Transcription

Components of a Business Plan

Importance of a Business Plan

So I think one is you are building a business plan, you are putting down on paper what is your dream basically,
like you are building a business plan for a company you will spend some of the major time of your life half
decade or decade or more or maybe shorter. So one is you have to be thoughtful and be truthful, the best
way to do that is don’t write down what you think you want someone else to read it, write down what you
believe and you want to build and you know that you are being truthful with yourself or not. I would say that
in terms of everything with the business plan and everything keep it simple and don’t be so clever about
things because the more you add what if this happen and then this happen and then this happen, this might
happen, they might do this that 5th outcome has literally sub 1 % chances of happening and everybody
knows that. Instead focus on, here is the first things which are going to happen and as we achieve that as
the majority says we will see the next sequence.

We just heard Rishi from Saavn guiding us about how to write an effective and honest business plan. After
hearing him I am very confident that I can put down an effective business plan in my own venture idea. But
before that as an early stage entrepreneur I always wonder if it is worth spending a lot of time and energy
in putting down a very detailed business plan in the first place. More often than not, entrepreneurs hesitate
& detest to write Business plans! Why?

Several recorded comments on this are:

1. “Why do I need a business plan? It’s all there in my head! “
2. “Business plans are for big companies that hire MBA’s, I am a very small company”
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 3. “I don’t have time to write any plans as I am too busy trying to get new customers & paying my
bills. “
4. “In any case who reads a business plan?”
5. “Have all successful entrepreneurs written one? “

Let me clarify this once and for all. It is something which is an absolute must for a startup. Statistics from
studies indicate that writing a plan greatly increased the chances that a person would actually go into
business. One reason for this is that person who write business plans do a lot of researching on markets and
preparing projections required for a startup. No doubt, writing a business plan is a tedious task.

Some of the dimensions of business plan are

• It is a written description
• Future map and
• A communication tool

A good Business Plan should be simple and intuitive. It should be like a neat and clear story by which you can
easily communicate.

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A well thought out plan also helps you to step-back and think objectively about the key elements of your
business venture and helps in your decision-making on a regular basis.

So, for an entrepreneur,

• A business plan charters out clear path to achieve the goals of both the existing as well as may be a
new business
• It helps to reinforce the strategies that he has to achieve the goals and also
• Target market for establishing the matrix and
• Track the results against them
• It also helps the entrepreneur to manage the responsibilities and • The critical resources

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Take the example of Zo rooms. Zo Rooms is a low-budget hotel chain that enables users to book rooms
through a mobile-app. They had a proper written business plan wherein they described their mission to give
their guests friendly, affordable, secure and reliable rooms. Further, they divided a city into zones and
localities for the purpose of selecting hotels for tie up. They did the whole market analysis where they found
India is short of 1, 50,000 budget hotel rooms, and it’s an over $20 billion opportunity and growing at a high
double digit rate. Proper description of the plan helped them create a good business model in the market.

Business Plan is a future map of short term as well as long term goals. The business plan generally projects
3-5 years ahead and outlines the route a company intends to take to reach its yearly milestones, including
revenue projections. Taking the same example of Zo rooms forward in detail. Zo room’s business plan defines
the future path for them. The budget hotel industry is a $20 billion industry in India and there is scope for
more startups. By December 2015 the company plans to have 1000 plus hotels across 50 cities in India on its
platform which they defined in their plan. For them, Leveraging technology in the budget accommodation
space is the need of the hour. Looking into the future they identified their prospective competition. Besides
them, Oyo and Awesome Stays are among others have been trying to crack this segment. Now imagine you
having to raise funds for your venture. A written business plan will make it easier to approach angel investors
or other funding agencies. Remember, finance is the life blood of any venture and having a proper financial
plan is going to make your life easier.

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Let’s go back to the example of Zo rooms. Their business plan was a communication tool for the
entrepreneurs. With the help of it, they were able to raise rounds of funding from existing investors, like
Tiger Global Management and Orios Venture Partners.

There are several audience groups who are interested in the business plan. Let us list them.

