BUSINESS PLAN

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CONTENTS

Elements of a Business Plan• Executive Summary• Business Description• Define Your Market• Identify and Analyse Your competition• Design and Development Plan• Operations and Management Plan• Financial Statements

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INTRODUCTION

What is a Business Plan?• A business plan is a document which

highlights (for the given year):– The plan as to how the company will be

run– The goals of the company– The money required to meet those goals– The strategy employed to meet those

goals (including marketing)

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INTRODUCTION (I) Why should I create a business

plan?• A business plan forces a business

to assess the market place• It forces a business to identify a

clear marketing strategy• It also serves as a benchmark

which the companies performance can be measured against.

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INTRODUCTION (II)

There are seven essential sections of a business plan. These are the:• Executive Summary• Business Description• Define Your Market• Identify and Analyse Your competition• Design and Development Plan• Operations and Management Plan• Financial Statements

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EXECUTIVE SUMMARY The executive summary follows the

title page of the business plan The purpose of the executive

summary is to explain to the reader what the business wants

The summary should be short and concise (maybe half a page, typically no longer than a page)• People do not have time to waste reading

long documents6

Key Elements of an Executive Summary

1. THE BUSINESS CONCEPT• What is the business you are proposing, its

products and the advantages over the competition

2. THE FINANCIAL FEATURES• Highlight the forecasted sales, profits,

cash flows and return on investment 3. THE FINANCIAL REQUIREMENTS

• What are the start-up costs and the cost of expansion. How will this money be used?

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Key Elements of an Executive Summary (I)

4. CURRENT BUSINESS POSITION• This includes any relevant

information about the company, its formation date, its owners and key personnel

5. MAJOR ACHIEVEMENT• Are there any developments which

are essential to the success of the business? These may include prototypes, patents or crucial contracts

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Business Description This section often begins with a short

description of the industry, its present outlook and future possibilities• Include any products or developments that

might affect your business State whether the business is new or

already in existence; and the type of operation, e.g. is it retail, food service, manufacturing or service-oriented?

State who your customers will be and how your product will be distributed and advertised

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Business Description (I)

Describe the product or service you intend to market

Show how your business will gain the competitive edge

Explain how the business will be profitable

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Define Your Market

Define the entire market for your industry• in terms of size, structure, growth

prospects, trends and sales potential

Define the specific market that you will be targeting (market segmentation)

Define your niche in this market11

Define Your Market (I) After defining your market you

must:• Estimate your market share for the

period of time the business plan covers• Position your business• Price your product• Determine the distribution strategy• Create a promotion plan• Estimate your sales potential

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Identify and Analyse Your competition

Determine who your competitors are

What strategies are they using to sell their products or service

What are they strengths and weaknesses

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Design and Development Plan

The design and development plan allows investors to understand:• The design of your product• How it is produced• How it will be marketing• The development budget required

to allow the company to meet its goals

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Design and Development Plan (I)

The sections included in the development plan include:• Product development• Market development• Organisational development

Each of these sections should be described from a funding point of view

Finally, identify measurable goals for the overall design and development plan

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Operations and Management Plan

Describes how the business functions• It explains business logistics:

– The responsibilities of the management team– The task assigned to each company division– Capital and expense requirements related to

the operation of the business

• And the financial tables– The operating expense table– The capital requirements table– The cost of goods table

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Financial Statements

The three common financial statements are:• The balance sheet

– A statement of your assets, liabilities and equity

• The Income statement– Reflects when sales are made and expenses

are incurred

• The statement of cash flows shows– The amount of cash required to meet

obligations, when it is required and from where it will come

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Introduction

Focus your thinking Establish realistic strategy Financing and other support Reaction by others

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Definition Document that can convince

the reader that the business can produce enough revenue to make a satisfactory profit and therefore attractive as an investment opportunity

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Many reasons to build one

BP should sell the writer/reader on the business: • Writer: so that you can go out

and do it, • Reader: to invest in it

Confidence of knowing the issues

Improve chances of success20

Many Purposes in real life

Bank Financing Strategic alliances Large contracts Key employees Mergers and acquisitions Mgt team motivation

