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Section 2:
The Entrepreneurial Journey Begins
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Essentials of Entrepreneurship and Small
Business Management
Ninth Edition
Chapter 5
Crafting a Business Plan and
Building a Solid Strategic Plan
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objectives (1 of 2)
1. Explain the benefits of an
effective business plan.
2. Describe the elements of a
solid business plan.
3. Explain the “five Cs of credit”
and why they are important to
potential lenders and investors
reviewing business plans.
4. Understand the keys to making
an effective business plan
presentation.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Learning Objectives (2 of 2)
5. Understand the importance of strategic management to a
small business.
6. Explain why and how a small business must create a
competitive advantage in the market.
7. Develop a strategic plan for a business using the nine
steps in the strategic management process.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Benefits of Creating a Business Plan
Business Plan:
• A written summary of:
– An entrepreneur’s proposed business venture
– The operational and financial details
– The marketing opportunities and strategy
– The managers’ skills and abilities
• A business plan is the best insurance against launching a
business destined to fail or mismanaging a potentially
successful company.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Essential Functions of a Business Plan
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.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
A 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.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
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!
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Key Elements of a Business Plan (1 of 5)
• Title Page and Table of Contents
• Executive Summary
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Executive Summary
• The executive summary is a written version of “the elevator
pitch”
– A good elevator pitch provides:
 Context
 Benefit
 Target customers
 Point of differentiation
 Clincher
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Key Elements of a Business Plan (2 of 5)
• Title Page and Table of Contents
• Executive Summary
• Mission and Vision Statement
• Description of a Firm’s Product or Service
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Product or Service Description
• Describe the benefits customers get from the product or
service
• A feature is a descriptive fact about a product or service.
• A benefit is what the customer gains from the product or
service feature.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Key Elements of a Business Plan (3 of 5)
• Title Page and Table of Contents
• Executive Summary
• Mission and Vision Statement
• Description of a Firm’s Product or Service
• Business and Industry Profile
• Competitor Analysis
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Competitor Analysis (1 of 2)
• Who are the company’s key competitors?
• What are there strengths and weaknesses?
• What are their strategies?
• How successful are they?
• What distinguishes the entrepreneur’s product or service
from others already in the market, and how will these
differences produce a competitive edge?
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Key Elements of a Business Plan (4 of 5)
• Title Page and Table of Contents
• Executive Summary
• Mission and Vision Statement
• Description of a Firm’s Product or Service
• Business and Industry Profile
• Competitor Analysis
• Market Entry Strategy
• Marketing Strategy
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Marketing Strategy (1 of 2)
• Show customer interest
– Prove that target customers actually need or want the
product or service.
• Document market claims
– Support market size and growth rates with facts.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Marketing Strategy (2 of 2)
• Address:
– Target market
– Advertising and promotion
– Market size and trends
– Location
– Pricing
– Distribution
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Key Elements of a Business Plan (5 of 5)
• Title Page and Table of Contents
• Executive Summary
• Mission and Vision Statement
• Description of a Firm’s Product or Service
• Business and Industry Profile
• Competitor Analysis
• Marketing Strategy
• Entrepreneurs’ and Managers’ Resumes
• Plan of Operation
• Pro Forma (Projected) Financial Statements
• The Loan or Investment Proposal
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Visualizing Risks and Rewards
Figure 5.1 Visualizing a Venture’s Risks and Rewards
Source: Based on William A. Sahlman, “How to Write a Great Business Plan,” Harvard Business Review,
July/August 1997, pp. 98–108.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Tips for a Good Business Plan
• First impressions count! Use an attractive cover.
• Checks for errors.
• Make it visually appealing.
• Include a table of contents with page numbers.
• Make it interesting!
• Show that it will make money.
• Use spreadsheets for realistic financial forecasts.
• Include cash flow projections.
• Keep the plan “crisp.”
• Tell the truth.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
What Lenders and Investors Look for in a
Business Plan
• The “5 Cs” of Credit
– Capital
– Capacity
– Collateral
– Character
– Conditions
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
The Pitch: Presenting the Plan
• The time allotted for presenting is usually less than 20
minutes, so it’s important to rehearse and be prepared.
• A basic presentation should cover:
– Your company and its products and services.
– The problem to be solved.
– A description of your solution to the problem.
– Your company’s business model.
– Your company’s competitive edge.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Tips for Making the Pitch (1 of 3)
• Prepare
• Practice your delivery and then practice some more.
• Demonstrate enthusiasm about the business but don’t be
overly emotional.
• Focus on communicating the dynamic opportunity your
idea offers and how you plan to capitalize on it.
• Hook investors quickly with an up-front explanation of the
new venture, its opportunities, and the anticipated benefits
to them.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Tips for Making the Pitch (2 of 3)
• Use visual aids.
• Follow the 10/20/30 rule for PowerPoint presentations.
• Explain how your company’s products or services solve
some problems and emphasize the factors that make your
company unique.
• Offer proof.
• Hit the highlights.
• Keep the presentation “crisp.”
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Tips for Making the Pitch (3 of 3)
• Avoid the use of technical terms that will be above most of
the audience.
• Remember to tell lenders and investors how they will
benefit.
• Be prepared for questions.
• Anticipate questions and prepare for them in advance.
• Focus your answers on what’s important to lenders and
investors.
• Follow up with every lender and investor to whom you
make a presentation.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Building a Strategic Plan
• Entrepreneurs must be able to adapt to changes in the
marketplace.
