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Babyyourway.com Babyyourway.com 13310 Grouse Point Trail Carmel, IN 46033 Ph: (555-555-8666) www.babyyourway.com Contact: Matt Sifferlen

Type of Business

Type of Business: Babyyourway.com is a retailer of customized children’s merchandise. Company Summary:

Company Summary: Babyyourway.com aims to provide a unique shopping experi- ence that allows customers to quickly and effortlessly purchase personalized keepsakes for the special children in their lives via a user-friendly Web site that truly puts the cus- tomer in control of the shopping experience. Babyyourway.com taps into the convergence of two market forces: (a) Increasing populari- ty of shopping for unique and boutique items via the Internet and (b) The fact that the fastest growth in U.S. population in the next 5 years will be in the 45-64 age group. Parents and grandparents are spending increasing amounts of money on apparel and merchan- dise for their newborn, infant, and toddler children and grandchildren. As boomers become grandparents at a rapid clip they will continue to use their disposable income to shower their grandkids with gifts. Bibs and other related children’s merchandise are fun and inexpensive gifts.

Managemen

Management: Babyyourway.com is managed by the four primary partners. Each partner brings an extremely valuable set of expertise and experiences that will allow the group to successfully oversee this new venture. The team has a combined 45+ years of experi- ence in consumer and technology product development, brand and product manage- ment, marketing, operations management, information systems, and commercial bank-

ing. Each member has an MBA from the Indiana University Kelley School of Business, one of the top 20 M BA programs in the nation.

Product and Competition

Product and Competition: Boomer spend- ing has already fueled the success of chil- dren’s apparel retailers like Babies-R-Us, Children’s Place, Baby Gap, and Gymboree. However, while all of these retailers have been successful at marketing mainstream, mass-produced, off-the-shelf products provid- ed by their own large suppliers, none of them offers a personalized shopping experience. And while some of them dedicate limited

online resources to customized products, these efforts are low-profile and ineffective because low volume transactions are out of favor with corporate behemoths that want to be all things to all people. Unlike our com- petitors, babyyourway.com embraces cus- tomization, offers a service that does not just embroider a baby’s name on an item, and markets that as “personalized.” Instead, we will offer a unique opportunity for shoppers to truly customize their bibs and other apparel purchases using a variety of online tools to select color scheme, text, materials, and licensed content. This puts customers in con- trol of the purchasing experience and allows them to add the personal touches that today’s shoppers value.

Funds Requested

Funds Requested: It’s anticipated that we will need an initial cash injection of $300,000. We would prefer debt financing, but we are open to other financing alternatives, including offering an equity stake to investors. Use of Proceeds

Use of Proceeds: We need the proceeds to purchase a DuPont Artistri digital printer, to assist in funding our substantial year-one advertising expenses, and to purchase our initial inventory.

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II. Objectives A. Short term

B. Long term III. Market Analysis

A. Overall market B. Specific market C. Competitive factors

D. Macroenvironmental influences IV. Development and Production

A. Production processes B. Resource requirements C. Quality assurance V. Marketing

A. Overall concept and orientation B. Marketing strategy and resources C. Sales forecasts

VI. Financial Plans A. Financial statements

B. Financial resources C. Financial strategy

VII. Organization and Management A. Key personnel resources

B. Human resource management strategy VIII. Ownership

A. Form of business B. Equity positions C. Deal structure*

IX. Critical Risks and Contingencies Financial Projections

Financial Projections: P

Prroojjeeccttiioonnss (($$000000) ) YYeeaar r 11 YYeeaar r 22 YYeeaar r 33 YYeeaar r 44 YYeeaar r 55

Revenue $350,000 $560,000 $896,000 $1,568,000 $2,744,000

Net Income ($298,627) ($144,527) $131,176 $0,592,379 $1,572,055

Assets $473,373 $349,847 $549,623 $1,230,202 $2,988,457

Liabilities $413,414 $340,396 $314,978 $0,309,160 $0,447,181

Net Worth* $059,959 $009,451 $234,645 $0,921,042 $2,541,276

*Note: Discretionary owner distributions may be taken beginning in Year 3 depending on company profitability.

