09.

Developing a business model and a business plan

 Businesses must evolve quickly due to globalization, new technologies, and information
flow.
 Adaptable structures and cultures are essential for success.
 Growing ventures need innovative strategies and entrepreneurial thinking to stay
competitive.
 Entrepreneurs must balance dynamic capabilities (strategic adaptation and innovation)
and operational capabilities (managing daily operations efficiently).
Two ways to build dynamic capabilities:
• Internal: Use the skills, knowledge, and creativity of the company’s own employees.
• External: Look outside the company for skills or expertise, for example through
partnerships, joint ventures, or alliances, to add to what the company already has.
Role of a business model:
• A business model acts like a blueprint for how a company acquires and grows its
capabilities.
• It helps the company deliver value to customers while balancing costs and revenue.
• This balance ensures the company survives and keeps the support of its stakeholders
(owners, investors, employees, etc.).
• Consistency and coherence:
• Everything in the business model should fit together well.
• If different parts of the business plan don’t align, it can create confusion or reduce
efficiency.
Let’s clarify what we mean by ‘business model’. We believe that in practice a business
model is the design of organizational structures to enact a commercial opportunity.

 Understanding the business model from three perspectives, the economic (profit logic of
products/services), operational (value creation through processes), and strategic positioning
(market stance and growth opportunities), helps entrepreneurs align actions with broader
business goals.
A good business model centers on the value proposition, forming the foundation for growth
strategies.
 The Business Model Canvas, introduced by Osterwalder, connects these perspectives
through nine interrelated components
Need for a Sustainable Business Plan

 Modern business plans must go beyond finance, marketing, and personnel to address
sustainability, focusing on the 3 'P's "People, Profits, and Planet."

 With human activity driving climate change, entrepreneurs must integrate sustainable
practices across operations, from emissions reduction to resource management. Sustainable
business planning considers the full product life cycle (cradle-to-cradle), aiming to reduce
waste and environmental impact.

 Recognizing businesses as part of an ecosystem, this approach known as industrial

ecology, views a company as interconnected with natural and social systems. Sustainable
strategies not only mitigate environmental impact but also create competitive advantages
and drive innovation.
 3. Benefits of the Business Plan
For entrepreneurs, a business plan offers these advantages:

 Encourages critical, objective analysis of the venture through the time and research
required.

 Scrutinizes assumptions about success through competitive, economic, and financial

analysis.

 Requires development of operating strategies and results, aiding outside evaluation.

 Sets measurable benchmarks, allowing forecasts to be compared with actual outcomes.

 Acts as both a communication tool for investors and an operational guide for the business.

For potential sponsors and funders, a business plan provides:

 Insight into market potential and strategies for capturing market share.
 Financial projections that demonstrate the venture’s capacity to manage debt or yield
returns.

 Identification of risks and contingency plans, highlighting paths to success.

 A clear, comprehensive view of operations for effective business and financial evaluation.

 A basis to assess the entrepreneur’s planning and management skills, especially if

unfamiliar with the venture
 4. Formulating a Business Plan
4.1 What is a Business plan
A business plan is a formal document that outlines the goals, strategies, and
operations of a business. It serves as a roadmap for the company’s future, detailing
how it plans to achieve its objectives. A business plan is crucial for guiding decisions,
attracting investors, securing loans, and establishing a clear direction for growth.

Contrarian Views against Full-Form Business Planning

Mixed Research Evidence: Some studies, including those by Honig and a Spanish
team, suggest that planning may not always predict success or survival in new
ventures.

Time-Intensive and Counterproductive: David Gumpert argues that writing a full business
plan can waste time that could be better spent on actionable tasks like prototyping or
pitching to investors. Gumpert suggests that rather than writing a 50-page business plan for
the investor, a 12-slide deck may be enough.

Less Relevance in High-Growth, Agile Environments: Especially in fast paced industries like
technology, taking too long on a detailed plan can make the information obsolete before it’s
actionable.

