1. How to Write a Winning Business Plan How to Write a Winning Business Plan

2. How to Write a Great Business Plan The myth is that a great Business Plan will be a high predictor of success – NONSENSE On a scale of 1-10 business plans rank 2 as a predictor of venture success MOST waste too much ink on NUMBERS and devote TOO LITTLE to the information that really matters to savvy investors Most financial projections past 1 year are B/S They are typically wildly optimistic So what then are the really important factors

3. How to Write a Great Business Plan A comprehensive, carefully thought-out BP is essential This s a daunting challenge There are three simple steps that you MUST follow; Define the market, including existing and prospective clients, customers and users of the product or service The Investors, whether financial or other resources The Producer, whether the entrepreneur or the inventor Emphasize the venture as being “market driven” Show the ‘V/P’ and why this venture will provide that benefit Show how you can outperform the competition (yes there is always competition).

4. How to Write a Great Business Plan Framework for a GREAT Business Plan 1: The People – the men and women who will start, run and grow the venture. The outside parties who will provide key services (lawyers, accountants, suppliers) 2: The Opportunity – a profile of the business itself, what it will make or sell and to whom, can it grow, how fast, what are the pitfalls? 3: The Context – the big picture, regulations, interest rates, demographic trends, inflation – in other worlds things out of our control 4: Risk and Reward – Assessment of everything that can go wrong and right, and how the team would respond

5. How to Write a Great Business Plan 1: The People The resumes are really important to investors, because having the right team is everything When the VC’s read this section they ask some very important questions; Where are the founders from, and where were they educated? Where have they worked, and for whom? What have they accomplished, both professionally and personally? What is their reputation in the business community? What direct experience have they had relevant to the opportunity? What skills, abilities and knowledge do they have? Who else needs to be on the team? Are they willing to recruit high-quality people? How well will they respond to adversity, have they done it in the past? How committed are they to the venture (skin in the game)? What are their motivations for the venture?

6. How to Write a Great Business Plan People (cont): There are critical issues about the team members that VC’s will want to know about; What do they know? (This is a matter of insight and experience) Whom do they know? (This is because VC’s value people who have been around the block a few times) How well are they known? (Ditto) Have they worked together before? Does the background and experience of the team members gel with the new venture’s requirements? A known team will help dispel being called a ‘start-up’ Even though the venture is new, the people are not! Top VC’s receive 2,000 BP’s a year, promising the world Most of these lack the right people and are only ideas Arthur Rock (Intel, Apple, Teledyne) said, “I invest in people, not ideas”.

7. How to Write a Great Business Plan 2: The Opportunity: Is the total market for the venture’s product or service large and growing? Is the industry now, or can it become structurally attractive? VC’s and Entrepreneurs look for large or rapidly growing markets versus mature or stagnant ones I will teach you how to create “Blue Oceans” of uncontested market space later this week Try to identify high-growth-potential markets early on in their evolution (big payoff’s there) If you find a rapidly growing market, be aware that the ‘other sharks will smell the blood from miles away’ Too many competitors create what we call a commodity Commodities usually become bottom feeders, and get outsourced The opportunity needs to “find a need and fill it” If the opportunity is ‘tech’ orientated, you face serious challenges to stay out in front.

8. How to Write a Great Business Plan Opportunity – Cont. Let’s ask some important questions here! 1.Who are the new venture's customers 2.How does the customer make decisions about buying this product or service 3.To what degree is the product or service a compelling purchase for the customer 4.How will the product or service be priced? 5.How will the venture reach all the identified customer segments? 6.How much does it cost (in time and resources) to acquire a customer? 7.How much does it cost to produce and deliver the product or service? 8.How much does it cost to support a customer? 9.How easy is it to retain a customer?

9. How to Write a Great Business Plan Opportunity (cont) The first step is to make sure that the industry is large and growing or is a burgeoning opportunity The second step is to make sure the business plan rigorously describes why the opportunity exists The third step is to describe in detail how you will build and launch the product/service into the marketplace This reveals any hidden flaws in the business model Predicting consumer behavior is a risky business Creating “focus tests’ of the offering is a good way to help deflect Investor criticism (Plug in deodorizers?) Remember Investors look for “value pricing” (cost vs. sale price ratio) Operating Margin is KING (Gross Profit divided by Gross Revenue)

10. How to Write a Great Business Plan Opportunity (cont) Most BP’s focus on the Income Statement side, they are usually weak the Balance sheet and Cash Flow You need to carefully address the following list of questions so that the Cash implications can be evaluated When does the business have to buy resources? What credit terms are you likely to get from vendors? How long does it take to acquire customers? How long before the customers pay for the goods/service? What are the capital requirements to support sales? The Entrepreneurs Mantra: Buy raw materials low Sell the final product/service high Collect revenues as early as possible Pay for goods as late as possible You will NOT easily get all of these, BUT describe which ones you can achieve and why!

