How To Write A Business Plan

050301LNZXL756LTDE-P1
CONFIDENTIAL
How to Write a Business
Plan
Entrepreneurship Challenge
Document Imperial College

Date 6 March 2001
This report is solely for the use of client personnel. No part of it may be circulated, quoted,
This report is solely for the use of client personnel. No part of it may be
or reproduced for distribution outside the client organization without prior written approval
circulated, quoted, or reproduced for distribution outside the client
from McKinsey & Company. This material was used by McKinsey & Company during an oral
organization without prior
presentation; it is written approval
not a complete fromofMcKinsey
record & Company.
the discussion.
This material was used by McKinsey & Company during an oral
presentation; it is not a complete record of the discussion.
Contents
Unit of measure
• Business start-up process
• Writing the Business Plan
• Constructing the team
* Footnote
Source: Source
2
Contents
Unit of measure
* Footnote
Source: Source
3
Stages of a Start-up
Unit of measure
Stage 1 Stage 2 Stage 3
Established
company
Start-up
and growth Exit of initial
investors
Business
plan
preparation Financing
decision
Business
idea Interest of
generation investors
* Footnote
Source: Source
4
5 key factors for success of innovative start-ups

Unit of measure
Ideas
• Degree of innovation
• Scope
• Patent
Network & exchange

• Coaching
People Traditional service providers
• Inventors
• Networking • Attorneys
• Entrepreneurs
• Matchmaking • Patent lawyers
• Team members
• Innovative service provider • Tax consultants/
– Venture capitalists
– Headhunters accountants
• Market researchers
– Business angels
– Start-up consultants
Capital
• Availability/amount
• Needs/responsibilities
• Exists for investors
* Footnote
Source: Source
5
Elements of a promising business idea

Unit of measure
Successful ideas
demonstrate how big the
The key to success is CLEAR MARKET OF
market is, the target
satisfied customers, not a CUSTOMER ADEQUATE
customers and how the
great product VALUE SIZE
product differs from the
competition
Create a new product or

Ideas should be feasible FEASIBILITY SUFFICIENT a new way of delivering
with realistic time and AND DEGREE OF an existing product – do
resource plans PROFITABILITY INNOVATION both and create a new
industry
“There is nothing in the world as powerful

than an idea whose time has come”
Victor Hugo
* Footnote
Source: Source
6
Innovation classification scheme

Unit of measure
New product New industry

Innovation
• Microsoft • Netscape
Product/service
Existing industry New business system

Convention
• Skilled trades • Dell
• Engineering offices
Convention Innovation
* Footnote Business system

Source: Source
7
Role of traditional service providers

Unit of measure
Long
term
success
Market
researchers
MARKET
Tax RESEARCH
consultants
Patent TAX
lawyers
PATENTS
Professional advisors can help to clear

hurdles
* Footnote
Source: Source
8
Role of a venture-capital company

Unit of measure
• Seed capital (pre
start-up)
• Start-up capital (at or
£££ Investments
shortly before start-
up)
• Expansion capital
Capital
recovery
• Young, growing
companies
• IPO (Initial Public

Offering) 5–8 years post
• Sale of stake to Start-up
third parties
* Footnote
Source: Source
9
Collective team strength

Unit of measure
SUCCESS
Entrepreneurs
Inventors Finance
Team Team
members members
Well constructed teams

provide a strong basis for
success
* Footnote
Source: Source
10
Network support
Unit of measure
Academics Entrepreneurs
Venture
Peers
capitalists
START-UP Use all

connections
Service
Friends
providers
Other
Sponsors
start-ups
* Footnote
Source: Source
11
Contents
Unit of measure
* Footnote
Source: Source
12
Unit of measure
“Writing a Business Plan forces you into

disciplined thinking, if you do an
intellectually honest job. An idea may
sound great, but when you put down all
the details and numbers, it may fall apart”
Eugene Kleiner, Venture Capitalist
* Footnote
Source: Source
13
Characteristics of a successful Business Plan

Unit of measure
Clear Objective
• Well structured • Accurate
• Standalone • Positive and critical
Your calling card

The document the reader
will remember you by
Consistent Simple
• Style • Plain English
• Analytical depth • Non-technical terms
* Footnote
Source: Source
14
Elements of a Business Plan Focus of this phase

