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NES Enterprise Series 2010 - Business planning fundamentals
- 1. Joe Rouse Advisor, NUS Enterprise Business Planning Fundamentals
Notes de l'éditeur
- Good morning. I’m Ann Rowell, standing in for that God of Business Planning and Needlepoint, Joe Rouse [slide]
- For context, I’ve had about twenty years of business experience in high tech and the life sciences. I’ve worked on both sides of the desk in North America and Asia-pacific, as a venture investor and operating executive of venture-backed new ventures. I’ve looked at literally hundreds of business plans, the good, the bad, and the ugly. That said, I am humbled by the challenge and effort that one assumes to create a plan. Over the course of this experience, I have become increasingly convinced that good planning-and plan management-are critical to business success. Sadly, these are still neglected in too many instances, under the excuse that a rapid growth environment is too uncertain to plan for. I personally see this as intellectual laziness. I’ve also been a judge of Startup@Singapore since 2007, through an introduction made by Professor Douglas Abrahms. [slide]
- At the outset of presentations, I like to characterize what I hope to achieve, and what I trust your take away will be. Feel free to ask questions at anytime. An interactive session is always a more rewarding one for all! [slide]
- From a first principles standpoint, a business plan is a narrative roadmap for your business’ success, covering a 3 to 5 year horizon. Most professional investors want to see a 5 year view, but appreciate that the longer the view, the greater the uncertainty. A good plan is the following: A description of the essential ‘Who/What/When/Where/Why and How’ of your business A stand-alone document that speaks for itself, and is composed to be living & breathing. This means that while rigorously researched and prepared , it is flexible to accommodate significant changes to the business context for which it is prepared. It is also basis of a contract between you and your key internal and external stakeholders, such as senior employees and investors.[slide]
- So what’s the business rationale for researching and writing a business plan? There are internal reasons, within the company. These include the following: It enables you to better build & maintain alignment within the team, which is critical ling term success as you go through the inevitable ups and downs. Planning promotes consistency and other business disciplines, such as clarity of thought, and verifiable third party evidence that the direction you are leading the team to take is based on reality and not personal whim. A plan also provides a touchstone for future reference, specifically the creation of the following year’s updated plan. Knowing where you’ve been, the assumptions you made and the outcomes that resulted makes each successive year’s planning more effective and credible. External reasons for planning include It helps build & maintain alignment with external stakeholders, especially investors. Nothing make an investor more worried than a set of activities with no apparent reference or common connection. This is only more the case in down markets such as the current one. A plan also helps establish credibility and trust. As mentioned in the first instance, future reference is important for external stakeholders such as investors and other providers of financial services, strategic partners, and customers. While you don’t necessarily show your plan in its formal guide to all of these, you will communicate key elements that are directly related to their engagement with you. [slide]
- Always write your own business plan, instead of farming it out to consultants. It will become apparent that you are not the author of the plan, and this is fatal with most customers, partners, and investors. By all means, work with a consultant or take a class to learn about writing a plan. But remember that this a process, not just an outcome in itself. Composing the plan is also an opportunity for focus, clarity of thought and greater customer/market insight, as well as the alignment amongst stakeholders I mentioned before. No one should know more about your business than you, and a good plan should reflect your expertise. And your story must come from your heart as well as your head [slide]
- Your plan must answer these three questions through the course of the various sections and supporting information: So what? What is the critical CUSTOMER pain that your product/service solves Who cares? What and where are the markets that have this pain, how big are they and how fast are they growing? Why you? Why (and how) will your solution best serve the customer versus the competition. Put another way, how will you win the race to be #1 in your chosen market segment? [slide]]
- So let’s get down to the content of the plan. It’s helpful to have a Mission statement, which is a clear statement of your company’s long-term mission. Use words that will help direct the growth of your company, but be as concise as possible. Assuming you are seeking funding, state specific quantum to achieve your mission List the CEO and key management by name Include previous accomplishments to show these are people with a record of or great potential for success If appropriate, indicate the number of years of experience in each person’s field field Review those changes in market share, market leadership, market participants, market shifts, costs, pricing and competition that provide the opportunity for your company’s success. Use third party information-market research report findings, quotes from potential customers or partners, or established competitors, to validate that you are going after something that can provide an attractive return on investment as well as a viable