Alexia

G.

Technology entrepreneurship and new business development

In a group of 4 you do a business plan. On the 25/10 you need to inform about the team and
the subject.
There is an easy exam in January:
• MCQ, 60 questions on what is on the slides and on the 6 lectures to come. It takes 45
min. There is nothing to know by heart.
• 20% of the grade is the presentation: the way you present, body language, but also the
content.
• 50% at the end of May for the business plan.

If you send a business plan to a bank, they look for the fact that you can pay back in a
predictable way. The higher risk you take the higher you go bankrupt. They just want to know
if we can pay back our loan, do we have enough cash, income coming in our firm. A business
angel is not interested in that. If we send him a business plan, you say you will return money
in 5 months for example, I give him 2% return on the invest in 5 months. The business angel
will say that he won’t invest in a startup, young people, low experience, he would be better
off to put money in a bank which is safe (before the crisis). He could also say that he won’t
invest a get 2% because in the stock exchange you can get more. There is less risk than
investing in a startup. If you want to get money from a business angel, you have to give him
more than he can get in the stock exchange.
An operational business plan has all the info in order to a stranger to run your business.

NVC:
You have an idea and you start working on your business, whether it works or not we don’t
care, the most important is the business plan. The business plan tells you whether it should
work or not. Don’t despair if the business plan doesn’t give you a lot of money. They don’t
look at how much money we can get.

Mentored by an entrepreneur:
If you want to help an entrepreneur who start a new company. At the idea fair there will
entrepreneurs who give you their business ideas. You can do their business plan.

Organizational innovation: Uber, Ryanair

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Session 1

Part 1.1: Introduction

You don’t find a job, entrepreneurship is the only thing left, so a lot of young worker do
entrepreneurship. It is called pushed entrepreneurship. It was not your choice, you were put
into it, usually the system pushed you.
In Latin American, there are emerging countries/economies. In those economies, there would
be more opportunities than in the past. The political power and the willingness are there.

On the other hand, a pulled entrepreneur: I have a job, but I have an idea and it is tempting.
I stop my job and I start to do it. My choice is to stop my job and start my own business.

In term of innovation, the pulled entrepreneur is more than the pushed. In long term, we
cannot say that pulled will do better than pushed. The pushed can start to enjoy this activity
and in the long term they reach the same result as the pulled entrepreneurs. The longer the
time the smaller the difference.

What is entrepreneurship?
Academic definitions:
In the seventies, it is about turning an idea into a business. It is not only about starting a new
business. But then some people said it is part of it but it is not all of it. A company launching a
new business in another part of the world is entrepreneurship. Even if we talk about
revitalization, it is also entrepreneurship.

It is about you or about you as a team or about an organization. At some point in time, we call
you creator and we go in a creating process. Once you assess that idea, meaning you find out
if money can be made, if it is worthwhile to do it. You look for money = resource accumulation
and gestion (you take care of the resource you accumulate). If that money is not enough I
need to be creative. That is bootstrapping. They find clever ways to not spend money that
standard should spend. It leads to a new venture or an innovation within in an existing
business. It happens either within a close environment (you can manipulate this environment:
the location where you do your business) or within a remote environment (it tells you what
you need to do and there is no choice).

Social entrepreneurship: it cares about triple bottom line, not only care about money making
but also about society and the environment. If making more money is not good for the
company, if it is at the expense of firing employees, harm the forest, you don’t do it.

What is nascent entrepreneurship?
Entrepreneur that have already done the first steps: making appointment to bank for a loan,
potential suppliers, distribution channel, etc. You become a true entrepreneur when you can
take all of your initial money (seeding money) and you turn that into a mechanism that makes

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you more money than that. Only when you can take the seeding money and you put it in a
company which turn that into more money, you can say you are an entrepreneur.
Why become an entrepreneur?
Number one reason is I want to be my own boss, to have an impact on the society. There is
also the desire to pursue your own idea and for the financial reward.

However, you don’t have the amount of financial capital necessary to launch your own
business. So you want someone else to also invest in your business.
You give away part of the equity of the firm which means that the firm is partially yours and
for the BA. Then you are no longer your own boss, and depending on the amount of money
they give, they even become your boss. The ownership is shifted from 40% for example. They
tell you what you should do with their money. Even before the business is started for most of
entrepreneur they never start to be their own boss. Serial entrepreneur become their own
boss faster because they are self-founding but after 5 or 6 times being an entrepreneur.


Characteristics of successful entrepreneurs
What makes a good entrepreneur?
• Passion for the business:
When it requires a lot of effort you need to be passionate. It has to be something you love
working on. You don’t have to like every aspect but most of it should be enjoyed. It doesn’t
matter if you need to work extra hours.

• Product/customer focus:
You have to know your customers and make sure your product is the best to satisfy your
customers. Your product or service should have the things that customers would like so that
they would definitely choose your product if it has that feature. The product would sell itself.

• Tenacity despite failure:
Entrepreneur needs to have the ability persevere through setbacks and failures. If it doesn’t
work out the first time, start again.
It is problematic in western Europe. External parties will prevent you for doing so. Going into
a business angel and say that you failed one time, most would say no. Going to a bank, and
say you failed once then the bank will say no too.
Our environment doesn’t alloy failure. In the US, entrepreneurship and failing belong to the
same phenomenon. They understand that some of them will fail, but not because you failed
one that you cannot try again. If you can show that you know what you made wrong and you
have learned from it, then it is ok.
In Canada, it is not as liberal as the US but not as strength as Europe.
In Silicon Valley, 8 is the amount of firms they have started. Failures mean bankruptcy or the
entrepreneur doesn’t have the money he needed. Out of the 8, five were a failure.

Failure should be a learning process. If the business fail, what you should do is morn and then
start again. It didn’t work out now but maybe later it will. You need to stay optimistic at least
in public. You don’t say your failure in public, in front of the business angels. Know what you
did wrong and agonize over what went wrong in private.

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Unless man ask you, you don’t have to go back in your failure. Even though, Western Europe
is not the right place to do that.
Find an experienced business angel and sometimes they don’t have success stories. But it is
not something they talked about, but they will understand that you failed once because they
also failed.

• Cognitive factors
Entrepreneurs see opportunities where other people don’t see them. Entrepreneurs have no
skills that you don’t have. There is the part that relate to education and experience.

• Higher education and creativity
Entrepreneurs with higher education tend to be better entrepreneurs. You have a better social
network (find money). they have the ability to link different pieces of information.
The ones with no high education know how the people are. They are very intelligence. They
know how things work. They see things happening in their industry, they can interpret that
faster than someone else = intelligence, creativity.

• Prior industry experience
If you have an active in a certain industry, you know the big players, the suppliers, you have
access to components, you know how the network of social contact works. It gives you insights
that lead to recognizing new opportunities.
It also helps to recognize business opportunities. You may spot a market niche that is
underserved.

• Prior entrepreneurial experience
If you can predict what will happen and anticipate an answer it is the best in entrepreneurship.
Any entrepreneurial experience is good. It avoids costly mistakes.

• Social network
The extent and depth of an individual’s social network affects entrepreneurial success:
Strong tides: it is the bonding social capital. There are the people you trust; to whom you will
tell your secret. They are only helpful (mom and dad for example) at the very start, when you
are deciding to become an entrepreneur. You run that decision with your friends. It is a very
strong force.

Weak ties: what you need to have access to information, a resource that you need but you
don’t have access right now so you need people. And when you have what you want you don’t
need that person anymore. It is the capital you need once you start your business because
you need access to specific information. In order for you to get information on your industry,
or business, you need to make contact with people that know about your industry.

