Developing a Business

Plan

Stephen Auvil
Sr. Vice President Technology Transfer & Commercialization
Maryland Technology Development Corporation (TEDCO)
[email protected]
 Overview
• General Information
• Business Plan Outline
• Financing
• Financial Modeling

• Example:
• Vusion, Inc.
(http://www.businessplans.org/businessplans.html )
Why Learn About Business
Planning?

• Required for your Project

• Not just for Entrepreneurs
• Intrepreneur
• Engineer in Industry
• Faculty Member
• Social Projects
• Business Plan Competitions
(fun & money)
Purposes of Business Plans

• Planning
• Budgeting/Forecasting
• Feasibility of a Business – (Convince yourself)
• Investment (Convince others)

The business plan is most often used

as a sales document.
Characteristics of Business Plans

• You get out of it what you put in

• Dynamic/Iterative – You will never be finished
• Tells a story – It should be an interesting read
– Logical flow
• Convey information effectively
• Use bullets, tables, diagrams, etc.
• 25-30 page maximum
 General Overview
A business plan must answer a number of questions.
• What is the problem/need?
• What is your solution?
• Who has the need?
• How big is the need?
• What value does your solution offer
compared with other solutions?
• What are its competitive advantages?
• How will you provide your solution to
those that have the need?
• Why will they purchase your solution?
• How much money will you make?
Basic Business Plan Outline
I. Cover Sheet
II. Table of Contents
III. Executive Summary
IV. Business Summary
a. The problem
b. The solution
c. The company
V. Market Analysis
a. Industry Analysis
b. Customers
c. Competition
VI. Operations
a. Product Development/Manufacturing
b. Intellectual Property/Regulation
c. Marketing Strategy
VII. Management
VIII. Financial Plan/Exit/Financials with Assumptions
 Cover Sheet

Cover Sheet

• Name of your Company

• Contact Information
• Confidentiality Notice
• Revision Number/Date
 Table of Contents

Table of Contents

• Use your BP outline

• Helps investors find things
• Make sure your pages are
numbered
• Tables & Charts
 Executive Summary

Executive Summary

• This is written last

• 2 – 3 pages maximum
• Summarize the critical points of
your plan – your BP outline

This might be the only section of

the plan read by an investor
 Business Summary: The Problem

Defining the Problem/Need

• Magnitude of the problem – Quantitative

• Monetize the Problem – Money lost
• People involved – Those with the problem
• Current approaches to address the problem
• How these approaches fall short

Ensure that you have a good understanding of the

problem and not just a result of the problem.
 Business Summary: The Solution

Describe the Solution

• Describe the technology solution BRIEFLY

• Use non-technical language
• Describe how your products will use the
technology
• A technical description should be
prepared, but not included in the plan
• Emphasize the advantages of the
technology and its degree of disruption
 Business Summary: The Solution

Characteristics of a Good Solution

• Platform/Fundamental Technology
• Supports multiple products
• Difficult to ‘design-around’
• Disruptive Technology
• Intellectual Property Protection
• Secured Patents/Trade Secrets
• IP space is not crowded
• Clear translation into Products or Services
• Cooperation of the Inventor/Technical
Expert
 Business Summary: The Company

Describe the Company

• Type of Corporation
• When founded and by whom
• One sentence overview/Mission statement
• Company history (short for a start-up)
• Describe the products/solutions that will be
offered to address the market need
 Market Analysis

Market Analysis Overview

• Industry Analysis
• Identifying Target Markets
• Profiling Customers
• Competitive Analysis

This is the heart of your business plan.

 Market Analysis: Research

Begin with Market Research

• Primary Research (You do it)

• Interviews/Dialogue
• Focus Groups
• Surveys
• Observations

• Secondary Research (Someone else does it)

• Publications
• Analysts’ Reports
• World Wide Web
 Market Analysis: Research

Market Research Resources

• Phone
• Google
• Library Indexes
• Newspapers & Press Releases
• Associations & Foundations
• Standard & Poor’s Industry Analysis
• Forrester & Gartner – Analysts’ Reports
• SEC – EDGAR (www.sec.gov)
• US Census Bureau (www.census.gov)
• Private Marketing Reports
• Trade Shows
Reference sources in your BP.
 Market Analysis: Industry Analysis

Industry Analysis
• Describe industry in which your company
will operate – NAICS Classification
• Industry Trends
• Government regulation/Barriers to entry
• Growth projections
• Division of market share among
competitors

Opportunities often arise from changes.

 Market Analysis: Customers

Who is your Customer?

• Consumer or Business (or Government)?

