THE DOS AND DON’TS OF BUSINESS PLANNINGPROF MIGUEL MEULEMANPROF VERONIEK COLLEWAERT

• When you consider pursuing a new business opportunity, it makes sense to assess the opportunity in a systematic way (rather than purely relying on gut feel). A business plan helps you structure your analyses and present them in a way to help others understand your plan – and hopefully agree with you.

• While investors may not attach that much value to your plan, they will typically ask for one to see whether you understand your opportunity well enough.

• A business plan can be written for different types of opportunities - i.e. developing new products or services, entering new (geographical) markets, launching new business models and creating new channels.

• The main goal of this document is to share best practices on how to write and structure a convincing business plan

• A blueprint is provided • Dos and don’ts are discussed • General guidelines are discussed • A number of tools are added to help you conduct the analyses: WWW.VLERICK.COM/BUSINESSPLANNING

BUSINESS PLANNING? WHAT’S IN A NAME?

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• Every business case is different and, therefore, you always need to fine tune your business plan to the specifics of the context.

• However, there are certainly best practices in how to build a flow in your business plan and how to convince the reader

• A business plan should always be goal-oriented

• To help you understand/assess an opportunity and decide whether or not to proceed

• To persuade investors or other stakeholders to invest • To understand the key risks and how to manage them • To provide you with a roadmap for the future

• A business plan by definition will be wrong to some extent. No one can predict the future. Keep your plan lean and mean and be prepared to adapt.

• A plan is just a plan. Success will mostly depend on the execution of the plan. Pay attention to how you will successfully execute.

THERE IS NO WINNING MODEL FOR WRITING A BUSINESS PLAN!

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OBJECTIVE• Accurate• Positive and critical• Honest• Transparent on

data sources

GOAL- ORIENTED• Focus on key questions

and assumptions• Define call for action• Efficient (no page

filling)

CLEAR AND CONCISE• Well structured• Self-explanatory• Non-technical terms• Bullet point style• Maximum 20-25 slides

GENERAL CHARACTERISTICS OF A GOOD BUSINESS PLAN

MEMORABLEA document

the reader will remember you by

HANDS-ON• Combine desk research,

field research and lots of interviews

• Practical instead of theoretical

• Context specific

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Based on best practices and our own experiences, we provide a blueprint for a business plan. The blueprint is attached in the appendix. Take into account:

• The blueprint is mostly appropriate when you launch new products, services or new business models

• There is no such thing as a blueprint. Depending on the context, you might need to add or remove certain sections (e.g. regulatory issues, IP, …)

• The completeness of the blueprint depends on the stage of your idea.

• For example, no need to develop a detailed 5-year financial plan if you only have a rough idea.

• For later-stage ideas, the plan will need to pay more attention to actual execution and detailed financials.

• Create your own layout including a distinct visual identity that reflects your vision and brand

DISCLAIMER BLUEPRINT

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TIPS AND TRICKS ON HOW TO WORK WITH THE BLUEPRINT

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EXECUTIVE SUMMARY• Overall business mission• Pain and solution• Experience team• Customer profile and market• Your competitive edge• Revenue potential and key financials• Milestones achieved so far• Status of the project• Call for action

THE OPPORTUNITY• The pain• The solution• Customer profile• Market summary• Competition • Your competitive edge

THE COMPANY• Revenue model• Operating model• Sales/marketing approach• The team• Board of directors/advisors• Key objectives• Milestones• Financial plan

CONCLUSION• Key challenges and risks• Expansion potential• Call for action

DIFFERENT SECTIONS OF THE BLUEPRINT

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• The executive summary is the first impression someone will have of the quality of your proposal. If it’s not convincing or not well written (e.g. poor grammar), it’s unlikely the remainder of your plan will be read. Remember the Halo Effect: the first impression someone has of you, will influence the overall evaluation of your work!

