalsoexplainthenatureoftheinnovationitselfandtheedgeyouhaveovercompetitors.Thisisthepointatwhichyoushouldaddressthesubjectofpatentsforprotectionfromduplicationorimitation,ortheprotectionofamodelthroughregistration.Iftherearestillproblemsorissuestocoverregardingdevelopment,besuretomentionthemandhowyouintendtoovercomethesedifficulties.Regulatoryrequirementsonproductsandservicesposeanothersetofrisks.Noteanypermitsyouhaveobtained,haveappliedfor,orwillapplyfor,suchasthoseoftechnicalcontrolassociations,thepostalservice,orthedepartmentofhealth.21 KEYQUESTIONS:ProductorservicePhase1!Whatendcustomerswillyouaddress?!Whatarethecustomer’sneeds?!Whatcustomervaluedoesyourproduct/serviceprovide?!Whatisthenatureofyourinnovation?Whatisthecurrentstatusoftechnicaldevelopment?!Whatpartnershipsarenecessarytoachievefullcustomervalue?!Whatcompetitorproductsalreadyexistorareunderdevelopment?!Isyourproduct/servicepermittedbylaw?!Whataretheprerequisitesfordevelopmentandmanufacturing?!Whatstageofdevelopmenthasyourproductorservicereached?!Doyouhavepatentsorlicenses?!Whatfurtherdevelopmentstepsdoyouplantotake?Whatmilestonesmustbereached?Phase2!Whatversionsofyourproducts/servicesaredesignedforwhatcustomergroupsandapplications?!Whatpatents/licensesdothecompetitorshave?!Doyouneedtoobtainlicensesand,ifso,fromwhomandatwhatcost?!Whatkindofservice/maintenancewillyouoffer?!Whatproductorserviceguaranteeswillyougrant?!Comparethestrengthsandweaknessesofcomparableproducts/serviceswithyoursinanoverview!Phase3!Whatresources(time,personnel,materials)doyourequireforeachsubsequentdevelopment?!Whatshareofsalesdoyouexpectfromyourvariousproducts/services(ifapplicable)?Why?!Whatincomefromroyalties/salesdoyouestimatefrompossiblymarketingthepropertyrights?Whowouldbeyourlicensees/buyers?4.3.Managementteam”Iinvestinpeople,notideas.”EugeneKleiner,VentureCapitalistThemanagementsectionisoftenthefirstpartoftheplanthatventurecapitaliststurntoafterreadingtheexecutivesummary.Theywanttoknowwhetherthemanagementteamiscapableofrunningapromisingbusiness.Entrepreneursfrequentlyunderestimatethesignificanceofthisquestionandmakethemistakeofskimpingoncontentandmakingdowithmeaninglessphrases.22 Takethetimetodescribeyourmanagementteamwell.Whendiscussingmanagement’squalifications,besuretoemphasizethosethatareparticularlyimportantforimplementingyourspecificplans.Professionalexperienceandpastsuccesscarrymoreweightthanacademicdegrees.Ifkeypositionsaretobegiventoinexperiencedstaffmembers,explainthisdecisionindetail.CHARACTERISTICSOFAPOWERFULMANAGEMENTTEAM!Commonvision:Everybodywantstosucceed!Complementaryattributesandstrengths!Atleastthree,butusuallynomorethansix,people!Stickstogetherthroughthickandthin!Stayingpower,evenwhentherearesetbacks-regroupsandmakesasecondoreventhirdattempttoclearthehurdleAlsoexplainhowtheresponsibilitiesinthecompanyaretobedelegatedandindicatewhichpositionsstillrequirereinforcements.Itisparticularlyhelpfultocomparetheassignmentstobefilledwiththeskillprofilesofcurrentteammembers.Donothesitatetonameyourmostinfluentialadvisors.Noonewillhaveallthequalificationsandexperiencenecessarytofoundacompany.Considerableinvolvementonthepartofadvisorssuchasexperiencedentrepreneurs,accountants,PRfirms,ormanagementconsultantsisasignofprofessionalismandwillreassuretheventurecapitalistthatyouhaveallthecontactsyoumayneed.WHATPROFESSIONALINVESTORSLOOKFOR!Hastheteamalreadyworkedtogether?!Doteammembershaverelevantexperience?!Dothefoundersknowtheirweaknessesandaretheywillingtomakeupforthem?!Havethefoundersagreedontheirfutureroles?Areownershipissuessettled?!Hasthemanagementteamagreedonacommongoal,orarethereunderlyingdifferencesofopinion?!Dotheindividualteammembersfullybacktheproject?Finally,althoughthemanagementteamwillnotbeevaluateduntilthethirdphaseofthebusinessplancompetition,itisadvisabletobeginlookingforsuitablepartnersassoonaspossible.Bringingtogetherjusttherightpeopletoforma”dreamteam,”sotospeak,isimmenselyimportantforlaterbusinesssuccessand,therefore,requiresagreatdealoftimeandcare.23 KEYQUESTIONS:ManagementteamPhase3!Whoarethemembersofyourmanagementteamandwhatdistinguishesthem:education,professionalexperience,success,standinginthebusinessworld?!Whatexperienceorabilitiesdoestheteampossessthatwillbeusefulforimplementingyourconceptandsettingupyourcompany?!Whatexperienceorabilitiesarelacking?Howwillthegapsbeclosed?Bywhom?!Whatgoalsdotheteammemberspursuebystartingupthebusiness?!Howhighisthemotivationofeachindividualteammember?4.4.Marketandcompetition”Ifthereisnocompetition,thereisprobablynomarket.”BrianWoodThoroughunderstandingofyourcustomersandtheirneedsisthefoundationofeverysuccessfulbusiness.Foritisthecustomerswhogiveyourcompanyareasonforbeing.Andintheend,bybuying–ornotbuying–yourproduct,orservice,theywilldecideifandhowsuccessfulyourcompanywillbe.Onlythosecustomerswhoareconvincedtheyaregettingagreatervaluethantheywouldfromacompetingproduct,orbynotbuyingaproductatall,willbuyyourproduct.Knowingyourmarketandcompetitionwellisthuscriticaltothesuccessofyourundertaking.MarketsizeandgrowthAdramaticincreaseinthevalueofthecompanycanbeexpectedonlyifthemarketholdsgreatpotential.Themarketsizeshouldbepresentedinfiguresrepresentingthenumberofcustomers,unitsales,andtotaldollarsinsales.Yourexpectationsformarketgrowtharecritical.Youshouldalsoindicatewhatmainfactorsarenowinfluencingormayinfluencethegivenindustrysegment.Showwhatfactorswillaffectdevelopments(technology,legislativeinitiatives,etc.)andwhatrelevancethesefactorshaveforyourbusiness.Workwithafocusinordertosaveyourselfsomeenergy:Workwithhypotheses,makealistofquestionsyouwantanswered,whatinformationyouwillneed,andwhereyoumightfindit.Theexternaldatanecessaryforananalysisareofteneasiertoobtainthanyoumightthink.Becreativeanddetermined;makeuseofallpossiblesourcesincludingtradeliterature(journals,marketstudies,scholarlyessays),industrydirectories,associationsandgovernmentagencies(statisticsoffices,chambersofcommerce,patentoffices),banksforindustrysurveys,databases,theInternet(keepyoursearchesfocused),and,ofcourse,interviews.Itoftenhelpstocallaround.Usingashortdiscussionoutlinewillincreaseyourefficiencyandproductivity,aswellasthewillingnessofyourpartytodiscloseinformation.24 