Mod001093 from innovation business model to startup 140315

MOD001093 MOD001093 ENTREPRENEURSHIP AND ENTREPRENEURSHIP AND

INNOVATION: INNOVATION: THE INNOVATION PROCESS THE INNOVATION PROCESS – FROM BUSINESS MODEL – FROM BUSINESS MODEL

TO STARTUPTO STARTUPProf.Stephen OngProf.Stephen Ong

BSc(Hons)Econs (LSE), MBA (Bradford)BSc(Hons)Econs (LSE), MBA (Bradford)

Visiting Professor, Shenzhen UniversityVisiting Professor, Shenzhen UniversityAcademic Fellow, Entrepreneurship & Innovation,Academic Fellow, Entrepreneurship & Innovation,

The Lord Ashcroft International Business School, Anglia The Lord Ashcroft International Business School, Anglia Ruskin University Cambridge UKRuskin University Cambridge UK

MBA ANGLIA RUSKIN UNIVERSITY MBA ANGLIA RUSKIN UNIVERSITY

Today’s Overview Today’s Overview

LEARNING OBJECTIVESLEARNING OBJECTIVES To evaluate an entrepreneurial To evaluate an entrepreneurial

idea or innovation;idea or innovation; To demonstrate its potential To demonstrate its potential

implementation within the implementation within the market – by devising a viable market – by devising a viable business model; business model;

To identify and assess the key To identify and assess the key elements of an effective business elements of an effective business start-up plan.start-up plan.

IDEA IDEA TO TO

BUSINESS BUSINESS MODEL MODEL

GENERATIONGENERATION

2 - 5

From ideas to From ideas to opportunitiesopportunities Linking supply and demand approachesLinking supply and demand approaches Is there a match between a social Is there a match between a social

entrepreneur’s idea and a need?entrepreneur’s idea and a need? According to Maslow, people address their According to Maslow, people address their

needs in orderneeds in order From the most basic physiological needsFrom the most basic physiological needs To higher order needsTo higher order needs

Social entrepreneurs can recognize when Social entrepreneurs can recognize when

lower level needs have lower level needs have NOTNOT been met been met

What is An What is An Opportunity?Opportunity?1 of 21 of 2

Opportunity Defined An opportunity is a favourableAn opportunity is a favourableset of circumstances thatset of circumstances thatcreates a need for a newcreates a need for a new

product, service, or business.product, service, or business.

2-6

What is an What is an Opportunity?Opportunity?2 of 22 of 2

Four Essential Qualities of an OpportunityFour Essential Qualities of an Opportunity

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Sources of opportunitiesSources of opportunities Technological changeTechnological change

Using the internet for political fundraisingUsing the internet for political fundraising Change in public policyChange in public policy

New opportunities for faith-based groupsNew opportunities for faith-based groups Changes in public opinionChanges in public opinion

Opposition to wars (Vietnam and Iraq)Opposition to wars (Vietnam and Iraq) Changes in tastesChanges in tastes

E.g., higher education adapts to student E.g., higher education adapts to student interestsinterests

Demographic changesDemographic changes Serve immigrants and help them assimilateServe immigrants and help them assimilate

Three Ways to Identify an Three Ways to Identify an OpportunityOpportunity

2-9

First Approach: Observing First Approach: Observing TrendsTrends1 of 21 of 2

Observing TrendsObserving Trends Trends create opportunities for Trends create opportunities for

entrepreneurs to pursue.entrepreneurs to pursue. The most important trends are:The most important trends are:

Economic forcesEconomic forces Social forcesSocial forces Technological advancesTechnological advances Political action and regulatory changePolitical action and regulatory change

It’s important to be aware of changes in It’s important to be aware of changes in these areas.these areas. 2-10

First Approach: Observing First Approach: Observing TrendsTrends2 of 22 of 2 Environmental Trends Suggesting Business

or Product Opportunity Gaps

2-11

Trend 1: Economic ForcesTrend 1: Economic Forces

Economic trends Economic trends help determine help determine

areas that are ripe areas that are ripe for new start-ups for new start-ups

and areas that and areas that start-ups should start-ups should

avoid.avoid.

Example of Economic Trend Creating a Favorable Opportunity

• A weak economy favors start-ups that help consumers save money.• An example is GasBuddy.com, a company started to help consumers save money on gas.

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Trend 2: Social ForcesTrend 2: Social Forces

Social trends alter Social trends alter how people and how people and

businesses behave businesses behave and set their and set their

priorities. These priorities. These trends provide trends provide

opportunities for opportunities for new businesses to new businesses to accommodate the accommodate the

changes.changes.

Examples of Social Trends

• Aging of baby boomers• The increasing diversity of the workplace• Increasing interest in social networks such as Facebook and Twitter• An increasing focus on health and wellness• Increasing interest in “green” products

2-13

Trend 3: Technological AdvancesTrend 3: Technological Advances1 of 21 of 2

Advances in Advances in technology technology frequently frequently

create business create business opportunities.opportunities.

Examples of Entire Industries that Have Been Created as the Result of Technological Advances

• Computer industry• Internet• Biotechnology• Digital photography

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Trend 3: Technological AdvancesTrend 3: Technological Advances2 of 22 of 2

Once a Once a technology is technology is

created, created, products often products often

emerge to emerge to advance it.advance it.

Example: H20Audio

An example is H20Audio, a company started by four former San Diego State University students, that makes waterproof housings for the Apple iPhone and iPod.

2-15

Trend 4: Political Action and Trend 4: Political Action and Regulatory ChangesRegulatory Changes1 of 21 of 2

Political action and regulatory changes also

provide the basis for opportunities.

General Example

Laws to protect the environment have created opportunities for entrepreneurs to start firms that help other firms comply with environmental laws and regulations.

2-16

Trend 4: Political Action and Trend 4: Political Action and Regulatory ChangesRegulatory Changes2 of 22 of 2

Company Company created to help created to help

other other companies companies

comply with a comply with a specific law.specific law.

Specific Example

The No Child Left Behind Act of 2002 requires states to develop criterion-based assessments in basic skills to be periodically given to students in certain grades. Kim and Jay Kleeman, two high school teachers, started Shakespeare Squared, a company that helps high schools comply with the act.

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Second Approach: Second Approach: SolvingSolving a Problem a Problem1 of 21 of 2

Solving a ProblemSolving a Problem Sometimes identifying opportunities Sometimes identifying opportunities

simply involves noticing a problem and simply involves noticing a problem and finding a way to solve it.finding a way to solve it.

These problems can be pinpointed These problems can be pinpointed through observing trends and through through observing trends and through more simple means, such as intuition, more simple means, such as intuition, serendipity, or change. serendipity, or change.

2-18

EmbraceEmbrace

THE PROBLEM

20,000,000 low-birth weight pre-mature babies

Hypothermia (Loss of body heat) kills 4,000,000 within first month

16,000,000 survivors face diabetes, heart disease and low IQ risks.

