Business Plans

Introduction

Business Plans are a key tool in helping you to raise investment finance. In seeking to commercialise the results of
your ICT R&D and in approaching equity investment, you will need to have an effective and compelling business plan.
The following information will help you to put together the right ingredients for your business plan in a way which is
both informative and appealing to potential investors. Even if you already have a business plan you may find the
following useful in reviewing it to ensure that this offers a clear investment proposal.

A business plan is the principal element used by a potential investor to evaluate the prospects of your company. It is
the first point of contact that you will usually have with the investors- hence it is vital to get right!

Your business plan is also a vital marketing tool for your business. Therefore you need to use it to engage the reader
(i.e. the investor), by making it exciting, colourful and interesting. You also need to show how yours is a much better
proposition than the hundreds of other business plans that investors are sent. Don’t make it boring!

It must be written and understood by you (rather than getting consultants to write it for you). You will be expected
to know the contents of your business plan inside and out when you are faced with investors’ questions as part of
the due diligence process. Although it is always helpful to get someone else who is not close to the business to
review it for you.

Writing your business plan

Writing your business plan fulfils two main functions:

ONE - INTERNAL:

It forces the management team of a company to set their objectives for their business. You will have to carefully
consider how you will develop your business, what it is that your technology offers in terms of a product or service
and how your team will work together to achieve this (as discussed in the previous section). In order to put together
a good business plan it is necessary for the management team to have a very clear vision of their planned activities,
business model, strategic direction and plan for market rollout.

• Focus

• Alignment

• Commitment

TWO - EXTERNAL:

The business plan acts as your marketing tool and point of contact with all of the investors that you approach.
Therefore it is vital that your business plan expresses the essence of your business that is new, different or unique
compared to your competitors. You need to stimulate the interest among the investors and convince them that your
business merits serious attention.

The business plan should be short and concise- it should be 20-40 pages long in total (plus appendices). However,
make sure that it is long enough to do justice to your business while being concise enough to keep the reader
interested. If an investor is interested they will ask for more information.

• Get funding

• Set expectations

• Alliances/partnerships/mergers
Simple Logical Flow for thinking out your Business Plan ICT Finance Marketplace Access to Finance Toolkit for R&D
ICT Innovations and early stage ICT SMEs

Founders’ values, goals, skills, interests and assets

Entrepreneurial Marketing:

Target customers

Product Definition

Value Propositions

Business Model

Sales:

Prospects

Customers

Customize

Feedback

New Opportunities

Engineering:

Build it

IP

Feedback

New Opportunities

Finance:

Measure and Track

Resource Allocation

Productivity

Plan & Analysis

Feedback

These are the basic questions that it will need to answer in your business plan:

1. What are you are selling?

2. Who is the team behind it?

3. What is the market opportunity?

4. Who will buy it?

5. Who are your competitors and why is your product/service better (Unique Selling Point)?
6. How much will it cost and what will it sell for?

7. How will it be promoted and distributed? Can you illustrate a strong potential for growth?

8. What are the risks and threats? (Be honest)

9. If you are developing a product, is it patented/protected?

10. How much funding do you need to raise and how would you like to use the funds?

11. What are your projections and milestones for the business?

12. How and when will the investors get their money back? (Exit route)

13. Financials

Main structure of the Business Plan:

• Executive summary

• Management Team and Organisation

• Product or service

• The Market and Competition

• Operational details

• Implementation schedule

• Financial Planning

• Financing

• Exit plan

• Supporting Documents- appendices

N.B. Executive Summary will be written last!

1. Management Team and Organisation

Where is your company now?

At the outset investors need to know a bit about your company.

The Management Team = the first question for investors!!

Who are the people behind the business idea and running the business/project?

Describe the members of your team

- Founders- are the research team/Academics still involved? Or have you brought in new team members to set up
and run the business

- Employees- full and part-time

- Consultants /Outsourcers

- Advisory Board
- Key supporters

You must describe your team’s...

- Directly relevant experience and skills - technical and business

- Accomplishments and track record

- Range, depth and quality of relevant contacts: customers, suppliers, key personnel, etc.

- Experience of working together

- Skills and Commitment

- Other key recruits still to be found - (such as CEO, CTO, CFO; Marking Director etc)

What will investors look for in a management team?

