Subject: Business Plan and Models

Module Number: 1

Module: Introduction to Business Plans

Dr. Anant Lakshendra

7417736636
8791273172
anant.garg.dr@gmail.com
Business Plan and Models

Syllabus

UNIT I :
Introduction to Business plans

Introduction to Business plans, components, sample business plans, purpose of business plan, Writing a business

plan, Mentors & advisors to support planning, Industry analysis, the market, customer, and the value chain.

Concept of adding value.

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AIM: 1. To make the students capable of writing the business plan,

2. To enable the students using the knowledge of Industry Analysis.
3. To enable the students explain the operation plans.
4. To develop the student's understanding regarding Revenue Models and Pricing Strategies
5. To enable the students Analysing the best Business Model for the business
6. To develop the capability among students to Compare between different business models.
7. To enable the students solving the problems of Business Plan writing and Starting up a
business.
8. To enable the students solving the problems of Business Plan writing and Starting up a
business.
9. To enable the students plan according to the scope of business: Local, Regional, national or
International.
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Objectives:

1. To make the students capable of writing the business plan,

2. To enable the students using the knowledge of Industry Analysis.

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Table of Content:
Unit I Introduction to Business Plans
1. Introduction to Business Plans,
2. Components

1. Sample Business Plans,

2. Purpose of Business Plan
1. Writing A Business Plan,
2. Mentors & Advisors to Support Planning

Industry Analysis
1. The Market,
2. Customer,
3. The Value Chain

Concept of adding value

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Introduction to Business Plan

Definition: 
A written document describing the nature of the business, the sales and marketing strategy, and
the financial background, and containing a projected profit and loss statement.

A business plan is also a road map that provides directions so a business can plan its future and
helps it avoid bumps in the road. The time you spend making your business plan thorough and
accurate, and keeping it up-to-date, is an investment that pays big dividends in the long term.
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Business Plan: Components

Generally, a business plan has the following components:

1. Title Page and Contents 2. Executive Summary

3. Description of the Business 4.. Description of the Product or Service 

5. Market Analysis 6. Competitive Analysis

7. Operations and Management 8. Financial Components of Your Business Plan

9. Supporting Documents
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1. Title Page and Contents

A business plan should be presented in a binder with a cover listing

i. the name of the business, ii. the name(s) of the principal(s),

iii. address, iv. phone number,

v. e-mail and website addresses, and vi. the date and logo (if it’s there)

The readers want a plan that looks professional, is easy to read and is well-put-together. Include the
same information on the title page.
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2. Executive Summary

The executive summary, or statement of purpose, succinctly encapsulates your reason for writing the
business plan. It tells the reader what you want and why, right up front.

Are you looking for a $10,000 loan to remodel and refurbish your factory?

A loan of $25,000 to expand your product line or buy new equipment?

How will you repay your loan, and over what term?

Would you like to find a partner to whom you'd sell 25 percent of the business?

What's in it for him or her?

The questions that pertain to your situation should be addressed here clearly and succinctly.
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The summary or statement should be no more than half a page in length

It should touch on the following key elements:

i. Business concept describes the business, its product, the market it serves and the business' competitive
advantage.

ii. Financial features include financial highlights, such as sales and profits.

iii. Financial requirements state how much capital is needed for start-up or expansion, how it will be used
and what collateral is available.
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iv. Current business position furnishes relevant information about the company, its legal form of operation,
when it was founded, the principal owners and key personnel.

v. Major achievements points out anything noteworthy, such as patents, prototypes, important contracts
regarding product development, or results from test marketing that have been conducted.
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3. Description of the Business 

The business description usually begins with a short explanation of the industry. When describing the industry, discuss:

What's going on now as well as the outlook for the future.

Do the necessary research so you can provide information on all the various markets within the industry, including
references to new products or developments that could benefit or hinder your business.

Base your observations on reliable data and be sure to footnote and cite your sources of information when necessary.

Remember that bankers and investors want to know hard facts--they won't risk money on assumptions or conjecture.
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When describing your business,

say which sector it falls into (wholesale, retail, food service, manufacturing, hospitality and so on),
and

whether the business is new or established.

Then say whether the business is a sole proprietorship, partnership,

Next, list the business' principals and state what they bring to the business.

Continue with information on who the business' customers are, how big the market is, and how the
product or service is distributed and marketed.
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4. Description of the Product or Service 

The business description can be a few paragraphs to a few pages in length, depending on the
complexity of your plan. If your plan isn't too complicated, keep your business description short,
describing the industry in one paragraph, the product in another, and the business and its success
factors in two or three more paragraphs.

