©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PROOF OF CONCEPT: A NEW APPROACH TO BUSINESS PLANS 9

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives  Describe how to move from a feasible concept to a proof of concept.  Identify stakeholder interests.  Explain the components of a compelling executive summary.  Discuss how to organize a business plan effectively.  Describe how to successfully pitch a new business.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. From Feasibility to Proof of Concept  Proof of concept (POC): Evidence that a technology, product, business model or idea is feasible Two types of POC: Technology or product POC Business model POC

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Spectrum of POC Approaches Figure 9.1

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Micro Strategy Approach to Proof of Concept  Entrepreneur’s Micro Strategy for Proof of Concept consists of three primary elements: 1.Outcomes: near-term goals the entrepreneur is attempting to achieve 2.Assets: human, social, physical, and financial needed to achieve the desired outcomes 3.Actions: tasks entrepreneur must undertake to achieve the necessary outcomes

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Micro Strategy Decision Making  Today’s environment necessitates a greater use of intuitive decision making.  Avoid potential failure points by conducting a premortem.  Common failure points: Pattern recognition bias (“We always do it that way”) Overly optimistic forecast of markets

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Proof of Concept  Proof of concept with a prototype Entrepreneur develops clear understanding of customer needs. Changes can be made early in the process when they are less costly. The prototype reduces the risk of failure.  Proof of concept with a website Avoid the single page marked “under construction.” Avoid posting proprietary information that is not patented or trademarked.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Proof of Concept (cont’d)  Proof of concept with purchase orders and customer sales Customers that pay up front save company on inventory costs and fund manufacturing costs.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Investors Interests  Rate of growth  Return on investment  Degree of risk  Degree of protection

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Bankers’ & Lenders’ Interests  Company margins and cash flow projections  The amount of money needed  The kind of positive impact the loan will have on the business  The kinds of assets the business has for collateral  How the business will repay the loan  How the bank will be protected if the business does not meet its projections  The entrepreneur’s stake in the business

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Strategic Partners’ Interests  Licenses for manufacturing and assembly  Supply of raw materials in exchange for equity interest  Formal or informal partnership agreements

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Creating a Compelling Story  In an executive summary: Convey the compelling story quickly and memorably. Highlight the critical elements of the business that provide a competitive advantage. Present a coherent path to profitability and success that make sense. Demonstrate that the team can successfully execute the plan.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Creating a Compelling Story (cont’d)  Should answer these questions: 1.What is the compelling story? 2.What pain is being addressed? 3.How is the venture solving the problem? 4.What is this venture’s competitive advantage? 5.Can this venture make money? 6.Can the founding team serve that need? 7.Why is now the right time to launch this venture? 8.What is the team seeking from investors?

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Full Business Plan: Strategy and Structure  Tasks to guide the preparation of the plan: Identify who is responsible for what. Develop a timeline based on tasks identified. Hold the team to the timeline and work diligently to get the plan done.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Components of Business Plan  Executive Summary  The Business  Founding/Management team  Industry/market analysis  Product/service development  Operations plan  Organization plan  Marketing plan  Financial plan  Growth plan  Contingency plan & harvest strategy  Timeline to launch  Appendices  Endnotes

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Financial Plan  Complete set of financial statements: Statement of cash flows Income statement Balance sheet  Key ratios to gauge progress Current ratio Profit margin Return on Investment (ROI) Inventory turnover

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Mistakes in Developing the Business Plan  Projected rapid growth that requires capabilities beyond those of the founding team  Envisioning a three-ring circus with only one ringleader  Reporting performance that exceeds industry averages  Using price as a market strategy for a product/service  Not investing capital in their own businesses

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Successfully Pitching the Business  Keep the presentation to less than 30 minutes  Tell a compelling story first  Do not use a podium to speak  Move about without distracting the audience  Maintain eye contact with everyone  Make the visual aids simple  Use live demonstrations  CEO should do the presentation  Practice in advance

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Answering Questions  Investors like to ask what they already know the answer to.  Trick questions are likely.  Don’t be afraid to not know the answer.  Founding team can join the CEO for questions.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. New Venture Action Plan Develop a micro strategy approach to achieving proof of concept. Identify the stakeholders in the business and their interests. Create a compelling executive summary and pitch. Plan the development of a full business plan.