Chapter 08 - Business Plans: Seeing Audiences and Your Business Clearly

CHAPTER 8: BUSINESS PLANS: SEEING AUDIENCES AND YOUR BUSINESS CLEARLY

LEARNING OBJECTIVES

After you have read and studied this chapter, you should be able to:

1.  Understand why and when to develop a business plan

2.  Know how to tell the business plan story

3.  Learn the major sections of the classic business plan

4.  Focus business plan sections to meet specific needs

5.  Identify the major risks to business plan success.

6.  Master presenting your business plan to others.

VOCABULARY REVIEW

Listed below are the important terms found in this chapter. Choose the correct term for each definition and write it in the space provided.

Business plan / Key employee/partner plan / Proprietary technology
Cover letter / Mission statement / Research and development
Elevator pitch / New entrant business / Risk
Executive summary / Operational plan / Screening plan
External legitimacy / Pioneering business / Tagline
Informational plan / Pre-selling / Test marketing
Internal understanding / Private placement memo / Vision statement
Invention plan / Proof of concept website

1.  A(n) ______is a document designed to detail the major characteristics of a firm

2.  ______means that people outside the firm accept it as a viable business.

3.  Business plans also provide ______, a sort of master plan to help you understand exactly what all the aspects of your business are.

4.  The ______is a sentence that captures the essence of a business.

5.  A(n) ______, which is sort of a slogan, may also be a vision statement.

6.  The ______expands upon the core idea and includes things such as the firm’s competitive advantage.

7.  A(n) ______about 100 words and action-oriented and is used as a door-opener for more discussion.

8.  One to five pages that encapsulate an overview of the business, its model, the market, expectations and immediate goals is a(n) ______.

9.  The ______is a version of your plan written by an attorney for investors..

10.  A(n) ______is one page that introduced the business plan and specifies why the recipient is being asked to read the plan.

11.  If a company has one aspect that is a trade secret or is protected by patent, copyright, trademark or service mark, they have ______.

12.  ______is the process of creating new or improving existing products or services.

13.  A(n) ______is one who has a product or service that is truly new.

14.  A(n) ______has a product or service that already exists, but is the first of its kind in a market.

15.  A basic overview sent out to banks, investment clubs or venture capitalist is called a(n) ______

16.  A business plan with details about your product or service but no financials is called a(n) ______

17.  A(n) ______is an electronic informational plan.

18.  If you are seeking a partner, a(n) ______is the appropriate form of business plan.

19.  If you have come up with a truly new product idea that you intend to license, you may want to use a(n) ______

20.  A business plan that includes detailed specifications of the major techniques, methods, recipes and so on is a(n) ______.

21.  Any parts of the business plan that expose the company to potential losses are ______.

22.  If you sell your product in a limited area for a limited time (usually to test components of your marketing plan) you are ______.

23.  ______involves taking orders in advance of production for delivery at a later date.

ASSESSMENT CHECK

Learning Objective 1

1.  Name two reasons business plans help.

  1. ______
  2. ______

Learning Objective 2

2.  Name five business plan story types.

a.  ______

b.  ______

c.  ______

d.  ______

e.  ______

3.  The 5-M, or one page business, plan includes what five pieces of information?

a.  ______

b.  ______

c.  ______

d.  ______

e.  ______

Learning Objective 3

4.  What are the nine major categories in a classic business plan?

  1. ______
  2. ______
  3. ______
  4. ______
  5. ______
  6. ______
  7. ______
  8. ______
  9. ______

Learning Objective 4

5.  Name four cases where what the firm faces can mean modifications in the business plan. What major change is needed?

a.  ______

b.  ______

c.  ______

d.  ______

6.  Name seven special variations on the business plan. For what audience/purpose are they written?

  1. ______
  2. ______
  3. ______
  4. ______
  5. ______
  6. ______
  7. ______

Learning Objective 5

7.  What are the major risks to business plan success?

a.  ______

b.  ______

c.  ______

d.  ______

e.  ______

f.  ______

g.  ______

h.  ______

i.  ______

j.  ______

k.  ______


Learning Objective 6

8.  What are the four key influencers in presenting a business plan?

  1. ______
  2. ______
  3. ______
  4. ______

9.  What are the seven slides of the classical business plan presentation?

a.  ______

b.  ______

c.  ______

d.  ______

e.  ______

f.  ______

g.  ______

CRITICAL THINKING EXERCISES

Learning Objective 1

1.  Minnie was thinking about turning her cake-decorating hobby into a full time business. She had found a suitable location in her town and tracked down the necessary equipment on the Internet. She didn’t have quite all the money she needed so she decided to talk with her Uncle Andrew to see if he might be interested in giving or loaning her some of the start-up capital. The first thing Uncle Andrew asked, “So what is it exactly that you are going to do?”
Minnie replied, “Well I think I’ll specialize in birthday cakes – or maybe wedding cakes, I haven’t quite made up my mind yet.”
Uncle Andrew responded, “Which of those has a bigger market? Which of those has a bigger profit?”


Minnie answered, “I guess it’d be birthday cakes – everybody has a birthday. But maybe, wedding cakes would give me more money, because no one wants to scrimp on a wedding.”
”Ok,” Uncle Andrew said. “What about that money? How much do you need? How are you planning to spend it? What sorts of profits do you anticipate? When would you be able to pay back the loan?”
Minnie named the rent and the cost of the equipment she had found, “But, gosh, Uncle Andrew, how would I know what kind of profit I’ll get? I’ll just have to try different prices until I see what works. And I’ll pay you back, I just don’t know how soon.”
Uncle Andrew slowly shook his head. “Come back when you have the answers to those questions and others. What you need is a business plan.”
Minnie muttered under her breath as she left, “I don’t need a business plan. I’m only going to be a small business and won’t have any employees, why would I need a business plan?”
Explain why Minnie should consider a business plan.

