Entrepreneurship

MGT- 3103

BS (Chemistry) – 2nd Semester

LECTURE: 6
LEARNING OBJECTIVES:

 Formulating a successful business plan

 Defining market segmentation, identifying customers
 Industry analysis
 Conducting competitive analysis and preparing pricing strategy
 Preparing business plan
 Establishing the scope of business plan
 The steps of writing a business plan

WHAT ID BUSINESS PLAN

The business plan is a written document prepared by the entrepreneur that describes all the
relevant external and internal elements involved in starting a new venture. It is often an
integration of functional plans such as marketing, finance, manufacturing, and human resources.

It also addresses both short-term and long-term decision making for the first three years of
operation. Thus, the business plan—or, as it is sometimes referred to, the game plan or road map
—answers the questions,
Where am I now?
Where am I going?
How will I get there?
Potential investors, suppliers, and even customers will request or require a business plan. If we
think of the business plan as a road map, we might better understand its significance. Let’s
suppose you were trying to decide whether to drive from Islamabad to Lahore (mission or goal)
in a motor home. There are a number of possible routes, each requiring different time frames and
costs. Like the entrepreneur, the traveler must make some important decisions and gather
information before preparing the plan. The travel plan would consider external factors such as
emergency car repair, weather conditions, road conditions, sights to see, and available
campgrounds. These factors are basically uncontrollable by the traveler but must be considered
in the plan, just as the entrepreneur would consider external factors such as new regulations, the
economy, competition, social changes, changes in consumer needs, or new technology. On the
other hand, the traveler does have some idea of how much money is available; how much time he
or she has; and the choices of highways, roads, campgrounds, sights, and so forth. Similarly, the
entrepreneur has some control over manufacturing, marketing, and personnel in the new venture.
The traveler should consider all these factors in determining what roads to take, what
campgrounds to stay in, and how much time to spend in selected locations, how much time and
money to allow for vehicle maintenance, who will drive, and so on. Thus, the travel plan
responds to three questions: Where am I now? Where am I going? And how do I get there? Then
the traveler in our example—or the entrepreneur, the subject of our book—will be able to
determine how much money will be needed from existing sources or new sources to achieve the
plan.

WHO SHOULD WRITE THE BUSINESS PLAN

The business plan should be prepared by the entrepreneur; however, he or she may consult with
many other sources in its preparation. Lawyers, accountants, marketing consultants, and
engineers are useful in the preparation of the plan. The Internet also provides a wealth of
information as well as actual sample templates or outlines for business planning. Most of these
sources are free of charge or have minimal fees for workshop attendance or to purchase or
download any information.

In many instances, entrepreneurs will actually hire or offer partnership to another person
who might provide the appropriate expertise in preparing the business plan as well as become an
important member of the management team. To help determine whether to hire a consultant or to
make use of other resources, the entrepreneur can make an objective assessment of his or her
own skills. For example, a sales engineer designed a new machine that allows a user to send a
10-second personalized message in a greeting card. The greeting card had particular appeal in
foreign countries. A primary concern was how best to market the machine: as a promotional tool
a firm could use for its distributors, suppliers, shareholders, or employees; or as a retail product
for end users. Also it was necessary to assess these skills as they may apply to any international
market opportunities. This entrepreneur, in assessing his skills, rated himself as excellent in
product design and sales, good in organizing, and only fair or poor in the remaining skills. To
supplement the defined weaknesses, the entrepreneur found a partner who could contribute those
skills that were lacking or weak. Through such an assessment, the entrepreneur can identify what
skills are needed and where to obtain them.

SCOPE AND VALUATION OF BUSINESS PLAN (WHO READS THE PLAN)

The business plan may be read by employees, investors, bankers, suppliers, customers, advisors,
and consultants. Since each of these groups reads the plan for different purposes, the
entrepreneur must be prepared to address all their issues and concerns. In some ways, the
business plan must try to satisfy the needs of everyone, whereas in the actual marketplace the
entrepreneur’s product will be trying to meet the needs of selected groups of customers.
However, there are probably three perspectives that should be considered in preparing the plan.

