Strategic Business Planning Part 4

STRATEGIC BUSINESS PLANNING

Welcome! Session 4 – July 27, 2004 Instructor - Kevin Hawley [email protected]

Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING The Wharton SBDC is part of Wharton Entrepreneurial Programs and the Sol C. Snider Entrepreneurial Research Center. The Wharton Small Business Development Center is in part financed by a grant from the Commonwealth of Pennsylvania, Department of Community and Economic Development. The Wharton SBDC is funded under Cooperative Agreement No. 4-603001-2-0040-24 by the U.S. Small Business Administration. The support given by the U.S. Small Business Administration through such funding does not an expressed or implied endorsement of any of the co-sponsors’ or participants’ opinions, findings, conclusions, recommendations, products, or services. All SBDC programs are non-discriminatory and open to the public. Reasonable arrangements for persons with disabilities will be made if requested at least two (2) weeks in advance. Please contact Dr. M. Therese Flaherty, Director, Wharton Small Business Development Center, University of Pennsylvania, 433 Vance Hall, Philadelphia, PA 19104, (215) 898-8635.

Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Agenda – Session 4 

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Homework Review from Session 3 Bringing It All Together – Writing the Business Plan Attachments and Supporting Documents Milestone Driven Planning Finding and Using an Expert Advisory Board Finishing your Business Plan Accessing Additional SBDC Resources Group Q & A Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Session 3 Homework Review  Develop Your Financial Plan  Income Statement, Balance Sheet, Cash Flow  5 Year EBITDA Projections?  Startup funding requirements?  Pre-money valuation?

 Revise Your Operating Plan  Cost estimates per sales unit and operating expenses that

correspond to values in the financial plan

 Revise Your Marketing Plan  Pricing per unit and sales volumes that correspond to

revenue estimates and cash flow projections Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Analyzing Your Numbers… Total amount of money needed/raised Angel investor’s expected 5-year ROI

$_______ - Cash Flow Projections $__________ (30X) – Roughly 100% ROI per year

Pro forma 5-year EBITDA estimate Valuation (comparable) multiple Projected 5-year value of company Ownership percentage required by Angel Investors at 5-year exit horizon

Current (pre-money) valuation of company

$_______ - Income Statement ___ times earnings - Industry research $__________ - multiply __% - Projected 5-year value of the company divided by the AI’s expected 5-year return amount

$____________ - Amount of money

Copyright © March 2004 Wharton Small Business Development Center

raised divided by the AI’s required ownership percentage

STRATEGIC BUSINESS PLANNING

Finding Angel Investors… Starting points for finding Angel Investors and other resources…  Wharton SBDC Website http://whartonsbdc.wharton.upenn.edu  Innovation Philadelphia http://www.IPphila.com  Inc.com (“Inc. Magazine”) Website http://www.inc.com/guides/finance/20797.html  Google Search Engine Enter these terms - “angel investors” Philadelphia Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Reviewing the Business Plan Model Opportunity Why this business? Why now? Why you?

Product/Service What are you going to provide Industry, Buyer & Competitor and who wants to buy it? Analyses

Operating Plan

Marketing Plan

Cost Projections

Sales Projections

What will it cost to produce your product or service?

What will it cost to sell any given amount of your product or service?

Financial Plan

Pro Forma Financial Statements How will your business make money? How much? For how long? Risks? Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Writing the Business Plan Executive Summary  Statement of Purpose – Why are you writing a business plan?  Mission Statement – Who do you serve? How? What’s special?  The Opportunity – Why now? Why here? Why you?  The Strategy – How are you going to capitalize on The Opportunity?  Economics – How does the business make money?  Exit/Harvest Strategy – How do investors get paid at the end?  The Offering – How much of the company is available? For how much? Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Writing the Business Plan Product / Service Description  Description of Business – What exactly is it that you plan to do?  Industry Analysis – What is the general business environment like?  Buyer Analysis – How much do you know about prospective buyers?  Competitor Analysis – How much do you know about other providers?  Geographic Analysis – What makes you think this is a good location?

Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Writing the Business Plan Operating, Marketing, and Financial Plans  Operating Plan – How will the business be run on a day-to-day basis?  Unit Cost Analysis – What are the variable costs associated with one sale?  Marketing Plan – How will you drive demand for your product/service?  Pricing Analysis – How much are people willing to pay you?  Sales Projections – How many units will you be able to sell?  Income Statement and Balance Sheet – Do the numbers agree?  Cash Flow, Sensitivity, and Break Even – How much do you need? Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Business Planning is an Iterative Process… 2 Run the numbers… (Develop your Financial Plan)

3 1 Tell the story…

Verify the story…

(Draft your narrative sections)

(Examine the narrative sections)

Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Attachments and Supporting Documents          

Executive team résumés, C.V.’s, professional certifications/licenses, and letters of recommendation Patents, trademarks, plans, drawings, and other documentation of intellectual capital related to the business model Flow charts (explaining business processes) Lease agreements and real estate appraisals Agreements (or letters of intent) with customers, suppliers, and business partners. Brochures and marketing collateral examples, web page printout Market research reports, analyst reports, and news articles Glossary of terms specific to your business model List of current investors/owners (capitalization schedule) Your Milestone Plan (next slide) Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Milestone Driven Planning (MDP)  Identify the big milestones between “right now” and your objective.  Develop a process map describing the important steps you must take and the achievements you expect along the way.  Relate your map to time – put milestones on the calendar.  Product/Service Development Milestones  Operating Plan Milestones  Marketing and Sales Milestones  Funding and Revenue Milestones  What questions do you need to answer along the way?  What are the go/no-go decision points?    

