CHAPTER 4

BUSINESS PLAN
 Why Should You Write a
Business Plan?

• A business plan provides direction by making you

discuss where you want to take the venture and
define what you want out of it. A business plan
provides structure to your thinking and helps you
make sure you’ve covered all of the important areas.
• A business plan will help you communicate your
idea, to financers, employees, potential employees,
suppliers, and customers. You can use their insights
to help you develop a more successful venture.
 Elements of a BP
1. Business Description
2.Market Analysis
3. Competitors Assessment

4. Marketing Plan
5. Operating Plan
6. Financial Plan
7. Executive Summary
Elements of BP The element contains: Sub-topics

1. Business What do you plan to do? Mission, vision and value statements,
description Business overview, Products and services
why are you starting the
venture?

2. Marketing
analysis Who will be your customers? Market characteristics, Target
what do they want from you? customer profile

3. Competitors
Assessment Who will you compete against? Competitors Assessment
what do these competitors offer?

4. Marketing How will you reach your Products and Services, Pricing,
Plan customers? Distribution, Promotion
5. Operating Ownership &Management,
Plan Resources Requirement,
How do you plan to Production method,
implement your idea? Facilities and Equipment,
Operations, Legal Issues, Compliance

6. Financial Capital Requirement (fixed Capital

Plan
How much money will it
cost? Where will you get the
necessary funds?
Requirement, Working Capital), Means
of Financing, Income from the business,
profit/loss statement, Cash Flow
Statement, Balance Sheet, Loan
Repaying Schedule, Break Even Point,
….

7. Executive What are the

Summary fundamentals of the
venture?
Section 1. Business Description
• As an introduction to your business, this section
should provide an overview of the business and its
objectives.

• The business description is an aspect of

your business plan that combines the key details of
your company, such as
• what it does and
• what makes it unique.

• Readers of your business plan will want to know

why this business should exist.
 Mission, Vision and Value Statements
Mission Statement
• Describe the overall purpose of an organization:
– what they do,
– who they do it for, and
– how and why they do it.

Addis Ababa University's mission is to produce competent

graduates, provide need-based community service and
produce problem-solving research outputs through innovative
and creative education, research and consultancy service to
foster social and economic development of the country.

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 Vision Statement

• Describe an ideal future

• Unite an organization in a common, coherent strategic direction.

Vision Statement of the Ethiopian Airlines

• To become the most competitive and leading aviation group in Africa by
providing safe, market driven and customer focused passenger and cargo
transport, aviation training, flight catering, MRO and ground services by 2025.
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 Value Statement

• Reflects:
– the deeply held values (believes) that do not change over time.
• Answer the question:
– how do we carry out our mission and realize our vision?

• Are the values your organization lives and breathes reflect in all
its activities, not the ones you think you should have.
• Values are guidelines for our conduct and behavior as we work
towards our vision.

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 Values statements of the Canadian Cancer Society

 Quality – our focus is on the people we serve (cancer patients, their

families, donors, and the public) and we will strive for excellence through
evaluation and continuous improvement.
 Caring – we are committed to serving with empathy and compassion.
 Integrity – we are committed to act in an ethical, honest manner.
 Respect – we believe that all people should be treated with consideration
and dignity. We cherish diversity.
 Responsiveness – we strive to be accessible, flexible, transparent, and to
demonstrate a sense of urgency in our resolve and decision-making.
 Accountability – we are committed to measuring, achieving and reporting
results, and to using donor dollars wisely.
 Teamwork – we are committed to effective partnerships between
volunteers and staff, and we seek opportunities to form alliances with
others.

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Business Overview
• Give a summary of the current state of the venture.
Products and Services
• a description of what your product or service are
and what it provides,

• A general description is all that is needed in this

section, you can provide more depth in the
marketing plan section.
• discuss the market and your approach to it.

• describe the market’s characteristics,

• describe your target customer’s profile,

the competition, and

• your plan to gain an advantage over your

competitors to create a successful venture
(Competitive advantage).
Section 2. Market Analysis: Market Characteristics and
Target Customer Profile

Market Characteristics
• Discuss the market and your approach to it

– History, location, market size and share, competitiveness, and

profitability.
– opportunities and threats.

– discuss the five forces model and how you will respond to
them.
Target Customer Profile (who , where, why)
• define your target customer by providing:

• geographical information: are your customers local, regional,

national, and/or international?