First is the perspective of the entrepreneur, who understands better than anyone else the
creativity and technology involved in the new venture. The entrepreneur must be able to clear
what the business is all about.
Second is the marketing perspective. Often, an entrepreneur will consider only the product
or technology and not whether someone would buy it. Entrepreneurs must try to view their
business through the eyes of their customer.
Third, the entrepreneur should try to view his or her business through the eyes of the
investor. Sound financial forecasts are required; if the entrepreneur does not have the skills to
prepare this information, then outside sources can be of used.
The depth and detail in the business plan depend on the size and scope of the proposed new
venture. An entrepreneur planning to market a new high-tech machine will need a
comprehensive business plan, largely because of the nature of the product and market. An
entrepreneur who plans to open a retail clothing store will not need the comprehensive coverage
required by a new high-tech machine manufacturer. Thus, differences in the scope of the
business plan may depend on whether the new idea is a service (involves manufacturing) or is a
consumer good or industrial product. The size of the market, competition, and potential growth
may also affect the scope of the business plan.
The business plan is valuable to the entrepreneur, potential investors, or even new personnel,
who are trying to familiarize themselves with the venture, its goals, and objectives.
The business plan is important to these people because:
 It helps determine the viability of the venture in a designated market.
 It provides guidance to the entrepreneur in organizing his or her planning activities.
 It serves as an important tool in helping to obtain financing.
Potential investors are very particular about what should be included in the business plan. As
stated above, even if some of the information is based on assumptions, the thinking process
required to complete the plan is a valuable experience for the entrepreneur since it forces him or
her to assess such things as cash flow and cash requirements. In addition, the thinking process
takes the entrepreneur into the future, leading him or her to consider important issues that could
impede the road to success.

PRESENTING THE PLAN

Often, colleges and universities or locally sponsored business meetings, offer an opportunity for
selected entrepreneurs to present their business plans in a competitive and structured setting.
Typically, each selected entrepreneur is asked to present the highlights of his or her business plan
in a defined time frame.
The entrepreneur is expected to “sell” his or her business concept in this designated period of
time. This implies that the entrepreneur must decide what to say and how to present the
information. Typically, the entrepreneur will focus on why this is a good opportunity, providing
an overview of the marketing program (how the opportunity will convert to reality and the
results of this effort (sales and profits).
Audiences at these presentations usually include potential investors who are given an opportunity
to ask pointed questions regarding any of the strategies conveyed in the business plan
presentation. After the completion of all the scheduled business plan presentations, a winner is
usually declared, with a financial reward that can range from $10,000 to $500,000. The benefit
of these competitions is not necessarily the financial award since there can be only one winner.
However, since the audience is made up of professional investors, there is always the opportunity
for any one of the business plans presented to attract the attention of a venture capitalist or
private investor. This interest may result in further negotiations and perhaps a future investment
in the new venture.
INFORMATION NEEDS

Before committing time and energy to preparing a business plan, the entrepreneur should do a
quick feasibility study of the business concept to see whether there are any possible barriers to
success. The information, obtainable from many sources, should focus on marketing, finance,
and production. The Internet can be a valuable resource for the entrepreneur. It should also be
noted here that if an entrepreneur is seeking an international market that the process would be the
same.
Before beginning the feasibility study, the entrepreneur should clearly define the goals
and objectives of the venture. These goals help define what needs to be done and how it will be
accomplished. These goals and objectives also provide a framework for the business plan,
marketing plan, and financial plan. Goals and objectives that are too general or that are not
feasible make the business plan difficult to control and implement.
For example, an entrepreneur starting a sporting goods store that specialized in offbeat
sports (e.g., rollerblading, skateboarding, and snowboarding) developed a business plan that
called for six stores to be opened by year two of the start-up. A friend and business confidant
read the plan and immediately asked the entrepreneur to explain how and where these stores
would be located. Not having a clear understanding of the answers to these questions suggested
to the entrepreneur that his business objectives needed to be much more reasonable and that they
needed to be clarified in the marketing and strategy segments of the plan. The business associate
explained to the entrepreneur that a business plan is similar to building a house, in that it is
necessary that each step in the process be related to the goals and objectives or outcome of the
construction.
From this experience, the entrepreneur rewrote the business plan to reflect more
reasonable goals and objectives. For example a lady is proving that with the right market niche
start-up opportunities still exist. In New York City, she has utilized an untapped niche—a
cupcake, beer, and wine bar—all part of an upscale bistro called Sweet Revenge. Scott has found
a way to market cupcakes by searching successful concepts in the restaurant industry. She also
sought information by taking pictures, talking to bartenders, studying lighting and furniture, and
noticing color combinations and so on to identify what an upscale bistro should look like. Her
information led to a fast financial success with revenue in year one of half a million dollars
including sales of about 143,000 cupcakes.
.
Market Information

