ENTREPRENEURSHIP

CHAPTER 7:
BUSINESS PLAN

Department of Management
Faculty of Business Administration
LEARNING OUTCOMES
At the end of the chapter, students are able to:
1. Understanding the differences between a business model and the
business plan
2. Describing components of a business plan
3. Developing the business plan for your group project

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 MAIN TEXTBOOKS
• Frederick, H., O’Connor, A., & Kuratko, D. F.
(2019) – Entrepreneurship: Theory, Process,
Practice. 5th Asia-Pacific edition. South
Melbourne, Victoria: Cengage Learning.
• Chapter 11: BUSINESS PLANNING _ P.374 - 405

Add a footer 3
CONTENTS
Business plan
• Definition
• Business plan vs Business model
• Pitfalls & Benefits

Business plan elements

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Business Plan
Provides a more specific and detailed exploration
of the venture’s goals and operations with a clear What do we have now?
path on how the venture will succeed.
A written document that details the proposed What do we want to have in the
venture: future?
• Describes the current status, expected needs, What do we need in order to be
and projected results of the new business. there?
• Demonstrates a clear picture of what the venture
is, where it is projected to go, and how the
entrepreneur proposes it will get there.

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Business Model Vs. Business Plan
Source: https://tms-outsource.com/blog/posts/business-model-vs-business-plan/

BUSINESS MODEL BUSINESS PLAN

• The business model is the foundation of • Business plan is the structure of a
a company company
• A business model is the main idea of • The business plan goes into detail to
the business together with the show how this idea could work.
description of how it is working. • The business plan present company
strategy. It is also used to show the
• A business model can also be financial performance that is
considered the mechanism that a expected for the near future.
company has in order to generate
profits.
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Pitfalls to Avoid in the
Venture Planning Process

Pitfall 1 No realistic goals

Pitfall 2 Failure to anticipate roadblocks/ risks
Pitfall 3 No commitment or dedication
Pitfall 4 Lack of demonstrated experience (business or technical)
Pitfall 5 No market niche (segment)

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Benefits of a Business Plan
For the Entrepreneur:
• Time, effort, research, and discipline to create a formal plan forces the entrepreneur to view the venture critically and
objectively.
• Competitive, economic, and financial analyses subject the venture to scrutiny.

For Outside Evaluators:

• Develops and examines operating strategies and expected results.
• Provides a tool for use in communications with outside financial sources.

Specifically for the Financial Sources:

• Details the market potential and plans for securing a share of that market.
• Shows the venture’s ability to service debt or provide an adequate return on equity.
• Identifies critical risks and crucial events with a discussion of contingency plans.
• Contains the necessary information for a thorough business and financial evaluation.
• Assesses the entrepreneur’s managerial ability

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Elements of a Business Plan
S o u r c e : D o n a l d F. K u r a t k o , T h e C o m p l e t e E n t r e p r e n e u r i a l P l a n n i n g G u i d e
( B l o o m i n g t o n , I N : K e l l e y S c h o o l o f B u s i n e s s , I n d i a n a U n i v e r s i t y, 2 0 1 5 ) .

Executive Summary

Business Description

BUSINESS PLAN ELEMENTS

Business Strategy

Marketing Plan

Operation Plan

Management Plan

Financial Plan

Risk Management Plan

Harvest Strategy

Milestone Schedule

Appendix or Bibliography 9
1. EXECUTIVE SUMMARY
• No more than three pages. This is the most crucial part of
your plan because you must capture the reader’s interest.
• What, how, why, where, and so on must be summarized.
• Complete this part after you have a finished business plan.

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2. Business Description
• General description of business
• Name of the business
• Environmental assessment - Industry background
• Opportunity identification: The potential of the new venture should be described
clearly
• Any uniqueness or distinctive features of this venture should be described clearly.

