According to Sir Paul Judge, the Chairman of the Advisory Board of Judge Institute of Management Studies, University of Cambridge, any firm exists within the changing environment; thus, it has to detect and predict the external changes and react to them, as well as to implement the inner changes in order to “stay afloat” and grow (cited in Stutely, 2001, p.xii). One of the ways through which a firm can succeed in the long term is by integrating the concepts of strategic management. According to the specialists in the field of audit Brian R. Ford, Jay Bornstein and Patrick T. Pruitt, one of these concepts relates to development of a business plan (2007, p.7).
By developing a business plan, a firm can be able do source the necessary financial capital from external sources such as banks. As a result, the firm is able to implement its investment strategies. In addition, a firm can be able to attain an optimal market position upon implementing a business plan. Thus, a business plan helps to develop a business project as a reasonable and necessary element of a chain of a firm’s operation that corresponds to its other actions (ibid.), which presupposes that a firm’s business plan is multipurpose.
To ensure that the business plan is well developed and implemented, it is vital for the stakeholders involved in the operation of firms to have the necessary entrepreneurial skills. However, only a few number of firm’s have appreciated the importance of incorporating business planning process in an effort to attain an optimal market position. Thus, understanding of aims, steps and peculiarities of business planning, as well as the necessary conditions for it, is the basis of a company’s successful activity (p.8), which makes the critical appraisal of business planning reasonable and useful.
Business planning process
Rhonda Abrams, a financial advice expert, and Eugene Kleiner who specializes in venture capital (2003, p. 2) emphasize an important peculiarity of a firm’s actions, which is focus on specific objectives: to take an action, it is necessary for a firm to comprehend its reasonability and expect definite positive changes brought by it. Customers’ requirements are the focus of any firm’s operation, that is why their identification is crucial for developing its further plan of action. By satisfying the customers’ requirement, a firm is able to position itself effectively in the market.
The initial step in the business planning process relates to idea generation (Abrams & Kleiner, 2003, p. 2). Donald Kuratko, a prominent scholar in the field of business, states (2008) that a good idea is the core of any successful business. However, for the idea generated to be turned into a business opportunity, the entrepreneur must take risks. According to Amancio Ortega, the founder of Zara, a business idea can result from an individual’s personal experience (Moneymakingexpress.com, 2010, para. 9). This means that the entrepreneur must scan the environment effectively so as to identify possible business idea.
It is paramount for entrepreneurs to screen the idea identified prior to venturing into business. This will aid in the determination of the feasibility of the idea. For example, EasyJet was able to succeed in the airline industry as a low cost airline as a result of effective scanning of the environment. EasyJet’s history is a good example of how an idea is born as a result of studying the market opportunities and then brought to the reality by means of detailed planning and hard work, says John Morecroft, the Adjunct Associate Professor of Management Science and Operations at London Business School (2007, p.175).
According to Abrams and Kleiner (pp.xxxiii-xxxv), development of the new business ideas is based on a range of “inner” components that a firm has to its credit; the experience and the ideas from the previous projects, as well as the employees’ personal characteristics, such as skills, talents, interest and motivation, create the necessary background for idea generation.
At the same time, an entrepreneur must conduct a comprehensive environmental scan, which can be attained by conducting a comprehensive market research. This will aid in identification of a business opportunity by gaining an understanding of the gaps in the market. Some of the sources of the gaps relates to unanswered market needs. Addressing the existing market gaps may imply development of an absolutely new idea, as well as the improvement of the products already existing in the market in order to better satisfy customers’ needs and expectations (p.87).
Abrams and Kleiner (p. 2) also state that idea generation is important since it enables the entrepreneur to determine the probability of the idea succeeding upon being turned into a market opportunity. A firm’s efforts devoted to implementation of a new idea should become not “wastage”, but rather an “investment” and thus bring benefits to it; thus, the analysis of competitiveness of a new idea should be fulfilled thoroughly, as it gives opportunity to adjust a project to a firm’s environment and the market conditions.
According to Gregory Dess and Taylor Lumpkin (2005, p.1), the scholars who study different aspects of strategic management, a firm’s strategic objectives serve as guidelines for its operation. The essence of the planning process implies that in planning of any activity, a firm goes from broad to narrow; thus, strategic objectives are the starting point and the “input data” for the further detailed planning.
