Mod001093 from innovation business model to startup 140315

MOD001093MOD001093
ENTREPRENEURSHIP ANDENTREPRENEURSHIP AND
INNOVATION:INNOVATION:
THE INNOVATION PROCESSTHE INNOVATION PROCESS
– FROM BUSINESS MODEL– FROM BUSINESS MODEL
TO STARTUPTO STARTUP
Prof.Stephen OngProf.Stephen Ong
BSc(Hons)Econs (LSE), MBA (Bradford)BSc(Hons)Econs (LSE), MBA (Bradford)
Visiting Professor, Shenzhen UniversityVisiting Professor, Shenzhen University
Academic Fellow, Entrepreneurship & Innovation,Academic Fellow, Entrepreneurship & Innovation,
The Lord Ashcroft International Business School, AngliaThe Lord Ashcroft International Business School, Anglia
Ruskin University Cambridge UKRuskin University Cambridge UK
MBA ANGLIA RUSKIN UNIVERSITYMBA ANGLIA RUSKIN UNIVERSITY

Today’s OverviewToday’s Overview

LEARNING OBJECTIVESLEARNING OBJECTIVES
 To evaluate an entrepreneurialTo evaluate an entrepreneurial
idea or innovation;idea or innovation;
 To demonstrate its potentialTo demonstrate its potential
implementation within theimplementation within the
market – by devising a viablemarket – by devising a viable
business model;business model;
 To identify and assess the keyTo identify and assess the key
elements of an effective businesselements of an effective business
start-up plan.start-up plan.

IDEAIDEA
TOTO
BUSINESSBUSINESS
MODELMODEL
GENERATIONGENERATION

2 - 5
From ideas toFrom ideas to
opportunitiesopportunities Linking supply and demand approachesLinking supply and demand approaches
 Is there a match between a socialIs there a match between a social
entrepreneur’s idea and a need?entrepreneur’s idea and a need?
 According to Maslow, people address theirAccording to Maslow, people address their
needs in orderneeds in order
 From the most basic physiological needsFrom the most basic physiological needs
 To higher order needsTo higher order needs
 Social entrepreneurs can recognize whenSocial entrepreneurs can recognize when
lower level needs havelower level needs have NOTNOT been metbeen met

What is AnWhat is An
Opportunity?Opportunity?
1 of 21 of 2
Opportunity Defined
An opportunity is a favourableAn opportunity is a favourable
set of circumstances thatset of circumstances that
creates a need for a newcreates a need for a new
product, service, or business.product, service, or business.
2-6

What is anWhat is an
Opportunity?Opportunity?
2 of 22 of 2
Four Essential Qualities of an OpportunityFour Essential Qualities of an Opportunity
2-7

2 - 8
Sources of opportunitiesSources of opportunities
 Technological changeTechnological change
 Using the internet for political fundraisingUsing the internet for political fundraising
 Change in public policyChange in public policy
 New opportunities for faith-based groupsNew opportunities for faith-based groups
 Changes in public opinionChanges in public opinion
 Opposition to wars (Vietnam and Iraq)Opposition to wars (Vietnam and Iraq)
 Changes in tastesChanges in tastes
 E.g., higher education adapts to studentE.g., higher education adapts to student
interestsinterests
 Demographic changesDemographic changes
 Serve immigrants and help them assimilateServe immigrants and help them assimilate

Three Ways to Identify anThree Ways to Identify an
OpportunityOpportunity
2-9

First Approach: ObservingFirst Approach: Observing
TrendsTrends
1 of 21 of 2
 Observing TrendsObserving Trends
 Trends create opportunities forTrends create opportunities for
entrepreneurs to pursue.entrepreneurs to pursue.
 The most important trends are:The most important trends are:
 Economic forcesEconomic forces
 Social forcesSocial forces
 Technological advancesTechnological advances
 Political action and regulatory changePolitical action and regulatory change
 It’s important to be aware of changes inIt’s important to be aware of changes in
these areas.these areas. 2-10

First Approach: ObservingFirst Approach: Observing
TrendsTrends
2 of 22 of 2 Environmental Trends Suggesting Business
or Product Opportunity Gaps
2-11

Trend 1: Economic ForcesTrend 1: Economic Forces
Economic trendsEconomic trends
help determinehelp determine
areas that are ripeareas that are ripe
for new start-upsfor new start-ups
and areas thatand areas that
start-ups shouldstart-ups should
avoid.avoid.
Example of Economic Trend
Creating a Favorable Opportunity
• A weak economy favors
start-ups that help consumers
save money.
• An example is GasBuddy.com,
a company started to help
consumers save money on gas.
2-12

Trend 2: Social ForcesTrend 2: Social Forces
Social trends alterSocial trends alter
how people andhow people and
businesses behavebusinesses behave
and set theirand set their
priorities. Thesepriorities. These
trends providetrends provide
opportunities foropportunities for
new businesses tonew businesses to
accommodate theaccommodate the
changes.changes.
Examples of Social Trends
• Aging of baby boomers
• The increasing diversity of
the workplace
• Increasing interest in social
networks such as Facebook
and Twitter
• An increasing focus on health
and wellness
• Increasing interest in “green”
products
2-13

Trend 3: Technological AdvancesTrend 3: Technological Advances
1 of 21 of 2
Advances inAdvances in
technologytechnology
frequentlyfrequently
create businesscreate business
opportunities.opportunities.
Examples of Entire Industries
that Have Been Created as the
Result of Technological
Advances
• Computer industry
• Internet
• Biotechnology
• Digital photography
2-14

Trend 3: Technological AdvancesTrend 3: Technological Advances
2 of 22 of 2
Once aOnce a
technology istechnology is
created,created,
products oftenproducts often
emerge toemerge to
advance it.advance it.
Example: H20Audio
An example is H20Audio, a
company started by four
former San Diego State
University students, that
makes waterproof housings
for the Apple iPhone and
iPod.
2-15

Trend 4: Political Action andTrend 4: Political Action and
Regulatory ChangesRegulatory Changes
1 of 21 of 2
Political action
and regulatory
changes also
provide the basis
for opportunities.
General Example
Laws to protect the environment
have created opportunities for
entrepreneurs to start firms that
help other firms comply with
environmental laws and
regulations.
2-16

Trend 4: Political Action andTrend 4: Political Action and
Regulatory ChangesRegulatory Changes
2 of 22 of 2
CompanyCompany
created to helpcreated to help
otherother
companiescompanies
comply with acomply with a
specific law.specific law.
Specific Example
The No Child Left Behind Act
of 2002 requires states to
develop criterion-based
assessments in basic skills to be
periodically given to students in
certain grades. Kim and Jay
Kleeman, two high school
teachers, started Shakespeare
Squared, a company that helps
high schools comply with the
act.
2-17

Second Approach:Second Approach: SolvingSolving a Problema Problem
1 of 21 of 2
 Solving a ProblemSolving a Problem
 Sometimes identifying opportunitiesSometimes identifying opportunities
simply involves noticing a problem andsimply involves noticing a problem and
finding a way to solve it.finding a way to solve it.
 These problems can be pinpointedThese problems can be pinpointed
through observing trends and throughthrough observing trends and through
more simple means, such as intuition,more simple means, such as intuition,
serendipity, or change.serendipity, or change.
2-18

EmbraceEmbrace
THE PROBLEM
 20,000,000 low-birth
weight pre-mature babies
 Hypothermia (Loss of body
heat) kills 4,000,000 within
first month
 16,000,000 survivors face
diabetes, heart disease and
low IQ risks.
THE SOLUTION
 New affordable innovative
products for medical
 Product Costs 1% of
Western baby incubator

