Writing A Business Plan: Associated Prof. A.D. Parajuli

Chapter 4
Writing a Business
Plan
Associated Prof. A.D. Parajuli
Copyright © A.D.Parajuli 4-1

Chapter Objectives
1 of 2
1. Explain the purpose of a business plan.

2. Discuss the two primary reasons for writing a
business plan.
3. Describe who reads a business plan and what
they’re looking for.
4. Explain the difference between a summary business
plan, a full business plan, and an operational
business plan.
5. Explain why the executive summary may be the
most important section of a business plan.

Chapter Objectives
2 of 2
6. Describe a milestone and how milestones are used

in business plans.
7. Explain why its important to include separate
sections on a firm’s industry and its target market in
a business plan.
8. Explain why the “Management Team and Company
Structure” section of a business plan is particularly
important.
9. Describe the purposes of a “sources and uses of
funds” statement and an “assumptions sheet.”

Chapter Objectives
3 of 3
10. Detail the parts of an oral presentation of a business

plan.

What Is a Business Plan?
• Business Plan
– A business plan is a written narrative, typically 25 to 35 pages
long, that describes what a new business plans to accomplish.
– A business plan is a written description of business's future.
– A business plan is set of documents prepared by a
firm's management to summarize its operational
and financial objectives for the near future (usually one to three
years) and to show how they will be achieved.
Business plan is Dual-Use Document
– For most new ventures, the business plan is a dual-purpose
document used both inside and outside the firm.

What Is a Business Plan?
• Business plan is a written document that describes in detail how a
new business is going to achieve its goals. A business plan will lay
out a written plan from a marketing, financial and operational
viewpoint. Sometimes a business plan is prepared for an
established business that is moving in a new direction.
• The plan includes the overall budget, current and projected
financing, a market analysis and its marketing strategy approach.
• In a business plan, a business owner projects revenues and
expenses for a certain period of time and describes operational
activity and costs related to the business.

Reasons for writing business plan
• A well written business plan will help you clarify how you
will achieve business success and give others confidence in
your business.
• A business plan is a document that describes your business,
the market it operates in, its objectives and the strategies
you have in place to achieve these objectives.
• A written business plan:
• forces you to think realistically, objectively and
unemotionally about your business
• leads to questioning of past and future assumptions

Reasons for writing business plan
• makes it easier to communicate for inside party and out side

party planning objectives and strategies to bankers, partners,
employees, financial backers and so on
• helps to ensure that all aspects of the plan are clear and
integrated
• serves as a reference point when determining the effects of
alternative courses of action on business operations
• allows you to identify any areas where you may need external
assistance
• allows you to plan the growth of your business and associated
capital requirements.

Benefits of Business Plan
• 1. A plan gives a strategic path for management to
follow.
• 2. Easily convinced to financer in on the action. By
reading the details of your business plan your
financier will have a real insight into your situation if
he or she is to lend you money.
• 3. A plan can help a manager and think about
competitive situations and promotional
opportunities.

4. A plan is a communication tool when you need to convince
others of your ability and requirements.
5. Activities are staying on strategy. Use a business plan to
summarize the main points of your strategy and as a reminder
of what it both includes and rules out.
6. Business objectives will be clear. Use your plan to define and
manage specific measurable objectives like web visitors, sales,
margins or new product launches. Define success in objective
terms.

• 7. Better guesses/estimate. Use your plan to refine your
educated guesses about things like potential market, sales,
costs of sales, sales drivers, lead processing and business
processes.
• 8. Establish work Priorities: There are also priorities for other
factors of your business like growth, management and
financial health. Use your plan to set a foundation for these,
then to revise as the business evolves.
• 9. Understand interdependencies. Use a plan to keep track of
what needs to happen and in what order.

• 10. Activities keep on track. Use a business plan to keep track of dates
and deadlines in one place.
• 11. Better at delegating authority and responsibility. The business plan is
an ideal place to clarify who is responsible for what. Every important task
should have one person in charge.
• 12. Results will be achieve easy. The plan is a great format for getting
things in writing and following up on the difference between expectations
and results with course corrections.
• 13. Manage cash flow. No business can afford to mismanage cash.
• 14. Course corrections will keep in business from flopping/fall down.
Having a business plan gives you a way to be proactive -- not reactive --
about business. it sets expectations and establishes assumptions so you
can manage the future with course corrections.

Why Reads the Business Plan—And What Are
They Looking For?
There are two primary audience for a firm’s business plan
Audience What They are Looking For
A Firm’s A clearly written business plan helps the

Employees employees of a firm operate in systematic and
move forward in a consistent and purposeful
manner.
Investors and A firm’s business plan must make the case that the
other external firm is a good use of an investor’s funds or the
stakeholders attention of others.

Guidelines for Writing a Business Plan
1 of 5
• Structure of the Business Plan

– To make the best impression a business plan should follow
a conventional structure, such as the outline for the
business plan shown in this chapter.
– Although some entrepreneurs want to demonstrate
creativity, departing from the basic structure of the
conventional business plan is usually a mistake.
– Typically, investors are busy people and want a plan where
they can easily find critical information.

2 of 5
• Structure of the Business Plan (continued)

– Software Packages
• There are many software packages available that employ an
interactive, menu-driven approach to assist in the writing of a
business plan.
• Some of these programs are very helpful. However, entrepreneurs
should avoid a boilerplate plan that looks as though it came from a
“canned” source.
– Sense of Excitement
• Along with facts and figures, a business plan needs to project a
sense of anticipation and excitement about the possibilities that
surround a new venture.

3 of 5
• Content of the Business Plan

– The business plan should give clear and concise
information on all the important aspects of the proposed
venture.
– It must be long enough to provide sufficient information
yet short enough to maintain reader interest.
– For most plans, 25 to 35 pages is sufficient.
• Types of Business Plans
– There are three types of business plans, which are shown
on the next slide.

