CHAPTER TWO

Business Plan (BP)

A Plan is a Bridge Which Takes us from the
Present to the Future
Crafting a Winning
Business Plan

2
In this chapter

Three Basic Topics

 Creativity and idea generation
 Feasibility Study
 Business Plan

3
 Introduction
 For Engineers, you have many businesses to
choose. You can be a Consultant, a Contractor,
electromechanical installation company, a
Manufacturer, a Specialist etc…
 In this chapter we will discuss: what is
creativity? how to conduct feasibility analysis?
and "How to Prepare a Successful Business
Plan?“
 Without a Business Plan it’s like driving a
car at night without a head lamp/light!

4
 Cont’d
 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:
 what we want to do,
 How much to do
 How to do
 How much money required,
 The risks,
 The benefits,
 Who to do what, and try to provide answers to
problems not yet faced. 5
Business

Creativity

Feasibility Business
Analysis Plan

6
Creativity
 Discussion Time

Creativity
Innovation

8
Creativity and Innovation
Creativity – the ability to develop new
ideas and to discover new ways of
looking at problems and
opportunities;
thinking new things.
Innovation – the ability to apply
creative solutions to problems or
opportunities to enhance or to enrich
people’s lives;
doing new things.
9
Entrepreneurship
 Entrepreneurship – the result of a
disciplined, systematic process of applying
creativity and innovation to the needs and
opportunities in the marketplace.
 Entrepreneurs connect creative ideas with
purposeful action/structure of a business.
 Creativity is an important source for
building a competitive advantage.

10
 Creative Thinkers
 Always ask, “Is there a better way?”
 Challenge custom, routine, tradition and formalized
procedures
 Are prolific/ inexhaustible (never-ending) thinkers
 Play mental games
 Realize there may be more than one “right” answer
 See mistakes as pit stops on the way to success
 See problems as springboards for new ideas
 Relate seemingly unrelated ideas to a problem
 Have “helicopter skills”+
11
Barriers to Creativity
 Searching for the one “right” answer
 Focusing on “being logical”
 Blindly following the rules
 Constantly being practical (result-oriented)
 Becoming overly specialized
 Avoiding ambiguity (doubt)
 Fearing looking foolish
 Fearing mistakes and failure
 Believing that “I’m not creative”
12
Questions to Spur (Stimulate) the
Imagination
 Is there a substitute?
 Can you rearrange the parts?
 What if you do just the opposite?
 Can you combine ideas?
 Can you put it to other uses?
 What else could you make from this?
 Are there other markets for it?
 Can you reverse it?
 Can you rearrange it? 13
To Enhance Individual Creativity
 Allow yourself to be creative
 Give your mind fresh input every day
 Observe the products/services of other
companies, especially those in completely
different markets
 Recognize the creative power of mistakes
 Keep a journal to record your thoughts and
ideas
 Listen to customers
 Talk to a child (most children ask questions
naturally)
 Read books on stimulating creativity
 Take some time off
14
 The Creative Process

Preparation Investigation Transformation

Incubation Illumination Verification

Implementation

15
 Preparation ….
 Get your mind ready for creative thinking.
 Adopt the attitude of a lifelong student.
 Read …a lot…and not just in your field of
expertise.
 Clip articles of interest to you and file them.
 Take time to discuss your ideas with other
people.
 Join professional or trade associations and
attend their meetings.
 Study other countries and cultures and travel.
 Develop your listening skills. 16
 Investigation
 Involves viewing both the similarities
and the differences among
information collected.
 Two types of thinking required:
 Convergent thinking– the ability to
see the similarities and the
connections among various and
often diverse data and events.
 Divergent thinking – the ability to
see the differences among various
data and events.
17
 Transformation
 How can you transform information
into purposeful ideas?
 Grasp the “big picture” by looking
for patterns that emerge.
 Rearrange the elements of the
situation.
 Remember that several approaches
can be successful.
 If one fails, jump to another.
18Q!`
 Incubation
 Allow your subconscious to reflect
on the information collected.
 Walk away from the situation.
 Take the time to daydream.
 Relax – and play – regularly.
 Dream about the problem or
opportunity.
 Work on it in a different
environment. 19
 Illumination
 Make your idea very clear to you
 This is when the idea pops up clearly and the
individual recognizes the idea as feasible and
realizable, ready for launch.
 Ideas arise from the mind to provide the basis
of a creative response.
 These ideas can be pieces of the whole or the
whole itself, i.e, seeing the entire concept or
entity all at once.
 Unlike the other stages, illumination is often
very brief, involving a tremendous rush of
insights within a few minutes or hours.
20
Verification/Validation/Testing stage

 Verify the idea as accurate and useful.

