STRUCTURE AND KEY ELEMENTS OF A BUSINESS PLAN

Despite their many differences, all business plans have certain elements in common that all potential investors expect to find (Exhibit 1). Additionally, an appendix is often included that contains detailed information, often presented in the form of tables or graphs. Within this more or less re uired structure, the business plan is free to gro! in its o!n direction. "n #hase ", competitors only !or$ed on a fe! $ey elements and individual topics. "n #hase "", ne! elements are added !hile the topics from the previous phases are expanded, and, gradually, the plan fills !ith content.

ELEMENTS OF A BUSINESS PLAN

Part of this phase

Phase 1

Phase 2

Busine ss

Business

Conce p 1 2 3 4 5 6 " $ & Executive summary Product or service Management team Market and competition Marketing and sales usiness system and organi!ation #mplementation schedule %pportunities and risks 'inancial planning and financing

P!an

Exhi (it &

1" E#ecu i$e su%%a&'

"A good executive summary gives me a sense of why this is an interesting venture. I look for a very clear statement of the long-term mission, an overview of the people, the technology, and the fit to market."
Ann Winblad, %enture &apitalist

'he executive summary is designed to pi ue the interest of decision ma$ers. "t should contain a brief overvie! of the most important aspects of the business plan. "n particular, it should highlight the product or service, the value to the customer, the relevant mar$ets, management expertise, financing re uirements, and possible return on investment.
%enture capitalists loo$ at the executive summary first, though they usually (ust s$im it. 'he uality of the summary itself is not li$ely to ma$e them invest in your pro(ect, yet it can convince them not to. A clear, ob(ective, and concise description of your intended start)up, !hich must be easy to comprehend,

especially by the technical layperson, !ill sho! them that you $no! your business. 'herefore, prepare your summary !ith the utmost care* it may !ell decide !hether the rest of your business plan is read. 'he executive summary is an independent element of the business plan+ Do not confuse it !ith the introduction of your business concept on the title page. ,oo$ at your executive summary !ith a critical eye repeatedly - especially after all other aspects of your business plan have been completed. As$ yourself if you have described your business idea as clearly, compellingly, and concisely as you can.

.our readers should be able to read and comprehend the summary in five to 1/ minutes. 'est it. 0ive your executive summary to someone !ho has no previous $no!ledge of your business concept or its technical or scientific basis.

KEY (UESTIONS) E#ecu i$e su%%a&'

1 )hat is your (usiness idea* #n +hat +ay does it fulfill the criterion of uni,ueness* 1 )ho are your target customers* 1 )hat is the value for those customers* 1 )hat market volume and gro+th rates do you forecast* 1 )hat competitive environment do you face* 1 )hat additional stages of development are needed* 1 -o+ much investment is necessary .estimated/* 1 )hat long0term goals have you set* 1 -o+ high do you estimate your financing needs* 1 )hat are the sales1 cost1 and profit situations* 1 )hat are the most important milestones along the +ay to your goal* 1 )hat test customers have you approached2could you approach* 1 )hat distri(ution channels +ill you use* 1 )hat partnerships +ould you like to enter into* 1 )hat opportunities and risks do you face* 1 3ummari!e the results of your detailed (usiness planning and state your exact financing needs4 1 -o+ +ill you delegate management tasks* 1 -o+ much production capacity is necessary* 1 -o+ +ill the implementation of your (usiness idea (e organi!ed* 1 5ist your next1 concrete steps4

2" P&o*uc o& se&$ice

"If you don't know what the customer value is, the whole thing's a waste of time."
2runo Weiss, Entrepreneur

.our business plan derives from an innovative product or service and its value to the end consumer. "t is important to indicate ho! your product differs from those that are no! or !ill be on the mar$et. A short description of ho! far development has progressed and !hat still needs to be done is also essential.

Cus o%e& $a!ue "t doesn3t ma$e any sense to start up a ne! business unless the product or service is superior to current mar$et offerings. 2e sure to discuss in detail the function the product or service fulfills and the value the customer !ill gain from it. "f comparable products and services are already available from your competitors, you must convincingly substantiate the added value your customers !ill receive from your start)up. 'o do so, put yourself in the place of the customer and !eigh the advantages and disadvantages of your product over the others very carefully, applying the same criteria to all. "f you are offering a range of innovative products or services, categori4e them into logical business areas according to product or customer. Define the business areas in detail so there is no overlap. De$e!op%en s a us o+ he p&o*uc ,se&$ice
"n explaining this issue, imagine you are the venture capitalist !ho !ants to minimi4e the ris$ involved in participating. 'ry to refrain from including technical details and describe everything as simply as possible. A finished prototype !ill sho! your potential investor that you are up to meeting the technical challenge. "f it enhances the understanding of your product, include a photo or s$etch in your business plan. "t is even better to have a pilot customer !ho already uses your product or service. .ou should also explain the nature of the innovation itself and the edge you have over competitors. 'his is the point at !hich you should address the sub(ect of patents for protection from duplication or imitation, or the protection of a model through registration. "f there are still problems or issues to cover regarding development, be sure to mention them and ho! you intend to overcome these difficulties.

5egulatory re uirements on products and services pose another set of ris$s. 6ote any permits you have obtained, have applied for, or !ill apply for, such as those of technical control associations, the postal service, or the department of health.

KEY (UESTIONS) P&o*uc o& se&$ice

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

)hat end customers +ill you address* )hat are the customers6 needs* )hat customer value does your product2service provide* )hat is the nature of your innovation* )hat is the current status of technical development* )hat partnerships are necessary to achieve full customer value* )hat competitor products already exist or are under development* #s your product2service permitted (y la+* )hat are the prere,uisites for development and manufacturing* )hat stage of development has your product or service reached* )hat further development steps do you plan to take* )hat milestones must (e reached* )hat versions of your products2services are designed for +hat customer groups and applications* 7o you need to o(tain licenses and1 if so1 from +hom and at +hat cost* )hat kind of service2maintenance +ill you offer* )hat product or service guarantees +ill you grant* 8ompare the strengths and +eaknesses of compara(le products2services +ith yours in an overvie+4 )hat resources .time1 personnel1 materials/ do you re,uire for each su(se,uent development* )hat share of sales do you expect from your various products2services .if applica(le/* )hy*

7.8.

