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CHAPTER 2: BUSINESS PLANNING

2.1 INTRODUCTION
• To start any type of business or expand the existing one needs to work on
opportunity identification and evaluation, business idea development and
then prepare business plan

2.2 Opportunity Identification and Evaluation

• initial stage in the entrepreneurial process is the identification and
refinement of a viable economic opportunity that exists in the market
o Without the recognition of an opportunity the entrepreneurial
process is likely to result in failure
• opportunity identification and evaluation stage can be divided into five
main steps
1. Scanning the Environment/ Getting the Idea
• While scanning the environment it may be provide you with idea
and business opportunities
o Idea is a thought or suggestion about a possible course of
action
o opportunity is a favorable time or set of circumstances for
doing something
• A business opportunity is a gap left in a market by those who
currently serve it, giving a chance to others to add unrealized
value by performing differently from and better than
competitors in order to create new possibilities
• Business opportunities are distinguished from ideas; an idea is
not synonymous with opportunity
o Successful venturing may well rest upon the ability of an
individual to recognize or distinguish an opportunity from
an idea
2. Opportunity Identification
• It is the ability to see, to discover and exploit opportunities that
others miss
o It is the process of seeking out better ways of competing
 o includes scanning the informational environment, being
able to capture, recognize and make effective use of
abstract, implicit and changing information from the
changing external environments
• It is important for the entrepreneur to understand the cause of
the opportunity
o Is it technological change?
o Is it market shift?
o Is it government regulation?
o Is it competition?
These factors and the resulting opportunity have a different
market size and time dimension
• market size and the length of the window of
opportunity form the primary basis for determining
risks and rewards which serves for opportunity
evaluation
3. Opportunity Development
• It is the process of combining resources to pursue a market
opportunity identified
o involves systematic research to refine the idea to the most
promising high potential opportunity
4. Opportunity Evaluation
• A professional executed evaluation can tell whether the specific
product or service has the returns needed to justify the
investment and the risk to be taken
• Opportunity screening and evaluation is the most critical element
of the entrepreneurial process
• This evaluation process involves looking at
o the creation and length of the opportunity
o its real and perceived value
o its risks and returns
o it’s fit with the personal skills and goals of the
entrepreneur
o its differential advantage in its competitive environment
 • evaluating the opportunity must answer the questions listed
below among many others
o What competitive advantage / benefits does the product
have?
o Where is the market demand? What is the target market? Is
it generic or a niche?
o Timing and length of the window of opportunity?
o How much will it cost to develop the product and
commercialize it?
o Where is the money to be made in this activity? What are
the gross margins?
o How much capital (people, operating expense and assets) is
required to start?
o What risks (real and perceived) are inherent with the
product/service?
5. Assessment of the Entrepreneurial Team
• Regardless of how right the opportunity may seem to be, it will
not make a successful business unless it is developed by a team
with strong skills
• Some of the team factors and questions for opportunity
evaluation
o Focus: Is the founder really an entrepreneur? Does the
entrepreneur (or his team) have some experience?
o Selling: Does the team have the necessary selling and
closing skills?
o Management: Does the team have the necessary
management and technical skills? Who will work full time?
o Ownership: Have the critical decisions about ownership
and equity splits been resolved?

2.3 Business Idea Development

• A business idea is a short and precise description of the basic operation of
an intended business
• There are three types of business ideas
 o Old Idea – Here an individual copies an existing business idea from
someone
o Old Idea with Modification – In this case the person accepts an old
idea from someone and then modifies it in some way to fit a
potential customer’s demand
o A New Idea – This one involves the invention of something new for
the first time

2.4 Business Idea Identification

• Your business idea will tell you:
o Which need will your business fulfill for the customers and what kind
of customers will you attract?
o What good or service will your business sell?
o Who will your business sell to?
o How is your business going to sell its goods or services?
o How much will your business depend upon and impact the
environment?
▪ A good business idea will be compatible with the sustainable
use of natural resources and will respect the social and natural
environment on which it depends
• All business ideas are not equally worth. to identify promising business idea
among others, it is important to answer the above raised questions

2.4.1 The Need will Your Business Fulfill for the Customers
• Your business idea should always have customers and their needs in mind

2.4.2 Good or Service will your Business Sell

• Depending on your skills and the needs of the customers, you should
decide which good or service your business will sell
• must be goods or services that people are willing to pay for and at a price
that will allow you to make a profit
• A good - an item that people pay for and use
o may be something you make yourself or it may be something you buy
to resell
 o E.g Tools, baked goods, clothes etc.
• A service - is something you do for people that they then pay you for
o E.g delivering goods, banking, babysitting etc.

