Module:

Entrepreneurship
Dr Tamer Karam
Essentials of Entrepreneurship and Small
Business Management
Eighth Edition
Section 2: The Entrepreneurial Journey Begins

Chapter 5
Crafting a Business
Plan and Building a
Solid Strategic Plan

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Learning Objectives (1 of 2)
1. Explain the benefits of an effective
business plan.
2. Describe the elements of a solid
business plan.
3. Explain the “five Cs of credit” and
why they are important to potential
lenders and investors reviewing
business plans.
4. Understand the keys to making an
effective business plan
presentation.
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Learning Objectives (2 of 2)
5. Understand the importance of strategic management
to a small business.
6. Explain why and how a small business must
create a competitive advantage in the market.
7. Develop a strategic plan for a business using the
nine steps in the strategic management process.

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Benefits of Creating a Business Plan
Business Plan:
• A written summary of:
– An entrepreneur’s proposed business venture
– The operational and financial details
– The marketing opportunities and strategy
– The managers’ skills and abilities
• A business plan is the best insurance against
launching a business destined to fail or
mismanaging a potentially successful company.

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Essential Functions of a Business
Plan
1. Guiding the company by charting its
future course and
defining its strategy for following it.

2. Attracting lenders and investors who

will provide needed capital.

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A Plan Must Pass Three Tests
1. The Reality Test: proving that:
– A market really does exist for your product or service.
– You can actually build or provide it for the cost
estimates in the plan.
2. The Competitive Test: evaluates:
– A company’s position relative to its competitors.
– Management’s ability to create a company that will
gainan edge over its rivals.
3. The Value Test: proving that:
– A venture offers investors or lenders an attractive rate
of return or a high probability of repayment.

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Why Take the Time to Build a
Business Plan?
• Although building
a plan does not
guarantee success, it does increase your
chances of succeeding in business.

• A plan is like a road map that serves as a guide on

a journey through unfamiliar, harsh, and dangerous

Don’t attempt the trip

territory.

without a map!

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Key Elements of a Business Plan
• Title Page and Table of Contents
• Executive Summary
• Mission and Vision Statement
• Description of a Firm’s Product or Service
• Business and Industry Profile
• Competitor Analysis
• Marketing Strategy
• Entrepreneurs’ and Managers’ Resumes
• Plan of Operation
• Pro Forma (Projected) Financial Statements
• The Loan or Investment Proposal
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Executive Summary
• The executive summary is a written version of “the elevator
pitch”
– A good elevator pitch provides:
§ Context
§ Benefit
§ Target customers
§ Point of differentiation
§ Clincher

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Product or Service Description
• Describe the benefits customers get from the product
or
service
• A feature is a descriptive fact about a product or
service.
• A benefit is what the customer gains from the
product or
service feature.

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Competitor Analysis (1 of 2)
• Who are the company’s key competitors?
• What are there strengths and weaknesses?
• What are their strategies?
• How successful are they?
• What distinguishes the entrepreneur’s product or
service from others already in the market, and how
will these differences produce a competitive edge?

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Marketing Strategy (1 of 2)
• Show customer interest
– Prove that target customers actually need or want
the product or service.
• Document market claims
– Support market size and growth rates with facts.

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Marketing Strategy (2 of 2)
• Address:
– Target market
– Advertising and promotion
– Market size and trends
– Location
– Pricing
– Distribution

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Visualizing Risks and Rewards

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Tips for a Good Business Plan
• First impressions count! Use an attractive cover.
• Checks for errors.
• Make it visually appealing.
• Include a table of contents with page numbers.
• Make it interesting!
• Show that it will make money.
• Use spreadsheets for realistic financial forecasts.
• Include cash flow projections.
• Keep the plan “crisp.”
• Tell the truth.
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What Lenders and Investors Look for
in a Business Plan
• The “5 Cs” of Credit
– Capital
– Capacity
– Collateral
– Character
– Conditions

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The Pitch: Presenting the Plan
• The time allotted for presenting is usually less than
20 minutes, so it’s important to rehearse and be
prepared.
• A basic presentation should cover:
– Your company and its products and services.
– The problem to be solved.
– A description of your solution to the problem.
– Your company’s business model.
– Your company’s competitive edge.

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Tips for Making the Pitch (1 of 3)
• Prepare
• Practice your delivery and then practice some more.
• Demonstrate enthusiasm about the business but don’t
be overly emotional.
• Focus on communicating the dynamic opportunity
your idea offers and how you plan to capitalize on
it.
• Hook investors quickly with an up-front explanation of
the new venture, its opportunities, and the anticipated
benefits to them.

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Tips for Making the Pitch (2 of 3)
• Use visual aids.
• Follow the 10/20/30 rule for PowerPoint presentations.
• Explain how your company’s products or services
solve some problems and emphasize the factors that
make your company unique.
• Offer proof.
• Hit the highlights.
• Keep the presentation “crisp.”

