Product Development,

Operations and Financial Plan

By:
Gillowe Yutero
Dario Urquiza
Carmelo Tuldanes
Ivonne Arpilleda
Joecelle Armendarez
 Fundamentals of Product
Development
Before commercializing a new product or service, the entrepreneur must focus first on

refining the product or service and validate its market acceptability. This new product does not

have to be a totally new product. It can be a new product line from the existing business of the

entrepreneur, a product line extension, an enhancement, or a repositioning of an existing

product. Product Development is the process of developing, testing and commercializing a

product or service with the ultimate objective of solving the problem of the primary target

market. It is composed of four sequential steps: (1) developing a product or service

description, (2) creating a prototype, (3) testing the prototype, and (4) validating the

market.
 Product or Service Description
The product or service description simply describes how a product or service works
and how it benefits the customers. A clear product or service description is important
because this will serve as the blueprint of all business operations. Therefore, the
entrepreneur has to take note of the following regarding the product or service description:

1. It should directly address the primary target market in a personal manner using everyday.
The entrepreneur should put himself or herself in the customer’s shoes, where the product
description will be addressed to.

2. It should highlight the features that will cater to the customer’s needs or address the
customer’s problems.

3. Realistic superlatives should be used for the product description. Motherhood statements
such as “World Class Service or product excellence” may not matter to the customers at
all.
 Creating a Prototype of the Product
or Service
Creation of a Prototype. A prototype is a new sample product or service that is created to
test a product concept or service process. Creating a Prototype lessens
implementation/commercialization risk and provides the entrepreneur a bunch of advantages as
follows:

1. Creating a prototype enables the entrepreneur to engage in trial and Error, provides room
for improvements, and refines the functionality of the product design or service process.

2. Creating a prototype provides the entrepreneur a window to test the performance and
specifications of various materials and service processes.

3. A prototype helps the entrepreneur effectively describe the product or service to the
product team

4. Creating a prototype elicits respect from key stakeholders and customers.

 Creating a prototype is the stage where the entrepreneur can
experiment, develop, and make some improvements in the
potential product or service. The objective of the Entrepreneur at
this stage is to verify if the product or service concept will work at
the simplest, fastest, and cheapest way. One technique for creating
the best prototype is by studying the competitor’s product or
services. Functions and parts.
 Testing the Product Prototype
Testing the prototype is a vital process before an actual
product or service is launched to the market. Testing the prototype
will uncover the final loopholes that need to be fixed before
commercialization. It gives the entrepreneur a leeway to examine
and scrutinize the prototype and provide feedback as to what can
be improved before the launch. The ff. testing methods are applied
by the entrepreneur:

1. Focus Group Discussion- The participants will provide relevant

insights about the new product or service.
2.Legality and Ethical Test- Prior to launching, the entrepreneur must ensure
that the product or service complies with all relevant laws and regulations and
has a necessary license or permit to operate a particular business.
3.Safety Test- The entrepreneur must ensure that the product is safe to use, safe
to be consumed, and safe to be applied.
4.Product Coasting Test- The entrepreneur must examine every stage of the
manufacturing process or every process of the service blueprint to evaluate
and finalize the coasting coast.
5.Component Test- Each component of the product or service must be tested
independently to identify component failures for goods or service failures for
services.
6.Competitor’s Product/Service Test- The Entrepreneur must test a similar
line of products or the competitor’s product or service itself to compare and
get the best practices to be applied to the new product or service.
 Testing the products prototype is mandatory to
ensure that the product or service will not fail the
customers and will deliver its definitive purpose. This
will elicit the customer satisfaction and, eventually,
customer loyalty and retention. This is the time to prove
that the concept formulated by the entrepreneur will
work and is feasible in real life. All the mistakes
accounted for and the improvements to be fixed should
be performed first prior to commercialization of the
product or service.
 Validation of Market Acceptability
Validation of market acceptability is the process of finding
out if the intended primary target market will be buying the
product or availing the service. Market acceptability is a critical
factor that the entrepreneur must validate before launching the
product or service, because this can strongly suggest if the
business will be successful or not.

