Enterprising Management

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Chapter 9
Business Plan

Reasons for Failure and

Success of Businesses
Failure due to
1. Managerial
incompetence or
inexperience
2. Neglect
3. Weak control
systems
4. Insufficient capital

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Success due to
1. Hard work, drive,
and dedication
2. Market demand for
product/service
3. Managerial
competence
4. Luck

Business Plandefinition
Definition (Ebert & Griffin, 2007): A document in which
the entrepreneur summarises her or his business
strategy for the proposed new venture and how that
strategy will be implemented.
A detailed description of the proposed business,
including types of customers, competitors, and facilities
needed for production.
Includes 4 functions of business: marketing, operation,
management, and finance.
Includes all supporting documents.
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Purpose of Business Plan

Explain the concept of the proposed business (incl. the
nature of the product).
Analyse the market.
Present strategy.
Outline the projected development of the business.
Define capital needs and procurement.
Project financial performance.
Present managements credentials.
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Target Audience: Who might

use the Business Plan?
Investors
Owners of the company (the management team)
Banks or other lenders (creditors)
Potential suppliers

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Contents of Business Plan

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
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Table of Contents
Executive Summary
Company Background
External Environment Analysis
Internal Environment Analysis
SWOT
Market & Competitors
Operational Plan
Human Resource Plan
Risks & Contingencies
Financial Plan
Supporting Documents

Executive Summary
Write this section last and ensure that it provides a
summary of the key points of your business plan such as:
Brief business concept or description
Brief history of your business if available
The products or services of your business
Opportunity in the market
Size of the opportunity and growth potential
Market analysis summary
The target market
Who are your competitors?
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Executive Summary (cont)

Write this section last and ensure that it provides a
summary of the key points of your business plan such as:
What will be your competitive advantage
strategies?
Who is in your management team?
What the funding requirements of the Business
Financial projections
Inherent risks
Exit strategy

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Company Background
1.

Corporate Goals and Objectives

2.

General Company History

3.

Organisational Structure

4.

Product/Service Analysis

5.

Company Sales/Profit Trends

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External Environment Analysis

1. Political
2. Economy
3. Social
4. Technological
5. Legal
6. Environmental
7. Competitive Environment
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External Environment Analysis

1. Political
How changes in government policy affect the business.
E.g. a decision to transform a district into a tourist
destination would enhance local economy.

2. Economic
How the economy affects a business in terms of
taxation, government spending, general demand,
interest rates, exchange rates and global economic
factors.

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External Environment Analysis

3. Social
How consumers, households and communities behave
and their beliefs. For instance, changes in attitude
towards health, or a greater number of pensioners in a
population.

4. Technology
How the rapid pace of change in production processes
and product innovation affect a business.

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External Environment Analysis

5. Legal
The way in which legislation in society affects the
business. E.g. changes in employment laws on working
hours, maternity leaves provided to women employees.

6. Environmental
The environmental system is the natural system in
which life takes place. Increasingly businesses have
become aware of the relationship between their
economic activity i.e. making goods and services for
profits and the effects that this has on the
environmental system.
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External Environment Analysis

The Competitive Environment
(Porters Five-Forces)

1.

Inter-Company Rivalry

2.

Threats of New Entrants

3.

Threats of Substitutes

4.

Bargaining Power of Suppliers

5.

Bargaining Power of Buyers

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Competition
Competitors actions affect the ability of the business to
make profits, because competitors will continually seek
to gain an advantage over each other, by differentiating
their product and service, and by seeking to provide
better value for money.

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Business Environment

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COMPETITIONS
Porters Five Forces

Use Porters FiveForces

Model
to
evaluate
HarleyDavidsons business
competitiveness.
Harley-Davidson Motor Company
sells heavyweight (over 750 cc)
motorcycles designed for cruising on
the highway.

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Porters Five Forces

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Business Environment
Porters Five Forces

Rivalry Among Existing Competitors

HIGH
Number of competitors increases
Competitors become more equal in size and
capability
Demand for the industrys products declines
Price cutting becomes common
Consumers can switch brands easily

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Business Environment
Porters Five Forces

Threat of New Entrants

Creating Barriers to Entry.....

Gain Economies of scale

Gain Technology and specialised know-how
Establish strong customer loyalty
Develop adequate distribution channels
Secure access to raw materials
Possession of Patents

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Business Environment
Porters Five Forces

Threat of Substitutes
Threat increases when.....
Relative price of substitutes decline
Consumers switching costs decrease

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Business Environment
Porters Five Forces

Bargaining Power of Buyers

Bargaining power increases when.....

