BUSINESS PLAN - Dr. V. Thanikachalam
What is a business plan? ďƒ˜A
plan to communicate your business goals, business description, market strategies, competitive analysis, design and development plan, operations and management plans, and financial components.
Business Goals 1. 2. 3.
4.
5.
What do you want to do? How much do you plan to do? What is the type of product that you want to produce? What is the type of service that you wanted to provide? What is volume of your products?
Feasibility • • • • • • •
Silver’s first law of entrepreneurship V = Venture Feasibility V=PxSxE V = Valuation or Wealth P = Problem that business intends to solve for its customers S = Elegance of the solution that it will offer E = The skill of the entrepreneurial team.
Maximum Valuation •
• • •
V = PxSxE = 1x1x1 = 1 Suppose P=1, S=1, E=0 What is the maximum valuation? Suppose P=1, S=0, E=1 What is the maximum valuation? Suppose P=0, S=1, E-1 What is the maximum valuation?
Size of the Problem ďƒ˜ Size
=RxN R = Price they can pay for a solution N = Number of people with the problem If, N = 50,000, R = 40 Size = 50,000 x 40 = 20,00,000 If N = 2,50,000, R = 40 Size = 1,00,00,000
The elegance of the solution Non-duplicable,
first to market, difficult to replicate First to market, difficult to replicate First to market.
Skill of the Team ďƒ˜ Entrepreneurial
team has managed a launch; knows how to operate a company. ďƒ˜ Entrepreneurial team has atleast one person who has launched and operated a company before. ďƒ˜ Entrepreneurial team has no prior launch experience.
Demonstratable Economic Justification (DEJ) Factors ďƒ˜ 1.
2.
Select all that are true: There are many potential consumers of your solution and are they aware of the problem that your solution addresses. The consumers of your solution will accept a standard product or service, and you will not have to customize it.
3.
You don’t have to tell your customers that they have a problem; they are aware of it and are willing to pay for a solution.
4.
The solution delivery system does not require an expensive sales person and long cycle from presentation to sale; a competent sales person could make the sales quickly.
5.
No restrictions must be removed before your product or service can be introduced to the market.
6.
The product or service will not require advertising on a grand scale. Instead, the benefits of the product or service will get passed along by word of mouth.
7.
Your company can be built quietly without news leaking out in the press or otherwise, thus preventing accidental or intentional competition.
8.
Your product or service’s gross profit margins will be very high, around 80 percent.
Successful Strategic Plan
The simple way to keep your business on track:
Step one – Be the Best • • • • • • •
Develop a competitive advantage What can your company potentially do better than any other company? Understand your competitive advantage The reason for you in business What you do best that draws customers to buy your product / service instead of your competitor’s Focus all of your energy on your competency. Incorporate your competitive advantage into your mission and / or your vision statements.
Step two – State your purpose • State your purpose • A mission statement is a statement of the company’s purpose. • It is useful for putting the spotlight on what business a company is presently in and the customer needs it is presently endeavoring to serve. • A guide for day-to-day operations. • A foundation for future decision making.
Write a Mission Statement •
•
Answer the following questions: -What are we trying to accomplish for our customers? What is our company’s reason for existing?
Step three – Visualize the future • A strategic vision is the image of a company’s future - the direction it is headed - the customer focus it should have - the market position it should try to occupy - the business activities to be pursued - the capabilities it plans to develop
What is the purpose of strategic vision? • Forming a strategic vision should delineate what kind of enterprise the company is trying to become and infuse the organization with a sense of purposeful action.
Think Big • What will our business look like in five to ten year from now?
Step four – Take an inventory • • • • • • •
The SWOT Analysis Strengths Weaknesses Opportunities Threats Critically look at your organization A good fit between a company’s strengths and opportunities
Strengths and Weaknesses • • •
•
What do we do best? What do we not do best? What are company resources – assets, intellectual property and people? What are our company capabilities?
Opportunities and Threats • • • • •
What is happening externally that will affect our company? What are the strengths and weakness of each competitor? What are the driving forces behind sales trends? What are important and potentially important markets? What is happing in the world that might affect our company?
Step five – Profile your customers • •
Meet your customers’ needs and wants better than your competitors do Develop customer profile - What are our customer needs, motivations, and characteristics? - How do we uniquely provide value to our customers? - What should we improve to grow our customer base?
How to choose the right business plan format? ďƒ˜A
vital component of starting and growing a successful enterprise. ďƒ˜ Chose the right one for your purpose and enterprise.
Who is the intended audience? ďƒ˜ Internal
audiences - Owners, Employees, Boards of Directors, Advisors, Senior Management.
Why? For
the purpose of implementing a growth strategy. Referred to as a Strategic Plan. A guide solely for the owner of a new business to clarify their vision and goals.
A business plan for external audiences Investors Clients Suppliers New
hires Banks Other Lenders Government
Purpose of Business Plans ďƒ˜ Attracting
financing ďƒ˜ Talent or suppliers
Business Opportunity Document ďƒ˜ For
attracting funds.
Business Funding Proposal ďƒ˜ Like
DPP or DPR ďƒ˜ Obtaining financing is a significant issue.
What goes in the business plan?
Executive summary Company history and background Clear description of the business concept and value proposition Marketing analysis including competitive analysis and market development plan Production and operations assessment and development plan Financial assessment and projections Management and human resources assessment and plan Implementation plan Identification of resources Proposed deal structure for investors (if appropriate) Survival strategy describing inherent risks and mitigation strategies Growth strategy Existing strategy
Why many business plans don’t get funded? ďƒ˜ Your
business plan is very often the first impression potential investors get about your venture. ďƒ˜ But even if you have a great product, team, and customers it could also be the last impression that the investor gets if your make any of these avoidable mistakes.
Content Mistakes ďƒ˜ You
are in business to get paid for making goods and services. ďƒ˜ You have not analysed the market potential. ďƒ˜ A well written business plan places the solution firmly in the context of the problem being solved.
Value Inflation
“Unparalleled in the history” “Unique and limited opportunity” “Superb returns with limited capital investments” Nothing but assertions and hype. Investors will judge these factors for themselves. Layout facts - the problem, your solution, the market size, how will you sell it, and how you will stay ahead of competitors. Lay off the hype.
Trying to be all things to all people
Many early stage companies believe that more is better They explain how their product can be applied to multiple, diverse markets Or they devise a complex suite of products to bring to a market Most investors prefer to see a more focused strategy, Enrich and support the highly focused core strategy (additional products, applications, markets, and the distribution channels) You need to hold the story together with a strong, compelling core thread.
No go-to-market strategy ďƒ˜ Business
plans that fail to explain the sales, marketing, and distribution strategy are doomed.
The key questions that must be answered are : Who
will buy it? Why, and How will you get it to them?
You must explain How
you have already generated customer interest? Obtained pre-orders Made actual sales Describe how you will leverage through a cost-effective go-tomarket strategy.
We have no competition? You
have competitors! Substitute solutions Competitors, simply stated, consist of every body pursuing the same customer rupees Investors will conclude that you do not have a full understanding of your market.
Competition Section of your business plan Showcase
your relative strengths against competitors Project your strength against direct competitors, indirect competitors and substitutes Show investors that a real market exists.
Business Plan should show the real worth of the company!