When you describe your product or service, make sure your reader has a clear idea of what you're
talking about. Explain how people use your product or service and talk about what makes your
product or service different from others available in the market. Be specific about what sets your
business apart from those of your competitors.
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Then explain how your business will gain a competitive edge and why your business will be
profitable. Describe the factors you think will make it successful. If your business plan will be used
as a financing proposal, explain why the additional equity or debt will make your business more
profitable. Give hard facts, such as "new equipment will create an income stream of $10,000 per
year" and briefly describe how.

Other information to address here is a description of the experience of the other key people in the
business. Whoever reads your business plan will want to know what suppliers or experts you've
spoken to about your business and their response to your idea. They may even ask you to clarify
your choice of location or reasons for selling this particular product.
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5. Market Analysis

A thorough market analysis will help you define your prospects as well as help you establish pricing,
distribution, and promotional strategies that will allow your company to be successful vis-à-vis your
competition, both in the short and long term.

Begin your market analysis by defining the market in terms of

size, demographics, structure, growth prospects,

trends, sales potential.

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• Next, determine how often your product or service will be purchased by your target market.

• Then figure out the potential annual purchase.

• Then figure out what percentage of this annual sum you either have or can attain.

Keep in mind that no one gets 100 percent market share, and that a something as small as 25 percent
is considered a dominant share. Your market share will be a benchmark that tells you how well
you're doing in light of your market-planning projections.

You'll also have to describe your positioning strategy.

How you differentiate your product or service from that of your competitors and then determine
which market niche to fill is called "positioning."
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Positioning helps establish your product or service's identity within the eyes of the purchaser. A
positioning statement for a business plan doesn't have to be long or elaborate, but it does need to
point out who your target market is, how you'll reach them, what they're really buying from you,
who your competitors are, and what your USP (unique selling proposition) is.

How you price your product or service is perhaps your most important marketing decision. It's also
one of the most difficult to make for most small business owners, because there are no instant
formulas. Many methods of establishing prices are available to you, but these are among the most
common.

i. Cost-plus pricing is used mainly by manufacturers to assure that all costs, both fixed and variable,
are covered and the desired profit percentage is attained.
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ii. Demand pricing is used by companies that sell their products through a variety of sources at differing prices
based on demand.

iii. Competitive pricing is used by companies that are entering a market where there's already an established price
and it's difficult to differentiate one product from another.

iv. Mark-up pricing is used mainly by retailers and is calculated by adding your desired profit to the cost of the
product.

You'll also have to determine distribution,

which includes the entire process of moving the product from the factory to the end user. Make sure to analyse
your competitors' distribution channels before deciding whether to use the same type of channel or an alternative
that may provide you with a strategic advantage.
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Finally, your promotion strategy should include all the ways you communicate with your markets to
make them aware of your products or services.

To be successful, your promotion strategy should address

i. advertising,

ii. packaging,

iii. public relations,

iv. sales promotions and

v. personal sales.
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Competitive Analysis
The purpose of the competitive analysis is to determine:

1. the strengths and weaknesses of the competitors within your market.

2. strategies that will provide you with a distinct advantage.

3. barriers that can be developed to prevent competition from entering your market.

4. any weaknesses that can be exploited in the product development cycle.

The first step in a competitor analysis is to identify both direct and indirect competition for your business, both
now and in the future. Once you've grouped your competitors, start analysing their marketing strategies and
identifying their vulnerable areas by examining their strengths and weaknesses. This will help you determine your
distinct competitive advantage.
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Whoever reads your business plan should be very clear on who your target market is, what your
market niche is, exactly how you'll stand apart from your competitors, and why you'll be successful
doing so.
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Operations and Management

The operations and management component of your plan is designed to describe how the business
functions on a continuing basis.

The operations plan highlights the

1. logistics of the organization, such as the responsibilities of the management team,

2. the tasks assigned to each division within the company, and

3. capital and expense requirements related to the operations of the business.

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Financial Components of Your Business Plan

the next area to turn your attention to are the three financial statement that form the backbone of
your business plan:

1. the income statement, 

2. Cash flow statement, and 

3. Balance Sheet
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Income
The income statement is a simple and straightforward report on the business' cash-generating ability.
It is a scorecard on the financial performance of your business that reflects when sales are made and
when expenses are incurred.

It draws information from the various financial models developed earlier such as

• revenue,

• expenses,

• capital (in the form of depreciation), and

• cost of goods.
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By combining these elements, the income statement illustrates

• just how much your company makes or

• loses during the year

by subtracting cost of goods and expenses from revenue to arrive at a net result, which is either
a profit or loss.

