INTRODUCTION TO ENTREPRENEURSHIP

Definition and Introduction

Introduction
Traditionally, entrepreneurship has been considered as having an interface with small firms.
Why
i.

Entrepreneurial activity was often more visible in smaller firms

ii.

When a firms experiences growth, it can be difficult to sustain an entrepreneurial focus in

a multi-layered management structure.

Note.
The use of entrepreneurship in large-scale enterprises is today gaining momentum.
Therefore, now days entrepreneurship is a discipline that appears to be relevant to both a
large and small firms.
Entrepreneurial mindset is required by all firms in order to compete successfully in the
new competitive landscape through the use of carefully selected and implemented
entrepreneurial strategies.
Not all business people are entrepreneurs
o This means successful entrepreneur requires

Technical skills

Management competencies

Entrepreneurial mindset

Entrepreneurial mindset is at the heart of developing entrepreneurial behavior

Definition of Entrepreneurship
Who is an entrepreneur?
1. Schumpeter (1934) defined an entrepreneur as someone who acts as an agent of
change by bringing into existence a new combination of the means of production.
e.g. of means of production include capital, equipment, premises, raw material,
labor and more recently-knowledge.

2. Casson (1982) defines an entrepreneur as someone who specializes in making

judgmental decisions on coordination/bringing together of scarce resources.
3. McDaniel (2002:57) defined an entrepreneur as a person, who sees an opportunity,
seizes/grabs/confiscates that opportunity and creates a new product, changes a
production process or otherwise, creates a new marketable contribution to the
economy.
Generally, According to Hitt et al (2002), a typical entrepreneur is the founder of new firm rather
than a manager of an established one, although entrepreneurial behavior can be
exhibited/demonstrated/revealed by an employee.
Intrapreneur: One who exhibits entrepreneurial behavior in an already established
organization.
What is Entrepreneurship?
1. Kirzner (1973)-Entrepreneurship as ability to perceive/identify/recognize new
opportunities
2. Drucker (1985)-entrepreneurship as an act of innovation that involves endowing the
existing resources with new wealth producing capacity.
3. Low and Macmillan (1988) consider entrepreneurship as the creation of
enterprises/ventures/projects.
4. Gartner (1988) considers entrepreneurship as the creation of organizations, or the
process by which new organizations come into existence.
Generally Entrepreneurship constituting people who have the ability to see and evaluate
business opportunities, gather the necessary resources, take advantage of them and initiate
appropriate action to ensure success.
Note
Successful entrepreneurs ought to have the vision or ability to see opportunities
Early Contributions
The development of entrepreneurship as a discipline can be traced to the early contributors in the
discipline.

1. Kirzner: Considered the entrepreneur as some one who is alert/ attentive to profitable
opportunities for exchange. Being able to recognize such possibilities for exchange
enables the entrepreneur to benefit by acting as a middleman who facilitates the
exchange. He/she can identify suppliers and customers and acts as an intermediary. In
this practice, it is not necessary to own resources; profit simply arises out of intermediary
function. These possibilities for profitable exchange are triggered by the presence of
information asymmetry among members in the society. The entrepreneur, however, has
some additional knowledge, which others do not possess.
2. Schumpeter:
-Entrepreneur is a special person, is an innovator, who brings about change through the
introduction of new technological processes or products
-If an entrepreneur is an innovator then removes production constraints. He/she develops
new technology whereas for Kirzner the entrepreneur operates on opportunities that arise
out of new technology.
3. Knight
-Entrepreneur is considered to be someone prepared to take risk in an uncertain/unsure
world-risk taker
-This uninsurable risk he/she takes can attract a profit reward, seen as the return for
bearing this uncertainty.
-Opportunity for profit arises out of uncertainty surrounding change
-If the change is perfectly predictable, then no opportunity for profit exists.
UNDERSTANDING ENTREPRENEURIAL PERSPECTIVE
Every person has the potential and free choice to pursue a career as an entrepreneur. However, an
assessment of the potential entrepreneurs ability to pursue an entrepreneurial career has to take
into account;
(a) the environment in which a venture is being undertaken
(b) the type of venture involved

(c) the level of education and experience of the entrepreneur in question.