Second Approach: Solving aSecond Approach: Solving a
ProblemProblem
2 of 22 of 2
• A problem facing theA problem facing the
U.S. and other countriesU.S. and other countries
is finding alternatives tois finding alternatives to
fossil fuels.fossil fuels.
• A large number ofA large number of
entrepreneurial firms,entrepreneurial firms,
like this solar farm, arelike this solar farm, are
being launched to solvebeing launched to solve
this problem.this problem.
2-20

Third Approach: Finding Gaps inThird Approach: Finding Gaps in
the Marketplacethe Marketplace
1 of 21 of 2
 Gaps in the MarketplaceGaps in the Marketplace
 A third approach to identifyingA third approach to identifying
opportunities is to find a gap in theopportunities is to find a gap in the
marketplace.marketplace.
 A gap in the marketplace is often createdA gap in the marketplace is often created
when a product or service is needed by awhen a product or service is needed by a
specific group of people but doesn’tspecific group of people but doesn’t
represent a large enough market to be ofrepresent a large enough market to be of
interest to mainstream retailers orinterest to mainstream retailers or
manufacturers.manufacturers. 2-21

GrameenPhone Bangladesh
“Stay Close”
Market Gap
 Low incomes of the rural
poor unable to afford
mobile communications
 Disconnected rural
communities
 High middlemen costs in
trade denying income
improvements
 http://tedblog.typepad.com/tedblog/2006/10/iqbal_quadir_on.htm
Village Phone Fills the Gap
 400,000 GP women
operators in rural villages
 Microfinance loan USD200
from Grameen bank
 Universal access to mobile
communications for 55,000
villages(2006) …
100,000,000 users
 Improved personal and
village incomes

Third Approach: Finding Gaps inThird Approach: Finding Gaps in
the Marketplacethe Marketplace
2 of 22 of 2
Product gaps inProduct gaps in
the marketplacethe marketplace
representrepresent
potentiallypotentially
viable businessviable business
opportunities.opportunities.
Specific ExampleSpecific Example
In 2000 Tish CirovolvIn 2000 Tish Cirovolv
realized there were norealized there were no
guitars on the market madeguitars on the market made
specifically for women. Tospecifically for women. To
fill this gap, she startedfill this gap, she started
Daisy Rock Guitars, aDaisy Rock Guitars, a
company that makes guitarscompany that makes guitars
just for women.just for women.
2-23

2 - 24
Get information forGet information for
socially-entrepreneurialsocially-entrepreneurial
ideasideas
Stocks of knowledge Intelligence and alertness
Education
Networks
Life experience
Work experience
Access to information Utilization of information
Creative process of ideas and opportunities

Personal Characteristics of thePersonal Characteristics of the
EntrepreneurEntrepreneur
Characteristics that tend to make someCharacteristics that tend to make some
people better at recognizing opportunitiespeople better at recognizing opportunities
than othersthan others
Prior Experience Cognitive Factors
Social Networks Creativity
2-25

Prior Experience
 Prior Industry Experience
 Several studies have shown that prior experience in an
industry helps an entrepreneur recognize business
opportunities.
 By working in an industry, an individual may spot a market niche
that is underserved.
 It is also possible that by working in an industry, an individual
builds a network of social contacts who provide insights that lead to
recognizing new opportunities.
2-26

Cognitive Factors
 Cognitive Factors
 Studies have shown that opportunity recognition may
be an innate skill or cognitive process.
 Some people believe that entrepreneurs have a “sixth
sense” that allows them to see opportunities that others
miss.
 This “sixth sense” is called entrepreneurial alertness,
which is formally defined as the ability to notice things
without engaging in deliberate search.
2-27

Social Networks
1 of 3
 Social Networks
 The extent and depth of an individual’s social network
affects opportunity recognition.
 People who build a substantial network of social and
professional contacts will be exposed to more
opportunities and ideas than people with sparse
networks.
 Research results suggest that between 40% and 50% of
people who start a business got their idea via a social
contact.
 Strong Tie Vs. Weak Tie Relationships
 All of us have relationships with other people that are
called “ties.” (See next slide.)
2-28

Social Networks
2 of 3
 Nature of Strong-Tie Vs. Weak-Tie Relationships
 Strong-tie relationship are characterized by frequent
interaction and form between coworkers, friends, and
spouses.
 Weak-tie relationships are characterized by infrequent
interaction and form between casual acquaintances.
 Result
 It is more likely that an entrepreneur will get new
business ideas through weak-tie rather than strong-tie
relationships. (See next slide.)
2-29

Social Networks
3 of 3
Strong-Tie Relationships Weak-Tie
Relationships
These relationships, which
typically form between like-
minded individuals, tend to
reinforce insights and ideas
that people already have.
These relationships, which
form between casual
acquaintances, are not as
apt to be between like-
minded individuals, so one
person may say something
to another that sparks a
completely new idea.
Why weak-tie relationships lead to more new business ideas
than strong-tie relationships
2-30

CreativityCreativity
1 of 21 of 2
 CreativityCreativity
 Creativity is the process of generatingCreativity is the process of generating
a novel or useful idea.a novel or useful idea.
 Opportunity recognition may be, atOpportunity recognition may be, at
least in part, a creative process.least in part, a creative process.
 For an individual, the creative processFor an individual, the creative process
can be broken down into five stages, ascan be broken down into five stages, as
shown on the next slide.shown on the next slide.
2-31

CreativityCreativity
2 of 22 of 2
Five Steps to Generating Creative Ideas
2-32

Full View of the OpportunityFull View of the Opportunity
Recognition ProcessRecognition Process
Depicts the connection between an awareness of emerging trends
and the personal characteristics of the entrepreneur
2-33

2 - 34
Maslow’s hierarchy of needsMaslow’s hierarchy of needs
and social entrepreneurshipand social entrepreneurship
potentialpotential
physiological
safety and security
belongingess
self-esteem
cognitive
aesthetic
self-actualization
self-transcendence
Proper nutrition
School and neighborhood safety
Community programs
Empowerment programs
Academic programs
The arts
College scholarships
Programs to create mentors
Maslow’s hierarchy Example programs that meet
different needs
physiological
safety and security
belongingess
self-esteem
cognitive
aesthetic
self-actualization
self-transcendence
Proper nutrition
School and neighborhood safety
Community programs
Empowerment programs
Academic programs
The arts
College scholarships
Programs to create mentors
Maslow’s hierarchy Example programs that meet
different needs

The social enterprise
Mission statement
 It should be clear and succinct
 It should explain:
 What the enterprise will do
 How it is entrepreneurial
 Why it is important
 This should occur before planning activities
 A mission statement has goals and measures of
progress towards goal

EMBRACEEMBRACE
 VISION : Every woman and child has
an equal chance for a healthy life.
 MISSION : Advancing Maternal and
Child Health
 … by providing innovative solutions to
the world's most vulnerable
populations

What a mission statement
should specify
 What the enterprise will and will not do
 How it creates and measures value
 How an enterprise innovates or adapts
 How success will be measured

$80 for 15cents$80 for 15cents

…… Keep it to 3 WordsKeep it to 3 Words

MISSIONMISSION
NIKE 2012NIKE 2012
3 KEYWORDS
INSPIRATIONINSPIRATION
INNOVATIONINNOVATION
ATHLETEATHLETE

One Laptop per ChildOne Laptop per Child
http://one.laptop.org MISSIONMISSION
 To empowerempower
the world's
poorest
children
through
education
We aim toWe aim to
provide eachprovide each
child with achild with a
rugged, low-rugged, low-
cost, low-power,cost, low-power,

