Presented byJurek Sikorski

Entrepreneur in Residence at LBS

Independent Business AdviserMentor

Write a Great Business Plan

Friday, 6 December 2013

Write a great business plan

The keys to sustaining competitive advantage

What needs to be in the business plan to make it compelling?

What does a great business plan look like?

Guidelines for writing a great business plan

What to do to get ‘investment ready’

Where to go for help in preparing a business plan

Coming up...

Exercise

Write a great business plan

‘ Give me a lever long enough and a fulcrum on which to place it and I’ll move the world ’

Business plans... rarely survive the first market test

Business plans fall down on having scant information about the market and lack evidence that the customer will buy the product and miss what needs to be included...

Financial projections are always wrong

The perfect business plan does not exist…

‘Start-ups are NOT smaller versions of large companies’

Write a great business plan

To help you understand an opportunity... and what it will

take to exploit it To recruit prospective

partners and team members/employees

To monitor progress and keep you on track following start-up...

To rejuvenate and re-focus a business...

To raise funds for the business

Why are business plans written?

Business plans will change and should be regularly reviewed…

Write a great business plan

When to write a business plan?

Write a great business plan

Writing a business plan before you have carried out a proper and full assessment of the opportunity is a wasted exercise

What comes first is not the business plan but the

assessment...

The most thorough assessment is that afforded by the seven domain analysis

- Avoids impending disaster…- Kick starts the business planning process- Collects real data

The seven domain analysis… helps you answer the important question:

Write a great business plan

The analysis highlights

markets are different from industries

both micro and macro considerations are necessary

key to assessing the team goes beyond the CV to understand vision, ability to execute and connectedness

Will or won’t this business succeed?

Are the market and industry attractive Does idea offer compelling benefits Can the team deliver

An initial advantage is sustainable when:

1. There is strong intellectual property – patents, trade secrets and IP

2. There are superior organisational processes, capabilities and resources

3. The business model is economically viable – can generate... and not run out of cash

1. Revenue is adequate2. Customer acquisition and

retention costs… are viable3. Contribution margin is sufficient4. Operating cash is favourable

The keys to sustaining a competitive advantage

Write a great business plan – keys to sustaining a competitive advantage

• Adalimumab, third TNF alpha inhibitor to be approved by the FDA; marketed by Abbvie

• Discovered through a collaboration between BASF and Cambridge Antibody Technology with sales of $9bn in 2012

• Abbive has global reach and in market customer support capabilities

• Patent protected - first patent application filed in 1996 continues until 2016

• Strong product advantages - rapid onset of action, s/c administration and simple dosing regimen

Delivered strong product advantages and patent protection

How Humira achieved sustainable advantage

Write a great business plan

Established an economically viable model

• An American multi national internet C2C company… • In 2012 generated $14bn in revenue from various fees and

commissions - investment has been/is very modest• Customer acquisition costs are low - customers arrive by

word of mouth, no shortage of people who wanted to sell and spends little on advertising

• Contribution margin is high - cost of goods is low since customers own goods and transactions are paperless

• Cash cycle is very favourable - sellers pay an insertion fee with range of additional fees up front and there are no receivables and no inventory

Write a great business plan

How eBay achieved sustainable advantage

Became cash flow positive almost from day 1

• In 1973 EMI launched its patented Computerised Axial Tomography (CAT) scanner

• EMI rapidly won 75% share of the global market for scanners• Competitors including GE responded robustly with similar

CAT scanners without infringing the EMI patents• GE launched its product in 1976 and leveraged significant

expertise in manufacturing and in-market capabilities…• EMI plagued by production problems, a law suit and

mounting losses was forced into a merger with Thorn Electrical that eventually sold the CAT rights to GE

Failed to build the necessary organisational capabilities

How EMI lost the initial advantage...

Within 6 years of launching the CAT scanner EMI had gone from market leader… to exiting the business

Write a great business plan

Exercise

Does Pizza Rossa have a sustainable advantage?

Based on your reading of the Executive Summary...

What is Pizza Rossa’s sustainable advantage?

Work in pairs and take 10 minutes

Feedback to the group

Write a great business plan

A framework for compiling content to write a great business plan

Team

• The team starting and running the new venture, suppliers… and channel partners

Opportunity

• A profile of the business, the product it will sell and the market it will sell to, the competition it will face and how it will deliver the product

Context

• The big picture describing the political, economic, social-cultural, technological, legal and environmental forces impacting the business

Risk/Reward• Assessment of what

can go wrong and how the team can respond and address effectively

Write a great business plan - framework

The framework describes the attributes of a successful business…

Team – Who are these people?

