Business Plans

1
Business Plans

• STS 315/Psych 418
• Larry G. Richards
• April 13, 2006

2
Creating a successful business plan

• Chapter 5 of The Portable MBA in
  Entrepreneurship, David E. Gumpert
• The Successful Business Plan Secrets and
  Strategies, Rhonda Adams

3
Defining a business plan

• Good A business plan is a document that
  convincingly demonstrates the ability of your
  business to sell enough of its product or service
  to make a satisfactory profit and be attractive
  to potential backers.

4
Defining a business plan

• Better A business plan is a selling document
  that conveys the excitement and promise of your
  business to any potential backers or
  stakeholders.

5
Why write a business plan?

• To sell yourself on the business
• To obtain bank funding
• To obtain investment funds
• To arrange strategic alliances

6
Why write a business plan?

• To obtain large contracts
• To attract key employees
• To complete mergers and acquisitions
• To motivate and focus your management team

7
What should business plan cover?

• Cover Page
• Company name and address
• Main Contact
• Phone number
• Confidentiality note
• Visual

8
What should business plan cover?

• Table of Contents
• Executive Summary
• The Company
• The Market
• The product/service
• Sales and promotion
• Finances
• Appendices

9
Executive Summary

• NOT
• an abstract
• an introduction
• a preface
• a random collection of highlights
• the business plan in miniature
• capture the excitement and essence of the
  business

10
Executive Summary

• at most 2 pages
• longer is not a summary
• dont dilute your message
• This is all most people will read.
• It may constitute the basis for their decision.

11
Your Company

• Whats your identity?
• Business strategy
• Your overall approach to producing and selling
  your product.
• Current status
• Future goals
• Management team

12
Presenting your product

• A good name
• for the product
• for the company
• Graphics, animations, videos
• logo
• advertising
• Your Message, a theme for your ads

13
Marketing Issues

• Who will buy your product?
• How do you know?
• Market research
• Competitive environment
• Marketing is identifying your customer
  prospects and determining how best to reach them.

14
Market research

• Is there a market for your product?
• How big is it?
• Estimate actual numbers
• How much of it can you capture?
• Is it stable or changing?
• Growing or shrinking?
• Is it worth your while?

15
Advertising

• Where ?
• How ?
• What message?
• How to differentiate your product?

16
Selling

• Selling is convincing these prospects to buy.
• What are you really selling?
• What benefits are you selling to the customer?
• Quantify them.
• Develop a promotional theme.
• Identify prospective customers

17
Selling

• Creating an image
• Delivering on the promise
• Maintaining your reputation

18

• How are you going to convince potential
  investors that they can make money investing in
  your company and product?

19
Investors concerns

• How long? How quickly will your company start
  to make a profit?
• How much? What Rate of Return can your investors
  expect?

20
Can you make money from your idea?
21
Costs and Prices

• 4 to 1 rule A general rule in retail is that
  the retail price is four times your manufacturing
  cost, and that you sell it to the retailer for
  two times your manufacturing cost.
• Bolanos and Lewis

22
Bill of Materials

• Preliminary
• estimates
• first approximation of product cost
• components
• assembly
• Final
• solid figures
• DFM/A analysis

23
How to estimate costs

• Work backwards from existing products
• Price / 4
• of components
• relative costs of components
• Obtain several estimates
• Establish upper bounds
• Refine estimates based on new information

24
If costs are too high,

• look for ways to reduce costs
• outsource - have someone else make it
• compromise design
• abandon idea (for now)

25
Strategies for Reducing Costs

• examine high priced components
• eliminate parts
• use less expensive materials
• buy off-the -shelf components
• conduct cost/benefit analysis on product
  features are any expensive features low on
  customer importance list
• redesign / simplify

26
Financial Model

• Start from the Bill of Materials
• Include costs of
• production
• packaging
• distributing
• advertising
• marketing/selling
• service/warranty/maintenance?

27
Financial Model

• Clearly state your assumptions
• Note which numbers are estimates
• Indicate your confidence/uncertainties
• Create a spreadsheet
• Perform sensitivity analysis
• Predict your future profits

28
Base Case Model

• development costs
• ramp-up costs
• marketing and support costs
• production costs
• production volume
• revenues
• timing and schedule of above cash flows

29
Uses of Financial Model

• Go / no go decisions
• should we proceed?
• Sensitivity analysis
• What if our assumptions are incorrect?
• Trade-offs
• Qualitative factors
• changes in competitive environment
• technological developments

30
Where to get help

• State Economic Development Offices
• Small Business Administration
• Departments of Commerce
• Chamber of Commerce
• Service Core of Retired Executives
• Virginia Center for Innovative Technology
• Local alliances and coalitions
• University and college sources

31
Exercise Ulrich and Eppinger

• Can you think of some successful products that
  would never have been developed if their creators
  had relied exclusively on a quantitative
  financial model to justify their efforts?
• Do these products share any characteristics?