Thiscollectionofindividualpiecesofdataseldomprovidesadirectanswertoyourquestions–youwillhavetodrawwell-foundedconclusionsormakesoundestimates.Whenmakinganestimate,observethefollowing:·Buildonasolidfoundation.Theremaybemanyunknowns,butifyourelyoneasilyverifiablefigures,yourestimatewillbehardertotopple.·Thinklogically.Anestimateshouldbealogicalconclusion(i.e.,itshouldnothaveanyleapsinlogicordependonunspecifiedassumptions).·Compareyoursources.Checkyourfacts,suchasstatementsmadeinaninterview,withanumberofdifferentsourcesifatallpossible.·Becreative.Theshortestdistancetoyourgoalisnotalwaysastraightline.Forexample,whenavariableisunknown,lookforasubstitutevariablethatrelatestotheoneyouneed.·Checkforplausibility.Foreachestimate,askyourself,”Doesthisresultreallymakesense?”MarketsegmentationFollowupyourgeneralexplanationswithyourchoiceoftargetcustomerandyourplannedmarketsuccess(salesvolumes,salesrevenues,marketshare,andprofit).Todothis,youmustsegmentyourmarket.Thechoiceofsegmentationcriteriaisuptoyou,aslongasyouarecertainthatthenumberofcustomersineachsegment-aswellastheirbehavior-canbedetermined,andthatthecustomerswithineachsegmentcanbereachedbymeansofthesamemarketingstrategy.Possiblecustomersegmentationcriteriafortheconsumergoodsmarkets:!Location:country,urban/rural(populationdensity)!Demographics:age,sex,income,profession,companysize!Lifestyle:techies,counterculture,activeseniors!Behavior:frequencyofproductuse,productapplication!Buyinghabits:brandpreferences,priceconsciousnessPossiblecustomersegmentationcriteriaforindustrialgoodsmarkets:!Demographics:companysize,industry,location!Operations:technologyemployed(e.g.,digital,analog)!Buyinghabits:centralizedordecentralizedpurchasing,purchasingcriteria,supplieragreements!Situationalfactors:urgencyofneed,ordersize25 Definethepotentialsalesrevenuesforagivenperiodpersegment.Takeyoursalesstrategyandthebehaviorofthecompetitionintoconsideration.Dependingontheindustry,youmayalsowanttoallowforpriceerosion.CompetitionDefinethestrengthsandweaknessesofyourcompetitors.Todothis,evaluateyourmajorpotentialcompetitorsusingthesamecriteria,suchassalesvolumeandrevenues(pricing),growth,marketshare,costpositioning,productlines,customersupport,targetgroups,anddistributionchannels.Intheinterestofbrevity,forgotheuseofagreatdealofdetail.Evaluateyourowncompanyaccordingtothesesamecriteriaandmakeacomparisonastohowsustainableyourcompetitiveadvantagewillbe.Positioningvis-à-visthecompetitionWhyshouldapotentialcustomerbuyyourproductandnotthatofyourcompetitor?Becauseitoffersgreatervalue(insomeaspectthatisimportanttothecustomer)thancompetingproducts;becauseitisobjectivelyoremotionally”better;”or,asmarketingexpertswouldsay,youhavedevelopedavaluepropositionoruniquesellingpropositionforyourbusinessidea.Formulatingthisvaluepropositionandanchoringitfirmlyinthemindofthecustomeristhemaintaskofmarketingcommunication.Marketingexpertstalkaboutthepositioningofaproduct,brand,orbusiness.Well-positionedproductsleaveconsumerswithaparticularimpression.Themostimportantguidelineforpositioningis,therefore,tolookattheproductfromthecustomer’spointofview.Thepointistomeetaneedbetter,nottopresentnewproductattributes.Theadvantagetothecustomermustbeimmediatelyclear,memorable,andimportant.Atthesametime,yourpositioningmustbedistinctivefromthatofcompetitors.Onlythencancustomersconnectthevaluepropositionthatyouofferwiththenameofyourproductorbusinessandbuyyourproduct.Thefollowingguidelinesmayhelp:·Identifyrelevantcustomerneedsorproblems·Defineclearcustomersegmentsofsufficientsize·Designanattractiverangeofproductsandservices·Makeyourselfuniquethroughdifferentiationfromthecompetition·Addressthesubjectiveperceptionofthecustomer·EnsurecustomersatisfactionevenafterpurchaseBecausepositioningissocriticaltothemarketsuccessand,therefore,tothelong-termsuccessofyourbusiness,youshouldpayparticularattentiontoit.Persuasivepositioningwillnotcomeaboutimmediately,itwillbearesultofintenseeffortandwillneedfrequentrevisiontoachievethemaximumeffect.Thepointofdepartureforpositioningistheproductitself.Additionalinsightwillbefoundasyourefineandmodifyyourproductduringdevelopmentandrespondtonewrevelationsasaresultofcustomersurveys.26 