1. Will the primary target market like the product or service?

2. Will the primary target market buy the product or service
when it is already in the market?
 These questions can easily be answered if the entrepreneur
will perform the ff. activities:
1. Use the most strategic marketing research tool (FGD, Survey,
observation, interview, online survey, e mail, or a combination of
these research tools), wherein the entrepreneur can get the most
relevant answers in the cheapest way possible.
2. Prepare relevant open ended questions that answer the objectives
above.
3. Find Market experts who also target the same market but are not
directly competing with the entrepreneur.
4. Collate all the data, analyze them, and prepare a summative
report that answers the objective questions that were mentioned
earlier.
 The 4Ms of Operations
The operations plan is an important part of the business plan
because it simply state the details in operating the business. Operations
management, on the other hand, controls the implementation of the
business plan.
4Ms of Operations:
Methods- the process to be followed in effectively manufacturing or
delivering a product or service.
Manpower- the right human resources who will handle certain business
operations.
Machines- the technology used in efficiently operating the business.
Materials- used in creating a product or performing a service
 Methods
The methods aspect represent the day to day operations of a
business. It describes how an entrepreneur will run the business
form all facets of the business such as the manufacturing of goods,
and inventory management, to name a few. The Entrepreneur has to
be very detailed in formulating these processes and must ensure that
the customer experience will be pleasant and seamless. Internally,
the processes must also abide with industry standards and policies
where the business belongs.
 The Entrepreneur who will engage in producing his or her own
products will have to consider the basic guidelines and principles in
manufacturing. Manufacturing is the process of translating raw materials
into finished goods that are acceptable to the customer’s standards. It
consists of three elements:

Inputs- the materials or ingredients to be used in creating the

product.
Process- the transformation phase where inputs are processed by
manpower and machines to come up with the final
product.
Output- the final product of the processes stage, which is intended to be
sold to target customers.
 The entrepreneur must also consider the most efficient
manufacturing site in which the manufacturing process will take place.
Depending on the entrepreneur’s objective and financial capacity, he or
she can opt to have any of the following manufacturing sites:

Home-based- Most startups do not have financial capacity to establish a

manufacturing site. Thus, their only option is to manufacture goods at
home.This option is the cheapest and highly flexible.
Commercial space for rent- This is advisable if the business really
requires a commercial space for the processing of goods and if the home
option is not viable anymore. A commercial space gives the entrepreneur
a more specialized and suited manufacturing site than manufacturing at
home.
Commercial space purchase- This option requires the biggest amount of
capital expenditure, but it also provides the entrepreneur substantial
freedom and flexibility to design and run the commercial space.
Service Delivery Process- The entrepreneur who will engage in a service
business must be more meticulous when it comes to the service delivery process.
This is because services are intangible, and the only way the customer can
appreciate the service is by remembering how pleasant his or her experience
was.
Distribution Method- One of the basic processes to be considered thoroughly is
the distribution process. Distribution is the process of bringing the products or
services to customers.
Distributors- Are entrepreneurs who often buy products or services to the
manufactures and sell them at a markup price to either wholesalers or retailers.
Agents- don’t own the products or services because they do not buy these from
the manufacturer.
Payment Process- The entrepreneur must also establish a seamless payment
process. Generally, there are no problems if the customers pay in cash.
Manpower- power available from or supplied by the physical effort of human
beings.
Job Description- enumerates the duties and responsibilities of the potential
employee, including the scope, limitations, and terms and conditions of
employment.
 Employee Qualification
In hiring suitable employees for the job needed,
entrepreneurs will have to look for the following
criteria:

1. Educational Background
2. Work Experience
3. Specific skill or knowledge
4. Work Attitude
Preparatory Selection of Job Applicants
Once the job description and employee qualifications are
finalized by the entrepreneur, he or she now preselects a set of
candidates for the position required. When the business is already
sizeable, entrepreneurs usually establish a human resource (HR)
department that will handle the selection and recruitment of
candidates. The entrepreneur can initially choose from his or her
personal list of trustworthy people whom he or she thinks can
contribute to the business venture. If this lit does not exist, he or she
can turn to employment agencies or manpower agencies that can do
the job.
 Selection of Job Applicants
Once the potential candidates are pooled, the
entrepreneur must now do the difficult task of screening them
and picking the most qualified and most suited for the job.
Preliminary screening can easily be done because the
entrepreneur will just need to refer to the required
qualifications and eliminate those who did not qualify. The
entrepreneur or the HR department can now conduct a series
of interviews for the shortlisted candidates with the object of
getting the most qualified candidate for the job.
 ASK
EVERYTHING!
Personal or not
Job Offer- once the entrepreneur or the hiring manager has been
convinced already of the credentials and the interview answers of
the candidate, the job contract is now prepared. A job contract
generally summarizes the terms and conditions of the candidate’s
employment with the business. (1) Rank or position of the
candidate, (2) a list of responsibilities or deliverables and its scope
and limitations, (3) the salary and benefits including vacation and
sick leaves, (4) work schedule, (5) probationary period if any and
qualifications to become a regular employee, (6) the duration of the
contract, and (7) resignation procedure.
Employee Development- Training people is one of the biggest
investments of an entrepreneur or a businessman. Therefore, he or
she must devise strategies on how to keep employees satisfied
working in the company.
Machines- Most business would not be able to operate without the
aid of machines. Machines can be described as the best friend of
manpower in producing goods and offering services. They go hand in
hand.
Equipment and Other facilities- Depending on the product that
the entrepreneur produces or the service that he or she offers, the
facilities must be strategically placed in the manufacturing site or in
the service delivery area. The entrepreneur must prepare a facility
plan that details the most economical way to manufacture the
product or offer the service by placing the facilities where they can
be efficiently used.
 Telecommunications and Information Technology