In addition to the income statements, include a note analyzing the results. The analysis should be
very short, emphasizing the key points of the income statement.
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Cash Flow Statement

• The cash flow statement is one of the most critical information tools for your business, since it shows
how much cash you'll need to meet obligations, when you'll require it and where it will come
from. The result is the profit or loss at the end of each month and year. The cash flow statement
carries both profits and losses over to the next month to also show the cumulative amount.
Running a loss on your cash flow statement is a major red flag that indicates not having enough cash to
meet expenses-something that demands immediate attention and action.

• The cash flow statement should be prepared on a monthly basis during the first year, on a
quarterly basis for the second year, and annually for the third year. As with the income statement,
you'll need to analyze the cash flow statement in a short summary in the business plan.
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Balance Sheet

• The last financial statement you'll need is a balance sheet. Unlike the previous financial
statements, the balance sheet is generated annually for the business plan and is, more or less,
a summary of all the preceding financial information broken down into three areas: assets,
liabilities and equity.

• Balance sheets are used to calculate the net worth of a business or individual by measuring
assets against liabilities.

• If your business plan is for an existing business,

the balance sheet from your last reporting period should be included.
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• If the business plan is for a new business,

try to project what your assets and liabilities will be over the course of the business plan to
determine what equity you may accumulate in the business.

• To obtain financing for a new business,

you'll need to include a personal financial statement or balance sheet.

• In the business plan, you'll need to create an analysis for the balance sheet just as you need to do
for the income and cash flow statements.

• The analysis of the balance sheet should be kept short and cover key points.
Supporting Documents
• In this section, include any other documents that are of interest to your reader,

such as:

your resume; contracts with suppliers, customers, or clients, letters of reference, letters of intent,
copy of your lease and any other legal documents, tax returns for the previous three years, and

anything else relevant to your business plan.

• Some people think you don't need a business plan unless you're trying to borrow money. Of
course, it's true that you do need a good plan if you intend to approach a lender--whether a banker,
a venture capitalist or any number of other sources--for start-up capital.
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Conclusion

• Just as you wouldn't start off on a cross-country drive without a road map, you should not embark
on your new business without a business plan to guide you. A business plan won't automatically
make you a success, but it will help you avoid some common causes of business failure, such as
under-capitalization or lack of an adequate market.

• As you research and prepare your business plan, you'll find weak spots in your business idea that
you'll be able to repair. You'll also discover areas with potential you may not have thought about
before--and ways to profit from them. Only by putting together a business plan can you decide
whether your great idea is really worth your time and investment.
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Purpose of Writing a Business Plan

Provide a road map

A detailed plan will help you as the owner and founder to manage your business effectively.
Writing down and illustrating both your ideas and tactics will establish a path and course of
action, akin to a road map. This will give you something concrete by which to monitor and
assess the progress you make.
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2. Understand what to focus on

As an entrepreneur, where should your efforts and concentrations be centred on?

It’s a common issue. The early days of starting out can be very chaotic. There’s so much to
set up, think about, implement and develop. It’s an emotional roller coaster of mass
excitement and sharp shots of anxiety. Amid all this and with an ever mounting in-tray of to
do’s, you can fast lose track of what’s important.
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3. Projections and the need for an accountant

Raise Finance

The likelihood is to support your growth will require an injection of funding. That's unless
you have an extremely cash generative business model. More often than not you probably
won’t have enough customers and thus free cash flow to finance the next opportunity. You'll
have a working capital requirement and thus need investment beyond the reach of your
business.
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4. Manage your Business Effectively

The usefulness of a cashflow forecast doesn’t end there though. Managing your cash position, as
you may have already gathered, is fundamental to the long term future of your business. There’s
a common quote that “most businesses fail because they run out of money”. This means they’re
no longer able to pay their debts when they’re due.
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Mentors and Advisors to Support Planning

The trouble is, all entrepreneurs are inexperienced the first time they launch a business. And there’s
only one way to overcome this inexperience quickly: by engaging in a mentorship or advisor
program, thereby drawing on someone else’s experience.

If you’re sufficiently insightful and humble, you'll recognize the importance of asking for help
and being open to external feedback. Mentors are the way to achieve this.
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Way to find Mentors

1. Networking events 

Networking events are designed to put people in contact with one another, making these events perfect
opportunities to expand your professional network. Try to talk to as many people as you can, and don’t be too
forward with your goals; instead, wait for a potential partnership to make itself evident to you.

