Lecture 2: Business Plan Leitung: Prof. Dr. Miroslaw Malek Betreuer: Peter K. Ibach HUMBOLDT-UNIVERSITÄT ZU BERLIN INSTITUT FÜR INFORMATIK Entrepreneurship Unternehmensgründung im Informationszeitalter

TE - II - BP - Opportunity Types of startup firms: –1) mom-and-pop business (marginal firm, life-style firm) –2) high potential firm –3) foundation firm Types 2) and 3) have at least $500,000 in sales and grow at a rate of minimum 10% per year (p.y.). 2) and 3) have much bigger success potential than mom-and-pop businesses. 7 % of 7 million US companies grew over 20% p.y. Over 1 % of 7 million (80,000) grew over 50% p.y. Venture capital founded firms have a 60 % plus success rate

TE - II - BP - From Ideas to Successful Business Success Business Models Opportunities Ideas

TE - II - BP - The Window of Opportunity

TE - II - BP - The Difference between Ideas and Opportunities (2) % of ideas are considered opportunities by VC's. A good opportunity must be –attractive –durable –timely Pearls (winners) take seven to eight years. Lemons (loosers) ripen in about 2 1/2 years

TE - II - BP - Sales Volume of U.S. Companies 20% of businesses have sales over $ 1M 10 % of businesses have sales over $ 2M 1.25 % of businesses have sales over $ 10M 0.67 % of businesses have sales over $ 25 M (U. S. government data for 1980) In 1990 these figures have doubled

TE - II - BP - One Year Survival Rates by Firm Size

TE - II - BP - Four-year Survival Rates by Firm Size

TE - II - BP - Factors (Vc's Perspective) for Successful Company the best entrepreneur and the quality of the team (people) Market potential and marketing Idea The management team must have quality, depth and maturity.

TE - II - BP - Market Structure Market structure is characterized by: –The number of sellers –The size distribution of sellers –The differentiation of products –The conditions of entry and exit –The number of buyers –The cost conditions –The sensitivity of demand to changes in price

TE - II - BP - Entry Strategies for entering Business Developing a new product or service (innovation) Developing a similar product or service (imitation) Buying a franchise Exploiting an existing product or service Sponsoring a startup enterprise Acquiring a going company

TE - II - BP - Ways to generate Ideas: What if...? What if it were longer? or smaller? inside out, different Material, Color, Thinner, Lighter, Shorter, etc. Turn Problems into Profits (eco Industry, new Civilization Headaches) Visualize (Mental Pictures) Identify Needs Forced Connections (e. g., Clock Radio and Wrist Watch)

TE - II - BP - Ways to generate Ideas: What if...? Keep a Record of your Ideas ("Creativity File") Cultivate your Ideas Be receptive to Ideas Stop being Practical Try something new Be progressive, not regressive Brainstorming Improve existing Ideas

TE - II - BP - Ways to generate Ideas: What if...? Brainwriting Serendipity Technique (“by Chance") Creative Unhappiness Mind Mapping Speak up and listen Game Strategy Method (Chess, Jigsaw, etc.) Join Business or Entrepreneurs Organizations

TE - II - BP - Mind Mapping

TE - II - BP - A good definition: A business plan is a document that convincingly demonstrates the ability of your business to sell enough of its product or service to make a satisfactory profit and be attractive to potential backers. A better definition: A business plan is a selling document that conveys the excitement and promise of your business to any potential backers or stakeholders. Writing and Defining a Business Plan

TE - II - BP - Eight Reasons for Writing a Business Plan To sell yourself on the business - "sanity check". To obtain bank financing. To obtain investment funds. To arrange strategic alliances. To obtain large contracts. To attract key employees. To complete mergers and acquisitions. To motivate and focus your management team.

TE - II - BP - Types of Plans The Summary Business Plan - up to ten pages The Executive Summary - up to two pages The full Business Plan pages The Operational Business Plan pages Getting Started to Write Brainstorming Step 1 Posing the Right Questions or Subjects Step 2 Providing Bite-Size Answers

TE - II - BP - What should the Business Plan cover Cover Page Table of Contents Executive Summary The Company The Market The Product/service Sales and Promotion Finances (Cash Flow, Income/Loss, Balance Sheet) Appendices (e. g., Executives Profiles)

TE - II - BP - Alternative Contents Cover Page Summary Table of Contens Introduction Description of Venture Marketing Strategy Financial Strategy Financial Scenarios Operating Strategy Appendices

TE - II - BP - Business Plan Targeting Summary

TE - II - BP - Criteria for evaluating Venture Opportunities (1)

TE - II - BP - Criteria for evaluating Venture Opportunities (2)

TE - II - BP - Criteria for evaluating Venture Opportunities (3)

TE - II - BP - Criteria for evaluating Venture Opportunities (4)

TE - II - BP - Criteria for evaluating Venture Opportunities (5)

TE - II - BP - Criteria for evaluating Venture Opportunities (6)

TE - II - BP - Business Plan a more detailed Table of Contents (1) Cover Page Executive Summary Introduction-Industry, the company and its products –The industry –The company –The products or services Market research and analysis –Customers –Market Size and Trends –Competition –Estimated Market share and sales –Ongoing Market evaluation

TE - II - BP - Business Plan a more detailed Table of Contents (2) Marketing plan –Overall marketing strategy –Pricing –Sales tactics –Service and warranty policies –Advertising and promotion Design and development plans –Development status and tasks –Difficulties and Risks –Product improvement and new products –Costs

TE - II - BP - Business Plan a more detailed Table of Contents (3) Manufacturing and operations plan –Geographic Location –Facilities and improvements –Strategy and plans –Labor Force Management team –Organization –Key management Personnel –Management compensation and ownership –Board of directors –Management assistance and training needs –Supporting professoinal services

TE - II - BP - Overall schedule Critical risks and problems Community benefits –Economic benefits –Human development –Community development The financial plan –Profit and loss forecast –Pro forma cash flows analysis –Pro forma balance sheets –Breakeven chart –Cost control Business Plan a more detailed Table of Contents (4)

TE - II - BP - Business Plan a more detailed Table of Contents (5) Pro Forma Income Statements Pro Forma Cash Flows Statements Pro Forma Balance Sheets Breakeven Chart PROPOSED COMPANY OFFERING24 –Desired financing –Securities offering –Capitalization –Use of funds

TE - II - BP - Exhibit 1 Pro Forma Income Statements

TE - II - BP -

German version of a sales plan

TE - II - BP - German Version of a five year overview