4 of 5
Types of Business Plans

5 of 5
• Recognizing the Elements of the Plan May Change

– It’s important to recognize that the plan will usually change
while written.
– New insights invariably emerge when an entrepreneur or a
team of entrepreneurs immerse themselves in writing the
plan and start getting feedback from others.
– Commitment made for business plan
– Analyzing Strength and Weakness

Outline of Business Plan
• Outline of Business Plan

– A suggested outline of a business plan is shown on the next
several slides.
– Most business plans do not include all the elements
introduced in the sample plan; we include them here for the
purpose of completeness.
– Each entrepreneur must decided which elements to include
in his or her plan.

Section 1: Executive Summary
1 of 2
• Executive Summary
– The executive summary is a short overview of the entire
business plan
– It provides a busy reader with everything that needs to be
known about the new venture’s distinctive nature.
– An executive summary shouldn’t exceed two single-space
pages.

Section 1: Executive Summary
2 of 2
Key Insights
• In many instances an investor will
ask for a copy of a firm’s executive
Executive Summary summary and will ask for a copy of
the entire plan only if the executive
summary is sufficiently convincing.
• The executive summary, then, is
arguably the most important
section of a business plan.

Section 2: Company Description
1 of 2
• Company Description
– The main body of the business plan beings with a general
description of the company.
– Items to include in this section:
• Company description.
• Company history.
• Mission statement.
• Products and services.
• Current status.
• Legal status and ownership.
• Key partnerships (if any).

Section 2: Company Description
2 of 2
Key Insights
• While at first glance this section
may seem less important than the
Company Description others, it is extremely important.
• It demonstrates to your reader
that
you know how to translate an idea
into a business.

Section 3: Industry Analysis
1 of 2
• Industry Analysis
– This section should being by describing the industry the
business will enter in terms of its size, growth rate, and
sales projections.
• Industry size, growth rate, and sales projections.
• Industry structure.
• Nature of participants.
• Key success factors.
• Industry trends.
• Long-term prospects.

Section 3: Industry Analysis
2 of 2
Key Insights
• Industry analysis is a tool that
facilitates a company's
Industry Analysis understanding of its position relative
to other companies that produce
similar products or services.
Understanding the forces at work in
the overall industry is an important
component of effective strategic
planning.

Section 4: Market Analysis
1 of 2
• Market Analysis
– The market analysis breaks the industry into segments and
zeros in on the specific segment (or target market) to which
the firm will try to appeal.
• Market segmentation and target market selection.
• Buyer behavior.
• Competitor analysis.
• Market Size
• Growth rate of the market
• Market trends
• Market profitability
• Key success factors
• Distribution channels
• Industry cost structure

Section 4: Market Analysis
2 of 2
Key Insights
• Most startups do not service their
entire industry. Instead, they focus
Market Analysis on servicing a specific (target)
market within the industry.
• It’s important to include a section
in
the market analysis that deals with
the behavior of the consumers in
the
market. The more a startup knows
about the consumers in its target
market, the more it can tailor its
products or service appropriately.
Section 4: Marketing Plan
1 of 2
• Marketing Plan
• A marketing plan is a comprehensive document or blueprint
that outlines a company's advertising and marketing efforts
for the coming year. It describes business activities involved in
accomplishing specific marketing objectives within a set time
frame. Marketing Plan is description of the marketing mix that
a business will use to achieve their marketing goals
– The marketing plan focuses on how the business will
market and sell its product or service.
• Overall marketing strategy.
• Product, price, promotions, and distribution.

Section 4: Marketing Plan
2 of 2
Key Insights
• The best way to describe a startup’s
marketing plan is to start by
Marketing Plan articulating its marketing strategy,
positioning, and points of
differentiation, and then talk about
how these overall aspects of the
plan will be supported by price,
promotional mix, and distribution
strategy. 4p

Section 5: Management Team and Organization
Structure
1 of 2
• Management Team and Organization Structure

• An Organization structure defines how activities such as task
allocation, coordination and supervision are directed toward
the achievement of organizational aims.
– The management team of a new venture typically consists
of the founder or founders and a handful of key
management personnel.
• Management team.
• Board of directors.
• Board of advisers.
• Company structure.

Section 5: Management Team and Company
Structure
2 of 2
Key Insights
• This is a critical section of a
business plan.
Management Team and • Many investors and others who
Company Structure read the business plan look first at
the executive summary and then go
directly to the management team
section to assess the strength of the
people starting the firm.

Section 6: Operations Plan
1 of 2
• Operations Plan
– Outlines how your business will be run and how your
product or service will be produced.
– A useful way to illustrate how your business will be run is
to describe it in terms of “back stage” (unseen to the
customer) and “front stage” (seen by the customer)
activities.
• General approach to operations.
• Business location.
• Facilities and equipment.

Section 6: Operations Plan
2 of 2
Key Insights
• Your have to strike a careful balance
between adequately describing this
Operations Plan topic and providing too much
detail.
• As a result, it is best to keep this
section short and crisp.
-Operational plan Low-level management A unit
within a single area of the business (e.g. a
department within a division) Specific plans for low
level and day-to-day activities and processes that
will support and enable the tactical plan Extremely
detailed (who, what, where and when)

Section 7: Product (or Service) Design and
Development Plan
1 of 2
• Product (or Service) Design and Development Plan

• The purpose of the design and development plan section is to provide investors with a
description of the product's design, chart its development within the context of production,
marketing, and the company itself, and create a development budget that will enable the
company to reach its goals.
• There are generally three areas you'll cover in the development plan section:
• . Product development
• . Market development
• . Organizational development
– If you’re developing a completely new product or service,
you need to include a section that focuses on the status of
your development efforts.
– Items to include in this section: Development status and tasks,
Challenges and risks, and Intellectual property.

Section 7: Product (or Service) Design and
Development Plan
2 of 2
Key Insights
• Many seemingly promising startups
never get off the ground because
Product (or Service) their product development efforts
Design and Development stall or turn out to be more difficult
than expected.
Plan • Its important to convince the reader
of your plan that this won’t happen
to you.

