What are the reasons for writing a business plan? What two parts of a business plan do you think you would have the most challenges in creating and how would you overcome those challenge
Please respond to the following:
- What are the reasons for writing a business plan?
- What two parts of a business plan do you think you would have the most challenges in creating and how would you overcome those challenges?
Chapter Eight Business Plans: Seeing Audiences and Your Business Clearly
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Business Plan Background
A business plan details major characteristics of a firm – its product/service, industry, market, manner of operating, and financial outcomes emphasizing the firm’s present and future.
Two circumstances when a business plan is necessary.
When outsiders expect it – external legitimacy.
For internal understanding.
Remember – different groups look for different kinds of benefits.
You may have different types of plans for different audiences.
A family member may want different information than an angel.
Lean business practices argue all you need is a pitch deck.
Yet a business plan is essential for a clear understanding of the business – for yourself, your partners, and your employees.
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The Business Plan Story: Starting Small and Building Up
A business plan is a story telling about a future place – your business.
Your story must fit the audience’s time.
Four presentation types:
Vision statements.
Elevator pitches.
Executive summaries.
Business plans.
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The Vision Statement
The vision statement is a simple 5- to 10-word sentence.
Should be inspiring, overarching, and long term.
Bill Gates and Paul Allen started Microsoft as teenagers with the vision “a computer on every desk – running Microsoft software.”
A tagline is a mantra – brief and memorable.
Book Passage: The Bay Area’s Liveliest Bookstore.
Crum Electric Supply: Plug into Quality-People, Products, Service.
Progressive Insulation & Windows: Total Living Comfort.
A related concept is the mission statement, which is a bit longer and often adds the firm’s competitive advantage.
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The Elevator Pitch
An elevator pitch is an action-oriented description of your business designed to open the door to a more in-depth dialogue.
Elevator pitches have four success factors:
First find a hook – describe a problem people face.
Second, focus on the solution your product provides.
Third, provide support to prove your solution works – traction is best.
Finally, always close with an ask – get the listener to make a micro-commitment – contact information so you can build your network.
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The Executive Summary
An executive summary is what most people read when they receive a plan.
Typically one page, but a freestanding summary can go as long as five pages.
These are the most common items sent to someone who asks about your business.
Written in a formal style, suitable for investors.
Usually arranged in short paragraphs which typically cover five key topics.
Problem.
Product.
Market.
Competitive advantages.
Business/team.
Financial summary.
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The Business Plan
The full (or classic) business plan runs 18 pages.
May be longer for new products or shorter for imitative products.
Some sections from the feasibility study align with sections of the business plan.
For example, the IDEO’s technical feasibility screen corresponds to:
The business model canvas’ problem solution.
The feasibility study’s business idea and product/service sections.
The business plan’s company, product/service section.
Cover letter.
Title page and table of contents.
Executive summary.
The company, product/service, and industry.
The market.
The organization.
Financial summary.
The appendixes.
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The Business Plan: Cover Letter and Title Page
When sending a business plan to someone, include a cover letter.
One page.
Introduces the plan and owner.
Indicates why the recipient is asked to read the plan.
Traditionally done on letterhead, but can be an email if submitted electronically.
If so, use a signature block for your business.
The title page contains:
Company name and logo.
Contact information.
Date this version of the plan was completed.
Proprietary statement to protect your ideas and a copy number.
You may need to include a securities disclaimer.
The person who wrote the plan, if other than the owner.
A copyright notice is optional.
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The Business Plan: Table of Contents and Executive Summary
The table of contents page.
Lists major section headings in boldface.
Page numbers for every component, including financials.
Every page should be numbered.
Typically the second page of the plan packet.
Many entrepreneurs write the one-page executive summary first.
Then use it as a guide for the rest of the plan.
Covering the major sections is the usual strategy.
It is common to revise the summary.
Your thinking changes as you write the plan.
This is the first and also the last item you will edit.
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The Business Plan: Company, Product/Service, and Industry
Company description.
State the vision or tagline and a brief description of the business.
Its age, current status (and milestones), location, and its markets.
Product/service and value proposition.
An important section – where the reader understands your business.
Starts with the pain and gain.
If the product/service is a proprietary technology, mention your patent, trademark, or copyright here.
Industry.
The formal name and NAICS number.
Its size and whether the industry is growing, stable, or in decline.
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The Business Plan: The Market
Market and target customer.
Describe the market in terms of size, scope, and channels.
Describe target customers by demographics, product use, purchase schedule, and experience with similar items.
Describe each target segment.
Competition and competitive advantage.
Identify competitors by name.
Focus on your firm’s competitive advantages.
Marketing strategy.
Focus on overall strategy, sales plans to apply strategies, and long-term plans.
Give pilot test results, sales, or preselling efforts.
R&D/growth plan or next steps.
Explains how you will maintain a competitive advantage.
Discuss long-term partnerships, new markets, or ways to leverage assets.
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The Business Plan: The Organization
Legal and organizational structures and IP and locations.
Describe the firm’s legal form, where it is registered, and located.
List licenses, certifications, or intellectual property protections.
Key personnel.
Owners and senior managers.
Those handling key aspects.
