Thank you, everyone, and good evening. I hope I can live up to my podcast superstardom at this point.
It's a little pressure on him. Yes, my name is John Reid and I am coming the business plan in this talk from the perspective of having read many,
many hundreds of business plans, both derive from spin out entrepreneurs, MBA students, all sorts the press.
More importantly, I've heard lots of venture capitalists and investors reviewing business plans as well.
So I've heard what they've said about business plans, what they, what they,
what they want, what they want to look for in an entrepreneur and so forth too. So this is the content.
This lecture is kind of the stuff that you don't get in books. There are hundreds and hundreds of books about how to write a business plan.
There are templates on the web. Some of the stuff is, you know, pretty obvious what you have to put in there.
I don't go into great detail about the financials. You've had a financial lecture as well.
This is the stuff that sort of sits on the ground and hopefully comes live from the venture capitalists.
Then it's all glib about the purpose of business plan, some of the principles behind it.
I've got a contents list,
which for me is an ideal contents list as a framework for you to start writing a business plan and then a big chunk in the middle,
which might I apologise in advance, come across as being a little bit like a grammar lesson because it's talking to how to write,
how to be persuasive in your writing, a business plan.
And then I'll go through bit by bit what you should put in each of the sections, executive summary market and so forth too.
I would run out of time.
I will finish on time, so I might speed through some of the last bits of the slides, but you've got the data and information in them.
Can I just ask who in the audience actually has written the business plan? Well, quite a good, fair number, actually.
Excellent. Can I just ask how many MBA students that are here?
Excellent. I have special words to say on MBA students business plans as well.
So what's it all about then? Why do we actually need to write a business plan?
Though usually two main reasons why you want a business plan,
one of which is a management map which essentially lays out what you and your team are going to do over a certain period of time,
how you're going to make money, how you're going to exit.
The second purpose, which is the one we're going to focus on today, is the business plan as a sales to business plan,
as you writing down what you're going to do in order to raise investments.
Now, sometimes that investment might be things in kind.
It doesn't necessarily have to be a big chunk of venture capital, but you're asking somebody to put some money behind you and your idea.
And it's an exercise in persuasion. I always think it's very important for entrepreneurs to write their own business plan, at least the first draft,
because if you don't, and particularly if you follow the templates that are on the web,
you can end up with something that is really,
really dull and just reads like every other business plan or the other hundreds of thousands of people who also follow the template.
You get nothing of your personality and drive across and it doesn't end up working.
Business plans, those ones, those of you who know who written that one are really complicated documents to
write because you basically have to thread together lots of different things.
And if it's a Start-Up,
you've got a very large number of unknowns which you have to guess that's a lot of people find the sort of guessing around pricing,
for example, very, very difficult. And it's a complex thing to weave together.
It's also has a very, very low success rate.
I think these are probably optimistic figures, 85% rejected, 50% of 80 looked at, and many about 2% of funded some of the principles.
Now, we could spend a week in an MBA course talking about some of the principles that lay behind a business plan,
but it's something that's very easily forgotten. Is that the only necessary and sufficient condition for business is customers.
And by customers I mean people who pay for things, who actually buy a service, not necessarily people who use it.
I'll come on to the distinction between the two because there's some blurring going on there, obviously on the Internet as well.
When you're an entrepreneurial writing your business plan, you have an idea, let's call it we'll call it an innovation for now.
And you want to push your innovation onto the world. You have a brilliant invention or an idea.
Someone somewhere out there will want to use it. They'll want to pay for it.
Is that true as well? And that is very common, particularly with technology of how people think about the business plan on their market.
It's better to think about it in terms of market pull. So you have something here.
What problem in the market out there could be solved by you invention or innovation?
So think about the market pull as opposed to the innovation push.
It's a very common mistake with first time business plans is it's all about the idea of going out there.
And in fact you need to look at the market and where the gaps are.
Don't assume you can change people's behaviour if you always bought cigarettes from a corner shop.
Just because they're cheaper on the internet does not mean that you're going to necessarily change your behaviour to buy cigarettes on the internet.
Lots of behavioural things, retail, retail innovations and so forth sometimes rely on people's changing behaviour.
And if you have a business plan that is based on people changing behaviour,
you have to really work hard to prove and provide evidence, preferably as to why that's going to work.
If you are a one or two person, start up, evaluate your limitations.
What else do you need? Be realistic. Don't go in there saying you're going to take over 5% of the pharmaceutical market
within five years because it's not realistic and it will immediately get thrown out.
Because if you're not realistic about your team and your business and where you are, any investor is going to think,
well, what else are they not being realistic about funds, product development, times and so forth as well.
So talk about uncertainty, be upfront about it, come up with solutions.
I just want to talk a little bit about Internet and business models now.
Again, you know, business models, very, very complicated subject, not very complicated concepts.
Actually, basically, a business model is how you structure your business in order to create revenue.
There are a number of different ways of doing this.
You can have a franchise model, you can have any number of different ways in which you structure your business to create revenue.
But it's basically that's what it means at its most simple, how you how you make your business work.
Now, there's a lot of talk around obviously about how business models are and could
be different on the Internet and this kind of the jury is not really is pretty
still out on this because business models like Google's and some extent Amazon
and some of the music sites are very new and they're continuously evolving.
So there is I'm just saying the rest of this talk is about a business plan,
perhaps not specifically an Internet business plan, but where there were points that are outliers from it.
I will try and flag them up. One thing that's very different, for example, is kind of the Facebook model of doing things,
which is the difference between the customer and the user. So I'm talking a lot about customers being people who actually pay for services.
The Facebook model and a lot of the other social networking sites has been, let's just get it out there,
let's get going, get as many users we can possibly do, and then we'll work out how we're going to make money out of it.