Mana-e%en ea%
9I invest in people, not ideas."
Eugene :leiner, %enture &apitalist

'he management section is often the first part of the plan that venture capitalists turn to after reading the executive summary. 'hey !ant to $no! !hether the management team is capable of running a promising business. Entrepreneurs fre uently underestimate the significance of this uestion and ma$e the mista$e of s$imping on content and ma$ing do !ith meaningless phrases. 'a$e the time to describe your management team !ell. When discussing management3s ualifications, be sure to emphasi4e those that are particularly important for implementing your specific plans. #rofessional experience and past success carry more !eight than academic degrees. "f $ey positions are to be given to inexperienced staff members, explain this decision in detail.

C.ARACTERISTICS OF A PO/ERFUL MANA0EMENT TEAM

1 1 1 1 1

8ommon vision9 Every(ody +ants to succeed 8omplementary attri(utes and strengths :t least three1 (ut usually no more than six1 people 8ommitted to staying together through thick and thin 3taying po+er1 even +hen there are set(acks 0 regroups and makes a second or even third attempt to clear the hurdle

Also explain ho! the responsibilities in the company are to be delegated and indicate !hich positions still re uire reinforcements. "t is particularly helpful to compare the assignments to be filled !ith the s$ill profiles of current team members. Do not hesitate to name your most influential advisors. 6o one !ill have all the ualifications and experience necessary to found a company. &onsiderable involvement on the part of advisors such as experienced entrepreneurs, accountants, #5 firms, or management consultants is a sign of professionalism and !ill reassure the venture capitalist that you have all the contacts you may need.

;inally, begin loo$ing for suitable partners as soon as possible. 2ringing together (ust the right people to form a 9dream team,9 so to spea$, is immensely important for later business success and, therefore, re uires a great deal of time and care.

KEY (UESTIONS) Mana-e%en ea%

1 1 1

)ho are the mem(ers of your management team and +hat distinguishes them9 education1 professional experience1 success1 standing in the (usiness +orld* )hat experience or a(ilities does the team possess that +ill (e useful for implementing your concept and setting up your company* -o+ is the management responsi(ilities shared among the team*

<.

Ma&1e an* co%pe i ion

9 If
there is no competition, there is probably no market."
2rian Wood

'horough understanding of your customers and their needs is the foundation of every successful business, for it is the customers !ho give your company a reason for being. And in the end, by buying - or not buying - your product, or service, they !ill decide if and ho! successful your company !ill be. =nly those customers, !ho are convinced they are getting a greater value than they !ould from a competing product, or by not buying a product at all, !ill buy your product. :no!ing your mar$et and competition !ell is thus critical to the success of your underta$ing. Ma&1e si2e an* -&o3 h
A dramatic increase in the value of the company can be expected only if the mar$et holds great potential. 'he mar$et si4e should be presented in figures representing the number of customers, unit sales, and total dollars in sales. .our expectations for mar$et gro!th are critical. .ou should also indicate !hat main factors are no! influencing or may influence the given industry segment. >ho! !hat factors !ill affect developments (technology, legislative initiatives, etc.) and !hat relevance these factors have for your business. Wor$ !ith a focus in order to save yourself some energy+ Wor$ !ith hypotheses, ma$e a list of uestions you !ant ans!ered, !hat information you !ill need, and !here you might find it. 'he external data necessary for an analysis are often easier to obtain than you might thin$. 2e creative and determined* ma$e use of all possible sources including trade literature ((ournals, mar$et studies, scholarly essays), industry directories, associations and government agencies (statistics offices, chambers of commerce, patent offices), ban$s for industry surveys, databases, the "nternet ($eep your searches focused), and, of course, intervie!s. "t often helps to call around. ?sing a short discussion outline !ill increase your efficiency and productivity, as !ell as the !illingness of your party to disclose information.

'his collection of individual pieces of data seldom provides a direct ans!er to your uestions - you !ill have to dra! !ell)founded conclusions or ma$e sound estimates. When ma$ing an estimate, observe the follo!ing+

@ @ @ @

Build on a solid foundation . 'here may be many un$no!ns, but if you rely on easily verifiable figures, your estimate !ill be harder to topple.
Think logically. An estimate should be a logical conclusion (i.e., it should not have any leaps in logic or depend on unspecified assumptions).

Compare your sources. &hec$ your facts, such as statements made in an intervie!, !ith a number of different sources if at all possible. Be creative. 'he shortest distance to your goal is not al!ays a straight line. ;or example, !hen a variable is un$no!n, loo$ for a substitute variable that relates to the one you need. Check for plausibility. ;or each estimate, as$ yourself, 9Does this result really ma$e senseA9

Ma&1e se-%en a ion ;ollo! up your general explanations !ith your choice of target customer and your planned mar$et success (sales volumes, sales revenues, mar$et share, and profit). 'o do this, you must segment your mar$et. 'he choice of segmentation criteria is up to you, as long as you are certain that the number of customers in each segment ) as !ell as their behavior ) can be determined, and that the customers !ithin each segment can be reached by means of the same mar$eting strategy. Possible customer segmentation criteria for the consumer goods markets: 1 ,ocation+ country, urbanBrural (population density) 1 Demographics+ age, sex, income, profession, company si4e 1 ,ifestyle+ techies, counterculture, active seniors 1 2ehavior+ fre uency of product use, product application 1 2uying habits+ brand preferences, price consciousness Possible customer segmentation criteria for industrial goods markets: 1 Demographics+ company si4e, industry, location 1 =perations+ technology employed (e.g., digital, analog) 1 2uying habits+ centrali4ed or decentrali4ed purchasing, purchasing criteria, supplier agreements 1 >ituational factors+ urgency of need, order si4e

