Business Plan Preparation Frank Moyes Leeds School of Business University of Colorado Boulder, Colorado FLM background How many in a business? How many starting a business in next 6 months? What kind of businesses? Retail, manufacturing, high-tech, service, non-profit Ask questions Market & Industry Analysis

Business Plan Elements Executive Summary Company Overview Market & Industry Analysis Product/Service Description Marketing Plan Operations Plan Development Plan Management Competitive Advantage Financial Plan Funding Market & Industry Analysis

Market & Industry Analysis Market: “group of current and potential customers having the willingness and ability to buy product/services to satisfy a need.” Industry: “group of sellers that offer product/services that are similar and close substitutes for one another.” JW Mullins, New Business Road Test Market & Industry Analysis

Market Analysis Sections Market size & growth Trends Entry Point Market & Industry Analysis

Market & Industry Analysis Market Analysis What is the size & growth potential? Historic and future growth Must indicate sources Segment your market Lot’s of numbers – show in tables Market & Industry Analysis

Market & Industry Analysis Market Segmentation Groups of customers – (demographics & psychographics) baby boomers, grandparents Products – features, benefits, prices Benefits – enhance image, trend setter, weather protection, save money Geography – see Hecho en Casa business plan Distribution channels Sector – industrial (see MRT business plan), consumer, government Market & Industry Analysis

Market & Industry Analysis

Market & Industry Analysis Trends What changes are taking place – economic, socio-cultural, political/legal, global, environmental, demographic, technological Positive and negative trends Must provide your sources Market & Industry Analysis

Identify Potential Entry Point Describe best segment. Why? Future segments Market & Industry Analysis

Market & Industry Analysis Industry Structure Competitive Environment Competitors Market & Industry Analysis

Market & Industry Analysis Industry Structure Supply Chain Distrib Suppliers Consumer Manfg Sources Retailers Goods Information Funds Market & Industry Analysis A T Kearney, Integrating the Supply Chain

Competitive Environment How do companies compete – quality, price, new products, customer service Degree of rivalry Response to new entries Market & Industry Analysis

Market & Industry Analysis Barriers to Entry? Economies of scale: manufacturing, marketing, technological Customer loyalty: well established brands, long established relationships Agreements with customers, suppliers, strategic partners Switching costs Capital requirements: high investment Market & Industry Analysis

Barriers to Entry (continued) Access to distribution channels: exclusive distribution agreements, dominant position of competitors Intellectual property: patents, trade secrets, copyrights, trademarks, know-how Government regulations: defense contracts, import restrictions Industry hostility to new entrants. Will use all means to drive out new competition: pricing, legal, spreading rumors Market & Industry Analysis

Market & Industry Analysis Control Setting prices – bargaining strength of customers Lowering costs – technology, process design, resources, bargaining strength of competitors Channels of distribution – access, creating new channel Tuperware at WalMart Has office and showroom in Arkansas Market & Industry Analysis

Market & Industry Analysis Competition Describe key competitors Direct, indirect, future Prepare a competitive matrix Product/Services Marketing Management Financial Image – website, brochures, literature, advertisements Inertia Market & Industry Analysis

Market & Industry Analysis Market size & growth Trends Entry Point Industry Industry Structure Competitive Environment Competition Opportunity Market & Industry Analysis

Market & Industry Analysis Opportunity Last section Make case attractive opportunity - validate Draw conclusions based on your research, interviews and customer surveys Describe size and growth. What trends support the opportunity? Describe compelling need. What problem are you solving? Explain the evidence that proves there is a market Describe the target segment Describe what is unique about your product or service. What are the benefits? Describe your competitive advantage Market & Industry Analysis

Market & Industry Analysis Opportunity/Need What is the pain? What problem is being solved? Dissatisfaction with current products/services Poor quality or service Must be compelling Must be easily understood by TM Needs: Manage information: Google Noodles Crocs Physical: food, warmth, shelter, sleep, etc. Physiological: health, cleanliness, comfort, fitness, safety, etc. Emotional: euphoria, love, prestige, stress, etc Social: ethical, honesty, power, competitiveness, integrity, friendship, etc. Intellectual: achievement, better decisions, artistry, etc. Economic: revenues, productivity, cost savings, maintenance, etc. Financial: ROI, DCF, payback, burn rate, etc. Market & Industry Analysis

