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Entrepreneurship, Business

Modeling and Business Planning 18 March 2015

Hans Landström

SKJ Centre for Entrepreneurship

Lund University, Sweden

hans.landstrom@fek.lu.se

Content today: Business models and

business planning

9.15-12.00 Lecture: Entrepreneurship process,

business models and business plans

(theory)

HLa

12.00-13.00 LUNCH

13.00-14.45 Lecture: Canvas (tools) SOL

Vincent

Pirenne

14.45-16.30 Project work: Your business model

Canvas

Business

Advisors

16.30-17.15 Reflections SOL

HLa

mailto:hans.landstrom@fek.lu.se

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Agenda

1) The entrepreneurial process

2) Business models

3) Business plans

4) Course examination

5) Advice

The entrepreneurial process

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The Entrepreneurial Process: Four approaches

Activitiy-based approach Business platform approach Paul Reynolds

Magnus Klofsten

Decision approach Evolutionary approach

Saras Sarasvathy

Howard Aldrich

Activity based approach

Activities Example:

Concrete activities

Example:

Planning activities

1. Generate ideas Business Opportunity Recognition

- Discuss with friends and family - Think …

2. Identify business

opportunities

- Talk to potential customers

- Google competitors

- NABC-analysis

3. Prepare and plan Prepare Conceptualize

- Find team members

- IPR application

- Seek finance

- Market analysis

- Business model (eg Canvas)

- Business plan

4. Start-up Launch and manage

- Find office space

- Buy equipment

- Establish legal entity

- Financial projections

- Management and control

systems

5. Post-start activities - Marketing activities

- Production activities

- Reqruite staff

- Acquire inputs

- Growth planning

- Planning for

internationalization

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Start-up activities

Business start-ups do not all follow one and the same process

Any sequence of events is possible. There is no correct way (but

maybe a couple of better ways…) to start a venture

Study in Norway 400 start-up processes

Variation in start-up processes (Aldrich, 1999), examples:

Context

Industry (different logics)

Newness (e.g. innovative-necessity, new vs old industries)

Individual-team

Typically it is a mix of planning and action with a touch of luck

Start-up Gave-up Continued ...

Concrete activities

Many activities

Planning activities

Few activities

The Entrepreneurial Process: Four approaches

Activitiy-based approach Business platform approach Paul Reynolds

Magnus Klofsten

Decision approach Evolutionary approach

Saras Sarasvathy

Howard Aldrich

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Decision approach: Causation

Rational start-up process

GOALS MARKET MEANS

We know We know We know Start your

our goals! how the who we are! venture:

market We know the Rational

looks like! resources decision

we have! mode

Decision approach: Effectuation

Trial-and-error process

MEANS GOALS

Who I am? What can Interact Commit Start your

What I know? I do? with stake- venture:

Who I know? people. holders. Trial-and-

I know. error decision

mode

New goals/

new means

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Decision approach: Causation and Effectuation

CAUSATION PROCESS Business opportunity 1 Business opportunity 2 EFFECTUATION PROCESS

Discussion

What do you perceive as the most difficult

activity/decision in the commercialization of your

idea? Why?

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Business models

The entrepreneurial process

Development of business idea Idea Business Business Business opportunity model plan New venture Career- Decision to start choice a new venture Development of a new venture

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Business modeling – definition

The business model describes how a company creates

something valuable for the customer and earn money

(generate revenue streams) from its business – answering

the questions:

Who are the customers and how do we create a

relationship to them?

What are the products/services that will deliver values,

satisfy needs or solve problems for the customers?

What are the resources needed to accomplish the

business model?

How do the company create a revenue stream to the

company?

Conceptualize your business:

Business idea to Business model

E-business

Business Idea Concept Business Model Concept

Richard Normann Jonas Hedlund (1943-2003) Thomas Kalling

Skapande The Business Model Concept

företagsledning, 1976 European J. of Information System, 2003

Porter (1985) Barney (1990)

Value chain Resources as valuable, rare, difficult to imitate and support each other

Amit & Zott (2001) Value Creation in E-business, Strategic Mgmt J.

