Chapter One

Why Plan?

CHAPTER 1

FEDA 1331• BUSINESS PLANNING

Why Plan?

CHAPTER 1

FEDA 1331• BUSINESS PLANNING

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Chapter OneWhy plan?

– Reasons for writing a business plan– Who reads the business plan—and

what are they looking for?– Guidelines for writing a business

plan– Types of business– The plan for the book

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Introduction• Increased interest in the study of

entrepreneurship

• 2,100 colleges and universities offer entrepreneurship coursework

• About 400,000 students took at least one entrepreneurship course in 2005

• 72% of American adults have considered starting a business

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The Business Plan• A written document that

carefully explains every aspect of a new business venture

• Inside the firm, the business plan is used to develop a road map

• Outside the firm, the business plan introduces potential investors and other stakeholders to the business opportunities

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Reasons for Writing a Business Plan

Two main reasons to write a business plan:

– Internal—Forces the founders of the firm to think through every aspect of their new venture

– External—Communicates the merits of a new venture to outsiders, such as investors and bankers

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External SupportBusiness incubator

An organization that provides physical space and other resources to new firms in hopes of promoting economic development in a specific area

Investors rely on the business plan to make decisions on initial investmentMany investors ask for an executive summary—a short overview of the business plan—describing the merits of a new venture

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Who reads the business plan and what are they looking for?

Two primary audiences– Firm’s employees

• Looking for the vision and future of the firm

– Investors and other stakeholders• Investors, potential business

partners, potential customers, grant awarding agencies who are being recruited

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Guidelines• Structure and style of the business

plan

• Content of the business plan

• Measuring the business plan against your personal goals and aspirations

• Recognizing that elements of the plan may change

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Structure and StyleConventional

structure

25 to 35 pages in length

Look sharp but not too expensive or flashy

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Structure and StyleElevator speech

A brief, carefully constructed statement, usually 45 seconds to 2

minutes long that outlines the merits of a

business venture or business plan insight

feature

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Elevator Speech Four steps in an elevator

speech(from business plan insight feature)

1.Describe the opportunity2.Describe how your product or

service meets the opportunity3.Describe your qualifications4.Describe your market

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Red Flags• Founders with none of their

own money at risk

• A poorly cited plan

• Defining the market size too broadly

• Overly aggressive financials

• Hiding or avoiding weakness

• Sloppiness in any area

• Too long of a plan

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Content of the Business Plan

• Sections• Convince the

reader that the opportunity is exciting, feasible, defensible and within the capabilities of the people who will be launching the firm

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Measuring the Business Plan Against Your Personal Goals and Aspirations

Venture capital

Venture capitalists aim for 30 to 40% annual return and

total return of 5 to 20 times their original investment over the life of the investment

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Venture Capital

• Using venture capital involves surrendering equity in the firm to outsiders in exchange for their investment and accepting heavy scrutiny

• Some entrepreneurs find it better to launch a firm in a target market and solicit funds from friends, family, or a lender

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Recognizing that Elements of the Business Plan May Change

Corridor principle– Academic principle that

states once an entrepreneur starts a business, he or she begins a journey down a path where corridors leading to new venture opportunities become apparent

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The business plan is a living, breathing document,

rather than something set in

stone

Recognizing that Elements of the Business Plan May Change

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Write deliberate (but) act emergent

• Create a deliberate plan that is a specific blueprint to follow

• Think emergent with a mindset that is open to change and influenced by the realities of the marketplace

Recognizing that Elements of the Business Plan May Change

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Types of Business

Four distinct types of businesses

– Survival– Lifestyle– Managed growth– Aggressive growth

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Survival

Provides its ownerjust enough money

toput food on the

tableand pay bills

Types of Business

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Lifestyle

Provides its owner the opportunity to pursue a certain lifestyle and make a living at it (clothing boutique, personal trainer)

Types of Business

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Managed growth

Employs 10 or more people, may have several outlets, and may be introducing new products or services to the market(regional restaurant chain, multi-unit franchise)

Types of Business

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Aggressive growth

Bringing new products and services to the market and has aggressive growth plans (computer software, medical equipment, national restaurant chain)

Types of Business

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The Plan for the Book

• Section One: Starting the process• Section Two: What to do before the

business plan is written• Section Three: Preparing a business

plan• Section Four: Presenting the business

plan

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Section One

Starting the process

– A business plan is an essential document for a firm to have at its disposal, particularly if it plans to reach out to others to try to gain access to resources

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Section Two

What to do before the business plan is written

– Comprehensive process– Four steps of the comprehensive

feasibility analysis/business planning process

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Comprehensive Feasibility Analysis

1. Identifying a business idea2. Screening the idea to

determine its initial feasibility3. Conducting a full feasibility

analysis to determine if proceeding with a business plan is warranted

4. Writing the plan

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Section Three

Preparing a business plan

– How to complete each section of a business plan

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Section Four

Presenting the business plan to investors and others

– Suggestions for how to make effective presentations using PowerPoint slides and how to field questions from an audience effectively

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Key WordsBusiness plan

A written document that carefully explains every aspect of a new business venture

Business incubator An organization that provides physical

space and other resources to new firms in hopes of promoting economic development in a specific area

Executive summary A short overview of a business plan or a

set of PowerPoint slides describing the merits of a new venture

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Key Words

Stealth mode Companies that formulate their

business plans in secret, to avoid tipping off potential competitors as to what they're planning

Corridor principle An academic principle which states that

once an entrepreneur starts a business, he or she begins a journey down a path where corridors leading to new venture opportunities become apparent