Session 2: The Business Plan must generate cash and wealth

1. What are three types of startup firms

 Salary-substitute firms are small firms that afford their owners a level of income
similar to what they would earn in a conventional job. Examples of salary-substitute
firms are dry cleaners, convenience stores, restaurants, accounting firms, retail stores,
and hairstyling salons.
 Lifestyle firms provide their owner or owners the opportunity to pursue a particular
lifestyle and earn a living while doing so. Examples of lifestyle firms include ski
instructors, golf pros, and tour guides.
 Entrepreneurial firms bring new products and services to market by creating and
seizing opportunities. There are many examples of entrepreneurial firms in computer
software, biotechnology, and medical devices.

2. What are the components of a sound business model?

 Generate Revenues (you must have customers and sell them something).
 Make Profits (you must eventually have revenues that exceed the expenses of
generating those revenues).
 Produce Free Cash Flows (you must generate cash inflows that exceed net working
capital and capital expenditures).

3. What is an entrepreneurial venture?

Entrepreneurial venture can be defined as the owner of organization that places
innovation and opportunism at its heart in order to produce economic or social value that
attempts to make profit from businesses. Entrepreneurial ventures create substantial
wealth more than regular businesses, and they create it faster too. Entrepreneurial
ventures focus on new, innovative offerings and face unknown risks. The risk of an
entrepreneurial venture is usually high; this is partly because they go out of their way to
make products that did not exist in the market as at that time. Entrepreneurial ventures
target rapid growth and high returns. As a result, entrepreneurial ventures generally
impact economies and communities in a significant manner, which also results in a
cascading effect on other sectors, like job creation.

4. What is meant by a SWOT analysis?

SWOT analysis (strengths, weaknesses, opportunities, and threats) is a framework used
to evaluate a company's competitive position and to develop strategic planning. SWOT
analysis assesses internal and external factors, as well as current and future potential.
A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the
strengths and weaknesses of an organization, its initiatives, or an industry. The
organization needs to keep the analysis accurate by avoiding pre-conceived beliefs or
gray areas and instead focusing on real-life contexts. Companies should use it as a guide
and not necessarily as a prescription.
5. What is meant by a viable venture or business opportunity?
Viable venture: creates or meets a customer need, provides an initial competitive
advantage, is timely in terms of time-to-market, and offers the expectation of added
value to investors.

6. What is the rule of thumb revenue growth rate for a high-growth venture?
Here are some basic “rules of thumb” that every Angel or venture capital equity
investor uses, to help you anticipate their reactions. The rules are obviously not absolute,
but you must be prepared to explain to potential investors why your startup is the
exception to these guidelines:
 Five-year financial projections are the norm.
 Aggressive revenue projections and growth rate.
 Gross margins greater than 50 percent.
 Show red ink to match your funding request.
 Build a path to 10x return.

7. What is meant by the ROA model?

Return on assets (ROA) is an indicator of how profitable a company is relative to its
total assets. ROA gives a manager, investor, or analyst an idea as to how efficient a
company's management is at using its assets to generate earnings. Return on assets is
displayed as a percentage. ROA is best used when comparing similar companies or
comparing a company to its previous performance. ROA takes into account a company’s
debt, unlike other metrics, such as Return on Equity (ROE).

8. What is meant by a venture’s operating cash flow?

Operating cash flow (OCF) is a measure of the amount of cash generated by a
company's normal business operations from producing and selling a product or providing
a service. Operating cash flow indicates whether a company can generate sufficient
positive cash flow to maintain and grow its operations, otherwise, it may require external
financing for capital expansion.

9. What is business plan? Why important to prepare business plan?

A business plan is a written description of your business's future. A business plan
allocates resources and measures the results of your actions, helping you set realistic
goals and make decisions.
4 reasons why you need a business plan:
 To raise money for your business.
 To make sound decisions.
 To help you identify potential weaknesses.
 To communicate your ideas with stakeholders.
To be sure, a business plan is very important. A sound business plan serves multiple
purposes:
  Business Plan as Reality Check. The process of putting a business plan together,
including the thought you put in before you begin to write it, forces you to take an
objective, critical, unemotional look at your business project in its entirety.
 Business Plan as Performance Tool. Your written business plan is an operating tool
which, when properly used, will help you manage your business and work effectively
towards its Success. Your business plan will allow you to set realistic goals and
objectives for your company's performance, and, if maintained, will also provide a
basis for evaluating and controlling the company's performance in the future.
 Business Plan as Message Sender. The completed business plan communicates your
company's ideas and message to employees, outside directors, lenders, and potential
investors. outside your company. A business plan helps you do that in an organized,
credible manner. Also, the process of planning helps you determine if your vision is
realistic, and tells you what you need to do in order to achieve it.
 Business Plan as Motivation Tool. The development of your business plan is one of
the best ways for you to communicate how well you understand your business and
describe your vision of your business. Without proper planning, it becomes
impossible for you to get all of your employees reading off the same page of the book
and generating energy through high levels of team work. It is impossible to motivate
people when they do not know where they are going or what they are trying to
achieve.
 Business Plan as Management Development Tool. Putting together your business
plan will help you develop as a manager because it can give you practice in thinking
and figuring out problems about competitive conditions, promotional opportunities,
and situations that are or may be beneficial or harmful to your business.
 Business Plan as Road Map. Your business plan, once it is completed, will give you
and your employees goals and direction: a roadmap to follow in guiding your business
through good and bad times.

10. What are the major elements of a typical business plan?

A typical business plan contains, in its introduction, a cover page, confidentiality
statement, and table of contents, and executive summary.
 The Business Description section presents some of the considerations related to the
venture opportunity-screening phase on industry/market factors.
 The Marketing Plan and Strategy section addresses the target market and
customers, competition and market share, pricing strategy, and promotion and
distribution.
 The Operations and Support section discusses how production methods or services
will be delivered.
 The Management Team section presents the experience and expertise characteristics
of the management team.
 The Financial Plans and Projections, the business plan typically includes financial
projections in the form of income statements, balance sheets, and statements of cash
 flows. These projections provide the basis for how the venture is expected to start up
and operate over the next several years.
 The business plan should include a discussion of possible Problems or Risks.
 The Appendix should contain the detailed assumptions underlying the projected
financial statements in the Financial Plans and Projections section. It should also
include a timeline and milestones indicating the amount and size of expected
financing needs.