THE SOLUTION

New affordable innovative products for medical

Product Costs 1% of Western baby incubator

Second Approach: Solving a Second Approach: Solving a ProblemProblem2 of 22 of 2

• A problem facing the A problem facing the U.S. and other countries U.S. and other countries is finding alternatives to is finding alternatives to

fossil fuels.fossil fuels.• A large number of A large number of

entrepreneurial firms, entrepreneurial firms, like this solar farm, are like this solar farm, are being launched to solve being launched to solve

this problem. this problem.

2-20

Third Approach: Finding Gaps in Third Approach: Finding Gaps in the Marketplacethe Marketplace1 of 21 of 2 Gaps in the MarketplaceGaps in the Marketplace

A third approach to identifying A third approach to identifying opportunities is to find a gap in the opportunities is to find a gap in the marketplace.marketplace.

A gap in the marketplace is often created A gap in the marketplace is often created when a product or service is needed by a when a product or service is needed by a specific group of people but doesn’t specific group of people but doesn’t represent a large enough market to be of represent a large enough market to be of interest to mainstream retailers or interest to mainstream retailers or manufacturers.manufacturers.

2-21

GrameenPhone Bangladesh“Stay Close”

Market Gap

Low incomes of the rural poor unable to afford mobile communications

Disconnected rural communities

High middlemen costs in trade denying income improvements

http://tedblog.typepad.com/tedblog/2006/10/iqbal_quadir_on.html

Village Phone Fills the Gap

400,000 GP women operators in rural villages

Microfinance loan USD200 from Grameen bank

Universal access to mobile communications for 55,000 villages(2006) … 100,000,000 users

Improved personal and village incomes

http://tedblog.typepad.com/tedblog/2006/10/iqbal_quadir_on.html

Third Approach: Finding Gaps in Third Approach: Finding Gaps in the Marketplacethe Marketplace2 of 22 of 2

Product gaps in Product gaps in the marketplace the marketplace

represent represent potentially potentially

viable business viable business opportunities.opportunities.

Specific ExampleSpecific Example

In 2000 Tish Cirovolv In 2000 Tish Cirovolv realized there were no realized there were no guitars on the market made guitars on the market made specifically for women. To specifically for women. To fill this gap, she started fill this gap, she started Daisy Rock Guitars, a Daisy Rock Guitars, a company that makes guitars company that makes guitars just for women.just for women.

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Get information for Get information for socially-entrepreneurial socially-entrepreneurial ideasideas

Stocks of knowledge Intelligence and alertness

Education

Networks

Life experience

Work experience

Access to information Utilization of information

Creative process of ideas and opportunities

Personal Characteristics of the Personal Characteristics of the EntrepreneurEntrepreneur

Characteristics that tend to make some Characteristics that tend to make some people better at recognizing opportunities people better at recognizing opportunities

than othersthan others

Prior Experience Cognitive Factors

Social Networks Creativity

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Prior Experience

Prior Industry Experience Several studies have shown that prior experience in an

industry helps an entrepreneur recognize business opportunities. By working in an industry, an individual may spot a market niche

that is underserved. It is also possible that by working in an industry, an individual

builds a network of social contacts who provide insights that lead to recognizing new opportunities.

2-26

Cognitive Factors

Cognitive Factors Studies have shown that opportunity recognition may

be an innate skill or cognitive process. Some people believe that entrepreneurs have a “sixth

sense” that allows them to see opportunities that others miss.

This “sixth sense” is called entrepreneurial alertness, which is formally defined as the ability to notice things without engaging in deliberate search.

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Social Networks1 of 3

Social Networks The extent and depth of an individual’s social network

affects opportunity recognition. People who build a substantial network of social and

professional contacts will be exposed to more opportunities and ideas than people with sparse networks.

Research results suggest that between 40% and 50% of people who start a business got their idea via a social contact.

Strong Tie Vs. Weak Tie Relationships All of us have relationships with other people that are

called “ties.” (See next slide.)2-28


Nature of Strong-Tie Vs. Weak-Tie Relationships Strong-tie relationship are characterized by frequent

interaction and form between coworkers, friends, and spouses.

Weak-tie relationships are characterized by infrequent interaction and form between casual acquaintances.

Result It is more likely that an entrepreneur will get new

business ideas through weak-tie rather than strong-tie relationships. (See next slide.)

2-29


Strong-Tie Relationships Weak-Tie Relationships

These relationships, which typically form between like-minded individuals, tend to reinforce insights and ideas that people already have.

These relationships, which form between casual

acquaintances, are not as apt to be between like-

minded individuals, so one person may say something

to another that sparks a completely new idea.

Why weak-tie relationships lead to more new business ideas than strong-tie relationships

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CreativityCreativity1 of 21 of 2

CreativityCreativity Creativity is the process of generating Creativity is the process of generating

a novel or useful idea.a novel or useful idea. Opportunity recognition may be, at Opportunity recognition may be, at

least in part, a creative process.least in part, a creative process. For an individual, the creative process For an individual, the creative process

can be broken down into five stages, as can be broken down into five stages, as shown on the next slide.shown on the next slide.

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CreativityCreativity2 of 22 of 2

Five Steps to Generating Creative Ideas

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Full View of the Opportunity Full View of the Opportunity Recognition ProcessRecognition ProcessDepicts the connection between an awareness of emerging trends

and the personal characteristics of the entrepreneur

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Maslow’s hierarchy of needs Maslow’s hierarchy of needs and social entrepreneurship and social entrepreneurship potentialpotential

physiological

safety and security

belongingess

self-esteem

cognitive

aesthetic

self-actualization

self-transcendence

Proper nutrition

School and neighborhood safety

Community programs

Empowerment programs

Academic programs

The arts

College scholarships

Programs to create mentors

Maslow’s hierarchy Example programs that meet different needs

physiological

safety and security

belongingess

self-esteem

cognitive

aesthetic

self-actualization

self-transcendence

Proper nutrition

School and neighborhood safety

Community programs

Empowerment programs

Academic programs

The arts

College scholarships

Programs to create mentors

Maslow’s hierarchy Example programs that meet different needs

The social enterprise Mission statement It should be clear and succinct It should explain:

What the enterprise will do How it is entrepreneurial Why it is important

This should occur before planning activities A mission statement has goals and measures of

progress towards goal

EMBRACEEMBRACE VISION : Every woman and child has

an equal chance for a healthy life. MISSION : Advancing Maternal and

Child Health … by providing innovative solutions to

the world's most vulnerable populations

What a mission statement should specify What the enterprise will and will not do How it creates and measures value How an enterprise innovates or adapts How success will be measured

$80 for 15cents$80 for 15cents

… … Keep it to 3 WordsKeep it to 3 Words

MISSIONMISSIONNIKE 2012NIKE 2012

3 KEY WORDSINSPIRATIONINSPIRATIONINNOVATIONINNOVATIONATHLETEATHLETE

One Laptop per ChildOne Laptop per Child

http://one.laptop.org MISSIONMISSION To empowerempower

the world's poorest children through

education

We aim to We aim to provide each provide each child with a child with a rugged, low-rugged, low-cost, low-power, cost, low-power, connected connected laptop.laptop.