2.4.3 Identifies Potential Customer

• it is essential that you know who your customers will be
o Will you sell to a specific type of customer or to everyone in
an area?
• There must be enough people who are able and willing to pay for
your goods and services or the business will not survive
2.4.4 Strategy for Selling Goods or Services/ How is Your Business
Going to Sell Good or Services?
• A manufacturer can sell either
• directly to customers, to retailers
• to wholesalers
2.4.5 Relation between Business and Environment
• Your business can only be sustainable in the long run if it works in
harmony with the social and natural environment
• How much does your business depend on the environment?
Does it rely on the weather, soil or other natural resources?
• Does it need any specific type of labor from the local
community? Does it need the local community to support it?
• What should you do to make sure that your business
nurtures the natural environment and helps the local
community?
• How would you minimize or reverse any negative effect that
your business might have?
2.5 Methods for Generating Business Ideas
• Questions to ask about your business idea
o Which need will my business fulfill?
o What good/service will I provide?
o To whom will I sell?
o How will I sell my service?
o How much will my business depend upon and impact the
environment?
• Every business idea should be based on knowledge of the market and its
needs
o The market refers to people who might want to buy a good or
service; i.e. the customers
▪ The market differs from place to place, depending on who
lives in the area, how they live and for what goods or services
they spend their money
▪ When you understand the market in your area, you might
recognize many business ideas that you may have previously
ignored
• When generating business ideas, it is best to try to keep your mind open to
everything
o Your first goal is to think of as many ideas as possible and make a
list of all the possible business opportunities
o then can scan the list and nail down the idea(s) that sound most
feasible to you and that you think will be most profitable
• There are many ways to come up with business ideas, such as
o surveying local businesses
o asking existing business owners
• a few different approaches to generating business ideas
1. Learn from successful business owners
• You can learn a lot from people in your area who have already gone
through the process of establishing a business
• You should try to get the following information from them:
▪ What kind of idea did these businesses start with?
▪ Where did the ideas come from?
▪ How did they develop their ideas into successful businesses?
 ▪ How does the business profit and fit into the local
environment?
▪ Where did they get the money to start their business?
2. Draw From Experience
• Your own Experience
o Look at the list of your interests, your experiences and your
networks
▪ there any possible business ideas that you can derive
from your own past experience?
• Other People’s Experience
o The people around you are potential customers
▪ It is important to understand their experience trying to
find goods and services that are unavailable or not
exactly what they need
▪ Listen carefully to what these people say about their
shopping experience
▪ the things they would like to find that are not locally
available
o Expand your social knowledge by talking to people from
different age groups, social classes, etc.
▪ You can also visit community groups, colleges, etc. for a
greater understanding of the market
3. Survey Your Local Business Area
• look around your local community
▪ Find out what type of businesses are already operating in
your area and see if you can identify any gaps in the market
4. Scanning Your Environment
• You can use your creativity to find more business ideas in your area
▪ Look at the list of existing local businesses
• If the list has included most of the local markets, you
may be able to learn about the industries or service
providers on which the local economy relies
• think about business ideas by considering all the resources and
institutions in your area. For example, think about:
▪ Natural Resources
• Think of what is abundantly available in your area that
could be made into useful products without harming the
environment
o E.g Perhaps there is good clay soil in the area that
can be used for making bricks. It may be used for
other business ventures such as making plates,
cups or tiles
• Think about a way to use this resource that would
enable you to continue working with it for many years
o make sure that your business idea will not
exhaust the natural resource that would be the
foundation of your business
▪ Characteristics and Skills of People in the Local Community
• Consider whether the people in your area have some
special characteristics or skills that could be useful for a
business:
o people who are good artisans, tailors or
carpenters?
o people who have specific skills creating items
unique to your area?
o Are there recent caregivers, nurses or people who
could offer services to children, the elderly or the
sick?
o Is your community digitally connected?
o Is the infrastructure in your community well
developed?
▪ Waste Products
• Business opportunities can also be generated by using
materials that have been previously used by both
homeowners and businesses
o Think about the possible use of waste materials
for the production of other useful and
marketable items
 o Recyclable waste products can be identified by
analyzing certain items to see how they are
discarded
• Man-made waste has a detrimental effect on the
environment
o In most cases, companies are keen to work with
entrepreneurs who can turn their waste products
into valuable and marketable items
• Is there a possibility that you could recycle something
that is found in abundance in your neighborhood?
• Is there a way of using resources more efficiently?
▪ Import Substitution
• Can you think of anything that is imported that might be
made locally?
o Some imported goods have high import duties,
making them very expensive
o You could investigate the possibility of operating a
business that can easily make the imported goods
locally
▪ Publications
• Publications from the internet and other printed
material may help you find ideas
• There are also web-based businesses that you can
search from home if you have internet connection
▪ Trade Fairs and Exhibitions
• Attending these fairs may give you exposure to a
number of new business ideas that you had not
previously considered
5. Brainstorming
▪ Brainstorming means opening up your mind and thinking
about many different ideas
• You start with a word or a topic and then write down
everything that comes to mind relating to that subject
 • Good ideas can come from concepts that initially seem
strange
• Brainstorming works best in a group
6. Structured Brainstorming
▪ Structured brainstorming is when you think of the different
processes that are involved in the operation of a particular
business and the goods/services that can be offered with
respect to those processes
• This is different from thinking about random items
related to a particular business field and type
▪ Try to think of all the businesses that are related to different
aspects of a product:
• Those involved in production
• Those involved in the selling process
• Those involved in recycling or re-using materials
• Those indirectly related (spin-offs)
• Those involved in servicing
▪ As far as all brainstorming exercises are concerned, it is
essential to recall the basic rules of brainstorming:
• no criticizing or censoring of ideas
• wild and turbulent sessions allowing the uninterrupted
flow of ideas
• no interruption once the basic idea of the exercise has
been introduced
• no shyness and no limitations
7. Focus Group
▪ Focus group is a group of individuals providing information on
a structured format which is led by moderators
▪ characterized by an open and in-depth discussion
▪ The moderator focuses the discussion in either Directive or
non-directive manner
▪ It is useful for both getting new idea on existing product or
screening idea/concepts
8. Problem Inventory Analysis
 ▪ It is similar to focus group to generate new product ideas, The
difference is rather than generating new idea themselves,
consumers are provided with a list of problems in general
product category
▪ It is a method of obtaining “New Idea” and solutions by
focusing on problems
9. Free Association
▪ This technique is particularly helpful in developing an entirely
new slant to a problem
▪ First, a word or phrase related to the problem is written down,
then another and another, with each new word attempting to
add something new to the ongoing thought processes,
thereby creating a chain of ideas ending with a new
product/service idea emerging
10. Forced Relationships
▪ is the process of forcing relationships among some product
combinations
▪ It is a technique that asks questions about objects or ideas in
an effort to develop a new idea
11. Attribute Listing
▪ an idea-finding technique that has the entrepreneur list the
attributes of an item or problem and then look at each from a
variety of viewpoints
• originally unrelated objects can be brought together to
form a new combination and possibly a new
product/service that better satisfies a need.