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Environmental assessment

Environmental scanning
Regulatory environments
for new ventures

Industry environments Community perspective

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Environmental variables
Societal Environment

Task environment
(Industry)
Socio-cultural Economic
forces Stockholders forces
Suppliers

Governments Internal
Employees/
Environment
Special
Structure Labor union
interest
group Culture
Resource
Customers Competitors
Trade associations
Creditors
Political/ legal Technological
forces Communities forces

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Regulatory environments
Dealing with
Business Labor
licenses and Property Laws
formation regulations
permits

International
Investor
Getting credit Paying taxes trading
protection
regulations

Political
Enforcing
instability and
contracts
corruption

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Community Perspective

Community demographics

Economic base

Population trends

Overall Business Climate

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3. Strategy
A strategy is a plan or road map of the
actions that a firm or organization will take
to achieve its mission and goals, but it is not
static.

A clear road map (strategy) for a new

venture states how it will act to achieve its
goals and attain a sustainable competitive
advantage.

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THE ENTREPRENEURIAL STRATEGY PROCESS

1. Examine the internal and external

environments of the venture (SWOT—
strengths, weaknesses, opportunities,
threats).
2. Formulate the venture’s long-range and
short-range strategies (mission, objectives,
strategies, policies).
3. Implement the strategic plan (programs,
budgets, procedures).
4. Evaluate the performance of the strategy.
5. Take follow-up action through continuous
feedback.

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 SWOT ANALYSIS
• SWOT analysis can be understood as the
examination of an organization's internal
strengths and weaknesses, and its
environments opportunities, and threats.
• It is a tool designed to be used in the
preliminary stages of decision-making and as
a precursor to strategic planning in various
kinds of applications (Johnson et al., 1989;
Bartol et al., 1991).
• An understanding of all external factors,
(threats and opportunities) together with an
internal examination of strengths and
weaknesses assists in forming a vision of the
future.

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How To Use SWOT
Internal Analysis:
• Examine the capabilities of your organization. Carefully examine all your
strengths and weaknesses. Draw ideas from projects that you have both
successfully and unsuccessfully completed.
External Analysis:
• Look at the main points in the environmental analysis, and identify those
points that pose opportunities for your organization, and those that pose
threats or obstacles to performance. Carefully examine the market in
which you intend to launch the product and analyze what the status of the
competition.

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How To Use SWOT
• Make a worksheet by creating four quadrants: one each for strengths,
weaknesses, opportunities, and threats. The next step is to list specific items
• Related to the problem at hand, under the appropriate heading in the
worksheet. It is best to limit the list to 10 or fewer points per heading and to
avoid over-generalizations (Johnson et al., 1989).
• If more items are thought of, try to prioritize them so that you list only the 10
top items for each category

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Distinctive Competencies Lead To
Competitive Advantage

Capabilities

- Innovation
Distinctive - Efficiency
competencies - Quality - Differentiation Competitive
- Customer Relations - Cost Advantage
- Supply Chain
Relations

Resources

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Four Common Types Of Strategies And
Their Characteristics
FACTOR
Differentiation Low Cost Differentiation Cost Niche

Distinctive Competencies Innovation, Processes, Logistics Innovation and Relationships

Relationships Processes
Product Differentiation High Low Medium Medium

Market Segmentation Many Segments Mass Market Many Segments One or Two Segments

Example Intel RadioShack Dell Getty Images

Microsoft Wal-Mart Southwest Airlines Incyte
Coop Mart Vietjet An Nam Gourmet

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Five Forces Model
• An industry’s profit potential is largely
determined by the intensity of competitive
rivalry within that industry
• By using a framework rather than a formal
statistical model, Porter identified the
relevant variables and the questions that
the user must answer in order to develop
conclusions tailored to a particular industry
and company.

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 Barriers To Entry
• Barriers to entry are factors that make it costly for companies to enter an
industry.
• Potential Barriers to entry into an industry

Cost advantages
Economies of Product
Independent of
Scale Differentiation
Scale

Contrived Government
Switching Costs
Deterrence Regulation

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Power Of Suppliers Power of Buyers
High when
High when
• Customers are concentrated, large
• A small number of dominant,
or buy in volume .
highly concentrated suppliers
exists. • The products being purchased are
standard or undifferentiated
• Few good substitute raw
making it
materials or suppliers are
available. • Easy to switch to other suppliers.
• The cost of switching raw • Customers’ purchases represent a
materials or suppliers is high. major portion of the sellers’ total
revenue.