Now, that used to be something that the venture capitalists would think, well, gosh, be scary, we don't go there, etc.
How can you prove that this is going to turn into anything? How are we going to get our money back?
All those sorts of questions. But it is now much more acceptable, obviously,
that these things can create enormous market capitalisations sometimes without even having any revenue at all.
But there's the promise of revenue there. I think a similar example might be the pharmaceutical business.
So if you've got a new drug development, you might be taking ten or 15 years to actually come up with a product.
Hugely risky product might get turned down by the authorities.
So you're basically selling your pharmaceutical company to a series of investors with the promise of things to come.
So it's a little bit like that. There are a lot of things that are very similar about Internet businesses and normal businesses.
I mean, the auction is one of the longest established brokering models that has been around in business.
Just there are auctions on the Internet.
And I would say that the business models and you can if you're doing an Internet Start-Up, you can build this into your plan.
The following is more of an iterative process. Business plans always do change.
They change hugely after a year, 18 months, two years, three years.
As you go along, you learn stuff. You work out the one revenue streams not working and other ones getting better.
So it's changing a little bit along the way.
So in an Internet business model business plan, you can probably get away with doing a little bit more of that.
Okay. Another brief definition of principle supply chain.
In any sector or industry, you will have a supply chain where these people supply a retailer,
customer, consumer, all coexist in that particular industry.
Say, for example, if you're producing a piece of gym equipment, a rowing machine,
it would be useful for you to work out in your business plan where you want to be in the supply chain.
Where is the point of which you can create most value, or are you going to be the producer?
Or are you going to be also the supplier producing the parts for the manufacture of these gym machines?
Are you going to sell your gym machines to a wholesaler who aggregates lots of different gym machines and then sells them on the various places?
Or are you going to sell them to sports shops or you going to sell them straight to the consumer for home use?
There was a various different channels. I mean, for example, some sectors like broadcasting.
I've got a very, very complex supply chain of content provision, advertising, distribution, all of which co-exist.
Sometimes it can be very, very difficult to find out that,
but you need to understand the supply chain of the business that you're going into before you start.
And the more you know about it, the faster you'll be able to make your company grow.
And it's just supply chains are extremely complicated. Okay.
So this is what, in my opinion, is what you should be doing on a constant list for an ideal fairly new stage venture.
If you're doing a £200 million third round fund, you'll have a much fatter business document more finances, more evidence, and such as well.
But this is for the sort of new start up for second rounds, say 1 to 2 million maximum business plan.
So the numbers after each thing all the not the page length roughly you should do so 15 pages maximum then the appendices a page,
two page and a half on executive summary 1 to 2 and production and operations, depending on how important that is.
If you're doing an Internet business, production operations are less of a problem,
so you don't talk about them as you're doing coal mining in the Ukraine.
It's obviously very important. So this is a guide.
The most important one to note is I think a brief history is very important
because that tells a little bit about gives a bit of flavour about who you are, talks to the investor gives it give of course your enthusiasm.
So even if you're a Start-Up, just think. Look, I came up with the idea of sitting around with a couple of people we've investigated.
This is actually a very good way of doing it. And the product or service, a page to two page and half missing a page is usually fine.
This is where new entrepreneurs always go nuts and they always think that they have to put in two and three,
2 to 3 pages of technical detail about how clever and interesting their new idea is.
And you really, really need to be very short. All the rest of the stuff goes in the market and elsewhere.
So you have to exercise control over this. But. So who we actually writing the plan for?
Who are actually these investors that we want to go into? So apologies for anyone who knows this.
Um, just briefly, it's important to go through the different types of investors. They're all venture capitalists.
It's a very early stage venture capitalist who goes down to half a million.
They generally, even the ones that say they do early stage venture capital basically don't.
They kind of start at a million upwards and more so nowadays because they're becoming a bit more risk averse, haven't been a bit burnt.
Business angels are typically people who work, who have some knowledge of the sector that you're going into.
So they'll be a publishing business. Angel There's quite a few in Oxford.
There are quite a few people who fund nano businesses, packaging business.
Typically they're a successful older person who's made lots of money in this particular sector.
They act as guide, funder and a connection point into a network in a particular sector.
Lots of entrepreneurs do the bootstrapping bits of trying to get as much money as they possibly can from private investors through the friends,
family, bit of university grants, government awards.
I mean, it's quite a lot of these around, particularly if you're in a technology sector and you're in a technology sector
which some government somewhere wants to put wants to encourage more of.
Some of these grants can be quite big. They can be quite regular, but they do take quite a lot of time.
So just down, there are some contacts for different types of places you can go and find business angels.
The big one in Oxford is the Oxford Investment Opportunity Network, which is good if you can get into it.
You don't need to look really on the slide on this.
The important point about it is that this is a risk profile of the financing stages of various at the firms life.
Now sometimes people think that if they're only asking for small amounts of money,
the venture capital is going to venture capitalist is going to think, well, that's not very risky because I'm only putting in £300,000.
And in fact, what the investors perception of it is that start up an early stage venture funding is a high risk, extreme sport.
Basically, they make very low returns on it. They're hustled to do.
They've got all the problems that they have about doing a £200 million deal about
confidentiality and all sorts of things are exactly the same in a small company,
and you haven't got the evidence to prove it. You haven't been out in the marketplace for a long period of time.
You haven't got customers, you haven't got this.
It's just to take a picture of the fact that the more established your company is, effectively the lower risk,
even though you're asking for four people say that it's harder to get your first hundred thousand pounds than it is to get £5 million.