Firstly, it is for the

1. Entrepreneur to articulate his idea as business design
2. Investors for equity funding
3. Banks for Loans
4. Key employees of the business
5. Potential partners or alliances
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• Plans are due diligence for an entrepreneur and useful at all stages of their companies' existence.
Anybody starting or expanding a venture where significant resources of money, energy or time, is
required and that is expected to return a profit, should definitely take the time to draft some kind
of plan. It helps you to develop a sound strategy to help your business grow and be successful
whether you are seeking finance or trying to figure out how to invest a surplus
• Businesses seeking funding from investors absolutely need a business plan as it helps the investors
gauge risks and forecast growth prospects. While applying for a loan, Business Plan helps the
financial institution to assess the ability of the business to pay the interest on time and repay the
debt
• For recruiting significant team members, business plans conveys the mission and future prospects
of the business
• When alliances are sought to reach new markets or to develop new products or to create common
facilities, business plans helps them to commit to such long term arrangements with information
on the history of the venture, its culture long term goals and the financial aspects. Therefore, it is a
tool to convince other stakeholders objectively

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Elements of a Business Plan
I remember the business plan or whatever plan that we built for the few days, was very focussed. Was very
focussed on solving one problem. When we had launched, we had launched only in the rentals category in
the real estate, right. Because we knew people like us were searching for rental properties so maybe we
could understand them better and build a product and service for them better, and it’s a very high
transaction category.

So I think when you approach a business plan specially very initially, you need to really focus on the key
areas, you need to be very, very focused, but across the 3 years of the company we have now launched the
resale category, we have launched land category, we have launched new project category and now we are
existing across categories in real estate. So I think that is where the difference has come in, that initially you
were very razor sharped focussed and focussed on building depth within a particular category. But now you
are focussing across the breadth.

It was very interesting to listen to the journey of housing.com and well it is now a very big and a famous
company. But what was interesting was at right from the start they had a very detailed business plan in mind
and of course they evolved it over time with changing situations. Now I think it’s going to be very important
for us to understand what are the various elements that go in to creating an effective business plan.

Let’s look at few of these elements of this business plan and see what it is going to portray. So, The
first one would be the entrepreneurial vision and goal

I think whenever anybody starts a business and we talk to a bunch of entrepreneurs and they come in like
what is one of the most critical things while building a business - you need to have a very clear business plan,
you need to have a very clear vision.

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The company description usually includes a short description of the industry. When describing the industry,
discuss the present outlook as well as future possibilities. You should also provide information on all the
various markets within the industry, including any new products or developments that will benefit or
adversely affect your business.

Also if your business is new. Then, give information regarding the origin of the business idea, the date of
formation of the company and its initial supporters. Explain the competitive advantages that you believe will
make your business a success such as your location, expert personnel, efficient operations, or ability to bring
value to your business if you have been in existence for a while a brief history and milestones need to be
included.

The industry market analysis will clearly indicate the efforts that have gone to make the plan.
This part should convince the reader that the product will have a substantial market in a growing industry
and can achieve sales in face of competition

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The purpose of the competitive analysis is to determine
• The strengths and weaknesses of the competitors within your market
• Strategies that will provide you with a distinct advantage
• The barriers that can be developed in order to prevent competition from entering your market and
• Any weaknesses that can be exploited within the product development cycle

To formulate an A+ management team that has both the business and technical skills set.
It is all about the people, who is who and who will do what in the new organization. Investors, invest more
in the team than the business model. It is vitally important that you demonstrate that the management team
has complementary skills/experiences.

• This portion should present all the strengths of the entrepreneur. Sometimes, it is good to include a
short summary bio-data as a paragraph and then include a detailed CV as an appendix
• They are certainly unlikely to find technical, managerial and networking qualities in a single
entrepreneur but a team how they complement the skill set is important

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 • It may be useful to provide a current and projected organization chart, clearly showing responsibility
and reporting lines
• Along with this you should also take care of your future skills requirements and hiring

Thus, the operations plan will highlight the logistics of the organization such as the various
• Responsibilities of the management team
• The tasks assigned to each individuals or division within the company and
• Capital and expense requirements related to the operations of the business

And another important element is the marketing plan.

Having demonstrated that the market exists, you must now go out and win those customers. This section
describes the actual marketing strategies that will be used to reach the potential market.

To further elaborate, their marketing plan will include

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 • Packaging the product or service in way that would appeal to these segments: landscaping apartment
balconies and terrace with ornamental, herbs, kitchen garden. Aesthetic value and minimum
maintenance
• Get the right communication media to attract potential customers:

You should also ponder upon the questions like:

• What a pricing method would you adopt? Why?
• How different is it from the competitors?