KEYQUESTIONS:MarketandcompetitionPhase1!Howistheindustrydeveloping?!Whatfactorsaredecisiveforsuccessinyourindustry?!Whatroledoinnovationandtechnologicaladvancesplay?!Howwillyousegmentthemarket?!Whatmarketvolumesdotheindividualmarketsegmentshave,nowandinthefuture(roughestimates)?!Whoareyourtargetcustomergroups?!Whatcustomerexamplescanyougive?!Whatmajorcompetitorsoffersimilarproducts/services?!Whatnewdevelopmentscanbeexpectedfromcompetitors?!Howsustainablewillyourcompetitiveedgebe?Phase2!Whatmarketvolume(valueandamount)doyouestimateforyourindividualmarketsegmentsoverthenext5years?!Whatwillinfluencegrowthinthemarketsegments?!Whatisyourestimateofcurrentandfutureprofitabilityoftheindividualmarketsegments?!Whatmarketsharesdoyouholdineachmarketsegment?!Whatsegmentsareyoutargeting?!Whoareyourreferencecustomers?Howdoyouplantogetreferencecustomers?!Whatroledoservice,consulting,maintenance,andretailsalesplay?!Howmuchdoyoudependonlargecustomers?!Whatarethekeybuyingfactorsforcustomers?!Howdoesthecompetitionoperate?Whatstrategiesarepursued?!Whatarethebarrierstomarketentryandhowcantheybeovercome?!Whatmarketsharedoesyourcompetitionhaveinthevariousmarketsegments?!Whattargetgroupsdoyourcompetitorsaddress?!Howprofitableareyourcompetitors?!Whatareyourcompetitorsmarketingstrategies?!Whatdistributionchannelsdoyourcompetitorsuse?!Howsustainablewillyourcompetitiveedgebe?Why?!Howwillcompetitorsreacttoyourmarketlaunch?Howwillyourespondtothisreaction?!Comparethestrengthsandweaknessesofyourmajorcompetitorswithyourownintheformofanoverview!4.5.Marketingandsales”Marketingisfartooimportanttobelefttothemarketingdepartment.”DavidPackard,Entrepreneur27 Keyelementsofawell-conceivedbusinessconceptarewell-plannedmarketingandsalesactivities.Theyrequireapersuasivedescriptionofyourstrategiesformarketlaunch,marketing,andthemeasuresplannedforsalespromotion.Askeletonframeworktofollowisthatofthefour”Ps”:product,price,place,andpromotion.1.ProductYouroriginalproductideahasalreadygivenyousomesenseofthecharacteristicsofyourproduct.Afteracloseranalysisoftheneedsofvariouscustomersegments,younowmustevaluatewhetheryourproductactuallymeetsthemortowhatextentitmayrequireadaptation.Thisraisesthequestionofwhetheryoushouldmanufactureonesingleproductforallsegmentsorwhetheryouwanttoadjusttheproducttomeettheneedsofindividualsegments.2.PriceThebasisforanattainablepriceisthewillingnessofcustomerstopaythepriceaskedofthem.Thiscontradictstheconventionalwisdomthatpriceisderivedfromcosts.Ofcourse,costisaconsiderablefactor,butthecost-priceratioonlybecomescriticalwhenthepriceaskedwillnotcovercostswithintheforeseeablefuture.Inthiscase,itisadvisabletogetoutofthebusinessasquicklyaspossibleor,betteryet,nevertogointothebusinessinthefirstplace.Thepriceyoucanaskdependsentirelyonhowmuchthevalueofyourproductisworthtothecustomer.Youhavedefined,andperhapsquantified,thecustomervalueinthebusinessconceptorproductdescription.Nowdefineapricebracketbasedonthequantifiedcustomervalueofyourproduct.Youcanverifyandrefineyourassumptionsthroughdiscussionswithpotentialcustomers.Thepricingstrategyyouchoosedependsonyourgoal:Doyouwanttopenetratethemarketquicklybygoingwithalowprice(penetrationstrategy)?Or,doyouwanttogeneratethehighestpossiblereturnfromtheout-set(skimmingstrategy)?Newcompaniesgenerallypursuetheskimmingstrategyforgoodreason:·Anewproductispositionedas”better”thanpreviousoptions,soahigherpricecanbejustified.·Higherpricesgenerallyleadtohigherprofitmarginsandallowthenewcompanytofinanceitsowngrowth.Newinvestmentscanbefinancedoutofprofitsandoutsideinvestorsarenolongerneeded.·Unliketheskimmingstrategy,thepenetrationstrategygenerallyrequireshighinitialinvestmentinorderforsupplytomeetthehighdemand.Thisheightenedinvestmentriskissomethinginvestorsusuallyprefertoavoid.Certainsituationsmakefollowingapenetrationstrategythebetterchoice:·Settinganewstandard.NetscapedistributeditsInternetbrowserfreeofcharge,thussettingastandard.WiththeMacintosh,however,Apple28 followedaskimmingstrategyandmissedthechancetoestablishtheMacasthenewstandard.·Highfixedcosts.Businesseswithhighfixedcostsareforcedtofindawideaudienceasquicklyaspossibletomakethosecostsworthwhile.FixedcostsatFederalExpress,forexample,forairtransportandsortingfacilities,arethesamewhethertheydeliverthousandsormanymillionsofletters.·Competition.Iftheentrybarriersarelowandtoughcompetitionislikely,apenetrationstrategyisthebestwaytobefasterthanthecompetitionincapturingalargemarketshare.Suchcasesnaturallyalsoraisethequestionastowhetherthistypeofbusinessisappropriateforastart-up.3.PlaceYourproductorservicewillsomehowhavetoreachthecustomerphysically.Althoughthismaysoundsimple,itinvolvesanothermonumentalmarketingdecision:Inwhatway,viawhichdistributionchannel,doyouwanttodeliveryourproduct?Thechoiceofdistributionchannelisinfluencedbyvariousfactors,suchashowmanypotentialcustomerswillyouhave?Aretheycompaniesorindividuals?Howdotheyprefertoshop?Doestheproductrequireexplanation?Isitinanupperorlowerpricebracket?Basically,youwillhavetoconsiderwhetheryourcompanywillhandledistributionitself,orwhetheraspecializedoperationwillhandleitforyou.Thissortof”make-or-buy”decisionwillhaveasignificantimpactonboththeorganizationandthebusinesssystemofyourenterprise.Thechoiceofdistributionchannelisthuscloselyrelatedtoothermarketingdecisionsandwill,inturn,affectothermeasures.Distributioncanberoughlycategorizedintotwoforms:directormulti-channel.Technologicaldevelopments,particularlyininformationtechnology,havegreatlyexpandedthespectrumofdistributionchannelsoverthepastfewyears.Hereisaselection:·Third-partyretailers.Productsaresoldviaretailerswhohaveeasyaccesstopotentialcustomers.Here,itisimportanttoacquireagoodshelfposition,whichisobviouslyalsosoughtbythecompetitionandisaccordinglyexpensive.Theproductmustalsoofferretailersanattractiveprofitiftheyaretoincludeitintheirrangeatall.·Outsideagents.Specializedcompaniesactasagentsforthedistributionofproductsfromvariousmanufacturers.Theytakeoverthefunctionofthein-housesalesperson.Outsideagentsarerelativelyexpensive,althoughonlyforthesalestheyconcludesuccessfully.Theymakenocommissioniftheydonotselltheproduct,makingthemanattractivechannelfornewcompaniessinceriskislimited.Goodagents,however,arenotalwayseasytofind.