• Experience and competence

• Ability to listen and to take on board advice

• Ethics and transparency

• Understanding of the market

• Vision and character of the founder

• Commitment in time and/or money

• Leadership inside the team

• Ambition for the project

Your Organisational Model:

You need to state whether you have set up your business

• As a spin-out or license model?

• Has your business been incorporated or in some other legal framework? - give details of this

Evaluating Team Section

BAD

- Individual

- Not willing to acknowledge what they don’t know or have

- All technical

- Lack of marketing, sale or general management expertise

- Paying themselves too much

GOOD

- Team
- Passionate about the new venture’s mission and goals

- Clear about personal goals - with alignment

- Experience

- Track records of success

- Right match for stage of company

- Scalable

COMMON MISTAKES MADE:

DO NOT cover up relevant information

The due diligence process will quickly uncover this. Do not conceal gaps in the portfolio of skills and expertise and
show that you’ve assembled and assigned people to roles for which they do have adequate experience or skills

2. What is your technology/product/service?

Focus on your first technology, product or service

• Begin with a succinct description of the technology, product or service.

• Describe in simple terms what it is and what it does

• What is your Intellectual Property (IP) who owns it and what protections do you have (see section on IP for more
detail of this on page X)?

• What is the state of your technology? Is there still technology risk?

• What are the technical benefits over alternatives?

• What is the source of your competitive advantage and how do you intend to continue to develop and protect it?

• How do you intend to achieve sustainable competitive advantage over the current and future suppliers?

SOURCE: ‘Business Plans that Raise Money and Generate Success’, Financing for Growth Workshop, The Saïd
Business School, Oxford, 21-22nd March 2011

Then outline...

- How the proposition is rooted in a real market opportunity

- The specific benefits and value that a customer will derive from using your product- why will a customer want to
buy or use it?

- The way in which these benefits can be demonstrated and measured

- Why the customer will purchase on an ongoing basis

- The distinctive advantages of your product compared to other comparables?

- Barriers to entry

Once you have succeeded with this product, what could it lead you onto next?

AVOID…
- Giving excessive product/technical detail – this can follow later

- Not describing the product clearly enough for someone who is not knowledgeable about the sector

- Assuming customer benefits are obvious- they may only be so to you.

- Failing to assess the sustainability of your market/product advantage - how easily might others replicate it?

- Not demonstrating how your skills and those of the team enable you to exploit the opportunity

So very early on you need to convey a clear picture...

This is the market opportunity

This is my product

These are the key benefits: the value proposition

This is the evidence that substantiates the value proposition

And these are the people who’ll make it happen - and why

SOURCE: Michael Anderson, Creative Bizplan Toolbox, Nov 2006

3. Market and Competition

What is your market?

You need to provide the reader with a clear picture of your market...

• Focus on your first target market

• Size the overall market

• Explain rationale for target market segment

• Describe key characteristics of target customers/market

• Richly describe your target customer base/market in all dimensions

• Market segmentation and niches

• Actual and projected growth rates in target market

• Geographic breadth and variation

• Market context - relevant environmental, regulatory, technological, demographic/ social changes

• The ease or difficulty of gaining market entry

• Name the first 10 target customers

• Name the ones that you have specifically spoken to who have this pain/opportunity

• Key buying factors

• The purchasing process: who buys and over what time period?

• What is the compelling factor/event that will make them buy?

• Who are the other entrenched players?

• The margin opportunity - current and future

• If successful, what would be your next logical market?

Market Section of Business Plan

BAD

- Lead with technology

- Addressing many markets

- No solid economic value proposition

- No competition

OK TO GOOD

- Understand Customers

- List Customers

- Top down and bottom up sizing of market including growth rates

- Reasonable addressable market and market penetration assumptions

GREAT

- Spoke to lots of specific customers - includes testimonials and listed contact info

- Identified champion(s) and committed user advisory board

- Compelling and proven value proposition validated

- Demonstrated that target customers are well funded and have compelling reason to buy

- Target customer is proven to be well connected community with strong WOM

(Word of Mouth referrals)

- Deeply understand existing suppliers and vulnerabilities

SOURCE: ‘Business Plans that Raise Money and Generate Success’, Financing for Growth Workshop, The Saïd
Business School, Oxford, 21-22nd March 201

• Market segmentation and niches

• Actual and projected growth rates in target market

• Geographic breadth and variation

• Market context - relevant environmental, regulatory, technological, demographic/ social changes

• The ease or difficulty of gaining market entry

• Name the first 10 target customers

• Name the ones that you have specifically spoken to who have this pain/opportunity
• Key buying factors

• The purchasing process: who buys and over what time period?

