Introduction
Developing a business plan is aimed at ensuring that a firm succeeds in the long term. According to two economists Tammy Richmond and Dave Powers, it is not worth writing a business plan with the core objective of raising funds whereas the firm does not survive in the long term as a going concern entity (Richmond & Powers, p. 45). A business plan is considered to be multipurpose. This arises from the fact that the strategies developed are aimed at improving the performance of the firm and also attainment of the entrepreneurs’ satisfaction.
According to Richard Ochtel who is an experienced venture funding economist (2009, p.1), the degree of importance given to the business planning process in their effort to attain the set organizational varies from one organization to another. Ochtel (2009, p. 3) is of the opinion that only a few firms appreciate the importance of the business planning process in attaining an optimal market position. In addition, to the business plan, the success of a business entity is dependent on various entrepreneurial characteristics.
Aim
The aim of the report is to conduct a critical appraisal of the business planning process an evaluation of entrepreneurial characteristics.
Scope
The report analyzes the various steps undertaken during the business planning process. In addition, the report entails an evaluation of the various entrepreneurial characteristics that an entrepreneur should possess
Business planning process
Idea generation
The core objective of every business is to meet certain market needs. This means that success of every business depends on its ability to address particular customer requirement (Abrams & Kleiner, 2003, p. 2). Therefore, it is vital for entrepreneurs to ensure that they identify a specific customer requirement. According to Kuratko (2008), idea forms the basis upon which every business is established. The ideas generated only become a reality if the entrepreneur takes economic risks.
According to Deborah Meaden, the founder of Dragons’ Den, a good business idea is represented by a high degree of enthusiasm and energy (Perry, 2006, p. 1). Therefore, entrepreneurs should only be concerned with business ideas which they have a passion for. This will increase their commitment towards the idea (Perry, 2006, p. 1). Before turning into a business, it is important for the entrepreneur to screen the idea to determine its feasibility. For example, Coca Cola company idea to launch New Coke was not successful (Fisher, 2007, p.1).
This arose from the fact that the firm did not conduct an effective market research to determine the customers’ requirement. After launching the New Coke, the firm experienced numerous complaints since the customers were loyal to the traditional flavor. The resultant effect was decline in sales of new coke (Fisher, 2007, p.1-2).
There are various sources from which entrepreneurs obtain business ideas from. Some of these sources include experience from previous work, talents, personal interests, education and training. Alternatively, entrepreneurs may also achieve business inspiration from a friend’s or a relative’s business experience. In order to be successful in the business environment, it is important for the entrepreneur to scan the environment through conduction of market research (Fisher, 2007, p.2).
. Scanning the environment is paramount since it aids the entrepreneur in identifying gaps in the market with regard to unanswered need. According to Rhonda Abrams who is a financial advice expert and Eugene Kleiner, a venture capital specialist (2003, p. 2), idea generation is important since it enables the entrepreneur to determine the probability of the idea succeeding upon being turned into a market opportunity.
This is achieved through conduction of a comprehensive analysis of the idea by considering various elements such as determining whether the idea is new or an improvement of an already existing product in the market through incorporation of various features. Idea generation aids in determination of whether the intended business entity will be competitive upon being launched (Abrams & Kleiner, 2003, p. 2). This is achieved by evaluating the strengths and weaknesses of the intended business idea.
Strategic objectives
During the business planning process, a firm’s management team incorporates the mission statements. An organization’s mission statement depicts the core purpose of the firm’s existence (Gregory, Lumpkin & Taylor, 2005, p.1).
In addition, mission statements also illustrate the basis upon which the firm intends to establish its competitive advantage (Richmond & Powers, p. 46). In order for the firm’s mission statement to be operational, strategic objectives are incorporated. Strategic objectives give a guidance upon which the firm will attain the goal as stipulated in its mission and vision statement (Richmond & Powers, p. 46). An organization’s strategic objectives are more specific.
In addition, strategic objectives cover a specific time frame. When formulating strategic objective, the firm’s management team should ensure that a particular yardstick is used. Specificity and measurability enables entrepreneurs to determine whether the firm is moving towards attainment of organizational goals (Gregory, Lumpkin & Taylor, 2005, p.1). Most of the firm’s strategic objectives are aimed at ensuring that the firm attains their profit maximization objective.