·Franchising.Abusinessconceptisputintopracticeindependentlybyafranchiseewhopaysalicensingfee,wherebythefranchisermaintainscontrolofthebusinesspolicies(McDonald’sisanexample).Franchisingenables29 rapidgeographicgrowth,whileensuringcontrolofthesalesconceptwithouthugepersonalinvestment.·Wholesalers.Itcanbedifficultforasmallcompanytomaintaincontactwithalargenumberofretailers.Awholesalerwhohasgoodcontactstotheretailtradecantakeoverthisactivity,helpingtoimprovemarketpenetrationwhileloweringdistributioncosts.Ontheotherhand,wholesalersoftendemandacutfortheirefforts.·Stores.Sellinginyourownstoreisagoodchoicewhenthedesignofthepurchasingexperienceiscentraltotheproduct,andonlyasmallnumberofstoresisnecessarytocoverthemarket.Independentshopswillrequireinvestment,butwillalsoallowthegreatestcontroloverdistribution.·Ownsalesstaff.Salesagentsareabovealldeployedwhentheproductiscomplex(e.g.,capitalgoods),requiringextensiveknowledgeoftheproduct.Face-to-facecustomervisitsareexpensive;thenumberofcustomersmustbefairlysmall.Havingyourownsalesstaffasthedistributionchannelisrelativelyexpensiveandonlyworthwhileforinvolvedproducts.·Directmail.Selectcustomersreceiveamailingthroughthepostalservice.Addressescanbepurchasedfromdatabasecompaniesandsortedaccordingtodesiredcriteria.Thesuccessofthedirectmailingdependsonwhetherthereaderfeelsanimmediateappeal–otherwise,itlandsinthewastebasket.·Callcenter.Throughadvertising,customersareinvitedtoorderaproductbytelephone.Simpleproductscanbedistributedtomanycustomersinthisway,withnoneedtosetupstoresthroughouttheentiresalesregion.Youcanalsohiretheservicesofspecializedcallcenteroperators.·Internet.TheInternetisarelativelynewmarketingchannel,throughwhichaglobalmarketcanbereachedatminimalcost.4.PromotionBeforepotentialcustomerscanappreciateyourproduct,theyhavetohearaboutit.Andtoachievethis,youmustadvertisetoattractattention,inform,persuade,andinspireconfidence.Thosearetheobjectivesofcommunication.Communicationmustexplainthevalueofyourproductorservicetoyourcustomers,aswellasconvincecustomersthatyourproductmeetstheirneedsbetterthancompetingoralternativesolutions.Therearevariouswaysofgettingthecustomer’sattention:·Classicadvertising:newspapers,magazines,tradejournals,radio,TV,movietheaters·Directmarketing:directmailtoselectcustomers,telephonemarketing,Internet·Publicrelations:articlesinprintmediaaboutyourproduct,businessoryou,writtenbyyouorajournalist30 ·Exhibitions,tradefairs·CustomervisitsCommunicationisexpensive,somakethemostofit.Calculateexactlyhowmuchadvertisingyoucanaffordpersaleandchooseyourcommunicationmessagesandmediaaccordingly.Focusedcommunicationyieldsthebestresults.Whenyouaddressyourcustomers,focusonthepeoplewhomakethepurchasingdecisionorhavethegreatestinfluenceonthepurchasingdecision.KEYQUESTIONS:MarketingandsalesPhase1!Whatfinalsalepricedoyouwanttocharge(estimated)?Whatcriteriadidyouusetoarriveatthisfinalsaleprice?Howhighistheprofitmargin(estimated)?!Whatsalesvolumesandsalesrevenuesareyouaimingfor(estimated)?Phase2!Inwhichpartialmarketsegmentswillyoumakeyourmarketentry?Howdoyouplantoturnthis“toehold”intoahigh-volumebusiness?!Whatsalesvolumesareyoutargeting(detaileddatabymarketsegment)?!Describethetypicalprocessofsellingyourproduct/service.Who,amongyourbuyers,ultimatelymakesthepurchasingdecision?!Whattargetgroupswillyoureachbywhatmeansofdistribution?!Doyouwanttopenetratethemarketquicklywithalowprice,orbringinthehighestreturnfromthestart?Explainyourdecision!!Howwillyoudrawtheattentionofyourtargetgroupstoyourproductorservice?!Howwillyouwooreferencecustomers?!Howmuch,intimeandresources,willitcosttoacquireacustomer?!Whatadvertisingmaterialswillyouusetodoso?!Whatpartdoservice,maintenance,andhotlinesplay?!Howdifficultwillitbeand/orwhatwillitcosttocreatelong-lastingcustomerloyalty?!Whatotherplanningstepsarenecessaryintherun-uptolaunchingyourproduct/service?Drawupaschedulewiththemostimportantmilestones!Phase3!Whatdemands(employeenumber,qualifications,andoutfitting)musttheoperationmeetinordertoeffectivelyimplementitsmarketingstrategy?Whatisyourestimatedexpenditureforthisarea?!Howwillsalesvolumeandoperatingresultsbespreadoutamongthevariousdistributionchannels(estimated)?!Whichmarketshareperdistributionchanneldoyouplantocapture?!Whatareyourexpenses?Atlaunch–andlater.!Whatpricewillyouchargeforyourproduct/servicepertargetgroupanddistributionchannel?!Whatpaymentpolicieswillyoulaydown?31 4.6.Businesssystemandorganization”Organizationsexisttoenableordinarypeopletodoextraordinarythings.”TedLevitt,Editor,HarvardBusinessReviewBusinesssystemEveryentrepreneurialassignmentiscomprisedoftheinterplayofanumberofindividualactivities.Whentheyarepresentedsystematicallyinrelationtooneanother,abusinesssystemresults.Thebusinesssystemmodelmapsouttheactivitiesnecessarytoprepareanddeliverafinalproducttoacustomer.Forclarity’ssake,theyaregroupedintofunctionalblocks.Devisingabusinesssystemisagoodwaytounderstandthebusinessactivitiesofacompany,thinkthemthroughsystematically,anddisplaythemwithtransparency.AgenericbusinesssystemcommontonearlyallindustriesandenterprisesisshowninExhibit10.GENERICBUSINESSSYSTEMResearchandProductionMarketingSalesServicedevelopmentExhibit10Usetheabovemodelasthestartingpointfordesigningyourownbusinesssystem.Youwillneedtoadaptittoyourownsituationandmakeitconcreteinordertoputitintopractice.Foramanufacturer,forexample,itmaybeusefultosubdividetheproductioncategoryintoseparatestages