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Power Of Substitutes Rivalry among competitors
Competitive strength high when Intensity increases as
• The relative price of substitute • The number of competitors increases
products declines . or they become equal in size.
• Consumers’ switching costs • Demand for the industry’s products
decline.
declines or industry growth slows.
• Competitors plan to increase
market • Fixed costs or barriers to leaving the
industry are high.
• penetration or production
capacity.

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The Value Network
Customers

Complement:
A complement to a product is
Competitors The New
Venture
Complimentors any other product that makes
the first one more attractive
to the customer.

Suppliers

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First Mover Potential Advantages And Disadvantages
Possible Advantages Possible Disadvantages
• Create the Standard and • Short-Lived Advantages Are Competed
the Rules Away

• Low Cost Position • Higher Development Costs

• Create and Protect • Established Firms Circumvent or violate

Intellectual Property patents and intellectual property

• Tie Up Strategic • Cost of Attaining the Resources

Resources

• Increase Switching • High Uncertainty of Designing the Right

Costs for the Producer Product. If vision is wrong, then large
costs to switch

• Increase Switching • Customer is reluctant to buy when a

Costs for the Customer large cost to switch may be incurred
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3. Marketing plan
• Market Research and analysis
• Target market (customers) identified
• Market size and trends
• Estimated market share
• Competition

• Marketing plan -4P

• Market strategy—sales and distribution: distribution channels and communication channels
• Pricing strategy to penetrate and maintain a market share to produce profits. The lowest price is
not necessarily the best price
• Advertising and promotions plan with cost estimate to validate proposed strategy

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Market Segmentation
• The process of identifying a specific set of characteristics that differentiate one
group of consumers from the rest.
• Demographic variables
• Age, marital status, sex, occupation, income, and location
• Benefit variables
• Convenience, cost, style, and trends (depending on the nature of the particular new venture)

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Consumer Behavior
Changing Priorities and Purchases in the Family Life Cycle
Consumer Behavior: The types and patterns of Stage Priorities Major Purchases
consumer characteristics
Fledgling: teens Self; socializing; Appearance products, clothing,
• Personal characteristics and early 20s education automobiles, recreation, hobbies, travel

• Psychological characteristics Courting: 20s Self and other; pair

bonding; career
Furniture and furnishings, entertainment
and entertaining, savings
Major Consumer Goods Classifications Nest building: Babies and career Home, garden, do-it-yourself items, baby-
20s, early 30s care products, insurance
1. Convenience goods
Full nest: 30–50s Children and others; Children’s food, clothing, education,
2. Shopping goods career; midlife crisis transportation, orthodontics, career and life
counseling
3. Specialty goods Empty nest: 50–75 Self and others; Furniture and furnishings, entertainment,
4. Unsought goods relaxation travel, hobbies, luxury automobiles, boats,
investments
5. New products Sole survivor: 70– Self; health; Health care services, diet, security and
90 loneliness comfort products, TV and books, long-
distance telephone services

Source: Peter R. Dickson, Marketing Management, 1st ed., © 1994 Cengage Learning; see also William M. Pride and O. C. Ferrell,
Marketing 18th ed. (Mason, OH: Cengage Learning, 2016).

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The Chasm Model

CHASM

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CONSUMER CHARACTERISTICS -
PERSONAL CHARACTERISTICS
INNOVATORS EARLY ADOPTED EARLY LATE MAJORITY LAGGARDS
(2-3%) (12-15%) MAJORITY (34%) (12-15%)
(33%)
PERSONAL CHARACTERISTICS
1 Social Lower upper Upper middle Lower middle Upper lower Lower lower
class
2 Income High income High income (earned Above-average income Average Below-average
(inherited) from salary and (earned) income income
investment)
3 Highest Middle management Owners of small Skilled labor Unskilled labor
Occupa- professionals, and owners of medium- businesses, non-
tion merchants, sized businesses managerial office and
financiers union managers
4 Private schooling College High school, trade school Grammar Very little –
Education school, some some grammar
high school school