And that's probably true. So here's a piece of research which always puts people off because everyone thinks, Well,
I don't have any of that stuff and therefore I'm not going to be able to make it as an entrepreneur or my business plan will not work.
So as you can see, what venture capitalists look for is leadership potential leadership potential of the management team and entrepreneur
industry expertise and the team track record of the lead entrepreneur and the track record of the management team.
Now all of that is pretty hopeless. If you were a 24 year old postdoc with a couple of friends wanting to start in any business experience too.
But there are ways around that which we will talk about later. All of these are very, very people based, as you can see.
And it is very true and a very important principle that venture capitalists and people back people rather than ideas.
So your idea might be really, really good, but if you haven't got the credibility to back it up, you will not get funded.
And likewise, sometimes people get back the really, really strong and lively entrepreneurial team will get backed.
And the reason why people black people want investors, black people, is that they know that if something goes belly up with the first idea,
those people will be able to turn around and create value somewhere else.
And this happens again and again on small scale.
In the very large scale, they believe in the people sufficiently that they know the sector, they know what they're doing,
that they will be able to create something out of the investment and therefore get their money back.
So this expression at the top.
So what is the single most common expression I hear when venture capitalists are reviewing large numbers of business plans,
or when they hear about ideas or when they listen to a series of pitches,
you hear somebody standing up and making this fantastic elevator pitch about, I'm really great.
This is a fantastic company. What an opportunity it is.
And the venture capital seminar says sort of. So what is just a dismissive aspect?
You have to a little bit about the mindset of the venture capitalist.
It's a very male dominated, very ego led type of profession.
Some of the individuals in that like being courted with constantly being the person who has the power in the relationship.
So they're constantly being asked by people, look at me, give me some money, beg, beg, etc. And some people, there was an elements.
I mean, this is not explicitly true, but there was quite a proportion of people who kind of like that power imbalance.
You have to know about it and just work with it and accept it and try and work around it.
They're all hunting for the big fish. They're all looking for the next Google.
So whenever you see a huge success in the marketplace,
you can be pretty sure that there's a bunch of helicopters thinking, Ooh, somebody made a lot of money out of that.
I'm going to go back. The next thing I see in that sector that reminds me of that company, I'm going to really go for it.
And of course, there is the zeitgeist. You know, there's the Internet dot com stuff.
There is you know, nanotechnology was terribly in fashion a little while ago.
Social networking search, very, very hot at the moment.
And if you can capture some of that zeitgeisty, even if you're not necessarily in that sector,
but just sort of bring in elements of that sorts of things that are being funded now that's very, very helpful.
There's a lot of herd mentality going on.
You hear of, you know, London, but if you're lucky enough to be in a position where by you see one or two London venture capitalists,
I'm sure the same as in California as well. You can end up having a big chase happening.
So three or four investors are really, really interested and then you sort of touch yourself around saying, well,
I'll only go with that one on a certain conditions that everyone gets very excited because
they think this is the this is the big opportunity that we want to build and behave very,
very strangely, sometimes completely illogically.
Most venture capitalists are older and have been venture capitalist for long periods of time and generally speaking,
don't necessarily understand about technology. I can't tell you the number of times I've had bright MBA students coming in with me and saying, Hey,
with my wonderful new business plan, I have to turn around and say, I'm afraid I don't understand what you're talking about.
I don't even understand the executive summary. So, you know, that's a failure on many person's path.
But ultimately, if you are the person with the business plan wanting to get invested,
it is your job to explain to the venture capitalists exactly what you mean by your particular technology.
This is particularly true on the internet. When, shall we say, particular demographics under 20 fives, teenagers use tech, social networking,
whatever it happens to be in a very, very different way, in a way that is unfamiliar to 45 year old.
50 year old venture capitalists think they know about it, but they don't actually experience it for themselves.
And therefore, it's more difficult. And therefore, you have to work harder to explain scenarios of how people will communicate with each other.
So here's my good example of Zeitgeist, okay?
When I was working at Imperial College, it was 99 to 2000 sort of big dotcom boom, everyone incredibly excited.
And in the management school we were busy thinking, well, should we do special modules on e-commerce?
And there was a huge debate which is still going on really about whether Internet
businesses are fundamentally different in any way from normal businesses.
But this is just an example of the zeitgeist. So this is Matthew Freud and his wife, Elizabeth Murdoch.
Matthew Freud was a PR person. He set up a huge PR communications agency, very powerful.
And he thought he'd set up a dot.com with a number of his basically his friends.
His wife is Elisabeth Murdoch, who is Rupert Murdoch's daughter.
And they thought they'd sent up something called Oxygen Holdings. And Oxygen Holdings was based on the premise that the dotcom era was him.
The knowledge base was in basically students. So a whole bunch of 18, 19, 20 year olds were going to be creating new companies.
So they were going to create a student Internet incubator to make it put money into student ideas.
This was literally just an idea.
When it floated on the stock exchange, it had made, I think, three or four quite small investments, literally £50,000 or something.
And it immediately had a market capitalisation of £218 million, 3,000% increase.
Matthew Freud made £10 million in nine months because he exited nine months later.
The share price crashed, really just went off literally a crash and burn type operation.
Now this is quite interesting because it gets back to the slide about what venture
capitalists look for and they looked for credibility and here was Zeitgeisty dotcom.
Everyone's got. We're making lots and lots of new money out of this sexy new technology.
Plus people we know, people who have already set up successful companies.
There's Elisabeth Murdoch in that as Matthew Freud is Tiny Rowland's son, Nat Rothschild, etc.
What could go wrong? Let's find the check. So to have such a massive increase and in fact,
it was a very fundamental flaw in these oxygen holdings in that they were basing their business
model on student ideas and they didn't realise at the time that student ideas as they are now,
even in things like social networking, nothing to do with research, are basically owned by the university.
