《创业学》课程教学资源（文献资料）How to Write a Great Business Plan.pdf

Which information belongs–and which doesn’t–may surprise you. How to Write a Great by William A. Sahlman Few areas of business attract as much attention as new ventures, and few aspects of new-venture creation attract as much attention as the business plan. Countless books and articles in the popular press dissect the topic. A growing number of annual business-plan contests are springing up across the United States and, increasingly, in other countries. Both graduate and undergraduate schools devote entire courses to the subject. Indeed, judging by all the hoopla surrounding business plans, you would think that the only things standing between a would-be entrepreneur and spectacular success are glossy five-color charts, a bundle of meticulouslooking spreadsheets, and a decade of month-bymonth financial projections. William A. Sahlman is Dimitri V. d’Arbeloff Professor of Business Administration at the Harvard Business School in Boston, Massachusetts. He has been closely connected with more than 50 entrepreneurial ventures as an adviser, investor, or director. He teaches a secondyear course at the Harvard Business School called “Entrepreneurial Finance,” for which he has developed more than 100 cases and notes. Nothing could be further from the truth. In my experience with hundreds of entrepreneurial startups, business plans rank no higher than 2–on a scale from 1 to 10 – as a predictor of a new venture’s success. And sometimes, in fact, the more elaborately crafted the document, the more likely the venture is to, well, flop, for lack of a more euphemistic word. What’s wrong with most business plans? The answer is relatively straightforward. Most waste too much ink on numbers and devote too little to the information that really matters to intelligent investors. As every seasoned investor knows, financial projections for a new company – especially detailed, month-by-month projections that stretch out for more than a year–are an act of imagination. An entrepreneurial venture faces far too many unknowns to predict revenues, let alone profits. Moreover, few if any entrepreneurs correctly anticipate how much capital and time will be required to accomplish their objectives. Typically, they are wildly optimistic, padding their projections. Investors know about the padding effect and therefore discount the figures in business plans. These maCopyright © 1997 by the President and Fellows of Harvard College. All rights reserved. HARVARD BUSINESS REVIEW July-August 1997

Business Plan neuvers create a vicious circle of inaccuracy that benefits no one. Don’t misunderstand me: business plans should include some numbers. But those numbers should appear mainly in the form of a business model that shows the entrepreneurial team has thought through the key drivers of the venture’s success or failure. In manufacturing, such a driver might be the yield on a production process; in magazine publishing, the anticipated renewal rate; or in software, the impact of using various distribution channels. The model should also address the break-even issue: At what level of sales does the business begin to make a profit? And even more important, When does cash flow turn positive? Without a doubt, these questions deserve a few pages in any business plan. Near the back. What goes at the front? What information does a good business plan contain? If you want to speak the language of investors – and also make sure you have asked yourself the right questions before setting out on the most daunting journey of a businessperson’s career–I recommend basing your business plan on the framework that follows. It does not provide the kind of “winning” formula touted by some current how-to books and software programs for entrepreneurs. Nor is it a guide to brain surgery. Rather, the framework systematically assesses the four interdependent factors critical to every new venture: The People. The men and women starting and running the venture, as well as the outside parties providing key services or important resources for it, such as its lawyers, accountants, and suppliers. The Opportunity. A profile of the business itself– what it will sell and to whom, whether the business can grow and how fast, what its economics are, who and what stand in the way of success. The Context. The big picture – the regulatory environment, interest rates, demographic trends, inflation, and the like – basically, factors that inevitably change but cannot be controlled by the entrepreneur. Risk and Reward. An assessment of everything that can go wrong and right, and a discussion of how the entrepreneurial team can respond. HARVARD BUSINESS REVIEW July-August 1997 99

