1. The Business Plan

2. Why write a business plan? Always when a new venture needs outside funding Early in the planning process when you are looking at a large-scale project Later or not at all when you are bootstrapping Dollinger, 2008

3. Costs and benefits of planning Writing a plan takes considerable time, money, and energy Every plan deals with economic uncertainty and risks posed to new venture – founders may be uncomfortable confronting risks and uncertainties and avoid writing a plan Writing the plan helps founders confront risks and conflicts before they become serious problems Dollinger, 2008

4. The plan demonstrates how you 1.Create or add significant value to a customer or end user 2.Solve a significant problem or meet a significant need for which someone is willing to pay a premium 3.Have robust market, margin, and money-making characteristics 4.Have a good fit with the founders, management team at time of market entry, and the risk/reward balance Timmons, 1999

5. After you write the plan It becomes a point of departure for due diligence for potential investors and to determine risks of venture (technology, market, management, competitive, financial risks) This homework is crucial even if you don’t try to raise outside capital The most valuable investors will see weaknesses, even flaws, and will propose tactics and people to fix them Timmons, 1999

6. Tips for business planning and raising outside funds RE: Venture capitalists There are a lot of them; don’t talk to all of them Getting a “no” is as difficult as getting a “yes;” qualify your targets and force others to say no Be vague about which other VCs you are talking to Do not meet with an associate or junior member twice without a partner Timmons, 1999

7. Tips for business planning and raising outside funds RE: The plan Stress your business concept in the executive summary The numbers matter less than the economics (value proposition and business model) Make the business plan look and feel good w/o using “filler” Be prepared to provide copies of published articles, contracts, market studies, purchase orders, resumes, etc. Timmons, 1999

8. Tips for business planning and raising outside funds RE: The Deal Make sure investors want you as bad as you want them Create a market for your venture Never say no to an offer price Use a lawyer with venture deal experience Don’t stop selling until the money is in the bank Timmons, 1999

9. Tips for business planning and raising outside funds RE: The fund raising process It is much harder than you ever thought it would be You can last much longer than you ever thought you would The venture capitalists have to do this the rest of their careers Timmons, 1999

10. Critiquing the plan – General criteria Comprehensiveness – use a template to help Analysis – resource, industry, competitor and product analysis; financial projections with percentages, returns, and comparisons with analogs Reasonableness – assumptions are comparable to benchmarks and facts Writing and presentation – well written and organized Dollinger, 2008

11. Critiquing the plan – Specific criteria Management – experience, honesty, integrity Resources – rare, valuable, hard to copy, unique Projections and returns – all data must have solid foundation in reality, yet optimistic enough to attract investors Exit – how and when will investors recoup money? Dollinger, 2008

12. Level 4 Product/ svc fully developed Many users, established mkt 4/14/24/34/4 Level 3 Product / svc fully developed Few users, mkt assumed 3/13/23/33/4 Level 2 Product / svc pilot operable, not developed for production, mkt assumed 2/12/22/32/4 Level 1 Product / svc idea but not operable, mkt assumed 1/11/21/31/4 Evaluation System Level 1 Single would- be entrep Level 2 2 founders, Level 3 Partly staffed mgt team, Level 4 Fully staffed, experienced mgt team Product / svc levelProduct / svc level Management status and experience levels

13. Writing and editing the plan Steps: Prewriting, writing and rewriting/editing, editing – despite importance of good writing: Research on 20 business plans in a competition: 30% didn’t include specific strategy 40% of teams had no marketing experience 55% failed to discuss technical idea protection 75% failed to identify details of competitor 10% had no financial projections; 15% omitted balance sheets; 80% failed to provide adequate details of the financial projections Dollinger, 2008

14. Exercises 1.Draft an outline of your business plan – What information do you already have? – What information is still required? How will you get it? 2.Prepare as much of the executive summary as you can. Be concise and informative 3.Critique a business plan – How well does the plan address key issues? – What changes and improvements would you make to the plan? – How well done is the presentation and writing? – Would you invest in this business? Why or why not? Dollinger, 2008