Chapter 10 Building an Effective Business Plan

Copyright © Houghton Mifflin Company. All rights reserved.10 | 2 Learning Objectives Describe how to move from a feasible concept to a business plan Discuss the strategy and structure of the business plan Explain how to organize a business plan effectively Describe how to successfully present a business plan

Copyright © Houghton Mifflin Company. All rights reserved.10 | 3 From Feasible Concept to Business Plan Purpose of the business plan: –Serves as a reality check for the entrepreneur –Is a living guide to the business –Is a statement of intent for interested third parties

Copyright © Houghton Mifflin Company. All rights reserved.10 | 4 Investors’ Interests and Concerns Rate of growth Return on investment Degree of risk Degree of protection

Copyright © Houghton Mifflin Company. All rights reserved.10 | 5 Bankers’/Lenders’… Interests and Concerns 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 YEARSALES OPERATING EXPENSES GROSS PROFIT , , ,0001,218, , ,691,0001,662,10028, ,776,0002,013,600762, ,432,0002,493,2001,938, ,713,0003,071,3003,641,700

Copyright © Houghton Mifflin Company. All rights reserved.10 | 6 Strategic Partners and Alliances Licenses for manufacturing and assembly Supply of raw materials in exchange for equity interest Formal or informal partnership agreements

Copyright © Houghton Mifflin Company. All rights reserved.10 | 7 Starting the Process With a Compelling Pitch Prepare the elevator pitch: brief statement of the business concept Answer the following questions: –Why you, why now, how you will change the world? –What need is being served? –Can the founding team serve that need? –Why is now the right time to launch this venture? –What is this venture’s competitive advantage? –Can this venture make money?

Copyright © Houghton Mifflin Company. All rights reserved.10 | 8 Starting the Business Planning Process with a Website The internet is the perfect place to communicate a new venture’s message A new business can look as successful and established as any large company A website demonstration can communicate to the visitor what the business does, who its customers are, and its value proposition

Copyright © Houghton Mifflin Company. All rights reserved.10 | 9 The 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

Copyright © Houghton Mifflin Company. All rights reserved.10 | 10 Components of the Business Plan Components: –Executive Summary –Business Concept –Founding Management Team –Industry/Market Analysis –Product/Service Plan –Operations or Organization Plan –Marketing Plan –Financial Plan –Growth Plan –Contingency Plan and Harvest Strategy –Timeline to Launch –Appendices

Copyright © Houghton Mifflin Company. All rights reserved.10 | 11 Mistakes in Developing the Business Plan Projecting rapid growth beyond the capabilities of the founding team Envisioning a three-ring circus with only one ringleader Reporting performance that exceeds industry averages Underestimating the venture’s need for capital Mistaking tactics for strategy Using price as a market strategy for a product/service Not investing in the business

Copyright © Houghton Mifflin Company. All rights reserved.10 | 12 Successfully Presenting the Business Plan 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 CEO and Executive Mmgt do the presentation Use live demonstrations Practice in advance

Copyright © Houghton Mifflin Company. All rights reserved.10 | 13 Successfully Presenting the Business Plan… Practice…!!! 1. Practice Delivery Out Loud. 2. Practice at Place Similar to the Real Speaking Venue. 3. Practice in Front of Real People. 4. The Mirror is Your Friend. 5. Practice from Beginning to End Without Stopping. 6. Practice with Your Props (Power Points). 7. Do it One More Time.

Copyright © Houghton Mifflin Company. All rights reserved.10 | 14 Answering Questions Investors like to ask what they already know Trick questions are likely Don’t be afraid if you don’t not know the answer Maintain your creditability & integrity Founding team can join the CEO for questions