1. Part 3 Developing the New Venture Business Plan

2. Looking Ahead After studying this chapter, you should be able to:
Explain what a business plan is, when it is needed, and what form it might take.
Explain how to tell a new venture’s story to outsiders, especially investors.
List practical suggestions to follow in writing a business plan and outline the key sections of a business plan.
Identify available sources of assistance in preparing a business plan.
Maintain the proper perspective when writing a business plan.
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3. What Is a Business Plan? Business Plan
A document that sets out the basic idea underlying a business and related startup considerations
Identifies the nature and context of the business opportunity
Presents the entrepreneur’s approach to exploiting the opportunity
Identifies factors affecting the venture’s success
Serves as the entrepreneur’s tool for raising capital
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4. The Need for a Business Plan
Primary Functions
To provide a clearly articulated statement of goals and strategies for internal use
Imposes discipline on the entrepreneur and management team
To serve as a selling document to be shared with outsiders
Provides a credible overview for prospective customers, suppliers, and investors
Helps secure favorable credit terms from suppliers
Opens approaches to lenders and other sources of financing
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5. Users of Business Plans
Exhibit 6.1
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6. Types of Business Plans
Summary Plan
A short form of a business plan that presents only the most important issues and projections for the business
Comprehensive Plan
A full business plan that provides an in-depth analysis of the critical factors that will determine a firm’s success or failure, along with all the underlying assumptions
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7. How Much Business Planning is Needed?
Factors affecting the extent of a business plan:
Cost in time and money to prepare the plan
Management style and ability
Preferences of the management team
Complexity of the business
Competitive environment
Level of uncertainty
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8. Telling the Story to Others
Attracting Investors
A business plan must be an effective marketing document that quickly captures investor interest.
Understanding the Investor’s Perspective
Entrepreneurs are optimists; investors are skeptics.
Investors focus on break-even and positive cash flow.
Investors have a short attention span.
Bad information and poor preparation cause investors to lose interest quickly.
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9. Features of Plans that Attract Investors
Plans that speak the investors’ language:
Are brief, not extremely long in written length.
Have an attractive overall appearance.
Are well-organized with a table of contents and numbered pages.
Are market-oriented in meeting customer needs; are not product-oriented.
Show evidence of customer acceptance of the proposed product or service.
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10. Business Plans that Attract Investors (cont’d.)
Recognize the investors’ needs for required rates of return on investments.
Demonstrate evidence of focus on a limited number of products or services
Have a proprietary market position through patents, copyrights, and/or trademarks
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11. Features of Plans Unattractive to Investors
Plans that create unfavorable reactions:
Show an infatuation with the product or service and downplay market needs or acceptance.
Are based on financial projections at odds with accepted industry norms.
Have unrealistic growth projections.
Contain a need for custom or applications engineering, which makes substantial growth difficult.
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12. Features of a Successful Business Plan
It must be arranged appropriately, with an executive summary, a table of contents, and chapters in the right order.
It must be the right length and have the right appearance—not too long and not too short, not too fancy and not too plain.
It must give a sense of what the founders and the company expect to accomplish three to seven years into the future.
It must explain in quantitative and qualitative terms the benefit to the user of the company’s products or services.
It must present hard evidence of the marketability of the products or services.
It must justify financially the means chosen to sell the products or services.
It must explain and justify the level of product development which has been achieved and describe in appropriate detail the manufacturing process and associated costs.
Exhibit 6.2
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13. Features of a Successful Business Plan (cont’d.)
It must portray the partners as a team of experienced managers with complementary business skills.
It must suggest as high an overall “rating” as possible of the venture’s product development and team sophistication.
It must contain believable financial projections, with the key data explained and documented.
It must show how investors can cash out in three to seven years, with appropriate capital appreciation.
It must be presented to the most potentially receptive financiers possible to avoid wasting precious time as company funds dwindle.
It must be easily and concisely explainable in a well-orchestrated oral presentation.
Exhibit 6.2 (cont’d)
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14. Preparing a Business Plan
Two issues critical in preparing a business plan:
The basic format and effectiveness of the written presentation
Clear writing that effectively communicates
The content of the plan
Factual support for the concept in the form of strong supporting evidence
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15. Suggestions for Writing a Business Plan
Provide a table of contents and section tabs.
Use a loose-leaf binder in case of revisions.
Use visual aids—graphs, exhibits, and tabular summaries.
Indicate that all information is confidential.
Number copies of the plan and require written receipts.
Be careful about divulging competitive information or proprietary designs/technology.
Ask other entrepreneurs to review the plan.
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16. Deciding on the Content of a Business Plan
Factors that help determine the content of a business plan for a startup:
The entrepreneurial team
The opportunity
The resources
The deal structure
The big picture
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17. Good Opportunities Have Good “Fit”
Exhibit 6.4
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18. Contents of a Business Plan
Title Page
Table of Contents
Executive Summary
Synopsis
Narrative
Vision and Mission Statement
Company Overview
Products and/or Services Plan
Marketing Plan
Operating Plan
Financial Plan
Appendix of Supporting Documents
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19. Specialized Plans within the Business Plan
Products and/or Services Plan
Describes the product and/or service to be provided and explains its merits
Marketing Plan
Describes the user benefits of the product or service and the type of market that exists
Management Plan
Describes the new firm’s organizational structure and the backgrounds of its key players
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20. Specialized Plans… (cont’d.)
Operating Plan
Offers information on how the product will be produced or a service provided, including descriptions of the new firm’s facilities, labor, raw materials, and processing requirements
Financial Plan
Provides an account of the new firm’s financial needs and sources of financing and a projection of its revenues, costs, and profits
Pro forma statements—Reports that project a firm’s financial condition
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21. What Not to Do Mistakes to avoid in preparing a business plan:
Failing to provide solid data
Failing to describe the product in lay terms
Failing to thoroughly analyze the market
Including financial statements that are overly detailed or incomplete
Hiding weaknesses
Overlooking the fatal flaw
Using bad grammar
Making the overall plan too long
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22. Resources for Business Plan Preparation
Computer-Aided Business Planning
Word processors
Spreadsheets
Specialized business plan software packages
Professional Assistance
Attorneys
Marketing specialists
Engineering and production experts
Accounting firms
Incubator organizations
Small business development agencies
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23. Keeping the Right Perspective
Good business plans don’t ensure success.
Effective implementation is what succeeds.
Writing a business plan is primarily an ongoing process and only secondarily the means to an outcome.
The process is just as important as—if not more so than—the finished product.
The business plan represents what is anticipated; a good entrepreneur adapts the plan to fit the unexpected.
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24. Key Terms business plan summary plan comprehensive plan prospectus
executive summary
mission statement
products and/or services plan
marketing plan
management plan
operating plan
financial plan
pro forma statements
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