Where have the team members been educated/worked and for whom? What have they accomplished – professionally and personally? How well do they know the products, customers and competition? What skills, knowledge, experience do they have that is relevant to

the opportunity? Have they worked together before? How realistic are they about the venture’s chances of success? Who else needs to be on the team? Do they know the risks? How will they respond to manage these? Do they have the mettle to make the tough decisions? How committed are they to this venture and what are their

motivations

The ten ‘team’ related questions every business plan should answer

‘When writing a business plan feature people prominently and talk about them exhaustively’

Write a great business plan - framework

Investors look for a team that is known…

Opportunity – of a lifetime or is it?

Who is the customer? How many customers are there for your product/service? How does the customer make decisions about buying your

product/service? In what ways is the product/service better than the competition?

The ten questions about the opportunity every business plan should answer

How will your product/service be priced? How will the product be sold and delivered? What IP does the product have? What has to be done to retain the customer? How much does it cost to acquire a customer? How much does it cost to produce your product/service?

Questions about competitors:- Who are the competitors?- What are their S&Ws- How will they respond?- How does the venture reply?- What scope for collaboration?

Address ‘how the business will expand its range of products and services, customer base and geographical scope?’…

Write a great business plan - framework

What are the cash flow implications of pursuing an opportunity?

Opportunities exist in a Context

Context is the range of external forces - from the political, economic, social-cultural and technological to the environmental and legal such as the regulations that govern manufacture and sale of products

Context can have a tremendous impact on every aspect of the entrepreneurship process – the context can make it easy or difficult to start (and fund) a company

Every business plan should explain the context... and what management might do if context becomes unfavourable

Write a great business plan - framework

Context – does it help or hamper?

How does the current economic climate impact your business? What are the legal regulations that govern the sale of your

product/service? What is the government strategy for your industry? Does your product/service require a product licence or CE mark? What are the technological advances that help/hinder your business? What future changes are anticipated in your industry that will affect

your business? How can the management influence the context e.g. lobbying via trade

association? How does the business impact its environment and what should the

business be doing How socially responsible is the business/should the business be? What funding is available to your industry and potentially your

business?

The 10 questions you need to answer about how the macro environmental forces impact your business

Write a great business plan - framework

Risk and Reward

Time to positive cash flow

Potential Reward

Annual Rate of Return

15%

Prob

abili

ty

-100% 90% 15% 45%

‘the plan must unflinchingly confront the risks ahead in terms of the team, opportunity and context’…

Write a great business plan - framework

Risk is unavoidable

What class of investment?

Risk and Reward – how are these managed?

What are the main risks facing the business? How will you deal with a new competitor (‘GE

entrant’)? What happens when your partner leaves? What happens is you are unable to secure a

patent? What is the breakeven if sales grow at half the

rate? Why would J&J not develop a better device? What will you do if your break even is delayed? What happens if your costs rise by 25%? What is the return I can expect after 5 years? What is the exit strategy?

The 10 questions asked by the investors

The business plan should candidly talk about the end of the process… and address the question ‘how will the investor get money out of the business, assuming the business is successful?’

Write a great business plan - framework

Key Partners Key Activities

Key Resources

Customer Relationships

Channels

Customer Segments

Cost Structure Revenue Streams

Rapid Lateral Flow Immunochromatographic Technology

Africa and other TID endemic regions

Sales team

Doctors, nurses and non-skilled ancillary

staff – need an accurate test

Technical support

Education events

Local distributors/NGOs

WHO

Rapid tests (<30 mins)

Accurate (>99%)

No equipment required

Low cost (~£1/test)

Enable early treatment

Manufacture and supply of test

Marketing and selling of tests

Recruitment and training of distributors

Working capital

Scientific/commercial staff – develop and

market tests

Local Distributors

Hospitals and clinics

Commercial reagent suppliers

Porous paper supplier

Simple 3 step operation

Investors - VCs

Facility landlord

Cost of sales (<25p/test)

Salaries (£250k pa)

Facility (£25k pa)Price set at between £0.50p - £0.60p /test

FOBRevenue £1m rising to over £25m by year 5

Gross Margin: min. 50%

Knowledge and expertise Patented technology

Marketing (£100k pa)

Wholesalers

Collecting that information helps you build your business model...

