CHAPTER TWO

BUSINESS PLAN (BP)

Introduction፡
• A Plan is a Bridge Which Takes us
from the Present to the Future.
• Without a Business Plan it’s like driving a car at
night without a head lamp/light.
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 Crafting a Winning Business Plan

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 Introduction…

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Introduction…
 Business idea is like saying "Let’s GO“

But go where, why, how, when, who, what if.
 With a Plan, at least we know in the beginning:
 How to do what we want to do,
 How much money required,
 The risks,
 The benefits,
 Who to do what, and try to provide answers to problems not
yet faced.

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 The Business Plan
 A written summary of:
 An
entrepreneur’s proposed business venture
 Its operational and financial details
 Its marketing opportunities and strategy
 Its managers’ skills and abilities and more…
 Best insurance against launching a business
destined to fail or mismanaging a potentially
successful company.

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The Business Plan.
 A written document that carefully explains every aspect of
a new business venture and how to achieve its goals and
objectives.
 Is a step-by-step outline of how an entrepreneur or the
owner of an enterprise expects to turn ideas into reality.
 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.
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Reasons for Writing a Business Plan
Two main reasons to write a business plan:
 Internal— Forces the founders of the firm to think
through every aspect of their new venture(An
investment that is very risky but could yield great
profits)
 External— Communicates the merits of a new
venture to outsiders, such as investors and
bankers.
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 The Audiences of Your Business Plan
 The primary audiences are investors and other stakeholders

 Investors,

 Potential business partners,

 Potential customers,
 Grant awarding agencies who are being
recruited(Seek to employ) ,
 Firm’s employees
 They look for the vision and future of the firm.

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Essential Functions of the Business Plan

1. Guiding the company by charting its future course and

defining its strategy to follow.

2. Attracting lenders and investors who will provide needed

capital.

3. Demonstrating that the entrepreneur understands the

business venture and what will make it succeed.

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A Plan Must Pass Three Tests
 Reality Test - proving that :
A market really does exist for your product or service.


 You can actually build or provide it for the cost estimates in

the plan.
 Competitive Test - evaluates:
 A company’s position relative to its customers.

 Management’s ability to create a company that will gain an

edge over its rivals.

 Value Test – proving that:
 A venture offers investors or lenders an attractive rate of

return or a high probability of repayment.

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Features versus Benefits
 Feature – a descriptive fact about a product or

service.
 Benefit – what a customer/producer gains from

the product or service feature.

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Key Elements of a Business Plan
 Title Page and Table of Contents
 Executive Summary
 Mission/vision Statements
 Business and Industry Profile
 Business Strategy
 Description of Products/Services
 Marketing Strategy
 Opportunity Analysis
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Key Elements…
Description of Management Team

Plan of Operation

A Budget Plan

Legal Issues

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Cover Page and Table of Contents
Cover Page Table of Contents
Name of the business  Include enough detail
Name of the principals to easily find a section.
Date  Avoid excessive detail
Contact information which uses too many
Confidentiality statement pages.

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 Table of Contents of BP
 Follows cover page

 Main sections

 Subsections

 Appendices

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 Cover Page
Name of the company
 Street address
 E-mail address
 Phone number
 Date
 Contact information
 Website address

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Executive Summary should be:
 Clear— identify concept and purpose
 Concise— one to two pages long
 Comprehensive— answer basic who, what, when,
where, and how questions
 Compelling— generate enthusiasm(A feeling of
excitement)
 Written last

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Mission, Vision, and Culture
 Mission— concise communication of strategy with a
business definition and competitive advantage;
expressed in a statement
 Vision— broad “picture” of what you want the
organization to become
 Culture— beliefs, values, and behavioral norms of
the organization which will form the business
“environment”

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 Company Description
 If company is already established…
 Summary of company’s founding
 Overview of track record: business progress

and financial success

 If a start-up venture…
 Brief background story
 What has been done so far, and why

 Legal form of the business

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Description of Products/Services
 What are we selling?
 Is it in demand now, or in future?
 What is so special about our Product?
 Who wants our Product?
 What’s the Market Share and Demand?
 What are the Competitions?
 It's a matter of re-discovering, build a better product,
better tasting chocolates, better computers, etc.

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 Marketing Plan
 A Marketing Plan is a careful study of the Market Situation and will tell you many

things:
• Who are our Customers, where are they, how to get them?
• Who are our Competitors and what makes us special above them?
• Can we re-engineer and re-brand a saturated product?
• How do we market and package out Product to our Customers.
• How do we serve our Customers and Employers?