When we read a business plan, the first thing we read is “the what” which is the executive
summary. It is max 2 pages about how the business will be. Each section of the business plan
is summarizing. It gives me all of the information necessary. You give me everything that I
need to understand the business. once you convince me of the what I go to the “who”. Is it
a team of people that I can trust? Then I want to know how much money is that going to make
me. Only if you convince me about those 3 things.

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Common myths about entrepreneurs

Myth 1: entrepreneurs are not born
You made entrepreneur. We can teach you. It is a mixture between education and training.
Sport is exactly like that. You can have the skills but if you don’t get the right education it is
useless.
Whether someone becomes an entrepreneur is partially function of their environment, life
experiences, and personal choices.

Myth 2: entrepreneurs are not gamblers
Entrepreneurs are risk takers. But the average person in society is going to take approximately
the same risk as entrepreneurs. They are willing to take almost the same amount of risk as an
entrepreneur. Entrepreneurs have very challenging goals. Entrepreneurs have less structured
jobs.

Myth 3: not motivated primarily by money
If money is the most important thing, he will not do any investing, it will make his income
lower in the short term. You should see it as a side product. The most important is to make
the customers happy.

Myth 4: should not be young and energetic
What makes an entrepreneur strong in the eyes of an investor is experience, maturity, a solid
reputation and a track record of success.
The risk you are willing to take is going down with the age. You have more things to lose than
when you are a student and you want to start your firm. Your maturity and your
entrepreneurial luggage increases with the age. The optimal age to start a business in western
Europe is 38-42, and in the US it is 27-32.
There is a difference between the US and western Europe because you better have a good
experience before you start your own business in western Europe because there is only one
chance.


Changing demographics of entrepreneurs
You are in need of capital:
- Complementary talents and outstanding teamwork (HC)
- Professional and social contacts to find and control resources (Social Capital)
- Sufficient financial backing to be able to chase an opportunity (FC)

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Part 1.2: recognizing opportunities and generating ideas

Business plan is not the first step you should take as an entrepreneur. You talk to suppliers,
you do things, you do a summary of that, and that document gradually becomes a business
plan.


Four distinct types of business
1) Survival business
You start the business just to be able to pay for the bills. The entrepreneur has no ambitious
of growth. The pushed entrepreneur may do that.

2) Lifestyle business
It allows the entrepreneur to have a certain lifestyle and do what he wants to do (sky, scuba
diving all day). They turn it into a business, it allows them to have money and they do what
they want to do the whole day. They turn their hobby into business. They don’t want to concur
part of the worlds, no growth ambitious.

We don’t deal with those two in that class.

3) Managed growth
There is a growth in employees, in outlet, in product. When you start it, the first couple of
month it is not the business you want, you will have the business you have in your mind in 2
or 3 years after. First, you have to get to that position.
Firms employ a number of people, may have several outlets, and could be introducing new
products or services to the market.

4) Aggressive growth
You need to grow or you will go bankrupt. Firm constantly tries to introduce new products
and services to the market and has aggressive future plans.


In term of investment, it is a larger scale than the two first businesses. You need certain
facilities, equipment, employees who are not cheap. You need to recuperate a lot of money
so you need to sell a lot of products. That will not happen in the first few months, so you need
marketing. That is why growth is necessary, without growth you will not make it.
Entrepreneur wants to invest more money in the growth in the beginning and then there is
no money to pay the bills anymore.


The window of opportunity
We need an idea, an opportunity: the window of opportunity needs to be open. It needs to
be the right time to enter in the market, to do this product. The more open the window, the
better, the easier it is to start your business. Competition makes a window of opportunity
closed because the market matures and becomes saturated with competitors.
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The window also defines the time period in which a firm can realistically enter a (new) market.

Example:
- 3D printers. In terms of competition, there is not a lot of competition. No company has
established the rule of the game, it is cheaper than before to buy a 3D printer and start
a business with it.
- A window that is closing: The App industry for phones is a closing market. Nowadays,
because of the large amount of competitors with App we don’t have a lot of demand.


Idea versus opportunity
An idea is just about anything: I want to do something with food, it is vague. It is just a thought.
If you don’t hear a product or a service, it is not an opportunity. If you say you open a
restaurant, then it becomes an opportunity.
Opportunities are ideas that have the quality to be attractive, durable and timely. They are
anchored in a product or a service that create value for their buyers and users.


Identifying an opportunity
There are three ways:
1. Observing trends
Looking at the environment, you try to find opportunities using a PEST(EL) analysis (what is
working for or against my service or product)

Example: H2OAudio. It is a MP3 player that allows you to swim and listen to music. They
looked at the environment, looking at people that go swimming and want to listen music.
- No political issue.
- Economically speaking: people had a lot of money to spend. When you launch your
business and people have disposable income, it will work in favor of my product.
- Sociology speaking: people listen to music a lot. It is working in favor of the company.
I will give them a chance to listen to music while swimming. We also care more about
our physical condition.
- Technology speaking: it is possible to make a MP3 that is resisting into water and have
high quality sound.
- Environment: make sure my product is green, reuse them when in the trash can.
- Legally: not much to say because swimming pool are ok to listen music while
swimming. If it says no for the legally speaking, it doesn’t worth it to do it.

> Trends create opportunities for entrepreneurs to pursue.

2. Solving a problem
By looking at the individuals, you see a problem they are troubling with. It is a micro
prospective: are we solving someone’s problem? You can see those problems by observing
trends and through intuition.

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3. Finding gaps in the marketplace

Looking at the market, you find whether they are people in the market with a need that are
not satisfied.
Is there a group of people that I actually helping out? It can be a niche. The number cannot
big too big. The ideal scenario is that the niche is large enough for you to get money but not
too big for the big companies to be interested in. You need to find a gap.

If the opportunity is good, you will check all the three boxes:
- PESTEL analysis is working for H2OAudio
- it is solving someone problem
- it is a gap in the marketplace: there are multiple of people who need that but they are
not selling that much product so it is a niche.

If you combine the characteristics of the entrepreneur and the environmental trends, you can
take the next step: the feasibility analysis. This is the first step you will take as an
entrepreneur. You haven’t talk to customers yet.


Techniques for generating ideas
- Library
- Internet research
- Brainstorming (B2C)
- Focus group (B2B): five to ten people selected based on their common characteristics
relative to the issues being discussed























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Session 2

Part 2.1: feasibility analysis

What to do before the business plan is written?

On top of everything you need to do the preliminary screening of business ideas.

First you need to do a feasibility study. The feasible analysis determines whether a business
idea is viable. It is better if you do it early before a lot of resources are spent on them. Before
I write a business plan, I need to do four check and to have four yes:
1. feasibility of the product
2. industry/market feasibility: attractive market (industry and target market)
3. financial feasibility: is it feasible for me to start this business. If I would start this
business, can I make enough money to make it
4. organizational feasibility
FORGET “proceed with business plan”.

A business plan is a document that summarizes all the information. In reality you will go back
and forward all the time. It is a constant work-in-progress; it is never finished. If the growth is
in their mind, entrepreneur update sometimes their business plan. It is not the business plan
that is providing information to the steps but it is the steps that provide information to the
business plan. It is bad to see a business plan as a straight jacket: you write something on the
business plan and you don’t want to change anything anymore.

The next step is industry analysis and NOT proceed with business plan.

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Product/service feasibility
Two components:
- product/service desirability: determine the basic appeal of the product. It has to be
appealing for the customer. You need to know much he is willing to pay.
- Product/service demand: determine whether there is a demand for the product or
service
You have to talk to them to check their appeal and their demand.

Product/service desirability:
You write down a concept statement: you describe what your business will be about, who is
your target, what are the special features, what is the managing team. It is just your gut
feeling.
We don’t worry about segmenting the market at this point. If your gut feeling told you to do
that or that, you do it. But later you might have to change.