Customer DevelopmentBusiness Model Generation: Alexander Osterwalder & YvesPigneur 2010

Local Ministry of Health – test has to

be affordable

Field clinics, homes and clinical

laboratories – need a simple test

Value Proposition

What does a great business plan look like? • Short overview of the business plan (max. two pages)

• Provides reader with everything he/she needs to know

Executive Summary

• Details history, mission, ownership, products and partnerships • Presents current status and milestones achieved

Company/Product Description

• Features a brief profile of each member of the team• Includes duties, experience and whether work’d together before

Management Team

• Features a description in terms of size, growth, revenues• Includes details of competitors and industry trends Industry Analysis

• Describes the target market and how products meet needs • Reviews the PESTLE trends and how these impact customers Market Analysis

• Sets out how to market and sell the products/services• Defines the price, promotion mix, sales process and distribution Marketing Plan

• Outlines how the business will be run and products produced• Describes front stage (customer facing) and back stage activities Operating Plan

• Describes stage of product development, IP and timelines• Details challenges and current risks and partnerships

Product Development Plan

• Presents financial projections viz. cash flow with assumptions • Details funds sought, IRR, exit options and risk management

Financials, Funding and Risk

Analysis

Guidelines for writing a business plan

Write a great business plan – guidelines for writing a business plan

• Follow a conventional structure…• Investors want a plan where they can easily find

critical information• Avoid software packages and external writers

Structure

• Provide clear information on important TOCR aspects of the business; limit to 20-30 pages

• Have plan reviewed for spelling, grammar and completeness…

Content

• Look professional but not give impression a lot of money has been spent on it

• Avoid getting carried away with design elementsStyle

What are the red flags?

Team that is not committed to the plan

Absence of hard evidence and poorly cited business

Defining the market too broadly

Overly aggressive or unsupported financial forecasts

Sloppiness in any areaWrite a great business plan – Guidelines for writing a business plan

Team Full time management team (of at least two people); worked Expertise (and experience in the sector)Commitment (a vested interest in the success of the business... time and finance)People they like and trust and who are receptive to their inputDetermination and a bias for actionLow starting salaries (at the start until business is profitable)Honesty (no surprises)

What do investors look for...

Business High Return (IRR of >50% pa) Proven concept with preference for salesRealistic financial projectionsHigh growth potential (business is scalable)IP (knowhow, patent(s), designs) secured in the businessRisk profile and management Business in a sector in which investor has experienceInvestment readyExit route

Deal Tax Relief (when investing in a business that qualifies for (S)EIS relief)Realistic valuation (an unrealistic valuation is a common deal-killer)Matches investment criteriaFair investment termsSimple shareholder structure

Writing a great business plan – what investors look for

‘Business plans are rejected because founders fail to demonstrate these requirements’

Business plan has to demonstrate the venture is ‘investment ready’ To be ‘investment ready’ you need to:

give a total commitment to the venture have a compelling and persuasive value proposition be looking for fast growth/scale rapidly have a proven need for your product or service... demonstrate deep knowledge of your market and

industry understand the investment process... know your financials and what investors look for be able to present your business credibly have an experienced team be ready to invest yourself

Writing a great business plan – investment ready

Presenting the business plan to investors

First meeting is generally short (usually no no more than an hour)

Investor will ask for/expect a presentation 20-30 minutes followed by questions

Expect the investor to be very critical but don’t be discouraged

In the first meeting investors typically focus on whether a real opportunity exists and whether the team

can pull off the venture

If the investor is interested the founders will be asked back to meet with partners

Write a great business plan to attract private funding –presenting to investors

- Use PowerPoint- Limit to 12 slides- Speak plainly …- Check you have

answered the questions- Define next steps

Where to go in preparing a business plan – Further reading

Write a great business plan – where to go for help in preparing a business plan

‘Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers’ by Alexander Osterwalder and Yves Pigneur (2010)

‘FT Essential Guide to Writing a Business Plan: How to Win Backing to Start Up or Grow Your Business’ by Vaughan Evans (2011)

‘Why the Lean Start-up changes everything’ by Steve Blank HBR May 2013

‘The New Business Road Test’ by John Mullins (2010)

‘How to Write a Great Business Plan’ by William Sahlman HBR Jul-Aug 1997

‘Entrepreneurship: Successfully Launching New Ventures’ by Barringer & Ireland (2010) Chapter 4 Writing a Business Plan

‘How to Research your Market’ by Eze Vidra (2013) http://www.vccafe.com/2013/05/12/lean-market-research-for-startups/

Check out the British Library Business and IP Centre

Jurek SikorskiEmail: j.sikorski@btinternet.comMob: 07889 720735LinkedIn: http://uk.linkedin.com/in/jureksikorski