11. How to Write a Great Business Plan Opportunity (cont): Understand the Competition (and move away from it) Who are the new venture's current competitors? What resources do they control? What are their strengths and weaknesses? Draw a ‘strategy canvas’ of the competition How will they respond to the new venture’s decision to enter the business? How can the new venture respond to its competitors’ response? Who else might be able to observe and exploit the same opportunity? Are there ways to co-opt potential or actual competitors by forming alliances?

12. How to Write a Great Business Plan 3: The Context You need to adequately describe the macroeconomic environment (inflation, exchange rates, interest rates, etc.) Economic Conditions (in the 2002’s the ‘recession’ made capital availability low) Government regulations that might impact the venture need to be clarified Tax and tariff policies, if any (import/export) Impact of technology (Moore’s Law) What is the availability of investment capital, and the state of Investment Capital in the marketplace in general Consider the packaging industry before the Tylenol poison scare

13. How to Write a Great Business Plan Context – cont. You must clearly spell out what Management will do under certain economic environmental changes If the are ways you can impact context in a positive way, it should be delineated (Tylenol case) Predicting possible changes and how the venture will handle them You should show that you have a good grasp of the business context The goal is simple: “To sell John Smith what John Smith buys, you must see the world through John Smith’s eyes”

14. How to Write a Great Business Plan Risk and Reward A Business Plan is a quick snapshot of an event in he future That is a scary position to be in – the art of PREDICTION But it is not prediction as much as it is looking at a problem and seeing it as an opportunity in disguise It is about plausible and coherent strategies that will harness the opportunity Great business plans discuss People, Opportunity and Context as a moving target One of the greatest myths is that entrepreneurs are risk seekers, ALL SANE PEOPLE AVOID RISK. The Business plan must unflinchingly confront the risks ahead in terms of people, opportunity and context.

15. How to Write a Great Business Plan Context –cont. In order to make the VC feel comfortable you must assess and address the concept of risk What would happen if one of the new venture's leaders were to leave? What happens if competitors respond with a price war? What would happen if raw materials were to go into short supply and price increased (gasoline) Is the company a good candidate for an IPO? If not, what other “exit strategy” is there for the investors? How have the addressed valuation and dilution? If you believe that you are going to retain control of the equity, you are a true dreamer!

16. How to Write a Great Business Plan Context – cont. It is critical for you to remember that it is more important whom you raise capital from that the terms Professional investors know how and when to help when difficult times occur When it is time fort he exit strategy, Professional Investors know how to get the best deal The best deals that can be struck have 6 characteristics They are simple They are fair They emphasize trust rather than legal ties They do not blow apart if the actual differ from the plan They do not provide perverse incentives that will cause infighting They are written in a document no thicker than ¼”

17. How to Write a Great Business Plan Context – cont. Tricks of the Trade: Try treating the new venture as a series of small experiments Before launching the entire show, launch a small piece Create a focus group to test the product/service Build a prototype and see how it performs Do a regional trial and watch the results carefully It will also help you assess the amount of capital you require, and in what stages You should raise enough capital to fund these stages Would you rather fund a small trial that needed changes, or risk failing in the whole venture? The BP must be a “call to action” for the management team Remember “RISK IS INEVITABLE, AVOIDING RISK IS IMPOSSIBLE”.

18. How to Write a Great Business Plan Words of Wisdom Over the past 20 years Fortune 500 companies have dumped 5 million jobs The overall economy has added almost 30 million, and most of these were created by Entrepreneurs like you CiscoGenentechMicrosoftFedEx Each of these companies began with a Business Plan These BP’s addressed the 4 ingredients of success; PEOPLE OPPORTUNITY CONTEXT RISK/REWARD

19. How to Write a Great Business Plan GREAT TRUTHS I’ve learned No matter how hard you try, you can't baptize cats. If your sister hits you, don't hit her back. They always catch the second person. Never ask your 3-year old brother to hold a tomato. Don't sneeze when someone is cutting your hair. Never hold a Dust-Buster and a cat at the same time. Don't wear polka-dot underwear under white shorts The best place to be when you're sad is Grandpa's lap.

20. SUCCESS: At age 4 success is...not peeing in your pants At age 12 success is...having friends. At age 16 success is...having a drivers license. At age 35 success is...having money. At age 50 success is...having money. At age 65 success is...having a drivers license. At age 75 success is...still having friends. At age 80 success is...not peeing in your pants.

21. Always Remember: You can’t succeed unless you fail, and the more you fail the more you succeed Errol Gerson