The first reason to undertake a business plan is to translate a feasible business concept into a company that can implement the concept. When a concept is being tested through feasibility, we attempt to determine if:
1) there are customers and a market of sufficient size to make the concept doable,
2) the capital requirements to start based on estimates of sales and expenses made sense, and
3) we can put together an appropriate team to make the concept happen. With the business plan, by contrast, the focus shifts to creating a company and issues such as process, marketing plan, and management enter the picture.
The following sections of the plan are those considered to be crucial to persuading the principle stakeholders that the company has a healthy future.
Executive Summary
'If you can 't describe your strategy in 20 minutes, in plain language, you haven't got a plan.'
Larry Bossidy & Charon, R. (2002) Execution: the discipline of getting things done. Crown Business Publishing.
The business plan should include a one page (maximum) executive summary that presents the most important points from all the sections of the plan. Potential readers of the business plan often read the executive summary first to see if they are interested in investing the time to read the entire plan. Consequently, it's vital that the executive summary grabs the reader's attention in the first sentence with the key selling point or benefit of the business. The first paragraph should contain a clear and concise statement of the business concept, the expected profitability of the company and it's potential for growth should be emphasised. Remember that the writers of the executive summary have only about 20 seconds to capture the attention of an investor, banker, or venture capitalist who probably sees many business plans each month.
Using the business plan checklist as a guide, the remainder of the executive summary can be structured to address the critical success factors and the development of a unique value creating capability which can be sustained in the face of escalating competition.
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The Business Concept
'The bottom line with every business is value addition'
Kumar Mangalam Birla CEO Aditya Birla Group Financial Times 16.10.02
The first section, the business concept, gives the reader a clear understanding of the business: the purpose, mission, and product or service concept. The purpose of the business is a broad, enduring statement of why the company is in business. It speaks not to the specific products or services the company offers but to why the company is in business. For example, The Walt Disney Company is in business "to bring happiness to millions." Notice that the purpose represents the philosophy of the company and is stated in such a way that no matter what happens in the business environment, the purpose will endure. The purpose also serves as a guiding principle for the company. All decisions regarding the operations, growth, customers, product development, and so forth are made based on their congruence with the company's purpose. As a result, The Walt Disney Company will not produce movies that are not family oriented and in line with its core principles. To produce more adult oriented films, Disney formed another company, Touchstone Pictures.
Start up company Gentech Corporation, has this overriding purpose: "to provide leading edge, high quality solutions to our customers."
The mission statement articulates a clear and compelling goal that focuses all the efforts of the company. Unlike the purpose, it is something achievable. The mission is a way of translating the broad purpose of the organisation into a defined goal. A goal must have an end point; therefore, the mission should clearly state by what date it will be achieved.
A well constructed business concept usually can be stated concisely in two to three sentences. For example: 'Sunshine Learning Products is in the business of helping children learn through computer technology. It will design and manufacture hardware and software for young children that will be sold through computer and toy retail outlets'.
What business the company is in is a broad statement of intent on the part of the company. It is broadly stated so as not to limit the company should the market for its products and services change over time. If Sunshine Learning Products had said it was in the business of providing computer keyboards for kids, it would have a problem someday when voice recognition makes keyboards obsolete. In contrast, saying that Sunshine Learning Products is in the business of helping children become computer literate in short, it is in the education business allows the company to think more expansively about how it can achieve its goals through a variety of products and services.
Sunshine Learning Products' direct customers are computer retail outlets. A company's customer is essentially the person or entity that pays the bill in this case, the retail store and the needs of that customer must be satisfied. But the end user is also a customer, and the needs of the end user the child who uses the keyboards are equally important. Ideally, the consumer's input has been part of the entire product design process and the marketing strategy as well so that the company can convince its customer the retailer that he or she will have sufficient demand for the product to make carrying it worthwhile.
The benefits to the customer include all those attributes of the product, service, and company that provide both the customer and the end user with a way to satisfy their needs. The benefits are really the central selling point and the differentiating factor between the company's products or services and the competitor's. Those benefits are provided to the customer through a distribution channel; in the case of Sunshine Learning Products, it is manufacturer direct to retailer.
Creating a concept statement forces the company to focus on the most important aspects of its business. After reading a well constructed concept statement, the reader should know exactly what the business is all about.
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Product Definition
'You cannot cost-cut your way to prosperity. The most important thing is great product …You have to lay out a vision people can all understand and buy into and you have to share the pain.'
Bill Ford CEO Ford Motor Co Financial Times 08.01.02
The product descriptor presents a complete and detailed description of the products or services being offered, who the target customers are, the unique aspects, and the benefits to customers, as well as spin off possibilities for additional innovation in products, service, or distribution. If the company is introducing a new product, one that needs to be designed and built, this section will summarise the product development process, leaving the more technical description for the process section of the plan. In addition, any perceived or actual environmental impact from the business and how the company intends to mitigate that impact should be noted.