It is important for organizations to appreciate the fact that their success is dependent on the society in which they operate. As a result, strategic objectives should also focus at the customers and the society. In addition, they must be realistic which means that they should be achievable despite the existence of market challenges.
Developing strategic objective is fundamental in a firm’s success (Gregory, Lumpkin & Taylor, 2005, p.1). This arises from the fact that all the firm’s employees will be focused towards attainment of these objectives. The resultant effect is that the firm is able to concentrate and utilize valuable organizational resources optimally. In a business plan, strategic objectives guards against possible diversion which may arise in various departments (Gregory, Lumpkin & Taylor, 2005, p.1).
Market analysis and research
Martin Charter and Michael Jay (1999, p.44) who are business and economics specialists assert that when developing a business plan, conducting a market analysis and research is fundamental to the firm’s success.According to Lyndon Brown a market research analyst, market research entails a general or broad study of marketing methods while market analysis entails the study of marketing methods with specific reference to a specific product(Brown, 2008, p.12).. The findings of market research and analysis are used in the formulation of a firm’s operations, plans and policies. Frank Fiore (2005, p.97) who is a renowned writer is of the opinion that the success of a firm’s product is dependent on the entrepreneur’s knowledge of the target market.
Considering the fact that market analysis is focused on the success of an individual firm, the firm is able to determine its potential of succeeding. According to two economists Joseph Cavello and Brian Hazelgren (2006, p.101), potential lenders evaluate a firm’s potential in the market in an effort to determine whether the firm will operate successfully as a profit making entity. Therefore, conduction of a market research is paramount. Both primary and secondary market research should be incorporated so as to improve the entrepreneurs’ market knowledge (Cavello & Hazelgren, 2006, p.101). As a result of understanding the market, it is possible for a firm to determine the most appropriate market positioning strategy to adopt. This will culminate into an improvement of the firm’s competitive advantage.
Understanding competition
Prior to launching a business, it is important for entrepreneurs’ to formulate an effective business strategy. According to Hosford-Dunn, Roeser and Valente (2000, p. 321), lack of knowledge regarding competition can hinder the success of the business strategy. With regard to competition, the entrepreneur must understand both direct and indirect competition. By understanding competition, an entrepreneur can be able to gain valuable information regarding the competitors (Hosford-Dunn, Roeser & Valente, 2000, p. 321). For example, the entrepreneur can be able to determine the market position and performance of the competitor.
In addition, the firm can be able to identify market areas which have not been tapped. According to Mike Imms and Gill Ereaut (2002, p.56), who are market research specialists, this enables the firm to identify gaps which it can exploit in order to attain a higher competitive edge. Some of the issues which should be evaluated relate to promotional strategies and level of competitors’ customer satisfaction. This information is paramount in gaining understanding of the expected market share. The firm may also use this information to attract and retain its competitor’s customers (Imms & Gill, 2002, p.56).
Competitive strategy and scenario analysis
In order for a business venture to be successful, it is important for the entrepreneur to conduct a scenario analysis (Hosford-Dunn, Roeser &Valente ,2000, p. 321). This will aid the firm in identifying the possible outcomes considering the high degree of uncertainty in the business environment. According to Laura Richards who is a lecturer of international politics at the University of Stirling and Teri McConville, an engineer at Cranfield University, one of the ways through which a firm can conduct scenario analysis is by conducting a SWOT analysis to identify the strengths, weaknesses, opportunities and threats (Richards& McConville, 2006, p. 134).
As a result, the firm will be able to develop competitive strategies to enable that the firm is effectively positioned in the market. Attaining an effective market position is a classic way through which a firm can establish a strong defense from its competitors (Richards& McConville, 2006, p. 134). Therefore, scenario analysis enables the firm to be prepared to cope with unplanned events.
Financial planning
According to Joan Gillman and Sarah White who are business and economics specialists, financial planning is an integral consideration in the growth of the firm (Gillman & White, 2001, p. 106). Papa John’s Pizza which is located in the US has witnesses a rapid growth over the past few years (Gillman & White, 2001, p. 107). Its growth is associated with development of effective business plan which has enabled the firm to raise substantial capital to incorporate the franchising model. Through financial planning, Papa John’s Pizza was able to develop a number of projections related to the firm’s future performance (Gillman & White, 2001, p. 107).
