Entrepreneurship and small business:Writing a Business Plan

Muhammad Shafiqforshaf@gmail.com

http://www.slideshare.net/forshafBook references:• Entrepreneurship by Bruce R. Barringer•Entrepreneurship by Hisrich

Thought of the day

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What Is a Business Plan?• Entrepreneurs should understand what a business plan

is and what it isn’t. It isn’t a contract, an agreement, or a budget.

Instead, it is a narrative description of a new business.• Business Plan• A business plan is a written narrative document that

describes what a new business plans to accomplish.• Dual-Use Document• For most new ventures, the business plan is a dual-purpose

document used both inside and outside the firm.

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• The right time to develop the business plan is soon after successful completion of “Feasibility Analysis”.• It is a mistake to write a full business plan too early.• The business plan must be substantive enough and have

sufficient details about the merits of the new venture to convince the reader that the new business is exciting and should receive support.• Much of this detail is accumulated in the feasibility

analysis stage of investigating the merits of a potential new venture.

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What's right time to develop the Business Plan?

• Download the template of “feasibility analysis” from the following URL;• http://wps.pearsoned.com/wps/media/objects/5599/5733471/

Appendix_3_1.doc• and perform full feasibility analysis of the idea of your startup

accordingly.

• Date of submission and presentation;• 2nd Class after Mid Examination.

Assignment 1

Reasons of Developing a Business Plan

A Firm’s founders & Employees

Investors and other external stakeholders

• writing a business plan forces a firm’s founders to intently study every aspect of their business.

• A clearly written business plan helps the employees of a firm operate in a sync way and move forward in a consistent and purposeful manner.

• to create a selling document for a company. It provides a mechanism for a young company to present itself to potential investors, suppliers, business partners, key job candidates, and others.

• A firm’s business plan must make the case that the firm is a good use of an investor’s funds or the attention of others.

Guidelines for Writing a Business Plan

• To make the best impression a business plan should follow a conventional structure, such as the outline for the business plan.• Although some entrepreneurs want to demonstrate creativity,

departing from the basic structure of the conventional business plan is usually a mistake.• Typically, investors are busy people and want a plan where they

can easily find critical information.

• Software Packages• There are many software packages available that employ an interactive,

menu-driven approach to assist in the writing of a business plan. • Some of these programs are very helpful. However, entrepreneurs

should avoid a boilerplate plan that looks as though it came from a “canned” source.

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How long and detailed should it be?

• One of the most common questions that the writers of business plans ask is, How long and detailed should it be?

The answer to this question depends on the type of business plan that is being written.

There are three types of business plans, each of which has a differentrule of thumb regarding length and level of detail.

Types of Business Plans

Summary Plan:10 to 15 pages and works best for companies that are very early

in their development and are not prepared to write a full plan.

The authors of a summary business plan may be asking for funding to conduct the analysis needed to write a full plan (such as a feasibility analysis).

Ironically, summary business plans are also used by very experienced entrepreneurs who may be thinking about a new venture but don’t want to take the time to write a full business.

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Full business plan:Typically 25 to 35 pages long. Plan spells out a company’s operations and plans in much more

detail than a summary business plan.

A business plan for an investor.

Detailed information, such as the résumés of the founders or pictures of product prototypes, can appear in an appendix.

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Operational business plan:

Primarily for an internal audience.

An operational business plan is a blueprint for a company’s operations.

40 and 100 pages in length. An effectively developed operational business plan can help a

young company provide guidance to operational managers.

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Guidelines for Writing a Business Plan

• Recognizing the Elements of the Plan May Change• It’s important to recognize that the plan will usually change while

written.• New insights invariably emerge when an entrepreneur or a team

of entrepreneurs immerse themselves in writing the plan and start getting feedback from others.

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• The confidentiality of a firm’s business plan should be protected to avoid the possibility of the plan falling into the hands of a competitor. • Many firms restrict the number of copies of their business

plan that can be made.• Most companies stamp the front page of their business

plans “Confidential—Do Not Reprint without Permission.”

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Outline of Business Plan

• Outline of Business Plan• A suggested outline of a business plan is shown on the next

several slides. • Most business plans do not include all the elements

introduced in the sample plan; we include them here for the purpose of completeness. • Each entrepreneur must decided which elements to

include in his or her plan.