Every entrepreneur needs to have some financial plan. As of now, whether you have funding or not, but you
need to develop one good plan to seek it from various investors.

The financial section is one of the most looked at sections in the business plan. It contains projected balance
sheets and the profit and loss account. The amount of detail required in the financial projections will depend
upon the stage that the business is at. A breakeven analysis will reveal a lot about how the business is
structured and how much risk it entails. This analysis can be easily presented in a graphical format as an
exhibit. If the purpose of the business plan is to raise money, then it has to outline how much money is
needed, why it is needed and how it is proposed to be used. In the beginning you should also be bothered
about the unit metric wherein you should be sure that you are able to make a profit on single unit as well.

Forecasting the probable growth pattern and results of a business into the future is a difficult task. This is
particularly so for early stage companies with no track record on which to base future financial results The
key starting point is the sales forecast, which must be based upon projected market and demand rather than
capacity, sales force or service hours available.

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Any business idea will have risks, and the business plan will have much more credibility if those risks are
identified rather than ignored. You should identify the main risk to the business, and show their potential
impact on the financial projections.

Your plan may have detailed evidence to support and if you feel it adds significantly to your credibility then
put it in the appendices.
But including the detailed data in the plan itself will disrupts the story you are telling and makes the
document dull.
Therefore, these documents that persuades the reader or is a proof of what you are saying must be separated
from the business plan and given as appendices.
Clearly state in your plan of the appropriate appendix so that the reader can find it easily Everything
that can support the business plan like advertising materials,
• Market research studies
• Photos of the locations and planned equipment
• Articles from the magazines related to the business and/or product
• Letters of support from the future customers

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Format of a Business Plan
So we now understood the importance of a business plan and why an entrepreneur should put in some effort
in making an effective business plan while starting a business. Now that being said we have not yet talked
about the external audience that will be consuming the business plan. Most people put their business plan
into a word document or an excel or a presentation, and once it becomes very detailed it becomes
complicated for people to consume, and that is where it is going to be very important to put down a very
crisp and simple business plan so that external stake holders like investors, prudential employees can easily
follow the business plan. I would want my business plan to portray a great vision, professionalism, and
something more meaningful for the person who is reading it. But how do I exactly do it is the question that
comes to my mind. So now let’s look at the next segment to understand the various things that we have to
keep in mind while creating a crisp and effective business plan.

Keep the language simple, keep it straight forward and also have short sentences. I remember once I had
read a business plan which contained words like DINK and DISC what did that mean, well he was trying to
say “Double Income No Kids” and “Double Income Single Child”. Don’t assume that everybody knows these
acronyms so write the full form of these sentences as if the person does not know what you have written.

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The second one is use adequate tables and charts, can you imagine just writing word document pages after
pages break this monotony with some kind of tables, have some summary tables and also when you are
using these tables you could also use some graphs, or maybe bar diagrams or maybe pie charts.

I can give you some examples maybe if you are talking about sales over a period of time or maybe the cost
structure bar charts are good, maybe you are talking about the target customer segments and then maybe
it could be pie charts. If you are talking about your milestones and what is it that you want to achieve in the
future in a period of time, maybe a horizontal bar chart would be.

The next is about the font size and the spacing, there is no rule actually about the font size and the spacing
but can you imagine reading a story book by the font sizes too small or the spacing is nothing, similarly even
for an external person reading your business plan, you need to make it more readable, don’t cramp all your
material into less number of pages because sometimes you want to have less number of pages because we
said you don’t need to have more than 20 pages of your business plan so that doesn’t mean you have a small
font size to fix everything into that 20 pages.
• The font size of 12 is reasonable with
• Adequate spacing maybe one and half or maybe two and
• Avoid using too many font sizes. Maybe about 2 font sizes are ok, one for the heading and the rest
for other text

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Now another part, since you are telling a story your story has to be clear and convincing, please put your
story in different section so that you are concentrating about something in that section maybe you are taking
about only marketing in one section, maybe in another section you are only taking about your operational
plan but arrange these sections in such a way that gives a clear convincing and evocative story.

