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Chapter 8
Developing the Business Plan
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Learning Outcomes
Describe the business planning process
Explain the structure of the business plan
Discuss how to prepare a persuasive business plan
Organize and structure a business plan to
effectively present your business.
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Chapter Outline
The Road to the Business Plan
The Business Plan Structure
Preparing the Persuasive Business Plan

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What Is a Business Plan?
Business Plan
A document that outlines the basic idea underlying a
business and describes related startup considerations
Identifies the nature and setting of the business
opportunity
Presents the entrepreneurs game plan for exploiting
the opportunity
Where are we now, where do we want to go, and how
will we get there? (Strategic Questions)
Identifies factors most likely to affect the ventures
success or failure
Serves as the entrepreneurs tool for raising capital
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The Need for a Business Plan
Primary Functions
Provides a clear statement of goals and strategies for
internal use
Imposes discipline on the owner and management
team

Serves as a selling document to outsiders
Provides a credible overview for prospective
customers, suppliers, and investors
Helps secure favorable credit terms from suppliers
Opens approaches to lenders and other sources of
financing
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The Value of the Business Plan
The business plan is about an execution
strategy to implement the business
concept

The business plan is a tool business owners
use to enhance their chances of successful
growth in a more complex global
marketplace

It is important that all the key management
be involved in developing the business
plan.
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The Value of the Business Plan - 2
It is a reality check for the entrepreneur, insuring
that the entrepreneur is aware of all aspects of the
business

It is a complete and comprehensive picture of the
business at a specific point in time

It is a statement of intent for third parties who
may be interested in becoming involved with the
business. (investors, lenders, key management
personnel, strategic partners, etc)
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S/he who fails to plan,
plans to fail
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Questions...
Who are the principal outside readers of the
business plan?

What are they looking for?

What do they consider while evaluating a business
plan?
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Attracting Prospective Investors
Attracting Investors
A business plan must be an effective marketing document
that quickly captures investor interest.

Understanding the Investors Perspective
Entrepreneurs are optimists, and focus on success
Investors are skeptics, and focus on potential failure.
Investors focus on break-even and positive cash flow.
Investors have a short attention span, and are easily
distracted by poor preparation, vague information, and a
lack of convincing evidence.
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Features of Plans that Attract Investors
Plans that speak the investors language:
Are brief, not extremely long in written length.
Have an attractive overall appearance.
Are well-organized with a table of
contents and numbered pages.
Are market-oriented in meeting
customer needs; are not
product-oriented.
Show evidence of customer
acceptance of the proposed
product or service.
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Business Plans that Attract Investors
(contd.)
Have believable financial projections with key data
explained and documented
Recognize the investors needs for required rates of
return on investments.
Demonstrate evidence of focus on a limited number of
products or services
Have a proprietary market position (competitive
advantage) through patents, copyrights, and/or
trademarks
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Features of Plans Unattractive to Investors
Plans that create unfavorable reactions:
Show an infatuation with the product or service and
downplay market needs or acceptance.
Are based on financial projections at odds with accepted
industry norms.
Have unrealistic growth projections.
Contain a need for custom or
applications engineering,
which makes substantial
growth difficult.
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Lenders consider1
The amount of money that the entrepreneur wishes
to borrow. It is important for the entrepreneur to
justify this figure

What the loan will accomplish; that is, how the
money will be used to improve the companys
financial position

The type of collateral the company can offer. Only
certain assets of the business have value to a banker,
things such as industry-standard equipment and
facilities that can relatively easily be converted to a
new use.
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Lenders consider2
How the business will repay the loan

