EXECUTIVE EDUCATION

Developing a Dream: The New Venture Business Plan

Corey Phelps, Ph.D.

EXECUTIVE EDUCATION

What is a Venture Business Plan?

A document that explains and justifies a founding teams plan for a project to create a new business within a company Addresses the following questions
What is the basic idea for the new product/service? Why is the new product useful/appealing and to whom? What is the economic size of this opportunity? How will the idea for the venture be realized what is the plan for producing and marketing the product? How will the venture effectively compete with rivals/substitutes? Who are the founders do they have the required knowledge, experience and skills? How much funding is needed and for what purpose? What are the risks and how will they be managed? What are the major milestones on the path to commercialization?
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Basic Purpose of Venture BPlan

Attract necessary resources and support

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Create momentum for unpredictable initiative Learn

Venture is experiment designed to test hypothesis B-plan codifies learning of how to conduct new business B-plan is an evolving document - updated to reflect learning
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EXECUTIVE EDUCATION

Venture B-Plan: For Whom & Why?

The founding team
Sharpen and clarify your ideas

EXECUTIVE EDUCATION

Planning forces you to carefully examine all key elements of business

Achieve consensus and coherence of thought Provide a roadmap for converting idea to operating business Provide an operating budget

Attract project partners

Investor(s) the parent and possibly others (VCs) Key venture personnel Advisory/executive board Industrial partners Service partners (lawyers, consultants, etc.)
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Venture B-Plan: To Instill What?

Interest
A clear and persuasive explanation of the business A simple presentation of a viable team A sound operational plan & reasonable financial projections

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Confidence
Transparent assumptions in all analyses and projections A thorough risk analysis and explanation of risk mitigation An experienced, quality team

Commitment
Attract support of necessary resource-holders who will not abandon the venture when things go wrong Plan effectively addresses partners concerns & encourages their support
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Venture B-Plan: How to Write

Use clear, simple and concise language
Avoid jargon and minimize technical language

EXECUTIVE EDUCATION

15-20 pages of text maximum

Somewhat longer for more developed projects

Use headings and subheadings to organize Use bulleted and numbered lists to organize Use simple graphics to enhance communication Include detailed analyses, biographies, financial statements, technology overviews in appendices
Refer to where necessary in text

Convey professional, understated appearance

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EXECUTIVE EDUCATION

Venture B-Plan Depth & Scope

Depends on stage of project development
Pre-seed phase
Concept development and feasibility assessment Market and competitive evaluation

Seed phase
Business concept validation Build alpha/beta version of product/service Small scale customer testing Business model and strategy refinement Resource assembly (financial, operational, human)

Start-up and development phase

Final development and early commercialization Expanding resource assembly Continued business model and strategy refinement

Growth phase
Scaling all aspects of business
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Venture B-Plan: The Contents

Table of Contents Executive summary Venture definition, background & purpose Business definition, market and competitive analysis Description of offering Management team and organization Business model and strategy Marketing strategy and plan Operational plan and key milestones Key assumptions and critical risks assessment Strategic and operational linkages with Atos Origin Financial plan Appendices

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Important Complement: The Elevator Pitch

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Convince senior executive in 60 secs. to read plan Useful format: FORtarget market WHOstatement of need or opportunity THEclear statement of offering THATkey benefit and reason to adopt/buy/use UNLIKEcompetitive alternatives OUR OFFERINGkey differentiator BECAUSEproof that benefits can be delivered
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Sample Elevator Pitch: SoNear