For example, it will be improper to compare an informal vendor-petty trader popularly known as
Machinga in Tanzania or Jua Kali in Kenya and an educated and experienced entrepreneur in
the

United States without controlling for these three elements.

We wish to explore on complete perspective involved with entrepreneurial behaviour.

Entrepreneurial behavior is characterized by different entrepreneur characteristics to be discussed
soon. This is referred to as entrepreneurial perspective an individual exhibits. Perspective
provides an interesting look at the entrepreneurial potential within every individual.
Qualities that characterize successful entrepreneurs
Entrepreneurs have unique qualities that differentiate them from venders, and
general business operators.
Foremost, entrepreneurs are:
Risk takers-risk lovers compared to risk averse individuals have the potential
to make higher returns.
Have the desire to work long hours-this is the essence of being a boss of
oneself.
Have the desire to succeed this is essential to avoid the practice business as
usual
Are innovative-innovations spar business opportunities
Exert leadership-leadership is essential to get positive results.
Are visionary-necessary to inspire the workforce
High degree of commitment
Flexibility Ability to adapt to the changing demands of their customers and
their business
Reasons that account to motivating entrepreneurs to join the entrepreneurial arena:
i.
Make money: Entrepreneurship provides for ones financial needs.
Launching ones own business venture is a way of earning money. The profit
motive is, therefore, one reason for venture choosing entrepreneurial career,
but not the only reason. In several cases, entrepreneurial ventures earn much
higher than salaried employment.
ii.
Be your own Boss: Freedom to operate independently is another reward of
entrepreneurship. Many people have a strong desire to make their own
decisions, take risks and reap the rewards.
iii. Personal fulfilment: Entrepreneurs frequently speak of the satisfaction they
derive from their own business. Some of the entrepreneurs even refer to their
work as constituting fun. Part of their enjoyment is derived from their
independence, but some reflects an owners fulfilment in working with the
firms products and services.
Characteristics of Entrepreneurs

The entrepreneur needs to be a generalist rather than a specialist so as to discharge duties without
delegation. It is important for the entrepreneur to be reasonably proficient in all aspects of
decision making rather than very proficient in some aspects but in adequate in others.
The following provide characteristics of a successful entrepreneur;(i) Commitment and perseverance
Starting a business venture requires total personal sacrifice. Entrepreneurs put a lot of
physical and mental effort into developing their ventures. Total immersion into business
by entrepreneurs can overcome obstacles and setbacks. Commitment is demonstrated by
their intense dedication to the job. Stronger commitment has enabled some entrepreneurs
to overcome difficulties, which defeated the others who treat those difficulties as
impossible to solve. Commitment also compensates personal shortcomings.
(ii) Determination to finish a task quickly, succeed and grow
Small business entrepreneurs expect quick and concrete results from their investment of
time and capital. Most of them can singularly focus on a task and continue working
diligently until the task is finished and success is attained. Most entrepreneurs can shut
out the outside world such as television, radio, idle conversation around them and solely
focus on the task at hand. Unfortunately, this single mindedness can often lead to people
treating entrepreneurs as anti-social, rude and/ or self centred. However, it is this
determination to succeed and grow that allows entrepreneurs to finish the task at hand.
(iii)Need for self achievement and self motivation
Entrepreneurs are ambitious individuals with a strong passion for achievement. They
have a strong need for achievement, for stronger than the average owner- manager.
Running an own business without external pressure to motivate and encourage some one
is a lonely affair. Therefore, one has to be self motivated.
(iv) Drive to achieve
Entrepreneurs are self-starters who appear to be internally driven by a strong desire to
compete to excel against self-imposed standards and to pursue and attain challenging
goals. High achievers tend to be moderate risk-takers.`

(iii)

