The Goal: Just Do It Now
1/2/98
Consider a team that is enthusiastic about an idea for a new business and has done a considerable amount of thinking about it and initial work evaluating the opportunity. Team members believe the business venture they are considering is viable and has excellent market potential. The business venture also maps well with the team's skills, experience, personal goals and values. Now it is time to start developing the actual business plan.
As noted previously, a business plan is a written document that delineates the proposed venture. It must illustrate current status, expected needs and project results of the new business. A business plan is written for many reasons. When you are planning to start a business, its most important purpose is to help you be sure the business is carefully planned and makes financial and operating sense. The plan may also be used to convince investors, or other sources of financing to invest money in your business. Therefore, it should be complete, organized and factual. The emphasis of the business plan should be the implementation and success of the venture. Thus it is important to translate the plan into action.
The planning and the development of such a business plan is neither quick nor easy. In fact, effective planing is a difficult and demanding process which requires time, discipline, commitment and practice. However, it can also be a stimulating and rewarding process. Preparing and effective business plan for a start-up can easily take 200 to 300 hours. Squeezing time into evenings and weekends can make the process stretch out over 3-12 months. By then, much opportunity cost may have occurred. A business plan for a business expansion, a market downturn or a leveraged buyout typically takes half that time. The reason is that more is known about the market, its competition, financial and accounting information. As shown in Table 1, a business plan is absolutely essential for success.
A dehydrated business plan (which is what we will do in Administration/Entrepreneurship 510 usually is shorter (15-30 pages) excluding tables. Essentially such a plan documents the analysis of and information about the heart of the business opportunity, competitive advantages of the business and then provides creative insights. Such a bare bones plan can be completed in much a shorter time. The down side of such a plan is that it is not intended to be used exclusively in the process of raising capital, going public or determining future competitive initiatives. It is merely a shortcut on the road to success.
Before launching into the completion of the project, it is important to organize your team of consultants. For your team to work effectively you must learn about each other and understand each other's strengths and weaknesses, commitment, and limitations. You must then establish norms or set expectations about the project. This entails setting specific goals, assigning responsibilities, and establishing a realistic timeline to achieve your objectives. All of this must occur BEFORE you can effectively as a team.
Table 1
Criteria Rated as Essential
In New Venture Evaluation
Characteristics
% of Successful Seekers
1.
Business Stage
Start-up
Expansion
Bridge financing
Other
29%
65%
38%
10%
12%
2
.Amount of dollars sought
44%
3.
Written business plan
List of product competition
Marketing plan
Cash flow projections for 3 years
98%
95%
94%
98%
94%
4.
Where firms seek equity capital
Out-of-state venture capitalists
In state corporations
Out of state corporations
In state private investors
Out of state private investors
Instate consultants/investment bankers
Out of state consultants/investment bankers
85%
58%
40%
34%
79%
47%
57%
31%
SOURCE: Hustedde, Ronalid J & Pulver, Glen C.. 1992. Factors affecting equity capital acquisition: The Demand Side, Journal of Business Venturing, September: 369-70.
Development Process
There are numerous ways of actually developing a business plan. Regardless of the approach, all emphasize a balance between process and results. Research indicates that certain ingredients are common to almost all successful planning efforts. They include:
- Establishment of project goals which are:
Specific and concrete
Measurable
Time anchored
Realistic and attainable
Flexible (e.g. capable of being modified and adapted
Goals are not dreams, fantasies or the product of wishful thinking. Nor are they mere predictions or guesses about future outcomes. A goal is a decision or choice about future outcomes. Goals setting is not a task but a process, a way of dealing with the world.
- Establishment of priorities.
Here you need to determine which aspects of the plan are most important. Research indicates that the marketing plan, the financials and management team are most critical to business venture success.
- Identification of problems and obstacles.
Proactive planning means you anticipate rather than react to conflicts and problems. You develop "disaster plan" which indicates the steps that will be taken should specific problems (e.g. a team member fails to meet a deadline, you can't get information you need in time, ) arise.
- Specification of necessary tasks and action steps
Devise an overall schedule for preparing the plan and list tasks that need to be completed. One useful approach is identifying all tasks is called cognitive mapping. With this approach you brainstorm information about the task and its underlying components. After doing this, you put the tasks into a logical order It is helpful to break larger items (e.g. market research, benchmarking of competitors, financial analysis) into the smallest possible components. Be as specific as possible. Then prioritize them. Determine which tasks can be done simultaneously and which are contingent upon prior actions.
Develop a project flow chart. or a Gantt chart. A flow chart is a graphic device for sequencing significant events and yes or no decisions. Sequencing is arranging them in order of their desired occurrence. A Gantt chart is a graphic scheduling technique. They graphically depict the project schedule by subcomponents. By adding the time line of completed activities, actual progress can be assessed at a glance.
Establishment of progress milestones, especially revenue, expense and cash targets, deadlines and dates
- Establishment of progress milestones
It is absolutely essentially that project milestones be built into the project. Milestones have been shown to move projects along to completion. The general wisdom is that 80 percent of a task is usually accomplished using the first 20 percent of the effort. Therefore, one needs to focus first on what will result in 80 percent of the accomplishment. Table 2 indicates the key elements of successful new venture prospecting. If you are gong to get funding, then these things are a must. Be sure your project includes these elements.
For this project, two specific milestones have been established for you. They relate to key components of the final business plan delineated in the next section:
March 17, 1998
Oral presentation to class on the scope of your project and preliminary written report which deals with:
- Nature of the product or business you have chosen to analyze (Section VII)
- Economics of the Business (Section V)
- Mission Statement (III)
- Management Team (Section X)
- People Resources (Section XI)
- Preliminary Financials (XIV)
- Project Planning Schedule and Gantt Chart (Similar to Section XV) but relates to the project rather than the business)
Information presented here may be modified and likely will for your final project report. The goal is to get some initial work completed.
If the class desires, we can pick an earlier date for presentations but it will need to be on a non regular class night or a Saturday.
June 4, 1998
Final Project Presentations to classmates and outside reviewers!!
- Three copies of your final business plan
- 50 copies of the Executive Briefing for distribution to your classmates and outside reviewers.
- Oral presentation.
- Packet which includes copies of all your oral presentation materials including the visuals and graphics (can be a computer disk, IBM, word).
- Webpage for your proposed business venture.
- Peer evaluations
Table 2
Criteria Rated as Essential
In New Venture Evaluation
Capable of sustained intense effort
Thoroughly familiar with market
At least 10 times return in 5-10 years
Demonstrated leadership in the past
Evaluates and reacts well to risk
Investment can be made liquid
Significant market growth
Track record relevant to venture
Articulate venture well
Proprietary protection
SOURCE: Hall, John & Hofer, C.W. 1993. Venture Capitalists' Decisions in New Venture Evaluation, Journal of Business Venturing, January: 37