Exit

Exit: It is our full intention to continue the business as a going concern. However, if we feel that the best way to extend our brand and market reach is by selling ownership to a larger entity, those offers will be considered, particularly if they provide a lucrative package to all shareholders and investors. As evi- denced by our financial projections, by end of year 5 we will potentially have a Net Worth of $2,541,276. As an LLC, all owners of equity

will be rewarded annually with ownership dis- tributions according to their percent of owner- ship. If any owner should desire to sell his/her interest in the company, this request would be honored based on standard prac- tices of our legal entity structure at the time of such an occurrence.

SOURCE : Babyyourway.com business plan. See Appendix A for the main body and exhibits of this business

The Business Plan 167

X. Summary and Conclusions XI. Scheduling and Milestones Appendixes

The main body of the business plan contains the strategic and operating details of the new venture. Some redundancy among the sections is inevitable because the business is an integrated system and is necessarily self-referencing. This is not inherently bad. Some redundancy helps to focus the reader’s attention. Where possible, using a reference such as, “See Section III, Market Analysis” is preferable to repeating verbatim a long segment of the market analysis.

Background and Purpose. This introductory section creates a context for understand- ing the business. Although history is not destiny in business, it is important that read- ers be able to gauge how far the firm has come and precisely where it is now in the new venture creation process. Suggestions and recommendations for preparing this material

follow:

•History: This section, a brief description of the venture and its history, is especially

important if the firm is offering a unique product or service. It tells potential investors that this company is a “prime mover.”

•Current Situation: This includes a brief description of the product or service, its

potential customers, and the technology necessary to make and deliver the product. This product/market/technology configuration (P/M/T) is the most concise statement about your business. There is ample opportunity to expand on this later in the plan. If the product or service is so technical that a non-expert might not understand it, create an exhibit or an appendix with a photograph or drawing of the product, list its technical specifications, and present any available test results.

• The Business Model and Resource-Based Elements: This section tells the story of

the business: its customers, product, technology, and revenue model. How will it make money? What key resources will contribute to the firm’s success? How will these resources be translated into a unique product or service with a competitive advantage? This is the first introduction of the strategy statement.

Objectives.Objectives are desired outcomes, and every new venture has three broad

objectives: creation, survival, and profitability. For firms with an operating history, of course, only survival and profitability are pertinent. Objectives are viewed in terms of time frame and measurement. Short-term objectives can be achieved within one year. Long-term objectives generally require three to five years.

The measurement of how well an objective has been achieved can be quantitative or qualitative. Quantitative measures are stated as numbers—return on sales, return on equity, employee turnover, etc. They usually concern the degree of the firm’s efficiency: how well it has deployed a given set of resources. For example, a quantitative objective involving gross margin shows cost of goods sold and direct labor charges as a percent- age of sales. A high gross margin indicates an efficient ratio of cost to revenue, and a low

gross margin indicates inefficiency.21_{Quantitative objectives tend to concern operating}

issues and the short term.

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“to be a good corporate citizen” or “to have a reputation for integrity” or “to develop innovative products” are hard to quantify. Qualitative objectives involve the effectiveness of the new venture, the extent to which the firm maintains and expands its position in the competitive environment and in the macroenvironment. Qualitative objectives, therefore, concern with external and environmental issues and are viewed over the long term.

Table 5.1 lists possible objectives, and the three dimensions are shown as continua along the arrows. The objectives toward the top of the list (beginning with sales prof- itability) represent short-term, quantitative measures of efficiency. The objectives toward the bottom (anchored by social concern/responsibility) represent long-term, qualitative measures of effectiveness. The firm’s objectives should be both realistic and challenging and should be consistent with the rest of the narrative and with the plan’s financial pro- jections.

