KuratkoEntrepreneurship12ePPTChapter12-2

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Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.11Entrepreneurship: Theory, Process, Practice, 12eChapter12: Developing an Effective Business PlanDonald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.22Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.33Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Joseph Mancuso BSc.MBA Harvard Business School.Joseph Mancuso is an American author, who has written 24 entrepreneurial books for entrepreneurs and CEOs, and an international businessman and keynote speaker. Mancuso is the founder, CEO and current president of CEO Clubs International, a worldwide membership association of mid-market CEOs.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.4IcebreakerHave you ever heard someone pitch an idea for a business?What do you think the person did well in the pitch? What could have been improved?What would you be looking for as a potential investors?

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.5A crucial component of a successful pitch is :•Understanding the ecosystem•Know your audience•Ask questions•How you present yourself•Engage the audience or investors by telling a compelling story•Describe your target audience’s pain point and how you might address those better than the competitors•Specifics and details – for example, you may speak about a business strategy to capture the market, Business model and financials•Conclude the pitch with a specific ask – for example, how much funding is needed, or what milestone you aspire to achieveSource: Harvard Business Review https://online.hbs.edu/blog/post/how-to-pitch-a-business-ideaHOW TO EFFECTIVELY PITCH A BUSINESS IDEA

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.6Chapter Objectives1.List the planning pitfalls that plague many new ventures.2.Explain the business model canvas as an initial step in the planning process.3.Describe a business plan and demonstrate its value.4.Describe the benefits of a business plan.5.Explain the different viewpoints of those who read a business plan. 6.Outline the importance of coordinating the business plan segments.7.Describe the key recommendations by venture capital experts regarding a plan.8.Highlight a complete outline of an effective business plan.9.Describe some helpful hints for writing an effective business plan.10.Explain the key points to remember in the presentation of a business plan – the pitch.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.7Pitfalls to Avoid in the Venture Planning Process•Pitfall 1: No realistic goals •Pitfall 2: Failure to anticipate roadblocks •Pitfall 3: No commitment or dedication•Pitfall 4: Lack of demonstrated experience (business or technical)•Pitfall 5: No market niche (market segment)

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.8Business Model Canvas•Business Model Canvas: Structured brainstorming tool for entrepreneurs to use to define and understand the strategic focus and the questions that need to be answered for each of the nine building blocks.•Value Proposition•Customer Segments•Channels•Customer Relationships•Revenue Streams•Key Activities•Key Resources•Key Partners•Cost Structure

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.9Business ModelBusiness model•A description of how a venture will create and deliver value•Has evolved over the years with higher sophistication levels•Working through this can help the entrepreneur gain a deeper understanding of their customers, distribution channels, partners, revenue streams, costs, and core value proposition.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.10What is a Business Plan•Provides a more specific and detailed exploration of the venture’s goals and operations with a clear path on how the venture will succeed.•Business Plan: A written document that details the proposed venture:−Describes the current status, expected needs, and projected results of the new business.−Demonstrates a clear picture of what the venture is, where it is projected to go, and how the entrepreneur proposes it will get there.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.11Benefits of a Business Plan (1 of 2)•For the Entrepreneur:−Time, effort, research, and discipline to create a formal plan forces the entrepreneur to view the venture critically and objectively.−Competitive, economic, and financial analyses subject the venture to close scrutiny.•For Outside Evaluators:−Develops and examines operating strategies and expected results.−Provides a tool for use in communications with outside financial sources.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.12Benefits of a Business Plan (2 of 2)•Specifically for the Financial Sources:−Details the market potential and plans for securing a share of that market.−Shows the venture’s ability to service debt or provide an adequate return on equity. – Solvency ratio analysis −Identifies critical risks and crucial events with a discussion of contingency plans.−Contains the necessary information for a thorough business and financial evaluation.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.13Audience of a Business PlanViewpoint for those reading a business plan•Entrepreneur: need to have the most clear, in-depth knowledge•Marketplace: determine who will purchase the product or use the service and document the anticipated percentage of the market is appropriate for success•Investor: concentrated on the financial forecast.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.14Group Activity 12-1Divide the class into three groups. One group would be the entrepreneur, one the marketplace, and one the investors.Have everyone read the business plan executive summary (only) at:Bowling Center Business Plan - Executive Summary (bplans.com)What did each group like in the plan? What did each group finding concerning? What additional information would be needed?

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.15Developing a Well-Conceived Business Plan•The Five-Minute Reading:1. Determine the characteristics of the venture and its industry.2. Determine the financial structure of the plan (amount of debt or equity investment required).3. Read the latest balance sheet (to determine liquidity, net worth, and debt/equity).4. Determine the quality of entrepreneurs in the venture (sometimes themost important step).5. Establish the unique feature in this venture (find out what is different).6. Read the entire plan lightly (this is when the entire package is paged through for a casual look at graphs, charts, exhibits, and other plan components).

