Mckinsey How to Write a Business Plan

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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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    1

    ContentsContents

    Business start-up process

    Writing the Business Plan

    Constructing the team

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    ContentsContents

    Business start-up process

    Writing the Business Plan

    Constructing the team

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    3

    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

    Business start-up process

    Writing the Business Plan

    Constructing the team

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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

    Business system& organisation

    Implementationschedule

    Opportunities &risks

    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 responsibili