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Creating The Winning Business Plan

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1 Creating The Winning Business Plan
Entrepreneurs see change as the norm and as healthy. Usually they do not bring about change themselves. But-and this defines entrepreneur and entrepreneurship-the entrepreneur always searches for change, responds to it and exploits it as an opportunity Peter Drucker Creating The Winning Business Plan Derby Management, LLC 399 Boylston Street Boston, MA Jack Derby 1

2 You’re an entrepreneur, if…
Kaufmann Foundation, July 2009 on Company Founders Age: around 40 95.1% Bachelors, 47% graduate degrees 75% top 30% of high school, 52.4% in top 10% 67% top 30% of undergraduate, 37.5% in top 10% 71.5% from middle class families Birth order: 2.2; siblings: 3.1 51.9% were first in family to start a business 69.9% are married; 59.7% have first child 52% thought about becoming entrepreneurs in college 24.5% extremely interested; of these, 47% >1 business. 74.8% want to build wealth 60.3% do not want to work for others 37.8% have an entrepreneur role model 18.1% have developed a technology to commercialize

3 Jack Derby 20 year successful track record of coaching over 400 companies. 19 year successful track record in medical devices as Executive Vice President of Becton Dickinson Medical Systems, CEO of Datamedix Corporation and President of Litton Medical Systems. 3 years, President, CB Sports Co-founded 9 companies; Current director of 8 Raised over $645 million in venture and private equity Ex General Partner, Kestrel Ventures Director: AMS, Beacon, Brainshark, Hybricon, Rome, Ntirety, Alliance Activities… Chairman, Association of Corporate Growth Director Emeritus, Associated Industries of Massachusetts Ex Chair, MIT Enterprise Forum- Distinguished Service Award Ex Vice Chair, SBANE- Pro Bono Publico Award Member & Director of Common Angels Lecturer, MIT, Business Planning; Sales & Marketing Professor, Tufts, Entrepreneurship-Sales & Marketing

4 A Business Planning Architecture

5 The Art of War… The art of war is of vital importance to the state. It is a matter of life and death, a road either to safety or to ruin. Hence under no circumstance can it be neglected. General Sun Tzu The Art of War

6 The Importance of Business Plans…
The general who wins a battle makes many calculations in his temple before the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat; how many more do no calculations at all! It is by attention to this point that I can foresee who is likely to win or lose. - General Sun Tzu The Art of War

7 Just What Are Business Plans?
Elevator Speech Executive Summary Presentation Pitch The Business Plan

8 Planning Terms & Timelines
Vision: Future State in plus months Strategies: Primary Directions in 1-18 months Tactics: Operating Plans in months Every Tactic has Objectives Objectives: Measurements in months. Planning Terms & Timelines 8 Derby Management Proprietary Content-2009 © 8

9 The Chris Columbus Plan Process…
Pre-planning… I have a pretty good Vision I will bring back gold and riches I need some money and ships I am not too sure how to get there I am also not sure of how long it will take But, I’ll be back soon… 9 Derby Management Proprietary Content-2009 © 9

10 The Chris Columbus Plan Process…
Post Planning Follow Up… I’m not too sure where we went I do know it was not where we expected to be There were a lot of strange people there It took a lot longer than I expected. I did not bring back the gold that I said I would I’d like some more money & ships to try again Derby Management Proprietary Content-2009 © 10

11 “Vision without action is hallucination’ jack derby
Derby Management Proprietary Content-2009 ©

12 Business Planning Architecture
Vision CEO & BOD Strategies All Managers Tactics & Objectives All Employees Actions Operations Common Mistake #1 24 months 1-18 months 1-12 months Common Mistake #2 Common Mistake #3 Derby Management Proprietary Content-2009 © 12

13 = A Business Planning Architecture ( Everything needs to fit )
Product & Services Plans Engineering & Manufacturing Finance Metrics & Review Company Business Plan Marketing & Market Analysis Plans = Strategy Sales Plans Service Plans Management’s Job is One Simple Thing: Create Highly Scaleable Growth 13 Derby Management Proprietary Content-2009 © 13 13

14 Planning Architecture…
Common Business Planning Mistakes… Terminology is not understood and shifts back and forth A lack of process consistency A lack of timely follow up & review Even understanding the most timelines will be late The biggest mistake is always… A lack of consistency on the part of the CEO Derby Management Proprietary Content-2009 ©

15 Successful Planning Architecture
Great Business Planning should provide… A common architecture for the future Agreed upon & well understood strategies A socialized common management language Detailed tactics with measurements Absolute total consensus Ownership & Accountability on everyone’s part Responsibility as a senior manager

16 What’s my responsibility?
So that at the end… Vision is totally aligned with Strategies & Tactics Your goals are married with your managers Your managers have accepted responsibility Your managers have accepted accountability There is an interlaced environment of objectives. There is a common architecture of metrics & rewards 16 Derby Management Proprietary Content-2009 © 16

17 What does this process look like?
Two components… Your own planning Your Company’s planning Somewhat the same in concept… But very different in impact and importance… Derby Management Proprietary Content-2009 ©

