Business Planning Process
It is of upmost importance for any entrepreneur to develop a well defined business plan before starting on a potentially viable project. A business plan is simply a detailed account of a proposed idea, and could be used by both businesses and individuals (Gartner & Bellamy 2009, pp. 8-27). Business plans take on differing formats, but most contain similar features. The plan will usually offer a roadmap of what the entrepreneur, or business, would want to accomplish in a given time frame. The plan also incorporates the key steps to follow, additional resources required (if any), control procedures and an analysis of the feasibility of the idea in hand. The plan should ideally focus on the long term, rather than being pegged down on the steps involved.
A business plan therefore contains information that guides on the effective operation and implementation of a business idea. For entrepreneurs, a sound plan offers the steps necessary for starting and running a business (Drucker 2006, pp. 37). When preparing a plan, the entrepreneur should take care to avoid unnecessary jargon, use reasonable and realistic assumptions and include enough details in the plan. If well written, then the business plan increases the entrepreneur’s motivation in the project, or it may even convince a bank or venture capitalist to finance the project.
The idea generation process starts off with the entrepreneur identifying a need or gap in a particular market or industry (Reading 2002, pp. 41). A business idea could come from a brainstorming session, or an entrepreneur could simply ‘buy’ an idea from a patent holder or a consulting firm. James Caan, best known for BBC Two’s Dragons’ Den, recommends that an entrepreneur should “observe the masses and do the opposite”, in order to be first successful in a business initiative (BNI 2010, pp. 5). Whereas this may not be easy, entrepreneurs should follow their instincts, be persistent and ensure that they know exactly what they are doing in business. Entrepreneurs could also benefit from joining professional organizations or through networking, where they can gain knowledge and get business contacts.
Developing a business idea is not limited to the idea generation process. Once an idea is established, an entrepreneur should consider whether the business idea would add any value to consumers, and the commercial viability of the proposal. An entrepreneur should also evaluate his /her personal skills and creativity in the industry in question, and determine whether or not additional skills are required. In so doing, the entrepreneur will be thinking strategically on ways he can achieve the objective and take advantage of identified market opportunities.
An entrepreneur’s skills and experience could also be the basis for formulating a business idea. Bill Gates, the founder of Microsoft, used his skills and passion of computing software to help establish the company. Subsequently, the idea does not have to be a new concept, one could simply identify a product or service in the market and evaluate whether it could be improved on, for instance making a product cheaper, production process more efficient or faster delivery of services (Small Business Victoria 2000, pp. 4).
A comprehensive business plan contains strategic objectives. Objectives can be viewed as targets or milestones for the business, the achievement of which would signify success (Porter 1998, pp. 25). In this stage, a business plan is categorically broken down into short term and long term goals. In preparation of the business plan, an entrepreneur should first start by describing the company’s vision and mission statements. While these statements are long term in nature, they explain a company’s reason for existence or the main aim of the business plan. The mission and vision statements should be clear and concise since they help in developing company medium and short term plans.
Strategy decisions are influenced by the choice of strategies, business policies and long term goals. Strategy is also dependent on external factors, such as the economic environment; hence an entrepreneur should conduct a thorough market research and resource analysis before deciding on a strategy. Strategies developed could be aimed at penetrating a market segment, positioning a product and developing a competitive advantage. An entrepreneur could draw up a perception map in the business plan to illustrate the market position the business aims at achieving. Entrepreneurs should ascertain that the objectives drawn are SMART in nature.
For strategic objectives to be SMART, they should be Specific, Measurable, Achievable, Realistic and Timed (Cheverton 2004, pp. 97-105). By ‘specific’, we mean that the objective should be precise on what the business hopes to achieve. ‘Measurable’ implies that the targets of the business should be quantifiable in monetary terms. ‘Achievable’ means that the targets set are within reach while ‘realistic’ entails that the business or entrepreneur has enough resources to make the objectives happen. ‘Timed’ implies that the objectives should have a time frame in which they can be achieved.
Market Analysis and Research
Any business plan should include market analysis and resource analysis information. Information from market analysis and situational analysis assist in the development of strategy for the business (Rich 2005, pp. 23). The entrepreneur will be better positioned to develop successful strategies, rather than trying out trial and error mechanisms that would result into unnecessary losses when the business starts off. Situational analysis focuses on both macro and micro environments in which the business will operate in.
Macro-environment analysis could employ the use of PESTLE, whereby the entrepreneur could evaluate the political, economic, sociological, technological, legal and environmental factors. Micro-environment involves factors that are still not yet under the control of the business, but are relevant in the choice of strategy (Hedley, 2002, pp. 12). Examples of items that could be assessed from the micro-environment include a summary of the market segment, industry growth and competition, potential new markets, supplier costs and service quality and changes in consumer behavior.