From social mission to From social mission to business modelbusiness model

Business model – a plan for how Business model – a plan for how the mission will be achieved and the mission will be achieved and how the enterprise will create how the enterprise will create valuevalue

A general description of how the A general description of how the enterprise will operate:enterprise will operate: Its missionIts mission Its strategic resourcesIts strategic resources Its partnersIts partners How it will serve its beneficiariesHow it will serve its beneficiaries

Business model for EMBRACEBusiness model for EMBRACE

Benefits of a good Benefits of a good mission statementmission statement It provides focusIt provides focus

Social entrepreneurs can stay on Social entrepreneurs can stay on target as they develop the concepttarget as they develop the concept

It helps to attract supportIt helps to attract support As a marketing tool, it brings As a marketing tool, it brings

other resources into the enterpriseother resources into the enterprise For example, volunteers, donors, For example, volunteers, donors,

partnerspartners

Threats to business models

Demand side threats A product or service that finds no

market – people don’t want it Its value is not accepted by clients

Supply side threats Too much capital needed, or too much

ongoing cost to sustain itself Either threat can derail an enterprise

Many social enterprises Many social enterprises failfail

Persistent lack of income is a Persistent lack of income is a common reasoncommon reason

A supply explanation would be that A supply explanation would be that costs are too highcosts are too high

A demand explanation would be A demand explanation would be that revenues are too lowthat revenues are too low

Both flaws can be examined in the Both flaws can be examined in the business modelbusiness model

What is a Business Model?What is a Business Model?

ModelModel A model is a plan or diagram that’s used to make or A model is a plan or diagram that’s used to make or

describe something.describe something.

Business ModelBusiness Model A firm’s business model is its plan or diagram for A firm’s business model is its plan or diagram for

how it competes, uses its resources, structures its how it competes, uses its resources, structures its relationships, interfaces with customers, and creates relationships, interfaces with customers, and creates value to sustain itself on the basis of the profits it value to sustain itself on the basis of the profits it generates.generates.

The term “business model” is used to include all the The term “business model” is used to include all the activities that define how a firm competes in the activities that define how a firm competes in the marketplace.marketplace.

Changing Business ModelsChanging Business Models

Dell’s Business ModelDell’s Business Model1 of 21 of 2 Beyond Its Own BoundariesBeyond Its Own Boundaries

It’s important to understand that a firm’s It’s important to understand that a firm’s business model takes it beyond its own business model takes it beyond its own boundaries.boundaries.

Almost all firms partner with others to Almost all firms partner with others to make their business models work.make their business models work.

In Dell’s case, it needs the cooperation of In Dell’s case, it needs the cooperation of its suppliers, customers, and many others its suppliers, customers, and many others to make its business model work.to make its business model work.

Dell’s Business ModelDell’s Business Model2 of 22 of 2

Dell’s Approach to Dell’s Approach to Selling PCs versus Selling PCs versus

Traditional Traditional ManufacturersManufacturers

The Importance of Business ModelsThe Importance of Business Models

Having a clearly articulated business model is Having a clearly articulated business model is important because it does the following:important because it does the following:

• Serves as an ongoing extension of feasibility analysis. Serves as an ongoing extension of feasibility analysis. A business model continually asks the question, “Does A business model continually asks the question, “Does this business make sense?”this business make sense?”• Focuses attention on how all the elements of a Focuses attention on how all the elements of a business fit together and constitute a working whole.business fit together and constitute a working whole.• Describes why the network of participants needed to Describes why the network of participants needed to make a business idea viable are willing to work together.make a business idea viable are willing to work together.• Articulates a company’s core logic to all stakeholders, Articulates a company’s core logic to all stakeholders, including the firm’s employees. including the firm’s employees.

Diversity of Business ModelsDiversity of Business Models

Diversity or Variety in Business Models

• There is no standard There is no standard business model for an business model for an industry or for a target industry or for a target market within an industry. market within an industry. • However, over time, the However, over time, the most successful business most successful business models in an industry models in an industry predominate.predominate.• There are always There are always opportunities for business opportunities for business model innovation.model innovation.

How Business Models Emerge How Business Models Emerge 1 of 31 of 3

The Value ChainThe Value Chain The value chain is the string of activities that moves The value chain is the string of activities that moves

a product from the raw material stage, through a product from the raw material stage, through manufacturing and distribution, and ultimately to manufacturing and distribution, and ultimately to the end user.the end user.

By studying a product’s or service’s value chain, an By studying a product’s or service’s value chain, an organization can identify ways to create additional organization can identify ways to create additional value and assess whether it has the means to do so.value and assess whether it has the means to do so.

Value chain analysis Value chain analysis is also helpful in identifying is also helpful in identifying opportunities for new businesses and in opportunities for new businesses and in understanding how business models emerge.understanding how business models emerge.


The Value ChainThe Value Chain


The Value Chain (continued)The Value Chain (continued) Entrepreneurs look at the value chain of a Entrepreneurs look at the value chain of a

product or a service to pinpoint where the value product or a service to pinpoint where the value chain can be made more effective or to spot chain can be made more effective or to spot where additional “value” can be added.where additional “value” can be added.

This type of analysis may focus on:This type of analysis may focus on: A single primary activity such as marketing and sales.A single primary activity such as marketing and sales. The interface between one stage of the value chain and The interface between one stage of the value chain and

another, such as the interface between operations and another, such as the interface between operations and outgoing logistics.outgoing logistics.

One of the support activities, such as human resource One of the support activities, such as human resource management.management.

Potential Fatal Flaws in Business ModelsPotential Fatal Flaws in Business Models

Fatal FlawsFatal Flaws Two fatal flaws can render a Two fatal flaws can render a

business model untenable from the business model untenable from the beginning:beginning:A complete misread of the customerA complete misread of the customerUtterly unsound economicsUtterly unsound economics

Components of a Business ModelComponents of a Business Model

Four Components of a Four Components of a Business ModelBusiness Model

Core StrategyCore Strategy1 of 31 of 3

Core StrategyCore Strategy The first component of a business The first component of a business

model is the core strategy, which model is the core strategy, which describes how a firm competes relative describes how a firm competes relative to its competitors.to its competitors.

Primary Elements of Core StrategyPrimary Elements of Core Strategy Mission statementMission statement Product/market scopeProduct/market scope Basis for differentiationBasis for differentiation

Core Strategy2 of 3

Primary Elements of Core Strategy

Mission Mission StatementStatement

Product/Market Scope

A company’s product/market scope defines the products and markets on

which it will concentrate.

A firm’s mission, or mission statement, A firm’s mission, or mission statement, describes why it exists and what its describes why it exists and what its

business model is supposed to business model is supposed to accomplish. accomplish.

Core Strategy3 of 3

Primary Elements of Core Strategy

Basis of Differentiation

It is important that a new venture differentiate itself from its competitors in

some way that is important to its customers. If a new firm’s products or

services aren’t different from those of its competitors, why should anyone try

them?