You will distribute the survey and talk to 30 individuals. They read the concept statement:
- do you like it?
- how would you change it if you had the chance to change it?
It tells you whether the people in your target (gut feeling) is the right target group. You do this
until you find a concept statement and you think ok it is what we will do.
The most important is to talk to the customers and making a concept statement which is what
the customers really want to pay.

If you want to do B2B, you can’t see 30 businesses. You use focus groups; you invite several
business representatives. During hours, I will ask them questions and find out as much as I can
about my business.

Product/service demand:
First, after I find out my perfect concept statement, I want to find out how much people are
willing to pay for the product or service. I do a buying intention survey.
You ask to 200 people. If you think of statistics, a sample needs to be representative. If we talk
to a small group within that population, if we do the sampling correct, what we find out for
the sample is true for the population. So I have to come up with the right sample. If you know
the size of the population then you know the minimum size of the sample. The more the
better, but the 200 is the least.

Second, you have to observe people buying product like yours.
Example: you want to start a coffee bar in a place where there is a need for coffee bar. You
could go to a coffee bar, similar to yours. You sit there and just observe people. It will give you
a lot of information (popular day of the week, when it is open, what they buy with the
coffee...). It is a gumshoe research. You ask people what they think about your product or
service idea.

Then you hit the street and talk to potential customers. The only one that would give a good
evaluation of the competitors is the customers (how the competitors are perceived by the
customers).

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Industry/target market feasibility analysis

The industry level is the bigger plane field. It is a group of firms producing similar product in a
similar way. The target market is the small section that I am going for, a niche within that
industry. It is a limited portion of the industry.
You need do the analysis twice.
- First the industry attractiveness
- Then the target market attractiveness: the target market within the industry

Example: The car can be very attractive (industry) but not the super expensive cars (the target
market).
The bandwagon effect: you have a certain behavior for which you cannot explain why you do
it but you do it because everyone is doing it. The bigger the decision the more it happens.
Businesses do that because other businesses did it before. A couple of businesses buy other
businesses for a good reason. Competitors are doing the same but they don’t know why. The
stakeholders want them to do it because competitors do it.

Why doing this analysis twice?
Example: Ferrari. In 2008, there is the financial crisis. All European individuals were not
spending that much. It was a very insecure time. Buying (fancy) cars is not something that you
do. It is a high involvement purchase. When you buy a new car, you don’t really need a new
car. There are:
- The mass market car (Renaud, Peugeot)
- The luxury (BMW, Mercedes)
- The super luxury (Ferrari).
In 2008, the mass market stopped producing cars because of a huge drop in demand. You wait
that people buy again and invest in R&D. Luxury market saw that the mass market cars
stopped producing cars. They followed that behavior, not because they saw a drop but they
anticipated a future drop in their market. The super luxury also followed. They didn’t do that
for a good reason but for the bandwagon effect. However, Ferrari didn’t stop. They introduced
three new models in three years. Some people bought those new cars. They took away market
share from their competitors.

> Their industry attractiveness was lower than their target market attractiveness. You have
found a market that is really doing well but within an industry is not good.
If the industry attractiveness is better than the target market, your feasibility tells you to get
out.


Industry attractiveness
Industry and market attractiveness may vary in term of their attractiveness.
We do the Porter analysis
- the airline industry is a zero-star industry. The suppliers have power over you, if they
increase their prices you will have to accept.
Incumbents are firms that are already in the industry. When you do a Porter analysis you
assume that you are already in the market so you want to have the barriers to industry high.

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Organizational feasibility analysis

There are two components:
1. management prowess: sufficient management expertise, organizational competence
and resources
2. resource sufficiency: non-financial resources
With that product in that market, we need to check if we have what we need to make it work.
Is it a good team to do it? There is a list of questions that you have to answer. On top of that,
do we have all the resources necessary to start this firms, and if we don’t have can we have
access to them. If we don’t have access, then we need to stop. Or is there any way for you to
solve this issue, this barrier to enter the market? If not, the feasibility analysis says you have
to stop.


Management prowess and resource sufficiency
The team and entrepreneurs need to passionate and understand the market in which the firm
will participate. You list resources that are vital for your business, you need them otherwise it
won’t work. You also list the non-financial resources that are typical to this industry and are
difficult to get.


Financial feasibility analysis
It is the final component of the feasibility analysis. The preliminary financial assessment is
sufficient.
How much money do you need to make this work? It is better to overestimate. You need to
know the cash needed to prepare the business to make its first sale.
Are there any similar businesses like yours? What about their financial performance? If
someone buys your product, are they force to buy my product again?


First screen/feasibility analysis online
The first check for a feasibility analysis is a template of four pages. There is a section of the
feasible analysis that is covered. Answers go for I agree to I don’t agree. When you do it, it is
completely subjective.

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Part 2.2: business plan guidelines

What is a business plan?

You write it for two reasons:
- a firm’s employee: interesting to have a piece of paper with all the info, keep track of
the things you have done in a document
- investors and other external stakeholders: you need to convince someone to open up
their wallet if you have a business plan. You will not be invite for an interview before
people read your business plan. It is an entry ticket into that competition, you got a
ticket for an interview.

It needs to answer this list of questions. After a good feasible analysis, you have already
answer the ones in red.
The end product that you have in mind will be different than the first product you sell.

Why write a business plan?
Internal reasons:
- think through every aspect of the new venture
- assists new people in understanding the ins and outs of the business
External reasons:
- introduces potential investors, bankers and other to the firm and the business
opportunity
- helps to make decisions on initial investment


Who reads a business plan?
The firm’s employees and the investors and other stakeholders.


Guidelines to write effective business plan
a. Structure and style
Things that you should not do:
- Founders with none of their own money at risk: you are about to launch your business
and you want money. You don’t come with a business plan where you are not willing
to put your money in it. I need you to make an investment that is significant to you.
Otherwise all of the risk is taken by the business angel.

- A poorly cited plan: if you say that you have seen that the industry has growth, where
does it come from? We need sources.

- Defining the market size too broadly: if your business plan tells you that you are going
to be a millionaire after 5 years, forget it, they will believe you are naïve. It is better if

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you underestimate. Getting the price right is easy (value-based). The number of
people that will buy is really difficult to estimate.

- Overly aggressive financials: mistake that you are likely to make.

- Hiding or avoiding weaknesses


b. Content of the business plan
It has to be divided into sections that represent the major aspects of a new venture’s business.
no critical information must be omitted. The plan should convince the reader that the
opportunity is exciting, feasible and within the capabilities of the people who will be launching
the firm.

c. Personal goals and aspirations
You should be careful: when you write a business plan you realize you will need external
money. Be careful because every person you talk to have its own agenda.
Venture capital:
VC (venture capitalist) don’t like you compared to BA. When you work with a VC, you are
actually work with a manager that is taking care of money of universities, big companies, etc.
If he doesn’t take care of their money, he can be fired. Therefore, he will be vicious with you.
They want to have 30-40% of return investment. You will get money each time you convince
the VC. Working with a VC implies that your business is no longer yours but the business of
the VC. The only advantage is that you will be a rich individual once the company is sold. VC
don’t like entrepreneurship because it is too risky and they could lose their job. In terms of all
the characteristics, VC and BA cannot be comparable.

d. Element of the plan may change
The corridor principle: the business plan is a living breathing document rather than
something set in stone.
Write deliberate, act emergent: a business plan is a work-in-progress; it is never finished. It
implies that when you work on a certain part, you leave it and do another part and it will give
you the answer for the part that you struggled with.


Business plan outline
The executive summary is the last part to do.