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CONSUMER CHARACTERISTICS -
PERSONAL CHARACTERISTICS
INNOVATORS EARLY EARLY LATE MAJORITY LAGGARDS
(2-3%) ADOPTED MAJORITY (34%) (12-15%)
(12-15%) (33%)
PERSONAL CHARACTERISTICS
5 Housing Inherited Large homes – good Small houses, multiple- Low-income Slum
property, fine suburbs or best family dwellings housing in apartments
mansions apartments urban-
renewal
projects
6 Family Not family Children’s social Child centered and home Children Children
influence oriented, advancement centered taken for expected of
children in important, education granted raise
private school or important themselves
grown
7 Time Present oriented, Future oriented Present oriented Present Tradition
orienta- but worried (security) oriented, live
tion about impact of oriented in the past
time
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CONSUMER CHARACTERISTICS -
PSYCHOLOGICAL CHARACTERISTICS
INNOVATORS EARLY ADOPTED EARLY LATE LAGGARDS
(2-3%) (12-15%) MAJORITY MAJORITY (12-15%)
(33%) (34%)
PSYCHOLOGICAL CHARACTERISTICS
1. Nature Self-actualization Esteem needs (for status Belonging needs (with Safety needs Survival needs
of needs needs (realizations and recognition by others and groups) (freedom from (basic needs)
of potential) others) fear)
2. Percep- Cosmopolitan in Prestige, status conscious, Local aspirations and Home and Live from day
tions outlook aspire to upper class local social product to day
acceptance centered
3. Self- Elite Social strivers, peer Respectability from Security, home Fatalistic, live
concept group leaders, own reference centered, from day to
venturesome groups and home aggressive, day
apathetic, no
hope

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Market Research
• Market research is the process of gathering the information
that serves as the basis for a sound marketing plan.
• The Market Research Process
1. Define the product and its unique selling proposition. Identify
the customer segment. Develop a set of questions that will
provide the necessary data on customer preferences and
behavior.
2. Collect the data using surveys, published sources, focus groups,
interviews, and other means to secure it.
3. Analyze and interpret the data to determine if the product
meets the needs or wants of the customers and determine
whether they will pay the price you seek.
4. Draw conclusions on the customer and their needs, preferences
and behavior
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Source of data
• Secondary Data
• Information that has already been compiled.
• Advantage: Less expensive and available
• Disadvantages: Outdated, lacks specificity, questionable validity
• Sources: Internal and/or external sources
• Primary Data
• New information that is gathered specifically for the research at hand.
• Surveys
• Experimentation

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Quantitative versus Qualitative
Marketing Research

Quantitative Research Qualitative Research

 Involves empirical assessments that  Requires smaller sample size as it
work from numerical measurements and involves the researcher in the process
analytical approaches to compare the and is able to delve deeper into the
results. questions with the respondents.
 The researcher is an uninvolved
observer so that the results are  Relies less on analytical testing, and the
“objective.” researcher is engaged in the process; the
results are considered “subjective.”
 Requires larger samples to be able to
perform the statistical analyses.

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Marketing Research
CRITERIA DIRECT/COLD MAILING MAIL PANELS TELEPHONE PERSONAL MALL INTERCEPT
IN-HOME
Complexity Not much Not much Substantial, but Highly flexible Most flexible
and versatility complex or
lengthy scales
difficult to use
Quantity of Substantial Substantial Short, lasting Greatest quality Limited, 25 minutes or
data typically less
between 15 and
30 minutes
Sample Little Substantial, but Good, but non- In theory, provides Can be problematic,
control representativeness listed greatest control sample
may be a question households can representativeness
be a problem maybe questionable
Quality of Better for sensitive or Positive side, interview In addition, In addition,
data embarrassing questions; can clear up any there is the unnatural testing
however, no interviewer ambiguities; negative chance of environment can
is present to clarify what side, may lead to cheating lead to bias
is being ask socially accepted
answers

