Swat Tank Talk: Writing a Business Plan January 15, 2013 Eliot Ingram 93

Agenda Goals Marketing mix Reverse income statement Feasibility study Business plan Conclusion

Eliot Ingram - Background Swarthmore College, Econ/PoliSci double major (1993) MCS, education start-up (1993 – 97) Wharton MBA, Entrepreneurial Mgmt major (1997 – 99) Vcall, VC-backed internet start-up (1999 – 00) Clear Admit, education consulting/publishing firm (2001 – present)

What Is Your Goal for Your Business? What is your exit strategy? How long do you want to run the business? How long do you want your business to run independently? Who is the natural acquirer of your business? Do you want to grow a: Small/niche/lifestyle business? Large, scalable business?

What Is Your Goal for Your B-Plan? Internal/personal goals Help you test assumptions Think through strategic alternatives External goals (funding considerations) Use plan to raise money from outside investors

Steps to Take Before Writing Your Plan Marketing mix exercise (3 Cs & 4 Ps) Reverse income statement exercise Feasibility plan

Marketing Mix: 3 Cs Customers Who are they? How many are there? (market size) What are their needs? Competitors What firms are trying to meet the needs of the customers? Company (you) How will you deliver a service that better meets customer needs?

Marketing Mix: 4 Ps Product How will you tweak your product or service to better meet the needs of customers? Price How will you set prices? How does your pricing compare to similar services? Promotion How will you get the word out that you have a great product at a great price? Placement (distribution) How will you deliver your product or service to the customer?

Reverse Income Statement What it is/why use it? A quick way to check financial assumptions Start with your profit goal and work backwards Profit goal Cost assumptions Revenue goal given profit goal & cost assumptions Different Combination of Revenue – Cost = Profit Different Combination of fixed and variable costs = Costs Different Combination of Price * Quantity = Revenue

Reverse Income Statement Example (Part 1) Assume profit goal is $100,000 per year What revenue – cost of good sold combination is realistic for your proposed business? $200,000 - $100,000 = $100,000 (50% gross profit margin) $300,000 - $200,000 = $100,000 (33% gross profit margin) $400,000 - $300,000 = $100,000 (25% gross profit margin) $1,000,000 - $900,000 = $100,00 (10% gross profit margin)

Reverse Income Statement Example (Part 2) What Price*Quantity options make sense in order for your business idea to generate $1 million in revenue? 100 customers paying $10,000 each? 1000 customers paying $1000 each? 10,000 customers paying $100 each? 50,000 customers paying $20 each? Market size What is the size of your target market? $50 million market? $100 million market? $500 million market? What % of market size is needed to achieve # customers? Ideally you serve a large market ($100 million+)

Reverse Income Statement Example (Part 3) Costs What are the estimated fixed costs? What are the estimated variable costs/unit? Breakeven Volume = Fixed Cost/(Price/Unit – VC/Unit) Assume $3000 fixed costs Assume $1/unit of variable costs Price point of $4/unit BEV = $3000/(4-1) = 1000 units sold to achieve BEV A key milestone is to become cash flow positive from operations (when incoming cash from operations exceeds outflowing cash from operations) Breakeven Volume is a key way to determine when you will achieve positive cash flow

Feasibility Study What it is? 1-2 page written plan 1-page description of market size/financials Why use it? A quick way to assess a new business idea Might do this for 4-5 ideas before determining which business idea to write up into a 30+ page business plan

Feasibility Study: Questions to Answer Succinctly describe your idea. Who and how big is the potential market for your product or service? What are the advantages/disadvantages over your competitors? How do you differentiate yourself? What research did you rely on? Itemize your start-up costs and your source funds. What can you do to improve the business sales volume? Discuss your risks and strategies for managing these risks. Discuss the feasibility for you to implement this idea. See AlumNet Feasibility Study Example

Summary of Pre-Business Plan Steps Marketing mix Help with marketing and strategy sections of business plan Reverse income statement Help with strategy and financials sections of business plan Feasibility study Provides overview for business plan

Business Plan Outline Summary/vision Market analysis Competitive analysis Strategy Products/services Marketing and sales Operations/key personnel Financials

Summary/Vision Summary of business idea Vision for your company

Market Analysis Market size/market growth rate Market customer segments/target customer profile Customer needs (Use marketing mix 3 Cs in this section)

Competitive Analysis Key competitors Who are they? Competitive landscape Fragmentation: Few large players vs lots of small players? Changes in industry Any consolidation happening? How well are they meeting the customer needs? (Use marketing mix 3 Cs in this section)

Strategy Complete a SWOT Analysis Strengths Weaknesses Opportunity Threats What is your strategy for serving the customers better than existing competitors? How is your product faster/better/cheaper? (Use marketing mix 3 Cs in this section)

Products/Services Describe your product/service How do you position it relative to competing products? Do you have a product roadmap for developing a suite of products? Are you creating a product or a company with products? (Use marketing mix 4 Ps in this section)

Marketing/Sales Price What prices will you charge? Will you offer any discounts based on volume, time of purchase, etc? Promotion How will you get the word out that you have a great product at the right price? Placement/distribution How will you deliver your service to your customers? (Use marketing mix 4 Ps for this section)

Operations/Key Personnel Key personnel/qualifications Include bios on founders/key advisors Organizational structure How will you organize your firm to market, produce and deliver services to customers?

Financials Assumptions Income statement (P&L) projection Revenue - Cost of Goods Sold = Gross Profit Gross Profit –Overhead = Pre Tax Operating Profit Operating Profit – Capex = Pre Tax Profit Pre Tax Profit – Taxes = Net Profit Cash flow statement Cash from operations (similar to P&L) Cash from investments (buying/selling equipment = Capex) Cash from financing (raising debt/equity) Balance Sheet = Assets – Liabilities = Shareholder Equity (Use reverse income statement for this section)

Partners Advisory board Beta customers Distributors Marketing channel partners Legal/Accounting

Financing Your Venture Bootstrapping/self fund Prepayments from customers Debt (secured vs. unsecured) Equity Friends/family Angel investors Venture capitalists Strategics

Conclusion Think carefully about your business goals Business plan is a snapshot in time Always out of date More about the process of creating the plan, not the plan itself

Reference Materials Marketing mix document Business plan outline Developing a discovery-driven plan See document See link: overy_Driven_Planning_-_Annotated.pdf overy_Driven_Planning_-_Annotated.pdf Feasibility study example (AlumNet)

Contact Info Feel free to contact me if you have questions Eliot Ingram Clear Admit, LLC