• What is the compelling factor/event that will make them buy?

• Who are the other entrenched players?

• The margin opportunity - current and future

• If successful, what would be your next logical market?

Market Section of Business Plan

BAD

- Lead with technology

- Addressing many markets

- No solid economic value proposition

- No competition

OK TO GOOD

- Understand Customers

- List Customers

- Top down and bottom up sizing of market including growth rates

- Reasonable addressable market and market penetration assumptions

GREAT

- Spoke to lots of specific customers - includes testimonials and listed contact info

- Identified champion(s) and committed user advisory board

- Compelling and proven value proposition validated

- Demonstrated that target customers are well funded and have compelling reason to buy

- Target customer is proven to be well connected community with strong WOM

(Word of Mouth referrals)

- Deeply understand existing suppliers and vulnerabilities

SOURCE: ‘Business Plans that Raise Money and Generate Success’, Financing for Growth Workshop, The Saïd
Business School, Oxford, 21-22nd March 201

Where will you compete in the market?

You need to carry out some basic competitor analysis to tell you.

What is your competition?

- Basis of competition - price, differentiation, range, discount structure, etc.

- Nature and number of available substitutes

Who you will be competing against?

- Number

- Size and market share

- Technology and likely product roadmap

- Identity, size, financial results, etc.

- Product range and performance

- Market reputation - quality, service, image

- Market positioning - price, support, selling methods

- Who has an analogous business model to yours?

What is your competitive advantage over the alternatives?

How you’ll compete…

- How are you choosing to compete - product, product innovation or customer intimacy?

- Short term and longer term

- Product positioning in the market: performance, image, quality, etc

- Projection on who will win in the scenarios and potential alliances that could be formed

- Pricing and discount structure

- Product support and service

- Customer retention strategy

- Scope for follow-on sales

Describe emerging or potential competitors

- What new products do you anticipate coming on the market and how will you hold a sustainable competitive
advantage over them?

- Stage and backing

- Company and product position

- Technology and likely roadmap

Evaluating Competition Section

BAD

- No competition

- Emotional hatred of a competitor

- Naïve perception of competition

- All focus on technology

- Lack of understanding of strengths and weaknesses

- Lack of scenario planning

GOOD

- Deep understanding of competitors’ business strategies and how they compete

- Deep understanding of competitors’ vulnerabilities

- Precise focus on high influence, fast growing key baseline customers which enable you to capitalise on competitors’
weaknesses

- Strategies to utilise weak competitors

- Multi-stage view of how market will evolve

- Flexibility to move quickly as new scenarios unfold in the future

- Competitive streak evident, but remains rational in approach and attitude

Route to Market

How will you reach the market?

• Business Model

• Sales model

• Marketing lead generation plan

• Corporate partnering

Marketing and Promotion

How will you make your product known and create an interest?

You need to cover the following 3 Key aspects:

• Promoting: Getting an interest

• Selling: Converting interest into sales

• Distribution: Delivering to the customer

4. Operations - Product or Service

In this section you should set out:

• What’s involved in producing the product or delivering the service?

• Resources required to do this: personnel, labour, materials, facilities, etc.