2. Entrepreneur 'hot spots'

If you live in a city with a thriving start-up scene, there are probably several entrepreneurial “hot spots” in the
area. For example, there might be a start-up incubator with an open workspace where you can get some work
done and still meet some new people in the industry, or else a weekly brainstorming meeting among creative
minds at the downtown library. Keep your eyes peeled, and attend whatever you can.
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3. LinkedIn and Twitter 
I'm tempted to put “social media” here, but Twitter and LinkedIn are the big players for connecting
with professionals. Find potential candidates based on your industry and/or demographic area, and
be sure to introduce yourself casually and unassumingly before asking for a more significant
engagement.
4. Small Business Development Centres
Small Business Development Centres (SBDCs) are independent organizations that provide
resources, expertise and advice to emerging entrepreneurs in major cities across the country.
Drawing on Small Business Administration federal funds, state and local government funds and
resources from the private sector, you should be able to find free consultation at an SBDC near you.
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5. NGOs 
For e.g. SCORE is an organization dedicated to helping individuals start, run and grow their own
businesses. There are currently more than 11,000 volunteers in the program, with 320 chapters
around the country. Through SCORE, you can request a free face-to-face meeting with a mentor to
discuss your business idea -- and you may be able to form a more lasting partnership.
6. Industry centres 
Are there any industry expos coming up in your surrounding area? Conferences or speaking events
regarding your industry? If so, these are perfect places to find someone more experienced than you
-- and you can learn more about your industry during the search.
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7. Indirect competitors 
Obviously, your direct competitors will be reluctant to give you practical advice on how to succeed.
Instead, seek out your indirect competitors, such as companies in the same industry targeting a
different segment of the market, or companies across the country with no bearing on your local
relationships. If these companies have been in business longer than you have, their leadership will
have considerable wisdom to dispense.
8. Volunteering 
Volunteering is a surprisingly good way to make new connections. You’ll meet all kinds of people,
from college students to retirees, all of whom will be able to teach you something new. Plus, you’ll
be giving back to the community in the meantime and possibly improving the reputation of your
business in the process.
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9. Friends and Family 

Have you asked around your circle of friends and family? Someone in your contacts list might know
a cousin or former roommate who went on to become a successful entrepreneur. These types of
connections are usually the easiest to build once discovered.
10. Anywhere else 
If you’re open to new experiences and new contacts, you could potentially meet a mentor anywhere.
Talk to strangers. Get to know your acquaintances better. You never know who will lend you the next
major insight or give you the next landmark introduction in your life.
There’s no “secret” when it comes to finding mentors: Look in the places you’d be if you were a
mentor; remain patient and open to new contacts; and eventually you'll meet someone who can help
you take your business off the ground.
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The Industry Analysis

An industry analysis is a business function completed by business owners and other individuals to
assess the current business environment. This analysis helps businesses understand various
economic pieces of the marketplace and how these various pieces may be used to gain a
competitive advantage. Although business owners may conduct an industry analysis according to
their specific needs, a few basic standards exist for conducting this important business function.
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Facts
Small business owners often conduct industry analysis before starting their business.

This analysis is included in the entrepreneur’s business plan that outlines specific elements of the
economic marketplace.

Elements may include

a. the number of competitors,

b. availability of substitute goods,

c. target markets and

d. demographic groups or various other pieces of essential business information.

This information is commonly used to secure external financing from banks or lenders for starting
a new business venture.
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Features
1. Industry analysis features include a review of the economic and political underpinnings of the business
environment.
2. Economic reviews often include an examination of the industry’s business cycle.
3. The business cycle helps individuals understand if the industry is growing, reaching a plateau or in decline.
4. A political review helps individuals understand the amount of government regulation and taxation present in
the business industry.
5. Industries with heavy government involvement may have fewer profits for companies operating in these
environments.
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Considerations

Industry analysis may be conducted using Michael Porter’s five forces model. Porter is a Harvard
professor renowned for his work in creating a specialized industry analysis model.
The five forces model reviews an industries
1. supplier power, 2. threat of substitutes, 3. buyer power,
4. barriers to entry, 5. the rivalry that is created when companies compete for the previous four
forces.
This standard industry analysis tool helps individuals use a time-tested management procedure for
generating intelligent business analysis.
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Time Frame
Business owners may need to conduct several industry analyses throughout their company’s
lifetime.
Economic markets are in a constant state of flux and may incur significant changes from shifts in
political policy.
Although smaller businesses may struggle to conduct an industry analysis in a timely manner,
larger or publicly held companies often conduct an analysis each quarter.
The results of their analysis are often included in forward-looking statements in quarterly or annual
reports.
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Expert Insight

Small business owners may need to seek outside help for conducting an industry analysis. Management
consultants, public accounting firms or the Small Business Administration (SBA) may provide small
businesses with copious amounts of resources regarding various industry analyses.

