Business 16 Stanford Department of Continuing Education Class # 1, 9/21/09 What Is A Business Plan,...
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Business 16 Stanford Department of Continuing Education Class # 1, 9/21/09 What Is A Business Plan, And What Good Is It Anyway?
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Transcript of Business 16 Stanford Department of Continuing Education Class # 1, 9/21/09 What Is A Business Plan,...
Business 16Stanford Department of Continuing EducationClass # 1, 9/21/09
What Is A Business Plan, And What Good Is It
Anyway?
Housekeeping:Doug Kelly, M.D.General Partner, Alloy [email protected]: www.alloyventures.com/class.htmlBusiness plans due last day of classPartnering on plans encouragedGrades are not; requires BP & final presentationMotivation, Groundrules, Ethics, Politeness, Excuses, & Making Life Easy On Yourselves
Why do start-ups fail?o Poor risk management
o Market risko Technical risko Competitive risko Intellectual property risko Management risko Distribution risko Regulatory risko Financing risko Liquidity risk
o Risk is inversely proportional to value and your ownership.
If you are unwilling do enough research to thoroughly assess and quantitate these risks, and start a company anyway, you are an idiot and you should drop
this class right now.
Why are start-ups like helicopters?
Would you pilot a helicopter without
taking lessons first?o Of course not. But you have to commit to doing it right.
o It takes qualities and skills that you may not have and that you will have to develop.
o Everybody is in the same boat here, so don’t get too smug.
Qualities and Skills?
o The 2 most important qualities and skills are humility and losing your fear of humiliation.
o Once you admit that there is a lot you don’t know, and you are not afraid to ask for help, you can begin the tough work of asking a lot of people questions to help you in your risk assessment.
o Satisfactory answers to these questions, organized in a compelling way are called a Business Plan.
Portrait of a failed entrepreneur
as a young boneheado “I don’t need a business plan”
o “My business is growing/changing too fast to write a plan”
o “It is obviously such a good plan I don’t need one”
o “I’m afraid if it got into the wrong hands someone would steal my idea”
o “I’m just the technical guy; I don’t know anything about business. I’ll let somebody else do it.”
o “My mom never bought me that book on how to write a business plan at Borders”
Excuses of a failed entrepreneur
as an old boneheado “Sales just never took off.”
o “We ran out of money because our investors chickened out.”
o “I had a board full of idiots who were always wasting time with meetings and stupid questions.”
o “Somebody else had a patent.”
o “The guy that wrote our plan was way over-optimistic.”
o “It was everybody else’s fault.”
Other reasons for a business plan
o It’s more for you than anybody else such as VCs.
o It allows you to organize your thoughts.
o It allows you to see what you are missing.
o It shows others that you have a rational organized process.
o It becomes a historical document to let you see what you were thinking at the time.
o It is a recruiting tool.
Why a business plan?
o It keeps you honest
o It is a starting point for a tactical operating plan
o It is a document that justifies the existence of a company
o It is a critical document that assesses pros and cons
o It is a roadmap for strategic focus
Why a business plan?
o It is a money-raising document that represents what kind of founder you are
o It outlines financial & operational milestones and specifies capital requirements for each
What do I need to write a business
plan?o Research, research, research
o Honesty, honesty, honesty
o Guts, and the aforementioned humility
o Determination that if it does not hold together, change the model or kill the plan
o Recognition that it is cheaper to kill a marginal idea than to try to make it work
What do I need to write a business
plan?o Do your financial homework
o Talk to your customers
o Talk to your competitors
o Realize you can never do enough work on your plan
o Remember that it is a living document
Remember:o You need to determine the criteria that
qualify you company as a success or a failure. Your potential employees and investors sure will.
o If your plan doesn’t scream success, KILL IT AND TRY ANOTHER BUSINESS.
o Talk to your everybody, customers, competitors.
o Realize you can never do enough work on your plan, and that it is a living document.
o The better you understand your business and the more external confirmation you have, the higher your odds of success.
What are the parts of a business plan?
o Executive summary/use of funds
o The problem/the market
o The solution (your business proposition)
o Market and trends
o Competitors
o Sales strategy and distribution
o Intellectual property (patents, trade secrets, unfair competitive advantage)
o Government regulation
What are the parts of a business plan?
o Exit/liquidity
o People (key employees, advisors)
o Financials (Capitalization chart, 5 years of income statements, balance sheets, cash flows)
o Appendix
Executive summary
o 1 or 2 pages
o Summary of business plan with all sections
o Your one chance to grab the reader
o Avoid hyperbole
o The more quantitative you are, the better
o Cite your sources
o How much you want to raise/use of funds
The problem
o Describe what the customers’ itch is
o Current solutions
o Current costs/size of market opportunity
o Who cares?
The solutiono What can you do?
o How much does it cost?
o Who says it is important?
o Discusses specific attributes
o Describes the logic behind this solution
o Establishes the credibility of your due diligence
o Is it a marginal improvement or revolutionary?
The solutiono Will competitors get to it if you don’t?
o What makes your solution unique?
o Is it a must have or a nice to have?
o Does it allow my customer to do it better/faster/cheaper?
o How do you keep from getting pulverized?
o What makes you so smart?
o Developmental milestones, timelines and costs, uses of cash
The solutiono Strategy & tactics
The Market
o How big?
o How is it divided?
o Who owns what?
o Who are your customers?
o How are they organized?
o What are the politics of their organization?
o Who are your early adopters?
The Market
o What are their motivations?
o Why should they buy from a new supplier and not a trusted brand?
o What influences their buying decision?
o Where is your niche?
o Total vs. Addressable vs. other
o Growth
o Changes due to technology or other reasons
Competitors
o Current competition and their future trends.
o Future potential competitors.
o Competitive response to your success.
o Remember, the status quo is a competitor.
o If you think you don’t have any competitors, you took your mom too seriously when she said you were the smartest kid in the whole world. Think harder.
o Charts, showing the competitive landscape and competitive product attributes are useful.
Sales Strategy & Distribution
o How am I going to sell, direct or through distributors?
o How am I going to price?
o Can I support my own sales staff?
o Can I access my customers? How much will it cost? Alternatives?
o How much profit will I have to give to the channel?
Sales Strategy & Distribution
o How much will each salesman have to sell?
o How do my competitors’ salesmen do it?
o How are my competitors’ salesmen organized?
o What prevents my distributor from competing with me?
o What are their incentives?
o What prevents them from selling competitive products?
Intellectual property
o Patents
o Trade secrets
o Know-how
o Contract/agreements
o Unfair competitive advantage
Government Regulation
o FDA, FCC, others
Exit/Liquidity
o Going public (ugh).
o Selling your company/merging/getting acquired.
o Participating in an ongoing revenue stream.
People
o Key employees (CEO, CFO, VPs, Sr. technical people, inventors)
o Board members/investors
o Scientific Advisory Board
o Business Advisory Board
o Lawyers
o Accountants
Financials
o Should tell you how much money you need to reach your milestones
o Should justify why this is a good business/investment
o Should allow you to do sensitivity analysis and ask “what if I am a quarter ahead or behind?”
Financials
o Capitalization chart, 5 years of income statements, balance sheets, cash flows
o Should be able to show why each round of financing is a good investment
Appendix
o Technical documents
o User illusion/customer scenario