• demographic information: are your customers young, old,

male, female, high income, low income, etc.? - - -

• psychographic information: are there behavioral characteristics that

differentiate your customers?
 price shoppers versus convenience shoppers
 Are there cultural considerations, social connections, or other personal
factors that might shape your customer’s needs, wants, and buying
behaviors? - - -
Section 3. Competitor Assessment

When reviewing competitors, consider what they have as far

as:
 Market share,
 Relationship with customers,
 Advertising plan,
 Price,
 Distribution,
 Product/service features,
 Financial strength/cost position, and
 Length of time in business.

Further Reading: BUSINESS STRATEGY FORMULATION AND IMPLEMENTATION

FOR CETAKBDG, Abdurrahman Rahim Thaha
Marketing Strategies and Programs
Section 4. Marketing Plan
• Marketing plans usually addresses:
– Product offered,
Primary
– Pricing schemes, marketing tools:
the 4Ps
– Place(distribution) system,
– Promotional efforts.
– Assessing the effectiveness of the marketing strategies
Products and Services
• In our business description, we described our product or service
in general terms.
• In this section describe:
– your product (what it is—its features),
– what it does
– what needs or problems the products/services tackle in the
market--- its benefits
– include pictures and drawings, if they would help readers get
a better understanding of your product.
• The products you offer will include aspects beyond the product
itself, like packaging, warranties, training, service, etc
• Discuss how these supporting features, services, and information
will make your business competitive and profitable.
Pricing Strategy

• Price is what the customer pays for the product

• Four pricing schemes are introduced here:

1. Cost-plus pricing,

2. Fair/parity pricing,

3. Skimming pricing, and

4. Penetration pricing
1. Cost-Plus Pricing
– The product should not be sold for less than the manufacturing

cost.

– The concept of cost-plus pricing involves setting a price that

factors into a given profit margin (e.g., cost plus 25% profit).

– Eg. TC = 120, cost plus 25% profit gives price of 150 Birr

2. Fair/Parity Pricing
– Set based on customer-oriented market research.

– This pricing involves setting a price that roughly matches that of

competing brands within the product class.

3. Skimming Price
– This option involves charging a high price relative to other
brands within the product class.
– The success depends on the high product quality and
differentiated performance. (E.g. Sony’s products sell well even
when the price is 20% higher than other brand products.)
4. Penetration Price
– This scheme involves charging a low price on the assumption of
selling the brand in enormous quantities .

Most high-tech entrepreneurs will accept a compromise

between the skimming price and cost plus price.
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Distribution
• Describe how your product/service will be distributed and over what
geographical area. Choose from:
• Direct Distribution – selling directly from producer/provider to the
customer.
• Wholesale Distribution – selling to a wholesaler/retailer who sells to
the customer.
• Brokers or Agents – using a third party to sell the product usually on a
commission basis. This can be done for:
– goods (Manufacturers’ Agents) or
– services (Speaker’s Bureau).
• Hybrid Distribution – Using more than one of the above.
• Internet Sales – using websites.
• The following issues affect your choice of distribution
channel:
– cost
– efficiency,
– timeliness,
– customer service,

– control
Promotion
• Promotional activities - to communicate the value of your
products and services to your customers.
• The range of promotional tools: advertising, personal selling
efforts, and general public relations

• An effective promotional plan must focus on your target segment

• What is the most effective and efficient way to get your message in
front of your customer?
• How much money do you have to invest in promotional activities?
 Assessing Marketing Effectiveness

• Today, market is highly competitive, where many firms

compete with each other to pull their share from a large

number of customers

• Marketing effectiveness is measured by how well a

company’s marketing strategies increase its revenue while
decreasing its costs of customer acquisition. 

• You must determine the level of its market penetration rate-

a power to capture a sizeable market share.

• To adapt to this highly competitive market
situation, your company should take into
account the long-term growth of the demand
in your product
The firm's market penetration rate measures a firm's power
or ability to penetrate the market.
It is the firm's sales as a percentage of total product sales in
the market.

Other KPIs include

• Net profit
• Return on Investment
• Net present value
• Return on marketing Investment
• etc…
Section 5. Operating Plan
The operating plan deals specifically with the:

– internal organizational structure,

– ownership

– management

– resources and procurement

– operations (production processes), Layout

– facilities and equipment

– legal issues:
End of the first part