Use page breaks to separate the sections and also have tables on fresh page, don’t cramp everything
together that is the mantra for having a clean look about your business plan and finally proof read and give
some kind of finish to the look of your business plan, check for items that are going to be repeated sometimes
in the business plan when you are telling the story you may have to often keep repeating few things it is
alright to be repeated in one or two places but remember at least in one of the sections where it is going to
appear where it is important, it has to be elaborated there and in all other places you may just mention
about it, it is good to have bullet points because it’s an easy read but remember these bullet points must be
flushed out with little more information because just bullet points without any meaning to it is frustrating to
read. Use a spell-checker to make sure that you’ve no spelling errors in your business plan and finally read it
again and again to make sure that you have made no mistakes.
Summary – Components of a Business Plan

So in this session we understood the importance of an effective business plan and how it helps define the
vision and clarify strategy. We also saw the various key elements of a business plan, including

• Company description
• Industry market analysis
• The management team
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 • The operational plan
• The finance plan
• The marketing plan, and other things like appendices
• Contingencies
• Risks

We also saw that the business plan is not only important for you as an entrepreneur, but it is also critical to
convince external stake holders like investors of potential recruits. For example if you are going out to raise
funds your investors is definitely going to ask you for your business plan and it also sometimes very helpful
to convince potential recruits towards your vision and strategy.

We also saw that the length of an ideal business plan is anywhere between 15-20 pages, but of course it
depends on the individual business. If your business is operationally very intensive and complicated, we saw
examples where business plans run into 100 pages. So essentially the length of the business plans depends
on your audience and the nature of the business you are running.

We also saw the various internal and external data sources that can be used to create an effective business
plan. Then we saw how to create a well-structured and formatted business plan and where we looked at the
hygiene factor like the font size, the spacing, the use of tables and charts etc. in order to convey something
very crispy. This session was very helpful for me pushing me towards writing an effective business plan for
my venture, and I hope you enjoyed the session too.

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 Transcription
Creating an Effective B-Plan: Part 1

Building an Effective Business Plan

So far we have understood the importance of a business plan and the key element of a business plan then
we saw how to structure a well formulated and a crisp business plan. Now that we have a solid theoretical
understanding of business plan. I think it’s going to be very important and I'm sure you've been the same
way in terms of understanding the challenges of penning down your own business plan starting from scratch
I mean it is not like we can copy somebody else's business plan cut copy paste from somewhere because if
we do that we are going to put our business and ourselves in great trouble. So it’s going to be very important
for us to understand that how to pen a business plan from first-principles starting from scratch.

Writing a business plan is a good way to solidify your thinking. One of the most crucial success metric for an
entrepreneur is the financial metric. So, why not articulate the components of the business plan in the
financial model. As we do this, it will give us a peek into the logical thought process of an entrepreneur, and
will allow us to understand the way one needs to think about assumptions for the plan and prepare you for
execution. The process of putting together a Business Plan, will force you to carefully review all the risks and
rewards before you launch. By the time your Business Plan is complete, your objectives and strategies will
become specific and concrete. The finished business plan will convince others of your potential and guide
your team as you implement the plan. So, let us begin!!!

Consider an example where you are an entrepreneur who wants to start an online jewellery store. Let us say
you have already done adequate research on the feasibility of the idea and is ready to go ahead. Essentially,
you will now, list all the resources and you may require immediately for the next 6 months of operation or

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one year. Let’s call it Year Zero. As you are starting up, for the initial period you will be low on resources and
hence, you need to very wisely and innovatively use whatever you have.

So you would look at what are the critical components required to be set up to go live with your idea. For
instance, in the case of the online jewellery portal – one would typically need to build the platform for the
website. If you have this ability within yourself. Or you could hire a few key employees, make a fair estimation
of the time and efforts taken for the same, and accordingly arrive at the cost. This is where the goal setting
and timeline setting will come to use.

So, the original business plan that we had built for the business had us hitting like a 35 million dollar brand
rate at the end of 2015. As you guys might have an idea what we are finally doing is way beyond that. So
anything we thought we would do actually we have only been pleasantry surprised by what the business
could have done. So in my point of view I think when you are building out a plan on a excel sheet you are
always way more conservative than what consumers might really do for you as a business. You just have to
believe. So putting down like 300%-400% growth on excel sheet is a very, only a very optimistic person can
actually put that in place.

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Let us say you require a core team of about 5 members, 3 for technical support, 1 jewellery designer, and 1
for other support functions. Remember the cost of hiring your core team maybe high because it is essential
that you invest in the core team, who you may want to retain for a longer period to get your plan executed.
Who you may want to retain for a longer period to get your plan executed.