• Dos: • Be concise and specific (e.g., use numbers) • Highlight the upside business potential • Stress the credentials of the team • Show early successes • Include call for action

• Don’ts: • Write an introduction • Use too much of a storytelling style • Only focus on the problem and solution; be comprehensive

THE EXECUTIVE SUMMARY

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THE OPPORTUNITY

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THE PAIN

• The essence of your business proposal is the customer’s need or pain. This needs to be well articulated. Be very specific on which needs are currently “unmet” by competing solutions. The pain or need should be substantial enough to spark interest!

• When discussing your pain or need, bring in the voice of the customer. Clearly show your market validation through either qualitative methods (e.g. interviews with users, experts) or quantitative methods (e.g. surveys). Secondary market research (e.g. reports) can also help to make your case.

• Dos:

• Stress unmet needs • Bring in evidence

(e.g. statistics, quote user) • Be clear on your data sources

• Tools: problem/solution interview

• Don’ts • Be vague or unfocused • Make it too complex • Only express your own (biased) opinion

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THE SOLUTION

• When describing your solution, you want to convince the reader that your solution is effective and unique in addressing the pain/problem/need. What is your value proposition or unique selling point?

• If multiple stakeholders benefit from the product or service (e.g. multi-sided platform), be specific about what value you bring to each party

• Dos: • Describe the benefits for the

customer or user (avoid technical descriptions, focus on benefits rather than features)

• Use visuals to illustrate how your product or service will work

• Focus on what’s unique • Be clear on the minimum viable

product (MVP)

• Tools: value proposition canvas, value pyramid, problem/solution interview

• Don’ts • Try to solve all the world’s problems • Make it too complex to understand • Make promises you can’t deliver

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CUSTOMER PROFILE

• Here you want to zoom in on the user and customer. Provide details of their characteristics (e.g. demographics) and motivations to buy (e.g. decision criteria to buy). A well-defined customer profile will help you in devising your go-to-market strategy.

• Use a dynamic perspective to map your customer. What steps will the customer need to make to become aware of, and ultimately buy, your product? Who will be involved in the decision-making journey?

• Dos: • Provide sufficient detail

(e.g. use quotes) • Map personas and

decision-making units (DMU) • Understand motivations to buy • Immerse yourself in the buyer context • Have a list of pilot customers

• Tools: personas, decision-making unit, customer journey map

• Don’ts • Have everyone as a customer • Design customer profiles that

are too broad • Mix users with decision-makers

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MARKET SUMMARY

• In your market summary section, you want to give insights into the total addressable market (TAM), the serviceable available market (SAM) and serviceable obtainable market (SOM). The main goal is to make a realistic assessment of your potential future sales.

• Key elements in determining your SAM and SOM are your level of differentiation, your positioning and your go-to-market strategy.

• Describe fundamental trends that drive market attractiveness.

• Dos:• Provide both a top-down (i.e. using

industry research/reports) and a bottom-up perspective (i.e. taking into account your go-to-market strategy and your own market research) when calculating potential sales

• Be very clear on your target market segment

• Tools: market sizing

• Don’ts • Apply magic numbers

(e.g. if we only get 1% of the total market, we will be rich)

• Use unreliable sources of data • Assume every potential

customer will buy

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COMPETITION

• Understanding what level of competition you will be facing is key. You want to show the dynamics of the industry including: 1) Who are your competitors, including incumbents and other start-ups? 2) What are substitute products and services? 3) On what dimensions do competitors compete (e.g. price)?

• Map yourself and competitors on meaningful dimensions

• Make sure to synthesize the data: what does the competitor landscape tell you in terms of how you should develop your go-to-market strategy?

• Dos:• Include all relevant local and

international players• Compare competing players

in a meaningful way• Synthesize

• Tools: perceptual map, strategy canvas

• Don’ts• Forget important competitors or

substitutes• Assume competitors do not exist• Assume you will win just because there

is a difference with your competitors. This only matters IF customers also value that difference.

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COMPETITIVE EDGE

• Unfortunately, in most industries you will not operate alone. In today’s competitive market, you will likely face competition from many angles. You want to clearly describe what unique assets or capabilities you have that are difficult to replicate.

• Discuss your competitive advantage gained through “unfair” advantages such as IP (e.g. patents), trade secrets, network effects, economies of scale, reputation, branding, unique partnerships, your team, …

• Are there any first-mover advantages?

