The Elements of Business Plan
Elena Andonova, Isis Enterprise
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Business Plan
• Why do you write a business plan?
• To inform about your intentions
• To persuade a third party to provide resources or assistance
• To set a goal and explain how you are going to achieve it
• To set financial targets so you can forecast sales & control costs
• All real plans are unique
• Format: few page summary, slide presentation or around 15 page Word
document
• There is software for facilitating business plan writing; prices vary from
£25 to over £1000. For small/medium size business, expect to pay around £50 to
£90
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Business Plan
• Business plan outline
• Executive summary
• The Opportunity (Proposition or Business Objective)
• The Market Analysis
• The Technology/Product
• Key People
• Business Model (Operations)
• Financials
• Exit Strategy
• IP Position
• Risk Analysis
• Appendix including: customer testimonials; product specifications;
market research details; management CVs; supplier agreements
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Executive Summary
• 2-3 pages
• Outlines the background and purpose of the business
plan
• Should include the most important numbers
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The Opportunity
• 2-3 pages long
• Should outline the need for the product
• Have to explain the potential return on investment
• Answers the question: Why would an
investor/stakeholder fund/support this start up
company?
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The Market Analysis
• Long Section (5 to 10 pages)
• Market Analysis
• Market size
• Geography
• Outlines existing players
• Discusses competition
• Competitive advantage
• Target Market
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The Technology/Product
• Describes the background of the invention
• Explains the technology/product characteristics
• Should include the technology advantages/benefits and KSP
(key selling points)
• Explains how the KSP of the technology would fill a market gap
or existing need
• How is the product better than existing (product comparison)
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7P’s - Products
• Are the products or services of the business described in the
plan?
• Does the plan describe features of the products or (better) does
the plan set out the unique advantages the products have for
the target customers?
• If there a mix of customers identified in the plan?
• Are there clear plans for the introduction of more than one
product?
• #1 Tip: beware of top down plans “the total market size is
£5bn, if we get just 1% of this market we will turnover £50m”
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Key People
• Background of the founding team and their achievements
• Other mentors/stakeholders?
• New hires and proposed management team, experience and
roles
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7P’s - People
• Has the management run successful businesses before? Check
the claims made in the business plan by asking and following
up on references.
• Is the team well rounded (finance, marketing, operations,
investment etc)?
• Are key sources of knowhow available to the business?
• Are key people incentivised to perform?
• Do the team have access to all necessary skills and network
contacts?
• Is the team flexible?
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Business Model
• Describes the route to market
• Via license to existing player for joint commercial development
• Via own production and distribution channels
• Multiple license for usage/distribution
• Include potential pricing information
• Brief description on the production process and the technology
supply chain
• Ways to reach profitability including a marketing summary
• Depends on the business model chosen
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7P’s - Promotion
• Are the printed materials (and website) consistent with the
business plan?
• Do the materials concerning products clearly communicate the
customer advantages?
• Will the company use distributors to access customers? Who
are the distributors and who will manage them?
• Does the company have a realistic understanding of the costs
and success rates of passive marketing (mailshots, web
searches)?
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7P’s - Production
• Does the plan set out how the company plans to produce its products?
• Does the company understand its value chain (Porter)?
• A value chain is a chain of activities
• Products pass through all activities of the chain in order
• At each activity the product gains some value
• The chain of activities gives the products more added value
• Are appropriate activities outsourced?
• How does the company plan to manage quality?
• How does the company plan to support its products?
Inbound
logistics
Operations
Outbound
logistics
Marketing &
Sales
Service
>
>
>
>
Firm infrastructure
HR Management
Technology development
Procurement
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Financials
• Projected cash flows
• Sales
• Net Income (or EBIT)
• Funding needs
• Capital Structure
• Description and assumptions
• Provide at least 3 different scenarios:
• Base case
• Stressed case
• Best case
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7P’s - Profit
• Study the cashflow model – assuming delays in income how will the
company cope (fixed versus variable costs)?
• Is turnover growth realistic – benchmark against other companies e.g.
TechTrack 100
• Britain’s fastest growing technology companies
• Based on sales growth over the latest three years
• Growth ranged from 36% pa to 422% pa
• Sales typically between £5m and £30m
• Are the profitability estimates in the range of achievable figures (say 0-
25%)?
• Pick on some figures you understand – does the figure look right?
• E.g. what is the company paying for office/lab space or insurance?
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Exit Strategy
• Explains the possible routes to exit
• Listing
• Trade Sale
• Ongoing expansion through organic growth
• Describes the most viable exit route and explain
• Necessary steps to exit
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IP Position
• Highlights patent status
• What is outstanding?
• Next steps
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7P’s - Protection
• Does the company have any form of IP protection?
• If patents, what is there status, territory and do they protect
the products?
• If trademarks, are the marks registered in key markets? Are
the marks well known?
• Has critical knowhow been transferred into the business? Is the
knowhow understood by more than one person (key-man)?
• Are contracts in place providing barriers to competition?
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Risk Analysis
• What potential risk there are
• Market
• Technology
• Financial
• Sustainability
• Possible mitigations
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Business Plan Financial Model
• Start with cash – expenditure and income
• Be realistic
• Use bottom-up approach
• Assume everyone gets paid properly from the start
• Build formal P&L, balance sheet from the cash flow
• Examine the biggest risks
• Be able to justify the smallest numbers
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Business Plan: Mistakes
• Saying that the company has no competition or underestimating
the strength of competitors
• No clear business model
• Disorganized and internally contradictory plan
• Miscalculation of market share and market size
• Being too close to the product
• Providing excessive detail
• Assuming that customer benefits are self-evident
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• Failing to assess durability and sustainability
• Market (web) data unsupported by evidence
• Equating a large, growing market with ease of gaining share
• Too many spreadsheets
• Endless sensitivity analyses
• Disproportionate time devoted to financials in presentations
• Ignoring potential risks
• Inappropriate organizational structure
Business Plan: Mistakes
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Video Presentation – The Sophos Story
• In the words of the co-founder Jan Hruska
• What lessons can we learn about the behaviour of successful
businesses from Jan Hruska?
• Many of these lessons relate to the 7P’s
• We will discuss the lessons at the end of the video