Establishing an effective Business plan; course for the Autumn Business School

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

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

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

4 The three important questions What? Why? How?

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

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

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

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

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

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

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

12 Elements of a model

13 The Business model Canvas

14 Starting a business in practice

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

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

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

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19 A simple business model (Example of Busmode Ltd)

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

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

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

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

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

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

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

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

28 Project plan Launching a new product or service

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

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

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

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

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