Presentation on theme: "Contents Business start-up process Writing the Business Plan"— Presentation transcript:
0 How to Write a Business Plan 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1How to Write a Business PlanInnovation Challenge Innovations Foundation Toronto, Canada 2001This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.
1 Contents Business start-up process Writing the Business Plan 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1ContentsBusiness start-up processWriting the Business PlanConstructing the team
2 Contents Business start-up process Writing the Business Plan 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1ContentsBusiness start-up processWriting the Business PlanConstructing the team
3 Stages of a Start-up Stage 1 Stage 2 Stage 3 Established company 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1Stages of a Start-upStage 1Stage 2Stage 3Established companyStart-up and growthExit of initial investorsBusiness plan preparationFinancing decisionBusiness idea generationInterest of investors
4 5 key factors for success of innovative start-ups 050301LNZXL756LTDE-P1150101lnwwl037spcm-p15 key factors for success of innovative start-upsIdeasDegree of innovationScopePatentNetwork & exchangeCoachingNetworkingMatchmakingInnovative service providerVenture capitalistsHeadhuntersBusiness angelsStart-up consultantsPeopleInventorsEntrepreneursTeam membersTraditional service providersAttorneysPatent lawyersTax consultants/ accountantsMarket researchersCapitalAvailability/amountNeeds/responsibilitiesExists for investors
5 Elements of a promising business idea 050301LNZXL756LTDE-P1Elements of a promising business ideaSuccessful ideas demonstrate how big the market is, the target customers and how the product differs from the competitionThe key to success is satisfied customers, not a great productCLEAR CUSTOMER VALUEMARKET OF ADEQUATESIZECreate a new product or a new way of delivering an existing product – do both and create a new industryIdeas should be feasible with realistic time and resource plansFEASIBILITYAND PROFITABILITYSUFFICIENT DEGREE OF INNOVATION“There is nothing in the world as powerful than an idea whose time has come”Victor Hugo
6 Innovation classification scheme 050301LNZXL756LTDE-P1Innovation classification schemeNew productMicrosoftNew industryNetscapeInnovationProduct/serviceExisting industrySkilled tradesEngineering officesNew business systemDellConventionConventionInnovationBusiness system
7 Role of traditional service providers 050301LNZXL756LTDE-P1Role of traditional service providersLong term successMarket researchersMARKET RESEARCHTax consultantsPatent lawyersTAXPATENTSProfessional advisors can help to clear hurdles
8 Role of a venture-capital company 050301LNZXL756LTDE-P1Role of a venture-capital companySeed capital (pre start-up)Start-up capital (at or shortly before start-up)Expansion capital$$$InvestmentsCapitalrecoveryYoung, growing companiesIPO (Initial Public Offering)Sale of stake to third parties5–8 years postStart-up
9 Collective team strength 050301LNZXL756LTDE-P1Collective team strengthSUCCESSEntrepreneursInventorsFinanceTeammembersTeammembersWell constructed teams provide a strong basis for success
10 Network support START-UP Academics Entrepreneurs Venture capitalists 050301LNZXL756LTDE-P1Network supportAcademicsEntrepreneursVenturecapitalistsPeersSTART-UPUse all connectionsFriendsServiceprovidersSponsorsOtherstart-ups
11 Contents Business start-up process Writing the Business Plan 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1ContentsBusiness start-up processWriting the Business PlanConstructing the team
12 Eugene Kleiner, Venture Capitalist 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1“Writing a Business Plan forces you into disciplined thinking, if you do an intellectually honest job. An idea may sound great, but when you put down all the details and numbers, it may fall apart”Eugene Kleiner, Venture Capitalist
13 Characteristics of a successful Business Plan 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1Characteristics of a successful Business PlanClearWell structuredStandaloneObjectiveAccuratePositive and criticalYour calling cardThe document the reader will remember you byConsistentStyleAnalytical depthSimplePlain EnglishNon-technical terms
14 Elements of a Business Plan 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1Elements of a Business PlanFocus of this phasePart of this phaseDraft businessplan‘Final’ businessplanBusinessconcept1. Executive summary2. Product or service3. Management team4. Market and competitionImportance5. Marketing and sales6. Business system and organisation7. Implementation schedule8. Opportunities and risks9. Financial planning and financing
15 Key questions – 1. Executive Summary 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1Key questions – 1. Executive SummaryBusiness conceptDraft business plan‘Final’ business planWhat is your business idea? In what way does it fulfil 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 (high level estimation)?What long term goals have you set?What do you estimate your financing needs to be?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?What are the results of your detailed business planning?What are your exact financing needs?How will you delegate management tasks?How much production capacity is necessary?How will the implementation of your business idea be organised?What are your next concrete steps?