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The Team
The management team section, the second section of the business plan, discusses the key members of the founding team (in the case of a new venture) or the principal management (in the case of a growing company), as well as the expertise they bring to the company. In a real life situation, it should also include an analysis of any expertise that may be missing from the team and how the company intends to fill the gap, through either hiring employees, independent contractors, or consultants. The management team section is arguably the most important section of the business plan because, as it is often said, a great concept can fail because of a poor management team, but a great team can take a mediocre concept and make it a success.
Just as the management team is the principal influence in the success of the company, it is also the chief reason companies fall.
For the purposes of this exercise, name each member and their area of primary executive responsibility.
The market analysis is a critical section because it presents support for the contention that there is a market and a demand for the products and services the company is offering. It begins with a complete understanding of the nature of the industry in which the company is operating, including such factors as barriers to entry, stage of growth, competitors, market share, and potential for growth, as well as sales patterns and gross margin percentages. A good understanding of the industry will also facilitate zeroing in on the target market, the primary customer for the company's products and services. An in depth analysis of the customer will include the size, location, buying habits, and needs of the customer base. An effective market analysis will also demonstrate that the company has talked to the customer and that there is market acceptance for the business concept. A complete customer profile based on interviews or focus groups will ensure that the company is on the right track.
In addition, a comprehensive analysis of both direct and indirect competitors and a description of emerging competitors and substitute products will demonstrate that the company has considered all possible competition. A competitive grid or table that compares competitors' products and services, benefits, distribution strategy, and marketing strategy with the entrepreneur's is useful to understanding what the new company faces by way of competition. It will also define those unique competitive advantages that the company must create.
Value Process Analysis
The process analysis section of the business plan presents a detailed description of the product models and services, including engineering specifications in laypersons' terms. The business plan, however, is not the place to provide copious pages of technical specifications and details in an effort to describe how the product or process works. Most outside readers of the plan are more interested in the benefits than in the mechanics of the product or process. In the version to be read by third parties, the benchmark question to be asked is: does the reader need to know this piece of information to understand the product or service?
A major portion of this section is devoted to a description of how the business will operate, where it will get its raw materials, how they will be manufactured and/or assembled, and what type and quantity of labour are required to operate the business.
Organisation Plan
The organisation section of the business plan describes the company culture and management style (e.g., team based, flat structure) that stems from the core values articulated in the business concept. It may also define major policies regarding employees and benefits.
Marketing and Sales Plan
The marketing plan consists of the philosophy, strategies, and tactics the company will use to build its customer base. It begins with a statement of the purpose of the plan; in other words, what is the company attempting to accomplish? It follows with the plan for achieving that purpose and the benefits that will accrue to the customer as a result. Likewise, the plan will identify the target market the unique market niche the company intends to occupy and the distribution channels it will use to reach the customer.
An important part of the marketing plan is establishing the company's identity, or how it will be perceived by the customer. The company's identity in the marketplace springs directly from the purpose it established for itself. For example, Starbucks Coffee places enormous importance on its employees. In an industry that regularly experiences high employee turnover and low wages, Starbucks views its employees as a competitive advantage and offers them a comprehensive compensation package, health care, and stock options to give them a vested interested in the company. This value is communicated to the customer in a very personal manner by the way Starbucks' employees treat their customers.
The marketing plan will also discuss the marketing mix tools (advertising, direct mail, promotions, etc.) that will be used to create customer awareness and build customer relationships, the media plan with the schedule of uses and costs of each, and the total marketing budget as a percentage of sales. (ref.KPI)
The financial plan presents the company's forecasts for the future of the business and the capital requirements for growth. Generally, these forecasts are in the form of pro forma financial statements broken out annually for the initial two to five years, and then a long tem objective at seven or ten years out. In addition, a break even forecast and relevant KPIs ref. the Critical Success Factor. The goal of this section is to demonstrate the financial health of the company and present the assumptions the company made in doing the forecasts. It's designed to reveal that all the claims about the product, sales, marketing strategy, and operational strategy can work financially to create a company that can survive and grow over the long term.
Projections should be of two types: conservative and aggressive. That way the reader sees that the entrepreneur is not just expressing naive enthusiasm, but is taking risk into account. An important part of a start up financial plan is a cash needs assessment, which details how much capital in terms of fixed costs, working capital, and start up funding is required to launch the business.
Growth Plan
Normally, the growth plan presents the methods by which it will obtain the resources it needs to successfully grow. In this module, the growth plan will note the initial public offering, and then consider its sources of long term debt. One should also bear in mind that at the termination of the simulation a company could offer its shareholders the potential for growth through acquisition, either on the basis of the funds that it has accumulated, or the notional value of its shares which reflects the value being created. Conversely, a weak company with a strong value image could seek value for its shareholders by being taken over. e.g. Volvo
KPIs
There are numerous Key Performance Indicators (KPIs)s, some of which may relate to your Critical Success Factors and Strategic Goals, and that can be tracked via the simulation. The following is a sample list to choose from:
Gross Margin % Sales Margin % PBT % Return on Assets %
Return on Shareholders Funds % Productivity (Cars / Worker / p.a.)
Factory % Stock Turn (p.a.) Market Share %
Sales Index Promotion % Sales Productivity Index
Strike Days Wages % Sales Research % Sales
Automation % Sales
