What You Should Do BEFORE Writing A Business Plan Dr Peter Kelly 22 April 2004

Suggested Readings ISBN ISBN

Establishing Your Priorities  Writing a business plan is not the immediate task  Critically evaluating merits of opportunity is THE most important thing you should do at outset  Gather “hard facts” to convince...  yourself of the merits of spending more time on it  others to join you in the task (team and employees)  investors to back you

Why Will or Won’t This Work?  Have I found an attractive target customer?  Is she found in an attractive market?  Am I playing in an attractive industry?  What really makes me better than competitors?  Why me? Or more appropriately, why us?  Can “we” deliver?  Who do “we” know?

Markets & Industries Are Different  Markets consist of current and potential Buyers who have common needs  Industries consist of Sellers whose offerings satisfy buyer needs in a variety of ways  It is highly unlikely that both your market and industry will be attractive

Knowing Your Customer is Key  Is there a group of customers that share common pains for whom your product offers compelling, tangible benefits (better, cheaper, faster...)  share a common problem (need)  are aggravated by the problem (pain)  no remedy on offer (relief) “The purpose of a business is to win a customer” Peter Drucker

Is My Market Attractive?  attractiveness and market size are closely related  larger markets often have many reasonably sized segments  growing markets also offer more room for competitors  emerging markets offer prospects for different approaches “For entrepreneurs seeking venture capital, look for target markets that provide entrees into other market segments”

Is My Industry Attractive?  Michael Porter five forces framework...  threat of entry  bargaining power of suppliers  bargaining power of customers  rivalry among existing competitors  threat of substitutes

The Airline Industry is Awful?  Michael Porter five forces framework...  threat of entry (high)  bargaining power of suppliers (unionized – high)  bargaining power of customers (price sensitive – high)  rivalry among existing competitors (cut-throat)  threat of substitutes (?) “This is an industry that has not returned its cost of capital over the past 25 years” “This is an industry that has not returned its cost of capital over the past 25 years” Gordon Bethune, Chairman, Continental Airlines

Dilbert’s Perspective

Yet Some Airlines Fly High... SouthWest Airlines operates a fleet of 388 Boeing 737 jets... SouthWest Airlines has always posted a profit unlike almost all competitors SouthWest Airlines routinely ranks first in customer satisfaction and on time arrivals How can SouthWest Airlines command a value of $12 billion versus American Airlines $2 billion with latter operating a much larger fleet of almost 1000 jets?

SouthWest Spurs European Revolution vs 74 Boeing 737’s350 jets in 14 varieties Market capitalization of £2.4 billionMarket cap of £3.2 billion Dublin, Stansted, Charlelois hubsLondon Heathrow No frequent flyer program, no loungesThe Executive Club Pay for everythingGratis Free for allAssigned seats £2.99 London to Rome£400+ same days

“ When a management team with a reputation for brilliance takes on a business with a reputation for bad economics, it is the reputation of the business that remains intact.” Warren Buffett

What Is My Sustainable Advantage?  What do I offer that is compellingly different to customers? (better, faster, cheaper)  Sustainability  proprietary elements (patents, trade secrets)  superior process, unique capabilities, or other resources  viable business model (revenue, customer acquisition and retention cost, margins)

What Am I Doing This For?  Why am I passionate about about this opportunity?  What ambition and personal aspirations do we have for the business as a team?  What level of risk are we prepared to take?

Can We Deliver or Execute?  You need to be able to articulate what the critical success factors for the business are AND  You will then need to credibly demonstrate that your team based on past deeds not promises can execute against these critical success factors

Who Do We Know? Who Knows Us?  How well connected is the team up, down and across the value chain?  do we know by name key people to approach as suppliers  do we know by name key people to approach as customers  do we know by name who is available to fill in gaps in the management team  do we have a breadth of contacts in our industry to act as listening posts Is it any wonder that successful, high growth ventures are started in the same domain as that in which the entrepreneur recently left either voluntarily or involuntarily

Some Final Thoughts...  Many here will run up against a brick wall... option to rethink approach or abandon altogether  Constantly ask why this will or will not work?  Ground your investigation on feedback from potential customers  Articulate your vision clearly  Anticipate skepticism