IDEA COMPETITION BUSINESS PLAN GUIDE 2012‐2013 potx

1 IDEACOMPETITIONBUSINESSPLANGUIDE 2012‐2013  WelcometotheIDEACompetition!IDEA(whichstandsforIngenuityDrivesEntrepreneur Acceleration)isaprojectofIngenuityFrontier,acollaborationofpartnersjoinedbyacommon purpose—togrowtheeconomyofNorthwestMinnesotabyoutfittingthenextgenerationof homegrowninnovatorsforsuccessintheglobalmarketplace. IDEAismanagedbysever alpartners:360°ManufacturingandAppliedEngineeringCenterof Excellence,AgriculturalUtilizationResearchInstitute,BemidjiStateUniversity,EnterpriseMinnesota, HeadwatersRegionalDevelopmentCommission,MinnesotaDepartmentofEmploymentandEconomic Development,NorthlandCommunityandTechnicalCollege,NorthwestMinnesotaFoundation, NorthwestRegionalSmallBusinessDevelopmentCenter,NorthwestRegionalDevelopment Commission,andUniversity ofMinnesotaCrookston. Yoursuccessisoursuccess.Thisplanisaguidethatwehavedevelopedthroughyearsofexperiencein assistingindividuals(suchasyou)inbringingpromisingid eastomarket.Launchinganewbusinessis complicated,butwehopethatthisguidewillhelpyoutoorganizeyourideasinsuchawaythatyour applicationw illge ttheattentionoftheIDEAjudges,andultimately,helpyoutosuccessfullylaunchyour idea. Launchinganewproduct,serviceorideaisachallengingprocess.Statistically, lessthan 1%ofallnew productsorservicesdevel opedgoontobecomeacommercialsuccess.Thequestionyouneedto answeris“howwillIbeattheoddsandstandamongthosewhosucceedinintroducinganewproductor service?”Althoughtherearemanyreasonsthatbusinessesfail,thereisonethingthatsuccessful innovationsshare—acomprehensivepl anforexecutionoftheidea. Don’tunderestimatetheimportanceofduediligence. i Doingyourhomeworkwillpayoffinmoreways thanone.AlthoughyouwanttowriteacompetitiveIDEABusinessPlan,moreimportantly,youneedto determineforyourselfifyourideaisreallygoingtowork.Canyouactuallymakemoneywithyouridea? Asmuchaspossible,verifyandconfirmyourassumptions.You’llneedtogatherlotsofinfor m ation. Howlongdocompaniesinyourindustrytaketopaytheirsuppliers?Willyou needtobuyinbulkto reduceyourcosts?Howlongwillittaketogetyoursupplies?Willitbemorefeasibletodoallthework in ‐houseortocontractsomeofitout?Themoreinformationyoucangathernow,themoresolidyour planwillbe,andultimately,thechanceofsuccessfullycommercializingyourideawillbemuchbetter. Awordofcaution:asyoudevelopyourplan,bereal.Don’toverestimateyourrevenuesorth e potentialofyouridea.Byallmeans,youhavetobelieveinwhatyouaredoingandthatpassionand excitementshouldbeevidentinyourwrittenplan(andifyouadvancetothefinals,inyouroral 2 presentation).However,youwon’tdoyourselfanyfavorsbybeinganythinglessthanhonestandas realisticaspossible.Ourjudgingpaneliscomprisedofbusinessprofessionals,financiers,andangel investors.Anythinglessthanasincere,realisticapproachwillbeevidenttotheirpracticedeyes. Finally,asanIDEAparticipant,youareencourage dtotakeadvantageofthealltheresourcesprovided toparticipants—podcasts,samplebusinessplans,templates,andpersonalizedconsultingavailable throughtheSmallBusinessDevelopmentCenter.Ifyouhavequestionsatanytimeduringthe competitionyoumaycontactIDEACompetitionProjectCoordinator,Michelle Landsverk,byemailing info@ideacompetition.org orbyphoni ng218‐435‐2834.  JUDGING CRITERIA Asyoudevelopyourplan,bemindfulofthefollowingIDEACompetitionjudgingcriteria.Winningideas arethosethatreceivethehighestscores,basedonthefollowingcriteria:  YourInnovation:Canyourideabeconsideredinnovative?Whetheritisanideaforanew technology,productorservice;whetheritwouldbeconsideredhig h‐tech,low‐techorno‐tech; yourideashouldbeuniqueanddifferent,andprovideacompetitiveadvantage.Ideasthatshow thegreatestinnovationwillbeviewedmorefavorably.  