From social mission toFrom social mission to
business modelbusiness model
 Business model – a plan for howBusiness model – a plan for how
the mission will be achieved andthe mission will be achieved and
how the enterprise will createhow the enterprise will create
valuevalue
 A general description of how theA general description of how the
enterprise will operate:enterprise will operate:
 Its missionIts mission
 Its strategic resourcesIts strategic resources
 Its partnersIts partners
 How it will serve its beneficiariesHow it will serve its beneficiaries

Business model for EMBRACEBusiness model for EMBRACE

Benefits of a goodBenefits of a good
mission statementmission statement
 It provides focusIt provides focus
 Social entrepreneurs can stay onSocial entrepreneurs can stay on
target as they develop the concepttarget as they develop the concept
 It helps to attract supportIt helps to attract support
 As a marketing tool, it bringsAs a marketing tool, it brings
other resources into the enterpriseother resources into the enterprise
 For example, volunteers, donors,For example, volunteers, donors,
partnerspartners

Threats to business models
 Demand side threats
 A product or service that finds no
market – people don’t want it
 Its value is not accepted by clients
 Supply side threats
 Too much capital needed, or too much
ongoing cost to sustain itself
 Either threat can derail an enterprise

Many social enterprisesMany social enterprises
failfail
 Persistent lack of income is aPersistent lack of income is a
common reasoncommon reason
 A supply explanation would be thatA supply explanation would be that
costs are too highcosts are too high
 A demand explanation would beA demand explanation would be
that revenues are too lowthat revenues are too low
 Both flaws can be examined in theBoth flaws can be examined in the
business modelbusiness model

What is a Business Model?What is a Business Model?
 ModelModel
 A model is a plan or diagram that’s used to make orA model is a plan or diagram that’s used to make or
describe something.describe something.
 Business ModelBusiness Model
 A firm’s business model is its plan or diagram forA firm’s business model is its plan or diagram for
how it competes, uses its resources, structures itshow it competes, uses its resources, structures its
relationships, interfaces with customers, and createsrelationships, interfaces with customers, and creates
value to sustain itself on the basis of the profits itvalue to sustain itself on the basis of the profits it
generates.generates.
 The term “business model” is used to include all theThe term “business model” is used to include all the
activities that define how a firm competes in theactivities that define how a firm competes in the
marketplace.marketplace.

Changing Business ModelsChanging Business Models

Dell’s Business ModelDell’s Business Model
1 of 21 of 2
 Beyond Its Own BoundariesBeyond Its Own Boundaries
 It’s important to understand that a firm’sIt’s important to understand that a firm’s
business model takes it beyond its ownbusiness model takes it beyond its own
boundaries.boundaries.
 Almost all firms partner with others toAlmost all firms partner with others to
make their business models work.make their business models work.
 In Dell’s case, it needs the cooperation ofIn Dell’s case, it needs the cooperation of
its suppliers, customers, and many othersits suppliers, customers, and many others
to make its business model work.to make its business model work.

Dell’s Business ModelDell’s Business Model
2 of 22 of 2
Dell’s Approach toDell’s Approach to
Selling PCs versusSelling PCs versus
TraditionalTraditional
ManufacturersManufacturers

The Importance of Business ModelsThe Importance of Business Models
Having a clearly articulated business model isHaving a clearly articulated business model is
important because it does the following:important because it does the following:
• Serves as an ongoing extension of feasibility analysis.Serves as an ongoing extension of feasibility analysis.
A business model continually asks the question, “DoesA business model continually asks the question, “Does
this business make sense?”this business make sense?”
• Focuses attention on how all the elements of aFocuses attention on how all the elements of a
business fit together and constitute a working whole.business fit together and constitute a working whole.
• Describes why the network of participants needed toDescribes why the network of participants needed to
make a business idea viable are willing to work together.make a business idea viable are willing to work together.
• Articulates a company’s core logic to all stakeholders,Articulates a company’s core logic to all stakeholders,
including the firm’s employees.including the firm’s employees.

Diversity of Business ModelsDiversity of Business Models
Diversity or Variety
in Business Models
• There is no standardThere is no standard
business model for anbusiness model for an
industry or for a targetindustry or for a target
market within an industry.market within an industry.
• However, over time, theHowever, over time, the
most successful businessmost successful business
models in an industrymodels in an industry
predominate.predominate.
• There are alwaysThere are always
opportunities for businessopportunities for business
model innovation.model innovation.

How Business Models EmergeHow Business Models Emerge
1 of 31 of 3
 The Value ChainThe Value Chain
 The value chain is the string of activities that movesThe value chain is the string of activities that moves
a product from the raw material stage, througha product from the raw material stage, through
manufacturing and distribution, and ultimately tomanufacturing and distribution, and ultimately to
the end user.the end user.
 By studying a product’s or service’s value chain, anBy studying a product’s or service’s value chain, an
organization can identify ways to create additionalorganization can identify ways to create additional
value and assess whether it has the means to do so.value and assess whether it has the means to do so.
 Value chain analysisValue chain analysis is also helpful in identifyingis also helpful in identifying
opportunities for new businesses and inopportunities for new businesses and in
understanding how business models emerge.understanding how business models emerge.

2 of 32 of 3
The Value ChainThe Value Chain

3 of 33 of 3
 The Value Chain (continued)The Value Chain (continued)
 Entrepreneurs look at the value chain of aEntrepreneurs look at the value chain of a
product or a service to pinpoint where the valueproduct or a service to pinpoint where the value
chain can be made more effective or to spotchain can be made more effective or to spot
where additional “value” can be added.where additional “value” can be added.
 This type of analysis may focus on:This type of analysis may focus on:
 A single primary activity such as marketing and sales.A single primary activity such as marketing and sales.
 The interface between one stage of the value chain andThe interface between one stage of the value chain and
another, such as the interface between operations andanother, such as the interface between operations and
outgoing logistics.outgoing logistics.
 One of the support activities, such as human resourceOne of the support activities, such as human resource
management.management.

Potential Fatal Flaws in Business ModelsPotential Fatal Flaws in Business Models
 Fatal FlawsFatal Flaws
 Two fatal flaws can render aTwo fatal flaws can render a
business model untenable from thebusiness model untenable from the
beginning:beginning:
A complete misread of the customerA complete misread of the customer
Utterly unsound economicsUtterly unsound economics

Components of a Business ModelComponents of a Business Model
Four Components of aFour Components of a
Business ModelBusiness Model

Core StrategyCore Strategy
1 of 31 of 3
 Core StrategyCore Strategy
 The first component of a businessThe first component of a business
model is the core strategy, whichmodel is the core strategy, which
describes how a firm competes relativedescribes how a firm competes relative
to its competitors.to its competitors.
 Primary Elements of Core StrategyPrimary Elements of Core Strategy
 Mission statementMission statement
 Product/market scopeProduct/market scope
 Basis for differentiationBasis for differentiation

Core Strategy
2 of 3
Primary Elements of Core Strategy
MissionMission
StatementStatement
Product/Market
Scope
A company’s product/market scope
defines the products and markets on
which it will concentrate.
A firm’s mission, or mission statement,A firm’s mission, or mission statement,
describes why it exists and what itsdescribes why it exists and what its
business model is supposed tobusiness model is supposed to
accomplish.accomplish.

Core Strategy
3 of 3
Primary Elements of Core Strategy
Basis of
Differentiation
It is important that a new venture
differentiate itself from its competitors in
some way that is important to its
customers. If a new firm’s products or
services aren’t different from those of its
competitors, why should anyone try
them?

