Introduction
A business plan is a vital component in the operation of a firm. According to Rhoda Abrams a financial advice expert and Eugene Kleiner, a venture capital specialist (2003, p. 1), a business plan should be well conceived to ensure that the firm succeeds in the long term. In the process of developing a business plan, entrepreneurs should ensure that the plan contributes towards the firm’s overall performance and also his or her satisfaction.
During the process of formulating a business plan, entrepreneurs should ensure that they consider a number of issues. Some of these issues include the business concept, firm’s values and integrity, industry trends, financial control, effective management and ability to anticipate and adapt to macro economic changes. According to Hamid Etamad, a business economist, the success of a business venture is not only dependent on the business plan but also on the entrepreneurial characteristics possessed (Etemad, 2004, p. 109).
Aim
The report is aimed at conducting a critical appraisal of the business planning process. In addition, a comprehensive of the entrepreneurial characteristics is also conducted.
Scope
The report analyzes the various steps undertaken during the business planning process. In addition, the report entails an evaluation of the various entrepreneurial characteristics that an entrepreneur should possess.
Business planning process
Idea generation
According to three renowned authors TR Jain, Mukesh Trehan and Ranju Trehan, the business environment presents numerous business opportunities (n.d, p. 21). In order to exploit the opportunities presented, entrepreneurs should conduct a comprehensive environmental scan. One of the most effective ways through which a firm can conduct an environmental scan is by integrating the concept of market research. This will aid in the identification of a feasible business opportunity, for example by identifying gaps in the form of un-answered need.
According to Donald Kuratko (2008), a specialist in entrepreneurship, idea generation is the first step in the business planning process (Kuratko, 2008, p. 127). In the idea generation phase, entrepreneurs should ensure that they identify what the customers need. This arises from the fact that there is a high probability of the business idea identified succeeding if it is in line with the customer’s requirements (Abrams & Kleiner, 2003, p. 2). In order to achieve this, entrepreneurs should ensure that they search innovative ideas. This means that the idea generated should be not be easily recognized by other entrepreneurs.
There are various sources from which entrepreneurs can search for the innovative ideas. Some of these include current trends such as social, economic, technological and government trends such as increased regulation, incongruities, process needs, perceptual change and demographic changes (Kuratko, 2008, p.128). In addition, other sources of business ideas include education, training, personal talents and interests.
According to Keith Rupert Murdoch, a renowned businessman in the media sector, the world is experiencing a rampant change (Idea MarketPlace, 2010, para. 8). As a result, firms are required to be innovative in order to succeed in the long term as going concern entity (Idea MarketPlace, 2010, para. 8). Prior to venturing into business, firms should evaluate the idea generated in order to determine its feasibility. Various elements should be considered in the process of evaluating the business idea. Some of these relate to whether the idea is new or it entails improvement of an already existing product via incorporation of new features.
In the idea generation phase, entrepreneurs are able to determine whether the business entity will be successful upon being implemented. This can be achieved by analyzing the strengths and weaknesses of the intended business idea. In its operation, Primark Stores Limited has been successful in the production of diverse fashion wears as a result of its innovative nature. This has enabled the firm to succeed despite the dynamic nature of the fashion industry (Primark, 2011, para. 1).
Strategic objectives
According to Jack Phillips, a reknown measurement and evaluation specialist, strategic objectives are paramount in the success of a business entity (Phillips, 2006, p. 24). The strategic objectives define various aspects regarding the firm’s operation. In order to achieve this, the firm’s management team should formulate a mission statement. According to Gregory, Lumpkin and Taylor (2005, p.1), a firm’s mission statement enables individuals to understand the reasons for the firm’s operation.
This arises from the fact that the firm’s strategic objectives are integrated in the mission statement. For example, the mission statement may illustrate how the firm intends to achieve a high competitive advantage (Gregory, Lumpkin &Taylor, 2005, p.1). Therefore, strategic objectives act as a guidance of how the firm intends to achieve its goals.
In the process of formulating the strategic objectives, entrepreneurs should ensure that the objectives formulated are specific. The formulated strategic objectives should be realistic. This means that they should be attainable despite the existence micro and macro environmental challenges. In addition, the strategic objectives formulated should have a specific timeframe. According to Gregory, Lumpkin and Taylor (2005, p. 1), measureable yardsticks should be incorporated.