,suchaspurchasing,rawmaterialsprocessing,componentmanufacture,andassembly.Youmayalsoneedtoseparatesalesintologistics,wholesaledistribution,andretailsales,forexample.Anindividualplanwillbeappropriatetoeachcase,dependingontheindustryinwhichyouoperateand,ofcourse,thebusinessitself.Thebusinesssystemofacomputermanufacturerwillbeverydifferentfromthatofafastfoodchain.Andthebusinesssystemofadepartmentstoremaylookquitedifferentfromthatofadirectmerchandisingcompanyalthoughbothwillsellmanyofthesameproducts.Therearenogeneralrulesorstandardsforabusinesssystem.Yourownsystemshouldbelogical,complete,andusefulforplanning–justdon’tletitgettoocomplicated.Concentrateonthemajoractivitiesinyourbusinesssystem.Ateamofthreetofivewillnotbeabletocoveralltasksthemselves,eitherbecausetheydonothavetheabilitiesorbecausetheycouldnotdosowiththenecessaryefficiency.Togetherwithyourmanagementteam,thinkcarefullyaboutwhatactivitiesreallycreatesomethingnewandhowyouandyourstaffcanbestmakeuseofyourtimetocreatethehighestvalueforyourcustomerandgetaheadofthecompetition.Thebuzzwordhereisfocus.Onceyouhavedeterminedwhichactivitiesmakeup32 yourbusinesssystem,choosethosewhichyoucanexecutebetterthananyoneelse.Atrendtowardspecializationcanbeobservedinmanyindustries.Specializationisparticularlyimportantforstart-ups.Theyshouldconcentratealltheirenergyonjustafewselectactivitiesinthebusinesssystem.Atthebeginning,evensoftwaregiantMicrosoftconcentratedsolelyonthedevelopmentoftheDOS,leavingallotheractivitiesinthebusinesssystemuptoIBM.OrganizationInadditiontoabusinesssystem,youwillneedtoconsiderseveralotherorganizationalissues.Itisessentialthattasksandresponsibilitiesbeclearlydelegatedandthatyoudesignasimpleorganizationwithfewlevels.Therestwillfollowasneededduringoperation.Yourorganizationmustbeflexibleandalwaysadaptabletonewcircumstances.Bepreparedtoreorganizeyourcompanyrepeatedlyduringthefirstfewyears.Decidewhoisresponsibleforwhatineachbusinessarea(delegationoftasksandresponsibilities).Assoonasyouhavesetuptheinterdisciplinaryfunctions-suchasamanagement,humanresources,finance,andadministration-you’llbeupandrunning.Ifyoukeepyourorganizationsimple,eachstaffmemberwillknowwhichassignmentsheorshemustcompleteandcancarrythemoutindependently.Ontheotherhand,everyoneshouldbeinapositiontofillinforanotherteammemberforashorttimeifnecessary.(SeeExhibit11)SAMPLESTART-UPORGANIZATIONManagingDirectorMr.DuxResearchandProductionMarketingFinanceHumanDevelopmentResourcesandAdministrationMr.InventMr.FacitMs.OratoriaMr.PecuniaMr.DuxExhibit11BusinesslocationDescribebrieflythechoiceoflocationforyourbusiness.Donotenterintoalong-termrentalagreement,asyourbusinessmayhavetomoveinresponsetothegrowthyouanticipate.Youmayhavetomakethismovefairlyquickly.”Makeorbuy”andpartnershipdecisionsOnceyouhavedeterminedthecoreofyourbusinessandhavedrawnupthenecessarybusinesssystem,youwillhavetothinkaboutwhowillbestcarryouttheindividualactivities.Activitiesoutsideyourchosenfocusshouldbehandledbythirdparties.Butsupportingactivitieswithinthenewcompanydonotnecessarilyhavetobecarriedoutbyyou.Thesemayinclude33 bookkeepingorhumanresources.Foreachactivity,thequestiontoaskis:Dowedoitourselves,orhavesomeoneelsedoit-tomakeortobuy?Make-or-buydecisionsneedtobeconsciousdecisionstakenafterweighingtheadvantagesanddisadvantages.Supplierpartnerships,forexample,cannotbedissolvedfromonedaytothenext,andsomepartnerscannoteasilybereplacedif,forsomereason,theyarenolongeravailable.Whenconsideringmake-or-buydecisions,relyonthefollowingcriteria:·Strategicsignificance.Thoseaspectsofperformancethatmakeamajorcontributiontoyourcompetitiveadvantageareofstrategicimportancetoyourbusiness.Theymustremainunderyourcontrol.Atechnologycompanycouldhardlyrelinquishresearchanddevelopment,andaconsumergoodsmanufacturerwouldnevergiveawayitsmarketingactivities.·Suitability.Everybusinessactivitydemandsspecificabilitiesthatmaynotbeavailablewithinthemanagementteam.Yourteammust,therefore,considerwhetherinspecificinstancesitisbesttocarryoutaparticulartask,acquiringthenecessaryabilities,orwhetheritwouldbebettertohandoverthetasktoaspecializedcompany.Specialistsmaynotonlybeabletocarryouttheassignmentbetter,theymayalsobeabletoofferacostadvantagethankstohigherproductionvolumes.·Availability.Beforeyoumakeadecisiontobuy,youneedtofindoutwhethertheproductorserviceisavailableintheformorwiththespecificationsyourequire.Negotiate,wheneverpossible,withseveralsuppliers.Youwillusuallyfindthebesttermsinthiswayandwilllearnmoreabouttheserviceyouarebuying.Often,youcanhelpasupplierimproveitsperformance.Ifyoucannotfindsomeonetosupplywhatyouneed,youmayfindabusinesspartnerwhoiswillingtoacquirethenecessaryskillstodoso.Thequestionforastart-upishowyouwanttocooperatewithothercompanies.Everypartnershiphasitsadvantagesanddisadvantages.·Informal,non-bindingpartnershipsrepresentnogreatobligationforeitherside.Bothpartiescanendthepartnershipquicklyandeasily.Buttheymustalsolivewiththeknowledgethatsupplyordemandcoulddryupjustasquickly.Furthermore,supplierswillnotbeabletomeetallthespecialneedsofacustomersincetheycannotselltailoredproductstoalltheircustomers.Casualpartnershipsaretypicalformassproducts,every-dayservices,andstandardizedcomponentsforwhichreplacementbuyersandsellersareeasilyfound.