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Creating an effective business plan
1. Establishing an effective
Business plan
More than just a checklist โฆ
Matthijs Hammer
Senior lecturer Innovative Entrepreneurship
School of Business, Building & Technology
Research Center for Innovation & Entrepreneurship
2. Menu
โข What is a business plan / venture plan?
โข The three important questions
โข The importance of a โBusiness modelโ
โข Different formats
โข Now it is your turn!
3. What is a Business plan?
โa plan for the businessโ
Nothing more or less from an entrepreneurial point of
view
5. What?
What, is it you want to do?
โ Be as specific as possible.
โ Indicate the added value.
โ Brief description.
โ Elevator pitch.
โ Normal language, slang.
6. Why?
Why you going to do it?
โข Is it needed?
โข Inspiration.
โข Higher (social) values.
โข The your ultimate goal.
โข The Why (Simon Sinek)
http://www.ted.com/talks/simon_sinek_how_great_leaders_ins
pire_action?language=nl
7. How?
โข Make it plausible (feasibility, competitors,
legal)
โข Show the mechanisms.
โข What are your (unique) resources.
โข With whom? (Stakeholders)
โข Predict the future in a way of:
โ Financial
โ Material
โ Market (development)
8. Different formats
โข Chamber of Commerce
โข Banks & accountants
โข Saxion Center for Entrepreneurship
(Barry Koelman)
โข Your own design
Take into account:
โข Recognisability
โข Verifiability
โข Logic
โข Existing knowledge
9. Different formats
Minimal requirements:
โข What is it?
โข Why is it needed / important?
โข How it will made happen?
โข Feature / design the future by:
โ Models
โ Calculations
โ Scheme / draught
โข Who is / are doing the action?
10. How it works?
โข For whom the plan is written for?
โข Which setting?
โข What is your goal?
Every target / target group favour its own type of
plan.
Less is more, more less!
It starts with: the (brilliant / award winning) idea!
11. A business model
Chesbrough & Rosenbloom (2002, 532): The
business model provides a coherent framework
that takes technological chracteristics and
potentials as inputs, and converts them
through customers and markets into economic
outputs. The business model is thus conceived
as a focusing device that mediates between
technology development and economic value
creation.
Technical
Inputs
Economic
Outputs
Business
Model
14. Starting a business in
practice
Recognise
opportunity
Have an idea
Consideration
Planning?
Access & gain
resources
Business &
product
development
Social
connection
Survival?
Early trading
Launch
15. Principles of a succesfull
business
โข Realistic planning
โข Control over costs and cashflow
โข Generating turnover
โข Funding
Andโฆ
โข A simple idea
โข Teamwork to make it happen
16. Ingredients of effective
planning
โข The plan is a projection, not reality
โข Research: use real information not assumptions
โข Set realistic targets for sales and production
โข Teamwork โ get everyone involved in planning
โข Plans should be dynamic not static โ markets and
other factors will change
โข โPlanningโ is more important than โhaving a planโ
โข Always consider and plan for the downside
17. What is your business model?
โข Who are your target customers?
โข What value is created for them?
โข Why will they buy the product from you?
โข How is it superior to its competitors?
โข How will you produce, market and distribute it?
โข How and when will it generate cash and profits?
โข What financial investment is required?
โข Can you draw a simple diagram to show the process?
18. CUSTOMER GROUP
PROJECTED GROWTH
Sales
Year 2 =
Year 3 =
BUSINESS MODEL
SALES INCOME
Total income=
VARIABLE COSTS
Variable costs per customer =
Total variable costs =
FIXED COSTS
Finance costs
Premises, facilities, insurance
Salaries
Other fixed costs
Total fixed costs =
CUSTOMER BENEFITS
Gross profit margin:
Net profit margin:
Breakeven sales:
Total costs:
Gross profit:
Net profit before tax:
19. A simple business model
(Example of Busmode Ltd)
PROJECTED GROWTH
Gain 300 customers/year in
years 2-3
Lose 25% past customers/year
Increase charges 5%/year
Sales
Year 2 = ยฃ425000
Year 3 = ยฃ634000
CUSTOMER BENEFITS
200 x improved communications
systems
100 x start e-business
100 x managed CRM system
100 x time saved within businesses
Gross profit margin: 83%
Net profit margin: 32%
Breakeven sales: ยฃ110844
CUSTOMER GROUP
Micro-small businesses buy
integrated
web/e-business/comms/CRM service
They pay ยฃ50 month flat fee + traffic
charges on 1 year contract
BUSMODE LTD
SALES INCOME
200 customers in year 1
ยฃ50 month each = ยฃ120,000
+ ยฃ25 month average traffic = ยฃ60,000
Total income= ยฃ180,000
VARIABLE COSTS
Marketing costs ยฃ100 to attract each
customer = ยฃ20,000
Variable costs ยฃ50 per customer = ยฃ10,000
Total variable costs = ยฃ30,000
FIXED COSTS
Repayment on ยฃ100,000 financing of IT
system = ยฃ28,000
Premises, facilities, insurance = ยฃ24,000
Salaries (2 people) = ยฃ40,000
Total fixed costs = ยฃ92,000
Total costs: ยฃ122,000
Gross profit: ยฃ150,000
Net profit before tax: ยฃ58,000
20. Is the business a sound
investment proposition?