18 What does this process look like?
My own plan… A Personal Business Plan You owe it to yourself to develop one It’s written out once a year typically in January It’s typically just for you It defines… Personal Success Measures Critical timelines: 5 years & 1 year. Critical Improvement Factors You review it every six months 18 Derby Management Proprietary Content-2009 © 18

19 The Five Stages of Growth

20 The Five Stages of Growth
Success Growth Stability Survival Concept The question is… Where are you along this path?

21 The Five Stages of Growth
It is very critical to objectively determine where you are Equally critical to understand that shifts will occur with time Growth metrics today will not be the same in two years As a result, you must plan for scalability Processes put in place now that will be cost effective People put in place now who can expand This becomes an overall benchmark of where you are along your planning horizon

22 The Five Stages of Growth
Success Growth Stability Survival Concept Positive cash flow “A” level managers hired Strategies locked down Tactical plans in place Repeatable processes What this really means is… There must be metrics at every stage Businesses must reach Stability at a minimum In order to succeed every business must grow

23 Early Stage Value Creation Cycle
PHASE 2 Build the Business PHASE 3 Scale the Organization PHASE 1 Create Effective Models Exit Profitability Revenue Growth Founder CEO Early Stage CEO Expansion Management Customer Validation Strategic Investments Venture $ Angel $ Seed $ Idea Years 1-2 Survival Years 2-3 Stability Years Growth

24 Value Creation Model… PHASE 2 Build the Business
PHASE 3 Scale the Organization PHASE 1 Create Effective Models Exit Early Market Strategies & Initial Tactics Formal Marketing Plan-Products, Tactics, Leads Profitability Revenue Growth Founder CEO Early Stage CEO & Team Expansion Management Customer Validation Sales Channel Decisions Strategic Investments Revised & Expanded Marketing & Sales Processes & Plans Venture $ Angel $ Formal Sales Plans-Processes, Tactics, & People Seed $ Idea Years 1-2 Survival Years 2-5 Stability Years 5 to ? Growth 24 Derby Management Proprietary Content-2009 © 24

25 The Art of Creating… The Winning Business Plan

26 Business Plan Architecture

27 The Classic Problems of Product Adoption …
Tip: The Dreaded GAP eats resources & slows progress. Critical decisions on pricing, protecting marketing resources and optimizing Sales It’s easy to find these people. The question is whether your product gets defined by them Continue to ask whether they represent the true customer? Make sure that you’re focused on the E Majority Need to be making critical decisions about extending product life and new product design to repeat the curve. • Low touch • Spend very little • Increase prices

28 A Business Planning Architecture
simple A Business Planning Architecture

29 A Business Planning Architecture
simple A Business Planning Architecture

30 What’s included? 7-9 Sections… Executive Summary
Introduction to the business Definition of products & services Overview of markets Overview of sales & marketing plans 6. Overview of products and roadmap 7. Summary of manufacturing & operations Management team bios Four pages of financials

31 Why create a Business Plan?
For you as a company manager, it… Communicates your strategic direction Communicates your tactics Communicates your objectives Communicates your department’s objectives Communicates your budget requirements Provides for common agreement & buy-in Provides common language 31 Derby Management Proprietary Content-2009 © 31

32 Why create a Business Plan?
For you as an entrepreneur, it… Provides the same as a company manager And … …provides an architecture for investors 32 Derby Management Proprietary Content-2009 © 32

33 For the Team… Most importantly, for you & your team
The actual process of planning is the key. It consolidates management direction. It provides debate & finally consensus. It is a guide when speed bumps happen. It is your company & personal scorecard. 33 Derby Management Proprietary Content-2009 © 33

34 No Business Plan, No Larger corporations
Plans are the foundation of your budgeting Business plans are the keys to your objectives Smaller companies Plans are the foundation for outside investors Private angels Venture capitalists Corporate investors & strategic partners Banks 34 Derby Management Proprietary Content-2009 © 34

35 Writing a plan is tough work !
Very Writing a plan is tough work ! It requires disciplined balance It’s visionary, but logical. It’s financially perfect, but flexible. It’s for today, but also for 3 to 5 years out It’s a formal Plan, but it’s easy to read. It’s creative, but it follows The Rules.

36  Rules  Preparation  Start Writing

37 The Traditional Business Plan…
An Executive Summary 7-9 sections 20-30 pages with financials Provides clear details Brings out the richness of the business idea. Details the market opportunity & complexity Details the business and sales models

38 What’s included? 7-9 Sections… Executive Summary
Introduction to the business Definition of products & services Overview of markets Overview of sales & marketing plans 6. Overview of products and roadmap 7. Summary of manufacturing & operations Management team bios Four pages of financials

39 How do you start? Pay attention to The Rules… Be compelling
Be brief, focused, & deliberate Focus on the markets & on your customers Provide solid market research & hard data Be innovative and provide unique value Define an experienced management team 39 Derby Management Proprietary Content-2009 © 39

