Source: McKinsey
Standard use of business plans
▪Start-up companies:
–Application for venture capital
–Search for management team members
–Communication with partners, suppliers, …
▪Established, developed businesses for investment decisions
–In-house budget allocations
–External financing
Generic requirements
Explanation
Constantly adapting
▪Business planning is an iterative and adaptive process that requires
constant update and adjustment work
Impressing by clarity
▪Not the quantity of analyses, but the clarity and preciseness of the
pack are important
Convincing by facts
▪No hype, but factual statements. Enthusiasm will be generated by the
investor realizing the opportunity on his own
Understandable even for non-experts
▪Those who allocate investment resources rarely are technical experts
for the technology used in the proposal
Consistent and concise
▪Those who allocate investment resources rarely are technical experts
for the technology used in the proposal
Optically compelling
▪A clear, precise structure is a courtesy to those investing their time
in reading the proposal
Executive summary
▪Gives a brief overview of the concept's most
important aspects
▪Describes idea as clearly, compellingly, and
concisely as possible
▪Raises interest of decision makers
▪Is not more than 5 - 10 minutes to read
▪Quality of summary decides if rest of business
plan is read
– Key questions
Idea description
▪What is your business idea? In what way does it
fulfill the criterion of uniqueness?
▪Who are your target customers?
▪What is the value for those customers?
▪What market volume and growth rates do you forecast?
▪What competitive environment do you face?
▪What additional stages of development are needed?
▪How much investment is necessary (estimated)?
▪What long-term goals have you set?
Rough business plan
▪How high do you estimate your financing needs?
▪What are the sales, cost, and profit situations?
▪What are the most important milestones along the way
to your goal?
▪What test customers have you approached/ could you
approach?
▪What distribution channels will you use?
▪What partnerships would you like to enter into?
▪What opportunities and risks do you face?
▪What is the picture on patents?
Product/service
▪Potential foam plus applicator to replace expensive and space consuming
earth that must be spread over garbage dumps every day
▪Space savings of ~30% for dump operators
▪Costs of coverage reduced by ~50% for dump operators
Market and competition
▪Customers: household garbage dump operator
▪Market: 300 to 500 dumps in Eastern USA with capacity of 500 to 10,000
tons/day
▪Major competitor: 3M/Sanifoam (application takes longer and is more
complicated)
Marketing and sales
▪2007: Investments of USD 850,000 required
▪2008: Sales of USD 2 million (break-even)
▪2012: Sales of USD 15 million, profit of USD 1.5 million
Business system
▪Sale of foam and applicators (product business)
Opportunities and risks
▪Necessary approval from authorities
▪Proof of system's operational efficiency
Content of product/service section
▪Describes the function the product/service fulfills
and the benefits the customer will gain from it
–Product/service description
–Customer value
▪Explains status and next steps of product/service
development
▪Addresses patents/IP protection issues
▪Product/service section has to prove that
entrepreneur can integrate the customers' perspective
– Key questions
Idea description
▪What end customers will you address?
▪What are the customers' needs?
▪What customer value does your product/service
provide?
▪What is the nature of your innovation? Why is it unique?
▪What partnerships are necessary to achieve
full customer value?
▪What competitor products already exist or are
under development?
▪What stage of development has your product or
service reached?
▪Do you have patents or licenses?
▪What further development steps do you plan to
take? What milestones must be reached?
Rough business plan
▪Which versions of your products/services are
designed for which customer groups and applications?
▪What patents/licenses do the competitors have?
▪What kind of service/maintenance will you
offer?
▪What product or service guarantees will you
grant?
▪Compare the strengths and weaknesses of
comparable products/services with yours in an overview!
Successful product positioning
Identify relevant customer
needs and problems
Define clear, sufficiently
large customer segments
Define uniqueness and
position offering vis-à-vis competition
Address
subjective perception of customers
Content of management team section
▪Outlines educational background and professional
experience of founders
▪Describes how existing skill gaps can be closed in
the future
▪Convinces potential investors that both managerial
and technological expertise is present to run the venture
▪Venture capitalist will invest only if the venture
is managed by an excellent team
Management team – Key questions
Complete business plan
▪Who are the members of your management team and
what distinguishes them: education, professional experience, success, standing
in the business world?
▪What experience or abilities does the team
possess that will be useful for implementing your concept and setting up your
company?
▪What experience or abilities are lacking? How will
the gaps be closed? By whom?
▪What targets do the team members pursue by
starting up the business? How high is the motivation of the individual team
members?
Reasons for business plan rejection
Inadequate technical expertise
Not patentable
Money commitment too large Long time frame
Not market-driven
Weak management team
Content of market and competition section
▪Provides thorough understanding of markets and
competitors:
–Market size and growth
–Market segmentation
–Competition
–Positioning of product vis-à-vis the competition
▪The market and competition section has to outline
the full economic potential of the venture
Market and
competition – Key questions
Idea description
▪How is the industry developing?
