ENTREPRENEURSHIP

Dr. Jean-Marc Dautrey NEU Business School

GETTING STARTED:
CREATING A BUSINESS PLAN
What is a Business Plan?
 A business plan is a written document that
describes in detail a company's….
 Core business activities
 Objectives and…
 How it plans to achieve its goals.

 Start-up companies use business plans to…

 Get off the ground and…
 Attract outside investors
 Writing a business plan is the last
activity completed in the step of the
entrepreneurial process titled
“developing successful business
ideas”

 It is a mistake to write a business

plan too early
 It must be substantive enough
and have sufficient details about
the merits of the new venture in
order to…
 Convince the reader that the
new business is exciting an
should receive support
Reasons for Writing a Business Plan
 Any startup business needs to have a
business plan in place prior to beginning
operations…

 It is impossible to get funding without

one as…
 Investors generally make writing a
viable business plan a prerequisite
before considering providing capital
to new businesses.
But seeking funding is not the only reason to
develop a solid plan…

 There are several other reasons…

1) The act of writing the plan will force
the entrepreneur to think through all
key elements of the business
2) Trusted and experienced outsiders
who review your initial plan will help
the entrepreneur identify weaknesses,
overly optimistic projections, or
unsupportable assumptions
3) A solid plan can be a blueprint for
operating the business over the
first few years. It can help it grow
after it is up and running and can....
 Tell the entrepreneur ow much
he/she can afford for advertising,
for personnel, and so forth, and….
 Specify success factors…
4) The plan’s financial projections
can be used as a budget and help
the company identify its
objectives and remain on track.
 Actual results will prompt the
entrepreneur to take corrective
action
 Clearly, operating without a business
plan is not a good idea. In fact…
 Very few companies are able to last
very long without one.

 Ideally, the plan is reviewed and

updated periodically to see….
 If goals have been met or have
changed and evolved.
Who Reads the Business Plan?
What are They Looking for?
 A business plan is a written document that
describes in detail a company's….
 Core business activities
 Objectives and…
 How it plans to achieve its goals.

 Start-up companies use business plans to get off the

ground and attract outside investors
 Businesses may come up with a lengthier
traditional business plan or a shorter lean
startup business plan.
 Startup companies use business plans to get
off the ground and attract outside
investors.
Guidelines for Writing a
Business Plan
 To make the best impression, a business
should follow a conventional
structure…
 Although some entrepreneurs want to
demonstrate creativity in everything
they do….
 Departing from the basic structure of
the conventional business plan format is
usually a mistake..
 A firm’s business plan is the typically
the first aspect of a proposed
venture that an investor will see..

 If the plan is incomplete or sloppy, it is

easy for an investor to infer that…
 The venture itself is incomplete and
sloppy
 Table 1 - Red Flags in Business Plans
Red Flag Explanation
Founders with none If the founders are not willing to put their own money at risk,
of their own money why should anyone else?

A poor cited plan A plan should be built on hard evidence and sound research,
not guesswork or what an entrepreneur “thinks” will happen.
The sources for all primary and secondary research should be
cited.

Defining the market Defining the market for a new venture too broadly shows that
size too broadly the true target market has not been clearly identified. For
example, saying that a new venture will target the global
pharmaceutical industry isn’t helpful. The market opportunity
needs to be better defined. Obviously, the new venture will
target a segment or a specific market within the industry.

Overly aggressive Many investors skip directly to this portion of the plan.
financials Projections that are poorly reasoned or unrealistically optimistic
lose credibility. In contrast, sober well-reasoned statements
backed by sound research and judgment gain credibility
quickly.
Sloppiness in any It is never a good idea to make a reader wade through typos,
area balance sheets that don’t balance, or sloppiness in any area.
These types of mistakes are seen as inattention to detail and
hurts the entrepreneur’s credibility.
 Business plans, even among competitors in
the same industry, are rarely identical but…
 They all tend to have the same basic
elements, including…
 An executive summary of the business and
a detailed description of the business,
its services, and its products…
 It also states how the business intends to
achieve its goals.
 The information should be tailored
to the individual business and…
 Give clear and concise
information on all the important
aspects of the proposed new
venture.
 3 Types of Business Plans

Summary Full Business Operational

Business Plan Plan Business Plan

10-15 pages 40-100 pages

25-35 pages
Works best for new Is meant primarily
Works best for new
ventures in the for an internal
ventures that are at
early stages of audience; works
the point where
development that best as a tool for
they need funding
want to “test the creating a blueprint
or financing; serves
waters” to see if for a new venture’s
as a “blueprint” for
investors are operations and
the company’s
interested in their providing guidance
operations
idea to operational
managers
 The length of the business plan varies
greatly from business-to-business.