40 Rules… Be brief & direct & detailed.
Identify what the business is immediately Identify the business model immediately. Define the products & their technologies Detail the markets Identify your customers. Identify the sales model immediately What? Where? Who & How? 40 Derby Management Proprietary Content-2009 © 40

41 Rules… Be realistic with yourself.
This is your Plan, your Career, your Time & Money Define your 1 and your 3 year objectives Describe your 3 to 4 primary strategies. Always focus on… the cash growth in margin growth in revenue. 41 Derby Management Proprietary Content-2009 © 41

42 Don’t just start writing…
Preparation is The Key to Success. Question everything… What’s our Vision? Can we explain it to others ? What business are we in today? Who are our customers in 3 years ? How are we going to sell them? Do we have a 3 year product map? Vision Strategies Tactics Business Plan Focus

43 Don’t just start writing…
Preparation is The Key to Success. What do we really know about… Our market & customer targets? Market data, trends, & forecasts? Competition? New technologies in development?

44 Classic Product Adoption Life Cycle…
It would be wonderful if this really happened !

45 Building a Solid Business Plan
Growth is Never a Straight Line

46 One more preparation task…
Analysis of assumptions… Internally, what do we want for… Revenue, margin and profit growth rates Cost of goods Sales acquisition costs & Sales channel models Hiring rates and ramp speed Technology investment rates Product costs & expected margins G&A expense percentages Receivables, payables, and financing costs 46 Derby Management Proprietary Content-2009 © 46

47 Now, you can start writing…
What you need… A quiet place and time. All of your data easily available. Start writing by yourself. Not a team effort. Get the content down quickly. Send a first rough draft to others quickly. Write draft after draft after draft after….. 47 Derby Management Proprietary Content-2009 © 47

48 What’s included? 7-9 Sections… Executive Summary
Introduction to the business Definition of products & services Overview of markets Overview of sales & marketing plans 6. Overview of products and roadmap 7. Summary of manufacturing & operations Management team bios Four pages of financials

49 The Financial Section… What Professional Investors Expect
Lots of numbers is not the answer !

50 The Financial Section Must Support…
The Key Questions are about Customers & Sales… Who will buy? What will they buy? How will they buy? How do they want to buy? Why will they buy? Why will they buy from you? What will they pay for it?

51 Business Plan Financials …
Present the punchline, know the details Average selling price per unit, average cost per unit Customer payback period Revenue per salesperson; revenue per customer Days Sales Outstanding and Days Payable Outstanding Overall revenue per person Components of cost as a %, (material, labor, & OHD) Industry metrics Compensation plans/ key manager salaries Exhibit confidence & passion, show humility Sell the 5 year plan, deliver on a solid 6 month plan Hide a few rabbits, you’re likely to need them

52 Assembling a Bottoms-Up Plan
80 % of your effort should be spent on the top line Define the market opportunity revenues, potential customers, units available Project an achievable penetration rate What is your go to market plan? Revenue ASP per unit – consider product cost and distribution Depict the economics surrounding a single sale How will the customer measure ROI? What is the economic impact to you? Price, cost, futures? Define the model and scale it!

53 Assessing Your Margins…
Gross margin plan must be bottoms up Labor, Materials, Overhead Operating costs Benchmark whenever possible Build manpower plan functionally Compensation & benefits will represent 70% of costs So plan headcount carefully Spend a modest amount of time on the remaining costs Cash flow is all about timing Plan to pay fast & collect slow, execute the opposite 53 53

54 Forecast Content / Format
Investors expect to see… Five-year summary projections Full, cohesive set of financial statements Statements should correlate Changes in each statement should agree Statements that are supported by monthly detail Until breakeven point / profitability, Then quarterly for two years and yearly thereafter List of major assumptions

55 Building Assumptions & Projections
The Balance Sheet… Define very conservative A/R and A/P days. Consider level of inventory and capital expenditures required to support sales projections. Investor focus: Demonstrate fiscal restraint Limit capital expenditures (consider renting / leasing) Save money for marketing and selling expenses.

56 Building Assumptions & Projections
Statement of Cash Flows… Consider level of funding required to achieve all milestones Mirror timing of funding requirements as stated in plan Investor focus: Cash breakeven and periodic need for additional funding Very important to make realistic forecast so that initial funding request covers capital needs until critical milestone achievement

57 Sensitivity Analysis…
Models must be able to quickly assess cash impact of… What happens if sales are +/- 20%? What if unit sell ramp is slower? What if average sell price is 20% less than planned? What if we accelerate Sales hiring? What if product development is delayed? What if a management change is necessary?

58 Typical Finance Presentation Formats

59 Presentation of Forecasts
“presentation…” doesn’t match table of contents

60 Presentation of Forecasts

61 Presentation of Forecasts

62 Presentation of Forecasts (for inclusion in Executive Summary)

63 Some Examples

64 More information about Business Plans

65 Where to go for more information? Successful entrepreneurs in Providence & Boston Typically volunteer time to young entrepreneurs Typically organized around universities and not-for-profits

66 Thanks… 617-504-4222
March 26-28th Sales Management Boot Camp

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