The assumption behind the framework is that has an attractive, sustainable business model; it is Many options exist for expanding the scale and – – ing down or liquidating. The context is favorable The People Tbusiness plans in a familiar context, as a tool for launched within established companies. Do those put together? The answer to the first question is an emphatic yes; the answer to the second, an equally emphatic no. All – – need to pass the same acid hind the scenes. inside big companies, new and a consensus-building résumés of all the people involved. What has the team done in the past that would suggest it would be panies, they track perbe the case. A business plan helps managers ask such questions as: How is the sions has the team made in tion? Have changes in the context made additional mistakes and triumphs. Many successful companies have been built with BUSINESS PLANS: FOR ENTREPRENEURS ? great businesses have attributes that are easy to identify but hard to assemble. They have an experienced, energetic managerial team from the top to the bottom. The team’s members have skills and experiences directly relevant to the opportunity they are pursuing. Ideally, they will have worked successfully together in the past. The opportunity possible to create a competitive edge and defend it. scope of the business, and these options are unique to the enterprise and its team. Value can be extracted from the business in a number of ways either through a positive harvest event a sale or by scalwith respect to both the regulatory and the macroeconomic environments. Risk is understood, and the team has considered ways to mitigate the impact of difficult events. In short, great businesses have the four parts of the framework completely covered. If only reality were so neat. When I receive a business plan, I always read the résumé section first. Not because the people part of the new venture is the most important, but because he accompanying article talks mainly about entrepreneurs. But quite often, start-ups are new ventures require business plans? And if they do, should they be different from the plans entrepreneurs new ventures whether they are funded by venture capitalists or, as is the case with intrapreneurial businesses, by shareholders tests. After all, the marketplace does not differentiate between products or services based on who is pouring money into them beThe fact is, intrapreneurial ventures need every bit as much analysis as entrepreneurial ones do, yet they rarely receive it. Instead, businesses get proposed in the form of capital-budgeting requests. These faceless documents are subject to detailed financial scrutiny process, as the project wends its way through the chain of command, what I call the “neutron bomb” model of project governance. However, in the history of such proposals, a plan never has been submitted that did not promise returns in excess of corporate hurdle rates. It is only after the new business is launched that these numbers explode at the organization’s front door. That problem could be avoided in large part if intrapreneurial ventures followed the guidelines set out in the accompanying article. For instance, business plans for such a venture should begin with the successful in the future, and so on? In addition, the new venture’s product or service should be fully analyzed in terms of its opportunity and context. Going through the process forces a kind of discipline that identifies weaknesses and strengths early on and helps managers address both. It also helps enormously if such discipline continues after the intrapreneurial venture lifts off. When professional venture capitalists invest in new comformance as a matter of course. But in large companies, scrutiny of a new venture is often inconsistent. That shouldn’t or needn’t new venture doing relative to projections? What deciresponse to new informafunding necessary? How could the team have predicted those changes? Such questions not only keep a new venture running smoothly but also help an organization learn from its the help of venture capitalists. Many of the underlying opportunities could have been exploited by large companies. Why weren’t they? Perhaps useful lessons can be learned by studying the world of independent ventures, one lesson being: Write a great business plan. ONLY 100 HARVARD BUSINESS REVIEW July-August 1997

BUSINESS PLAN without the right team, none of the other parts really matters. I read the résumés of the venture’s team with a list of questions in mind. (See the insert “Who Are These People, Anyway?”) All these questions get at the same three issues about the venture’s team members: What do they know? Whom do they know? and How well are they known? What and whom they know are matters of insight and experience. How familiar are the team members with industry players and dynamics? Investors, not surprisingly, value managers who have been around the block a few times. A business plan should candidly describe each team member’s knowledge of the new venture’s type of product or service; its production processes; and the market itself, from competitors to customers. It also helps to indicate whether the team members have worked together before. Not played – as in roomed together in college–but worked. Investors also look favorably on a team that is known because the real world often prefers not to deal with start-ups. They’re too unpredictable. That changes, however, when the new company is run by people well known to suppliers, customers, and employees. Their enterprise may be brand new, but they aren’t. The surprise element of working with a start-up is somewhat ameliorated. Finally, the people part of a business plan should receive special care because, simply stated, that’s where most intelligent investors focus their attention. A typical professional venture-capital firm rePlan Should Answer � ? � ? � – and for whom? � – – in the past? � ? � ? � What skills, abilities, and knowledge do they have? � success and the tribulations it will face? � Who else needs to be on the team? � ? � ? � choices that have to be made? � ? � ? Who Are These People, Anyway? Fourteen “Personal” Questions Every Business Where are the founders from Where have they been educated Where have they worked What have they accomplished professionally and personally What is their reputation within the business community What experience do they have that is directly relevant to the opportunity they are pursuing How realistic are they about the venture’s chances for Are they prepared to recruit high-quality people How will they respond to adversity Do they have the mettle to make the inevitable hard How committed are they to this venture What are their motivations ceives approximately 2,000 business plans per year. These plans are filled with tantalizing ideas for new products and services that will change the world and reap billions in the process – or so they say. But the fact is, most venture capitalists believe that ideas are a dime a dozen: only execution skills count. As Arthur Rock, a venture capital legend associated with the formation of such companies as Apple, Intel, and Teledyne, states, “I invest in people, not ideas.” Rock also has said, “If you can find good people, if they’re wrong about the product, they’ll make a switch, so what good is it to understand the product that they’re talking about in the first place?” Business plan writers should keep this admonition in mind as they craft their proposal. Talk about the people – exhaustively. And if there is nothing solid about their experience and abilities to herald, then the entrepreneurial team should think again about launching the venture. The Opportunity When it comes to the opportunity itself, a good business plan begins by focusing on two questions: Is the total market for the venture’s product or service large, rapidly growing, or both? Is the industry now, or can it become, structurally attractive? Entrepreneurs and investors look for large or rapidly growing markets mainly because it is often easier to obtain a share of a growing market than to fight with entrenched competitors for a share of a mature or stagnant market. Smart investors, in fact, try hard to identify high-growth-potential markets early in their evolution: that’s where the big payoffs are. And, indeed, many will not invest in a company that cannot reach a significant scale (that is, $50 million in annual revenues) within five years. As for attractiveness, investors are obviously looking for markets that actually allow businesses to make some money. But that’s not the no-brainer it seems. In the late 1970s, the computer disk-drive business looked very attractive. The technology was new and exciting. Dozens of companies jumped into the fray, aided by an army of professional investors. Twenty years later, however, the thrill is gone for managers and investors alike. Disk drive companies must design products to meet the perceived needs of original equipment manufacturers (OEMs) and end users. Selling a product to OEMs is complicated. The customers are large relative to most of their suppliers. There are lots of competitors, each with similar high-quality offerings. Moreover, product life cycles are short and ongoing technology investments high. The industry is HARVARD BUSINESS REVIEW July-August 1997 101

The Opportunity of a Lifetime- or Is lt? and or growing,and one that's structurally attrac. Nine Questions About the Business Every Business tive.The second step is to make sure their business Plan Should Answer ho is th。ne enough of a profit that investors (or potential em ployees or suppliers,for that matter)will want to participate. nture's indust pany will build and launch its product or service arketplace.Again,a seri cussion. ieofauretipm How or8anioatesohcoequestioaseeale How easy is it to retain a customer tatal flaw in the businessvese that with a grea are sellist subject to major shifts in technology and customer viable access to customers is the key to business Drean approa t,an sible in the real world The information services industry,by contrast,is It is not always easy to answer questions about the likely co nsum new products or data to the fin ancial t tuall prov competitive advantage on their side.First,they car om deodorizers would sell?One entrepreneur ass conten know proposed to introduce an electronic news to thousa clipping servi He made 1 is pitch to a prospectiv the world.And although it is often exp sive to de. ng"ust don't think the doe s will eat the do velop the service and to acquire initial custor food."Later,when the entrepreneur's company once up and running,these companies can deliver went public,he sent the venture capitalist an anony mous dog The market is as fickle as it is prospectus.If it were easy to predict unpredictable.Who would have what people will buy,there wouldn't guessed that plug-in room much t h to but a business plan must address deodorizers would sell? that topic.Sometimes,the dogs wil cat the log food,bu y at a prce content to customers very cheaply.Also,customer portunities for value pricir pay in advance of receiving the service,which makes cash flow very handsome,indeed.In short but consumers will still pay a lot for it.No one i the structu formation services in ing to i vesta company when margins are in of loomberg nd all put the diskrive sive products and services-even in commodities.A business to shame. business plan must demonstrate that careful con. 102 HARVARD BUSINESS REVIEW July-August 1997