Strategic ResourcesStrategic Resources1 of 31 of 3 Strategic ResourcesStrategic Resources

A firm is not able to implement a strategy A firm is not able to implement a strategy without resources, so the resources a firm has without resources, so the resources a firm has affect its business model substantially.affect its business model substantially. For a new venture, its strategic resources may For a new venture, its strategic resources may

initially be limited to the competencies of its founders, initially be limited to the competencies of its founders, the opportunity they have identified, and the unique the opportunity they have identified, and the unique way they plan to serve their market.way they plan to serve their market.

The two most important strategic resources are:The two most important strategic resources are: A firm’s core competenciesA firm’s core competencies Strategic assetsStrategic assets

Strategic ResourcesStrategic Resources2 of 32 of 3

Primary Elements of Strategic Resources

Core Core CompetenciesCompetencies

Strategic Strategic AssetsAssets

A core competency is a resource or A core competency is a resource or capability that serves as a source of a firm’s capability that serves as a source of a firm’s competitive advantage. Examples include competitive advantage. Examples include Sony’s competence in miniaturization and Sony’s competence in miniaturization and

Dell’s competence in supply chain Dell’s competence in supply chain management.management.

Strategic assets are anything rare and Strategic assets are anything rare and valuable that a firm owns. They include valuable that a firm owns. They include plant and equipment, location, brands, plant and equipment, location, brands,

patents, customer data, a highly qualified patents, customer data, a highly qualified staff, and distinctive partnerships. staff, and distinctive partnerships.

Strategic ResourcesStrategic Resources3 of 33 of 3 Importance of Strategic ResourcesImportance of Strategic Resources

New ventures ultimately try to combine their core New ventures ultimately try to combine their core competencies and strategic assets to create a competencies and strategic assets to create a sustainable competitive advantage.sustainable competitive advantage.

This factor is one that investors pay close attention This factor is one that investors pay close attention to when evaluating a business. to when evaluating a business.

A sustainable competitive advantage is achieved A sustainable competitive advantage is achieved by implementing a value-creating strategy that is by implementing a value-creating strategy that is unique and not easy to imitate.unique and not easy to imitate.

This type of advantage is achievable when a firm This type of advantage is achievable when a firm has strategic resources and the ability to use them.has strategic resources and the ability to use them.

Partnership NetworkPartnership Network1 of 31 of 3 Partnership NetworkPartnership Network

A firm’s partnership network is the third A firm’s partnership network is the third component of a business model. New ventures, in component of a business model. New ventures, in particular, typically do not have the resources to particular, typically do not have the resources to perform key roles. perform key roles.

In most cases, a business does not want to do In most cases, a business does not want to do everything itself because the majority of tasks everything itself because the majority of tasks needed to build a product or deliver a service are needed to build a product or deliver a service are not core to a company’s competitive advantage.not core to a company’s competitive advantage.

A firm’s partnership network includes:A firm’s partnership network includes: SuppliersSuppliers Other key relationshipsOther key relationships

Partnership NetworkPartnership Network2 of 32 of 3

Primary Elements of Partnership NetworkPrimary Elements of Partnership Network

SuppliersSuppliers

Other Other Key Key

RelationRelationshipsships

A supplier is a company that A supplier is a company that provides parts or services to provides parts or services to

another company. Intel is Dell’s another company. Intel is Dell’s primary suppler for computer chips, primary suppler for computer chips,

for example. for example.

Firms partner with other companies to Firms partner with other companies to make their business models work. An make their business models work. An

entrepreneur’s ability to launch a firm that entrepreneur’s ability to launch a firm that achieves a competitive advantage may achieves a competitive advantage may

hinge as much on the skills of the partners hinge as much on the skills of the partners as on the skills within the firm itself. as on the skills within the firm itself.

Partnership NetworkPartnership Network3 of 33 of 3

The Most Common Types of Business The Most Common Types of Business PartnershipsPartnerships

Customer InterfaceCustomer Interface1 of 31 of 3 Customer InterfaceCustomer Interface

The way a firm interacts with its customer The way a firm interacts with its customer hinges on how it chooses to compete.hinges on how it chooses to compete. For example, Amazon.com sells books over the For example, Amazon.com sells books over the

Internet while Barnes & Noble sells through its Internet while Barnes & Noble sells through its traditional bookstores and online.traditional bookstores and online.

The three elements of a company’s customer The three elements of a company’s customer interface are:interface are: Target customerTarget customer Fulfillment and supportFulfillment and support Pricing modelPricing model

Customer InterfaceCustomer Interface2 of 32 of 3

Primary Elements of Customer Interface

Target Target MarketMarket

Fulfillment Fulfillment and and

SupportSupport

A firm’s target market is the A firm’s target market is the limited group of individuals or limited group of individuals or businesses that it goes after or businesses that it goes after or

tries to appeal to. tries to appeal to.

Fulfillment and support describes Fulfillment and support describes the way a firm’s product or service the way a firm’s product or service

reaches its customers. It also refers reaches its customers. It also refers to the channels a company uses and to the channels a company uses and

what level of customer support it what level of customer support it provides. provides.

Customer InterfaceCustomer Interface3 of 33 of 3

Primary Elements of Customer InterfacePrimary Elements of Customer Interface

Pricing Pricing StructureStructure

The third element of a The third element of a company’s customer company’s customer interface is its pricing interface is its pricing

structure. Pricing models structure. Pricing models vary, depending on a vary, depending on a

firm’s target market and firm’s target market and its pricing philosophy. its pricing philosophy.

Recap: The Importance of Business Recap: The Importance of Business ModelsModels Business ModelsBusiness Models

It is very useful for a new venture to look at itself in It is very useful for a new venture to look at itself in a holistic manner and understand that it must a holistic manner and understand that it must construct an effective “business model” to be construct an effective “business model” to be successful. successful.

Everyone that does business with a firm, from its Everyone that does business with a firm, from its customers to its partners, does so on a voluntary customers to its partners, does so on a voluntary basis. As a result, a firm must motivate its basis. As a result, a firm must motivate its customers and its partners to play along.customers and its partners to play along.

Close attention to each of the primary elements of a Close attention to each of the primary elements of a firm’s business model is essential for a new firm’s business model is essential for a new venture’s success.venture’s success.

Osterwalder’s Business Osterwalder’s Business ModelModel

http://www.businessmodelgeneration.com/canvas

Business Model of FacebookBusiness Model of Facebook

Business Model of ZyngaBusiness Model of Zynga

FROM FROM BUSINESS BUSINESS MODELMODEL TO TO

BUSINESS BUSINESS STARTUPSTARTUP

4 - 76

Feasibility AnalysisFeasibility Analysis

Entrepreneurs do not lack creative Entrepreneurs do not lack creative ideas, but …ideas, but …

Is a particular idea a viable Is a particular idea a viable foundation for creating a successful foundation for creating a successful business? business?

Feasibility study addresses the Feasibility study addresses the question: “Should we proceed with question: “Should we proceed with this business idea?”this business idea?”

4 - 77

A feasibility study: Is not the same as a business plan.

Serves as a filter, screening out ideas that lack the potential for building a successful business before an entrepreneur commits the necessary resources to building a business plan.