Define the potential sales revenues for a given period per segment. 'a$e your sales strategy and the behavior of the competition into consideration. Depending on the industry, you may also !ant to allo! for price erosion. Co%pe i ion
Define the strengths and !ea$nesses of your competitors. 'o do this, evaluate your ma(or potential competitors using the same criteria, such as sales volume and revenues (pricing), gro!th, mar$et share, cost positioning, product lines, customer support, target groups, and distribution channels. "n the interest

of brevity, forgo the use of a great deal of detail. Evaluate your o!n company according to these same criteria and ma$e a comparison as to ho! sustainable your competitive advantage !ill be. Posi ionin- $is454$is he co%pe i ion Why should a potential customer buy your product and not that of your competitorA 2ecause it offers greater value (in some aspect that is important to the customer) than competing products* because it is ob(ectively or emotionally 9better*9 or, as mar$eting experts !ould say, you have developed a value proposition or uni ue selling proposition for your business idea.
;ormulating this value proposition and anchoring it firmly in the mind of the customer is the main tas$ of mar$eting communication. Car$eting experts tal$ about the positioning of a product, brand, or business. Well) positioned products leave consumers !ith a particular impression. 'he most important guideline for positioning is, therefore, to loo$ at the product from the customer3s point of vie!. 'he point is to meet a need better, not to present ne! product attributes. 'he advantage to the customer must be immediately clear, memorable, and important. At the same time, your positioning must be distinctive from that of competitors. =nly then can customers connect the value proposition that you offer !ith the name of your product or business and buy your product. 'he follo!ing guidelines may help+

@ @ @ @ @ @

"dentify relevant customer needs or problems Define clear customer segments of sufficient si4e Design an attractive range of products and services Ca$e yourself uni ue through differentiation from the competition Address the sub(ective perception of the customer Ensure customer sa tisfaction even after purchase

2ecause positioning is so critical to the mar$et success and, therefore, to the long)term success of your business, you should pay particular attention to it. #ersuasive positioning !ill not come about immediately, it !ill be a result of intense effort and !ill need fre uent revision to achieve the maximum effect. 'he point of departure for positioning is the product itself. Additional insight !ill be found as you refine and modify your product during development and respond to ne! revelations as a result of customer surveys. KEY (UESTIONS) Ma&1e an* co%pe i ion

1 1 1 1 1 1 1

)hat is the potential market si!e for the product 2 service* )hat factors are decisive for success in your industry* -o+ +ill you segment the market* )hat is the expected market gro+th* )ho are your target customer groups* )hat ma;or competitors offer similar products2services* )hat ne+ developments can (e expected from competitors*

KEY (UESTIONS) Ma&1e an* co%pe i ion6 con "

1 1 1 1 1 1 1 1 1 1

)hat role do service1 consulting1 maintenance1 and retail sales play* -o+ much do you depend on large customers* )hat are the key (uying factors for customers* -o+ does the competition operate* )hat strategies are pursued* )hat are the (arriers to market entry and ho+ can they (e overcome* )hat market share does your competition have in the various market segments* )hat target groups do your competitors address* )hat are your competitors marketing strategies* )hat distri(ution channels do your competitors use* -o+ sustaina(le +ill your competitive edge (e* )hy*

D.

Ma&1e in- an* sa!es

" arketing is far too important to be left to the marketing department."
David #ac$ard, Entrepreneur

:ey elements of a !ell)conceived business concept are !ell)planned mar$eting and sales activities. 'hey re uire a persuasive description of your strategies for mar$et launch, mar$eting, and the measures planned for sales promotion. A s$eleton frame!or$ to follo! is that of the four 9#s9+ product, price, place, and promotion. A" P&o*uc .our original product idea has already given you some sense of the characteristics of your product. After a closer analysis of the needs of various customer segments, you no! must evaluate !hether your product actually meets them or to !hat extent it may re uire adaptation. 'his raises the uestion of !hether you should manufacture one single product for all segments or !hether you !ant to ad(ust the product to meet the needs of individual segments. B" P&ice
'he basis for an attainable price is the !illingness of customers to pay the price as$ed of them. 'his contradicts the conventional !isdom that price is derived from costs. =f course, cost is a considerable factor, but the cost)price ratio only becomes critical !hen the price as$ed !ill not cover costs !ithin the

foreseeable future. "n this case, it is advisable to get out of the business as uic$ly as possible or, better yet, never to go into the business in the first place. 'he price you can as$ depends entirely on ho! much the value of your product is !orth to the customer. .ou have defined, and perhaps uantified, the customer value in the business concept or product description. 6o! define a price brac$et based on the uantified customer value of your product. .ou can verify and refine your assumptions through discussions !ith potential customers. 'he pricing strategy you choose depends on your goal+ Do you !ant to penetrate the mar$et uic$ly by going !ith a lo! price (penetration strategy)A =r, do you !ant to generate the highest possible return from the out)set (s$imming strategy)A 6e! companies generally pursue the s$imming strategy for good reason+

@ @

A ne! product is positioned as 9better9 than previous options, so a higher price can be (ustified. Eigher prices generally lead to higher profit margins and allo! the ne! company to finance its o!n gro!th. 6e! investments can be financed out of profits and outside investors are no longer needed.
?nli$e the s$imming strategy, the penetration strategy generally re uires high initial investment in order for supply to meet the high demand. 'his heightened investment ris$ is something investors usually prefer to avoid.