This information can save the business owner valuable time from attempting to reinvent the wheel and
create a new analysis when one may already exist from a professional organization.
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Introduction to Customer Analysis

A customer analysis (or customer profile) is a critical section of a company's business plan or marketing plan.
It identifies target customers, ascertains the needs of these customers, and then specifies how the product
satisfies these needs. A customer analysis can be broken down into a behavioural profile (why your product
matches a customer's lifestyle) and a demographic profile (describing a customer's demographic attributes).

A customer profile is a simple tool that can help business better understand current and potential customers,
so they can increase sales and grow their business. Customer profiles are a collection of information about
customers that help determine why people buy or don't buy a product. Customer profiles can also help develop
targeted marketing plans and help ensure that products meet the needs of their intended audience.
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Behavioural Analysis (Customer Buying Criteria)

A behavioural analysis of customers (or psychographic profile) seeks to identify and weigh the relative
importance of factors consumers use to choose one product over another. These factors, sometimes called
buying criteria, are key to understanding the reasons that customers choose to buy your product (or
service) versus the products offered by your competitors. The four major criteria that customers use to
distinguish competing products are: 

price, 
quality, 
convenience and
prestige.
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In consumer transactions, price and quality tend to be the dominant factors. However, with business-
to-business (B2B) transactions (also called industrial marketing), service issues such as reliability,
payment terms, and delivery schedule become much more important. The sales transaction in an
industrial marketing scenario also differs from consumer marketing in that the purchase decision is
typically made by a group of people instead of one person, and the selling process can be much more
complex (including stages such as: request for bid, proposal preparation and contract negotiations).
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By identifying customer needs through market research and analysis, companies can develop a clear
and concise value proposition which reflects the tangible benefits that customers can expect from the
company's products. And once the primary buying criteria have been identified, marketing efforts
can influence the customer's perception of the product along the four main dimensions (price,
quality, convenience and prestige), relative to the competition's product.
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Behavioural Analysis (Purchase Process and Patterns)

Examples of purchase process questions to be answered here include:

1. What steps are involved in the decision-making process?
2. What sources of information are sought?
3. What is a timeline for a purchase (e.g., impulse vs. extended decision-making)?
4. Will the customer consult others in their organization/family before making a decision?
Who has the authority to make the final decision?
5. Will the customer seek multiple bids?
6. Will the product/service require significant modifications?
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Understanding the Buying Habits and Patterns

1.Reason/occasion for purchase?

2.Number of times they'll purchase?
3.Timetable of purchase, every week, month, quarter, etc.?
4.Amount of product/service purchased?
5.How long to make a decision to purchase?
6.Where does the customer purchase and/or use the product/service?
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Customer Demographics

The second major component in customer analysis is identifying target market segments that are predisposed to
preferring your products over those of your competitors.
A market segment is a sub-set of a market made up of people or organizations with one or more characteristics
that cause them to demand similar product and/or services based on qualities of those products such as price or
function. 
A marketing program aimed at individual segments needs to understand and capitalize on the group's differences
and use them strategically in all advertising campaigns. 
a. Gender, b. age, c. ethnicity, d. geography, e. income
are all market-segmenting criteria based on demographics.  
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Typical questions to ask when determining the demographics of the target

market include:

1. What is the age range of the customer who wants my product or service?

2. Which gender would be most interested in this product or service?

3. What is the income level of my potential customers?

4. What level of education do they have?

5. What is their marital or family status: Are they married, single, divorced? Do they have kids,
grandkids?

6. What are the hobbies of my target customers?

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Value and Value Chain

The total amount (i.e. total revenue) that buyers are willing to pay for a firm's product. The
difference between the total value and the total cost performing all of the firm's activities provides
the margin.

Margin implies that organizations realize a profit margin that depends on their ability to manage the
linkages between all activities in the value chain.

In other words, the organization is able to deliver a product / service for which the customer is
willing to pay more than the sum of the costs of all activities in the value chain.
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The Value Chain

Originated in the 1980s by Michael Porter, Value Chain Analysis is the conceptual notion of value-
added in the form of a value chain.

Used throughout the world for nearly 30 years, the value chain is a powerful tool for disaggregating a
company into its strategically relevant activities in order to focus on the sources of competitive
advantage, that is, the specific activities that result in higher prices or lower costs.

He suggested that an organisation is split into

I. primary activities, and

II. support activities

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The figure below divides activities into primary and support activities as suggested by Porter's
Value Chain Analysis model:
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Competitive Advantage
Value Chain Analysis is mentioned in the book Competitive Advantage in 1985 by Michael Porter.