Is an investigative tool.

Feasibility Feasibility AnalysisAnalysis

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Industry and Industry and Market FeasibilityMarket Feasibility

Product or ServiceProduct or ServiceFeasibilityFeasibility

FinancialFinancialFeasibilityFeasibility

Elements of a Feasibility Analysis

4 - 79

Industry and Market Feasibility

Product or ServiceProduct or ServiceFeasibilityFeasibility



4 - 80

Industry and Market Industry and Market Feasibility Feasibility AnalysisAnalysisTwo areas of focus:Two areas of focus:

1.1. Determining how attractive an Determining how attractive an industry is overall as a “home” industry is overall as a “home” for a new business.for a new business.

2.2. Identifying possible niches a Identifying possible niches a small business can occupy small business can occupy profitably. profitably.

4 - 81

Five Forces Model

Five forces interact with one another to determine the setting in which companies compete and, hence, the attractiveness of the industry:

1. Rivalry among companies in the industry2. Bargaining power of suppliers3. Bargaining power of buyers4. Threat of new entrants5. Threat of substitute products or services

4 - 82

Five Forces Model

Industry Competitors

Rivalry among existing firms

Buyers

Bargaining PowerBargaining Powerof Buyersof Buyers

Suppliers

Bargaining PowerBargaining Powerof Suppliersof Suppliers

Substitutes

PotentialEntrants

Threat ofThreat ofNew EntrantsNew Entrants

Threat of SubstituteThreat of SubstituteProducts or ServicesProducts or Services

4 - 83

Five Forces Model



Buyers


Suppliers


Substitutes

PotentialEntrants



4 - 84

Rivalry Among Companies

Strongest of the five forces Industry is more attractive when:

Number of competitors is large, or, at the other extreme, quite small

Competitors are not similar in size or capacity Industry is growing fast Opportunity to sell a differentiated product or

service exists

4 - 85

Five Forces Model



Buyers


Suppliers


Substitutes

PotentialEntrants



4 - 86

Bargaining Power of Suppliers

The greater the leverage of suppliers, the less attractive the industry.

Industry is more attractive when: Many suppliers sell a commodity product Substitutes are available Switching costs are low Items account for a small portion of the cost of

finished products

4 - 87

Five Forces Model



Buyers


Suppliers


Substitutes

PotentialEntrants



4 - 88

Bargaining Power of Buyers

Buyers’ influence is high when number of customers is small and cost of switching to a competitor’s product is low.

Industry is more attractive when: Customers’ switching costs are high Number of buyers is large Customers want differentiated products Customers find it difficult to collect information for

comparing suppliers Items account for a small portion of customers’ finished

products

4 - 89

Five Forces Model



Buyers


Suppliers


Substitutes

PotentialEntrants



4 - 90

Threat of New Entrants

The larger the pool of potential new entrants, the less attractive an industry is.

Industry is more attractive to new entrants when: Advantages of economies of scale are absent.

Capital requirements to enter are low

Cost advantages are not related to company size

Buyers are not loyal to existing brands

Government does not restrict the entrance of new companies

4 - 91

Five Forces Model



Buyers


Suppliers


Substitutes

PotentialEntrants



4 - 92

Threat of Substitutes

Substitute products or services can turn an industry on its head.

Industry is more attractive to new entrants when:

Quality substitutes are not readily available

Prices of substitute products are not significantly lower than those of the industry’s products

Buyers’ switching costs are high

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Five Forces Matrix

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Business PrototypingBusiness Prototyping

Entrepreneurs test their business models on a small scale before committing serious resources to launch a business that might not work.

Recognizes that a business idea is a hypothesis that needs to be tested before taking it full scale.

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Product or ServiceFeasibility



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Product or Service Feasibility Analysis Determines the degree to which a product or

service idea appeals to potential customers and identifies the resourced necessary to produce it.

Two questions:1. Are customers willing to purchase our

product or service?2. Can we provide the product or

service to customers at a profit?

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Product or Service Feasibility Analysis

Primary research: Collect data firsthand and analyze it. Customer surveys and questionnaires Focus groups

Secondary research: Gather data that already has been compiled and analyze it.

Prototypes In-home trials

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Product or ServiceProduct or Service FeasibilityFeasibility

FinancialFeasibility


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Financial Feasibility Financial Feasibility AnalysisAnalysis Capital requirements –an estimate Capital requirements –an estimate

of how much start-up capital is of how much start-up capital is required to launch the business.required to launch the business.

Estimated earnings – forecasted Estimated earnings – forecasted income statementsincome statements

Return on investment – Combining Return on investment – Combining the previous two estimates to the previous two estimates to determine how much investors can determine how much investors can expect their investments to return. expect their investments to return.

Breakeven Analysis

Breakeven point - the level of operation at which a business neither earns a profit nor incurs a loss.

A useful planning tool because it shows entrepreneurs minimum level of activity required to stay in business.

With one change in the breakeven calculation, an entrepreneur can also determine the sales volume required to reach a particular profit target.

Calculating the Breakeven PointStep 1. Determine the expenses the business can expect to

incur.

Step 2. Categorize the expenses in step 1 into fixed expenses and variable expenses.

Step 3. Calculate the ratio of variable expenses to net sales. Then compute the contribution margin:

Contribution Margin = Contribution Margin = 1 - 1 - Variable ExpensesVariable ExpensesNet Sales EstimateNet Sales Estimate

Step 4.Step 4. Compute the breakeven point: Compute the breakeven point:

Breakeven Point ($)Breakeven Point ($) = = Total Fixed Costs Total Fixed Costs Contribution MarginContribution Margin

Calculating the Breakeven Calculating the Breakeven Point – Case:The Magic ShopPoint – Case:The Magic Shop

Step 1.Step 1. Net Sales estimate is $950,000 with Cost of Goods Sold of Net Sales estimate is $950,000 with Cost of Goods Sold of $646,000 and total expenses $646,000 and total expenses of $236,500. of $236,500.

Step 2.Step 2. Variable Expenses: $705,125 Variable Expenses: $705,125Fixed Expenses: $177,375Fixed Expenses: $177,375

Step 3.Step 3. Contribution margin: Contribution margin:

Contribution Margin = Contribution Margin = 1 - 1 - $705,125$705,125$950,000$950,000

StepStep 4. 4. Breakeven Point:Breakeven Point:

Breakeven PointBreakeven Point$$

= = $177,375$177,375

.26.26

= .26= .26

= $682,212= $682,212

FIGURE 11.8 Break-Even Chart for the Magic Shop

DEVELOPING DEVELOPING AA

BUSINESS PLANBUSINESS PLAN

What Is a Business Plan?What Is a Business Plan?

Business PlanBusiness Plan A business plan is a written narrative, A business plan is a written narrative,

typically 25 to 35 pages long, that typically 25 to 35 pages long, that describes what a new business plans to describes what a new business plans to accomplish.accomplish.

Dual-Use DocumentDual-Use Document For most new ventures, the business For most new ventures, the business

plan is a dual-purpose document used plan is a dual-purpose document used both inside and outside the firm.both inside and outside the firm.

