HowtoWriteaBusinessPlanThisreportissolelyfortheuseofclientpersonnel.Nopartofitmaybecirculated,quoted,orreproducedfordistributionoutsidetheclientorganizationwithoutpriorwrittenapprovalfromMcKinsey&Company.ThismaterialwasusedbyMcKinsey&Companyduringanoralpresentation;itisnotacompleterecordofthediscussion.InnovationChallenge

InnovationsFoundation

Toronto,Canada

2001ContentsBusinessstart-upprocessWritingtheBusinessPlanConstructingtheteam1ContentsBusinessstart-upprocessWritingtheBusinessPlanConstructingtheteam2StagesofaStart-upStage1Stage2Stage3BusinessideagenerationBusinessplanpreparationStart-upandgrowthEstablishedcompanyInterestofinvestorsFinancingdecisionExitofinitialinvestors35keyfactorsforsuccessofinnovativestart-upsIdeasDegreeofinnovationScopePatentTraditionalserviceprovidersAttorneysPatentlawyersTaxconsultants/

accountantsMarketresearchersPeopleInventorsEntrepreneursTeammembersCapitalAvailability/amountNeeds/responsibilitiesExistsforinvestorsNetwork&exchangeCoachingNetworkingMatchmakingInnovativeserviceproviderVenturecapitalistsHeadhuntersBusinessangelsStart-upconsultants4ElementsofapromisingbusinessideaCLEARCUSTOMERVALUEMARKETOFADEQUATESIZEFEASIBILITYANDPROFITABILITYSuccessfulideasdemonstratehowbigthemarketis,thetargetcustomersandhowtheproductdiffersfromthecompetitionSUFFICIENTDEGREEOFINNOVATIONCreateanewproductoranewwayofdeliveringanexistingproduct–dobothandcreateanewindustryIdeasshouldbefeasiblewithrealistictimeandresourceplansThekeytosuccessissatisfiedcustomers,notagreatproduct“Thereisnothingintheworldaspowerfulthananideawhosetimehascome〞VictorHugo5InnovationclassificationschemeNewproductMicrosoftNewindustryNetscapeExistingindustrySkilledtradesEngineering

officesNewbusinesssystemDellConventionInnovationBusinesssystemConventionInnovationProduct/service6RoleoftraditionalserviceprovidersPatentlawyersTaxconsultantsMarketresearchersPATENTSTAXMARKETRESEARCHProfessionaladvisorscanhelptoclearhurdlesLongtermsuccess7Roleofaventure-capitalcompany$$$IPO(InitialPublicOffering)SaleofstaketothirdpartiesSeedcapital(prestart-up)Start-upcapital(atorshortlybeforestart-up)ExpansioncapitalYoung,growingcompaniesCapitalrecoveryInvestments5–8yearspostStart-up8CollectiveteamstrengthWellconstructedteamsprovideastrongbasisforsuccessTeammembersInventorsEntrepreneursTeammembersFinanceSUCCESS9NetworksupportSTART-UPVenturecapitalistsFriendsSponsorsOtherstart-upsServiceprovidersPeersEntrepreneursAcademicsUseallconnections10ContentsBusinessstart-upprocessWritingtheBusinessPlanConstructingtheteam11“WritingaBusinessPlanforcesyouintodisciplinedthinking,ifyoudoanintellectuallyhonestjob.Anideamaysoundgreat,butwhenyouputdownallthedetailsandnumbers,itmayfallapart〞EugeneKleiner,VentureCapitalist12CharacteristicsofasuccessfulBusinessPlanYourcallingcardThedocumentthereaderwillrememberyoubyObjectiveAccuratePositiveandcriticalClearWellstructuredStandaloneSimplePlainEnglishNon-technicaltermsConsistentStyleAnalyticaldepth13ElementsofaBusinessPlan5.Marketingandsales6.Businesssystemandorganisation7.ImplementationscheduleBusinessconceptDraft

businessplan‘Final’

businessplanFocusofthisphasePartofthisphaseImportance1.Executivesummary2.Productorservice3.Managementteam4.Marketandcompetition8.Opportunitiesandrisks9.Financialplanningandfinancing14Keyquestions–1.ExecutiveSummaryWhatisyourbusinessidea?Inwhatwaydoesitfulfilthecriterionofuniqueness?Whoareyourtargetcustomers?Whatisthevalueforthosecustomers?Whatmarketvolume

andgrowthratesdo

youforecast?Whatcompetitive

environmentdoyouface?Whatadditionalstagesofdevelopmentareneeded?Howmuchinvestmentisnecessary(highlevelestimation)?Whatlongtermgoalshaveyouset?Whataretheresultsofyourdetailedbusinessplanning?Whatareyourexactfinancingneeds?Howwillyoudelegatemanagementtasks?Howmuchproductioncapacityisnecessary?Howwilltheimplementationofyourbusinessideabeorganised?Whatareyournextconcretesteps?Whatdoyouestimateyourfinancingneedstobe?Whatarethesales,costandprofitsituations?Whatarethemostimportantmilestonesalongthewaytoyourgoal?Whattestcustomershaveyouapproached/couldyouapproach?Whatdistributionchannelswillyouuse?Whatpartnershipswouldyouliketoenterinto?Whatopportunitiesandrisksdoyouface?Whatisthepictureonpatents?BusinessconceptDraftbusinessplan‘Final’businessplan15Keyquestions–2.ProductorserviceExecutiveSummaryProductorserviceManagementteamMarket&competitionMarketing

