The Rules of Business Planning for Successful Business Growth. Jack Derby

Transcription

1 The Rules of Business Planning for Successful Business Growth Jack Derby

2 Availability The Wicked Commute Call or me anytime Cell:

3 Discussion. Expectations What s Growth? Roles of Business plans Raising early money 3

4 Who s Jack? 4

5 Jack Derby 24 year successful track record of coaching over 400 companies. 17 year successful track record in medical devices as Executive Vice President of Becton Dickinson Medical Systems, CEO of Datamedix Corporation and President of Litton Medical Systems. 3 years as President of CB Sports Co-founded 9 companies; Raised >$725 m in venture and PE Ex General Partner, Kestrel Ventures Current Director: AMS, Brainshark, Common Angels, Rome Snowboards, Alliance, Tanya Creations, & Reiser Activities Chairman, Common Angels Lecturer, MIT, Business Planning & Marketing, Mech. Eng. Professor of Marketing, Tufts University, School of Eng. Ex-Chairman, Association of Corporate Growth Director Emeritus, Associated Industries of Massachusetts Ex Chair, MIT Enterprise Forum- Distinguished Service Award Ex Vice Chair, SBANE- Pro Bono Publico Award Boston College, University of Chicago, Peace Corps volunteer 5

6 A Much More Important Person Peter Drucker 6

7 Who is Peter Drucker? Peter Drucker (November 19, 1909-November 11, 2006) was a writer, management consultant and university professor. His writing focused on management. Peter Drucker made famous the term knowledge worker and is thought to have unknowingly ushered in the knowledge economy, which effectively challenges Karl Marx s world-view of the political economy. Drucker is the author of thirty-nine books, translated into more than twenty languages. 7

8 Words from the Master Entrepreneurs see change as the norm and as healthy. Usually they do not bring about change themselves. But-and this defines entrepreneur and entrepreneurship-the entrepreneur always searches for change, responds to it and exploits it as an opportunity. Peter Drucker 8

9 What s Business Growth? 9

10 All Businesses Must Have Growth - Entrepreneurial company growth - Product growth in any business - Sales growth in any business. - Any business growth 10

11 The Five Stages of Growth Success Growth Stability Survival Concept The Idea 11

12 The Five Stages of Growth Critical to objectively determine where you are and where you re going to be Equally critical to understand shifts over time Growth metrics today/ two years As a result, you must plan for scalability Business planning Sales and Marketing processes and tactics put in place now that will be cost effective People put in place now who can expand Business Plans create benchmarks over time 12

13 The Five Stages of Growth Growth Stability Survival Concept Success Recognize also that this line is never straight Success at the start is merely surviving. Tech success in the middle of your product s or company s life means increasing revenues year over year by 50% and high EBITDA% or free cash flow. Non-tech success means rational growth and >15% EBITDA Success at the end game means a high valued product and company tracking above the industry metrics 13

14 The Five Stages of Growth Growth Success Positive cash flow A level managers hired Stability Strategies locked down Survival Tactical plans in place Engineering Plans Sales Processes Marketing Plans Product Portfolios What this really means is There must be metrics at every stage Products and the business must reach Stability at a minimum In order to succeed every business, every product must grow Concept 14

15 Product & Business Value Creation Only 3 Primary Factors of Consistent Success 1. People & Management Talent Can senior managers evolve? 2. Plans & Processes Formalize early, but remain flexible 3. Money & Margin You gotta sell Stuff The Stuff must have high GM 15

16 A Business Planning Architecture 16 16

17 Planning Architecture Why do you need one? 3 reasons 1. You need a plan framework constantly in your head to identify where you and your managers are along the path to creating highly successful growth. 2. You need to keep your month-to-month activities in balance with your longer term Vision, Strategies and Tactics that allow you to execute on those Strategies. 3. You need something to be able to quickly and easily translate to the rest of your management team and to both your internal and external stakeholders

18 SunTzu Said It Best About Planning Sun Tzu was the author of what is now known as The Art of War. After his hiring, the kingdom of Wu which had previously been considered a semi barbaric state, went on to become the most powerful state of the period. Regarded as the most successful of China s generals, he was a master at battle planning. We ve adopted the simplicity of his writings into many of our processes related to both strategy, business plans and tactical sales planning