Market Analysis. The market analysis section aims to convince the reader or investor that the entrepreneur fully understands the competitive environment and the macroen- vironment. It must demonstrate that (1) the addressable market for the product or ser- vice is substantial and growing, and (2) the entrepreneur can achieve a defendable com-

petitive position. Suggestions and recommendations for market analysis follow:

•Overall Market: A description of the firm’s industry includes its current conditions,

and its projections for sales, profits, rates of growth, and other trends. Who are the leading competitors and why have they been successful? Where is the market located and what is its scope—international, regional, national, local? Because investors pre- fer industries with the potential for large sales volumes and high growth rates, they need to see the big picture.

TABLE 5.1 Specific Objectives

Sales Profitability Market share Market position Productivity Product/service quality Innovation Employee morale Training/development Social concern/responsibility

Effectiveness Qualitative Long Term

Objective Efficiency Q uantitative Short Term

Time Frame for Objectives Measurement of Objectives

The Business Plan 169

•Specific Market: In narrowing the focus to the target market, segment, or niche in

which the firm will operate, the plan describes current and projected conditions, leading competitors, and customers. How are purchasing decisions made, and by whom? If a market survey has been conducted, its findings can be presented in an

appendix. What conclusions can be drawn from it? What are the best case, likely case, and worst case sales projections for the total market segment? List the five largest buyers. What percentage of the firm’s sales is projected to come from these customers? What are the trends for your customers’ profits and incomes? How will the firm continue to assess its customer base and update information?

•Competitive Factors: This extremely important section describes and explains how

each factor covered in Chapter 3 affects the firm’s sales and profitability. It analyzes the competitive nature of the firm’s industry and the industry’s attractiveness; the power of the buyers and the suppliers; the availability of substitute products and serv- ices; the height of entry barriers; and the nature of the current rivalry. It must demon- strate how its resource base and strategy address these factors and evaluate the posi- tions of the most important competitors, comparing its strengths and weaknesses to those of the market leaders. Finally it summarizes your firm’s competitive position.

• Macroenvironmental Influences: This vital section demonstrates the venture’s

knowledge and competence by evaluating the impact of the macroenvironmental factors described in Chapter 3. It analyzes the political, economic, technological, sociodemographic, and ecological factors that affect the firm, presenting best, most likely, and worst case scenarios. It concludes with an assessment of the risks that each of these factors poses for the firm’s survival and profitability.

Development and Production. This section deals with the most important elements of research, development, and production of the basic product or service.

•Production Processes: This outline of the stages in the development and production

of the product or service include brief comments on each stage, detailing how time and money are allocated in the production process or service delivery system. A dis- cussion of the difficulties and risks encountered at each stage can be accompanied by a flowchart illustrating how the core function is accomplished. The possibility of subcontracting each stage should be evaluated and make-or-buy decisions must be explained. What resource-based competencies provide the firm with advantages in the production process?

•Resource Requirements: This is an analysis of each resource employed in the

production process. These resources, described in Chapter 2, may be financial, physical, human, technological, reputational, and organizational. Where in the pro- duction process does the venture possess valuable, rare, hard-to-copy, and nonsub- stitutable resources? What are the cost/volume economics of the production process or service delivery system? What are the current trends in the cost of resource pro- curement?

•Quality Assurance: Quality dimensions (product, user, process, value) were

described in Chapter 1. What is the firm’s perspective on quality? How will quality be defined and measured in the production process. Will the new venture employ

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Market Analysis. This section describes the actual marketing strategy of the firm or new venture. This strategy must be consistent with the objectives stated earlier. The mar- keting section explains how the firm will exploit its resource base to create a total mar- keting focus. It also describes how the new venture connects with its customers.

•Overall Concept and Orientation: The description of the venture’s concept in the

background section can be given a marketing focus by transforming it into a state- ment of customer orientation. What benefits and positive outcomes will the cus- tomer derive from interaction with the firm? Evaluate the resources that the firm or new venture has or can control in creating high levels of customer awareness and satisfaction. This introduction demonstrates a commitment to the marketing effort.

