Business Plan

Enterprising ManagementEnterprising ManagementBM018 – 3 - 3

Chapter 9

Business Plan

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Reasons for Failure and Success of Businesses

Failure due to

1. Managerial incompetence or inexperience

2. Neglect

3. Weak control systems

4. Insufficient capital

Success due to

1. Hard work, drive, and dedication

2. Market demand for product/service

3. Managerial competence

4. Luck

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Business Plan—definition

• Definition (Ebert & Griffin, 2007): A document in which the entrepreneur summarises her or his business strategy for the proposed new venture and how that strategy will be implemented.

• A detailed description of the proposed business, including types of customers, competitors, and facilities needed for production.

• Includes 4 functions of business: marketing, operation, management, and finance.

• Includes all supporting documents.

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Purpose of Business Plan

• Explain the concept of the proposed business (incl. the nature of the product).

• Analyse the market.

• Present strategy.

• Outline the projected development of the business.

• Define capital needs and procurement.

• Project financial performance.

• Present management’s credentials.

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Target Audience: Who might use the Business Plan?

• Investors

• Owners of the company (the management team)

• Banks or other lenders (creditors)

• Potential suppliers

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Contents of Business Plan

1. Table of Contents2. Executive Summary3. Company Background4. External Environment Analysis5. Internal Environment Analysis6. SWOT7. Market & Competitors8. Operational Plan9. Human Resource Plan10. Risks & Contingencies11. Financial Plan12. Supporting Documents

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Executive Summary

Write this section last and ensure that it provides a summary of the key points of your business plan such as:

• Brief business concept or description

• Brief history of your business if available

• The products or services of your business

• Opportunity in the market

• Size of the opportunity and growth potential

• Market analysis summary

• The target market

• Who are your competitors?

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Executive Summary (cont…)

Write this section last and ensure that it provides a summary of the key points of your business plan such as:

• What will be your competitive advantage

• strategies?

• Who is in your management team?

• What the funding requirements of the Business

• Financial projections

• Inherent risks

• Exit strategy

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Company Background

1. Corporate Goals and Objectives

2. General Company History

3. Organisational Structure

4. Product/Service Analysis

5. Company Sales/Profit Trends

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External Environment Analysis

1. Political

2. Economy

3. Social

4. Technological

5. Legal

6. Environmental

7. Competitive Environment

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1. PoliticalHow changes in government policy affect the business.

E.g. a decision to transform a district into a tourist destination would enhance local economy.

2. EconomicHow the economy affects a business in terms of taxation, government spending, general demand, interest rates, exchange rates and global economic factors.


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3. SocialHow consumers, households and communities behave and their beliefs. For instance, changes in attitude towards health, or a greater number of pensioners in a population.

4. TechnologyHow the rapid pace of change in production processes and product innovation affect a business.


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5. LegalThe way in which legislation in society affects the business. E.g. changes in employment laws on working hours, maternity leaves provided to women employees.

6. EnvironmentalThe environmental system is the natural system in which life takes place. Increasingly businesses have become aware of the relationship between their economic activity i.e. making goods and services for profits and the effects that this has on the environmental system.


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1. Inter-Company Rivalry

2. Threats of New Entrants

3. Threats of Substitutes

4. Bargaining Power of Suppliers

5. Bargaining Power of Buyers

(Porter’s Five-Forces)The Competitive Environment

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Competition

Competitors actions affect the ability of the business to make profits, because competitors will continually seek to gain an advantage over each other, by differentiating their product and service, and by seeking to provide better value for money.

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Business Environment

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Use Porter’s Five-Forces Model to evaluate Harley-Davidson’s business competitiveness.

Harley-Davidson Motor Company sells heavyweight (over 750 cc) motorcycles designed for cruising on the highway.

COMPETITIONS

Porter’s Five Forces

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HIGH

• Number of competitors increases• Competitors become more equal in size and

capability• Demand for the industry’s products declines• Price cutting becomes common• Consumers can switch brands easily

Rivalry Among Existing Competitors

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Threat of New Entrants

Creating Barriers to Entry.....

• Gain Economies of scale• Gain Technology and specialised know-how• Establish strong customer loyalty• Develop adequate distribution channels• Secure access to raw materials• Possession of Patents

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Threat of Substitutes

Threat increases when.....

• Relative price of substitutes decline• Consumers’ switching costs decrease

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Bargaining Power of BuyersBargaining power increases when.....

• Buyers are concentrated (eg. Consumers’ Association)• Buyers buy in volume• Products are undifferentiated• Buyers are well informed about sellers’

products, prices, and costs

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Bargaining Power of Suppliers

Bargaining power increases when.....