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Tips for Making the Pitch (3 of 3)
• Avoid the use of technical terms that will be above
most of the audience.
• Remember to tell lenders and investors how they
will benefit.
• Be prepared for questions.
• Anticipate questions and prepare for them in advance.
• Focus your answers on what’s important to lenders
and investors.
• Follow up with every lender and investor to whom
you make a presentation.
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Building a Strategic Plan
• Entrepreneurs must be able to adapt to changes in the
marketplace.
• Strategic planning is a tool that can help: it involves
developing a game plan to guide the company as it
works to accomplish its vision, mission, goals, and
objectives and to keep it from straying off course.
– It’s crucial to building a successful business.

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A Major Shift . . .
• The biggest change facing entrepreneurs today is the shift
from financial capital to intellectual capital
– Human
– Structural
– Customer

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Building a Competitive Advantage
• Developing a strategic plan is crucial to creating a
sustainable competitive advantage: the aggregation of
factors that sets a company apart from its competitors
and gives it a unique position in the market that is
superior to its comapetition.

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Define Competitive Advantage
• Consider five aspects of a small company:
– Products they sell
– Service they provide
– Pricing they offer
– Way they sell
– Values to which they are committed

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The Key: Core Competencies
• Unique set of capabilities a company develops in key
areas, such as superior quality, customer service,
innovation, team-building, flexibility, responsiveness,
and others that allow it to vault past competitors.
– They are what a company does best.
– Best to rely on a natural advantage (often linked to a
company’s “smallness”).

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Building a Sustainable Competitive
Advantage

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Strategic Management Process
Step 1: Develop a vision and translate it into a
mission statement
Step 2: Assess strengths and weaknesses
Step 3: Scan environment for opportunities and threats
Step 4: Identify key success factors
Step 5: Analyze competition
Step 6: Create goals & objectives
Step 7: Formulate strategies
Step 8: Translate plans into actions
Step 9: Establish accurate controls

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Step 1: Develop a Vision and Create a
Mission Statement (1 of 2)
• Vision: the result of an entrepreneur’s dream of something
that does not exist yet and the ability to paint a compelling
picture of that dream for everyone to see.
• A clearly defined vision:
– Provides direction
– Determines decisions
– Inspires people
– Allows for perseverance in the face of adversity

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Step 1: Develop a Vision and Create a
Mission Statement (2 of 2)
• Mission statement: addresses the question: “what
business are we in?”
– Clarifies “why we are here” and “where we are
going.”
– Serves as a “strategic compass.”
– Examples: Bongo World, Nisolo Shoes, Badger
Mining, Putney, Inc., Clymb

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Elements of a Mission Statement
• Four key questions:
– What are we in business to accomplish?
– Who are we in to business to serve?
– How are we going to accomplish that purpose?
– What principles and beliefs form the foundation
of the way we do business?

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Step 2: Assess Company Strengths
and Weaknesses
Use a balance sheet to identify:
• Strengths
– Positive internal factors a company can draw
on to accomplish its mission, goals, and
objectives.
• Weaknesses
– Negative internal factors that inhibit a company’s
ability to accomplish its mission, goals, and
objectives.

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Step 3: Scan for Opportunities and
Threats
Identify and manage:
• Opportunities
– Positive external factors the company can exploit
to accomplish its mission, goals, and objectives.
• Threats
– Negative external factors that inhibit the firm's ability
to accomplish its mission, goals, and objectives.

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Identifying and Managing Threats
Threat Rating
Specific Severity Probability of (Severity ×
Source Threat (1 = Low, 10 = High) Occurrence (0 to 1) Probability, Max = 10)
1. Channels of distribution
2. Competition
3. Demographic changes
4. Globalization
5. Innovation
6. Waning customer or
supplier loyalty
7. Offshoring or outsourcing
8. Stage in product life cycle
9. Government regulation
10. Influence of special
interest groups
11. Influence of stakeholders
12. Changes in technology

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Step 4: Identify Key Success Factors
• Key Success Factors (KSFs): factors that determine the
relative success of market participants.
• The keys to unlocking the secrets of
competing successfully in a particular market
segment.
• Example: Five Guys Burgers and Fries

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Identifying Key Success Factors
List the specific skills, characteristics, and core
competences your business must possess if it is to be
successful in its market segment.

Key Success Factor How Your Company Rates . . .

1 Low 1 2 3 4 5 6 7 8 9 10 High
2 Low 1 2 3 4 5 6 7 8 9 10 High
3 Low 1 2 3 4 5 6 7 8 9 10 High
4 Low 1 2 3 4 5 6 7 8 9 10 High
5 Low 1 2 3 4 5 6 7 8 9 10 High
Conclusions:

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Step 5: Analyze the Competition (1 of 2)
• Small business owners believe they operate in a
highly competitive environment and the level of
competition is increasing.
• Yet, 97 percent of all U.S. businesses do not
systematically track the progress of their key
competitors.

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Step 5: Analyze the Competition (2 of 2)
• Goal of competitive intelligence:
– Conduct continuous rather than periodic
analysis of competition.
– Avoid surprises from existing competitors’ use of
new
strategies and tactics.
– Identify potential new competitors.
– Improve reaction time to competitors’ actions.
– Anticipate rivals’ next strategic moves.