Alternative Planning Approaches

Pitch Decks: Investors are increasingly open to concise formats, like a 12 slide pitch deck,
focusing on the core opportunity, business model, scalability, customer acquisition
strategy, and risks.
Gumpert suggests that rather than writing a 50-page business plan for the investor, a 12-
slide deck may be enough

 What is the opportunity?

 What gives you special advantages in solving the problem?
 What makes you think that the people involved in your company are especially qualified to
grow this business?
 What is the business model?
 What makes it scalable?
 How do you know you’ll have customers?
 How do you connect to customers?
 What is the secret of your expected sales success?
 What have you learned from the competition?
 What are the risk factors?
 How will you make money?
 How will you use the funds you raise?
Lean Canvas: This one-page model by Alex Osterwalder emphasizes key aspects like the
value proposition, customer segments, and revenue streams, which can be quickly outlined,
validated, and adapted.
Customer-Centric Planning: Former Apple executive John Sculley advocates for a "customer
plan," emphasizing why customers need the product rather than an exhaustive document
on business specifics.

4.2 Who Reads a Business Plan

When preparing a business plan, entrepreneurs should keep in mind that it will be read by
various stakeholders, each with unique perspectives and priorities. Understanding these
different viewpoints can improve the plan’s effectiveness and make it more likely to
resonate with readers. Here are the three main viewpoints to consider:

1. Entrepreneur’s Viewpoint: The entrepreneur brings deep knowledge of the business

concept, but focusing only on this can make the plan too narrow. It’s essential to
balance this expertise with considerations of customer appeal and financial viability to
create a well-rounded plan.

2. Customer’s Viewpoint: The plan should be market-driven, clearly showing how the
product benefits the target audience and that a sizable market exists. Identifying
potential buyers and providing realistic market projections are crucial to demonstrate
demand.

3. Investor’s Viewpoint: Investors prioritize financials, seeking realistic projections and a

potential return on investment. They often apply a “projection discount factor,” so it’s
wise to present conservative estimates, with three-to-five-year projections to support
viability.

How Investors Typically Read a Business Plan (Five-Minute Process)

Most investors will spend only a few minutes on a preliminary review. Here’s a typical six-
step process they might use:

1. Venture and Industry Characteristics: Briefly assess what type of business it is and the
industry it’s entering.
2. Financial Structure: Review the amount of debt or equity needed to gauge funding
requirements.
3. Latest Balance Sheet: Evaluate liquidity, net worth, and the debt/equity ratio.
4. Entrepreneur Quality: Assess the experience, competence, and credibility of the
founding team.
5. Unique Feature: Identify what makes the venture stand out from others.
6. Overall Review: Conduct a quick scan of graphs, charts, and exhibits to get a sense of
the plan’s overall quality.
 5. Elements of a Business Plan

1. Executive Summary – Provides a high-level overview of the business and key points of
the plan.
Many people who read business plans (bankers,venture capitalists, investors) like to
see a summary of the plan that features its most important parts.
Write the summary only after the entire business plan has been completed. Since the
summary is the first and some times the only part of a plan read, it must present the quality
of the entire report .And this should be done in such a way that the evaluator or investor
will choose to read on .This is where you briefly also list the values,vision and mission of the
company.

2. Business Description – Describes the business concept, industry, mission, and goals.
Think of this as ‘introducing’ your company to someone. Identify the venture’s name,
with any special significance related (for example, family name, technical name).

Quickly present your industry’s background in terms of current status and future trends.
Now describe the new venture thoroughly along with its proposed potential. Drawings and
photographs also may be included. Don’t fail to mention the potential advantages the new
venture possesses over the competition

3. Sustainability – Discusses the business’s commitment to sustainable practices and

long-term impact. Describe here how you define sustainability, and what you think it
means to your business.

Combine the definition with principles that make up your strategy or policy. This
definition depends on what type of business you are, what green resources are
available to you, your market and industry and your level of commitment to
sustainability.