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 Budget Plan
 If you don’t have enough money to start, and maintain the business in

short/long term, better not to start.

 Do you have enough money to do the business: (setup costs, operation

costs, maintenance costs), and if not what are your plans?

 If we spend more than we earn, then we will go bankrupt in no time, so

our Budget Plan will take care of this.

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 Budget Plan
 A Budget Plan can consist of a few sub-plans:-
• Management Budget Plan
• Operational Budget Plan
• Product Development Budget Plan
• Marketing Budget Plan
 Sources and uses of capital
 Cash flow projections
 Balance sheet projections
 Income statements
 Breakeven analysis
 All companies will fail if they don’t have good
management.
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 Management Plan
 Management Plan will determine the following (include
terms) :-
• Who is the Boss, the one who leads it.
• Who is Money Man (not accountant but someone
or some company who provide finance)
• Who is the Peddler/dealer
• Who is the Brain
 What is the mechanism, the rules, regulations, terms
and conditions, agreements, roles and functions, etc.
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 Production/Operation Plan

 We need a Factory, Workers, Plants & Machineries, etc.

 If we plan these now, we can have the best product

design in the world, but if we don’t have a product

making plant then it's practically just an idea, useless.

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 Legal Issues
 We got everything sorted out, but do we have the licenses to

make our Products?

 Sell or export our products?

 Do we have to comply with Quality Standards, Regulations,

Taxes, Certifications?
 We need to find out what government regulations we would
need to comply, taxes, duties, etc, to ensure that our company
can make and sell our products.
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Legal Status and Ownership
 Who owns the business
 How the ownership is split
 Founder’s agreement
 Written document
 Relative split of equity among the founders of the firm
 How the individual founders will be compensated
 How long the founders will have to remain with the
firm for their shares to be vested.

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 SWOT analysis
 This means “STRENGTHS – WEAKNESSES –

OPPORTUNITIES – THREATS”
 We need to identify all our environment advantages and

disadvantages, so we know ourselves intimately

 Any missing links need be connected, any holes need be

plugged. Ever heard of "Unity is Strength“

 At least we have a Road Map to where we want to go, and to

really reach our destination.

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Guidelines for Preparing a Business Plan
Remember: No one can create your plan for you.
Potential lenders want to see financial projections, but
they are more interested in the strategies for reaching
those projections.
Show how you plan to set your business apart from
competitors.
Identify your target market and offer evidence that
customers for your product or service exist.

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Tips on Preparing a Business Plan
 Make sure your plan has an attractive cover. (First
impressions are crucial.)
 Read your plan of all in order to avoid spelling and
grammatical errors.
 Make your plan visually appealing.
 Include a table of contents to allow readers to
navigate your plan easily.
 Make it interesting.

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 Tips on Preparing…
 Your plan must prove that the business will make money (not necessarily

immediately, but eventually).

 Use spreadsheets to generate financial forecasts.

 Always include cash flow projections.

 Keep your plan “crisp”(something clearly defined) – between 25 and 50

pages long.

 Tell the truth – always.

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 Presenting the Business Plan
 Demonstrate enthusiasm, but don’t be overemotional.

 Know your audience thoroughly.

 “Hook”(Make off with belongings of others) investors quickly with an

up-front explanation of the venture, its opportunities, and its benefits to

them.
 Hit the highlights; focus on the details later.

 Keep your presentation simple – 2 or 3 major points.

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Presenting the Business Plan …
 Avoid overloading your audience with technological jargon.

 Use visual aids.

 Close by reinforcing the nature of the opportunity.

 Be prepare (with details) for potential investors’ questions.

 Follow up with every investors to whom you make your

presentation.

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 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

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 Prepare a Winning Business Plan

11/26/23 Thank You For Your Attention! 35

2.1 Business Idea
 Meaning of Business Idea
 A business idea is the response of a person or persons, or

an organization to solve an identified problem or to meet

perceived needs in the environment (markets,
community, etc.).
 A good business idea is essential for starting a successful

venture and to stay ahead of competition.

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 Business Idea ….
 Meaning of …
 Finding a good idea is the first step in transforming

the entrepreneur’s desire and creativity into a

business opportunity.
 Good business ideas, however, do not usually just

occur to an entrepreneur.

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 Business Idea…
 Why Generate Business Ideas
 There are many reasons why entrepreneurs or
would be entrepreneurs need to generate business
ideas. Here are just a few:
 You need a great idea to start a new business
 Business ideas need to respond to market needs
 Business ideas need to respond to changing consumer

wants and needs.

