How_to_create_effective_Business_Plans.pdf

Excerpt from Advantage covering creation of effective Business Plans Financial – Profit - Create Advantage (Cell 2-7) In Stage 1 of the BAM™ model, we considered the requirements to resource and fund the business and we also reviewed potential sources of funding. The primary objective was to confirm...

Excerpt from Advantage covering creation of effective Business Plans Financial – Profit - Create Advantage (Cell 2-7) In Stage 1 of the BAM™ model, we considered the requirements to resource and fund the business and we also reviewed potential sources of funding. The primary objective was to confirm there is potential to resource the entrepreneurial venture to create and leverage advantage. To achieve this we needed to understand the scale of the potential resources required. In this Stage 2, we may actually need to secure this funding, but we also need to ensure we have a plan that will see the potential realised over time. We have established the following by this stage:The Advantage:- The compelling advantage to the customer and the source of that advantage. The Business Model:- How we make money, revenue and related costs at a customer level, a unit level and an increasing volume operational level. The Value Proposition:- The quantitative and qualitative compelling proposition for the customer , particularly the financial proposition (For the customer this can become the business case to buy our solution). Step 1- Creating a business plan The business plan is the roadmap for the venture; it pulls all the information together into a cohesive plan that can also be communicated to external potential stakeholders. I have seen every type of business plan under the sun over my career and I generally review one or two new business plans per week. At one end of the spectrum is the monolithic plan: 200 pages of information, facts and figures that often tell you very little or require a PhD to analyse and distil out the pertinent information. At the other end of the spectrum is the 10-page cut and paste, apple pie and motherhood plan that tells you very little and provides no evidence. The most common one offered up by the fur coat and no knickers (FCANK) entrepreneur is the nice, glossy 25-page plan with loads of charts, graphs, quotes and testimonials that was magick’ed up e ause e ha e to ha e a usi ess pla. The FCANK plan usually has what appear to be reasonably well-detailed spread sheets with limited ©Declan Kavanagh Advantage-A Roadmap for Entrepreneurs & Leaders in the Digital Age ISBN 978-0957627000 Excerpt from Advantage covering creation of effective Business Plans evidentiary basis for the numbers presented. The FCANK plan just really picks numbers out of the air without any real validation. Remember, the business plan is a living document that is regularly reviewed and updated, so getting it right on the first edition will stand you over time. Here are some of my tips for a business plan:  Keep the core plan to between 20 & 40 pages, anything less is unlikely to have sufficient detail to cover what is expected, anything more is likely to be overkill and not succinct. You can always refer to supplementary information where necessary but the document should  stand on its own two feet. The business plan is a living document, it requires periodic review and update, re e er it’s the roadmap for stakeholders and you learn new things as you go along which impact your future direction. Also, periodic review gets the team to stand back and look at the business overall, it pulls them out of the weeds and the detail to take a strategic longer term view. In the early stages of the model, you will review and update the plan more frequently because you are learning more, bringing more certainty to assumptions made, testing, changing and validating, so perhaps you may need to review and update the plan as frequently as  quarterly. At the later stages, once or twice per year is sufficient. Evidence is critical and where evidence does not yet exist, state how you will get the evidence or what your contingency is. A business plan summarises quantitatively and qualitatively virtually every aspect of the business. To give confidence to stakeholders using the plan for taking decisions and actions, you need to give some evidence. Here are some examples:o If you state you will make a 38% gross margin on every unit sold, your business model price and costs will have to add up to that 38% gross margin. This means here or somewhere else you will have to provide data that justifies the unit price you will charge the client. You will also have to consider how to take care of and confirm volume pricing discounts and volume production costs. It’s not rocket science but if you just guess, the reader will lose confidence. o If you show Sales revenue growth of 10% per quarter, or often I see in a plan a year on year major step growth in revenues, then you need to be able to show what the drivers for these revenue increases are. What activity is happening to cause sales to grow? ©Declan Kavanagh Advantage-A Roadmap for Entrepreneurs & Leaders in the Digital Age ISBN 978-0957627000 Excerpt from Advantage covering creation of effective Business Plans o If you make a qualitative statement such as: The o ly pro ider ho redu es your usto er retur s y 50% , this should link directly to your compelling advantage. You should have evidence from other customers, or trials where a 50% reduction was achieved and what the context was. You should also be able to publicly  compare competitive product benefits with trustworthy data. Be clear on the objectives of the plan and who the readers will be. It’s OK to have maybe two versions of a plan for specific objectives and audiences; however, the core of the two and the basis of the two must be identical otherwise you will lose credibility and cause  confusion. The differences can be in emphasis and supporting data and information. Always have an executive summary that conveys the advantage and the outcomes of leveraging that advantage. In other words, one or two pages maximum at the start that communicates the primary messages in the plan and secures the reader’s interest to take  the desired action in your objectives. One structure for a business plan is as follows: o Introduction:- Introduce the