SEM 5 - B.P - Albert LEC.2a

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Chapter One

Why Plan?

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

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Chapter One

Why 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 bookCopyright © 2009 Pearson Education, Inc.

publishing as Prentice Hall 1-8


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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

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 Support

Business 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 investment

Many 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 Style

Conventional structure

25 to 35 pages in length

Look sharp but not too expensive or flashy


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Structure and Style

Elevator 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


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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


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Types of Business

Four distinct types of businesses

– Survival– Lifestyle–Managed growth– Aggressive growth


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Types of Business

Survival

Provides its ownerjust enough money toput food on the tableand pay bills


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Types of Business

Lifestyle

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


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Types of Business

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)


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Types of Business

Aggressive growth

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


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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 ThreePreparing 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 Words

Business 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


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Chapter One

Why Plan?

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any

means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher.

Printed in the United States of America.

Copyright ©2009 Pearson Education, Inc. publishing as Prentice Hall

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