 If there are crucial elements of the

business plan that take up a lot of space,
such as applications for patents…
 They should be referenced in the main
plan and included as appendices.
 It is important to recognize that the
plan will usually change as it is
being written and as the business
evolves
 New insights invariably emerge when
entrepreneurs…
 Emerge themselves in writing the plan
and…
 Start getting feedback from others
Components of a Business Plan
 Components of Business Plan
Cover page
Table of Contents
I. Executive Summary
II. Industry Analysis
III. Company Description
IV. Marketing plan
V. Operations Plan
VI. Financial plan
Appendix
Cover Page
 The cover page should include the
company’s name, address, and the
entrepreneur’ contact information….
 The bottom of the cover page should also
include information alerting the reader to
the confidential nature of the plan.

 If the company already has a distinctive

trademark….
 It should be place somewhere near the center
of the page
Table of Contents
 The table of contents should list the
sections and page numbers of the
business plan as well as the
appendices
I. Executive Summary
 The executive summary follows the contents.
It is a short overview of the entire
business plan…
 It is not a preface or an introduction
(instead it is a snapshot of the entire plan)

 A well-written executive summary captures the

interest and attention of readers and prepares
them for what that follows
 As a summary of the plan itself, this is the
most important section of the document
(the first part that is read)

 The cleanest format is to provide an overview

of the business plan on a section-by-section
basis
 The topics should be presented in the same
order as they are presented in the business
plan
 Even though it appears at the beginning
of the business plan…
 It should be written last. The plan
itself will evolve as it is written, so not
everything is known at the outset…

 If it is written first, the risk is to write a

plan that seeks to fit the executive
summary..
 The executive summary should:
 Create a compelling story and convey
it quickly and memorably.
 Highlight the critical elements of the
business that provide a competitive
advantage.
 Present a coherent path to
profitability and success that make
sense.
II. Industry Analysis
 The main body of the business plan
begins by describing the industry
in which the firm intends to
compete…

 The reader should be able to…

 Visualize how the firm will fit or…
 See the gap that the firm will fill
 An entrepreneur must answer three
questions before pursuing the idea of
starting a firm
1. Is the industry accessible? (a realistic
place for a new venture)
2. Does the industry contain markets
that are ripe for innovation or are
underserved?
3. Are there positions in the industry
that will avoid some of the negative
attributes of the industry as a
whole? (positions at both the company
level and product or service level)
 Regardless of how eager and passionate an
entrepreneur is, he/she is not adequately
prepare until…
 He/she understands the competitive
landscape he/she intends to enter

 This requires studying environmental and

business trends (see your strategic management
class for environmental scanning and Porter’s five
forces)
 An industry analysis should include:
a) The size of the industry
b) Its growth rate
c) Sales projections
d) Promising areas
e) Points of vulnerability
f) The industry structure
g) A feel for the nature of the
participants in the industry
h) Key success factors
i) Industry trends
 The Industry Structure – How
concentrated or fragmented is
the industry?…
 Fragmented industries are more
receptive to new entrants than…
 Industries dominated by a
handful of large firms
 A feel for the nature of the
participants in the industry

 Are participants…
 Innovative/ conservative?
 Quick/slow to react to
environmental changes?...
 Key success factors in the industry –
The firm must establish competence
in the key success factors as…
 A foundation for competing
successfully

 Most firms will differentiate themselves

by excelling in two or three areas
 Industry trends include both…
 Environmental trends (social trends,
technological advances, regulatory
changes…) and…
 Business trends (input costs going up or
down, increasing or declining profit
margins)
 The industry analysis should conclude with a brief
statement of your beliefs regarding the L-T
prospects for the industry
III. Company Description
 The company description should include the
following sections…
a) General description
b) Explanation of the product or service
and its positioning
c) Current status of the company
d) Legal status and ownership
e) Key partnerships integral to the
business
 This section begins with a general
description of the company…
 It should explain where the idea
for the company came from and the
driving force behind its inception (if
the story is heartfelt tell it)