Therefore, their whole premise for their business, their business for student incubator was completely flawed.
No one thought about that. They just went with the zeitgeist and the people and let's put some money in this.
Right. So we're going to go on to grammar section.
Now, if you just bear with me while we go through a few lessons on how to write, I put this section in actually,
because it's quite it's quite obvious this very common mistakes that people make in business plans.
And I'm trying to draw out some of these whilst also talking about how to communicate properly.
Okay, so here's some writing tricks. Number one, understand your audience.
You're writing this for investors. You need to gain credibility.
And don't make it hard for them to do it.
Don't use lots of acronyms animals CDMA as you don't can't assume that the people who are reading it necessarily know what you mean.
If you explain it once, explain it three times, explain on page three,
it is been on page five the useful things trying to explain what your product or process actually does, not necessarily how it works.
Sometimes these things are incredibly complicated to explain how they work, what you want to explain in terms of how the customer accesses,
what you want to give them, why they pay for it, how the whole scenario works.
IP is or is intellectual. Having said not to use acronyms.
Intellectual property. That's another area with which the techies like to go really,
really into saying the reason why my particular invention has got four patents attached to it,
etc. You just leave out the explanation on intellectual property. If you've got patents, stick them in the appendices, refer to them in.
When you're talking about competitors, that's a competitive advantage. You have the patent and not the detail on the patents.
So your job to explain to the investors giving them enough detail, difficult balancing act.
So it sounds very obvious, but writing a plan so it's easy to read.
And if you're like me and sometimes you get a big pile of business plans,
even though they're quite short and you're going through them again and again,
and you just sort of think these people are making it so difficult for me to do this tiny font.
It's almost as if you have a page limit for people.
Sometimes bench copies that were more than 15 pages, tiny font right out to the edges, very, very difficult to read.
It is universal sign of ageing that people between 40 and 45 generally need to wear.
Reading glasses don't make it difficult for us adjectives and adverbs.
He bravely opens the lightly varnished cupboard. You just want to take them out because they're not working for you.
The few words in which you can make your point and get it across the better.
Keep the sentence lengths different. So if you have a long sentence to dedicate a short sentence to the da da da da da da da da da.
It makes it much easier to read and actually thumps the reader along faster.
And in a particular way. If you've got key messages, repeat them.
So if you've got, say, three or four things in the business found, you think really, really important.
Put them in the executive summary, put them in in the market, and then maybe in the finance as well.
So keeps the, you know, keep your messages going all the way through.
Sometimes people put very, very important things in one place only I think sometimes people start writing business
plans as if they're writing a sort of legal document or an act of parliament.
So you get very, very formal, extremely perfect, flowery English.
And that doesn't really work either because it makes it sound really pompous and formal and you just can't get through everything.
And it's much easier to write it in a much more straight on flowery style.
This is my trick on paragraphs. So when you if you go executive summary for example, is really, really important, takes a very long time to write.
If you have a number of points that you want to put in paragraphs, the place where you are goes first is the front of a paragraph.
So the first sentence one another such the voluntary sector,
the second most important place when people are skim reading because let's face it, we mostly just skim these things.
Second most important place is at the end of a paragraph, not in the middle.
So sometimes it's quite a good idea to split up your six important points,
put them at the front of the first sentence, and then the last sentence of the paragraph.
Because if people are skim reading and venture capitalists seriously spend 60 seconds, sometimes they can do it with a business plan.
Having that much time and making it work harder by putting them in the right place makes a difference.
Sometimes when you've written something, it's quite a good idea to go through it and say it out loud.
And if it sounds like you've written a textbook, you probably need to go back and start taking some of the words out.
Do would call take out as many words as you possibly can.
You sometimes end up taking a word down, cut, count down by 25, 30%, and it will read much better.
You can always put words back. But that's the tendency, particularly when you're enthusiastic and you want to put everything,
every detail that you could possibly think would be relevant into your business plan.
Just make it make it a sort of discipline that the first after the first draft, you take some of these words out.
Oh, cliches, business plan. It's just a sort of madness.
The cliches people want to put in superlatives, state of the art world, beating in order to try and generate excitement in their plans.
And, you know, I did say that, you know, investors are all looking for the next Google.
So you do want to be in so exciting and enthusiastic that each of these words immediately comes across as amateur.
A serious business plan. Hardly ever has words like this. And if they do, they are totally justified with data right the way through the plans.
It will probably be a more advanced than an early stage business plan.
They're incredibly culturally specific. You don't know the nationality of the person who's going to be reading it.
Sometimes people don't know what a $64,000 question out of the box thinking low hanging fruit.
They're generally considered not to be good things to put into a plan.
And it's amazing how people don't say these things normally, but that business plan is completely full of them.
And to me, it always says inexperience.
This is another thing that people seem very excited about doing when they write a business plan is using strange,
long, flowery words like utilise instead of use, and instead of saying the get,
which is what normally we say is commence and on the counter,
the fact that instead of because and with the exception of so this is an attempt
which is sort of understandable to create credibility by creating formality.
And all you're doing is adding more words and making it harder to read and you don't get your point across.
So just simplify the language at every point. It's harder to do if you actually write like that.
And sometimes this goes back to how we were sort of taught to write at school.
So most people are taught to write very succinct essays, and sometimes they're taught to write very,
very complicated, you know, flowery, grown up stuff we're really getting to detail now.
Okay. Just a couple more slides on this. Specific words like red and blue have more emphasis than general ones like highly coloured.
So concrete words like rain, fog rather than bad weather.
What do you mean by bad weather? You just want to avoid phrases that create ambiguity because you just it's just a little thing.