 Is it really a better solution?
 Will it work?
 Is there a need for it?
 If so, what is the best application of this
idea in the marketplace?
 Does this product or service fit into our
core competencies?
 How much will it cost to produce or to
provide? 21
Implementation
 Put the idea in action
 Applying the resources in order to
accomplish the plans

22
 CREATIVITY
Task: See the figure below. Link all nine dots with
straight lines, which have to be drawn without any
breaks and in one go and without linking any of the
points more than once.

23
24
 Business Idea

How Do I Find a Good Business Idea?

What is a Business Idea?
 A business idea is the response of a person or

persons, or an organization to solving an

identified problem or to meeting perceived
needs in the environment (markets, community,
etc.).

 Finding a good idea is the first step in

transforming the entrepreneur’s desire and

creativity into a business opportunity.
26
Business Idea…..

 Mapping an existing business model is one thing;

 Designing a new and innovative business model

 To come up with new or better options, you must dream

up a grab bag of ideas before narrowing them down to a
short list of conceivable options.

 idea generation, where quantity matters; and

 synthesis, in which ideas are discussed, combined, and

27
narrowed down to a small number of viable options.
 Why Should you Generate Business Ideas?
 You need an idea –
 and a good one at that – for business. As indicated
earlier, in looking at the rationale for this topic, a
good idea is essential for a successful business
venture – both when starting a business and to stay
competitive afterwards.
 To respond to market needs-
 Markets are made up essentially of customers who
have needs and wants waiting to be satisfied.
 To stay ahead of the competition
 Remember, if you do not come up with new
ideas, products and services, a competitor will.
28
Why Should you Generate Business Ideas?
 To exploit technology –
 Do things better, Technology has become a major
competitive tool in today’s markets.
 with the rate of change forcing many firms to
innovate.
 Because of product life cycle.
 All products have finite life…

 Other Reasons……….

29
 Generating Ideas From Existing Ideas
 Changing existing ideas in order to develop new
and original ideas.
 By changing Know About one or more parts of
an idea, we can develop useful new ideas.
 Some Way Includes:
 Make it bigger or add new parts
 Make it smaller or eliminate parts
 Modify parts or ideas
 Rearrange parts
 Reverse parts
 Substitute different materials, parts, or methods
 Combine parts or ideas
30
 Case Example: Kaldi’s Coffee
 Kaldi’s Coffee looks like a Starbucks. It smells and tastes like
one too. But the hottest cafe in the Ethiopian capital is not a
Starbucks at all but a knockoff, the creation of a Starbucks
devotee who tried to bring the real thing to Ethiopia, the
birthplace of coffee, by many accounts. Kaldi's has a
Starbucks-like logo and Starbucks-like décor, and its workers
wear Starbucks-like green aprons. At the bar, there are
Starbucks-like "short" and "tall" coffee options, although
Kaldi's sticks exclusively to Ethiopia's coffee varieties. Kaldi's
is popular enough that it opens several branches as well
31
.
Three sources of new business Ideas
1. Changing environmental trends
 Economic trends
 Social trends
 Technological advances
 Political and Regulatory changes

2. Unsolved problems
3. Gaps in the marketplace

32
 Changing Environmental
Trends
Economic trends
 When the economy is strong,
customers are more willing to
purchase discretionary (flexible)
products and services
 Need to evaluate who has the
money to spend
 Identify areas to avoid
33
 Cont’d
Social trends
 Impact the way people
live their lives and the
products and services
they need
 Products often do more
to satisfy a social need
than the actual need the
product fills 34
Cont’d
Technological advances
 Ongoing source of new business
ideas
 Technologies can be used to
satisfy basic or changing human
needs
 Once a technology is created,
products emerge to advance it
35
 Cont’d
Political and regulatory changes
 New laws create opportunities for
entrepreneurs
 Changes in government regulations
motivate entrepreneurs to differentiate
themselves by exceeding the regulation
 Political
change can encourage new
business ideas

36
 Unsolved Problems
 Many companies have been
started by people who by
trying to solve a problem,
create a business idea
 Entrepreneurs can capitalize
by modifying products
created by advances in
technology

37
Gaps in the Marketplace
 Key large retailers compete on price
and target the mainstream customer,
leaving gaps in the marketplace.
 New business ideas can be formed
by taking an existing product and
targeting a new market or
geographic area.