Strategic ResourcesStrategic Resources
1 of 31 of 3 Strategic ResourcesStrategic Resources
 A firm is not able to implement a strategyA firm is not able to implement a strategy
without resources, so the resources a firm haswithout resources, so the resources a firm has
affect its business model substantially.affect its business model substantially.
 For a new venture, its strategic resources mayFor a new venture, its strategic resources may
initially be limited to the competencies of its founders,initially be limited to the competencies of its founders,
the opportunity they have identified, and the uniquethe opportunity they have identified, and the unique
way they plan to serve their market.way they plan to serve their market.
 The two most important strategic resources are:The two most important strategic resources are:
 A firm’s core competenciesA firm’s core competencies
 Strategic assetsStrategic assets

2 of 32 of 3
Primary Elements of Strategic Resources
CoreCore
CompetenciesCompetencies
StrategicStrategic
AssetsAssets
A core competency is a resource orA core competency is a resource or
capability that serves as a source of a firm’scapability that serves as a source of a firm’s
competitive advantage. Examples includecompetitive advantage. Examples include
Sony’s competence in miniaturization andSony’s competence in miniaturization and
Dell’s competence in supply chainDell’s competence in supply chain
management.management.
Strategic assets are anything rare andStrategic assets are anything rare and
valuable that a firm owns. They includevaluable that a firm owns. They include
plant and equipment, location, brands,plant and equipment, location, brands,
patents, customer data, a highly qualifiedpatents, customer data, a highly qualified
staff, and distinctive partnerships.staff, and distinctive partnerships.

3 of 33 of 3 Importance of Strategic ResourcesImportance of Strategic Resources
 New ventures ultimately try to combine their coreNew ventures ultimately try to combine their core
competencies and strategic assets to create acompetencies and strategic assets to create a
sustainable competitive advantage.sustainable competitive advantage.
 This factor is one that investors pay close attentionThis factor is one that investors pay close attention
to when evaluating a business.to when evaluating a business.
 A sustainable competitive advantage is achievedA sustainable competitive advantage is achieved
by implementing a value-creating strategy that isby implementing a value-creating strategy that is
unique and not easy to imitate.unique and not easy to imitate.
 This type of advantage is achievable when a firmThis type of advantage is achievable when a firm
has strategic resources and the ability to use them.has strategic resources and the ability to use them.

Partnership NetworkPartnership Network
1 of 31 of 3 Partnership NetworkPartnership Network
 A firm’s partnership network is the thirdA firm’s partnership network is the third
component of a business model. New ventures, incomponent of a business model. New ventures, in
particular, typically do not have the resources toparticular, typically do not have the resources to
perform key roles.perform key roles.
 In most cases, a business does not want to doIn most cases, a business does not want to do
everything itself because the majority of taskseverything itself because the majority of tasks
needed to build a product or deliver a service areneeded to build a product or deliver a service are
not core to a company’s competitive advantage.not core to a company’s competitive advantage.
 A firm’s partnership network includes:A firm’s partnership network includes:
 SuppliersSuppliers
 Other key relationshipsOther key relationships

2 of 32 of 3
Primary Elements of Partnership NetworkPrimary Elements of Partnership Network
SuppliersSuppliers
OtherOther
KeyKey
RelationRelation
shipsships
A supplier is a company thatA supplier is a company that
provides parts or services toprovides parts or services to
another company. Intel is Dell’sanother company. Intel is Dell’s
primary suppler for computer chips,primary suppler for computer chips,
for example.for example.
Firms partner with other companies toFirms partner with other companies to
make their business models work. Anmake their business models work. An
entrepreneur’s ability to launch a firm thatentrepreneur’s ability to launch a firm that
achieves a competitive advantage mayachieves a competitive advantage may
hinge as much on the skills of the partnershinge as much on the skills of the partners
as on the skills within the firm itself.as on the skills within the firm itself.

3 of 33 of 3
The Most Common Types of BusinessThe Most Common Types of Business
PartnershipsPartnerships

Customer InterfaceCustomer Interface
1 of 31 of 3
 Customer InterfaceCustomer Interface
 The way a firm interacts with its customerThe way a firm interacts with its customer
hinges on how it chooses to compete.hinges on how it chooses to compete.
 For example, Amazon.com sells books over theFor example, Amazon.com sells books over the
Internet while Barnes & Noble sells through itsInternet while Barnes & Noble sells through its
traditional bookstores and online.traditional bookstores and online.
 The three elements of a company’s customerThe three elements of a company’s customer
interface are:interface are:
 Target customerTarget customer
 Fulfillment and supportFulfillment and support
 Pricing modelPricing model

2 of 32 of 3Primary Elements of Customer Interface
TargetTarget
MarketMarket
FulfillmentFulfillment
andand
SupportSupport
A firm’s target market is theA firm’s target market is the
limited group of individuals orlimited group of individuals or
businesses that it goes after orbusinesses that it goes after or
tries to appeal to.tries to appeal to.
Fulfillment and support describesFulfillment and support describes
the way a firm’s product or servicethe way a firm’s product or service
reaches its customers. It also refersreaches its customers. It also refers
to the channels a company uses andto the channels a company uses and
what level of customer support itwhat level of customer support it
provides.provides.

3 of 33 of 3Primary Elements of Customer InterfacePrimary Elements of Customer Interface
PricingPricing
StructureStructure
The third element of aThe third element of a
company’s customercompany’s customer
interface is its pricinginterface is its pricing
structure. Pricing modelsstructure. Pricing models
vary, depending on avary, depending on a
firm’s target market andfirm’s target market and
its pricing philosophy.its pricing philosophy.

Recap: The Importance of BusinessRecap: The Importance of Business
ModelsModels
 Business ModelsBusiness Models
 It is very useful for a new venture to look at itself inIt is very useful for a new venture to look at itself in
a holistic manner and understand that it musta holistic manner and understand that it must
construct an effective “business model” to beconstruct an effective “business model” to be
successful.successful.
 Everyone that does business with a firm, from itsEveryone that does business with a firm, from its
customers to its partners, does so on a voluntarycustomers to its partners, does so on a voluntary
basis. As a result, a firm must motivate itsbasis. As a result, a firm must motivate its
customers and its partners to play along.customers and its partners to play along.
 Close attention to each of the primary elements of aClose attention to each of the primary elements of a
firm’s business model is essential for a newfirm’s business model is essential for a new
venture’s success.venture’s success.

Osterwalder’s BusinessOsterwalder’s Business
ModelModel

http://www.businessmodelgeneration.com/canvas

Business Model of FacebookBusiness Model of Facebook

Business Model of ZyngaBusiness Model of Zynga

FROMFROM
BUSINESSBUSINESS
MODELMODEL
TOTO
BUSINESSBUSINESS
STARTUPSTARTUP

4 - 76
Feasibility AnalysisFeasibility Analysis
 Entrepreneurs do not lack creativeEntrepreneurs do not lack creative
ideas, but …ideas, but …
 Is a particular idea a viableIs a particular idea a viable
foundation for creating a successfulfoundation for creating a successful
business?business?
 Feasibility study addresses theFeasibility study addresses the
question: “Should we proceed withquestion: “Should we proceed with
this business idea?”this business idea?”

4 - 77
A feasibility study:
 Is not the same as a business plan.
 Serves as a filter, screening out ideas that lack the
potential for building a successful business before
an entrepreneur commits the necessary resources
to building a business plan.
 Is an investigative tool.
FeasibilityFeasibility
AnalysisAnalysis

4 -
78
Industry andIndustry and
Market FeasibilityMarket Feasibility
Product or ServiceProduct or Service
FinancialFinancial
Elements of a Feasibility
Analysis

4 -
79
Industry and
Market Feasibility
FinancialFinancial
Analysis

4 - 80
Industry and MarketIndustry and Market
AnalysisAnalysisTwo areas of focus:Two areas of focus:
1.1. Determining how attractive anDetermining how attractive an
industry is overall as a “home”industry is overall as a “home”
for a new business.for a new business.
2.2. Identifying possible niches aIdentifying possible niches a
small business can occupysmall business can occupy
profitably.profitably.