&ertain situations ma$e follo!ing a penetration strategy the better choice+

Setting a new standard. 6etscape distributed its "nternet bro!ser free of charge, thus setting a standard. With the Cacintosh, ho!ever, Apple follo!ed a s$imming strategy and missed the chance to establish the Cac as the ne! standard.
High fi ed costs. 2usinesses !ith high fixed costs are forced to find a !ide audience as uic$ly as possible to ma$e those costs !orth!hile. ;ixed costs at ;ederal Express, for example, for air transport and sorting facilities, are the same !hether they deliver thousands or many millions of letters.

Competition. "f the entry barriers are lo! and tough competition is li$ely, a penetration strategy is the best !ay to be faster than the competition in capturing a large mar$et share. >uch cases naturally also raise the uestion as to !hether this type of business is appropriate for a start)up.

&. P!ace .our product or service !ill someho! have to reach the customer physically. Although this may sound simple, it involves another monumental mar$eting decision+ "n !hat !ay, via !hich distribution channel, do you !ant to deliver your productA

'he choice of distribution channel is influenced by various factors, such as ho! many potential customers !ill you haveA Are they companies or individualsA Eo! do they prefer to shopA Does the product re uire explanationA "s it in an upper or lo!er price brac$etA 2asically, you !ill have to consider !hether your company !ill handle distribution itself, or !hether a speciali4ed operation !ill handle it for you. 'his sort of 9ma$e)or)buy9 decision !ill have a significant impact on both the organi4ation and the business system of your enterprise. 'he choice of distribution channel is thus closely related to other mar$eting decisions and !ill, in turn, affect other measures. Distribution can be roughly categori4ed into t!o forms+ direct or multi)channel. 'echnological developments, particularly in information technology, have greatly expanded the spectrum of distribution channels over the past fe! years. Eere is a selection+

Third!party retailers. #roducts are sold via retailers !ho have easy access to potential customers. Eere, it is important to ac uire a good shelf position, !hich is obviously also sought by the competition and is accordingly expensive. 'he product must also offer retailers an attractive profit if they are to include it in their range at all.
"utside agents. >peciali4ed companies act as agents for the distribution of products from various manufacturers. 'hey ta$e over the function of the in)house sales person. =utside agents are relatively expensive, although only for the sales they conclude successfully. 'hey ma$e no commission if they do not sell the product, ma$ing them an attractive channel for ne! companies since ris$ is limited. 0ood agents, ho!ever, are not al!ays easy to find.

#ranchising. A business concept franchisee that pays a licensing fee, the business policies (CcDonald3s geographic gro!th, !hile ensuring personal investment.

is put into practice independently by a !hereby the franchiser maintains control of is an example). ;ranchising enables rapid control of the sales concept !ithout huge

$holesalers. "t can be difficult for a small company to maintain contact !ith a large number of retailers. A !holesaler !ho has good contacts to the retail trade can ta$e over this activity, helping to improve mar$et penetration !hile lo!ering distribution costs. =n the other hand, !holesalers often demand a cut for their efforts. Stores. >elling in your o!n store is a good choice !hen the design of the purchasing experience is central to the product, and only a small number of stores is necessary to cover the mar$et. "ndependent shops !ill re uire investment, but !ill also allo! the greatest control over distribution.
"wn sales staff. >ales agents are above all deployed !hen the product is complex (e.g., capital goods), re uiring extensive $no!ledge of the product. ;ace)to)face customer visits are expensive* the number of customers must be fairly small. Eaving your o!n sales staff as the distribution channel is relatively expensive and only !orth!hile for involved products.

%irect mail. >elect customers receive a mailing through the postal service. Addresses can be purchased from database companies and sorted according to desired criteria. 'he success of the direct mailing depends on !hether the reader feels an immediate appeal other!ise, it lands in the !astebas$et. Call center. 'hrough advertising, customers are invited to order a product by telephone. >imple products can be distributed to many customers in this !ay, !ith no need to set up stores throughout the entire sales region. .ou can also hire the services of speciali4ed call center operators.

&nternet. 'he "nternet is a relatively ne! mar$eting channel, through !hich a global mar$et can be reached at minimal cost.

D. P&o%o ion 2efore potential customers can appreciate your product, they have to hear about it. And to achieve this, you must advertise to attract attention, inform, persuade, and inspire confidence. 'hose are the ob(ectives of communication. &ommunication must explain the value of your product or service to your customers, as !ell as convince customers that your product meets their needs better than competing or alternative solutions. 'here are various !ays of getting the customer3s attention+ @ @ @ @ @
&lassic advertising+ ne!spapers, maga4ines, trade (ournals, radio, '%, movie theaters Direct mar$eting+ direct mail to select customers, telephone mar$eting, "nternet #ublic relations+ articles in print media about your product, business or you, !ritten by you or a (ournalist Exhibitions, trade fairs &ustomer visits

&ommunication is expensive, so ma$e the most of it. &alculate exactly ho! much advertising you can afford per sale and choose your communication messages and media accordingly. ;ocused communication yields the best results. When you address your customers, focus on the people !ho ma$e the purchasing decision or have the greatest influence on the purchasing decision.

KEY (UESTIONS) Ma&1e in- an* sa!es

1 1 1 1 1 1

)hat final sale price do you +ant to charge .estimated/* )hat criteria did you use to arrive at this final sale price* -o+ high is the profit margin .estimated/* )hat sales volumes and sales revenues are you aiming for .estimated/* #n +hich partial market segments +ill you make your market entry* -o+ do you plan to turn this <toehold= into a high0volume (usiness* )hat sales volumes are you targeting .detailed data (y market segment/* 7escri(e the typical process of selling your product2service> )ho1 among your (uyers1 ultimately makes the purchasing decision* )hat target groups +ill you reach (y +hat means of distri(ution*

7o you +ant to penetrate the market ,uickly +ith a lo+ price1 or (ring in the

highest return from the start* Explain your decision4 KEY (UESTIONS) Ma&1e in- an* sa!es6 con " 1 -o+ +ill you dra+ the attention of your target groups to your product or service* 1 )hat are the specific plans to promote the product 2service* 1 )hat +ill (e the pricing strategy* 1 )hat +ill (e the distri(ution strategy*

7" Business s's e% an* o&-ani2a ion

"!rgani"ations exist to enable ordinary people to do extraordinary things."
'ed ,evitt, Editor, Earvard 2usiness 5evie!

