Idea generation in a business plan
Idea generation may vary depending on the set up, type and size of the business to be started. For instance, small businesses are likely to get their ideas from past experiences and magazines while ideas for larger companies are likely to be found on review of patents (Terrance 2004).
When using publications for idea generation, some of the best tips that the idea will be viable are classifications such as the fastest growing industry in certain locations, underutilized business opportunities and other classifications publications may consider helpful to potential investors.
Magazines like Forbes and Fast Company are good in tracking top and fastest growing companies (Miniti 2006). Recent patents can also be reviewed and are exceptional sources of the business idea. Business journals, newspapers and internet are other very resourceful areas where a business idea can be generated.
The ideal business plan requires no investment, has a recognized, measurable market, has a dependable source of supply for the required input, has a great publicity value, does not require any labor force, has no government regulation and above all, will give a gross margin of 100 percent.
Creative thinking can also be a good source of a business idea. Its advantage is that it does not have to follow stringent paths followed by other corporations especially those that are government regulated. Whatever the source of the business idea, it should be screened critically to ensure all areas are addressed and no loopholes are left (Gartner 2001).
The questions this should be able to answer are: does the executive summary which contains the statement of the business idea generation reflect a realistic and adequately researched idea? Who came up with the idea? Does the owner of the business idea fully own it or are there some reservations on some aspects of the business? Are you familiar with the area of business?
Strategic objectives
Some check list questions that the business strategic objectives are: Have you determined the nature and direction of the business for the next few years? Do you know the businesses’ strategic objectives with all their specificity?
Is the strategy very clear so that you can tell the exact products and markets your current strategy would include or exclude? Are strategic objectives held separately from the long term plans? Is future strategy related to capital improvement or does it set a foundation for such improvement?
In your strategic objectives, tell the reader what you want, for instance business loan to expand or build new premises. State your sales, production and profit goals with specificity in both amount and time. It is also good to state the time you anticipate to service the debt (Marburg 1994).
Market analysis and research and the competitive strategy
Here you ought to discuss the target market and market segment. Describe the customers in terms of their location, purchasing power and any other relevant information about your target customers (Miniti 2006).
The information of what they buy and how much they buy is especially critical since they are the most important aspects of the market. Alongside this, it is important to discuss the industry itself, that is, is it a new, growing, mature or underdeveloped industry?
Discuss also how you want to penetrate the market and whether market revenue will increase if the market increases. Talk about how your price will be competitive and why any customer will pay your price.
You ought to research on the competitors and how your operation will be better than theirs. In simple terms, you are trying to explain how you will survive in the market. On this aspect of the competitors, you should be able to answer the following questions:
What are the strengths and weaknesses of your competitors and how is your idea different form theirs? How will you remain competitive in future should your competitors change tactics to try to claim your market?
Many times information about the market for your product or service is the most difficult to gather. Trying to gauge who wants your product, how much they want, what they will pay, and how competitors will respond is not an easy task.
While challenging, the time and energy invested in truly understanding your market will pay off. Your business should be market-driven rather than product-driven. Your business plan should not be built around a product searching for a problem to solve. Competitors exist for virtually every business (Terrance 2004).
This segment ought to reveal your marketing plan, that is, how you are going to get your name to the potential customers. You can tell of some advertisement methods you will be using to sell your business. Position your product and explain how it is different from your competitors and analyze the competitor and his product, whether the competition is direct or indirect.
If the business plan is well researched it will prevent unexpected competition that may render it a failure especially if there are already very strong competitors. It is also likely to attract funding from financiers.
Cash flow/financial plan
This part is necessary since it is an estimate of your profit potential. It can even be used as a template plan by the financial management of the venture. Forecasts of product demand, revenues, and expenses for new ventures will draw on the market research you conducted.
If you want to use your business plan to seek financing, describe the type and also the amount. Your projections are only as good as your assumptions, so make sure they are valid and realistic (Shane & Venkataraman 2000). Document as much as you possibly can, including how you developed your assumptions. Keep in mind that the financial section will be closely assessed by the financier.
The cash flow forecasts should take the following dimensions: the estimated income for the first two years, broken down monthly, then quarterly thereafter, estimated cash flows in the same pattern, forecasted balance sheet for each year and a breakeven analysis (Shulman 2009).