This will aid in the determination of whether the specific milestones have been achieved. For example, Evan Carmichael, a financial accountant, asserts that the entrepreneur should incorporate profit ratios as one of the yardsticks (2010). This arises from the fact that the core objective of a business existence is to maximize profit level. The resultant effect is that the firm will be able to evaluate whether it is moving towards the stipulated organizational goals.
A firm’s success is dependent on the society in which it operates. Therefore, it is paramount for the management team to consider the society in the process of formulating its strategic objective. The strategic objectives should take into account the society’s needs.
Upon formulating the objectives, the firm’s management team should ensure the employees develop a comprehensive understanding. Gregory, Lumpkin and Taylor (2005, p.1) are of the opinion that understanding the strategic objectives acts as a safeguard against possible diversion of the business plan. Understanding the strategic objectives will contribute towards ensuring that all the employees’ activities are geared towards attainment of the strategic objectives.
Market analysis and research
According to Richard Ochtel (2009.p. 54), a business planning specialist, conducting a market research and analysis is vital in the success of a business venture. This arises from the fact that gaining knowledge of the market plays a significant role in its process of launching a product or service in the target market. Through a market research, an entrepreneur is able to develop a comprehensive understanding of the business environment.
Lydon Brown, who is an experienced market analyst, asserts that an evaluation of the various marketing methods in undertaken during a market research. On the other hand, market analysis entails evaluating the marketing methods with regard to a particular product or service (Brown, 2008, p.12). In the process of conducting a market research and analysis, entrepreneurs should consider the various types of market research and analysis. The market research incorporated should integrate both primary and secondary research. The resultant effect is development of a comprehensive understanding of the market.
Brown asserts that there are various types of market analysis. This arises from existence of difference in market problems. Some of these include sales analysis, dealer analysis, product analysis, trend analysis, quantitative and qualitative analysis (2008, p.19). In addition, the entrepreneur should also conduct promotion analysis.
The entrepreneur should use the findings from the market research to formulate operational plans, policies and procedures. According to Collin Egan, a business t and management academic consultant, the findings of the market research should be used to formulate a market positioning strategy (Egan, 1998, p. 178).
Understanding competition
In their operation, firms are faced with competition from not only the existing firms but also the potential entrants. To ensure that the firm succeeds in the long term as a going concern entity, it is paramount for the management team to effectively understand the nature of competition. According to two business economists, Mary Ellen and Reva Basch, entrepreneurs should develop an effort to ensure that they understand the level of competition in the identified market niche (Ellen & Basch, 2003, p. 56).
Understanding competition should be attained by identifying the firms which pose a threat to the firm’s existence. This will contribute towards effective formulation of the business strategy. Through a market research and analysis, the firm is able to identify the strength of the competitor. In addition, market research can enable a firm to identify the competitor’s weaknesses. This can be achieved by evaluating various aspects such as the competitor’s customer’s level of satisfaction and efficiency of their promotional strategies. Gaining information about the nature of competitor will enable the firm’s management team to determine the probability of the firm’s success.
Competitive strategy and scenario analysis
According to three authors in business planning, Thomas Zimmerer, Norman, Scarborough and Doug Wilson, entrepreneurs should also consider the competitor’s competitive strategy in the process of analyzing the nature of competition (2008, p. 56). In order to achieve this, the firm should incorporate the scenario analysis. This can be conducted by evaluating the nature of competitiveness by rating the competitors on the basis of various competitive elements.
Case
Consider an entrepreneur who intends to venture into the market by establishing a new business entity. After scanning the environment, the entrepreneur indentifies two main competitors, A and B. In evaluating their competitiveness, the entrepreneur can rate consider a number of elements such as the firm’s quality of products or services, price, customer experience and product range. In addition, the firm can also evaluate the competitor’s distributional strength. This can be achieved by considering the number of distributional outlets. A rating scale can be incorporated to determine the nature of competition such as a scale of 1-5 where 1= less competitive and 5= very strong.
The graph below gives an illustration of the competitor’s rating.
The graphs in the competitive strategy and scenario analysis section are of a personal creation to illustrate the case.
Financial planning
In the business planning process, entrepreneurs are faced with a challenge with regard to financial planning. This arises from the fact that some entrepreneurs do not have adequate financial skills to undertake financial planning (Dickson, 2006, p. 165). Metro Group which is an international German supermarket chains has incorporated the concept of financial planning in its operation. As a result, the firm has been able to establish a number of stores around the world (Metro Group, 2010).
