Business Plan Development

Workshop

Satish Mantripragada, MBA VP, Corporate Strategy & Marketing HealthKonnect HealthOMC Exec. Board Member, Boston ENET Phone: 781-883-4628 Email: sathealthomc@gmail.com

Martin Trust Center for MIT Entrepreneurship 1 Amherst St. E40

Cambridge, MA 02142

Business Plan Essentials

Who is your customer?

What can you do for your customer? a.k.a addressing “Pain point” - Apr. 27/28

How will your customer acquire your product?

How do you make money off your product?

How do you design and build your product?

How you scale your business? - Apr. 29/30

General Criteria

1. Defining “target customer”

2. Developing “high level” product specification

3. Defining “Use Cases”

4. Developing a “Quantified Value Proposition”

5. Developing “Competitive Advantage” grid

6. How Customer “acquires” your product

7. Business Model and “LTV”

8. Develop GTM (Go to Market) and COCA

9. Product design and development

Should NOT be like Homer Simpson starts: Internet company!.....

Defining “target customer”

• Go through the process of defining one manageable beach head market for the new venture

• Describe the target customer profile with enough specificity and knowledge

• Explore if the target customer have a well –defined “pain” or offer an excellent unexploited opportunity

• Describe at least three top priorities of the target customer

• Extrapolate the target customer profile from the larger pool/market

• Create a credible TAM (Total addressable market) for initial market. Larger market?

• Identify at least 5 target customers (pools) for pilots

Developing “high level” product specification

• Specifically define each product or feature sets for development

• Develop visual representation of the product ( ex. Model, pencil sell or storyboard of the flow in case of software)

• Define clearly how the product would create value (linkage of value proposition to primary/secondary research)

• Make a brochure that describes product from the target customer’s perspective with an emphasis on benefits & not technology and unnecessary details.

Defining “Use Cases”

• How do you communicate target customer has a pain point/opportunity

• Describe “call to action” or forcing function that moves customer to investigate a product like yours.

• How do you communicate how the customer gets to find out about your product – Analyze it – Acquire it – Install it – Use it – Pay for it – Get the benefits from it – Tell “others” about the product – word of mouth – Buy more it appropriate

Developing a “Quantified” Value Proposition

• Develop a “quantified” key metric that is aligned with something that is measureable – CAC, LTV, MRR rate etc.

• Develop a reference table to measure validate/info collected/presented (from one pilot customer)

• Describe the analysis based on significant quality primary market research – aka Deloitte, Gartner or CBInsights (SaaS)

• Does this support your product’s unique capability & need

Developing “Competitive Advantage” grid

• Develop at least two priorities into a 2x2 matrix (akin to Gartner’s magic quadrant)

• Map out competition on this grid

• Understand the limitations and growth opportunities of competition

How Customer “acquires” your product?

• Develop ways to find if customer has money to buy solution

• Identify decision making unit (DMU) who will buy solution

• Identify decision making process (DMP) by which solution will be purchased

• Identify different roles of decision makers with roles/titles.

• Identify key items or roles who could slow down the process

• Estimate average sales cycle

• Identify various ways to reduce the timeframes to reduce the sales cycle

• Identify sales resources needed and (if) those resources can be reduced over time.

Business Model and “LTV”

• Develop the business model that keeps the interests of customers, themselves and partners without conflicts

• Is the pricing of the product clear and consistent with revenue streams/goals

• What kind of initial programs/discounts needed to acquire customers and for how long

• Consider how does this lead into recurring revenue streams

• Develop a model for customer LTV that is comprehensive. (includes cumulative profits and not simply revenues)

• Show how the LTV will evolve ( both short and long term)

LTV Calculations

• Value of an acquired customer –

Profit

Present Value = ---------------------

(1 + CC rate )t

Profit = Total Profit across all streams (simple Revenues – Expenses)

CC Rate (Cost of Capital Rate for SaaS business ) = ranges 35 to 75 (based on risk profile)

t = number of years after 0 through 5 (good idea up to 3)

Develop GTM (Go to Market) and COCA

• Develop a COCA (Cost of customer acquisition) model for the product

• Develop model for lead generation and closing sales ( choice of models like direct, indirect, use of outsourcers & online)

• Map the sales process (sales funnel) to the different parties involved as well as their roles from lead generation to collection of money

• State clearly assumptions as leads move through the “sales funnel”

• COCA calculations ( use marketing and sales costs, make reasonable assumptions of life of customer, retention rates & closure rates, exclude COGS and fixed costs)

• Map how COCA will evolve over time (short, medium and long term)

• How does word of mouth (WOM) fall in the overall GTM.

COCA Calculations

• Develop a COCA (Cost of customer acquisition)

TMSE (t) – IBSE (t)

COCA (t) = ---------------------------------

NC (t)

TMSE - Total marketing & sales expenses (don’t include R&D, Finance &

other admin costs)

IBSE – Install base support expenses

NC - Number of new customers

t - number of years ( typically 0 – 3)

LTV/COCA Calculations….

• SaaS Business LTV:CoCA needs to be at least 3:1 & months to recover < 12

• SaaS Business CoCA $1- 3 per customer

• Unit economics – MRR churn 3.5% to 1.5%

Reference: Brad Coffey, Hubspot

COCA Calculations….

• SaaS Business – track LTC and CoCA, ratio, CoCA recovery etc.

• Many more parameters to track – reference David Skok, forentrepreneurs.com

• Keep track of Revenue Churn vs. Customer Churn. Why are they different?

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Product design and development

• Develop high level product specification and modify this through the primary research and inquiry process.

• Define “key” assumptions that need to be tested • Design experiments to test key assumptions quickly, cheaply

and effectively • Build a “specification” of MVBP (minimal viable buildable

product) that can be tested • Come up with development plan with milestones and how

long it will take to build the product. • Come up with some key metrics to measure (“dog” eats dog

food!) • What QA processes are “taken” to assure/measure quality

metrics • Design considerations like programming

languages/dependencies technology) that assures scalability

Financial Plans

• How is your 3 year plan?

• What kind of money would you need?

• What are the ways/places to raise funds?

• What are the various “valuation” considerations?

• How would you repay “seed” stage funds raised – exit or organic growth?

What about “Financial projections”

• Develop a “financial projections” summary with revenues and cost of doing business (expenses)

• Describe “top line” growth with assumptions explicitly stated

• Develop a “3 year” projections in a clear to read spreadsheet format

• Develop “realistic” COGS with assumptions and indicate gross margins (that are believable!)

• Develop a P&L statement with a “realistic” cash flow statements – cash flow can never be negative!

• Financial projections are done quarterly for first year and then yearly for the next 2 years.

• Were the numbers credible and believable!

Fund raising, exit strategy and “business plan” pitch

• Identify clearly when and how much funds are needed with the growth plan

• Develop measureable “milestones” of each stage against need of funds

• Develop activities in each stage the money will be used for in the plan

• Identify ways to raise funds (Angels, VCs, Convertible debt, government etc.)

• Develop “valuation” calculations at various stages of the business

• Develop “exit” strategies keeping in mind various investors “range of return” goals

• Develop an investor pitch with these various parts in the form of a presentation.

Closing

Comments & Questions

Phone: 781-883-4628

Boston, MA (USA)

Email: sathealthomc@gmail.com

References: 1. Bill Aulet – Disciplined Entrepreneurship – 24 Steps to a successful startup 2. David Skok, Matrix Partners - www.forentrepreneurs.com Lessons from HubSpot, Zynga, Jboss & others 1. Michael Skok – Harvard iLabs (Startup secrets series)