Opportunity orientation
Most entrepreneurs seek opportunities to make money. More often than not, they see
opportunities when others see problems.Successful entrepreneurs focus an opportunity
and let their understanding of it guide other important issues. They are goal oriented in
the pursuit of opportunities. Set high but attainable goals enable them to focus their
energies to selectively sort our opportunities and to know when to say No! The goal
orientation also helps them to define priorities and provides them with measures of how
well they are performing.
(v) Tolerance for Ambiguity
True entrepreneurs are willingly to live with a far greater level of uncertainty. Generally,
they do not succumb/give way to uncertainty. Start-up entrepreneurs face uncertainty
compounded by constant changes that introduce stress into every aspect of the enterprise.
The greatest uncertainty in entrepreneurial life is determining when the income is to be
realised. The possibility of missing out of some income from business might affect
entrepreneurial behaviour. This probably explains why some small scale businessmen
and women in Tanzania who sell household foodstuff at Kariakoo area and elsewhere in
the commercial city of Dar es Salaam selling foodstuff even at night, hopping to catch
potential customers on their way home.
(vi) Integrity and Reliability
Integrity and Reliabilities imply being honest and keeping promises. These characteristics
are fundamental in building and sustaining business trust and confidence. For example In
Tanzania, some retailing entrepreneurs tend to get trade credit support from wholesalers
mainly because of the trust that they have built over time.
(vii)

Calculated Risk Taking

Entrepreneurs live with uncertainty, so their willing to take risk. The risks could be
personal or financial. Financial risks mean that the entrepreneur could lose all his or her
money and personal assets should venture fail. Failure could also mean that a person
loses his /her status in society.
Some risks taken by an entrepreneur are:-

 Change to make a new product or change to make a production process

work more smoothly and efficiently.
Risk their reputation and personal standing if they fail
Note:Entrepreneurs are not extreme risk-takers as one would expect; in fact they tend to
minimise the risks whenever possible.
(viii)

Resilience

Not everything goes right all the time. Hence, entrepreneurs need a willingness to accept
failure, learn from it and act boldly in the shadows of doubts. In fact, they must use
failure as part of the learning process towards achieving success. This learning process is
repeated until there is a satisfactory outcome. In this regard, entrepreneurs do not accept
failure, but see failed attempts as temporary setbacks on the road to success. Many of the
successful entrepreneurs believe that they learnt more from their earlier failures than from
their earlier successes.
(ix) Proactive
Entrepreneurs tend to be proactive rather than reactive in their search for opportunities.
They are proactive in a sense that they actively seek opportunities rather than wait for
them to occur by chance. They act quickly and decisively to make the most of the
opportunity before somebody else does.
(x) Vision
Entrepreneurs know where they want to go. They have a vision or concept of what their
firm can be.
(xi) Self Confidence and optimism
Although entrepreneurs often face obstacles. They believe in their ability and are
confident in overcoming such obstacles. They are always hopeful to succeed.
Entrepreneurs use failure as a learning experience. The trial and error nature of becoming
a successful entrepreneur makes serious setbacks and disappointments an integral part of
the learning process. They do not get disappointed, discouraged or depressed by a

setback or failure. Many of the entrepreneurs believe they learn more from their failures
than from their earlier successes.
(xii)

Tolerance for failure

Entrepreneurs use failure as a learning experience. The trial and error nature of becoming
a successful entrepreneur makes serious setbacks and disappointments an integral part of
the learning process. They do not get disappointed, discouraged or depressed by a
setback or failure. Many of the entrepreneurs believe they learn more from their failures
than from their earlier successes.
(xiii)