In the determination of the current situation and guidance in choice of strategy, entrepreneurs evaluate their present positions. Appropriate tools and concepts that could be used include SWOT and resource analyses (Hitt 2009, pp. 54). A SWOT analysis seeks to determine a business’ strengths, weaknesses, opportunities and threats. The SWOT analysis could be conducted after the PESTLE analysis (Cheverton 2004, pp. 71), as the external environment impacts on a business’ strengths, weaknesses, opportunities and threats. Resource analysis will help the entrepreneur in evaluating on the viability of a particular market segment, targeting procedures and positioning strategies.
An entrepreneur should identify competitive factors when developing a business plan, as competitive factors have a hand in influencing the profitability of any business (Porter 1998, pp. 232). Competitor information assists entrepreneurs establish appropriate strategies that will add on to their competitive advantage. Michael Porter (1998 pp. 56), an authority in strategic management, emphasizes that competitive advantage could be achieved through cost leadership or differentiation, or a combination of the two in appropriate proportions.
Competitive strategies that could be implemented could be associated with a business’s tactics, otherwise known as the 7 Ps (Harper 2003, pp. 35-48). The 7 Ps include price, product, place, promotion, people, process and physical evidence. The choice of one tactic influences the selection of another, for instance when a business decides to offer high quality products (product), it may have to charge a premium price (price). In case of a service, then employees (people) could be trained on ways (process) of deriving customer satisfaction.
Financial planning entails forecasting present and future capital requirements of the business proposal (Harper 2003, pp. 68-81). Some of the tools used include cash flow projections, profit and loss estimates as well as balance sheet projections over the planning period of the business proposal. Costs could come from research expenditures or procurement of assets, thus an entrepreneur should ascertain that the proposed budget is accurate. Budget estimates could be used by the entrepreneur when sourcing for financing options. Potential high rates of returns and low inherent risks serve as a motivating factor for employees, and could influence venture capitalists or banks to invest in the business idea.
Estimated results are not guaranteed, so there’s usually an element of error when forecasting. The financial forecasting process is more of an art than a science, explaining why analytical results defer from one analyst to another. The correctness in predicting financial outcomes depends on the experience of the entrepreneur, acquired skills as well as personal judgments. A company like Dunkin Donuts, now an international donut and coffee retailer (Miller et al. 2010, pp. 2) started out small, and relied on increasing value to customers to increase its competitiveness. The company was later bought by a private equity firm, though most of its expansion strategy involves the use of franchises, rather than direct investments.
Several theories on entrepreneurs have been put forward by scholars, as they try to explain what causes certain people to be distinct from others in the community. A common theory is that entrepreneurs are driven by economic incentives from investing in business ideas, such as favorable tax rates, availability of resources and market conditions (Kumar 2006, pp. 36). Other theories point out that entrepreneurs are the product of their upbringing. Here, individuals acquire certain traits that enable them to succeed in life. David McClelland, an American psychological theorist, claimed that entrepreneurs are driven by a need to succeed, thereby taking on risky projects to satisfy their hunger for achievement (Kumar 2006, pp.16).
Donald A. Walker (1986, pp. 2), a former chairperson of the Dept. of Economics, has reiterated the need to distinguish entrepreneurs from capitalists. In the past, classical economics used the term ‘profit’ to refer to the interest on capital received by capitalists and earnings made by an entrepreneur. It’s important to note that not all entrepreneurs are capitalists and not all capitalists are entrepreneurs. Theorists like Joseph Schumpeter, an Austrian economist, believe that entrepreneurs are advantageous since they help grow the economy (Kuratko 2008, pp. 5-17). Entrepreneurs assist in opening up markets, innovating products and developing new services. This theory implies that entrepreneurs are capable or wealthy risk takers, which is not always the case. Some characteristics of entrepreneurs have been discussed below.
Characteristics of entrepreneurs
It could be said that entrepreneurs are hardworking, whereby they devote their time and efforts towards achieving their goals. Here, entrepreneurs could be viewed as workaholics, given by their focus in their business (Gitman & McDaniel 2008, pp.56). Though they encounter many challenges along the way, they still believe that business success is only guaranteed though hard work. Another characteristic arises from this presumption, whereby entrepreneurs are as focused on their objectives, perhaps to the peril of their own personal lives. John Nordstrom, co-founder of Nordstrom department store, endured a lot as an immigrant in the United States. Having started out with only $5, Nordstrom worked at various strenuous jobs until he was able to create his family empire (Reynolds 2007, pp. 49).
Entrepreneurs could also be perfectionists, people who try to continually improve their business. This could be by way of seeking better ways of doing things, improving on efficiency, offering better customer service and so on, all in the name of creating value. These people are seen to operate their business on a high level of integrity and ethics. These entrepreneurs believe that their efforts will be rewarded, and therefore keep on improving their businesses. A good example is Anita Roddick, founder of The Body Shop, who in her book states that she had always had sense of moral outrage (Roddick 2001, pp. 26).
Some entrepreneurs could be competitive in nature (Kaplan & Warren 2009, pp. 19). They always view a project as another challenge that should be accomplished, and always want to emerge at the top. These entrepreneurs usually base their business brands around themselves, such as Donald Trump, owner of Trump Hotels and resorts (Fisher-Roffer 2009, pp. 203). These entrepreneurs are highly energetic, and their personality or strong ego is the driving force behind their success. These entrepreneurs are also workaholics, and have a high degree of internal motivation. This class of entrepreneurs will do almost anything to accomplish a challenge, as they view that there is nothing beyond their reach (Hisrich et al. 2009, pp. 45-62).
