Chapter

Developing Business Plan and

Business Models

Course Instructor: Rezene M.

1
 Outlines

– The lean start-up principle

– Business model canvas
– Feasibility Analysis of a new venture
– Business Plan

2
 Lean start-up Principles

• SME summarize a series of untested hypotheses in a

framework called business model canvas

• Use customer development to test their hypotheses

(GOYA)

• Practice agile development (developing a product

iteratively and incrementally)

3
 Lean start-up
Listen to Customers
 During customer development, a startup searches for a
business model that works.

 If a customer feedback reveals that its business hypotheses are

wrong, it either revises them or “pivots” to new hypotheses.

Once a model is proven, the start-up starts executing, building a

formal organization.

Each stage of customer development is iterative: A start-up will

probably fail several times before finding the right approach.
4
 Lean start-up: CUSTOMER DEVELOPMENT

Search
1 2
CUSTOMER CUSTOMER
DISCOVERY VALIDATION

Pivot
Execution
3 4
CUSTOMER COMPANY
CREATION BUILDING

5
 …Lean start-up:Customer Development
• Customer Discovery:
– Founders translate company ideas into business model hypotheses, test
assumptions about customers’ needs, then creates ‘minimum viable’ product to
tryout their proposed solutions on customers
• Customer Validation
– Start-up continuous to test all other hypotheses and tries to validate customers’
interest through early orders or product usage. If there’s no interest, the start-up
can ‘pivot’ by changing one or more hypothesis
 Customer Creation :
– The product is refined enough to sell. Using its proven hypothesis, the start-up
builds demand by rapidly ramping up marketing and sells spending, and scales
up the business.
• Company Building:
– Business translations from start-up mode, with a customer development team
searching for answers, to functional departments executing its model

6
 Lean start-up: agile development
Agile : Quick, Responsive Development

‘Minimum viable’ product

”Before I invest tons of money in developing this product,

how can I test if there is enough demand to make the
7
investment worthwhile?"
 What Lean Start-ups Do differently
• Lean • Traditional
Strategy Strategy
 Business Model  Business Plan
 Hyphothesis-driven  Implimentation-driven
New-Product Process New-Product Process
 Customer development
 Product Management
 GOYA
 Prepare offering for market following a linear,
Engineering
step-by-step plan
 Agile development
Engineering
 Build the product iteratively and increamentally
 Agile or waterfall development
Organization

 Build the product iteratively, or fully specify the
Customer and agile dev’t teams
 Hire for learning, nimbness, & speed
product before building it
Financial Reporting Organization
 Metrics that matter  Departments by function
 Customer acquisition cost, lifetime  Hire for experience and ability to execute
 Customer value, churn, Accounting
Failure  Income statement, Balance Sheet, Cashflow
 Expected statement
 Fix by iterating on ideas and pivoting away Failure
Speed Exception, Fix by firing executives
 Rapid Speed
 Operates on good-enough data
Operates on complete data

8
 Business Model Canvas
The 9 building blocks of the Business Model Canvas:

9
Business Model Canvas

10
 1. Customer Segments
• Identify & DEFINE THE DIFFERENT GROUPS OF
PEOPLE OR ORGANIZATIONS AN ENTERPRISE YOUR
BUSINESS AIMS TO REACH AND SERVE

• MAKE A CONSCIOUS DECISION ABOUT WHICH

SEGMENTS TO SERVE AND WHICH SEGMENTS TO
IGNORE

• SEPARATE CUSTOMER SEGMENTS IF:

– their needs require and justify a distinct offer;
– they are reached through different distribution channels;
– they require different types of relationships;
– they have substantially different profitability’s; and
– they are willing to pay for different aspects of the offer

11
 2. Value Proposition

FOR EACH CUSTOMER SEGMENT

• DESCRIBE THE BUNDLE OF PRODUCTS AND SERVICES

THAT CREATE VALUE FOR EACH SPECIFIC CUSTOMER
SEGMENT

• IDENTIFY THE REASON WHY CUSTOMERS WILL TURN

TO YOUR COMPANY OVER ITS COMPETITORS. IT
SOLVES A CUSTOMER PROBLEM OR SATISFIES A
CUSTOMER NEED

12
 3. Distribution Channels

• DESCRIBES HOW YOUR COMPANY COMMUNICATES

WITH AND REACHES ITS CUSTOMER SEGMENTS TO
DELIVER THE VALUE PROPOSITION

• DEFINE THE:
– COMMUNICATION CHANNELS
– DISTRIBUTION CHANNELS
– SALES CHANNELS

13
 4. Customer Relations

• DESCRIBES THE TYPES OF RELATIONSHIPS YOUR

COMPANY NEEDS TO ESTABLISH AND NURTURE/CARE
WITH SPECIFIC CUSTOMER SEGMENTS

• FOCUSED ON:
– CUSTOMER ACQUISITION/FINDING
– CUSTOMER RETENTION/MAINTAINING

14
 5. Revenue streams
• Identify FOR WHAT VALUE IS EACH CUSTOMER
SEGMENT TRULY WILLING TO PAY?

