The business plan comes in 2 editions:

       1- for the founding team as a strategy document

       2- a sales pitch to help raise finance

It usually takes more than 200 hours to prepare a top quality business plan and this is, potentially, time a management team could spend selling their first product or securing their first client.

SYEA Ventures is not about writing the business plan, it’s about implementing it.

The top 6 criteria for successful business planning:

1- When would you be ready to implement the idea?

2- What about the people? Do you believe this management team can implement the business plan and capture the opportunity? Do they have the right mix of drive and experience?

3- How big is the opportunity?

4- What are the barriers to market entry? How will this team prevent others from copying the idea? Is there strong intellectual property to protect the idea? If not, can they gather the complementary resources and assets that will position them uniquely to capture the opportunity?

5- Is this a platform from which to expand into new markets? If it is a technology business, does the technology underpin a variety of applications in a number of markets, i.e. can it grow beyond the initial market?

6- What is your exit strategy?

The business plan:

Business plans come in many shapes and sizes depending on the business sector a management team is operating within.

You will find below an overview of what a good business plan should contain. Although all business plans are different, this is a good starting point and a check list to look back at when writing a plan for a specific venture. Once you have sketched out the main trust of your plan, you can then vary and customize the framework and make it your own.

 I. Executive Summary: sell the opportunity on page 1

The executive summary is a 1 to 2 pages summary of the entire plan which appears at the beginning. Its purpose is to persuade potential investors to read beyond the first page! The executive summary has to lay out the investment proposition very clearly and must excite investors about the potential of this new business.

a. Identify the market need for your product or service

b. State why current solutions do not satisfy these customer needs

c. Quantify the size of the market (and how fast it is growing)

d. Describe the product or service in a few short lines

e. Emphasize the strength of the management team

f. Outline your achievements to date (e.g. contracts signed, prototypes built)

g. Outline how much finance you are seeking

h. State clearly what you will achieve with this finance and when

i. Highlight how this will increase the valuation of the company

j. Outline what further finance you will need beyond this financing round

 II. Introduction: set the scene and describe the unmet need

a. The introductory section of a business plan is part repetition part reinforcement of what you stated in the executive summary. You need to outline clearly why there is a need for your product or service, what it is and how it works.

b. You need to explain how you started, where the idea came from, how you got together as a team. If the business is based on a technological innovation, say whether there is any intellectual property protection and, importantly, who owns the intellectual property.

c. Explain what stage you’ve reached in the project, whether you signed a contract, have you secured a first customer etc.

III. Market: current solutions and competitors

a. The market: this section should analyze in detail the market within which you will be operating. Professor Michael Porter’s value chain analysis which shows an industry’s participants as links in the chain is useful to answer the following important questions:

 i. Who are the key buyers and suppliers?

 ii. Where do you fit?

 iii. Where does the power lie? (Porter’s Five Forces)

b. Highlight how needs are currently met in the market and how your product or service will do it better. You should be able to highlight how to create a sustainable competitive advantage.

c. A key aspect of this section is that you must quantify everything. It is of little use to discuss ‘large and growing’ markets without specifying how large, how rapidly they are growing and how this translates into the top line of your profit and loss statement i.e. revenues or sales. By taking conservative estimates of what percentage market share you can achieve within 2 to 3 years of starting operations, you will be able to estimate with a reasonable degree of accuracy what your revenues will be. A hot tip her is that no business ever achieves large market shares within a few years of launch (remember not even Microsoft has 100%). If your business plan can perform adequately with a 1% share of a market that is growing, then you have a good business plan.

d. The competition: you need to outline the key competitors for your business and how you will capture and retain market share from them. There is a golden rule here – there is never ‘no competition’. If ever you see a business plan in which the management team states there is no competition, it means one of two things: (1) the have not found it yet (2) or the market opportunity is so poor that no one else can be bothered to pursue it.

 IV. Product or service offering: how does it work and how is it protected

a. We should understand exactly the offering, how it works, and what problems it solves.

b. What are the advantages and differentiators of the offering

c. For technology business plans, the 4P’s are

 i. Proven: do you have a proof of concept? Does it work in the lab and are the principles established?

 ii. Protected: have you taken measures such as filing patents to prevent others from stealing your ideas?

 iii. Prototype: is there a working demonstration model that proves you can build and scale up to industrial standards?

 iv. Platform: can the technology be applied to multiple problems in multiple industries?

d. For services the same checklist can be used

 i. Proven: do you know that there is customer demand for this service? Have you carried out focus group analysis? Have you tested the idea with suppliers, customers and industry experts?

 ii. Protected: you can protect a service by locking in complementary assets such as signing exclusive contracts with key suppliers or raw materials.

 iii. Prototype: do you have reference customer? Can you show that the customer was happy with the service? How much it saved money or how it improved their output?

 iv. Platform: can you extend the service business into other industry sectors?