• There is a small number of suppliers• There are only a few good substitute materials• The cost of switching raw materials is costly

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More explanation about Porter’s 5 Forces at:

http://www.coursework4you.co.uk/essays-and-dissertations/porter-5-forces.php

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Internal Environment Analysis

1. Resources

2. Capabilities

3. Core Competencies

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Internal Environmental Influences

1. ResourcesResources represent inputs into a firm’s production/operation process.

Tangible Resources

• Financial• Physical• Human Resources• Organisational

Intangible Resources

• Technological• Innovation• Reputation

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2. CapabilitiesCapabilities represent the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective.

Capabilities are highly essential in the following areas:• Inbound Logistics• Operations• Outbound Logistics• Sales & Marketing• Services

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3. Core CompetenciesCore Competencies are the result of effectively combining a firm’s resources and its capabilities.

Core Competencies enable a firm to do well and help to achieve the following sustainable competitive advantage:

• Core competencies provide consumer benefits• Core competencies are not easy for competitors to

imitate• Core competencies can be leveraged widely to many

products and markets

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3. Core CompetenciesIn another word……

+ =

resources capabilitiesCore

competencies

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3. Core CompetenciesExample of companies with core competencies that support sustainable competitive advantage:

R&D at 3M Coke Formula Teamwork at Southwest Air Mercedes Engineering McDonald’s Efficiency P&G’s Marketing Disney’s Characters KFC’s 17 Herbs & Spices Federal Express Reliability

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SWOT

1. Strengths

2. Weaknesses

3. Opportunities

4. Threats

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An established framework that aids in taking inventory of firm’s overall: Strengths and Weaknesses

and

industry’s Opportunities and Threats

By identifying each element, decision makers can utilise the resources necessary to overcome the challenges that are present in firm and industry efficiently.

Description

SWOT Analysis

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To discover strategic options to reach objectives by assessing a firm’s position within its industry given its internal and external environments.

Objectives

SWOT Analysis

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When collecting the raw data for the SWOT analysis, it is important to be free from bias. It is essential that each element is judged fairly by experience personnel or by a group. Once this aspect is settled, the information must originate internally for the strengths and weaknesses. Information required to identify opportunities and threats can come from industry reports, articles and experts’ insights.

Information Needed

SWOT Analysis

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SWOT Analysis

With all the information gathered, decision makers can complete the first part of the exercise by answering the following questions located in each quadrant.

Information Needed

I) What is the firm doing well? (S)II) What can the firm improve upon? (W)III) What are the opportunities for the firm to grow? (O)IV) What are the threats or changes in the external environments that the firm should avoid? (T)

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TOWS Analysis

DescriptionTOWS analysis is a framework that permits users to understand the existing internal and external environment factors in relation to obtaining established strategic goals.

The first step in conducting a TOWS analysis is undergoing an assessment of the present environment via a SWOT analysis.

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TOWS Analysis

DescriptionFrom the 2 x 2 matrix, a 3 x 3 matrix is created to realise:

i. SO Strategiesii. ST Strategiesiii. WO Strategiesiv. WT Strategies

Strengths Weaknesses

Opportunities

SO Strategies WO Strategies

ThreatsST Strategies WT Strategies

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Contents of Business Plan

1. Table of Contents2. Executive Summary3. Company Background4. External Environment Analysis5. Internal Environment Analysis6. SWOT7. Market & Competitors8. Operational Plan9. Human Resource Plan10. Risks & Contingencies11. Financial Plan12. Supporting Documents

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Market & Competitors

1. Target Markets

2. Competition

3. Marketing Mix

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1. Market Segmentation

2. Market Targeting

3. Market Positioning

Target Markets

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Capturing the Target Markets Requires…

• Identifying and profiling distinct groups of buyers who differ in their needs and preferences.

• Selecting one or more market segments to enter.

• Establishing and communicating the distinctive benefits of the market offering.

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1. Identify Basesfor Segmenting the Market

2. Develop Profilesof Resulting Segments

3. Develop Measuresof Segment Attractiveness

4. Select TargetSegment(s)

5. Develop Positioningfor Each Target Segment

6. Develop MarketingMix for Each Target Segment Market

Positioning

MarketTargeting

Market Segmentation

Process Involved in Capturing the Target Markets

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Definition

Market segmentation is a process of dividing the market into distinct groups who have distinct needs, wants, behaviour or who might want different products & services.

Market Segmentation

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Approaches to Market Segmentation Process

• Identifying and profiling distinct groups of buyers who differ in their needs and preferences.

• Establishing and communicating the distinctive benefits of the market offering.