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 Business Idea…
 Why Generate …

 Business ideas help entrepreneurs to stay ahead of

the competition.

 Business ideas are needed to exploit technology and

do things better.

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 Business Idea…
 Why Generate ….
 Business ideas are needed because the life cycles of

products are limited.

 Business ideas help to ensure that businesses

operate effectively and efficiently.

 Business ideas help to solve natural resource

scarcity, pollution and depletion.

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 Business Idea…
 Sources of Business Idea
 Hobbies/Personal Interests

 Personal Skills and Experience

 Mass Media (newspapers, magazines, TV,

Internet)
 Business Exhibitions

 Surveys( by seeing a gap)

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 Business Idea…
 Sources of …

 Customer Complaints

 Natural scarcities and pollution

 Changes in Society

 Brainstorming

 Being Creative

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 Business Idea…
 Brainstorming

 Is a technique for creative problem-solving

as well as for generating ideas.

 Its objective is to come up with as many

ideas as possible.

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 Business Idea…
 Brainstorming …
There are FOUR RULES for BRAINSTORMING:
• Don’t criticize or judge the ideas of others.
• Freewheeling is encouraged-ideas that seem to be
wild or crazy are welcome.
• Quantity is desirable – the greater the number of
ideas, the better.
• Combine and improve upon the ideas of others.
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 Business Opportunity
 What is a Business Opportunity?

 A business opportunity may be defined simply as an attractive

investment idea or proposition that provides the possibility of

a monetary return for the person taking the risk.

 A good idea is not necessarily a good business opportunity.

 So, what turns an idea into a business opportunity?

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 Business Opportunity…
 What is …
 To be a good business opportunity, it must fulfill
the following criteria:
 Real demand
 Return on investment
 Availability of resources and skills
 Meet objectives
 Be competitive

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 Generating and Screening Project Idea
Filtration Funnel Model
Brainstorming
500-1000 Ideas

Macro Screening 10 Business Ideas

Micro Screening 3 Business Ideas

SWOT Analysis

One Best Business Idea

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 Generating and Screening…
1. Macro Screening Criteria (1st Stage of Screening)
 Marketability
 Availability of raw materials & other inputs
 Ease of implementation
 Financial ability of the entrepreneur
 Consistency with government priorities

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 Generating and Screening…
2. Micro Screening Criteria
Marketing Viability(capable of working successfully,
feasible)
Technical Viability
Organizational and Management Viability
Financial Viability
Environmental Viability
Ecological Viability
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 Generating and Screening…
 Marketing Viability
• Target market for the products and why would
customers buy the product
• Size and growth rate of target market
• The level of actual market demand and
anticipated future market potential
• Demand and supply situation, factors and trends
• Direct and indirect competition
• Marketing Practices
03-May -18 50
 Generating and Screening…
 Technical Viability
 Technology & its source
 Machines and equipments
 Production process
 Raw Materials, power & other inputs
 Infrastructure and Facilities
 Location & layout of site, building & plant

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 Generating and Screening…..

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 Generating and Screening…..
 Financial Viability
 Project start up capital
 Sources of financing/capital
 Balance sheet projections
 Cash flow projections
 Profitability/Income projections
 Break even analysis (BEA)
 Expected return on investment (ROI) & its viability for
the entrepreneur (Cost benefit analysis

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 Generating and Screening…..
 Environmental Viability
• What are the types of effluents and emission
generated?
• What needs to be done for proper disposal of
effluents and treatment of emissions?
• Will the project be able to secure all environmental
clearance and comply with all statuary
requirements?
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 Generating and Screening…..
 Ecological Viability
 What is likely damaged caused by the project to
the environment?
 What is the cost of restoration measures required
to ensure that the damage to the environment is
contained within acceptable limits?

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 Micro screening

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 Generating and Screening…..
3. SWOT analysis
 Strengths: Strengths are within the control of the
entrepreneur and they occur at present. Strengths should be
capitalized and harnessed to make weaknesses redundant.
 Example:

 Technical expertise

 New improvements of product

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 Generating and Screening…..
 Strengths (Cont’d)
 Good network with customers

 Managerial experience

 Superior technology

 Distribution system

 Product features (utility durability, etc.)