• Strategic planning is a tool that can help: it involves
developing a game plan to guide the company as it works
to accomplish its vision, mission, goals, and objectives and
to keep it from straying off course.
– It’s crucial to building a successful business.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
A Major Shift . . .
• The biggest change facing entrepreneurs today is the shift
from financial capital to intellectual capital
– Human
– Structural
– Customer
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Building a Competitive Advantage
• Developing a strategic plan is crucial to creating a
sustainable competitive advantage: the aggregation of
factors that sets a company apart from its competitors and
gives it a unique position in the market that is superior to
its competitors.
– Example: Whole Foods
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Define Competitive Advantage
• Consider five aspects of a small company:
– Products they sell
– Service they provide
– Pricing they offer
– Way they sell
– Values to which they are committed
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
The Key: Core Competencies
• Unique set of capabilities a company develops in key
areas, such as superior quality, customer service,
innovation, team-building, flexibility, responsiveness, and
others that allow it to vault past competitors.
– They are what a company does best.
– Best to rely on a natural advantage (often linked to a
company’s “smallness”).
 Example: Noodles & Company
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Building a Sustainable Competitive
Advantage
Figure 5.2 Building a Sustainable Competitive Advantage
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Strategic Management Process (1 of 2)
Step 1: Develop a vision and translate it into a mission
statement
Step 2: Assess strengths and weaknesses
Step 3: Scan environment for opportunities and threats
Step 4: Identify key success factors
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Strategic Management Process (2 of 2)
Step 5: Analyze competition
Step 6: Create goals & objectives
Step 7: Formulate strategies
Step 8: Translate plans into actions
Step 9: Establish accurate controls
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Step 1: Develop a Vision and Create a
Mission Statement (1 of 2)
• Vision: the result of an entrepreneur’s dream of something
that does not exist yet and the ability to paint a compelling
picture of that dream for everyone to see.
• A clearly defined vision:
– Provides direction
– Determines decisions
– Inspires people
– Allows for perseverance in the face of adversity
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Step 1: Develop a Vision and Create a
Mission Statement (2 of 2)
• Mission statement: addresses the question: “what
business are we in?”
– Clarifies “why we are here” and “where we are going.”
– Serves as a “strategic compass.”
– Examples: Bongo World, Nisolo Shoes, Badger Mining,
Putney, Inc., Clymb
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Elements of a Mission Statement
• Four key questions:
– What are we in business to accomplish?
– Who are we in to business to serve?
– How are we going to accomplish that purpose?
– What principles and beliefs form the foundation of the
way we do business?
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Step 2: Assess Company Strengths and
Weaknesses
Use a balance sheet to identify:
• Strengths
– Positive internal factors a company can draw on to
accomplish its mission, goals, and objectives.
• Weaknesses
– Negative internal factors that inhibit a company’s ability
to accomplish its mission, goals, and objectives.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Step 3: Scan for Opportunities and Threats
Identify and manage:
• Opportunities
– Positive external factors the company can exploit to
accomplish its mission, goals, and objectives.
• Threats
– Negative external factors that inhibit the firm's ability to
accomplish its mission, goals, and objectives.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Identifying and Managing Threats
Table 5.4 Identifying and Managing Threats
Source
Specific
Threat
Severity
(1 = Low, 10 = High)
Probability of
Occurrence (0 to 1)
Threat Score
(Severity ×
Probability, Max = 10)
1. Channels of distribution Blank Blank Blank Blank
2. Competition Blank Blank Blank Blank
3. Demographic changes Blank Blank Blank Blank
4. Globalization Blank Blank Blank Blank
5. Innovation Blank Blank Blank Blank
6. Waning customer or supplier
loyalty
Blank Blank Blank Blank
7. Offshoring or outsourcing Blank Blank Blank Blank
8. Stage in product life cycle Blank Blank Blank Blank
9. Government regulation Blank Blank Blank Blank
10. Influence of special interest
groups
Blank Blank Blank Blank
11. Influence of stakeholders Blank Blank Blank Blank
12. Changes in technology Blank Blank Blank Blank
Source: Based on Edward Teach, “Apocalypse Soon,” CFO, September 2005, pp. 31–32.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Step 4: Identify Key Success Factors
• Key Success Factors (KSFs): factors that determine the
relative success of market participants.
• The keys to unlocking the secrets of competing
successfully in a particular market segment.
• Example: Five Guys Burgers and Fries
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Identifying Key Success Factors
List the specific skills, characteristics, and core competences
your business must possess if it is to be successful in its
market segment.
Table 5.5 Identifying Key Success Factors
Key Success Factor How Your Company Rates . . .
1 Low 1 2 3 4 5 6 7 8 9 10 High
2 Low 1 2 3 4 5 6 7 8 9 10 High
3 Low 1 2 3 4 5 6 7 8 9 10 High
4 Low 1 2 3 4 5 6 7 8 9 10 High
5 Low 1 2 3 4 5 6 7 8 9 10 High
Conclusions: Blank
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Step 5: Analyze the Competition (1 of 2)
• Small business owners believe they operate in a highly
competitive environment and the level of competition is
increasing.
• Yet, 97% of all U.S. businesses do not systematically track
the progress of their key competitors.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Step 5: Analyze the Competition (2 of 2)
• Goal of competitive intelligence:
– Conduct continuous rather than periodic analysis of
competition.
– Avoid surprises from existing competitors’ use of new
strategies and tactics.
– Identify potential new competitors.
– Improve reaction time to competitors’ actions.