Porter suggested that activities within an organisation add value to the service and products that the
organisation produces, and all these activities should be run at optimum level if the organisation is to gain any
real competitive advantage.
Competitive Advantage is the ability for a firm to put "generic strategy" into practice, Generic Strategy
includes:
1. Cost Leadership: offer the lowest price to customers.

2. Differentiation: selecting the important attributes that buyers want so the company can get a
premium price

3. Focus: doing each strategy according to each market segment

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Activities A Business Undertake for Achieving Competitive Advantage

For example:

1. A business which wishes to outperform its competitors through differentiating itself through

higher quality will have to perform its value chain activities better than the oppositions.

2. By contrast, a strategy based on seeking cost leadership will require a reduction in the costs

associated with the value chain activities, or a reduction in the total amount of resources used.
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A Value Chain concentrates on the activities starting with raw materials till the conversion
into final goods or services. The sources of the competitive advantage of a firm can be seen from its
discrete activities and how they interact with one another. The ultimate goals in performing value
chain analysis are to maximize value creation while also monitoring and minimizing costs.

These discrete activities involve the acquisition and consumption of resources - money, labour,
materials, equipment, buildings, land, administration and management. How value chain activities
are carried out determines costs and affects profits.
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Primary Activities

Primary activities are directly concerned with creating and delivering a product. Each of these
primary activities is linked to support activities which help to improve their effectiveness or
efficiency; and According to Porter (1985), the primary activities are:
i. Inbound logistics
ii. Operations
iii. Outbound logistics
iv. Marketing and Sales
v. Services
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i. Inbound logistics

Refers to goods being obtained from the organisation's suppliers and to be used for producing the end
product.

ii. Operations

Raw materials and goods are manufactured into the final product. Value is added to the product at this
stage as it moves through the production line.

iii. Outbound logistics

Once the products have been manufactured they are ready to be distributed to distribution centres,
wholesalers, retailers or customers. Distribution of finished goods is known as outbound logistics.
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iv. Marketing and Sales

Marketing must make sure that the product is targeted towards the correct customer group. The
marketing mix is used to establish an effective strategy, any competitive advantage is clearly
communicated to the target group through the promotional mix.
v. Services

After the product/service has been sold what support services does the organisation offer customers?
This may come in the form of after sales training, guarantees and warranties.

With the above activities, any or a combination of them are essential if the firm are to develop the
"competitive advantage" which Porter talks about in his book.
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Support Activities

Support activities assist the primary activities in helping the organisation achieve its competitive
advantage.

They include:
i. Firm infrastructure
ii. Human resource management
iii. Technology development

iv. Procurement
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i. Firm infrastructure

Every organisations needs to ensure that their finances, legal structure and management structure work
efficiently and helps drive the organisation forward. Inefficient infrastructures waste resources, could affect the
firm's reputation and even leave it open to fines and sanctions.
ii. Human resource management

The organisation will have to recruit, train and develop the correct people for the organisation to be successful.
Staff will have to be motivated and paid the 'market rate' if they are to stay with the organisation and add value.
Within the service sector such as the airline industry, employees are the competitive advantage as customers are
purchasing a service, which is provided by employees; there isn't a product for the customer to take away with
them.
Business Plan and Models

iii. Technology development

The use of technology to obtain a competitive advantage is very important in today's technological
driven environment. Technology can be used in many ways including production to reduce cost thus
add value, research and development to develop new products and the internet so customers have
24/7 access to the firm.
iv. Procurement

This department must source raw materials for the business and obtain the best price for doing so.
The challenge for procurement is to obtain the best possible quality available (on the market) for
their budget.
Business Plan and Models

Link Between Primary and Support Activities

As mentioned before, primary activities add value directly to the production process, but they are
not necessarily more important than support activities.

Nowadays, competitive advantage mainly derives from

technological improvements or innovations in business models or processes. Therefore,
such support activities as 'information systems', 'R&D' or 'general management' are usually the
most important source of differentiation advantage.

On the other hand, primary activities are usually the source of cost advantage, where costs can be
easily identified for each activity and properly managed.
Business Plan and Models

Value Chain Diagram Example: Super Store Super Market

Value chain analysis is based on the principle that organisations exist to create value for their
customers.

In the analysis, the organisation's activities are divided into separate sets of activities that add value.

The organisation can more effectively evaluate its internal capabilities by identifying and examining
each of these activities.

Each value adding activity is considered to be a source of competitive advantage.

Business Plan and Models
 Added Value
Business Plan and Models
Added value is the difference between the cost of acquiring the raw materials and finished goods.

