1. 6 - 1 New Ventures (T & S, Ch. 4) Fundamental realities Most new ventures are works in process and works of art Most business plans are obsolete at the printer Speed, adroitness of reflex, and adaptability are crucial The key to succeeding is failing quickly and recouping quickly

2. 6 - 2 New Ventures Fundamental realities Success is highly situational, depending on time, space, context, and stakeholders The best entrepreneurs specialize in making “new mistakes” only Starting a company is much harder than it looks, or you think it will be; but you can last a lot longer and do more than you think if you do not try to do it solo Last week we saw several examples of people of all ages, experience and education levels, gender, and ethnicity – we can’t predict who is a successful entrepreneur.

3. 6 - 3 Where are Opportunities Born? Drivers: Technology sea change Market sea change Societal sea change Caution: Brontosaurus Factor (arrogance, lack of adaptability) Irrational Exuberance

4. 6 - 4 Where are Opportunities Born? Ethnographic research Learning about people and what they do in their own environment. Entering someone else’s world without preconceived notions.

5. 6 - 5 Brainstorming Rules to enhance creative visualization Define your purpose Choose participants Choose a facilitator Brainstorm spontaneously, copiously No criticisms, no negatives

6. 6 - 6 Brainstorming Rules Record ideas in full view Invent to the “void” Resist becoming committed to one idea Identify the most promising ideas Refine and prioritize

7. 6 - 7 Exhibit 4.7 It takes time to realize revenues

8. 6 - 8 Evaluating Criteria for evaluating venture opportunity (pgs. 128- 129, T&S) Industry and market – focus, niche, growing, attainable Economics – ROI, Break-even, positive cash-flow Harvest issues – future strategic value to buyers Competitive advantage issues – SWOT, costs/control, barriers to entry Management team issues – knowledge, skills, experience Personal criteria – goals, fit, managing the downside Strategic differentiation – timing, opportunity

9. 6 - 9 The Business Plan (Ch. 6) Is not the business Will not define what your business looks like Is required to acquire capital and support Must present your idea firmly (while you remain flexible) Adjust your plan to fit the investor group Ultimately investors must believe in YOU

10. 6 - 10 The Business Plan:What Does It Reveal? A business plan for a high potential venture reveals the business’ ability to: Create or add significant value to a customer or end user Solve a significant problem, or meet a significant want or need for which someone will pay a premium Have robust market, margin, and moneymaking characteristics Fit well with the founder(s) and management team at the time, in the marketplace, and with the risk-reward balance

11. 6 - 11 Who Develops the Plan? Reasons not to hire an outside professional to prepare the business plan Consequences of different strategies and tactics can be considered Human and financial requirements for launching and building the venture can be examined

12. 6 - 12 Writing a Business Plan Steps outlining the process by which a business plan is written Segmenting information Creating an overall schedule Creating an action calendar Doing the work and writing the plan

13. 6 - 13 Business Plan I. EXECUTIVE SUMMARY Description of the business concept and the business opportunity and strategy Target market and projections Competitive advantages Costs Economics, profitability, and harvest potential The team The offering

14. 6 - 14 Business Plan II.THE INDUSTRY AND THE COMPANY AND ITS PRODUCT(S) OR SERVICE(S) The industry The company and the concept The product(s) or service(s) Entry and growth strategy III. MARKET RESEARCH AND ANALYSIS Customers Market size and trends Competition and competitive edge Estimated market share and sales Ongoing market evaluation

15. 6 - 15 Business Plan IV.THE ECONOMICS OF THE BUSINESS Gross and operating margins Profit potential and durability Fixed, variable, and semivariable costs Months to breakeven Months to reach positive cash flow V. MARKETING PLAN Overall marketing strategy Pricing Sales tactics Service and warranty policies Advertising and promotion Distribution

