Entrepreneurship and Small

Business Management
2/e
by Mariotti and Glackin

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Chapter 4:
THE BUSINESS PLAN:
ROAD MAP TO SUCCESS

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 Learning Objectives
 Know what a feasibility analysis is and when to
create one.
 Create a Business Model Canvas.
 Know what a business plan is and how to
describe it.
 Explain the various purposes for a business plan
and the audience for it.
 Understand the components of a business plan.
 Be able to demonstrate proper development and
formatting of a business plan.
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What Is a Feasibility Analysis?
 A study to assist in making the
“go/no go” decision.
 Used to test a business concept in
three areas:
 Product and/or service feasibility.
 Market and industry feasibility.
 Financial feasibility.

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 Analyzing Product
and/or Service Feasibility
 Can the product or service be
produced and delivered at a profit, in
an ongoing manner?
 Create a prototype.

 Is there sufficient customer demand

for the product or service?

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 Analyzing Market
and Industry Feasibility
 How attractive is the opportunity in
the proposed industry?

 Do any strategic, defensible niches

exist in the proposed market?

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Porter’s Five Forces Analysis

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Existing Competitive Rivalry
 Many firms of similar size
 Slow growth
 Lack of differentiation
 High fixed costs
 Perishable products
 Need for additional capacity
 High exit barriers
 Diverse rivals
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 Sources of Entry Barriers
 Capital requirements
 Cost advantages
 Economies of scale
 Access to distribution channels
 Product differentiation
 Government policy

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 Threats of Substitutes
 Convenience
 Price competitiveness
 Supply availability
 Switching costs
 Public policies

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 Supplier Power
 A few companies dominate
 Differentiated products
 High switching costs
 Substitutes are not readily available
 Could move into the business
themselves
 Industry is not important to the
supplier
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 Buyer Power
 Concentrated geographic area
 Big purchasers
 Undifferentiated or standard products
 Small part of cost of goods
 Profits are low
 Quality is not important
 Products do not save money for the
buyer

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Analyzing Financial Feasibility
 How much start-up capital is required?
 How much revenue is expected (based
on anticipated pricing and volume)?
 What are the expected costs?

Projected revenues, less projected costs, equals

potential profit. Evaluate the return on the capital
invested to make a “go/no go” decision.

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 A Business Model Canvas
 Business model–plan to generate
revenue and make a profit from
operations.

 Business Model Canvas – a visual

representation of the core components.

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 Creating a Canvas
 Customer Segments (CS)
 Value Proposition (VP)
 Channels (CN)
 Customer Relationships (CR)
 Revenue Steams (R$)
 Key Resources (KR)
 Key Activities (KA)
 Key Partnerships (KP)
 Cost Structure (C$)
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Business Model Canvas

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Business Model Canvas
for University Parent

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 What Is a Business Plan?
 Document that thoroughly explains a business
idea and how it will be carried out.
 Story of what the business is and will be.

 All costs and a marketing plan.

 Description of financing.

 Estimate of projected earnings.

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Why Create a Business Plan?
 Saves time and money.
 Key to raising capital.
 Serves as an operations guide.

Helps you organize your thoughts before starting.

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Business Plan Components
 Cover page  Management and
 Table of contents operations
 Executive summary  Financial analysis
 Mission, vision, and and projections
culture  Funding request
 Company description  Exit strategy
 Opportunity analysis  Appendices
 Marketing strategy
and plan

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Cover Page and Table of Contents
Cover Page Table of Contents
 Name of the business  Include enough detail to
easily find a section.
 Name of the principals
 Avoid excessive detail
 Date
which uses too many
 Contact information pages.

 Confidentiality statement

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 Executive Summary
Should Be:
 Clear—identify concept and purpose.
 Concise—one to two pages long.
 Comprehensive—answer basic who,
what, when, where, and how questions.
 Compelling—generate enthusiasm.
 Written last.

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 Mission, Vision, and Culture
 Mission—concise communication of strategy
with a business definition and competitive
advantage; expressed in a statement.
 Vision—broad “picture” of what you want
the organization to become.
 Culture—beliefs, values, and behavioral
norms of the organization which will form
the business “environment”.

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 Company Description
 If company is already established…
 Summary of company’s founding.
 Overview of track record: business progress
and financial success.
 If a start-up venture…
 Brief background story.
 What has been done so far, and why.
 Legal form of the business.

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 Opportunity Analysis
 Industry analysis—definition, size, and
growth/decline of the industry.
 Environmental analysis—how community,
region, nation, world relates to the business.
 Proof of market—evidence of opportunity
in terms of dollars and units.

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 Opportunity Analysis
(continued)
 Target market segments—groups defined
by common factors such as demographics,
psychographics, age, and geography.
 Competitive analysis—comparison of the
business to direct and indirect competitors.

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Marketing Strategy and Plan
 Marketing mix (the “Four Ps”).
 Products/Services
 Pricing
 Promotion
 Place
 Marketing plan—statement of
marketing goals and the strategies to
achieve them.

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Management and Operations
 Management team and employees.
 Organizational chart.
 Research and development.
 Physical location(s) of facilities with
emphasis on logistics and workforce.
 Production processes.
 Inventory control systems.
 Quality assurance methods.
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Financial Analysis and Projections
 Sources and uses of capital.
 Cash flow projections.
 Cash flow statement shows cash receipts
less cash disbursements over a time period.

 Balance sheet projections.

Assets = Liabilities + Owner’s Equity

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Cash Flow Calculations

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Financial Analysis and Projections
(continued)
 Income statements for three years.
 Also called profit and loss statements (P&L).
 Summarize income and expense activity.
 Breakeven analysis.
Fixed Cost ($) = Breakeven Units
Gross Profit per Unit ($)
 Ratio analysis.
 Risks and assumptions.
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Funding Request & Exit Strategy
 Amount of funds needed.
 Type of financing, including terms.
 Proposed exit scenarios, such as:
 Buyout plan.
 Initial public offering (IPO).
 Sold when benchmarks or date reached.
 Succession plan.
 Implementation schedule.
 Milestones
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 Appendices
 Management resumes.
 Specifications/photos/diagrams of
products and packaging.
 Advertising and promotional samples.
 Detailed financial projections.
 Other supportive materials.

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 Business Plan Suggestions
 Write for your audience.
 Show that you have “skin in the game.”
 Be clear and concise.
 Use current industry data and reports.
 Select a “voice” and stick with it.
 Use a consistent, easy-to-read format.
 Number and label items throughout the plan.
 Present the plan professionally.

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Presenting the Business Plan
 Presentations may be formal or informal.
 Presentation time may be limited to
between 5 and 20 minutes.
 Prepare an “elevator pitch” (15-30 sec.)
 Multimedia formats work well in formal
situations.
 Business plan competitions may provide
cash prizes and access to capital.

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Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall 4-36