As promised in “Sharing intellectual property“, this is a the first publication.
This example is not a theoretical example: it is material from a real business planning exercise- but, of course, some information is not available online.
More attachment files will be eventually added here- please refer to the announces via twitter for updates.
I was the originator of the idea, and one of the people involved said that he would like to know if I eventually was able to make it real.
Well, the market conditions changed, so it would require some re-design, and therefore I can share the case history online.
I used to share my approach with specific startups, but the interesting part is not producing the final spreadsheets (what I call “number crunching”).
It is the process that takes you from the idea up to having a completed business plan.
And you will find here the process to apply it to your own new activity, along with some examples of the material.
The model: useful to introduce a service or produce to a new country, mainly as a distributor or to localize a service.
There are two basic uses:
- if you focus on a single industry: you, or somebody else, should have local market expertise, to have both credibility and contacts
- if you focus on multiple industries: you will be a channel manager- use local, industry-specific partners to give you credibility and contacts
What you will find here
The rest of this article describes how the business plan was done, and how you can apply this case to your own startup.
The example
The concept
The birth of the idea
The process
Business planning material produced
The resulting business plan
The presentation material
The example
The busines plan was focused on a specific idea in a specific industry.
The idea: create a risk databank in UK, importing the logic used in Continental Europe, joining local banking expertise with an industry partner that is already delivering the service elsewhere.
The approach: have a local partner who would be the CEO, with banking contacts and experience at an high level, and an industrial partner.
The business planning process:
- define the idea, and the material to communicate it to all the potential stakeholders (customers, partners, etc)
- identify the business potential, by helping the prospective CEO communicate informally in the market
- present the business case to the potential industrial partner
- build the business case + numbers
- produce the material to present to the decision makers
After that? Of course, get the approval from the CEO of the industrial partner to present to the board.
And, then, get the approval from the board- and start.
When did the process stop?
You guess.
The last step- as, unfortunately, there were suddenly other priorities, and stepping out in another country was not the right time.
Still, a good case study- better than some that I helped produce that got funding, as in this case the model can be applied to many different products and services.
The concept
- set up a new service in a different country, using the off-shore services provided by a company with high expertise and visibility in another country
- eventually, create a local data center in the new country
- the investment would be marginal
- as the point is to enter a market with a product/service, the real timeframe is not the usual “quick startup”: the original plan covered from September 2003 until December 2007, with two further years for market consolidation
- the experience in the other country, coupled with local market expertise, would kick-start the activity
The birth of the idea
I had read an old report from an international institution that said that the larger risk in the banking and finance industry in UK and USA was the reliance on a maze of independent risk databases, with uneven level of data quality.
My idea?
- adapt to the UK market the centralized risk management adopted in Continental Europe, but using an approach consistent with the different legal framework, i.e. based on shared interest between the major players, instead of regulations
- identify an a local partner with industry connections, who would be the CEO
- identify an industrial partner, who would initially provide off-shore service in another EEA country (to comply with privacy law, as from Autumn 2003 also UK started applying the EU Directive on Privacy), and then in UK
- the software customization required for the new service would be done by the industrial partner, as part of their investment
- the company would start with a majority share assigned to the industrial partner, while the CEO and CCI (Chief Corporate Identity) would be minority shareholders, with a phasing out plan linked to the coaching of the local staff and the partners’ liaison resources
The process
- the difference with a real “greenfield” (i.e. a plan for somebody else) business planning activity is that, of course, I prepared all the preliminary material, before the “business plan number crunching”
- in a later article, I will detail the process that I suggest to start from scratch with your own idea
- but you can find here the printout of the Microsoft project
- the preliminary activity was of course to select on the market the prospective CEO, who would be providing market contacts in UK
- once selected, I contacted the industrial partner to present the opportunity and the team; I already had a long business relationship with the industrial partner, up to the CEO (over 12 years, at the time)
- thereafter, my role was of course as part of the UK team, but I also prepared the business plan for the industrial partner, i.e. to identify their costs and revenue from the activity, as the industrial partner, beside financing the company, would also be the provider of the outsourced services
Business planning material produced
- included:
- a business model
- a profile of the key resources and organizational chart across time
- a definition of each revenue stream, and the associated costs
- a staffing and revenue growth model
- the identification of the relationships between key cost and revenue items:
- a linkage between costs, revenue, staffing to clearly identify what should be considered overhead
- an overhead allocation model across the revenue streams, to help in monitoring the implementation of the plan
The resulting business plan
- few spreadsheets, basically all built using the information from the staffing and revenue growth model
- the main spreadsheets were for the first year, detailed on a monthly basis, and for the following years
- due to the nature of the business, the expected break-even point was within the 3rd year; usually, a shorter time is required
- the liquidity requirements for the new company up to when the cash-flows would sustain operations would be financed by the industrial partner
- the interesting part was that, as an industrial partner, they understood the need to build a team and a presence, before delivering the service; this is not necessarily the case when you negotiate with purely financial or “personal” (angels, etc) investors, who have a shortert-term focus
- of course, beside the cash-flow, there was the usual paraphernalia (sensitivity analysis, profit&loss, revenue and organization projections, channels, etc): but, unless you can have a business that sustains itself within an acceptable timeframe, no serious industrial partner will even start the discussion process
- a caveat: if you approach somebody that you do not know, or that does not need you, find a way to keep yourself in the loop- I heard way too many stories of over-enthusiast wannabe CEOs who gave all the information away… so that their potential industrial partner went “solo”- with their plan
The presentation material
Yes, in some industries you prepare multimedia and so on.
And I have been recently told of 100 to 150 pages as a “sensible” dossier for public funding.
Frankly, I still have to meet a party investing its own organization money that really reads more than 10-12 pages of whatever you prepare.
You need to have all the information coherent, e.g. with the same timescale, and each bit of information should be carefully cross-checked.
Nothing is more annoying that finding that that does not match.
My suggestion? Once ready, have somebody that wasn’t involved in writing the documents re-read.
Trust me- no matter how many times you re-read it, you will still find typos after you let one or two weeks pass.
If you cannot afford to wait: use somebody else’s eyes 
And also if you end up with 80 or 800 pages of material, you do not go, as I saw, with 100 slides to present your new business.
Or, if you do- monitor the audience, do not feel compelled to show everything, and use the bare minimum to talk, referring to the other slides only to answer to questions.
Finally: have somebody play the audience with you, before delivering your presentation- or transferring it to somebody else to present it to the investors.
What was prepared:
- memorandum of understanding (cover, one page, plus one page in the partners’ language)
- executive summary (2 pages)
- slides for the board presentation (8 slides and script)
- project and main financial prospectus (8 pages)
- the complete dossier (in this case, about 20 pages; I never exceeded 50 pages)
Tags: business, case, distribution, outsourcing, plan, risk, study