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Marketing Research
CRITERIA DIRECT/COLD MAILING MAIL PANELS TELEPHONE PERSONAL MALL INTERCEPT
IN-HOME
Response In general, low; as low as 70%-80% 60%-80% Greater than 80% As high as 80%
rates 10%
Speed Several weeks; Several weeks with no Large studies can Faster than mail but Large studies can
completion time will follow-up mailings, be completed in typically slower than be completed in a
increase with follow-up longer with follow-up 3 to 4 weeks telephone surveys few days
mailings mailings
Cost Inexpensive; as low as Lowest Not as low Can be relatively Less expensive than
$2.50 per completed expensive, but in-home, but higher
interview considerable than telephone;
variability again, length and
incidence rate will
determine cost

Uses Executive, industrial, All areas of marketing Particularly Still prevalent in Pervasive-concept
medical and readership research, particularly effective in product testing and tests, name tests,
studies useful in low-incidence studies that other studies that package tests, copy
categories require national require visual cues tests
samples or product
prototypes
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 Competitive firm
Competitive factor Company A Company B Company C Company D

Product uniqueness
Relative product price
Price
Service
Availability/ convenience
Reputation/ image
Location
Advertising and promotional policies/
effectiveness
Product design
Capability of personnel
Raw material cost
Financial condition
Production capability
R&D position
Variety/ selection
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 Market Positioning
High Positioning is the act of
designing the product
X Dell
X EasyPC
offering and image to
Performance X HP occupy a distinctive place
Price X Apple Mac
in the target customer’s
Medium
X Gateway
mind.

A positioning map for

personal computers showing
Low
the position of a new
Low Medium High product, EasyPC.
Ease of Use
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Positioning
• The unique selling proposition is a statement of the key customer benefit of
a product that differentiates it from its competition.
• The positioning statement describes the customer, the need, the product,
the key benefit and the product differentiation.
• Positioning Statement
• For (target customer)
• who (statement of need or opportunity)
• that (statement of benefit)
• Differentiation
• Unlike (primary competitive alternative)
• our product (statement of primary differentiation)

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Example
Positioning Statement for Microsoft.NET
• For companies
• Whose employees and partners need up to date information when
they need it, Microsoft.NET is a new generation of software,
• That enables an unprecedented level of software integration through
the use of XML Web services.
Differentiation
• Unlike Java,
• Our product is infused into the Microsoft platform, providing the
ability to quickly and reliably build, host, deploy, and utilize connected
solutions with the protection of industry-standard security
technologies.
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The Four Elements Of The Marketing Mix
Product Price
Product Variety List Price
Quality Discounts
Design Credit Terms
Features Payment Period
Brand Name
Packaging
Warranties
Returns Policy
Promotion Place
Public Relations Channels
Advertising Locations
Sales Force Inventory
Direct Messages Fulfillment
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Pricing Strategies
• Factors affecting the pricing decision:
• Degree of competitive pressure
• Availability of sufficient supply
• Seasonal or cyclical changes in demand
• Distribution costs
• Product’s life-cycle stage
• Changes in production costs
• Prevailing economic conditions
• Customer services provided by the seller
• Amount of promotion
• Market’s buying power

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Pricing Strategies
• Psychological factors affecting the pricing decision:
• The quality of a product is interpreted by customers according to the level of the item’s
price.
• Customer groups shy away from purchasing a product when no printed price schedule is
available.
• Emphasis on the monthly cost of purchasing an expensive item results in greater sales
than an emphasis on total selling price.
• Buyers expect to pay even-numbered prices for prestigious items and odd-numbered
prices for commonly available goods.
• The greater the number of customer benefits the seller can convey about a product, the
less the price resistance.

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Pricing in the Social Media Age
• Freemium Model
• Basic services provided free while charging for premium.
• Affiliate Model
• Sellers rely on traffic from affiliated sites.
• Subscription Model
• Users pay a fee to access a product.
• Virtual Goods Model
• Users pay for virtual goods: upgrades, points, gifts.
• Advertising Model
• Advertisement is sold based on traffic on the website.