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Exploring Sections of Business Plan

• Cover Page and Table of Contents• The cover page should include the name of the

company, its address, its phone number, the date, and contact information for the lead entrepreneur.

A cover letter should accompany a business plan sent to an investor or other stakeholders through the mail.

The cover letter should briefly introduce the entrepreneur and clearly state why the business plan is being sent to the individual receiving it.

it is a poor strategy to obtain a list of investors and blindly send the plan to everyone on the list.

Instead, each person who receives a copy of the plan should be carefully selected on the basis of being a viable investor candidate.

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Section 1: Executive Summary

• Executive Summary• The executive summary is a

short overview of the entire business plan

• It provides a busy reader with everything that needs to be known about the new venture’s distinctive nature.

• An executive summary shouldn’t exceed two single-space pages.

Key Insights• In many instances an investor will ask for a copy of a firm’s

executive summary and will ask for a copy of the entire plan only if the executive summary is sufficiently convincing.

• The executive summary, then, is arguably the most important section of a business plan.

• If the new venture is seeking financing or funding, the executive summary should state the amount of funds being requested.

Section 1: Executive Summary

Section 2: The Business• The most effective way to introduce

the business is to describe the opportunity the entrepreneur has identified– that is, the problem to solve or the need to be filled–and then describe how the business plans to address the issue.

• The description of the opportunity should be followed by a brief history of the company, along with the company’s mission statement and objectives.

A business model describes that how an organization creates, delivers, and captures value.

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American multinational retail corporation that runs chains of large discount department stores and warehouse stores.

The company is the world's largest public corporation, according to theFortune Global 500 list in 2014, the biggest private employer in the world with over two million employees, and is the largest retailer in the world.

Walmart remains a family-owned business, as the company is controlled by the Walton family, who own over 50 percent of Walmart.It is also one of the world's most valuable companies.

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Walmart has over 11,000 stores in 27 countries, under 55 different names.

The term "Walmarting" derives from Walmart's business practices, which effectively apply optimization concepts from logistics, purchasing and finance to achieve and maintain low prices. More generally, "Walmarting" refers to the spread of Wal-Mart's business model to other big-box retailers.

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A Simple But Powerful Idea: Minimize the “Bad I” - Inventory

Walton figured out that most of the costs gets added after the product leaves the factory and moves through the supply chain:

Mfg. Wholesaler Retailer• 20% - 30% of retail price spent on keeping inventory in

warehouses. Walton eliminated the wholesaler and instituted JIT inventory practices.

JIT Inventory Program Reduced Carrying Costs for Both Wal-Mart AND Its Suppliers

Wal-Mart’s Cost of Goods : 5% - 10% Less Than Competitors

Walton recognized early on that timely information is the key to maximizing sales and minimizing costs. The better your information about what’s selling and what’s not, store by store, the better you can perform.

Section 3: Management Team

• Management Team • The management team of a new

venture typically consists of the founder or founders and a handful of key management personnel.

• The material in this section should include a brief summary of the qualifications of each member of the management team, including his or her relevant employment and professional experiences, significant accomplishments, and educational background.

Section 3: Management Team

Management Team

Key Insights• This is a critical section of a business plan.• Many investors and others who read the business plan look first at the executive summary and then go directly to the management team section to assess the strength of the people starting the firm.• If the team doesn’t “pass muster,”

most investors won’t read further.• “skin in the game.”

Section 4: Company Structure, Ownership, and Intellectual Property

• This section should begin by describing the structure of the new venture, including the reporting relationships among the top management team members.

• The next part of the section should explain how the firm is legally structured.

• The third part of this section should discuss the intellectual property the firm owns, including patents, trademarks, and copyrights.

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Section 4: Company Structure, Ownership, and Intellectual Property

Key Insights key point• A frequent source of tension in new ventures, particularly if

two or more founders start out as “equals,” is a failure to delineate areas of responsibility and authority.

• To demonstrate that the founders have sorted out these issues, an organizational chart should be included.

• An organizational chart is a graphic representation of how authority and responsibility are distributed within a company.

