Chapter 10 Outline
1. INTRODUCTION
2. TWO FAMOUS BUSINESS PLANS
3. WRITING A BUSINESS PLAN
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Need for a Business Plan
• To provide a clearly articulated statement of
goals and strategies (road map) for internal
use.
• To serve as a selling document to be shared
with outsiders.
– For customers & suppliers
– For lenders
– For investors
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10-2 Two Famous Business Plans
• Entrepreneurs of today are more likely to
succeed if they take the time to develop a
detailed business plan before they begin.
• Two famous business plan examples:
– FedEx
– Amazon.com
• Each of these businesses was based on a
fundamental idea that only became real after the
founders crafted business plans that guided them
through their early days.
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10-2a FedEx
• FedEx is arguably one of the world’s most
successful businesses.
– Its 2003 sales topped $22 billion, and its brand is one of
the most recognized on the planet.
• Fred Smith, the FedEx CEO, founded the
company in 1971.
– He was an undergraduate student at Yale, where he
wrote a paper that was to become the idea behind
FedEx.
– In his paper, he pointed out that growth in the computer
industry was dependent on the development of a new
type of logistic system
• One that could speed computer parts to remote corners of the
country to keep businesses up and running.
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10-2b Amazon.com
• Jeff Bezos—graduated from Princeton University
and landed a job on Wall Street.
– Bezos observed that Internet usage was increasing by
2,300 percent a year.
– He saw an opportunity for a new sphere of commerce
and immediately began considering the possibilities.
– Bezos knew that the only way to seize the opportunity
was to go into business for himself.
– On July 16, 1995, Bezos opened his site to the world.
– In thirty days, Amazon had sold books in all fifty states
and forty-five foreign countries.
– By September, it had sales of $20,000 a week.
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Features of Plans that Attract
Investors
-Are brief, not too long in written length
-Have an attractive overall appearance
-Are well organized with a table of contents
and numbered pages.
-Are market oriented in meeting customer
needs; are not product or feature oriented.
-Show evidence of customer acceptance of the
proposed product/service.
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Features of Plans that Attract
Investors (cont.)
-Recognize the investors’ need for required
rates of return on investments.
-Demonstrate evidence of focus on a limited
number of products or services.
-Have a proprietary market position through
patents, copyrights, and/or trademarks (or
other methods of sustaining a competitive
advantage-usu. a distinctive competency).
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Features of Plans Unattractive to
Investors
• Show infatuation with the product or
service and downplay market needs or
acceptance.
• Are based on financial projections at odd
with industry trends or norms.
• Have unrealistic growth projections
• Contain a need for custom or applications
engineering, which makes growth difficult.
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10-3 Writing a Business Plan
(cont.)
• Seven good reasons that entrepreneurs should
write a business plan:
–
–
–
–
–
–
–
To sell oneself on the business
To obtain bank financing
To obtain investment funds
To arrange strategic alliances
To obtain large contracts
To attract key employees
To motivate and focus the management team
• Research has demonstrated that solid business
planning can help entrepreneurs avoid
unnecessary mistakes.
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Business Exhibit 10-1 Outline for
a Plan (cont.)
• Executive summary—always the same but some
plans split out the Mission/Vision Statement
• Company information—a.k.a. Company
Overview
• Product or service description—a.k.a. Product
or Services Plan
• Competitive analysis—sometimes included in a
section called the Marketing Plan which includes
this with market analysis.
• Market analysis—sometimes part of the
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Marketing Plan
Business Exhibit 10-1 Outline for
a Plan (cont.)
• Industry analysis—sometimes included in
the competitive analysis
• Management team—a.k.a. Management
Plan
• Marketing plan—always part of the plan,
may include some of the above
• Financial projections—a.k.a. Financial
Plan
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Exhibit 10-1 Outline for a
Business Plan
•
•
•
•
•
•
•
•
•
Executive summary
Company information
Product or service description
Competitive analysis
Market analysis
Industry analysis
Management team
Marketing plan
Financial projections
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10-3 Writing a Business Plan
(cont.)
• The executive summary is probably the most
important section of any business plan.
– It must present a realistic appraisal of the business,
usually in one to three pages.
– Tips for writing an effective executive summary:
•
•
•
•
•
•
•
Write everything else first
Write in plain language
Describe the business
Describe the market size
Identify the target market share
Identify competitive advantages
Describe the investment opportunity
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10-3a Company Information
• The company information section includes:
– Basic details about the company
– The company’s legal form and state or country
in which the business is incorporated
– The ownership structure of a business
– The company’s mission statement
– A brief overview of the company’s operating
history
– A brief statement about how the venture was
conceived can be useful
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10-3b Product or Service
Description
• The product or service section describes the new
venture’s product or service in details.