Ours here : Investment by VC or Angels

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Principles of BP No right way: plans can differ Be creative but set a limit Concise and focused Captures energy and

personality of business leader Include negatives and issues Spend some time on it

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Sections of Business Plan

Cover Page: contact name and info

Table of contents Executive summary The company: past, present and

future The market The Product/service

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Sections of Business Plan - continued

Sales and Promotion Financial projections

• Profit and loss• Balance sheet• Cash flow

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OTHER SECTIONS: TECHNOLOGY BASED

Management team: people who fund other people value management skills above “ideas”

Risk factors: shows that you know what could go wrong and plan to avert it

Marketing plan: if this is “innovative” how are you going to get people to use it

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PACKAGING THE PLAN It is a ”living” document No right/wrong way: the need

of reader is essential What are the challenges/

questions that can be raised by reader: answer these.

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Packaging the Plan

Include supporting materials Don’t make unsupported

statements Designate an outside reviewer/

reader that can critique plan

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EXAMPLE………

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What’s the Business Objective?

Long Term ISP business Growth and Sale National Agenda Leverage from other activities Risk protection

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Business Planning Process

Identify Market opportunity Identify Costs Model Tariffs Model Business Requirements

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Market Identification Define Market segment

• size• uptake• competitive position• market position

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Identifying Costs

Capital Costs Recurrent Costs Marketing Costs Staff and Administrative Costs

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Capital Costs

Equipment• Core routers

– capital cost depreciation at 30% p.a.

• Access servers– capital cost depreciation at 30%pa– capital cost per access port charged to

customer

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Capital Costs

• service platforms– ratio of service platforms to

customer numbers– depreciation at 30% pa

• staff equipment– fixed capital cost per staff member– can be converted to recurrent via

capital depreciation at a rate of 30% pa

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Recurrent Costs

equipment housing costs• equipment location costs

lease line costs• Telco Leases• Radio Equipment Costs

– can be converted to recurrent cost of ownership at 20% depreciation of capital value

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Marketing costs

advertising staff publications, seminars, other

marketing activities Total can be considered as a

connection cost per client

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Staff and Administrative costs

technical support staff• usually fixed number• staff churn cost (30%)

support desk staff• usually incremental off the customer base

administrative staff• usually fixed number

Other administrative costs• billing costs• debt risk factor

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Lets put this together for a medium sized

national ISP Cost Totals Cost proportions Scaling overheads as a

percentage of capacity costs generation of the business

model via marginal cost examination

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Costs Leased Line costs - recurrent

expenditureLink Cost Calculation Worksheet

The costs used here are not derived from any particular network - they are a simple example only

Target Line Loading Factor50% Line loading before more bandwidth is required

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International Line costs

International Circuit cost calculationCapacity of the circuit Kbps 2048

Cost of the circuit - total lease cost monthly 120,000$

Megabytes monthly 685,670 Max sustainable loading factor 50%

Max sustainable traffic level 342835Break even cost per megabyte at target load 0.35$

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Domestic Line costsDomestic Circuit cost calculation

Capacity of the circuit Kbps 2048

Average cost of the circuit - total lease cost monthly 8,000$

Megabytes monthly 685,670 Max sustainable loading 50%

Max sustainable traffic level 342,835 cost per megabyte 0.02$

line imbalance 0.75

Topology Factor 1.5

cost per megabyte 0.02$

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Marginal Transmission cost

Traffic BalanceInternational 65% 0.24$

Trunk 22% 0.01$

Local 13% -$

Total Delivered cost per Mb 0.25$

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Marginal Cost

Total Delivered cost per Mb 0.25$

OverheadsFixed rate overhead calculation 20%

Marginal Cost 0.30$

• Calculate staff and equipment costs as a fixed overhead on the traffic volume - this allows the business to generate working capital to expand

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Capital Investment cost

Marginal Cost 0.30$

Return on cashflow 5%

Target Average Retail Price per delivered Megabyte 0.31$

• The enterprise will require initial capital investment which must generate positive earnings, which must be factored into the model

