Entrepreneurship and Small
Business Management
Chapter 4
The Business Plan:
Road Map to Success
Ch. 4 Performance Objectives





Know what a feasibility analysis is and when to
create one.
Know what a business plan is and how to
describe it.
Explain the various purposes for a business plan
and the audience for it.
Understand the components of a business plan.
Be able to demonstrate proper development and
formatting of a business plan.
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
2
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
What Is a Feasibility Analysis?


A study to assist in making the
“go/no go” decision
Used to test a business concept in
three areas:



Product and/or service feasibility
Market and industry feasibility
Financial feasibility
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
3
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Analyzing Product and/or
Service Feasibility


Can the product or service be
produced and delivered at a profit,
in an ongoing manner?
Is there sufficient customer demand
for the product or service?
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
4
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Analyzing Market and
Industry Feasibility


How attractive is the opportunity in
the proposed industry?
Do any strategic, defensible niches
exist in the proposed market?
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
5
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Porter’s Five Forces Analysis
Bargaining Power
of Suppliers
Threat of
New
Entrants
Competitive
Rivalry Among
Existing Firms
Threat of
Substitute
Products
Bargaining Power
of Customers
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
6
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Competitive Rivalry
Factors
More Attractive If…

Number of firms

Larger or fewer than five

Size of firms

Varied

Industry size/trend

Growing rapidly

Differentiation

Differentiation matters
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
7
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Barriers to Entry
Factors
 Capital requirements
 Cost advantage
 Economies of scale
 Switching costs
 Brand loyalty
 Distribution channels
 Public policies
More Attractive If…
 Low for entry
 Not based on firm size
 Minimal or absent
 Low cost to change suppliers
 Customer resistance to change
is low
 Channels established, but open
 Policies do not impede entry;
may facilitate entry
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
8
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Threat of Substitutes
Factors
More Attractive If…

Convenience

Not readily available

Substitute pricing

Prices not significantly lower

Supply of substitutes

Supply is uneven or limited

Switching costs

High cost to change suppliers

Public policies

Make substituting difficult or
illegal
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
9
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Supplier Power
Factors



More Attractive If…
Brand reputation
Substitutes for
supplies

Not critical

Easy substitution

Relatively low
Switching costs


Impact of individual
supplier on costs
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
10
Small portion of overall
costs of finished products
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Buyer Power
Factors
 Buyer size
 Number of buyers
 Product importance
 Delivery demands
 Switching costs
 Product differentiations
 Information availability
More Attractive If…
 Variable
 Large number of buyers
 Small part of costs of goods
 Restricted geographic area
 Relatively high
 More differentiation, fewer
commodities
 Hard for customers to
compare features and prices
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
11
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Analyzing Financial Feasibility



How much start-up capital is required?
How much revenue is expected (based
on anticipated pricing and volume)?
What are the expected costs?
Projected revenues, less projected costs, equals
potential profit. Evaluate the return on the capital
invested to make a “go/no go” decision.
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
12
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
What Is a Business Plan?
Document that thoroughly explains a business
idea and how it will be carried out




Story of what the business is and will be
All costs and a marketing plan
Description of financing
Estimate of projected earnings
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
13
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Why Create a Business Plan?

Saves time and money

Key to raising capital

Serves as an operations guide
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
14
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Business Plan Components







Cover page
Table of contents
Executive summary
Mission, vision, and
culture
Company description
Opportunity analysis
Marketing strategy
and plan
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
15





Management and
operations
Financial analysis
and projections
Funding request
Exit strategy
Appendices
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Cover Page and Table of Contents
Cover Page

Name of the business

Name of the principals

Date

Contact information

Confidentiality statement
Table of Contents


Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
16
Include enough detail to
easily find a section.
Avoid excessive detail
which uses too many
pages.
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Executive Summary
Should Be:





Clear—identify concept and purpose
Concise—one to two pages long
Comprehensive—answer basic who,
what, when, where, and how questions
Compelling—generate enthusiasm
Written last
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
17
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
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”
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
18
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
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
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
19
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Opportunity Analysis



Industry analysis—definition, size, and
growth/decline of the industry
Environmental analysis—how community,
region, nation, world relates to the business
Proof of market—evidence of opportunity
in terms of dollars and units
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
20
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Opportunity Analysis
(continued)


Target market segments—groups defined
by common factors such as demographics,
psychographics, age, and geography
Competitive analysis—comparison of the
business to direct and indirect competitors
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
21
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Marketing Strategy and Plan

Marketing mix (the Four P’s)





Products/Services
Pricing
Promotion
Place
Marketing plan—statement of
marketing goals and the strategies to
achieve them
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
22
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Management and Operations






Management team and employees
Research and development
Physical location(s) of facilities with
emphasis on logistics and workforce
Production processes
Inventory control systems
Quality assurance methods
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
23
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Financial Analysis and Projections

Sources and uses of capital

Cash flow projections
Cash flow statement shows cash receipts
less cash disbursements over a time period

Balance sheet projections
Assets = Liabilities + Owner’s Equity
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
24
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Financial Analysis and Projections
(continued)

Income statements for three years



Also called profit and loss statements (P&L)
Summarize income and expense activity
Breakeven analysis
Fixed Cost ($) ÷ Gross Profit per Unit ($) =
Breakeven Units


Ratio analysis
Risks and assumptions
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
25
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Funding Request & Exit Strategy



Amount of funds needed
Type of financing, including terms
Proposed exit scenarios, such as:





Buyout plan
Initial public offering (IPO)
Sold when benchmarks or date reached
Succession plan
Implementation schedule (milestones)
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
26
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Appendices





Management resumes
Specifications/photos/diagrams of
products and packaging
Advertising and promotional samples
Detailed financial projections
Other supportive materials
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
27
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Business Plan Suggestions








Write for your audience.
Show that you have “skin in the game.”
Be clear and concise.
Use current industry data and reports.
Select a “voice” and stick with it.
Use a consistent, easy-to-read format.
Number and label items throughout the plan.
Present the plan professionally.
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
28
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Presenting the Business Plan





Presentations may be formal or informal.
Presentation time may be limited to
between 5 and 20 minutes.
Prepare an “elevator pitch” (15-30 sec.)
Multimedia formats work well in formal
situations.
Business plan competitions may provide
cash prizes and access to capital.
Entrepreneurship and Small Business Management, 1/e
By Steve Mariotti and Caroline Glackin
29
© 2012 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.