4. Marketing Segment – Details the target market, marketing strategies, and

positioning.
In the marketing segment convince us that a market exists, that sales projections can
be achieved and that the competition can be beaten. This part is critical because
almost all subsequent sections of the plan depend on the sales estimates developed
here. Present market research and analyses that will convince investors that the
venture’s sales estimates are accurate and attainable. Marketing vision Market size and
trends Competitor analysis Remarkable difference Marketing strategy Branding
elements Pricing rational Marketing materials Advertising and promotions

5. Research, Design, and Development – Covers R&D efforts, product development

stages, and innovations. If appropriate, be sure to cover any research, design and
development in regard to cost, time and special testing. Investors need to know the status of
the project in terms of prototypes, lab tests and scheduling delays.
 Blueprints, sketches, drawings and models often are important.

6. Operations Segment – Outlines operational processes, production, and logistical

plans. Describe the location of the new venture in terms of labour availability, wage
rate, proximity to suppliers and customers and community support. In addition, local
taxes and zoning requirements should be sorted out and the support of area banks for
new ventures should be touched on.

Discuss any specific needs such as warehouse storage and offices as well as
equipment needs (special tooling, machinery, computers and vehicles). Other factors
that might be considered are the suppliers (number and proximity) and the
transportation costs involved in shipping materials

7. Management Segment – Introduces the management team, organizational structure,

and roles.
This segment identifies the key personnel, their positions and responsibilities and the
career experiences that qualify them for those particular roles

8. Financial Segment – Provides financial projections, funding needs, and financial

strategy. Break-even analysis Profit and loss

Break-even analysis A break-even chart shows the level of sales (and production) needed to
cover all costs. This includes costs that vary with the production level (manufacturing labour,
materials, sales) and costs that do not change with production (rent, interest charges,
executive salaries). The break-even point helps a business see how much sales are needed
to cover costs and expenses in order to start making a profit. For a start-up company, you
should compare the break-even point with your sales prospects

Profit and loss Talk about the totals in your P&L as well as the expenses you included. If you
are a new company, do you estimate losses in the first few months? At what point do you
show a profit? Did you use a percentage increase for your sales? If so, what percentage did
you use? Do you have any large, one time expenses planned, beyond your ongoing
expenses? What are they, and when do they happen?

Cash-flow statement The cash-flow statement may be the most important document since
it sets forth the amount and timing of expected cash in-flows and out-flows. This section of
the business plan should be carefully constructed.

The pro forma balance sheet Pro forma means ‘projected’, as opposed to actual. The pro
forma balance sheet projects what the f inancial condition of the venture will be at a
particular point in time. Pro forma balance sheets should be prepared at start-up, semi-
annually for the first years and at the end of each of the first three years
 9. Critical Risks Segment – Identifies potential risks and mitigation strategies.

10. Milestone Schedule – Lists key milestones and a timeline for achieving business goals.
The milestone schedule segment provides investors with a timetable for the various
activities to be accomplished. It is important to demonstrate that realistic time
frames have been planned and that the interrelationship of events within these time
boundaries is understood.

Be sure to coordinate the timeframe not only with early activities like product design and
development, sales projections, management team, production and marketing, but also
with later activities such as:
• incorporation of the venture
• completion of design and development
• completion of prototypes
• hiring of sales representatives
• product display at trade shows
• signing up distributors and dealers
• ordering production quantities of materials
• receipt of first orders
• first sales and first deliveries

11. The Appendix and/or Bibliography section - Optional but commonly included. It
provides a place for supplementary materials that support the main plan but are too
detailed for the core sections. Examples of items that may be included are:

o Diagrams and blueprints

o Detailed financial data o Resumes of key management team members
o Any bibliographical references or sources used

The final segment is not mandatory (most plans have it), but it allows for additional
documentation that is not appropriate in the main parts of the plan. Diagrams, blueprints,
financial data, re´sume´sof management team members and any bibliographical information
that supports the other segments of the plan are all examples of material that can be
included. It is up to the entrepreneur to decide which, if any, items to put into this segment.
However, the material should be limited to relevant and supporting information.

This section should contain only relevant information that enhances the understanding of
the business plan. The entrepreneur decides what to include, ensuring it adds value without
overwhelming the reader.