1. Entrepreneurship and Effective Small Business Management 11/e by Scarborough and Cornwall
8-1

2. Chapter 8
New Business Planning Process: Feasibility Analysis, Business Modeling, and Crafting a Winning Business Plan

3. New Business Planning
The easiest part of launching a new business is coming up with the idea
But, the great idea is just the start
Planning for a new business requires:
Feasibility analysis: should we proceed with this idea?
Business model: how should we proceed with this idea?
Business plan: transforming the idea into a successful business

4. New Business Planning
New Business Planning Process

5. Conducting a Feasibility Analysis
A feasibility analysis consists of four interrelated components:
An industry and market feasibility analysis
A product or service feasibility analysis
A financial feasibility analysis
An entrepreneur feasibility analysis

6. Conducting a Feasibility Analysis
Elements of a Feasibility Analysis

7. Conducting a Feasibility Analysis
Industry and Market Feasibility Analysis
Two areas of focus:
Determining how attractive an industry is overall as a “home” for a new business
Identifying possible niches a small business can occupy profitably
● How large is the industry?
● How fast is it growing?
● Is the industry as a whole profitable?
● Is the industry characterized by high profit margins or razor-thin margins?
● How essential are its products or services to customers?
● What trends are shaping the industry’s future?
● What threats does the industry face?
● What opportunities does the industry face?
● How crowded is the industry?
● How intense is the level of competition in the industry?
● Is the industry young, mature, or somewhere in between?

8. Conducting a Feasibility Analysis
Begin with a broad look at the industry
Use Porter’s five forces model
Five forces interact with one another to determine the setting in which companies compete and, hence, the attractiveness of the industry:
Rivalry among competing firms
Bargaining power of suppliers
Bargaining power of buyers
Threat of new entrants
Threat of substitute products or services

9. Conducting a Feasibility Analysis
Porter’s Five Forces Model

10. Conducting a Feasibility Analysis
Rivalry among companies competing in the industry
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

11. Conducting a Feasibility Analysis
Bargaining power of suppliers to the industry
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

12. Conducting a Feasibility Analysis
Bargaining power of buyers
Highest when the 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

13. Conducting a Feasibility Analysis
Threat of new entrants to the industry
The larger the pool of potential new entrants, the less attractive the industry
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

14. Conducting a Feasibility Analysis
Threat of substitute products or services
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

15. Conducting a Feasibility Analysis
Five Forces Matrix

16. Conducting a Feasibility Analysis
A niche strategy can be a good way to enter a market, but carries some risks:
Can require adaptability of initial plans
Niches change
Niches can go away
Niches can grow

17. Conducting a Feasibility Analysis
A feasibility analysis consists of four interrelated components:
An industry and market feasibility analysis
A product or service feasibility analysis

18. Conducting a Feasibility Analysis
Product or Service Feasibility Analysis: Is There a Market?
Determines the degree to which a product or service idea appeals to potential customers and identifies the resources necessary to produce it
Two questions:
Are customers willing to purchase our good or service?
Can we provide the product or service to customers at a profit?

19. Conducting a Feasibility Analysis
Primary research: collect data firsthand and analyze it
Customer surveys and questionnaires
Focus groups
Prototypes
In-home trials
“Windshield” research

20. Conducting a Feasibility Analysis
Secondary research: gather data that already has been compiled and analyze it
Trade associations and business directories
Industry databases
Demographic data
Forecasts
Market research
Articles
Local data
The Internet

21. Conducting a Feasibility Analysis
A feasibility analysis consists of four interrelated components:
An industry and market feasibility analysis
A product or service feasibility analysis
A financial feasibility analysis

22. Conducting a Feasibility Analysis
Financial Feasibility Analysis: Is There Enough Margin?
Capital requirements
Must have an estimate of how much start-up capital is required to launch the business
Bootstrapping
Estimated earnings
Forecasted income statements
Time out of cash
Surviving at current rate of negative cash flow
Return on investment:
How much investors can expect their investments to return

23. Conducting a Feasibility Analysis
A feasibility analysis consists of four interrelated components:
An industry and market feasibility analysis
A product or service feasibility analysis
A financial feasibility analysis
An entrepreneur feasibility analysis

24. Conducting a Feasibility Analysis
Entrepreneur Feasibility: Is This Idea Right for Me?
Entrepreneurial readiness: knowledge, experiences, and skills necessary to have any chance of being successful

25. Developing and Testing a Business Model
Most entrepreneurs use a visual process such as whiteboarding when developing their business models
Develop a business model canvas comprised of nine segments

26. Developing and Testing a Business Model
Business Model Canvas

27. Developing and Testing a Business Model
Value Proposition
Products and/or services offered to meet the needs of the customers
Customer Segments
Narrowing the target market focuses resources on serving a specific group of customers
Customer Relationships
How do customers want to interact with the business?