An organization’s objective depicts the core purpose of the firm’s existence. A firm’s strategic objectives must be specific. In addition, they must have a well defined time frame. Setting the time frame aids in the determination of whether the intended outcomes are achievable. All the objectives are aimed at ensuring that the firm attains a high competitive advantage and hence the market position. Attaining a high market position, acts as a defense mechanism in the firm’s operation. Profit maximization is the core of a firm’s activities, which predetermines that most firms’ strategic objectives are focused on this aim, says Anthony Henry (2008, p.154), the author who specializes in strategic management.
There are a range of requirements that a firm’s strategic objectives should meet. First of all, they should be in accordance with the interests of the society in which they operate. Besides, the strategic objectives formulated must be achievable despite the existence of market challenges. Finally, they should be comprehensible for a firm’s employees and delivered to them, which ensures that all the employees’ actions are focused at attaining the objectives. The resultant effect is that the firm will be able to safeguard against possible diversions of the strategic objectives (Dess & Lumpkin, 2005, p.1).
Market analysis and research
Conducting a market analysis is vital in the process of developing a business plan. Frank Fiore (2005, p.97) who is a renowned writer is of the opinion that the success of a firm’s product is dependent on the entrepreneur’s knowledge of the target market. According to Lyndon Brown, a market research analyst, market research ensures that the firm develops an understanding of the market environment. Brown (2008, p.12) interprets the difference between marketing research and marketing analysis as the difference in the focus of study: while marketing research can be defined as the study of marketing methods, marketing analysis is rather focused on study of marketing methods with reference to a particular product or service.
Through a market research and market analysis, a firm’s management team is able to formulate is operations, procedures and policies. The economists Joseph Cavello and Brian Hazelgren (2006, p.101) emphasize that the results of a marketing research and marketing analysis fulfill the role of an important argument in the communication between a firm and a potential lender: they provide the background for making decision about advancing credit to the firm. This makes market analysis to be a vital element in the business planning process.
For a market analysis to be effective the entrepreneur must take into account both primary and secondary market research. This will play a significant role in improving the entrepreneur’s market knowledge. By gaining the understanding of the market, the entrepreneur is able to make a decision on the most effective strategy to adopt in an effort to position itself in the market; this understanding is in fact the source of a firm’s competitive advantages.
The entrepreneur must develop a comprehensive understanding of the competitive environment of his or her business venture. If the firm lacks sufficient market knowledge regarding its competitive environment, there is a high probability of the formulated business strategy failing. According to Holly Hosford-Dunn, Ross J. Roeser and Michael Valente (2000, p. 321), the writers and editors who work in the field of business and management theory, besides the direct competition which is easier to detect and research, an entrepreneur should pay attention to the indirect competition which is also able to significantly influence the results of a firm’s operation. Some of the elements which should be considered during the competitive analysis include the competitor’s market position and performance. The resultant effect is that the firm will be able to develop strategies which will counteract the competitors’ competition.
Besides, a firm conducting a competitive analysis can enable the firm to identify market areas for which the competitors have not covered (Abrams and Kleiner, pp.95-96). This knowledge creates significant opportunities for idea generation and business planning, as a firm is thus able to use the existing market opportunities, or the market gaps presented in order to attain a higher competitive edge. In addition, a firm should also conduct the analysis of the competitor’s customer level of satisfaction: this information gives opportunity to predict whether a firm may expect conquering a substantial market share, and serves as the guidelines for development of a firm’s strategies (p.96).
Competitive strategy and scenario analysis
Considering tough competition and the high level of uncertainty that always exist in business environment, a firm should take actions in order to be ready to exploit positive external changes and eliminate the consequences of the negative changes caused by competitors’ actions. Scenario analysis is the notion aimed at giving this opportunity to a firm, as say Edward W. Stead, Jean Garner Stead, and Mark Starik, the writers who work in the field of strategic management (2004, p.75). Through a competitor analysis, the entrepreneur can be able to rate the company on the basis of a number of concepts such as product range, price, quality, distribution outlets and customer experience. A ten scale rating can be used to compare the competitive strength of the various firms involved as illustrated below.
|Competitor||Price||Quality||Customer Service||Financial Stability||Location|
The resultant effect is that the firm will be able to formulate competitive strategies which will result into effective market positioning. Through scenario analysis, the firm is able to cope with unplanned events.
The success of a firm is dependent on its effectiveness with regard to financial planning. Through financial planning, Philips which deals with manufacture of various electronic devices has been able to attain global status (Philips). According to Peter Pellenbarg who is an international business economist, this has been achieved through venturing into the international market (2008, p. 197). To ensure effective financial planning, a number of activities are undertaken. These include development of a number of projections such as the firm’s balance sheet, cash flow statement, breakeven and annual profit and loss statement.
