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Session 6

Session 6: Introduction to Business Plan

Objective

This launches the business plan portion of the course. The objective is to become comfortable with the elements in a business plan and to understand the importance of each piece in proving the business model that you are developing.

The business plan needs to be constructed in a way that builds your vision and gets the reader to share the vision that you’ve created. The communication of the vision is the overall objective for writing the business plan and this has to be done in a way that provides strong evidence and provides a logical transition from one section of the plan to the next.

Learning Points

• Understand the key areas of the business plan
• Realizing the importance of the introduction to the plan
• Realizing the key criteria that the readers are looking for
• The importance of the image and packaging of the business plan
• Using appendices properly
• Writing the cover letter and the executive summary

INTRODUCTION

Whether you write a letter to someone, a book, or a piece of music, there is a process that takes place prior to writing. You need to organize your thoughts and determine exactly what you want to write and strategize how you will communicate those thoughts.

A business plan is a complex document requiring the interaction of much research and many functions. A cohesive compilation of a multitude of data and strategic visioning is needed to communicate your concept, clearly, to those who will be reading it. This shouldn’t be done impulsively. The weeks preceding this business plan session were necessary to gather the research, develop a strategic vision, and develop the framework for the plan. Now that this preparation has been done, and the vision internalized, we can begin to write the plan.

The following are the key elements of the plan. In this session we will be working with the beginning of the business plan. This is represented by the first five sections below. In subsequent sessions we will be dealing with the rest of the topics ( 6 – 10 ) to complete the plan:

1. Cover letter (to customize, focus attention, and explain purpose)
2. Cover page (to show quality/image)
3. Table of contents (to make for easy reader reference)
4. Executive summary (to gain reader interest, showcase your vision)
5. Mission statement
6. Research section (to prove market existence and feasibility)
7. Marketing section (to show strategy to gain clients/revenue)
8. Operations (to show structure, processes, expenses and the key management team)
9. Finance (to show financial requirements, where the money is coming from, when you will be profitable, and to what degree.)
10. Appendices (to show relevant, supporting documentation).

Overview

In general terms the business plan needs to be neatly packaged and easy to read. Most business plans can be completed in 15 to 20 pages. Supporting documentation should be included in well-marked appendices at the end of the business plan.

Beginning

Every business plan needs a cover page, a table of contents, a cover letter, an executive summary and a mission statement. Although this is the beginning of the business plan, the table of contents and the executive summary are actually written once the business plan is completed. You cannot write the table of contents until you have all the contents and page numbers finished.

• The executive summary is a one-page summary of the business plan. It is at the beginning of the business plan and the purpose is to entice the reader to have an initial positive impression of the business concept. Consider the reader of the business plan – they see numerous business plans, day after day and only a few are feasible. They often begin with the executive summary and, if that one page preview is exciting, then they look forward to reading the detail.

The executive summary is similar to the preview of a movie. If you like the preview then you will probably go to the movie. The executive summary also sets expectations for the business plan reader. A good executive summary will create a lot of interest in reading the full plan.

Venture capitalists are always getting numerous business plans. Many now tell potential entrepreneurs, “ Send me your executive summary and a profile of your team. If I’m interested I’ll ask for your full business plan”. So, you can see the importance of the executive summary ( also the importance of the entrepreneur and his/her team in pursuing the opportunity ).

The executive summary should be only one page. This makes it extremely difficult to write because you need to put all relevant information from the business plan into one page. This usually requires four or five drafts of the executive summary as you condense it from 4 pages to 3 to 2 to the final version.

Think of yourself as a movie producer who has 2 hours of a movie with excellent scenes. You have to compile a 1 minute preview of the 2 hour movie which will capture the essence of the movie and entice the viewer to go to the movie. The concept is the same for the executive summary of the business plan. Take a 15 page business plan and develop a 1 page summary that provides highlights and gets the reader to want to read the whole plan.

