ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6 Chapter .
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan1Copyright 2016 Pearson Education, Inc.5-1Copyright 2016 Pearson Education IncSection 2: The Entrepreneurial Journey Begins5Crafting a BusinessPlan and Building aSolid Strategic PlanCopyright 2016 Pearson Education, Inc.5-21. 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 areimportant to potential lenders and investorsreviewing business plans.4. Understand the keys to making an effectivebusiness plan presentation.Copyright 2016 Pearson Education, Inc.5-31
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan(continued)5. Understand the importance of strategicmanagement to a small business.6. Explain why and how a small business mustcreate a competitive advantage in the market.7. Develop a strategic plan for a business usingthe nine steps in the strategic managementprocess.Copyright 2016 Pearson Education, Inc.5-4 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 againstlaunching a business destined to fail ormismanaging a potentially successful company.Copyright 2016 Pearson Education, Inc.5-51. Guiding the company by charting its futurecourse and defining its strategy forfollowing it.2. Attracting lenders and investors who willprovide needed capital.Copyright 2016 Pearson Education, Inc.5-62
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan1. The Reality Test: proving that: A market really does exist for your product or service. You can actually build or provide it for the costestimates in the plan.2. The Competitive Test: evaluates: A company’s position relative to its competitors. Management’s ability to create a company that willgain an edge over its rivals.3. The Value Test: proving that: A venture offers investors or lenders an attractiverate of return or a high probability of repayment.Copyright 2016 Pearson Education, Inc.5-7 Although building a plan does not guaranteesuccess, it does increase your chances ofsucceeding in business. A plan is like a road map that serves as a guideon a journey through unfamiliar, harsh, anddangerous territory. Don’t attempt the tripwithout a map!Copyright 2016 Pearson Education, Inc.5-8 Title Page and Table of Contents Executive SummaryCopyright 2016 Pearson Education, Inc.5-93
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan The executive summary is a written versionof “the elevator pitch” A good elevator pitch provides: Context Benefit Target customers Point of differentiation ClincherCopyright 2016 Pearson Education, Inc.5 - 10(continued from 5-9) Title Page and Table of Contents Executive Summary Mission and Vision Statement Description of a Firm’s Product or ServiceCopyright 2016 Pearson Education, Inc.5 - 11 Describe the benefits customers get from theproduct or service A feature is a descriptive fact about aproduct or service. A benefit is what the customer gains fromthe product or service feature.Copyright 2016 Pearson Education, Inc.5 - 124
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan(continued from 5-11) 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 AnalysisCopyright 2016 Pearson Education, Inc.5 - 13 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’sproduct or service from others already in themarket, and how will these differencesproduce a competitive edge?Copyright 2016 Pearson Education, Inc.5 - 14(continued from 5-13) 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 StrategyCopyright 2016 Pearson Education, Inc.5 - 155
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan Show customer interest Prove that target customers actually needor want the product or service. Document market claims Support market size and growth rates withfacts.Copyright 2016 Pearson Education, Inc.5 - 16(continued) Address: Target market Advertising and promotion Market size and trends Location Pricing DistributionCopyright 2016 Pearson Education, Inc.5 - 17(continued from 5-15) Title Page and Table ofContents Executive Summary Mission and VisionStatement Description of a Firm’sProduct or Service Business and IndustryProfile Competitor Analysis Marketing Strategy Entrepreneurs’ andManagers’ Resumes Plan of Operation Pro Forma (Projected)Financial Statements The Loan orInvestment ProposalCopyright 2016 Pearson Education, Inc.5 - 186
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic PlanCopyright 2016 Pearson Education, Inc.5 - 19 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 2016 Pearson Education, Inc.5 - 20 The “5 Cs” of Credit1. Capital2. Capacity3. Collateral4. Character5. ConditionsCopyright 2016 Pearson Education, Inc.5 - 217
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan The time allotted for presenting is usually lessthan 20 minutes, so it’s important to rehearse andbe 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 2016 Pearson Education, Inc.5 - 22 Prepare Practice your delivery and then practice some more. Demonstrate enthusiasm about the business but don’tbe overly emotional. Focus on communicating the dynamic opportunityyour idea offers and how you plan to capitalize on it. Hook investors quickly with an up-front explanationof the new venture, its opportunities, and theanticipated benefits to them.Copyright 2016 Pearson Education, Inc.5 - 23(continued) Use visual aids. Follow the 10/20/30 rule for PowerPointpresentations. Explain how your company’s products or servicessolve some problems and emphasize the factorsthat make your company unique. Offer proof. Hit the highlights. Keep the presentation “crisp.”Copyright 2016 Pearson Education, Inc.5 - 248