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.16Putting the Package TogetherKey Format Issues:•Appearance•Length•The cover and title page•The executive summary•The table of contents

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.17Guidelines to Remember•Keep the plan respectably short.•Organize and package the plan appropriately.•Orient the plan toward the future.•Avoid exaggeration.•Highlight critical risks.•Give evidence of an effective entrepreneurial team.•Do not over-diversify.•Identify the target market.•Keep the plan written in the third person.•Capture the reader’s interest.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.18Common Business Plan Phrases: Statement versus RealitySource:Adapted from William A. Sahlman, “How to Write a Great Business Plan” (July/August 1997): 106. Copyright © 1997 by the Harvard Business School Publishing. All rights reserved.StatementRealityWe conservatively project . . .We read a book that said we had to be a $50 million company in five years, and we reverse-engineered the numbers.We took our best guess and divided by 2.We accidentally divided by 0.5.We project a 10 percent margin.We did not modify any of the assumptions in the business plan template that we downloaded from the Internet.The project is 98 percent complete.To complete the remaining 2 percent will take as long as it took to create the initial 98 percent but will cost twice as much.Our business model is proven . . .. . . if you take the evidence from the past week for the best of our 50 locations and extrapolate it for all the others.We have a six-month lead.We tried not to find out how many other people have a six-month lead.We need only a 10 percent market share.So do the other 50 entrants getting funded.Customers are clamoring for our product.We have not yet asked them to pay for it. Also, all of our current customers are relatives.We are the low-cost producer.We have not produced anything yet, but we are confident that we will be able to.We have no competition.Only IBM, Microsoft, Netscape, and Sun have announced plans to enter the business.Our management team has a great deal of experience . . .. . . consuming the product or service.A select group of investors is considering the plan.We mailed a copy of the plan to everyone in Pratt’s Guide.We seek a value-added investor.We are looking for a passive, dumb-as-rocks investor.If you invest on our terms, you will earn a 68 percent internal rate of return.If everything that could ever conceivably go right does go right, you might get your money back.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.19Questions to Be Answered•Is your plan organized so key facts leap out at the reader?•Is your product/service and business mission clear and simple?•Are you focused on the right things?•Who is your customer?•Why will customers buy? How much better is your product/service?•Do you have a competitive advantage?•Do you have a favorable cost structure?•Can the management team build a business?•How much money do you need?•How does your investor get a cash return?

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.20Elements of a Business Plan (1 of 5)•Section I: Executive Summary•Section II: Venture Concept; Value Proposition−General description of business−Industry background−Goals and potential of the business and milestones (if any)−Uniqueness of product or service•Section III: Marketing Segment−Projected salesSource: Donald F. Kuratko, The Complete Entrepreneurial Planning Guide (Bloomington, IN: Kelley School of Business, Indiana University, 2015).

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.21Elements of a Business Plan (2 of 5)•Section III: Market Niche and Market Share−Target market (customers) identified−Market size and trends−Competition−Marketing strategy−Market strategy—sales and distribution−Pricing−Advertising and promotionsSource: Donald F. Kuratko, The Complete Entrepreneurial Planning Guide (Bloomington, IN: Kelley School of Business, Indiana University, 2015).

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.22Elements of a Business Plan (3 of 5)•Section V: Research, Design, and Development−Product prototypes; design•Section VI: Operations SegmentA.Facilities and logisticsB.Local taxes and zoningSource: Donald F. Kuratko, The Complete Entrepreneurial Planning Guide (Bloomington, IN: Kelley School of Business, Indiana University, 2015).

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.23Elements of a Business Plan (4 of 5)•Section VII: ManagementA.Management team—key personnelB.Legal structure—stock agreements, employment agreements, ownershipC.Board of directors, advisors, consultants•Section VIII: FinancialA.Pro forma balance sheetB.Income statementC.Cash-flow statementSource: Donald F. Kuratko, The Complete Entrepreneurial Planning Guide (Bloomington, IN: Kelley School of Business, Indiana University, 2015).

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.24Elements of a Business Plan (5 of 5)•Section IX: Critical RisksA.Potential problemsB. Obstacles and risksC. Alternative courses of action•Section X: Harvest StrategyA.Liquidity event (IPO or sale)B.Continuity of business strategyC. Identify successor•Section XI: Milestone ScheduleA.Timing and objectivesB. Deadlines and milestonesC. Relationship of events•Section XII: Appendix or BibliographySource: Donald F. Kuratko, The Complete Entrepreneurial Planning Guide (Bloomington, IN: Kelley School of Business, Indiana University, 2015).