Gillman and White (2001, p.107) are of the opinion that some of the major components of the financial planning process considered include a projection of the firm’s annual profit and loss, balance sheet, the cash flow statement and a breakeven analysis. Financial projections should cover approximately 4 years which will enable the firm to raise venture capital. The cash flow statement serves in giving the entrepreneur a clue on the adequacy of the firm’s working capital. According to Donald, Kuratko, a renowned entrepreneurship scholar, breakeven analysis would enable the firm to determine whether it is operating at a profit or loss (Kuratko, 2008, p. 338). On the other hand, the balances sheet enables the firm to account for the changes which have occurred between the past and the present and the expected changes.
Entrepreneurial characteristics
Entrepreneurs are considered to be individuals who identify business opportunities in situations where others cannot (Kuratko, 2008, p.3). This makes them to be catalysts for change within the business environment. According to Donald Kuratko (2008, p.3), “any individual can become an entrepreneur if he or she has the passion to experience uncertainty and ambiguity.” Entrepreneurial ventures entail business ventures whose core objective is innovation, growth and profitability.
Therefore, from a business perspective, entrepreneurship is considered to entail various innovative practices in an effort to accumulate large capital gains. For example, entrepreneurs may consider it wise to dispose their businesses if they perceive an opportunity or a potential for making larger capital gains (Poe, 2005, p. 43). From a business perspective, entrepreneurs are characterized by seeking new opportunities. As a result, they have the boldness to push a particular idea towards reality which makes them to take risks by venturing into business through various ways such as establishment of new business ventures. The success of a business is dependent on the characteristics of the entrepreneur.
Self confidence
Entrepreneurs are considered to be self confident. This means that they are always in control of their undertakings and they can do it alone. It is generally agreed that entrepreneurs are most aggressive during adversity due to their self confidence (Philip & Scheff, 2008, p.129). Their self confidence is depicted by their risk taking characteristic. The business environment is characterized by a high degree of dynamism which presents a challenge to the firm’s success.
For example, problems which may affect the success of a particular business venture may arise in the course of operation. Due to their confidence, entrepreneurs are able to tackle problems which arise immediately and with a high degree of self confidence. The resultant effect is that the firm’s efforts to attain its organizational objectives are increased (Viramgami, 2007, p.154).
Ambitious
The success of every business entity is dependent on the goals set. “Entrepreneurs’ are considered to be always focused. As a result, they are very energetic and highly motivated which makes them to set very high goals and standards in an effort to achieve their ambition’’ (Philip & Scheff, 2008, p.129). Their motivation results from their drive to succeed.
They believe in the analogy of shooting to reach the star so that if the situation does not favor them, they can reach the moon. Despite their drive to succeed, it is advisable for entrepreneurs not to be over ambitious. This arises from the fact that they may fall in prosperity crisis. However, entrepreneurs should observe the prosperity of their business entity (Viramgami, 2007, p. 179). As a result of their ambition, entrepreneurs have numerous business ideas. However, it is vital to appreciate the fact that some ideas are more feasible compared to others.
Commitment
According to Rendy Dalimunthe who is a journalist (2009, p. 1), entrepreneurs are highly committed and determined to achieve their goals. This arises from the demanding nature of entrepreneurial job. As a result of their commitment, entrepreneurs are able to overcome various obstacles by implementing their ventures. Upon venturing into the business environment, entrepreneurs are faced with constant pressure in an effort to ensure that the new entity established is alive and grows.
They keep trying even when things do not turn out as expected (Mohanty, 2005, p.77). To achieve this, entrepreneurs are required to be very loyal and patient. In addition, their commitment is evident in their willingness to invest significant proportion of their firm’s net worth and to accept minimal pay due to realization of the fact that he or she will own a significant portion of the venture (Mohanty, 2005, p.77). This makes entrepreneurs to be more persistent, disciplined and love competing.