• This probably is one of the most important questions to tackle: Why will you succeed where others have failed?

• Dos: • Be very specific on your competitive

edge (e.g. IP, partnerships, location-based advantages, brand)

• Mention unique human capabilities you might have

• Don’ts • Assume that every first mover

has an advantage – often, it is a disadvantage!

THE COMPANY

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REVENUE MODEL

• Ultimately, you should generate revenue through paying customers. The key questions: what will they pay, how will they pay (e.g. subscription, pay-per-use), and when will they pay?

• You clearly want to explain the logic behind the prices you charge and what your pricing strategy is

• Ideally, you provide a table that includes your pricing and cost structure (e.g. gross margin, retailer margins, …)

• Dos: • Keep it simple and transparent • Use reliable market research

techniques to assess the customers’ willingness to pay (e.g. Gabor-Granger method, Van Westendorp method)

• Don’ts: • Combine multiple revenue models • Literally ask customers how much

they would want to pay • Only use cost-based pricing

methods if customers are willing to pay much more

• Give (too) large discounts to customers to test the product

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OPERATING MODEL

• The key question you should tackle here is: can you deliver what you promise from an operational point of view? What will be your key activities and who will be your partners and suppliers? What are the resource impli-cations of your operating model (e.g. investment needs)?

• You will need to determine your position in the value chain and identify how you can meaningfully add value to suppliers and customers. Why is there a reason for you to exist?

• If you’re a start-up, you want to keep it simple and focus

• Dos:• Map your value chain

and your position• List names of partner

companies• Make sure you add value

• Don’ts:• Try to do it all yourself• Fail to outsource non-core activities• Fail to consider the time it takes to get

your operational activities up and running• Underestimate the complexity of

operational activities

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SALES/MARKETING APPROACH

• You will need to generate sales to become successful. What strategy will you use to create demand for your products or services and how will you acquire customers? What channel strategy will you use?

• Entrepreneurs often underestimate the importance of sales. Setting up an appropriate sales and/or marketing strategy that is well aligned with the type of products and services you sell is of utmost importance.

• Your ultimate goal should be to develop an efficient marketing and sales engine. Your cost to acquire a customer should be in line with your customer lifetime value.

• Dos: • Test different sales and marketing

tactics with relatively low budgets to figure out your most effective options

• Go out and try to sell yourself in an initial stage • Provide incentives to generate word-of-mouth • Always remember: satisfied customers are

the best sales people! • Understand the implications of working

through direct and indirect channels

• Don’ts: • Simply assume customers will come and buy • Try to do it all (i.e. make no choices) • Spend money on campaigns of which you

cannot measure results • Shoot on every customer. Lack of focus. • Fail to understand what channels

customers buy from today

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THE TEAM

• You might want to put this slide earlier in the business plan. At the end of the day the success of any venture depends on the execution and, therefore, the team. 65% of start-up failures are due to people problems (Wasserman, 2012)

• Be very clear on the ownership of the project, the credentials of each of the team members and the complementarity of the team

• Dos:• Be very explicit about relevant

business experience• Highlight who the CEO or

key champion is• Dare to change the team as

the venture grows and different skills are needed

• Have multidisciplinary teams• Have sound governance in place

• Tools: equity split calculator, founder checklist

• Don’ts:• Have teams that are too large

without clear ownership• Have a significant number of

key people who are not fully committed to the project

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BOARD OF DIRECTORS, ADVISORS & SPONSORS

• To boost the credibility of the team, you might want to show the extended team including the board of directors, advisors and sponsors

• Make sure it’s not just window dressing - those people should play an active role in supporting and advising the team

• Dos

• Have a diverse set of advisors• Look for diversity in skills, backgrounds, …• Make sure the extended team is committed• Have a small but dedicated team

• Don’ts

• Just use advisors for window dressing purposes

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MILESTONE PLANNING

• Define a number of objectives and milestones to measure and track success. Each milestone should indicate a successful or meaningful event.

