The Business Plan: Visualizing The Dream
The Business Plan: Visualizing The Dream
The Business Plan: Visualizing The Dream
CHAPTER
6
The Business Plan: Visualizing
the Dream
According to the World Health Organization After studying this chapter,
In the SPOTLIGHT you should be able to. . .
(WHO), approximately 1,000 women die
Maternova
every day from preventable causes linked to http://maternova.net 6-1. Explain the purpose and
pregnancy and childbirth. A full 99 percent objectives of business plans.
of these deaths occur in developing coun- platform, where health-care workers can 6-2. Give the rationale for writing
tries, with women in poor rural communi- connect globally. (or not writing) a business plan when
ties most at risk. Most of these problems Looking for capital to fund this new starting a new venture.
can be avoided through skilled care during enterprise, Wirth and her small 6-3. Explain the concept and
childbirth. team entered business plan com- process for developing a firm’s
petitions and two startup incuba- business model.
Meg Wirth spent five years with
tors in hopes of gaining visibility 6-4. Describe the preferred
Commons Capital, where she identified
content and format for a
challenges in global health. Based on her and needed cash. In fact, entering
business plan.
research, Wirth founded Maternova in 2009 business plan competitions has
6-5. Offer practical advice on
as a mission-driven, for-profit organization. served as part of the team’s overall
writing a business plan.
The company adopted a two-pronged bootstrapping strategy. In the process,
6-6. Explain how to pitch to investors.
approach to driving revenue: (1) the aggre- they have discovered that the chance
6-7. Identify available sources of
gation and sales of select low-tech medical to present a business plan to the right
assistance in preparing a business
devices in a pioneering e-commerce mar- audience makes entering these compe- plan.
ketplace, and (2) an innovative open-source titions a no-brainer. 6-8. Maintain the proper perspective
when writing a business plan.
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Through their participation in business plan competitions, the • Do your research: It pays to apply to competitions that are the
Maternova team has garnered a number of benefits, including the best fit for your company.
following: • Use good business plan software: The format for your business
• Growth in business relationships and an expanded plan should be very professional and help you easily convey
international network of partners business goals, current and future capabilities, and mission.
• Valuable press coverage nationally and internationally • Know your audience: Select an audience that will be aligned
with your mission.
• Annual compounded revenue growth of over 200 percent
• Positioning of the company for government contracts To find out about business plan competitions, you don’t have
to look far. Many universities and colleges with business and
• Expanded product lines and improved online capabilities to
entrepreneurship programs sponsor them annually. Also, a large
drive client revenue
number of online resources, including www.bizplancompetitions.
The Maternova team credits online business-planning soft- com, provide directories and calendars of national and interna-
ware called LivePlan for helping them turn their business model tional competitions.
into a winning business plan. (LivePlan was developed by Palo
Sources: Written by Sherisa Aguirre, Senior Content Strategist, Palo Alto Software.
Alto Software to walk an entrepreneur through the process of Resources include http://maternova.net, accessed January 21, 2015; http://www.
writing a plan, along with providing advice when needed.) liveplan.com, accessed January 21, 2015; and http://www.bizplancompetitions.com,
accessed January 21, 2015.
The Maternova team offers these tips for anyone considering
entering a business plan competition:
W hen you mention an idea for a new business to a friend who’s also a business
owner, she says, “You’ll need to prepare a business plan.” While the business
idea sounds great, spending hours writing some formal document is not exactly your
idea of fun, and you wonder if it is really necessary. After all, you know an entrepreneur
who started and successfully grew a company based on an idea developed on the back
of a napkin over dinner at a local restaurant. And isn’t it true that the founders of such
notable companies as Microsoft, Dell Computers, Rolling Stone magazine, and Calvin
Klein all started their businesses without business plans?
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Writing a business plan is an opportunity to assess if a good idea is also a good invest-
ment opportunity. It needs to provide evidence that your business can sell enough products
or services to make a satisfactory profit. Also, as emphasized in Chapter 1, your personal
aspirations and motivations deserve careful thought. If the business does not align with
your personal goals, you are not likely to succeed, and you certainly will not enjoy the journey.
A business plan, if done well, is a tool to be used by company insiders for direction
and to aid in the development of relationships with outsiders who could help the
company achieve its goals. Exhibit 6.1 provides an overview of those who might have
an interest in a business plan for a proposed venture.
The first group consists of the internal users of the plan: the entrepreneur, the
new firm’s management, and its employees. The business plan provides a framework
that helps the entrepreneur and the management team focus on important issues and
activities for the new venture. And it helps the entrepreneur communicate his or her
vision to current and prospective employees of the firm.
The business plan can also be helpful with outsiders. To make the company
successful, the entrepreneur must convince outsiders—potential customers, suppliers,
lenders, and investors—to become linked with the firm. Why should they do business
with your startup, rather than with an established firm? They need evidence that you
will be around in the future. Professor Amar Bhide at Tufts University, who conducts
extensive research in strategy and entrepreneurship, explains, “Some entrepreneurs
may have an innate capability to outperform their rivals, acquire managerial skills,
and thus build a flourishing business. But it is difficult for customers (and others) to
identify founders with these innate capabilities.”2
Insiders Outsiders
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true that studies attempting to measure the success of entrepreneurs with business
plans against the success of those without them have produced mixed results. Some
findings suggest a relationship; others find none.