The next thing could be to figure out the distribution strategy for your online jewellery business – would it
be through your own
• Inventory model or
• Aggregated suppliers or • Marketplace model this will help you to strategize the requirement for
warehouse, courier partners or delivery boys, and also the working capital to start the business. You have
learned about these concepts in other sessions.

The next set of expenses will be your investment in capital expenditure in the form of
• Computers
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• Servers
• Any additional equipment
• Office furniture etc
Together with these capital expenditure you will also incur administrative or office expenses, but let me
not get into breaking it down, as you can do that for your business at a common sense level. You will also
start procuring some inventory to begin sales, thus adding up to your working capital.

I have been listing expenses, but what about your revenue? In terms of operation you will have no sales and
hence no revenue or cash inflow from operations. So the whole expense will be represented in capex and
overheads. Let us understand revenue projections just like we estimated costs. In the first year of starting-
up, set your customer target acquisition on a monthly basis, so that you are clear about the revenue you will
touch by the end of the year with the customer base.

In the detailed business plan, you may project annual figures and also add an estimated growth rate. You
may or may not achieve these figures, but at least you have set some expectations and goals and will work
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towards it, changing strategies to reach your goal. The proportion of the market that you can capture
involves understanding how the macro-market and industry trends are growing, and what the various
drivers of growth at the industry are. It could be driven by the function of how
• 3G connections will grow
• How mobile penetration will grow or even
• How internet connectivity will grow
• How the psychographic behaviour of consumers will change
You have already been through these in your previous sessions. In this session you are using them to make
your projections.

How to make some realistic assumptions? Let us assume that your market research shows there are
25,00,000 online shoppers, and about 5% of them shop high value products. This could be your total market.
What is the fair share of this market that you can capture? This can be projected by understanding the
dynamics of your competitive environment and their positioning, and also looking at global comparisons,
and what market share they could achieve over a given period of time.

Assuming that this is a new market, and that there are few players you may project a higher market share in
the initial years itself. But as it is a new opportunity identified, and there are no entry barriers you need to
keep in mind the duration of time for others to enter into the market and disrupt your projections. Let me
say that even the best player in the market captures 20% in the initial years and reaches 50% in 5 years. So,
you can conservatively assume 10% of the market share in the first year and increase it to 30% in year three.
This gives you the number of customers you can target.

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Next, what revenue can you generate will depend on your pricing and monetisation model. You need to
understand how your business model is positioned- Are you charging your consumers based on units
purchased or charging on the basis of subscription. Remember you learnt different forms of monetisation in
the session on Business model. But, for an online business like this usually the monetization is units sold.

On the pricing – this assumption will require you to first define the product mix, and also what is it that your
consumer will be willing to pay for this product mix. This you could achieve by benchmarking the pricing of
similar products in the market, and factoring the differentiation you are offering.

For instance, for a jewellery shop, who sells gold ear-rings – the pricing is a mix of the making charges and
the weight of gold, but if you go to a branded showroom, the pricing could vary based on the design you
choose. So factoring the market sensitivity to the pricing of your products will help you make this assumption.
In our case for instance, we have assumed a lower price point in the beginning, given that people may not
want to buy high value products online, and from a new entrant – but this behaviour may change over time,
hence increasing the average price point in the future.

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This session on revenue projections has been covered in very simple terms but it involves an understanding
of all macro and micro trends that could affect the assumptions that help you arrive at the revenue. This will
culminate into how you project revenue today and in the near future, based on the understanding of the
market, industry and product.

Summary: Creating an Effective B-Plan: Part 1

So in this session we understood how to make an effective business plan with the example of an online
jewellery store, we saw what a business plan looks like the various components it include and how it should
be structure. We also looked at the various factors that are involved in a business plan like who is your target
customer, pricing, revenue and market share and the various assumptions that were each of these. I hope
this helps you identify the various elements that are important to write an effective business plan for your
own venture. It was great seeing you for the session and I look forward to seeing you again!