16. 6 - 16 Business Plan VI.DESIGN AND DEVELOPMENT PLAN Development status and tasks Difficulties and risks Product improvement and new products Costs Proprietary issues VII. MANUFACTURING AND OPERATIONS PLAN Operating cycle Geographical location Facilities and improvements Strategy and plans Regulatory and legal issues

17. 6 - 17 Business Plan VIII.MANAGEMENT TEAM Organization Key management personnel Management compensation and ownership Other investors Employment and other agreements and stock option and bonus plans Board of directors Other shareholders, rights, and restrictions Supporting professional advisors and services IX. OVERALL SCHEDULE X.CRITICAL RISKS, PROBLEMS, AND ASSUMPTIONS

18. 6 - 18 Business Plan XI. THE FINANCIAL PLAN Actual income statements and balance sheets Pro forma income statements / forma balance sheets Pro forma cash flow analysis Breakeven chart and calculations Cost control Highlights

19. 6 - 19 Business Plan XII.PROPOSED COMPANY OFFERING Desired financing Offering Capitalization Use of funds Investor’s return XIII. APPENDICES For the purpose of this class, your business plan must be under 30 pages (not counting appendices)

20. 6 - 20 Business Plan – Final Notes Many firms begin with little capital (e.g., 46% new start-ups began with $10,000 or less as seed capital, T&S). Venture capitalists are often wrong about passing up ideas (e.g., Intuit founder Scott Cook was first rejected, T&S) Many well-known business did not rely on early investment capital (e.g. Cellular One, T&S) Capital investors reject 60% to 70% of new ventures presented, T&S)

21. 6 - 21 Business Plan Kawasaki gives some sound action advice: Business plan required (but not necessarily a navigation tool for entrepreneurs) Pitch, then plan – write your pitch first, then develop your business plan

22. 6 - 22 Business Plan Kawasaki says keep it at 20 pages or less One author only (many contributors) Simple binding and presentation Simplify financial projections Key metrics: #customers, locations, etc. Define assumptions

23. 6 - 23 Business Plan Kawasaki says keep it at 20 pages or less Typically include 5 year projections More specific in early year(s) by quarter, then annual Cover timeframe it takes to earn significant revenues

24. 6 - 24 Business Plan Kawasaki Write your plan “deliberately” (factual terms as if it will happen precisely as you describe it) Act “emergently” in a manner that allows you to quickly adapt to the market, opportunities, etc.

25. 6 - 25 Business Plan Kawasaki Make your business plan stand out by… 1. Having credible referral source 2. List of potential or current customers 3. Real-world knowledge/experience 4. Diagram and graphics that simplify complicated concepts

26. 6 - 26 Business Plan HBR provides support for the following points related to business plans: Projections are uncertain but investors want to know when a positive cashflow will occur Four critical factors are people, opportunity, context, risk and reward

27. 6 - 27 Business Plan Give specific information about you and your associates – show that you and your team has the knowledge and skills to make the business successful Show good evidence that there is a market by finding prospective clients or market testing your product or service

28. 6 - 28 Business Plan Prove to investors that you are not naïve about the environment (context) within which you will be doing business (i.e., laws, competitors, etc.) Show investors that you are aware of risks but also understand when and how the payoff or reward will be attained by discussing assumptions and contingencies

29. 6 - 29 Business Plan HBR “Milestones” article suggests some key measures for success: Defining milestones (significant events) is a good addition to a business plan Each of these milestones represents an important learning opportunity Each milestone could propel or destroy the business

30. 6 - 30 Business Plan Key milestones: 1. concept or product testing 2. prototyping 3. financing 4. pilot testing 5. market testing

31. 6 - 31 Business Plan Key milestones: 6. production start-up 7. Bellwether sale (the first major contract or sale) 8. Responding to competitors 9. Redesign or redirection 10. Price change

32. 6 - 32 For Next Time Begin outlining your business plan and resume Within each section, define as much as possible and leave sections blank for now, as needed Review the resources and outlines in T&S Cover readings for our next class