Faculty of Business / Faculty of Management

(FOB / FOM)

PBU0035
Introduction to Business Plan

Foundation in Management

NOTES

Topic 1: Introduction

FOSEE, MULTIMEDIA UNIVERSITY (436821-T)

Cyberjaya Campus, Jalan Multimedia, 63100 Cyberjaya.
Melaka Campus, Jalan Ayer Keroh Lama, 75450 Melaka.
PBU0035 Introduction to Business Plan Topic 1

Topic 1: Introduction
From “Preparing Effective Business Plans” by Bruce R. Barringer

1) The importance of business plan

The business plan is 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, it introduces potential investors and other stakeholders to the
business opportunities

2) Reasons for Writing a Business Plan

There are two primary reasons for writing a business plan
 Internal reason -- forces the founders of a firm to systematically think through
each aspect of their new venture
 External reason -- communicates the merits of a new venture to outsiders, such as
investors and bankers

3) Who Reads the Business Plan—And What Are They Looking For?
There are two primary audiences for a firm’s business plan
a) A firm’s employees -- because the business plan articulates the vision and future
of the firm, both the management team and the rank-and-file employees can
benefit from reading the business plan in order to operate in sync and with
purpose
b) Investors and other stakeholders -- investors, potential business partners, potential
customers, grant-awarding agencies, and key employees who are being recruited
are all part of the second audience for a business plan
 To appeal to this group, the business plan must be clear, concise, and not
overly optimistic or naive

4) Developing Business ideas

 Many businesses fail, not due to a deficit of commitment and hard work, but
because the idea wasn’t a good one to begin with
 New business ideas require good detective work to determine if they are indeed
viable

5) Three Most Common Sources of New Business Ideas

 The first step in creating an effective business plan is selecting an idea that fills a
need and provides unique value to the customer
 It is difficult to get people to change habits and behaviors to try a new product
even if the new product is better or less expensive

a) Changing Environmental Trends

 Changes in these areas often provide the impetus for new business ideas
i) Economic Trends
 An understanding of economic trends is helpful in determining areas
that are ripe for new business ideas and discerning areas to avoid

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ii) Social Trends

 An understanding of the impact of social trends on the way people live
their lives and the products and services they need provides fertile
ground for new business ideas and opportunity
iii) Technological Advances
 Technological advances provide an ongoing source of new business
ideas
iv) Political Action and Regulatory Changes
 New laws create opportunities for entrepreneurs to start firms to help
companies and individuals comply with these laws
 Political change can also create an environment for the emergence of
new business ideas (i.e., threat of terrorism resulted in many firms
becoming more security conscious and requiring products to meet their
changing security needs)

b) Unsolved Problems
i) Many companies have been started by people who have experienced a
problem and, in the process of solving the problem, realized that they
were on to a business idea
ii) Advances in technology often result in problems for people who can’t
use the technology in the way it is sold to the masses -- entrepreneurs
who can develop modified products and services can often capitalize on
this opportunity
iii) One technique that entrepreneurs use in solving a difficult problem is to
find an instance where a similar problem was solved and then apply that
solution to their problem

c) Gaps in the Marketplace

i) There are many examples of products that consumers need or want that
aren’t available in a particular location or aren’t available at all
ii) Key large retailers compete on price and target the mainstream customer,
leaving gaps in the marketplace that boutiques and specialty shops can fill
iii) A related technique for generating new business ideas is to take an existing
product or service and create a new category by targeting a completely
different target market or geographic area

6) Screening
 Once a business idea has been chosen, it is important to have a way to quickly
assess the merits of the idea before subjecting it to full feasibility and business
plan
 The “First Screen” is an entrepreneur’s first pass at assessing the feasibility of a
business idea. It consists of 5 parts as follows:

a) Part 1: Strength of the Business Idea (five criteria)

i) High potential ideas are typically drawn from one of the three sources of
business ideas and are timely in terms of market introduction

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ii) For an entrepreneur to capitalize on an opportunity, its window of

opportunity must be open
iii) A new idea must “add value” for its buyer or end user in some appreciable
way
iv) New business ventures aimed at replacing products that people are
reasonably satisfied with may have a difficult time succeeding
v) Investors are typically skeptical of business ideas that require people to
make meaningful changes in behavior

b) Part 2: Industry-Related Issues (five criteria)

o Researchers have found that 8 to 30 percent of the variation in firm
profitability is directly attributable to industry factors such as
i) The number of competitors
ii) Current lifecycle stage of industry
iii) The growth rate of industry
iv) The relative importance of the industry’s products or services to its
customers
v) Average operating margins for the firms in an industry are also important

c) Part 3: Market- and Customer-Related Issues (five criteria)

i) Identification of the target market in which the firm competes is extremely
important.
 A target market is a place within a larger industry or market segment
that represents a narrower group of customers with similar interests
ii) The ability to create barriers to entry, a condition that creates a
disincentive for another firm to enter the company’s niche market, is an
important aspect of any firm’s potential competitive advantage
 Economies of scale
 Product differentiation
 Unique access to distribution channels
 Intellectual property protection such as patents
iii) Entrepreneurs should also consider the purchasing power of potential
customers
iv) The ease of making customers aware of the new product or service is also
important
v) Another important issue is the growth potential of a firm’s target market

d) Part 4: Founder/(s) Related Issues (five criteria)

o The attributes that make for a strong founding team include
i) Experience in the industry the new venture is entering
ii) Skills as they relate to the new venture’s product or service
iii) Social and professional networks in the industry the firm will be entering
iv) Personal goals and aspirations that are consistent with the firm
v) Likelihood that a team can be put together to launch and grow the new
venture

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e) Part 5: Financial Issues (five criteria)

i) The initial capital investment needed to start a firm is important
ii) The number of revenue drivers that a business has is also important
 the financial potential of a firm is greater if it has several ways of
generating sales
iii) The time it takes a firm to break even or recoup its initial investment is
also important
iv) The next issue to consider is to assess the financial performance of
businesses similar to the one you are contemplating
v) The final item in Part 5 refers to your ability to fund the initial product
development and initial start-up expenses for your venture from personal
funds or via bootstrapping

7) What is a Business Plan?