But if you have words that are ambiguous all the way through your business plan, it just doesn't feel very sort of thought out in some way.
I mean, you wouldn't be talking about bad weather and rain and red and blue, etc. you'd be talking about more business, you type things.
This is an example of trying to be specific and trying to be concrete in a way that increases your credibility because you're being succinct,
lots of very unique and quite impossible and very highly, really, truly the one that comes up most often is substantial market share.
I mean, that is just I mean, that is a complete killer to a business plan.
If you put that into a summary and I read substantial market share it and think, oh my gosh, you know, what do we mean by substantial market share?
Is that 3%, 5%, 10%? Why are we putting in the word substantial to try and make out that this business is
really exciting and it's going to take lots and lots of the market share in due course,
put in numbers or don't put it at all. So summarise that section.
A good business plan actually targets your business idea to the needs of the particular investor.
Investors are different. A business angel is more forgiving and more interested in the lively entrepreneur
than the venture capitalist who is interested in finding the next Google.
It needs to communicate clearly the proposition and the plan and establish credibility with your investor.
That's all about attitude, drive skills, getting the right time scale, ensuring that you can do the financial return you say you can do.
It's very difficult to get the financial return and time scale right.
But we'll talk about that in the next sections. Okay.
So there we go. We're going to go through some of the contents of this.
Now, I'm going to do more detail on some bits than others, because as I said at the beginning, some of you already have.
Some of it is also kind of obvious from any business planning template you might get.
So I'm going to try and pick up the non-obvious bits and the bits that people sometimes get more wrong more often.
Executive summary. This is the only place you can guarantee is going to be read one or two pages maximum.
I always recommend writing it at the end.
You can jot down a few points that you want to put on it, but it basically outlines the market, the proposition, the time scale, the financial return.
A little bit about who you are I think is very important and the key drivers.
So playing succinct, short but really, really hard to write.
So what the rest of the business plan for us and then do is at the end.
Brief history. Well, I also sort of like this half a page what stage you company in.
And now this is an opportunity to show your motivations, attitudes, experience, enthusiasm for a particular event.
And this is a bit what's particularly important for new entrepreneurs who haven't got a big background behind them,
because you can you can be you know, you can you can be your personal personality in that particular paragraph.
You can talk about the team, talk about the team dynamics. You know, be modest where you need to be.
But it gives the immediately gives because it comes straight off the executive summary.
It gives the venture capital chapters a feel for where you are now. Sometimes it takes about ten pages to work out is thinking, what is this company?
You know, how big are they? What are they trying to do here? And it's really frustrating.
And I think if I was a sort of real venture capitalist, you wouldn't necessarily put that much effort in to get to 5 to 10 pages.
It doesn't matter if you're if you haven't got an experience,
just say yes upfront and where you want to go sometimes if you haven't got a lot of you haven't got market research and data.
I get people to put in conversations they might have had with potential customers.
So you've got an idea. You've got an idea who might buy it. You bring them up and say, Well, what do you think about this particular plan I've got?
If you get positive feedback from four or five large companies, stick it in there.
Product or service. So this is this is actually when you explain what it is that you're going to do, not necessarily how it works.
Sometimes I've seen this happen. It is being done in half a page. Absolutely fine.
There's no there's no maximum that you should be putting on or putting on these.
The minimum you should be putting on these. How is your idea embedded in a real market opportunity?
You know, how where are the customers? What value does it bring to them?
Why are they going to buy it? Why are they going to repeat buy it?
And how are you going to get them to buy it? And what problem does it solve?
The question here about what problems is it? Solve is a really useful framework.
So trying to talk about your idea, you know,
what is it out there that frustrates people such that they will come to whatever you are being able to offer them?
Is it a significant problem? Is it being met? Is it being sold partially elsewhere?
And that's a very useful framework on which to look at it.
So marketing investors to pages, generally speaking, the order in which people look at a business plan.
And this is you know, this is a rough rule of thumb here very much from, you know,
personal experience and talking to people is that they look at executive summary first,
then they look at the financials and then they probably look at the market next.
So it's done in that order. And the executive summary in the finance has got to work particularly carefully.
And then the market is where they go to next. You need to describe your general market.
How big is it? Was the geographical spreads, major customer types, history and future development?
You get to need to get to know this stuff and try and work out where you're
going with it and don't necessarily just reproduce masses of market data really,
really try and understand it.
The fastest way to understand it is by talking to people rather than necessarily reading books, but I've got a few shortcuts in there as well.
So we want to hear local, regional, international.
What are the relative sizes and rates of growth? Recent history.
The Internet is just is so difficult to get data on this stuff because lots of these technologies are cycling
so fast and the the the market research data is lagging behind actually what's happening on the ground.
So I would go out onto the web, see where you can find data, the particular characteristics, how it operates.
There's a lot of technology change. Technology leads change within all areas of organisational life and business life.
And trying to get a picture of those is quite hard. But you can.
It is possible, but I would suggest going to non-traditional sources.
So five years ago I would have been talking about business plans, about saying, well, go ahead, go here, go ahead.
I think probably now we need a slightly different mix. And what are the patterns of people in your particular sector?
So you're selling cigarettes. Why do people buy cigarettes at particular points?
What time of day do they buy them? What are the priorities? Are they is it price?
Is it brand? Is it what are the factors that make them buy?
You have to learn about all this stuff as well. And outside retail sectors, the things that you personally would know about,
it's quite hard to work out some of the stuff of what's going on, so just leave enough time to do it so you can market research day.
So for us the mental keynotes are all and market research report people.
Some of these things are quite good,
but they're much better in the traditional market industries than they are in the newer ones, particularly the the.