– Anticipate rivals’ next strategic moves.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Competitor Analysis (2 of 2)
• Direct Competitors
– Offer the same products and services
– Customers often compare prices, features, and deals
among these competitors when they shop
• Significant Competitors
– Offer some of the same or similar products or services
– Product or service lines overlap but not completely
• Indirect Competitors
– Offer same or similar products in only a small number
of areas
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Collecting Competitive Intelligence (1 of 3)
• Monitor industry and trade publications.
• Talk to customers and suppliers.
• Debrief employees, especially sales representatives and
purchasing agents.
• Attend trade shows and conferences and study
competitors’ sales literature.
• Watch for competitor’s employment ads.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Collecting Competitive Intelligence (2 of 3)
• Watch for competitor’s employment ads.
• Conduct patent searches for patents competitors have
filed.
• Get EPA reports for the factories of competing
manufacturers.
• Monitor direct competitors via social media.
• Learn about the kinds of equipment and raw materials
competitors are importing from the Journal of Commerce
Port Import Export Reporting Service.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Collecting Competitive Intelligence (3 of 3)
• Buy competitors’ products and “benchmark” them.
• Get competitors’ credit reports.
• Check out the reports publicly-held competitors must file
with the SEC.
• Investigate UCC reports.
• Check out the resources in your local library.
• Use the Internet to learn more about competitors.
• Visit competing businesses to observe their operations.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Competitive Profile Matrix
Table 5.6 Sample Competitive Profile Matrix
blank blank
Your
Business Blank
Competitor
1 blank
Competitor
2 blank
Key Success
Factors (from
Step 4) Weight Rating
Weighted
Score Rating
Weighted
Score Rating
Weighted
Score
Quality 0.25 4 1.00 2 0.50 2 0.50
Customer retention 0.20 3 0.60 3 0.60 3 0.60
Location 0.15 4 0.60 3 0.45 4 0.60
Perception of value 0.20 4 0.80 2 0.40 3 0.60
Cost control 0.20 3 0.60 1 0.20 4 0.80
Total 1.00 Blank 3.60 Blank 2.15 Blank 3.10
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Why Set Goals and Objectives?
• “Would you tell me, please, which way I ought to go
from here?” said Alice.
• “That depends a good deal on where you want to get
to,” said the Cheshire cat.
• “I don’t much care where.…” said Alice.
• “Then it doesn’t matter which way you go,” said the
cat.
From Lewis Carroll’s Alice in Wonderland
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Step 6: Create Company Goals and
Objectives
• Goals: Broad, long-range attributes to be accomplished.
– BHAGs
– Inspire and focus the company
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
What Makes an Effective BHAG?
Figure 5.3 What Makes an Effective BHAG?
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Step 7: Formulate Strategies
• Strategy: a road map of the actions an entrepreneur
draws up to achieve a company’s mission, goals, and
objectives.
• It is the company’s game plan for gaining a competitive
advantage.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Porter’s Three Strategies
• Strategy?
– Cost Leadership
– Differentiation
– Focus
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Three Strategic Options
Figure 5.4 Three Strategic Options
Source: Based on Michael E. Porter, Competitive Strategy (New York: Free Press, 1980), Chapter 2.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Cost Leadership (1 of 2)
• Goal: Be the low-cost producer in the industry or market
segment.
• Low-cost leaders have advantages:
– Reaching buyers who buy on the basis of price.
– The power to set the industry’s price floor.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Cost Leadership (2 of 2)
• Cost Leadership works well when:
– Buyers are sensitive to price changes.
– Competing firms sell the same commodity products.
– A company can benefit from economies of scale.
– Examples: Dollar General and Dollar Tree
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Differentiation
• Goal: Build customer loyalty by positioning its goods or
services in a unique or different fashion.
– Be special at something customers value.
• Key: Build basis for differentiation on a distinctive
competence, something that the small company is
uniquely good at doing in comparison to its competitors.
– Example: RentTheChicken.com
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Focus
• Goal: Select one or more customer segments in a market,
identify customers’ special needs, wants, or interests, and
then target them with a product or service designed
specifically for them.
– Strategy builds on the differences among market
segments.
– Rather than try to serve the total market, the company
focuses on serving a niche (or several niches) within
that market.
– Example: I Do Now I Don’t
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Long Tail Markets
Figure 5.5 Long Tail Markets
Source: Based on Chris Anderson, The Long Tail: Why the Future of Business Is Selling Less of More
(New York: Hyperion Books, 2008).
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Step 8: Translate Strategies into Action
Plans
• Make plans workable by defining:
– Purpose
– Scope
– Contribution
– Resource requirements
– Timing
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Step 9: Establish Accurate Controls
• Plan establishes the standards against which actual
performance is measured.
• Entrepreneur must:
– Identify and track key performance indicators.
– Take corrective action.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Dashboards (1 of 2)
• A set of measurements unique to a company that includes
both financial and operational measures.
• Gives managers a quick, yet comprehensive, picture of a
company’s overall performance.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Sample Dashboard
Figure 5.6 Sample Dashboard for a Jewelry Store
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Dashboards (2 of 2)
Five Perspectives:
1. Customer: How do customers see us?
2. Internal Business: At what must we excel?
3. Innovation and Learning: Can we continue to improve
and create value?
4. Financial: How do we look to shareholders?
5. Corporate Citizenship: Do we meet our responsibility to
society as a whole, the environment, the community, and
other external stakeholders?
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Conclusion
• The strategic planning process:
– Begins with the nine steps.
– Becomes more efficient each time.
