1. TE - II - BP - 0 HUMBOLDT-UNIVERSITÄT ZU BERLIN INSTITUT FÜR INFORMATIK TECHNICAL ENTREPRENEURSHIP Vorlesung 2 BUSINESS PLAN Wintersemester 1999 Leitung: Prof. Dr. Miroslaw Malek Betreuer: Peter K. Ibach www.informatik.hu-berlin.de/~rok/entrepreneurship TECHNISCHE UNIVERSITÄT BERLIN INSTITUT FÜR INFORMATIK

2. TE - II - BP - 1 OPPORTUNITY Types of startup firms: –1) mom-and-pop business (marginal firm, life-style firm) –2) high potential firm –3) foundation firm Types 2) and 3) have at least $500,000 in sales and grow at a rate of minimum 10% per year. 2) and 3) have much bigger success potential than mom-and- pop businesses. 7 % of 7 million US companies grew over 20 % per year Over 1 % of 7 million (80,000) grew over 50 % per year Venture capital founded firms have a 60 % plus success rate

3. TE - II - BP - 2 THE WINDOW OF OPPORTUNITY

4. TE - II - BP - 3 THE DIFFERENCE BETWEEN IDEAS AND OPPORTUNITIES 1 - 3 % of ideas are considered opportunities by VC's. A good opportunity must be –attractive –durable –timely Lemons (loosers) ripen in about 2 1/2 years. Pearls (winners) take seven to eight years. OPPORTUNITIES SKY IS THE LIMIT IDEAS GETTING REAL

5. TE - II - BP - 4 SALES VOLUME OF U.S. COMPANIES 20% of businesses have sales over $ 1M 10 % of businesses have sales over $ 2M 1.25 % of businesses have sales over $ 10M 0.67 % of businesses have sales over $ 25 M (U. S. government data for 1980) In 1990 these figures have doubled

6. TE - II - BP - 5 ONE-YEAR SURVIVAL RATES BY FIRM SIZE

7. TE - II - BP - 6 FOUR-YEAR SURVIVAL RATES BY FIRM SIZE

8. TE - II - BP - 7 SIX MOST IMPORTANT FACTORS (FROM VC'S PERSPECTIVE) FOR SUCCESSFUL COMPANY 1. the best entrepreneur and the quality of the team (people) 2. the best entrepreneur and the quality of the team (people) 3. the best entrepreneur and the quality of the team (people) 4. the best entrepreneur and the quality of the team (people) 5. Market potential and marketing 6. Idea The management team must have quality, depth and maturity.

9. TE - II - BP - 8 MARKET STRUCTURE Market structure is characterized by: –The number of sellers –The size distribution of sellers –The differentiation of products –The conditions of entry and exit –The number of buyers –The cost conditions –The sensitivity of demand to changes in price

10. TE - II - BP - 9 ENTRY STRATEGIES FOR ENTERING BUSINESS Developing a new product or service (innovation) Developing a similar product or service (imitation) Buying a franchise Exploiting an existing product or service Sponsoring a startup enterprise Acquiring a going company

11. TE - II - BP - 10 WAYS TO GENERATE IDEAS: WHAT IF...? 1.WHAT IF it were longer? or smaller? inside out, different material, color, thinner, lighter, shorter, etc. 2.TURN PROBLEMS INTO PROFITS (eco industry, new civilization headaches) 3.VISUALIZE (mental pictures) 4.IDENTIIFY NEEDS 5.FORCED CONNECTIONS (e. g., clock radio and wrist watch) 6.KEEP A RECORD OF YOUR IDEAS("creativity file") 7.CULTIVATE YOUR IDEAS 8.BE RECEPTIVE TO IDEAS 9.STOP BEING PRACTICAL

12. TE - II - BP - 11 WAYS TO GENERATE IDEAS: WHAT IF...? 10. TRY SOMETHING NEW 11. BE PROGRESSIVE, NOT REGRESSIVE 12. BRAINSTORMING 13. IMPROVE EXISTING IDEAS 14. BRAINWRITING 15. SERENDIPITY TECHNIQUE ("BY CHANCE") 16. CREATIVE UNHAPPINESS 17. MIND MAPPING 18. SPEAK UP AND LISTEN 19. GAME STRATEGY METHOD (CHESS, JIGSAW, etc.) 20. JOIN BUSINESS OR ENTREPRENEURS ORGANIZATIONS

13. TE - II - BP - 12 MIND MAPPING

14. TE - II - BP - 13 WRITING A SUCCESSFUL BUSINESS PLAN DEFINING A BUSINESS PLAN A good definition: A business plan is a document that convincingly demonstrates the ability of your business to sell enough of its product or service to make a satisfactory profit and be attractive to potential backers. A better definition: A business plan is a selling document that conveys the excitement and promise of your business to any potential backers or stakeholders.