Types of business plan
a) Summary business plan: it is ten pages in which you say about the product, the team,
the executive summary, etc. But you don’t talk about the suppliers, the technology,
etc.
b) Full business plan: it gives light on everything but not in details. The prototype will be
vague because there is no such thing than intellectual property right.

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c) Operational business plan: if you give them this, they are able to launch your business.
It shows how you find my supplier, which suppliers you chose and why, where can you
find them. You do that for every aspect of my business.

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Part 2.3: executive summary and company description

Selecting a good name

It needs to be unique.
Example: car market.

- Customer driven: reflect what kind of customer it is going for. Within the name, the
target market is represented in it. Volkswagen.

- Product-driven: describe the product and its advantage so that the customer can
anticipate the product. Mini.

- Industry-driven: represent the industry to which this company, business is belonging
to. BMW

- Personality-driven: reflect a person that was very important to the company.
Mercedes, Ferrari.


Executive summary
It is the first and the most important item that appears in the business plan. It is a short
overview of the entire plan. It provides the reader with everything that needs to be known
about the new venture’s distinctive nature.

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Session 3
First you need to find out the quantity Q that you are going to sell. Then you determine the
price. And then Q x P=R= revenue.
Two ways to figure out the price:
- value-based pricing: you hit the street and ask people how much they are willing to
pay.
- Cost-based pricing: you figure out the price based on the costs you have.
It is difficult to know the number of products you can sell. You will probably have it wrong. We
want to be as close as possible.

You have three options:
- Based on info we have today, looking on the past, we have done research, industry
analysis: it is the realistic scenario.
- Optimistic scenario
- Negative, pessimistic scenario: if the things that can go wrong, actually go wrong. BA
are really interested in that number because they want to know if even if it goes wrong,
you are still making money.
We start with an industry analysis. Then we cut it up into pieces, segmented, focus on that
segment. In that segment, how many people will buy my product?

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Part 3.1: Industry analysis

What is an industry?
It is difficult to define the boundaries of an industry. It is very much subjective. It is a group of
firms producing a similar product or service in a similar way.
It is targeting the same customer, satisfying the same need, and the product or service is
produced in the same way.
From a customer point of view: beer, milk, cola and juice are in the same industry because it
can be drinking. But beer is made in a different way than cola. So beer and cola are not in the
same industry.
> It is the combination of a need of customers and a way of producing.

We start at the industry level with similar product and similar need. But we are not targeting
the whole industry. My ambition is to end up at the target market level. We want to focus on
a specialized portion of the market.
Based on target market size I can figure out the market share. The target market size (TMS)
and the anticipated market share (AMS) give me the quantity Q.


Why do an industry analysis?
1. At this point, it is premature for new firm to select and talk about a specific target
market.
Don’t trust your gut feeling too much. You trust it in the feasible analysis. At this point, we
want to objective as much as we can the information we have on the business we want to
start. But we don’t want to overlook our customers. I start looking at the big picture although
I know most of the industry won’t be interested in my product.
Example: Pokémon go. My gut feeling told me that it was only for men from 15-25 years old.
I overlooked customers because women are also playing that game.
You need to make sure you are not segmenting in a way that will ignore potential customers.

It defines the playing field that the new firm will participate in and act as a point of reference
to work from. You want to find out what this industry is like as a competitive environment.
Very tough, easy going, how the average firm is doing in that industry?
In order to be able to evaluate your performance, you need to know the average player and
its performance. You need to know how perform the average business in that industry and
what the overall trends are. If you underperforming, there is a large marge for growth.

2. It gives you what is realistically possible for a startup to achieve
You want to know how the average firm is doing because its performance is highly correlated
with yours. 8-30% of your performance depends on how your industry is doing.

> You want to know how attractive is the industry, how well the average firm is doing because
it is also affecting your performance.

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Things to include
















1. Industry definition
You briefly describe the firm’s industry in a couple of sentences. It has already been done for
you (SIC-code, MAICS-code, NACE-code).
You have to come up with a proper code for your industry. These codes are done by your
government. It is a list of all the different industries that exist within your economy. We find
a code that properly identify/define our industry. You will have to decide which one is the
dominant code if there are several codes.
You are stuck because your business has different codes, which one will affect you the most?
You can turn to your customers.

NACE:
It has four level:
- Level 1: industry section (letter)
- Level 2: industry departments (2 numbers)
- Level 3: industry groups (2+1 numbers)
- Level 4: industry class (3+1 numbers)
Example: chicken farm. I look at the different letters. I belong to agriculture. I want to find out
about the department. For the class, it is animal production. It is A.1.4.7. It is the code for my
industry. However, it is not always that easy. The problem with that list is that every once in a
while, government feels the need to update the list. The four-digit code is what we need to
define our industry.


2. Industry size (in euros), growth rate (in percent), and sales
projections
Rules of thumb:
- Data in a multiyear format: easier to spot trends
- Information in a graph

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- Information about your industry on a regional or local basis

- Report both positive and negative information on your industry

You need to come up with a graph,
that is why you need that four-digit
code. You give that code to a
website (EY, PWC…) and they give
you back a graph. It is a very
powerful graph; it tells me that for
the last 10 years this industry has
grown for 4%. I see that the
volume of sales has always
increased. It is a big industry.
Basically, this is a very positive
industry. All the information is
positive for every year. The red line
is the growth in sales.

Finding a negative evolution can be good, if your target market is evolving in a positive way.
However, if your industry is good but your target market is not, BA won’t like that.

It is allowed to copy paste the information that you find in another report. We can find report
in Xerfi, Reportlinker.


3. Industry characteristics
There are four key characteristics to deal with:
a. Industry structure (concentration/fragmentation and general attractiveness)
b. The nature of the participants in an industry
c. Operating and financial industry ratios
d. Industry critical success factors

a. Industry structure
First we need to do the 5 forces analysis. It helps to determine the average rate of return for
the firm in an industry as 8%-30% of the variation in firm profitability is directly attributable
to the industry.

Concentrated industries are dominated by a
few large firms. And fragmented industries
include a large number of smaller companies.

Fragmented industry is better, because there
are in this market since a short time. Therefore,
you are not fighting with someone who is 5
times your size.

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Fat cat strategy: coca cola made it clear to all his competitors that they would destroy them
if they go in their industry. Coca cola has economies of scale. It is allowing to coca to drop its
prices. Dr Pepper couldn’t do that. Either you follow the leader, then you lose money or you
don’t follow, but customers move from your product to someone else product. One
competitor saying to the market if you have this market share I will do that. If you are the one
saying that, you have to act. Otherwise next competitor will come with a double-digit market
share.
As a BA if you see that the growth stays the same, it is good to know about the fat cat strategy
of the competitors.

The best industry for starting firms is:
- No good substitutes
- Limited power to suppliers to negotiate input prices
- Limited power of buyers to forces selling price down
- No cutthroat competition
- High barriers of entry to keep competitors out

The bigger the force, the more of a threat it is. I want the threat of the substitutes as low as
possible. A substitute satisfies the same need but he is not in the same industry as he doesn’t
use the same way to satisfy. Milk and water satisfy the same need, but they are not made in
the same way so they are substitutes.
The power of suppliers: can the suppliers ask more money from you or can they drop the
quality of the product they give to you and you just have to accept it. If it is the case, it is not
a good industry to be in. The price goes up by 10% and you can’t change the supplier, you
have no other option.
The bigger the competition the less likely you want to be in that industry.
The barriers to entry: for entrepreneurship, you want the barriers high, the higher the barriers
the less time I use to defend my position against anybody that want to enter the industry.


b. Nature of the participants in an industry
It shed light on the nature and mixture of firms in the industry.
- Who are the major players?
- What are their characteristics?
- What percentage of market share do they control?
You need to visualize how your firm will fit in or what gap it will fill.


c. Operating and financial industry ratios
It is a point of reference to compare your company’s financial and non-financial projections
against.