19 SunTzu Said It Best About Planning business growth The art of war is of vital importance to the state. It is a matter of life and death, a road either to safety or to ruin. Hence under no circumstance can it be neglected. General Sun Tzu The Art of War 19

20 The Importance of Business Plans The general who wins a battle makes many calculations in his temple before the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat; how many more do no calculations at all! It is by attention to this point that I can foresee who is likely to win or lose. - General Sun Tzu The Art of War 20

21 Just What Are Business Plans? Elevator Speech Executive Summary Lots of Presentations Sales-Investors-Marketing The Business Plan-The Foundation Business Plans are the Foundation of the Triangle 21

22 Business Planning Terms & Timelines Vision: Future State in 36 plus months Strategies: Primary Directions in 1-24 months Tactics: Operating Plans in months Every Tactic has Objectives Objectives: Measurements in months. 22

23 Vision without action is hallucination jack derby 23

24 Business Planning Architecture Common Mistake #1 Common Mistake #2 Vision Strategies Tactics & Objectives Common Mistake #3 Actions Operations months 1-18 months 1-12 months CEO & BOD All Managers All Employees 24

25 A Business Planning Architecture ( Everything needs to fit ) Product & Services Plans Engineering & Manufacturing Strategy Company Business Plan Marketing & Market Analysis Plans Sales Plans Service Plans = Finance Metrics & Review Your Job is One Simple Thing: Create Scalable Growth 25

26 The Science of Creating The Winning Business Plan Elevator Speech Executive Summary Presentation Pitch The Business Plan 22 26

27 Business Plan Architecture Go to our website & read Writing the Winning Business Plan /writing-business-plans/ 27

28 What s included? 7-9 Sections Elevator Speech Executive Summary Presentation Pitch 1. Executive Summary 2. Introduction to the business 3. Definition of products & services 4. Overview of markets 5. Overview of sales & marketing plans 6. Overview of products and roadmap 7. Summary of manufacturing & operations 8. Management team bios 9. Four pages of financials The Business Plan 28

29 Why create a Business Plan? For you as a company manager, it Communicates your strategic direction Communicates your tactics Communicates your objectives Communicates your department s objectives Communicates your budget requirements Provides for common agreement & buy-in Provides common language Elevator Speech Executive Summary Presentation Pitch The Business Plan Vision Strategies Tactics & Objectives Actions 24 months 1-18 months 1-12 months CEO & BOD All Managers All Employees Operations 29

30 Why create a Business Plan? For an entrepreneur, it Elevator Speech Executive Summary Presentation Pitch The Business Plan Provides the same as a company manager And it provides an architecture for investors A Business Planning Architecture ( Everything needs to fit ) Product & Services Plans Engineering & Manufacturing Strategy Company Business Plan Marketing & Market Analysis Plans Sales Plans Service Plans = Finance Metrics & Review Management s Job is growth, guidance & review 30

31 No Business Plan, No Outside Money Early & later stage companies Plans are the foundation for outside investors Private angels Elevator Speech Venture capitalists Corporate investors Executive Summary Strategic partners Presentation Pitch The Business Plan 22 31

32 #1-For the Team Most importantly, for you & team The actual process of planning is the key. It consolidates management direction. It provides debate & finally consensus. It is a guide when speed bumps happen. It is your company & personal scorecard. 32

33 Very Writing a plan is tough work! It requires disciplined balance It s visionary, but logical. It s financially perfect, but flexible. It s wrong & it s right. It s for today, but also for 3 to 5 years out It s a formal Plan, but it s easy to read. It s creative, but it follows The Rules. 33

34 Rules Preparation Start Writing Elevator Speech Executive Summary Presentation Pitch The Business Plan 22 34

35 The Traditional Business Plan An Executive Summary 7-9 sections pages with financials Elevator Speech Executive Summary Presentation Pitch Provides clear details Brings out the richness of the business idea. Details the market opportunity & complexity Details the business and sales models The Business Plan Derby Management Confidential,