• Timetable

• Capital expenditure - amount and phasing

• Which activities will be controlled in-house (e.g. design or assembly) and which you’ll subcontract
• What it will take to gear up production post start-up

• Status of any agreements with suppliers

In describing productions and operations be careful NOT TO:

- Overburden the reader with excessive detail

- Assume the reader’s technological knowledge

- Use technical terms without explanation

- Imagine that the reader finds the operational process as fascinating as you do

- Ignore the risks associated with operations, particularly as volumes build up

Evaluating Operations Section

BAD

- Not credible

- No Dates

- Unclear milestones

- Lack of understanding of sales model to make money

- Lack of fl exibility relative to delays in market adoption or product development

- Too long

GREAT

- Good detail

- Understand the need to develop and have contingency plans - optimistic yet realistic

- Creating demand for new product through indirect channel

- Not too much marketing expense before product is proven

- Understand what you don’t have yet

SOURCE: ‘Business Plans that Raise Money and Generate Success’, Financing for Growth Workshop, The Saïd
Business School, Oxford, 21-22nd March 2011

ICT Finance Marketplace Access to Finance Toolkit for R&D ICT Innovations and early stage ICT SMEs

5. Financial Projections

Setting out the Financials in your Business Plan:

You must have clear and realistic financial forecasts, perhaps with a ‘Target’ version (assuming all goes well) and a
‘Survival’ version (if things don’t quite go to plan). If financial modelling is not your strength, it’s best to seek external
advice.

This part of the plan should focus on…

- Core assumptions behind the financial model

- Link between assumptions and your market data

- Key financial indicators

- Estimated financial projections and the rationale for it

- The potential downside (what happens if everything goes wrong) and upside

- Valuation of your company

You will need to include:

• A Profit and Loss (P&L) Statement

• Modified Cash Flow Statement

• Top Line Growth - Explain total revenue in more detail

• Monthly Burn rate

• Gross Margin and Operation Margin Percentages

• Show the following costs as a percentage of sales: Marketing & Sales, R&D,

General and Administrative costs

• Bookings

• Headcount

• Cash in bank

• Valuation

TOP TIPS

• Get the top line right with assumptions clear (units, price, etc.)

Separate revenue streams (one time, recurring, product, service, government funding)

• Get costs of goods sold right with assumptions clear - include Gross Margin

• While doing the P & L is fi ne, Cash Flow is much more important

• Balance sheet is good to have but Cash Position is most important by far and that should be put in summary 5 year
Cash Flow Chart

• Make different sources of funding clear

Common mistakes:

- Too many spreadsheets

- Masses of indigestible financial data

- Endless sensitivity analyses

- Disproportionate time devoted to the financials

Evaluating the Financial Section

“When you can measure what you are speaking about, and express it in numbers, you know something about it.
When you cannot measure it… your knowledge is meager and unsatisfactory”.

LORD KELVIN, Mathematical Physicist and Engineer (1824-1907)

SOURCE: ‘Business Plans that Raise Money and Generate Success’, Financing for Growth Workshop,

The Saïd Business School, Oxford, 21-22nd March 2011

BAD

• Showing lack of credibility- e.g. missing

cash consumed in working capital when

growing

• Too much detail

• Low growth

• Low gross margin

• High spending on General and

Administration costs

GOOD

• Credible and justifi able high top line

growth

• Credible and justifi able high margin

• Good development expense ratio early

on

• Marketing and Sales expense coming

on after offering validate

• Flexibility to survive delays in

development or market adoption - and

presence to have this built in

• Ability to understand and adjust

assumptions - sensitivity analysis in

other areas as well

For more on Financials see p34.

ICT Finance Marketplace Access to Finance Toolkit for R&D ICT Innovations and early stage ICT SMEs
6. Funding

How much money do you need?

You will need to continue from your financials section with a well researched budget to

demonstrate how you will be using the funding that you have acquired already or pledged

yourself and how you intend to use the investment sought.

This section needs to be detailed and specifi c.

Do NOT just allocate the money to broad headers such as ‘Marketing’.

Remember that you have several funding options ahead of you:

- Bootstrapping (credit cards )

- Grants

- Founders, family, friends

- Loans/debt

- Customers

- Equity investment

For more information on other sources of funding go to page

If you are going to be contributing some money yourself (investors prefer this as it shows your

commitment) or from one of the above sources, you need to include this in your budget.

For an investor the key issues are:

- How much money is needed

- What it’s needed for

- When and in what stages it’s required

- Key milestones against which funds will be drawn down

- The form in which the fi nance is required (debt, equity, a mix of both)

7. Exit Strategy

When and how could the investor get his/her money back?

What range of returns can be expected if the plan is successfully executed?

What are the comparables?

What are the options?