Buyers are concentrated (eg. Consumers Association)

Buyers buy in volume
Products are undifferentiated
Buyers are well informed about sellers
products, prices, and costs

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Business Environment
Porters Five Forces

Bargaining Power of Suppliers

Bargaining power increases when.....
There is a small number of suppliers
There are only a few good substitute materials
The cost of switching raw materials is costly

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Business Environment

More explanation about Porters 5 Forces at:

http://www.coursework4you.co.uk/essays-and-dissertations/porter-5-forces.php
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Internal Environment Analysis

1. Resources
2. Capabilities
3. Core Competencies

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Internal Environmental
Influences
1. Resources
Resources
represent
inputs
production/operation process.

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into

firms

Tangible Resources

Intangible Resources

Technological
Innovation
Reputation

Financial
Physical
Human Resources
Organisational

Internal Environmental
Influences
2. Capabilities
Capabilities represent the firms capacity or ability to
integrate individual firm resources to achieve a desired
objective.
Capabilities are highly essential in the following areas:
Inbound Logistics
Operations
Outbound Logistics
Sales & Marketing
Services

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Internal Environmental
Influences
3. Core Competencies
Core Competencies are the result of effectively
combining a firms resources and its capabilities.
Core Competencies enable a firm to do well and help to
achieve the following sustainable competitive advantage:
Core competencies provide consumer benefits
Core competencies are not easy for competitors to
imitate
Core competencies can be leveraged widely to many
products and markets
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Internal Environmental
Influences
3. Core Competencies
In another word

+
resources
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=
capabilities

Core
competencies

Internal Environmental
Influences
3. Core Competencies
Example of companies with core competencies that
support sustainable competitive advantage:

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R&D at 3M
Coke Formula
Teamwork at Southwest Air
Mercedes Engineering
McDonalds Efficiency
P&Gs Marketing
Disneys Characters
KFCs 17 Herbs & Spices
Federal Express Reliability

SWOT
1.

Strengths

2.

Weaknesses

3.

Opportunities

4.

Threats

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SWOT Analysis
Description
An established framework that aids in taking inventory of
firms overall:
Strengths and Weaknesses
and
industrys Opportunities and Threats
By identifying each element, decision makers can utilise the
resources necessary to overcome the challenges that are
present in firm and industry efficiently.

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SWOT Analysis

Objectives
To discover strategic options to reach objectives by
assessing a firms position within its industry given
its internal and external environments.

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SWOT Analysis

Information Needed
When collecting the raw data for the SWOT analysis, it is
important to be free from bias. It is essential that each
element is judged fairly by experience personnel or by a
group. Once this aspect is settled, the information must
originate internally for the strengths and weaknesses.
Information required to identify opportunities and threats
can come from industry reports, articles and experts
insights.

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SWOT Analysis

Information Needed
With all the information gathered, decision makers can
complete the first part of the exercise by answering the
following questions located in each quadrant.
I) What is the firm doing well?
(S)
II) What can the firm improve upon?
(W)
III) What are the opportunities for the firm to grow? (O)
IV) What are the threats or changes in the external
environments that the firm should avoid?
(T)

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TOWS Analysis
Description
TOWS analysis is a framework that permits users to
understand the existing internal and external
environment factors in relation to obtaining established
strategic goals.
The first step in conducting a TOWS analysis is undergoing
an assessment of the present environment via a SWOT
analysis.

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TOWS Analysis
Description
From the 2 x 2 matrix, a 3 x 3 matrix is created to realise:
i.
ii.
iii.
iv.

SO Strategies
ST Strategies
WO Strategies
WT Strategies

Strengths

Opportunitie
s

Threats

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Weaknesses

SO Strategies

WO Strategies

ST Strategies

WT Strategies

Contents of Business Plan

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
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Table of Contents
Executive Summary
Company Background
External Environment Analysis
Internal Environment Analysis
SWOT
Market & Competitors
Operational Plan
Human Resource Plan
Risks & Contingencies
Financial Plan
Supporting Documents

Market & Competitors

1. Target Markets
2. Competition
3. Marketing Mix

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Market & Competitors

Target Markets

1. Market Segmentation
2. Market Targeting
3. Market Positioning

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Capturing the Target Markets

Requires
Identifying and profiling distinct groups of
buyers who differ in their needs and
preferences.
Selecting one or more market segments to
enter.
Establishing and communicating the
distinctive benefits of the market offering.
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Process Involved in Capturing the

Target Markets
6. Develop Marketing
Mix for Each Target Segment
5. Develop Positioning
for Each Target Segment
4. Select Target
Segment(s)
3. Develop Measures
of Segment Attractiveness
2. Develop Profiles
of Resulting Segments
1. Identify Bases
for Segmenting the Market

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Market
Positioning
Market
Targeting

Market Segmentation

Market Segmentation
Definition
Market segmentation is a
process of dividing the market
into distinct groups who have
distinct
needs,
wants,
behaviour or who might want
different products & services.

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Approaches to
Market Segmentation Process

Identifying
and
profiling
distinct groups of buyers
who differ in their needs and
preferences.

Selecting one or more

market segments to enter.

