Copyright © 2008 by Nelson, a division of Thomson Canada Limited ENTREPRENEURSHIP A PROCESS PERSPECTIVE Robert A. Baron Scott A. Shane A. Rebecca Reuber Slides Prepared by: Sandra Malach, University of Calgary

Copyright © 2008 by Nelson, a division of Thomson Canada Limited 8 Writing an Effective Business Plan: Crafting a Roadmap to Success 1

Copyright © 2008 by Nelson, a division of Thomson Canada Limited LEARNING OBJECTIVES 1.Define a business plan and explain why entrepreneurs should write one. 2.Explain how the process of persuasion plays a key role in business plans and in the success of new ventures. 3.Explain why the executive summary is a very important part of any business plan. 4.Describe the major sections of a business plan and the types of information they should include.

Copyright © 2008 by Nelson, a division of Thomson Canada Limited LEARNING OBJECTIVES 5.Describe the seven deadly sins of business plans – errors all entrepreneurs should avoid. 6.Explain why potential investors usually ask entrepreneurs to give verbal presentations describing their idea for new products or services and their company. 7.Describe the steps entrepreneurs should take to make their verbal presentations to potential investors truly excellent.

Copyright © 2008 by Nelson, a division of Thomson Canada Limited “There is a real magic in enthusiasm. It spells the difference between mediocrity and accomplishment.” --Norman Vincent Peale, 1961

Copyright © 2008 by Nelson, a division of Thomson Canada Limited BUSINESS PLAN A formal, written expression of the entrepreneur’s vision for converting ideas into a profitable, going business. The entry card for serious consideration by venture capitalists, banks, and other sources of funding

Copyright © 2008 by Nelson, a division of Thomson Canada Limited BUSINESS PLAN FACTS More than 60% of small, new companies have no business plan. Writing business plans: Reduced the chances of failure, and Increased the rate of new business and new product development

Copyright © 2008 by Nelson, a division of Thomson Canada Limited Prepare a relatively simple plan Start the business Refine the business plan Continue to grow the business MODEL OF BUSINESS PLANNING

Copyright © 2008 by Nelson, a division of Thomson Canada Limited BUSINESS PLAN COMPONENTS What is the basic idea? Why is the new product appealing—and to whom? How will the idea be realized? Who are the entrepreneurs? How much funding is needed? What type of funding? How will it be used? How will you realize a return?

Copyright © 2008 by Nelson, a division of Thomson Canada Limited A SUCCESSFUL PLAN A serious document prepared by serious people Orderly Succinct (40-50 pages, max.) Persuasive

Copyright © 2008 by Nelson, a division of Thomson Canada Limited EXECUTIVE SUMMARY Your elevator pitch Provides a brief, clear, and persuasive overview of the new venture Target 2 to 3 pages

Copyright © 2008 by Nelson, a division of Thomson Canada Limited BUSINESS PLAN SECTIONS 1. Background and purpose 2. Marketing 3. Competition 4. Development, production, and location 5. Management 6. Financial information 7. Risk factors 8. Harvest or exit 9. Scheduling and milestones 10. Appendices

Copyright © 2008 by Nelson, a division of Thomson Canada Limited BACKGROUND, PRODUCT, AND PURPOSE What is the nature of the idea driving your company and how did it arise? What does the product have to offer? Why is it unique & valuable What is the basic corporate information? What are the company’s goals?

Copyright © 2008 by Nelson, a division of Thomson Canada Limited MARKET ANALYSIS What is the need for the product or service? Why would anyone want to buy or use it?

Copyright © 2008 by Nelson, a division of Thomson Canada Limited MARKET ANALYSIS Identify the market How large is the market? Is the market growing or shrinking? What do you know about competitors? Who are they Anticipated response to new product Promotion methods Pricing Strategy

Copyright © 2008 by Nelson, a division of Thomson Canada Limited DEVELOPMENT, PRODUCTION, AND LOCATION Where are the products or services in the development process? What are the projected costs and timetable for making the product or delivering the service? What steps have been taken to assure quality and safety?

Copyright © 2008 by Nelson, a division of Thomson Canada Limited MANAGEMENT TEAM Many venture capitalists would rather invest in a first-rate team with a second-rate idea than a second-rate team with a first-rate idea. Critical element for success

Copyright © 2008 by Nelson, a division of Thomson Canada Limited MANAGEMENT TEAM Do team members have the requisite experience, expertise, skills and personal characteristics? Past business experience, intelligence, technical skill Energy & enthusiasm Do team members have a good working relationship?

Copyright © 2008 by Nelson, a division of Thomson Canada Limited FINANCIAL PLANS AND PROJECTIONS Proforma balance sheet 3 years, semi-annual Proforma income statement Cash flow statement Break-even analysis

Copyright © 2008 by Nelson, a division of Thomson Canada Limited CRITICAL RISKS Price cutting by competitors Unforeseen industry trends Sales projections not achieved Costs exceed estimates Schedules not met Difficulties raising financing Unforeseen political, economic & social trends

Copyright © 2008 by Nelson, a division of Thomson Canada Limited HARVEST AND EXIT Think of going out before you enter Management succession Exit strategies IPO

Copyright © 2008 by Nelson, a division of Thomson Canada Limited SCHEDULING & MILESTONES 1. Formal incorporation 2. Completion of design 3. Completion of prototypes 4. Hiring of initial personnel 5. Product displays 6. Agreements 7. Moving into production 8. Receipt of orders 9. First sales 10. Profitability

Copyright © 2008 by Nelson, a division of Thomson Canada Limited APPENDICES Financial Statements Financial Projections Resumes of Founders & Top Management Team

Copyright © 2008 by Nelson, a division of Thomson Canada Limited THE INTANGIBLES The extra “something” Pay attention to organization, clarity, word choice, and style Have good writers read your plan Revise according to their suggestions

Copyright © 2008 by Nelson, a division of Thomson Canada Limited SEVEN DEADLY SINS

Copyright © 2008 by Nelson, a division of Thomson Canada Limited THE PRESENTATION Remember: This is important! Prepare, prepare, prepare Choose content carefully Persuade, don’t overwhelm Show enthusiasm tempered with reality Rehearse Don’t overlook the basics Respond positively to questions