Section 8: Financial Projections
1 of 2
• Financial Projections
– The final section of a business plan presents a firm’s pro
forma (or projected) financial projections.
• Sources and uses of funds statement.
• Assumptions sheet.
• Pro forma income statements.
• Pro forma balance sheets.
• Pro forma cash flows.
• Ratio analysis.
• BEP

Section 8: Financial Projections
2 of 2
Key Insights
• Having completed the earlier
sections of the plan, its easy to see
Financial Projections why the financial projections come
last.
• They take the plans you’ve
developed and express them in
financial terms.

Presenting the Business Plan to Investors
1 of 3
• The Oral Presentation

– The first rule in making an oral presentation is to follow
directions. If you’re told you have 15 minutes, don’t talk
for more than the allotted time.
– The presentation should be smooth and well-rehearsed.
– The slides should be sharp and not cluttered.
• Questions and Feedback to Expect from Investors
– The smart entrepreneur has a good idea of the questions
that will be asked, and will be prepared for those queries.

2 of 3
Twelve PowerPoint Slides to Include in an Investor Presentation
1. Title Slide 7. Marketing and sales

2. Problem 8. Management team
3. Solution 9. Financial projections
4. Opportunity and target market 10. Current status
5. Technology 11. Financing sought
6. Competition 12. Summary

3 of 3
• It’s also important to

look sharp when
presenting a business
plan.
• This new venture team
is going over its
PowerPoint slides one
last time before an
investor presentation.

Chapter 5
Industry and
Competitor Analysis
A.D. parajuli 5-41

Chapter Objectives
1 of 2
1. Explain the purpose of an industry analysis.

2. Identify the five competitive forces that determine
industry profitability.
3. Explain the role of “barriers to entry” in creating
disincentives for firms to enter an industry.
4. Identify the nontraditional barriers to entry that are
especially associated with entrepreneurial firms.
5. List the four industry-related questions to ask
before pursuing the idea for a firm.
A.D. parajuli 5-42

Chapter Objectives
2 of 2
6. Identify the five primary industry types and the

opportunities they offer.
7. Explain the purpose of a competitor analysis.
8. Identify the three groups of competitors a new firm
will face.
9. Describe ways a firm can ethically obtain
information about its competitors.
10. Describe the reasons for completing a competitive
analysis grid.
A.D. parajuli 5-43

What is Industry Analysis?
• Industry
– An industry is a group of firms producing a similar product
or service, such as airlines, fitness drinks, furniture, or
electronic games.
• Industry Analysis
– Industry analysis is a tool that facilitates a company's understanding of
its position relative to other companies that produce similar products
or services. Understanding the forces at work in the overall industry is
an important component of effective strategic planning.
– Is business research that focuses on the potential of an industry.
A.D. parajuli 5-44

What is Industry Analysis Important?
Importance
• Once it is determined that a new
venture is feasible in regard to the
Industry Analysis industry and market in which it
will compete, a more in-depth
analysis is needed to learn the ins
and outs of the industry.
• The analysis helps a firm
determine
if the niche market it identified
during feasibility analysis is
favorable for a new firm.
A.D. parajuli 5-45
Analyzing Industry trend
• Following questions will be helpful for the industry analysis:
• What is the current value of the industry?
• Is the industry growing?
• What are the major companies/competitors in the industry?
• what is their market share?
• What are some barriers to entry or threats to the industry?
• Market size, share and segmentation data plus detailed analysis
and company information are included.
A.D. parajuli 5-46

Key factors of Industry Analysis
• Several key factors must be considered as analyzing
industry trends such as:
• Geographic area-local, regional, national, and
international
• Industry- size, growth trend and outlook
• Product buyer- target customer, regulatory
environment,
• Company information- Identify most successful
business
A.D. parajuli 5-47

Attractiveness of Industry analysis
• Must be large and growing
• Must not be mature, where product is tired
• Must have high operating margin
• Must not be crowded
• Possibility of further demand
• Less competitive scenario
• Trend of innovation and development
• Industry dynamic
A.D. parajuli 5-48
Three Key Questions
When studying an industry, an entrepreneur must answer
three questions before pursuing the idea of starting a firm.
Question 1 Question 2 Question 3
Is the industry Does the industry Are there positions in

accessible—in other contain markets that the industry that avoid
words, is it is realistic are ripe/ready some of the negative
place for a new for innovation attributes of the
venture to enter? or are underserved? industry as a whole?
A.D. parajuli 5-49

How Industry and Firm-Level Factors
Affect Performance
• Firm Level Factors
– Include a firm’s assets, products, culture, teamwork among
its employees, reputation, and other resources.
• Industry Level Factors
– Include threat of new entrants, rivalry among existing
firms, bargaining power of buyers, and related factors.
• Conclusion
– In various studies, researchers have found that from 8% to
30% of the variation in firm profitability is directly
attributable to the industry in which a firm competes.
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Techniques Available to Assess Industry
Attractiveness
Assessing Industry Attractiveness
Study Environmental The Five Competitive

and Business Trends Forces Model
A.D. parajuli 5-51

Studying Industry Trends
• Environmental Trends
– Include economic trends, social trends, technological
advances, and political and regulatory changes.
– For example, industries that sell products to seniors are
benefiting by the aging of the population.
• Business Trends
– Other trends that impact an industry.
– For example, are profit margins in the industry increasing
or falling? Is innovation accelerating or waning? Are input
costs going up or down?
A.D. parajuli 5-52

The Five Competitive Forces Model
1 of 3
• Explanation of the Five Forces Model

– The five competitive forces model is a framework for
understanding the structure of an industry.
– The model is composed of the forces that determine
– They help determine the average rate of return for the firms
in an industry.
A.D. parajuli 5-53

2 of 3
• Explanation of the Five Forces Model (continued)

– Each of the five-forces impacts the average rate of return
for the firms in an industry by applying pressure on
– Well managed firms try to position their firms in a way that
avoids or diminishes these forces—in an attempt to beat the
average rate of return of the industry.
A.D. parajuli 5-54

