Chapter 12

metrics

Assumptions and calculations used for any revenue projections.

business model

How a venture is designed to make money, demonstrating a clear method of getting to the market for sales.

elevator pitch

The brief oral presentation for selling a business plan to potential investors (named for the analogy of riding an elevator and having only two minutes to get your story told to another person in the elevator).

Revenue Streams

The cash a new venture proposes to generate from the particular customer niche. Several ways to generate a revenue stream include selling an item, service fees, subscription fees, lease or rental income, licensing fees, or advertising income.

Customer Segments

The different groups of people or entities that the venture aims to reach and serve; customers can be segmented (niche) based on the different needs and attributes to ensure appropriate implementation of corporate strategy meets the characteristics of selected group of clients.

potential market

The entire size of the market for a product at a specific time. It represents the upper limits of the market for a product.

Management Segment

This segment identifies the key personnel, their positions and responsibilities, and the career experiences that qualify them for those particular roles. Complete résumés should be provided for each member of the management team. In this section, the entrepreneur's role in the venture should be clearly outlined. Finally, any advisors, consultants, or members of the board should be identified and discussed; structure of payment and ownership (stock agreements, consulting fees, and so on) should be described clearly in this section

Harvest Strategy Segment

important for the entrepreneur to plan for a liquidity event as an exit strategy or for the orderly transition of the venture if the plan is to grow and develop it. This section needs to deal with such issues as management succession and investor exit strategies. In addition, some thought should be given to change management—that is, the orderly transfer of the company assets if ownership of the business changes, continuity of the business strategy during the transition, and designation of key individuals to run the business if the current management team changes

coachability

is the willingness to take feedback, be corrected, and to act on that correction

management team

The founders of a new venture who plan on managing the company, as well as any advisors, consultants, or members of the board.

reachable market

The immediate reachable group of customers that will be targeted by a new venture

Operations Segment

begin by describing the location of the new venture, chosen site should be appropriate in terms of labor availability, wage rate, proximity to suppliers and customers, and community support, local taxes and zoning requirements should be sorted out, specific needs should be discussed in terms of how the enterprise actually operates and the facilities required to handle the new venture (plant, warehouse storage, and offices), as well as any equipment that needs to be acquired (special tooling, machinery, computers, and vehicles).

Business Description

expands on the executive summary, describing business in much greater detail

pain

The nickname that venture capitalists use for exactly what problem is being solved by your venture.

Marketing Segment

The segment of a business plan that describes aspects of the market such as the target market, the market size and trends, the competition, estimated market share, market strategy, pricing, and advertising and promotion.

Pricing Policy

price must be "right" to penetrate the market, maintain a market position, and produce profits. A number of pricing strategies should be examined, and then one should be convincingly presented. This pricing policy should be compared with the policies of the major competitors. The gross profit margin between manufacturing and final sales costs should be discussed, and consideration should be given to whether this margin is large enough to allow for distribution, sales, warranty, and service expenses; for amortization of development and equipment costs; and for profit. Attention also should be given to justifying any price increases over competitive items on the basis of newness, quality, warranty, or service.

market niche

A homogeneous group of consumers with common characteristics; all the people who have a need for the newly proposed product or service; should address the bases of customer purchase decisions: price, quality, service, personal contacts, or some combination of these factors.

five-minute reading

A six-step process that venture capitalists use when they are reviewing a business plan for potential investment; Step 1: Determine the characteristics of the venture and its industry. Step 2: Determine the financial structure of the plan (amount of debt or equity investment required). Step 3: Read the latest balance sheet (to determine liquidity, net worth, and debt/equity). Step 4: Determine the quality of entrepreneurs in the venture (sometimes the most important step). Step 5: Establish the unique feature in this venture (find out what is different). Step 6: Read over the entire plan lightly (this is when the entire package is paged through for a casual look at graphs, charts, exhibits, and other plan components

Business Model Canvas

A structured brainstorming tool for entrepreneurs to use to define and understand the strategic focus and the questions that need to be answered for each of the nine business building blocks.