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 Transcription
Creating an Effective B-Plan: Part 2
Marketing Strategy for an Effective Business Plan

Developing a solid marketing plan and budget is going to be critical for the success of any business plan. And
the mistake that many entrepreneurs make is limiting their marketing budget to one or two particular
channels like digital marketing, promotions and PR etc. The most effective business plans spread that
communications across various channels and of course it involves continuous monitoring and tracking of the
kind of returns that the market is getting so one of the critical questions and one of the biggest challenges
in marketing is to understand what are the various channels and how you should allocate your marketing
budget across these channels to effectively communicate your brand your product or service to the
consumers and maximize your returns .so let us spend some time understanding the various channels and
how one should worry about allocating their marketing spend across various channels available.

Now, let us discuss about marketing costs that depend on your marketing plan. In early days, you have
limited funds, and hence the idea is to use cheaper channels that get you maximum exposure. It’s also
about giving customers a hook to come to your platform. But while working on your Business Plan, it is
critical to understand what kind of resources would be required for it.
With marketing, you must assess the risk aspect – and by that I mean, how much should you invest to get,
how many number of people, and what’s the worst case in this calculation.

So, I would say first think of what you can do without spending the marketing dollars because it’s very easy
to lose a lot of money in marketing. In fact, I’ll give you an advice that I gave a company called Eventifire
where I met the CEO at a very early stage. So, I would say first think of what you can do without spending
the marketing dollars because it’s very easy to lose a lot of money in marketing.

In fact, I’ll give you an advice that I gave a company called Eventifire where I met the CEO at a very early
stage. “Okay, you have the organizer’s email address, why don’t you write a personal email to them, saying
“can you try my product and give feedback when you are doing this event?””. Right, and this doesn’t cost
any money. So that would be my first advices. Assume that you have zero marketing dollars. There are free
PR sites where you could actually submit your press releases and actually get attraction. So, first exhaust all
of the free options that you have before you spend money on marketing.

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One way to do go about this is Performance based marketing, like digital marketing – which I think is easily
measurable, and you reach out to a targeted market.
You have to keep in mind some of these crucial questions:
• How will you ensure the right kind of performance marketing?
• How many people do you need to have on the platform?
• How many visitors will actually visit and leave their contact details? This would form the base of
your database?
• How many people will finally end up buying from you?

So, this is the understanding of the funnel which in turn is a function of the segmentation of the market and
leads you to arrive at the targeting strategy using the right channel. Understanding the targeting of the
consumer through the right channel is critical for figuring out marketing costs.
Another important element is the positioning of the product because the market that you are entering into
is crowded with many providers. You need to figure out your position and that is what will define the
proportion of people you are reaching out to, through various channels, and which of those will actually
convert. If you have a significant differentiation, then more people will come on your platform to buy.

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So, you have to understand where competitors are positioning their products and through which channels
they are marketing the same. In case you are targeting those same channels of your competitors and you
are having the same positioning, then the chances are that your marketing spend would be much higher.

And if you have a differentiated product and you know your proprietary channel, then the conversation rate
and the cost would be much lower.
Both these factors depend a lot on how targeted your marketing is, and how well you understand your
market. And this actually relates back to the marketing module that you covered wherein you learned about
positioning your product, building a brand and sending the right message from the right channel for your
venture.

So in our case, we have assumed that we get a 5% conversion rate, and for the initial years we have assumed
that we spend all of our money through targeted digital channels. Another thing is - fundamentally digital
marketing channels have a disadvantage, they are not immensely scalable as the percentage of leads from
digital marketing will fall year by year as it can be seen in our example. We have a certain finite number of

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people on digital marketing channels and it’s difficult to reach out to a lot of people and keep their interest
associated for a long period of time.

Therefore, traditional marketing channels come in handy which includes offline events, TV or radio ads etc.
You have to figure out the pros and cons of all these traditional marketing channels which we had discussed
in our earlier marketing module.

Through digital marketing, you can reach out to a million or two million people.
But through traditional channels, you can reach out to hundreds of millions of people. But that decision and
need is entirely dependent on your product, business model and the vision you have for the venture.

See as one of the points I talked about the market creation strategies are how to get non-customers into
customers. So while Bharat matrimony.com is an online matchmaking service, I am talking about 2007 or
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2008, we decided to kind of get into offline. Because a lot of customers in India particularly the parents were
not comfortable with the, using technology to look for life partner. Other people who want to have the touch
and feel.