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d. Industry critical success factors (CSF)

It is the thing you need to be good at in order to be successful. When you did the feasible
analysis you already did it (industry critical success resources). Those are the things you need
in order to start your firm. Most industries have 6 to 10 CSF. You need to be competent n all
of them and excel in two or three of them.
Here are some examples of CSF:
- Quality of products
- Access to distribution channel
- Brand name recognition


4. Industry trends
Environmental trends:
There is the Pestel analysis that you might be able to copy paste from the feasible analysis.

Business economical trends

You can make a distinction between trends that favor the industry and trends working against
the industry.

5. Industry long-term prospects
It is 5 to 10 lines in which you are shedding light about what you think will happen in your firm
for the next years. It is only text. You say to the external part: it is what you have to remember
of my industry analysis. It should not provide any new information.

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Part 3.2: market analysis

I want to move to the target market. It is the segmentation. As a startup, you only have one
target market. It is either B2C or B2B. You choose the one which gives you the more money.
A business plan about one product and you introduce that one product in one market.
It is better to focus on one region and spend all your market budget on that region. BA want
to read about the initial project.
After, we need to talk about the competitors that are focusing on the same type of customers.
I end up with market share.

What is a market analysis?
It breaks the industry into segments and zeroes in on the specific segment that the firm will
tackle.

Why do a market analysis?
The section focuses on describing a firm’s target market, its customers, its competitors, how
it will compete in the marketplace and its potential sales and market share.

Who are our customers and how will we appeal to them?


Things to include

















1. Market segmentation
You split up the market in a certain way and people that belong to the same segment need to
behave the same way or similar needs.

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Women behave differently regarding shoes then men. Gender is a good variable to split up
the market. However, not everybody is interested by wearing a high heel shoe. Within the
group of women, some of them would say no (homogeneity) and other women might say yes.
Within the last group, they might say yes I would wear the shoes but it is too expensive. Each
time I take the group and cutting it up. I need to do this as objective as possible, and I need to
have as much information as I can.
When you are thinking about an App game, and you use gender. It is a mistake.
You need to find numbers for every variable. At the end, the target market allows you to be
profitable.

There are some rules that apply to a successful segmentation:
- Homogeneity of needs and wants within segments
- Heterogeneity of needs and wants between segments
- Differences within the segment should be small compared to differences across
segments
- Segments should be distinct enough so that its members can be easily identified.
- Possible to determine the size of a segment
- Segment large enough to be profitable

Example: I want to create an App game.
1. Belgium: 11M
2. Dutch: 6M
3. IPhone: 60%
4. Age customer: 15-25 (N). You can have positive scenario, negative scenario and the
realistic scenario (34).
5. Pay/freemium
6. Internet: MP/online features
7. Type game: puzzle. How many games are downloaded and how many are puzzle
games?
8. (Version of iPhone): can I find the information the version of the iPhone. Let’s say we
don’t find the info.
9. (Controls of the game)
10. Methods
11. Energy consumption: I cannot talk to customer, I need IT information, I need to talk to
outsider.
12. Type of app
13. … We can add a lot of variables.
The next thing to do is to know if you have redundant variables or conflicting to each other,
or variables which are difficult to find data. There is a clash between age and pay because you
need to be 16 to have a credit card. We can change the age to 40. You go back to your buying
intention surveys. You asked to 200 people. You also ask to this individual their age.
What kind of question I can use if I want to know about the intention of the people? It is the
likelihood question. On a scale of 10, how they are likely to buy the product. If it is 5 or lower
they are not going to buy your product. If you put a price range, you use your subjectivity. You
don’t give the choice of the price.

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The last round is the data. We do that for every variable. If I can’t find the information, I do
another survey with 200 people who are in Belgium, have an iPhone, are in the right age and
are willing to pay for the app.

The round 3 is to figure out how many people are in this target market. What is my TMS (target
market size)?
I start with 6M, out of 6M, 70% have a smartphone and 60% have an iPhone. I multiple all of
the data and I have my market size.


2. Target market selection
Once a firm has segmented its market, it selects a segment within the market to target. Once
you have concurred that market you can go to another one.


3. Target market size
You need to do another survey, primary research.


4. Target market trends
The more a startup understands its target market, the more it can fine-tune its product of
service.
- Industry trends
- Specific trends


5. Buyer behavior
The more a firm knows about their customers in the target market, the more it can gear
products to accommodate their needs.
- Who are the decision makers?
- Influence of the groups their pertain to?

The behavior also changes according to the type of purchase the product represent: high,
medium or low involvement purchase.


6. Competitor analysis
At the end of segmentation, we will know our TMS, there is only one target market for you.
Your business plan is written with one target market in mind because you have limited money,
time. If you are successful in this target market, you can easily add another target market later
on. When you have that TMS, it is not finished. You cannot say that the TMS is the amount
you are going to sell. There are competitors and they want to sell their products. If TMS go to
your competitor, you lose your sells.
You might not have a direct competitor, but you always have some kind of competitors.

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We are looking at 3 types of competitors.

- Direct competitors: identical or similar products
- Indirect competitors: close substitute products, satisfying the same need but in a
different way
- Future competitors: not direct or indirect competitors but could be at any time.

Example: H2OAudio. They don’t have direct competitor. They are swimming pool where they
organize disco with speaker under the water. People that would like to listen music while
swimming they can go there.

It is important to have consistency.

Completing the competitive analysis grid
You need to find information about your competitors. It has to be ethical. A firm must
understand the strategies and behaviors of its dominant competitors. The information they
gathered is called the competitive intelligence.
Next, this competitive intelligence is used to see how the firm stacks up against its dominant
market competitors.
- Step 1: identify the industry’s/market’s critical success factors
- Step 2: establish a factor-score for each competitor

The graph is a must-have. It
is all about your customers.
On the X axis, I have the
critical success factors for
your target market. They
don’t have to be the same as
the CSF of the industry.
If you look at the target
market not all the CSF from
the industry are going to be
equally important.
They might more or less
important among the
segments in the same
industry.


The colored lines are the competitors, you put them into groups and each group can represent
several companies. Up to 6 lines is the maximum. You choose one firm that represent the
group.
Example: grocery shops small, medium and big size. You ask to customers what they feel about
Aldi for example. You have to be clear with the customers which company you are talking
about.



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7. Estimate annual sales and market share

I have to find my AMS. You ask to your customers how important is to them “content quality”,
“professional reputation”. You can put in bracket how many people thought it is important. If
visual attractiveness is 40% it is not really important for the customers.

There are four ways for a firm to estimate its initial sales and find out the AMS. But three are
NOT good, the teacher doesn’t like them. You don’t want to be like the other firms, you want
to be better than the average. You don’t know the resources the other firms have. However,
it is a good backup.

The good method is the multiplication method. You have the annual accounts of the firms
that are in your competitive analysis. Then you find the revenue for all of the years they have
existed (at least 5 years). The next thing to do is the total revenue or you can find the total
revenue of certain niches on the annual accounts. You can actually find the market share of
the companies. It is sometimes on the annual accounts.
I can express the relative revenue (revenue compared to the total revenue) as a percentage
of the total revenue. You do that for every year.
The final step is to look at the first year of all your competitors. You take the average of these
three competitors. It gives a good indication of what it is going to be for you. It is good to have
companies representing different years, so that you take away the microeconomics effects.
After that, you have your AMS for year number one.

