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How to Write a Business
Plan
Entrepreneurship Challenge

Imperial College
6 March 2001

This report is solely for the use of client personnel. No part of it may be circulated, quoted, or
reproduced 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.
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Contents

• Business start-up process

• Writing the Business Plan

• Constructing the team

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Contents

• Business start-up process

• Writing the Business Plan

• Constructing the team

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Stages of a Start-up

Stage 1 Stage 2 Stage 3

Established
company

Start-up and
growth
Exit of
initial
Business investors
plan
preparation Financing
decision
Business
idea Interest of
generation investors

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5 key factors for success of innovative start-ups

Ideas
• Degree of innovation
• Scope
• Patent

Network & exchange
• Coaching
People Traditional service providers
• Networking
• Inventors • Attorneys
• Matchmaking
• Entrepreneurs • Patent lawyers
• Innovative service provider
• Team members • Tax consultants/
– Venture capitalists
accountants
– Headhunters
• Market researchers
– Business angels
– Start-up consultants

Capital
• Availability/amount
• Needs/responsibilities
• Exists for investors

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Elements of a promising business idea

Successful ideas
demonstrate how big
The key to success is CLEAR MARKET OF
the market is, the target
satisfied customers, not CUSTOMER ADEQUATE
customers and how the
a 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

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Innovation classification scheme

New product New industry

Innovation
• Microsoft • Netscape
Product/service

Existing industry New business system
Convention

• Skilled trades • Dell

• Engineering offices

Convention Innovation
Business system

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Role of traditional service providers

Long
term
success
Market
researchers
MARKET
Tax RESEARCH
consultants
Patent TAX
lawyers

PATENTS

Professional advisors can help to
clear hurdles

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Role of a venture-capital company
• Seed capital (pre
start-up)
• Start-up capital (at
£££ Investments
or 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

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Collective team strength

SUCCESS

Entrepreneurs
Inventors Finance

Team Team
members members

Well constructed teams
provide a strong basis for
success

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Network support

Academics Entrepreneurs

Venture
Peers
capitalists

START-UP Use all
connections
Service
Friends
providers

Other
Sponsors
start-ups

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Contents

• Business start-up process

• Writing the Business Plan

• Constructing the team

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“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

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Characteristics of a successful Business Plan

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

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Elements of a Business Plan Focus of this phase
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 planning and financing

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Key questions – 1. Executive Summary

Business concept Draft business plan ‘Final’ business plan

• What is your business • What do you estimate • What are the results of
idea? In what way does it your financing needs to your detailed business
fulfil the criterion of be? planning?
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 management tasks?
customers? along the way to your • How much production
• What market volume goal? capacity is necessary?
and growth rates do • What test customers have • How will the
you forecast? you approached/could implementation of your
• What competitive you approach? business idea be
environment do you face? • What distribution organised?
• What additional stages of channels will you use? • What are your next
development are needed? • What partnerships would concrete steps?
• How much investment is you like to enter into?
necessary (high level • What opportunities and
estimation)? risks do you face?
• What long term goals have • What is the picture on
you set? patents?

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Key questions – 2. Product or service
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,
Market & subscription revenue, flat-fee vs. percentage-based)
competition
• What is the development status of the product? What remains
Marketing to be done to convert the business idea into a tangible product
& sales or service?
• Has this business model been proven elsewhere? What are
Business system
some successful examples?
& organisation
• What is the plan to maintain the loyalty of customers?
Implementation
schedule

Opportunities &
risks

Financial planning

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Key questions – 3. Management team
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
competition
key 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

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Key questions – 4. Market & competition
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
Business system is your competitive positioning vis-à-vis competitors? (i.e, a
& organisation table of competitors and their ratings across key criteria – e.g.,
time to launch, technological capability, access to proprietary
Implementation technology, privileged relationship with suppliers and
schedule customers)
Opportunities &
risks

Financial planning

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Key questions – 5. Marketing & sales
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
Marketing will be 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

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Key questions – 6. Business systems &
Executive
organisation
Summary

Product or service

Management team • What is the proposed organisational structure of the
company?
Market & • How will this organisational structure help achieve business
competition goals?

Marketing
• What skills will be required and what is the hiring plan?
(e.g., a table that shows total number of positions and the
& sales
functional description of positions, skills required for top 3
Business system positions in each department)
& organisation • What is the scope of the business? (i.e. what will be
performed internally and what will be outsourced?)
Implementation
schedule • Have strategic partnerships been identified? If yes, how will
these partners be secured? If no, what is the plan to get
Opportunities & partners?
risks
• Have key vendors been identified? If yes, how will these
vendors be secured? If no, what is the plan to get vendors?
Financial planning

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Key questions – 7. Implementation schedule
Executive
Summary

Product or service

Management team

Market &
competition

Marketing • What is the detailed short term implementation plan? (e.g.,
& sales Gantt 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

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Key questions – 8. Opportunities & risk
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

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Key questions – 9. Financial planning & financing
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?
Opportunities & (e.g., 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
Financial planning schedule with amount needed and possible financing sources)
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Contents

• Business start-up process

• Writing the Business Plan

• Constructing the team

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“Invest in people, not ideas”
Eugene Kleiner, Venture Capitalist

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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

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Criteria 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 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?

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GOOD
LUCK
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