The firm’s expansion have been associated with it efficiency in its financial planning. As a result, the firm has been able to conduct sufficient investment. For financial planning to be effective, the firm’s management team should conduct a number of financial projections. To achieve this, the management team should integrate a number of financial instruments. This will enable the firm to make financial projections. Some of the core components which should be considered in the financial projection process include development of the firm’s financial statements such as the balance sheet, income statement and cash flow statement.
The financial projections should cover a considerable duration of time such five years. In addition, the firm should also conduct a financial a break even analysis. Through a break-even analysis, the firm will be able to determine whether it is operating cost effectively. William Baumol and Alan Blinder, who are business economists, assert that break even analysis helps management teams in determining whether the firm is operating at a profit or loss (2008, p. 208).
The chart below gives an illustration of the break-even chart which should be considered.
Entrepreneurial characteristics
Donald Kuratko, a specialist in entrepreneurship, is of the opinion that “every individual can be an entrepreneur However, it is important for the entrepreneur to possess various entrepreneurial skills” (2008, p.3). Some of these skills relate to ability to deal with a high degree of uncertainty arising from the business environment.
As a result of his entrepreneurial characteristic, Lakshmi Mittal, the Chief Executive Officer of Arcelor Mittal Limited, the firm has managed to become the largest steel company on a global scale (Lycos Incorporation, 2011, para. 1). He has achieved this as a result of his tendency to take risks by venturing into new business ventures in an effort to achieve high returns in the long term (Lycos Incorporation, 2011, para. 1). Some of the core entrepreneurial characteristics are evaluated below.
Self confidence
Considering the fact that the business environment is characterized by a high degree of uncertainty, entrepreneurs are required to be confident. In addition, entrepreneurs are required to be aggressive with regard to exploiting business opportunities considering the fact that opportunities have a short window. Due to their self confidence characteristics, entrepreneurs are able to venture into businesses which might be considered to be risky by other investors (Organization of Economic Cooperation and Development, 2010, p. 165). As a result of their self confidence characteristics, entrepreneurs are able to undertake tasks alone in addition to taking control their actions’ outcome. In addition, their self confidence characteristic enables entrepreneurs to be able to effectively deal with the challenges which arise in the firm’s course of operation.
Ambitious
It is the objective of firms in various economic sectors to succeed in the long term as going concern entity. In order to achieve this, entrepreneurs are required to be ambitious. Despite the challenges arising from the business environment, entrepreneurs remain focused. Their ambitious nature enables them to persevere thus preventing them from deviating from their intended goal. According to two entrepreneurial specialists, Steven Rogers and Roza Makonnen (2002, p.34), the ambitious characteristic of the entrepreneurs is enhanced by their optimistic nature.
According to Lawrence Gitman, a managerial finance specialist and Carl McDaniel, a renown author, “the entrepreneurs ambitious nature make them to develop a need for high achievement” (Gitman & McDaniel, 2008 p.144). For example, Robert McDonald who is the CEO of Procter & Gamble Company is ambitious that the firm will increase its customer base with a margin of 1 billion customers from 2010 to 2014. According to Joel Backaler, a journalist, the CEO expects the largest proportion of these customers to come from emerging economies (Backaler, 2010, para. 1).
Commitment
Evans Mellisa, an entrepreneurial specialist asserts that entrepreneurs remain committed in an effort to ensure that they achieve their goals (2009, para. 1). Their commitment characteristic also arises from the demanding nature of entrepreneurship. There are various obstacles which firm’s face in the course of their operation. Entrepreneurs do not quit even when the outcome is not as expected.
This means that they are loyal to their business ventures. As a result of their commitment, entrepreneurs are able to overcome these obstacles. According to business specialists Gregory Dee, Jed Emerson and Peter Economy (2001, p.104), entrepreneurs are persistent, disciplined and committed in an effort to ensure that their business venture succeeds. As a result, they incorporate various business techniques to ensure the firm’s success.
Hard work
Starting a business venture requires hard work. The initial phase of idea generation is just the first step towards the success of the intended business venture. This arises from the fact that entrepreneurs are required to make certain personal sacrifices. As a result of their hard work, entreprenuers realize their vision. For example, the entrepreneur may be required to work for long hours in an effort to ensure that a certain task is successfully completed.