Particularly the sort of technology wireless type areas that they often have been very, very bad.
The codes means the industry classification codes that you you have to look up things.
You need to make sure that your market opportunities are realistically evaluated and you have data.
So by realistically, I don't think we're going to take 8% of the pharmaceutical markets by 2015 is at all realistic.
You need to put in some data the overall size of the market.
What do you think it might be reasonable for your company to expect to gain in a particular over a particular period of time?
How many customers does that mean and where are you going for?
You know, your target market share is perfectly okay to go for 2% of a large established market or to go for 10% of a much newer emerging market.
The numbers are not so important. The actual numbers are not so important.
What is important is that you're making a realistic estimate of how much of that market you can get and the,
you know, your confidence and you don't overpromise. I always think with business plans is under-promise and overdeliver.
Keep your venture capitalist, your investors sweet. Don't overdo things in order to try and get investment.
This is what happened at a market, a business plan presentation.
If your business plan gets accepted to the first stage, you'll have to go and make a presentation,
produce a couple of pages on it, and you have to stand up and talk about.
That's often what people will get questions about is you. You need to be able to show good qualitative understanding of the market.
So when you get questions flowing back at you saying, well, what about this regulation that's changing in the U.S.?
You know what they're talking about and can give them a credible answer.
That's where you get quite decent markets and financials related questions in the presentation.
So quite often people come up and they say, Well,
we haven't got any competition because this is an entirely new and brilliant idea and therefore don't need to talk about the competitors.
You always need to talk about competitors because sometimes your competition is doing nothing.
So people could go and buy your product or service.
Or they could just not. They could just not do anything at all in that particular space.
So there was always, always competition of some sort in some nature.
How do the companies in your particular sector compete?
Is it on price, volume, reputation, product design?
I think what a little something I've definitely noticed over the last 5 to 10 years is there's a lot more competition on brand and building brands.
And brands are incredibly, incredibly important.
I mean, obviously in particular sectors that you don't need to go into what sectors would be important.
But, you know, the brands, product design, quality, reputation often get built up behind the brand.
So I think it's kind of worth thinking about if you were in a business that where
brands are important and they're an important in more places that you think,
how are you actually going to go about building that brand? So that's kind of a different way of framing the reputation, design, etc.
Why is your product different? You know, you need to explain to me the investor and why it's actually any different from the competition,
why it's better, why people are actually going to what is the critical success factor in all these industries?
There are certain costs to two or three critical success factors, say an airlines.
It's cost and safety that you have to get right. And how are you going to get yours right?
What about the competition? Where are they vulnerable? Lots of very, very established industries are very, very vulnerable.
They all failed a fair go, globalisation. They don't understand outsourcing in the proper types of way.
There was a lot of vulnerability in particularly some of the large companies.
Lots of emerging markets are doing setting up businesses, small global multinationals extremely fast, taking away lots of competition.
The whole knowledge base is changing very, very fast.
So it's a very interesting time to think about how some very established players who've been relying
on market share for a very long period of time by doing the same sorts of things that got the brand,
got the reputation, but are also very vulnerable to some of the changes that are going on, which they don't always understand.
So too much infrastructure and they're not able to change in a way that takes advantage of, for example, lots of new technologies.
My favourite tip are actually trade presses and trade fair and journalists.
If you can find the right, a good person to talk to, say, at a conference or thing and you want to know about a sector,
a specialist, journalist, people who work in the sector. Trade fairs are very, very good opportunities to go on up to competition.
Check out what they're doing, how are they selling their products? What are their critical success factors?
And trade press is also a very good place to go and find out what's happening.
So I just have a little example here of how you might go about structuring your market.
So you've invented a new washing machine and your washing machine, you need to sell it at £2,000.
It's an expensive washing machine. And you might think in your business plan, starting off with a washing machine, right?
You want to sell it everywhere. You want to sell it to hotels, to houses, to globally all over the world.
And that's how you would create a brilliant business plan. Incorrect what you would think if you were to three person company working in Southend.
That's where you put your washing machines. You think, okay, well, I don't want to do the global market,
I want to do UK only I want to do just households because hotels and everything 2 to 2, they always want to buy in bulk.
And there's big competition out in households too.
I'm going to do it in the UK because actually thinking about it logically, I can't go and service things of the machines if they go wrong.
In Amsterdam. Delivery is quite hard. If I'm taking them to Morocco, you know, I'll just keep things in the UK for now.
I'm selling my machine at £2,000. Who's going to buy a machine at £2,000?
I need to find out everything about who can afford to spend that much money on a piece of white goods, which is way of the odds from normal.
What is it special about my what am I going to build my brand on such that it becomes special?
What's the estimated income of the person who's going to afford this?
So you might think, okay, well, we end up with somebody who's earning £100,000 a year based in the UK and the household,
and that's where you target that little dot in the middle is where you're going to target your your activity.
That's where your market is going to be.
You need to find out everything about those people who change their white goods every two years earn more than £100,000.
What think what things do they read? Where could you advertise? How do you get to those people?
That is a much more credible business plan than the one that says we are going to take over 20% of the global
washing machine market in five years because it's realistic and you've defined what you're going to do.
So you've to find your target market here for milestones to make it.
Do you want to see 384 This is what we're going to achieve.
Sometimes those achievements are really, really modest, like build a prototype, be just be site,
or go to a trade fair in Japan and get some customer interest and so forth too.
But if that if they're realistic, they need to they need to be realistic.
So in your marketing plan,
you've described market identified your segment analyse competition and you need to think about pricing, promotion and selling.
Now this sounds really, really boring, so just bear with me for 2 minutes.
Pricing is something that people find really, really difficult because it is just sometimes a real finger in the wind job.