Learning Objective 2

2.  Minnie has decided to get some help and she has approached you for some advise. Write a vision statement and a mission statement for her firm. Write a hook for an elevator pitch for her.

3.  Thanks to your help, Minnie has a vision statement, a mission statement, an elevator pitch and an executive summary. Over the next week she runs into the following people and needs to decide which to use. Help her decide which one or ones are most appropriate.

  1. Annette is available to work part-time for Minnie
  2. Anthony is a graphic design student who has agreed to mock-up a few print ads for her.
  3. Uncle Andrew needs to see that she’s serious about this business
  4. Anna is a colleague of Uncle Andrew’s who might consider investing, but can only offer Minnie a few minutes between appointments.


Learning Objective 3

4.  Now that Minnie knows what to do, she’s really working hard. She has gathered lots of information and is ready to put together a classic business plan. Help her decide whether each of the following goes in the Company, Market, Organization, or Financials sections or the Appendices.

  1. Middle-aged working women are her target customer.
  2. Minnie will need about $50,000 to cover her initial costs.
  3. Minnie plans to make custom designed cakes for every type of special occasion.
  4. Several of her former customers have written testimonial letters.
  5. She thinks that a sole proprietorship is the best option for her.
  6. She’s really proud of her newly revised mission statement
  7. She’s assuming that the economy will grow at approximately the same rate, that there will be no significant changes in her ingredient prices and that the local demographics will remain unchanged over the next five years.
  8. Anthony was able to product three mock-up ads that she plans to use
  9. She plans to be located at 2001 East College Street, which is in a popular strip shopping center at the edge of town.
  10. Right now, the other bakeries in town do not offer custom designed cakes nor do they offer the full line of flavors that Minnie plans to offer.

Learning Objective 4

5.  Below are some mini-cases describing situations where a focused (pioneering, new entrant, existing, or significant government involved business) or a specialized (screening, informational, invention, key employee/partner, operational plan, proof-of-concept Website or PPM) might be good ideas. Can you help these entrepreneurs decide which one they might need?

  1. Charlie is a great salesman but doesn’t know a lot about production. He has this wonderful idea for a new type of computer desk that is not only ergonomically designed, but comfortable as well. He’s decided that maybe it would be a good plan to have his buddy Lloyd, a manufacturing engineer and a woodworking hobbyist be a part of his business.
  2. When Tammy was in Tokyo, she had the opportunity to eat at a sushi restaurant. This restaurant had plates with individual pieces of sushi that moved past the customers on mini-conveyors. Customers helped themselves and when finished, took the plates to the cashier. The plates were color-coded by price and this was how the cashier determined the total bill. Tammy would like to try this in Toledo where no one has experienced this before.
  3. Debbie had developed a new Internet-supported computer educational program. Initial feedback showed that the product should have wide acceptance and strong sales, but Debbie needed to hire computer programmers and technicians to support the Internet based portions of the project, office staff and other personnel for around $500,000, plus she needed office space, computers, etc. for these


people – at least another $70,000. The local SCORE office helped her identify a couple of venture capital clubs and private investors who might be interested in funding this venture.

  1. Gerry’s biofuel senior project intrigued his professor who alerted some high-level venture capitalist considering making a sizeable contribution.
  2. Marc has developed a method of converting decomposing vegetation into a fuel source. He knows that there has to be companies, cities or even individuals out there that can validate his findings and that are interested in purchasing such technology, but he doesn’t know exactly who or where.
  3. Natalie is the manager of the Apple Tree, a produce market. She originally started with just a handmade stand at a rural intersection and the business gradually grew. She finances the growth with personal savings at first and then the profits from her business. Now, for the first time she needs to seek outside financing for a new building she wants to build and needs to have a business plan.
  4. Phil runs Another Chance Outreach Center in a major Northeast city. The center is fully funded by a religious group and other local philanthropists and has had a business plan since inception. Another Chance has grown steadily through the past fifteen years that Phil has been the director. Phil has learned a lot in these fifteen years – who is likely to hire his clients, who will provide clothing, who will donate meals, who will provide educational support, etc., etc. and Phil has this wealth of knowledge stored in his head. Phil is beginning to experience burnout and the Center is getting just too big for a single person to run. As he trains new staff to assist him, he wants to be sure they know the full scope of the Center’s outreach.

Learning Objective 5

6.  Although Minnie (from above) has learned a lot, her first business plan had some problems. Below are some statements that were found in her plan. Indicate if the statement is a problem or not and, if it is a problem, which of the six risks does it fit.

  1. My competition is the two other bakeries in the area and several grocery stores that sell pre-made cakes.
  2. According to my cash flow projections, I should have enough cash on hand to cover at least three weeks expenses.
  3. According to my income projections, the firm should reach breakeven within six months.
  4. There are 100,000 people in my marketing area and every one of them has a birthday. If my profit is only $1 per cake, I should make $100,000 in my first year.
  5. There is no other business in the area making and selling custom-designed cakes
  6. My assets are $50,000. My liabilities are $40,000 and I have $20,000 in equity.
  7. This business plan is for a bakery.

7.  It’s three minutes before her Pitch Deck presentation to her Uncle Andrew, his colleague Anna and several other investors, and Minnie has just dropped her slides.


Can you put them into the proper order?

1.

2.

3.