The balance sheet projection will show the growth in equity and assets of the business and is the tool which one can evaluate whether the capital base of the business is expanding. Include the start up costs that will comprise of license cost, insurance, leases, renovations and purchase of equipment costs. You may include financial history if the business has been in existence and is seeking expansion.
Most small businesses will not make real profits in the initial two or three years. They therefore need some financial reserves. In the business plan this can be included in the financial considerations when quoting the initial capital for the business. At this point, you can point out the potential risks that are a threat to your business. Outline how you will manage those risks (Minniti 2006).
The cash flow information is not only important to the financier but to the business owner himself. It will serve as a yard stick upon which set objectives and projections will be assessed.
The business operator can use this information to prevent side operations not accounted for that may end up claiming the profits of the business. The cash flow forecasts should not however be limits to which the business can operate. They are simply logical estimates to refer to although performance far below these forecasts can be an indication of something missing or poor prior research (Terrance 2004).
Scenario analysis
Though some businesses have not accepted it as a vital form of planning, scenario analysis and planning necessitate a business to plan for any eventuality that may affect the business. Consider the environmental, social, technological and political driving forces and address how a change in any of them would affect your business. Show how you would respond to such a scenario.
This would take the form of a study of such an event in the past that your business or other businesses may have encountered. How did they respond? Who were the contact people to reach? Were they available on time? Were there indicators that such a scenario would take place?
What can be inferred from such a scenario? At this point you evaluate your strengths and weaknesses and build a plan of how you would minimize the impact of such an occurrence that is out of your control (Shane & Venkataraman 2000).
Entrepreneurial characteristics and skills
Risk
An entrepreneur must be able to assess risk as whether necessary or not so as to know what to indulge in. Entrepreneurs view risk as unavoidable but you can choose which risk is worth taking. Entrepreneurs are cautious of what is described as risk free business.
Their attitude is “if I don’t take chances, I will never really know what I could have become”. They are therefore never satisfied with mediocre life. They place little faith in assets and prefer their coping ability as opposed even when there is a threat (Miniti 2006).
Timing
The entrepreneur knows that timing is one of the most crucial steps in investment. Launching of a business idea in the right place and time is imperative. There must however be enough time in preparing prior to the launch.
There is usually lots of personal adjustment in relation to the idea in terms of market intelligence, assessment of the environmental aspect best suited for the launch, and securing the human resource. To them, “luck is what happens when preparation meets opportunity”.
Leadership
Entrepreneurs are leaders because if they want to get a job done, they take responsibility and lead in the venture. They are self starters with enthusiasm and know the importance of teamwork and they also appreciate and support others.
They are also self-directed. In times of great change, they still move forward and still posses the energy to face problems. To them leadership is not status but a function. Their motivation is therefore not external but a need to achieve success in their own measure (Ebbena & Alec 2006)
Innovation
Entrepreneurs are good at adding value through product improvement and getting the right market. Innovation is therefore changing value and satisfaction from a resource.
They must therefore be able to come up with clever and workable solutions. They are very flexible in their thinking, curious and inquisitive. To them lack of money is not a good enough reason for not making it happen.
Communication skills
Entrepreneurs know that the human element is the most important part of a business. Humans work through communication and so the entrepreneur works to improve communication. They take advantage of the available tools of communication and are also very good listeners.
In such a case as to write a business plan, a good entrepreneur will ensure every detail is clearly stipulated and the right impression created. The message should also show consistency (Westhead 2001).
Optimism
It is very important that an entrepreneur has a positive look of any undertaking he engages in. setbacks are not a limitation or disappointment but are relegated to the past and new energy is created to churn on.
If a certain aspect of the business goes well, it becomes an impetus for bigger accomplishments and increases hope for the overall success. They have a determination that enables them to keep focused to the end result. This positive outlook of things enables them to overcome initial challenges that come with a new venture (Ebbena & Alec 2006).
Ability to obtain finances
In the mindset of an entrepreneur, finances are not a limitation to implementation of a good idea. They believe that a good idea will sell itself.
It is therefore not their convincing language or association with finance sources that enable them to finance their new ventures but rather the good idea that attracts finances on itself. Due to their determination, entrepreneurs are able to source funds and finance operations (Shane & Venkataraman 2000).