YourCommercialPotential:Canyourideabecommercializedwithintwoyears?Canyouridea createorserveamarke tneed?Whatbenefitswillyouprovideyourcustomer?Whatisyour strategyforturningyourideaintoahigh‐growth business?Judgeswillbeevaluatingyouridea onitspotentialtogeneraterevenue,profitsandem ployment.   YourFinancialPotential:Canyourideabecomeprofi table?Isitreasonabletoex pectthata lenderwouldborrowyoumoneyforstartupcostsbasedontheevidenceshowninyourwritten plan?Haveyouinvestedmoneyinyourownidea?Ifnot,willyou?Howmuch?  YourTeam:Whatrolewillyouplayinlaunchingyourbusinessidea?Tellusaboutthekey strengthsandlifeex periencesthatmakeyouideallysuitedfortheroleyouhaveidentifiedfor yourself.Whoelseisonyourteam?Whowillyouneedtofillkeypositions? IDEA PLAN STRUCTURE Theoutlineonthefollowingpagesincludesninesections.Thesesectionswillhelpyoutoorganizeyour ideas.Thesub‐pointsineachsectionaresuggestions,butarenotstrictlyrequired.Youhavethe 3 freedomtoaddsections,expand,orevenomitsectionsasyouseeappropriate,keepinginmindthat youwillbescoredonhowwellyoumeeteachoftheabovejudgingcriteria. Youmustnotexceed15pagesforyourideaplan.Supportingdrawings,pictur es, schematicsorfinancial tables,maybeincludedintheAppendi ces, whichshouldnotexceed10additionalpages. I. TheTitlePage(cover)  A. NameofCompany B. Logo(ifdeveloped) C. OneLinePitch D. TeamMembers:individualswhoareeitherco‐ownersorpartnerswithyouinthe business E. DisclaimerWarrant:“Thisbusinessplanisintendedsolelyforinformationalpurposesto assistyouwithadue‐diligenceinvestigationofthisproject.Theinf ormationcontainedhereinis believedtobereliable,butthemanage mentteammakesnorepresentationsorwarrantieswith respecttothisinformation .Thefinancialprojectionsthatarepartofthisplanrepresent estimatesbasedonextensiveresearchandonassumptionsconsid eredreasonable,buttheyare ofcoursenotguaranteed.Theconte ntsofthisplanareconfidentialandarenottobe reproducedwithoutexpresswrittenconsent.”  II. ExecutiveSummary    Althoughnomorethan2‐3pages,yourExecutiveSummaryisthemostimportantpartofyour IDEABusinessPlan.Itneedstocapturethereader’sattentionandmaketh emwanttokeepreading.It shouldprovideabrief,succinct,yetpowerfuloverviewofthehighlightsofyourIDEABusinessPlan. YourEx ecutiveSummaryshouldcontainthefollowing: A. TheOpportunity 1. ProblemorNeedYourIdeaAddresses:beforeyoutellusaboutyo ur idea,tell usabouttheproblemorneedthatledtothedevelopmentofyourconcept.Whatisthe customerproblemorneedyouaresolving?Whatisthemarketinefficiencyyo uare capturing?Howdoyouknowtheopportunityis real?Canyougiveasupportingfactor twoinyourfavor? 2. YourInnovativeSolution:i ntroduceustoyourconceptandhowyouwill addresstheproblemorneedidentifiedinpointAabove.Giveabriefoverviewofwhat yourideaisandwhatmakesitinnovative. B. TheMarket 4 1. YourTargetCustomer:whowillbeyourfirst,yourbest,yourprimarycustomer? Whoisingreatestneedofthesolutionyouareproviding? 2. YourCompetition:telluswhoyourcompetitorsareandwhyyourideagives youanadvantage. C. DevelopmentTimeline 1. Howlongwillittaketobringyourideatomarket?Identifyyourmostcritical milestonesandwhenyouexpecttoreachthem. D. Management 1. Telluswhatroleyouwillplayinlaunchingyourbusinessidea.Tellusaboutthe keystrengthsandlifeexperiencesthatmakeyouideallysuitedfortheroleyouhave identifiedforyourself.Whoelseisonyourteam?Whowillyouneedtofillkey positions? E. FinancialHig hlights:(finalroundonly) 1. Startupcosts:Howmuchmoneywillittaketogetyoustartedandwherewill thatmoneycomefrom—yourself,family,friends,debtfinancing,orequityinvestment? 2. Projectedcashflow:Whatisyourbestestimateofmonthly operatinge xpe nses andrevenue?  