Talk about accomplishments rather than just experience.
Also mention total employees and their status.
Related service providers.
Identify your banker, attorney, accountant, consultants.
Any major relationships with suppliers or customers.
Board of directors.
Key activities and operations.
Identifying familiar operations is useful.
Highlight something in how you operate that is distinctive.
Mention any specialized operations here.
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The Business Plan: The Financial Summary
Starts with a summary table of financial results, followed by “the ask.”
A set of financial reports or projections comprise most of the appendix.
Develop the financials in the most conservative way possible.
Explain assumptions and be ready to give the source of every number.
“The ask” section typically talks about how much money is needed and how the funds will be used.
Address any prior or existing investments and current ownership.
Explain the funding type offered, give the price and any assurances.
Describe how investors will be able to harvest their money and exit.
Explain how management will be responsive to investor concerns.
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The Business Plan: The Appendixes
Certain financial statements are expected.
Income statement and cash flow tables – year 1 monthly, years 2-3 annually.
Balance sheet for years 1-3 by year.
Include assumptions in endnotes or footnotes.
Include a start-up budget.
Include a timeline or a milestone list.
Any supporting materials that helps you tell your story better.
Product/service pics or specifications.
Copies of signed contracts or letters of intent.
Marketing study results or pilot sales efforts.
Industry reports.
Price lists.
Location floor plans.
Advertising copy.
Testimonials.
Letters of opinion.
Bios of key personnel.
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The Mechanics of a Business Plan
After the plan is written – either from scratch or using a template – you must assemble it.
Typically a document or PDF – with no spelling or grammar errors.
Distribute spiral bound copies which lay flat when opened.
Your copy should be kept in a 3-ring binder for adjustments.
Take the binder with you if you give a presentation.
The electronic version of the binder is called a data room, and is what you share with potential investors as they do their due diligence.
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Focusing Your Business Plan
Plans for a pioneering business.
Your problems are helping people understand how it works, showing them how to use it, estimating potential customers and price.
Preselling, pilot tests, or test marketing is important here.
Plans for a new entrant business.
To prove your product/service will work, make it familiar by detailing how it is used by customers, provide similar market sales statistics.
Emphasize existing operations in your industry analysis
Plans for an existing business.
Projections should build on historical facts.
Plans for a business with significant government involvement.
Anticipate delays and offer work-arounds.
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Special-Purpose Versions of the Business Plan
Specialized plans meet the needs of a wide variety of people.
Private banks, investment clubs, or VC firms are commonly sent a mini-plan or a screening plan.
Use an informational plan if you do not wish to share the financials.
An informational plan posted online is a proof-of-concept website to solicit customer interest.
A key employee/partner plan also lacks financials, also called a summary plan, concept plan, or idea plan.
An invention plan focuses on the market and operationalization of a new invention, but typically lacks the marketing strategy.
Operational plans include the full business plan but add details on major techniques, methods, recipes, formulas, and sources.
A private placement memorandum (PPM) or an offering circular (OC) is used for equity crowdfunding under the JOBS Act.
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The Most Common Critical Risks in a Plan
Each risk can be handled, but the best test is feedback.
Overstated numbers.
Numbers that are wrong.
Inadequate cushion – you need working capital.
Inadequate payback.
Narrative and financials that do not fit.
No direct customer connection.
Uncertain sales (especially conversion rates or hit rates.
Overlooked competition.
Experience deficits.
“What” problems.
Deadly aggravations.
Look and sound professional.
No misspellings.
Lacking a table of contents frustrates readers.
Selling, instead of summarizing, in the executive summary is unprofessional.
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Pitching Your Plan
When you make a formal presentation of your plan, this is called a pitch and the slideshow you create to accompany you is the pitch deck.
Covey the following things.
Passion for your business.
Expertise about the business and the plan.
How professional you are in your work.
How easy it would be to work with you.
Listeners provide you with value in the questions they ask and the feedback they give.
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Crafting Your Pitch Deck
Introductory slide with the firm’s name and presenter.
Company purpose slide – here you thank listeners.
Problem slide – can be in the form of a user experience.
Solution slide – can be combined with problem slide.
Product slide(s) – give an understanding of the product.
Why now slide – what makes this the right time?
Market size slide.
Business model slides – how you will market, distribute, sell.
Competition slide(s) lists firms and outlines your strategy.
Team slide(s) outlines key people with one or two skills.
Financials slide gives sales, breakeven, and profit projections – and the worst-case scenario.
The ask and the deal slide.
Closing slide – ask for questions.
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Storytelling and the Art of the Pitch
Stories tend to tall into one of several storytelling arcs, with the oldest being Aristotle’s Three-Act Structure – a beginning, a middle, an end.
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The Mechanics of Pitching
The pitch deck you present with is likely to have many additional slides prepared to answer questions or provide additional depth on a topic.
Present your pitch deck using your own laptop or tablet.
Think about your listeners and make slides short and easy to read.
If placing the deck online, opposite rules apply as you will not be there to explain anything.
Consider hiring a graphic designer.
There are free pitch deck templates online.
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Closing Thoughts on Business Plans
Parts of your plan may change from week to week.