38
Other source Include….
 Hobbies/Interests

 Personal Skills and Experience

 Franchises

 Mass Media

 Exhibitions

 Surveys

 Complaints 39
Exercise
1. Think of an object used in AAiT. Write the name of the
object;
2. Name the basic parts of the object.
3. How could the object or part of the object: be made bigger,
be made smaller, be modified?
4. How could the parts of the object: be rearranged, be
reversed, be substituted or made of a different material?
5. How could your ideas be combined and be useful in
making a new product for market?
40
 Feasibility
Analysis/Study
 Feasibility Analysis
 Entrepreneurs do not lack creative ideas.
 Is a particular idea a viable foundation for
creating a successful business?
 Feasibility study addresses the question:
“Should we proceed with this business
idea?” or not?

42
 Feasibility Study
 Not the same as a business plan.
 An investigative tool.
 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. 43
Elements of a Feasibility Analysis

Industry and Product /Service

Market Feasibility Feasibility

Financial
Feasibility

44
1. Industry and Market Feasibility
Analysis
Two areas of focus:
1. Determining how attractive an
industry is overall as a “home”
for a new business…. Uses the
five forces model
2. Identifying possible niches a
small business can occupy
profitably.
45
 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 46
Five Force Model

47
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
48
 Bargaining Power of Suppliers
 The greater the leverage of suppliers,
the less attractive the industry.
 Industry is more attractive when:
 Many suppliers sell a product
 Substitutes are available
 Company‘s switching costs are
low
 Items account for a small portion
of the cost of finished products
SC: The costs incurred when a customer changes from one supplier or
marketplace to another. The higher these costs are, the more difficult it is 49
to execute the switch.
Bargaining Power of Buyers
 Buyers’ influence is high when they are
small in number and cost of switching
to a competitor’s product is low.
 Industry is more attractive to new
entrants when:
 Customer’s switching costs are high
 Number of customers is large
 Customers want differentiated
products
 Customers find it difficult to collect
information for comparing suppliers
50
 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
EC: reduced costs per unit that arise from increased total
51

output of a product
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 52
2. Product or Service Feasibility
Analysis
 Determines the degree to which a
product or service idea appeals to
potential customers and identifies the
resources necessary to produce it.
 Two questions:
 Are customers willing to purchase
our good or service?
 Can we provide the product or
service to customers at a profit?
53
Product or Service … cont’d
 Primary research – collect data first
hand and analyze it.
 Customer surveys and questionnaires
 Focus groups
 Secondary research – gather data that
already has been compiled and
analyzed.
 Prototypes
 In-home trials

54
Product/Service …. Cont’d
 Product desirability

 Is the product
desirable and serve a
need in the
marketplace?
 Is it reasonable?

55
•
?
Does it make sense? Is it reasonable? Is it
something consumers will get excited
about?
• Does it take advantage of an
environmental trend, solve a problem, or
take advantage of a gap in the
marketplace?
• Is this a good time to introduce the
product or service to the market?
• Are there any fatal flaws in the product
or service’s basic design or concept? 56
Concept Test
A concept test is a preliminary
description of a product or service idea
to industry experts to solicit (ask for)
their feedback.

57
Cont’d
 A concept statement is a one-page
description of a business that is distributed
to people who are asked to provide
feedback on the potential of the business
idea.
 The feedback will hopefully provide the
entrepreneur:
 A sense of the viability of the product or
service idea.
 Suggestions for how the idea can be
strengthened or “tweaked” before proceeding
further.
58
 59

Source Pearson education, 2012

Product/Service Demand
 Buying intentions survey
 Gauge customer interest in
a product or service
How likely would you be to buy a
product like this if we make it?
 Definitely would buy
 Probably would buy
 Might or might not buy
 Probably would not buy
 Definitely would not buy
60
 Business 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.

61
3. Financial Feasibility
Analysis
 Total start-up cash
needed
 Financial performance
of similar businesses
 Overall financial
attractiveness of the
proposed venture

62
 Financial Feasibility …
cont’d
 Capital requirements – must have an
estimate of how much start-up capital is
required to launch the business.
 Estimated earnings – forecasted income
statements.
 Return on investment – combining the
previous two estimates to determine how
much investors can expect their
investments to return.
63
Business Plan
 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.
65
Cont’d
 A written document that
carefully explains every
aspect of a new business
venture
 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 66
 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
 External— Communicates the merits
of a new venture to outsiders, such as
investors and bankers
67
 Who reads the business plan
and what are they looking for?