Creativity and Innovativeness

This consists of ability to seek new ways to do things or solve problems. Entrepreneurs as
an agent of change bring about new resource combinations.
To create is to bring something into existence
To innovate is to bring novelties (new change)
THE ENTREPRENEURIAL PROCESS
This constitutes the process an entrepreneur goes through to create a new venture. Activities
involved in the entrepreneurship development can be summed up in the following five steps:
(i) Identify and evaluate the opportunity
From entrepreneurial perspective, an opportunity is a gap left in the market by those who
currently serve it. This opportunity has the qualities of being attractive, durable and timely. For
entrepreneurs, opportunity identification and evaluation is a difficult task. The process of
identifying a business opportunity revolves around the entrepreneurs being alerted to a business
opportunity. This entrepreneurial alertness is the ability to see where products or services do not
exist or where the products suddenly become valuable to consumers and where new methods of
production which are unknown to others become feasible. One is able to deduce ideas from:
o Hobbies or personal interest
o An entrepreneurs skills, expertise or aptitude
o Chance

o Existing unresolved problems

o Everyday activities
o Suggestions from someone else
o Consumers
o Retailers, Wholesalers, Manufactures and agents
o Working on other projects
o Existing businesses
o Television and radio etc.
(ii) Development of the idea
Converting ideas into opportunities requires evaluation of each idea. This is done through both
feasibility/practicability and viability studies. The entrepreneur evaluates the idea and makes an
intelligent decision whether to move it forward. This involves developing the idea fully,
gathering, appraising the available information, testing and sometimes modifying the concept.
(iii)Developing the business plan
Business plan shows the road map of exploiting the identified opportunity. Business plan
development is the most difficult phase of the entrepreneurial process. It involves developing a
business model and strategy that the entrepreneur will use to capitalize on the business
opportunity.
(iv) Determine the required resources, assemble and gain control over them
Resources needed for the opportunity must be determined. This process starts with the appraisal
of the entrepreneurs present resources. Resources can be tangible or intangible. They comprise
the capital available for investment in the venture, people who need to be employed in the
venture and the physical available assets the venture needs.
(v) Develop a structure to implement and manage the enterprise
After resources have been acquired, the entrepreneur must employ them by implementing the
business plan. It is when the venture actually takes off that many questions are actually
answered. Such questions could be reflected in terms of the products performance and
customers commitment to the product.
MARKET RESEARCH CONCEPT

MARKETING RESEARCH
Definitions
A market is group of consumers and potential consumers who have the purchasing power and
unsatisfied needs. As such, a new venture will survive only if a market exists for its products or
services. However, some entrepreneurs attempt to launch new ventures without identifying any
market. To counter this problem, effective market analysis becomes important when it comes to
gaining in depth knowledge about a specific market. The key to this process is Marketing
Research.

Research is the search for and retrieval of existing, discovery or creation of new information or
knowledge for a specific purpose.

Marketing research (also called consumer research) is a form of business research. It is a form
of applied sociology which concentrates on understanding the behaviors, whims and
preferences, of consumers in a market-based economy.
Market research involves the gathering of information on a particular market, followed by an
analysis of that information for marketing decision-making.
The goal of market research is to reduce the risks associated with making business decisions.
Steps in the Research Process
The research process follows the following steps:
Step 1: Defining the Research Problem and Objectives
The first step in marketing research is to define clearly and concisely the informational
requirements of the decision to be made. Market research can also be used to uncover the new
market opportunities. The problem identified should then be translated into specific objectives to
be achieved at the end of the research. Example:Step 2: Data Collection
This Involves collecting information about the target customers. Two major sources of
information include secondary and primary data sources:
a. Secondary data
By secondary information we mean data which has been collected by individuals or agencies for
purposes other than those of a particular research study. Small firms most commonly use

secondary data because it is immediate and obtained either for free or at the lowest cost. No
marketing research study should be undertaken without a prior search of secondary sources.
Advantages of using secondary data:

Data collection costs are substantially lower for secondary data than primary data
The time involved in documentary scrutiny of secondary sources is far less than needed
to complete primary data collection.
Secondary sources of information can yield more accurate data than that obtained through
primary research. Although this is not always true, in cases where a government or
international agency has undertaken a large scale survey, or even a census, this is likely
to yield far more accurate results than our own surveys when these are based on a
relatively small sample sizes.
Secondary sources can be used useful in defining the population and in structuring the
sample e.g. statistics on a countrys age structure will help to decide how to stratify a
sample.
Secondary data may be sufficient to solve the problem. On occasions, it happens that
adequate data may be available to the extent that primary data collection is not necessary
Disadvantages of using secondary data:

Measurement error: when we conduct fieldwork ourselves, we are able to estimate

inaccuracies in measurement through the standard deviation and standard error. These are
often not published in secondary sources.