 A business plan is a written document (usually 25 to 35 pages) that carefully
explains every aspect of a new business venture
 The business plan describes why the business is starting and how it will make
money
 The first two steps in a business plan, the executive summary and the company
description, will be discussed in this topic along with the cover page and
executive summary
 The executive summary and company description are arguably the most important
sections of a business plan because they must capture the readers’ interest if the
entire plan is to be read
 Business plans should be written with extreme empathy for the reader; make them
clear, concise, easy to follow, and interesting

a) Cover Page and Table of Contents

i) Cover Page
 Includes key information pertaining to the new venture centered at the
top of the page:
o Name of the company
o Address of the company
o E-mail address
o Phone number
o Contact information for the lead entrepreneur
o Company’s website address if it has one
 A confidentiality notice should be placed on the bottom of the page
 Company logo (if already developed) should be placed near the center
of the page
 A sharp-looking photo or sketch of the product or service, or an
appropriate stock photo image, can be included to make the plan more
visually appealing and professional in appearance
ii) Table of Contents
 The table of contents follows the cover page

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 The table of contents lists the main sections, subsections, and

appendices to the plan along with the corresponding page numbers

b) Executive Summary
 The executive summary is a short overview of the entire plan, and is the
first item that appears in the business plan
i) Format
 The executive summary should not exceed one page
 The cleanest format follows the structure and order of the plan on a
section-by-section basis
 Entrepreneurs should write the executive summary last to make sure it
accurately reflects the entirety of the business plan
ii) Content
 Each section of the executive summary contains a synopsis of the
same section in the broader business plan
 It’s important that the first section of the executive summary, covering
the company description, begins by describing the opportunity and
shows how the proposed business meets the opportunity

c) Company Description
 The company description should start with a brief introduction that
provides an overview of the company and reminds the reader of the reason
it is starting
 There are two major points to be mindful of as you start writing this
section:
 A business plan is a story about an opportunity and how a business
will take advantage of the opportunity
 You must establish credibility by using facts and providing proof of
research
i) Company History
 This section should explain where the idea for the company came from
 If the company has been in existence for a while, provide a brief
timeline in narrative form and talk about its major achievements
 You should also talk about the history of revenues, net income, and
sales growth
ii) Mission Statement
 The mission statement defines why a company exists and what it
aspires to become
 Articulate the mission or purpose of the company in as few words as
possible
 Some companies also have mottos or taglines; these should be
mentioned in this section of the plan
iii) Products and Services
 Explain your product or service, including a description of how it is
unique and how you plan to position it in the marketplace

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 Discuss how your company differs from others in terms of the

products it offers, its location, and its price range
 Identify who your clientele will be and why they would patronize your
business instead of others
 Explain how you will create barriers to entry
iv) Current Status
 This section reveals what major milestones in development your
company has already reached
 Three issues are particularly important to address:
o The current composition of your management team, if you are
an early-stage venture, you should mention future staffing
plans
o Early customer reaction to your product or service --
Summarize any results of feasibility analyses and indicate how
close your product is to being market-ready
o The financial status of your company
 How has the company been funded?
 Do you have any debt
 Clearly state how much funding you are seeking and for
what purpose
v) Legal Status and Ownership
 This section should indicate who owns the business and how
ownership is split up
 Describe the founders’ agreement, outlining how ownership is to be
shared among founders, if one has been established
 Indicate your current form of business ownership

d) Selecting the Name for a Business

 A company’s name is normally the first thing that people associate with a
business, and it can be an integral part of the company’s branding strategy
 The brand is a unique set of attributes that allow consumers to separate it from
its competitors; you want a name that will facilitate rather than hinder the
differentiation strategy
i) Primary Consideration in Naming a Business
 The company name should complement the type of business the
company plans to be
 There are four categories to discuss when considering this issue:
o Customer-Driven Companies -- If a company plans to focus on a
particular type of customer, its name should reflect the attributes of
its clientele (e.g., Big and Tall Guys or ParentWatch)
o Product- or Service-Driven Companies -- If a company focuses
on a particular product or service, the name should reflect the
advantages that its product or service provide (e.g., 1-800-
FLOWERS, XM Satellite Radio, Whole Foods Markets, and Jiffy
Print)

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o Industry-Driven Companies -- If a company plans to focus on a

broad range of products or services in a particular industry, its
name should reflect the category it is participating in (e.g., General
Motors, Linens N Things, Home Depot)
o Personality- or Image-Driven Companies -- Some companies
are founded by individuals who place an indelible stamp on the
company. In this case, it may be smart to name the company after
its founder (e.g., Liz Claiborne, Magic Johnson Enterprises)
ii) Legal Issues
 The general rule for business names is that they must be unique
 To determine whether a name is available, the entrepreneur must
contact the Companies Commission of Malaysia (Suruhanjaya
Syarikat Malaysia, SSM)

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