The Power of Assumptions

2 Assumptions are the nervous system of a plan Boston University Slideshow Title Goes Here A change in one part of the plan will affect the other parts of the plan ALL of your plans will be based on assumptions: • Business • Marketing • Operations • Sales • Finance The goal is to make those assumptions explicit We learned early on about the Business Model Canvas. What was the first step to filling this in? The Business Model Canvas Boston University Slideshow Title Goes Here • xxx • xxx Name: • xxx • xxx Guess Guess • xxx Guess Guess • Guess Guess • xxx xxx Guess • xxx Date: Guess • xxx Guess From the BMC, we have to create plans Boston University Slideshow Title Goes Here  Start with assumptions and validate them with customer interviews  The BMC is a foundation with which we create other business documents      Marketing Financials Milestones Strategy Etc. But let’s back up Boston University Slideshow Title Goes Here  WHY don’t people want to state their assumptions? 6 So why should we? Assumptions can play three roles in a plan Boston University Slideshow Title Goes Here  Transformational  Forensic  Instill confidence 7 Assumptions transform an opportunity into an investment Boston University Slideshow Title Goes Here Assumptions Opportunities are open-ended Investments have a quantified risk & reward 8 Assumptions have a forensic value Boston University Slideshow Title Goes Here What happened here??!! What where these people thinking??!! Looks like they’re going in all directions, AT ONCE! Assumptions help you avoid this Assumptions instill confidence in an entrepreneur Boston University Slideshow Title Goes Here Transform your conversations with investors, customers, vendor, employees From this To this 1 0 Gather the best data possible, but fill in all gaps, even with a best guess… Boston University Slideshow Title Goes Here There are three levels of assumption data Primary: data extracted directly from the industry (market) under evaluation Secondary: data extracted from public published documentation Best guess: an best effort to fill in that which was unable to be found from the above sources …and then continue to refine the assumptions 1 1 Methods for developing assumptions are stylistic Boston University Slideshow Title Goes Here  Arrange them however one likes  Consider the:  Nature of the business and its structure  Audience  Nature of decisions that will result from them  There’s no one way to gather or structure or present assumptions  And each business’s assumptions can be quite different from another’s And there are many ways to approach and structure assumptions I. Components of a (financial) plan I. II. The Idea REVENUE COST Plan Budget FINANCING Implementation Revenue, cost, etc. Work backward from an event I. START HERE Such as a sale III. By revenue stream # sales meetings # salesmen Cost per meeting Time between meetings First product sale Components of a financial plan Boston University Slideshow Title Goes Here START HERE REVENUE • Objective • Vision, strategic intent • Can you sell it? • Value proposition • Can you build it? COST • Business model • Customer(s) • Addressable market • Revenue forecast • Vendors • Expense forecast (COGS, Operating) • Break even ASSUMPTIONS ASSUMPTIONS FINANCING ASSUMPTIONS Cash table • Milestones • Amount required • Use of funds • Type of funds • Long term plan or exit • Capitalization table ASSUMPTIONS Competition Market forces Product development Supply chain Operations Marketing Contracts Intellectual property * I included Financial statements in other stuff to make a point. What really matters is CASH Financial statements* I. Components of a Financial Plan Start here - assumptions Boston University Slideshow Title Goes Here  Objective: ALWAYS start with YOUR objective  You may NOT decouple your life from your project  From DAY 1  Start noting your assumptions about the idea, your involvement  Your mind is creating hundreds of assumptions as to how you’ll do this. Write them down I. Components of a financial plan Revenueassumptions Boston University Slideshow Title Goes Here  Price  Margins  Sales cycle  Pipeline 1 6 I. Components of a Financial Plan Costs - assumptions Boston University Slideshow Title Goes Here     Cost of Goods Sold  Raw materials  Labor Cost to make a sale The usual suspects  Rent  Utilities  Salaries  Travel  Services: accounting, legal, insurance And the list goes on and on 1 7 II. Work backward from an event, such as the first sale Boston University Slideshow Title Goes Here         When will it happen Who will write the check Who will make the decision How many calls will it take How many meetings will it take Are there any distributors What are the terms of the sale What are all the costs that go into making that sale happen  Sales  Materials 1 8 III. By revenue stream Boston University Slideshow Title Goes Here  Direct sales  Distributed  Products  Services  Licensed 1 9 Assumptions make your plan rigorous and defensible Boston University Slideshow Title Goes Here Assumptions:  Are the nervous system of a plan  One change here will effect the plan there  Assumptions allow you to test the sensitivity of your plan  Confirm you what you know and don’t know  Convey the risk to other parties  Challenge you to write a better plan