Market & Industry Analysis Financial COMP’s Company in your marketplace. NAIC code Publicly traded Industry ratios – see Selected Resources Guide Library Key financial measures to compare when developing strategy and projections Reality test Early stage vs. late stage Point of departure Market & Industry Analysis

Market & Industry Analysis Financial COMP’s Market & Industry Analysis

Market & Industry Analysis Model Company Identify company in your marketplace Different segment, products, target market Has done just what you want to do Provides credibility Market & Industry Analysis

Business Plans on Website Metal Removal Technology Hecho en Casa Market & Industry Analysis

A Model of Competitive Advantage Resources Cost Advantage or Differentiation Distinctive Competencies Value Creation Capabilities Market & Industry Analysis

Identify Your Resources Financial: access to capital (equity & debt), cash reserves, government grants, etc. Physical assets: plant & equipment, raw materials, location, working capital, etc. Human: social, employee knowledge, experience, accumulated wisdom, labor cost and skills, etc. Intangible: patents, trade secrets, know-how, copyrights, databases, etc. Organizational: culture, contacts, policies, Boards of Directors & Advisors, suppliers, service providers, etc. Market & Industry Analysis

Identify Your Capabilities World class management (serial entrepreneur) Network - well developed, high-quality, accessible contacts that take years to build Marketing - differentiation, branding, positioning Product/service - design features & benefits Sales & distribution - rep organization Total operational approach - Dell, Wal-Mart Supply chain management - Asia contacts Relationships - regulators, politicians, investors Market & Industry Analysis

What Barriers Can You Establish? Intellectual property: patents, trade secrets, copyrights, trademarks, etc Switching costs to your target market Customer loyalty Agreements with customers, suppliers, strategic partners Control of the distribution channel Market & Industry Analysis

Competitive Advantage Challenges Competitive Advantage Challenges Intellectual property Agreements with customers or suppliers Long term contracts Control of costs Control of prices Control of channel Location Differentiation First to market World class management Expertise Development lead time Brand Quality Service Execution Relationships First mover – Allen p 6 Not often successful in technology products. More often it is the second or third Apple’s Newton lost to Palm Pilots pda Microsoft Explorer late Scalable Difficult for a new venture to scale; lack infrastructure and systems and can’t afford to create. Management experience Advantages Makes it more difficult for followers to raise vc Market & Industry Analysis

Sustainable Competitive Advantage Sustainable Competitive Advantage Understand the market Understand the competition Differentiation Innovation Resources & capabilities Really understand the market & competition Resources (assets of the company) Financial - access to capital (equity & debt), cash reserves, government grants, etc. Physical assets - plant & equipment, raw materials, location, working capital, etc. Human - social, employee knowledge, experience, accumulated wisdom, labor cost and skills, etc. Intangible - patents, trade secrets, know-how, copyrights, databases, etc. Organizational - culture, contacts, policies, Boards of Directors & Advisors, suppliers, service providers, etc. Capabilities (organizing and managing resources) Marketing - differentiation, branding, positioning Product/service - design features & benefits Sales & distribution - rep organization Operational approach - Dell, Wal-Mart Supply chain management - Asia contacts Relationships - regulators, politicians, investors Why is this so hard? Market & Industry Analysis

Competitive Advantages Difficult to Achieve & Sustain Competitive Advantages Difficult to Achieve & Sustain Most are easily copied Entrepreneur ignorant of or ignores competition Entrepreneur is not realistic about own resources & capabilities Entrepreneur ignores future Entrepreneur must be intellectually honest Market & Industry Analysis

Sustaining Competitive Advantage Is a Dynamic Process Market, competition, resources, and capabilities are continually changing. Customers Opportunity Market & Industry Analysis