Business Plan

Master in Information Systems

Bachelor in International Business Management

@JPRP 2020
 Business opportunity

 Business opportunity is a great way to begin.

 But before he begins to pursue it, he needs to further evaluate what he knows about the
opportunity—and what he doesn’t.
 Identifying a problem to solve
 Experimenting to test your hypotheses
 Evaluating the opportunity
 Will it deliver a significant profit?
 What’s the competition?
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 Business Plans: Introduction

 The corporate world accepts business plans as essential elements of any enterprise,
especially start-ups. However, such plans often prove irrelevant, because new ventures
must deal with uncertainties that are not quantifiable or predictable. This is especially true
for nonprofit start-ups.

 Despite entrepreneurs’ concerns, the corporate world sees business plans as essential for
new enterprises.
 Management professionals, accountants and consultants as well as institutions, such as
business schools or banks, insist that business plans be part of the formal
documentation comprising a small venture’s strategic planning process, regardless of
their effectiveness.
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 Business Plans: Introduction

 A business plan includes:

 an executive summary,
 an introduction to the business,
 a review of the products or services being offered,
 market size,
 cost and sales forecasts, and
 descriptions of operations, marketing and sales plans.

 Other sections address staffing and organizational structures, financial forecasts, risk
assessment, projected benefits, and more.
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 Are Business Plans Helpful?

 Among entrepreneurs who started businesses globally, almost 70% never even wrote a
business plan.
 The numbers of people who started companies without using a business plan may be
even higher.
 Many new entrepreneurs avoid saying publicly that they never formulated a business
plan for fear of offending a potential lender or investor.

 The five-year financial projections in some business plans are highly inaccurate.
 Deficiencies in forecasting – whether in consumer research, sales or stock market
predictions – are well-documented.
 Many people rely too much on business plans, even when they are confronted with
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uncertainty.
 In the face of the unknown, they often fail to recognize events that could derail their
careful plans, because these events were not part of their original forecast.

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 Building Your Business Model and Strategy

 If your initial findings and experiments suggest a business opportunity, you’ll want to start
to solidify your business model and strategy.

 Ask yourself the following questions:

 1. How will our new business create value for customers?
 2. How will it make a profit for us and our investors?
 3. How will the business differentiate itself from competitors?
 4. How will the business defend its assets and position from competitors?
 5. How will the business be discovered?
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 You should have concise answers for anyone who asks these questions.

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 Considering your business model

 Two Harvard Business School professors, Richard Hamermesh and Paul Marshall, have refined
the definition of a business model as business decisions and trade-offs that fall into four groups:
 Revenue sources:
• This money comes from sales, service fees, advertising, and so forth.

 Cost drivers:
• Examples are labor, goods purchased for resale, and energy.

 Investment size:
• Every business needs a measurable level of investment to get off the ground and, in the
case of working capital, to keep it operating.
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 Critical success factors:

• Depending on the business, a success factor might be the ability to roll out new products
on a sustained basis, success in reaching some critical mass of business within a certain
time, and so on.
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 Defining your strategy

 A business model will help you—and anyone you approach for funding—to understand
what your business will do and how all its key parts fi t together.

 But a well-conceived and promising business model is only half the equation for success,
because it doesn’t take into account the market competition.

 Dealing with competition is the job of strategy.

 Strategy is a plan to differentiate the enterprise and give it a competitive advantage

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 Defining your strategy

 Consider these examples:

 Southwest Airlines became the most profitable air carrier in North America, but not by
copying its rivals. It differentiated itself with low fares, frequent departures, point-to-
point flights, and customer-pleasing service.

 Toyota’s strategy in developing the hybrid engine Prius was to create a competitive
advantage within an important segment of auto buyers: people who want a vehicle that
is either environmentally benign, cheap to operate, or the latest thing in auto
engineering. The company also hoped that the learning associated with the Prius would
give the company the lead in a technology with huge future potential.

 Apple wasn’t the first company to build a digital music player and bring it to market. But
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it created a new business model that combined its capabilities in hardware, software,
and service to create a new kind of ecosystem for customers to purchase digital music
and seamlessly listen to it on their devices. iTunes made the iPod a success where the
Rio and Cabo failed.