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Who Reads the Business Plan—And What Are They Looking For?

There are two primary audiences for a firm’s business plan

Audience What They are Looking For

A Firm’s Employees

Investors and other external stakeholders

A clearly written business plan helps the employees of a firm operate in sync and move

forward in a consistent and purposeful manner.

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.

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Guidelines for Writing a Business Plan1 of 5

Structure of the Business PlanStructure of the Business Plan To make the best impression a business plan To make the best impression a business plan

should follow a conventional structure, such as should follow a conventional structure, such as the outline for the business plan shown in the the outline for the business plan shown in the chapter.chapter.

Although some entrepreneurs want to Although some entrepreneurs want to demonstrate creativity, departing from the demonstrate creativity, departing from the basic structure of the conventional business basic structure of the conventional business plan is usually a mistake. plan is usually a mistake.

Typically, investors are busy people and want a Typically, investors are busy people and want a plan where they can easily find critical plan where they can easily find critical information.information. 4-107


Structure of the Business Plan (continued)Structure of the Business Plan (continued) Software PackagesSoftware Packages

There are many software packages available that There are many software packages available that employ an interactive, menu-driven approach to employ an interactive, menu-driven approach to assist in the writing of a business plan. assist in the writing of a business plan.

Some of these programs are very helpful. However, Some of these programs are very helpful. However, entrepreneurs should avoid a boilerplate plan that entrepreneurs should avoid a boilerplate plan that looks as though it came from a “canned” source.looks as though it came from a “canned” source.

Sense of ExcitementSense of Excitement Along with facts and figures, a business plan needs to Along with facts and figures, a business plan needs to

project a sense of anticipation and excitement about project a sense of anticipation and excitement about the possibilities that surround a new venture.the possibilities that surround a new venture.

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Content of the Business PlanContent of the Business Plan The business plan should give clear and concise The business plan should give clear and concise

information on all the important aspects of the information on all the important aspects of the proposed venture. proposed venture.

It must be long enough to provide sufficient It must be long enough to provide sufficient information yet short enough to maintain reader information yet short enough to maintain reader interest. interest.

For most plans, 25 to 35 pages is sufficient.For most plans, 25 to 35 pages is sufficient.

Types of Business PlansTypes of Business Plans There are three types of business plans, which are There are three types of business plans, which are

shown on the next slide.shown on the next slide.

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Types of Business Plans

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Recognizing the Elements of the Recognizing the Elements of the Plan May ChangePlan May Change It’s important to recognize that the It’s important to recognize that the

plan will usually change while written.plan will usually change while written. New insights invariably emerge when New insights invariably emerge when

an entrepreneur or a team of an entrepreneur or a team of entrepreneurs immerse themselves in entrepreneurs immerse themselves in writing the plan and start getting writing the plan and start getting feedback from others.feedback from others.

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The Business PlanThe Business Plan

A written summary of:A written summary of: An entrepreneur’s proposed business ventureAn entrepreneur’s proposed business venture The operational and financial detailsThe operational and financial details The marketing opportunities and strategyThe marketing opportunities and strategy The managers’ skills and abilities. The managers’ skills and abilities.

A business plan is the best insurance against A business plan is the best insurance against launching a business destined to fail or launching a business destined to fail or mismanaging a potentially successful mismanaging a potentially successful company. company.

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The Business Plan:Two Essential Functions

1. Guiding the company by charting its future course and defining its strategy for following it.

2. Attracting lenders and investors who will provide needed capital.

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A Plan Must Pass Three TestsA Plan Must Pass Three Tests

1. The Reality Test – proving that : A market really does exist for your product or service. You can actually build or provide it for the cost estimates

in the plan.

2. The Competitive Test – evaluates: A company’s position relative to its competitors. Management’s ability to create a company that will gain

an edge over its rivals.

3. The Value Test – proving that: A venture offers investors or lenders an attractive rate of

return or a high probability of repayment.

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Why Take the Time to Build a Business Plan?

Although building a plan does not guarantee success, it does increase your chances of succeeding in business.

A plan is like a road map that serves as a guide on a journey through unfamiliar, harsh, and dangerous territory. Don’t attempt the trip without a map!

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Key Elements of a Business PlanKey Elements of a Business Plan

Title Page and Table of ContentsTitle Page and Table of Contents Executive SummaryExecutive Summary Vision and Mission StatementVision and Mission Statement Company HistoryCompany History Business and Industry ProfileBusiness and Industry Profile

OurBusinessPlan

4 - 117

FIGURE 4.3

Mission, Goalsand Objectives

4 - 118

Key Elements of a Business Key Elements of a Business PlanPlan Title Page and Table of ContentsTitle Page and Table of Contents Executive SummaryExecutive Summary Mission StatementMission Statement Company HistoryCompany History Business and Industry ProfileBusiness and Industry Profile Business StrategyBusiness Strategy Description of Products/ServicesDescription of Products/Services

TheBusinessPlan

4 - 119

Features vs. BenefitsFeatures vs. Benefits Feature – a descriptive fact about a Feature – a descriptive fact about a

product or service:product or service:“an ergonomically designed, “an ergonomically designed,

more comfortable handle” more comfortable handle”

Benefit – what a customer gains Benefit – what a customer gains from the product or service feature:from the product or service feature:

“fewer problems with carpal “fewer problems with carpal tunnel syndrome and tunnel syndrome and increased productivity” increased productivity”

4 - 120

Key Elements of a Business Key Elements of a Business PlanPlan

Marketing StrategyMarketing Strategy Document market claimsDocument market claims Show customer interestShow customer interest

Competitor AnalysisCompetitor Analysis Description of Management TeamDescription of Management Team Plan of OperationPlan of Operation Projected Financial StatementsProjected Financial Statements Loan or Investment ProposalLoan or Investment Proposal

(continued)(continued)

OurBusinessPlan

TheBusinessPlan

4 - 121

Guidelines for PreparingGuidelines for Preparinga Business Plana Business Plan Remember: No one can create your plan Remember: No one can create your plan forfor you. you. Potential lenders want to see financial Potential lenders want to see financial

projections, but they are more interested in the projections, but they are more interested in the strategiesstrategies for reaching those projections. for reaching those projections.

Show how you plan to set your business apart Show how you plan to set your business apart from competitors; don’t fall into the “me too” from competitors; don’t fall into the “me too” trap.trap.

Identify your target market and offer evidence Identify your target market and offer evidence that customers for your product or service exist. that customers for your product or service exist.

4 - 122

Tips on PreparingTips on Preparinga Business Plana Business Plan

Make sure your plan has an attractive cover. (First impressions are crucial.)

Rid your plan of all spelling and grammatical errors.

Make your plan visually appealing.

Include a table of contents to allow readers to navigate your plan easily.

Make it interesting.

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Tips on PreparingTips on Preparinga Business Plana Business Plan Your plan must prove that the business will Your plan must prove that the business will

make money (not necessarily immediately, but make money (not necessarily immediately, but eventually).eventually).