• Marketing Strategy: This brief description of the primary product or service’s

P/M/T along with that of the major competitors can show how marketing strategy will support the product or service’s strengths and exploit competitors’ weaknesses.

Identifying the target market and using data from market research demonstrates why the company is competing in this particular segment. Why and how does its product appeal to this segment? How does the marketing strategy communicate and activate this appeal? What image does the firm want to adopt? Is this image consis- tent with the product or service? Why will it appeal to customers? How will the image be communicated? That is, what are the plans for packaging, branding, and labeling the product? What advertising, promotional activities, and campaigns are proposed? This also requires a budget and a breakdown of marketing costs (usually in dollars per 1,000 people reached). Advertising materials (copy, storyboards, and photographs), if available, are included in an appendix.

•Pricing: Here the plan discusses pricing strategy. How do the company’s prices

compare with the competition’s? Is the pricing strategy consistent with the firm’s image? Does it create value for customers? What is the profit margin per unit under various pricing schemes? What is the credit policy and is it consistent with purchas- ing patterns in the industry? What is the warranty policy? What about service after the sale? How will the company create and foster ongoing relationships with buy- ers and encourage repeat business?

•Distribution: How will the product or service be distributed? Include a description

of the geographic scope and the channels of distribution.

Sales Forecasts. The sales forecast is derived from three elements of market analysis: (1) the size of the market in units and dollars, (2) the fraction of that market that the firm can capture through its marketing efforts (market penetration rate), and (3) the pricing strategy.

Sales forecasts are often best presented in an exhibit or chart. They can be shown as units of products (or number of services delivered) as well as in dollars. The entrepre- neur multiplies product units by predicted average price (and offers the justification for this price). Using a five-year time frame, the plan presents a best case, most likely case, and worst case scenario. What separates the best, most likely, and worst cases? A graph can illustrate sales trends and growth.

Financial Plans. The sales forecasts conclude the marketing portion of the business plan and begin the financial analysis portion; they represent the “top line.” The purpose of

The Business Plan 171

the financial analysis section is to illustrate the “bottom line.” Bankers and potential investors evaluate this section to see whether enough profits will be generated to make the venture an attractive investment. It also serves as the financial plan for the firm’s executives. This section is numbers oriented, and it should give the audience what it wants: rows and columns of figures, carefully labeled and footnoted.

If the firm has an operating history, the financial statements must summarize its past and current performance. For past performance, it calculates ratios that highlight prof- itability, liquidity, leverage, and activity, then compares these ratios with industry aver- ages collected from trade data.

If the firm is a new venture, it must present the following:

•Projected profit and loss statements (income statements) for 5 years—monthly for

the first year, quarterly for the next two years, and annually thereafter.

•Projected cash flow statements and analysis—monthly for the first year and until the

firm has positive cash flow, quarterly for the next two years, and annually thereafter.

•Projected balance sheets for the ends of the first 3 to 5 years.

Each statement should be referenced and discussed but should be placed in a financial appendix. If the statements and projections indicate seasonality and cyclicality, the read- er must be told what each statement means and what its overall message is.

A break-even analysis for a service business shows how many hours of the service must be sold. For a product business, it indicates how many units of the product must be sold. A table of break-even points should appear in the appendix.

A summary of financial resources begins with start-up costs for the business, a detailed list of all physical assets the firm needs to purchase or lease and a statement of organizational costs (e.g., legal, architectural, engineering, etc.). How much money will the business need? What can be offered as collateral for debt? How will the loan be repaid? Financial statements must, of course, include such repayment. How will the money be used? A use-of-proceeds exhibit is helpful. Investors generally believe that ini- tial proceeds that are expensed—research, development, and training costs—are riskier than money spent on capital equipment, land, and buildings._{Provide details and the references if the firm has established credit it will not initially} need. Also provide a list and an aging statement if the firm has receivables. What are the probabilities of collecting these receivables? Include a description of existing debt, a list of delinquent accounts and their amounts, and a statement of any accounts payable and