3 of 3
A.D. parajuli 5-55

Threat of Substitutes
1 of 3
• Threat of Substitutes
– The price that consumers are willing to pay for a product
depends in part on the availability of substitute products.
– For example, there are few if any substitutes for
prescription medicines, which is one of the reasons the
pharmaceutical industry is so profitable.
– In contrast, when close substitutes for a product exist,
industry profitability is suppressed, because consumers will
opt out if the price gets too high.
A.D. parajuli 5-56

2 of 3
• Threat of Substitutes (continued)

– The extent to which substitutes suppress the profitability of
an industry depends on the propensity for buyers to
substitute between alternatives.
– This is why firms in an industry often offer their customers
amenities to reduce the likelihood that they will switch to a
substitute product, even in light of a price increase.
A.D. parajuli 5-57

3 of 3
• A customer could easily get

a cup of coffee cheaper at
one of Starbuck’s competitors.
• To decrease the likelihood of
this, Starbucks offers high-
quality fresh coffee, good
service, and a pleasant
atmosphere.
• Starbucks has therefore
reduced the threat of
substitutes.
A.D. parajuli 5-58

Threat of New Entrants
1 of 6
• Threat of New Entrants

– If the firms in an industry are highly profitable, the industry
becomes a magnet to new entrants.
– Unless something is done to stop this, the competition in
the industry will increase, and average industry profitability
will decline.
– Firms in an industry try to keep the number of new entrants
low by erecting barriers to entry.
• A barrier to entry is a condition that creates a disincentive for a new
firm to enter an industry.
A.D. parajuli 5-59

2 of 6
Barriers to Entry
Barrier to Entry Explanation
Industries that are characterized by large economies of

Economies of Scale
scale are difficult for new firms to enter, unless they are
willing to accept a cost disadvantage.
Industries such as the soft drink industry that are

Product differentiation
characterized by firms with strong brands are difficult to
break into without spending heavily on advertising.
Capital The need to invest large amounts of money to gain

requirements entrance to an industry is another barrier to entry.
A.D. parajuli 5-60

3 of 6
Barriers to Entry (continued)

Existing firm may have cost advantages not related to
Cost advantages size. For example, the existing firms in an industry may
independent of size have purchased land when it was less expensive than it
is today.
Distribution channels are often hard to crack. This is

Access to distribution particularly true in crowded markets, such as the
channels convenience store market.
Government and Some industries, such as broadcasting, require the

legal barriers granting of a license by a public authority to compete.
A.D. parajuli 5-61

4 of 6
• Non Traditional Barriers to Entry

– It is difficult for start-ups to execute barriers to entry that
are expensive, such as economies of scale, because money
is usually tight.
– Start-ups have to rely on nontraditional barriers to entry to
discourage new entrants, such as assembling a world-class
management team that would be difficult for another
company to replicate.
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5 of 6
Nontraditional Barriers to Entry
If a start-up puts together a world-class management

Strength of
team, it may give potential rivals pause in taking on the
management team
start-up in its chosen industry.
If a start-up pioneers an industry or a new concept

First-mover advantage
within an industry, the name recognition the start-up
establishes may create a barrier to entry.
If the employees of a start-up are motivated by the

Passion of the
unique culture of a start-up, and anticipate large
management team
financial reward, this is a combination that cannot be
and employees
replicated by larger firms.
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6 of 6
Nontraditional Barriers to Entry (continued)
If a start-up is able to construct a unique business

Unique Business model and establish a network of relationships that
Model makes the business model work, this set of advantages
creates a barrier to entry.
Some Internet domain names are so “spot-on” that

Internet Domain they give a start-up a meaningful leg up in terms of e-
Name commerce opportunities.
Inventing a new If a start-up invents a new approach to an industry and

approach to an executes it in an exemplary fashion, these factors
industry create a barrier to entry for potential imitators.
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Rivalry Among Existing Firms
1 of 4
• Rivalry Among Existing Firms

– In most industries, the major determinant of industry profitability is the
level of competition among existing firms.
– Some industries are fiercely competitive, to the point where prices are
pushed below the level of costs, and industry-wide losses occur.
– In other industries, competition is much less intense and price
competition is subdued.
– Industry rivalry means intensity of competition level in an industry
– Factors that increase competitive rivalry among existing firms -large
number of firms, slow industry growth, high fixed cost, and high exit
barrier.
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2 of 4
• Rivalry among industry players can affect

industry profits through (a) downward pressure
on prices, (b) increased innovation, (c)
increased advertising, (d) increased
service/product improvements, among others.
• In economics, a monopoly industry structure
earns the most profit while the “perfect
competition” industry structure earns the least.
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3 of 4
Factors that determine the intensity of the rivalry among

existing firms in an industry.
Number and The more competitors there are, the more likely it
balance of is that one or more will try to gain customers by
competitors cutting its price.
Degree of The degree to which products differ from one

difference product to another affects industry rivalry.
between products
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4 of 4
Factors that determine the intensity of the rivalry among existing

firms in an industry (continued)
The competition among firms in a slow-growth

Growth rate of an
industry is stronger than among those in fast-
industry
growth industries.
Firms that have high fixed costs must sell a higher

Level of fixed
volume of their product to reach the break-even
costs
point than firms with low fixed costs.
A.D. parajuli 5-68

Bargaining Power of Suppliers
1 of 5
• Bargaining Power of Suppliers

– Suppliers can suppress the profitability of the industries to
which they sell by raising prices or reducing the quality
of the components they provide.
– If a supplier reduces the quality of the components it
supplies, the quality of the finished product will suffer, and
the manufacturer will eventually have to lower its price.
– If the suppliers are powerful relative to the firms in the
industry to which they sell, industry profitability can suffer.
– The presence of powerful suppliers reduces the profit potential in an industry.
– Suppliers increase competition within an industry by threatening to raise prices or reduce the
quality of goods and services.
A.D. parajuli 5-69

Several determining factors of supplier
bargaining power
2 of 5
• If suppliers are concentrated compared to buyers –