Thus, an entrepreneur must find the right balance between planning and becoming
operational. No matter how well your plan has been thought out, unexpected events
will happen. One of the key attributes of a successful entrepreneurial team is adapt-
ability, regardless of what the business plan says to do. Boxer Mike Tyson once com-
mented, “Everybody has a plan until they get punched in the face.” Starting a business
can be a bit like a prizefight.4 You plan, but then you have to adapt to the obstacles
that will surely arise.
Vinay Gupta spent six months attending conferences, meeting with consultants,
and writing a 60-page business plan before launching an outsourcing consulting firm
for mid-sized businesses. It soon became clear that far fewer mid-sized firms actually
sought outsourcing help than his research had suggested. So he scrapped his original
idea and developed outsourcing-management software geared toward companies with
annual revenues of more than $1 million. While the planning helped Gupta learn about
the industry, it had not pointed out the fundamental flaw in his original idea—there
were not enough customers willing to buy his services.5
The benefits of a business plan also depend on the individual circumstances sur-
rounding the startup. Consider the following situations where an extensive business
plan may not be of much benefit:
•• For some startups, the environment is too turbulent for extensive planning to be
beneficial. Entrepreneurs in new fields may find that there is not enough informa-
tion to allow them to write a comprehensive plan. In this case, an entrepreneur’s
ability to adapt may be more important than a careful plan for the future.
•• Planning may pose a problem when the timing of the opportunity is a critical
factor. Becoming operational as quickly as possible may have to take priority
over in-depth planning, but be careful not to use timing as an easy excuse not
to write a business plan.
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•• A business may be so constrained by a shortage of capital that planning is
not an option. In a study of firms identified by Inc. magazine as the fastest-
growing firms in the United States, Amar Bhide concluded that planning
may not make sense for some companies: “Capital-constrained entrepreneurs p
cannot afford to do much prior analysis and research. The limited profit U
r lt s
potential and high uncertainty of the opportunity they usually pursue also aT o o
St
make the benefits low compared to the costs.”6
Although there are times when writing a carefully documented business plan is Should You Write a
not needed, more often than not entrepreneurs resist writing a business plan because Business Plan?
Before you decide not to
they lack the discipline to do so. Frank Moyes, a successful entrepreneur who for many
write a plan, consider that a
years taught courses on business planning at the University of Colorado, offers the lender or other investor might
following observation: demand to see a business
plan before investing in your
Perhaps the most important reason to write a business plan is that it requires you to venture. Wouldn’t you require
engage in a rigorous, thoughtful, and often painful process that is essential before the same before investing
your personal savings or, even
you start a venture. It requires you to answer hard questions about your venture.
more important, your family’s
Why is there a need for your product/service? Who is your target market? How savings?
is your product/service different than your competitor? What is your competitive
advantage? How profitable is the business, and what are the cash flows? How should
you fund the business?7
So, a business plan may not be needed in some situations, especially if you are the
only person working in the business. But if you want to capture the future potential
of an opportunity and make a difference in lives, planning is the rule, not the excep-
tion. Remember Ewing Marion Kauffman’s words from Chapter 1, “You should not
choose to be a common company. It is your right to build an uncommon company if
you can.”8 Building an uncommon company requires thoughtful planning and then
execution. Deciding what you want the business to be and to accomplish is vital and
deserves considerable thought. Above all, be intentional, which comes from having to
justify your beliefs and assumptions about your startup—that is what a business plan
is all about.
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capturing an opportunity. A short plan is an abbreviated form of the traditional
business plan, which addresses only the most important issues in a firm’s success,
including the following:
•• The problem that needs to be solved for customers
short plan
An abbreviated business •• The strategy that will be developed to solve the problem
plan that presents only the •• The business model (to be described shortly)
most important issues and
projections for the business. •• Measures used to gauge success
•• Milestones to be met
•• Tasks and responsibilities of the team
A short plan can also be used when
trying to attract investors to the b
usiness.
Some investors will want to begin by
reading the full comprehensive business
plan on the way to making a decision
about the investment. Others will want to
see an abbreviated presentation to learn
whether the business idea sparks their
interest. They might want to hear a 15- to
30-minute presentation, consisting of 10
© DT10/Shutterstock.com
to 15 PowerPoint slides, or what is called
a pitch (discussed more fully later in the
chapter).
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6-3a What Is a Business Model?
While widely discussed in business circles, business models are little understood by
most businesspeople in small and large firms alike. Simply stated, a business model
p
explains in a systematic and clear way how a business will generate profits and cash Uc e
flows. It is the “nuts and bolts” of how a business will make money. As such, it mea- t
r ur
taso
sures the anticipated financial outcomes of the management’s strategic decisions and S e R
activities that determine a company’s profits and cash flows. It is also important to
Information about
remember that businesses do not operate in a vacuum: The eventual success or failure
Business Models
of a business model depends in large part on how it interacts with the business models The following resources offer
of competitors. additional information about
business models:
• Andrea Ovans, “What
6-3b Developing a Business Model Is a Business Model?”
Harvard Business Review,
Some business models are easy to understand. A firm produces a product and/or January 23, 2015,
service and sells it to customers; if sales exceed expenses, the company makes a profit. https://hbr.org/2015/01/
what-is-a-business-model.
Other models are less straightforward. For instance, television broadcasting is part • Alexander Osterwalder,
of a complex network of distributors, content creators, advertisers, and viewers. How Value Proposition Canvas
the eventual profits and cash flows are created and shared depends on a number of (Hoboken, NJ: John Wiley
competing factors, which are not always clear at the outset. Furthermore, e-commerce & Sons, 2014, http://www.
is giving rise to new business models. Consider auctions, one of the oldest ways for businessmodelgeneration.
com/downloads/value_
setting prices for such things as agricultural commodities and antiques. Today, the
proposition_canvas.pdf.