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Using classification of goods to select channel intermediaries
Consumer product perception Retailer

Convenience goods Supermarkets

Chemists Wholesaler
Vending machines
Discount stores
Agent
intermediary
Shopping goods Discount stores
Shopping center Wholesaler
(mall)
Strips

Specialty goods Specialty stores

Factory-owned
stores
Franchises

Unsought Door-to-door Personal sales

New products Personal selling
Mail order Direct
4. Operational plan
• How do new firms build a set of operational processes that
serve to create, make, and provide the product to the
customer?
• Identify location: Describe the advantages of your location
(zoning, tax laws, wage rates).
• List the production needs in terms of facilities (plant,
storage, office space) and equipment (machinery,
furnishings, supplies) => make a list
• Specific operational procedures
• Personnel needs and uses: Mention the availability of
labor in your location.
• Proximity to suppliers
• Provide estimates of operation costs—but be careful: Too
many entrepreneurs underestimate their costs.

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Example: A Business Process

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Operating process of Workelax Coffee

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Ví dụ : Một quy trình bán hàng

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Performance Measures
Quality: a measure of a
Reliability: a measure of
product that usually
how long a product
includes performance and
performs before it fails.
reliability.

Speed is a measure of lead

Flexibility is a measure of a
time, on-time delivery, and
firm’s ability to react to a
product development
customer’s needs quickly.
speed.

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Balanced Scorecard is a set of measurements unique to a
company that includes both financial and operational metrics.

57
5. Management Plan
• Organizational structure
• Management team and critical personnel
• Experience and technical capabilities of the personnel
• Ownership structure—sole proprietorship, partnership, LLC or corporation.
• Cover the added assistance (if any) of advisors, consultants, and directors.

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Organizational structure example

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Ownership structure
Business structure Ownership Liability Taxes
Self-employment tax
Sole proprietorship One person Unlimited personal liability
Personal tax
Self-employment tax
Unlimited personal liability
(except for limited
Partnerships Two or more people unless structured as a
partners)
limited partnership
Personal tax
Self-employment tax
Limited liability company Owners are not personally
One or more people Personal tax or corporate
(LLC) liable
tax
Owners are not personally
Corporation One or more people Corporate tax
liable

60
6. Financial plan
Start-up fundings
• Give actual estimated statements.
• Describe the needed sources for your Profit and loss
funds and the uses you intend for the
money. Cash flow
• Develop and present a budget.
Break-even analysis
• Create stages of financing for purposes of
allowing evaluation by investors at various Cost controls
points.
Budgeting plans

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Financial Plan
• How do entrepreneurs describe the financial
elements of their new venture?
• Entrepreneurs build a financial plan to determine
the economic potential for their venture. This
plan provides an estimate of the potential of the
venture.

62
7. Risk management plan
• Price cutting by competitors
Potential problems • Any potentially unfavorable industry-wide
trends
• Design or manufacturing costs in excess of
estimates
• Sales projections not achieved
Obstacles and risks • Product development schedule not met
• Difficulties or long lead times encountered in
the procurement of parts or raw materials
Alternative courses of • Greater than expected innovation and
development costs to stay competitive
action • Provide some alternative courses of action.

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8. Harvest strategy

• Liquidity event (IPO or sale)

• Continuity of business strategy
• Identify successor

64
9. Milestone Schedule
• Timing and objectives
Timetable for the activities to be
accomplished examples • Deadlines and milestones
• Incorporation of the venture • Relationship of events
• Completion of design and development and
prototypes
• Hiring of sales representatives, product display at
trade shows
• Signing up distributors and dealers
• Ordering production quantities of materials, receipt
of first orders
• First sales and first deliveries (dates of maximum
interest because they relate directly to the venture’s
credibility and need for capital)
• Payment of first accounts receivable (cash in)

65
10. Appendix – Bibliography
Additional documentation that is not appropriate
in the main parts of the plan

• Diagrams, blueprints, financial data,

• Resume of management team members
and
• Any bibliographical information that
supports the other segments of the
plan

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HOMEWORK

Develop a business plan for your group project

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Thank You.