Section 5: Industry Analysis

• Industry Analysis• This section should being by

describing the industry the business will enter in terms of its size, growth rate, and sales projections.

Industry Analysis

Key Insights

• It is important for a firm to think carefully about the industry in which it will compete and the target market it will pursue in developing its business plan.

• Recall Red Bull case study, a company that makes energy drinks.

• Most startups do not service their entire industry. Instead, they focus on servicing a specific (target) market within the industry.

• The more a startup knows about the consumers in its target market, the more it can tailor its products or service appropriately

Section 5: Industry Analysis

Section 6: Marketing Plan

• This marketing plan should immediately follow the industry analysis and should provide details about the new firm’s products or services.

• After reading this section of the plan, an investor should be confident that the firm’s overall approach to its target market and its product strategy, pricing strategy, channels of distribution, and promotional strategy are in sync with one another and make sense.

Marketing Plan

Key Insights• The best way to describe a startup’s marketing plan is to start by articulating its marketing strategy, positioning, and points of differentiation, and then talk about how these overall aspects of the plan will be supported by price, promotional mix, and distribution strategy.

Section 6: Marketing Plan

Section 7: Operations Plan• Outlines how your business will be run its

day to day affairs and how your product or service will be produced.

• A useful way to illustrate how your business will be run is to describe it in terms of “back stage” (unseen to the customer) and “front stage” (seen by the customer) activities.

• Any risks or regulations pertaining to the operations of the firm should be disclosed, such as non-routine regulations regarding waste disposal and worker safety.

Section 7: Operations Plan

Operations Plan

Key Insights• Your have to strike a careful balance between adequately describing this topic and providing too much detail.• As a result, it is best to keep this section short and crisp.

Section 8: Financial Plan• Demonstrate the financial viability of

the business• Begin by explaining the funding needed

during the next three to five years along and how the funds will be used.

• Describe where the funds will come from (e.g., self, family, loans, investors)

• Include realistic financial projections• How fast you expect to go through the funds before

turning a profit (called the “burn rate”)• When do you expect to turn a profit and at what rate

do you expect profits to grow?• In your appendices, you include supporting and

detailed financial statements to back up this discussion.

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Section 8: Financial Plan

Financial Projections

Key Insights• Having completed the earlier sections of the

plan, its easy to see why the financial projections come last.

• They take the plans you’ve developed and express them in financial terms.

• The timeframe expected for investor exit.• Although it may seem odd to talk about

selling a company at the time it is being founded, it is just good planning to have an exit strategy in mind.

Section 9: Critical Risk Factor

Although a variety of potential critical risks may exist, a business should tailor this section to depict its truly critical risks.

• One of the most important things that a business plan should convey to its readers is a sense that the venture’s management team is on the ball and understands the critical risks facing the business.

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One start-up that did not assess its critical risk effectively was Webvan, one of the most spectacular failures during the dot-com bust. While there are many reasons that firms fail, Webvan’s failure was due largely to an overly ambitious business plan, and an apparent absence of an awareness of the critical risk factors confronting the firm. A brief overview of Webvan and the reasons it failed are provided in the “What Went Wrong” feature.

• Webvan was one of the biggest flameouts of the dot-com era, losing over $1 billion of its investors’money. One has to wonder how sound Webvan’s business plan was to begin with.

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Webvan was an online grocery store that promised to revolutionize the grocery business. The company, which was launched in the late 1990s, delivered grocery store items to customers’ homes within a 30-minute window of their choosing. The basic idea behind Webvan’s business plan was that the company could lower the costs of selling groceries by storing and sorting groceries in huge warehouses and making home deliveries rather than incurring the costs involved with running traditional grocery stores. The company reasoned that consumers would flock to its service because it relieved them of the time-intensive task of grocery shopping. The strength of its business idea allowed Webvan to get off to a fast start. In fact, Webvan attracted more venture capital funding than any other Internet company, other than Amazon.com. In 1999, Webvan went public, raising $375 million. At its peak, it offered service in ten US markets. The company had hoped to expand to 26 cities While Webvan was popular, the money spent on infrastructure far exceeded sales growth, and the company eventually ran out of cash. Webvan placed a $1 billion order with engineering company Bechtel to build its warehouses in early 2000s and bought a fleet of delivery trucks. Webvan's legacy consists of thousands of colored plastic shipping bins, now used for household storage and their re-painted distinctly-shaped vans seen in the San Francisco area years later. Less then 2 years later, Webvan went broke, laying off 2,000 employees and losing all of its investors’ money. What went wrong?