Internet has popularized the auction model and broadened its use to a wide array of • Alexander Osterwalder
goods and services. and Yves Pigneur,
In a startup, where there is so much uncertainty, a business model forces an entre- Business Model Generation
preneur to be disciplined and avoid wishful thinking about financial projections. When (Hoboken, NJ: John Wiley
it comes time to create a business plan, the entrepreneur needs to know the drivers & Sons, 2010).
Webinars:
that will determine the firm’s future profits and cash flows. And a business model can • “Business Model Canvas
provide the best evidence as to whether a business concept can be translated into a Explained,” https://
viable, profitable business and the size of the investment required to make it happen. www.youtube.com/
Exhibit 6.2 provides a basic overview of the process for building a business model for watch?v5QoAOzMTLP5s.
a company with two sources of revenues. • “How to Design,
Test and Build Busi-
As shown at the top of Exhibit 6.2, an entrepreneur should begin by developing the
ness Models,” https://
venture’s mission statement, its strategic goals, and the principles that are to guide its www.youtube.com/
operations. Four key elements then make up the business model: (1) the revenue model, watch?v5RzkdJiax6Tw.
(2) cost structures, (3) the required resources to grow the business, and (4) business
model risk. Let’s briefly consider each element.
Revenue Model
The revenue model identifies the nature and types of a company’s sources of revenue.
The more common revenue models follow:
•• Volume or unit-based revenue model. Customers pay a fixed price per unit in
exchange for a product or service.
•• Subscription/membership revenue model. Customers pay a fixed amount at
regular intervals, prior to receiving a product or service.
•• Advertising-based revenue model. Customers pay based on cost per impression,
cost per click, or cost per acquisition.
•• Licensing revenue model. Customers pay a one-time licensing fee to be able to
use or resell the product or service.
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E X H I B I T
Develop:
Activities to
create value for REVENUE • Mission statement COST/EXPENSE
customers MODEL • Strategic goals
through: • Operating principles
• Customer
Revenue streams
relations
• Customer
segments Total revenue
Stream A Stream B
• Distribution stream
channels
less
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5. How will customers make decisions on whether or not to buy your product or
service?
6. What will be the key decision factors?
7. How will your product or service compare to that of the competition on these
key factors?
8. Will these differences be meaningful to the customer?
9. Are these differences known to the customer?
10. How can your product or service be exposed to your most likely potential
customers?
Again, the goal is to differentiate the value that a company provides for its custom-
ers. Without such differentiation, a business has the wrong revenue model and will lack
a competitive advantage.
Cost Structures
Cost structures consist of the drivers that affect a firm’s costs of goods sold, especially
the cost of producing one unit of product or service, and the company’s operating
expenses, such as payroll, selling activities, administrative costs, and marketing
expenses. In other words, you want to know what activities drive these expenses, which
can vary with either time or volume of sales. You then need to classify these costs and
expenses in terms of the following:
•• Fixed costs. Costs that do not vary at all with volume, such as rent expenses.
•• Variable costs. Expenses that vary directly and proportionately with changes
in volume—for example, sales commissions.
•• Semi-variable costs. Expenses that include both variable costs and fixed costs.
These costs vary in the direction of, but not proportionately with, changes
in the volume of sales, such as certain types of payrolls that change as a firm
becomes larger but do not change proportionally with sales changes.
Once an entrepreneur understands the company’s revenue model and cost
structures, he or she needs to assess the firm’s resource requirements.
Cost structures
Key Resource Requirements A component of the
business model that
Another key component of a business model is the key resource requirements to
provides a framework for
achieve positive cash flows and profits. Resources include the amount of investment estimating a firm’s cost of
in hard assets, such as equipment and buildings, as well as the amount of working goods sold and operating
capital in the form of operating cash, accounts receivable, and inventory. They also expenses.
include the people, suppliers, key partners, and intellectual property needed to achieve
key resource
the business’s mission. requirements
A component of the busi-
Business Model Risk ness model that provides
When designing a business model, an entrepreneur must anticipate business model estimates of the types
and amounts of resources
risk; that is, he or she must consider changes that can affect the level of risk in a given
required to achieve positive
business model and how the model can adjust to them. It is not enough to have a profits and cash flows.
business model that provides a competitive advantage given the present circumstances.
Consideration must be given as to how the model will be affected by changing business model risk
A component of the busi-
circumstances, such as changes in demand for and supply of the products or services
ness model that identifies
offered, and how the competition will respond to the firm’s entry into the market. In risks in the model and how
other words, an entrepreneur must continually be anticipating what can go wrong with the model can adjust to
the firm’s business model and what can be done if it does. them.
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Living the Dream
E n t r e p re neurial Exp erie n ces
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Once the business model has been established and the feasibility analysis is
completed, it’s time to begin the process of writing a business plan. For this, two issues
are of primary concern: (1) the content and format of the plan and (2) the effectiveness
of the written presentation.
When considering the content of a business plan, continue to think first and
foremost about the opportunity, as identified by your feasibility analysis. Strategies
and financial plans will follow naturally if the opportunity is a good one. The b usiness
plan should give thorough consideration to the following basic factors (presented
graphically in Exhibit 6.3):
1. The opportunity should reflect the potential and the attractiveness of the market
and industry.