Business s's e% Every entrepreneurial assignment is comprised of the interplay of a number of individual activities. When they are presented systematically in relation to one another, a business system results. 'he business system model maps out the activities necessary to prepare and deliver a final product to a customer. ;or clarity3s sa$e, they are grouped into functional bloc$s. Devising a business system is a good !ay to understand the business activities of a company, thin$ them thr ough systematically, and display them !ith transparency. A generic business system common to nearly all industries and enterprises is sho!n in Exhibit 1/.

0ENERIC BUSINESS SYSTEM

Resea&ch an* *e$e!op%en

P&o*uc io n

Ma&1e in-

Sa!es

Se& $ice

Exhi(it 1?

?se the above model as the starting point for designing your o!n business system. .ou !ill need to adapt it to your o!n situation and ma$e it concrete in order to put it into practice. ;or a manufacturer, for example, it may be useful to subdivide the production category into separate stages, such as purchasing, ra! materials processing, component manufacture, and assembly. .ou may also need to separate sales into logistics, !holesale distribution, and retail sales, for example. An individual plan !ill be appropriate to each case, depending on the industry in !hich you operate and, of course, the business itself. 'he business system of a computer manufacturer !ill be very different from that of a fast food chain. And the business system of a department store may loo$ uite different from that of a direct merchandis ing company although both !ill sell many of the same products. 'here are no general rules or standards for a business system. .our o!n system should be logical, complete, and useful for planning - (ust don3t let it get too complicated.
&oncentrate on the ma(or activities in your business system. A team of three to five !ill not be able to cover all tas$s themselves, either because they do not have the abilities or because they could not do so !ith the necessary efficiency. 'ogether !ith your management team, thin$ carefully about !hat activities really create something ne! and ho! you and your staff can best ma$e use of your time to create the highest value for your customer and get ahead of the competition. 'he bu44!ord here is focus. =nce you have determined !hich activities ma$e up your business system, choose those that you can execute better than anyone else. A trend to!ard speciali4ation can be observed in many industries. >peciali4ation is particularly important for start)ups. 'hey should concentrate all their energy on (ust a fe! select activities in the business system. At the beginning, even soft!are giant Cicrosoft concentrated solely on the development of the D=>, leaving all other activities in the business system up to "2C.

O&-ani2a ion "n addition to a business system, you !ill need to consider several other organi4ational issues. "t is essential that tas$s and responsibilities are clearly delegated and that you design a simple organi4ation !ith fe! levels. 'he rest !ill follo! as needed during operation. .our organi4ation must be flexible and al!ays adaptable to ne! circumstances. 2e prepared to reorgani4e your company repeatedly during the first fe! years. Decide !ho is responsible for !hat in each business area (delegation of tas$s and responsibilities). As soon as you have set up the interdisciplinary functions ) such as a management, human resources, finance, and administration ) you3ll be up and running. "f you $eep your organi4ation simple, staff members !ill $no! !hich assignments he or she must complete and can carry them out independently. =n the other hand, everyone should be in a position to fill in for another team member for a short time if necessary. (>ee Exhibit 11)
SAMPLE START4UP OR0ANI8ATION

Managing 7irector Mr> 7ux

@esearch and 7evelopme nt

Production

Marketing

'inance

-uman @esources and :dministrati on Mr> 7ux

Mr> #nvent

Mr> 'acit

Ms> %ratoria

Mr> Pecunia

Exhi(it 11

Business !oca ion Describe briefly the choice of location for your business. Do not enter into a long)term rental agreement, as your business may have to move in response to the gro!th you anticipate. .ou may have to ma$e this move fairly uic$ly. 9Ma1e o& :u'9 an* pa& ne&ship *ecisions
=nce you have determined the core of your business and have dra!n up the necessary business system, you !ill have to thin$ about !ho !ill best carry out the individual activities. Activities outside your chosen focus should be handled by third parties. 2ut supporting activities !ithin the ne! company do not necessarily have to be carried out by you. 'hese may include boo$$eeping or human resources. ;or each activity, the uestion to as$ is+ Do !e do it ourselves, or have someone else do itFto ma$e or to buyA

Ca$e)or)buy decisions need to be conscious decisions ta$en after !eighing the advantages and disadvantages. >upplier partnerships, for example, cannot be dissolved from one day to the next, and some partners cannot easily be replaced if, for some reason, they are no longer available. When considering ma$e)or)buy decisions, rely on the follo!ing criteria+

Strategic significance. 'hose aspects of performance that ma$e a ma(or contribution to your competitive advantage are of strategic importance to your business. 'hey must remain under your control. A technology company could

hardly relin uish research and development, and a consumer goods manufacturer !ould never give a!ay its mar$eting activities.

Suitability. Every business activity demands specific abilities that may not be available !ithin the management team. .our team must, therefore, consider !hether in specific instances it is best to carry out a particular tas$, ac uiring the necessary abilities, or !hether it !ould be better to hand over the tas$ to a speciali4ed company. >pecialists may not only be able to carry out the assignment better, they may also be able to offer a cost advantage than$s to higher production volumes.
'vailability. 2efore you ma$e a dec ision to buy, you need to find out !hether the product or service is available in the form or !ith the specifications you re uire. 6egotiate, !henever possible, !ith several suppliers. .ou !ill usually find the best terms in this !ay and !ill learn more about the service you are buying. =ften, you can help a supplier improve its performance. "f you cannot find someone to supply !hat you need, you may find a business partner !ho is !illing to ac uire the necessary s$ills to do so.