They want to come and visit, see and talk to the people to understand the service. The reason for us to get
into the offline, basically to reach out to the new set of customers who are not online and at the same time
there are customer who prefer the touch and feel. They want to kind of come feel and you know talk to the
executives and also gives us visibilities for us in the you know kind of market across India. Apart from the
other benefits which we talked about. It's important you need to look at whether the business requires
offline strategy and whether it’s a right model

Look at the excel model. In initial years, digital marketing will give you the customers you need. So, in the
first year your online jewellery store is not spending on offline marketing and is relying on digital marketing.
But as and when it grows, you need a fresh set of customers to come online and buy. This would have to be
driven by offline spends and spends via other channels. Finally, you have to monetise these channels which
will give you the growth and the number of customers.
You would notice, that there is an assumption that a set of customers are coming organically – and this
number grows more and more over the years. This would typically be true for an established business where
the brand awareness has been created, and the word of mouth and repeat buying has kicked in.
It is important to note that you will not be able to directly attribute how many people came from which
channel but overall growth is something you would be able to measure. You should clearly analyse the
number of people that came organically and the number that came through digital marketing channels, and
how many actually come through the efforts of your branding or offline spends. You have to take advantage
of scale which means that whatever you are do in marketing is providing you the leverage that your brand
needs. Make sure that every customer of yours is satisfied - the more satisfied your customers are, the better

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chances that word of mouth would help promote your brand. I think this should also reflect in the
assumptions that we make.

For example: look at the cost per lead, there has been an assumption that there is a reduction in cost per
customer acquired in later years from Rs. 473 in year 2 to Rs. 400 in the fifth year. This reduction happens
because you are reaching out to a scale where your word of mouth is driving more and more traffic. So, you
don’t have to spend too much inorganically to get customers. And also your percentage lead from organic
traffic is also increasing which reflects that your product is becoming better.

Summary –Creating an Effective B-Plan: Part 2

So in this session we saw how to plan for your marketing budget in order to create an effective business
plan. We saw that a good mixture of digital and offline marketing will help you stabilize your marketing

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 Transcription
Creating an Effective B-Plan: Part 3
Building Business Plan Projections
efforts and eventually overtime both these marketing efforts would lead to a great word of mouth which
will then reduce your marketing expense.
We saw that there are multiple channels available for marketing a product or service and an early stage
entrepreneur needs to be very careful in terms of which channel he uses and one needs to continuously
track and monitor the ROI of each channel in order decided his spends. So this should help me understand
how to smartly and creatively allocate my marketing resources across channels in order to get the
expected results it was great seeing you for the session and I look forward to seeing you again soon.
So far we have spent time understanding various things like the traffic on our website costs per lead various
other marketing cost revenues etc. but while building an effective business plan there are so many other
costs involved outside marketing cost, simple things like your electricity bills big cost heads like employee
salaries etc. are very critical to understand. So I think it will be important for us to understand the various
other elements of a business plan and new let us listen to our professors who can help us fill in the final
details to create a clean and complete business plan.

Cost of goods sold is basically the cost you end up paying for the product you are selling to the consumer. So
it is important to first do your research and understand what could be those components which could be
directly related to the product you want to sell.If you are selling jewellery online, typically jewellery cost
would involve:Labour of the skilled goldsmith for making that ornament, which could either be a per day
charge or a per ornament charge, depending on the arrangement you have,Then it would involve cost of
Raw material being processed, which could be basis weight or basis count, The next probable component

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would be the designer’s fee, which again could be per day, per consignment, per piece or whatever the
arrangement is.

Thus, in our excel mode, we are assuming cost of the goods with labour charges, cost of raw material and
cost of designer. There can be many other components depending upon the product you are looking to sell,
and the way you are putting it together. Just to make it simple, in our specific excel model, we have assumed
the labour and designer costs basis number of orders and cost of raw material as a percentage of order value.

Shipping, Logistic cost. There are certain cash on delivery orders and also pre-paid delivery orders for which
some assumptions have been taken in our example model. We have taken an assumption that in our first
year, 60% of the customers would pay cash on delivery while 40% would prepay while placing an order. Then
we have assumed that this would become a 50-50 proportion by the fifth year. This reflects how your
business model will evolve.