Y-1 Y-2 Y-3 Y-4
A Ra 40% Ra Ra Ra
B Rb 30% Rb Rb
C Rc 30% Rc
TR TR TR

It is only working with direct competitors. Then, if there is not direct competitor out there,
you do primary research and ask the likelihood to buy your product. You need to be creative.

We know the TMS, but we have competitors so part of the target market will buy the
competitors’ product. Once you have the AMS, multiple it by TMS and then we end up with
the quantity Q.

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Session 4

Part 4.1: marketing plan

What is entrepreneurial marketing?

It is a stage-wise approach. First, you articulate the firm’s marketing strategy, its positioning
and its point of differentiation. Then you explain how these aspects will be supported by its
price, promotional mix, sales process, and distribution strategy. We focus on how the firm
finds its customers and closes its sales.

You talk to your customers so that they buy your product and not the one of your competitors.
You have two options:

1. The first option is differentiation. It is about you feeling special. You have a way to
differentiate your product, it allows you to charge a little bit more because people are
willing to pay a bit more. If the customer is willing to pay a premium, then basically
you should go for that strategy.

2. The cost leadership is the other option. It is only about costs. You want to have your
cost as less as possible. I need to sell a lot of products. In order for you to survive, you
need a high volume. You need to have a higher volume and lower price approach than
the differentiation. But you can make a lot of money even if you are not in
differentiation. Only the leader wins. Overtime, only the one with the lower cost wins.
If you can be a cost leader, but you don’t have the infrastructure to be the cost leader
you need to differentiate. You need commercial ads, billboard.

For firms it is possible to be the cost leader and to differentiate. Now, if you order a car, that
car can still be mass produce but your car can have small things which are different. It
customizes but still mass customization. It is hybrid strategy: you can be a bit of both
strategies.
Example: Ikea. They produce very cheap furniture. They add a restaurant and a playground
for children, so people will stay longer and therefore, they will buy more. They sell more
product.

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Alexia G.

It is the differentiation which is good for startups. If you are a startup, the maximum efficiency
scale for your infrastructure will not impressed any firm because it is too high. Even if you are
reaching your max efficiency scale and you have a price but most of your competitors will
charge a lower price because they have better infrastructure.
The price need to be consistent with how the business want to be preserved. Even if that is
not something you want to do with your startup, why would you go for the lowest price?
There is no high volume in the beginning so cost leadership is not a good idea.

You can change, if you find out that cost leader is not for you, you can go to differentiation. It
is easier to change from differentiation to cost leadership. It is difficult the other way around
because customers won’t understand the change.


Things to include

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Alexia G.

1. Overall marketing strategy

Positioning strategy
Once a target market is selected, the needs to select a position in this market.

Barney came up with a concept: there are four conditions to be good at. It is called sustainable
competitive advantage: you beat your competitors and for a long time. You need resources
in order to be a business (tangible or non-tangible resources). Resources need to add value.
Any machine that costs me more than it gives me money need to go away. Resources that are
value adding need to be rare. Not everybody can have it. If everybody has it, it is not value
added. If you have activities that are valuable and rare, you need to know how fast it is possible
to copy it. Can it be imitated? If you have all of this, you need to make most use of it.
It is called the VRIO analysis: Value added, Rare, Imitated, O. It leads to a sustainable
competitive advantage.

You need to make sure customers understand why you are better and why they need to buy
your product.


Points of differentiation
Firms establish a unique position in its customer’s minds by drawing attention to its points of
differentiation.
If you can convince a customer of a sustainable competitive advantage, the customer buys
your product and he is doing it again, then you have a point of differentiation. The POD’s are
the CSFs you use to build up your competitive advantage.

You need to know the CSFs that are
the most important to you and to
the customers. These are the things
that you are going to try to be better
at compared to your competitors.
You can only have 2 or 3 CSF and you
try to be better than the
competition for those 2 or 3 CSFs.
You need to make them memorable
and distinct.
We add our firm to the graph (JD).
The yellow line represents well your
firm. Practicality and visual
attractiveness are the one that you
are better at. People care about it. It
is not the most important CSFs but it is still part of it.
It is the red ocean strategy. Competitors are called shark, and when you go in the ocean, it
becomes red because of the blood. However, in the blue ocean strategy, you have something
that makes customers buy your product and no other competitors have it. You will sell a lot
of products. You add a CSF (geo-localization) to be in a blue ocean. This is something new,
nobody else has it. Only one CSF unique is enough to call it a blue ocean strategy. The yellow
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Alexia G.

line is completely subjective. I cannot ask to the customers what they think about the geo-
localization.

This graph tells me who else is in the target market, what the customer thinks of them, how I
will try to beat the competition based on the CSF and some of which will be my points of
differentiation.

Other ways to represents your strategy in terms of marketing is the product attribute map.
The firm can depict easily its primary points of differentiation through that map. You can have
multiple axis which represent the most important attributes of the product. The firm simply
plots itself relative to its major competitors.


Pricing strategy
There are to methods to define the price:
- Value-based pricing: it represents the willingness to pay of the customers. You ask
them their willingness to pay. It can also be found in the buying intention survey if you
looked at the right customers. As now we know our target market, if we got it right in
the beginning, we can use the information from the survey. You need to reduce the
willingness a little bit because people exaggerate.
To increase the willingness to pay, you should put even more forward why the price is
higher. Maybe you forget certain features that are important for customers. If you add
them, the willingness to pay will be higher than before.

- Cost-based pricing: We want to know if we can make that product with that price. You
need to be in a situation where the costs are lower than people are willing to pay.
Either you lower the costs, or you put a higher price. You can do bootstrapping (be
creative with your money), increase your economies of scale so the costs go down.

How do we figure out the
price?
You need to figure out the
costs of the raw materials.
How to have fixed costs
represented? I need to apply
a ratio. You have the variable
costs and you include the
fixed cost, you can continue
if the people are willing to
pay more. If the variable
costs are higher than the
willingness to pay, it won’t
work.

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Alexia G.

Promotions mix
Firms use some tactics to communicate with its potential customers.

Advertising: you talk about your product yourself, you make your customers aware of a
product and persuade them to buy it.

Public relations: someone else talk about your product in some way. In newspapers, it is not
you paying for the coverage, it is a story being written on your business. It could be someone
in their blog, talking about your product. You want someone to bribe about your product.
It is not cost free, because you are going to give your product to the one who talk about your
product. It is more objective than ads. It helps build the firm’s credibility. It also generates
favorable public relations which doesn’t seem to be as self-serving.

There are reasons that force you to go for PR: television ads cost money. Maybe your ad is not
going to reach the people you are targeting.

Firms shed light on the budget they devote to promotions in their business plan.

Distribution and sales
It is about you getting the product to the costumers. It is all the activities that move a firm’s
product from its place of origin to the consumer.
How the product reaches them? How to decide if you do that yourself?
The quality management is making sure that the product is still in the same quality when it
reaches the customers.
You need to think carefully about where people in your target market shop. Then you need to
find the most effective and economical ways to get your product some shelf space in those
outlets.
All of these choices come with a cost. Sometimes you have to compromise and go for an
intermediate solution. After you can develop your own distribution channel.

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Alexia G.

Part 4.2: management team and company structure

This is the section that BA read after the executive summary. You need to have the proper
skills in the team.
It consists of the founders and a handful of key management personnel.
For everybody that is in the team, you add a brief profile: the responsibility of that person,
the background, the previous relevant successes. Three or four lines per person is enough.
You need to add the ownership structure of the new venture and the compensation of the
members of the management team.

Mistakes:
Unqualified friends or family: I start a company with a family member, I am good at marketing
and my brother is also good. We give something else to my brother. He is being responsible
for something he is not really good at. It happens all the time in the family businesses. You
need to make sure that the person is the right person for the right job.