• IPO

• Acquired
• Next round

• Cash fl ow is strong

Venture capitalists want IPO or Sale of Company

Who are the possible acquirers/ what is the plan to keep those options alive and lines of

communication open?

Why uniquely would they buy your venture?

You need to outline…

- The projected timetable for the business to get underway

- Target time to break even, generate positive cash and profi t

- Most likely exit route

- Valuations achieved by comparable businesses

Evaluating Exit Strategy Section

BAD

• No Exit strategy proposed

• Lack of credibility

• No estimates of return

• Too long term

• Too few options

• Only built to be sold and not a

sustainable business

GOOD

• Demonstrates understanding of

funders needs/wants

• Includes thoughtful analysis

• Quantifi ed

• Business grows to be cash fl ow

positive and sustainable

• Clear plan for differentiation and fi lls

gap in potential buyer’s strategy

• Realistic numbers with examples

• If IPO, need to have enough size

SOURCE: ‘Business Plans that Raise Money and Generate Success’, Financing for Growth Workshop,

The Saïd Business School, Oxford, 21-22nd March 2011

For more on Exits see p81.

8. Risks

Risk is inherent in starting a business.

Your aim is to identify and minimize all potential risks....

- List all risks relevant to key aspects of the business: product/service, market,

technology, management team

- Identify those risks that are more/less critical

- Work out precisely what you can do to mitigate key risks

ICT Finance Marketplace Access to Finance Toolkit for R&D ICT Innovations and early stage ICT SMEs

9. The Executive Summary

Last of all - The First Page

Your summary needs to cover all the key issues. It is useful to have a 250-word, one-page and a three-page version
to cater to the specific needs of different investors.

A good Executive Summary...

- Captures the reader’s interest

- Provides a clear picture of your idea and what you’re trying to do

- Highlights the most important features of your business proposition

- Establishes the management team’s credentials at the outset

- Summarises the financial opportunity and key projections

- Conveys your VISION

- Persuades the reader to keep reading!

TOP TIPS from the experts on writing your Business Plan

FRANCOIS TISON,

360° Capital Partners, a Venture Capital firm investing in Innovation at full scale, in Europe and more particularly in
France and Italy.

“Business plans are usually a big source of anxiety. The plan should be a reflection of an execution plan detailing
expenses, time, business model, correctly sizing the cash needed and the various milestones. A clear picture of how
you will use the money and what you will use it for and when. Give confidence to the VC that you know where you’re
going.
Don’t have inflated salaries. Show how big the opportunity can be - show the economics.”

• The plan should be a reflection of an execution plan detailing expenses, time, business model, correctly size the
cash needed and the various milestones.

• A clear picture of how you will use the money and what you will use it for and when.

Give confidence to the VC that you know where you’re going.

• Don’t have inflated salaries.

• Show how big the opportunity can be - show the economics.

Businesses rarely spend as much or as fast as you predicted.

JEAN MARC BALLY,

Aster Capital, Leading VC fund investing in cross stage cleantech companies.

“PowerPoint’s are good. I’m not so keen on word documents. We like numbers so that we can judge whether these
are credible. Tell me what you want to do? Customer pain? Market trends? What trend to you want to catch?
Adjectives and superlatives are not good. Numbers must be used to quantify size of the market etc.”

MICHAEL BLAKEY, experienced angel investor and Director of Avonmore Developments Ltd

“Within the business plans I’m looking for: The ’pain’, I’m looking for the market size, I’m looking for exactly what
they’re spending their cash on... What problem are they solving? Is the product a must have or nice to have?”

“What is the management background? - Do they have the relevant background in this sector?

Do they actually understand the market that they are entering into? We need to know that other companies have
been acquisitive in that sector to be sure that your company is going to make money.

When they give me the numbers - I don’t want to hear that they are entering into a market worth v3 billion when
they are actually only targeting a very small part of that. If it’s actually a v100 million market - that’s big enough in
itself but it makes me question whether they actually know what they’re going for. The cash fl ow is the important
one.. Sales targets should be realistic. But they’ve got to understand that it’s going to be ripped to shreds by the
investor during due diligence. As no angel investor ever believes any of the numbers that the entrepreneurs put in
their business plan

In terms of the investment - How much money do you need to raise? How are you going to use the money? Do you
understand how long you expect that money to last for? There’s got to be a reasonable timescale for fundraising.