 It includes the mission statement

 Some businesses also include a tagline, a
phrase used by the business to reinforce its
position in the marketplace…
 For example “Bye, Bye Gym Hello
Convenience” (Wello, an online platform
that allows participants to arrange
workouts with trainer via Skype and
other online means)…
 Avoids having to make a trip to a gym to
receive the same service
 This part of the plan includes an
explanation of the product or service
which describes…
 How it is unique and
 How it will be positioned in the
marketplace, that is how it is situated
relative to its rivals.
 This is the ideal place to report the result of the
feasibility study the entrepreneur may have
conducted…
 In this section, the company can outline
the products and services it will offer,
and may also include…
 Pricing, product lifespan, and benefits to
the consumer
 Other factors that may go into this section
include production and manufacturing processes,
any patents the company may have, as well as
proprietary technology.
 Any information about R&D can also be
included here.
 The current status section should reveal
how far along the company is in its
development…
 A good way to frame this discussion is
to think in terms of milestones,
noteworthy or significant events such as…
 Registering the name, securing a
domain name, establishing a legal
entity, etc…
 The legal status and ownership
section should indicate who owns
the business and…
 How the ownership is split up
as well as…
 The current form of business
ownership (LLC, etc) if that
issue has been decided
 Key partnerships integral to the
business should be discussed as…
 Many business plans rely on the
establishment of partnerships
to make them work
Strategic Partners’ Interests
 Licenses for manufacturing and
assembly
 Supply of raw materials in
exchange for equity interest
 Formal or informal partnership
agreements
IV. Marketing Plan
"The aim of marketing is to know and
understand the customer so well the
product or service fits him and sells
itself."
Peter Drucker, credited as the founder of modern management
 The terms “marketing plan” and
“marketing strategy” are often used
interchangeably but…
 The marketing strategy informs the
marketing plan.

 In some cases, the strategy and the plan may be

incorporated into one document, particularly
for smaller companies that may only run one or
two major campaigns in a year.
 The marketing plan should include
the following sections…
a)Market analysis
b)Consumer behavior
c)Competitor analysis
d)Annual sales estimates
e)Economics of the business
f) Marketing strategy
a) Market Analysis
 A market analysis is distinctly different
from the industry analysis…
 Whereas the industry analysis focuses on the
industry in which a firm intends to compete
(e.g. the toy industry, men’s clothing…)…
 The market analysis breaks the industry
into segments and zeroes in on a
specific segment (or target market) in
which the firm will try to appeal
This is done through market segmentation…

 Segmentation = the process of dividing

the market into distinct segments.
 The market can be segmented in many
ways..
 Geography (city, province, country..),
 Demographic variables (age, gender,
income…)
 Psychographic variables (personality,
lifestyle, values…), etc…
 An entrepreneur can create value by
finding a new way to segment an
industry…
 For example, making guitars just
for women to accommodate a
women’s smaller hands and build
 The guitar industry has never been
segmented by gender
b) Consumer Behavior
 The more the start-up knows about the
consumers in its target market…
 The more it can gear products or
services to accommodate their
needs…

 For instance, what is the importance of

purchase convenience, rapid delivery, product
customization and so on for that segment…
 What are the ways to access this segment
c) Competitor analysis
 The competitor analysis is a detailed
analysis of a firm’s competitors…

 Refer to Strategic management and

Porter’s five forces
d) Annual sales estimates
 Table 2 shows the four basic ways for
a new firm to estimate its initial sales…
 If possible, more than one method should
be used to complete this task

 The most important outcome is to develop

an estimate that is based on sound
assumptions and…
 Seems both realistic and attainable
Table 2 - The 4 Methods for Estimating a New Firm’s Initial Sales
Method Explanation
Utilize the  There are two approaches that fit this category:
Multiplication • Start-ups that plan to sell a product on a national basis
Method normally use a top-down approach. This involves
trying to estimate the total number of users of the
product, estimate the average price customers pay, and
estimate what percentage of the market your business
will garner
• Start-ups that plan to sell locally normally use more of a
bottom-up approach. This approach involves trying to
determine how many customers to expect and the
average amount each customer will spend.