How the bank will protect itself should the business
not meet its projections

How much of a stake in the business the
entrepreneur controls. Bankers want to know that
entrepreneurs have skin in the game -- that is,
the entrepreneur should have invested capital in
the business so that they are less likely to walk
away should the business run into problems.
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Summary Features of a Successful Business
Plan 1
It must be arranged appropriately, with an executive
summary, a table of contents, and chapters in the right
order.
It must be the right length and have the right
appearancenot too long and not too short, not too fancy
and not too plain.
It must give a sense of what the founders and the company
expect to accomplish three to seven years into the future.
It must explain in quantitative and qualitative terms the
benefit to the user of the companys products or services.
It must present hard evidence of the marketability of the
products or services.
It must justify financially the means chosen to sell the
products or services.
It must explain and justify the level of product
development which has been achieved and describe in
appropriate detail the manufacturing process and
associated costs.
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Summary Features of a Successful Business
Plan - 2
It must portray the partners as a team of experienced
managers with complementary business skills.
It must suggest as high an overall rating as possible of
the ventures product development and team
sophistication.
It must contain believable financial projections, with the
key data explained and documented.
It must show how investors can cash out in three to seven
years, with appropriate capital appreciation.
It must be presented to the most potentially receptive
financiers possible to avoid wasting precious time as
company funds dwindle.
It must be easily and concisely explainable in a well-
orchestrated oral presentation.
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Helpful phrases for your Business Plan! - 1
A humorous look at planning... by W. Sahlman, Harvard Business Review, July/August 1997
We conservatively project.
We read a book that said we had to be a $50 million company in 5 years, so we
reverse engineered the numbers
We took our best estimate and divided by 2.
We accidentally divided by .5
We project a 10% margin.
We did not modify any of the assumptions in the business plan template that we
downloaded from the internet
The project is 98% complete.
To complete the remaining 2% will take as long as it took to create the 98% but
will cost twice as much
Our business model is proven
If you take the evidence from the past week for the best of our 50 locations and
extrapolate it for all the others
We have a six-month lead
We tried not to find out how many other people have a six-month lead
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Helpful phrases for your Business Plan! - 2
We only need a 10% market share
So do the other 50 entrants getting funded
Customers are clamoring for our product
We havent asked them to pay for it yetall our current customers are relatives
We are the low-cost producer.
We havent produced anything yet, but we are confident we will be able to
We have no competition
Only IBM, Microsoft, and Apple have announced plans to enter the business
Our management team has a great deal of experience
Consuming the product or service
A select group of investors is considering the plan.
We mailed a copy of the plan to everyone we could think of
We seek a value-added investor
We are looking for a passive, dumb-as-rocks investor
If you invest on our terms, you will earn a 68% return.
If everything that could ever conceivably go right does go right, you might get
your money back
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Seriously Preparing a Business Plan
Two issues critical in preparing a business plan:

The basic format and effectiveness of the written
presentation
Clear writing that effectively communicates

The content of the plan
Factual support for the concept
in the form of strong supporting
evidence
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Contents of a Business Plan
Executive Summary
2 3 pages, max
Table of Contents
Business Concept
What is the business?
Who is the customer?
How will the benefit be delivered?
What is the differentiation strategy?
Founding Management Team
Industry / Market Analysis
Industry Analysis and demographics
Customer profile and market segments
Competitor analysis
Entry strategy
Product / Service Plan
Operations Plan
Location and facilities
Outsourcing plans
Manufacturing and delivery (distribution)

Organization Plan
Management philosophy and culture
Legal structure
Organization chart
Staffing plan
Marketing Plan
Target market, niche
Plan to reach first customer
(Advertising)
Financial Plan
Financial assumptions
Capital requirements
Pro forma statements
Funding plan
Growth Plan
Contingency Plan
Timeline to Launch
Bibliography / Endnotes
Appendices
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Business Plan Outline
Executive Summary
Include the most important points from all
sections of the business plan

Keep the summary to two or three pages in
length

Make sure that the first sentence captures the
readers attention and the first paragraph
presents the business concept in a compelling
way.
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Business Plan Outline - 2
Table of Contents

The Business Concept
What is the business?
Who is the customer?
What is the value proposition or benefit(s) being delivered
to the customer?
How will the benefit be delivered (distribution)?
What is the differentiation strategy?
What is the business model?
What are the spin-offs from your original
products/services, and what is the companys potential
for growth?
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Business Plan Outline - 3
Founding or Management Team
Qualifications of founding team
How critical tasks will be covered
Gap analysis, or whats missing (professional advisors, board
of directors, independent contractors)

Industry/Market Analysis
Industry analysis
Demographics, major players, trends, etc.
Target market analysis
Demographics, customer grid or market segmentation, etc.
Customer profile (based on primary research)
Competitor analysis and competitive advantages
(competitive grid)
Distribution channels (alternatives and risk/benefit)
Entry strategy (initial market penetration, first customer)
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Business Plan Outline - 4
Product/Service Plan
- Detailed description and unique features of
product/service
- Technology assessment (if applicable)
- Plan for prototyping and testing (all businesses require
this)
- Tasks and timeline to completion of product or service
prototype (all businesses)
- Acquisition of intellectual property

Operations Plan
- Location and facilities
- Business processes
- Plan for outsourcing
- Manufacturing and distribution

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Business Plan Outline - 5
Organization Plan
Philosophy of management and company culture
Legal structure of the company
Organizational chart
Key management and staff
Staff duties and responsibilities

Marketing Plan
Purpose of marketing plan
Target market
Unique market niche
Business identity
Plan to reach first customer
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Business Plan Outline - 6
Financial Plan

Detailed business model
Risk factors and mediation
Summary of capital requirements
Initial Capital Investments (equipment, buildings, etc)
Initial Inventory
Working Capital
Start-up Expenses (one-time only)
Funding plan...Where will the start-up capital (funds) come
from?
Narrative assumptions for financial statements
A full set of pro forma financial statements for at least 3
years
Income Statements (monthly for first year +)
Cash Flow Analysis (monthly for first year +)
Balance Sheets
Break-even analysis and payback period

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Business Plan Outline - 7
Growth Plan
Strategy for growth
Resources required Infrastructure changes

Contingency Plan (and Harvest Strategy?)
Strategies for dealing with deviations from the plan
Strategies for harvesting the wealth created from the
business
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Business Plan Outline - 8
Timeline to Launch
Tasks that will need to be accomplished up to the date
of launch of the business in the order of their
completion. Include milestones like closing the deal,
beginning construction (or renovation), grand opening
day, launch day for a new product/service, etc.
This is effectively accomplished with a line graph

Bibliography or Endnotes
Footnotes, sources cited, explanations, etc.