'he uestion for a start)up is ho! you !ant to cooperate !ith other companies. Every partnership has its advantages and disadvantages.

&nformal( non!binding partnerships represent no great obligation for either side. 2oth parties can end the partnership uic$ly and easily. 2ut they must also live !ith the $no!ledge that supply or demand could dry up (ust as uic$ly. ;urthermore, suppliers !ill not be able to meet all the special needs of a customer since they cannot sell tailored products to all their customers. &asual partnerships are typical for mass products, every)day services, and standardi4ed components for !hich replacement buyers and sellers are easily found.

Close partnerships are sometimes characteri4ed by a high degree of interdependence. 'hey are typical of highly speciali4ed products and services or high trade volumes. "n these situations, it is usually difficult for both sides to change partners or to buy or sell large uantities of special parts !ithin a short time period. 'he advantage for both sides is the security of a binding relationship and the possibility of concentrating on one3s o!n strengths, !hile benefiting from the strengths of partners.

"n order for a partnership to develop into a successful business relationship, a number of factors must be considered+

@ @

$in!win situation. 2oth sides must be able to gain a fair advantage from the relationship. Without an incentive for both sides, a partnership cannot be sustained. )isks and investments. #artnerships involve ris$s that are usually brushed aside !hen business is going !ell. A supplier !ith an exclusivity agreement

can, for example, end up in a difficult situation if the buyer suddenly cuts bac$ production and purchases fe!er components. 'his is especially true if the supplier has ac uired speciali4ed production tooling that cannot immediately be used for other orders and buyers. &onversely, a buyer can face difficulties if a ma(or supplier ceases to deliver (ban$ruptcy, fire, stri$e, etc.). >uch ris$s and possible financial conse uences must be thought through from the outset and perhaps regulated by contract.

%issolution. As in interpersonal relationships, business relations can also suffer tension and result in irreconcilable differences. Ca$e sure to lay do!n in detail under !hich conditions a partner can !ithdra! from a partnership.

When !or$ing on your business plan, it is not too early to begin thin$ing about !hom you may !ant to cooperate !ith and !hat form this may ta$e. #artnerships !ill allo! a young company to benefit from the strengths of established companies and focus on developing their o!n strengths. 'hrough partnerships, you can usually gro! faster than you could on your o!n.

KEY (UESTIONS) Business s's e% an* o&-ani2a ion

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

)hat does the (usiness system for your product2service look like* )hat activities do you +ant to handle yourself* )here +ill the focus of your o+n activities lie* )hat (usiness functions make up your organi!ation1 and ho+ is it structured* )hat resources do you need .,uantitative and ,ualitative/ to create your product2service* -o+ high is your need for technical input .ra+ materials1 materials to create your service/* )hat +ill you make1 +hat +ill you (uy* )hich partners +ill you +ork +ith* )hat are the advantages of +orking together for you and your partners* )hat capacity for product manufactures and service production do you plan .num(er of units/* -o+ much +ill production and delivery of your product2service cost* -o+1 and at +hat cost1 can you ad;ust your capacity in the short term* )hat measures are planned for ,uality assurance* #f you need a +arehouse1 ho+ +ill you organi!e your inventory* -o+ much of your product has to (e put in storage* -o+ your costs are structured .fixed1 varia(le/* )hat is the proposed organi!ational structure*

G.

I%p!e%en a ion sche*u!e

"#usiness is like chess$ %o be successful, you must anticipate several moves in advance."
William A. >ahlmann, #rofessor

"nvestors !ant to $no! ho! you envision the development of your business. A realistic D)year plan !ill inspire credibility among investors and business partners. Coreover, it !ill help you thin$ through your various activities and interdependencies. .ou !ill endanger your business if you attempt to reach your targets !ith faulty and, above all, overly optimistic planning.

D&a3in- up 'ou& i%p!e%en a ion sche*u!e &oncentrate on the most ma(or milestones and the most important interdependent events. 'he follo!ing three elements !ill usually suffice+

@ @ @

0antt implementation schedule (see example in >ample 2usiness #lan - a do!nloadable document from the 0,%H !ebsite.) Ca(or milestones "mportant connections and interdependencies bet!een the !or$ assignment groupings

.u%an &esou&ces p!anninAs your ne! business ta$es off, systematic personnel planning !ill become more and more indispensable. 0ro!th !ill re uire you to recruit ne! employees !ho !ill have to be trained and integrated into the business. Caintaining a simply structured !or$ing environment !ill help you dra! up clear (ob descriptions and see$ (ust the right employees. :eep in mind that a ualified, speciali4ed !or$force may be difficult to find even in times of high unemployment. .ou !ill often not be able to avoid 9stealing9 good employees from competitors.
"nclude costs in your personnel planning in order to arrive at the total cost of human resources (!ages and indirect labor costs) for the income statement in your business plan. 'he cost of personnel depends on a number of factors, such as the industry itself, employee ualifications, and age. Additionally, indirect labor costs can amount to over D/I of the !age.