III. TheOpportunity  A. ProblemorNeedYourIdeaAddresses:youhavealreadyintroducedustotheproblem orneedintheExecutiveSummary.Now,giveus moreofthedetails. Howwidespreadisthe problem?Howbigistheneed?Theproblemorneedyouaredescribingbecomesyourbusiness  opportunity.Itistheuniquespacethatyourideacanfill,ifsuccessful.Theanswertothat questionwilltellyou(an dyourreaders)justhowlargeyouropportunityis. B. YourSolution:brieflytellusyourstory.Whyisyourventurenecessary?Whatinspired you?Whatisitthatmakesthisa breakthroughidea?Whyisitinnovative?  IV. TheIDEA:YourInnovativeSolution  A. StageofDevelopment:howfarhaveyoutakenyouridea?Isitstilljustaconcept?Do youhaveaprototype?Areyouintheseed, ii startup iii orgrowth iv stage? B. IntellectualProperty:isthisideauniquelyyours?Haveyoutakenstepstoprotectit? Makesureyouclearlystatethestatusofanyintellectualpropertyuponwhichyouridearests. C. FeaturestoBenefits: v featuresarethespecificcharacteristicsofyourproduct(red, metal,25lbs.,etc.)Benefitsarewhatthecustomergainsfromyourproduct.Askyourself what’sinitforyourcustomer,orwhyacustomerwouldpurchasetheproduct.Turnyour productfeaturesintocusto merbenefits. 5 D. MarketComparison:aretheresimilarproductsoutthere?Othersolutionstothe identifiedproblemorneed? Theyareyourcompetitionandeachofthemhasasliceofthepie. Wheredoyoufitin?Whatisyouruniqueposition inthemarketplace?Whatadvantagedoes yourproductprovideincomparisontotheotherchoicescurrentlyavailable?  V. YourMarketingPlan  A. MarketResearch:thebestmarketingplansarethosebasedongoodinformation.In conductingyourmarketingresearch,youwillprobablywanttoutilizebothprimaryand secondary vi sourcesofinformation.Theinformationyoufindshouldbringyoutosome conclusionsthatyoushareintheIDEABusinessPlan.Makesuretoincludeinformationon industrytrends,customertrendsandonyourcompetitors. B. TargetCustomer:Whowillyousellyourproductto?Howmanycustomerswillyou have?Thinkofabullseye;ifyouweregoingtoaimyourproductatonespecificcustomer,who wouldthatbe?Launchingabrandnewproduct is veryexpensive.Focusingyoureffortsonthe earlyadopterwillbringthebestretur nonyourmoney.Anearlyadopteristhefirstcustomer typeorgrouptopu rchaseyourproduct.Providedemographicandpsychographicinformation onyourtargetcustomer.Keepinmindthefactthatacustomer‐focusedplanrarelyfails. C. TargetMarketStrategy:yourtargetmarketstrategyshouldbedevelopedinresponseto yourtargetcustomerandthebestmethodofreachingthatcustomer.Thin kaboutwhereand howyoucanmakeameaningfulandeffectiveconnectionwiththecustomer.Productsdonot sellthemselves.Tellushowyouwillsellyourproduct. D. ProductStrategy:howwillyoupositionyourproducttoachievethedesiredlev elof sales?Productpositioningisallaboutidentifyingyourmarketniche—thatdistinctplacethat onlyyoucanfill.Itisbasedonathoroughunderstandingofyourcompetition. E. PricingStrategy:pricingisbothanartandascience.Yourpricingstrategywillneedtobe developedwithathoroughunderstandingofyourcompeti tion,yourcostsofproduction,yo ur fixedcosts(overhead),andwhatyourcustomerwillpayforyourproduct. F. DistributionStrategy:distributionstrategyisnotabouthowyouwillshipyourp roduct toyourcustomer—itisaboutthepathyourproducttakestogettoitsfinaldestination.Are you sellingtoawholesaler?Toa distributor?Directlytotheenduser?Haveyoualready establishedarelationshipwiththeentityyouwillbepurchasingyourproductdirectlyfromyou? G. AdvertisingandPromotio nalStrategy:you’vealreadyidentifiedyourtargetcustomer. Howwillyougettheirattention?Howandwhereareyourcompetitorsadvertising? H. SalesStrategy:whowillbedoingtheselling?Howwillthey(sales‐people)beinterfacing withcustomers?Howmanysaleswillyoumakeandwhen?  