Previous success: if it is not transferable, you cannot use it.

Hiring top managers without sharing ownership in the firm: if you cannot pay that person in
the wage that he would have in a big company, don’t waste your time if he can easily leave
for a big company. You can give a standard wage and shares. If you work for me, you get a
wage and after year 2, you can buy equities. During these first two years, they will see that
equity increases from 1 to 100 euros for example. Big companies cannot multiple their equity
by ten.


Management team skill profile and gaps
It is a skill map with x-axis: CSF. These are no good, they are too vague. In the y-axis there are
the employees. There are some gaps. Per task, there is one person. We want only one person
taking the finale responsibility of the task. BA want to know to whom they have to ask question
depending on the subject.
The founding team should think about how to deal with the current skill gaps (recruiting or
board of advisors).




Just so you know
It is better to start with a group of individuals because you have more skills and more
creativity. However, if you work with other individuals, they could be the same as you or have
different skills, knowledge and way of working.
A heterogeneous founding team adds combined experiences and competences which in turn
triggers innovativeness and creativity.

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Alexia G.

If you are in a stable environment, homogeneity teams tend to outperform the heterogeneity.
You are faster if the communication between you and the team members is better. If you
think alike, you don’t need to explain everything, you will reach a decision faster.


Liability of newness
New ventures have a high propensity to fail. It is due to the liability of newness which refers
to the fact that the firm lacks a track record of success. Therefore, assembling a talented and
experienced management team (or board of advisors) is one path that firms take to overcome
these limitations.

The liability of foreignness is what international firms face while there are already local firms.
You can use your nationality as an asset when you sell your product.
Examples: German cars, Belgian beers, French food.

To overcome the fact that customers buy the product of your competitors instead of yours
you hire a board of advisers. They provide you with certain reputation not toward customers,
but they can help for suppliers. They are difficult to convince to work with you unless my board
of advisers can convince. The people in that board have a reputation and you benefit from
that reputation.


Company structure
To shed light on the lines of authority and accountability that will be in place, you include an
organizational chart. It is a graphic which represents how authority and responsibility are
distributed within a company.

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Alexia G.

Session 5

Part 5.1: what about pitching?

Some techniques for presenting - How?

- Start with a personal story or anecdote: why is this project important to you?
- Humor
- Hand gestures and excitement in voice
- No paper
- Connection with the audience, doesn’t matter if you don’t say what is on the slide
- In the final pitching, a prototype makes the message much stronger


Some techniques for presenting - What?
In the final pitch, you have to start with the problem, the gap that your product or service is
addressing. You need to explain what you are solving. Then you present your product as a
solution. You want the audience to know who is in your target market. The more you use
numbers, the stronger the message. You are more convincing.
We end up with the competitive analysis.

You describe the overall marketing strategy. You shed light of the sales process (if there is
one). For an App, there is no sales process. Then you talk about the management team. Are
there any gaps that need to be filled?

We end with the summary of the income projections. If I give you my money, how much you
will give me back after 5 years?

There is a limit time for the presentation so you don’t talk about the balance sheet. It is a
snapchat, income and cashflow statement shed light of the past. Income statement, how well
has this frim done in terms of profit over the last year. A balance sheet is a picture of a firm
being taken a day. You can do little thing with a balance sheet, that makes the firm a little bit
better than it is. With a balance sheet, there is off balance transaction, and tricks that make
the balance sheet just a little bit better.

You shed light of the milestones. What is the work that is need to be done before you sell your
product?
At the end, you talk about the strongest points of the team and the venture.

Why board of directors and entrepreneurship don’t belong together?
The board is there to check the management team for shareholders. The shareholders don’t
have the right to check themselves. So the managers don’t get creative with the money of the
shareholders. The board has a couple of assignment which is to check the maximization of the
return of the investment.

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Here is what we’ve done so far:

1. Target market
2. Competitive analysis
3. Establish market share that you can anticipate. You multiple that AMS with the TMS
and you find your quantity. You have three possible quantities because three
scenarios (positive, negative, realistic).
4. Marketing plan. There are two strategies: differentiation or cost-leadership.
5. Pricing strategy
> In terms of the product development, nothing has been done yet.

Part 5.2: Operations plan

What is an operations plan?

It is a description of how exactly your firm will produce its product or service. Only shed light
on the essential things for the success of the business or set the business apart from its
competitors. If you have charts (google maps with your location, description of your product,
etc.), it should be your own.

Operation doesn’t mean product development. Product development is all the steps you need
to produce in big quantities. Nowadays, you are not producing anything. Operations shed light
on how will be our organization if you produce in full quantity.


Why on operations plan?
Now that the customers have decided to buy your product, you need to know how to serve
them. The objective is to fully understand operational details of launching and running your
business.


Things to include

Business location
If it is not something essential, don’t mention it. But you need to explain the rationale for the
company’s location.
Reasons for location to become critical:
- Close to labor force
- Close to suppliers
- …
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Facilities and equipment

If you have any production facility, BA needs to know what it is, who would take care of the
quality of the machine, what would you use in terms of depreciation, how much it costs, what
to anticipate in terms of extra cost?

If you outsource something, BA needs to know how you identified your business partners,
how the quality management will be done?

If future growth is an important objective, how will the facilities evolve over time? There is a
growth section after the financial section.

Comment only technology that makes you different: critical or expensive equipment and
technology.

Operations model and procedures
The major items should be covered. You discuss the backstage activities (behind the scenes)
and the front stage activities (what customer sees).

You can add an operations flow diagram. You shed light of all the activities you perform and
you make links and show which activities relies on each other. It is quite difficult to interpret.
So it didn’t last long as an option.

Nowadays, we use the business model diagram. It is a diagram for how the firm competes,
uses its resources, structures its relationships, interfaces with customers and creates value. A
firm’s business model takes the firm beyond its own boundaries.

It is a puzzle box with
nine components. With
those 9 components you
can describe any business
in the world and how it
works. If you give it to a
random person, he
should be able to
understand.

It starts with the value
proposition: what is the
product you want to
develop in bullet points.
You split it up with bullet
points: 3-4 words with
verb and activities. I can choose to shed light on the partners. I list all of my partners. With
them, I will perform certain key activities in order to get this value. There are the CSF. You
should see your points of differentiation. Those activities could be performed by you or by a

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partner. For every activity you see you should find the resources (delivered by a partner or
made by you).
On the right hand side, you are proposing some value for specific target market. You put the
segmentation variable in bullet points. These are the revenue drivers: what gives you money.
You have to compensate your costs.

> All of this together makes your business.
Canvanizer.com will allow you to work in fancy colors.

In the text following the business model, you shed light on how the inventory will be stored.
How is it possible for me to anticipate that the customers will want in the future?

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Part 5.3: product development plan

Why a product development plan?

The production plan informs investors on how you plan to run your business once your
product is produced in quantity. The product development plan sheds light on your journey
towards this level of “mass production”.

Things to include





The most important thing is shedding light on what we already did and what we are going to
do. It involves some challenges links to some risks. Risks need to be explained. How overcome
things that happen and wasn’t plan.

Development status and tasks
You follow a logical path including product conception, prototyping, initial production and
full production. Depending on what kind of products you have in mind, there will be different
steps.
You can use milestones.

Challenges and risks
With every milestone that you reach, for a BA the risk is dropping down. If you come to me
with a prototype, you have your suppliers, the patents, you know your design, you have your
target market in mind, it means for the BA that there is less risk. You describe in detail the
risks you take, the better you describe the steps you are taking the less the risks for the BA.

What are your risks and what is your risk mitigation plan? If a risk appears, that plan will make
sure that the consequences of the risks will be minimized. Once it does happen, what is the
impact?