In$es %en an* *ep&ecia ion p!annin"nvestment and depreciation planning includes all investments that may be capitali4ed and the corresponding !rite)offs. 'he amount of depreciation depends on the service life planned for the property. ?sually, property is !ritten off in full over < to 1/ years in e ual annual amounts (straight) line method). "nvestments are to be included in the li uidity calculation, and the total amount of annual !rite)offs listed in the planned income statement. KEY (UESTIONS) I%p!e%en a ion sche*u!e

1 1 1 1 1 1 1 1 1

)hat are the most important milestones for the development of your (usiness1 and +hen must they (e reached* -o+ do you plan to structure the +ork to reach these targets* )hich tasks and milestones are interdependent* 'or +hich tasks2milestones do you anticipate (ottlenecks* -o+ much real capital is necessary to achieve initial sales* 5ist your planned short0term investments4 .Prepare a Aantt chart too/ 5ist your planned longer0term .3 to 5 years/ investments4 .Aantt chart/ )hat investments +ill (e re,uired +hen +hich milestones are reached* -o+ high is the annual depreciation for each investment*

;" Oppo& uni ies an* &is1s

"!ne of the greatest myths about entrepreneurs is that they are all risk seekers. All sane people want to avoid risk "
William A. >ahlmann, #rofessor

'he ob(ect of this exercise is to identify a margin of error for departures from your assumptions. "f possible !ith reasonable effort, it is advisable to dra! up best)case and !orst)case scenarios involving $ey parameters to identify the opportunities and ris$s. 'hese calculations !ill allo! venture capitalists to (udge ho! realistic your plans are, and to better assess the ris$ of their investment.

&hange various parameters in the scenarios (such as price or sales volumes) to simulate ho! a change in conditions might affect your $ey figures (sensitivity analysis). KEY (UESTIONS) Oppo& uni ies an* &is1s

1 )hat (asic risks .market1 competition1 technology/ does your (usiness venture face* 1 )hat measures +ill you take to counter these risks* 1 )hat extraordinary opportunities2(usiness possi(ilities do you see for your company* 1 -o+ could an expansion of your capital (ase help* 1 )hat +ill your planning look like for the next 5 financial years under (oth a (est and +orst case scenario* 1 )hat effect +ill this have on your need for capital and your return* 1 #n your vie+1 ho+ realistic are these scenarios* 1 )hat conse,uences do they have on your (usiness planning*

J.

Financia! p!annin- an* +inancin"&lanning substitutes chaos for mistakes."

?n$no!n

;inancial planning assists you in evaluating !hether your business concept !ill be profitable and can be financed. 'o this end, the results of all preceding chapters must be compiled and consolidated. #ro(ected gro!th in value results from the planned cash flo!s from your operative business. 'hese are revealed through li uidity planning, !hich also provides information on your various financing needs. "n addition, the profit situation of your business can be seen in the income statement. 'his statement is also necessary according to commercial and tax la!. 'here are many !ays to present the figures. 'he appendix contains sample tables of ho! to perform li uidity planning and ma$e up an income statement, as !ell as a balance sheet.

Mini%u% &e<ui&e* +inancia! p!annin- in 'ou& :usiness p!an)

1 1 1 1

: cash flo+ calculation .li,uidity planning/1 income statement1 (alance sheet 'orecasts over 3 to 5 years1 at least 1 year (eyond the point of (reaking even1 that is1 (eyond the generation of positive cash flo+ 7etailed financial planning for the first 2 years .monthly or ,uarterly/1 thereafter annually :ll figures must (e (ased on reasona(le assumptions .only the main assumptions need to (e descri(ed in the plan/

P!anne* inco%e s a e%en Whether a company3s assets gro! or diminish depends on the bottom line at the end of a year. 'he income statement can help you forecast this. "n contrast to li uidity planning (K planned cash flo!), an income statement focuses on the issue of !hether transactions lead to an increase (K revenue) or a decrease (K expense) in the net !orth of your business (defined as the sum of all assets minus debt).
0o through your entire business plan and decide !hether your assumptions !ill lead to revenues or expenses and, if so, ho! high they !ill be. "f you are in doubt about the exact amount of costs your business !ill incur, gather uotes and estimates. Do not forget to cover the cost of your personal living expenses. "n the case of a limited liability company, this !ould be the salary of your general manager.

,ist !rite)offs in your investment and depreciation planning. 'he cost of investments themselves (i.e., the purchase price of the investment) is not included in the income statement, because the amount paid out does not lead to a change in the net !orth of the business. Caterial costs comprise all expenses for ra! materials, auxiliaries, expendable supplies, and purchased goods and services. .our planned human resources expenditure includes !ages and salaries plus social security contributions and taxes and is listed under personnel costs. ;or the purpose of simplification, the category 9other costs9 is treated as a collective item, including, among other things, rent, insurance, office supplies, postage, advertising, and legal counsel. When assigning individual revenues and expenses, strictly observe legal regulations. ;inally, calculate the difference bet!een all revenue and expenses in a financial year, by !hich you !ill arrive at an annual net profitBloss. 'his !ill give you an overvie! of the operating result, but it !ill not give you a reliable assessment of your level of li uid funds. ;or this, you !ill need li uidity planning. >ales of your product or service may be boo$ed in the current financial year, even though payment does not occur until the next* you !ill need to list the sales revenue even though the money has not yet been deposited into your accounts. 'he same is true for expenses. 'he income statement is generally planned in annual intervals. 'o enhance the accuracy of your planning for the first year, you should ma$e monthly forecasts, and uarterly forecasts for the second year. ;or the third, fourth, and fifth years, continue to ma$e annual pro(ections. Li<ui*i ' p!annin.our company must have a certain amount of cash on hand at any given time in order to avoid becoming insolvent, !hich leads to ban$ruptcy that !ill mean the financial ruin of your business. Detailed li uidity planning should help ensure a positive cash flo!. 'he principle is simple+ 5eceipts are compared directly to disbursements. #lease note that !riting or receiving an in voice does not mean that the money is

already in your account or that you have paid the bill. ,i uidity planning is concerned !ith the date of payment !hen the money actually comes in or goes out. 'hus, li uidity planning involves only those transactions that cause a change in your cash reserves. Depreciation, liabilities, and non)mar$et output are not included. ,ay out the amount and timing of all the payments you expect. .our company is solvent !hen the sum of its receipts is greater than the sum of its disbursements at any given time. .ou !ill have to dra! on capital for those times !hen this planning does not cover all expenses. 'he sum of all these individual payments !ill e ual the total capital re uired for that planning interval. 'he farther you loo$ into the future, the more uncertain your planning !ill be. ,i uidity planning should thus be carried out every month for the first year, uarterly for the second year and only annually for the third, fourth and fifth years. P&o=ec e* :a!ance shee
%enture capitalists are interested in seeing ho! your assets are expected to gro! as represented on a pro(ected balance sheet. Eere, the type and value of the assets are placed on the asset side of the balance sheet across from the source of the capital on the liabilities side. As !ith the income statement, there is a standard accounting format, re uired by la!, for balance sheets. 'hey are prepared at annual intervals.