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan(continued) Avoid the use of technical terms that will be abovemost of the audience. Remember to tell lenders and investors how they willbenefit. Be prepared for questions. Anticipate questions and prepare for them inadvance. Focus your answers on what’s important to lendersand investors. Follow up with every lender and investor to whomyou make a presentation.Copyright 2016 Pearson Education, Inc.5 - 25 Entrepreneurs must be able to adapt to changes inthe marketplace. Strategic planning is a tool that can help: itinvolves developing a game plan to guide thecompany as it works to accomplish its vision,mission, goals, and objectives and to keep it fromstraying off course. It’s crucial to building a successful business.Copyright 2016 Pearson Education, Inc.5 - 26 The biggest change facingentrepreneurs today is the shift fromfinancial capital to intellectual capital Human Structural CustomerCopyright 2016 Pearson Education, Inc.5 - 279
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan Developing a strategic plan is crucial tocreating a sustainable competitiveadvantage: the aggregation of factors thatsets a company apart from its competitorsand gives it a unique position in themarket that is superior to its competition. Example: Whole FoodsCopyright 2016 Pearson Education, Inc.5 - 28 Consider five aspects of a smallcompany:1. Products they sell2. Service they provide3. Pricing they offer4. Way they sell5. Values to which they are committedCopyright 2016 Pearson Education, Inc.5 - 29 Unique set of capabilities a company develops inkey areas, such as superior quality, customerservice, innovation, team-building, flexibility,responsiveness, and others that allow it to vaultpast competitors. They are what a company does best. Best to rely on a natural advantage (oftenlinked to a company’s “smallness”). Example: Noodles & CompanyCopyright 2016 Pearson Education, Inc.5 - 3010
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic PlanCopyright 2016 Pearson Education, Inc.5 - 31Step 1 Develop a vision and translate itinto a mission statementStep 2 Assess strengths andweaknessesStep 3 Scan environment foropportunities and threatsStep 4 Identify key success factorsCopyright 2016 Pearson Education, Inc.5 - 32(continued)Step 5 Analyze competitionStep 6 Create goals & objectivesStep 7 Formulate strategiesStep 8 Translate plans into actionsStep 9 Establish accurate controlsCopyright 2016 Pearson Education, Inc.5 - 3311
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan Vision: the result of an entrepreneur’s dreamof something that does not exist yet and theability to paint a compelling picture of thatdream for everyone to see. A clearly defined vision: Provides direction Determines decisions Inspires people Allows for perseverance in the face of adversityCopyright 2016 Pearson Education, Inc.5 - 34(continued) Mission statement: addresses thequestion: “what business are we in?” Clarifies “why we are here” and “where weare going.” Serves as a “strategic compass.” Examples: Bongo World, Nisolo Shoes,Badger Mining, Putney, Inc., ClymbCopyright 2016 Pearson Education, Inc.5 - 35 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 thefoundation of the way we do business?Copyright 2016 Pearson Education, Inc.5 - 3612
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan Use a balance sheet to identify: Strengths Positive internal factors a company can drawon to accomplish its mission, goals, andobjectives. Weaknesses Negative internal factors that inhibit acompany’s ability to accomplish its mission,goals, and objectives.Copyright 2016 Pearson Education, Inc.5 - 37 Identify and manage: Opportunities Positive external factors the company canexploit to accomplish its mission, goals, andobjectives. Threats Negative external factors that inhibit thefirm's ability to accomplish its mission, goals,and objectives.Copyright 2016 Pearson Education, Inc.5 - 38Copyright 2016 Pearson Education, Inc.5 - 3913
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan Key success factors (KSFs): factorsthat determine the relative success ofmarket participants. The keys to unlocking the secrets ofcompeting successfully in a particularmarket segment. Example: Five Guys Burgers and FriesCopyright 2016 Pearson Education, Inc.5 - 40Copyright 2016 Pearson Education, Inc.5 - 41 Small business owners believe theyoperate in a highly competitiveenvironment and the level of competitionis increasing. Yet, 97 percent of all U.S. businesses donot systematically track the progress oftheir key competitors.Copyright 2016 Pearson Education, Inc.5 - 4214
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan(continued) Goal of competitive intelligence: Conduct continuous rather than periodicanalysis 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 2016 Pearson Education, Inc.5 - 43 Direct competitors Offer the same products and services Customers often compare prices, features and dealsamong 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 numberof areasCopyright 2016 Pearson Education, Inc.5 - 44 Monitor industry and trade publications. Talk to customers and suppliers. Debrief employees, especially salesrepresentatives and purchasing agents. Attend trade shows and conferences andstudy competitors’ sales literature. Watch for competitor’s employment ads.Copyright 2016 Pearson Education, Inc.5 - 4515