The period of the financial projection gives a firm opportunity to get the necessary volume of venture capital. The cash flow statement is the reflection of the situation a firm has with its working capital. The balances sheet enables the firm to account for the past changes and also the expected changes. On the other hand, the firm is able to determine whether it’s operating at a profit or loss through conduction of a breakeven analysis (Witter, 2010). Donald Kuratko, a well-known entrepreneurship scholar, emphasizes the importance of the breakeven analysis that gives opportunity to observe a firm’s profit/loss condition (Kuratko, 2008, p. 338). Below, the example of a break-even chart is provided.
According to Kuratko (2008, p.3), “any individual can become an entrepreneur if he or she has the passion to experience uncertainty and ambiguity”. For a firm to be successful the entrepreneurs must be guided by the concepts of profitability, growth and innovation. This arises from the fact that entrepreneurs are aimed at seeking new opportunities. This makes them venture into risky businesses. However, the success of any business venture is based on a range of characteristics that predetermine ability to fulfill effective decision-making and take reasonable actions.
We may notice that different scholars emphasize different characteristics of an entrepreneur; at the same time, there are certain points of contact. If we compare two graphs provided below, we will see that some characteristics differ, but many of them coincide:
Some of the key characteristics that are often discussed in scholars’ and experts’ works are evaluated below.
Venturing into business is a risky activity. This arises from the fact that the business environment is characterized by a high degree of uncertainty. In the course of their activity, firms face different challenges; as a result of their self confidence, entrepreneurs are able to table the challenges which arise. This increases the probability of the firm attaining their organizational goals (Viramgami, 2007, p.154). In addition, one of the strongest challenges a firm faces is the dynamism of business environment, and the changes that take place in it and make firms make decisions. In order for the business venture to be successful, a high degree of self confidence is required. As a result of entrepreneurs are aggressive and hence the ability to control their undertakings (Philip & Scheff, 2008, p.129).
The firm’s goals determine the effectiveness with which a firm succeeds in the long term. Phillip and Scheff (2008, p. 129) mark that “entrepreneurs are considered to be always focused. This is further enhanced by the fact that they are very energetic and highly motivated”. Entrepreneurs’ ambitions are incarnated in high goals that they set and try to reach by all means. Being ambitious and motivated to achieve their goals, entrepreneurs are able to develop numerous business ideas.
It is also important that their ambitious nature acts as a drive towards their success. Entrepreneurs believe in the analogy of “shooting to reach the star”. Therefore, if they do not attain their desired goal as a result of prosperity crisis, they are able to reach a certain acceptable level. However, it is necessary for entrepreneurs not to be over ambitious since it can result into ineffectiveness in the planning process (Viramgami, 2007, p. 179). Checking feasibility and thorough planning are crucial for implementation of any project.
There is the evident correlation between entrepreneurs’ commitment and the achievements of the goals they set (Dalimunthe, 2009, p. 168). Business sets high requirements to its agents and demands being interested, involved, and persistent. These characteristics are necessary for entrepreneurs to make decisions, research and analyze, overcome obstacles and notice opportunities. The resultant effect is that the firm is able to survive and progress in its operation. Upon establishment of the firm, the entrepreneurs are faced with numerous pressures to ensure that the firm succeeds and thrives in the long run despite the competitive nature of business environment.
Due to their commitment, entrepreneurs keep trying even if their outcome does not turn out as expected (Mohanty, 2005, p.77). Entrepreneurs are also committed in their investment. This is evident in the fact that they have a will to re-invest a significant proportion of their firm’s net worth back into the business in addition to accepting minimal pay. This arises from realization of the fact that he or she will own a significant proportion of the venture and creates entrepreneurs’ specific mood characterized by interest, persistence, and desire to compete and win (p.78).
According to Pamila K. Sharma, the former Head of the Department of Commerce, C.R.A. College (2010, p.7), every individual has faculty for entrepreneurship and is able to succeed in this field; at the same time, for some of the potential entrepreneurs, more significant amount of effort is required. A business venture exists in the conditions of high uncertainty where unforeseen challenges may appear at any time. To survive in this uncertain business environment, entrepreneurs must nature the entity to cope with the hostile business environment. This requires an individual to be ready-witted and creative. These skills are difficult, but possible to improve, which means that entrepreneurs have to be hard-working. Entrepreneurs have to sacrifice a sufficient amount of their time, energy ad a certain degree of their personal comfort and other conveniences.