How is the investor going to make money? EXIT!! This is so important and therefore should not just be a small
paragraph in the business plan or an afterthought. Make it realistic by saying that the IPO (Initial Public Offering) will
be for v100m this is very unlikely. Better to think and plan carefully for the possible exit, being more realistic - such
as planning to be bought out by a larger company after several funding rounds.

You’ve also got to understand when writing your business plans is that it will have to be constantly changed and
updated. So there’s no point wasting your time writing overly detailed plans.

Simple is better. It can be done in 10 pages. Getting the point across about what you’re going to do and how you’re
going to do it. Don’t go into too much detail - That should be saved for the due diligence process.”

Customer ‘pain’ = What is the challenge that your product or service will address

What not to say in your business plan?

• ‘This is a wonderful and exciting opportunity.’ They all are. Just give the facts and let people make up their own
minds.

• ‘There is no competition.’ If there really isn’t you have to persuade the investors that there is a sufficient market.

• ‘Can you afford not to invest?’ On most occasions, investors feel that they can.

• ‘The product will sell itself.’

• ‘Our target market is X million’ – We only need 1% of an X million market. When on closer scrutiny it is much
smaller.

• ‘We will achieve a return of v Xm for the investor after 5 years.’ You cannot give guarantees of returns.

For further resources go to ICT Finance MarketPlace website:

http://tiny.cc/ict-fm-toolkit

Financials

Build a Financial Model

Building out a financial model gives you the chance to really think about the details of how you are going to make
money out of the ICT technology or product, looking at issues such as budgeting, costs, revenues, etc. It will also help
set expectations, brainstorm new product ideas, and set milestones and goals.

You’re not going to show investors your financial model, but it serves as the backdrop for making your financial plan
and presenting this clearly.

Set a Revenue Target

Even if you are at a pre-revenue stage its important to develop a revenue target and identify when you think you will
create revenues. The timescale has to be realistic and you can only estimate so far ahead since it is basically a “black
hole”, except that you hope revenues will ultimately skyrocket!

Don’t tell them it’s extremely conservative. Don’t tell them you only need 1% of the market.

Explain Your Assumptions

You’ve set your revenue targets. Now it’s time to explain how you’re going to get there. And this is really the key. It’s
at this point where you’re going to justify your revenue target and your business model.

Try breaking down your revenue targets into smaller and smaller chunks. Ask yourself questions like:

• To hit our revenue target, how many clients do we need?

• To get that many clients, how many prospects will we have to reach?

• What will our conversion rate be from the free beta to paying system?

• What will our retention rate be for customers from year to year?

The questions you ask will depend on your product/service and business model, but the goal is to get deeper and
deeper into the details, as if you’re peeling an onion. The inside of the onion is really the heart of things and it
reveals a lot.

You don’t have to present all of these numbers ad infi nitum to the venture capitalists, but going through this
exercise of taking a single revenue number and breaking it down will help.
Show that You’re Thinking About The Right Things

Venture capitalists don’t expect you to have all the answers. They know you don’t. But they do want to see that
you’re thinking about a few critical things, namely: Business Model,

Sales and Marketing.

Going through the steps above will help you demonstrate to VCs that you are thinking about these things. If you
have a solid assumption for your conversion rate from free beta to paying customer, and you know how many paying
customers you need, you know how many beta customers you need. Once you know how many beta customers you
need, you can start to build a plan for getting them. Maybe that involves direct sales; contacting targeted customers
to get them signed-up. If that’s the case, you can figure out what your conversion rate will be on sales calls and
figure out how many people you have to call to sign up the right number of beta customers to convert to paying
customers to hit your revenue targets.

Phew.

Lots of technology companies have a “build it and they will come” approach. It can work and it’s still working today.
But I wouldn’t count on it. And if you go to VCs with that model they have much less information and foundation on
which to judge your pitch.

Remember: Presenting financials is hard. If you can bring in more experienced entrepreneurs and advisors to help
you- then do it. First-time entrepreneurs will have little or no experience with financial modeling or even tackling
tough questions on how they’re going to market and sell their product. But the more time and effort that you put
into tackling the financials at the outset- the better your pitch (and business) will be.

REFERENCES: