VisuALS’ Business Plan
Last week I introduced you to VisuALS and we walked through the first five steps in the Startup Strategic Journey with them. We have three more steps to cover this week.
As I mentioned in an earlier story, the VisuALS team decided to enter the Love’s Entrepreneurs Cup business plan competition. In 2017 the competition had three stages:
- A written business plan, including financial projections, was submitted in early March.
- From the dozens of entries, eight semi-finalist teams were selected. These teams presented to judges in early April.
- Six of the eight semi-finalist teams were selected to advance to the finals and present again the next day to a different set of judges.
The Business Plan
A business plan document creates a narrative that anyone can pick up and understand. A good business plan should address two critical audiences: potential investors and the venture team themselves.
For investors, the business plan document should address all of the critical factors necessary for the success of the venture. These readers of the plan will read the plan to answer three types of questions about each aspect of the business:
- Does the management team have a plan?
- Does the investor believe successful execution of the plan would generate the hoped for results?
- Does the investor believe this management team can successfully execute the plan?
For the management team, the business plan helps keep everyone on the same page. A new venture typically has lots of activity and not enough people. That means that team members are moving at full speed in many directions, often with little time to stop and coordinate. A good business plan clearly communicates what needs to happen for the success of the venture so that everyone can be working in concert.
A business plan typically is developed through two major efforts. The first is the writing of a narrative, addressing important areas of business planning. The second is a financial model projecting future financial performance of the business. The two elements need to be kept closely in sync. If changes are made to the plans described in the narrative, then the financial model needs to reflect those changes.
The narrative largely flows from the Business Model that we discussed on Friday. i2E, the organization that runs the Love’s Entrepreneurs Cup competition provides a recommended outline that includes the following sections. I think this does a good job covering key areas of the business:
- Executive Summary
- Company Overview and Background
- Products and Technology
- Customer Identification and Validation
- Market Definition
- Competitive Analysis
- Market Positioning
- Marketing Plan
- Distribution Channels/Sales Approach
- Management Team
- Implementation/Operations Plan
- Financials
For the financial model, I strongly recommend building a bottom-up assumptions-driven model for the business. This can be done in Excel or any spreadsheet software. You’d create a workbook with multiple worksheets (tabs). One (or more) worksheet(s) would contain all of the assumptions. Other worksheets would calculate revenue and expenses based on these assumptions. Except for the assumptions worksheet(s), no numeric field in any of the other worksheets should contain any numbers, but rather should contain formulas tied to the assumptions. For example, if you expect the cost of an item to increase by 10% each year, then your assumptions page should contain the initial cost of that item and the anticipated rate of cost increases (10%). Those two assumptions would then be referenced on other worksheets to calculate the cost of that item in any given year.
Taking this approach also makes it easy to change your assumptions in one place and have those changes reflected throughout. For example, the number of salespeople will likely be used both in the calculation of expenses and the calculation of revenue. When the assumptions driving the number of salespeople are changed once, the impact on both revenue and expenses would be automatically reflected.
Your assumptions will change. Remember, a new venture faces tremendous uncertainty, and as you test and learn, you will change your hypotheses. “Hard coding” numbers into the actual financial worksheets almost ensures that you will forget to change one or more cells and the projections you include in your business plan will have mistakes. Using an assumptions worksheet makes it much easier to keep the projections accurate as you make changes. It also makes it easy to run different scenarios, so as you are considering different options, you can quickly see what impact each would have on the funding required and the short-term and long-term financial performance of the venture.
Will Little and Troy Henikoff have written a series of articles at Startup Rocket that do an excellent job of walking through how to create a bottom-up assumptions-based financial model for a new venture. I hope to have a tutorial available at ClearPurpose within the next couple of weeks demonstrating exactly how to build such a model, but for now, Will and Troy’s articles are the best source I’ve found.
VisuALS’ Business Plan
As the VisuALS team moved from the business modeling to the business planning stage, the biggest question they had to answer was how they would generate sales.
They were a brand new company. The largest competitor in the eye-tracking-based augmentative and alternative communications (AAC) market controlled 50–75% of the market, had a huge marketing budget, and had sales reps in most major cities across the country. How could VisuALS’ message that they had a significantly lower cost solution break through to the audience that needed to hear it?
Based on discussions that the team had with ALS patients and their families and the broader ALS community, they had a sense for how someone deals with the devastating diagnosis of this fatal, degenerative disease.
One of the first things that a patient or family member will do is a simple Google search to learn what the road ahead looks like and what resources might be available to help. The VisuALS team researched the economics around buying Google ads and decided that would be a key element of their marketing strategy.
Doctors who diagnose ALS also do a great job of getting patients and their families plugged into the local support community. The ALS Association (ALSA) and the Muscular Dystrophy Association (MDA) both provide excellent resources in chapters across the country, including regular support group meetings where patients and their families can gather together to share experiences, encourage one another, and love one another.
The VisuALS team decided to take a city-by-city approach to building brand awareness and sales. They would start with one sales rep traveling each month to a different city. The rep would visit with clinics, doctors, and speech language pathologists serving the ALS community in that city and also time their visit to be able to participate in a support group meeting with ALS patients and their families. The VisuALS team and story had already been warmly welcomed by the ALS community in Oklahoma City and Tulsa and they expected to be similarly warmly welcomed across the country.
The team believed that if they could close just one sale in a city, that would establish a visible demonstration and an “earlyvangelist” helping spread the word in that community. The sales rep would continue to communicate with key contacts in each city to ensure that VisuALS would be recommended to patients as their need for an AAC solution grew.
They expected that they would continue to have growing sales in a city for months after they visited, but set an anticipated cap of selling to 10% of the ALS patients in each targeted city. Sadly, new patients are being diagnosed with ALS everyday, so there would be an unending flow of new potential customers. They set a schedule of cities they would target based on the cities with the largest ALS populations and most active communities. They developed a projection for each individual city and developed their overall sales forecast by compiling together those individual city projections.
The team also recognized that their solution would meet the needs of target markets beyond ALS. While their initial focus would be on ALS, they expected to receive orders from non-ALS patients from the beginning. They would develop specific marketing and sales plans for new markets (e.g. stroke victims) and their plan was to pursue an additional market every twelve months.
The team also built a sophisticated bottoms-up financial model. They submitted with their business plan three scenarios run using this model — a baseline plan, an aggressive plan, and a conservative plan.
The judges were apparently impressed with the team’s business plan. They advanced to the finals and at the awards ceremony, it was announced that they had won first place (and $11,000) in the small business division.
The team was excited. But they were also humbled with the responsibility. They had a solution that truly was life-changing. They knew it had to go to market to help many more patients. However, all four of the engineering students were graduating and had committed to employers giving them great jobs to start their engineering careers. It would take time and money to bring the VisuALS product to market. What would happen next? Tune in tomorrow to find out.