company using your elevator pitch and describe the purpose of the business plan document (Max. 2 paragraphs/ a half page). o Executive Summary:- This is the last section you write and it communicates what the usi ess is, its ad a tage a d the pla to le erage that ad a tage. It’s a great way to make you, the entrepreneur pull out all the key pieces of evidence that make the business exciting and attractive (Maximum 2 pages). Remember some of your key target readers will go straight to this section and this may be all they will read before deciding what action they will take. (Each bullet below is a short paragraph)        Position the context of the business, this will be the Market and addressable market highlights (Include the facts, evidence, numbers). Outline the problem/Opportunity with verified information. Describe what the company does, its primary strategies etc. Define the solution and its advantage; Draw out the core IPR & Differentiation. State the addressable market, sweet spot customer profile and how you will access to sell and deliver (Include facts, evidence & numbers). Describe the business model and value proposition for a customer. State current status & achievements of importance relating to the creation, validation and leverage of the advantage. Provide high level 3-5 year forecast P & L highlights in a table and comment. ©Declan Kavanagh Advantage-A Roadmap for Entrepreneurs & Leaders in the Digital Age ISBN 978-0957627000 Excerpt from Advantage covering creation of effective Business Plans   o            Promoters and Shareholders Advisors Products and services Benefits and Features Unique selling points Advantages to customers Future developments Long-Term Aim of the Business Goals Values Objectives SWOT Analysis Market Analysis              o “tate The Ask - What do you want? Company Description  o Summarise the credentials of the promoters. The Overall market Market Segmentation The members that make up the market Sweet Spot Customer profile The target prospect list & Status Industry Analysis & Competition: Addressable Markets & Segments Market entry strategy (Beach-head) Target Company revenue Market Trends Profile of Competitors Competitive Advantage Benefits to Clients Marketing/Sales Strategy   Marketing Strategy Revenue Sources ©Declan Kavanagh Advantage-A Roadmap for Entrepreneurs & Leaders in the Digital Age ISBN 978-0957627000 Excerpt from Advantage covering creation of effective Business Plans   o   IP, Patents, Copyrights, Brands Staffing Operations Financial Projections      o Technology Roadmap Staffing and Operations  o Pricing Research and Development  o Sales Strategy Key Assumptions (Likely Plan) Profit & Loss Accounts Balance Sheets Sensitivity Analysis Sales Pipeline Funding Requirements Step 2 – Initial funding You may now be at the stage where you need some external funding to progress the business. In Stage 1, you identified sources of funds and resources. In step 1 above, you will have produced a simple concise business plan and this is important because most providers of early stage funding will want to see that the research has been done and the proposition documented. Their decision is largely a risk – return evaluation and is often weighted on their assessment of the pro oter’s track record and ability to deliver on the plan. You may have raised some very early stage funding at Stage 1 to complete the feasibility; this may have involved an equity transaction but if you are lucky you will have availed of some level of public entrepreneurial support. Regardless of the source of funding you wish to secure at this stage, you need to take a position on valuation and what the team is willing to release to new investors in the form of equity participation. The valuation will be determined by: 1. Overall attractiveness of your venture from the i estor’s perspective; and, ©Declan Kavanagh Advantage-A Roadmap for Entrepreneurs & Leaders in the Digital Age ISBN 978-0957627000 Excerpt from Advantage covering creation of effective Business Plans 2. Evidence of your verification of advantage from a customer perspective (commitments and revenues really strengthen the position).  Value the business realistically o Look at similar or competitive businesses and examine any recent transactions and the value placed on them. o Look at a similar publicly quoted businesses and what their valuation is. o Identify the primary models for valuation of a business of your type (perhaps multiples of revenues or profits). o In high tech on-line organisations there is often a focus on the number of users and a value put on these based on a specific business model. o Consider how much you need and how much equity you are prepared to release. o Talk to advisors and/or business contacts that may have valuation experience and ask their opinions.    o Talk to other entrepreneurs who have recently raised this type of funding. o Take a position and pick a number. Profile the type of investor o Individual or organisation o Ar ’s le gth or added value o Type of added value you would like (Director, Executive, Advisor, & related expertise) o Single Investment from one entity/person or multiple investors. Prepare a list of sources you will target o List individuals and organisations who are likely potential investors. o Prioritize the list and do some basic background research on each. Prepare an Information Memorandum o This is a two-page taster document, treat it as a Sales brochure to secure early funding.  