▪What role do innovation and technological advances
play?
▪How will you segment the market?
▪What market volumes do the individual market
segments have, now and in the future (rough estimates)?
▪Who are your target customer groups?
▪What major competitors offer similar
products/services?
▪How sustainable will your competitive edge be?
Rough business plan
▪What market volume (value and amount) do you
estimate for your individual market segments over the next five years?
▪What will influence growth in the market
segments?
▪What is your estimate of current and future profitability
of the individual market segments?
▪What market shares do you hold in each market
segment? What segments are you targeting?
▪Who are your reference customers? How do you
plan to get reference customers?
▪What are the key buying factors for customers?
▪How does the competition operate? What strategies are
pursued?
▪What are the barriers to market entry and how
can they be overcome?
▪What market share does your competition have
in the various market segments?
▪How profitable are your competitors?
▪What are your competitors' marketing strategies?
▪What distribution channels do your competitors
use?
▪How will competitors react to your market
launch? How will you respond to this reaction?
▪Profile the strengths and weaknesses of your
major competitors with your own in the form of an overview!
Content of marketing and sales section
▪Outlines planned marketing and sales activities (four
"Ps" framework):
–Product
–Price
–Place
–Promotion
▪Marketing and sales section has to explain how
market is developed
Marketing
and sales – Key questions
Idea description
▪What final sales price do you want to charge
(estimated)? What criteria did you use to arrive at this final sale price? How
high is the profit margin (estimated)?
▪What sales volumes and sales revenues are you aiming
for (estimated)?
Rough business plan
▪In which partial market segments will you make your market
entry? How do you plan to turn this "toehold" into a high-volume
business?
▪What sales volumes are you targeting (detailed
data by market segment)?
▪Describe the typical process of selling your
product/service. Who, among your buyers, ultimately makes the purchasing
decision?
▪How will you win reference customers?
▪How much, in time and resources, will it cost
to acquire a customer?
▪Which advertising materials will you use to do
so?
▪What other planning steps are necessary in the
run up to launching your product/service? Draw up a schedule with the most
important milestones!
Content of business system section
▪Outlines what parts of the value chain are covered by
the venture
▪Discusses organizational issues
▪Describes necessary partnerships
▪Makes "make or buy" decisions
▪Business system section describes all necessary
elements that enable the venture to physically deliver the customer value
Business
system – Key questions
Rough business plan
▪What does the business system for your
product/service look like?
▪What activities do you want to handle
yourself?
▪Where will the focus of your own activities
lie?
▪What business functions make up your
organization, and how is it structured?
▪What resources do you need (quantitative and
qualitative) to create your product/service?
▪How high is your need for technical input (raw
materials, materials to create your service)?
▪What will you make, what will you buy?
▪Which partners will you work with? What are
the advantages of working together for you and your partners?
Content
of implementation plan section
▪Describes the most important activities and
milestones for the development of the business
▪Lists the planned short- and long-term investments
▪Links the investment needs with major milestones
▪The implementation plan section gives the investor
a clear roadmap to control the business development
Implementation
plan – Key questions
Complete business plan
▪What are the most important milestones for the
development of your business, and when must they be reached?
▪How do you plan to structure the work to reach
these targets?
▪For which tasks/milestones do you anticipate bottlenecks?
▪How many new employees will you need in the
individual business areas over the next five years? What will this cost?
▪How much real capital is necessary to achieve
initial sales?
▪List your planned short-term investments!
▪List your planned longer-term (3 - 5 years)
investments!
▪What investments will be required when which milestones
are reached?
▪How high is the annual depreciation for each
investment?
Content
of financing section
▪Provides rough cash-flow forecasts
▪Outlines forecasts of profit and loss statements
▪Gives overview of future balance sheet structure
▪The finance plan explains the timing and volume of
necessary financing rounds
Financial
planning – Key questions
Complete business plan
▪How will your revenues, expenses and income develop?
▪How will your cash flow develop? When will you expect
to break even (= sum of all revenues greater than the sum of all expenses)?
▪How high is your need for financing based on your
liquidity planning? How much cash is needed in the worst case scenario?
▪What assumptions underlie your financial planning?
▪Which sources of capital are available to you to
cover your financing needs?
▪What deal are you offering potential investors?
▪What return can investors expect?
▪How will they realize a profit (exit options)?
Financial plan outlines
▪Cash flow statement
▪Income statement
▪Balance sheet
Content of opportunities and risk section
▪Describes the venture's specific opportunities
▪Identifies the venture's main challenges
▪Tries to assess and quantify risks (e.g., with
sensitivity analysis)
▪Develops countermeasures for "killer" risks
▪Consideration of risk involved will win the
confidence of a potential investor
Opportunities
and risks – Key questions
Rough business plan
▪What basic risks (market, competition, technology)
does your business venture face?
▪What measures will you take to counter these risks?
▪What extraordinary opportunities/business
possibilities do you see for your company?
▪How could an expansion of your capital base help?
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