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ENTREPRENEURSHIP
A PROCESS PERSPECTIVERobert A. BaronScott A. Shane
A. Rebecca Reuber
Slides Prepared by:
Sandra Malach, University of Calgary
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8
Writing an EffectiveBusiness Plan:
Crafting a Roadmap to
Success
1
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LEARNING OBJECTIVES1. Define a business plan and explain why
entrepreneurs should write one.
2. Explain how the process of persuasion plays a keyrole in business plans and in the success of newventures.
3. Explain why the executive summary is a veryimportant part of any business plan.
4. Describe the major sections of a business plan andthe types of information they should include.
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LEARNING OBJECTIVES5. Describe the seven deadly sins of business plans –
errors all entrepreneurs should avoid.
6. Explain why potential investors usually askentrepreneurs to give verbal presentationsdescribing their idea for new products or servicesand their company.
7. Describe the steps entrepreneurs should take tomake their verbal presentations to potentialinvestors truly excellent.
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―There is a real magic in enthusiasm. Itspells the difference between
mediocrity and accomplishment.‖
--Norman Vincent Peale, 1961
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BUSINESS PLAN A formal, written expression of the
entrepreneur’s vision for converting
ideas into a profitable, going business. The entry card for serious consideration by
venture capitalists, banks, and other
sources of funding
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BUSINESS PLAN FACTS More than 60% of small, new
companies have no business plan.
Writing business plans:
Reduced the chances of failure, and
Increased the rate of new business and
new product development
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Prepare a
relatively
simple plan
Start the
business
Refine the
business plan
Continue to
grow the
business
MODEL OF BUSINESS PLANNING
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BUSINESS PLAN COMPONENTS What is the basic idea?
Why is the new product appealing —and towhom?
How will the idea be realized?
Who are the entrepreneurs?
How much funding is needed? What type offunding? How will it be used? How will yourealize a return?
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A SUCCESSFUL PLAN A serious document prepared by
serious people
Orderly
Succinct
(40-50 pages, max.)
Persuasive
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EXECUTIVE SUMMARY Your elevator pitch
Provides a brief,clear, and persuasiveoverview of the newventure
Target 2 to 3 pages
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BUSINESS PLAN SECTIONS1. Background and
purpose
2. Marketing3. Competition
4. Development,
production, andlocation
5. Management
6. Financialinformation
7. Risk factors8. Harvest or exit
9. Scheduling and
milestones10. Appendices
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BACKGROUND, PRODUCT, AND
PURPOSE What is the nature of the idea driving
your company and how did it arise?
What does the product have to offer?
Why is it unique & valuable
What is the basic corporate
information?
What are the company’s goals?
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MARKET ANALYSIS What is the need for the product or
service?
Why would anyone want to buy or useit?
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MARKET ANALYSIS Identify the market
How large is the market? Is the market growing or shrinking?
What do you know about competitors? Who are they
Anticipated response to new product Promotion methods
Pricing Strategy
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DEVELOPMENT, PRODUCTION, AND LOCATION
Where are the products or services inthe development process?
What are the projected costs andtimetable for making the product ordelivering the service?
What steps have been taken to assurequality and safety?
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MANAGEMENT TEAM
Many venture capitalists would ratherinvest in a first-rate team with a
second-rate idea than a second-rateteam with a first-rate idea.
Critical element for success
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MANAGEMENT TEAM
Do team members have the requisiteexperience, expertise, skills and
personal characteristics? Past business experience, intelligence,
technical skill
Energy & enthusiasm Do team members have a good working
relationship?
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FINANCIAL PLANS ANDPROJECTIONS
Proforma balance sheet
3 years, semi-annual
Proforma income statement
Cash flow statement
Break-even analysis
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CRITICAL RISKS
Price cutting by competitors
Unforeseen industry trends
Sales projections not achieved Costs exceed estimates
Schedules not met
Difficulties raising financing
Unforeseen political, economic & social trends
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HARVEST AND EXIT
Think of going out before youenter
Management succession
Exit strategies
IPO
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SCHEDULING & MILESTONES
1. Formalincorporation
2. Completion ofdesign
3. Completion ofprototypes
4. Hiring of initialpersonnel
5. Product displays
6. Agreements
7. Moving intoproduction
8. Receipt of orders
9. First sales10. Profitability
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APPENDICES
Financial Statements
Financial Projections
Resumes of Founders & TopManagement Team
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THE INTANGIBLES
The extra ―something‖
Pay attention to organization, clarity, word
choice, and style Have good writers read your plan
Revise according to their suggestions
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SEVEN DEADLY SINS
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THE PRESENTATION
Remember: This is important!
Prepare, prepare, prepare
Choose content carefully Persuade, don’t overwhelm
Show enthusiasm tempered with reality
Rehearse Don’t overlook the basics
Respond positively to questions