Anticipate that the executive summary will take considerable time to write. Don’t take it lightly. The importance of the summary justifies the effort spent to ensure it is done well.

Typically the reader is interested in:

• The market gap (opportunity)
• Your strategy to fill the gap
• How will you differentiate and create barriers to entry
• How much it will cost and how will it be funded
• When will it be profitable and how profitable
• Who are the key people and what are their expertise
• What is the reader expected to do and what’s in it for them

The following is an executive summary for a business opportunity. The basic concept is to design T-shirts for political activists who want to protest.

EXAMPLE

“ Teed Off” is a design company that will design artwork for imprinting on T-shirts and distributing to groups who are protesting. Protestors often do not have the slogans and graphics that enhance their cause in the media. We will design slogans and graphics for T-shirts to be worn, while protesting, and as fund raisers for their cause.

The strategy is to contact the leaders of various protest groups ( environmental, labor, cultural, etc. ). Working with them we will get a contract to create slogans and graphics for imprinting on T-shirts. Our unique designs and exclusive contract will differentiate us from standard T-shirt sellers who primarily target tourists.

We have an agreement with Gildan ( Blank T-shirt manufacturer ) to purchase factory seconds ( small imperfections ) for $ 1.00 per unit. We will be using art students to work on the designs and they will get $ .50 per unit sold. The printer will charge $ .25 per unit. We will be selling the shirts for $5.00 to the groups who will sell them for $10. as a fundraiser ( collectible for purchasers because of uniqueness ).

The nurses’ union, for example, could be expected to order 5,000 units which would give us a gross profit of ($5.00 - $1.75 x 5,000)= $1,625.00. Working from home and in virtual space ( Internet, e-mail) our overheads would be minimal. We have plans to generate strong word of mouth advertising, and our intention is to penetrate the North American market. There is a strong potential for U.S. dollars while our costs are in Canadian funds.

John Blarch is a partner and a strong telemarketer for sales. We have an alliance with KSS ( Kahnawake Survival School ) for the art students and we have Mohawk Internet Technologies as our Internet provider.

We are seeking an investor to obtain the $5,000 we need to launch. In return we will provide a 10% ownership in the business. We anticipate to break-even in the first year and provide the investor a 20% return on investment beginning in year two. Details are in the business plan.

• The cover letter is also a critical part of the beginning of the business plan. Every business plan should be personalized for the person receiving it. In much the same way that a cover letter is sent with a resume, a cover letter is also a fundamental part of the beginning of the business plan. It directs the reader to aspects of the business plan for his/her needs. In many cases, the recipient will be a funding agency, in which case the letter should emphasize:

• Your qualifications for the funding
• The amount you are requesting
• How you will repay ( if a loan )

In our instance, we will write a cover letter to John Blarch. We are seeking $5,000 from him and his driving interest will be the viability of the venture and his expectations of what he’ll get for his investment. We will structure the letter with an “action step”

SAMPLE LETTER

September 20, 2003

Mr. John Blarch
JB Investments
100 Commonwealth
Boston, Mass.
USA 10082

Mr. Blarch

It gives me great pleasure to forward you a copy of our business plan. We have diligently worked on the concept for the past 6 months and we now feel there is a strong business model ready to launch.

We would like to highlight the fact that our concept has a very low failure risk because the overheads are extremely low and the investment capital will be going to purchase inventory, a tangible commodity. We would like to direct your attention to our capability to implement the venture ( our team profile ) and our research which indicates the viability of the opportunity.

The returns we are offering are significantly higher than financial institutions ( around 25% ). Coupled with the low risk we see this as an excellent opportunity for investment.

We are seeking one external investor and we have determined that you would be our first choice for this role. We are providing you with exclusivity on this opportunity until the end of October. We will call you at that time for your feedback and, hopefully your involvement.

We look forward to having you as an investor on our team. Should you have any questions please don’t hesitate to call.

Sincerely

William Roberts
(514) 333-3333
billybob@aol.com

• The Mission statement should be a reflection of the core values that you firmly believe in. Session 2 helps to identify the core values that you will use as the basis for your mission statement.