4 - 81
Five Forces Model
Five forces interact with one another to determine
the setting in which companies compete and,
hence, the attractiveness of the industry:
1. Rivalry among companies in the industry
2. Bargaining power of suppliers
3. Bargaining power of buyers
4. Threat of new entrants
5. Threat of substitute products or services

4 - 82
Five Forces Model
Industry
Competitors
Rivalry among
existing firms
Buyers
Bargaining PowerBargaining Power
of Buyersof Buyers
Suppliers
of Suppliersof Suppliers
Substitutes
Potential
Entrants
Threat ofThreat of
New EntrantsNew Entrants
Threat of SubstituteThreat of Substitute
Products or ServicesProducts or Services

4 - 83
Five Forces Model
Industry
Competitors
Rivalry among
existing firms
Buyers
of Buyersof Buyers
Suppliers
Substitutes
Potential
Entrants
Threat ofThreat of

4 - 84
Rivalry Among Companies
 Strongest of the five forces
 Industry is more attractive when:
 Number of competitors is large, or, at the other
extreme, quite small
 Competitors are not similar in size or capacity
 Industry is growing fast
 Opportunity to sell a differentiated product or
service exists

4 - 85
Five Forces Model
Industry
Competitors
Rivalry among
existing firms
Buyers
of Buyersof Buyers
Suppliers
Substitutes
Potential
Entrants
Threat ofThreat of

4 - 86
Bargaining Power of
Suppliers
 The greater the leverage of suppliers, the less
attractive the industry.
 Many suppliers sell a commodity product
 Substitutes are available
 Switching costs are low
 Items account for a small portion of the cost of
finished products

4 - 87
Five Forces Model
Industry
Competitors
Rivalry among
existing firms
Buyers
of Buyersof Buyers
Suppliers
Substitutes
Potential
Entrants
Threat ofThreat of

4 - 88
Bargaining Power of
Buyers
 Buyers’ influence is high when number of customers
is small and cost of switching to a competitor’s
product is low.
 Customers’ switching costs are high
 Number of buyers is large
 Customers want differentiated products
 Customers find it difficult to collect information for
comparing suppliers
 Items account for a small portion of customers’ finished
products

4 - 89
Five Forces Model
Industry
Competitors
Rivalry among
existing firms
Buyers
of Buyersof Buyers
Suppliers
Substitutes
Potential
Entrants
Threat ofThreat of

4 - 90
Threat of New Entrants
 The larger the pool of potential new entrants, the
less attractive an industry is.
 Industry is more attractive to new entrants when:
 Advantages of economies of scale are absent.
 Capital requirements to enter are low
 Cost advantages are not related to company size
 Buyers are not loyal to existing brands
 Government does not restrict the entrance of new
companies

4 - 91
Five Forces Model
Industry
Competitors
Rivalry among
existing firms
Buyers
of Buyersof Buyers
Suppliers
Substitutes
Potential
Entrants
Threat ofThreat of

4 - 92
Threat of Substitutes
 Substitute products or services can turn an
industry on its head.
 Industry is more attractive to new entrants
when:
 Quality substitutes are not readily available
 Prices of substitute products are not
significantly lower than those of the industry’s
products
 Buyers’ switching costs are high

4 - 94
Business PrototypingBusiness Prototyping
 Entrepreneurs test their business models on a
small scale before committing serious resources
to launch a business that might not work.
 Recognizes that a business idea is a hypothesis
that needs to be tested before taking it full
scale.

4 -
95
Product or Service
Feasibility
FinancialFinancial
Analysis

4 - 96
Product or Service
Feasibility Analysis
 Determines the degree to which a product or
service idea appeals to potential customers and
identifies the resourced necessary to produce
it.
 Two questions:
1. Are customers willing to purchase our
product or service?
2. Can we provide the product or
service to customers at a profit?

4 - 97
Product or Service
Feasibility Analysis
 Primary research: Collect data firsthand and
analyze it.
 Customer surveys and questionnaires
 Focus groups
 Secondary research: Gather data that already has
been compiled and analyze it.
 Prototypes
 In-home trials

4 -
98
Financial
Feasibility
Analysis

4 - 99
Financial FeasibilityFinancial Feasibility
AnalysisAnalysis
 Capital requirements –an estimateCapital requirements –an estimate
of how much start-up capital isof how much start-up capital is
required to launch the business.required to launch the business.
 Estimated earnings – forecastedEstimated earnings – forecasted
income statementsincome statements
 Return on investment – CombiningReturn on investment – Combining
the previous two estimates tothe previous two estimates to
determine how much investors candetermine how much investors can
expect their investments to return.expect their investments to return.

Breakeven Analysis
 Breakeven point - the level of operation at
which a business neither earns a profit nor
incurs a loss.
 A useful planning tool because it shows
entrepreneurs minimum level of activity
required to stay in business.
 With one change in the breakeven calculation,
an entrepreneur can also determine the sales
volume required to reach a particular profit
target.

Calculating the Breakeven
PointStep 1. Determine the expenses the business can expect to
incur.
Step 2. Categorize the expenses in step 1 into fixed expenses
and variable expenses.
Step 3. Calculate the ratio of variable expenses to net sales.
Then compute the contribution margin:
Contribution Margin =Contribution Margin = 1 -1 - Variable ExpensesVariable Expenses
Net Sales EstimateNet Sales Estimate
Step 4.Step 4. Compute the breakeven point:Compute the breakeven point:
Breakeven Point ($)Breakeven Point ($) ==
Total Fixed CostsTotal Fixed Costs
Contribution MarginContribution Margin

Calculating the BreakevenCalculating the Breakeven
Point – Case:The Magic ShopPoint – Case:The Magic Shop
Step 1.Step 1. Net Sales estimate is $950,000 with Cost of Goods Sold ofNet Sales estimate is $950,000 with Cost of Goods Sold of
$646,000 and total expenses$646,000 and total expenses
of $236,500.of $236,500.
Step 2.Step 2. Variable Expenses: $705,125Variable Expenses: $705,125
Fixed Expenses: $177,375Fixed Expenses: $177,375
Step 3.Step 3. Contribution margin:Contribution margin:
Contribution Margin =Contribution Margin = 1 -1 -
$705,125$705,125
$950,000$950,000
StepStep 4.4. Breakeven Point:Breakeven Point:
Breakeven PointBreakeven Point
$$
==
$177,375$177,375
.26.26
= .26= .26
= $682,212= $682,212

FIGURE 11.8 Break-Even Chart for the Magic Shop

DEVELOPINGDEVELOPING
AA
BUSINESS PLANBUSINESS PLAN

What Is a Business Plan?What Is a Business Plan?
 Business PlanBusiness Plan
 A business plan is a written narrative,A business plan is a written narrative,
typically 25 to 35 pages long, thattypically 25 to 35 pages long, that
describes what a new business plans todescribes what a new business plans to
accomplish.accomplish.
 Dual-Use DocumentDual-Use Document
 For most new ventures, the businessFor most new ventures, the business
plan is a dual-purpose document usedplan is a dual-purpose document used
both inside and outside the firm.both inside and outside the firm.
4-105

Who Reads the Business Plan—And What
Are They Looking For?
There are two primary audiences for a firm’s business plan
Audience What They are Looking For
A Firm’s
Employees
Investors and
other external
stakeholders
A clearly written business plan helps the
employees of a firm operate in sync and move
forward in a consistent and purposeful manner.
A firm’s business plan must make the case that the
firm is a good use of an investor’s funds or the
attention of others.
4-106

