Transcript Business Plans - University of Virginia

Business Plans
TCC 315/Psych 418
Larry G. Richards
April 1, 2004
Creating a successful
business plan
Chapter 5 of The Portable MBA in
Entrepreneurship, David E. Gumpert
The Successful Business Plan:
Secrets and Strategies, Rhonda
Adams
Ernst and Young - On Business plans
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http://www.ey.com/global/vault.nsf/us/Outline_for_a_Business_Plan/$file/gg0165.pdf
Defining a business plan
Good: “A business plan is a document
that convincingly demonstrates the
ability of your business to sell enough
of its product or service to make a
satisfactory profit and be attractive to
potential backers.”
Defining a business plan
Better “ A business plan is a selling
document that conveys the excitement
and promise of your business to any
potential backers or stakeholders.”
Why write a business plan?
To sell yourself on the business
To obtain bank funding
To obtain investment funds
To arrange strategic alliances
Why write a business plan?
To obtain large contracts
To attract key employees
To complete mergers and acquisitions
To motivate and focus your management
team
What should business plan
cover?
Cover Page
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Company name and address
Main Contact
Phone number
Confidentiality note
Visual
What should business plan
cover?
Table of Contents
Executive Summary
The Company
The Market
The product/service
Sales and promotion
Finances
Appendices
Executive Summary
NOT
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an abstract
an introduction
a preface
a random collection of highlights
“ the business plan in miniature”
“capture the excitement and
essence of the business”
Executive Summary
at most 2 pages
longer is not a summary
don’t dilute your message
This is all most people will read.
It may constitute the basis for their
decision.
Your Company
What’s your identity?
Business strategy
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Your overall approach to producing and
selling your product.
Current status
Future goals
Management team
Presenting your product
A good name
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for the product
for the company
Graphics, animations, videos
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logo
advertising
Your Message, a theme for your ads
Marketing Issues
Who will buy your product?
How do you know?
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Market research
Competitive environment
“Marketing is identifying your customer
prospects and determining how best to
reach them.”
Market research
Is there a market for your product?
How big is it?
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Estimate actual numbers
How much of it can you capture?
Is it stable or changing?
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Growing or shrinking?
“Is it worth your while?”
Advertising
Where ?
How ?
What message?
How to differentiate your product?
Selling
“Selling is convincing these prospects
to buy.”
What are you really selling?
What benefits are you selling to the
customer?
Quantify them.
Develop a promotional theme.
Identify prospective customers
Selling
Creating an image
Delivering on the promise
Maintaining your reputation
How are you going to convince
potential investors that they can make
money investing in your company and
product?
Investors concerns
How long? How quickly will your
company start to make a profit?
How much? What Rate of Return can
your investors expect?
Can you make money from
your idea?
Costs and Prices
4 to 1 rule: “ A general rule in retail is
that the retail price is four times your
manufacturing cost, and that you sell it
to the retailer for two times your
manufacturing cost. “
Bolanos and Lewis
Bill of Materials
Preliminary
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estimates
first approximation of product cost
 components
 assembly
Final
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solid figures
DFM/A analysis
How to estimate costs
Work backwards from existing products
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Price / 4
# of components
relative costs of components
Obtain several estimates
Establish upper bounds
Refine estimates based on new
information
If costs are too high,
look for ways to reduce costs
outsource - have someone else make it
compromise design
abandon idea (for now)
Strategies for Reducing Costs
examine high priced components
eliminate parts
use less expensive materials
buy off-the -shelf components
conduct cost/benefit analysis on product
features: are any expensive features low on
customer importance list
redesign / simplify
Financial Model
Start from the Bill of Materials
Include costs of
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production
packaging
distributing
advertising
marketing/selling
service/warranty/maintenance?
Financial Model
Clearly state your assumptions
Note which numbers are estimates
Indicate your confidence/uncertainties
Create a spreadsheet
Perform sensitivity analysis
Predict your future profits
Base Case Model
development costs
ramp-up costs
marketing and support costs
production costs
production volume
revenues
timing and schedule of above cash flows
Uses of Financial Model
Go / no go decisions

should we proceed?
Sensitivity analysis
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What if our assumptions are incorrect?
Trade-offs
Qualitative factors
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changes in competitive environment
technological developments
Where to get help
State Economic Development Offices
Small Business Administration
Departments of Commerce
Chamber of Commerce
Service Core of Retired Executives
Virginia Center for Innovative Technology
Local alliances and coalitions
University and college sources
Exercise :Ulrich and Eppinger
Can you think of some successful
products that would never have been
developed if their creators had relied
exclusively on a quantitative financial
model to justify their efforts?
Do these products share any
characteristics?