The mission statement is essentially the answer to the question “Why does this business exist?” The focus should be on the following areas:

1. The customer
2. Your production process/quality
3. Your employees
4. Your relationship with the community/environment
5. Profitability ( for profit companies )

The following is an example of a mission statement. Kahnawake Survival School has created a mission around core values. This mission guides their policy making and decision making.

KAHNAWAKE SURVIVAL SCHOOL
Kahnawake Mohawk Nation
Box 1978, Kahnawake, Quebec, Canada J0L 1B0
Tel: (514) 632-8831

All content © 1995 Kahnawake Survival School

• Mission Statement

The Kahnawake Education System provides a quality education based on Kanien'kehaka beliefs, values, language and tradition for present and future generations.

The Kahnawake Education System provides student-centered learning experiences that meet the spiritual, intellectual, emotional and physical needs of the child.

A Kahnawake education nurtures the development of each child to the fullest in the acquisition of knowledge, skills and attitudes so as to become respectful, self-sufficient and self-determined individuals.

A Kahnawake education will ensure the continued existence of the Kanien'keha:ka to live in peace and harmony with the world.

SUMMARY

You never get a second chance to make a first impression. It is extremely important to get the business plan launched with a good cover letter and a good executive summary. The business plan is usually read by professionals who have seen many plans and they know what they are looking for. If you indicate, early, that you have covered the key points they are looking for then they will most likely read the plan for the details – otherwise they are already gathering justification for rejecting the plan.

The effort that you applied is also evident in the appearance, content and structure of the cover letter, executive summary, table of contents and cover page. You are supposed to be eager and believe strongly in your business mission and vision. The effort that you put into the packaging and early content will communicate that determination to the reader.

A business plan is emotional logic. On the one hand (emotion ) you are enthusiastic about the opportunity you have and you’re excited to get started. On the other hand ( logic ) you must realize the business plan reader is looking for a proof of concept based on your research. The market potential must be evident, the profit potential must be evident and the team’s ability to make it happen must be evident. There also needs to be evidence of the entrepreneur taking risk through an investment in the business ( equity ). The entrepreneur must be the lead investor, as we will see in later sessions.

The business plan is not something that can be done impulsively. It should be done on a section-by-section basis and it should be done methodically so it reads very well and one section leads logically to the next.

The cover letter should have the following components:

• An introduction of your business opportunity
• The market driven opportunity and your ability to implement it ( your team capacity )
• A personalized offer for the reader
• An action step that is proactive

The executive summary should have the following components:

• An introduction showing the gap to be filled
• Your strategy for filling that gap
• How you will differentiate and erect barriers to copying
• The money required and profits expected
• The core team you will use to implement

The mission statement should address your core beliefs and the purpose your business will exist for. The executive summary provided information on the window of opportunity for your product/service. The mission statement is your projection of the core values you will apply in servicing that market

Remember that this “front end” of the business plan is to get the interest of the reader to read the rest. Spend time on developing a strong case to read further.

EXERCISE 1

Develop the first draft of an executive summary for your business.

EXERCISE 2

Develop a first draft cover letter for Tewaohni’saktha, specifying the program you are applying to and indicating how their involvement will enable you to implement your plan outlined in the executive summary. Indicate your own personal investment and that of any others.

EXERCISE 3

Who are the key people in your business success, your core team? How will you ensure they stay with you? Where is your back-up support? Have you shared the vision with all members? How about family?

EXERCISE 4

Create a first draft for your mission statement.

DISCUSSION QUESTIONS

1. Many entrepreneurs hire a consultant to write their business plan for them. Discuss the positives and negatives about hiring a consultant and doing it yourself.



2. Do you think the business plan will need to be modified once you begin to implement it? Why or why not? Which aspects do you think would be most inclined to change?



3. Should you have family and friends in the business? What are the positives and negatives? How can you manage their performance?