– Teaches entrepreneurial discipline for a higher chance
of survival.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Copyright

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Chapter 05.pptx

  • 1. Section 2: The Entrepreneurial Journey Begins Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
  • 2. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Essentials of Entrepreneurship and Small Business Management Ninth Edition Chapter 5 Crafting a Business Plan and Building a Solid Strategic Plan
  • 3. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objectives (1 of 2) 1. Explain the benefits of an effective business plan. 2. Describe the elements of a solid business plan. 3. Explain the “five Cs of credit” and why they are important to potential lenders and investors reviewing business plans. 4. Understand the keys to making an effective business plan presentation.
  • 4. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objectives (2 of 2) 5. Understand the importance of strategic management to a small business. 6. Explain why and how a small business must create a competitive advantage in the market. 7. Develop a strategic plan for a business using the nine steps in the strategic management process.
  • 5. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Benefits of Creating a Business Plan Business Plan: • A written summary of: – An entrepreneur’s proposed business venture – The operational and financial details – The marketing opportunities and strategy – The managers’ skills and abilities • A business plan is the best insurance against launching a business destined to fail or mismanaging a potentially successful company.
  • 6. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Essential Functions of a Business Plan 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.
  • 7. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. A 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.
  • 8. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 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!
  • 9. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Key Elements of a Business Plan (1 of 5) • Title Page and Table of Contents • Executive Summary
  • 10. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Executive Summary • The executive summary is a written version of “the elevator pitch” – A good elevator pitch provides:  Context  Benefit  Target customers  Point of differentiation  Clincher
  • 11. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Key Elements of a Business Plan (2 of 5) • Title Page and Table of Contents • Executive Summary • Mission and Vision Statement • Description of a Firm’s Product or Service
  • 12. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Product or Service Description • Describe the benefits customers get from the product or service • A feature is a descriptive fact about a product or service. • A benefit is what the customer gains from the product or service feature.
  • 13. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Key Elements of a Business Plan (3 of 5) • Title Page and Table of Contents • Executive Summary • Mission and Vision Statement • Description of a Firm’s Product or Service • Business and Industry Profile • Competitor Analysis
  • 14. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Competitor Analysis (1 of 2) • Who are the company’s key competitors? • What are there strengths and weaknesses? • What are their strategies? • How successful are they? • What distinguishes the entrepreneur’s product or service from others already in the market, and how will these differences produce a competitive edge?
  • 15. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Key Elements of a Business Plan (4 of 5) • Title Page and Table of Contents • Executive Summary • Mission and Vision Statement • Description of a Firm’s Product or Service • Business and Industry Profile • Competitor Analysis • Market Entry Strategy • Marketing Strategy
  • 16. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Marketing Strategy (1 of 2) • Show customer interest – Prove that target customers actually need or want the product or service. • Document market claims – Support market size and growth rates with facts.
  • 17. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Marketing Strategy (2 of 2) • Address: – Target market – Advertising and promotion – Market size and trends – Location – Pricing – Distribution
  • 18. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Key Elements of a Business Plan (5 of 5) • Title Page and Table of Contents • Executive Summary • Mission and Vision Statement • Description of a Firm’s Product or Service • Business and Industry Profile • Competitor Analysis • Marketing Strategy • Entrepreneurs’ and Managers’ Resumes • Plan of Operation • Pro Forma (Projected) Financial Statements • The Loan or Investment Proposal
  • 19. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Visualizing Risks and Rewards Figure 5.1 Visualizing a Venture’s Risks and Rewards Source: Based on William A. Sahlman, “How to Write a Great Business Plan,” Harvard Business Review, July/August 1997, pp. 98–108.
  • 20. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Tips for a Good Business Plan • First impressions count! Use an attractive cover. • Checks for errors. • Make it visually appealing. • Include a table of contents with page numbers. • Make it interesting! • Show that it will make money. • Use spreadsheets for realistic financial forecasts. • Include cash flow projections. • Keep the plan “crisp.” • Tell the truth.
  • 21. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. What Lenders and Investors Look for in a Business Plan • The “5 Cs” of Credit – Capital – Capacity – Collateral – Character – Conditions
  • 22. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. The Pitch: Presenting the Plan • The time allotted for presenting is usually less than 20 minutes, so it’s important to rehearse and be prepared. • A basic presentation should cover: – Your company and its products and services. – The problem to be solved. – A description of your solution to the problem. – Your company’s business model. – Your company’s competitive edge.
  • 23. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Tips for Making the Pitch (1 of 3) • Prepare • Practice your delivery and then practice some more. • Demonstrate enthusiasm about the business but don’t be overly emotional. • Focus on communicating the dynamic opportunity your idea offers and how you plan to capitalize on it. • Hook investors quickly with an up-front explanation of the new venture, its opportunities, and the anticipated benefits to them.
  • 24. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Tips for Making the Pitch (2 of 3) • Use visual aids. • Follow the 10/20/30 rule for PowerPoint presentations. • Explain how your company’s products or services solve some problems and emphasize the factors that make your company unique. • Offer proof. • Hit the highlights. • Keep the presentation “crisp.”
  • 25. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Tips for Making the Pitch (3 of 3) • Avoid the use of technical terms that will be above most of the audience. • Remember to tell lenders and investors how they will benefit. • Be prepared for questions. • Anticipate questions and prepare for them in advance. • Focus your answers on what’s important to lenders and investors. • Follow up with every lender and investor to whom you make a presentation.
  • 26. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Building a Strategic Plan • Entrepreneurs must be able to adapt to changes in the marketplace. • Strategic planning is a tool that can help: it involves developing a game plan to guide the company as it works to accomplish its vision, mission, goals, and objectives and to keep it from straying off course. – It’s crucial to building a successful business.