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 Generating and Screening…..
 Weaknesses: Weaknesses are within the control of the
entrepreneur; they occur at present. They are "lack of...",
"missing...", or weak points. As far as possible,
weaknesses should be eliminated!
 Example:
 Weak selling effort
 Lack of working capital
 Inexperienced managers or employees
 Technological obsolescence
 Poor design of product
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 Generating and Screening…..
 Opportunities: Opportunities are positive or favorable
factors in the environment which the entrepreneur. They
are, however, mostly beyond the control of the
entrepreneur. They are different from strengths in the
sense that strengths are positive internal factors of the
business.
Example:
 Few and weak competitors
 No such products in the market
 Rising income of target market
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 Generating and Screening…..
 Opportunities……
 Scarcity of product in the locality

 Growing demand for the product

 Favorable government policy/programs

 Availability of technical assistance

 Low interest rate on loans

 Access to cheap raw material

 Adequate training opportunities

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 Generating and Screening…..
 Threats: Threats are negative or unfavorable external
factors in the environment and normally beyond the
control of the entrepreneur. They adversely affect the
business, if not eliminated or overcome. Threats differ
from weaknesses in as much as they are beyond the
control of the entrepreneur. Both have a negative
impact on the business.
Example:
 Hanging government regulations
 Smuggling
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 Generating and Screening…..
 Threats…
 Raw materials shortages
 Insufficient power
 Corruption
 Poor infrastructure
 Rising costs of raw materials
 Too much/Unhealthy competition
 Government bureaucracy

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 SWOT Analysis Framework
Strength
- Managerial expertise
- Low cost of production
- Good customer handling
- Availability of assistance
- Sufficient capital
- Unique product
Opportunity
- Few and weak competitors
- Favorable government policy
- Availability of cheap raw materials
- Increasing income of target market
- Availability of low interest loan
- Availability of technical support
11/26/23
Weakness
- High cost of production
- Shortage of inventory
- Poor customer handling
- Shortage of capital
- Poor quality product
Threats
- Natural disaster
- Changing government policy
- Shortage of raw materials
- Change in consumer taste
64
Marketing and New Venture Development
 The entrepreneur needs to develop at least
one unique Product/Service as soon as the
firm starts up.
 However, if the product is not sold as originally planned,
the firm will experience its first “death valley” due to a
cash flow problem.

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 What is Marketing
Marketing is a product or service selling related

overall activities.
It generates the strategy that underlies sales

techniques, business communication, and business

developments.
It is an integrated process through which companies
build strong customer relationships and create value
for their customers and for themselves.

11/26/23 66
 Cont…
Marketing is used to identify the customer, satisfy the

customer, and keep the customer.

The term marketing concept holds that achieving

organizational goals depends on knowing the needs and

wants of target markets and delivering the desired
satisfactions.

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 Marketing strategy
The field of marketing strategy encompasses the strategy

involved in the management of a given product.

A plan is required in order to effectively manage

company’s products and evidently, a company needs to

weigh up and ascertain how to utilize its finite resources.

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 Marketing research
Marketing research is much broader. Its not
only includes 'market' research, but also areas
such as research into new products, or modes of
distribution such as via the Internet.

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 Marketing research
Marketing research is the function that links the consumer
and public to the marketer through information.
Information is used to identify and define marketing
opportunities and problems; generate, refine, and evaluate
marketing actions; monitor marketing performance; and
improve understanding of marketing as a process.

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 Cont…
Marketing research is the process by which information about

the market environment is generated, analyzed, and

interpreted for use as an aid to marketing decision making.
Remember፡ Marketing Research does not forecast with

certainty what will happen in the future.

Market research is too expensive

 What Kind of Marketing Research Do Entrepreneurs need is:

1. Low-Cost Experiment

2. Cheap Survey Methods

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 Need for Marketing Research
Entrepreneurs do not have sufficient information
when they start their businesses.
They need to be able to update plans over time.
They need to gather missing information.
 The marketing research process includes five P’s
(1) Purpose of the research,
(2) Plan of the research,
(3) Performance of the research,
(4) Processing of research data, and
(5) Preparation of a research report.
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 1. Purpose of the Research
The purpose of the research is to clarify the
following:
The current situation involving the
problem to be researched.
The nature of the problem
The specific questions the research is
designed to investigate

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 2. Plan for the Research
Some of the key terminologies are as follows:
Primary data: data collected specifically for the
research problem under investigation.
Secondary data: data previously collected for other
purposes, but can be used for the problem at hand.
Qualitative research: typically involving face-to-
face interviews with respondents (focus groups and
long interviews).
Quantitative research: systematic procedures
designed to obtain and analyze numerical data.
11/26/23 74
 cont…
Some Quantitative researches include:
Observational research—watching people
Survey research— questionnaire by mail, phone, or in
person
Experimental research— manipulating one variable and
examining its impact on other variables
Mathematical modeling research —typically involving
secondary data, such as scanner data collected and stored
in computer files from retail checkout counters

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3. Performance of the Research
This process involves preparing for data collection as

well as actually collecting data.

