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How to Write a Business

Plan

How to Write a Business

Plan

This report is solely for the use of client personnel. No part of it may be circulated, quoted, orreproduced for distribution outside the client organization without prior written approval from

McKinsey & Company. This material was used by McKinsey & Company during an oral

presentation; it is not a complete record of the discussion.

Innovation ChallengeInnovations Foundation

Toronto, Canada2001


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ContentsContents

Business start-up process

Writing the Business Plan

Constructing the team


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ContentsContents





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Stages of a Start-upStages of a Start-up

Stage 1 Stage 2 Stage 3

Businessidea

generation

Businessplan

preparation

Start-upand growth

Established

company

Interest ofinvestors

Financingdecision

Exit ofinitial

investors


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5 key factors for success of innovative start-ups5 key factors for success of innovative start-ups

Ideas Degree of innovation Scope Patent

Traditional service providers Attorneys Patent lawyers Tax consultants/

accountants Market researchers

People Inventors Entrepreneurs Team members

Capital Availability/amount Needs/responsibilities Exists for investors

Network & exchange Coaching Networking Matchmaking Innovative service provider Venture capitalists Headhunters Business angels Start-up consultants


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Elements of a promising business ideaElements of a promising business idea

CLEARCUSTOMER

VALUE

MARKET OFADEQUATE

SIZE

FEASIBILITYAND

PROFITABILITY

Successful ideasdemonstrate how bigthe market is, the targetcustomers and how the

product differs from thecompetition

SUFFICIENTDEGREE OFINNOVATION

Create a new product ora new way of deliveringan existing product doboth and create a new

industry

Ideas should be feasiblewith realistic time andresource plans

The key to success issatisfied customers, nota great product

There is nothing in the world aspowerful than an idea whose time has

comeVictor Hugo


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Innovation classification schemeInnovation classification scheme

New product

Microsoft

New industry

Netscape

Existing industry

Skilled trades

Engineering offices

New business system

Dell

Convention Innovation

Business system

Con

vention

I

nnovation

Product/service


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Role of traditional service providersRole of traditional service providers

Patentlawyers

Taxconsultants

Market

researchers

PATENTS

TAX

MARKETRESEARCH

Professional advisors can help toclear hurdles

Longterm

success


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Role of a venture-capital companyRole of a venture-capital company

$$$

IPO (Initial PublicOffering)

Sale of stake tothird parties

Seed capital (pre

start-up) Start-up capital (at

or shortly beforestart-up)

Expansion capital

Young, growingcompanies

Capital

recovery

Investments

58 years postStart-up


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Collective team strengthCollective team strength

Well constructed teamsprovide a strong basis for

success

Teammembers

Inventors

Entrepreneurs

Teammembers

Finance

SUCCESS


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Network supportNetwork support

START-UP

Venture

capitalists

Friends

SponsorsOther

start-ups

Serviceproviders

Peers

EntrepreneursAcademics

Use allconnections


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ContentsContents





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Writing a Business Plan forces youinto disciplined thinking, if you do an

intellectually honest job. An idea maysound great, but when you put downall the details and numbers, it may fallapart

Eugene Kleiner, Venture Capitalist


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Characteristics of a successful Business PlanCharacteristics of a successful Business Plan

Your calling card

The document the readerwill remember you by

Objective

Accurate

Positive and critical

Clear

Well structured

Standalone

Simple

Plain English

Non-technical terms

Consistent

Style

Analytical depth


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Elements of a Business PlanElements of a Business Plan

5. Marketing and sales

6. Business system and organisation

7. Implementation schedule

Businessconcept

Draftbusiness

plan

Finalbusiness

plan

Focus of this phase

Part of this phase

Importance

1. Executive summary

2. Product or service

3. Management team

4. Market and competition

8. Opportunities and risks

9. Financial planning and financing


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Key questions 1. Executive SummaryKey questions 1. Executive Summary

What is your business idea?In what way does it fulfilthe criterion of uniqueness?

Who are your targetcustomers?

What is the value for thosecustomers?

What market volumeand growth rates doyou forecast?

What competitiveenvironment do you face?

What additional stages of

development are needed? How much investment isnecessary (high levelestimation)?

What long term goals haveyou set?

What are the results ofyour detailed businessplanning?

What are your exactfinancing needs?

How will you delegatemanagement tasks?

How much productioncapacity is necessary?

How will theimplementation of yourbusiness idea beorganised?

What are your nextconcrete steps?

What do you estimateyour financing needs tobe?

What are the sales, costand profit situations?

What are the mostimportant milestonesalong the way to your goal?

What test customers haveyou approached/couldyou approach?

What distributionchannels will you use?

What partnerships wouldyou like to enter into? What opportunities and

risks do you face? What is the picture on

patents?

Business concept Draft business plan Final business plan


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Key questions 2. Product or serviceKey questions 2. Product or service

Executive

Summary

Product or service

Management team

Market &competition

Marketing& sales

Business system& organisation

Implementationschedule

Opportunities &risks

Financial planning

What are the features or functions of the product/service?