Hard work
According to two economists Shirley Sagawa and Eli Segal (2001, p.5), every new business venture is faced with unforeseen challenges. It is the role of the entrepreneur to nurture the entity in such a hostile environment. Entrepreneurship is not considered to be a natural phenomenon but rather a concept which entails creativity (Sagawa & Segal, 2001, p.5). As a result, entrepreneurs are required to be hard-working. One of the ways through which this can be achieved is by sacrificing time and energy (Perry, 2006, p. 1). In addition, the entrepreneur is required to sacrifice personal comfort and other conveniences. According to Pawan Kumar Sharma (2010, p.7), an economist heading the department of commerce at CRA College, it is possible for any individual to become a successful entrepreneur.
However, a significant amount of effort is required. Developing an idea is just the beginning of the entity. Its foundation lies in the entrepreneurs’ ability to persevere. The success of a business entity is dependent on its ability to satisfy its customers. Entrepreneurs’ have a strong belief that they have the capacity to control their destiny which is subject to choice (Solita & Cristina, 2008, p. 34). As a result, entrepreneurs go an extra mile such as working for long hours in an effort to ensure that a certain task is completed successfully (Good, 2003, p. 22).This is one of the reasons which make entrepreneurs to work hard.
Strong ego
Establishing a business entity is faced with a high degree of uncertainty (Sharma, 2010, p. 9). This arises from the fact that there days when the firm performs effectively resulting into jubilations while there are others which are marred by despondency (Kumar, 2008, p.53). This arises from the fact that the organization is faced with numerous environmental forces which may affect the firm’s success. Therefore, entrepreneurs must have the ability to cope with such situations. One of the ways through which this can be achieved is by having a strong ego.
Ego enables an entrepreneur to have power, passion and commitment to exploit the opportunities identified. Entrepreneurs’ must have both inner and outer ego. Inner ego refers to the entrepreneur’s motivation, self-assurance and dedication (Bolton & Thompson, 2004, p.72). On the other hand, outer ego relates to the entrepreneur’s level of courage, responsibility and accountability (Bolton & Thompson, 2004, p.72). Having a strong ego ensures that the entrepreneur does not lose his or her business perspective during such situations (Chandra, 2009, p.18).
Entrepreneurs are autonomous
Entrepreneurs’ are motivated by a desire to achieve their goals (Sharma, 2010,p. 3). This motivates them to venture into risky ventures. Despite entrepreneurs being social, they should have a degree of independence in their operation. This means that entrepreneurs should not be influenced by others to conform to their norms. According to a study done by two economists Patrick Verrmeulen and Petru Lucian (2008, p.23), entrepreneurs prefer independence of action. According to Geert Hostedes study which evaluates cultural dimensions in relation to international business, individualism is a key element in the success of an individual initiative ( Hofstedes, 1984, p. 32).
A reflection on the extent of entrepreneurial skills required
For entrepreneurs to be successful, it is vital that they must possess certain entrepreneurial skills (Pleshette, 2010). Most of the entrepreneurial skills are developed with time. However, there are some basic skills which the entrepreneur must posses before venturing into business. Some of these skills include self confidence and self motivation (Good, 2003). Entrepreneurs are their own boss which means that they have a huge responsibility since no one tells them what to do (Good, 2003). The entrepreneur should know all the issues pertaining to the firm’s success. This means that the entrepreneur should be a self starter and have a clear goal in the mind. In addition, he or she must be confident in the ideas generated. However, the ideas should be evaluated to determine their feasibility.
Handwork is also a key requirement in the success of a business venture (Solita& Cristina, 2008, p. 43). This means that the entrepreneur must have a drive and commitment which motivates him or her to take necessary actions in an effort to make the business successful. Working hard ensures the entrepreneur to take the initiative of undertaking a particular task other than letting others to exploit the opportunity (Coughlin & Thomas, 2002, p.76). In order to achieve this, entrepreneurs are required to possess effective time management skills. By possessing time management skills, an entrepreneur is able to prioritize various tasks.
Entrepreneurs should also possess administrative skills. This will contribute towards an improvement in their ability to undertake various tasks such as marketing, planning and management (Kurtz & Snow, 2009). Considering the fact that venturing into business is not easy, having the necessary skills and qualities increases the probability of an entrepreneur undertaking the venture successfully.
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