• if there are few suppliers and many buyers – supplier
bargaining power is high.
• If buyer switching costs – the cost of switching from one
supplier’s product to another supplier’s product – are high,
the bargaining power of suppliers is high.
• If suppliers can easily forward integrate – or begin to produce
the buyer’s product themselves – supplier power is high.
• If the buyer is not price sensitive and uneducated regarding
the product, supplier power is high.
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Several determining factors of supplier
bargaining power 3 of 5
• If the supplier’s product is highly differentiated,
supplier bargaining power is high.
• If the buyer does not represent a large portion of the
supplier’s sales, the bargaining power of suppliers is
high.
• If substitute products are unavailable in the
marketplace, supplier power is high.
• if the opposite is true for any of these factors,
supplier power is low.
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4 of 5
Factors that have an impact on the ability of suppliers to

exert pressure on buyers
Supplier When they are only a few suppliers that supply a

concentration critical product to a large number of buyers, the
supplier has an advantage.
Switching costs are the fixed costs that buyers

Switching costs encounter when switching or changing from one
supplier to another. If switching costs are high, a
buyer will be less likely to switch suppliers.
A.D. parajuli 5-72

5 of 5
Factors that have an impact on the ability of suppliers to exert

pressure on buyers (continued)
Attractiveness of Supplier power is enhanced if there are no attractive

substitutes substitutes for the product or services the supplier
offers.
Threat of forward The power of a supplier is enhanced if there is a

integration credible possibility that the supplier might enter the
buyer’s industry.
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Bargaining Power of Buyers
1 of 5
• Bargaining Power of Buyers

– Bargaining power of the buyer that comes from gathering
together to put collective pressure on producers to
lower prices or improve quality.
– Buyers can suppress the profitability of the industries from
which they purchase by demanding price concessions or
increases in quality.
– For example, the automobile industry is dominated by a
handful of large companies that buy products from thousands
of suppliers in different industries. This allows the
automakers to suppress the profitability of the industries from
which they buy by demanding price reductions.
A.D. parajuli 5-74
Several factors determine buyer bargaining power
2 of 5
• If the customer purchases large volumes of standardized

products from the seller, buyer bargaining power is high.
• If substitute products are available on the market, buyer
power is high.
• And of course, if the opposite is true for any of these factors,
buyer bargaining power is low.
• For example, low buyer concentration, high switching costs,
no threat of backward integration, less price sensitivity,
uneducated consumers, consumers that purchase specialized
products, and the absence of substitute products all indicate
that buyer power is low.
A.D. parajuli 5-75

Several factors determine buyer bargaining power
3 of 5
• If the customer purchases large volumes of standardized

products from the seller, buyer bargaining power is high.
• If substitute products are available on the market, buyer
power is high.
• If the opposite is true for any of these factors, buyer
bargaining power is low.
• For example, low buyer concentration, high switching costs,
no threat of backward integration, less price sensitivity,
uneducated consumers, consumers that purchase specialized
products, and the absence of substitute products all indicate
that buyer power is low.
A.D. parajuli 5-76

4 of 5
Factors that have an impact on the ability of suppliers to exert

pressure on buyers
If there are only a few large buyers, and they buy

Buyer group from a large number of suppliers, they can pressure
concentration the suppliers to lower costs and thus affect the
profitability of the industries from which they buy.
The greater the importance of an item is to a buyer,

Buyer’s costs the more sensitive the buyer will be to the price it
pays.
A.D. parajuli 5-77

5 of 5
Factors that have an impact on the ability of buyers to exert

pressure on suppliers (continued)
Degree of The degree to which a supplier’s product differs

standardization of from its competitors affect the buyer’s
supplier’s bargaining power.
products
Threat of The power of buyers is enhanced if there is a

backward credible threat that the buyer might enter the
integration supplier’s industry.
A.D. parajuli 5-78

First Application of the Five Forces Model
1 of 2
• First Application of the Model

– The five forces model can be used to assess the
attractiveness of an industry by determining the level of
threat to industry profitability for each of the forces.
– If a firm fills out the form shown on the next slide and
several of the threats to industry profitability are high, the
firm may want to reconsider entering the industry or think
carefully about the position it would occupy.
A.D. parajuli 5-79

First Application of the Five Forced Model
2 of 2
Assessing Industry Attractiveness Using the Five Forces Model
A.D. parajuli 5-80

Second Application of the Five Forces Model
1 of 2
• Second Application of the Model

– The second way a new firm can apply the five forces model
to help determine whether it should enter an industry is by
using the model to answer several key questions.
– The questions are shown in the figure on the next slide, and
help a firm project the potential success of a new venture in
a particular industry.
A.D. parajuli 5-81

Second Application of the Five Forced Model
2 of 2
Using the Five Forces Model to Pose Questions to Determine the Potential
Success of a New Venture in an Industry
A.D. parajuli 5-82

Industry Types and the Opportunities
They Offer
1 of 3
• Emerging Industries
– Industries in which standard operating procedures have yet
to be developed.
• Opportunity: First-mover advantage.
• Fragmented Industries
– Industries that are characterized by a large number of firms
of approximately equal size.
• Opportunity: Consolidation.
A.D. parajuli 5-83

They Offer
2 of 3
• Mature Industries
– Industries that are experiencing slow or no increase in
demand.
• Opportunities: Process innovation and after-sale service innovation.
• Declining Industries
– Industries that are experiencing a reduction in demand.
• Opportunities: Leadership, establishing a niche market, and
pursuing a cost reduction strategy.
A.D. parajuli 5-84

They Offer
3 of 3
• Global Industries
– Industries that are experiencing significant international
sales.
• Opportunities: Multidomestic and global strategies.
A.D. parajuli 5-85

Competitor Analysis
• What is a Competitor Analysis?

– A competitor analysis is a detailed analysis of a firm’s
competition.
– It helps a firm understand the positions of its major
competitors and the opportunities that are available.
– A competitive analysis grid is a tool for organizing the
information a firm collects about its competitors.
A.D. parajuli 5-86

Identifying Competitors
Types of Competitors New Ventures Face
A.D. parajuli 5-87

Sources of Competitive Intelligence
1 of 3
• Collecting Competitive Intelligence

– To complete a competitive analysis grid, a firm must first
understand the strategies and behaviors of its competitors.
– The information that is gathered by a firm to learn about its
competitors is referred to as competitive intelligence.
– A new venture should take care that it collects competitive
intelligence in a professional and ethical manner.
A.D. parajuli 5-88

2 of 3
Ethical ways to obtain information about competitors
• Attend conferences and trade shows.