Core Morris & Schindehutte & Allen (2005), The entrepreneur’s business

works: model, J. of Business Research.

Osterwalder & Pigneur & Tucci (2005), Clarifying Business Models,

Communications of AIS.

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Business idea (Normann, 1976)

General business idea

Business area and focus

Differences from competitors

Market and customer

- Our market is …

External efficiency - Our function on the market …

(make the right things)

Product/service FIT

- We will offer …

Internal efficiency

(make things right)

Resources

- Our resources and competences are …

Exemple:

General business idea: Contribute to a better everyday life for the many people!

External efficiency (make the right things): Offer a wide range of functional home

furnishings to low prices that as many as possible will afford to buy them.

Internal efficiency (make things right): Lowering the price without decreasing quality

Each supplier produces the part that they can deliver best och cheapest.

Customers assemble their furniture The parts are packed in flat packages

themselves. in order to make costs for deliveries

and warehousing as low as possible.

The customers could themselves

select, collect and transport

the furnitures.

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Conceptualize your business:

Business idea to Business model

E-business

Business Idea Concept Business Model Concept

Richard Normann Jonas Hedlund (1943-2003) Thomas Kalling

Skapande The Business Model Concept

företagsledning, 1976 European J. of Information System, 2003

Porter (1985) Barney (1990)

Value chain Resources as valuable, rare, difficult to imitate and support each other

Amit & Zott (2001) Value Creation in E-business, Strategic Mgmt J.

Core Morris & Schindehutte & Allen (2005), The entrepreneur’s business

works: model, J. of Business Research.

Osterwalder & Pigneur & Tucci (2005), Clarifying Business Models,

Communications of AIS.

Business Model (Alex Osterwalder)

Pillars Building blocks

Customer

interface

Describe the segments of customers a company wants to offer value to.

Describe the various means of the company to get in touch with its customers.

Explain the kind of links a company established between itself and its different

customer segments.

Product Gives and overall view of a company’s bundle of products and services.

Infrastructure/

management

Describe the arrangement of activities and resources.

Outlines the competencies necessary to execute the company’s business model.

Portrays the network of cooperative agreements with other companies necessary for

commercialize value.

Financial aspects Sums up the monetary consequences of the means employed in the business

model.

Describe the way a company makes money through a variety of revenue flows.

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Business Model Canvas (Osterwalder) Workshop by Sven Olsson in the afternoon

Business Plan

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The entrepreneurial process

Development of business idea Idea Business Business Business opportunity model plan New venture Career- Decision to start choice a new venture Development of a new venture

The business plan – definition

A written document prepared by the entrepreneur that

describes all relevant external and internal elements

involved in starting a new venture and running a business

– answering the questions:

Where am I now?

Where am I going?

How will I get there?

Marketing

Production

Business Organization/Management

Model Ownership

Finance

etc.

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Business Planning – History 1916 Henri Fayol: ”General theory of business administration”

1960s-1970s Key tool in large corporations: Strategic planning

Drucker (1954); Ansoff (1957); Porter (1980)

1980s-1990s Strategic management scholars rushed into the field

of entrepreneurship:

- Business planning became a key tool in starting new ventures

and institutionalized among business advisors, investors,

educators, etc.

- 78% entrepreneurship curricula and 100+ books on BP

2000s- Entrepreneurship scholars started to question the use of BP:

Bhidé (2000; 2009): Google, Microsoft, Apple and Dell started

without a BP

Honig (2003): No difference in success based on the use of BP

Sarasvathy (2001): New ways of understanding the

entrepreneurial process

Preparing the business plan

Readers of a business plan: (1) action plan for the entrepreneur, and

(2) selling document to investors, bankers, potential partners and

employees, suppliers, customers, potential board members and

advisors, auditors, etc.