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Competitor Analysis (2 of 2)
• Direct Competitors
– Offer the same products and services
– Customers often compare prices, features and
deals among these competitors when they shop
• Significant Competitors
– Offer some of the same or similar products or
services
– Product or service lines overlap but not completely
• Indirect Competitors
– Offer same or similar products in only a small
number of areas
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Collecting Competitive Intelligence (1 of 3)
• Monitor industry and trade publications.
• Talk to customers and suppliers.
• Debrief employees, especially sales representatives
and purchasing agents.
• Attend trade shows and conferences and
study competitors’ sales literature.
• Watch for competitor’s employment ads.

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Collecting Competitive Intelligence (2 of 3)
• Watch for competitor’s employment ads.
• Conduct patent searches for patents competitors
have filed.
• Get EPA reports for the factories of competing
manufacturers.
• Monitor direct competitors via social media.
• Learn about the kinds of equipment and raw materials
competitors are importing from the Journal of
Commerce Port Import Export Reporting Service.

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Collecting Competitive Intelligence (3 of 3)
• Buy competitors’ products and “benchmark” them.
• Get competitors’ credit reports.
• Check out the reports publicly-held competitors
must file with the SEC.
• Investigate UCC reports.
• Check out the resources in your local library.
• Use the Internet to learn more about competitors.
• Visit competing businesses to observe their
operations.

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Competitive Profile Matrix
Your Competitor Competitor
Business 1 2 blank
Key Success
Factors Weighted Weighted Weighted
(from Step 4) Weight Rating Score Rating Score Rating Score
Quality 0.25 4 1.00 2 0.50 2 0.50
Customer
0.20 3 0.60 3 0.60 3 0.60
retention
Location 0.15 4 0.60 3 0.45 4 0.60
Perception of
0.20 4 0.80 2 0.40 3 0.60
value
Cost control 0.20 3 0.60 1 0.20 4 0.80
Total 1.00 3.60 2.15 3.10

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Why Set Goals and Objectives?
• “Would you tell me, please, which way I ought to go
from here?” said Alice.
• “That depends a good deal on where you want to get
to,” said the Cheshire cat.
• “I don’t much care where.…” said Alice.
• “Then it doesn’t matter which way you go,” said the
cat.
From Lewis Carroll’s Alice in Wonderland

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Step 6: Create Company Goals and
Objectives
• Goals: Broad, long-range attributes to be accomplished.
– BHAGs (big hairy audacious goal)
– Inspire and focus the company

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What Makes an Effective BHAG?

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Step 7: Formulate Strategies
• Strategy: a road map of the actions an
entrepreneur draws up to achieve a company’s
mission, goals, and objectives.
• It is the company’s game plan for gaining a
competitive
advantage.

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Porter’s Three Strategies
• Strategy?
– Cost Leadership
– Differentiation
– Focus

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Three Strategic Options

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Cost Leadership (1 of 2)
• Goal: Be the low-cost producer in the industry or market
segment.
• Low-cost leaders have advantages:
– Reaching buyers who buy on the basis of price.
– The power to set the industry’s price floor.

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Cost Leadership (2 of 2)
• Cost Leadership works well when:
– Buyers are sensitive to price changes.
– Competing firms sell the same commodity
products.
– A company can benefit from economies of scale.
– Examples: Dollar General and Dollar Tree

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Differentiation
• Goal: Build customer loyalty by positioning its goods or
services in a unique or different fashion.
– Be special at something customers value.
• Key: Build basis for differentiation on a distinctive
competence, something that the small company is
uniquely good at doing in comparison to its competitors.
– Example: [Link]

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Focus
• Goal: Select one or more customer segments in a
market, identify customers’ special needs, wants, or
interests, and then target them with a product or
service designed specifically for them.
– Strategy builds on the differences among market
segments.
– Rather than try to serve the total market, the company
focuses on serving a niche (or several niches) within
that market.
– Example: I Do Now I Don’t

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Long Tail Markets

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Step 8: Translate Strategies into
Action Plans
• Proper execution of a company’s strategy
accounts for
85% of a company’s financial performance.
• Make plans workable by defining:
– Purpose
– Scope
– Contribution
– Resource requirements
– Timing

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Step 9: Establish Accurate Controls
• Plan establishes the standards against which
actual
performance is measured.
• Entrepreneur must:
– Identify and track key performance
indicators.
– Take corrective action.

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Balanced Scorecards (1 of 2)
• A set of measurements unique to a company that
includes
both financial and operational measures.
• Gives managers a quick, yet comprehensive, picture
of a company’s overall performance.

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Balanced Scorecards (2 of 2)
Five Perspectives:
1. Customer: How do customers see us?
2. Internal Business: At what must we excel?
3. Innovation and Learning: Can we continue to
improve and create value?
4. Financial: How do we look to shareholders?
5. Corporate Citizenship: Do we meet our responsibility
to society as a whole, the environment, the community,
and other external stakeholders?

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Balanced Scorecards and
Performance

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Conclusion
• The strategic planning process:
– Begins with the nine steps.
– Becomes more efficient each time.
– Teaches entrepreneurial discipline for a higher chance
of survival.

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