Business plan creation presentation final 112013

Business Plan Creation:
A Unified Process for Businesses with a
Government and Commercial Focus
November 20, 2013
Sponsored by
DARPA Small Business Programs Office (SBPO)
Presented by
The Foundation for Enterprise Development
(FED)
The views expressed are those of the author and do not reflect
the official policy or position of the Department of Defense or the U.S. Government.
Business Plan Creation Webinar 11/20/13
www.fed.org
Distribution Statement "A“
(Approved for Public Release, Distribution Unlimited) 1

Goal of this Presentation
 Provide a method of vetting your proposed
business/business model before diving into a
full business plan
 Provide a process for building a business plan
through a critical evaluation of each key
business area
 Provide a framework for considering business
planning for both government and commercial
markets
www.fed.org

Many Models of Technology Commercialization
Are Feasible for SBIR/STTR Companies
 Licensing models
 Early-stage sponsorship (rather than early-stage
licensing)
 Cross-licensing
 Patent licensing
 New Venture/Spin-off
 New Business Unit
(with/without venture funding)
What’s Your Business Plan?
www.fed.org

Key Elements of a Good Business Plan
 Business Plan Executive Summary
 Market and Competitive Analysis
 Company Description
 Organization & Management
 Marketing, Sales, & Distribution Management
 Whole Product Offerings: Service or Product Line
 Funding Request
 Financial Plans
Business Plan
www.fed.org

Why is a
Business Plan Important?
 Investors require one
 Employee, suppliers, and collaborators expect
to see one
 A good business plan requires a close
examination of your proposed business and
serves as a playbook for successful execution
 Start early, test assumptions, and iterate on all plan
elements
 A key step to creating your business plan is an open
evaluation of the proposed business concept.
www.fed.org

Key to a
Successful Business Plan
Technology Market
Business
Your
Company
Sweet
Spot
A successful business plan combines a defensible product and/or service
that fills a market need with a profitable business model
that meets the desires of the stakeholders.
www.fed.org

Step One:
Simply Define Your Business
What – What does the product do? Is it a stand-alone
product or component? What services are needed?
How – How is it different from other products or services?
Who – Who will buy it? How do you make money
(revenue model)? How will it be promoted and sold?
Why – Why will they buy it? Price? Convenience? Safety,
security, well-being? Better performance? More
pleasurable experience?
Where – How will they buy it? Where will it be sold?
Geographic location of business and customers?
www.fed.org

Example: Company Z
(not a real company)
Company Z has a DARPA SBIR/STTR Phase II
SBIR for the fabrication of deep UV
semiconductor lasers. The ultimate goal of the
government program is to use this type of laser to
be able to create smaller features in the
semiconductor manufacturing process with the
goal of migrating chip features from 20nm to
10nm over the next 10-15 years.
www.fed.org

Identify a customer,
a means of reaching that customer,
and the benefit to be delivered.
CustomerBenefit
Delivery
NEED/DESIRE
Business Concept or Description
www.fed.org
Approved for Public Release, Distribution Unlimited) 9

Business Descriptions for Company Z
(not a real company)
1. Company Z licenses its process for creating deep
UV lasers for use in semiconductor fabrication.
Company Z receives an upfront license fee plus a
royalty on all semiconductor fabrication systems
that use Company Z’s technology.
2. Company Z produces deep UV lasers and
integrates the lasers into a sensor for non-invasive
blood glucose measurement. Company Z partners
with major diagnostic companies to sell the
sensors through drug stores. Company Z derives
high margins due to product quality and ease of
use.
www.fed.org

Key Features of Description
 Clearly defines your product
 Clearly defines who is your customer (not
necessarily the end customer)
 Clearly defines how you make money (e.g.,
business model)
 Clearly defines how you are differentiated from
the competition
www.fed.org

First Deliverable
 Create one or more business descriptions for
your business
 Does the business sound compelling?
 Keep the business concepts that are the
strongest (remember that licensing technology
is a possible business concept)
 These will be the basis for your business plan
www.fed.org

Build a Business Plan Around One or More
Successful Business Descriptions
 Market
 The foundation for every successful business is an
addressable market need
 Product need, market size, market segmentation, marketing
plan
 Business
 The second key is a profitable business model
 Type of business, partnering, time to market, financials
www.fed.org

Market Need
 First step in vetting any business concept is to
determine if there really is a need and, if so,
how large is the need and is anyone else filling
the need
 Ultimate goal is the same regardless of whether
this is a government application or commercial
application
 Tactics can be somewhat different
www.fed.org

Market Analysis: Targeting
Defense/Government Commercial/Private
Goal Define the optimal market/customer for
your technology/product/service
Tactic Map your
technology/product/service to
DoD component(s) or other
Federal Agency’s operational
mission area(s) and
program(s). Identify urgent
operational needs, user
requirements, and capability
gaps your technology could
meet or fill.
Identify an unmet need in a
commercial market that your
technology/product/service can
address. Identify what has been
tried before and why it did not
satisfy the need.
www.fed.org