Source Bias: Those responsible for their compilation may have reasons for wishing to
present a more optimistic or pessimistic set of results for their organization.

b. Primary data
If secondary data are insufficient, a search for new information is the next step. Primary data are
new data collected for a particular purpose at hand. Several techniques are used to collect
primary data
Observation methods: These avoid contacts with the respondents. It is the oldest form of
research in existence.
Questioning methods: These involve the use of questionnaire and involve respondents in
various degrees. They include surveys and experimentation.
Step 3: Analyze and interpret data
The results of a market research alone do not provide a solution to the problem; they must attach
some meaning to them. Necessary data collected are to be developed into usable information;
large quantities of information are only facts. They must be organized and molded into
meaningful information. For instance, do the results suggest any changes needed in the way the
business is done? It is important to note that the owner has to use judgment and common sense to
determine what the numbers mean. The methods of summarizing and simplifying information for

the users include the use of tables, charts, and graphs. Descriptive statistic such as mean, mode
and median are the most helpful in this step of the research procedure.
Step 4: Reporting the information
The report should be presented in a way that it can be understood by the decision makers. The
business owner is now in a position to act on the information collected.
Marketing Research
General and typical research questions might include the following:
i.

ii.

iii.

iv.

Sales
a. Do you know all you need to know about competitors sales performance by type
of product and territory?
b. Do you know which accounts are profitable and how to recognize a potentially
profitable one
c. Is your sales power organized where it can do the most beneficial?
Distribution
a. If you are considering introducing a new product or line products, do you know
all you should about distributors and dealer attitudes toward it?
b. Are you distributors and dealers sales people saying the right things about your
products or services?
c. Has your distribution pattern changed along with the geographic sight of your
markets?
Markets
a. Do you know all that would be useful about the differences in buying habits and
tests by territory and kind of product?
b. Do you have as much information as you need on the brand or manufacture
loyalty and respective purchasing in your product category?
c. Can you plot from period to period your market share of sales by products?
Advertising
a. Is your advertising reaching the right people?
b. Do you know how effective your advertising is in comparison to that of your
competitor?
c. Is your budget allocated appropriately for greater profit according to products,
technique and market potentials?
All of the questions above highlight possible areas of marketing research.

Inhibitors to Marketing Research

Entrepreneurs tend to regard marketing research as long and expensive but there are many
inexpensive and uncomplicated ways in which a small business can research the marketplace.
Numbers of reasons inhibit entrepreneurs to do research despite its benefits:
i.

Cost

Entrepreneurs believe that due to the expensive nature of market research only organizations can
afford doing research. But, some high level marketing research is expensive but also very
affordable marketing techniques can be used by smaller firms.
ii. Complexity
A number of marketing research techniques involves sampling, surveying and statistical analysis.
This complexity, especially the quantitative aspects, is frightening to many entrepreneurs.
iii. Irrelevancy
Entrepreneurs believe that marketing research data will support what they already know or
provide irrelevant information altogether. Despite some element of truth in this, much of the
information generated is useful.