• If Consumer:
• Location, age, gender, occupation,
income level, education level, etc.
• If Business:
• Industry sector, corporate structure,
revenue level, number of employees,
etc.
 Market Analysis: Customers

Who is your Customer?

• Who makes the purchasing decision?

• How often do they buy?
• Who uses the product?
• How will you reach them?

Your customer should decide what your

product is/does – consider the Lean Start-
up Model.
 Market Analysis: Customers

Identifying a Target Market

Total
Population
Potential/
Demand Market
Market Segments/
Addressable
Niches
Market
1st Target
2nd Market
Target
You can have Market
Penetrated
more than one Market
Target Market.
 Market Analysis: Customers

Identifying a Target Market

Total
Population
All
neonates Potential/
Demand Market
Market Segments/
Addressable
Niches
Market
At-risk 1st Target
neonates Hospitals & Market
Clinics
Clinics in
Example for an Rural India
Incubator
 Market Analysis: Customers

Market Segmentation –
Addressable Market
So, Why Rural India?
Region/ $500 - $1K – $10K -
Budget $1K $10K $50K
U.S. No Mkt Ohmeda GE

Europe No Mkt Ohmeda GE

India A. Shields A. Shields

China A. Shields A. Shields

 Market Analysis: Competition

Competitive Analysis
• Describe Competing Products & Companies
• SWOT Analysis Strengths Weaknesses
• Strengths
• Weaknesses
• Opportunities Opportunities Threats

• Threats
• Use a table for comparison
• (Next Slide)
• Describe how you will compete & why
customers will purchase your product IN
YOUR TARGET MARKET SEGMENT
 Market Analysis: Competition

Competitive Analysis – Vusion, Inc.

Chemical Chemical Sensing Sensing
On-Line Real-Time
Technology Sensing Sensing Medium Medium Price
Analysis Analysis
Single Multiple Liquid Gas

Electronic
Tongue
yes yes X X $60,000

Electronic Nose yes yes X X $15,000

Physical Property
Meters
and Single
yes yes X X X $1,000 - $5,000
Chemical Sensors

Gas
Chromatography
yes no X X X $20,000 - $50,000

Mass
Spectrometry
yes no X X $50,000 - $100,000

Raman
Spectrometry
yes no X X $100,000+

High Performance
Liquid yes no X X $100,000 +
Chromatography
 Operations

Operations
• How are you going to get from here to
there?
• How are you going to develop your product?
• How are you going to pay for that
development?
• Who will make your product?
• If you, how much will it cost to scale-up?
• How will you get customers?
• How are you going to get products to your
customers?
• What are your responsibilities post-sales?
 Operations: Marketing Strategy

Marketing Strategy

• Business/Revenue Model
• Strategy for Market Entry
• Strategic Partnerships
• Expansion Strategy – New Market Segments
• The 4 P’s:
• Pricing – What price will you charge?
• Positioning – High-end or low price?
• Promotion – Advertising?
• Place – Distribution Channels?
 Operations: Product Development

Product Development Timeline

Month
Task
1 2 3 4 5 6 7 8 9 10 11 12

Design $15K

Fabrication $50K

Data Acquisition Hardware & Software $20K

Testing $15K

Preliminary Data Collection $10K

We are Here
 Operations: Product Development

Building Value with Development

Phase I

Phase II

Phase III

Start Milestone Milestone Milestone

1 2 3
Value Inflection
Points
Company $$$
Value
$$

$
Time Investment Windows
 Operations: Manufacturing

Manufacturing Options
Option Option B: Option C:
A:
Outsource All In-house Complete
Production Assembly Manufacturing

High COGS

Low Capital Investment

 Operations: Manufacturing

Manufacturing Strategy

• Location of Plant (e.g., U.S./China/India)

• Subassembly Partnerships
• Costs of Parts
• Quality Control
• Environmental Issues
• Capital Investment Needed
• Scale-up Strategy
 Operations: Manufacturing

Distribution Channels
• Who are your distribution partners?
• What distribution rights will you
offer?

B2C Markets

Manufacturer Wholesaler Retailer Consumer

B2B Markets

Manufacturer Mfgr. Rep. Distributor Business

 Operations: IP Protection/Regulation

Intellectual Property &

Regulatory
• Secured Intellectual Property/Patents
• Patent Strategy & Cost Implications
• Freedom to Operate
• Other Forms of IP – Trade Secrets/
Trademarks etc.