Depending on who is reading the plan they will read it

differently!!! Prepare different versions of the business plan.

The preparation of a business plan is more or less difficult:

Apple YouTube

Innovative Google

Product/service

Existing Craftman Amazon

Dell

Existing Innovative

Business model

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Business plan: Disposition

Summary

1. Business Model

2. Products

3. Market plan

4. Management

5. Organization

6. IPR

7. Production

8. Owners

9. Financial overview

10. Realization

Supplements

Literature

VentureCup

Jepser Forslund (2014), Connect

Affärsplan FTW How to write a successful

Lean Publishing business plan

www.connectsverige.se http://www.venturecup.se/

ideutveckling/utbildnings

material/

Hisrich, R.D., M.P.

Peters and D.A.

Shepherd (2013)

Entrepreneurship

New York: McGraw-Hill

Chapter 7

http://www.connectsverige.se/

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Write or not write: that’s the question Delmar and Shane (2003) Honig and Karlsson (2004)

Arguments BP is an important precursor to

action in new ventures: (1) helps

founders to make more quick

decisions, (2) manage resources

more time-efficient, and (3) turn

abstract goals into concrete

actions.

The economic efficiency of writing a BP can be

questioned – it is more an institutional issue:

(1) public support agencies, (2) industries

where BP is deeply rooted, and (3) business

educations are influencing the writing of a BP.

No positive outcomes in terms of profitability

and survival.

Similarities Database: Swedish Panel Study of Entrepreneurial Dynamics (PSED)

30,427 individuals between 16-70 years 223 new venture started.

Differences Performance measures:

- Product development

- Organization activities

- Disbandon

Performance measures:

- Profitability

- Survival

Results BP is a valuable activity:

- Enhance likelihood of new

venture survival

- Facilitate product development

- Facilitate organizational efforts

Institutional forces:

- Contact with public agencies

- Working in industries rooted in BP

Writing a BP will not increase propensity of

profit or survival.

Discussion

Based on the articles by Honig & Karlsson (2004) and Delmar

& Shane (2003):

What are the arguments for writing and against writing a

business plan?

When should you write a business plan?

In what way will a business plan differ dependent on the

reader (e.g. potential partner, investor, etc.)?

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Arguments for writing a business

plan

A way for the entrepreneur to make his/her idea concrete

– different part of the idea must fit together.

A plan for the future work roadmap that will govern the

work and identify the resources needed.

An important way to communicate the business idea to

external actors selling document.

Evaluation document dynamic document.

The business plan makes you think through the

business thoroughly!

Arguments against writing a business

plan

It will take time – time that could be spent on marketing

and meeting with the customers.

The risk that you search for information that support your

idea reinforce wrong discussions.

The business plan identifies the difficulties in starting the

venture hamper the driving force of the entrepreneur.

Always a risk to be criticized.

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Assessment of the business plan Market demand

Market potential? For how long?

Market structure

Development phase? Market fragmentation? Barriers of enter?

Possibilities to earn money on the market

What does the cost structure look like? How much money do I

need? How long will it take to break-even?

Your goals

High-growth firm or making a living? Your view on ownership?

Start-up team

Relevant experience? Relevant network? Passion for the venture?

Course Examination

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Requirements for the Course

10 – max(!) 15 pages: no supplements

Focus: Summary

Business Idea, Value Proposition, Business Model

Market Analysis

Intellectual Properties Strategy

Risk Analysis

Other chapters in Business Plan only schematically

General guidelines from the course shall be applied

Advice

Create an interesting story ...

… depending on the audience and you can decide the

audience for your business plan.

Know your industry and your business.

Detailed and proven facts.

Be involved in the writing of your business plan – it’s a

learning process.

Max 15 pages, comprehensible and simple language,

focus on essentials, stick to the truth, well edited.

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Q&A

Thank you for your attention!

Hans Landström Hans.Landstrom@fek.lu.se

mailto:Hans.Landstrom@fek.lu.se