Value added = Sales Revenue - cost of Raw materials

For example, if I am selling wooden chair. 

Cost of wood for one chair=$100

Selling Price of one chair=$250

Added Value= Selling Price - Cost of raw material i.e. ($250-$100) =$150

Value added is NOT the same as Profit. To calculate profit we subtract the cost of raw material + labour cost +
other expenses from sales revenue whereas in Valued added we subtract the raw material cost only.
 Business Plan and Models

The concept of added value is very important for businesses.

Business which adds more value to their products and services can charge more to their customers and
eventually lead to higher revenue.

Have you ever noticed that some business charge more for certain kind of goods then other businesses?

The reason behind this is that they add more value to the same product, as compared to the other business.

For example, you take a flight from New Delhi to Mumbai. An economy airline will charge less as compared to a
normal airline. This is because the latter has added more value to its service by providing better, more
comfortable seats, more leg room, better trained in-flight attendants etc.

Despite the fact that both these flights are traveling the same distance and the cost of the fuel will be almost
equal.
Business Plan and Models

Ways of Adding Value

There are different ways through which businesses can add value to their products and services.

i. Creating a brand

ii. Advertising

iii. Providing customised services

iv. Providing additional features

v. By offering convenience
Business Plan and Models

i. Creating a brand: Brands represent quality and sometimes status. Consumers are prepared to pay
more for products which have a strong brand attached to it. Why does a pair of Nike sell costlier than
its counterpart Puma, though the cost of production may not be much different.

ii. Advertising: Through advertising the business can create a strong brand loyalty among its
customers and in the process charge more for its goods or services.

iii. Providing customised services: Business providing better quality personalised services to their
consumers add more value. Consumers are willing to pay a little extra for customised services.
Business Plan and Models

iv. Providing additional features: A product or service with additional features or functionality can make
the consumers pay extra. This is very often seen in different version of a car model. Toyota has 12
versions of its Innova model. The basic engine and build is the same, but the price increase as additional
features are added.

v. By offering convenience: Consumers love convenience. If you get a product or service without much
effort then you might happily pay a premium for it. For example, free home delivery of your weekly
grocery.
Business Plan and Models

Benefits to a Business of Adding Value

There are a number of benefits a business derives through adding value to its products or services.

i. First of all, it can charge more to its customers. This leads to more profitability for the business in the long
run.

ii. A business can differentiate itself from its competitors. By adding more value to its goods or services a
business can stand out among its competitors as producer providing superior or premium quality.

iii. A business can save the cost on advertising and other promotional activities once it has created a perception
of high quality and brand loyalty among its customers. Thus, adding value helps cost cutting in the long
run.
Business Plan and Models

Self Assessment Question

1. Which of the following best describes the term, risk?

a. When something has already gone wrong

b. The possibility that something might go wrong

c. When something is difficult to predict

d. A lack of information about the market

ANSWER: B
Business Plan and Models

Self Assessment Question

2. In which section of the business plan would you expect to find details about the capital
needed to start-up the business?

a. The business idea

b. Business aims and objectives

c. Forecast revenue, costs and profit

d. Sources of finance

ANSWER: D
Business Plan and Models

Self Assessment Question

3. A business plan is more likely to secure external funding if it is:

a.Very lengthy and vague

b.Has limited financial forecast information

c.Specific and concise

d.Has little evidence of market research being carried out

ANSWER: C
Business Plan and Models

Self Assessment Question

4. An existing business may use a business plan to:

a.Focus on the business idea before start-up

b.Present to the suppliers of a private limited company

c.Secure finance from the bank for business expansion in the UK

d.Share with employees in the business

ANSWER: C
Business Plan and Models

Document Link
Topic URL Notes
Introduction to Business https://articles.bplans.com/what-is-a-business-plan/?utm
Plans, _source=youtube&utm_medium=video&utm_term=busi
ness-plan&utm_content=What%20is%20a%20Business Times New
%20Plan%3F%20%231&utm_campaign=Bplans%20Ex Roman-14Phttps://www.entrepreneur.
plains%20Everything
com/article/38290T

Components NIL
https://smartasset.com/small-
business/top-components-of-a-
business-plan

https://www.bplans.com/sample-
Sample Business Plans, https://blog.hubspot.com/marketing/sample-business-plans
business-plans/

http://www.madrid.org/cs/
StaticFiles/Emprendedores/
Purpose of Business Plan Analisis_Riesgos/pages/pdf/
metodologia/
https://www.wellersaccountants.co.uk/blog/what-is-the-purp 1Plandeempresa(AR)_en.pdf
ose-of-a-business-plan
Business Plan and Models