Spotting a niche market
Market is perhaps the most important factor that determines whether a business is to be started at a specific place. Sometimes, it is difficult to identify potential market from an area. Entrepreneurs are able to assess carefully and identify a market for a product.
A renowned investor and entrepreneur Rachel Lowe spotted business opportunities while just traveling in a taxi. Entrepreneurs are therefore people who are able to anticipate needs with some level of precision. Their argument is that when there is market, there is a business idea (Malburg 1994).
Business knowledge
Entrepreneurs need not be experts of a certain field in which they venture. Rather they should have a rough knowledge of how that business operates.
Some key aspects they need to know is potential customers, required skills, government regulations, threats to such businesses and above all, how that business generates money. For the expert knowledge, they can rely on other trained experts for other fine requirements of the business (Shulman 2009).
Energy/drive
Their energy comes from the belief that they can create and control their future instead of relying on the mercy of fate. They have an internal locus of control. The energy gives them enthusiasm that keeps them going and wanting to achieve more.
Their energy also gives them confidence, which is described as the hallmark of the entrepreneur. Their drive does not come from creation or accumulation of personal wealth but rather they are people focused and getting things done is their drive.
Sense of ownership
The entrepreneur likes taking responsibility to get things done with care and attention. They like to leave things better than they found them. They teach people how to take charge and are themselves very self disciplined (Bygrave 1994).
Strategy
Since entrepreneurs are strategy planners, they will employ the best employees to support them in the venture. They have therefore learnt the art of delegating while they posses the ability to supervise. They themselves being generalists do not take the roles of the experts but are good communicators and are also good at handling complaints.
Financial knowledge
They are very good at business numbers and can explain financial position in simple terms. They will determine the budgets, targets, securing loans and raising funds with relative ease.
This is because they are able to receive unconventional funds from clients, suppliers, family and friends. The financial wisdom keeps them seeing the logic behind new ventures even where other potential investors would call too risky or would disregard as there being no business.
All these skills can be classified as personal skills, interpersonal skills, critical and creative thinking skills, and also practical skills (Freel 2009). In conclusion a successful entrepreneur is able to identify new opportunities and exploit them despite the hardships.
Time management skills
For an entrepreneur to be able to achieve the objectives he sets within the timeframe he indicates, he must be a good time manager. Time management is part of management skills that an entrepreneur needs to hone on. He must be able to impart this too within the departments of his business.
Entrepreneurial skills I posses
In a self assessment carried out through some checklist questionnaire, I found myself to be having much of the requisite entrepreneurial skills. Determination to accomplish things, self initiative, personal drive and financial knowledge are among the important skills and traits that make me a potential entrepreneur. Ability to identify opportunities is also a strong entrepreneurial trait I have. If I improved on delegation skills, ability to work with a team and leadership skills, I would make a very successful entrepreneur (Bygrave 1994).
Reference List
Bygrave, D., 1994. The portable MBA in entrepreneurship. MBA Project Presented in August 1994, p.12-17.
Ebbena, J., & Alec, J., 2006. Bootstrapping in small firms: An empirical analysis of change over time, Journal of Business Venturing, 21 (6), 851-865.
Freel, M., 2009. Entrepreneurship and small firms. Journal of Business Focus, 23 (7), 5.
Gartner, W., 2001. Blind assumptions in theory development. Entrepreneurship Theory and Practice, 13 (2), 23.
Malburg, R., 1994. All-in-one business planning guide. Journal of Business Planning in Argentina, 44 (6), 45-56.
Minniti, F., 2006. Entrepreneurial types and economic growth. Journal of Business Venturing, 25 (3), 305-314.
Shane, S., & Venkataraman, S., 2000. The promise of entrepreneurship as a field of research. Academy of Management Review, 25 (1), 217-226.
Shulman, S., 2009. A typology of social entrepreneurs: Motives, search processes and ethical challenges. Journal of Business Venturing, 24 (5), 519–532.
Terrance, J., 2004. Business plans handbook: a compilation of actual business plans developed by small businesses throughout North America, p. 56-60.
Westhead, P., 2001. The focus of entrepreneurial research: contextual and process issues. Journal of Entrepreneurship Theory and Practice, 14 (4), 38-45.