Guidelines for Writing a Business Plan
1 of 5
 Structure of the Business PlanStructure of the Business Plan
 To make the best impression a business planTo make the best impression a business plan
should follow a conventional structure, such asshould follow a conventional structure, such as
the outline for the business plan shown in thethe outline for the business plan shown in the
chapter.chapter.
 Although some entrepreneurs want toAlthough some entrepreneurs want to
demonstrate creativity, departing from thedemonstrate creativity, departing from the
basic structure of the conventional businessbasic structure of the conventional business
plan is usually a mistake.plan is usually a mistake.
 Typically, investors are busy people and want aTypically, investors are busy people and want a
plan where they can easily find criticalplan where they can easily find critical
information.information. 4-107

2 of 5
 Structure of the Business Plan (continued)Structure of the Business Plan (continued)
 Software PackagesSoftware Packages
 There are many software packages available thatThere are many software packages available that
employ an interactive, menu-driven approach toemploy an interactive, menu-driven approach to
assist in the writing of a business plan.assist in the writing of a business plan.
 Some of these programs are very helpful. However,Some of these programs are very helpful. However,
entrepreneurs should avoid a boilerplate plan thatentrepreneurs should avoid a boilerplate plan that
looks as though it came from a “canned” source.looks as though it came from a “canned” source.
 Sense of ExcitementSense of Excitement
 Along with facts and figures, a business plan needs toAlong with facts and figures, a business plan needs to
project a sense of anticipation and excitement aboutproject a sense of anticipation and excitement about
the possibilities that surround a new venture.the possibilities that surround a new venture.
4-108

3 of 5
 Content of the Business PlanContent of the Business Plan
 The business plan should give clear and conciseThe business plan should give clear and concise
information on all the important aspects of theinformation on all the important aspects of the
proposed venture.proposed venture.
 It must be long enough to provide sufficientIt must be long enough to provide sufficient
information yet short enough to maintain readerinformation yet short enough to maintain reader
interest.interest.
 For most plans, 25 to 35 pages is sufficient.For most plans, 25 to 35 pages is sufficient.
 Types of Business PlansTypes of Business Plans
 There are three types of business plans, which areThere are three types of business plans, which are
shown on the next slide.shown on the next slide.
4-109

4 of 5
Types of Business Plans
4-110

5 of 5
 Recognizing the Elements of theRecognizing the Elements of the
Plan May ChangePlan May Change
 It’s important to recognize that theIt’s important to recognize that the
plan will usually change while written.plan will usually change while written.
 New insights invariably emerge whenNew insights invariably emerge when
an entrepreneur or a team ofan entrepreneur or a team of
entrepreneurs immerse themselves inentrepreneurs immerse themselves in
writing the plan and start gettingwriting the plan and start getting
feedback from others.feedback from others.
4-111

4 - 112
The Business PlanThe Business Plan
 A written summary of:A written summary of:
 An entrepreneur’s proposed business ventureAn entrepreneur’s proposed business venture
 The operational and financial detailsThe operational and financial details
 The marketing opportunities and strategyThe marketing opportunities and strategy
 The managers’ skills and abilities.The managers’ skills and abilities.
 A business plan is the best insurance againstA business plan is the best insurance against
launching a business destined to fail orlaunching a business destined to fail or
mismanaging a potentially successfulmismanaging a potentially successful
company.company.

4 - 113
The Business Plan:
Two Essential Functions
1. Guiding the company by
charting its future course and
defining its strategy for
following it.
2. Attracting lenders and
investors who will provide
needed capital.

4 - 114
A Plan Must Pass Three TestsA Plan Must Pass Three Tests
1. The 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.
2. The Competitive Test – evaluates:
 A company’s position relative to its competitors.
 Management’s ability to create a company that will gain
an edge over its rivals.
3. The Value Test – proving that:
 A venture offers investors or lenders an attractive rate of
return or a high probability of repayment.

4 - 115
Why Take the Time to
Build a Business Plan?
 Although building a plan does not guarantee
success, it does increase your chances of
succeeding in business.
 A plan is like a road map that serves as a guide
on a journey through unfamiliar, harsh, and
dangerous territory. Don’t attempt the trip
without a map!

4 - 116
Key Elements of a Business PlanKey Elements of a Business Plan
 Title Page and Table of ContentsTitle Page and Table of Contents
 Executive SummaryExecutive Summary
 Vision and Mission StatementVision and Mission Statement
 Company HistoryCompany History
 Business and Industry ProfileBusiness and Industry Profile
Our
Business
Plan

4 -
117
FIGURE 4.3
Mission, Goals
and Objectives

4 - 118
Key Elements of a BusinessKey Elements of a Business
PlanPlan Title Page and Table of ContentsTitle Page and Table of Contents
 Mission StatementMission Statement
 Company HistoryCompany History
 Business and Industry ProfileBusiness and Industry Profile
 Business StrategyBusiness Strategy
 Description of Products/ServicesDescription of Products/Services
The
Business
Plan

4 - 119
Features vs. BenefitsFeatures vs. Benefits
 Feature – a descriptive fact about aFeature – a descriptive fact about a
product or service:product or service:
“an ergonomically designed,“an ergonomically designed,
more comfortable handle”more comfortable handle”
 Benefit – what a customer gainsBenefit – what a customer gains
from the product or service feature:from the product or service feature:
“fewer problems with carpal“fewer problems with carpal
tunnel syndrome andtunnel syndrome and
increased productivity”increased productivity”

4 - 120
Key Elements of a BusinessKey Elements of a Business
PlanPlan
 Marketing StrategyMarketing Strategy
 Document market claimsDocument market claims
 Show customer interestShow customer interest
 Competitor AnalysisCompetitor Analysis
 Description of Management TeamDescription of Management Team
 Plan of OperationPlan of Operation
 Projected Financial StatementsProjected Financial Statements
 Loan or Investment ProposalLoan or Investment Proposal
(continued)(continued)
Our
Business
Plan
The
Business
Plan

4 - 121
Guidelines for PreparingGuidelines for Preparing
a Business Plana Business Plan
 Remember: No one can create your planRemember: No one can create your plan forfor you.you.
 Potential lenders want to see financialPotential lenders want to see financial
projections, but they are more interested in theprojections, but they are more interested in the
strategiesstrategies for reaching those projections.for reaching those projections.
 Show how you plan to set your business apartShow how you plan to set your business apart
from competitors; don’t fall into the “me too”from competitors; don’t fall into the “me too”
trap.trap.
 Identify your target market and offer evidenceIdentify your target market and offer evidence
that customers for your product or service exist.that customers for your product or service exist.

4 - 122
Tips on PreparingTips on Preparing
 Make sure your plan has an attractive cover.
(First impressions are crucial.)
 Rid your plan of all 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.

4 - 123
Tips on PreparingTips on Preparing
 Your plan must prove that the business willYour plan must prove that the business will
make money (not necessarily immediately, butmake money (not necessarily immediately, but
eventually).eventually).
 Use spreadsheets to generate financial forecasts.Use spreadsheets to generate financial forecasts.
 AlwaysAlways include cash flow projections.include cash flow projections.
 Keep your plan “crisp” – between 25 and 40 pagesKeep your plan “crisp” – between 25 and 40 pages
long.long.
 Tell the truth –Tell the truth – alwaysalways..