In addition, entrepreneurs may not have any form of assistance during the start-up phase. The entrepreneur’s hard working characteristic is enhanced by their desire to excel. According to Louis Boone and David Kurtz (2010), entrepreneurs enjoy the challenges associated with the business goals. The challenges associated with business ventures stimulate entrepreneurs to be creative. Considering the volatile nature of business environment, the success of an entrepreneurial venture is dependent on the entrepreneur’s ability to persevere.
By working hard, entrepreneurs are able to increase the probability of their firm’s success which is not guaranteed. In addition, their hardworking characteristic enables them to develop products and services which result into a high level of customer satisfaction. According to two small business specialists, Justin Longernecker and Ma Loeza, the entrepreneur’s hard work arises from consideration of the customer as the boss (Longenecker & Ma, 2010. p. 10).
Strong ego
It is paramount for entrepreneurs to possess strong ego as one of the core temperaments. According to Bill Bolton, a renowned author and John Thompson, an American businessman, possessing a strong ego enables entrepreneurs to be courageous to face tough outcomes which may arise in the firm’s course of operation (Bolton and Thompson, p.72). By possessing a strong ego, entrepreneurs are able to take responsibility of their actions. This arises from the fact that they have a passion, commitment and power to exploit the entrepreneurial opportunities identified.
In order to achieve this, entrepreneurs should develop both inner and outer ego. According to Bolton and Thompson (p.72), inner ego refers to the entrepreneur’s level of motivation, dedication and self-assurance while outer ego entails the entrepreneurs’ level of accountability, ability to take responsibility and courage. By possessing a strong ego, the entrepreneur’s degree of focus and creativity are strengthened. This means that the probability of deviation from the firm’s goals is minimized. In addition, strong ego enhances the entrepreneurs’ talents.
Autonomous
Entrepreneurs are committed at ensuring that they achieve their vision. In order to achieve this, they seek for relevant information from various sources. However, they are autonomous in the process of making their decisions. Their independent characteristic ensures that they are not influenced by others. As a result, they are able to venture into risky business ventures. This is achieved by mobilizing the various resources available to the enterprise such as human and financial resources. According to Geert Hofstedes who conducted a study on the cultural dimensions with regard to international business, being independent of action is paramount in the success of an individual initiative (Hofstedes, 1984, p. 32).
A reflection on the extent of entrepreneurial skills required
According to William Stolze, an entrepreneurial analyst, the success of every business is dependent on a number of entrepreneurial skills (Stolze, 1999, para. 5). Before venturing into business, individuals should conduct a comprehensive evaluation of the skills they possess. This will enable them to identify the skills that they possess and what is deficient. As a result, it will be possible for the entrepreneur to develop strategies aimed at improving some skills.
Considering the competitive nature of business environment, entrepreneurs are required to have a number of entrepreneurial skills. According to Lyve Pleshette, an entrepreneurial specialist, certain skills are developed over time (Pleshette, 2010). However, it is paramount for the entrepreneur to posses certain key skills. Some of these skills relate to various personal attributes such as hard-work, confidence, strong ego and commitment.
In addition, the entrepreneur should be focused regarding the firm’s success. The entrepreneur should have a clear understanding regarding the business venture. This arises from the fact that the firm’s success is entirely dependent of the entrepreneur. As a result, entrepreneurs are faced with a huge responsibility. By understanding the business venture, the entrepreneur is able to formulate the business goals more effectively.
In addition to personal skills, the entrepreneur should also possess administrative skills. This will contribute towards ensuring that the firm’s operations are well organized. Time management is also vital. This arises from the fact that the firm is required to achieve certain milestones within a given period of time. If the entrepreneur does not have an assistant, he or she will be required to multi-task. To be effective, he or she is required to be effective with regard to time management.
Financial skills are also vital. This will ensure that the entrepreneur is able to handle money effectively. For example, the entrepreneur will be required to make optimal decisions regarding the firm’s expenditures and investment. Financial skills will also aid the entrepreneur in the process of developing marketing strategies such as pricing in an effort to attain price competitiveness. The entrepreneur should also possess other skills such as effective communication, team leadership, creativity, and problem solving skills. The graph below gives an illustration of the rating of the core entrepreneurial skills.
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