One of the initial pieces of information needed by the entrepreneur is the market potential for the
product or service. To ascertain the size of the market, it is first necessary for the entrepreneur to
define the market. For example, is the product most likely to be purchased by men or women?
People of high income or low income? Rural or urban dwellers? Highly educated or less
educated people?
A well-defined target market will make it easier to project market size and subsequent
market goals for the new venture. For example, let’s assume that an entrepreneur in the
Islamabad area notes the success of businesses such as Hardees and mvdonalds Company and
thus is considering launching a food business that offers the convenience of “fast food” but with
the taste of a sit-down restaurant. With a huge tourism trade, the entrepreneur decides on a
mobile (food cart) crepe business that will include a number of carts situated in high-traffic
areas. To build a strong marketing plan with reasonable and measurable market goals and
objectives, the entrepreneur will need to gather information on the industry and market.
Most entrepreneurs have difficulty with this stage and do not often know where to
begin. The best way to start is to first visualize this process as an inverted pyramid (see Figure).
This means that we start with very broad-based data and information and work down until we
can develop a positioning strategy and quantifiable goals and objectives. All this information can
then be used in the industry analysis and marketing planning sections of the business plan.

As noted in above Figur, we begin the process by evaluating general environmental trends. This
would include household income trends, population shifts, food consumption habits and trends,
travel, and employment trends.
The next step is the assessment of trends in the national food service industry. We would
look for data on total food sales and commercial restaurant sales by type of restaurant..
Notice that the first two stages in above Figure focus on the national market, and the next two
stages consider trends in the local market where the business will be located. This consists of
general local economic trends and an assessment of the local food service industry.
 The final step is an analysis of the local competitive environment. In this example, the
entrepreneur would need to identify any restaurants, food stands, or push-cart food services that
could be competitors. Each local competitor’s strengths and weaknesses should be assessed. This
can be judged by using marketing research, evaluating the competitors’ Web sites, advertising,
menus, and locations; and reviewing any published articles that have appeared in the local media.
A spreadsheet can then be prepared with the list of competitors in the first column, followed by
columns devoted to their strengths and weaknesses.
Once all this analysis has been completed, the entrepreneur is ready to clarify the product
or service offering, actual market positioning in the competitive environment, and market
objectives.
Operations Information Needs
The relevance of a feasibility study of the manufacturing operations depends on the nature of the
business. Most of the information needed can be obtained through direct contact with the
appropriate source. The entrepreneur may need information on the following:
 Location.
The company’s location and its accessibility to customers, suppliers, and distributors need to be
determined.
 Manufacturing operations.
Basic machine and assembly operations need to be identified, as well as whether any of these
operations would be subcontracted and to whom.
 Raw materials.
The raw materials needed and suppliers’ names, addresses, and costs should be determined.
 Equipment.
The equipment needed should be listed, with its cost and whether it will be purchased or leased.

 Labor skills.
Each unique skill needed, the number of personnel required for each skill, pay rate, and an
assessment of where and how these skills will be obtained should be determined.
 Space.
The total amount of space needed should be determined, including whether the space will be
owned or leased.
 Overhead.
Each item needed to support manufacturing—such as tools, supplies, utilities, and salaries
should be determined.
Most of the preceding information should be incorporated directly into the business plan.
Each item may require some research, but this information is necessary to those who will assess
the business plan and consider funding the proposal.

FINANCIAL INFORMATION NEEDS

Before preparing the financial section of the business plan, the entrepreneur will need to prepare
a budget that includes a list of all possible expenditures in the first year and a list of all revenue
sources, including sales and any external available funds. Thus, the budget includes capital
expenditures, direct operating expenses, and cash expenditures for no expense items. The profit
from sales must be forecast from market data. To prepare the actual budget the entrepreneur will
need to identify benchmarks in the industry that can be used in preparing the final pro forma
statements in the financial plan. These benchmarks or norms establish reasonable assumptions
regarding expenditures based on industry history and trends. This is a very acceptable method to
arrive at the necessary projected costs for the new venture.
We return to our food business example. In projecting his costs for operating the business,
our entrepreneur might choose to consider the many secondary sources that provide percentage
norms for such costs. For example, these sources would provide percentage norms in the industry
for such costs as food, beverages, equipment, personnel, and licenses. Expenditures such as rent,
utilities, insurance, and personnel costs can also be ascertained from newspapers or
advertisements, or from phone conversations with real estate agents, insurance agents, equipment
suppliers, and the utility companies in the area. Some investors require five-year projections, so
the entrepreneur may need to clarify exactly what is needed by those who review the business
plan.