Tag Archives: Evaluating an Opportunity

Business Planning Overview

The purpose of the business plan is to recognize and define a business opportunity, describe how that opportunity will be seized by the management team, and to demonstrate that the business is feasible and worth the effort.

The successful entrepreneur is generally more inclined, once a business idea is selected, to sharpen the concept 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 purpose of the business plan is to recognize and define a business opportunity, describe how that opportunity will be seized by the management team, and to demonstrate that the business is feasible and worth the effort.

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.

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.

Where implementation of the plan requires participation of lenders and/or investors, the plan must clearly and convincingly communicate the financial proposal to the prospective stakeholders: how much you need from them, what kind of return they can expect, and how they can be paid back. Many entrepreneurs insist that their business concept is so clear in their heads that the written plan can be produced after start-up; this attitude “short-circuits” one of the major benefits of producing the plan. The discipline of writing a plan forces us to think through the steps we must take to get the business started, and, to “flesh out ideas, to look for weak spots and vulnerabilities”, according to business consultant Eric Siegel.

A well-conceived business plan can serve as a management tool to settle major policy issues, identify “keys to success”, establish goals and check-points, and consider long-term prospects. The plan must realistically assess the skills required for success of the venture, initially and over the long run, and match the skills and interests of the team to these requirements. Test the plan, and an accompanying oral presentation, on friends whose business judgment you value. Let them assume the role of a prospective investor or lender.

John B. Vinturella, Ph.D. has over 40 years’ experience as a management and strategic consultant, entrepreneur, and college professor. He is a principal in the business opportunity site www.jbv.com and its associated blog. John recently released his latest book, “8 Steps to Starting a Business”, available on Amazon.

Evaluating an Opportunity

A brief case study in entrepreneurship is presented to demonstrate how opportunities can be evaluated.

Business opportunities are often based on broad trends, such as:

  • Demographic, such as the “graying” of America (creating opportunities in health services, for example);
  • Sociological developments, like the “green” movement, with its emphasis on recycling and environmental sensitivity, and;
  • Cultural changes caused by changing economic conditions and technological developments.
  • Opportunities can also frequently be found in current and developing business trends such as:

  • The globalization of business,
  • The need for outsourcing created by downsizing, and
  • The burgeoning service economy.
  • The Internet and rapid growth of e-commerce have certainly created changes in the process of buying books and CD’s, trading stock, delivering information, and bidding on collectibles. Where do you see the next process to be transformed in a major way by the Internet?

    Let’s do a brief case study in opportunity:

    Neighborhood Coffee Shop

    I live in the eastern section of town, which is growing rapidly, and food and business services are not quite keeping up. The “East” is fairly isolated from the rest of the city by water, an interstate highway, and an industrial park, forming a separate and distinct market. “People” are saying that the East desperately needs a good coffee shop. (Who are these people? Are they just in our immediate circle? Are they representative enough of the area to extrapolate from?)

    Let us analyze some factors which indicate the opportunity potential of an idea:

  • The “window of opportunity” is opening, and will remain open long enough.
  • We cannot be the only entrepreneurs that perceive these opportunities. How long before the need becomes compelling enough for others to jump in?

  • Entry is feasible, and achievable with the committed principals.
  • Two friends want to be partners with me in a venture; one is managing a coffee shop across town, and willing to manage a startup. Between us, we could muster the capital for a coffee shop.

  • The proposed venture has some competitive advantage.
  • We were among the first to locate in the new area, and are very active in the local business community. We know of an ideal site, and the building manager is a friend. She is willing to sub-contract the beverage and light-meal/dessert services the building provides tenants.

  • The economics of the venture are “rewarding and forgiving.”
  • Materials costs are a small percentage of revenues; site preparation and equipment costs are minimal.

  • We can break even at what seems to be an easily achievable volume.
  • We may even want to consider a more upscale atmosphere based on what some say is the difference between a “coffeehouse” and a “coffee shop:” About two bucks a cup… A coffee shop is a place to grab a quick bite and a cheap cup of coffee.

    Eric Gerber of the MSN Network’s Sidewalk suggests that “A coffeehouse is a place to wax philosophical –
    Mozart or Bach, Faulkner or Fitzgerald, Xena or Hercules? – while seeing just how complicated you can make a simple drink like coffee: double latte espresso-chino with half decaf Jamaican Blue Mountain dark roast, extra low-fat foam and a Frangelica drizzle, please.”

    The conditions for starting a neighborhood coffee shop seem favorable, but there must be more that we can do to critically evaluate the venture while improving our chances of success. That “more” is market research, and do not leave the business launch pad without it!

    John B. Vinturella, Ph.D. has more than 40 years’ experience as an educator, manager, entrepreneur, and strategist. He founded and ran a highly successful business for 20 years. He is the author of “8 Steps to Starting a Business,” and “The Entrepreneur’s Fieldbook” and co-author of “Raising Entrepreneurial Capital,” now in its second edition.