A BUSINESS PLAN
An Overview
Meaning of a business plan
Benefits of business plan
Reasons for not producing a business plan
Guidelines for preparing business plans
Elements of business plans
Accounts for when a business plan necessary
Introduction
One of the most important steps in setting up a new business is to develop a business plan. This
plan allows the owner-manager to crystallize (come together) the business ideas and to think
through the problems the business venture is likely to face before the firm can actually cope
them. Designing and writing a business plan should be seen as outcome of careful research

process and subsequent planning procedure. The plan allows entrepreneurs to set aims and
objectives and, thereby, give themselves a yardstick against which to monitor their performance.
It can also act as a vehicle for attracting external finance.
Definition of Business Plan
A business plan is considered to be a written document that details the proposed venture.
It can be defined as the description of the business and what the owner manager wants it to
become over, say, a year to become. A business plan contains targets, estimates and projections
and describes how these will be achieved. It illustrates the current status, expected needs and
projected results of the new business.
A number of key aspects of the venture the plan covers include:
o
o
o
o
o
o
o
o

The project
Marketing
Manufacturing
Management
Critical risks
Financing
Milestones or timetable
Research and development

Benefits of a Business Plan

Discontinuance or failure of ventures results from one or more of the following weakness:
(i) Too much is left to chance
(ii) Too many decisions are based on intuition
(iii)Crucial obstacles go unnoticed for a long time
(iv) The amount of time and physical efforts demanded by the small business managers are
not recognized and planned for
(v) The amount of capital needed is not estimated or it is grossly underestimated.
Business plan has the potential to significantly play a crucial role in mitigating these problems. It
may help an entrepreneur avoid creating a project that is doomed to failure from the outset.
Business plan stands as the entrepreneurs description and prediction of his or her venture. It
should help the owner manager think ahead systematically and raise finance. Briefly, business
plan has two essential functions of guiding the companys operations and attracting lenders and
investors.
Benefits of a business plan to the Entrepreneur

The following are the notable benefits of a business plan for the entrepreneur:
i.

The business plan forces the entrepreneur to look at the whole business

ii.

It also helps him or her to maintain a proactive attitude.

iii.

The time, efforts, research and discipline needed to put together a formal business plan
force the entrepreneur to view the venture critically and objectively.

iv.

The competitive, economic and financial analyses included in the business plan subject
the entrepreneur to close scrutiny for his or her assumptions about the ventures success.

v.

The business plan can help the owner manager crystallize and make his ideas focused,
hence guiding the venture towards success.

vi.

Since all aspects of the business venture must be addressed in the plan, the entrepreneur
develops and examines the operating strategies and the expected results for the outside
evaluators. Thus, the business plan may attract partners and qualified employees as well.

vii.

A business plan can help clarify and communicate the entrepreneurs goals and objectives

viii.

It services as a measurable benchmark against which to track performance

ix.

Business plan also provides the entrepreneur with a communication tool for outside
financial sources. In this regard, the business plan acts as a vehicle for attracting external
finance needed by the business.

x.

A business plan constitutes a framework for facilitating daily decision-making and for
enhancing better management.

Benefits of a business plan to the Financial Sources

Why dont small businesses write formal business plans?
There are a number of reasons explaining why a small business does not write a business plan:
i.

Lack of understanding of the process or benefits of business planning.

ii.

The mistaken belief that a business plan is for larger organizations with abundant
resources and not necessarily for smaller firms which can effectively manage the
enterprise without it.

iii.

Pressure on doing rather than thinking or gathering information in the small business
environment.

Guidelines for preparing business plan

There are no set rules that can be used to create a perfect business plan. Each plan is specific to
the business on which it is based and will be different for others. Entrepreneurs must consider
them when preparing their business plans.
i.

Keep the plan reasonably short

Depending on the target of the plan, a business plan should be short enough to sustain interest. If
the business plan is just for an entrepreneur, it can be brief; if it is for raising funds, then it
should be reasonably longer but not too long include redundancies and irrelevancies for a reader
keen on specific issues contained in the plan. To avoid overweighing the main text (where
necessary) appendices could be used. Thus, entrepreneurs should explain the venture carefully
and comprehensively albeit in a concise manner. The plan typically ranges between 25-50 pages
long.
ii.

Organize and package the plan appropriately

A table of contents, an executive summary, an appendix, exhibits, graphs, logical arrangement of

segments and overall neatness are elements critical to an effective presentation of a business
plan.
iii.

