Professional Documents
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CHAPTER CONTENTS
Planning paradigm for new ventures Stages of growth model Fundamentals of a good feasibility plan
a general pattern of how to progress from an abstract idea to achieving sustained sales.
Paradigm encompasses a feasibility plan. Different models suggest different sequences for
for new venture development. It consists of distinct activities essential for a new venture to progress from an idea to a substantial enterprise. The four stages are: 1. PRE-START-UP STAGE 2. START-UP STAGE 3. EARLY GROWTH STAGE 4. LATER GROWTH STAGE
PRE-START-UP STAGE
The period during which entrepreneurs plan the
venture and do the preliminary work of obtaining resources and getting organized prior to start-up.
Entrepreneurs will try to answer questions about
PRE-START-UP ACTIVITIES
I. DEFINING BUSINESS CONCEPT What is the purpose of the venture? What does the entrepreneur want to accomplish with the business? II. PRODUCT-MARKET STUDY Product research: Is the product or service feasible? Realistic? Market research: Who will buy? Where are they? What niche? What competitors exist?
PRE-START-UP ACTIVITIES
III. FINANCIAL PLANNING
Financial projections: What cash is needed? How
will income be generated? What expenses are expected? What is invested? Borrowed? What is needed to meet operating requirements? IV. PRE-START-UP IMPLEMENTATION The entrepreneur must find resources, purchase beginning inventory, hire those needed at start-up, and obtain necessary licenses, permits, leases, facilities, and equipment.
START-UP STAGE
It is the initial period of business when the
entrepreneur must position the venture in a market and make necessary adjustments to assure survival. The start-up stage has no definite time frame, and there are no models to describe what a business does during this stage. The two objectives of the entrepreneurs are: 1. to meet operating objectives such as satisfying revenue and cost targets, and 2. to position the venture for long term growth.
venture may undergo major changes in markets, finances, and resource utilization. A period of intense monitoring, and growth can occur at different rates along a long continuum, ranging from slow growth through higher sales to explosive growth through quantum changes in consumer demand.
active competitors in an established industry when professional management may be more important than entrepreneurial verve. Companies reaching this stage often go public with stock offerings. Family fortunes turn into corporate equity positions, private investors convert their holdings into publicly traded securities, and management teams replace the entrepreneurial cadre.
service, and market planning. The start-up stage requires entrepreneurs to focus on implementation and early positioning. During the early growth stage, they are concerned with rapid changes in sales and resources. During the later growth stage, they must make a successful transition from personally managed enterprises to professionally managed companies.
planning activities, but it does not require the depth of research or details expected for an established enterprise. A feasibility plan is an outline of potential issues to address and a set of guidelines to help an entrepreneur make better decisions.
supported information. It should clearly identify products, services, markets, and the founders. It should be easy to read, complete, and accurate. Abstract language has to be avoided. It is wise to include a strong nondisclosure statement that states information in the plan is proprietary and cannot be copied, disclosed, shared, or otherwise compromised. This is to protect entrepreneurs from having their ideas stolen. Make the plan readable by keeping it short.
2. Business concept
3. Product or Service
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4. 5.
business Product or Service: Describe the product or service to be sold. Market characteristics: Describe market size, location, and customers. Entrepreneurial team: Describe the founders, key people, and their roles. Financial summary: Describe estimates of revenue and expenses, founders equity, debt and capital needed.
BUSINESS DESCRIPTION
Describe evolutionary steps that led to the business
formation. Explain the nature of market demand. Is the firm responding to an established demand, or is it trying to establish a new product or service in untested markets? Explain the nature of the business by clearly stating how the firm will operate and what the founders intend to accomplish. Explain the firms technological profile including description of equipments, wholesale networks, foreign licensing agreements etc.
PRODUCTS OR SERVICES
Describe the distinctive characteristics of the product, how
it works or is used, materials, costs, methods of manufacturing, proprietary protection (patents, trade marks, or copyrights), and potential competing (substitute) products. Most new products also will require validated testing, and many will require approval by regulatory agencies. For example, dental instruments and products have to be approved by the Food and Drug Administration (FDA). Restaurants and medical testing laboratories have to meet government health and safety requirements. Educational institutions are required to meet educational credential standards and comply with central and state regulations.
including retail, wholesale, catalog, telemarketing, personal sales representatives, or other approaches. SERVICES AND WARRANTIES: Description of service-after-sale policies, repair services, guarantees, and product warranties. MARKETING LEADERSHIP: Define leadership roles, persons responsible for marketing and sales.
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INVENTORY MANAGEMENT: Entrepreneurs have to explain their inventory control systems. Inventory must be purchased well in advance of sales. Inventory expenses will always precede sales revenue. Poor inventory and purchasing controls can result in stock-outs during peak periods and excessive inventory stockpiled during periods of poor sales. Poor inventory management may lead to business failure. HUMAN RESOURCE REQUIREMENTS: Human resource requirements should be estimated with details of the number of personnel and types of skills needed.
4. OPERATIONS:
R & D, manufacturing process, service structure, quality control, safety and maintenance activities should be described. LEGAL AND INSURANCE ISSUES: Entrepreneurs should consider insurance and legal protection to their business to avoid disasters.
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entrepreneurial team honestly and effectively. They should emphasize team members strengths, past successes, and positive characteristics. Each persons role in the new venture should be described briefly, including board members or investors who may not be involved directly in operations yet be able to influence decisions.
FINANCIAL DOCUMENTATION
Financial statements for a new venture, called pro formas,
are projections based on previously defined operating and marketing assumptions. The important financial documents are the following: Profit and loss statement or income statement showing revenue, cost of goods sold, operating expenses, and net income. Cash flow budget showing actual cash flow rather than accrual income Projected balance sheet summarizing assets and liabilities. Break-even analysis.
QUESTIONS
1.
Discuss the concept of a planning paradigm for new ventures. 2. What do you mean by Feasibility Plan? Explain the fundamentals of feasibility plan. 3. Explain the major components of an effective feasibility plan. 4. Explain in detail with examples Technical feasibility and Economic viability of a business opportunity. 5. Describe the four stage growth model of entrepreneurship.
QUESTIONS
6. Contrast entrepreneurial roles during various 7.
transition stages. Discuss the role of an entrepreneur during various transition stages of a venture Develop a feasibility plan for a new venture incorporating the common elements. Discuss the important stages of the life cycle of an entrepreneurial venture. Discuss how an entrepreneur can manage life cycle of a venture.
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