4 - 124
The “5 Cs” of CreditThe “5 Cs” of Credit
 Capital
 Capacity
 Collateral
 Character
 Conditions

Outline of Business PlanOutline of Business Plan
 Outline of Business Plan
 A suggested outline of a business plan is
shown on the next several slides.
 Most business plans do not include all the
elements introduced in the sample plan; we
include them here for the purpose of
completeness.
 Each entrepreneur must decide which
elements to include in his or her plan.
4-125

Section 1: Executive SummarySection 1: Executive Summary
1 of 21 of 2
 The executive summary is a shortThe executive summary is a short
overview of the entire business planoverview of the entire business plan
 It provides a busy reader withIt provides a busy reader with
everything that needs to be knowneverything that needs to be known
about the new venture’s distinctiveabout the new venture’s distinctive
nature.nature.
 An executive summary shouldn’tAn executive summary shouldn’t
exceed two single-spaced pages.exceed two single-spaced pages.
4-126

Executive Summary
Key Insights
• In many instances an investor will
ask for a copy of a firm’s executive
summary and will ask for a copy of
the entire plan only if the executive
summary is sufficiently convincing.
• The executive summary, then, is
arguably the most important
section of a business plan.
Section 1: Executive Summary
2 of 2
4-127

Section 2: Industry AnalysisSection 2: Industry Analysis
1 of 21 of 2
 Industry AnalysisIndustry Analysis
 This section should begin by describing theThis section should begin by describing the
industry the business will enter in terms ofindustry the business will enter in terms of
its size, growth rate, and sales projections.its size, growth rate, and sales projections.
 Items to include in this section:Items to include in this section:
 Industry size, growth rate, and sales projectionsIndustry size, growth rate, and sales projections
 Industry structureIndustry structure
 Nature of participantsNature of participants
 Key success factorsKey success factors
 Industry trendsIndustry trends
 Long-term prospectsLong-term prospects
4-128

Industry Analysis
Key Insights
• Before a business selects a target
market it should have a good grasp
of its industry—including where its
promising areas are and where its
points of vulnerability are.
• The industry that a company
participates in largely defines the
playing field that a firm will
participate in.
Section 2: Industry AnalysisSection 2: Industry Analysis
2 of 22 of 2
4-129

Section 3: Company DescriptionSection 3: Company Description
1 of 21 of 2
 Company DescriptionCompany Description
 This section begins with a generalThis section begins with a general
description of the company.description of the company.
 Company descriptionCompany description
 Company historyCompany history
 Mission statementMission statement
 Products and servicesProducts and services
 Current statusCurrent status
 Legal status and ownershipLegal status and ownership
 Key partnerships (if any)Key partnerships (if any)
4-130

Company Description
Key Insights
• While at first glance this section
may seem less important than the
others, it is extremely important.
• It demonstrates to your reader that
you know how to translate an idea
into a business.
Section 3: Company DescriptionSection 3: Company Description
2 of 22 of 2
4-131

Section 4: Market Analysis
1 of 2
 Market Analysis
 The market analysis breaks the industry into segments
and zeros in on the specific segment (or target market)
to which the firm will try to appeal.
 Items to include in this section:
 Market segmentation and target market selection
 Buyer behavior
 Competitor analysis
4-132

Market Analysis
Key Insights
• Most start-ups do not service their
entire industry. Instead, they focus
on servicing a specific (target)
market within the industry.
• It’s important to include a section in
the market analysis that deals with
the behavior of the consumers in the
market. The more a start-up knows
about the consumers in its target
market, the more it can tailor its
products or services appropriately.
Section 4: Market AnalysisSection 4: Market Analysis
2 of 22 of 2
4-133

Section 5: The Economics of theSection 5: The Economics of the
BusinessBusiness
1 of 21 of 2 This section addresses the basic logic of howThis section addresses the basic logic of how
profits are earned in the business and howprofits are earned in the business and how
many units of a business’s profits must bemany units of a business’s profits must be
sold for the business to “break even” andsold for the business to “break even” and
then start earning a profit.then start earning a profit.
 Revenue drivers and profit marginsRevenue drivers and profit margins
 Fixed and variable costsFixed and variable costs
 Operating leverage and its implicationsOperating leverage and its implications
 Start-up costsStart-up costs
 Break-even chart and calculationsBreak-even chart and calculations
4-134

The EconomicsThe Economics
of the Businessof the Business
Key Insights
• Two companies in the same industry
may make profits in different ways.
One may be a high-margin, low
-volume business, while the other
may be a low-margin, high-volume
business. It’s important to check to
make sure the approach you select
is sound.
• Computing a break-even analysis
is an extremely useful exercise for
any proposed or existing business.
Section 5: The Economics of theSection 5: The Economics of the
BusinessBusiness
2 of 22 of 2
4-135

Section 6: Marketing PlanSection 6: Marketing Plan
1 of 21 of 2
 Marketing PlanMarketing Plan
 The marketing plan focuses on how theThe marketing plan focuses on how the
business will market and sell itsbusiness will market and sell its
product or service.product or service.
 Overall marketing strategyOverall marketing strategy
 Product, price, promotions, andProduct, price, promotions, and
distributiondistribution
 Sales process (or Cycle)Sales process (or Cycle)
 Sales tacticsSales tactics
4-136

Marketing Plan
Key Insights
• The best way to describe a start-up’s
marketing plan is to start by
articulating its marketing strategy,
positioning, and points of
differentiation, and then talk about
how these overall aspects of the
plan will be supported by price,
promotional mix, and distribution
strategy.
• It’s also important to discuss the
company sales process.
Section 6: Marketing PlanSection 6: Marketing Plan
2 of 22 of 2
4-137

Section 7: Design and DevelopmentSection 7: Design and Development
PlanPlan
1 of 21 of 2 Design and Development PlanDesign and Development Plan
 If you’re developing a completely newIf you’re developing a completely new
product or service, you need to include aproduct or service, you need to include a
section in your business plan that focuses onsection in your business plan that focuses on
the status of your development efforts.the status of your development efforts.
 Development status and tasksDevelopment status and tasks
 Challenges and risksChallenges and risks
 Projected development costsProjected development costs
 Proprietary issues (patents, trademarks,Proprietary issues (patents, trademarks,
copyrights, licenses, brand names)copyrights, licenses, brand names)4-138

Design andDesign and
Development PlanDevelopment Plan
Key Insights
• Many seemingly promising start-ups
never get off the ground because
their product development efforts
stall or the actual development of
the product or service turns out to
be more difficult than thought.
• As a result, this is a very important
section for businesses developing a
completely new product or service.
Section 7: Design and DevelopmentSection 7: Design and Development
PlanPlan
2 of 22 of 2
4-139

Section 8: Operations PlanSection 8: Operations Plan
1 of 21 of 2
 Operations PlanOperations Plan
 Outlines how your business will be run andOutlines how your business will be run and
how your product or service will behow your product or service will be
produced.produced.
 A useful way to illustrate how your businessA useful way to illustrate how your business
will be run is to describe it in terms of “backwill be run is to describe it in terms of “back
stage” (unseen to the customer) and “frontstage” (unseen to the customer) and “front
stage” (seen by the customer) activities.stage” (seen by the customer) activities.
 General approach to operationsGeneral approach to operations
 Business locationBusiness location
 Facilities and equipmentFacilities and equipment

Section 8: Operations PlanSection 8: Operations Plan
2 of 22 of 2
OperationsOperations
PlanPlan
Key Insights
• Your have to strike a careful balance
between adequately describing this
topic and providing too much
detail.
• As a result, it is best to keep this
section short and crisp.
4-141

Section 9: Management Team andSection 9: Management Team and
Company StructureCompany Structure
1 of 21 of 2 Management Team and CompanyManagement Team and Company
StructureStructure
 The management team of a new ventureThe management team of a new venture
typically consists of the founder or founderstypically consists of the founder or founders
and a handful of key management personnel.and a handful of key management personnel.
 Management teamManagement team
 Board of directorsBoard of directors
 Board of advisersBoard of advisers
 Company structureCompany structure
4-142