6 VI. DevelopmentTimeline  A. DevelopmentStrategy:whatneedstobedonetogetyouridea offtheground?Isthere asequentialorder?Whowillberesponsibleforeachstep? B. DevelopmentTimeline:whenwillyouhaveeachstepcompleted? C. DevelopmentExpenseEsti mates:whatwillitcostyoutocompleteeachstep? D. Break‐evenTimeline:howlonguntilyoureachyourbreak‐even vii point?  VII. YourManagementPlan  A. Legalentity:whatisthelegalentityofyourbusiness?Willyoubeasoleproprietor,a partnership,acorporation,anLLC,oranLLP?Whatmakesthemostsenseforyouandyour business? B. Location:wherewillyourbusinessbelocatedinitially?Outofahomeofficeorshop?In theindustrialortechnologypark?Inabusinessincubatorfacility? C. CurrentManagementTeam:Givebiosforeachteammember.Whatrolewilleachof themfill?Whatresponsibilitieswilleachofthemhave?Howwilltheybecompensatedandat whatlevel? D. ManagementTeamNeeded:Whomwillyoubehiringandwhataretheunique characteristicsoftheidealindividualsyo uwillneed? E. OtherEmployees:willyoubehiringothers?Howmanywillyoubehiringandhow muchwillyoubepayingthem? F. CorporateBoardofDirectors:Whatisthesizeandstructurethatwillbedevelopedas thisventuredevelops? G. AdvisoryBoards:Everycompanyneedsknowledgeablecontributorstohelpthe companydevelop,grow,andultimatelybecomesuccessful.Whoaretheycurrentlyandwhom wouldyouideallytargetifyoucouldgetthem? H. StrategicConsultants:Therearealwaysextra peopleyoumayneedtocountonfor specificcontentknowledgeorskilllevel.Whomightthesepeoplebe? I. GrowthPlans:Itisimportanttobeawareofhowyourcompanywillgrow.Whatwillbe youremployeeneedsasthisventuregrows?Canyouestimateatimelineforemployee acquisitionandforwhichcorporatefunctionstheywillbeneeded?Canyouestimatetheir salaryrequirements?Canyouidentifymajorlimitationsinavailablepoolsofemployeesor findingthoseemployeesthatwillneedspecializedskillsets?  VIII. YourFinancialPlan(youmayskipthissectionforRoundTwo)  7 A. Summary:thesummaryshouldgiveanarrativeaccountofthehighlightsofyour spreadsheets.Focusonthekeypoints,ratherthanonthedetail.Althoughthesummaryshould beplacedbeforeyourassumptionsinyourwritten document,youshoulddevelopyour assumptionsandcompleteyourspreadsheetspriortowritingyoursummary.Theassumptions andthespreadsheetsgiveyoutheinformationthatisincludedinyoursummar y.Yourfinancial planshoulddemonstratethefeasibility viii ofyouridea. B. Assumptions:writingyourassumptionsisthefirststepincreatingyourfinancialplan. Beginbyitemizingyourunderlyingfinancialassumptions.Forexample,ifyoustatethatyouwill generatesalesof$100,000inyearoneofyourfinancialprojections,youwillneedtoexplain howyouhavearrivedatthatexactnumber.Isthatselling1,000widgetsat$100eachorisit selling10,00 0widgetsat$10each?Ifyoustateinyourfinancialprojectionsthatyouwillspend $50,000inwagesinyearone,youwillneedtoexplainhowmanyworkersyouhave,howmany hourstheywillwork,whatratetheywillbepai d,andhowmuchtheaccompanyingpayrolltaxes willbe .Ifyoustatethatitwillcostyou$10tomanufactureeachwidget, youwill needtodetail ifthatisbasedonaquote,andifsofromwhichmanufacturer.Inshort,youwillbeexpectedto explainindetailtheunderl yingrationalebehindther evenues andexpensestha tformthe backboneofyourfinancialplan.Itwillbecriticaltothejudgeswhoreviewyourfinancialplanto thoroughlyunderstandALLofyourunderlyingfinancialassumptions. C. Spreadsheets:youwillneedtousetheprovidedtemplatestocreatecashflow projectionsforthefirsttwoyearsofoperationsandtabulateyourstartupcosts.The spreadsheetscanbeplacedintheAppendix anddonotcounttowardyour15‐pagelimit.  