  • 27. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. A Major Shift . . . • The biggest change facing entrepreneurs today is the shift from financial capital to intellectual capital – Human – Structural – Customer
  • 28. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Building a Competitive Advantage • Developing a strategic plan is crucial to creating a sustainable competitive advantage: the aggregation of factors that sets a company apart from its competitors and gives it a unique position in the market that is superior to its competitors. – Example: Whole Foods
  • 29. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Define Competitive Advantage • Consider five aspects of a small company: – Products they sell – Service they provide – Pricing they offer – Way they sell – Values to which they are committed
  • 30. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. The Key: Core Competencies • Unique set of capabilities a company develops in key areas, such as superior quality, customer service, innovation, team-building, flexibility, responsiveness, and others that allow it to vault past competitors. – They are what a company does best. – Best to rely on a natural advantage (often linked to a company’s “smallness”).  Example: Noodles & Company
  • 31. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Building a Sustainable Competitive Advantage Figure 5.2 Building a Sustainable Competitive Advantage
  • 32. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Strategic Management Process (1 of 2) Step 1: Develop a vision and translate it into a mission statement Step 2: Assess strengths and weaknesses Step 3: Scan environment for opportunities and threats Step 4: Identify key success factors
  • 33. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Strategic Management Process (2 of 2) Step 5: Analyze competition Step 6: Create goals & objectives Step 7: Formulate strategies Step 8: Translate plans into actions Step 9: Establish accurate controls
  • 34. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Step 1: Develop a Vision and Create a Mission Statement (1 of 2) • Vision: the result of an entrepreneur’s dream of something that does not exist yet and the ability to paint a compelling picture of that dream for everyone to see. • A clearly defined vision: – Provides direction – Determines decisions – Inspires people – Allows for perseverance in the face of adversity
  • 35. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Step 1: Develop a Vision and Create a Mission Statement (2 of 2) • Mission statement: addresses the question: “what business are we in?” – Clarifies “why we are here” and “where we are going.” – Serves as a “strategic compass.” – Examples: Bongo World, Nisolo Shoes, Badger Mining, Putney, Inc., Clymb
  • 36. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Elements of a Mission Statement • Four key questions: – What are we in business to accomplish? – Who are we in to business to serve? – How are we going to accomplish that purpose? – What principles and beliefs form the foundation of the way we do business?
  • 37. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Step 2: Assess Company Strengths and Weaknesses Use a balance sheet to identify: • Strengths – Positive internal factors a company can draw on to accomplish its mission, goals, and objectives. • Weaknesses – Negative internal factors that inhibit a company’s ability to accomplish its mission, goals, and objectives.
  • 38. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Step 3: Scan for Opportunities and Threats Identify and manage: • Opportunities – Positive external factors the company can exploit to accomplish its mission, goals, and objectives. • Threats – Negative external factors that inhibit the firm's ability to accomplish its mission, goals, and objectives.
  • 39. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Identifying and Managing Threats Table 5.4 Identifying and Managing Threats Source Specific Threat Severity (1 = Low, 10 = High) Probability of Occurrence (0 to 1) Threat Score (Severity × Probability, Max = 10) 1. Channels of distribution Blank Blank Blank Blank 2. Competition Blank Blank Blank Blank 3. Demographic changes Blank Blank Blank Blank 4. Globalization Blank Blank Blank Blank 5. Innovation Blank Blank Blank Blank 6. Waning customer or supplier loyalty Blank Blank Blank Blank 7. Offshoring or outsourcing Blank Blank Blank Blank 8. Stage in product life cycle Blank Blank Blank Blank 9. Government regulation Blank Blank Blank Blank 10. Influence of special interest groups Blank Blank Blank Blank 11. Influence of stakeholders Blank Blank Blank Blank 12. Changes in technology Blank Blank Blank Blank Source: Based on Edward Teach, “Apocalypse Soon,” CFO, September 2005, pp. 31–32.
  • 40. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Step 4: Identify Key Success Factors • Key Success Factors (KSFs): factors that determine the relative success of market participants. • The keys to unlocking the secrets of competing successfully in a particular market segment. • Example: Five Guys Burgers and Fries
  • 41. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Identifying Key Success Factors List the specific skills, characteristics, and core competences your business must possess if it is to be successful in its market segment. Table 5.5 Identifying Key Success Factors Key Success Factor How Your Company Rates . . . 1 Low 1 2 3 4 5 6 7 8 9 10 High 2 Low 1 2 3 4 5 6 7 8 9 10 High 3 Low 1 2 3 4 5 6 7 8 9 10 High 4 Low 1 2 3 4 5 6 7 8 9 10 High 5 Low 1 2 3 4 5 6 7 8 9 10 High Conclusions: Blank
  • 42. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Step 5: Analyze the Competition (1 of 2) • Small business owners believe they operate in a highly competitive environment and the level of competition is increasing. • Yet, 97% of all U.S. businesses do not systematically track the progress of their key competitors.
  • 43. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Step 5: Analyze the Competition (2 of 2) • Goal of competitive intelligence: – Conduct continuous rather than periodic analysis of competition. – Avoid surprises from existing competitors’ use of new strategies and tactics. – Identify potential new competitors. – Improve reaction time to competitors’ actions. – Anticipate rivals’ next strategic moves.