15. TE - II - BP - 14 EIGHT REASONS FOR WRITING A BUSINESS PLAN 1. To sell yourself on the business - "sanity check". 2. To obtain bank financing. 3. To obtain investment funds. 4. To arrange strategic alliances. 5. To obtain large contracts. 6. To attract key employees. 7. To complete mergers and acquistions. 8. To motivate and focus your management team.

16. TE - II - BP - 15 TYPES OF PLANS The Summary Business Plan - up to ten pages The Executive Summary - up to two pages The Full Business Plan - 10 - 50 pages The Operational Business Plan - 40 - 200 pages GETTING STARTED TO WRITE BRAINSTORMING Step 1 Posing the Right Questions or Subjects Step 2 Providing Bite-Size Answers

17. TE - II - BP - 16 WHAT SHOULD THE BUSINESS PLAN COVER 1. COVER PAGE 2. TABLE OF CONTENTS 3. EXECUTIVE SUMMARY 4. THE COMPANY 5. THE MARKET 6. THE PRODUCT/SERVICE 7. SALES AND PROMOTION 8. FINANCES (CASH FLOW, INCOME/LOSS, BALANCE SHEET) 9. APPENDICES (e. g., EXECUTIVES PROFILES)

18. TE - II - BP - 17 ALTERNATIVE CONTENTS 1. COVER PAGE 2. SUMMARY 3. TABLE OF CONTENS 4. INTRODUCTION 5. DESCRIPTION OF VENTURE 6. MARKETING STRATEGY 7. FINANCIAL STRATEGY 8. FINANCIAL SCENARIOS 9. OPERATING STRATEGY APPENDICES

19. TE - II - BP - 18 BUSINESS PLAN TARGETING SUMMARY

20. TE - II - BP - 19 CRITERIA FOR EVALUATING VENTURE OPPORTUNITIES (1)

21. TE - II - BP - 20 CRITERIA FOR EVALUATING VENTURE OPPORTUNITIES (2)

22. TE - II - BP - 21 CRITERIA FOR EVALUATING VENTURE OPPORTUNITIES (3)

23. TE - II - BP - 22 CRITERIA FOR EVALUATING VENTURE OPPORTUNITIES (4)

24. TE - II - BP - 23 CRITERIA FOR EVALUATING VENTURE OPPORTUNITIES (5)

25. TE - II - BP - 24 CRITERIA FOR EVALUATING VENTURE OPPORTUNITIES (6)

26. TE - II - BP - 25 BUSINESS PLAN A MORE DETAILED TABLE OF CONTENTS Cover Page Executive Summary1 1. Introduction-Industry, the company and its products2 –The industry –The company –The products or services 2. Market research and analysis3 –A. Customers –B. Market Size and Trends –C. Competition –D. Estimated Market share and sales –E. Ongoing Market evaluation

27. TE - II - BP - 26 BUSINESS PLAN A MORE DETAILED TABLE OF CONTENTS (continued) 3. Marketing plan6 –A. Overall marketing strategy –B. Pricing –C. Sales tactics –D. Service and warranty policies –E. Advertising and promotion 4. Design and development plans8 –A. Development status and tasks –B. Difficulties and Risks –C. Product improvement and New products –D. Costs

28. TE - II - BP - 27 BUSINESS PLAN A MORE DETAILED TABLE OF CONTENTS (continued) 5. Manufacturing and operations plan9 –A. Geographic Location –B. Facilities and improvements –C. Strategy and plans –D. Labor Force 6. Management team11 –A. Organization –B. Key management Personnel –C. Management compensation and ownership –d. Board of directors –E. Management assistance and training needs –F. Supporting professoinal services

29. TE - II - BP - 28 BUSINESS PLAN A MORE DETAILED TABLE OF CONTENTS (continued) 7. Overall schedule13 8. Critical risks and problems15 9. Community benefits16 –A. Economic benefits –B. Human development –C. Community development 10. The financial plan17 –A. Profit and loss forecast –B. Pro forma cash flows analysis –C. Pro forma balance sheets –D. Breakeven chart –E. Cost control

30. TE - II - BP - 29 BUSINESS PLAN A MORE DETAILED TABLE OF CONTENTS (continued) PRO FORMA INCOME STATEMENTS PRO FORMA CASH FLOWS STATEMENTS PRO FORMA BALANCE SHEETS BREAKEVEN CHART 11. PROPOSED COMPANY OFFERING24 –A. Desired financing –B. Securities offering –C. Capitalization –D. Use of funds

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