1. Copyright 2004, Charles O. Heller1 Class 7: Writing a winning business plan (Part I) Uses of plan Important characteristics Turn-offs and turn-ons Investor criteria Questions answered by plan Research before writing Elements and outline of business plan Executive summary

2. Copyright 2004, Charles O. Heller2 Remember this: Other than your last will and testament, the most important document will ever write is your business plan!

3. Copyright 2004, Charles O. Heller3 Uses of business plan Game plan for company Raising capital Document for credibility with vendors, customers Operations plan Performance measurement

4. Copyright 2004, Charles O. Heller4 Essential characteristics Most important: succinct Length: 30 pp + financials + appendix 1 st draft: write too much, then pare down Eliminate work for reader Stand out from the crowd Legal issue: disclose all material info Note: INVESTOR LOOKS FOR KEYS TO SUCCESS

5. Copyright 2004, Charles O. Heller5 Differentiate your plan Most business plans seen by investors and bankers are pathetic An outstanding business plan is a great differentiator

6. Copyright 2004, Charles O. Heller6 Investor/banker turn-offs “Pre-packaged” plan Product/service/technology orientation Insufficient research of market Insufficient knowledge of competition Unrealistic financial projections Failure to examine risks Unreasonable valuation Spelling, grammar, arithmetic errors

7. Copyright 2004, Charles O. Heller7 Investor/banker turn-ons Executive summary compelling reader to study plan Market opportunity that gives company distinct competitive advantage Evidence of market acceptance Proprietary position Management team which can execute Producible and saleable product Reasonable valuation Achievable/believable projections – satisfying investor ROI expectations

8. Copyright 2004, Charles O. Heller8 Key questions answered by a winning business plan What need will you satisfy and how large is that need? How will you satisfy that need, and how will you make money doing it? What are the prospects for success? What do you need to do it? What’s in it for the investor?

9. Copyright 2004, Charles O. Heller9 Research before writing (1) What can company become in short and long runs? Why does opportunity exist? How long will it last? Is there a bulletprooof business model? Who will be the first customer; why will customer buy; how many will he buy? Why and how will company withstand competition?

10. Copyright 2004, Charles O. Heller10 Research before writing (2) What are three most important assumptions on which success is based? How to test them? What is upside potential and downside risk? What has to happen to reach cash flow break-even? How sensitive are projections to key assumptions?

11. Copyright 2004, Charles O. Heller11 Vision An informed and forward-looking statement of purpose defining the long- term destiny of the company “We help people trade practically anything on earth through an online system.”

12. Copyright 2004, Charles O. Heller12 Mission statement More complete description of company’s goals and customers, incorporating vision statement “We help people trade practically anything on earth. eBay was founded with the belief that people are basically good. We believe that each of our customers, whether a buyer or seller, is an individual who deserves to be treated with respect. We will continue to enhance the online experiences of all – collectors, hobbyists, dealers, small business, unique item seekers, bargain hunters, opportunistic sellers, and browsers. The growth of the eBay community comes from meeting, and exceeding the expectations of, these special people.”

13. Copyright 2004, Charles O. Heller13 Value proposition The monetary worth of the benefits a customer pays for a product or service Five key values: Product Price Access Service Experience

14. Copyright 2004, Charles O. Heller14 Business model Description of the business and how it will work economically; set of planned assumptions about how a company will create value for all its stakeholders Elements: Customer selection Value proposition Differentiation and control Scope of product and activities Value capture for profit Value for talent

15. Copyright 2004, Charles O. Heller15 Stuck? Write a “mini-plan” first Two-page plan which answers: What is concept? How will you market it? How much will it cost to produce/deliver? What will happen when sales begin? Write down assumptions Test assumptions Give yourself time to discover mistakes

16. Copyright 2004, Charles O. Heller16 Elements of business plan (1) Executive summary Opportunity: quality, growth potential Vision: mission, objective, core concept Product/service: value proposition, business model Context: industry, timeliness, regulations Strategy: entry, marketing, operations, market analysis Organization: structure, culture, talent

17. Copyright 2004, Charles O. Heller17 Elements of business plan (2) Entrepreneurial team: capabilities, commitment Financial plan: assumptions, cash flow, P&L Required resources: financial, physical, human Uncertainties and risks Financial return: ROI Harvest: return of cash to investors, founders, and employees

18. Copyright 2004, Charles O. Heller18 Outline of winning business plan (1) Cover/title page Executive summary Tables of contents, illustrations, tables I. Company description II. Products and/or services III. Market description IV. Competition V. Marketing strategy

19. Copyright 2004, Charles O. Heller19 Outline of winning business plan (2) VI. Management team, organization, staffing, facilities VII. Financial plan VIII.Investment and ownership IX. Critical risks Appendices (separately bound)

20. Copyright 2004, Charles O. Heller20 Executive summary (1) Most important part of plan!!! Assume five-minute reader Therefore, 3-4 pages long Standalone “mini-plan” Most critical paragraphs: The pain How the pain is going to be cured

21. Copyright 2004, Charles O. Heller21 Executive summary (2) 1. Purpose of plan 2. Summary description of business 3. Opportunity/pain and strategy 4. Market analysis 5. R&D and production plans 6. Management team 7. Financial summary

22. Copyright 2004, Charles O. Heller22 Executive summary (3) 1. Purpose of plan Attract investors/bankers or internal tool What’s in it for investor/banker “Credibility-builders” (customers, betas…) 2. Summary description of business One-sentence description Needs to be satisfied – the pain How needs will be satisfied

23. Copyright 2004, Charles O. Heller23 Executive summary (3) 3. Opportunity and strategy Marketing and sales strategies Distinctive advantage 4. Market analysis Target market Size, demographics, growth rate Market trends

24. Copyright 2004, Charles O. Heller24 Executive summary (4) 5. R&D and production plans Current status and milestones Proprietary status 6. Management team Founders, key people, board members Relevant experience

25. Copyright 2004, Charles O. Heller25 Executive summary (5) 7. Financial summary Capitalization table Prior funding and valuations Required current funding and use of funds Summarized actual and pro forma financials for 5 years (annualized): P&L: revenues, net income Cash flow: cash position at each year-end

26. Copyright 2004, Charles O. Heller26 Assignment for teams 1. Write vision statement 2. Write mission statement 3. Write executive summary following format of hand-out Due date: in class, October 29