  • 44. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Competitor Analysis (2 of 2) • Direct Competitors – Offer the same products and services – Customers often compare prices, features, and deals among these competitors when they shop • Significant Competitors – Offer some of the same or similar products or services – Product or service lines overlap but not completely • Indirect Competitors – Offer same or similar products in only a small number of areas
  • 45. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Collecting Competitive Intelligence (1 of 3) • Monitor industry and trade publications. • Talk to customers and suppliers. • Debrief employees, especially sales representatives and purchasing agents. • Attend trade shows and conferences and study competitors’ sales literature. • Watch for competitor’s employment ads.
  • 46. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Collecting Competitive Intelligence (2 of 3) • Watch for competitor’s employment ads. • Conduct patent searches for patents competitors have filed. • Get EPA reports for the factories of competing manufacturers. • Monitor direct competitors via social media. • Learn about the kinds of equipment and raw materials competitors are importing from the Journal of Commerce Port Import Export Reporting Service.
  • 47. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Collecting Competitive Intelligence (3 of 3) • Buy competitors’ products and “benchmark” them. • Get competitors’ credit reports. • Check out the reports publicly-held competitors must file with the SEC. • Investigate UCC reports. • Check out the resources in your local library. • Use the Internet to learn more about competitors. • Visit competing businesses to observe their operations.
  • 48. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Competitive Profile Matrix Table 5.6 Sample Competitive Profile Matrix blank blank Your Business Blank Competitor 1 blank Competitor 2 blank Key Success Factors (from Step 4) Weight Rating Weighted Score Rating Weighted Score Rating Weighted Score Quality 0.25 4 1.00 2 0.50 2 0.50 Customer retention 0.20 3 0.60 3 0.60 3 0.60 Location 0.15 4 0.60 3 0.45 4 0.60 Perception of value 0.20 4 0.80 2 0.40 3 0.60 Cost control 0.20 3 0.60 1 0.20 4 0.80 Total 1.00 Blank 3.60 Blank 2.15 Blank 3.10
  • 49. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Why Set Goals and Objectives? • “Would you tell me, please, which way I ought to go from here?” said Alice. • “That depends a good deal on where you want to get to,” said the Cheshire cat. • “I don’t much care where.…” said Alice. • “Then it doesn’t matter which way you go,” said the cat. From Lewis Carroll’s Alice in Wonderland
  • 50. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Step 6: Create Company Goals and Objectives • Goals: Broad, long-range attributes to be accomplished. – BHAGs – Inspire and focus the company
  • 51. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. What Makes an Effective BHAG? Figure 5.3 What Makes an Effective BHAG?
  • 52. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Step 7: Formulate Strategies • Strategy: a road map of the actions an entrepreneur draws up to achieve a company’s mission, goals, and objectives. • It is the company’s game plan for gaining a competitive advantage.
  • 53. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Porter’s Three Strategies • Strategy? – Cost Leadership – Differentiation – Focus
  • 54. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Three Strategic Options Figure 5.4 Three Strategic Options Source: Based on Michael E. Porter, Competitive Strategy (New York: Free Press, 1980), Chapter 2.
  • 55. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Cost Leadership (1 of 2) • Goal: Be the low-cost producer in the industry or market segment. • Low-cost leaders have advantages: – Reaching buyers who buy on the basis of price. – The power to set the industry’s price floor.
  • 56. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Cost Leadership (2 of 2) • Cost Leadership works well when: – Buyers are sensitive to price changes. – Competing firms sell the same commodity products. – A company can benefit from economies of scale. – Examples: Dollar General and Dollar Tree
  • 57. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Differentiation • Goal: Build customer loyalty by positioning its goods or services in a unique or different fashion. – Be special at something customers value. • Key: Build basis for differentiation on a distinctive competence, something that the small company is uniquely good at doing in comparison to its competitors. – Example: RentTheChicken.com
  • 58. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Focus • Goal: Select one or more customer segments in a market, identify customers’ special needs, wants, or interests, and then target them with a product or service designed specifically for them. – Strategy builds on the differences among market segments. – Rather than try to serve the total market, the company focuses on serving a niche (or several niches) within that market. – Example: I Do Now I Don’t
  • 59. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Long Tail Markets Figure 5.5 Long Tail Markets Source: Based on Chris Anderson, The Long Tail: Why the Future of Business Is Selling Less of More (New York: Hyperion Books, 2008).
  • 60. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Step 8: Translate Strategies into Action Plans • Make plans workable by defining: – Purpose – Scope – Contribution – Resource requirements – Timing
  • 61. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Step 9: Establish Accurate Controls • Plan establishes the standards against which actual performance is measured. • Entrepreneur must: – Identify and track key performance indicators. – Take corrective action.
  • 62. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Dashboards (1 of 2) • A set of measurements unique to a company that includes both financial and operational measures. • Gives managers a quick, yet comprehensive, picture of a company’s overall performance.
  • 63. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Sample Dashboard Figure 5.6 Sample Dashboard for a Jewelry Store
  • 64. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Dashboards (2 of 2) Five Perspectives: 1. Customer: How do customers see us? 2. Internal Business: At what must we excel? 3. Innovation and Learning: Can we continue to improve and create value? 4. Financial: How do we look to shareholders? 5. Corporate Citizenship: Do we meet our responsibility to society as a whole, the environment, the community, and other external stakeholders?
  • 65. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Conclusion • The strategic planning process: – Begins with the nine steps. – Becomes more efficient each time. – Teaches entrepreneurial discipline for a higher chance of survival.