• Identify AND QUANTIFY THE CASH YOUR COMPANY

CAN GENERATE FROM EACH CUSTOMER SEGMENT
THROUGH ONE OR MORE REVENUE STREAMS (SALES
PIPELINES)

• CONSIDER TWO DIFFERENT TYPES OF REVENUE

STREAMS:
– TRANSACTION REVENUES (RESULTING FROM ONE-TIME
CUSTOMER PAYMENTS)
– RECURRING REVENUES (RESULTING FROM ONGOING
PAYMENTS)

15
 6. Key Resources

Identify, DESCRIBE AND QUANTIFY THE ASSETS, e.g.

– LAND
– BUILDINGS
– EQUIPMENT
– FACILITIES
– PLATFORMS
– SYSTEMS
– TECHNOLOGY
REQUIRED TO DELIVER ON THE VALUE PROPOSITION
TO EACH OF THE IDENTIFIED CUSTOMER SEGMENTS

16
 7. Key Activities
Identify, DEFINE AND DESCRIBE THE MOST IMPORTANT
THINGS (ACTIONS) YOUR COMPANY MUST DO TO:

• TO CREATE AND OFFER A VALUE PROPOSITION

• REACH MARKETS
• MAINTAIN CUSTOMER RELATIONSHIPS
• EARN REVENUES
• TO MAKE ITS BUSINESS MODEL WORK
• TO OPERATE SUCCESSFULLY

17
 8. Key Partnerships
• Identify AND DESCRIBES THE NETWORK OF
SUPPLIERS AND PARTNERS THAT MAKE THE
BUSINESS MODEL WORK, e.g.:
– STRATEGIC ALLIANCES BETWEEN NON-
COMPETITORS;
– CO-OPERATION: STRATEGIC PARTNERSHIPS
BETWEEN COMPETITORS;
– JOINT VENTURES TO DEVELOP NEW BUSINESSES;
– BUYER-SUPPLIER RELATIONSHIPS TO ASSURE
RELIABLE SUPPLIES

18
 9. Cost Structure
• Identify AND QUANTIFY ALL COSTS INCURRED TO
SUCCESSFULLY OPERATE THE BUSINESS MODEL
– Manufacturing costs (variable)
– Operating costs (fixed)
• DETERMINE VIABILITY:
Average Sales price per unit
less Average Manufacturing cost per unit
Equals the Average Contribution per unit

Number of units manufactured and sold x

contribution per unit = Gross Margin

Gross Margin – Overheads = Net Margin

19
 What Is A Feasibility Analysis?
• Preliminary evaluation of idea to
determine if it is worth pursuing
• Provides more secure notion that a
business idea is viable
– Is there a customer base and a market
of sufficient size to make the concept
viable?
– Do the capital requirements to start,
based on estimates of sales and
expenses, make sense?
– Can an appropriate start-up or genesis
team be put together to execute the
concept? 20
 Benefits of a Feasibility Analysis

• Identify viable concepts, including

complementary products/services
• Get it right the first time; avoid obvious pitfalls
• Save valuable time and money
• Validate it is what the customer needs, wants
and will purchase

21
 When To Conduct a Feasibility Analysis

• Timing of Feasibility Analysis

– After concept statement evaluation
– After opportunity recognition, before business plan
– Before a lot of resources are invested
• Four Components of Full Feasibility Analysis
– Product/Service Feasibility
– Industry/Market Feasibility
– Organizational Feasibility
– Financial Feasibility

22
 Feasibility Analysis (Barringer & Ireland, 2006)
Role of feasibility analysis in developing successful business ideas

