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Back to Business Basics (B2B2) - Part 3 Developing the Business Plan
In
the previous
issue of this
series we
looked at how
essential it
is to have a
clear and
impartial
assessment of
the size and
scale of your
markets so
that you can
demonstrate
that you have
analysed the
risks and
opportunities
objectively
and can show
a clear
vision of the
realistic
business
opportunities
that your
technology
affords. This
issue will
deal with how
to develop a
strategic
business plan
that brings
together all
the research
and clearly
articulates
your
objectives.
This will act
as both a
working
document and
the vehicle
to raise
finance.
Attracting Investment
SSP
was recently
invited to
attend the UK
Technology
Partnering
and
Investment
Forum in
London.
Typically,
this event is
a showcase
opportunity
for
technology
companies to
present their
offerings to
investors and
secure
finance. As
always, the
major
investment
firms were
present and
one of the
major topics
of discussion
was how to
attract
investment in
the current
economic
climate. A
survey of the
investment
community
revealed some
interesting
facts.
In
the UK during
2002 there
were 172
investments
made by VC
companies
into
technology
companies of
which 130
were for
second or
third round
financing.
Clearly, very
few VC’s
are taking
any risks
with
start-ups. So
if you are a
start-up how
do you raise
the money
from an
investment
community
that is risk
averse?
If
you have an
existing
track record
of success
this is
definitely an
advantage. If
you are able
to
demonstrate
that you are
a serial
entrepreneur
and have
connections
with VC’s
then this is
also a
considerable
advantage.
If you do not have this previous history the following options are open to you:
1.
Recruit a non-executive director who can facilitate these introductions and be directly involved in the raising of finance
2.
Partner with a company that can buy you out
3.
Create a professional and compelling business plan that will attract the appropriate finance
The Purpose of the Plan
The
purpose of a
business plan
can vary
according to
the needs of
the company
but can be
categorised
as follows:
- Attract debt or equity financing
- Promote relationships with joint venture partners and large customers, suppliers, and distributors
- Provide strategic guidance, operating tactics and objectives
- Furnish a standard against which to judge future business decisions and results.
- Evaluate strengths and weaknesses and identify viable alternative strategies
- Establish the operational and financial structure of a management buy-out
Over its lifetime, technology companies typically goes through several stages.
Generally,
each stage in
the life of a
technology
business
represents an
increase in
revenues and
employees
(and perhaps
in product
lines,
assets,
etc.), which
requires a
greater
delegation of
routine
functions.
The
transition to
a new stage
represents a
critical
phase in the
life of a
business.
This
transition,
along with
changes
inherent in a
business's
growth,
changing
market
conditions,
evolving
company
strategies,
and actual
financial
results,
signals a
need to
update the
business plan.
The Executive Summary
Most
VC’s will
make an
initial
judgement of
their
potential
investment in
a business
from the
Executive
Summary, so
it is
critical to
get it right
and should
only be a two
or three page
summary.
This section should always be written last
. Clarify
the focus:
The plan
should be
clear about
the products
to be
developed and
the markets
to be
addressed by
the business.
Try to avoid
saying that
the company
will develop
a compelling
new
technology
that will
irresistible
to buyers
without
explicitly
explaining
how the buyer
will know of
it and how it
will be sold.
Typical headings in the executive summary should be:
1. Current Situation (the problem you are solving)
2. Objectives (why you can solve it)
3. Growth Strategies (how you can solve it)
4. Action Plans (the execution of development, sales and marketing strategies)
5. Summary Financials (how you will make money)
6. Key Biographies (your management team)
The key essentials of the detailed plan
If
you have had
had previous
and less than
successful
attempts in
business,
feature them.
Your past
failures are
a better
indicator of
how you have
learnt from
these lessons
than trying
to hide or
fudge their
existence.
All plans should contain a SWOT analysis. Avoid superlatives: The "trust me" school of thought does not work in business plans. If your product is going to be the best in the market, thoroughly explain why. Quantity does not equal quality: A well written plan should be succinct and to the point and is usually 30 to 50 pages.
First
impressions
are lasting
impressions:
There are
many things
that can sink
a plan,
including
incorrect
spelling,
grammar or
punctuation;
the use of
unprofessional
language;
numbers that
do not total;
or poor
organisation.
Take the time
to have the
plan reviewed
by at least
three others
and
preferably
from those
not
intimately
involved in
the business.
"Slick"
plans can be
a turnoff:
expensive
looking plans
are often
perceived as
form over
substance,
frivolous and
a waste of
scarce
financial
resources. To
give your
business plan
a
professional
look,
consider
including a
plastic
binding, a
title page
including
your company
name,
address,
date, contact
name and copy
number,
numbered
pages, and a
detailed
table of
contents.
Support
assumptions
with
independent
sources.
Assumptions
made with
regard to the
target market
and
competition
should be
supported by
independent,
third-party
data whenever
possible.
This lends
credibility
to the plan
in the eyes
of the
reader. Avoid
the use of
non-assertive
language:
Vague,
qualifying
words such as
"might",
"probably",
"maybe"
and
"perhaps"
can have a
subtly
negative
effect on the
reader. Be
positive and
definitive.
Confidentiality
Technology
companies
usually
develop
proprietary
products that
are not
always patent
protected and
are
particularly
prone to
competition
while in the
development
stage.
Therefore, a
business plan
should be
clear and
concise but
should not
reveal
information
that could
reduce the
company's
competitive
edge.
Two methods of promoting confidentiality are described below:
Non-disclosure Agreement:
This is a
statement
indicating
that the
information
in the plan
is
proprietary
and is not to
be shared,
copied,
disclosed, or
otherwise
compromised.
The agreement
can be verbal
or take the
form of
signed
documentation.
Be prepared
to negotiate
on signed
non-disclosures
as potential
investors
sometimes
balk at such
agreements.
Control Numbering:
The control
number,
usually
included on
the first
page of the
plan, is
cross-referenced
to a journal
kept by the
entrepreneur
(e.g., copy
14 issued to
Jake Johns on
November 10,
1997).
Control
numbering
helps to keep
track of your
plans and
when they
were issued.
Should the
recipient of
a business
plan not
become an
investor,
control
numbering
facilitates
the Company's
requests for
the return of
the business
plan. The
number of
plans that
you
distribute
should also
be kept to a
minimum.
Choosing your investors
Excessive
exposure of
your idea to
the investing
community can
lessen its
overall
appeal. It
does not make
sense to
blanket mail
your business
plan to all
and sundry.
Do your
research as
to who has
invested in
similar
technologies.
Get named
individuals
to send the
plan to.
Sometimes,
it is better
to send the
Executive
summary first
as this can
save every
one a lot of
time. Be
patient.
Decision
making by
investors is
taking twice
as long as it
did three
years ago.
Expect a
minimum of
four to eight
months for
investors to
complete
their due
diligence on
your plan.
SSP acknowledges PriceWaterhouseCoopers for sections of this article.
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