Regardless of any business the entrepreneur will venture into,

telecommunications and information technology equipment is
mandatory. These pieces of equipment include mobile phones or
smartphones, tablet computer, phablets, landline phones, laptops or
desktop computers, POS Machines, Software programs, and
businessWeb Sites.
 Materials
Whether the entrepreneur will offer products or cater services, he

or she has to pinpoint a number of dependable supplies of quality raw

materials and supplies. The supplier must have a consistent and sufficient

amount of raw materials and supplies that can accommodate the demand

of the entrepreneur. In short, the selection of suppliers depends largely on

how the suppliers will not cause interruptions in the production of goods

or serving the customers.

 Outsourcing
Is the process of appointing a third party manufacturer to

do manufacturing operations of the business. These third party

companies already have an expertise in handling and

manufacturing these products, supplies, or inventories, and

because they manufacture, they produce goods in bulk. Also

provides the operation details to the third party.

 Logistics
Entrepreneurs/Manufacturers can also venture into distributing

their products on their own without the aid of distributor or agent. This is

where the entrepreneur must understand and implement efficient

logistics management. As discussed earlier, the

entrepreneur/manufacturer is responsible for manufacturing,

warehousing, transportation, inventory management, marketing, and

selling the product or service.

 The Business Model
According to Don Deebelak in his article “Developing a Great
Business Model” on the entrepreneur website, the entrepreneur must
adapt the dynamics of traffic lights in developing the business model.
These are the three “Green Lights” or the positive signals that can help
entrepreneurs develop ideal business models and eventually succeed. On
the other end, there are three red lights or negative signals that
entrepreneurs should be wary of.
 The Green Lights
1. Target High Value Customers. These customers are often
misinterpreted as affluent or high end customer.
2. Offer Products or Services with great value. The value
proposition and unique value proposition should always kick in as
compelling reasons for customers to choose your product or your
service.
3. Offer Products or Services with reasonable profits. There
are two ways of achieving reasonable profits. (1) increasing
markup (2) decreasing operational cost.
 The Red Lights
1. Satisfying the customer becomes too costly and
irrational. The entrepreneur must calculate the cost an profit
associated with serving the customer before pursuing the
business.
2. Being a market leader is difficult to sustain. One of the
characteristics of an ideal business model is capitalizing on the
business stature as a market leader through improving the
features and benefits of its existing product or services.
3. Return to investment, takes too long and too small.
Entrepreneurs did venture in a business enterprise because
they want to earn profits for the purpose of sustainability.
 THE FINANCIAL PLAN
One of the most difficult parts of the business plan is the
financial plan. Not all entrepreneur are adept with a accounting
procedures, rules, and reporting policies. However, there is no
choice for the entrepreneur but t be familiar with numbers. The
sustainability of a business depends on a meticulous monitoring
of a finances. This is portion of a business plan that speaks of the
product or service performance. Without proper accounting of
business activities and transactions, the entrepreneur will be at a
loss on where his/ her business leading him/her.
 Financial management begins when the entrepreneur starts to raise
capital for the business venture. Capital is the money that will be
allocated by the entrepreneur to establish a business. A business is a
separate entity and should not be mixed with the personal finances
of the entrepreneur.
 A number of the entrepreneur produce capital out of their personal
savings. This money came from a disciplined habit of consistently
saving when the entrepreneur used to be an employee.
 Collateral refers to a high value asset that is submitted by the
business to the bank when applying for a loan and will be a subject
for repossession if the business defaults. Regardless of where the
capital was sourced, putting this capital at risk is one of the major
reasons that most entrepreneur are afraid to engage to a business
venture.
Factors Affecting Estimation of Revenue
A business opportunity can only be considered a real
one when the entrepreneur recognizes that the opportunity
may bring her/him revenue. Revenue is the output of a sale
wherein the sales price exceeds the cost to produce the
product or render the service. Revenue is considered earned
when the product is already sold or service has been
rendered regardless if the business is paid in cash or credit.
Revenue is considered deferred when the product or service
has not yet been delivered or sold but the customer already
paid in advance.