business. This is the ‘Who cares’ part. [slide] State customer pain and define nature of product/service opportunities created by those problems. This is the ‘So what’ part. Summarize key technology, concept or strategy on which your business is based. Also know as ‘Why you’. Summarize the competition and outline your offering’s competitive opportunity This is how you will engage with customers, through the creation and implementation of a competitive positioning with associated marketing efforts. State specific measurable objectives over your time frame, including revenues, profit and market share. Use snapshot summary charts. Save the details for the appendices. High-level financial plan that defines your financial model, required investment, and outlines expected sales and profits for the next three or five years. This is a more detailed breakdown of your operating costs, covering personnel, facilities and equipment, as well as external services How are you going to provide financial liquidity to your self and your investors. What is that likely to be, based on recent comparable exits such as IPOS or acquisitions of similar companies by large players. [slide]
- The next points are in an order that reflects my bias as a venture investor and operating exec: First and foremost, I look for a team with a solid ownership culture. We understand that business models evolve and things can go sideways. We therefore look for a team that demonstrates the capabilities to navigate rough waters. A business plan must credibly forecast high growth and explain the business strategy. It must show a thorough understanding of the market, competitive positioning, growth potential, and new market opportunities. The target market must be sizeable enough to make an investment of time and money worthwhile. A credible, well-researched business model is also key. This need not be novel-but it must provide a clear path of when and how you’re going to make money! VCs invest for financial return. When the time comes, we’ll want you to support a decision to sell the company, merge it, or take it public. So an exit strategy with contingencies is key. And financial information from third party sources ensures that your vision is grounded on reality, as well as external factors that support your company’s internal capabilities. We also want to ensure that the company has the reporting processes and procedures to enable it can meet international financial management standards, as well as enable the board to carefully monitor things. [slide]
- If you are at the stage that you are forming a board of advisors or directors, make sure they are commercially-focused with relevant experience in your space and with young companies. Valuation is what an investor is prepared to pay versus the other investment opportunities he has. If you are going to include a section on valuation, base it on what you will do in the market, in terms of revenues and market share, not what you have spent to date. WRT IP protection, make sure you are not infringing on existing patents and have a plan to patent key inventions before the window for obtaining them closes. Trademark your product and service names, company symbols, etc. Finally, I look for evidence that the leadership looks to gain from the experience and networks of its partners, in a mutually-beneficial manner. This is also called a ‘win-win’ mindset’ [slide]
- After considering what I’ve outlined, as you go to prepare your plan, I would ask that you pay particular attention to the following: Spend more time researching and thinking through, and create more content on markets and customers, and less on technology. Your story’s credibility is never about the technology, no matter how sexy. Effectively use graphics and charts to memorably create visual snapshots of the key aspects of your business. Use of external, third party information with references where ever possible. Don’t disparage or dismiss the competition. It suggests your are less than 100% focused on meeting customer needs, versus fighting battles with others. Competition validates that a market is ‘real’ In general, ‘Less is More’. A few well-written paragraphs with good third party information-from market research firms or customer and partners-is far more compelling that reams of numerical analysis and seemingly-unrelated graphics. [slide]
- After considering what I’ve outlined, as you go to prepare your plan, I would ask that you pay particular attention to the following: Spend more time researching and thinking through, and create more content on markets and customers, and less on technology. Your story’s credibility is never about the technology, no matter how sexy. Effectively use graphics and charts to memorably create visual snapshots of the key aspects of your business. Use of external, third party information with references where ever possible. Don’t disparage or dismiss the competition. It suggests your are less than 100% focused on meeting customer needs, versus fighting battles with others. Competition validates that a market is ‘real’ In general, ‘Less is More’. A few well-written paragraphs with good third party information-from market research firms or customer and partners-is far more compelling that reams of numerical analysis and seemingly-unrelated graphics. [slide]
- I’d like to leave you with a final thought once relayed to me by a business school prof, that I thought at the time to be a little presumptuous. But given the tools we have access to, through our studies, our clubs and organizations, and online resources, there really isn’t a viable excuse for not adopting a planning mindset to your venture. Perhaps a gentler adage goes something like “If you have no direction, any road will do.” Not something I would advise! Thanks for your attention and participation. Enjoy the rest of today’s session.