Business Plan

4interdependent factors critical to every new venture:

1. The People. The men and women starting and running the venture, as well as the outside
parties providing key services or important resources for it, such as its lawyers, accountants,
and suppliers.
What has the team done in the past that would suggest it would be successful in the future, and so
on?
experienced, energetic managerial team from the top to the bottom worked successfully together
in the past.

2. The Opportunity. A profile of the business itself what it will sell and to whom, whether
the business can grow and how fast, what its economics are, who and what stand in the way
of success.
product or service should be fully analyzed in terms of its opportunity and context.
an attractive, sustainable business modelcompetitive edge and defend it.

3. The Context. The big picture the regulatory environment, interest rates, demographic
trends, inflation, and the like basically, factors that inevitably change but cannot be
controlled by the entrepreneur.
context is favorable with respect to both the regulatory and the macroeconomic environments.

4. Risk and Reward. An assessment of everything that can go wrong and right, and a
discussion of how the entrepreneurial team can respond.
Risk is understood, and the team has considered ways to mitigate the impact of difficult events.

.ideas are a dime a dozen: only execution skills count!

The People
Thats where most intelligent investors focus their attention.
First, because without the right team,
none of the other parts really matters.
What do they know?
Whom do they know?
How well are they known?
Should candidly describe each
team members knowledge of the
new ventures type of product or
service;
its production processes;
and the market itself, from
competitors to customers.
It also helps to indicate whether
the team members have worked
together before.
Talk about the people
exhaustively.
Who Are These People, Anyway?
Fourteen Personal Questions Every Business Plan Should
Answer
1. Where are the founders from?
2. Where have they been educated?
3. Where have they worked and for whom?
4. What have they accomplished professionally and personally
in the past?
5. What is their reputation within the business community?
6. What experience do they have that is directly relevant to
the opportunity they are pursuing ?
7. What skills, abilities, and knowledge do they have?
8. How realistic are they about the ventures chances for
success and the tribulations it will face ?
9. Who else needs to be on the team?
10.Are they prepared to recruit high-quality people?
11.How will they respond to adversity?
12.Do they have the mettle to make the inevitable hard
choices that have to be made ?
13.How committed are they to this venture?
14.What are their motivations?
The Opportunity
Try hard to identify high-growth-potential markets early in their evolution:
thats where the big payoffs are.
Is the total market for the
ventures product or service large,
rapidly growing, or both?
Is the industry now, or can it
become, structurally attractive?
1. Make sure they are entering an
industry that is large and/or growing,
and one thats structurally attractive.
2. Make sure their business plan
rigorously describes how this is the
case. If it isnt the case, their business
plan needs to specify how the
venture will still manage to make
enough of a profit.
3. How the company will build and
launch its product or service into the
marketplace.
4. Demonstrate that careful
consideration has been given to the
new ventures pricing scheme.
The Opportunity of a Lifetime or Is It?
Nine Questions About the Business Every Business Plan
Should Answer
1. Who is the new ventures customer?
2. How does the customer make decisions about buying this
product or service?
3. To what degree is the product or service a compelling
purchase for the customer?
4. How will the product or service be priced?
5. How will the venture reach all the identified customer
segments?
6. How much does it cost (in time and resources) to acquire a
customer?
7. How much does it cost to produce and deliver the product
or service?
8. How much does it cost to support a customer?
9. How easy is it to retain a customer?
The Opportunity II
Whatever the reason, better mousetrap businesses have an uncanny way of
malfunctioning.
1. Demonstrate and analyze
how an opportunity can grow
how the new venture can
expand its range of products or
services, customer base, or
geographic scope.
How wont fall into some
common opportunity traps.
Business is like chess:
to be successful, you
must anticipate several
moves in advance.
Cash flow implications of pursuing an
opportunity
1. When does the business have to buy resources, such as
supplies, raw materials, and people?
2. When does the business have to pay for them?
3. How long does it take to acquire a customer?
4. How long before the customer sends the business a check?
5. How much capital equipment is required to support a dollar
of sales?
About Competition
1. Who are the new ventures current competitors?
2. What resources do they control?
3. What are their strengths and weaknesses?
4. How will they respond to the new ventures decision to
enter the business?
5. How can the new venture respond to its competitors
response?
6. Who else might be able to observe and exploit the same
opportunity?
7. Are there ways to co-opt potential or actual competitors
by forming alliances?
The Context
1. The macroeconomic
environment
Level of economic activity, inflation,
exchange rates, and interest rates.
2. The wide range of government
Every business plan should contain certain
rules and regulations
that affect the opportunity and how pieces of evidence related to context
resources are marshaled to exploit
it. 1. Should show a heightened awareness of the new ventures
context and how it helps or hinders their specific proposal.
3. Factors like technology
2. Demonstrate they know the ventures context will
that define the limits of what a
inevitably change and describe how those changes might
business or its competitors can
affect the business.
accomplish.
3. Should spell out what management can (and will) do in the
event the context grows unfavorable.
4. Should explain the ways (if any) in which management can
affect context in a positive way.
 Risk and Reward
Best business plans are like movies of the future
1. They show the people, the
opportunity, and the context
from multiple angles.
2. They offer a plausible, coherent
story of what lies ahead.
3. They unfold possibilities of action
and reaction.
4. Discuss people, opportunity, and
context as a moving target.
All three factors (and the
relationship among them) are likely
to change over time as a company
evolves from start-up to ongoing
enterprise.
5. Graphs:
amount of money needed to launch the
new venture, time to positive cash flow,
and the expected magnitude of the payoff.
the range of possible returns and the
likelihood of achieving them.
It means that the plan must unflinchingly
confront the risks ahead
1. What happens if one of the new ventures leaders leaves?
2. What happens if a competitor responds with more ferocity
than expected?
3. What happens if there is a revolution in Namibia, the
source of a key raw material? What will management
actually do?
4. How will the investor eventually get money out of the
business, assuming it is successful, even if only marginally
so?
IPOable, Can the company be taken public at some
point in the future?
wide range of exit options.