HINT - Use your financial plan to work backward from a key business goal HINT - Bracket regular intervals (3, 6, 12, and 24 months) HINT - List what must happen in each period to move the business forward Use MDP as a Report Card to yourself and financing sources Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING NewCo Inc.

Milestone Driven Planning (MDP)

Product/Service Milestones 1

Develop initial prototype

2

Begin first stage customer tests

3

Revise prototype

4

Begin production (limited run)

By January 1, 2005

By March 31, 2005

By June 30, 2005

By September 30, 2005

By December 31, 2005

X X X X

Operating Plan Milestones 5

Lease 600 sq/ft facility

6

Expand facility to 1400 sq/ft

7

Hire machine operator

8

Hire assembler

X X X X

Marketing and Sale Milestones 9

X X

Hire sales & marketing coordinator

10 Begin customer presentations

X

11 Finalize list of customers for first stage testing

X X

12 Hire outside sales professional 13 Begin initial marketing campaign

Funding Milestones ($500K total funding) 14 Initial (seed) funding 15 April 1 - June 30 additional funding 16 July 1 - September 30 additional funding

$25,000 $32,000 $90,000 $120,000

17 October 1 - December 31 additional funding

$233,000

18 January 1, 2006 - June 30, 2006 funding

Revenue Milestones Projected January 1, 2006 - March 31, 2006 revenue

$50,000 $160,000

21 Projected April 1, 2006 - June 30, 2006 revenue

$240,000

19 October 1 - December 31 revenue 20

Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

- 10 Minute Break -

Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Types of Expert Advisory Boards Customer Advisory Board

•Form a group of your most strategic customers. Types Of Advisory Boards •Invite them to offer perspective concerning your products, competitors, or industry trends. •Unlike a User Group, this type of Advisory Board is intended to build relationships with the customers or segments that will most directly impact the future of your company. •Best for companies whose customers' success depends upon the company's product or service delivery.

Business Advisory Board

•Select people who are qualified to evaluate your specific business model. •The Business Advisory Board can provide direction and provide much needed “reality checks” as you plan your strategy. •These outside experts should be drawn from various business disciplines (finance, marketing and sales, legal, operations, technology, etc.) •Ideal for entrepreneurs who need an outside, highly knowledgeable viewpoint.

Copyright © March 2004 Wharton Small Business Development Center

Industry Advisory Board

•Influencers in the industry assemble to discuss the critical issues facing the industry, including lobbying efforts. •This group can be instrumental in bringing an outside understanding of the industry to develop thought leadership and define industry standards •May include key suppliers, functional specialists, journalists, analysts, and academicians.

Source: Geehan Advisory Boards www.geehanadvisoryboards.com

STRATEGIC BUSINESS PLANNING

Finding and Using Expert Advisory Boards  Networking, Networking, Networking  People you come into contact with everyday  People your current contacts can introduce you to  People featured in local newspapers, professional journals, convention keynote speakers, etc.  Academic faculty, faculty recommendations  Use every opportunity to find people to talk to about your business – follow up on all expressions of interest!

 Appropriate Roles for Advisory Boards    

Boards help you learn and to stay informed Boards help you evaluate options and understand risks Boards can help you meet prospective customers Boards can provide context for your decisions, but don’t let advisory boards make your decisions! Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Finishing Your Business Plan  How much progress have you made during this class?  Which sections have been the easiest to write? The most difficult?  What do you have left to do?  What needs to be done first?  What can you do now?  What requires additional research/assistance?  When will your first draft (all sections) be completed?  What would have helped you prepare for this class?  How could this class itself have helped you move forward more? Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Accessing Additional SBDC Resources From this point forward, you’ll get the most out of your contact with the Small Business Development Center if you:    

Have completed a first draft of your business plan Have specific questions about sections of your business plan Need to improve your skills in a specific area Have completed a list of specific objectives or goals to accomplish over the next three months (Milestones)

Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Accessing Additional SBDC Resources 

The Wharton Small Business Development Center website 

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Wharton SBDC Answer Desk 

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We maintain an answer desk to aid with your business questions. Our answer desk is just a phone call away.

Wharton SBDC Resource Center 

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http://whartonsbdc.wharton.upenn.edu/Index.htm

There are many great resources on the web. We have compiled a list of the web resources for small businesses we find the most useful.

Entrepreneur’s Guides Local Business Assistance Organizations Wharton SBDC Consultants Additional Wharton SBDC courses Events for entrepreneurs Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Group Questions and Answers

Q& Copyright © March 2004 Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Homework Assignments  Finish your Business Plans!  Complete your Milestone Plans!  Stay motivated, stay optimistic, and stay focused.  “Discuss – Write – Review – Repeat”  Setbacks are to be expected – persistence counts!  Try to keep an objective view of your progress.  Your are your own first employee.  Your are also your own boss.  How effective are you at leading that first employee?!

Good luck in your new ventures! Copyright © March 2004 Wharton Small Business Development Center