• Regulatory Barriers
• FDA/GMP
• CE/UL
• ISO 9001:2015
• What else?
 Management

Management
• Investors Invest in People not
Technology
• Why are you and your team qualified to
start the company?
• Bios on all key people
• Founders
• Scientific Advisors
• Business/Industry Advisors
 Financial Plan/Exit/Financials with Assumptions

Financing Options

• Personal funds – “Boot strapping”

• Loans/Debt Financing
• Home Equity, etc.
• Savings
• Credit Cards

• Non-dilutive Sources
• Grants (SBIR, TEDCO, MIPS, etc.)
• Partners/Sponsored Research
• Revenue
 Financial Plan/Exit/Financials with Assumptions

Financing Options
• Dilutive Sources
• Friends, Family, & (Fools) - (The 3 F’s)
• Angel Investors
• Investment (ROI)
• Interest in Area
• Venture Capitalists
• Investment (other people’s money)
• 10X Return/5 Years
• Fast Growth/Large Revenues Only
• 1% Funding Rate
 Financial Plan/Exit/Financials with Assumptions

Financing – Dilutive Equity Math

Seed
Round: Pre-Money Stage Series A Series B

Investment: $0 $2M $5M $10M

Valuation: $0 $4M $20M $80M

Ownership: 100% 50% 25% 12.5%

Control: You You/Investors Investors Investors

Your Share $: $0 $2M $5M $10.24M

 Financial Plan/Exit/Financials with Assumptions

Financing Options – Local Sources

• TEDCO – Seed Investment
• Convertible Note
• Up to $100K
• Other Programs (MII)
• Maryland Industrial Partnership (MIPS)
• Matching program 10/90 for start-ups
• Up to $100K
• TEDCO – Maryland Venture Fund
• ~$20 Million to Invest
• SBIR/STTR Program
• Phase I – Up to $75K - $100K
• Phase II – Up to $750K - $1M
• Others: Video Lottery Terminal Funds
 Financial Plan/Exit/Financials with Assumptions

Sources of Seed Capital for Small

High Tech Firms
Entrepreneur Personal Savings 74%
Family & Friends 5%
Angels 7%
Venture Capitalists 5%
Non-financial Corporations 6%
Commercial Banks 0%
Public Stock Issues 3%

Source: Ed Roberts. Entrepreneurs in High Tech:

Lessons from MIT & Beyond . Oxford Press. 1991.
 Financial Plan/Exit/Financials with Assumptions

Exit Strategy Options

• Initial Public Offering (IPO)
• Dependent on Financial Markets

• Acquisition
• Who would be a good Acquisition
Partner?
• What prices are being paid for similar
companies?

How are the investors (VCs) going to get cash

out of your company?
 Financial Plan/Exit/Financials with Assumptions

Financial Statements
• Balance Sheet
• Assets = Liabilities +
Shareholder’s Equity

• Income Statement
• Revenues, Expenses, Income

• Cash Flows Statement

• Cash on hand
 Financial Plan/Exit/Financials with Assumptions

Income Statement
Income Statement
(Thousands $)
2008
REVENUE:
Product A 10,000
Product B 50,000
Product C 5,000
Total Revenue 65,000

COSTS OF GOODS SOLD:

Product A 5,000
Product B 20,000
Product C 2,000
Total Costs of Goods Sold 27,000

OPERATING EXPENSES:
Salaries 4,000
Fringe Benefits 1,000
Facilities Expense 2,500
Phone/Internet/Website 750
Office/Shop Supplies 1,000
Legal Fees 800
Accounting Fees 800
Marketing Expenses 2,700
Total Operating Expenses 13,550

EBIT 24,450
 Financial Plan/Exit/Financials with Assumptions

Cash Flow Statement

Statement of Cash Flows
(Thousands $)
FY09 – Q1

Cash BOP 20,000

Net Income/(loss) 20,450

Decrease change in AR 15,000

Increase change in financing 50,000

Increase change in depreciation 7,000

Cash EOP 112,450

 Financial Plan/Exit/Financials with Assumptions

Building a Financial Model

• Financial Model
• Linked Spreadsheets
• Allows different scenarios
• Five-year Projections
• Monthly for 1st Year
• Quarterly for years 2 – 5
• Start with financial statements and
work backward
• Keep track of all of your assumptions –
these are your variables
 Financial Plan/Exit/Financials with Assumptions

Building a Financial Model

• Start with revenue projections
• Conservative vs. aggressive
• Tie to marketing expenses
• Bottom up/Top down approaches
• Estimate COGS
• Develop a salary schedule
• Develop marketing expense model
• Estimate other expenses
• Facility
• Equipment
• General Operating Expenses
 Thank You

THANK YOU!!

Stephen Auvil
Sr. Vice President Technology Transfer &
Commercialization
Maryland Technology Development Corporation
(TEDCO)
[email protected]