Business Plan Business Plan serves two primary purposes Selling tool for financingSelling tool for financing –Most start-ups will be funded by family and friends Planning document for internal purposesPlanning document for internal purposes –Help you assess your own personal investment of money and time –Develop benchmarks and assessments for the business

Elements of Business Plan Executive summaryExecutive summary Company descriptionCompany description Product or services planProduct or services plan Market research and marketing planMarket research and marketing plan Management planManagement plan Operating planOperating plan Financial plans and projectionsFinancial plans and projections

Key Elements of Business Plan Executive summaryExecutive summary –To persuade readers to look at the rest of the document Management teamManagement team –Investors are investing in you, as well as the idea

Key Elements of Business Plan Executive summaryExecutive summary Management teamManagement team MarketMarket –Market assessment is key to determining if sufficient market exists Financial projectionsFinancial projections –Given the projected sales, will this idea be successful?

Business Failures Key Strategic ErrorsKey Strategic Errors –Possessing no true competitive advantage –Pursuing a competitive advantage that is not sustainable –Misreading industry attractiveness Entrepreneur often needs an outside perspective to make a realistic assessment of these issues.

“We have a great product, and we just know that people will want to buy it” (Like high quality T- shirts or pitas) “We don’t have any research, but all our friends said it will sell like hotcakes”

Judging the Market Questions to AskQuestions to Ask –How large is this market? –Where is the market headed? –What is the competition? –Where will you be positioned relative to this competition?

Sources of Research

Market Research Preliminary ActivitiesPreliminary Activities –Clear statement of concept –Market definition Questions to AddressQuestions to Address –Market interest? –Market size? –Willingness to pay?

Sources of Data Secondary sources - available information on the size of the marketSecondary sources - available information on the size of the market Primary sourcesPrimary sources –Quantitative data Willingness to purchase, priceWillingness to purchase, price –Qualitative In-depth feedbackIn-depth feedback

Characteristic of Good Surveys Applied to appropriate sampleApplied to appropriate sample –Convenience sample of friends is not sufficient –Large enough sample to draw meaningful conclusions Question designQuestion design –Avoid misleading or biased questions

Developing Sales Forecast Market research provides the input for the sales forecastMarket research provides the input for the sales forecast – This is the key input to financial projections Elements of ForecastElements of Forecast –Develop at multiple levels Optimistic, likely, pessimisticOptimistic, likely, pessimistic Differing price structuresDiffering price structures

Small Business Management, 11th edition Longenecker, Moore, and Petty South-Western College Publishing Dimensions of Forecasting Difficulty Conditions That Make Forecasting Easier Conditions That Make Forecasting More Difficult Established Business Experienced Entrepreneur/Manager New Venture Limited Entrepreneurial/Managerial Experience Poor Understanding of Forecasting Techniques Forecast Entrepreneur Familiar with Forecasting Techniques

Developing Forecast Breakdown process - Work down to sales forecastBreakdown process - Work down to sales forecast Buildup process - Identify submarkets and sumBuildup process - Identify submarkets and sum

Estimat. Market Estimat. Market Variable Source Value Potent. 1. Idaho Pop Census - 1,000, Age categ. Data Source 12% 120, College Enr. Ed. Dept. 30% 36, Price Pref. Cl. survey 50% 18, Purchasers Phone surv. 75% 13, Act. purch Article 35% 4, Amt. purch Exper. 4 units 18,900 Example - Table 7-3, p. 158

On-Going Research Initial research can help quickly spot problem areasInitial research can help quickly spot problem areas –Restaurants, etc. do previews or run-throughs Avoid biasing questionsAvoid biasing questions –Invariably happens if surveyor is evaluated based on results