·Closepartnershipsaresometimescharacterizedbyahighdegreeofinterdependence.Theyaretypicalofhighlyspecializedproductsandservicesorhightradevolumes.Inthesesituations,itisusuallydifficultforbothsidestochangepartnersortobuyorselllargequantitiesofspecialparts34 withinashorttimeperiod.Theadvantageforbothsidesisthesecurityofabindingrelationshipandthepossibilityofconcentratingonone’sownstrengths,whilebenefitingfromthestrengthsofpartners.Inorderforapartnershiptodevelopintoasuccessfulbusinessrelationship,anumberoffactorsmustbeconsidered:·Win-winsituation.Bothsidesmustbeabletogainafairadvantagefromtherelationship.Withoutanincentiveforbothsides,apartnershipcannotbesustained.·Risksandinvestments.Partnershipsinvolverisksthatareusuallybrushedasidewhenbusinessisgoingwell.Asupplierwithanexclusivityagreementcan,forexample,endupinadifficultsituationifthebuyersuddenlycutsbackproductionandpurchasesfewercomponents.Thisisespeciallytrueifthesupplierhasacquiredspecializedproductiontoolingthatcannotimmediatelybeusedforotherordersandbuyers.Conversely,abuyercanfacedifficultiesifamajorsupplierceasestodeliver(bankruptcy,fire,strike,etc.).Suchrisksandpossiblefinancialconsequencesmustbethoughtthroughfromtheoutsetandperhapsregulatedbycontract.·Dissolution.Asininterpersonalrelationships,businessrelationscanalsosuffertensionandresultinirreconcilabledifferences.Makesuretolaydownindetailunderwhichconditionsapartnercanwithdrawfromapartnership.Whenworkingonyourbusinessplan,itisnottooearlytobeginthinkingaboutwhomyoumaywanttocooperatewithandwhatformthismaytake.Partnershipswillallowayoungcompanytobenefitfromthestrengthsofestablishedcompaniesandfocusondevelopingtheirownstrengths.Throughpartnerships,youcanusuallygrowfasterthanyoucouldonyourown.KEYQUESTIONS:BusinesssystemandorganizationPhase2!Whatdoesthebusinesssystemforyourproduct/servicelooklike?!Whatactivitiesdoyouwanttohandleyourself?!Wherewillthefocusofyourownactivitieslie?!Whatbusinessfunctionsmakeupyourorganization,andhowisitstructured?!Whatresourcesdoyouneed(quantitativeandqualitative)tocreateyourproduct/service?!Howhighisyourneedfortechnicalinput(rawmaterials,materialstocreateyourservice)?!Whatwillyoumake,whatwillyoubuy?!Whichpartnerswillyouworkwith?Whataretheadvantagesofworkingtogetherforyouandyourpartners?Phase3!Wherewillyoulocateyourbusiness?35 !Whatcapacityforproductmanufactureandserviceproductiondoyouplan(numberofunits)?!Howmuchwillproductionanddeliveryofyourproduct/servicecost?!How,andatwhatcost,canyouadjustyourcapacityintheshortterm?!Whatmeasuresareplannedforqualityassurance?!Ifyouneedawarehouse,howwillyouorganizeyourinventory?!Howmuchofyourproducthastobeputinstorage?!Howareyourcostsstructured(fixed,variable)?4.7.Implementationschedule”Businessislikechess:Tobesuccessful,youmustanticipateseveralmovesinadvance.”WilliamA.Sahlmann,ProfessorInvestorswanttoknowhowyouenvisionthedevelopmentofyourbusiness.Arealistic5-yearplanwillinspirecredibilityamonginvestorsandbusinesspartners.Moreover,itwillhelpyouthinkthroughyourvariousactivitiesandinterdependencies.Youwillendangeryourbusinessifyouattempttoreachyourtargetswithfaultyand,aboveall,overlyoptimisticplanning.DrawingupyourimplementationscheduleConcentrateonthemostmajormilestonesandthemostimportantinterdependentevents.Thefollowingthreeelementswillusuallysuffice:·Ganttimplementationschedule(forasampleGantttimeline,seeCityScapecasestudy)·Majormilestones·ImportantconnectionsandinterdependenciesbetweentheworkassignmentgroupingsHumanresourcesplanningAsyournewbusinesstakesoff,systematicpersonnelplanningwillbecomemoreandmoreindispensable.Growthwillrequireyoutorecruitnewemployeeswhowillhavetobetrainedandintegratedintothebusiness.Maintainingasimplystructuredworkingenvironmentwillhelpyoudrawupclearjobdescriptionsandseekjusttherightemployees.Keepinmindthataqualified,specializedworkforcemaybedifficulttofindevenintimesofhighunemployment.Youwilloftennotbeabletoavoid”stealing”goodemployeesfromcompetitors.Includecostsinyourpersonnelplanninginordertoarriveatthetotalcostofhumanresources(wagesandindirectlaborcosts)fortheincomestatementinyourbusinessplan.Thecostofpersonneldependsonanumberoffactors,suchastheindustryitself,employeequalifications,andage.Additionally,indirectlaborcostscanamounttoover50%ofthewage.36 InvestmentanddepreciationplanningInvestmentanddepreciationplanningincludesallinvestmentsthatmaybecapitalizedandthecorrespondingwrite-offs.Theamountofdepreciationdependsontheservicelifeplannedfortheproperty.Usually,propertyiswrittenoffinfullover4to10yearsinequalannualamounts(straight-linemethod).Investmentsaretobeincludedintheliquiditycalculation,andthetotalamountofannualwrite-offslistedintheplannedincomestatement.KEYQUESTIONS:ImplementationschedulePhase3!Whatarethemostimportantmilestonesforthedevelopmentofyourbusiness,andwhenmusttheybereached?!Howdoyouplantostructuretheworktoreachthesetargets?!Whichtasksandmilestonesareinterdependent?!Forwhichtasks/milestonesdoyouanticipatebottlenecks?!Howmanynewemployeeswillyouneedintheindividualbusinessareasoverthenext5years?Whatwillthiscost?!Howmuchrealcapitalisnecessarytoachieveinitialsales?!Listyourplannedshort-terminvestments!!Listyourplannedlonger-term(3to5years)investments!!Whatinvestmentswillberequiredwhenwhichmilestonesarereached?!Howhighistheannualdepreciationforeachinvestment?37 