A distinct vision

Entrepreneurs should have a clear vision of what their ventures stand for. Entrepreneurs should
attempt to create an air of excitement in the plan by developing trends and forecasts that describe
what the venture intends to do and what the opportunities are or can be available.
iv.

Avoid exaggeration/overstatement/amplification

One should avoid inflating sales potentials, revenue estimates and the ventures potential growth.
Support by some documentation and research are vital to the business plans credibility.
v.

Highlight critical risks

The critical risks segment of the business plan is important in that it demonstrates the
entrepreneurs ability to analyze potential problems and develop alternative courses of action.
Unfortunately, many entrepreneurs do not well in this part for fear that they will fail to secure
financial support.
vi.

Description of an Effective Entrepreneurial Team

The management segment of the business plan should clearly identify the skills of each person as
well as demonstrate how all such persons can effectively work together as a team in managing
the venture. The plan should show the managements teams breadth and depth of experience
and how that will translate into success for the business venture.

vii.

Do not Over-diversify

Focus the attention of the plan on one main opportunity for the venture. A new business should
not pursue multiple ventures until it has successfully developed its main strength
viii.

Identify the target market

Substantiate the marketability of the ventures product or service by identifying the particular
customer niche being sought. That is the customer for its products or services. This segment of
the business plan is pivotal to the success of the other parts. Market research has to be included
to demonstrate how this market segment has been identified
ix.

Keep the plan written in a Third Person

Avoid personalizing the plan by keeping the writing of the plan objective. Rather than
continually stating I, We, or us, the entrepreneur should phrase everything as he, she,
they, or them may deliver the objective and not personalizing.
x.

Capture the Readers Interest

There are more business plans submitted to potential investors but only a small percentage of
these plans are being funded. Entrepreneurs need to capture the readers interest right way by
stating the uniqueness of the venture from the outset. Use the title page and executive summary
as key tools for capturing the readers attention and creating a desire to read more.
PREPARING A BUSINESS PLAN
Before discussing the elements of business plan, let first consider the key questions that ought to
be raised when developing a sound business plan
Thus a sound business plan has to answer three (3) basic questions:

Where are we now?

Analysis of the current situation of the marketplace, the competition, the business concept and
the people involved

Where do we intend going?

Decide where you would like the business venture to be. The direction that is intended for
business venture needs to be clear and precise if others are to share its vision for the future

How do we get there?

Determine how to get to where you want the business venture to be by identifying the best
strategies for accomplishing the business objectives.

THE ELEMENTS OF BUSINESS PLAN

Executive Summary
The summary should be no longer than two pages. It should be written only after the entire
business plan has been completed

The Executive Summary is critical, because many individuals (including venture

capitalists) only read the summary.

The Executive Summary section includes:

A first paragraph that introduces your business.

Your business name and location.

A brief explanation of customer needs and your products or services.

The ways that the product or service meets or exceeds the customer needs.

An introduction of the team that will execute the Business Plan.

Subsequent paragraphs that provide key details about your business, including
projected sales and profits, unit sales, profitability, and keys to success.
Visuals that help the reader see important information, including highlight charts,
market share projections and customer demand charts.
Business Concept/ Business Description

The business concept shows evidence that a product or service is viable and capable of
fulfilling an organization's particular needs.

The Business Concept section:

Articulates the vision of the company, how you plan to meet the unique needs of
your customer, and how you plan to make money doing that.
Discusses feasibility studies that you have conducted for your products.
Discusses diagnostics sessions you had with prospective customers for your
services.
Captures and highlights the value proposition in your product or service offerings.

Market Analysis

A Market Analysis defines the target market so that you can position your business to get
its share of sales.