Other entrepreneurs are simply just full of life, and have an uncanny ability to lead their businesses through a wide range of challenges (Carsrud & Brännback 2007, pp. 12-16). Their leadership skills set them apart from other managers, and could offer various promising and offensive tactics to take on the market. These entrepreneurs are strong willed, for instance Jack Welch, the CEO of General Electric (GE). The CEO has had a solid and consistent performance at GE ever since he took over the office in 1981, breaking the record of the youngest CEO in GE’s history (van der Evre 2007, pp. 263). Strong leadership skills act as motivating factors for employees in the same company, thereby encouraging cooperation in times of difficulties. Enhanced synergy and coordination in the various departments may lad to the achievement of a company’s goals.
Entrepreneurs could be analytical, as they work towards ‘fixing’ problems in the society or in a business in a systematic manner (Kruger 2002, pp. 7-15). These entrepreneurs usually work in scientific fields such as physics and science. Others could be visionaries, entrepreneurs who are driven by a dream, rather than the present reality. These entrepreneurs have high levels of curiosity, as they try to understand the world, systems and new ways of doing things. Bill Gates, key Microsoft Inc founder, had always had a passion for computers ever since he was young. According to multi-billionaire, people should follow their dreams and passions in order to be successful in life.
Following dreams does not guarantee success, entrepreneurs encounter many set backs along the way, and some give up in the process. Entrepreneurs who are successful all have one characteristic in common, that is, they persevere. Perseverance demands courage and self confidence. Where these entrepreneurs may fail to achieve some set targets in given time frames, they continue with their dream until it comes into fruition. Courage may also mean quitting a current job position in order to pursue a dream, or investing all their capital in a business believing that there is little doubt that the business will succeed. Mounting pressure from Apple Co. forced Steve Jobs him to resign in 1985, but his hard work saw him return as the company’s CEO several years later (van der Evre 2007, pp. 263)
Some entrepreneurs are simple opportunists in life, as the try to be the first to take advantage of a given opportunity. Whereas they may not be the first to come up or develop an idea, they are usually the first movers in the market (Kaplan 2001, pp. 43-62). These entrepreneurs study the market and estimate where gaps could be filled. Unlike previously discussed entrepreneurs who follow their dreams, these people are business minded, and potential profits serve as their motivating factors in their establishments. Following Facebook’s success, Jack Dorsey established Twitter in 2007, a social web application that used the latter company’s status feature to gain Twitter’s popularity and timely success (Pirtle 2010, pp. 35).
The impact of entrepreneurs
Entrepreneurs help sustain economic growth. A country’s economic growth rests on the continual development of entrepreneurial activities, as these individuals seek to grow income levels, create alternative and efficient methods of production or service delivery, new opportunities in a country emerge (Drucker 2007, pp. 68). An economy is therefore more capable of being competitive in a global setting, and increase on surplus levels of trade. Entrepreneurs also contribute towards economic growth by creating employment opportunities (McDaniel 2002, pp. 39). As entrepreneurs start and grow companies, more people are recruited fill in vacant positions, thereby reducing unemployment rates in the economy. Furthermore, in most economies, a majority of employees can be traced to small private businesses.
Entrepreneurs also help solve for societal problems. While their motives may at times be driven by personal selfish ambitions, advances in science, medicine and supply of basic commodities can be attributed towards these individuals. Creating employment in an economy helps reduce poverty levels (Drucker 2007, pp. 1-17), and subsequently crime levels in society. Improved technologies are therefore there to improve the livelihoods of all human beings. Better production processes help preserve the environment by reducing pollution levels.
A reflection on the extent of entrepreneurial skills required
For one to be a successful entrepreneur an individual should ensure he or she first has self motivation. This is the inner drive that pushes entrepreneurs through each and every single day. This is the factor that makes them believe that whatever they aspire can be achieved. Self motivation fosters the spirit of motivation. Self confidence combined with motivation enhances other attributes such as courage, patience and perseverance. Also, a person should enjoy his or her profession, as they have complete control over their schedule. This attribute will enable the entrepreneur to increase devotion to their business, and encourage them in the face of increasing risks.
Knowledge and information are critical skills for the advancement of any entrepreneur. Individuals have to know what they are doing. Management skills emerge in this section, since entrepreneurs have to know how to manage their employees and resources. Management skills help the entrepreneur better make decisions that would increase sales for the business, and improve on the financial position (Paul 2008, pp. 41). Without the financial knowhow, an entrepreneur may make wrong pricing decisions, or mismanage cash flows within the first years of business, and end up with no money to continue operations (Lane 2001, pp. 29-34). An entrepreneur should also develop negotiation skills, which could prove vital when dealing with customers, suppliers, creditors and other stakeholders.
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