4.8.Opportunitiesandrisks”Oneofthegreatestmythsaboutentrepreneursisthattheyareallriskseekers.Allsanepeoplewanttoavoidrisk”WilliamA.Sahlmann,ProfessorTheobjectofthisexerciseistoidentifyamarginoferrorfordeparturesfromyourassumptions.Ifpossiblewithreasonableeffort,itisadvisabletodrawupbest-caseandworst-casescenariosinvolvingkeyparameterstoidentifytheopportunitiesandrisks.Thesecalculationswillallowventurecapitaliststojudgehowrealisticyourplansare,andtobetterassesstheriskoftheirinvestment.Changevariousparametersinthescenarios(suchaspriceorsalesvolumes)tosimulatehowachangeinconditionsmightaffectyourkeyfigures(sensitivityanalysis).KEYQUESTIONS:OpportunitiesandrisksPhase2!Whatbasicrisks(market,competition,technology)doesyourbusinessventureface?!Whatmeasureswillyoutaketocountertheserisks?!Whatextraordinaryopportunities/businesspossibilitiesdoyouseeforyourcompany?!Howcouldanexpansionofyourcapitalbasehelp?Phase3!Whatwillyourplanninglooklikeforthenext5financialyearsunderbothabestandworstcasescenario?!Whateffectwillthishaveonyourneedforcapitalandyourreturn?!Inyourview,howrealisticarethesescenarios?!Whatconsequencesdotheyhaveonyourbusinessplanning?4.9.Financialplanningandfinancing”Planningsubstituteschaosformistakes.”UnknownFinancialplanningassistsyouinevaluatingwhetheryourbusinessconceptwillbeprofitableandcanbefinanced.Tothisend,theresultsofallprecedingchaptersmustbecompiledandconsolidated.Projectedgrowthinvalueresultsfromtheplannedcashflowsfromyouroperativebusiness.Thesearerevealedthroughliquidityplanning,whichalsoprovides38 informationonyourvariousfinancingneeds.Inaddition,theprofitsituationofyourbusinesscanbeseenintheincomestatement.Thisstatementisalsonecessaryaccordingtocommercialandtaxlaw.Therearemanywaystopresentthefigures.Theappendixcontainssampletablesofhowtoperformliquidityplanningandmakeupanincomestatement,aswellasabalancesheet.Minimumrequiredoffinancialplanninginyourbusinessplan:!Acashflowcalculation(liquidityplanning),incomestatement,balancesheet!Forecastsover3to5years,atleast1yearbeyondthepointofbreakingeven,thatis,beyondthegenerationofpositivecashflow!Detailedfinancialplanningforthefirst2years(monthlyorquarterly),thereafterannually!Allfiguresmustbebasedonreasonableassumptions(onlythemainassumptionsneedtobedescribedintheplan)PlannedincomestatementWhetheracompany’sassetsgrowordiminishdependsonthebottomlineattheendofayear.Theincomestatementcanhelpyouforecastthis.Incontrasttoliquidityplanning(=plannedcashflow),anincomestatementfocusesontheissueofwhethertransactionsleadtoanincrease(=revenue)oradecrease(=expense)inthenetworthofyourbusiness(definedasthesumofallassetsminusdebt).Gothroughyourentirebusinessplananddecidewhetheryourassumptionswillleadtorevenuesorexpensesand,ifso,howhightheywillbe.Ifyouareindoubtabouttheexactamountofcostsyourbusinesswillincur,gatherquotesandestimates.Donotforgettocoverthecostofyourpersonallivingexpenses.Inthecaseofalimitedliabilitycompany,thiswouldbethesalaryofyourgeneralmanager.Listwrite-offsinyourinvestmentanddepreciationplanning.Thecostofinvestmentsthemselves(i.e.,thepurchasepriceoftheinvestment)isnotincludedintheincomestatement,becausetheamountpaidoutdoesnotleadtoachangeinthenetworthofthebusiness.Materialcostscompriseallexpensesforrawmaterials,auxiliaries,expendablesupplies,andpurchasedgoodsandservices.Yourplannedhumanresourcesexpenditureincludeswagesandsalariesplussocialsecuritycontributionsandtaxesandislistedunderpersonnelcosts.Forthepurposeofsimplification,thecategory”othercosts”istreatedasacollectiveitem,includingamongotherthings,rent,insurance,officesupplies,postage,advertising,andlegalcounsel.Whenassigningindividualrevenuesandexpensesstrictlyobservelegalregulations.Finally,calculatethedifferencebetweenallrevenueandexpensesinafinancialyear,bywhichyouwillarriveatanannualnetprofit/loss.Thiswillgiveyouanoverviewoftheoperatingresult,butitwillnotgiveyouareliableassessmentofyourlevelofliquidfunds.Forthis,youwillneedliquidityplanning.39 Salesofyourproductorservicemaybebookedinthecurrentfinancialyear,eventhoughpaymentdoesnotoccuruntilthenext;youwillneedtolistthesalesrevenueeventhoughthemoneyhasnotyetbeendepositedintoyouraccounts.Thesameistrueforexpenses.Theincomestatementisgenerallyplannedinannualintervals.Toenhancetheaccuracyofyourplanningforthefirstyear,youshouldmakemonthlyforecasts,andquarterlyforecastsforthesecondyear.Forthethird,fourth,andfifthyears,continuetomakeannualprojections.YoucanmakeuseofthetablescontainedintheappendixofthisGuidetolistthefigures.LiquidityplanningYourcompanymusthaveacertainamountofcashonhandatanygiventimeinordertoavoidbecominginsolvent,whichleadstobankruptcythatwillmeanthefinancialruinofyourbusiness.Detailedliquidityplanningshouldhelpensureapositivecashflow.Theprincipleissimple:Receiptsarecompareddirectlytodisbursements.Pleasenotethatwritingorreceivinganinvoicedoesnotmeanthatthemoneyisalreadyinyouraccountorthatyouhavepaidthebill.Liquidityplanningisconcernedwiththedateofpaymentwhenthemoneyactuallycomesinorgoesout.Thus,liquidityplanninginvolvesonlythosetransactionsthatcauseachangeinyourcashreserves.Depreciation,liabilities,andnon-marketoutputarenotincluded.Layouttheamountandtimingofallthepaymentsyouexpect.Yourcompanyissolventwhenthesumofitsreceiptsisgreaterthanthesumofitsdisbursementsatanygiventime.Youwillhavetodrawoncapitalforthosetimeswhenthisplanningdoesnotcoverallexpenses.Thesumofalltheseindividualpaymentswillequalthetotalcapitalrequiredforthatplanninginterval.Thefartheryoulookintothefuture,themoreuncertainyourplanningwillbe.Liquidityplanningshouldthusbecarriedouteverymonthforthefirstyear,quarterlyforthesecondyearandonlyannuallyforthethird,fourthandfifthyears.TheappendixofthisGuidecontainstablesyoucanuseforanexactcompilationofthefigures.ProjectedbalancesheetVenturecapitalistsareinterestedinseeinghowyourassetsareexpectedtogrowasrepresentedonaprojectedbalancesheet.Here,thetypeandvalueoftheassetsareplacedontheassetsideofthebalancesheetacrossfromthesourceofthecapitalontheliabilitiesside.Aswiththeincomestatement,thereisastandardaccountingformat,requiredbylaw,forbalancesheets.Theyarepreparedatannualintervals.Again,theappendixofthisGuidecontainstablesyoucanuseforanexactcompilationofthefigures.FinancingneedsLiquidityplanningenablesyoutodeterminetheamountofcapitalyouwillneedandwhenyouwillneedit,butitdoesnotindicatehowtheseneedswillbemet.Webasicallydistinguishbetweenequity(investorshaveastakeinthebusiness)andloancapital(whichisborrowedfromoutsidesources).Selecttherightmixforyourbusinessfromthemyriadsourcesoffinancingavailabletoyou(Exhibit12).”Youcan’tgetsomethingfornothing,”thesayinggoes-andthesameistrueofmoney.Yourfamilymayasklittleinreturnforfinancialassistance;professionallendersaremoredemanding.40 