Thus, the first step for entrepreneurs is to make sure they are entering an industry that is large and/or growing, and one that’s structurally attractive. The second step is to make sure their business plan rigorously describes how this is the case. And if it isn’t the case, their business plan needs to specify how the venture will still manage to make enough of a profit that investors (or potential employees or suppliers, for that matter) will want to participate. Once it examines the new venture’s industry, a business plan must describe in detail how the company will build and launch its product or service into the marketplace. Again, a series of questions should guide the discussion. (See the insert “The Opportunity of a Lifetime–or Is It?”) Often the answers to these questions reveal a fatal flaw in the business. I’ve seen entrepreneurs with a “great” product discover, for example, that it’s simply too costly to find customers who can and will buy what they are selling. Economically viable access to customers is the key to business, yet many entrepreneurs take the Field of Dreams approach to this notion: build it, and they will come. That strategy works in the movies but is not very sensible in the real world. It is not always easy to answer questions about the likely consumer response to new products or services. The market is as fickle as it is unpredictable. (Who would have guessed that plug-in room deodorizers would sell?) One entrepreneur I know proposed to introduce an electronic newsclipping service. He made his pitch to a prospective venture-capital investor who rejected the plan, stating, “I just don’t think the dogs will eat the dog food.” Later, when the entrepreneur’s company went public, he sent the venture capitalist an anonysubject to major shifts in technology and customer competitive advantage on their side. First, they can content business to shame. or Is It? Plan Should Answer � ? � How does the customer make decisions about buying ? � ? � ? � segments? � ? � ? � ? � ? The market is as fickle as it is deodorizers would sell? needs. Intense rivalry leads to lower prices and, hence, lower margins. In short, the disk drive industry is simply not set up to make people a lot of money; it’s a structural disaster area. The information services industry, by contrast, is paradise. Companies such as Bloomberg Financial Markets and First Call Corporation, which provide data to the financial world, have virtually every assemble or create proprietary content – that, by the way, is like life’s blood to thousands of money managers and stock analysts around the world. And although it is often expensive to develop the service and to acquire initial customers, once up and running, these companies can deliver content to customers very cheaply. Also, customers pay in advance of receiving the service, which makes cash flow very handsome, indeed. In short, the structure of the information services industry is beyond attractive: it’s gorgeous. The profit margins of Bloomberg and First Call put the disk drive The Opportunity of a Lifetime – Nine Questions About the Business Every Business Who is the new venture’s customer this product or service To what degree is the product or service a compelling purchase for the customer How will the product or service be priced How will the venture reach all the identified customer How much does it cost (in time and resources) to acquire a customer How much does it cost to produce and deliver the product or service How much does it cost to support a customer How easy is it to retain a customer unpredictable. Who would have guessed that plug-in room mous package containing an empty can of dog food and a copy of his prospectus. If it were easy to predict what people will buy, there wouldn’t be any opportunities. Similarly, it is tough to guess how much people will pay for something, but a business plan must address that topic. Sometimes, the dogs will eat the dog food, but only at a price less than cost. Investors always look for opportunities for value pricing–that is, markets in which the costs to produce the product are low, but consumers will still pay a lot for it. No one is dying to invest in a company when margins are skinny. Still, there is money to be made in inexpensive products and services–even in commodities. A business plan must demonstrate that careful con- 102 HARVARD BUSINESS REVIEW July-August 1997