Managing Entrepreneurship and Innovation 3. Business Planning for New Ventures

Lecture Contents Starting up a new business The role of the business plan So what is a business plan for? Contents of the business plan The history of the business The market opportunity The product or service The managerial team

Contents cont. The financials The future of the business Presenting your plan Conclusion

Starting up a new business You are a budding entrepreneur: you’ve got a good idea for a new venture you’ve formed a team you’ve got the energy and the enthusiasm you may even have completed your degree from the University of Greenwich... … but you need more capital to get started

The role of the business plan ‘A business plan isn’t just something you need in order to raise funds. It will also help you clarify your strategic thinking at an early stage and provides a road map for the future of your business’ 3i Venture Capital website - even if the No. 1 goal is to raise funds

So what is a business plan for? Writing a business plan helps to: clarify goals & mission provide a strategic road-map help investors understand the business And last but not least, to persuade investors they should invest in the venture

Contents of the business plan After the executive summary: A. Introduction on the business’s history B. The market opportunity, and ‘why now?’ C. The product or service on offer D. The managerial team E. The business risks F. The financials G. The future of the business

A. The history of the business Tell the story of your idea: What was the source of your inspiration? Can you inspire others with it? Describe the trail to the present: How far have you got? Have you developed a prototype? Have you done any market research?

B. The market opportunity No customers, no funding, no new venture: Who constitutes your market, and why? What is the nature of your segmentation? Why do you think your customers will buy? What will be your marketing strategy? … and, crucially, why now?

C. The product or service This must be tailored for your audience: give a jargon-free description of the innovative aspects of your product or service link it clearly to demand, noting the degree of price sensitivity in this particular market don’t sell it to your audience: convince them of its present & future viability

D. The managerial team One of two fundamental issues: disputes often cause new venture collapse so clarify roles and responsibilities establish which competences your team lacks, as well as those it has got balance leadership & consensus Can your entrepreneurial start-up team also consolidate & make the venture grow?

E. The business risks Identify strategies for the key risk factors: how to overcome barriers to entry (if any) how to deter imitation & keep the competition (present & future) at bay how to adjust to environmental change how to respond to growth & success how to cope with disputes in the team … & for other specific industry/market risks

F. The financials The second of the two fundamental issues, particularly for Venture Capitalists: how much founders’ capital is there? what external funds are needed & why? what is the equity split envisaged? is the debt/equity ratio manageable? what is the projected valuation & profit? have you thought through an exit strategy?

G. The future of the business Financial projections naturally lead to a consideration of the venture’s future, but growth has to be managed & planned: the managerial team will change financial demands may expand where is the second product or service coming from (or is it a 1- product firm)? when will the value be ‘harvested’?

Presenting the plan The plan must work in spoken form too: understand the nature of the audience & then adjust the presentation’s emphasis determine the best vehicle for presentation (PowerPoint is not obligatory, just useful) demonstrate teamwork, coherence & commitment to the venture rehearse & stick to the timeslot allotted!

Conclusion Business plans clarify the fundamentals: strategy & mission before start-up managerial team composition or gaps nature of the market opportunity business risks & strategic solutions business rewards & financial needs capturing & reaping the value upon exit

Sources Used Wickham, Strategic Entrepreneurship 2 nd edition, general approach S. Birley & D. Muzyka, eds., Mastering Entrepreneurship (Prentice Hall, 2000) chaps. 4 & 5 W. A. Sahlman, ‘How to write a great business plan’, HBR July-August (1997) 3i VC Fund website