CONCEPT OF BUSINESS PLAN

  • ¨ A business plan is a written narrative, typically 25 to 35 pages long, that describes what a new business intends to accomplish and how it intends to accomplish it. For most new ventures, the business plan is a dual-purpose document used both inside and outside the firm. Inside the firm, the plan helps the company develop a “road map” to follow to execute its strategies and plans. Outside the firm, it introduces potential investors and other stakeholders to the business opportunity the firm is pursuing and how it plans to pursue it.
  • ¨There are two primary reasons to write a business plan.
  • ¨First, writing a business plan forces a firm’s founders to systematically think through each aspect of their new venture. This is not a trivial effort—it usually takes several days or weeks to complete a well-developed business plan—and the founders will usually meet regularly to work on the plan during this period.
  • ¨Having a business plan also gives an investor something to react to. Very few, if any, investors will free up time to “listen” to your idea for a new business, at least initially. Investors prefer to vet or evaluate business ideas by looking through business plans (or the executive summaries of business plans) initially before they are willing to invest more of their time and effort.

¨Investors and Other External Stakeholders

  •    External stakeholders who are being recruited to join a firm such as investors, potential business partners, and key employees are the second audience for a business plan To appeal to this group, the business plan must be realistic and not reflective of overconfidence on the firm’s part. Overly optimistic statements or projections undermine a business plan’s credibility, so it is foolish to include them. At the same time, the plan must clearly demonstrate that the business idea is viable and offers potential investors financial returns greater than lower-risk investment alternatives. The same is true for potential business partners, customers, and key recruits. Unless the new business can show that it has impressive potential, investors have little reason to become involved with it.
  •      A firm must validate the feasibility of its business idea and have a good understanding of its competitive environment prior to presenting its business plan to others. Sophisticated investors, potential business partners, and key recruits will base their assessment of the future prospects of a business on facts, not guesswork or platitudes, as emphasized in Chapter 3. The most compelling facts a company can provide in its business plan are the results of its own feasibility analysis and the articulation of a distinctive and competitive business model. A business plan rings hollow if it is based strictly on an entrepreneur’s predictions of a business’s future prospects. One of the main reasons new ventures seek out investors is to obtain the capital needed to hire key personnel, further develop their products or services, lease office space, or fill some other gap in their operations. Investors understand this, and experienced investors are typically willing to help the firms they fund plug resource or competency gaps.
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