• Funding decisions are often linked to reaching a milestone• Examples of milestones: first prototype, MVP, positive beta test, first sale,

major contract with retailer, building a plant, reaching profitability, …

• Milestones define go/no go moments and might trigger pivots or ending the project.

• Dos• Include a timeline• No need to plan 5 years ahead!

Focus on the short-term• Make sure milestones are objective

and measurable• Evaluate the progress of the idea

based on the milestones

• Tools: assumption mapping

• Don’ts• Be vague• Overlook the planning bias:

it generally takes more time to achieve objectives

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FINANCIAL PLAN

• The main objective of the financial plan is to: 1) assess cash needs (e.g. to cover working capital) 2) know when funding will be needed 3) understand whether the business can ultimately generate a healthy profit margin 4) articulate your funding sources

• The financial plan is a good credibility test of the team as it reflects their know-ledge of the industry and the business model

• Always be very clear about the underlying drivers of the financials (e.g. unit economics, gross margin, customer acquisition cost, …). Be transparent on what is known and what is unknown.

• Dos• Focus on cash• Map key underlying drivers of the

financials (e.g. pricing, churn, ARPA, …)• Understand your unit economics• Make sure investor choices are aligned

with stage and type of the venture• Simulate different scenarios

• Tools: financial fishbones

• Don’ts• Build endless series of Excel sheets• Focus only on high-level numbers• Assume your financial plan will be

correct. It generally takes more time and effort to achieve your objectives

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• By definition, there will be remaining risks and questions. Be transparent about the major risks and assumptions, and outline how you can anticipate and/or resolve them.

• Use the issues raised as discussion points with the audience you address

• Dos

• Be transparent• Be open to critique

• Don’ts

• Assume your plan will be successful• Assume your plan won’t need to change• Hide negative information

KEY CHALLENGES AND RISKS

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• Be clear on what your expected next steps are and what you are asking for• What is the amount of investment needed? How will you use that investment?• What deal do you propose to an investor, alliance partner, bank, customer?• What do you expect from your management? Time? Money?• Be realistic about what you are asking for

• Dos• Know your audience• Qualify your audience• Listen to the needs of your audience• Focus on the relation

• Don’ts• Be too transactional

CALL FOR ACTION

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APPENDIXBLUEPRINT SLIDES

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EXECUTIVE SUMMARY• Overall business mission• Pain and solution• Experience team• Customer profile and market• Your competitive edge• Revenue potential and key financials• Milestones achieved so far• Status of the project• Call for action

THE OPPORTUNITY• The pain• The solution• Customer profile• Market summary• Competition • Your competitive edge

THE COMPANY• Revenue model• Operating model• Sales/marketing approach• The team• Board of directors/advisors• Key objectives• Milestones• Financial Plan

CONCLUSION• Key challenges and risks• Expansion potential• Call for action

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CONTENTS

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EXECUTIVE SUMMARY

• Highlight the key elements of the investment proposal/ business plan• Overall business mission• Pain and solution• Experience team• Customer profile and market• Your competitive edge• Revenue potential and key financials• Milestones achieved so far• Status of the project• Call for action

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THE PAIN

• Describe the pain/problem/need• Use a story or use case to illustrate the pain/problem/need• Be very specific about the unmet needs and provide some detail

• Outline how the customer addresses the issue today.• Why aren’t customers satisfied with alternative solutions?

• Validate the problem using research. How big is the problem?• “[Quote from prospect in pain]” – (Source)• “[Quote from analyst regarding the need in or size of market]”

– (Source)• “[Quote from analyst regarding the need in or size of market]”

– (Source)

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THE SOLUTION

• Describe your products and services• Use visuals (MVP, storyboard, prototypes, mock-up, sketch,

…) to illustrate your product/service

• How do you uniquely address the pain / problem / need?