Cost remaining
For every risk, you need to have the costs. It is a detailed overview of the costs of the
remaining design and development work. Now you have an idea, your full production will be
next year, how much money do you need today to make it work? The budget should include
the costs of labor, material, consulting fees, prototyping, etc.

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Session 6

Part 6.1: financial projections

Why introduce a financial statement?

Financial statement is there to make the BA open his wallet. It is the last part of the business
plan. You take information from previous sections and you translate it into financial terms.
References about relevant website (pwc, EY) are common. You need to think about who is
going to receive the business plan. The financial statement is different depending on to whom
you are sending it to.


Financial objectives
Profitability: it is the ability to earn a profit. You are probably not making money in the
beginning. For a standard business, year-3 is the year when you start making money. But
industry exceptions exist. If you work on a technology that takes a number of years to develop,
it takes time, it is not a standard business and it is possible to have a number of years without
making money but after you need to make a lot of money.

Liquidity: it is the big issue for entrepreneurs. It is possible for a profitable firm to go bankrupt.
Some entrepreneurs make a mistake; they know they need to grow. In order to grow, they
need more facilities, machines, equipment. So they can sell more and make more money. For
the moment, you get money and are being profitable. So you take all that money and reinvest
in new machines. But one month later, your employees and suppliers need to be paid.
Employees are mad if they don’t get their payment. If your supplier is not paid, he will send
you a reminder. Entrepreneur will ignore. Suppliers won’t be happy. They will go to court. So
the court declares a bankrupt. It is not because they are not profitable but they are making
the wrong use of the money. It is a conditional growth. First, you look at the bills you need to
pay. You need to make sure you can meet your short term financial obligations (wages for
example).

Efficiency: you need to make efficient use of your assets. You have limited amount of assets,
limited financial and social capital. You need to think hard when investing in any kind of
capital. If you don’t do the best use of your money, the BA will be mad. For every industry,
efficiency is measured in a different way.

Stability: Even if you meet those three standard, you need to keep your debt in check. The
amount of debt relative to the amount of money you have. If you use long term obligation for
short term obligations, your company is more and more the company of a bank or an external
investor.

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Financial management
- Will we make or lose money? An income statement shows if you are making or losing
money, if you are experiencing a profit or a loss.
- How much cash do we need to have on hand? The cashflow statement
- How efficiently are we utilizing our assets? Where will the funds we need come from?
Balance sheet


Source and use of funds statement
It is one page with one table.
Money that you need in order to start The source where it is coming from
1000 25000 (invest myself)
25000 10000 (mum and dad)
35000 36000 (may be a BA)
10000
Total: 71000
Liabilities Assets
It is a balance sheet to opening. It is what you need in terms of money and what you are using
it for. It is an important starting point in developing the balance sheet at time zero.


Assumptions sheet
It is an explanation of the most critical assumptions that the projected financial statements
are based on. It can be based on general information or on specific information. The source
for the latter should be cited.
There are 3 sheets (3 scenarios). It has a whole lot of references. BA will check the references.


Financial statements
Here, we predict the future. So
we use the pro forma financial
statements. For us, they are
planning tools. No BA ever tell
you they don’t believe you
because they know it is not the
reality. Your vision of what will
happen needs to be the same as
the vision of the BA. We have to
come up with some forecast (3
to 5 years) without looking at the
past.




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You have to use forecast so it is as accurate and realistic as possible. It represents the
predictions of a firm’s future sales, expenses, income and capital expenditures. You include
the income statement, balance sheet and the cash flow statement. Operational business plan
tends to include financial statements in threefold (realistic, optimistic, pessimistic).

Preparation of forecasts:
Some firms forecast based on industry averages. And you can predict what will happen with
your firm but it doesn’t work. It depends on you.
You look at similar firms/startups. You look at how much they are selling and use those
numbers to predict. It doesn’t work too. Maybe they have another target, another product,
etc.

Estimates sales: you are using the analysis that you did in the other sections.
The first forecast is a basis for most of the other forecast. Once a firm has predicted its sales
forecast, it must forecast its cost of sales (or cost of goods sold).

We know how much money we will make by multiply price by quantity. Now we need to know
how much we will have relative to the money that comes in.
If the willingness to pay exceed costs, let’s say the price is in-between. Based on this info that
you have in your marketing section, you divide the cost by the price and it can be 85%. If you
know that it costs you 85% to make one product. No matter how much product you made,
the price will be 85% off the revenue. It is always express as a percentage-of-sales (method).
Sometimes you will have costs that you can individually predict so you can individually
introduce them in the financial statement.


Income statement (or profit and loss statement)
You could be making million and not have cash to pay the bills.

Three important numbers:
1. Net sales
Price x quantity = revenue/sales = amount you get by selling the product. The net sales are my
sales minus the costs of the returns good: customers coming back with the product and you
give a discount. And those discount in the beginning will be substantial. It will be very close to
the cost price.

2. Costs of goods sold: what does it costs to make the product.

3. Operating expenses: it costs money irrespective to the number of products you sell.
The price is not changing depending on the products you are selling. It is not directly
related to producing a product. The cost of that is fixed.
Your net sales and your cost of sales increase in the same percentage.

Example:
- Selling, general and administration expenses: marketing ads, intellectual property,
register the firm and it will cost money.

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- Depreciation: why is it increasing? You bought another asset, extra investment has
been done and you have to depreciate them.

- You have to include taxes, interest income. If you are experiencing a loss, you don’t
have to pay taxes. But you include taxes, so you understand what are the
consequences to have to pay taxes for your firm.

- 131.000 is the profit you get for the first year.

(Negative numbers are in brackets).


Balance sheet
It makes the company look nicer than it is actually. There are the assets on one hand side and
liabilities and equities on the other hand side. What you have in terms of assets and what you
pay for these assets need to be balance. It is at a specific point in time.

Important numbers:
Assets
You cannot order the assets in the way you want, it needs to be order in terms of liquidity:
how fast you can turn this asset into cash.
- current assets: (i) cash, it is the most current asset you have. (ii) Account receivable:
someone still needs to pay something to you, they owe you money. You are about to
get that money soon. (iii) Inventory can also be turned into cash relatively easy. You
expect that in a couple of month they will be sold and give you money.
- fixed assets: it cannot be turn into money relatively easy and no incentive to turn it
into money. Example: the building, the infrastructure, furniture.

Liabilities
It is listed in the order in which they must be paid.
- Current liabilities: bill that you need to pay within the year
- Long-term liability: you need to pay beyond one year for something which is a long
term financial obligation.
- Equity: money that was invested by the owners.

The money that you have (the total assets) and what you use that money for (the total
liabilities) need to be exactly the same.

In this balance sheet, you keep track of the depreciation. The land is 672000 and you have a
depreciation of 65000 so the value is 607000.


Cash flow statement
It glues those financial statement together. Money coming in is a positive number and money
coming out is a negative number.

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It is divided into 3 activities:

Operating activities: activities where you make and sell product. It gives you money.
Investing activities: you invest in the car, and now you sell the car, so money is coming in that
means a positive number.
Finance activities: you go to a bank and you want a loan, you get the money. It is money
coming in, it is a positive number. If you pay a dividend, cash is leaving the firm so it is negative.

Depreciation has no brackets which would mean it is money coming in. But why 13500 is
coming in? When I buy the car I cannot say I will pay every year. But the seller will say you pay
right away so the money is already gone. But the law allows to stretch that cost among years.
I go to the income statement and I have that 13500 as an expense for the next 5 years to come
so it will punish me twice. No 13500 leaving the firm so I need to do a zero operation. I changed
money from one another but it is still within the company. The law allows me to spread to
cost of the car over 5 years.

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