In the previous lesson, we discussed the first two stages of the entrepreneurial process, determining that our commitment is sufficient, and selecting and evaluating the venture idea. Next, we must develop a plan as to how to bring our idea to market.
Once a business idea is selected, the concept must be sharpened by a detailed planning process. The result of this step is a comprehensive business plan, with its major components being the marketing “mix”, the strategic plan, operational and logistical structures, and the financial proposal.
The business plan is the “blueprint” for the implementation process. It focuses on the four major sub-plans: marketing; strategy; operational/logistic; and financial.
While the business plan often goes through some revision, it generally represents a rather advanced stage in the planning process. The primary product or service to be offered, based on the results of the market research, should be determined. Whether the business will be a start-up, purchase of an existing business or a franchise should certainly be firm at this point. Often, a specific business location is indicated, or at least a rather specific area.
Time estimates in a business plan should allow for meeting all the necessary regulatory requirements and acquisition of permits to get to a “customer-ready” condition. The amount of funding required and a general approach to raising these funds should be determined.
Marketing mix issues focus on how the product or service is differentiated from the competition. A business can differentiate itself on any of what are often referred to as the “four P’s” of marketing: product characteristics, price structure, place or method of distribution, and/or promotional strategy. How did our neighborhood coffee shop differentiate itself?
Strategic issues relate broadly to the company’s mission and goals. Every venture must continually assess its strengths and weaknesses, the opportunities to be seized, and any threats to the success and plans of the business. Operational issues relate to company structure, and the scope of the business. The operational plan addresses tangible items such as location, equipment, and methods of distribution. Decisions on these issues largely determine startup costs.
The financial proposal includes an estimate of the amount of money needed to start the venture, to absorb losses during the start-up period, and to provide sufficient working capital to avoid cash shortages. It projects sales and profitability over some period into the future, generally 3 to 5 years. Where outside funding is sought, it also describes distribution of ownership of the venture and methods of debt repayment and/or buyback of partial ownership
Sidebar: The Nature of Small Business
At this stage, a discussion of some broad characteristics of small business can add some perspective to the development of our plan.
What does small business have to do with entrepreneurship? A small business is the usual product of entrepreneurship. Can a person start a large business? Only 4% of businesses employ over 20 people at start-up. What kinds of businesses are the larger start-ups likely to be? My sense is that most would be food service businesses, and many of those would be franchises.
Over half of business start-ups consist of 1 or 2 employees. What kinds of businesses can you enter with only 1 or 2 employees? Most would probably be considered professional practices (medical, law, accounting) rather than businesses.
Small businesses are characterized by independent management, closely-held ownership, a primarily local area of operations, and a scale that is small in comparison with competitors. Many are small by design, or are “lifestyle” businesses, where the primary objective is employment for the principals. Many are intended to be more “entrepreneurial ventures,” with the intention of generating substantial growth in scale of operations and profitability.
Why do people start small businesses? The most frequently cited motivation for business start-ups is to allow the entrepreneur to achieve independence; money is secondary. Is this surprising? The other reasons named most often are that an opportunity presented itself, a person took over the family business, or the person simply wanted to be an entrepreneur. Identify your motivation.
For context, what reasons might people offer for joining a large corporation? For choosing a government career? A union job? Certainly, many people desire security, fringe benefits, and a predictable career “trajectory.”
What kind of people start businesses? Their skills are seldom different from those of people who succeed at working for others. Do they need to be their own boss because they are incapable of working for other people? The opposite is more often the case.
Most entrepreneurs value control, freedom, flexibility; and self-reliance. They generally desire responsibility and personal fulfillment. Most entrepreneurs are not “gamblers;” they have a preference for moderate risk (What is the largest financial risk that you would consider moderate?). They are always searching for opportunities, and willing to pursue some.
The more successful entrepreneurs tend to be proactive, assertive, and highly observant. They are efficient, quality-conscious, and good at planning and procedures. As business operators, they are committed to “partnership” with employees, customers, suppliers, and their community. Would these skills or personality traits lead to success at any professional pursuit?
Wishing you success,
John B. Vinturella, Ph.D.
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