You look at what your competitors are charging, look at what you've got and try and work out.
It's a bit of a guesswork involved in getting the right price.
What is the margin? How does it compare to other people? A very typical problem.
The most significant problem I see is underpricing a seemingly you can go in
against some very stiff competition and charge less than your competitor products.
You usually wrong because you can't build up the volume.
There's a reason why people charge at a particular a particular rate and you don't need to underprice.
You sometimes create more value by getting the brand right and saying, Well,
we're offering something special, different and superior here, and therefore we can price higher.
This is the most common thing I see is the on the pricing factor also strain on the CEO lead entrepreneur promotion,
particularly promotion, for example, to go and get investment promotion tends to fall on the senior people in the company to do.
They're often not very good at it. They don't like doing it. It's the going out there and making sales.
But it's typically true about sales as well. There are lots of ways to do this without spending money.
You know, you can get free coverage in the newspaper, trade fairs, cooks focus on the thing,
but it's just something to be aware of that you it takes a lot of time and it can really
kill a company if you spend too much time on not thinking about your sales force,
who is actually going to sell and distribute your product or service.
And it often takes quite a long time to get the sales pitch right,
to get people to buy and repeat buy and what sort of quality of customer service you need to bring them.
You need to have somebody that is one of the phones 24 hours a day. The practical things like that are very important to think about.
If you, in the business relies on establishing and developing customer relationship geographical coverage of sales operation,
you don't have to go into much detail about where you're going to be selling to begin with.
But, you know, it's quite a good plan to say, well, we're going to start with no in Finland and then we're going to move to the rest of Europe and
then we're going to do X one to just explain the strategy about why you want to work less.
This is quite common sense. Just a few things that people continue to get wrong.
Unrealistic. They're always competitors and research is never wasted.
But choose your sources. On research, particularly in new technologies on the production operations.
These are of things you need to think about, you know, plant machinery, office space.
I wonder how many people in the room know how much it costs to rent an office space for eight people in Oxford?
You got to find that stuff out. So one person that has been there done that, it's really, really expensive.
And, you know, thinking about where you're going to set up versus your skills base, how people are going to get the parking plant machinery,
what sort of I.T. systems are another very, very common way for people to waste lots of money when they first start companies.
How dependent are you on skills? There is a massive shortage of people with I.T. and software skills, let alone I.T. Plus management skills.
All over Europe is getting worse. We're probably except for Estonia, it's getting worse.
And if you have a business that you want to grow that is very dependent on a particularly high levels of you know,
you need a Ph.D. physicist to be working on stuff, building algorithms.
You need large quantities of them. You have to think about where your skills base is going to be, such that you can build on it.
A lot of this will be unknown. You need to just flag up.
This is a problem area. I don't know quite the solution to it, but my solutions would be one of the following A, B, and C.
So this is an opportunity for you to say I, I have all the answers yet there was certainly quite a lot of variables on here.
Here is my best guess. I know what I'm doing because I've understood the problems.
So management in its objectives. It's difficult now in this one because sometimes people go into huge amounts of detail
and you get 15 CV's and so forth and they're kind of quite interesting to read too.
But I think appendices is the place for CVS and make sure that they're not too long.
You need to describe your experience, whether you've had an entrepreneur, entrepreneurial type of experience.
What is the control they have over the company? Non-Executive directors you can put in there as well.
If you only have a particular type of people you have for computer sciences,
you know that you need somebody with marketing and sales experience and that's fine.
Just say and put it in. Make sure it matches up in your financials that you've got plans to recruit your missing ingredients.
Again, this is a way of establishing credibility. Say, be realistic.
We know what skills we've got. We know what skills we actually need.
One mistake here is that sometimes people can think they always need a very expensive CEO or a very expensive CEO.
Quite often you can kind of get away with that because there are people who will immediately well,
I'm not even going to talk to you as a start-up until you pay me 70, £80,000, and you can sometimes get away with that.
Sometimes people get trapped into thinking that they need to have a very, very expensive, higher CEO.
A very good CEOs can be just very smart, very organised, very together type of people and sometimes, you know, sometimes quite young.
So this might be how you put out your management objectives.
The first thing you're going to do is how your chief operating officer,
then you're going to be sort then the trade launch and make sure that you think all this is realistic and doable.
Because if you say that you're going to do this to your investor who puts in £300,000 into your company,
and even often you're going to be do this in the first year and you only get one 10% down this particular time line.
They're going to think you're pretty rubbish. They're not going to be happy that less likely to invest next time around.
Whereas if you put modest goals in there, you know, double the achievements that you've done in the first year,
they'll think, Great, these people know what they're doing. These are still some ways to improve your team credibility.
Feedback and quotes. We talked about potential customers, non-executive directors.
It used to be you could just become a non-executive director quite easily and not have huge management responsibilities.
Now it's quite an onerous job, but if you can get some people who have been successful and some you can just approach them,
you know, straight off you don't necessarily have to know them or be friends with them or meet them as a conference or anything.
They are a very good way of adding instant credibility to your business.
There are a few of the Oxford scientists who have been non-executive directors of almost all the major Oxford spinouts,
and I've seen venture capitalist looking there and saying, Oh, okay, he's a non-executive director and it's almost instantaneous.
I think it must be good.
So the credibility factually cannot be underestimated of getting a good non-executive director on board and preferably more than one.
Sometimes they get lumped into a scientific advisory board,
and if you'll just if you want to get a collection of superstar scientists in there, that's fine.
But you also need some business experience in there as well. And you can just ask around.
There are people who do this on a sort of serial basis. They're non-executive, lots of different companies.