• Purchase competitor’s products.
• Study competitors’ Web sites.
• Set up Google and Yahoo! e-mail alerts.
• Read industry-related books, magazines, and Web sites.
• Talk to customers about what motivated them to buy your
product as opposed to your competitor’s product.
A.D. parajuli 5-89

3 of 3
• Many companies attend

trade shows to not only
display their products,
but to see what their
competitors are up to.
• This is a photo of the
the 2008 Consumer
Electronics Trade Show
in Las Vegas.
A.D. parajuli 5-90

Completing a Competitive Analysis Grid
• Competitive Analysis Grid

– A tool for organizing the information a firm collects about
its competitors
– A competitive analysis grid can help a firm see how it
stakes up against its competitors, provide ideas for markets
to pursue, and identify its primary sources of competitive
advantage.
A.D. parajuli 5-91

Competitive a Analysis Grid for Expresso
Fitness
A.D. parajuli 5-92

Chapter 6
Preparing the Proper

Ethical and Legal
Foundation
A.D. Parajuli
Course Covered
Legal and Ethical Dimensions of Entrepreneurship - LH 7
• Establishing a strong ethical culture, business

licenses and business permits, sole
proprietorship and partnership,
• Provisions of establishing entrepreneurs’
business in Nepal,
• Legal and ethical issues facing entrepreneurs’
business in Nepal.
A.D. Parajuli
Chapter Objectives
1 of 3
1. Describe how to create a strong ethical culture in an

entrepreneurial venture.
2. Explain the importance of “leading by example” in
terms of establishing a strong ethical culture in a
firm.
3. Explain the importance of having a code of conduct
and an ethics training program.
4. Explain the criteria important to selecting an
attorney for a new firm.
5. Discuss the importance of a founder’s agreement.
A.D. Parajuli
Chapter Objectives
2 of 3
6. Provide several suggestions for how entrepreneurial

firms can avoid litigation.
7. Discuss the importance of nondisclosure and
noncompete agreements.
8. Provide an overview of the business licenses and
business permits that a start-up must obtain before
it starts conducting business.
9. Discuss the differences among sole proprietorships,
partnerships, corporations, and limited liability
companies.
A.D. Parajuli
Chapter Objectives
3 of 3
10. Explain why most fast-growth entrepreneurial

ventures organize as corporations or limited liability
companies rather than sole proprietorships or
partnerships.
A.D. Parajuli
Initial Ethical and Legal Issues Facing a New
Firm
Establishing a strong Drafting a founder’s

Choosing an
ethical culture agreement
attorney
Avoiding legal Obtaining business Choosing a form of

disputes licenses and permits business organization
A.D. Parajuli
What is Ethics
1 of 3
• Ethics is moral philosophy.

• Ethics is the branch of philosophy that involves systematizing, defending,
and recommending concepts of right and wrong conduct.
• Ethics investigates the questions
• - "What is the best way for people to live?"
• - "What actions are right or wrong in particular circumstances?”
• Ethics is rules of behaviour based on ideas about what is morally good and
bad
• Ethics is an area of study that deals with ideas about what is good and
bad behaviour :
• Ethic is a branch of philosophy dealing with what is morally right or wrong.
A.D. Parajuli
What is Ethics
2 of 3
• Ethics are the set of moral principles that guide a person's behaviour.
• These morals are shaped by social norms, cultural , practices, and
religious influences.
• Ethical behavior is based on written and unwritten codes of principles
and values held in society.
• Ethics reflect beliefs about what is right, what is wrong, what is just, what
is unjust, what is good, and what is bad in terms of human behaviour.
• Ethical principles and values serve as a guide to behaviour on a personal
level, within professions, and at the organizational level.
• These morals are shaped by social norms, cultural, practices, and religious
influences.
A.D. Parajuli
Ethical Culture
3 of 3
• Ethical Culture is a religion cantered on ethics, not theology,

whose mission is to encourage respect for humanity and
nature and to create a better world. Members are committed
to personal ethical development in their relationships with
others and in activities involving social justice and
environmental stewardship.
A.D. Parajuli
What is culture?
• Culture is the characteristics and knowledge of a particular
group of people, defined by everything from language,
religion, cuisine, social habits, music and arts.
• Culture is the systems of knowledge shared by a relatively
large group of people.
• Culture is communication, communication is culture.
• A culture is a way of life of a group of people--the behaviours,
beliefs, values, and symbols that they accept, generally
without thinking about them, and that are passed along by
communication and imitation from one generation to the
next.
A.D. Parajuli
Establishing a Strong Ethical Culture
1 of 2
• Lead By Example
– Leaders who intentionally make ethics a part of their daily
conversations, work /activities and decision making
– Supervisors who emphasize integrity when working with their direct
reports
– Peers who encourage others to act ethically
– The most important thing that any entrepreneur, or team of
entrepreneurs, can do to build a strong ethical culture in their
organization is to lead by example.
• Establish a Code of Conduct
– A code of conduct (or code of ethics) is a formal statement of an
organization’s values on certain ethical and social issues.
A.D. Parajuli
Establishing a Strong Ethical Culture
2 of 2
- Code of conduct provides specific guidance to managers and

employees regarding expectations of them in terms of ethical
behaviour
- Some codes are specific, others may involve issues such as
product quality, respect to customers and employees, and social
responsibility
• Implement an Ethics Training Program
– Ethics training programs teach business ethics to help employees deal
with ethical dilemmas and improve their overall ethical conduct.
– An ethical dilemma is a situation that involves doing something that is
beneficial to oneself or the organization, but may be unethical.
A.D. Parajuli
Potential Payoffs for Establishing a Strong
Ethical Culture
A.D. Parajuli
Choosing an Attorney for a Firm
• Select an Attorney Early