A Market Analysis section:

Defines your market.
Segments your customers.
Projects your market share.
Positions your products and services.
Discusses pricing and promotions.
Identifies communication, sales, and distribution channels

Management Team
The Management Team section outlines:
Organizational Structure: Highlights the hierarchy and outlines responsibilities
and decision-making powers.
Management Team: Highlights the track record of the companys managers.
You may also offer details about key employees including qualifications,
experiences, or outstanding skills, which could add a competitive edge to the
image of the business.

 Working Structure: Highlights how your management team will operate within
your defined organizational structure.
Expertise: Highlights the business expertise of your management and senior
team. You may also include special knowledge of budget control, personnel
management, public relations, and strategic planning.
Skills Gap: Highlights plans to improve your companys overall skills or
expertise. In this section, you should discuss opportunities and plans to acquire
new information and knowledge that will add value.
Personnel Plan: Highlights current and future staffing requirements and related
costs.
Marketing Plan

The Marketing Plan section details what you propose to accomplish, and is critical
in obtaining funding to pursue new initiatives.

The Marketing Plan section:

Explains (from an internal perspective) the impacts and results of past marketing
decisions.
Explains the external market in which the business is competing.
Sets goals to direct future marketing efforts.
Sets clear, realistic, and measurable targets.
Includes deadlines for meeting those targets.
Provides a budget for all marketing activities.
Specifies accountability and measures for all activities.

Financial Plan

The Financial Plan translates your company's goals into specific financial targets.

The Financial Plan section:

Clearly defines what a successful outcome entails. The plan isn't merely a
prediction; it implies a commitment to making the targeted results happen and
establishes milestones for gauging progress.

 Provides you with a vital feedback-and-control tool. Variances from

projections provide early warnings of problems. When variances occur, the plan
can provide a framework for determining the financial impact and the effects of
various corrective actions.
Anticipate problems. If rapid growth creates a cash shortage due to investment
in receivables and inventory, the forecast should show this. If next year's
projections depend on certain milestones this year, the assumptions should spell
this out.

The Financial Plan is the most essential part of your Business Plan. It shows investors the
timeframes you have scheduled to make profits.

Some elements of the Financial Plan include:

Important Assumptions
Key Financial Indicators
Break-even Analysis
Projected Profit and Loss
Projected Cash Flow
Projected Balance Sheet
Business Ratios
Long-term Plan

Different Financial Planning Options

Short-term Forecast: Projects either the current year or a rolling 12-month period by
month. This type of forecast should be updated at least monthly and become the main
planning and monitoring vehicle.

Budget: Translates goals into detailed actions and interim targets. A budget should
provide details, such as specific staffing plans and line-item expenditures.
The size of a company may determine whether the same model used to prepare
the 12-month forecast can be appropriate for budgeting.
In any case, unlike the 12-month forecast, a budget should generally be frozen at
the time they are approved.

Strategic Forecast: Incorporates the strategic goals of the company into the projections.
For startup companies, the initial Business Plan should include a month-by-month
projection for the first year, followed by annual projections for a minimum of three years.

Cash Forecast: Breaks down the budget and 12-month forecast into more detail. The
focus of these forecasts is on cash flow, rather than accounting profit, and periods may
be as short as a week in order to capture fluctuations.

Operations and Management

The Operations and Management section outlines how your company will operate.

The Operations and Management section includes:

Organizational structure of the company. Provides a basis for projected
operating expenses and financial statements. Because these statements are heavily
scrutinized by investors, the organizational structure has to be well-defined and
realistic within the parameters of the business.
Expense and capital requirements to support the organizational structure.
Provides a basis to identify personnel expenses, overhead expenses, and costs of
products/services sold. These expenses/costs can then be matched with capital
requirements.

Key Takeaways from This Module

Business Plans are critical for the success of a company.

Different businesses will require different types of Business Plans.

All Business Plans have some essential sections that explain the core aspects of the
company.

In order to help your company have a better chance of gaining interest and investors, a
Business Plan should include seven essential sections:
1. Executive Summary
2. Business Concept
3. Market Analysis
4. Management Team
5. Marketing Plan
6. Financial Plan

7. Operations and Management Plan