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Most online businesses in the current day and age partner with courier companies and dispatch their
products. So what you essentially do is you setup a warehouse, you have to setup a packing facility where
your products are packed up and then sent out through the courier agency or courier partners. When this
venture starts off, it may be that individual customers want more cash on delivery options .It is your business
model that defines over the long run how you can convert people from cash on delivery to paying upfront.
Consumers often take time to adapt to paying upfront by credit card because they are afraid of using credit
card on the internet, especially on new websites. Thus, cash on delivery becomes an important element of
most business models. Understanding these kind of details will give you a better sense of cost of delivery,
and other associated costs also because all of this has an association with the cost that comes out at a per
unit level.
Secondly, in this case there are certain assumptions that have been taken regarding the shipping and
packaging costs per order which are Rs. 100 in the first year, reducing to 80 by the fifth year. These
assumptions are not imaginary - You have to benchmark such aspects against industry benchmarks and by
talking to vendors in the market. As an entrepreneur, you need to think about your own business model and
what drives certain elements of that. You should have a good understanding of the kinds of benchmarks that
exist in the market. These cost benchmarks will give you the line items of logistics costs or shipping and
packaging costs. In our example we have taken the associated costs of packaging, Cash on Delivery and
payment gateway charges, based on the strategy we discussed just before this. Typically all of these costs
are per transaction and depend on the value of the transaction.

Now, let’s look at the manpower cost. Basically, manpower cost is the number of people multiplied by the
average salary level. It requires you to understand the overall structure of your organization.

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• Firstly, In your online jewellery business, there will be vendors who will provide you with the standardized
sets of diamond cuts or gold cuts etc
• Secondly, there will be a set of people who would be working with you as photographers who will take
these photos and upload them in a particular position
• Thirdly, you will have an engineering team who will create a platform where people can come and search
for the products
• Fourthly, you will have a sales and marketing team who will actually go out and sell these products. So
on and so forth

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There will be 3 to 6 divisions that you will have for each of these divisions, you will have to get a good
sense of how many people you would like to hire. Each division is slightly different. You may get a technical
person slightly more expensive as compared to, say, a sales person.
You can see that in the first year the number of headcounts is 5 only comprising of 3 from the technology
division, a finance support guy apart from the founder. Average salary will be higher in the initial year as
the team members are a part of the core team and thus are paid 2 million average that leads to the
manpower cost of 10 million in our model. Although, we have built manpower cost here in a very simple
way, it actually required you to think deeply about organizational structure, team strength, and growth of
the team, as well as the efficiency a person brings in etc.

Other Expenses – Till now, we have looked at the major cost heads for our online jewellery business, that
are directly relatable to the product and the business. Besides those cost heads, there are certain other
expenses or overheads that one would incur to carry on business.
These would include typically

• The rent for office premises

• The warehouses
• Related electricity costs
• Other office expenses
• Travelling
• Communication expenses

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The office rent expenses, for instance, will depend upon the earlier estimates for the team or manpower we
plan so that the office space can be looked at accordingly. The warehouse expenses, as another example,
would depend upon the number of orders and the inventory we store to estimate the warehouse space and
how and when we need to scale these.
As an entrepreneur you would want to be frugal about these expenses in the beginning stages of your
business. You may not want to have these heavy fixed expenses, as your resources are lower. For this reason,
many start-ups take up shared spaces, and keep these variables lower such that it is easy to scale up and
scale down without committing much of your capital upfront.

Capex and working capital expenses – Apart from the above, the other two components which you should
consider while planning would be the amount of cash flow required for working capital requirements, and
also the fixed assets that you may need to invest in, and the quantum of that. These components will add to
your funds requirement – and you may want to plan these well in advance as building fixed assets may have
a lead time, and can be a bottleneck to your business if not planned in advance.
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Summary - Creating an Effective B-Plan: Part 3

So in this session we understood the various other elements that go into creating a complete business plan
at least the complete basic structure.
We looked at various other costs that are involved like the

• Cost of goods sold

• Shipping and
• Logistics costs if that’s applicable to you, then the biggest expense probably would be
• The man power cost and the man power cost is calculated as the no. of people total average
salary

We also saw that while evaluating the man power cost you need to carefully consider head count and the
organization structure in order to get to right number.
We saw that there are various other minor costs which go into other expenses like

• Travel and Entertainment

• Rent and electricity
• Office equipment
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Post that we also discussed working capital and capital expenditure involved for your venture which also
goes into the business plan. So, with this we complete the skeleton of our business plan with the various
components involved and of course as you keep moving forward and your business evolved we keep adding
and deleting stuff to the basic skeleton. It was great meeting you for the session and I look forward to seeing
you again soon
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