Swat Tank Talk:Writing a Business Plan
January 15, 2013Eliot Ingram ’93
Eliot Ingram - Background
SwarthmoreCollege, Econ/PoliScidouble major (1993)MCS,educationstart-up (1993– 97)Wharton MBA, EntrepreneurialMgmtmajor (1997 – 99)Vcall,VC-backed internet start-up (1999– 00)ClearAdmit,education consulting/publishingfirm(2001–present)
What IsYourGoalfor YourBusiness?
Whatis your exit strategy?How long do you want to run the business?How long do you want your businessto runindependently?Who is the natural acquirer of your business?Do you want to grow a:Small/niche/lifestylebusiness?Large, scalable business?
What Is Your GoalforYour B-Plan?
Internal/personal goalsHelp you test assumptionsThink through strategic alternativesExternal goals (funding considerations)Use plan to raise money from outside investors
Steps to TakeBefore Writing YourPlan
Marketing mixexercise (3 Cs & 4 Ps)Reverse income statementexerciseFeasibilityplan
Marketing Mix: 3Cs
CustomersWho are they?How many are there? (market size)What are their needs?CompetitorsWhat firms are trying to meet the needs of the customers?Company (you)How will you deliver a service that better meets customer needs?
Marketing Mix: 4Ps
ProductHow will you tweak your product or service to better meet the needs of customers?PriceHow will you set prices?How does your pricing compare to similar services?PromotionHow will you get the word out that you have a great product at a great price?Placement (distribution)How will you deliver your product or service to the customer?
Reverse Income Statement
What it is/why use it?A quick way to check financial assumptionsStart with your profit goal and work backwardsProfit goalCost assumptionsRevenuegoal given profit goal & cost assumptionsDifferent CombinationofRevenue– Cost = ProfitDifferent Combinationof fixed and variable costs = CostsDifferent Combinationof Price * Quantity = Revenue
ReverseIncome StatementExample (Part 1)
Assume profit goal is $100,000 per yearWhat revenue –cost of good sold combination is realistic for your proposed business?$200,000 - $100,000 = $100,000 (50%gross profit margin)$300,000 - $200,000 = $100,000 (33%gross profit margin)$400,000 - $300,000 = $100,000 (25%gross profit margin)$1,000,000 - $900,000 = $100,00 (10%gross profit margin)
Reverse IncomeStatementExample (Part2)
What Price*Quantity optionsmake sense in order for your business ideato generate $1 million in revenue?100 customers paying $10,000 each?1000 customers paying $1000 each?10,000 customers paying $100 each?50,000 customers paying $20 each?MarketsizeWhat is the size ofyourtarget market?$50 million market?$100 million market?$500 million market?What % of market size is needed to achieve #customers?Ideally you serve a large market ($100 million+)
Reverse IncomeStatementExample (Part3)
CostsWhat arethe estimated fixed costs?What arethe estimated variable costs/unit?BreakevenVolume= Fixed Cost/(Price/Unit–VC/Unit)Assume $3000 fixed costsAssume $1/unit of variable costsPrice point of $4/unitBEV = $3000/(4-1) = 1000 units sold to achieve BEVA key milestone is to become cash flow positive from operations (when incoming cash from operations exceeds outflowing cash from operations)Breakeven Volume is a key way to determine when you will achieve positive cash flow
What itis?1-2 pagewritten plan1-page description ofmarketsize/financialsWhy use it?A quick way to assess a new business ideaMight do this for 4-5 ideas beforedetermining which business idea to write up into a 30+ page businessplan
Feasibility Study: QuestionstoAnswer
Succinctly describe your idea.Whoand how big is the potential market for your product orservice?Whatare the advantages/disadvantages over your competitors? How do you differentiateyourself?Whatresearch did you relyon?Itemizeyourstart-upcosts and your sourcefunds.Whatcan you do to improve the business salesvolume?Discussyour risks and strategies for managing theserisks.Discussthe feasibility for you to implement this idea.SeeAlumNetFeasibility Study Example
MarketingmixHelpwithmarketing and strategy sections of business planReverseincome statementHelpwith strategy andfinancials sections of business planFeasibility studyProvidesoverview forbusiness plan
Summary/visionMarketanalysisCompetitiveanalysisStrategyProducts/servicesMarketing andsalesOperations/key personnelFinancials
Summary of businessideaVision for your company
Marketsize/market growthrateMarket customer segments/target customerprofileCustomerneeds(Usemarketing mix 3Cs in this section)
KeycompetitorsWhoarethey?CompetitivelandscapeFragmentation: Fewlarge playersvslots of small players?Changes inindustryAnyconsolidation happening?How well are they meeting the customer needs?(Usemarketing mix 3Cs in this section)
Complete a SWOTAnalysisStrengthsWeaknessesOpportunityThreatsWhat is your strategy forservingthe customersbetter thanexistingcompetitors?Howis your product faster/better/cheaper?(Use marketing mix 3 Cs in this section)
Describe yourproduct/serviceHow do you position it relative to competing products?Do you have a product roadmap for developing a suite of products?Are youcreating aproduct or a company with products?(Use marketing mix 4 Ps in this section)
PriceWhat prices will you charge? Will you offer any discounts based on volume, time of purchase,etc?PromotionHow will you get the word out that you have a great product at the right price?Placement/distributionHow will you deliver your service to your customers?(Use marketing mix 4 Ps for this section)
Keypersonnel/qualificationsInclude bios on founders/key advisorsOrganizationalstructureHow will you organize your firm to market, produce and deliver services to customers?
AssumptionsIncomestatement (P&L) projectionRevenue - Cost of Goods Sold = Gross ProfitGross Profit –Overhead = Pre Tax Operating ProfitOperating Profit –Capex= Pre Tax ProfitPre Tax Profit – Taxes = Net ProfitCashflow statementCash from operations (similar to P&L)Cash from investments (buying/selling equipment =Capex)Cashfromfinancing(raising debt/equity)Balance Sheet = Assets – Liabilities = Shareholder Equity(Use reverse income statement for this section)
AdvisoryboardBetacustomersDistributorsMarketing channel partnersLegal/Accounting
Bootstrapping/self fundPrepayments from customersDebt (secured vs. unsecured)EquityFriends/familyAngelinvestorsVenturecapitalistsStrategics
Think carefully about your business goalsBusiness plan is a snapshot intimeAlwaysout ofdateMore about the process of creating the plan, not the plan itself
Marketing mix documentBusinessplan outlineDeveloping adiscovery-driven planSeedocumentSee link:http://faculty.msb.edu/homak/HomaHelpSite/WebHelp/Discovery_Driven_Planning_-_Annotated.pdfFeasibilitystudy example(AlumNet)
Feel free to contact me if you have questionsEliot IngramClear Admit, [email protected]