Who are the target customers?

What value propositions does the product/service provide tothe customers? (e.g., tabulate customers unfulfilled needsand ways the product/service addresses those needs)

What is the revenue model? (i.e., description of revenuesources advertising revenue, transaction revenue,

subscription revenue, flat-fee vs. percentage-based) What is the development status of the product? What remains

to be done to convert the business idea into a tangible productor service?

Has this business model been proven elsewhere? What aresome successful examples?

What is the plan to maintain the loyalty of customers?


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Key questions 3. Management teamKey questions 3. Management team

Executive

Summary

Product or service

Management team

Market &competition

Marketing& sales




Financial planning

Who are the founders/founder groups and what are theirqualifications, experience and past achievements

How critical is the idea originator to the future success of theventure?

How are the management responsibilities shared among the

team? (e.g., a table of team members with their position andkey activities/responsibilities)

What is the plan to reinforce management team in the future?(e.g., schedule of future management hiring and skills required)


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Key questions 4. Market & competitionKey questions 4. Market & competition

Executive

Summary

Product or service

Management team

Market &competition

Marketing& sales




Financial planning

What is the potential market size for the product/service? (e.g.,calculation derived from number of target customers, unitssold, value of sales)

What is the expected market growth and which major factorsinfluence that growth?

Who are the likely competitors? What do they offer?

What are the strengths and weaknesses of competitors? Whatis your competitive positioning vis--vis competitors? (i.e, atable of competitors and their ratings across key criteria e.g.,

time to launch, technological capability, access to proprietarytechnology, privileged relationship with suppliers andcustomers)


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Key questions 5. Marketing & salesKey questions 5. Marketing & sales

Executive

Summary

Product or service

Management team

Market &competition

Marketing& sales




Financial planning

What are the specific plans to promote the product/service? How will the product/service be distributed? Which partners

will be needed in the distribution channel?

What will be the pricing strategy? (e.g., how much will youcharge for different customer segments, quantities)


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Key questions 6. Business systems &organisation

Key questions 6. Business systems &organisation

Executive

Summary

Product or service

Management team

Market &competition

Marketing& sales




Financial planning

What is the proposed organisational structure of the company?

How will this organisational structure help achieve businessgoals?

What skills will be required and what is the hiring plan?(e.g., a table that shows total number of positions and thefunctional description of positions, skills required for top 3positions in each department)

What is the scope of the business? (i.e. what will beperformed internally and what will be outsourced?)

Have strategic partnerships been identified? If yes, how willthese partners be secured? If no, what is the plan to getpartners?

Have key vendors been identified? If yes, how will thesevendors be secured? If no, what is the plan to get vendors?


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Key questions 7. Implementation scheduleKey questions 7. Implementation schedule

Executive

Summary

Product or service

Management team

Market &competition

Marketing& sales




Financial planning

What is the detailed short term implementation plan? (e.g.,Gantt chart showing detailed activities by month)

Who is responsible for each of the tasks? What are major milestones? What are interdependencies between tasks?

What is the 5-year implementation plan? (e.g., Gantt chartshowing activities by quarter)

Who is responsible for each of the tasks? What are major milestones?

What are possible long term options for the business?


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Key questions 8. Opportunities & riskKey questions 8. Opportunities & risk

Executive

Summary

Product or service

Management team

Market &competition

Marketing& sales




Financial planning

What are the best case and worst case scenarios for the5-yearfinancial projections? What are the key assumptions on the

key parameters? (e.g., market shares, profit margin) refer toAppendix for example

What does the sensitivity analysis show? (i.e., by varying keyassumptions in isolation)

What mitigating steps are planned in order to minimise risks?


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Key questions 9. Financial planning & financingKey questions 9. Financial planning & financing

ExecutiveS

ummary

Product or service

Management team

Market &competition

Marketing& sales




Financial planning

For the next 5 years (and at least 1 year beyond breakevenpoint), what are the projections for

Income statement (includes detailed revenue source asdescribed in the business model)

Cash flow statement Company valuation, utilising

Discounted cash flow analysis

Revenue multiples Balance sheet

What are the key assumption used in the financial proforma?(e.g., cost of capital, market share, margin)

What are the financial requirements for the business and whatsources of financing have been identified? (e.g., financialschedule with amount needed and possible financing sources)


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ContentsContents





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Invest in people, not ideasEugene Kleiner, Venture Capitalist


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Characteristics of a powerful management teamCharacteristics of a powerful management team

Common vision everybody wants to succeed

Complementary attitudes and strengths

At least 3, but usually no more than 6 people

Sticks together through thick and thin

S

taying power, even when there are setbacks


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Criteria applied by investorsCriteria applied by investors

Has the team already worked together?

Do team members have relevant experience?

Do the founders know their weaknesses and are

they willing to make up for them?

Have the founders agreed on their future rolesand are ownership issues settled?

Has the management team agreed on a commongoal, or are there underlying differences ofopinion?

Do the team members fully back the project?


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GOOD

LUCK

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