• Selecting one or more market segments to enter.

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GeographicGeographic

DemographicDemographic

PsychographicPsychographic

BehavioralBehavioral

Market Segmentation Variables

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Geographic

• Dividing a market into different geographical units such as:

nations, states, regions, counties, cities neighbourhoods.

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Demographic Segmentation

Dividing the market into groups based on demographic variables such as

age, life cycle stage, gender, income, generation,

occupation, education, religion, race and

nationality.

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Psychographic Segmentation

• Dividing a market into different groups based on life-style or personality characteristics.

• Psychographic variables: – personality– life style– value– attitude

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Behavioral Segmentation

• dividing a market into groups based on consumer knowledge, use or response to a product.

Behavioral Variables

• Occasions – e.g regular or special occasion• Benefits – e.g. convenience• User Status – e.g. ex user, non user• Usage Rate – light, heavy• Buyer-Readiness – aware, unaware, interested• Loyalty Status – none, medium

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MeasurableMeasurable

AccessibleAccessible

SubstantialSubstantial

DifferentiableDifferentiable

ActionableActionable

Effective Segmentation Criteria

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• Size, purchasing power, profiles of segments can be measured.

• Segments must be effectively reached and served.

• Segments must be large or profitable enough to serve.

Measurable Measurable

AccessibleAccessible

SubstantialSubstantial

DifferentialDifferential

ActionableActionable

• Segments must respond differently to different marketing mix elements & actions.

• Must be able to implement plans to the segments.

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Market Targeting is the process of selecting a segment or series of segments and 'target' it/them. Resources and effort will be targeted at the selected target/targets.

Definition

Market Targeting

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Marketers can follow several Target Market Strategies:

1.Single-segment Concentration

2.Selective Specialisation

3.Product Specialisation

4.Market Specialisation

5.Full Market Coverage

Target Market Strategies

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Single-segment Concentration

• Also known as a concentrated strategy.

• One market segment (not the entire market) is served with one marketing mix.

• A strategy choice for smaller companies with limited resources.

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• This is a multiple-segment strategy, also known as a differentiated strategy.

• Different marketing mixes are offered to different segments.

• In many cases the promotional message or distribution channels vary.

Selective Specialisation

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• The firm specialises in a particular product and tailors it to different market segments.

Product Specialisation

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• The firm specialises in serving a particular market segment and offers that segment an array of different products.

Market Specialisation

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• The firm attempts to serve the entire market.

• This coverage can be achieved by a single undifferentiated marketing mix offered to the entire market, or

• By a differentiated strategy in which a separate marketing mix is offered to each segment

Full Market Coverage

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“Arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers”.

Example:

Mercedes is positioned for luxury segment, Volvo is positioned for safety.

Definition

Market Positioning

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Marketers can follow several positioning strategies:

1.Specific product attributes

e.g. low price, performance and etc.

2. Benefits the products offer

e.g. reducing cavity, taste good and etc.

3. Usage occasions

e.g. winter and summer clothing and etc.

Positioning Strategies

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4. Certain classes of users babies and adults the same product offer, e.g.

Johnson & Johnson products.

5. Directly against a competitor e.g. Coke and Pepsi.

6. Away from competitors e.g. 7-Up.

7. Different product classes e.g. margarine against butter and etc.

(Marketers often use a combination of these positioning strategies).

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The positioning task consists of three steps:

1.Identifying a set of possible competitive advantages on which to build a position;

2.Selecting the right competitive advantages;

3. Effectively communicating and delivering the chosen position to the market.

Choosing & Implementing a Positioning Strategy

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Identifying Possible Competitive Advantages

• Competitive advantage “an advantage over competitors gained by offering

consumers greater value, either through lower prices or by providing more benefits that justify higher prices”.

• In what specific ways can a company differentiate its offer from those of competitors?

• A company or market offer can be differentiated along the lines of product, services, personnel or image.

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• Suppose a company is fortunate enough to discover several potential competitive advantages.

• It now must choose the ones on which it will build its positioning strategy.

• It must decide how many differences to promote and which differences to promote.

Selecting the Right Competitive Advantages

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• Once the company has chosen a position, it must take strong steps to deliver and communicate the desired position to target consumers.

• All the company’s marketing mix efforts must support the positioning strategy.

Communicating and Deliveringthe Chosen Position

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1. Primary Competitors

2. Strengths of Competitors

3. Weaknesses of Competitors

Competition

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1. Product Decisions

2. Price Decisions

3. Promotion Decisions

4. Place Decisions

Marketing Mix

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Q & A

Business Plan

Documents

Transcript of Business Plan