Create handouts with the new information.
The best way to think about the business plan is that it is a way to get you to think through your entire business.
Plan, once done, get revisited.
You will likely often compare reality with the plan.
The process of business planning helps firms survive and prosper.
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End of main content.
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Accessibility Content: Text Alternatives for Images
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The Business Plan Story: Starting Small and Building Up – Text Alternative
This pyramid visual shows the different paths to presenting your business plan, according the audience’s time constraints. The pyramid is broken up into four sections.
The business plan, at 18 pages, forms the base of the pyramid.
The next level up is the executive summary at 250 to 1,250 words.
The next level up is the elevator pitch at 60 to 100 words.
The top of the pyramid, representing the shortest time available, is the vision at just ten words.
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Storytelling and the Art of the Pitch – Text Alternative
This simple line graph depicts the pitch beginning with the hook, building drama during the problem section, next is the solution section, followed by the support, ask, and closing.
The elevator pitch’s hook, solution, support, and ask all correspond with the storytelling sections of the same name.
The hook corresponds with Aristotle’s Act One and this also corresponds to your pitch deck’s slides one and two. The problem and the solution equate to Aristotle’s Act Two and your pitch deck’s slides three through six.
The support, ask and closing all correspond to Aristotle’s Act Three as well as your pitch deck’s slides seven through thirteen.
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Chapter Seven Small Business Strategies: Imitation with a Twist
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Strategy in the Small Business
Strategy is the idea and actions that explain how a firm will make its profit – it defines how your business operates.
The strategic planning process for small businesses are taken in steps.
The first step involves reviewing and confirming the goals that define your firm and knowing your magic number.
The second step is finding your distinctive competence – plot your customers and the benefits you want to offer against competitors.
The third step is studying dynamics and trends of your industry using industry analysis to identify the best way and time to enter business.
The fourth step involves building on the prior three steps to determine the best strategic direction and strategy for the firm.
After this four-step process, there is a continuing effort called post start-up, refining your strategies/tactics to maintain a competitive advantage.
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Figure 7.1: The Small Business Strategy Process
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Goals: The First Step of Strategic Planning
Goal decisions set the stage for the kind of business you will have.
Goals are the foundation for further analyses.
There are five initial key goal decisions.
As owner, what do you expect out of the business?
What is your product or service idea (and its industry)?
For your product/service, how innovative or imitative will you be?
Scale: Whom do you plan to sell to – everyone or targeted markets?
Scope: Where do you plan to sell – locally, regionally, nationally, globally?
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Goals: Owner Rewards
Chapter 2 introduced the rewards sought by entrepreneurs.
Some were universal – flexibility, personal growth, personal income.
You need to find your “magic number” or how much you want to make.
Taxes account for roughly 29 percent.
If you wish to take home $24,000 a year, after taxes, you will need:
Pretax Income = $24,000/(1 – 0.29) = $33,802
If your costs are 75 percent of sales, not including your salary, then:
Company sales = $33,802/(1 – 0.75) = $135,208
This can be broken down to determine what would need to be accomplished each day to reach this sales level.
Knowing these numbers from the start, you are better able to evaluate if your proposed business can deliver on that very basic need, your pay.
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Goals: Product/Service Idea and Industry
The ‘idea’ gets made real as a product or a service.
If you have a product/service, you also have an industry.
The general name for your line of product/service being sold.
In addition, industries have numeric NAICS and SIC codes.
Industry is important as some industries are more profitable than others.
Industries with high profits and minimal risk have high industry attractiveness.
It is important to know there are no “safe” industries.
B2B sales has the highest average sales.
Professional services have the highest sales in B2C sales.
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Goals: Imitation and Innovation
Owners who imitate competitors still want something that distinguishes them from the others.
An imitative strategy is the classic small business strategy.
An innovative strategy means they do something very different.
Most firms use imitation plus or minus one degree of similarity.
Competing locally in the same industry is parallel competition.
Imitation plus one degree of similarity is incremental innovation.
When a new product or service is introduced, this is pure innovation, also called a blue ocean strategy.
Research shows that imitators do better than pioneers in the long run.
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Goals: To Whom Will You Sell?
There are two strategic decisions about your market in general you need to make early in the process of going into business.
One is the scale of the market, the size of the market – mass or niche.
The other is the scope of the market, the range – from local to global.
A mass market is broad, while a niche market is narrowly defined.
Most industries have both mass and niche markets.
Market scope is important.
Your scope focuses your sales and advertising efforts and identifies potential competitors.
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Figure 7.3: How Strategy and Marketing Relate
Marketing is the actions related to promoting and selling.
Marketing focuses on value proposition.
While strategy focuses on the firm’s competitive advantage.
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Customers and Benefits: The Second Step of Strategic Planning
The focus here is on the kinds of customers you want to sell to and the benefits that will attract them.
If you seek wealth, having wealthy customers may be rewarding.
If your goal is growth, having customers you can learn from is best.
Some types of customers are particularly attractive.
Corporate customers may produce greater profits.
Loyal customers return and are already presold, they also refer others.
Local customers are now less about geographic distance and more about social relationships.
Passionate
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