IX. CriticalRisks,Problems,andAssumptions  Whatarethemarketforcesthatplayagainstyou?Whataretheriskstothebusiness(takemarket and/ortacticalrisksandmonetizethem).Whenisthewindowofmarketopportunitylikelytoclose? Whataretheoperationsrisks?Whataretherisksofcompetitorsrespondingtoyourentryintothe market?Wha tfinancialdamagecancompetitorscauseyou?Whataretheliabilitiesshouldthisventur e notliveuptoitspotential?Whatarethecriticalmilestonesthatmustbemetandtheirconsequenceif missed?Howcanyoumanageorminimizeyourrisk?  OTHERRESOURCES  SampleBusinessPlans 8 Intheregistereduser’sareaoftheideacompetition.orgwebsite,youwillfindsamplebusiness plans.Notwobusinessesarealike—notwobusinessplansarealike,either.Usetheseplansas anexampleandasareference,notastemplates.Yourownideawilldeterminewhichstyleis correctforyourplan.Thesearenotprovidedascopytemplates.Otherexamplesmaybefound onlinebyGoogling“BusinessPlans,”orbygoingtosampleplans.com.  SmallBusinessDevelopmentCenter WeencourageallIDEACompetitionparticipantstotapintotheresourcesavailablethroughthe NorthwestRegionalSmallBusinessDevelopmentCenter.Theirconsultantsareavailableto assistyouatnocost.Youmaycall218‐755‐4255tosetupanappointment.  AdditionalResources AdditionalresourcesareavailableontheIDEACompetitionwebsite.Thememberssectionis wherewewillpostresourcesthatareonlyavailabletoparticipants.Youwillalsowanttocheck theResourcestabonthewebsite.Awidevarietyofresourcesarelistedthere.  ENDNOTES  i  Duediligence Theduediligenceprocessrequiresobjectivity.Theprocessofduediligenceisusedbylenders andbankerstoverifyandvalidatetheassumptionsofabusinessplan.Theoutcomesofdue diligencearetheverificationandvalidationoffeasibility,viability,anddesirability.  ii  SeedStage  Seedmoneyprovidesstartupcompanieswiththemoneytheyneedtofueltheirinitial developmentandgrowth.Theinvestmentcanbeintheformofaloan,aninvestmentin preferredstockorconvertiblebonds,oraninvestmentincommonstock.Angelinvestors Areofteninvolvedinseedstagefundingrounds.  iii StartupStage Atthestartupstage,abusinessisbornandexistslegally.Productsorserviceshavebeen defined,andthefirstfewcustomersareonboard.  iv GrowthStage Companiesinthegrowthstagehaveestablishedacertainlevelofmarketpresenceandare experiencinganycombinationofthefollowing:increasingrevenues,increasingcustomers,new 9  productorserviceofferings,additionalemployees.  v FeaturesandBenefits Featuresareproductcharacteristics;benefitsarecustomerneedsservedbythosefeatures. Someexamplesoffeaturesaresize,color,horsepower,functionality,design,hoursofbusiness, andfabriccontent.Benefitsarelesstangiblebutalwaysanswerthecustomer’squestion: What’sinitforme?  vi PrimaryandSecondaryResearch Primaryresearchisinformationthatyougatherdirectlyfromthemarketplace.Itcanbe gatheredthroughconductingsurveys,interviews,focusgroups,testmarketing,oranyother methodinwhichyougatherinformationdirectlyfromthemarketplace.Ifyouhavea consultantofprofessionalfirmgathertheinformationforyou,itisstillconsideredprimary research.Secondaryresearchusesalreadypublishedsourcesofinformation—articles,reports, tradeassociationpublications,theInternet,etc.  vii Break‐EvenPoint Thebreak‐evenpointforaproductisthepointwheretotalrevenuereceivedequalsthetotal costsassociatedwiththesaleoftheproduct(TR=TC).Abreak‐evenpointistypically calculatedinorderforbusinessestodetermineifitwouldbeprofitabletosellaproposed product.  breakevenpoint(foroutput)=fixedcost/contributionperunit  contribution(p.u)=sellingprice(p.u.)‐variablecost(p.u)  breakevenpoint(forsales)=fixedcost/contribution(pu)*sellingprice(pu)   viii  Feasibility  Afeasibleplanisonethatiscapableofbeingdone,practicable,possible,likely,reasonable, probable,suitable.Itdemonstratesthatthereisamarketfortheproductorservice,theplan presentsastructureadequateforenteringandservingthemarket,andtheresources(money, marketing,andmanagement)existorareaccessibleforenteringandservingthemarket. 