The initial phase in the business planning process is idea generation. For the idea generated to be successful, a substantial amount of hard-work is required. This makes hard work and perseverance to be the basis upon which the business entity is founded. According to Walter Good, a business economist, one of the entrepreneur’s hard-working characteristic is ability to work for long hours in an effort to ensure that a particular designated task is completed successfully (Good, 2003, p. 22). Business may reduce one’s free time considerably; however, in many cases, this is a necessary condition to be a successful market player aware of the market condition, as well as of a firm’s own strengths and weaknesses.
Due to its uncertainty and high level of competition, business environment tends to generate perpetual challenges for the agents. If these challenges are not addressed effectively, they may negatively affect the firm’s ability to succeed (Kumar, 2008, p.53). Entrepreneurs have to cope with situations which arise from the environment. A strong ego is one of the most important characteristics that gives them opportunity to succeed in this field. According to Bill K. Bolton, a consultant in the field of entrepreneurship and enterprise development, and John Thompson, the Director of the Enterprise Network at the University of Huddersfield (2004, p. 18), ego enables an entrepreneur to have the necessary passion, commitment and power to exploit the market opportunities identified.
With regard to having a strong ego, both inner and outer egos are necessary. According to Bill K. Bolton and John Thompson (2004, p. 72), outer ego relates to the entrepreneur’s level of courage, responsibility and accountability. On the other hand, inner ego refers to the entrepreneur’s motivation, self-assurance and dedication. Possessing a strong ego prevents the entrepreneur from losing his or her business perspective as a result of emerging situations (Chandra, 2009, p.18).
Entrepreneurs are autonomous in their decision making process. Despite the fact that they may seek information from various sources, they should portray a certain degree of independence in their operation. Patrick A. Vermeulen, the Associate Professor of Organization Studies in the Department of Organization Studies, Faculty of Social Sciences, at Tilburg University, and Petru L. Curseu, the Assistant Professor in the Department of Organization Studies at Tilburg University (2008, p. 23) state that, to be successful, entrepreneurs sometimes have to break the common standards and norms, which is though often quite challenging.
Entrepreneurship requires an individual to be able to make independent decisions and to take resolute actions. All peculiarities of business environment discussed above presuppose that an entrepreneur should be autonomous. Particularly, both generation and implementation of business ides require being creative, resolute and confident in one’s own actions; at the same time, the high level of uncertainty makes meeting these requirements very difficult, which forces many individuals “think inside the box” and “walk the beaten track”; however, the probability of external challenges, as well as the availability of market gaps make autonomy a very valuable characteristic.
Irene Rosenfeld, Kraft’s CEO, also talks about ability to stay autonomous (Armitage, 2010): one of her “six tips to the top” is the ability to think independently, which often makes one take risky actions and make difficult decisions.
A reflection on the extent of entrepreneurial skills required
The importance of the skills discussed above is predetermined by the characteristics of the business environment; acquiring them increases the probability for an entrepreneur to succeed in his/her activity. Certain entrepreneurial skills are necessary for a firm to succeed (Pleshette, 2010). Some of these skills are developed over time; however, some skills, such as self-confidence and self-motivation, are very important from the very first steps.
Considering the fact that entrepreneurs are their own boss, they are required to act responsibly (Good, 2003). Entrepreneur should know all the issues pertaining to the firm’s success which means that they have to be starter. They should have a clear goal in their mind in relation to the idea generated. Prior to implementing the idea, a comprehensive analysis of their feasibility should be conducted.
According to entrepreneurship specialists Frias Solita and Banastao Cristina (2008, p. 43), to succeed, an entrepreneur should be hard-working; this means that in order to put enough effort into their projects, entrepreneurs should be very motivated and committed. The entrepreneurship specialists Jeanne Coughlin and Thomas Andrew state that through hard work, an entrepreneur is able to take advantage of the market opportunity presented thus exploiting it prior to other entrepreneurs entering into the same venture (Coughlin & Thomas, 2002, p.76). Time management is also one of the important skills that an entrepreneur should possess. On the one hand, opportunities always exist for a short time; on the other hand, threats also require taking resolute and fast actions; finally, each day a firm has new challenges and new tasks. Thus, an entrepreneur should prioritize his/her activities and distribute time appropriately between them.
Possessing the above skills is necessary in attaining the desired objectives. However, possessing the necessary, administrative skills would enhance the firm’s capacity to undertake other tasks such as planning, management and marketing (Kurtz & Snow, 2009).
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