Appendices (A, B, C, etc.)
Questionnaires, detailed analyses, maps, forms,
rsums, etc.
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Executive Summary
The compelling story of the business idea.
A two-page document that presents the critical
success drivers from all the sections of the plan.
Actually, this is the last thing you normally write,
after all the other work is done.
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Business Concept
The business concept
gives the reader a clear
understanding of the
business: the purpose,
mission, and product or
service concept.
Getty Images
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Management Team
The management team
section is arguably the
most important section
of the business plan.
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.
Getty Images
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Industry/Market Analysis
The industry is the context or environment in
which the business operates, so this section
of the business plan presents a detailed
analysis of the state of the industry: where
it is in the life cycle, the defining
characteristics, opinion leaders, and much
more.

In addition, a comprehensive analysis of
both direct and indirect competitors and a
description of emerging competitors and
substitute products demonstrates that the
company has considered all possible
competition.
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Product/Service Description
The product/service description presents a detailed
description of the products or services being
offered, who the target customers are, the unique
aspects and the benefits to customers, spin-off
possibilities for additional innovation in products,
services, or distribution channels.
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Milestone Planning
1. Completion of concept
and product testing
2. Completion of
prototype
3. First financing
4. Completion of initial
plant tests (pilot or beta
test)
The product/service description may benefit from milestone
planning. This plan includes:

Getty Images
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Milestone Planning
5. Market testing
6. Production start-up
7. Bellwether sale (first
substantial sale)
8. First competitive
action
9. First redesign or
redirection
10. First significant price
change
Getty Images
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Product/Service Plan
This section of the business plan addresses
the status of product development as well as
additional steps, such as intellectual property
acquisition, that must be taken before
having a product that is ready to sell to the
public.

It also includes the time and cost
requirements for completing the
development tasks.
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Operations Plan
Identifies the location and facilities needed to
operate the business

Depicts outsourced and in-house functions

Identifies the manufacturing (or service) layout
and the distribution system

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Organization Plan
The organization section of the business plan deals
with the design of the business

describes the company culture and management
style or operating philosophy

Discusses the legal structure and distribution of
ownership in the company.

Identifies duties and responsibilities of managerial
and staff positions (organizational chart), and
reviews major policies regarding employees and
benefits.
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Marketing Plan
The marketing plan
Consists of the philosophy, strategies, and
tactics the company will use to build its
customer base.
Establishes the companys identity
Discusses the marketing tools (advertising,
direct mail, trade shows, etc.) that are 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.
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Financial Plan
The financial plan presents the companys
forecasts for the future of the business and the
capital requirements for growth.
It also reveals where the necessary funds for growth
and operations are coming from.
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Growth Plan
The growth plan presents the company strategy for
growing beyond its current status and the
methods by which it will obtain the resources it
needs to successfully grow.
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Appendix
The appendix is the place to put supporting
documents and items that can be easily pulled out if
they are not appropriate for a particular reader.
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Contingency Plan
The contingency plan is simply a way to
recognize that sometimes the best-laid
plans dont work the way the company
intended.

It presents potential scenarios, usually
dealing with situations such as unexpected
high or low growth, or changing economic
conditions, and then suggests a plan to
minimize the impact on the company.
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PREPARING THE
PERSUASIVE BUSINESS PLAN
What need is being
served?
Can the founding team
successfully execute the
plan?
Why is this the right
time to launch this
business?
What is the ventures
bundle of competitive
advantages?
How will the business
make money?
What kind of start-up
capital is required?

An effective business plan will answer a number of
fundamental questions that anyone interested in the
business will want to know.
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Business Plan Pitfalls
Projecting a level of growth for the business that
exceeds the capabilities of the team and the
business.
Entrepreneurs pride themselves on their ability to
do (too) many things at once, and in the early
stages of a new venture, they may become
overwhelmed.
Projecting operational performance that exceeds
industry averages.
Underestimating the need for capital to either
begin the business or to grow the business.
Using price as a competitive strategy.
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Keeping the Right Perspective
Good business plans dont ensure success.
Effective implementation is what succeeds
.
Writing a business plan is primarily an ongoing process and
only secondarily the means to an outcome.
The process is just as important asif not more so than
the finished product.

The business plan represents what is anticipated; a good
entrepreneur adapts the plan to fit the unexpected.
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Class Exercise
Discuss the role of the business plan and determine
how it differs from a feasibility study.