– Sufficient to enable investors a working understanding
of what the company sells
– May include photographs, schematic drawings, and
descriptive scenarios about how the product or service
is used by customers
– If patents, copyrights, or other forms of intellectual
property protection have been put in place, this section
highlights the status of those measures
– Entrepreneurs writing this section focus on the benefits
of each feature of their product or service
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10-3c Competitive Analysis
• The competitive analysis section examines:
– The markets that the competitors serve and the
strategies they employ in those markets
– The various barriers to entry encountered as it attempts
to distribute its products or services in markets.
– The expected response from competitors when the new
venture enters the existing markets.
– Reasonable judgments that might occur and
counterstrategies to combat them.
– A features and benefits matrix that highlights the new
venture’s product or service.
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10-3d Market Analysis
• The market analysis section of the business
plan is designed:
– To provide insights into the target market for
the products or services offered by the venture
– There are several common ways for
entrepreneurs to delineate the market for their
new venture, including:
•
•
•
•
Demographics
Psychographics
Geography
Sociographics
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10-3e Industry Analysis
• The industry analysis section of a business plan
focuses on:
– Identifying the current health, maturity, and future
prospects of the industry
• Industry health: Whether the industry is marked by innovation,
growth, and dynamism, or whether it is in decline.
• Maturity: A reflection of its health.
– Growth stage: Achieved critical mass in terms of
market size and now has enough active customers to
sustain a growing number of competitors.
• The challenge is whether the company can scale itself quickly
enough to capture a significant market position.
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10-3e Industry Analysis (cont.)
• Despite the growth in the industry, many new ventures fail
during this phase of the industry life cycle.
– Mature stage: Characterized by steady or slowly
growing industry-wide revenues.
• A few well-established brands dominate the industry and
control much of the market share.
• Despite the lack of growth, the mature stage can be attractive
to a new venture due of the industry’s stability.
• Innovation is less important than outright execution.
• Customers have well-established buying patterns and
preferences.
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10-3e Industry Analysis (cont.)
– Decline stage: Characterized by falling industry-wide
revenues, consolidation of competitors, and falling
prices and profit margins.
• Tend to eliminate competitors who are least efficient in their
delivery of products and services
– Another industry variable that a business plan addresses
is the future prospects of the industry.
– There can be several ways of forecasting industry
trends.
• Direct means: to plot industry size over the past five to ten
years on a graph and then extrapolate the graph forward.
• To examine what industry analysts are saying about an
industry’s growth potential is yet another way.
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10-3f Management Team
• Management team: Emphasizes the relevant
expertise that each team member brings to the
enterprise.
– It highlights the strengths of other stakeholders who
will contribute management or consulting expertise.
– Listing of board members is useful to provide details
about what the various board members contribute to the
organization.
– An alternative to a board of directors is an advisory
board.
– It also lists appointed legal counsel or other
professional service firms that add value to the venture.
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10-3g Marketing Plan
• Marketing plan describes:
– How the new venture intends to enter its chosen
markets
– How it intends to acquire customers
• Market entry strategy describes the approach the firm takes to
introduce its products.
–
Firms can use a wide range of market entry strategies, including
the onslaught strategy, guerrilla marketing, and the feint strategy.
• Marketing techniques range from advertising to public
relations and promotions.
– The marketing plan budget specifies the likely costs of
the early-stage advertising and promotions campaigns.
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10-3h Financial Projections
• Financial projections include:
– Sales forecast lists:
• The various products or services that the company intends to
sell
• The price they will sell at
• The number of units of each item that will be sold each month
– Income statement records:
• The venture’s gross revenues per month
• Subtracts all monthly expenses, both variable and fixed
– Cash flow statement:
• Tracks the movement of cash into and out of the venture
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10-3h Financial Projections
(cont.)
– The balance sheet provides:
• A snapshot of how the venture is using money it earns through
operations
• How money that has been invested or loaned
• The balance sheet equation is:
–
Assets = Liabilities + Owners’ Equity
• Balance sheet enables a quick review of the company’s debtto-equity position and other so-called key ratios.
– The wise entrepreneur develops conservative financial
statements that present achievable numbers.
• Entrepreneurs must be cautious to develop financial estimates
that are reasonable yet compelling.
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