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 Writing Your Business Plan

 A business plan is a document that explains a business opportunity, identifies the market
to be served, and provides details about how the entrepreneurial organization plans to
pursue it.

 To be effective, a good plan also describes the unique qualifications that you and your
management team bring to the effort.

 It explains the resources you’ll need and forecasts financial results over a reasonable time
horizon.
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 The benefits of a business plan

 Any business that seeks outside funding from banks, angel investors, venture capitalists—even relatives—
must have a solid business plan.
 Without it, creditors and investors won’t take you seriously.

 But seeking funding is not the only reason to develop a solid plan. There are several other important ones:
 A deep reality check and blueprint:
• The act of writing a plan will force you and your team to think through all the key elements of your
business.
• Even as your business evolves through experimentation, you need to consider and capture your
assumptions about value proposition, competitive differentiation, staffing, partnerships, finances, and
so forth.
 Advice:
• Exposing the details of your business idea to trusted and experienced outsiders who review your
initial plan will help you identify missed opportunities, unsupportable assumptions, overly optimistic
projections, and other weaknesses.
• By finding and fixing these problems on paper, you will improve your prospects with funders and
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reduce the chance of future operational failure.

 Financial projections that can be used as an initial budget:
• Actual results that fall short of planned results will prompt you to investigate and take corrective
action.

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 Business Plan Key elements
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 Business Plan Key elements: The opportunity

 There is no point in starting or expanding a business unless you have identified a lucrative
opportunity. Use the opportunity section of the business plan to describe this prospect.

 First, outline the problem, its scope, and the market trends that may affect how your
market experiences this problem in the years ahead, and then introduce the solution you
are proposing.

 You need to help readers see and appreciate the business opportunity you have identified.

 So describe the opportunity in clear and compelling terms.

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 Business Plan Key elements: Marketing plan

 Investors know that marketing is the activity most associated with success or failure.

 All ventures need an attractive product or service, but a company will fail if its potential customers never hear of it.
 A sound and realistic marketing plan is the best assurance that your company will have a solid connection with its
customers.

 Be clear about all aspects of marketing, including the following:

 Who your customers or your primary market is—the type of customer you have to reach to capture your full
market potential
 Market size, namely, the number of potential customers and your projected potential sales revenues
 The requirements of various customer segments—for example, the importance of purchase convenience, rapid
delivery, product customization, and so on
 Ways to effectively access each segment through, for example, distributors, e-commerce, and a captive sales
force
 Appropriate sales and promotion approaches—social media campaigns, a creative content marketing strategy, a
freemium model, direct email
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 An analysis of how your customer makes purchase decisions

 Customer price sensitivity
 Acquisition cost per customer, and the cost of retaining customers
 The strengths and weaknesses of competitors and how they are likely to react when the company enters the
market

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 Business Plan Key elements: Operating plan

 Whether you’re in the business of manufacturing or distributing physical products or

running a website, an app, or a platform business, you face a host of operational issues.

 What supplier relationships do you have or envision?

 How much inventory will be required?
 Which day-to-day operating tasks will be handled internally, and which will be
outsourced?

 An operating plan considers the many details of converting inputs to outputs that
customers value.
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 Business Plan Key elements: Financial plan

 If a company is already operating, it will have (or should have) a set of financial statements:
 a balance sheet,
 an income statement, and
 a cash-flow statement.

 In a nutshell, the balance sheet describes what the company owns—its assets—and how those
assets have been financed (through liabilities and the funds of the current owners) as of a
particular date.

 The income statement reveals the company’s revenues, what it spent to gain those revenues,
and the interest and taxes it paid over a specified period.
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 Finally, the cash-flow statement tells readers the sources and uses of cash during the same
period.

 Together, these three financial statements reveal much to the trained eye of potential investors.
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 Business Plan Key elements: Financial plan

 Naturally, sales projections and other items in these pro forma statements are based on
assumptions.
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 References

 “Beyond the Business Plan”, Simon Bridge and Cecilia Hegarty, Palgrave Macmillan, 2013
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