Questionnaire preparation and actual data collection

should be done carefully.

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 4. Processing of the Research Data

Qualitative research data consist of interview records

that are content-analyzed for ideas or themes.

Quantitative research data may be analyzed in a variety

of ways depending on the objectives of the research.

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 5. Preparation of the Research Report
The limitations of the research should be carefully noted.

Test market areas may not be representative of the market

in general, or sample size and design may be incorrectly

formulated, partially because of budget constraints.

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 Target Market

11/26/23 79
 Target Market
Widely used criteria or dimensions for market
segmentation include
1. Demographic
These factors include age, gender, race, education,
marital status, income etc…
2. Psychographic
Attitude, interests, and opinions (AIO) comprise the
psychographic dimensions.
These may be socio-cultural, religious,
philosophical, ethical, political, economic,
technological etc…
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3. Usage Related
This category deals with how the product is actually

used.
Quantity: A large bottle of wine is a product for heavy

drinkers, and a half-size lunch is a product for weight

watchers.
Timing: and most clothes are seasonal products.

Application: The specific purpose of usage is critical. Medical

doctors and their patients do not hesitate to purchase

expensive devices.
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 Marketing Mix Four Ps
The marketing mix is the set of controllable
variables that must be managed to satisfy the target
market and achieve organizational objectives.
These controllable variables are usually classified
according to four major decision areas of 4Ps:
1. product,
2. price,
3. place (or channels of distribution), and
4.promotion

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 1. Product
Product differentiation is the most essential factor to
marketing promoters. You must differentiate your
product from your competitors’ products in the
following ways:
Quality: the product requires reliability and lifetime.
Quantity: you have to produce the product as much
as the market desires.
IP (Imitation protection): Is your product protected
from imitation manufacturing by other companies?

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 Product Life Cycle
Every product has a life cycle. The product life
cycle is segmented into
Introduction,
Growth,
Maturity,
Saturation,
Decline, and finally
Abandonment.

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 PLC…

11/26/23 85
 PLC…

11/26/23 86
 PLC…
1. Introduction - This stage is characterized by research
and development (R&D).
Sales and profit are usually very low, although costs

may be substantial.

2. Growth - This stage is characterized by increased

sales and initial profits. Heavy promotional costs are
often incurred, which hinder gross profit.

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 PLC…
3. Maturity: This stage is characterized by the peak and
attempted maintenance of sales levels.

4. Saturation: The maximum profit is usually obtained

sometime after the maximum production quantity (saturation)
occurs.
5. Decline . This stage is characterized by perceived futility in
an attempt to maintain market share. Typically, this is
accompanied by cost cutting.
6. Abandonment . At this stage the product’s performance no
longer merits inclusion in the firm’s product line.
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 
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

11/26/23 89
 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).
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.

11/26/23 90
 Pricing…
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.
Note: Most high-tech entrepreneurs will accept a compromise
between the skimming price and cost plus price.

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 3. Place
Place means the product’s channels of distribution or

how it is conveyed from the producer to the end user.

Its functions include manufacturing, transportation,

warehousing, wholesaling, and retailing.

The more the intermediate functions or channels are

involved, the higher the percentage of selling price it can

command.

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 Place…
If an organization controls all the channels of
distribution for its product, it is vertically integrated .
If the manufacturer acquires a company to access the

raw materials, it is backward integrated .

If the wholesaler acquires a retailer to expand

distribution, it is called forward integrated .

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 4. Promotion
Promotion involves communication of the product
attributes and the corporate image in the most favorable
light possible to intermediary sellers (i.e., trade advertising
and trade promotion) and to end users (i.e., consumer
advertising and consumer promotion).

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 Thank You for
Your Attention!

11/26/23 Compiled by Jalata S. 95

 Quiz
1. List the most common audiences while you are going to present your BP.

2. Explain how poor site can affect a given business.

3. Which type of entrepreneur do you prefer? Why?

4. What will happen to entrepreneur if he /she tries to establish a given business

without BP?

5. List and explain the five ‘M’s of entrepreneurship

11/26/23 Compiled by Jalata S. 96