2.6 Business Idea Screening

• Idea screening is the process to spot good ideas and eliminate poor one
• To screen the business idea generated, three approaches are discussed as
follow:
• Macro screening
▪ aimed screening down ideas to 10
▪ the common criteria are:
 • Are my own competencies (see strength detector)
sufficient?
• Can I finance it to a large extent with my own equity?
• Will people buy my product/service (i.e. is it needed and
can people afford it)?
• Micro Screening
▪ aimed screening down ideas into 3
▪ common criteria used for screening are:
• Solvent demand
• Availability of raw materials
• Availability of personal skills
• Availability of financial resources
• Scoring the Suitability of Business Idea
▪ This approach is most appropriate when deciding on starting a
business
▪ we use score business ideas by assigning a rating from 1 to 3
for each question, with 3 being the strongest
• Are you familiar with the operations of this type of
business?
• Does the business meet your investment goals?
• Does the business meet your income goals?
• Does the business generate sufficient profits?
• Do you feel comfortable with the business?
• Does your family feel comfortable with the business?
• Does the business satisfy your sense of status?
• Is the business compatible with your people skills?
• Is there good growth projected for the overall industry
of the business?
• Is the risk factor acceptable?
• Does the business require long hours?
• Is the business location-sensitive?
• Does the business fit your personal goals and objectives?
• Does this business fit your professional skills?
 ▪ While to answer the above questions, there are four
important groups that you should talk to:
• Potential customers
o Whether or not your proposed product is
important to them and if you need to modify
your idea to meet their needs
• Competitors, suppliers and entities with financial
resources
o Their views will reveal the challenges of
competition that you would face, as well as other
issues related to your potential business
• Financial institutions
o Find out the lending requirements to determine
whether borrowing for a new business is possible
• Key informants and opinion leaders
o These are people who would know a lot about the
type and field of business you want to go into
and/or a lot about your potential customers
o Their views would give you a lot to think about
and could also give you a better insight into the
feasibility of your business idea