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan(continued) Watch for competitor’s employment ads. Conduct patent searches for patents competitorshave filed. Get EPA reports for the factories of competingmanufacturers. Monitor direct competitors via social media. Learn about the kinds of equipment and rawmaterials competitors are importing from theJournal of Commerce Port Import ExportReporting Service.Copyright 2016 Pearson Education, Inc.5 - 46(continued) Buy competitors’ products and “benchmark” them. Get competitors’ credit reports. Check out the reports publicly-held competitorsmust 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 theiroperations.Copyright 2016 Pearson Education, Inc.5 - 47Copyright 2016 Pearson Education, Inc.5 - 4816
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan“Would you tell me, please, which way I oughtto go from here?” said Alice.“That depends a good deal on where you want toget to,” said the Cheshire cat.“I don’t much care where. ” said Alice.“Then it doesn’t matter which way you go,” saidthe cat.From Lewis Carroll’s Alice in WonderlandCopyright 2016 Pearson Education, Inc.5 - 49 Goals: Broad, long-range attributes to beaccomplished. BHAGs Inspire and focus the companyCopyright 2016 Pearson Education, Inc.5 - 50Copyright 2016 Pearson Education, Inc.5 - 5117
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan Strategy: a road map of the actions anentrepreneur draws up to achieve acompany’s mission, goals, and objectives. It is the company’s game plan for gaining acompetitive advantage.Copyright 2016 Pearson Education, Inc.5 - ight 2016 Pearson Education, Inc.5 - 53Copyright 2016 Pearson Education, Inc.5 - 5418
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan Goal: Be the low-cost producer in the industryor market segment. Low-cost leaders have advantages: Reaching buyers who buy on the basis ofprice. The power to set the industry’s price floor.Copyright 2016 Pearson Education, Inc.5 - 55(continued) Cost Leadership works well when: Buyers are sensitive to price changes. Competing firms sell the same commodityproducts. A company can benefit from economies ofscale. Examples: Dollar General and Dollar TreeCopyright 2016 Pearson Education, Inc.5 - 56 Goal: Build customer loyalty by positioning itsgoods or services in a unique or different fashion. Be special at something customers value. Key: Build basis for differentiation on a distinctivecompetence, something that the small company isuniquely good at doing in comparison to itscompetitors. Example: RentTheChicken.comCopyright 2016 Pearson Education, Inc.5 - 5719
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan Goal: Select one or more customer segments ina market, identify customers’ special needs,wants, or interests, and then target them with aproduct or service designed specifically forthem. Strategy builds on the differences amongmarket segments. Rather than try to serve the total market, thecompany focuses on serving a niche (orseveral niches) within that market. Example: I Do Now I Don’tCopyright 2016 Pearson Education, Inc.5 - 58Copyright 2016 Pearson Education, Inc.5 - 59 Proper execution of a company’s strategyaccounts for 85% of a company’s financialperformance. Make plans workable by defining: Purpose Scope Contribution Resource requirements TimingCopyright 2016 Pearson Education, Inc.5 - 6020
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan Plan establishes the standards against whichactual performance is measured. Entrepreneur must: Identify and track key performanceindicators. Take corrective action.Copyright 2016 Pearson Education, Inc.5 - 61 A set of measurements unique to a companythat includes both financial and operationalmeasures. Gives managers a quick, yet comprehensive,picture of a company’s overall performance.Copyright 2016 Pearson Education, Inc.5 - 62(continued)Five Perspectives:1. Customer: How do customers see us?2. Internal Business: At what must we excel?3. Innovation and Learning: Can we continue toimprove and create value?4. Financial: How do we look to shareholders?5. Corporate Citizenship: Do we meet ourresponsibility to society as a whole, theenvironment, the community, and otherexternal stakeholders?Copyright 2016 Pearson Education, Inc.5 - 6321
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6Chapter 5: Crafting a Business Plan and Building a Solid Strategic PlanCopyright 2016 Pearson Education, Inc.5 - 64 The strategic planning process: Begins with the nine steps. Becomes more efficient each time. Teaches entrepreneurial discipline for ahigher chance of survival.Copyright 2016 Pearson Education, Inc.Copyright 2016 Pearson Education, Inc.5 - 655 - 6622
ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6 Chapter 5: Crafting a Business Plan and Building a Solid Strategic Plan 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
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