Two primary audiences

 Investors and other stakeholders
 Investors, potential business
partners, potential customers,
grant awarding agencies who
are being recruited.
 Firm’s employees
 Looking for the vision and

future of the firm

68
 Always Consider …
 Structure and style of the business plan

 Content of the business plan

 Measuring the business plan against your

personal goals and aspirations

 Recognizing that elements of the plan

may change
69
 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!

70
 The Business Plan: Essential
Functions
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. 71
 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
competitors.
 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
72

of repayment.
 Features versus Benefits
 Feature – a descriptive fact about a
product or service

 Benefit – what a customer/producer

gains from the product or service
feature

73
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
 Description of Management Team
 Plan of Operation
 A Budget Plan
 Legal Issues 74
Cover Page
Name of the company
Name of the principals
Street address
 Contact information
 E-mail address
 Phone number
Website address
Date

75
 Table of Contents BP

 Include enough detail to easily find

a section.
 Avoid excessive detail which uses too
many pages.
 Follows cover page
 Main sections
 Subsections
 Appendices 76
Executive Summary should be:
 Clear— identify concept and
purpose
 Concise— one to two pages long
 Comprehensive (complete)— answer
basic who, what, when, where, and
how questions
 Compelling (Convincing)— generate
enthusiasm
 Written last 77
 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”

78
Mission Statement
 Describe the overall purpose of an
organization: what they do, who they do it for,
and how and why they do it.
 Are the starting point in developing a
strategic vision.
Mission statement of the Canadian Cancer
Society
 The Canadian Cancer Society is a national,
community-based organization of volunteers
whose mission is the eradication of cancer and
the enhancement of the quality of life of
people living with cancer. 79
 Vision Statement
 Describe an ideal future.
 Reflect the essence of an organization’s
mission and values.
 Answer the question, what impact do we
want to have on society?
 Unite an organization in a common,
coherent strategic direction.
 Vision statement of the Canadian Cancer
Society
 Creating a world where no Canadian fears
cancer.
80
Value Statements
 Reflect the core ideology (believes) of
an organization, the deeply held
values that do not change over time.
 Answer the question, how do we carry
out our mission?
 Are the values your organization lives,
breathes and reflects in all its
activities, not the ones you think you
should have.

81
Values statements of the Canadian Cancer
Society
 These serve as guidelines for our conduct and behavior
as we work towards our vision.
 Quality – our focus is on the people we serve (cancer
patients, their families, donors, and the public) and we
will strive for excellence through evaluation and
continuous improvement.
 Caring – we are committed to serving with empathy
and compassion.
 Integrity – we are committed to act in an ethical, honest
manner.
 Respect – we believe that all people should be treated
with consideration and dignity. We cherish diversity.
82
 Cont’d
 Responsiveness – we strive to be accessible,
flexible, transparent, and to demonstrate a sense
of urgency in our resolve and decision-making.
 Accountability – we are committed to measuring,
achieving and reporting results, and to using
donor dollars wisely.
 Teamwork – we are committed to effective
partnerships between volunteers and staff, and we
seek opportunities to form alliances with others.

83
 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

84
Company History

 Brief explanation
of where the idea
for the company
came from

85
 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. 86
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 87

Employers?
 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 88
 Budget Plan
 A Budget Plan can consist of a few sub-
plans:-
 Operational Budget Plan
 Product Development Budget Plan
 Marketing Budget Plan
 Management Budget Plan
 Sources and uses of capital
 Cash flow projections
 Balance sheet projections
 Income statements
 Breakeven analysis 89
 Management Plan
 All companies will fail if you don’t have
good management.

90
 Management Plan
 Management Plan will determine the
following (in crude terms) :-
 Who is the Boss, the one with the Final Say
 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. 91
 Production/Operation Plan
 We need a Factory, Workers, Plants &
Machineries, etc…
 If we don’t plan these out 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.

92
 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.
93
 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
94
95
 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; don’t fall into
the “me too” trap.
 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.)
 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.
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Tips on Preparing a Business
Plan
 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” – between 25
and 50 pages long.
 Tell the truth – always.
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Presenting the Plan
 Demonstrate enthusiasm, but don’t be
overemotional.
 Know your audience thoroughly.
 “Hook” 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……

T……….Is it True
H………Is it Helpful
I………..Is it Inspiring
N………Is it Necessary
K….Know your audience
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 Presenting the Plan
 Avoid overloading your audience with technological
jargon.
 Use visual aids.
 Close by reinforcing the nature of the opportunity.
 Be prepared (with details) for potential investors’
questions.
 Follow up with every investor 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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