23
Feasibility Analysis Process

24
 Feasibility Analysis Outline

• Cover • Product/Service
• Executive Development Plan
Summary • Financial Plan
• Title Page • Timeline
• The Business • Bibliography
Concept • Appendices
• Industry/Market
Analysis
• Founding Team 25
26
 Business plan
• The business plan is a comprehensively written
down document prepared by the entrepreneur
describing formally all the relevant external and
internal elements involved in starting a new
venture.
• Preparing a business plan is one of the most useful
things that you as an entrepreneur or potential
entrepreneur, can do.
• When it comes to creating a business plan that
attracts investors.
• Every business should have a business plan.
27
 Importance of the business plan
• The business plan is valuable to the entrepreneur, potential investors,
venture capitalists, banks, financial institutions, new personnel's suppliers,
customers, advisors and others who are trying to familiarize themselves
with the venture, its goals, and objectives.
• The business plan –
• a) helps to understand the feasibility and viability of the proposed venture,
• b) facilitates in assessing and making provisions for the bottlenecks in the
progress and implementation of the idea,
• c) discusses the potential for success of the project along with the risk
factors involved.
• c) helps in providing guidance to the entrepreneur in organizing his/her
planning activities
as such:
– i) identifying the resources required
– ii) enabling obtaining of licenses if required etc.
– iii) working out with legal requirements as desired by the government.
28
Cont…
• d) helps in satisfying the concerns, queries, and issues of each
group of people interested in the venture.
• e) provides room for self-assessment and self-evaluation,
requiring entrepreneur to think through various scenarios and
plan ways to avoid obstacles.
• f) though not desirable, at times, business plan helps to realize
the obstacles which cannot be avoided or overcome, suggesting
to terminate the venture while still on paper without investing
further time and money.
• g) as the investors/lenders focus on the four Cs of credit :
character, cash flow, collateral and equity contribution, it is the
business plan which reflects the entrepreneur's credit history, the
ability to meet debt and interest payments, and the amount of
personal equity invested thus serving as an important tool in
funds procurement.
29
 Business Plan Mistakes
• The plan is poorly written
• The plan presentation is sloppy.
• The plan is incomplete.
• The plan is too vague
• The plan is too detailed
• The plan makes unfounded or unrealistic assumptions.
• The plan includes inadequate research
• You claim there's no risk involved in your new venture.
• You claim you have no competition.
• The business plan is really no plan at all.

30
 Business Plan Outlines

Sample Business Plan Cover

• NAME OF BUSINESS:
• TYPE OF BUSINESS:
• PREPARED BY:
• NAME OF OWNER:
• PHONE
• E-MAIL:
• DATE:
31
Cont…
1. Introductory page
– Name of the venture/company
– Address of the venture/company
– Nature of business (form of organization
– Addresses of the principals/partners
– Statement of financing needed
– Names of the principals/partners
– Statement of confidentiality of the report
– Mission
– Vision
– Goal setting and objectives
32
Cont…
2. Executive Summary
3. Industry Analysis
• (a) Future outlook and trends (after 1 year, 2 year or 5 year)
• (b) Analysis of competitors -size, operating method (quality, delivery
time, price, ability, packaging, distribution…)
– Strength
– Weakness
• (c) Market segmentation (identification of the customers)- who are
your customers
• (d) Industry forecasts (SWOT analysis of your company)- size/amount,
operating method (quality, delivery time, price, ability of personnel ,
packaging, selling & distribution, payment method, After sales service
& Warranties…)
33
Cont…

4. Description of Venture/ your company

• (a) Product(s)/Service(s)
• (b) Size of business
• (c) Office equipment
• (d) Personnel
• (e) Background of entrepreneurs
• (f) Roles and responsibilities of members of
organization
34
Cont…
5. Production Plan or Operations Plan
• (a) Manufacturing process (amount
subcontracted)
• (b) Physical plant
• (c) Machinery, equipment and materials
– Raw materials
– Consumables
– Stationery
– Machinery and tools
– Safety materials
– Power and water consumption
35
Cont…
6. Marketing Plan
• Past and present demand
• Sales forecast
• Distribution
• Promotion

36
Cont…
7. Organizational plan
– Form of ownership, identification partners, Authority of principals
8. Assessment of risk
– Evaluation of weakness, new technologies, and contingencies
plan
9. Financial Plan
• (a) Total costs projection
• (b) Financial forecasts – income (profit and loss) statement
forecast
• (c) Cash flow projections
• (d) Break– even analysis
• (e) Financial loan

37
Cont…
10. Appendices (contains backup material)
• (a) Resumes of principals
• (b) Letters
• (c) Market research data and survey results
• (d) Leases or contracts
• (e) Price lists from suppliers
• (f) Facility layout
• (g) Draft marketing brochure with or without
pricing
• (h) Structure of e– marketing thrusts, if any
38
SWOT analysis

39
 Group case study
• Objective:
– The general objective of this case study is to apply the theoretical
concepts of entrepreneurship course learned in classes to real
business
Case study Deliverables:
1. Assignment one:
– Select any small business and develop a business
Model Canvas (use A3 or A2 paper size)

• N.B. -- Make reasonable assumption and constraints wherever necessary

• WARINING: Identical woks will not be evaluated!

• Submission date: 40
 Cont…
2. Project work:
– Select any small business and develop a
business plan (use the given outline)

• N.B. -- Make reasonable assumption and constraints wherever

necessary
• WARINING: Identical woks will not be evaluated!

• Submission date:
• Presentation Deadline:
41