EXECUTIVE EDUCATION

FOR mobile network operators WHO want increased revenue from new value added voice services without the need for changes to their infrastructure network AND FOR businesses and individual mobile phone users WHO want new value added voice services available on mobile phones at affordable prices THE SoNear solution enables fixed mobile convergence and the provision of value added services to mobile phone users THAT increases end user utility through presence and availability management services, and increases control over incoming and outgoing calls UNLIKE Wireless PABX offerings OUR OFFERING is not restricted to a limited geographical area and is considerably cheaper UNLIKE network centric Presence and Availability Technologies such as Teltier or Versada Networks OUR OFFERING provides PABX call management facilities as well as a full suite of presence and availability solutions, does not require modifications to the existing infrastructure network and is available now UNLIKE OnRelay OUR OFFERING is infrastructure and PABX independent and has a stronger technical architecture and is more cost effective to install and operate UNLIKE Vodafones Company Caller with Mobile Exchange Offer OUR OFFERING takes advantage of the installed PABX features These are proven benefits BECAUSE our technology was validated in independent testing.
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EXECUTIVE EDUCATION

Executive Summary
Most important part of plan! Short: 1-2 pages Persuasive, compelling story Snap-shot of entire plan
Addresses the basic questions on slide 2

Write it last!

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Venture Definition, Background, & Purpose

EXECUTIVE EDUCATION

Provides foundation and context for later sections Concisely address the following:
What business (broadly) are you in? What is the mission of the venture? What is the offering? How is the offering valuable and unique? What is the stage of development?
What has been accomplished? Emphasize experience and roles
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Who are the founders?

Business Definition, Market, Competition

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Describe the potential value of the market opportunity and assess competing offerings Market opportunity
Who is the customer? What is the problem they want to solve? How many have this problem? What factors will drive growth in demand? How big will the opportunity be in 5-10 years?

Market characteristics
What affects the purchase decision? How does the purchasing process work? How can the market be segmented?

Competitive Analysis
What are the current solutions for this problem? Who provides them? What effects the nature and intensity of competition in the industry? What are the key drivers of profitability in the industry? How might competitors respond to new entrants? How to mitigate?
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EXECUTIVE EDUCATION

Industry Analysis: 5 Forces

What effects the nature and intensity of competition in the industry? What are the key drivers of profitability in the industry?
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EXECUTIVE EDUCATION

Description of Offering
What is it? What does it do? What other technologies/products does it need to work?
Is it a component in a system or independent? If component, will it interoperate easily?

Is any aspect of it legally protectable?

Patent or copyright?
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Management Team & Organization

EXECUTIVE EDUCATION

Describe the relevant knowledge, experience, skills and role of each project founding member Concisely address:
Education, skills, and experience of each member Reputation internally and externally Complementarity of team members Functional roles of each member What key members are still needed and why
From where will they be recruited (internal, external?)

Why is this the best team to pursue the opportunity? Advisory board (internal and external members)
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Business Model & Strategy

Business model
Offer
Value proposition

EXECUTIVE EDUCATION

Infrastructure
Resources Activities Partners

Customer
Customer relationships Distribution channels Customer segments

Finance
Key cost drivers Revenue streams

Business strategy
How will we capture value and defend this over time?
Uniqueness vs. low cost vs. both

Barriers to imitation
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Business Model
INFRASTRUCTURE

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PARTNER NETWORK ACTIVITY CONFIGURATION

OFFER

CUSTOMER RELATIONSHIPS DISTRIBUTION CHANNELS

CUSTOMER

CORE CAPABILITIES

VALUE PROPOSITION

CUSTOMER SEGMENTS

COST STRUCTURE

FINANCE

REVENUE STREAMS
[Osterwalder (2004) The Business Model Ontology]

Skype
eBay deliver voice & video quality software development free VoIP & value added services internet website global (non segmented)

software development

unit-based, subscription, licensing

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EXECUTIVE EDUCATION

Value Proposition
Value proposition
An explanation of why, using the relative benefits and costs of the offerings, customers will buy from you instead of rivals

Economics of value proposition

Identify and emphasize benefits for customers, not features Benefits must be identifiable, meaningful and valuable
Must influence willingness to pay (WTP) for offering