28. Developing and Testing a Business Model
Channels
Channels refer to both communication channels and distribution channels
Define how the customers seek out information about this type of product
Key Activities
Build a basic checklist of what needs to be done
Key resources
Human, capital, and intellectual resources needed

29. Developing and Testing a Business Model
Key partners
Suppliers, outsourcing partners, and so on
Revenue streams
How will the value proposition generate revenue?
Cost structure
What are the fixed and variable costs necessary?

30. Developing and Testing a Business Model
Developing a business model is a four phase process:
Create an initial business model canvas
Test the problem that the entrepreneur thinks the business solves for the customer
Test the business model in the market
Business prototyping
Lean start-up
Minimum viable product
Make changes and adjustments in the business
pivots

31. The Benefits of Creating a Business Plan
Business plan: a written summary of an entrepreneur’s proposed business venture, its
operational and financial details, its marketing opportunities and strategy, and its managers’ skills
and abilities
Serves two functions:
Guides the company’s growth and development
Attracts lenders and investors

32. Three Tests That Every Business Plan Must Pass
To get external financing, an entrepreneur needs to pass three tests:
Reality test
Competitive test
Value test

33. The Elements of a Business Plan
Common elements of a business plan
Title page and table of contents
Executive summary
Mission statement
Company history
Business and industry profile
Business strategy
Description of products/services
Goals and objectives

34. The Elements of a Business Plan
Business strategy
Competitor analysis
Marketing strategy
Showing customer interest
Documenting market claims
Target market
Advertising and promotion
Market size and trends
Location
Pricing
Distribution

35. The Elements of a Business Plan
Description of the management team
Plan of operation
Pro forma (projected) financial statements
Forecasts should be realistic
Include a statement of assumptions
The loan or investment proposal
Funding sources
Repayment schedule
Implementation timetable

36. The Elements of a Business Plan
Visualizing a Venture’s Risks and Rewards

37. The Elements of a Business Plan
Visualizing a Venture’s Risks and Rewards
A working business plan is used to guide the entrepreneur
A presentation business plan is used to attract capital

38. The Elements of a Business Plan
An entrepreneur should:
Make sure the plan has an attractive cover
Rid your plan of all spelling and grammatical errors
Make the plan visually appealing
Include a table of contents to allow readers to navigate the plan easily
Make it interesting!
Use spreadsheets to generate financial forecasts
Always include cash flow projections
Keep your plan “crisp” – long enough, but not too long
Tell the truth – always

39. What Lenders and Investors Look for in a Business Plan
The five Cs of credit:
Capital
Capacity
Collateral
Character
Conditions

40. The Pitch: Making the Business Plan Presentation
A business plan presentation should cover five basic areas:
Your company and its product or services
The problem to be solved – use a compelling story
A description of your solution to the problem
Your company’s business model
Your company’s competitive edge

41. The Pitch: Making the Business Plan Presentation
A business plan presentation should cover five basic areas:
Your company and its product or services
The problem to be solved – use a compelling story
A description of your solution to the problem
Your company’s business model
Your company’s competitive edge

42. The Pitch: Making the Business Plan Presentation
When making the presentation:
Prepare
Practice your delivery and then practice some more
Demonstrate enthusiasm about the business but don’t be overemotional
Focus on communicating the dynamic opportunity your idea offers and how you plan to capitalize on it
Hook investors quickly with an up-front explanation of the new venture, its opportunities, and the anticipated benefits to them

43. The Pitch: Making the Business Plan Presentation
Use visual aids
Follow Guy Kawasaki’s 10/20/30 rule for PowerPoint presentations
Explain how your company’s products or services solve some problem and emphasize the factors that make your company unique
Offer proof
Hit the highlights
Keep the presentation “crisp” just like your
business plan

44. The Pitch: Making the Business Plan Presentation
Avoid the use of technical terms
Remember to answer the question “What’s in it for me?”
Close by reinforcing the potential of the opportunity
Be prepared for questions
Anticipate the questions the audience is most likely to ask and prepare for them in advance
Be sensitive to the issues that are most important to lenders and investors by reading the pattern of their questions
Follow up with each potential investor