2. Critical resources include not just money but also human assets (suppliers,
accountants, lawyers, investors, etc.) and hard assets (accounts receivable, inven-
tories, etc.). An entrepreneur should think of ways to minimize the resources
necessary for startup.
3. The entrepreneurial team must possess integrity, as well as breadth and depth of
experience.
4. The financing structure—how a firm is financed (i.e., debt versus equity) and
how the ownership percentage is shared by the founders and investors—will have
a significant impact on an entrepreneur’s incentive to work hard. The goal is to
find a win-win deal.
5. The context (or external factors) of an opportunity includes the regulatory
environment, interest rates, demographic trends, inflation, and other factors that
inevitably change but cannot be controlled by the entrepreneur.
Thus, the business plan will need to demonstrate that the entrepreneur has pulled
together the right opportunity, the right resources, the right people, and the right
financing structure, all within the right context. Admittedly, there will always be
uncertainties and ambiguities; the unanticipated is bound to happen. But by making
decisions about these key factors, you can be sure that you are dealing with the impor-
tant issues, and this will help you in determining the appropriate content to include
in the plan.
E X H I B I T
Opportunity Resources
Team
Financing
Context
Structure
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There is no single format to be followed in writing a business plan. However,
investors want to see the plan in a format that is familiar to them. Presenting a business
plan with a unique format would be a mistake.
Exhibit 6.4 summarizes the major sections common to most business plans. A brief
overview of each of these sections follows.12 (Chapters 7 through 13 take an in-depth
look at each section of the business plan.)
Cover Page Company name, logo, tagline, contact information, copy number, date prepared, and
disclaimer (if needed)
Executive Summary One- to three-page overview of the significant points, intended to motivate the reader
to continue reading
Company Description Company objectives, the nature of the business, its primary product or service, its
current status (startup, buyout, or expansion) and history (if applicable), and the legal
form of organization
Industry, Target Customer, Key characteristics of the industry, including the different segments, and the niche
and Competitor Analysis where you plan to compete
Product/Service Plan Justification for why people will buy the product or service, based on its unique
features
Marketing Plan Marketing strategy, including the methods of identifying and attracting customers,
selling approach, type of sales force, distribution channels, types of sales promotions
and advertising, and credit and pricing policies
Operations and Operating or manufacturing methods, operating facilities (location, space, and
Development Plan equipment), quality-control methods, procedures to control inventory and operations,
sources of supply, and purchasing procedures
Management Team Description of the management team, outside investors and/or directors, and plans for
recruiting and training employees
Offering How much capital the entrepreneur needs and how the money will be used (section
used to attract investors)
Exit Strategy Ways an investor—and the entrepreneur—may be able to harvest their business
investment
Financial Plan Contemplated sources of financing; any historical financial statements, if available; pro
forma financial statements for three to five years, including income statements, balance
sheets, cash flow statements, and cash budgets
Appendix of Supporting Various supplementary materials and attachments to expand the reader’s u
nderstanding of
Documents the plan
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•• Name of contact person (preferably the president) with mailing address,
phone number, fax number, and e-mail address
•• Date on which the business plan was prepared
•• If the plan is being given to investors, a disclaimer that the plan is being
provided on a confidential basis to qualified investors only and is not to be
reproduced without permission
•• Number of the copy (to help keep track of how many copies have been given out)
Table of Contents
1.0 Introduction
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entire plan and should be written last. In no more than three (preferably two) pages,
the executive summary should include the following subsections:
•• A description of the opportunity
•• An explanation of the business concept
•• An industry overview
•• The target market
•• The competitive advantage you hope to achieve in the market
•• The economics of the opportunity
•• The management team
•• The amount and purpose of the money being requested (the “offering”), if you
are seeking financing
Depending on the situation and the preference of the entrepreneur, the executive
summary may be in the form of a synopsis or a narrative. A synopsis briefly covers all
aspects of the business plan, giving each topic relatively equal treatment. It relates, in
abbreviated fashion, the conclusions of each section of the completed business plan.
Although it is easy to prepare, the synopsis can be rather dry reading for the prospec-
tive investor.
Because the narrative tells a story, it can convey greater excitement than the
synopsis. However, composing an effective narrative requires a gifted writer who can
communicate the necessary information and generate enthusiasm without crossing
the line into hype. A narrative is more appropriate for businesses that are breaking
new ground with a new product, a new market, or new operational techniques. It is
also a better format for ventures that have one dominant advantage, such as holding
an important patent or being run by a well-known entrepreneur. Finally, the narrative
works well for companies with interesting or impressive backgrounds or histories.
Exhibit 6.6 shows the overview that appears in BlueAvocado’s business plan. It was
written in the narrative form.
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E X H I B I T
6.6 BlueAvocado Overview
BlueAvocado™ is a woman-owned, sustainable business with a vision to invite millions to reduce their environmental impact
and carbon footprint with eco-chic lifestyle products. In 2008, the company introduced a patent-pending reusable shopping
bag system, the gro-pak®, to the US market to eliminate the use of 1,000 plastic bags and avoid 35 pounds of carbon dioxide
emissions annually. The gro-pak includes 5 stylish, machine-washable bags that include ventilated bags for produce, insulated
bag for hot/cold items, and durable hauling bags that collapse into one kit. Since then, the company has expanded its portfo-
lio, offering reusable lunch kits and continues to invest in next-generation products that reduce our environmental waste and
inspire joy.