• What is your value proposition? To what degree is the product or service a compelling purchase for the customer? Is it significantly: faster, cheaper, larger/smaller, safer, more user-friendly, more attractive, etc.?• If multiple stakeholders benefit from the product or service

(e.g. multi-sided platform), be specific about what value you bring to each party

• What are the benefits for the customer? (avoid technical descriptions, focus on benefits rather than features)

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CUSTOMER PROFILE

• Who is the customer? Identify and profile the customer.• Use personas to illustrate typical customers

(often used in B2C). • What is the decision-making unit (DMU)

(often used in B2B)? • How will your product/service change your customer’s life?• Are there any switching costs?

• What does the customer journey look like, and how are buying decisions being made? What is the patch to purchase?

• What evidence do you have that customers will buy what you propose to offer? How hungry for solution? (pre-orders, testimonials, letter of commitments, pilot projects, etc.)

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MARKET SUMMARY

• What is your TAM, SAM and SOM?• €[#] in [year] growing to €[#] in [future year] (Source)• Provide graphs (Source)

• Calculate a bottom-up achievable market i.e. how many customers can you reach with the business model you will implement (e.g. number of sales people, marketing budget, # points of sale, sales channel)

• What are underlying market drivers?• Describe favourable/unfavourable trends (Source)• Why now? What makes the timing right? • How would you describe the product lifecycle of the market?

• Prospect base• [#] [companies/consumers] (Source)

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COMPETITION

• What type of market are you entering (e.g. existing market, re-segmented market, new market …)?

• Describe and compare significant competitors. • What is the focus of their business?• What are their weaknesses and how do we exploit them?• What are their strengths and how do we address them?

• Compare competing and substitute products or services on the basis of market share, quality, price, performance, delivery, timing, service, warranties, and other pertinent features. A perceptual map is useful to compare players in a meaningful way.

• Provide a good synthesis of the competitive landscape and the overall attractiveness of the industry.

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COMPETITIVE EDGE

• Describe how your firm will generate a sustainable competitive advantage.

• What are the underlying sources of the sustainable competi-tive advantage?

• Discuss your competitive advantages gained through such “unfair” advantages as IP (e.g. patents), trade secrets, network effects, economies of scale, reputation, branding, unique part-nerships, …

• How will you create barriers to entry to prevent others from quickly copying your products / services.

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REVENUE MODEL

• How will you make money?

• What is the logic behind your revenue model?• What, how and when will you charge customers?

• What is your price and cost structure for the different products/services, including the margins taken by different players in the value chain?

• What pricing strategy do you employ (cost-based pricing versus value-based pricing)?

• How did you arrive at your revenue model? What evidence do you have that it will work?

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OPERATING MODEL

• Based on your business model, provide a detailed description of your operating model or back-office

• What are the different operational activities you will perform to provide your product/service and how are they linked?• What does the value chain look like? • What will be outsourced and what will be done in-house? Why?

• If you provide a service, describe the different steps in delivering the service.

• How will you assure consistent quality in your products or services? How will you assure smooth delivery?

• What resources do you need to set up the operations (intellectual, human, physical, …)?

• What partners will you work with in the value chain or ecosystem?

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SALES/MARKETING APPROACH

• Describe your distribution and sales channels

• How will you get, keep and grow customers?• How will you create demand for your products/services?• How will you optimize customer acquisition and customer retention?• What is the customer acquisition cost? How does this compare to

the lifetime value of a customer? • Who are the different decision-makers involved in the buying process?

How long will it take to generate a sale? • Provide a sales funnel diagram

• What brand strategy will you use?• Media Mix: [Web Ads/Magazine Ads/Trade Shows/Billboards/TV/

Radio]• How much budget will you make available for marketing and sales?

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THE TEAM

• Clearly show that you can execute the critical success factors needed to implement the business model. Provide a list with names and relevant experience

• President & CEO: [Name]• [Years & nature of experience]• [Accomplishments]

• VP Sales: [Name]• [Years & nature of experience]• [Accomplishments]

• VP Marketing: [Name]• [Years & nature of experience]

• [Accomplishments]

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THE TEAM

• CTO / VP Products: [Name]

• [Years & nature of experience]• [Accomplishments]

• VP Services: [Name]• [Years & nature of experience]• [Accomplishments]

• TBH• CFO [mm/yy]• President or COO [mm/yy]• Management will adjust if the need arises

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• Include a description of the extended team including:

• Board of advisors/directors: give details on the background of the advisors and the fit with your venture. What value will they bring?