Value for customers = WTP (for benefits) costs (price, switching costs, other adoption costs)
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EXECUTIVE EDUCATION

Challenges of Value Creation

Holding Output (Q) Constant; Assume no user costs
V= Reservation Price (max. willingness to pay) P=Market Price C=Cost of Production (including capital cost) V-P=Consumer Surplus P-C=Profit Margin V-C=Value Created (surplus + profit)

V-P Economic P-C Profits V P C C

Includes costs of capital

Challenge 1: Maximize value created (V-C) relative to rivals Challenge 2: Capture most of value created
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EXECUTIVE EDUCATION

Value Proposition & Value Curve

Your Venture High Comparison Venture (or Industry Avg.)

Low

benefit 1

benefit 2

benefit 3

benefit 4

benefit 5

price costs

dimensions of competition

switching other costs costs

Can you create a new value curve?

Create new benefits Increase level of existing benefit Reduce level of existing benefit Eliminate benefits

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EXECUTIVE EDUCATION

Marketing Strategy
Who are our target customers?
What do know about them?

How will we price our offering? How will we brand our offering? How will we promote our offering? How will we sell our offering? How will we distribute our offering? How will we provide customer support? Market share objectives?
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R&D plan, schedule and costs Marketing and sales plan, schedule and costs Production and logistics plan
Investments and capacities Production scheduling and related costs

Operational Plan & Key Milestones

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Human resource plan

Staffing plan Reward and compensation system

Plan for eventual integration into parent Identify & graphically represent major milestones & critical path In general:
Identify key milestones Relate each milestone to testing of assumption Identify key resources needed for each milestone and associated cost After milestone, assess what was learned and update plan
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Key Assumptions & Critical Risks

EXECUTIVE EDUCATION

Make explicit key assumptions in each area of plan that effect milestones and financial forecasts Ask: what can go wrong with each assumption? Conduct sensitivity analysis of financial forecasts for each major risk Use sensitivity analysis to develop scenarios of what could go wrong and how Identify how each scenario can be addressed & mitigated
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Linkages to Atos

How does the venture complement and conflict with the strategic objectives and business model(s) of AO? What operational resources will the venture need and who controls them?

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EXECUTIVE EDUCATION

Financial Plan
Purpose
Identify current and future funding needs and timing Test financial viability of model and strategy

Include projections for 2-4 years

Declining demand for accuracy with time Clear summaries of:
Cash flows (monthly for first 2 years, quarterly thereafter) Income statement (profit and loss) Balance sheet

Present nominal case and some sensitivity analyses Be conservative! Estimate project valuations using cost of capital
DCF: NPV, IRR
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Seven Deadly Sins of Venture B-Plan

Your plan is likely to be rejected if:

EXECUTIVE EDUCATION

It provides no clear explanation of founding team qualifications The financial projections are unreasonably optimistic It is unclear why anyone would want to buy the offering It is unclear where the product is in development The executive summary is too long and unfocused It looks far too slick It is poorly prepared and appears unprofessional
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A Winning Venture Business Plan

EXECUTIVE EDUCATION

Persuasive makes best, but well-reasoned case for venture Engaging to read tells an interesting story Succinct shorter is better Avoids burying the exciting opportunity under lots of data A compelling value proposition A sensible business model Provides constituents info they need to make a decision Generates credibility and instills confidence
Assumptions supported and validated; sensitivity analysis Solid, quality team

Good fit with parent offerings, competencies and strategy

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EXECUTIVE EDUCATION

Up Next
Breakout session: task force meeting
With coaches

Purpose
Discuss your groups challenge Develop __ offering concepts to address challenge

Deliverable
One PowerPoint slide summarizing best idea
Use template

Present summary
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EXECUTIVE EDUCATION

Pitch Template
Who is the customer? What is the problem they want to solve? What is your unique solution?
DO NOT explain how it works

What are the key benefits for adoption? What is the customer value proposition why will they buy your product and not others?

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