Measureable Impact
1. Waste Avoided 2. Waste Reclaimed (materials)
3. Natural Resources Saved 4. Energy Used
5. Co2 Emissions Used / Avoided
6. Woman Entrepreneurs Funded
Technology Service
Educate, Inspire, Praise & Share
IphoneApp + Green Games + Partnerships
Energy Audit/
Shareholder Greener Impact
Greener Neutral CO2
Business Supply Measurement
Materials Emission
Model Chain & Engagement
Supply Chain
With its unique stylish kit and commitment to sustainability, BlueAvocado has successfully captured mind share and market
share throughout the United States. The company and its products have been featured in Real Simple, Better Homes & Gardens,
InStyle, PARADE, CNN, MSNBC, Shape, Parenting, and USA Today. The company has received numerous accolades, including a
Top Pick at the International Home & Housewares show in the Chicago Tribune (2009) and a top “Green Product Finalist” at the
Natural Products Expo (2009). In June 2010, BlueAvocado was featured in Fast Company as a green company to watch, after
being selected as a finalist at the Sustainable Brands Conference Innovation Open. In August 2012, it was a sustainable brand
finalist at the New York International Gift Fair. BlueAvocado products are available in more than 700 retail outlets throughout
the US states, Canada, and Italy at key retailers, including The Container Store, Sur La Table, Whole Foods, Amazon, and the
Home Shopping Network.
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6-4e Industry, Target Customer, and Competitor
Analysis
The primary purpose of this section is to present the opportunity and demonstrate why
there is a significant market to be served. You should describe the broader industry
in which you will be competing, including industry size, growth rate, fundamental
trends, and major players. Next, identify the different segments of the industry and
then describe in detail the niche in which you plan to participate. It is tempting to begin
describing your own company at this point. Instead, you should provide the context of
the opportunity and demonstrate that a market segment is being underserved. There
will be an opportunity later to introduce your product and/or service.
The next step is to describe your target customers in terms of demographics and
psychological variables, such as their values, their attitudes, and even their fears. The
more clearly you can identify your customer, the more likely it is that you will provide
a product or service that is actually in demand. Finally, knowing who your customer is
will serve as the basis for understanding who your competitors are. You should analyze
competitors in terms of product or service attributes that they offer or are failing to
provide.
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value for the customer. This section discusses items such as location and facilities,
including how much space the business will need and what type of equipment it will
require. It is important to describe the choice between in-house production and out-
sourcing in order to minimize costs. Remember, however, that you should never plan
to outsource a part of operations that contributes to your competitive advantage. The
operations and development plan should also explain the firm’s proposed approach to
assuring quality, controlling inventory, and using subcontractors for obtaining raw
materials. (Read Chapters 9 and 21 for further discussion the issues to be addressed in
this section.)
Sources: offering
Bank debt $100,000 A section of the business
plan that indicates to an
Equity:
investor how much money
New investors 300,000
is needed, and when and
Founders 100,000 how the money will be
Total sources $500,000 used.
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Uses:
Product development $125,000
Personnel costs 75,000
Working capital:
Cash 20,000
Accounts receivable 100,000
Inventory 80,000
Machinery 100,000
Total uses $500,000
If equity is being requested, the entrepreneur will need to decide how much
ownership of the business she or he is willing to give up—not an easy task in most
cases. Typically, the amount of money being raised should carry the firm for 12 to 18
months—enough time to reach some milestones. Then, if all goes well, it will be easier
and less costly to raise more money later. (These issues will be explained in greater
detail in Chapters 11 and 12.)
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6-4n Appendix of Supporting Documents
The appendix should contain various supplementary materials and attachments to
expand the reader’s understanding of the plan. These supporting documents include
any items referenced in the text of the business plan, such as (1) the résumés of the
key investors and owners/managers; (2) photographs of products, facilities, and build-
ings; (3) professional references; (4) marketing research studies; (5) pertinent published
research; and (6) signed contracts of sale.
The fact that it appears at the end of the plan does not mean that the appendix is
of secondary importance. The reader needs to understand the assumptions underly-
ing the premises set forth in the plan. And nothing is more important to a prospective
investor than the qualifications of the management team.
Each chapter in this section (Part 3) of the book, with the exception of Chapter 10,
ends with a special set of exercises to walk you through the process of writing a busi-
ness plan. These exercise sets consist of questions to be thoughtfully considered and
answered. They are entitled “The Business Plan: Laying the Foundation,” because they
deal with issues that are important to starting a new venture and provide guidelines
for preparing the different sections of a business plan.
© Vinay A Bavdekar/Shutterstock.com
dedicated to creating unique and delicious food. “I’m Puerto
Rican and my husband’s African-American, so we formulate
a dinner menu that merges those things,” Jania says of their
menu, which is inspired by a fusion of cultures. They also
feature an extensive breakfast menu, with creative offerings
like catfish and cornbread waffles.
Jania had previously managed a food court establish-
ment. Based on that experience, she believed that writing
a business plan should be an early step in starting a busi-
ness. She says it helped them organize all of their thoughts
it helps to go back to your business plan and think things
and ideas about the business, in addition to having concrete
through. Jania uses the example of their decision to open
financial information to show to potential lenders and inves-
the business in Germantown, a different neighborhood than
tors. And the planning didn’t stop there. “It is such a working
originally planned. They had to adjust their plan to the new
document. You’re always tweaking your concept and your
market and possible new competitors.
idea,” she says.