Market Analysis: Segmentation
Goal Define market size and segmentation.
Where does your technology/product/service fit?
Tactic Define how your
technology/product/service
fits within the overall
program. Understand
primes and other key
players. Define your specific
contribution. What will you
make/sell/license and to
whom.
Define how your
technology/service/product can
address the identified need.
Are you providing a full solution
to a broad market or a
necessary component for a
niche market? Or starting with
niche and expanding? What
will you make/sell/license and
who is your customer? How
many units could be sold?
www.fed.org

Market Analysis: Competition
Goal Define your initial competitive advantage and
how you will maintain your advantage over time.
Tactic Is there legislation or policy
that impacts your market?
Does your technology provide
a unique solution relative to
requirements (e.g.
performance, price, etc.). Who
else can provide a solution?
How does their solution
compare? How will you
maintain an advantage over
time?
What is unique about your
product offering: performance,
cost, time to market, etc.? Who
are the primary competitors and
what products do they offer?
What differentiates your offering
and how will you maintain this
differentiation over time?
www.fed.org

SWOT Analysis
Favorable Unfavorable
Internal STRENGTHS
What are your strengths?
What do you do better than
others?
What unique capabilities and
resources do you possess?
What do others perceive as your
strengths?
WEAKNESSES
What are your weaknesses?
What do your competitors do better
than you?
What can you improve on?
What do others perceive as your
weakness?
External OPPORTUNITIES
What trends or conditions may
positively impact you?
What opportunities are available
to you?
THREATS
What trends or conditions may
negatively impact you?
What are competitors doing that may
impact you?
Do you face financial threats (e.g.,
inadequate funding?)
How do your weaknesses impact the
threats you face?
www.fed.org
Approved for Public Release, Distribution Unlimited) 18

“Go to Market” Analysis
Goal Define your “go to market” strategy.
Tactic Define your federal acquisition
and procurement model. Do
you need another government
contract prior to acquisition?
Will you be part of someone
else’s prime contract? Do you
have the appropriate
relationships with government
stakeholders making contract
award decisions or do you
need to do more business
development?
Will you market your product
directly or will you use
distributors? Will you partner
with some other company to sell
and market on your behalf? Will
you focus on a single
beachhead? How do “special”
pricing and discounts play a
role? What level of
customization is required?
www.fed.org

Defining Your Market Strategy and
Critical Success Factors
Take the
Same to Others
Build a Base
New
Customer
Existing New
Product & Service Offerings
Catch a New
Trend
Diversify
the PortfolioExisting
www.fed.org

Summary of Market Analysis
 Define your product or service and the market it serves
 Actual product, level of customization, market segment,
competition, etc.
 Define your customer
 Prime, end user, license partner…
 Define your market strategy
 Distributors, internal sales force, strategic partners, pricing, entry
and growth success factors…
 Define your product differentiation and how you will
sustain your competitive advantage
 IP position, technology superiority, etc.
www.fed.org

Test Assumptions
 Define Customer and Challenge Assumptions
 How will you access your customer, how much can
you afford to spend to acquire customers, etc.
 What don’t you know?
 Define Distribution Channel
 Should you build your own distribution?
 Challenge Benefits
 Define benefits derived from key features. Create a
brochure. Identify early customers/adopters.
www.fed.org

This is Not a Good Business
 You are better off realizing that your business
concept is not sound early in the process rather
than spending too much effort on a bad idea
 Throughout the process, think whether there is
a better concept to explore and go back through
the process
 Know when to modify and when to stop
www.fed.org

Just the Beginning
 So the market seems real and you think you
have access to the customer, this is just the
first step
 The next step is to make sure the business
model is sound
 A good product in a real market that loses
money is still not a good business
www.fed.org

Business Analysis:
Business Model
Goal Define the business model.
Tactic What do you sell: technology
via a license, a component, a
full product? How much do
you charge? What are the
costs associated with
producing the product? Have
you factored in cost of
testing? Are there government
restrictions on profit,
reimbursable expenses?
What do you sell: technology via
a license, a component, a
product? How much do you
charge? What are the costs
associated with producing the
product? How is your pricing
model constrained by existing
products/competition?
www.fed.org

Business Analysis:
Readiness
Goal Define what needs to be done to get to a product?
Tactic What is your current technology
readiness level (TRL) and how
much more investment is required
to get to product? What is your
manufacturing readiness level
(MRL) and what investment is
required? Do you have a
resource loaded timeline to get to
product? What government
funding opportunities are there to
advance the technology to
product?
What is your current technology
readiness level (TRL) and how
much more investment is required
to get to product? What is your
manufacturing readiness level
(MRL) and what investment is
required? Do you have a
resource loaded timeline to get to
product? How do you plan to fund
the development to product and
how much money is required?
Are there visionary customers
who could accept lower
readiness?
www.fed.org