– It is important for an entrepreneur to select an attorney as
early as possible when developing a business venture.
– It is critically important that the attorney be familiar with
startup issues.
• Intellectual Property
– For issues dealing with intellectual property (patents,
trademarks, copyrights, and trade secrets) it is essential to
use an attorney who specializes in this field.
A.D. Parajuli
How to Select an Attorney
• Contact the local bar association and ask for a list of attorneys who
specialize in start-ups in your area.
• Interview several attorneys.
• Select an attorney who is familiar with the start-up process.
• Select an attorney who can assist you in raising money for your new
venture.
• Make sure your attorney has a track record of completing his or her work
on time.
• Talk about fees.
• Select an attorney that you think understands your business.
• Learn as much about the process of starting a business yourself as
possible.
A.D. Parajuli
Draft a Founders’ Agreement
• Founders’ Agreement
– A founder’s agreement (or shareholders’ agreement) is a
written document that deals with issues such as the relative
split of the equity among the founders of the firm, how
individual founders will be compensated for the cash or the
“sweat equity” they put into the firm, and how long the
founders will have to remain with the firm for their shares
to fully vest.
– The items to include in the founders agreement are shown
on the following slide.
A.D. Parajuli
Items to Include in a Founders’ Agreement
• Nature of the prospective business.

• A brief business plan.
• Identity and proposed titles of the founders.
• Legal form of business ownership.
• Apportionment of stock.
• Consideration paid for stock or ownership share of each of the founders.
• Identification of any intellectual property signed over to the business.
• Description of the initial operating capital.
• Buyback clause.
A.D. Parajuli
Avoiding Legal Disputes
1 of 2
• Avoiding Legal Disputes

– Most legal disputes are the result of misunderstandings,
sloppiness, or a simple lack of knowledge of the law.
Getting bogged down in legal disputes is something an
entrepreneur should work hard to avoid.
– There are several steps that an entrepreneur can take to
avoid legal disputes:
• Meet all contractual obligations.
• Avoid undercapitalization.
• Get everything in writing.
• Set standards.
A.D. Parajuli
Avoiding Legal Disputes
2 of 2
• Although its tempting to try

to show people you trust
them by not insisting on
written agreements, it’s not
a
good practice.
• One of the simplest ways to
avoid misunderstandings
and ultimately legal disputes
is to get everything in
writing.
A.D. Parajuli
What is License and permit?
• Business licenses are permits issued by

government agencies that allow individuals or
companies to conduct business within the
government's geographical jurisdiction. It is
the authorization to start a business issued by
the local government.
A.D. Parajuli
Obtaining Business Licenses and Permits
1 of 2
• Business Licenses
– In most communities, a business needs a license to operate.
– If the business will be run out of the founder’s home, a
separate home occupation business license is often
required.
– If a business has employees, or is a corporation, limited
liability company, or limited partnership, it will usually
need a state business license in addition to its local one.
– A narrow group of companies are required to have a federal
business license, including investment advising, drug
manufacturing, and interstate trucking.
A.D. Parajuli
Obtaining Business Licenses and Permits
2 of 2
• Business Permits
– Along with obtaining the appropriate licenses, some
businesses may need to obtain one or more permits.
– The need to obtain a permit depends on the nature and
location of the business.
• If you plan to sell food, you’ll need a city or county health permit.
• If your business is open to the public, you may need a fire permit.
• Some communities require businesses to obtain a license to put up
a sign.
• All businesses that plan to use a fictitious name need a fictitious
business name permit.
A.D. Parajuli
Choosing a Form of Business Ownership
When a business is launched, a form of legal entity must
be chosen. The most common legal entities are…
Sole Proprietorship Partnership
Limited Liability
Corporation
Company
A.D. Parajuli
Issues to Consider in Choosing a Legal Form of
Business Ownership
A.D. Parajuli
Sole Proprietorship
• Sole Proprietorship
– The simplest form of business entity is the sole
proprietorship.
– A sole proprietorship is a form of business organization
involving one person, and the person and the business are
essentially the same.
– A sole proprietorship is not a separate legal entity. The sole
proprietor is responsible for all the liabilities of the
business, and this is a significant drawback.
A.D. Parajuli
Advantages and Disadvantages of a
Sole Proprietorship
1 of 2
Advantages of a Sole Proprietorship

▪ Creating one is easy and inexpensive.
▪ The owner maintains complete control of the business and retains all of the
profits.
▪ Business losses can be deducted against the sole proprietor’s other sources
of
income.
▪ It is not subject to double taxation (explained later).
▪ The business is easy to dissolve.
A.D. Parajuli
Sole Proprietorship
2 of 2
Disadvantages of a Sole Proprietorship

▪ Liability on the owners’ part is unlimited.
▪ The business relies on the skills and abilities of a single owner to be successful.
Of course, the owner can hire employees who have additional skills and abilities.
▪ Raising capital can be difficult.
▪ The business ends at the owner’s death or loss of interest in the business.
▪ The liquidity of the owner’s investment is low.
A.D. Parajuli
Partnerships
1 of 3
• Partnerships
– If two or more people start a business, they must organize
as a partnership, corporation, or limited liability company.
– Partnerships are organized as either general or limited
liability partnerships.
A.D. Parajuli
Partnerships
2 of 3
A form of business organization

where two or more people pool
General Partnership their skills, abilities, and
resources to run a business. The
primary disadvantage is that all
partners are liable for all the
partnership’s debts and
obligations.
A.D. Parajuli
Partnerships
3 of 3
• A modified form of general

partnership.
• The major difference between
the two is that a limited
Limited Partnership partnership includes two
classes
of owners: general partners
and
limited partners.
• The general partners are liable
for the debts and obligations of
the partnership, but the limited
partners are only liable up to
the amount of their
A.D. Parajuli
General Partnership
1 of 2
Advantages of a General Partnership