Find a  Find a comparable firm and ask for an estimate of annual

Comparable sales. For example, if you are planning to open a
Firm women’s clothing boutique, try to find a boutique that is
similar to yours – and not in your trade area – and
simply call the owner and aske for a chance to talk to
him/her about the business.
 Once a relationship has been established, you can ask for
an estimate of the business annual sales.
 The 4 Methods for Estimating a New Firm’s Initial Sales
Method Explanation
Contact  Contact the premier trade associations in your industry
Industry and ask if they track the sales numbers for businesses
Trade that are similar to your business.
Associations  If the trade association does not track actual sales
numbers for comparable businesses, ask if there are other
rules of thumb or metrics that help new companies
estimate sales. For example, many industries collect
statistics such as “average sales per square foot” or
“average sales per employee” for firms in their industry.

Conduct  Internet searches often reveal magazine and newspaper

Internet articles as well as blog entries that focus on firms in your
Searches industry. On occasion, these articles and blog entries will
talk about the sales experiences of a similar early-stage
firm.
 If you know of a firm that is comparable to your firm,
target that firm first in your search. You may get lucky
and find an article or entry that says, “XYZ firm earned
gross revenues of $250,000 per year its first three years.”
If the source of this data us credible and XYZ firm is
comparable to your firm, you’ve found useful information.
e) Economics of the Business
 The major revenue drivers should
be identified
 If a firm sells a single product and
nothing else, it has one revenue
driver
 If it sells product plus a service
guarantee, it has two revenue
drivers and so on…
 The size of the gross margin and the
contribution margin be determined as
well (one per revenue driver)
 Gross margin = selling price minus the cost
of goods sold (materials and direct labor
needed to produce the revenue driver)
 Contribution margin = the amount per unit
of sale that’s left over and is available to
“contribute” to covering the business fixed
costa and producing a profit.
 There should be an analysis of the
business fixed and variable costs
 This section should also include an
analysis of…
 The operating leverage and…
 The break-even point
Marketing Strategy
 The marketing strategy focuses
on…
 How the company will market and
sell its product or service…
 It boils down to how it positions
itself in the market and…
 How it differentiates itself from
competitors
 Since a marketing strategy refers to the
firm’s overall game plan for…
 Reaching prospective consumers
and…
 Turning them into customers of their
products or services…
 It needs to cover the 4Ps of
marketing: product, price, place, and
promotion (the marketing mix)
 If the product has already been
adequately explained in the
Company Description section...
 Move directly to price and then
place (distribution) and
promotion
V. Operations Plan
 The operation plan section outlines…
 How the business will be run and
 How your product or service will be
produced…

 It is important to strike a balance between

adequately describing this topic and providing
too much detail
 It is best to keep this section short
 The marketing plan should include the
following sections…
a) Geographic location of business
b) Firm’s facilities and equipment
c) Management team and company
structure
d) Structure of the company
e) Overall Schedule
 The location of a business may make a
dramatic difference (crowd-drawing
power of a company for mall owners…)
 The firm’s facilities and equipment
section should list them and briefly
describe….
 How they will (or have been) acquired
(purchased, leased…) and…
 Whether you outsource your production
 The management team of a new firm typically
consists of the founder or founders and a handful
of key management personnel
 A brief profile of each member should be
provided and include the…
 Title of the position
 Duties and responsibilities
 Previous industry and related experience
 Previous success
 Educational background
 The profiles should illustrate why each
individual is qualified and…
 Will uniquely contribute to the
firm’s success

 If the start-up has a board of advisors or a

board of directors…
 They should be included as part of the
management team
 One section should include how the
company is currently structured and
will structured as it grows…
 The lines of communication and
accountability should be made clear

 The most efficient way to illustrate the

structure is to include an organizational
chart
 A schedule should be prepared that
shows the major events required to
launch the business