True entrepreneurs want to capture all the reward and

give all the risk to others.
 The Deal and Beyond
From whom you raise capital is often more important than the terms.
1. Unsophisticated investors panic, get angry,
and often refuse to advance the company
more money.
2. Sophisticated investors, by contrast, roll up
their sleeves and help the company solve sensible deals have the following six
its problems.
3. Often, theyve had lots of experience characteristics:
saving sinking ships.
4. They are typically process literate. 1. They are simple.
5. They understand how to craft a sensible 2. They are fair.
business strategy and a strong tactical 3. They emphasize trust rather than legal ties.
plan. 4. They do not blow apart if actual differs slightly from plan.
6. They know how to recruit, compensate, 5. They do not provide perverse incentives that will cause one
and motivate team members. or both parties to behave destructively.
7. They are also familiar with the Byzantine 6. They are written on a pile of papers no greater than one-
ins and outs of going public an event most quarter inch thick.
entrepreneurs face but once in a lifetime.
8. This kind of know-how is worth the money
needed to buy it.

New ventures are inherently risky, as Ive noted; what can go

wrong will
 The Deal and Beyond II
capital acquisition as a dynamic process
1. treat the new venture as a series of
experiments.
Before launching the whole show,
launch a little piece of it.
Convene a focus group to test the Beware the Albatross
product, build a prototype and
watch it perform, conduct a regional
or local rollout of a service. Such an
exercise reveals the true economics 1. a business plan must be a call for action
of the business and can help 2. fix what is broken proactively and in real time.
enormously in determining how 3. Risk management is the key, always tilting the venture in
much money the new venture favor of reward and away from risk.
actually requires and in what stages. 4. A plan must demonstrate mastery of the entire
Entrepreneurs should raise enough, entrepreneurial process, from identification of opportunity
and investors should invest enough, to harvest.
capital to fund each major
experiment. Experiments,

Among the many sins committed by business plan writers is

arrogance.
Business Model
that shows the entrepreneurial team has thought through the
key drivers to success or failure.
In manufacturing
yield on a production process
In magazine publishing
the anticipated renewal rate
In software
the impact of using various distribution channels.
break-even issue: At what level of sales does the business begin to make a profit? And
even more important, When does cash flow turn positive?
Tracking
How is the ENTREPRENEURS new venture doing relative to
projections?
What decisions has the team made in response to new
information?
Have changes in the context made additional funding
necessary?
How could the team have predicted those changes?