  • 66. Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Copyright

Hinweis der Redaktion

  1. If this PowerPoint presentation contains mathematical equations, you may need to check that your computer has the following installed: 1) MathType Plugin 2) Math Player (free versions available) 3) NVDA Reader (free versions available)
  2. In this chapter, you will: 1. Explain the benefits of an effective business plan. 2. Describe the elements of a solid business plan. 3. Explain the “five Cs of credit” and why they are important to potential lenders and investors reviewing business plans. 4. Understand the keys to making an effective business plan presentation.
  3. In addition, you will: 5. Understand the importance of strategic management to a small business. 6. Explain why and how a small business must create a competitive advantage in the market. 7. Develop a strategic plan for a business using the nine steps in the strategic management process.
  4. For decades, research has proved that companies that engage in business planning outperform those that do not. Most potential investors and lenders insist on a business plan as an essential step when considering funding an entrepreneurial venture. A business plan describes the direction the company is taking, what its goals are, where it wants to be, and how it intends to get there. It captures a full picture of the business model and all of the planning and preparation an entrepreneur undertakes when starting a business. The plan is written proof that an entrepreneur has performed the necessary research, has studied the business opportunity adequately, and is prepared to capitalize on it with a sound business model.
  5. A business plan serves two essential functions. First, it provides a battery of tools – a mission statement, goals, objectives, budgets, financial forecasts, marketing plans, and entry strategies – to help entrepreneurs subject their ideas to one last test of reality before launching a business and serve as benchmarks to evaluate the progress of the business as it grows. The second function of a business plan is to attract lenders and investors.
  6. To get external financing, an entrepreneur’s plan must pass three tests with potential lenders and investors: (1) the reality test, (2) the competitive test, and (3) the value test.
  7. Building a business plan is one controllable factor that can reduce the risk and uncertainty of launching a company.
  8. A business plan should contain a title page with the company’s name, logo, and address as well as the names and contact information of the company founders. To summarize the presentation to each potential financial institution or investors, the entrepreneur should write an executive summary. It should be concise – a maximum of one page – and should summarize all of the relevant points of the proposed deal.
  9. Like a good movie trailer, an executive summary is designed to capture readers’ attention and draw them into the plan. If it misses, the chances of the remainder of the plan being read are minimal.
  10. A mission statement expresses an entrepreneur’s vision for what his or her company is and what it is to become. An entrepreneur should describe the company’s overall product line, giving an overview of how customers will use its goods or services. Drawings, diagrams, and illustrations may be required if the product is highly technical.
  11. The emphasis of this section should be on defining the benefits customers get by purchasing the company’s products or services rather than on just a “nuts and bolts” description of the features of those products or services.
  12. If one goal of creating a plan is to raise funding, the entrepreneur should include a section that acquaints lenders and investors with the industry in which the company competes. This section should provide readers with an overview of the industry or market segment in which the new venture will operate. An entrepreneur should describe the new venture’s competition and the ways in which its business strategy will position it effectively against key competitors.
  13. The plan should include an analysis of each significant competitor and how well the competing business is meeting the important criteria that target customers use to make their purchase decisions among the various companies.
  14. The market entry section of a business plan addresses the question of how to attract customers. By laying out a market entry strategy, an entrepreneur explains how he or she plans to enter the market and gain a competitive edge and how his or her value proposition sets the business apart from the competition. Proving that a profitable market exists involves two steps: showing customer interest and documenting market claims.
  15. An important element of any business plan is showing how a company’s product or service provides a customer benefit or solves a customer problem. Entrepreneurs must be able to prove that their target customers actually need or want their goods or services and are willing to pay for them. Entrepreneurs must support claims of market size and growth rates with facts, and that requires market research. Quantitative market data are important because it forms the basis for all of the company’s financial projections in the business plan.
  16. An effective market analysis should address the following items in detail, based on the framework developed in the business model. Target market Advertising and promotion Market size and trends Location Pricing Distribution
  17. A plan should include the résumés of business officers, key directors, and any person with at least 20% ownership in the company. This is the section of the plan in which entrepreneurs have the chance to sell the qualifications and the experience of their management team. To complete the description of the business, an entrepreneur should construct an organization chart that identifies the business’s key positions and the people who occupy them. One of the most important sections of a business plan is an outline of the proposed company’s financial statements – the “dollars and cents” of the proposed venture. An entrepreneur should carefully prepare projected (pro forma) financial statements for the operation for the next year using past operating data (if available), published statistics, and research to derive forecasts of the income statement, balance sheet, cash forecast (always!), and a schedule of planned capital expenditures. The loan or investment proposal section of a business plan should state the purpose of the financing, the amount requested, and the plans for repayment or, in the case of investors, an attractive exit strategy.
  18. Figure 5.1 explains how two simple diagrams communicate effectively to investors both the risks and the rewards of a business venture.
  19. A plan is usually the tool an entrepreneur uses to make a first impression on potential lenders and investors. To make sure that impression is a favorable one, an entrepreneur should keep in mind these tips.
  20. To increase their chances of success when using their business plans to attract capital, entrepreneurs must be aware of the criteria lenders use to evaluate the creditworthiness of businesses seeking financing. Lenders and investors refer to these criteria as the five Cs of credit: capital, capacity, collateral, character, and conditions.
  21. No matter how good a written business plan is, entrepreneurs who stumble through the presentation will lose the deal. Entrepreneurs who are successful at raising the capital their companies need to grow have solid business plans and make convincing presentations of them.
  22. Entrepreneurs should follow these tips when making a business plan presentation to potential lenders and investors.
  23. The strategic plan gives everyone targets to shoot for, and it provides a yardstick for measuring actual performance against those targets, especially in the crucial and chaotic start-up phase of the business.