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.25Milestone Schedule Segment•Timetable for the activities to be accomplished:−Incorporation of the venture−Completion of design and development and prototypes−Hiring of sales representatives, product display at trade shows−Signing up distributors and dealers−Ordering production quantities of materials, receipt of first orders−First sales and first deliveries (dates of maximum interest because they relate directly to the venture’s credibility and need for capital)−Payment of first accounts receivable (cash in)

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.26Helpful Hints for Developing the Business Plan (1 of 3)Source:Donald F. Kuratko, The Complete Entrepreneurial Planning Guide (Bloomington, IN: Kelley School of Business, Indiana University, 2015).I.Executive Summary•No more than three pages. This is the most crucial part of your plan because you must capture the reader’s interest.•What, how, why, where, and so on must be summarized.•Complete this part after you have a finished business plan.II.Business Description Segment•The name of your business.•A background of the industry with history of your company (if any) should be covered here.•The potential of the new venture should be described clearly.•Any uniqueness or distinctive features of this venture should be described clearly.III.Marketing Segment•Convince investors that sales projections and competition can be met.•Use and disclose market studies.•Identify target market, market position, and market share.•Evaluate all competition and specifically cover why and how you will be better than your competitors. Identify all market sources and assistance used for this segment.•Demonstrate pricing strategy. Your price must penetrate and maintain a market share to produce profits; thus, the lowest price is not necessarily the best price.•Identify your advertising plans with cost estimates to validate proposed strategy.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.27Helpful Hints for Developing the Business Plan (2 of 3)Source:Donald F. Kuratko, The Complete Entrepreneurial Planning Guide (Bloomington, IN: Kelley School of Business, Indiana University, 2015).IV.Operations Segment•Describe the advantages of your location (zoning, tax laws, wage rates). List the production needs in terms of facilities (plant, storage, office space) and equipment (machinery, furnishings, supplies).•Describe the specific operations of the venture.•Indicate proximity to your suppliers.•Mention the need and use of personnel in the operation.•Provide estimates of operation costs—but be careful: Too many entrepreneurs underestimate their costs.V.Management Segment•Supply résumés of all key people in the management of your venture.•Carefully describe the legal structure of your venture (sole proprietorship, partnership, or corporation).•Cover the added assistance (if any) of advisors, consultants, and directors.•Give information on how and how much everyone is to be compensated.VI.Financial Segment•Give actual estimated statements.•Describe the needed sources for your funds and the uses you intend for the money.•Develop and present a budget.•Create stages of financing for purposes of allowing evaluation by investors at various points.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.28Helpful Hints for Developing the Business Plan (3 of 3)Source:Donald F. Kuratko, The Complete Entrepreneurial Planning Guide (Bloomington, IN: Kelley School of Business, Indiana University, 2015).VII. Critical-Risks Segment•Discuss potential risks before investors point them out—e.g.,•Price cutting by competitors•Any potentially unfavorable industry-wide trends•Design or manufacturing costs in excess of estimates•Sales projections not achieved•Product development schedule not met•Difficulties or long lead times encountered in the procurement of parts or raw materials•Greater than expected innovation and development costs to stay competitive•Provide some alternative courses of action.VIII.Harvest Strategy Segment•Outline a plan for a liquidity event—IPO or sale.•Describe the plan for transition of leadership.•Mention the preparations (insurance, trusts, and so on) needed for continuity of the business.IX.Milestone Schedule Segment•Develop a timetable or chart to demonstrate when each phase of the venture is to be completed. This shows the relationship of events and provides a deadline for accomplishment.X.Appendix or Bibliography

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.29Updating the Business Plan•Reasons to Update the Plan:−Financial Changes−Additional Financing−Changes in the Market−Launch of a New Product or Service−New Management Team−Reflect the New Reality

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.30Presentation of the Business Plan: The “Pitch” (1 of 2)Oral presentation, known as elevator pitch•Know the outline thoroughly.•Use keywords in the outline that help recall examples, visual aids, or other details.•Rehearse the presentation to get a feel for its length.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.31Presentation of the Business Plan: The “Pitch” (2 of 2)•Be familiar with any equipment to be used in the presentation—use your own laptop.•The day before, practice the complete presentation by moving through each slide.

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.32Suggestions for Presentation•Focus on the painfor which your venture will be the solution.•Demonstrate the reachable market, rather than potential market•Explain the business model.•Tout the management team.•Explain your metrics.•Motivatethe audience.•Emphasize your characterand trustworthiness.•Why you and why now?

Donald F. Kuratko, Entrepreneurship: Theory, Process, Practice, 12thEdition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.33TABLE 12.5 What to Do When a Venture Capitalist Turns You Down:Source:Joseph R. Mancuso, How to Write a Winning Business Plan(Englewood Cliffs, NJ: Prentice Hall, 1985), 37. Reprinted with the permission of Simon & Schuster Adult Publishing Group. Copyright © 1985 by Prentice Hall, Inc.1. Confirm the decision:“That means you do not wish to participate at this time?”2. Sell for the future:“Can we count you in for a second round of financing, after we’ve completed the first?”3. Find out why you were rejected:“Why do you choose not to participate in this deal?” (Timing? Fit? All filled up?)4. Ask for advice:“If you were in my position, how would you proceed?”5. Ask for suggestions:“Can you suggest a source who invests in this kind of deal?”