Source: Adapted from “Building a Future, Honoring the Past: The Story of
The Daniels learned that planning is an ongoing Rose Petals Café,” http://www.liveplan.com/blog/2015/01/building-future-
process, and when there are curveballs in your business, honoring-past-story-rose-petals-cafe, accessed February 5, 2015.
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
6-5 Advice for Writing a Business Plan
An effective written presentation ultimately depends on the quality of the underlying
6-5 business opportunity. Remember, the plan is not the business. A poorly conceived new
Offer practical advice on venture idea cannot be rescued by a good presentation. However, a good concept may
writing a business plan. be destroyed by a presentation that fails to communicate effectively. Below are recom-
mendations that will help you avoid some of the common mistakes.
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
he or she understands the key factors that will drive success or failure. To determine this
information, investors often ask a common question: “What is your business model?”
© David Crockett/Shutterstock.com
to know?” There is no easy answer, but
two facts are relevant: Investors have a
short attention span, and certain features
attract investors while others repel them.
Because most investors receive so
many business plans, they cannot possibly
read them all in any detailed fashion. To
illustrate, one of the authors delivered an
entrepreneur’s business plan to a p
rospective
investor with whom he had a personal relationship. The plan was well written, clearly iden-
tifying a need. While the investor was courteous and listened carefully, he made a decision
not to consider the opportunity in a matter of five minutes. A quick read of the executive
summary did not spark his interest, and the discussion quickly changed to other matters.
Furthermore, investors are more market-oriented than product-oriented, realizing
that most patented inventions never earn a dime for the inventors. The essence of the
entrepreneurial process is to identify new products or services that meet an identifi-
able customer need. Thus, it is essential for the entrepreneur to appreciate investors’
concerns about target customers’ responses to a new product or service and to reach
out to prospective customers. (We’ll discuss presenting (or pitching) to prospective
investors more thoroughly later in the chapter.)
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For instance, an entrepreneur might fail to ask, “What is the possible impact
of new technology, e-commerce, or changes in consumer demand on the proposed
venture?” If there are weaknesses in the plan, the investors will find them. At that
point, an investor’s question will be “What else haven’t you told me?” The best way to
properly handle weaknesses is to consider thoroughly all potential issues, to be open
and straightforward about those issues, and to have an action plan that effectively
addresses any problems. To put it another way, integrity matters.
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
6-6 Pitching to Investors
In addition to having a written business plan, an entrepreneur seeking capital from
investors may be asked to give an oral presentation to the investors, or what is called 6-6
a pitch. This is not the time to present the entire business plan but rather to spark the Explain how to pitch to
investors’ interest in the business. Frequently, the entrepreneur is given 15 to 20 minutes investors.
to present, followed by about the same amount of time for questions and answers.
Christopher Mirabile, who is a frequent investor in startups, emphasizes the pitch
importance of thinking like an investor. He classifies entrepreneurs into three A verbal presentation of the
groups: business idea to investors.
Competent entrepreneurs can explain their company in terms of what the product
does. Good entrepreneurs can explain their company in terms of their customer
and their market. Funded entrepreneurs can pitch their company in terms that an
investor can relate to.16
p
U es
rtu r
c
Mirabile continues by explaining that most entrepreneurs have difficulty putting
ao
their story together from an investor’s perspective. They can speak elegantly about StR e s
the p
roduct, the customer, and possibly the market. But they lack the intuition and
experience to present the opportunity in a way that lets the investor know if it’s a good Hints on How to Make
a Pitch
investment.
To learn more about making
What investors want to know is relatively straightforward, as is the order in which a pitch to investors, watch the
they want to see the topics in the pitch. Also, the essential topics that need to be covered following YouTube videos:
are the same for most businesses. Caroline Cummings at Palo Alto Software suggests • Caroline Cummings, Vice
that you prepare 12 PowerPoint slides to accompany your presentation: President of Marketing
and Resident Entrepreneur
1. Identify the problem to be solved. at Palo Alto Software:
2. Introduce your solution to the problem. “How to Deliver a Powerful
Pitch to Investors,” https://
3. Discuss your beginning traction for getting sales. www.youtube.com/
4. Identify the target market. watch?v5YJ5D82z3oFA
• Nathan Gold, Chief Coach
5. Explain the costs of acquiring customers in your target market. at DemoCoach (www.
6. Communicate the value proposition relative to competitors. democoach.com): “How
to Pitch to Investors
7. Describe the basics of the revenue model. with 13 Slides in under
8. Provide financial projections, along with the assumptions. 10 Minutes,” https://
www.youtube.com/
9. Sell the team. watch?v5sVXop1o5Kv4
10. Identify your funding needs, and explain the use of the funds. (PowerPoint slides can
be seen at http://static1.
11. Describe possible exit strategies—how the investors may be able to cash out.
squarespace.com/static/
12. End on a high note—remind investors why your product/service/team is so great. 536fd655e4b0a44be2fb
1f44/t/539f20b7e4b03795
Guy Kawasaki, the founder of Garage Technology Ventures and the author of 5eafb8d0/1402937527757
The Art of the Start, gives his 10/20/30 rule: Have only 10 presentation slides, limit /13slides.pdf.)
the presentation to 20 minutes, and use a 30-point font in your slides. As Kawasaki • Guy Kawasaki: “Make a
explains, the purpose of the pitch is not to close the deal with the investors. Instead, Great Pitch,” https://search.
the objective is to get to the next stage of due diligence. The pitch is not the end; it is yahoo.com/search;_ylt5
At6kFgq9hBVakSKUVy
only the beginning. qePuKbvZx4?p5guy1
Finally, you might note that the topics to be covered in a pitch are very similar kawasaki1making1-
to those to be included in the written business plan’s executive summary (described a1great1pitch&togg
earlier in the chapter). No matter which list of topics you decide to use, they should be le51&cop5mss&ei5
consistent in terms of content. UTF-8&fr5yfp-t-901&fp51
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
6-7 Resources for Business Plan
Preparation
6-7 In the writing of a business plan, there are an almost unlimited number of books,
Identify available sources websites, and computer software packages that offer extensive guidance, even step-
of assistance in preparing a
business plan. by-step instruction. Such resources can be invaluable. However, resist the temptation
to adapt an existing business plan for your own use. The following sections provide a
brief description of some of these resources.