  24. Today, a company’s intellectual capital is likely to be the source of its competitive advantage in the marketplace.
  25. Companies that fail to define their competitive advantage fall into “me-too” strategies that never set them apart from their competitors and do not allow them to become market leaders or to achieve above-average profits.
  26. Entrepreneurs should examine these five aspects of their businesses to define their companies’ competitive advantages.
  27. In the long run, a company gains a sustainable competitive advantage through its ability to develop a set of core competencies that enable it to serve its selected target customers better than its rivals.
  28. The key to success is building the company’s strategy on its core competencies and concentrating on providing value for target customers.
  29. Strategic management is a continuous process that consists of nine steps.
  30. Highly successful entrepreneurs communicate their vision and their enthusiasm about that vision to those around them.
  31. Establishing the purpose of the business in writing gives a company a sense of direction.
  32. A sound mission statement need not be lengthy to be effective. In fact, shorter usually is better.
  33. Building a successful competitive strategy requires a business to magnify its strengths and overcome or compensate for its weaknesses.
  34. Once entrepreneurs have taken an internal inventory of company strengths and weaknesses, they must turn to the external environment to identify any opportunities and threats that might have a significant impact on the business.
  35. Table 5.4 provides a simple analytical tool to help entrepreneurs identify the threats that pose the greatest danger to their companies.
  36. Identifying the KSFs in an industry allows entrepreneurs to determine where they should focus their companies’ resources strategically.
  37. Table 5.5 presents a form to help owners identify the most important success factors in the industry and their implications for their companies.
  38. Ask small business owners to identify the greatest challenge their companies face, and the most common response is competition.
  39. The primary goals of a competitive intelligence program include the following: ● Conducting continuous rather than periodic analysis of competition ● Avoiding surprises from existing competitors’ new strategies and tactics ● Identifying potential new competitors ● Improving reaction time to competitors’ actions ● Anticipating rivals’ next strategic moves
  40. Sizing up the competition gives a business owner a realistic view of the market and his or her company’s position in it. Yet, not every competitor warrants the same level of attention in the strategic plan.
  41. Entrepreneurs can use these low-cost competitive intelligence methods to collect information about their rivals.
  42. A competitive profile matrix allows owners to evaluate their firms against the major competitor by using the KSFs for that market segment.
  43. A small business that “doesn’t much care where” it wants to go (i.e., one that has no goals and objectives) will find that “it really doesn’t matter which way” it chooses to go (i.e., its strategy is irrelevant).
  44. Goals are not intended to be specific enough for a manager to act on but simply state the general level of accomplishment sought.
  45. Figure 5.3 shows that effective BHAGs originate at the intersection of a company’s mission, vision, and values; its distinctive competencies; and its KSFs. Addressing these broad issues will help entrepreneurs focus on the next phase – developing specific, realistic objectives.
  46. By this point in the strategic management process, entrepreneurs should have a clear picture of what their businesses do best and what their competitive advantages are. They also should understand their firms’ weaknesses and limitations, as well as those of their competitors. The next step is to evaluate strategic options and then prepare a game plan to achieve the stated mission, goals, and objectives.
  47. A strategy is the master plan that covers all the major parts of the organization and ties them together into a unified whole.
  48. Three basic strategies identified by Michael Porter are cost leadership, differentiation, and focus.
  49. A company pursuing a cost leadership strategy strives to be the lowest cost producer relative to its competitors in the industry.
  50. This strategy works well when buyers are sensitive to price changes, when competing firms sell the same commodity products and compete on the basis of price, and when companies can benefit from economies of scale.
  51. Small companies encounter risks when pursuing a differentiation strategy. One danger is trying to differentiate a product or service on the basis of something that does not boost its performance or lower its cost to customers. Another pitfall is trying to differentiate on the basis of something customers do not see as important.
  52. A focus strategy recognizes that not all markets are homogeneous. In fact, in any given market, there are many different customer segments, each having different needs, wants, and characteristics. Businesses with a focus strategy sell to these specific segments rather than trying to sell to the mass market.
  53. In his book The Long Tail, Chris Anderson, editor-in-chief of Wired Magazine, explains that the digital age has opened up smaller niche market segments to smaller businesses, creating a long tail of niche markets. The principal idea of a focus strategy is to select one (or more) segment(s); identify customers’ special needs, wants, and interests; and provide them with goods or services designed to excel in meeting these needs, wants, and interests.
  54. Failure to implement a strategy effectively is a common problem. The lesson is that even sound strategies, unless properly implemented, will fail.
  55. So far, the planning process has created company objectives and has developed a strategy for reaching them, but rarely, if ever, will the company’s actual performance match stated objectives. Entrepreneurs quickly realize the need to control actual results that deviate from plans.
  56. To judge the effectiveness of their strategies, many companies use dashboards, a set of measurements that incorporate both financial and operational measures to give entrepreneurs and leadership teams a quick yet comprehensive picture of the company’s overall performance.
  57. Figure 5.6 shows a sample dashboard for a small jewelry store. When creating dashboards for their companies, entrepreneurs should consider the following: ● Include graphics for strategic objectives and key success factors. ● Display data in such a way that the conclusions are clear for decision making. ● Help identify opportunities to improve profit margins. ● Allow for quick and definitive decisions. ● Offer an overall picture of the business that focuses everyone on the team on a common set of facts.
  58. Consider five important perspectives: customer, internal, innovation and learning, financial, and corporate citizenship.