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Retail Pricing Model Use a 64K access line as the basic

unit of connection Assume an average line loading of

business usage• average line occupancy of 20%

Determine retail pricing from marginal cost at average line occupancy

Flat Rate pricing45

Retail Pricing Model

Retail Model

64K connection Costs

Maximum delivery capacity (Mb) monthly 21427Average line occupancy 27%

Average line delivery (Mb) monthly 5,785 marginal cost 0.31$

Net service cost (transmission) monthly 1,806.46$

Max service liability (avg traffic flow) monthly 6,690.60$

Max service liability (absolute risk) monthly 9,450.00$

Fixed Flat rate tariff Monthly 1,806.46$ 46

Risk Reduction Reduce risk of over exposure

by using ‘high’ and ‘low’ volume tariff stepsClient Spread

0

10

20

30

40

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0% 20% 40% 60% 80% 100%

Line Occupancy

Nu

mb

er

of

Cli

en

ts

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Stepped Retail TariffFixed Flat rate tariff Monthly 1,806.46$

Dual Rate Tariff 40%Low band average line occupancy 18%High band average line occupancy 59%

Low monthly 1,204.31$ High monthly 3,934.07$

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Additional Services

Offer services at a variety of access speeds

Use differential tariffs to encourage reselling

Use a flater tariffs to strength direct retail position

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Additional ServicesTiered Access Pricing

Tier Factorleased PSTN modem, rated at 19.2K 19.2 1.40

64K 64 1.20

128K 128 1.10

256K 256 1.05

512K 512 1.00

Retail ScheduleFixed 2 Tier

Low High

leased PSTN modem, rated at 19.2K 759$ 281$ 918$

64K 2,168$ 1,445$ 4,721$

128K 3,974$ 2,649$ 8,655$

256K 7,587$ 5,058$ 20,654$

512K 14,452$ 9,634$ 31,473$ 50

Dial Access Transmission is a minor cost for

dial access Also must factor in:

• modem capital cost and limited service life• phone support with large after hours

component• marketing cost• customer churn rate• target market capture level (competitive

price sensivity)51

Dial AccessModem Access Pricing

Cost per modem hourAverage modem speed kbps 26

MBytes/hour 10.4Average line loading level 10%

At Marginal Retail 0.32$ Service Activity Loading 300%

Retail - minimum level hourly 1.30$

Initial retail marketing margin 30%

Retail hourly 1.69$

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The Business Challenge

How to manage exponential

GROWTH53

The Business Plan

Establish tariff position Estimate Market size for the

service Calculate Revenue Calculate service provision

costs Revenue - costs = bottom line

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Estimate DemandBusiness Plan

Year 1 Year 2 Year 3 Year 4

Services In Operation (SIO)

Type

dial 300 2000 4000 10000dial modems 30 200 400 1000

pstn 10 20 40 15064K 20 40 100 200128K 4 6 15 40256K 0 2 8 25512K 0 0 5 15

TOTAL 64 268 568 1430

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Calculate RevenueRevenue $ $ $ $

Connection charges 210,000 588,000 832,000 2,250,000Access charges

dial 73,962 394,466 739,623 1,479,246pstn 7,587 15,174 30,349 113,80764K 72,837 145,673 364,183 728,365

128K 26,707 40,060 100,150 267,067256K 0 29,210 116,842 365,131512K 0 0 121,394 364,183

TOTAL 391,093 1,212,584 2,304,541 5,567,800

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Capacity calculationCalc Line Lease 132 427 1,116 2,827

Actual Line Lease 128 512 1,024 3,036

Scale the Network Estimate communications

capacity to service the client base

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CostsEquipment 140,000 420,000 640,000 1,800,000Line Lease 82,500 330,000 660,000 1,956,797

Staff 250,000 350,000 450,000 500,000Marketing 0 50,000 100,000 150,000Overheads 120,000 120,000 140,000 200,000

TOTAL 592,500 1,270,000 1,990,000 4,606,797

Estimate Costs Factor in service provision

costs

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The Bottom Line

Revenue 391,093 1,212,584 2,304,541 5,567,800

Costs 592,500 1,270,000 1,990,000 4,606,797

Profit/ loss (201,407) (57,416) 314,541 961,003

Am I winning or losing at this tariff and market level?

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THANK YOU

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