Chapter One

Why Plan?
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall
1-1
Dr. Bruce Barringer
University of Central Florida
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-2
Chapter One
Why plan?

Reasons for writing a business plan

Who reads the business planand
what are they looking for?

Guidelines for writing a business plan

Types of business

The plan for the book
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-3
Introduction
Increased interest in the study of
entrepreneurship

2,100 colleges and universities offer
entrepreneurship coursework

About 400,000 students took at
least one entrepreneurship
course in 2005

72% of American adults have
considered starting a business
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-4
The Business Plan
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, the business
plan introduces potential investors
and other stakeholders to the
business opportunities
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-5
Reasons for Writing a Business Plan
Two main reasons to write a
business plan:

InternalForces the founders of the
firm to think through every aspect of
their new venture

ExternalCommunicates the merits of
a new venture to outsiders, such as
investors and bankers
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External Support
Business incubator

An organization that provides physical
space and other resources to new firms in
hopes of promoting economic development
in a specific area

Investors rely on the business plan to
make decisions on initial investment

Many investors ask for an executive
summarya short overview of the
business plandescribing the merits of a
new venture



Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-7
Who reads the business plan
and what are they looking for?
Two primary audiences

Firms employees
Looking for the vision and
future of the firm

Investors and other
stakeholders
Investors, potential business
partners, potential
customers, grant awarding
agencies who are being
recruited
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-8
Guidelines
Structure and style of the business
plan

Content of the business plan

Measuring the business plan
against your personal goals and
aspirations

Recognizing that elements of the
plan may change
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Structure and Style
Conventional structure

25 to 35 pages in
length

Look sharp but not too
expensive or flashy

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Structure and Style
Elevator speech

A brief, carefully constructed
statement, usually 45
seconds to 2 minutes long
that outlines the merits of
a business venture or
business plan insight
feature
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Elevator Speech
Four steps in an elevator speech
(from business plan insight feature)

1. Describe the opportunity
2. Describe how your product or service
meets the opportunity
3. Describe your qualifications
4. Describe your market
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-12
Red Flags
Founders with none of their own
money at risk

A poorly cited plan

Defining the market size too
broadly

Overly aggressive financials

Hiding or avoiding weakness

Sloppiness in any area

Too long of a plan
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-13
Content of the Business Plan
Sections
Convince the
reader that
the
opportunity is
exciting,
feasible,
defensible
and within the
capabilities
of the people
who will be
launching the
firm

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Measuring the Business Plan Against Your
Personal Goals and Aspirations
Venture capital

Venture capitalists aim
for 30 to 40% annual
return and total return
of 5 to 20 times their
original investment over
the life of the
investment
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Venture Capital
Using venture capital involves
surrendering equity in the firm to
outsiders in exchange for their
investment and accepting heavy
scrutiny
Some entrepreneurs find it better
to launch a firm in a target market
and solicit funds from friends,
family, or a lender
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-16
Recognizing that Elements of the
Business Plan May Change
Corridor principle

Academic principle that
states once an entrepreneur
starts a business, he or she
begins a journey down a
path where corridors leading
to new venture opportunities
become apparent
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The business plan
is a living,
breathing document,
rather than
something set in
stone


Recognizing that Elements of the
Business Plan May Change
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Write deliberate (but) act emergent

Create a deliberate plan that is a
specific blueprint to follow
Think emergent with a mindset
that is open to change and
influenced by the realities of the
marketplace

Recognizing that Elements of the
Business Plan May Change
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Types of Business
Four distinct types of businesses

Survival
Lifestyle
Managed growth
Aggressive growth
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Survival

Provides its owner
just enough money to
put food on the table
and pay bills
Types of Business
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Lifestyle

Provides its owner
the opportunity to
pursue a certain
lifestyle and make a
living at it (clothing
boutique, personal
trainer)

Types of Business
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Managed growth

Employs 10 or more
people, may have several
outlets, and may be
introducing new products
or services to the market
(regional restaurant
chain, multi-unit
franchise)
Types of Business
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-23
Aggressive growth

Bringing new products
and services to the
market and has
aggressive growth plans
(computer software,
medical equipment,
national restaurant
chain)
Types of Business
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-24
The Plan for the Book
Section One: Starting the process
Section Two: What to do before the
business plan is written
Section Three: Preparing a business
plan
Section Four: Presenting the
business plan
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-25
Section One
Starting the process

A business plan is an essential
document for a firm to have at its
disposal, particularly if it plans to reach
out to others to try to gain access to
resources
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-26
Section Two
What to do before the business plan
is written

Comprehensive process
Four steps of the comprehensive
feasibility analysis/business planning
process
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Comprehensive Feasibility Analysis
1. Identifying a business idea
2. Screening the idea to determine
its initial feasibility
3. Conducting a full feasibility
analysis to determine if
proceeding with a business plan
is warranted
4. Writing the plan
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-28
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-29
Section Three
Preparing a business plan

How to complete each section of a
business plan
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Section Four
Presenting the business plan to
investors and others

Suggestions for how to make effective
presentations using PowerPoint slides
and how to field questions from an
audience effectively
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-31
Key Words
Business plan
A written document that carefully explains
every aspect of a new business venture

Business incubator
An organization that provides physical space
and other resources to new firms in hopes
of promoting economic development in a
specific area

Executive summary
A short overview of a business plan or a set
of PowerPoint slides describing the merits of
a new venture

Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall 1-32
Key Words

Stealth mode
Companies that formulate their business
plans in secret, to avoid tipping off potential
competitors as to what they're planning

Corridor principle
An academic principle which states that
once an entrepreneur starts a business, he
or she begins a journey down a path where
corridors leading to new venture
opportunities become apparent
Chapter One

Why Plan?
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Copyright 2009 Pearson Education,
Inc. publishing as Prentice Hall