o It is a summary of the business plan as an investment opportunity. Communicate to potential investors the proposition and qualify short list. Introductions and referrals are often the strongest starting point. Here you are making an initial contact to establish if the potential investor has an interest. Both parties are in a qualification process to establish interest, capacity and if a deal is possible. You may provide the Information Memorandum in the initial contact or after the first phone call. ©Declan Kavanagh Advantage-A Roadmap for Entrepreneurs & Leaders in the Digital Age ISBN 978-0957627000 Excerpt from Advantage covering creation of effective Business Plans   Where to find potential Investors o Business Angel Networks and Syndicates o Investment matching Web sites o Crowdsourcing web sites for investors/entrepreneurs o Trade Associations o Personal network & Referrals o Public enterprise support agencies o Professional Investor organisations often have a list of private business angels they refer smaller investment opportunities on to. Entrepreneurs interest initially o Establish the potential investors interested in the venture o Establish whether they are currently in investment mode o Establish the profile they target for investment o Establish whether there are any conflicts of interest or synergies o Understand their experience and investment experience o Establish the amount they typically invest o Establish whether they have completed any recent investments or have any underway  o Create curiosity and interest in your proposition o Understand how they evaluate and assess an investment opportunity o Confirm their interest in progressing the relationship o Secure the next actions (NDA, Share Business Plan, Meeting). Investors interest initially o Understand the Market opportunity and business proposition o Understand the entrepreneurs expertise and track record o Understand whether the team is investable (they want to have confidence in the people) o Establish whether the opportunity is investable o Establish the magnitude and type of investment and investor sought o Establish if there is a reasonable deal that could be completed for the risk involved o  Seek additional information to review the opportunity and understand the risk profile. Secure NDA & Provide additional information ©Declan Kavanagh Advantage-A Roadmap for Entrepreneurs & Leaders in the Digital Age ISBN 978-0957627000 Excerpt from Advantage covering creation of effective Business Plans  o Normally a business plan o Related information and reports you may have o Usually Q & A o A y sa y i estor ill also do refere ce checki g, so e sure you do ’t ha e a y skeletons in the closet that are relevant and should be disclosed. Meeting (s) o There will normally be one or more meetings with the entrepreneurial team and potential investor, these will include get-to-know-you type meetings as well as due diligence centric meetings. o After one or more meetings, there needs to be an open discussion. Can a deal be done? Both parties need to be sure they can work together and there is a fit, not just from a business perspective but also from a working relationship perspective.   o Negotiation process and related meetings. Term Sheet/MOU (May need professional advice here) o Summarise the main investment terms o This document allows progress to continue with the investment while the formal process is being executed by professionals. Formal investment closed (Usually led by your legal or financial advisor) o Any updates to formal legal company documentation o Shareholder agreement (New, Revised or Deed of adherence) o Issue of share certs etc. o Transfer of funds Later in Chapter 7, we look at valuation again in the context of an ROI/Exit event; remember at this stage you are likely to be pre-revenue and the target investment community are likely to be friends, family, business angels and very early stage seed funds. The real value of the company at the end of the day is what someone will pay to buy its equity. So be realistic in the valuation. Though I go into it in some detail in this cell, it serves to give you the entrepreneur or business leader, or student for that matter, an understanding of what is required in the various rounds of fundraising. The process should be fairly straightforward and simple; the company is at an early stage, so an investor will just be looking for the basics (some or all of Stage 1 & 2 Deliverables). If it is getting complex or you are being subjected to a due diligence designed for a global ©Declan Kavanagh Advantage-A Roadmap for Entrepreneurs & Leaders in the Digital Age ISBN 978-0957627000 Excerpt from Advantage covering creation of effective Business Plans acquisition, I suggest you a k a ay as it’s a sig of thi gs to o e with that specific investor. The hard bit is finding the right serious investor to engage in the process. The funding process, whether a small or large amount, takes time and is a distraction for the promoter so it’s important to plan and execute it efficiently and secure an adequate amount to achieve the specific funding objective. I have seen entrepreneurs and have been involved with fundraising that dragged on and on and the money came in dribs and drabs, meanwhile there is reduced capacity and emphasis on the core task of creating, validating and then leveraging advantage. So, given the stage we are at here, secure sufficient funds to deliver measurable progress, normally that is Alpha & Beta first clients (& beach-head). The next round of funding, sometimes called Series A, which normally funds scaling of the beachhead to break even or profitability, will be easier and less costly for the entrepreneur. Cell Deliverables    Business Plan Understanding of funding process Seed funding, if required Cell 2-7 summary On completion of this cell, you will have consolidated the work done to date into a solid roadmap and business plan that is investable and secured initial seed/angel funding, should it be required. Chapter 3 Summary Do ot build a o u e t to yourself – Create Adva tage During this stage of maturity (Stage 2 – Creati g Advantage , we have focused on verification of the advantage and business proposition. We have engaged with customers in the market and built a prototype solution whose objective is to confirm all the assumptions we made during Stage 1 Pote tial Ad a tage. We ha e esta lished the right ay to produ e the right thi g a d e ha e put a prag ati set of pro esses a d o trols i place for all the critical aspects of the business. What you will have achieved by following the model thus far is created confidence and evidence that there is a solid business opportunity available and you have a plan to achieve success based on good evidence and information. ©Declan Kavanagh Advantage-A Roadmap for Entrepreneurs & Leaders in the Digital Age ISBN 978-0957627000 Excerpt from Advantage covering creation of effective Business Plans Stage 2 (Dynamic 1-7) Cells Create Advantage  Verification of Business Proposition: Confirmation we can build it right ©Declan Kavanagh Advantage-A Roadmap for Entrepreneurs & Leaders in the Digital Age ISBN 978-0957627000