Document Link
Topic URL Notes

https://www.sba.gov/business-guide/
Writing A Business Plan, https://www.sba.gov/business-guide/plan-your-business/writ plan-your-business/write-your-
e-your-business-plan business-plan

Mentors & Advisors to https://www.entrepreneur.com/

https://www.entrepreneur.com/article/271908
Support Planning article/294295

https://www.inc.com/encyclopedia/
Industry Analysis: https://smallbusiness.chron.com/definition-industry- industry-analysis.html
analysis-830.html#:~:text=An%20industry%20analysis
%20is%20a,to%20gain%20a%20competitive%20advantage.

https://www.liveplan.com/blog/
The Market,
market-analysis-in-4-steps/
https://www.thebusinessplanshop.com/blog/en/entry/market_
analysis_for_business_plan
Business Plan and Models
Document Link
Topic URL Notes
https://www.acsbdc.org/resources/small-
business-topics/marketing/customer-
analysis#:~:text=A%20customer
Customer,
%20analysis%20(or%20customer,the
%20product%20satisfies%20these
https://www.imd.org/imd-reflections/general-management-reflections/
%20needs.
customer-analysis-marketing-plan/

https://strategicmanagementinsight.com/
The Value Chain https://www.mindtools.com/pages/article/newSTR_66.htm tools/value-chain-analysis.html
Times New Roman-14PT

Times New
https://www.dineshbakshi.com/business-
studies/igcse-business-studies/
Concept of adding value https://www.dineshbakshi.com/business-studies/igcse-business-studies/
understanding-business-activity/revision-notes/221-concept-of-adding- understanding-business-activity/revision-
value notes/221-concept-of-adding-
valueRoman-14PT
Business Plan and Models

Video Link
Topic URL Notes
Introduction to Business
Plans, Times
Newhttps://www.morebusiness.com/b
usiness-plan-introduction/
https://youtu.be/FIoGLHT4wGE
Components
https://www.thehartford.com/
business-insurance/strategy/writing-
business-plan/main-components

https://www.experthub.info/launch/
business-plans/business-plan-
Sample Business Plans, https://youtu.be/HkLatRM251I
research-and-preparation/21-free-
sample-business-plans/

https://www.growthink.com/content/
Purpose of Business Plan https://youtu.be/CHgMxK1DCf0 20-reasons-why-you-need-business-
plan
Business Plan and Models

Video Link
Topic URL Notes

NIL https://articles.bplans.com/how-to-
Writing A Business Plan,
write-a-business-plan/

https://youtu.be/Fqch5OrUPvA
Mentors & Advisors to https://articles.bplans.com/how-to-
Support Planning find-a-mentor/

https://corporatefinanceinstitute.com/
resources/knowledge/strategy/
industry-analysis-methods/
Industry Analysis: https://youtu.be/UUKAX0E4ckM
#:~:text=Industry%20analysis%20is
%20a%20market,%2C%20e.g.%2C
%20demand%2Dsupply%20statistics

https://blog.marketresearch.com/what-
The Market, https://youtu.be/fEqG6b6qlD4
is-a-market-analysis
Business Plan and Models

Video Link
Topic URL Notes

https://
www.accountingdepartment.com/
Customer, https://youtu.be/31DxXaLYD0M
blog/what-is-customer-analysis-how-
does-it-benefit-business-analytics

https://youtu.be/Fij1aBcl_Ts
The Value Chain
https://youtu.be/a9LWp9y2fMw
https://www.isc.hbs.edu/strategy/
business-strategy/Pages/the-value-
chain.aspx

Times New
Concept of adding value https://youtu.be/xI6OSvznk6E Roman-14Phttps://www.investopedia.
com/terms/v/valueadded.aspx
Business Plan and Models

E- Book Link

Ebook name Chapter Page No. Notes URL

Times New
https://www.pdfdrive.com
/real-business-plans-
marketing-tools-samples-
Real Business Plans to-use-in-starting-
& Marketing Tools: S https://www.spmvv.ac.in/ecell/docs/
1 1-6 growing-and-selling-
amples to Use in Star business-models/3.pdf
ting, Growing and Se your-business-business-
lling Your Business ( success-series-prep-
Business Success Ser publishing-
ies (Prep Publishing). d156792035.htmlRoman-
) 14PT
Download ( PDF )

https://
https://businessfirst.com.mt/en/planning/ www.pdfdrive.com/
BUSINESS PLAN H 8-10; 140-
ow to Write a Busine 1, 8 & 9 documents/ business-plan-how-to-
167
ss Plan.pdf business_planning_guidelines.pdf write-a-business-planpdf-
d34336925.html