Use spreadsheets to generate financial forecasts.Use spreadsheets to generate financial forecasts.

AlwaysAlways include cash flow projections. include cash flow projections.

Keep your plan “crisp” – between 25 and 40 pages Keep your plan “crisp” – between 25 and 40 pages long.long.

Tell the truth – Tell the truth – alwaysalways. .


4 - 124

The “5 Cs” of CreditThe “5 Cs” of Credit

Capital Capacity Collateral Character Conditions

Outline of Business PlanOutline 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 decide which elements to include in his or her plan.

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Section 1: Executive SummarySection 1: Executive Summary1 of 21 of 2

Executive SummaryExecutive Summary The executive summary is a short The executive summary is a short

overview of the entire business plan overview of the entire business plan It provides a busy reader with It provides a busy reader with

everything that needs to be known everything that needs to be known about the new venture’s distinctive about the new venture’s distinctive nature.nature.

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

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Executive Summary

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.

Section 1: Executive Summary2 of 2

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Section 2: Industry AnalysisSection 2: Industry Analysis1 of 21 of 2

Industry AnalysisIndustry Analysis This section should begin by describing the This section should begin by describing the

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

Items to include in this section:Items to include in this section: Industry size, growth rate, and sales projectionsIndustry size, growth rate, and sales projections Industry structureIndustry structure Nature of participantsNature of participants Key success factorsKey success factors Industry trendsIndustry trends Long-term prospectsLong-term prospects

4-128

Industry Analysis

Key Insights

• Before a business selects a target market it should have a good grasp of its industry—including where its promising areas are and where its points of vulnerability are.• The industry that a company participates in largely defines the playing field that a firm will participate in.

Section 2: Industry AnalysisSection 2: Industry Analysis2 of 22 of 2

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Section 3: Company DescriptionSection 3: Company Description1 of 21 of 2

Company DescriptionCompany Description This section begins with a general This section begins with a general

description of the company.description of the company. Items to include in this section:Items to include in this section:

Company descriptionCompany description Company historyCompany history Mission statementMission statement Products and servicesProducts and services Current statusCurrent status Legal status and ownershipLegal status and ownership Key partnerships (if any)Key partnerships (if any)

4-130

Company Description

Key Insights

• While at first glance this section may seem less important than the others, it is extremely important.• It demonstrates to your reader that you know how to translate an idea into a business.

Section 3: Company DescriptionSection 3: Company Description2 of 22 of 2

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Section 4: Market Analysis1 of 2

Market Analysis The market analysis breaks the industry into segments

and zeros in on the specific segment (or target market) to which the firm will try to appeal.

Items to include in this section: Market segmentation and target market selection Buyer behavior Competitor analysis

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Market Analysis

Key Insights

• Most start-ups do not service their entire industry. Instead, they focus on servicing a specific (target) market within the industry.• It’s important to include a section in the market analysis that deals with the behavior of the consumers in the market. The more a start-up knows about the consumers in its target market, the more it can tailor its products or services appropriately.

Section 4: Market AnalysisSection 4: Market Analysis2 of 22 of 2

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Section 5: The Economics of the Section 5: The Economics of the BusinessBusiness1 of 21 of 2 This section addresses the basic logic of how This section addresses the basic logic of how

profits are earned in the business and how profits are earned in the business and how many units of a business’s profits must be many units of a business’s profits must be sold for the business to “break even” and sold for the business to “break even” and then start earning a profit.then start earning a profit.

Items to include in this section:Items to include in this section: Revenue drivers and profit marginsRevenue drivers and profit margins Fixed and variable costsFixed and variable costs Operating leverage and its implicationsOperating leverage and its implications Start-up costsStart-up costs Break-even chart and calculationsBreak-even chart and calculations

4-134

The Economics The Economics of the Businessof the Business

Key Insights

• Two companies in the same industry may make profits in different ways. One may be a high-margin, low -volume business, while the other may be a low-margin, high-volume business. It’s important to check to make sure the approach you select is sound.• Computing a break-even analysis is an extremely useful exercise for any proposed or existing business.

Section 5: The Economics of the Section 5: The Economics of the BusinessBusiness2 of 22 of 2

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Section 6: Marketing PlanSection 6: Marketing Plan1 of 21 of 2

Marketing PlanMarketing Plan The marketing plan focuses on how the The marketing plan focuses on how the

business will market and sell its business will market and sell its product or service.product or service.

Items to include in this section:Items to include in this section: Overall marketing strategyOverall marketing strategy Product, price, promotions, and Product, price, promotions, and

distributiondistribution Sales process (or Cycle)Sales process (or Cycle) Sales tacticsSales tactics

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Marketing Plan

Key Insights

• The best way to describe a start-up’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.• It’s also important to discuss the company sales process.

Section 6: Marketing PlanSection 6: Marketing Plan2 of 22 of 2

4-137

Section 7: Design and Development Section 7: Design and Development PlanPlan1 of 21 of 2 Design and Development PlanDesign and Development Plan

If you’re developing a completely new If you’re developing a completely new product or service, you need to include a product or service, you need to include a section in your business plan that focuses on section in your business plan that focuses on the status of your development efforts.the status of your development efforts.

Items to include in this section:Items to include in this section: Development status and tasksDevelopment status and tasks Challenges and risksChallenges and risks Projected development costsProjected development costs Proprietary issues (patents, trademarks, Proprietary issues (patents, trademarks,

copyrights, licenses, brand names)copyrights, licenses, brand names)4-138

Design and Design and Development PlanDevelopment Plan

Key Insights

• Many seemingly promising start-ups never get off the ground because their product development efforts stall or the actual development of the product or service turns out to be more difficult than thought.• As a result, this is a very important section for businesses developing a completely new product or service.

Section 7: Design and Development Section 7: Design and Development PlanPlan2 of 22 of 2

4-139

Section 8: Operations PlanSection 8: Operations Plan1 of 21 of 2

Operations PlanOperations Plan Outlines how your business will be run and Outlines how your business will be run and

how your product or service will be how your product or service will be produced.produced.

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

Items to include in this section:Items to include in this section: General approach to operationsGeneral approach to operations Business locationBusiness location Facilities and equipmentFacilities and equipment

Section 8: Operations PlanSection 8: Operations Plan2 of 22 of 2

Operations Operations PlanPlan

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.

4-141

Section 9: Management Team and Section 9: Management Team and Company StructureCompany Structure1 of 21 of 2 Management Team and Company Management Team and Company

StructureStructure The management team of a new venture The management team of a new venture

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

Items to include in this section:Items to include in this section: Management teamManagement team Board of directorsBoard of directors Board of advisersBoard of advisers Company structureCompany structure

4-142

Section 9: Management Team and Section 9: Management Team and Company StructureCompany Structure2 of 22 of 2

Management Management Team and Team and Company Company StructureStructure

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.