 V. Business model: how the business generates profits or value

a. Show the investors the money

b. Business models can be many and varied and successful business may utilize a combination of business models. For example:

 i. Manufacture and sell products

 ii. Provide services on a contract basis

 iii. Provide services or information to subscribers

 iv. License your technology to multitude of corporate partners and receive loyalties on future revenue streams

 v. Create powerful brand and develop a franchise operation

 vi. A combination of several of the above

c. Some startups never make a profit, yet they are incredibly valuable. The reason is often that business is important strategically for a major player in the industry or indeed you may be a threat to a major player in the industry who would rather acquire your business than risk market-share erosion. The value of your company therefore is not the same as its profitability and many companies are acquired at high valuations even though they are not yet generating profit.

d. Plan growth

 VI. Marketing and Operations: implementation schedule and milestones

a. Spell out the process: you need to tell investors what you are going to do with their money from day one. Where will you locate, when will you start manufacturing, who do you need to hire, what contracts do you need to sign and when? When will you sell your first product and when and how will you break even.

b. Route to market: this section of the business plan deals with how you get your product or service to market, and so must include your manufacturing plan (e.g. do you build it yourself or outsource?), your marketing plan and distribution strategy.

c. SWOT Analysis

d. Risk mitigation

e. Your implementation milestones and action plan.

VII. Team: outline the team and how it functions

a. Teams matter. The quality of the team is a priority for investors evaluating a business plan. The team is a fundamental component of the new venture, comprised of individuals with a mix of new venture and industry experience. The most important aspect of presenting your team in the business plan is, first and foremost, showing that you have one!

b. Map team roles and often diagrams do help. If you don’t have the right person for a position just leave it blank!

c. Don’t overcomplicate. This is a startup, remember! Too many vice presidents or directors of subgroups will create the image of a naïve management team hung up on position and hierarchy, rather than a management team who are going to create value in the business. Clear roles are important, prestigious titles are not. Of course, it is equally tempting to go to the other extreme – creating a very flat hierarchy with no clear leader. This may result in difficulties in making decisions and indeed suggest that the management team is not even able to decide who is in charge.

VIII. Financial planning: outline the financial strategy and pathway to exit

a. Clarity is virtue: you will need to map out very clearly the key assumptions and parameters and explain the figures you have in your assumptions and statements.

b. The model should include income statements, balance sheets and cash flow statement.

c. Ratios and indicators such as NPV, IRR, breakeven point etc.

d. Try to include a sensitivity analysis

e. Cash flow: your financial plan will flow directly from the cash required to achieve solid value-building milestones in the business. You do not need to present a cash flow model in the main body of the plan – this should be included in an appendix.

 IX. Appendices: due diligence materials

a. Appendix 1: financial history and projections

 i. Balance sheets, income statements and cash flow projections

b. Appendix 2: CVs of the team

c. Appendix 3: intellectual property rights owned by the business

d. Appendix 4: capital structure of the business

e. Appendix 5, 6, 7: any other supporting materials

How do investors read a business plan?

An investor’s goal is to make a decision – not a decision to invest but a decision whether to reject a business plan immediately, or whether they should meet with the management team to explore the opportunity further.

Investors usually read business plans for the first time in the following way:

Ø They look at the executive summary and ask, simple, is this an exciting opportunity that may offer big returns?

Ø If so, they will often turn straight to the back of the plan and look at the CVs of the team and ask the question – is this an experienced team with impressive individual track records and some evidence that they have worked together?

Ø If they believe this is an impressive team that can deliver on their promises they will then turn to the introduction and try to understand how this venture was created – in other words, put the venture into context with its surroundings. They will often try to spot at this stage whether the team has clear action plan.

Ø Only after satisfying themselves around these questions will they begin to understand how the product works and get into the details of the business.

The Internet is one of the major sources of information for research to develop a solid business plan. The links might be useful to help in this regard:

www.sba.gov/smallbusinessplanner/plan/index.html
www.businessplans.org
www.teneric.co.uk
www.smallbiz.nsw.gov.au/smallbusiness/Starting+in+Business/Business+Planning
en.wikipedia.org/wiki/Business_plan
www.allbusiness.com
comtrade.un.org

www.google.com

These guidelines present only a simplified document that could be used to write your business plan. It’s worth noting that there are many ways of writing business plans and there is no standard form. Feel free to put your personal touches on the final deliverable as you see appropriate.

Wishing you all the best,

Michel Arcouche

Board Member, SYEA Ventures Project Manager

MBA, Imperial College, University of London.

Reference: Entrepreneurship course, Tanaka Business School, Imperial College London.

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