Unit of measure Part of this phase
Draft ‘Final’
Business business business
concept plan plan
1. Executive summary
2. Product or service
3. Management team
Importance
4. Market and competition
5. Marketing and sales
6. Business system and organisation
7. Implementation schedule
8. Opportunities and risks
* 9. Financial
Footnote planning and financing
Source: Source
15
Key questions – 1. Executive Summary

Unit of measure
Business concept Draft business plan ‘Final’ business plan
• What is your business idea? • What do you estimate your • What are the results of your
In what way does it fulfil the financing needs to be? detailed business planning?
criterion of uniqueness? • What are the sales, cost • What are your exact
• Who are your target and profit situations? financing needs?
customers? • What are the most • How will you delegate
• What is the value for those important milestones along management tasks?
customers? the way to your goal? • How much production
• What market volume • What test customers have capacity is necessary?
and growth rates do you approached/could you • How will the implementation
you forecast? approach? of your business idea be
• What competitive • What distribution channels organised?
environment do you face? will you use? • What are your next concrete
• What additional stages of • What partnerships would steps?
development are needed? you like to enter into?
• How much investment is • What opportunities and
necessary (high level risks do you face?
estimation)? • What is the picture on
• What long term goals have patents?
you set?
* Footnote
Source: Source
16
Key questions – 2. Product or service

Unit of measure
Executive • What are the features or functions of the product/service?
Summary
• Who are the target customers?
Product or service • What value propositions does the product/service provide to the
customers? (e.g., tabulate customers’ unfulfilled needs and ways
the product/service addresses those needs)
Management team
• What is the revenue model? (i.e., description of revenue sources
– advertising revenue, transaction revenue, subscription revenue,
Market & flat-fee vs. percentage-based)
competition
• What is the development status of the product? What remains to
Marketing be done to convert the business idea into a tangible product or
& sales service?
Business system
• Has this business model been proven elsewhere? What are some
successful examples?
& organisation
• What is the plan to maintain the loyalty of customers?
Implementation
schedule
Opportunities &
risks
Financial
* planning
Footnote
Source: Source
17
Key questions – 3. Management team

Unit of measure
Executive
Summary
Product or service • Who are the founders/founder groups and what are their
qualifications, experience and past achievements
• How critical is the idea originator to the future success of the
Management team venture?
Market &
• How are the management responsibilities shared among the
team? (e.g., a table of team members with their position and key
competition
activities/responsibilities)
Marketing • What is the plan to reinforce management team in the future?
& sales (e.g., schedule of future management hiring and skills required)
Business system
& organisation
Implementation
schedule
Opportunities &
risks
Financial
* planning
Footnote
Source: Source
18
Key questions – 4. Market & competition

Unit of measure
Executive
Summary
Product or service
Management team • What is the potential market size for the product/service? (e.g.,
calculation derived from number of target customers, units sold,
value of sales)
Market &
competition • What is the expected market growth and which major factors
influence that growth?
Marketing
& sales
• Who are the likely competitors? What do they offer?
• What are the strengths and weaknesses of competitors? What is
Business system your competitive positioning vis-à-vis competitors? (i.e, a table of
& organisation competitors and their ratings across key criteria – e.g., time to
launch, technological capability, access to proprietary technology,
Implementation privileged relationship with suppliers and customers)
schedule
Opportunities &
risks
Financial
* planning
Footnote
Source: Source
19
Key questions – 5. Marketing & sales

Unit of measure
Executive
Summary
Product or service
Management team
Market & • What are the specific plans to promote the product/service?
competition
• How will the product/service be distributed? Which partners will be
Marketing needed in the distribution channel?
& sales • What will be the pricing strategy? (e.g., how much will you charge
for different customer segments, quantities)
Business system
& organisation
Implementation
schedule
Opportunities &
risks
Financial
* planning
Footnote
Source: Source
20
Key questions – 6. Business systems &

Unit of measure
Executive
organisation
Summary
Product or service
Management team • What is the proposed organisational structure of the company?