They find it fun, fun, interesting. They like helping new businesses start and grow.
And it's a very, very good way of getting credibility, particularly if you're young,
because there's a feeling venture companies feel the money is just slightly safer.
If they've got these four or five people who've been there and done it before. Press attention is quite good.
Again, it can be quite hard work to go get that,
but it's very easy nowadays to publish all sorts of things yourself and on the internet and get the blog action going and so forth to.
I think it's very important to actually say what the management want to get out of the business.
Now, if that's a trade sale after five years, that's fine.
Put that in. If it's that you want to stay with the company and manage it until it's employing 500 people all over the world and as a multinational.
That's also fine, too, but it's good to get the sense of you want your personal ambition in there.
And also not to lie about it, because if you don't want to become the chief executive of a 500 strong multinational company,
it's kind of better to say that and be upfront about it because it will be detected.
Sometimes some of the spin out and scientists, they get to a certain point.
Suddenly their job is becoming all about management and problems and hassle and
solving things and taking them away from the stuff that they really like doing,
which is taking a piece of science or technology, building it up into a product,
getting it out there, and they kind of want to go back and do that again.
So don't be unrealistic about what your vision is. You may not know what it's like, but don't overdo it.
For the main plan. We're just coming to the end here now in the main body of the business plan.
You need a financial story. And I do mean it's actually quite useful to write it down as a story.
We are looking for £300,000, half a million pounds in order to get to the next stage, defined next stage.
The anticipated revenue will be coming on stream in year three, four or five.
Important facts woven into a story whereby you understand the risk and you understand the
potential revenues that are coming in and how this fits in with your particular strategy,
how you are going to measure what you see to be an acceptable output.
So after year two, year three, year four, and if you write and describe this stuff,
it's sometimes easier to read than immediately going into the figures.
The figures should be that we had you had the previous lecture, PNL, cash flow.
They all a lot of work needs to go into those as well. But it's useful in the main plans just to say the main story over and over again.
3 to 4 years is typical. Beyond five years, you're really into guesswork.
And it's an area where sometimes when you were in presentation mode and you put in all my
revenue in year seven is going to be X and you get challenged on it and you will say,
What's the favourite thing I see venture capitalist do all the time?
How do you know in year seven you're going to be putting turning over a million off and you basically don't that it can really sort of rock
your credibility if you're just sitting there and you've made these figures out because they follow a nice trajectory going along the line.
Really, really. Actually, if you can only do three or four years, that's fine.
It's better than trying to take it too far. So this is the sort of thing that you might have in your story.
The assumptions behind forecast sensitivity to change is what I mean when I'm talking about risk.
You know, what are the risks in this, you know, global economic meltdown, huge competitor coming on board,
somebody going into a very large company moving into your area suddenly overnight,
I would be include the pessimistic spin scenarios as well and how you going to manage the uncertainty
because this is this is a huge risk in any small company is how do you manage financial uncertainty.
So think of everything that could possibly go wrong.
We didn't necessarily put everything in there, but show that you have a strategy for dealing with it.
One of the reasons the things is that people never ask for enough money.
They do their cost flow analysis and all these other things start coming in and they end up really,
really struggling because they haven't raised enough money.
And the investors are sort of banging on the door saying, well, we need to see the returns.
You promise excellence at output, and they haven't got enough money to do what they say they want to do.
So that's the appendices list. Sales forecast don't have millions of spreadsheets.
I'm afraid MBA is love. Putting in losing those spreadsheets.
You kind of want just the basic ones that tell a good story and not all the great fancy stuff.
So. Basically the investor wants to know how fast they can get their money back and how much return they can get on their money.
Venture capitalists are not very good at making investments in companies. Only a very small percentage of them make them any serious money.
Some of them make them a little bit. I think it's something like 8% I think is one one or 2% or really, really huge earners.
Same with universities and spin offs. You can sometimes get one university.
It's practically funded off one single patent. It's so it's a game and they're looking for that one or 2%.
I think 8% of them make some quite decent money. There's a big chunk in the middle which they call the living dead,
which is whereby the investment is pretty much same as the value of the companies that are five years in.
So obviously they're not going to make huge amounts of money out of that. And a lot of companies fail.
They have really high, particularly at the early stage.
Right. Which is why the investors are cautious.
They want to know very clearly when they're going to get their money back and what are the risks attached to that.
And sometimes the British venture capitalists are notoriously bad at wanting very, very short returns.
So they're looking at exit sometimes within three years, 2 to 3 years.
And particularly with the Internet businesses, they have a feeling that this can all cycle very, very fast and suddenly it can explode.
And everyone wants to use your software. That's also, you know, that's unrealistic, basically.
And you have to you have to kind of be cautious about that, about what you're going to be able to do in the particular period of time.
It's much better to think on a five year timescale.
If you can do better than that, that's great, but not overpromise at this stage.
So you need to think about all the risks that could happen.
You know, why might you not be able to make the return you promised to these venture capitalists and how you plan to mitigate against it?
So grand summary I finished on time was amazing the first time.
And be realistic. Just say what you will. Don't be boring.
All venture capitalists and all the juniors and venture capital firms read hundreds of business plans all the time.
And to make you stand out, you don't have to be superlative in world beating a state of the art.
You just have to say something personal in an effective, credible way.
I always think calculate how much money you need and then double. It is not a bad rule of thumb to go for.
As I say, it's probably no harder to get £750,000 as it is to get to £250,000 from.
It's very hard work, but those figures are extremely hard work.
But the difference between them is not that huge customer and market research is never wasted and write clearly in no more than 15 pages.
I remember it's all about the people, it's all about them and writing for them and it's all about you as an individual and what you can do.
And I'll stop there. Thank you.