▪ Creating one is relatively easy and inexpensive compared to a corporation or
limited liability company.
▪ The skills and abilities of more than one individual are available to the firm.
▪ Having more than one owner may make it easier to raise funds.
▪ Business losses can be deducted against the partners’ other sources of
income.
▪ It is not subject to double taxation (explained later).
A.D. Parajuli
General Partnership
2 of 2
Disadvantages of a Partnership
▪ Liability on the part of each general partner is unlimited.
▪ The business relies on the skills and abilities of a fixed number of partners. Of
course, the owners can hire employees who have additional skills and abilities.
▪ Raising capital can be difficult.
▪ Because decision making among the partners is shared, disagreements can
occur.
▪ The business ends with the death or withdrawal of one partner unless otherwise
stated in the partnership agreement.
▪ The liquidity of each partner’s investment is low.
A.D. Parajuli
Corporations
• Corporations
– A corporation is a separate legal entity organized under the
authority of a state.
– Corporations are organized as either C corporations or
subchapter S corporations.
– C corporations are what most people think of when they
hear the word “corporation.” However, business startups
are often organized as subchapter S corporations.
A.D. Parajuli
C Corporations
1 of 2
• Is a separate legal entity that, in the

eyes of the law, is separate from its
owners.
• In most cases a corporation shields
its owners, who are called shareholders,
C Corporations
from personal liability for the debts of
the corporation.
• A corporation is governed by a board
of directors, which is elected by the
shareholders.
• A corporation is formed by filing
articles of incorporation.
A.D. Parajuli
C Corporations
2 of 2
• A corporation is taxed as a separate

legal entity.
• A disadvantage of a C corporation is
that it is subject to double taxation.
This means that a corporation is taxed
C Corporations
on its net income, and when the same
income is distributed to shareholders
in the form of dividends, the income is
taxed again on the shareholders’
personal tax returns.
A.D. Parajuli
C Corporation
1of 2
Advantages of a C Corporation
▪ Owners are liable only for the debts and obligations of the corporation up
the
amount of their investment.
▪ The mechanics of raising capital is easier.
▪ No restrictions exist on the number of shareholders, which differs from
subchapter S corporations.
▪ Stock is liquid if traded on a major stock exchange.
▪ The ability to share stock with employees through stock options or other
incentive plans can be a powerful form of employee motivation.
A.D. Parajuli
C Corporation
2 of 2
Disadvantages of a C Corporation
▪ Setting up and maintaining one is more difficult than for a sole
proprietorship
or a partnership.
▪ Business losses cannot be deducted against the shareholder’s other sources
of
income.
▪ Income is subject to double taxation, meaning that it is taxed at the
corporate
and the shareholder levels.
▪ Small shareholders typically have little voice in the management of the firm.
A.D. Parajuli
Subchapter S Corporation
1 of 2
• Combines the advantages of a

partnership and a C corporation.
• Is similar to a partnership in that the
income of the business is not subject
to double taxation.
Subchapter S
• Is similar to a corporation in that the
Corporation owners are not subject to personal
liability for the debts or behavior of
the business.
• A Subchapter S Corporation does not
pay taxes. Profits and losses are passed
through to the tax returns of the owners.
A.D. Parajuli
Subchapter S Corporations
2 of 2
There are strict standards that a business must meet to qualify for status as a
subchapter S corporation. The standards are shown below:
▪ The business cannot be a subsidiary of another corporation.

▪ The shareholders must be U.S. citizens. Partnerships and C corporations may
not own shares in a subchapter S corporation. Certain types of trusts and
estates
are eligible to own shares in a subchapter S corporation.
▪ It can only have one class of stock issued and outstanding (either preferred
stock or common stock).
▪ It can have no more than 100 members. Husbands and wives count as one
member, even if they own separate shares of stock.
▪ All shareholders must agree to have the corporation formed as a subchapter
S corporation.
A.D. Parajuli
Limited Liability Company
• Is a form of business ownership that

is rapidly gaining popularity in the
U.S.
• Along with the Subchapter S, it is a
popular choice for start-up firms.
Limited Liability
• The limited liability company combines
Company the limited liability advantage of the
corporation with the tax advantages of
a partnership.
• A limited liability company does not
pay taxes. Profits and losses are passed
through to the tax returns of the owners.
A.D. Parajuli
Limited Liability Company
1 of 2
Advantages of a Limited Liability Company

▪ Members are liable for the debts and obligations of the business only up to
the
amount of their investment.
▪ The number of shareholders is unlimited.
▪ An LLC can elect to be taxed as a sole proprietor, partnership, S corporation,
or corporation, providing much flexibility.
▪ Because profits are taxed only at the shareholder level, there is no double
taxation.
A.D. Parajuli
Advantages and Disadvantages of a Limited
Liability Company
2 of 2
Disadvantages of a Limited Liability Company

▪ Setting up and maintaining one is more difficult and expensive.
▪ Tax accounting can be complicated.
▪ Some of the regulations governing LLCs vary by state.
▪ Because LLCs are a relatively new type of business entity, there is not as
much legal precedent available for owners to anticipate how legal disputes
might affect their business.
▪ Some states levy a franchise tax on LLCs—which is essentially a fee the LLC
pays the state for the benefit of limited liability.
A.D. Parajuli

Writing A Business Plan: Associated Prof. A.D. Parajuli

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Writing A Business Plan: Associated Prof. A.D. Parajuli

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Chapter 4

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1. Explain the purpose of a business plan.

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6. Describe a milestone and how milestones are used

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10. Detail the parts of an oral presentation of a business

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• makes it easier to communicate for inside party and out side

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Audience What They are Looking For

A Firm’s A clearly written business plan helps the

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• Structure of the Business Plan

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• Structure of the Business Plan (continued)

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• Content of the Business Plan

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Types of Business Plans

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• Recognizing the Elements of the Plan May Change

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• Outline of Business Plan

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• Management Team and Organization Structure

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• Product (or Service) Design and Development Plan

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• The Oral Presentation

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Twelve PowerPoint Slides to Include in an Investor Presentation

1. Title Slide 7. Marketing and sales

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• It’s also important to

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A.D. parajuli 5-41

1. Explain the purpose of an industry analysis.

A.D. parajuli 5-42

6. Identify the five primary industry types and the

A.D. parajuli 5-43