Advertising Plan

For manufactured products, the preparation of product sheets and promotional literature; the plans for trade show participation, trade magazine advertisements, and direct mailings; and the use of advertising agencies should be presented. For products and services in general, a discussion of the advertising and promotional campaign contemplated to introduce the product and the kinds of sales aids to be provided to dealers should be included. Additionally, the schedule and cost of promotion and advertising should be presented

Research, Design, and Development Segment

Investors need to know the status of the project in terms of prototypes, lab tests, and scheduling delays. Note that this segment is applicable only if R&D is involved in the business plan. Blueprints, sketches, drawings, and models often are important. It is equally important to identify the design or development work that still needs to be done and to discuss possible difficulties or risks that may delay or alter the project

Pitfalls to Avoid in the Venture Planning Process

No Realistic Goals, Failure to Anticipate Roadblocks, No Commitment or Dedication, Lack of Demonstrated Experience (Business or Technical), No Market Niche (Segment)

Value Proposition

The products and services that create value for a specific customer segment; what distinguishes it from potential competition; Value can be provided through various elements, such as newness, performance, customization, design, brand, status, price, risk reduction, accessibility, and convenience or usability.

Competitive Analysis

The entrepreneur should make an attempt to assess the strengths and weaknesses of the competing products or services. Any sources used to evaluate the competition should be cited. This discussion should compare competing products or services on the basis of price, performance, service, warranties, and other pertinent features. It should include a short discussion of the current advantages and disadvantages of competing products and services, and why they are not meeting customer needs. Any knowledge of competitors' actions that could lead to new or improved products and an advantageous position also should be presented.

Appendix and/or Bibliography Segment

The final segment is not mandatory, but it allows for additional documentation that is not appropriate in the main parts of the plan. Diagrams, blueprints, financial data, vitae of management team members, and any bibliographical information that supports the other segments of the plan are examples of material that can be included. It is up to the entrepreneur to decide which, if any, items to put into this segment. However, the material should be limited to relevant and supporting information

Marketing Strategy

The general marketing philosophy of the company should be outlined to include the kinds of customer groups to be targeted by the initial intensive selling effort; the customer groups to be targeted for later selling efforts; methods of identifying and contracting potential customers in these groups; the features of the product or service (quality, price, delivery, warranty) to be emphasized to generate sales; and innovative or unusual marketing concepts that will enhance customer acceptance

Key Resources

The most important assets required to make the business model work and create value for the customer. They are needed in order to sustain and support the business and could be human, financial, physical, or intellectual.

Cost Structure

The most significant costs incurred to operate the business model. Characteristics of cost structures include the following: Fixed costs—Costs are unchanged across different applications, for example, salary, rent. Variable costs—These costs vary depending on the amount of production of goods or services, for example, music festivals. Economies of scale—Costs go down as the amount of goods are ordered or produced. Economies of scope—Costs go down due to incorporating other businesses that have a direct relation to the original product.

Key Partners

The network of suppliers and partners that optimize operations and reduce risks to make the business model work. Complementary alliances also can be considered through joint ventures or strategic alliances with other firms.

milestone schedule segment

The section of a business plan that provides investors with timetables for the accomplishment of various activities such as completion of prototypes, hiring of sales representatives, receipt of first orders, initial deliveries, and receipt of first accounts receivable payments.

Customer Relationships

The types of relationships a venture establishes with specific customer segments. To ensure the survival and success of any businesses, entrepreneurs must identify the type of relationship they want to create with their customer segments. Customer relationships can include personal assistance, self-service, automated services, or community platforms.

business plan

The written document that details a proposed venture. It must illustrate current status, expected needs, and projected results of the new business. Every aspect of the venture needs to be covered: the project, marketing, research and development (R&D), management, critical risks, financial projections, and milestones or a timetable. A description of all of these facets of the proposed venture is necessary to demonstrate a clear picture of what that venture is, where it is projected to go, and how the entrepreneur proposes it will get there. The business plan is the entrepreneur's road map for a successful enterprise

Key Activities

These are the most important elements that a venture must do to make its business model work. For example, if lower prices are the unique value proposition then creating an efficient supply chain to drive down costs would be a key activity.

Financial Segment

Three basic financial statements must be presented in this part of the plan: the pro forma balance sheet, the income statement, and the cash-flow statement.

nine essential components:

Value Proposition, Customer Segments, Channels, Customer Relationships, Revenue Streams, Key Activities, Key Resources, Key Partners, Cost Structure

Channels

Ways the venture communicates with and reaches its customer segments; can deliver its value proposition to its targeted customers through opening a store, using major distributors, or a combination of both. Effective channels will distribute a venture's value proposition in ways that are fast, efficient, and cost effective.

Executive Summary

a summary of the plan that features its most important parts; gives a brief overview of what is to follow, helps put all of the information into perspective, and should be no longer than two to three pages