&salesBusinesssystem&organisationImplementationscheduleOpportunities&risksFinancialplanningWhatarethefeaturesorfunctionsoftheproduct/service?Whoarethetargetcustomers?Whatvaluepropositionsdoestheproduct/serviceprovidetothecustomers?(e.g.,tabulatecustomers’unfulfilledneedsandwaystheproduct/serviceaddressesthoseneeds)Whatistherevenuemodel?(i.e.,descriptionofrevenuesources–advertisingrevenue,transactionrevenue,subscriptionrevenue,flat-feevs.percentage-based)Whatisthedevelopmentstatusoftheproduct?Whatremainstobedonetoconvertthebusinessideaintoatangibleproductorservice?Hasthisbusinessmodelbeenprovenelsewhere?Whataresomesuccessfulexamples?Whatistheplantomaintaintheloyaltyofcustomers?16Keyquestions–3.ManagementteamExecutiveSummaryProductorserviceManagementteamMarket&competitionMarketing

&salesBusinesssystem&organisationImplementationscheduleOpportunities&risksFinancialplanningWhoarethefounders/foundergroupsandwhataretheirqualifications,experienceandpastachievementsHowcriticalistheideaoriginatortothefuturesuccessoftheventure?Howarethemanagementresponsibilitiessharedamongtheteam?(e.g.,atableofteammemberswiththeirpositionandkeyactivities/responsibilities)Whatistheplantoreinforcemanagementteaminthefuture?(e.g.,scheduleoffuturemanagementhiringandskillsrequired)17Keyquestions–4.Market&competitionExecutiveSummaryProductorserviceManagementteamMarket&competitionMarketing

&salesBusinesssystem&organisationImplementationscheduleOpportunities&risksFinancialplanningWhatisthepotentialmarketsizefortheproduct/service?(e.g.,calculationderivedfromnumberoftargetcustomers,unitssold,valueofsales)Whatistheexpectedmarketgrowthandwhichmajorfactorsinfluencethatgrowth?Whoarethelikelycompetitors?Whatdotheyoffer?Whatarethestrengthsandweaknessesofcompetitors?Whatisyourcompetitivepositioningvis-à-viscompetitors?(i.e,atableofcompetitorsandtheirratingsacrosskeycriteria–e.g.,timetolaunch,technologicalcapability,accesstoproprietarytechnology,privilegedrelationshipwithsuppliersandcustomers)18Keyquestions–5.Marketing&salesExecutiveSummaryProductorserviceManagementteamMarket&competitionMarketing

&salesBusinesssystem&organisationImplementationscheduleOpportunities&risksFinancialplanningWhatarethespecificplanstopromotetheproduct/service?Howwilltheproduct/servicebedistributed?Whichpartnerswillbeneededinthedistributionchannel?Whatwillbethepricingstrategy?(e.g.,howmuchwillyouchargefordifferentcustomersegments,quantities)19Keyquestions–6.Businesssystems&

organisationExecutiveSummaryProductorserviceManagementteamMarket&competitionMarketing

&salesBusinesssystem&organisationImplementationscheduleOpportunities&risksFinancialplanningWhatistheproposedorganisationalstructureofthecompany?Howwillthisorganisationalstructurehelpachievebusinessgoals?Whatskillswillberequiredandwhatisthehiringplan?

(e.g.,atablethatshowstotalnumberofpositionsandthefunctionaldescriptionofpositions,skillsrequiredfortop3positionsineachdepartment)Whatisthescopeofthebusiness?(i.e.whatwillbeperformedinternallyandwhatwillbeoutsourced?)Havestrategicpartnershipsbeenidentified?Ifyes,howwillthesepartnersbesecured?Ifno,whatistheplantogetpartners?Havekeyvendorsbeenidentified?Ifyes,howwillthesevendorsbesecured?Ifno,whatistheplantogetvendors?20Keyquestions–7.ImplementationscheduleExecutiveSummaryProductorserviceManagementteamMarket&competitionMarketing

&salesBusinesssystem&organisationImplementationscheduleOpportunities&risksFinancialplanningWhatisthedetailedshorttermimplementationplan?(e.g.,Ganttchartshowingdetailedactivitiesbymonth)Whoisresponsibleforeachofthetasks?Whataremajormilestones?Whatareinterdependenciesbetweentasks?Whatisthe5-yearimplementationplan?(e.g.,Ganttchartshowingactivitiesbyquarter)Whoisresponsibleforeachofthetasks?Whataremajormilestones?Whatarepossiblelongtermoptionsforthebusiness?21Keyquestions–8.Opportunities&riskExecutiveSummaryProductorserviceManagementteamMarket&competitionMarketing

&salesBusinesssystem&organisationImplementationscheduleOpportunities&risksFinancialplanningWhatarethebestcaseandworstcasescenariosforthe5-yearfinancialprojections?Whatarethekeyassumptionsonthekeyparameters?(e.g.,marketshares,profitmargin)–refertoAppendixforexampleWhatdoesthesensitivityanalysisshow?(i.e.,byvaryingkeyassumptionsinisolation)Whatmitigatingstepsareplannedinordertominimiserisks?22Keyquestions–9.Financialplanning&financingExecutiveSummaryProductorserviceManagementteamMarket&competitionMarketing

&salesBusinesssystem&organisationImplementationscheduleOpportunities&risksFinancialplanningForthenext5years(andatleast1yearbeyondbreakevenpoint),whataretheprojectionsforIncomestatement(includesdetailedrevenuesourceasdescribedinthebusinessmodel)CashflowstatementCompanyvaluation,utilisingDiscountedc