Business Analysis:
Human Capital
Goal Define the team that will get you to the next level.
Tactic What are the key human
resources required to get to the
next level? Do you have
appropriate knowledge of
government acquisition,
business development,
manufacturing? Do you have
the right team to get you into
the next demonstration? What
will your role be as the
company grows?
What are the key human
resources required to get to the
next level? Do you have
appropriate knowledge of the
market segment you are
targeting? Do you need more
help with business
development, manufacturing,
finance (e.g., raising money)?
How will you segment the
government and commercial
business? What will your role be
as the company grows?
www.fed.org

Goal Define the financial resources required
to get you to the next level.
Tactic What financial resources are
required to get the technology,
product, and team to the next
level? Is there a government
program that can help advance
the company in one or more of
these areas? Are there
strategic partners that may be
interested in helping advance
the technology? Does it make
sense to raise funds?
What financial resources are
required to get the technology,
product, and team to the next
level? Are there strategic
partners that may be interested
in funding development? Does
it make sense to raise angel or
VC financing? Who would be
interested in financing the
company given where it is
currently?
Business Analysis:
Finances
www.fed.org

Product Timeline
 Must identify a lead customer
 Must define personnel needs and costs to profitability
 Easy to underestimate time/cost
Initial
Production
Beta
Customer
Scale Up
Product
Improvement
Marketing
Commercial
Launch
ProfitableMarketing
Cost
Reduction
People
$
TRL
MRL
People
$
TRL
MRL People
$
www.fed.org

Whole Product Model
 What else is needed by the customer to ensure
complete satisfaction?
 Complementary services, e.g.,
 Pre-sales services
 Training, consulting and implementation
 Legacy interfaces and conversions
 Post-sales services and support
 Complementary products, e.g.,
 Hardware
 Software
 Peripherals
 Connectivity
www.fed.org

Build a Financial Plan
www.fed.org
Product Description Competitor Us
Avg. Sales Price xxx aaa
Cost of sales & delivery yyy bbb
Price minus sales zzz ccc
Sales cost as % of price 26% 31%
Distribution cost as a % of sale 4% 3%
 A financial plan should:
 Consider revenue, cost of goods (production costs), sales and
administrative expense, marketing, R&D, etc.
 Accurately reflect fully loaded employee costs
 Be easy to test different scenarios (optimistic vs. pessimistic
assumptions/outcomes)
 Include internal rate of return (IRR) or other financial metric that summarizes
financial attractiveness of business
 Address differences required for commercial versus government accounting

Business Drives Investment
 The business will dictate the investment required
 Build reasonable and accurate timeline
 Understand competitive advantage
 Building out manufacturing may be costly but if that is a source of
competitive advantage, the investment may be warranted
 Understand customer acquisition and selling
 Business may have long sales cycles or require unique sales force
 Know your financing needs
 How long before you make money?
 How long before you need to raise more money?
 What type of investor would find this business attractive?
 Understand the different sources of capital
 What do you give up?
www.fed.org

Government vs.
Private Funding
 A follow on government grant is non-dilutive (i.e.,
you do not have to give up part of your ownership)
 Make sure the government research grant advances
the goals of your company (e.g., aligns with
commercialization)
 Private financing can be dilutive (equity) and non-
dilutive (debt) and each investor will bring different
interests in over-sight, ability to provide connections,
and provide other support (e.g., legal advice)
www.fed.org

Summary of Business Analysis
 Define your business model and revenue
stream(s)
 Create a detailed time-line
 Define key personnel required and when you will
need them
 Identify costs during development phase and after
product launch
 Define the required capital, type of capital
desired, and when it is needed
 Measure the overall profitability of the business
 Compare scenarios, especially pessimistic ones
www.fed.org

Test Your Business Model
 Does it make sense - even under your most
pessimistic scenarios? (things don’t always go
as planned!)
 Do your staffing needs match the current
capabilities of your team? (or near term
capabilities)
 Is it a model you want to execute and can
execute?
www.fed.org

Business Plan
You Should Have all the Elements
of a Good Business Plan
 Business Plan Executive Summary
 Market and Competitive Analysis
 Company Description
 Organization & Management
 Marketing, Sales, & Distribution Management
 Whole Product Offerings: Service or Product Line
 Funding Request
 Financial Plan
www.fed.org

Summary
 Ask the questions that are key for building
business case and creating a business plan
 Compare opportunities before diving too deep
into any one concept
 Make sure the business opportunity fits with
what you want to do
www.fed.org

Additional Resources
 Business Plan Templates
 http://www.sba.gov/business-plan/1
 http://office.microsoft.com/en-us/templates/business-
plan-for-startup-business-TC001017520.aspx
 DARPA Small Business Planning Tool
 http://dtsn.darpa.mil/sbpt/#
www.fed.org

www.fed.org
Q & A

Business plan creation presentation final 112013

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