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Another source of assistance is the FastTrac entrepreneurial training program
sponsored by the Kauffman Center for Entrepreneurial Leadership in Kansas City,
Missouri. Located in universities, chambers of commerce, and SBDCs across the
country, the FastTrac program teaches the basics of product development, concept
recognition, financing strategies, and marketing research, while helping entrepreneurs
write a business plan in small, well-organized increments.
You definitely have options when it comes to getting business plan assistance.
However, if you choose to hire a consultant, the following suggestions may help you
avoid some costly mistakes:17
•• Get referrals. Ask colleagues, acquaintances, and professionals such as b ankers,
accountants, and lawyers for the names of business plan consultants they recom-
mend. A good referral goes a long way to easing any concerns you may have. In
any case, few consultants advertise, so referrals may be your only option.
•• Look for a fit. Find a consultant who is an expert in helping businesses like
yours. Ideally, the consultant should have lots of experience with companies
of similar size and age in related industries. Avoid general business experts or
those who lack experience in your particular field.
•• Check references. Get the names of at least three clients the consultant has
helped to write business plans. Call the former clients and ask about the con-
sultant’s performance. Was the consultant’s final fee in line with the original
estimate? Was the plan completed on time? Did it serve the intended purpose?
•• Get it in writing. Have a legal contract outlining the consultant’s s ervices.
It should state in detail the fee, when it will be paid, and under what
circumstances. And make sure you get a detailed written description of what
the consultant must do to earn the fee. Whether it’s an hourly rate or a flat fee
isn’t as important as each party’s knowing exactly what’s expected of them.
Keep in mind that securing help in business plan preparation does not relieve the
entrepreneur of the responsibility of being the primary planner. His or her ideas remain
essential to producing a plan that is realistic and believable.
Now that you are aware of the role of the business plan in a new venture, you are
ready to move on to Chapters 7 through 13, which will closely examine each of the
plan’s components.
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•• By enhancing the firm’s credibility, a business plan serves
as an effective selling tool with prospective customers
and suppliers, as well as investors.
•• A short plan is an abbreviated form of a traditional busi-
ness plan that presents only the most important issues
and projections for the business.
•• A comprehensive plan is a complete business plan that
provides an in-depth analysis of the critical factors that
will determine a firm’s success or failure, along with the
underlying assumptions.
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6-6. Explain how to pitch to investors. •• Professionals with planning expertise, such as attorneys,
accountants, and marketing specialists, can provide
•• Most entrepreneurs can speak elegantly about the useful suggestions and assistance in the preparation of a
product, the customer, and possibly the market. But business plan.
they lack the intuition and experience to pitch the
•• The Small Business Administration (SBA), the Service
opportunity in a way that lets the investor know if it’s a
Corps of Retired Executives (SCORE), and the Kauffman
good investment.
FastTrac entrepreneurial training program can also be
•• What most investors want to know is relatively helpful.
straightforward, as is the order in which they want to see
the topics in the pitch. 6-8. Maintain the proper perspective when writing a
•• Guy Kawasaki’s 10/20/30 rule provides guidelines for the business plan.
pitch: Have only 10 presentation slides, limit the presentation
•• Writing a business plan should be thought of as an
to 20 minutes, and use a 30-point font in your slides.
ongoing process and not the means to an end.
6-7. Identify available sources of assistance in preparing a •• The plan rarely reflects what actually happens with the
business plan. business.
•• A business plan can be viewed as an opportunity for the
•• A variety of books, websites, and computer software
entrepreneur and the management team to think about
packages are available to assist in the preparation of a
the potential key drivers of a venture’s success or failure.
business plan.
Key Terms
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Question 1 What would you need to know in order to answer Beverage Corporation will produce and market a full line of
her question? sparkling fruit drinks, flavored waters, and sports drinks that
Question 2 If she decides to write a business plan, what advice are of the highest quality and purity. These drinks have the
would you give her? same delicious taste appeal as soft drinks while using the
most healthful fruit juices, natural sugars, and the purest
Situation 3 spring water, the hallmark of the “New Age” drink market.
Business Plan
Laying the Foundation about the key issues in starting a new business, respond to the
following questions:
Part 3 (Chapters 6 through 13) deals with issues that are 1. When and where is the business to start?
important in starting a new venture. This chapter presented 2. What is the history of the company?
an overview of the business plan and its preparation.
3. What are the company’s objectives?
Chapters 7 through 13 focus on major segments of the busi-
ness plan, such as the marketing plan, the organizational 4. What changes have been made in structure and/or ownership?
plan, the location plan, the financial plan, and the exit plan, 5. In what stage of development is the company?
or what we call the harvest. After you have carefully studied 6. What has been achieved to date?
these chapters, you will have the knowledge you need to
7. What is the company’s distinctive competence?
prepare a business plan.