Allthemanagementteamcanofferinvestorsfortheircashisapromise–notexactlyagoodpositionfromwhichtonegotiate.Nevertheless,youhaveagoodchanceofbeingSOURCESOFCAPITALATVARIOUSSTAGESOFDEVELOPMENTSeedphaseStart-upGrowthEstablishmentPersonalsavingsFamilyloansGovernmentgrantsIndividuals(usinessangelsVenturecapitalMortgagesLeasesBankloansStockexchangeExhibit12financiallysuccessfulifbusinessgoeswell,becauseprofessionalinvestorsalsohaveaninterestintopperformancefromtheteam.Beclearaboutyourneedsandexpectationsandthoseofyourinvestors.Ifyouareseekingalong-termcommitmentandaresatisfiedwithasmallcompany,youareprobablywelladvisedtomakeuseoffamilyfundsandloansfromfriendsandbanks.Youwillretainamajorityshareholding,butyouaresignificantlyrestrictingyourchancesforgrowth.If,however,youdesirerapidexpansion,youwillwanttoprocureventurecapital.Venturecapitalistswillgenerallyexpecttoobtainalargeshareofthecompany.Youmay,infact,havetorelinquishthemajorityoftheequity.Professionalinvestors,however,arenotinterestedinmanagingthebusinessaslongasyoumeetyourtargets,eveniftheyhavethemajorityshareholding.Theyhave,afterall,investedinthemanagementteaminordertoleadittosuccess.Theywillsupportyouactivelywiththeirmanagementskillsandcontributespecialtyknowledge,suchaslegalormarketingexpertise,ties,andcontacts.Adealcanbeverycomplicated.Itisalwaysadvisabletocontactexperiencedentrepreneursandgettheexpertadviceoftrustees,taxadvisors,andlawyers.Youmayalsowanttogatheranumberofbidsfromvariousinvestors.Donotbeputoffbycomplicatedarrangements.Thereareusuallylegitimatereasonsforthem,suchastaxbreaks,controlofthefundsinvested,etc.Beabsolutelycertain,however,thatyouunderstandallthedetailsofthedeal.Calculatingtheinvestor’sreturn41 Investorsevaluatethesuccessofaninvestmentbythereturntheygetonthecapitalinvested.Asaresult,anticipatedreturnshouldbeapparentataglanceinthebusinessplan.IntheCityScapecasestudy,forexample,investorsputatotalof$2.5millionintotheenterpriseduringitsfirst3years($0.9,$1.1,and$0.5million,respectively).After5years,andlistingonthestockexchange,realisticproceedsofapproximately$25millionareexpected.Howhighisthereturninthiscase?(Exhibit13)CALCULATINGTHERETURN$Millions25.00-1.06Year0Year1Year200Seriesofcashflows-0.90-0.53Year3Year4Year5-1.06Discountfactor1.000.580.340.200.110.07Discountedvalueof-0.90-0.62-0.18001.70Total0cashflowsatIRRof72%Exhibit13Fromthepointofviewoftheinvestor,allfundscontributedtoanewcompanyresultfirstinnegativecashflows.Afterabusinessbreakseven,positivecashflowswillnotimmediatelybepaidoutintheshapeofdividends,butwillbefirstusedtostrengthenthebalancesheet.Cashwillbereturnedtotheinvestorsatrealization.Becausecashflowswilloccuroverseveralyears,theymustbediscounted,thatis,calculatedbacktothepresent(interestandcompoundinterestcalculation).Thediscountfactorsforthevariousyearscanbearrivedatusingthefollowingformuladiscountfactor=1(1+r)Twherebyr=thediscountrateinpercentandT=theyearinwhichthecashflowtakesplace.Tocalculatethereturn,theinternalrateofreturn(IRR)methodisused.TheIRRisthediscountrateatwhichthesumofallpositiveandnegativecashflows,discountedatpresent,resultsinzero.TheIRRfortheCityScapeprojectexampleis72%.Thatmeansthattheinvestorsgetanannualreturnof72%ontheircapital.Thisisareasonablereturnconsideringtheriskinvolved.MostcalculatorsandspreadsheetshaveaspecialIRRfunctionwithwhichtocalculatetheIRR(inExcelthisistheIRR()function).Itcanalsobecalculatedbyhand.42 Valuationofacompany(i.e.,workingouthowmuchamarketispreparedtopayforshareswhenabusinessgoespublic)isanartinitself.Asimpleruleofthumbisthatthevalueissixtoeighttimesthecashflowornetprofit(aftertaxes)ofthebusinessintheyearofinitialpublicoffering.InthecaseofCityScape,afactorofsixmultipliedbythenetprofitinthefifthyear($4.2million)wasused,whichresultsinavaluationof$25.2million.Ifyouhavenoexperienceinfinancialplanning,consultingwithcoachesorexperts(e.g.,taxconsultantsoraccountants)ishighlyrecommended.Inparticular,discusstheissuesofturnoversalesandincometaxes,whichhavebeensimplifiedhere,withataxadvisoratoneofthecompetitioneventslistedatthefrontofthisGuide.Notethatmostbusinessventuresfailduetolackoffinancialplanning.Ifyoudon’thavesomeonewiththenecessaryskillsonyourteamalready,startlooking!KEYQUESTIONS:FinancialplanningandfinancingPhase3!Howwillyourrevenues,expenses,andincomedevelop?!Howwillyourcashflowdevelop?Whenwillyouexpecttobreakeven(=sumofallrevenuesgreaterthanthesumofallexpenses)?!Howhighisyourneedforfinancingbasedonyourliquidityplanning?!Howmuchcashisneededintheworstcasescenario?!Whatassumptionsunderlieyourfinancialplanning?!Whichsourcesofcapitalareavailabletoyoutocoveryourfinancingneeds?!Whatdealareyouofferingpotentialinvestors?!Whatreturncaninvestorsexpect?!Howwilltheyrealizeaprofit(exitoptions)?Thispageintentionallyblank43