Financin- nee*s
,i uidity planning enables you to determine the amount of capital you !ill need and !hen you !ill need it, but it does not indicate ho! these needs !ill be met. We basically distinguish bet!een e uity (investors have a sta$e in the business) and loan capital (!hich is borro!ed from outside sources). >elect the right mix for your business from the myriad sources of financing available to you (Exhibit 1L).

SOURCES OF CAPITAL AT >ARIOUS STA0ES OF DE>ELOPMENT See* phase S a& 4up 0&o3 h
Es a:!ish%en

Personal savings 'amily loans Aovernment grants

#ndividuals .<(usiness angels=/

Benture capital Mortgages 5eases ank loans 3tock exchange

Exhi(it 12

9.ou can3t get something for nothing,9 the saying goes ) and the same is true of money. .our family may as$ little in return for financial assistance* professional lenders are more demanding. All the management team can offer investors for their cash is a promise - not exactly a good position from !hich to negotiate.

6evertheless, you have a good chance of being financially successful if business goes !ell, because professional investors also have an interest in top performance from the team. 2e clear about your needs and expectations and those of your investors. "f you are see$ing a long)term commitment and are satisfied !ith a small company, you are probably !ell advised to ma$e use of family funds and loans from friends and ban$s. .ou !ill retain a ma(ority shareholding, but you are significantly restricting your chances for gro!th.
"f, ho!ever, you desire rapid expansion, you !ill !ant to procure venture capital. %enture capitalists !ill generally expect to obtain a large share of the company. .ou may, in fact, have to relin uish the ma(ority of the e uity. #rofessional investors, ho!ever, are not interested in managing the business as long as you meet your targets, even if they have the ma(ority shareholding. 'hey have, after all, invested in the management team in order to lead it to success. 'hey !ill support you actively !ith their management s$ills and contribute specialty $no!ledge, such as legal or mar$eting expertise, ties, and contacts.

A deal can be very complicated. "t is al!ays advisable to contact experienced entrepreneurs and get the expert advice of trustees, tax advisors, and la!yers. .ou may also !ant to gather a number of bids from various investors. Do not be put off by complicated arrangements. 'here are usually legitimate reasons for them, such as tax brea$s, control of the funds invested, etc. 2e absolutely certain, ho!ever, that you understand all the details of the deal. Ca!cu!a in- he in$es o&?s &e u&n "nvestors evaluate the success of an investment by the return they get on the capital invested. As a result, anticipated return should be apparent at a glance in the business plan. ;rom the point of vie! of the investor, all funds contributed to a ne! company result first in negative cash flo!s. After a business brea$s even, positive cash flo!s !ill not immediately be paid out in the shape of dividends, but !ill be first used to strengthen the balance sheet. &ash !ill be returned to the investors at reali4ation. 2ecause cash flo!s !ill occur over several years, they must be discounted, that is, calculated bac$ to the present (interest and compound interest calculation). 'he discount factors for the various years can be arrived at using the follo!ing formula discount factor K 1 (1Mr)
'

!hereby r K the discount rate in percent and ' K the year in !hich the cash flo! ta$es place. 'o calculate the return, the internal rate of return ("55) method is used. 'he "55 is the discount rate at !hich the sum of all positive and negative cash flo!s, discounted at present, results in 4ero. ;or example, if the "55 is GLI, that means that the investors get an annual return of GLI on their capital. 'his is a reasonable return considering the ris$ involved. Cost calculators and spreadsheets have a special "55 function !ith !hich to calculate the "55 (in Excel this is the "55 () function). "t can also be calculated by hand. %aluation of a company (i.e., !or$ing out ho! much a mar$et is prepared to pay for shares !hen a business goes public) is an art in itself. A simple rule of thumb is that the value is six to eight times the cash flo! or net profit (after taxes) of the business in the year of initial public offering.
"f you have no experience in financial planning, consulting !ith coaches or experts (e.g., tax consultants or accountants) is highly recommended. "n particular, discuss the issues of turnover sales and income taxes, !hich have been simplified here, !ith a tax advisor. 6ote that most business ventures fail due to

lac$ of financial planning. "f you don3t have someone !ith the necessary s$ills on your team already, start loo$ingN

KEY (UESTIONS) Financia! p!annin- an* +inancin-

1 -o+ +ill your revenues1 expenses1 and income develop* 1 -o+ +ill your cash flo+ develop* )hen +ill you expect to (reak even .C sum of all revenues greater than the sum of all expenses/* 1 -o+ high is your need for financing (ased on your li,uidity planning* 1 -o+ much cash is needed in the +orst case scenario* 1 )hat assumptions underlie your financial planning* 1 )hich sources of capital are availa(le to you to cover your financing needs* 1 )hat deal are you offering potential investors* 1 )hat return can investors expect* 1 -o+ +ill they reali!e a profit .exit options/*

7.1/.

Business p!an appen*i#

.ou should use the appendix to your business plan for supplementary information, such as organi4ation charts, important ancillary calculations, patents, management resumes, or advertisements and articles. 'a$e care that the appendix is $ept manageable and does not include excessive data.