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Section 10: Overall Section 10: Overall ScheduleSchedule1 of 21 of 2

Overall ScheduleOverall Schedule A schedule should be prepared that shows the A schedule should be prepared that shows the

major events required to launch the business.major events required to launch the business. The schedule should be in the format of The schedule should be in the format of

milestones critical to the business’s success.milestones critical to the business’s success. Examples of milestones:Examples of milestones:

Incorporating the ventureIncorporating the venture Completion of prototypesCompletion of prototypes Rental of facilitiesRental of facilities Obtaining critical financingObtaining critical financing Starting productionStarting production Obtaining the first saleObtaining the first sale

4-144

Section 10: Overall ScheduleSection 10: Overall Schedule2 of 22 of 2

Overall Overall ScheduleSchedule

Key Insight

• An effectively prepared and An effectively prepared and presented schedule can bepresented schedule can be

extremely helpful in extremely helpful in convincing potential investors convincing potential investors that the management team is that the management team is aware of what needs to take aware of what needs to take

place to launch the venture and place to launch the venture and has a plan in place to get has a plan in place to get

there.there.

4-145

Section 11: Financial Section 11: Financial ProjectionsProjections1 of 21 of 2

Financial ProjectionsFinancial Projections The final section of a business plan The final section of a business plan

presents a firm’s pro forma (or presents a firm’s pro forma (or projected) financial projections. projected) financial projections.

Items to include in this section:Items to include in this section: Sources and uses of funds statementSources and uses of funds statement Assumptions sheetAssumptions sheet Pro forma income statementsPro forma income statements Pro forma balance sheetsPro forma balance sheets Pro forma cash flowsPro forma cash flows Ratio analysisRatio analysis 4-146

Section 11: Financial Section 11: Financial ProjectionsProjections2 of 22 of 2

Financial Financial ProjectionsProjections

Key Insights

• Having completed the Having completed the earlier sections of the plan, earlier sections of the plan, its easy to see why the its easy to see why the financial projections comefinancial projections come last.last.• They take the plans you’ve They take the plans you’ve developed and express developed and express them in financial terms.them in financial terms.

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Presenting the Business Plan to InvestorsPresenting the Business Plan to Investors1 of 21 of 2

The Oral PresentationThe Oral Presentation The first rule in making an oral presentation is to The first rule in making an oral presentation is to

follow directions. If you’re told you have 15 follow directions. If you’re told you have 15 minutes, don’t talk for more than the allotted time.minutes, don’t talk for more than the allotted time.

The presentation should be smooth and well-The presentation should be smooth and well-rehearsed.rehearsed.

The slides should be sharp and not cluttered.The slides should be sharp and not cluttered.

Questions and Feedback to Expect from Questions and Feedback to Expect from InvestorsInvestors The smart entrepreneur has a good idea of the The smart entrepreneur has a good idea of the

questions that will be asked, and will be prepared questions that will be asked, and will be prepared for those queries.for those queries. 4-148

Presenting the Business Plan to InvestorsPresenting the Business Plan to Investors2 of 22 of 2

Twelve PowerPoint Slides to Include in an Investor Presentation

1.1. Title SlideTitle Slide2.2. ProblemProblem3.3. SolutionSolution4.4. Opportunity & Opportunity & Target MarketTarget Market5. Technology 5. Technology 6. Competition6. Competition

7.7. Marketing & SalesMarketing & Sales8.8. Management TeamManagement Team9.9. Financial Financial

projectionsprojections10.10. Current statusCurrent status11.11. Financing soughtFinancing sought12.12. SummarySummary

4 - 150

Presenting the PlanPresenting the Plan Demonstrate enthusiasm, but don’t be Demonstrate enthusiasm, but don’t be

overemotional.overemotional. Know your audience thoroughly. Know your audience thoroughly. ““Hook” investors quickly with an up-front Hook” investors quickly with an up-front

explanation of the venture, its explanation of the venture, its opportunities, and its benefits to them.opportunities, and its benefits to them.

Hit the highlights; focus on Hit the highlights; focus on the details later.the details later.

Keep your presentationKeep your presentationsimple – 2 or 3 major points. simple – 2 or 3 major points.

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Presenting the PlanPresenting the Plan

Avoid overloading your audience with Avoid overloading your audience with technological jargon.technological jargon.

Use visual aids.Use visual aids. Close by reinforcing the nature of the Close by reinforcing the nature of the

opportunity. opportunity. Be prepared (with details) for potential Be prepared (with details) for potential

investors’ questions.investors’ questions. Follow up with every investor to whom Follow up with every investor to whom

you make your presentation.you make your presentation.


FINANCIAL FINANCIAL MILESTONESMILESTONES

BUSINESS BUSINESS MODELMODEL

The 360° CUBE PitchThe 360° CUBE Pitch

Six Posters in a 6 minute Investor Pitch

SOCIAL SOCIAL PROBLEMPROBLEM

VISION & VISION & MISSIONMISSION

MARKETING & MARKETING & SALESSALES

OPERATIONS TEAM OPERATIONS TEAM & KEY PARTNERS& KEY PARTNERS

4 - 153

SummarySummary There are no guarantees for success.There are no guarantees for success. Creating a business plan will be valuable Creating a business plan will be valuable

primarily because of the process itself.primarily because of the process itself. The business planning process may The business planning process may

provide insight to increase the chances for provide insight to increase the chances for success.success.

The business plan: Entrepreneurs benefit; The business plan: Entrepreneurs benefit; lenders and investors demand it!lenders and investors demand it!

154

ConclusionConclusion

““Innovation : the successful Innovation : the successful implementation of novel and implementation of novel and appropriate ideas within an appropriate ideas within an

organisation.” 3Morganisation.” 3M

Further ReadingFurther Reading Osterwalder, A. & Pigneur Y. (2010) Osterwalder, A. & Pigneur Y. (2010) “Business Model “Business Model

Generation”, Wiley Generation”, Wiley Tidd, Bessant & Pavitt (2009) Tidd, Bessant & Pavitt (2009) “Managing Innovation – “Managing Innovation –

integrating technological, market and organizational integrating technological, market and organizational change”, Wiley, Chichester, 4th edition change”, Wiley, Chichester, 4th edition

Barringer, Bruce R. & Ireland, R. Duane (2011) Barringer, Bruce R. & Ireland, R. Duane (2011) Entrepreneurship-Successfully launching new ventures Entrepreneurship-Successfully launching new ventures 44thth edition, Pearson.edition, Pearson.

Williams, Sara (2012) The Financial Times Guide to Williams, Sara (2012) The Financial Times Guide to Business Start Up 2013: The Most Comprehensive Business Start Up 2013: The Most Comprehensive Annually Updated Guide for Entrepreneurs, 26th edition, Annually Updated Guide for Entrepreneurs, 26th edition, Pearson. Pearson.

Lester, D. (2012) Start Your Own Business 2013, 5th Lester, D. (2012) Start Your Own Business 2013, 5th edition, Crimson Publishing, Richmond UK. edition, Crimson Publishing, Richmond UK.

QUESTIONS?

Mod001093 from innovation business model to startup 140315

Business

business opportunities

business model generation2

viable business model

important trends

social forcessocial

example of economic

examples of social trends

environmental trends