Section 9: Management Team andSection 9: Management Team and
Company StructureCompany Structure
2 of 22 of 2
ManagementManagement
Team andTeam and
CompanyCompany
StructureStructure
Key Insights
• This is a critical section of a
business plan.
• Many investors and others who
read the business plan look first at
the executive summary and then go
directly to the management team
section to assess the strength of the
people starting the firm.
4-143

Section 10: OverallSection 10: Overall
ScheduleSchedule
1 of 21 of 2
 Overall ScheduleOverall Schedule
 A schedule should be prepared that shows theA schedule should be prepared that shows the
major events required to launch the business.major events required to launch the business.
 The schedule should be in the format ofThe schedule should be in the format of
milestones critical to the business’s success.milestones critical to the business’s success.
 Examples of milestones:Examples of milestones:
 Incorporating the ventureIncorporating the venture
 Completion of prototypesCompletion of prototypes
 Rental of facilitiesRental of facilities
 Obtaining critical financingObtaining critical financing
 Starting productionStarting production
 Obtaining the first saleObtaining the first sale 4-144

Section 10: Overall ScheduleSection 10: Overall Schedule
2 of 22 of 2
OverallOverall
ScheduleSchedule
Key Insight
• An effectively prepared andAn effectively prepared and
presented schedule can bepresented schedule can be
extremely helpful inextremely helpful in
convincing potential investorsconvincing potential investors
that the management team isthat the management team is
aware of what needs to takeaware of what needs to take
place to launch the venture andplace to launch the venture and
has a plan in place to gethas a plan in place to get
there.there.
4-145

Section 11: FinancialSection 11: Financial
ProjectionsProjections
1 of 21 of 2
 Financial ProjectionsFinancial Projections
 The final section of a business planThe final section of a business plan
presents a firm’s pro forma (orpresents a firm’s pro forma (or
projected) financial projections.projected) financial projections.
 Sources and uses of funds statementSources and uses of funds statement
 Assumptions sheetAssumptions sheet
 Pro forma income statementsPro forma income statements
 Pro forma balance sheetsPro forma balance sheets
 Pro forma cash flowsPro forma cash flows
 Ratio analysisRatio analysis 4-146

Section 11: FinancialSection 11: Financial
2 of 22 of 2
FinancialFinancial
Key Insights
• Having completed theHaving completed the
earlier sections of the plan,earlier sections of the plan,
its easy to see why theits easy to see why the
financial projections comefinancial projections come
last.last.
• They take the plans you’veThey take the plans you’ve
developed and expressdeveloped and express
them in financial terms.them in financial terms.
4-147

Presenting the Business Plan to InvestorsPresenting the Business Plan to Investors
1 of 21 of 2
 The Oral PresentationThe Oral Presentation
 The first rule in making an oral presentation is toThe first rule in making an oral presentation is to
follow directions. If you’re told you have 15follow directions. If you’re told you have 15
minutes, don’t talk for more than the allotted time.minutes, don’t talk for more than the allotted time.
 The presentation should be smooth and well-The presentation should be smooth and well-
rehearsed.rehearsed.
 The slides should be sharp and not cluttered.The slides should be sharp and not cluttered.
 Questions and Feedback to Expect fromQuestions and Feedback to Expect from
InvestorsInvestors
 The smart entrepreneur has a good idea of theThe smart entrepreneur has a good idea of the
questions that will be asked, and will be preparedquestions that will be asked, and will be prepared
for those queries.for those queries. 4-148

Presenting the Business Plan to InvestorsPresenting the Business Plan to Investors
2 of 22 of 2
Twelve PowerPoint Slides to Include in an Investor Presentation
1.1. Title SlideTitle Slide
2.2. ProblemProblem
3.3. SolutionSolution
4.4. Opportunity &Opportunity &
Target MarketTarget Market
5. Technology5. Technology
6. Competition6. Competition
7.7. Marketing & SalesMarketing & Sales
8.8. Management TeamManagement Team
9.9. FinancialFinancial
projectionsprojections
10.10. Current statusCurrent status
11.11. Financing soughtFinancing sought
12.12. SummarySummary

4 - 150
Presenting the PlanPresenting the Plan
 Demonstrate enthusiasm, but don’t beDemonstrate enthusiasm, but don’t be
overemotional.overemotional.
 Know your audience thoroughly.Know your audience thoroughly.
 ““Hook” investors quickly with an up-frontHook” investors quickly with an up-front
explanation of the venture, itsexplanation of the venture, its
opportunities, and its benefits to them.opportunities, and its benefits to them.
 Hit the highlights; focus onHit the highlights; focus on
the details later.the details later.
 Keep your presentationKeep your presentation
simple – 2 or 3 major points.simple – 2 or 3 major points.

4 - 151
Presenting the PlanPresenting the Plan
 Avoid overloading your audience withAvoid overloading your audience with
technological jargon.technological jargon.
 Use visual aids.Use visual aids.
 Close by reinforcing the nature of theClose by reinforcing the nature of the
opportunity.opportunity.
 Be prepared (with details) for potentialBe prepared (with details) for potential
investors’ questions.investors’ questions.
 Follow up with every investor to whomFollow up with every investor to whom
you make your presentation.you make your presentation.

FINANCIALFINANCIAL
MILESTONESMILESTONES
BUSINESSBUSINESS
MODELMODEL
The 360° CUBE PitchThe 360° CUBE Pitch
Six Posters in a 6 minute Investor Pitch
SOCIALSOCIAL
PROBLEMPROBLEM
VISION &VISION &
MISSIONMISSION
MARKETING &MARKETING &
SALESSALES
OPERATIONS TEAMOPERATIONS TEAM
& KEY PARTNERS& KEY PARTNERS

4 - 153
SummarySummary
 There are no guarantees for success.There are no guarantees for success.
 Creating a business plan will be valuableCreating a business plan will be valuable
primarily because of the process itself.primarily because of the process itself.
 The business planning process mayThe business planning process may
provide insight to increase the chances forprovide insight to increase the chances for
success.success.
 The business plan: Entrepreneurs benefit;The business plan: Entrepreneurs benefit;
lenders and investors demand it!lenders and investors demand it!

154
ConclusionConclusion
““Innovation : the successfulInnovation : the successful
implementation of novel andimplementation of novel and
appropriate ideas within anappropriate ideas within an
organisation.” 3Morganisation.” 3M

Further ReadingFurther Reading
 Osterwalder, A. & PigneurY. (2010)Osterwalder, A. & PigneurY. (2010) “Business Model“Business Model
Generation”, WileyGeneration”, Wiley
 Tidd, Bessant & Pavitt (2009)Tidd, Bessant & Pavitt (2009) “Managing Innovation –“Managing Innovation –
integrating technological, market and organizationalintegrating technological, market and organizational
change”, Wiley, Chichester, 4th editionchange”, Wiley, Chichester, 4th edition
 Barringer, Bruce R. & Ireland, R. Duane (2011)Barringer, Bruce R. & Ireland, R. Duane (2011)
Entrepreneurship-Successfully launching new venturesEntrepreneurship-Successfully launching new ventures 44thth
edition, Pearson.edition, Pearson.
 Williams, Sara (2012)The FinancialTimes Guide toWilliams, Sara (2012)The FinancialTimes Guide to
Business Start Up 2013:The Most ComprehensiveBusiness Start Up 2013:The Most Comprehensive
Annually Updated Guide for Entrepreneurs, 26th edition,Annually Updated Guide for Entrepreneurs, 26th edition,
Pearson.Pearson.
 Lester, D. (2012) StartYour Own Business 2013, 5thLester, D. (2012) StartYour Own Business 2013, 5th
edition, Crimson Publishing, Richmond UK.edition, Crimson Publishing, Richmond UK.

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