16 Key questions – 2. Product or service 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1Key questions – 2. Product or serviceExecutive SummaryWhat are the features or functions of the product/service?Who are the target customers?What value propositions does the product/service provide to the customers? (e.g., tabulate customers’ unfulfilled needs and ways the product/service addresses those needs)What is the revenue model? (i.e., description of revenue sources – advertising revenue, transaction revenue, subscription revenue, flat-fee vs. percentage-based)What is the development status of the product? What remains to be done to convert the business idea into a tangible product or service?Has this business model been proven elsewhere? What are some successful examples?What is the plan to maintain the loyalty of customers?Product or serviceManagement teamMarket & competitionMarketing & salesBusiness system & organisationImplementation scheduleOpportunities & risksFinancial planning
17 Key questions – 3. Management team 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1Key questions – 3. Management teamExecutive SummaryProduct or serviceWho are the founders/founder groups and what are their qualifications, experience and past achievementsHow critical is the idea originator to the future success of the venture?How are the management responsibilities shared among the team? (e.g., a table of team members with their position and key activities/responsibilities)What is the plan to reinforce management team in the future? (e.g., schedule of future management hiring and skills required)Management teamMarket & competitionMarketing & salesBusiness system & organisationImplementation scheduleOpportunities & risksFinancial planning
18 Key questions – 4. Market & competition 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1Key questions – 4. Market & competitionExecutive SummaryProduct or serviceManagement teamWhat is the potential market size for the product/service? (e.g., calculation derived from number of target customers, units sold, value of sales)What is the expected market growth and which major factors influence that growth?Who are the likely competitors? What do they offer?What are the strengths and weaknesses of competitors? What is your competitive positioning vis-à-vis competitors? (i.e, a table of competitors and their ratings across key criteria – e.g., time to launch, technological capability, access to proprietary technology, privileged relationship with suppliers and customers)Market & competitionMarketing & salesBusiness system & organisationImplementation scheduleOpportunities & risksFinancial planning
19 Key questions – 5. Marketing & sales 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1Key questions – 5. Marketing & salesExecutive SummaryProduct or serviceManagement teamMarket & competitionWhat are the specific plans to promote the product/service?How will the product/service be distributed? Which partners will be needed in the distribution channel?What will be the pricing strategy? (e.g., how much will you charge for different customer segments, quantities)Marketing & salesBusiness system & organisationImplementation scheduleOpportunities & risksFinancial planning
20 Key questions – 6. Business systems & organisation 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1Key questions – 6. Business systems & organisationExecutive SummaryProduct or serviceManagement teamWhat is the proposed organisational structure of the company?How will this organisational structure help achieve business goals?What skills will be required and what is the hiring plan? (e.g., a table that shows total number of positions and the functional description of positions, skills required for top 3 positions in each department)What is the scope of the business? (i.e. what will be performed internally and what will be outsourced?)Have strategic partnerships been identified? If yes, how will these partners be secured? If no, what is the plan to get partners?Have key vendors been identified? If yes, how will these vendors be secured? If no, what is the plan to get vendors?Market & competitionMarketing & salesBusiness system & organisationImplementation scheduleOpportunities & risksFinancial planning
21 Key questions – 7. Implementation schedule 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1Key questions – 7. Implementation scheduleExecutive SummaryProduct or serviceManagement teamMarket & competitionMarketing & salesWhat is the detailed short term implementation plan? (e.g., Gantt chart showing detailed activities by month)Who is responsible for each of the tasks?What are major milestones?What are interdependencies between tasks?What is the 5-year implementation plan? (e.g., Gantt chart showing activities by quarter)What are possible long term options for the business?Business system & organisationImplementation scheduleOpportunities & risksFinancial planning
22 Key questions – 8. Opportunities & risk 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1Key questions – 8. Opportunities & riskExecutive SummaryProduct or serviceManagement teamMarket & competitionMarketing & salesBusiness system & organisationWhat are the best case and worst case scenarios for the 5-year financial projections? What are the key assumptions on the key parameters? (e.g., market shares, profit margin) – refer to Appendix for exampleWhat does the sensitivity analysis show? (i.e., by varying key assumptions in isolation)What mitigating steps are planned in order to minimise risks?Implementation scheduleOpportunities & risksFinancial planning
23 Key questions – 9. Financial planning & financing 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1Key questions – 9. Financial planning & financingExecutive SummaryProduct or serviceManagement teamMarket & competitionFor the next 5 years (and at least 1 year beyond breakeven point), what are the projections forIncome statement (includes detailed revenue source as described in the business model)Cash flow statementCompany valuation, utilisingDiscounted cash flow analysisRevenue multiplesBalance sheetWhat are the key assumption used in the financial proforma? (e.g., cost of capital, market share, margin)What are the financial requirements for the business and what sources of financing have been identified? (e.g., financial schedule with amount needed and possible financing sources)Marketing & salesBusiness system & organisationImplementation scheduleOpportunities & risksFinancial planning
24 Contents Business start-up process Writing the Business Plan 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1ContentsBusiness start-up processWriting the Business PlanConstructing the team
25 “Invest in people, not ideas” Eugene Kleiner, Venture Capitalist 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1“Invest in people, not ideas”Eugene Kleiner, Venture Capitalist
26 Characteristics of a powerful management team 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1Characteristics of a powerful management teamCommon vision – everybody wants to succeedComplementary attitudes and strengthsAt least 3, but usually no more than 6 peopleSticks together through thick and thinStaying power, even when there are setbacks
27 Criteria applied by investors 050301LNZXL756LTDE-P1150101lnwwl037spcm-p1Criteria applied by investorsHas the team already worked together?Do team members have relevant experience?Do the founders know their weaknesses and are they willing to make up for them?Have the founders agreed on their future roles and are ownership issues settled?Has the management team agreed on a common goal, or are there underlying differences of opinion?Do the team members fully back the project?
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