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BUSINESS PLANS THAT WORK FBAOU RGS USINMIDEAESL S L This page intentionally left blank S E C O N D E D I T I O N BUSINESS PLANS THAT WORK FBAOU RGS USINMIDEAESL S L ANDREW ZACHARAKIS STEPHEN SPINELLI JEFFRY A. TIMMONS New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto Copyright © 2011 by Andrew Zacharakis, Stephen Spinelli, and Jeffry A. Timmons. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher. ISBN: 978-0-07-175257-2 MHID: 0-07-175257-9 The material in this eBook also appears in the print version of this title: ISBN: 978-0-07-174883-4, MHID: 0-07-174883-0. All trademarks are trademarks of their respective owners. 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Contents Preface vii 1 Entrepreneurs Create the Future 1 2 Before You Start Planning, Ask the Right Questions 25 3 Getting Started 43 4 Industry: Zoom Lens on Opportunity 57 5 Company and Product Description: Selling Your Vision 79 6 Marketing Plan: Reaching the Customer 89 7 Operations and Development: Execution 103 8 Team: The Key to Success 119 9 The Critical Risks and Offering Plan Sections 127 10 Financial Plan: Telling Your Story in Numbers 137 11 Conclusion 157 Appendix 1: Quick Screen Exercise 169 Appendix 2: Business Planning Guide Exercise 173 Appendix 3: Sample Presentation 179 Index 187 About the Author 197 v This page intentionally left blank Preface We have worked with over a thousand students of entrepreneurship, invested in a score of companies, and created a dozen start-ups. We’ve worked in, consulted for, and advised businesses across several continents and innumerable industries. Our experiences have brought us a special appreciation of the value of business planning. Some people will argue that writing a business plan is time consum- ing and obsolete the minute it emerges from the printer. They miss the point. The process of creating the plan is very important. The business plan isn’t just a tool to raise capital; it is a process that helps entrepreneurs gain deep knowledge about their ideas. The discipline that the planning process provides helps you assess the nature of the opportunity and cre- ates a greater ability to shape a business model to exploit it. Will your business model change once you start the business? Prob- ably. Going through the business planning process will result in modifi- cations even before you launch the business. But, we guarantee that the act of business planning will save you countless hours and sums of money in false starts simply because it will help you anticipate the resources required and the pitfalls that may arise. Even though business planning can’t help you anticipate every potential problem, the deep learning will more than offset the cost of writing the plan. Book Design This book will illustrate a proven and innovative approach to writing a business plan. Each chapter will introduce different components of the vii viii • Preface planning process. Also, each chapter will illustrate the concepts by high- lighting Lazybones, an actual company that was planned and launched and is currently operating. The key feature of this section is the comments in the margins that point out various aspects of the plan that are good and others that need work. As you progress through the book, you will become familiar not only with the process but also with the Lazybones opportunity. A word of caution: Your business plan will vary from the Lazybones plan in many ways. While there is a consistent core to the business planning process, each company has a unique story. The nature of your com- petitive advantages and the emphasis of each component of your business plan will vary from Lazybones and every other start-up. As you begin this exciting adventure in the world of entrepreneurship or as you take a second look at your current business, we hope you look at this as a process, not a single event or transaction. The com- pleted business plan is only one step in the journey. There are many more steps that will have you continually shaping, adjusting, and rewriting the plan. The important message of this book is the idea that the business planning process is one of learning, growing, and becoming an expert in your industry. Going through the process helps you anticipate the future and thereby save time and money. This is a high-yield investment in your future success. Internalize this way of thinking and you will move beyond the failure rule and hit the thresholds that lead to success and value creation. We hope you will find this book useful as you embark on your life in entrepreneurship. Good luck. A special note This book was originally coauthored with Jeffry Timmons. Jeff passed away a few years ago, but his influence remains powerful. He was an accomplished entrepreneur, a brilliant scholar and teacher, and a dear friend. 1 ENTREPRENEURS CREATE THE FUTURE The weight of this crisis will not determine the destiny of this nation. The answers to our problems don’t lie beyond our reach. They exist in our laboratories and universi- ties; in our fields and our factories; in the imaginations of our entrepreneurs and the pride of the hardest-working people on Earth. -President Barack Obama Address to Joint Session of Congress, Tuesday, February 24, 2009 Entrepreneurship runs deep in the American psyche. Many of today’s heroes are celebrated for their entrepreneurial achievements. Sergey Brin and Larry Page, Jack Dorsey, Mark Zuckerberg, Bill Gates, Steven Jobs, Sam Walton, and Arthur Blank among others have created businesses that are household names (Google, Twitter, Facebook, Microsoft, Apple, Wal-Mart, and Home Depot). Moreover, many of today’s leading companies were founded at the depths of recession, such as IBM, Micro- soft, GE, FedEx, Hewlett-Packard, Revlon Cosmetics among many others. In fact, a study out of the Kauffman Foundation finds that more than half of the 2009 Fortune 500 companies and nearly half of the 2008 Inc. 500 1