• How will this organisational structure help achieve business goals?
Market & • What skills will be required and what is the hiring plan?
competition (e.g., a table that shows total number of positions and the
functional description of positions, skills required for top 3 positions
Marketing
in each department)
& sales
• What is the scope of the business? (i.e. what will be performed
Business system internally and what will be outsourced?)
& organisation
• Have strategic partnerships been identified? If yes, how will these
Implementation partners be secured? If no, what is the plan to get partners?
schedule • Have key vendors been identified? If yes, how will these vendors
be secured? If no, what is the plan to get vendors?
Opportunities &
risks
Financial
* planning
Footnote
Source: Source
21
Key questions – 7. Implementation schedule

Unit of measure
Executive
Summary
Product or service
Management team
Market &
competition
Marketing • What is the detailed short term implementation plan? (e.g., Gantt
& sales chart showing detailed activities by month)
– Who is responsible for each of the tasks?
Business system – What are major milestones?
& organisation – What are interdependencies between tasks?
Implementation • What is the 5-year implementation plan? (e.g., Gantt chart
schedule showing activities by quarter)
– Who is responsible for each of the tasks?
Opportunities & – What are major milestones?
risks
• What are possible long term options for the business?
Financial
* planning
Footnote
Source: Source
22
Key questions – 8. Opportunities & risk

Unit of measure
Executive
Summary
Product or service
Management team
Market &
competition
Marketing
& sales
Business system • What are the best case and worst case scenarios for the 5-year
& organisation financial projections? What are the key assumptions on the key
parameters? (e.g., market shares, profit margin) – refer to
Implementation Appendix for example
schedule
• What does the sensitivity analysis show? (i.e., by varying key
Opportunities & assumptions in isolation)
risks
• What mitigating steps are planned in order to minimise risks?
Financial
* planning
Footnote
Source: Source
23
Key questions – 9. Financial planning & financing

Unit of measure
Executive
Summary
Product or service
Management team
Market &
competition • For the next 5 years (and at least 1 year beyond breakeven point),
what are the projections for
Marketing – Income statement (includes detailed revenue source as
& sales described in the business model)
– Cash flow statement
Business system – Company valuation, utilising
& organisation · Discounted cash flow analysis
· Revenue multiples
Implementation
– Balance sheet
schedule
• What are the key assumption used in the financial proforma? (e.g.,
Opportunities & cost of capital, market share, margin)
risks
• What are the financial requirements for the business and what
sources of financing have been identified? (e.g., financial schedule
Financial
* planning
Footnote with amount needed and possible financing sources)
Source: Source
24
Contents
Unit of measure
* Footnote
Source: Source
25
Unit of measure
“Invest in people, not ideas”

Eugene Kleiner, Venture Capitalist
* Footnote
Source: Source
26
Characteristics of a powerful management team

Unit of measure
• 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
• Staying power, even when there are setbacks
* Footnote
Source: Source
27
Criteria applied by investors

Unit of measure
• 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 roles and

are ownership issues settled?
• Has the management team agreed on a common

goal, or are there underlying differences of opinion?
• Do the team members fully back the project?

* Footnote
Source: Source
28
Unit of measure
GOOD
LUCK
* Footnote
Source: Source
29

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050301LNZXL756LTDE-P1

Document Imperial College

• Business start-up process

• Writing the Business Plan

• Constructing the team

• Business start-up process

• Writing the Business Plan

• Constructing the team

Stage 1 Stage 2 Stage 3

5 key factors for success of innovative start-ups

Network & exchange

Elements of a promising business idea

Create a new product or

“There is nothing in the world as powerful

Innovation classification scheme

New product New industry

Existing industry New business system

• Skilled trades • Dell

* Footnote Business system

Role of traditional service providers

Professional advisors can help to clear

Role of a venture-capital company

• IPO (Initial Public

Collective team strength

Well constructed teams

START-UP Use all

• Business start-up process

• Writing the Business Plan

• Constructing the team

“Writing a Business Plan forces you into

Characteristics of a successful Business Plan

Your calling card

Elements of a Business Plan Focus of this phase

4. Market and competition

5. Marketing and sales

6. Business system and organisation

8. Opportunities and risks

Key questions – 1. Executive Summary

Business concept Draft business plan ‘Final’ business plan

Key questions – 2. Product or service

Key questions – 3. Management team

Key questions – 4. Market & competition

Key questions – 5. Marketing & sales

Key questions – 6. Business systems &

Management team • What is the proposed organisational structure of the company?

Key questions – 7. Implementation schedule

Key questions – 8. Opportunities & risk

Key questions – 9. Financial planning & financing

• Business start-up process

• Writing the Business Plan

• Constructing the team

“Invest in people, not ideas”

Characteristics 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

• Staying power, even when there are setbacks

Criteria applied by investors

• Has the team already worked together?

• Do team members have relevant experience?

• Do the founders know their weaknesses and are