LAUNCHING NEW VENTURES – AN ENTREPRENEURIAL APPROACH, 7E Kathleen R. Allen – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Preparing a Business Plan Chapter 10 – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Chapter Objectives Describe how to prepare to construct a business plan Identify stakeholder interests Explain how to demonstrate proof of concept List the components of a compelling executive summary – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Chapter Objectives Discuss the elements of an effective business plan Describe how to successfully pitch a new business – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Preparing a Business Plan Emphasis has been on creating the business plan before starting the business, but investors want a founding team that has the business up & running, to prove the concept There is no way to answer all questions about the business without actually starting it But a feasibility analysis and validation experiments will help prove the concept – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.1 Preparing to Write the Business Plan Action Plan: ◦ Identify who is responsible for what ◦ Develop a timeline based on tasks identified ◦ Hold the team to the timeline and work diligently to get the plan done – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.1a Stakeholder Interests Investor Interests ◦ Concerned about rate of growth ◦ Return on investment ◦ Degree of risk ◦ protection Lenders’ Interests ◦ The amount of money the entrepreneur needs ◦ The kind of positive impact the loan will have on the business – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.1a Stakeholder Interests Lenders’ Interests (cont.) ◦ How the business will repay the loan ◦ How the lender will be protected if the business doesn’t meet its projections ◦ The entrepreneur’s stake in the business Strategic Partners’ Interests ◦ The larger firm with which the entrepreneur partners may seek new products that complement its line of products – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.1b Proof of Concept Demonstration Ensure that you have a way to demonstrate that you have proved your business concept Figure 10.1 shows various types of proofs of concept (POCs) and the strength of each The environment for entrepreneurs characterized by more uncertainty, fewer resources, and a need for innovation ◦ Startups must move and adapt quickly, moving from smaller strategies to larger ones – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure The Proof of Concept Pyramid – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.1b Proof of Concept Demonstration Figure 10.2 shows Micro Strategies for Achieving Proof of Concept The Role of Intuitive Decision Making ◦ Entrepreneurs inspire confidence in others even when there is no basis for that confidence ◦ They should consider taking a premortem – assume the new venture has failed, and identify the reasons why – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure Entrepreneur’s Micro Strategy for Proof of Strategy – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.1b Proof of Concept Demonstration Achieving Proof of Concept with a Prototype ◦ Yields a clear understanding of customer needs when you put the prototype in their hands and watch how they use it ◦ Changes in the prototype can only be made early in the process when less costly ◦ Doing a prototype reduces the risk of failure – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.1b Proof of Concept Demonstration Achieving Proof of Concept with a Website ◦ Avoid an “under construction” page ◦ Consider an online demonstration which provides information about what the business does, who its customers are, and its value proposition ◦ Provide information about the founding team, firm’s mission and goals, and contact information ◦ But don’t upload proprietary information not protected ◦ Review the websites of your competitors – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.1b Proof of Concept Demonstration Achieving Proof of Concept with Purchase Orders & Customer Sales ◦ Most investors seek ventures that have the most powerful POC: a customer ◦ For some types of products, securing a purchase order or actual sale is quite possible ◦ Proof of concept can take many forms ◦ Don’t settle on one firm, but move through the entire spectrum with each POC building to the next until you are sure the business can survive – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.2 Starting with a Compelling Story Convey the story quickly & memorably Highlight the critical elements of the business that provide a competitive advantage Highlight the proofs of concept achieved Present a coherent path to profitability and success that makes sense Demonstrate the team can successfully execute the plan – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.2a How Will You Grab my Attention? Lead with the most persuasive reason for the existence of the business ◦ Grab the listener’s attention in the first 15 seconds ◦ Fill in these blanks – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.2b What Pain is Being Addressed and Who Has It? Emphasize you are going to solve very big, very important problems What is your market? ◦ Entrepreneurs always start with TAM (total available market) because its easiest to calculate ◦ Initial markets (first customers or SOMs) are those for which the pain is greatest ◦ The SOM requires a bottom-up forecast that includes how you will use your startup’s resources to achieve your sales goals – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure Types of Market Evaluation – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.2c How is Your Venture Solving the Problem? Demonstrate a clear link between the problem or pain and the solution you are offering What are you providing and how does it specifically solve the problem What kind of business is this? Where does it fit in the value chain? If you have customers or a POC, emphasize these facts Be specific about who your first customer is – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.2d What is Your Venture’s Competitive Advantage? Need a bundle of competitive advantages encompassing every aspects of the business The executive summary should address which advantages will enable the venture to create a unique unserved niche and secure customers with little or no competition at the start Be very specific about comparing your offering with that of a significant competitor ◦ Why should customers choose your company? – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.2e Can Your Venture Make Money? Most executive summaries do not adequately address the business model How will the business create and capture value that will enable it to make money over the long term? After the startup stage, additional value is created by other factors; identify those Also, present a summary financial plan with 3- 5 years of projected revenues, expenses, etc. – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.2f Can the Founding Team Execute the Plan? Why is this founding team the best to execute the plan? ◦ Skills and experience? Highlight significant accomplishments in the industry of team members Have team members invested their own money in this concept? Does the team have the passion & drive necessary to succeed? – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.2g Why Is Now the Right Time to Launch This Venture? What makes this concept valuable right now? If this business is the only one of its kind, why? Has anyone tried this before and failed? ◦ If so, why? What makes the current environment right for this venture? Timing is critical, so explain why now is the right time, and how long the window of opportunity will remain open – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.2h What is the Team Seeking from Investors? A finely honed executive summary is needed whether or not you are seeking investor capital If your new venture is self-funded, this section of the business plan will discuss funding going forward What will be the various sources of capital? ◦ What is the minimum capital required? If you expect several rounds of investment, list the associated milestones and amounts – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.2i Guidelines for Executive Summaries Keep it to no more than 3-5 pages Read each sentence multiple times; prune language, make clear & compelling; Include recognizable names if there is an established relationship with the person or firm; omit others who may join later Avoid puff words and phrases, jargon and acronyms that might be foreign to the reader Explain the business in words that anyone can understand – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.2i Guidelines for Executive Summaries (cont.) Explain the business in words that anyone can understand Use analogies if they help the reader understand your business, but don’t sound like you’re cloning an existing business Keep the pitch deck to about 10 slides that contain only key points in large fonts; graphics and high quality photos are more effective than text – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Table Business Jargon to Avoid – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.3 Preparing the Full Business Plan: Strategy and Structure You can find many templates for business plans online, and software products that claim to automate the process But the most effective plans focus on telling a story about the business in a clear and compelling manner, providing evidence to support claims made, and giving the reader a rich picture of the strategy the company is taking – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.3a Components of the Business Plan The Business Industry/Market Analysis Product/Service Development Plan Founding or Management Team Organizational Plan Operations Plan Marketing Plan Financial Plan Growth Plan – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.3a Components of the Business Plan Contingency Plan and Harvest Strategy Timeline to Launch Appendices Endnotes – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Table Direct to the Customer… – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure Technology Readiness Levels – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure Timeline to Launch – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure Timeline for a Business That Has Launched – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.3b Mistakes in Developing the Business Plan Boring Your Readers to Death Trying to Do Too Much Too Soon Drowning Your Plan in Jargon Rapid Growth That Requires Capabilities Beyond Those of the Founding Team One Ringleader in a Three-Ring Circus Performance That Exceeds Industry Averages Price as a Market Strategy Not Investing Capital in Your Own Business – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.4 Successfully Pitching the Business Stand without using a podium Move around, but do not pace Maintain eye contact with everyone; talk to the audience Visual aids, such as colorful Power Point slides with high-resolution and minimal text, help keep the pitch on track and on key points Slides should be kept simple (3 lines/slide) – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.4 Successfully Pitching the Business A live demonstration of a service or product, but ensure that the demo is flawless Typically, the CEO and chief technical person will do the pitch, but other team members may be drawn in during the question and answer period ◦ The team should practice in advance for a small group of friends or colleagues who can critique it ◦ Or videotape a practice pitch – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.4a Answering Questions Investors like to ask questions to which they already know the answers ◦ Tests whether the founding team knows, or is making up answers spontaneously The most difficult questions are complex and contain several underlying assumptions ◦ Restate question or ask that it be repeated If the pitch or anything proposed is criticized by the investors, don’t be defensive or turn the criticisms on the audience – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10.5 Final Thoughts on Business Plans Preparing and pitching a business plan represents months of work, and the heart and soul of a new venture If your research is done and you have proven the business model in the market, chances of success are enhanced. Even successful entrepreneurs who have started a business without a written plan will need to do one for growth capital, or credit line from the bank – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

New Venture Action Plan Develop a micro strategy approach to achieving proof of concept Identify the stakeholders in the business and their interests Create a compelling executive summary and pitch Plan and execute the development of a full business plan – © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.