2.7 Concept of Business Plan

• A carefully charted and meticulously designed business plan can convert a
simple idea/innovation into a successful business venture
• A business plan is a road map for starting and running a business
• A well-crafted business plan
o identifies opportunities
o scans the external and internal environment to assess the feasibility
of business
o allocates resources in the best possible way
o provides information to all concerned people like the venture
capitalist and other financial institutions, the investors, the
employees
 o It provides information about the various functional requirements
(marketing, finance, operations and human resources) for running a
business
• A business plan is the blueprint of the step-by-step procedure that would
be followed to convert a business idea into a successful business venture
• A business plan
o identifies an innovative idea
o researches the external environment to list the opportunities and
threats
o identifies internal strengths and weakness
o assesses the feasibility of the idea
o allocates resources in the best possible manner
• some objectives of a business plan are to:
o Give directions to the vision formulated by entrepreneur
o Monitor the progress after implementing the plan
o Persuade others to join the business
o Seek loans from financial institutions
o Identify the strengths and weakness of the plan
o Identify challenges in terms of opportunities and threats
o Document ownership arrangements, future prospects and projected
growths of the business venture

2.8 Developing a Business Plan

2.8.1 Business Planning Process
• documenting the business plan is one of the early steps that an
entrepreneur should take
o successful entrepreneur lays down a step-by-step plan that she/he
follows in starting a new business
• business plan acts as a guiding tool to the entrepreneur and is dynamic in
nature – it needs continuous review and updating
• various steps involved in business planning process:
1. Preliminary Investigation
• Before preparing the plan, entrepreneur should:
o Review available business plans (if any)
 o Draw key business assumptions on which the plans will be
based (e.g. inflation, exchange rates, market growth etc.
o Scan the external environment and internal environment to
assess the strengths, weakness, opportunities and threats
o Seek professional advice from a friend/relative or a person
who is already into similar business (if any)
2. Opportunity Identification and Idea Generation
• Opportunity identification and business idea generation is the first
stage of business planning process
• involves generation of new concepts, ideas, products or services to
satisfy demand
3. Environmental Scanning
• carried out to analyze the prospective strengths, weakness,
opportunities and threats of the business enterprise
4. Feasibility Analysis
• Feasibility study is done to find whether the proposed project
(considering the above environmental scanning) would be feasible or
not
• demarcate environmental scanning and feasibility
o Environmental scanning is carried out to assess the external
and internal environment of the geographical area/areas
where, entrepreneur intends to set up his business enterprise
o feasibility study is carried out to assess the feasibility of the
project itself in a particular environment in greater detail
5. Report Preparation
• After environmental scanning and feasibility analysis, a business plan
report is prepared
• It is a written document that describes step-by- step, the strategies
involved in starting and running a business

2.8.2 Essential Components of Business Plan

1. Cover Sheet
 • like the cover page of the book, mentions the name of the project,
address of the headquarters (if any) and name and address of the
promoters
2. Executive Summary
• the first impression about the business proposal
o careful presentation of information should be done to attract
the attention of the evaluators
o should be in brief (not more than two or three pages) yet it
should have all the factual details about the project
o Generating interest in the minds of the readers is the prime
motive of the executive summary
3. The Business
• give details about the business concept
• It will discuss the
o objective of the business
o a brief history about the past performance of the company (if
it is an old company)
o what would be the form of ownership (whether it would be a
single proprietor, partnership, cooperative society or a
company under company law)
o label the address of the proposed headquarters
4. Funding Requirement
• Since the investors and financial institutions are one of the key
bodies examining the business plan report and it is one of the
primary objectives of preparing the business plan report
• how much finance would the company require and how it would like
to fund the project
5. The Product or Services
• brief description of product/services
▪ includes the key features of the product
▪ also gives details about the patents, trademarks, copyrights,
franchises, and licensing agreements
6. The Plan
a. Marketing Plan
 ▪ Marketing mix strategies are to be drawn, based on the market
research
b. Operational Plan
▪ would give information about
▪ Plant location: why was a particular location chosen?
▪ Plan for material requirements, inventory management
and quality control
▪ budget for operational plan
c. Organizational Plan
▪ indicates the pattern of flow of responsibilities and duties
amongst people in the organization
▪ details about the manpower plan that would be required
▪ details about the laws that would be governed in managing the
employees of the organization
d. Financial Plan
▪ usually drawn for two to five years for an existing company
▪ For a new organization the following projections are drawn:
o Projected Sales
o Projected Income and Expenditure Statement
o Projected Break Even Point
o Projected Profit and Loss Statement
o Projected Balance Sheet
o Projected Cash Flows
o Projected Funds Flow
o Projected Ratios
7. Critical Risks
• tentative risks to evaluate the viability of the business and to
measure the risks involved in the business
• This can further give confidence to the investors as they can calculate
the risks involved in the business from their perspectives as well
8. Exit Strategy
• provide details about
o how the organization would be dissolved
o what would be the share of each stakeholder in case of
winding-up of the organization
 • It further helps in measuring the risks involved in investing
9. Appendix
• provide information about the Curriculum Vitae of the owners,
Ownership Agreement and the like

2.9 Sample Business plan Format