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• The primary mistake that Webvan made was that the company’s growth far outstripped the demand for its service. Rather than patiently building its infrastructure to accommodate growing demand, Webvan rushed ahead with its expansion plans. Apparently, the obvious risk of lower-than-expected consumer demand wasn’t accounted for in Webvan’s business plan. Everything about Webvan’s operations was built to accommodate scale, so when the lower-than-expected demand materialized, it worked to Webvan’s disadvantage in multiple ways. For example, in some cases Webvan drivers were driving 30 miles to make a single delivery. The end result was that the company simply ran out of money, and its investors had no appetite to invest additional funds. As a postscript, although the online grocery market is still in its infancy, it does have successes. HomeGrocer, a similar company, started operating the year before Webvan. It went public in March 2000 and, like Webvan, was losing large amounts of money. On 26 June 2000, Webvan bought out HomeGrocer. In June 2008, CNET named Webvan the largest dot-com flop in history,

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Appendix• Any material that does not easily

fit into the body of a business plan should appear in an appendix. Examples of materials that might appear in the appendix include:• Resumes of the top management

team members, photos or diagrams of product or product prototypes, certain financial data, and market research projections.

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• Putting It All Together In evaluating and reviewing the completed business plan, the writers should put themselves in the reader’s shoes to determine if the most important questions about the viability of their business venture have been answered. Following table lists most important questions a business plan should answer. It’s a good checklist for any business plan writer.

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Presenting the Business Plan to Investors

If the business plan successfully elicits the interest of a potential investor, the next step is to meet with the investor and present the plan in person.• The first rule in making an oral presentation is to follow directions.

If you’re told you have 15 minutes, don’t talk for more than the allotted time.• The presentation should be smooth and well-rehearsed.• The slides should be sharp and not cluttered.

• Questions and Feedback to Expect from Investors• The smart entrepreneur has a good idea of the questions that will

be asked, and will be prepared for those queries.

Presenting the Business Plan to Investors

Twelve PowerPoint Slides to Include in an Investor Presentation

1. Title Slide2. Problem3. Solution4. Opportunity and target market5. Technology6. Competition

7. Marketing and sales8. Management team9. Financial projections10. Current status11. Financing sought12. Summary

Application Questions1. Brad Jones is the chief financial officer of an electronic

games start-up venture located in San Diego. His firm has decided to apply for venture capital funding and needs a business plan. Brad told Phil Bridge, the firm’s CEO, that he could have the plan done in 2 weeks. Phil looked at Brad with surprise and said, “Wouldn’t it be better if the entire management team of our firm worked on the plan together?” Brad replied, “The only reason we’re writing the plan is to get funding. Getting a lot of people involved would just slow things down and be a waste of their time.” Do you agree with Brad? Why or why not?

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2. Imagine you just received an e-mail message from a friend. The message reads, “Just wanted to tell you that I just finished writing my business plan. I’m very proud of it. It’s very comprehensive and is just over 100 pages. The executive summary alone is 9 pages. I plan to start sending it out to potential investors next week. Do you have any words of advice for me before I start sending it out? Be honest—I really want to get funding.” How would you respond to your friend’s request for feedback?

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New CokeOften cited as the ultimate example of one of the most notorious product flops – and brand missteps – of all time, New Coke was launched in the mid-1980s by Coca Cola in an attempt to help the soda company stay ahead of competitors during the so-called “cola wars.” Instead, it just annoyed consumers.“The tacky way it was introduced made it seem as though the regular Coke drinkers mattered little to the company and a boycott was started,”. New Coke was abandoned within a few weeks and the original version was then resurrected as “Classic Coke.”

Related Articles3. Moving beyond the business plan in enterprise education4. Business plans for new or small businesses: paving the path to

success.

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