Establishing
and
communicating
the
distinctive benefits of the
market offering.

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Market Segmentation Variables

Geographic
Geographic
Demographic
Demographic
Psychographic
Psychographic
Behavioral
Behavioral

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Geographic
Dividing
a
market
into
geographical units such as:
nations,
states,
regions,
counties,
cities
neighbourhoods.

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different

Demographic Segmentation
Dividing the market into groups based
on demographic variables such as
age, life cycle stage, gender,
income, generation,
occupation, education,
religion, race and
nationality.

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Psychographic Segmentation
Dividing a market into different groups
based on life-style or personality
characteristics.
Psychographic variables:

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personality
life style
value
attitude

Behavioral Segmentation
dividing a market into groups based on consumer
knowledge, use or response to a product.

Behavioral Variables

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Occasions
e.g regular or special occasion
Benefits
e.g. convenience
User Status
e.g. ex user, non user
Usage Rate
light, heavy
Buyer-Readiness aware, unaware, interested
Loyalty Status
none, medium

Effective Segmentation Criteria

Measurable
Measurable
Accessible
Accessible
Substantial
Substantial
Differentiable
Differentiable
Actionable
Actionable

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Measurable
Measurable
Accessible
Accessible

Segments must be effectively

reached and served.

Substantial
Substantial

Segments must be large or

profitable enough to serve.

Differential
Differential

Segments must respond

differently to different marketing
mix elements & actions.

Actionable
Actionable

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Size, purchasing power, profiles

of segments can be measured.

Must be able to implement plans

to the segments.

Market Targeting
Definition
Market Targeting is the
process of selecting a
segment or series of
segments
and
'target'
it/them. Resources and
effort will be targeted at the
selected target/targets.

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Target Market Strategies

Marketers can follow several Target Market
Strategies:
1.Single-segment Concentration
2.Selective Specialisation
3.Product Specialisation
4.Market Specialisation
5.Full Market Coverage

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Single-segment Concentration
Also
known
as
a
concentrated strategy.
One market segment (not
the entire market) is
served with one marketing
mix.
A strategy choice for
smaller companies with
limited resources.
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Selective Specialisation
This is a multiple-segment
strategy, also known as a
differentiated strategy.
Different marketing mixes
are offered to different
segments.
In
many
cases
the
promotional message or
distribution channels vary.
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Product Specialisation

The firm specialises in a

particular product and
tailors it to different market
segments.

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Market Specialisation

The firm specialises in

serving a particular market
segment and offers that
segment an array of
different products.

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Full Market Coverage

The firm attempts to serve
the entire market.
This coverage can be
achieved by a single
undifferentiated marketing
mix offered to the entire
market, or
By a differentiated strategy
in which a separate
marketing mix is offered to
each segment
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Market Positioning
Definition
Arranging for a product to occupy a clear,
distinctive, and desirable place relative to
competing products in the minds of target
consumers.

Example:
Mercedes is positioned for luxury segment,
Volvo is positioned for safety.
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Positioning Strategies
Marketers can follow several positioning
strategies:
1.Specific product attributes
e.g. low price, performance and etc.

2. Benefits the products offer

e.g. reducing cavity, taste good and etc.

3. Usage occasions
e.g. winter and summer clothing and etc.
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4. Certain classes of users

babies and adults the same product offer, e.g.
Johnson & Johnson products.
5. Directly against a competitor
e.g. Coke and Pepsi.
6. Away from competitors
e.g. 7-Up.
7. Different product classes
e.g. margarine against butter and etc.
(Marketers often use a combination of these positioning strategies).
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Choosing & Implementing a

Positioning Strategy
The positioning task consists of three steps:
1.Identifying a set of possible competitive
advantages on which to build a position;
2.Selecting the right competitive advantages;
3. Effectively communicating and delivering
the chosen position to the market.
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Identifying Possible Competitive

Advantages
Competitive advantage
an advantage over competitors gained by offering
consumers greater value, either through lower
prices or by providing more benefits that justify
higher prices.
In what specific ways can a company differentiate
its offer from those of competitors?
A company or market offer can be differentiated
along the lines of product, services, personnel or
image.
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Selecting the Right

Competitive Advantages
Suppose a company is fortunate enough to
discover several potential competitive
advantages.
It now must choose the ones on which it will
build its positioning strategy.
It must decide how many differences to
promote and which differences to promote.
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Communicating and Delivering

the Chosen Position
Once the company has chosen a position,
it must take strong steps to deliver and
communicate the desired position to target
consumers.
All the companys marketing mix efforts
must support the positioning strategy.

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Market & Competitors

Competition

1. Primary Competitors
2. Strengths of Competitors
3. Weaknesses of Competitors

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Market & Competitors

Marketing Mix

1. Product Decisions
2. Price Decisions
3. Promotion Decisions
4. Place Decisions

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Q&A

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