8. What are the basic nature and activity of the business?
Since applying what you study facilitates learning, we have
included, at the end of each chapter in Part 3 (except Chapter 10), 9. What is its primary product or service?
a list of important questions that need to be addressed in 10. What customers will be served?
preparing a particular segment of a business plan. 11. What is the company’s form of organization?
12. What are the current and projected economic states of the
Company Description Questions industry?
Now that you have learned the main concepts of business plan 13. Does the company intend to become a publicly traded
preparation, you can begin the process of creating a business company or an acquisition candidate, or do the owners want
plan by writing a general company description. In thinking to transfer ownership to the next generation of the family?
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Case 6
Hyper Wear®, Inc. (P. 656) money to fund its growth. Fredenburg wrote a business plan to
be used in raising the needed money.
Hyper Wear was founded in 2008 to participate in the functional
fitness market, along with such recognized brands as CrossFit and
Zumba. The market had been growing at an 11 percent annual Alternative Cases for Chapter 6
rate from 2007 to 2012. In 2011, the firm raised money from out- Case 3, The Kollection, p. 649
side investors and hired Denver Fredenburg as its CEO. By 2012, Video Case 6: KindSnacks [website only]
sales were approximately $1 million, and the firm needed more
Endnotes
1. John Mullins, The New Business Road Test (London: Financial Times smallbiz/content/may2006/sb20060512_948264.htm, accessed August
Prentice Hall, 2014). 31, 2014; Karen E. Klein, “Do You Really Need a Business Plan?” Bloomberg
2. Amar Bhide, The Origin and Evolution of New Businesses (New York: Oxford Businessweek, http://www.businessweek.com/stories/2008-03-12/do-you-
University Press, 2000), p. 53. really-need-a-business-plan-businessweek-business-news-stock-market-
and-financial-advice, accessed October 9, 2014; and Rob Adams, “Taking
3. Thomas Stemberg, “What You Need to Succeed,” Inc., Vol. 29, No. 1
the Trouble to Research Your Market,” Bloomberg Businessweek, http://
(January 2007), pp. 75–77.
www.businessweek.com/smallbiz/content/oct2004/sb20041020_9945.
4. Taken from San Hogg, “Pull No Punches,” Entrepreneur, July 2012, p. 74. htm, accessed January 16, 2015.
5. Kelly Spors, “Do Start-Ups Really Need Formal Business Plans?” The Wall 10. Ramon Casadesus-Masanell and Joan E. Ricart, “How to Design a Winning
Street Journal, January 9, 2007, p. B9. Business Model,” Harvard Business Review, January–February 2011, p. 100.
6. Bhide, op. cit., p. 70. 11. An alternative framework for a feasibility analysis is provided by Frank
7. Stephen Lawrence and Frank Moyes, “Writing a Successful Business Plan,” Moyes, a former professor at the University of Colorado, at http://leeds-
http://leeds-faculty.colorado.edu/moyes/html/resources.htm, accessed faculty.colorado.edu, accessed February 8, 2015.
October 10, 2012. 12. Portions of the content in this section draw on Andrew Zacharakis,
8. Personal conversation with Ewing Marion Kauffman, October 2005. Stephen Spinelli, and Jeffry A. Timmons, Business Plans That Work
(New York: McGraw-Hill, 2011).
9. The explanation of business models in this section draws heavily from a
variety of sources, primarily Richard G. Hammerers, Paul W. Marshall, and 13. Personal conversation with Rudy Garza, November 29, 2013.
Tax Pirmohamed, “Note on Business Model Analysis for the Entrepreneur,” 14. Eric Ries, The Lean Startup: How Today’s Entrepreneurs Use Continuous
Harvard Business School (9-802-048), January 22, 2002; Karan Girotra Innovation to Create Radically Successful Businesses (New York: Crown
and Serguel Netesskine, “How to Build Risk into Your Business Model,” Business, 2011).
Harvard Business Review, May 2011, pp. 100-105; Peter Weill, Thomas
15. Jeffrey Bussgang “Think Like a VC, Act Like an Entrepreneur,” Bloomberg
W. Malone, and Thomas G. Apel, “The Business Models Investors Prefer,”
Businessweek, http://www.businessweek.com/stories/2008-08-26/think-
MIT Sloan Management, Vol. 52, No. 4 (2011), pp. 17-19; Vivek Wadhwa,
like-a-vc-act-like-an-entrepreneur, accessed December 2, 2012.
“Before You Write a Business Plan,” Bloomberg Businessweek, http://www.
businessweek.com/stories/2008-01-07/before-you-write-a-business-plan- 16. Christopher Mirabile, “What’s Your Story? Pitch Deck Flow,” Angel Capital
businessweek-business-news-stock-market-and-financial-advice, accessed Association, January 21, 2015, http://www.angelcapitalassociation.org/
September 30, 2014; Michael Rappa, “Business Models on the Web,” http:// blog/whats-your-story-pitch-deck-flow, accessed February 5, 2015.
www.digitalenterprise.org/models/models.html, accessed September 10, 17. “Get Help with Your Plan,” Entrepreneur, March 2,2001, www.entrepreneur.
2014; Vivek Wadhwa, “Countdown to Product Launch (Part II)” Bloomberg com/startingabusiness/businessplans/article38314.html, accessed
Businessweek, May 12, 2006, http://www.businessweek.com/print/ August 14, 2014.
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.