• Sponsors: for internal ventures, be clear on which sponsors are involved in the project and support the initiative. What value will they bring?

BOARD OF DIRECTORS, ADVISORS & SPONSORS

• 1ST YEAR• Revenue: €[#]• Cash burn: €[#]• Headcount: [#]• Customers: [#]

• 2ND YEAR• Revenue: €[#]• Cash burn: €[#]• Headcount: [#]• Customers: [#]

• 3RD YEAR• Revenue: €[#]• Cash burn: €[#]• Headcount: [#]• Customers: [#]

• 4TH YEAR• Revenue: €[#]• Cash burn: €[#]• Headcount: [#]• Customers: [#]

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KEY OBJECTIVES AND MILESTONES

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STAGE 1: FOUNDING THE BUSINESS• [mm/yy]: Incorporated• [mm/yy]: Develop first prototype/concept test• [mm/yy]: Sign first pilot projects / launch beta test• [mm/yy]: Secure angel funding• [mm/yy]: Ramp up hiring• [mm/yy]: Begin building initial product• [mm/yy]: Secure 1st round investment• [mm/yy]: Begin offering initial product• [mm/yy]: Begin marketing/sales activity• [mm/yy]: Aggressively obtain customers

MILESTONES

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STAGE 2: DEVELOPING THE BUSINESS• [mm/yy]: Secure 2nd round • [mm/yy]: Crank up marketing activity• [mm/yy]: Begin offering second product• [mm/yy]: Emphasize customer acquisition

MILESTONE PLANNING

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STAGE 3: STABILIZING THE BUSINESS• [mm/yy]: Shore up management• [mm/yy]: Secure 3rd round (€[20]m @ €[100]m pre)• [mm/yy]: File for IPO• [mm/yy]: Achieve profitability

MILESTONE PLANNING

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• Pricing model fundamentals

• Describe the expected stabilized gross margins• Give insights into expected unit economics

• Provide P&L, cash flow and balance sheet

• Clearly describe the key underlying assumptions driving the financials! What are key metrics you’ll need to watch (which ones are known and which ones are unknown?)

• Provide capital expenditures

• Describe funding requirement and sources of funding

• From whom and when will you raise funding?

FINANCIAL PLAN

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• Discuss assumptions and risks implicit in your plan.

• What key uncertainties are unresolved?

• Identify and discuss any major problems and other risks, such as:

• Running out of cash before orders are secured. • Potential price cutting by competitors. • Any potentially unfavorable industry trends. • Design or manufacturing costs in excess of estimates. • Sales projections not achieved. • An unmet product development schedule.• Difficulties or long lead times encountered in the procurement of

parts or raw materials. • …

KEY CHALLENGES AND RISKS

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• [If there are things that can be done in the future to take the business into broader or additional markets, list them here.]

EXPANSION POTENTIAL

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• What is your Call for Action?

• Investments needed? Conditions?• What deal do you propose to investor, alliance partner, bank, customer?• What do you expect from your management?

CALL FOR ACTION

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• Provide all references

REFERENCES/ GLOSSARY OF TERMS

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READY TO WRITE YOUR OWN BUSINESS PLAN?

Then join other owners & entrepreneurs from different sectors and backgrounds in one of the following programmes:

• Management Acceleration Programme Unleash your management and leadership potential

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GET IN TOUCH WITH OUR PROGRAMME MANAGER

WWW.VLERICK.COM/ENTREPRENEURSHIP

Sylien KesteleynProgramme ManagerT: + 32 9 210 97 02E: sylien.kesteleyn@vlerick.comVlerick Business School

Miguel MeulemanProfessor of EntrepreneurshipT: + 32 9 210 97 70E: miguel.meuleman@vlerick.comVlerick Business School

Veroniek CollewaertProfessor of EntrepreneurshipT: + 32 9 210 92 12 E: veroniek.collewaert@vlerick.com Vlerick Business School