Are you interested in writing a business plan? Is it to show to an investor? If you are planning to write a plan for your business or to help someone or are just curious about the noise made about business plans, here is a game for you to play. A game, where you get to be a virtual entrepreneur, without going into the pain of actually having a real company out there to run. If you are game for this game, think of yourself as an entrepreneur starting or running an existing business and…read on…
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First: The background
Before thinking of preparing a business plan … think through some of the points that are relevant to the plan. List them down. These could be the idea/project that you have in mind or are working on, the team, the potential or existing customers and the operational plan, amongst many other things. Pause for a while to understand … i) your strengths, ii) where you can improve and then iii) where you want to go in a few years from today.
Once you have thought through this, please think about what an investor would like to see. Again, if you have a specific investor in mind, understand what this person or persons may be interested in funding. To illustrate, an investor in equity in a company, would look for a multiple financial return, in the normal course of business.
So how is this multiple available? This would be possible if the investor puts money into the company at say Rs.100 per share and is able to sell it in maybe 4-5 years at a multiple of 5 times, 10 times or even more, i.e at Rs.500 per share, or Rs.1000 or more. To get this multiple, many other factors come into play. The company invested in has to have super growth. To have super growth, the company must have customers who will pay to buy the offerings, whether it is a manufacturing product, a service or anything else. You can think about the other such factors which may enable the company to grow in value over time. These factors may be internal to the company, such as a great team and good idea, or external, such as growth in the economy.
In addition, the investor has to be able to sell the shares, i.e. there have to be buyers for these shares. These buyers could come through the IPO route or as another company buying this and so on. Please think of possible options of exit of the investor, and what could be the possibilities in your case.
If you have a specific investor in mind, think through this carefully. What kind of companies have they invested in? What do you think they will look for? Would they be keen on funding companies in the industry sector in which you operate? Have you seen their website/blog postings and checked with persons who are familiar with their style of investing? Do your homework adequately and go in prepared for the questions they may ask you.
Writing a business plan is somewhat like writing an exam paper. You prepare, work hard and then commit all your knowledge and hard work to the answer paper. Do you remember taking the 12th standard school leaving exam? While knowing the subject is key, it is also important to answer the questions well, so that the examiner understands that you have understood the subject well.
NOW FOR THE VIRTUAL BUSINESS GAME: Three different companies are discussed in brief below. Assume you are an entrepreneur in each of these firms or you are an advisor to the companies. You can pick your role. If you are writing business plans for them, here are some questions to trigger thinking:
- How would you proceed to write the business plan?
- Would the approach to writing the plan and questions asked by you be similar in each of the above cases, or different?
- What are the key points in the business plan in each of these cases?
- In each case, identify what could be a key deal issue.
- o Look for both key deal drivers and key deal breaker issues.
- o Are they similar or identical in all the three cases?
- o Does your business plan address these issues, directly or indirectly?
NOTE: Deal issues are some key factors which may be the reason why someone may invest or not invest in a company. For example, if there is only one person driving decisions in the company, this could be a deal issue. Investors do not like to risk money in a business with only one key person in the management team.
THE THREE CASELETS
- Three friends established a company in Bangalore, to work in the areas of IT services. Their company, ThreeForce, was started with Rs.30 lakhs invested in by the promoters, who each had about 12 years of work experience, in India as well as in Europe and US. Midway through the first year of operations, one of the key customers also invested Rs.20 lakhs in the ThreeForce, for a minor stake in the company. Towards the middle of the second year of operations, the promoters decided to go in for a round of private equity investment.. The initial funding and the revenue generated was not sufficient to achieve the ambitious growth targets they had set for themselves. The promoters decided to approach a venture capitalist or strategic investor for funding.
- Vijaya, Kannan, James and Rehana are good friends from school days. Vijaya, who has completed her MBA and has 2 years of work experience in the IT industry, is currently unemployed. She has two children of school going age. Kannan is an engineer, who is working in a software company and now wants to start his own business. His wife has a steady job in a multi national company and he is willing to take a risk of losing his steady income. James, an architect is currently managing his own architect’s firm. He is interested in exploring the opportunity to develop technology tools for the infrastructure industry. Rehana is a graduate, who has been working in the BPO industry for five years now. She has no family commitments and is comfortable with the job. She is excited at the idea of starting a business with her friends.After a great deal of brainstorming, the four have decided to create a company which will address the technology needs of the infrastructure industry. They have heard that there is a lot of interest in investment in this area and are keen to look for equity investment in the new venture as they do not want to go to a bank and take a loan at this start up stage.
- GooDBuzz Technologies Private Limited was promoted by Amar Ramesh and Rahul Gupta to offer services to the telecom industry. The customers were from India, Europe and Asia.The company received two rounds of financing from a VC in India, who appointed a Board Member to the company. In a Board meeting, the nominee Director of the VC, expressed his view that GoodDBuzz should expand its existing portfolio of offerings by providing services to other industry verticals, as this would help the company grow at a faster pace. The other Board members were also keen to explore this possible opportunity. This however needed additional investment, which the existing promoters and investors could not bring in. The Board members of GooDBuzz were now looking at alternate options before them and how they should proceed. They decided to look for private equity investment in the company.
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