 The schedule should be in the format of

milestones critical to the business’s
success such as...
 Obtaining critical financing, renting
facilities, obtaining the first sale, etc…
VI. Financial Plan
 This section presents a firm’s pro forma
(or projected) financial statements…
 It takes the plans developed and
expressed them in financial terms
 The first thing to include is a sources
and uses of funds statements, which…
 Lays out specifically how much a firm
need
 The marketing plan should include the
following sections…
a) Sources and uses of funds
statement
b) Assumption sheet
c) Pro forma financial statements
 The sources and uses of funds
statements lays out specifically….
 How much money a firm needs
(if the intention of the firm plan is
to raise money)
 Where the money will come
from
 How the money will be used
Bankers’ & Lenders’ Interests
 Company margins and cash flow projections
 The amount of money needed
 The kind of positive impact the loan will have
on the business
 The kinds of assets the business has for
collateral
 How the business will repay the loan
 How the bank will be protected if the business
does not meet its projections
 The entrepreneur’s stake in the business
 The assumption sheet is an
explanation of the most critical
assumptions on which the financial
statements are based…
 Assumptions can be based on…
 General information (no specific
source needs to be cited)
 Specific information (the source
needs to be cited)
 It is important to identify the most
critical assumptions on which a
business is based and…
 Test them thoroughly and complete
a feasibility study prior to moving
forward with a business idea as…
 Incorrect key assumptions will
cause failure
 A firm’s pro forma financial
statements are similar to the
historical statements an established
firm prepares except that…
 They look forward rather than
tracking the past

 Most experts recommend three to five years of

pro forma statements
 Pro forma financial statements include…
 The pro forma income statement
 The pro forma balance sheet
 The pro forma cash flow statement

 Most business plan writers interpret them

through ratio analysis (ROA, inventory
turnover, etc…)
Appendix
 Any material that does not easily fit into the
body of a business plan should appear in an
appendix (resumes, diagrams, market
research projections…)

 The appendix should not be bulky and only

include the additional information vital to
the plan but…
 Not appropriate for the body of the plan
itself.
The Oral Presentation of a Business Plan
 When asked to meet with investors, the
founders of a new venture should
prepare a set of power points that…
 Will fill the time slot allowed for the
presentation portion of the meeting

 The first rule in making an oral

presentation is to follow instructions
The 10 most important questions a business plan should answer
1. Is the business just an idea, or is it an opportunity with real potential?

2. Is the product or service viable? Does it add significant value to the

customer? Has a feasibility analysis been completed? If so, what are
the results?

3. Is the business entering an exciting, growing industry, and has the

firm identified an attractive position within the industry?

4. Does the business have a well-defined target market?

5. Does the business have points of differentiation that truly separate

it from its competitors? Are these points of differentiation sustainable?
6. Does the business have a sound marketing plan?
7. Is the management team experienced, skilled, and up to the task of
launching the new firm

8. Is the business’s operations plan appropriate and sound?

9. Are the assumptions on which the firm is basing its financial projections
realistic?

10. Are the financial projections completed correctly, and do they project
a bright future for the firm?
 The slides should be sharp and not
cluttered with material
 The entrepreneur should arrive well
prepared

 A common mistake entrepreneurs make is

to prepare too many slides…
 There should not be more than 12 slides
12-PowerPoint Slides to Include in an Investor Presentation

Topic
1. Title slide
2. Problem to be solved or need to be filled
3. Solution on how to solve the problem or satisfy the need
to be filled
4. Opportunity and target market
5. Technology
6. Competition
7. Marketing and sales
8. Management team
9. Financial projections
10. Current status
11. Financing sought
12. Summary
Answering Questions
 Investors like to ask what they already
know the answer to.
 Trick questions are likely.
 Don’t be afraid to not know the answer.
 Founding team can join the CEO for
questions.
Successfully Pitching the Business
 Keep the presentation to less than 30 minutes
 Tell a compelling story first
 Do not use a podium to speak
 Move about without distracting the audience
 Maintain eye contact with everyone
 Make the visual aids simple
 Use live demonstrations
 CEO should do the presentation
 Practice in advance
Mistakes in Developing the
Business Plan
Mistakes in Developing the Business Plan

 Projected rapid growth that requires

capabilities beyond those of the founding
team
 Reporting performance that exceeds
industry averages
 Using price as a market strategy for a
product/service
 Not investing capital in their own
businesses
THANK YOU FOR YOUR ATTENTION