โข Growth potential?
โข Perceived risk?
โข Return on investment: profit stream?
โข Competition and differentiation?
โข Breakeven
โข Timescale
โข Potential exit routes
โข The people โ capability and incentives
21. The growth business plan:
typical contents
โข Summary of the business proposition
โข Vision, goals and targets
โข Market opportunity: research, analysis and plan
โข Product/service concept
โข Business model or process
โข SWOT analysis in relation to competitors and
differentiation from them
โข People: who will run the business, track records
โข How the business will operate: capabilities, resources,
people, processes
โข Financials: investment and working capital requirements,
breakeven, pricing, gross and net margins, cashflow,
return on investment
22. Vision
โข What do you want to achieve?
โข what business are you in ?
โข How do you see the business in 2โ5 yearsโ time?
โข What is the purpose of the business?
โข What are the values? Start with yours.
โข Is it memorable and inspirational?
โข Can it be understood by everyone in the business?
โข Dreams need numbers to make them into business
goals
23. Opportunity
โข What are the most attractive opportunities for the
business?
โข Current market opportunities โ exist now
โข Future opportunities โ need to create
โข Why are they attractive for the business?
โข What is the business model?
โข What factors drive profitability?
โข What investments are needed?
โข What are the projected returns?
24. SWOT analysis:
risk and advantage
A look from the inside and the outside in relation to the
competition:
โ How is the business stronger?
โ Where is the business weaker?
โ What opportunities can you exploit?
โ What threats can you identify?
25. Risk factors
โข Market risk: customer demand, volatility, competitor
action
โข Technical risk: performance, production capacity and
responsiveness to demand
โข Financial risk: investment, cost control, increase or
reduction over time
26. Marketing and sales plan
โข Your SWOT compared to competitors
โข Success factors and buying triggers
โข Current and future clients โ groups or segments
โข Market matrix
โข Products and services in relation to client groups
โข Pricing (incentives etc)
โข Place (route to market, delivery, distribution)
โข Promotion and selling (How you will reach and retain
clients)
โข Marketing budget and action plan
โข Sales targets
27. Operations plan
โข Products and services to be provided
โข Sales order and key processes/systems
โข Maximising use of capacity
โข Continuous improvement โ eg:
โ Quality, customer service
โ Efficiency โ use of resources, time reductions
โ Effectiveness of processes, โmake or buyโ
โ Economy โ cost savings
โ Use of information, measurement
28. Project plan
Activity 1 2 3 4 5 6 7 8 9 10
Customer research
Competitor research
Analysis
Planning
Product development
Suppliers & logistics
Design promotionals
Production
Sales campaign
Launch
Sales
Review
Launching a new product or service
29. People plan
โข Leadership
โข Team roles, areas for development
โข Organisation โ structure, responsibilities
โข Capabilities and knowledge needed in the business
โข How to develop or acquire these?
โ Plan to develop existing staff
โ Recruitment plan
โ Motivation and rewards
30. Financial plan
โข Business model
โข Financial objectives, years 1, 2 ๏ 5?
โข Cash flow forecasts
โข Profit and loss (P&L) forecasts
โข Funding requirements:
โ Capital expenditure, acquisition
โ Working capital
โ Sources of funding, return on investment
โข Assumptions
โ Break-even analysis, pricing
โ Risks
โข Balance sheet
See โFinancial Plannerโ toolkit on page 264 of Entrepreneurship: from
opportunity to action
31. Pricing - the three โCsโ
โข Cost: lower limit, full cost or marginal?
โข Customers: upper limit, how high will (or can) they go?
โข Competitors: how good are they? How do you
compare? (This determines how high you can go and
your price position in the market)
32. Key questions in โpitchingโ
the plan to sell the idea
โข Who is the plan written for?
โข What do you aim to achieve from presenting the plan?
โข What are you prepared to exchange to gain what you
need?
โข What are the listenersโ needs and expectations? (e.g. are
they looking for investment or lending opportunities,
technology or distribution partnerships?)
โข Do you know your audience โ what is their investment
history, in which types of ventures? What are their
investment objectives or lending criteria?
โข How can you fine-tune your presentation of the plan to
meet their needs?
โข How can you reassure them of your credibility
and capability of making it happen?
33. Characteristics of an effective
venture plan
Twelve features of an effective venture plan:
1. Demonstrates a clear opportunity which has not yet been exploited
2. Displays strong customer attraction and differentiation from
competitors
3. Shows significant, quantified growth potential in identified markets
4. Demonstrates a credible strategy and plan to exploit the
opportunity
5. Deploys innovation which can be shown to work effectively
6. Has unique aspects which can be prevented from copying (control
of IPR [Intellectual Property Rights])
7. Success factors with risks identified and minimised
8. Investment required is shown with realistic return on investment
9. Timescale to breakeven and anticipated profit stream are realistic
10. Financial planning is accurately costed and realistic
11. Potential exit routes and timescales for investors are shown
12. The venture team demonstrate capability and motivation