36 What s included? 7-9 Sections Elevator Speech Executive Summary Presentation Pitch 1. Executive Summary 2. Introduction to the business 3. Definition of products & services 4. Overview of markets 5. Overview of sales & marketing plans 6. Overview of products and roadmap 7. Summary of manufacturing & operations 8. Management team bios 9. Four pages of financials The Business Plan 36

37 How do you start? Pay attention to Writing the Winning Plan Be compelling Be brief, focused, & deliberate Focus on the markets & on your customers Provide solid market research & hard data Be innovative and provide unique value Define an experienced management team 37 Derby Management Derby Management Proprietary Confidential, Content

38 Rules Be realistic with yourself. This is your Plan, Career, Time & Money Define your 1 and your 3 year objectives Describe your 3 to 4 primary strategies. Always focus on THE CUSTOMER: Who? Why? How? What? growth in margin growth in revenue. Growth in net income 38

39 Don t just start writing Preparation is The Key to Success. What do we really know about Our market & customer targets? Market data, trends, & forecasts? Competition? Sales channels? New technologies in development? 39

40 One more preparation task Analysis of financial assumptions Internally, what do we want for Revenue, margin and profit growth rates Cost of goods Sales acquisition costs & Sales channel models Hiring rates and ramp speed Technology investment rates Product costs & expected margins G&A expense percentages Receivables, payables, and financing costs 40

41 Now, you can start writing What you need A quiet place and time. All of your data easily available. Start writing by yourself. Not a team effort. Get the content down quickly. Send a first rough draft to others quickly. Write draft after draft after draft after.. 41

42 So What Do I Do Now? Simple 1. Read Writing the Winning Business Plan 1. Send me an , give me a call.when you have questions 42

43 The Financial Section What Professional Investors Expect Lots of numbers is not the answer! 43

44 The Financial Section Must Support The Key Questions will be about Customers and Sales & Marketing math Who will buy? What will they buy? How will they buy? How do they want to buy? Why will they buy? Why will they buy from you? What will they pay? Waterfall math Marketing processes and metrics Sales channel decisions and processes ASP, COS, CAC, ACV & MRR, Acquisition time, retention, and ramp time, 44

45 Assembling a Bottoms-Up Plan 80 % of your effort should be spent on top line Define the market opportunity revenues, potential customers, units available Project an achievable penetration rate What is your go to market plan? Revenue ASP per unit consider product cost and distribution Depict the economics surrounding a single sale How will the customer measure ROI? What is the economic impact to you? Price & cost? Define the model and scale it! 45 45

46 Assessing Your Margins Gross margin plan must be bottoms up Labor, Materials, Overhead % of Sales comments Revenue $ 100 Revenue Recognition - keep it clean!!!!! Costs of Sales $ 55 55% Gross Profit $ 45 45% The % is called Gross Margin. This should reflect ALL costs associated with producing the product or service watch out for hidden costs in R+D and elsewhere that belong here what can be outsourced cheaper at equal or better quality? ** represents premium your customer pays you over doing it themselves ** dictates the type of sales and marketing organization that will fit Operating Expenses Sales and Marketing $ 13 13% Gross margin provides constraints on sales model - see calc below Gen and Admin $ 10 10% G+A runs between 9% and 11% until you become very large 46 Operating costs Benchmark whenever possible Build manpower plan functionally Compensation & benefits will represent 70% of costs So plan headcount carefully Spend a modest amount of time on the remaining costs Cash flow is all about timing Plan to pay fast & collect slow, execute the opposite Research and Development $ 10 10% In high-tech, generally runs 8% to 12%; lower in other industries ** investment in R+D should return minimum 10X in future sales ** Great entrepreneurs know when further product line investment is no longer warranted Constant Make vs. Buy // and Core competencies discussion Total Operating Expenses $ 33 33% Operating Profit $ 12 12% Target should be 10% to 15%, when get close to 20%, credibility is strained Interest Taxes: Federal and State Net Income 46 46

47 Sensitivity Analysis Models must be able to quickly assess cash impact of What happens if sales are +/- 20%? What if unit sell ramp is slower? What if average sell price is 20% less than planned? What if we accelerate Sales hiring? What if product development is delayed? What if a management change is necessary? 47 47

48 Availability The Wicked Commute Call or me anytime Cell: