Business plan- definition - Essay Example

Part Introduction: A business plan is a document that commercializes the business idea, as a whole, to potential investors and stakeholders (Schewtje 2010 p.1). A business plan is the starting point of any business venture. And for a successful business venture the success of business plan, for the proper communication about the business aspects to the stake holders, is the basic condition. A business plan is aimed at justifying business idea and its future potentials. It is the conclusive document that details the strengths, risks, future developments and other relevant technicalities involved in undertaking the business venture. Business plan is primarily and usually developed for undertaking a new business venture. However it may also be developed when an existing business makes some new initiative changes for which a sizeable investment and analysis is required. Externally, business plan helps in communicating to the potential stake holders about the financing of the new business idea. Simultaneously, a business plan serves the internal purpose by making the picture clear to the people in organization about the business. Having a conclusive business plan serves as a guideline of future moves and is an important controlling mechanism against which actual performance can be compared. The business plan encompasses several elements of significant importance to new business idea. These include idea generation, strategic objectives, market analysis and research, understanding the competition, cash flow, profit and loss forecasts, balance sheet projections, competitive strategy and scenario analysis. These elements are critically analyzed in the following discussion. Elements of Business Plan 1. Idea Generation Idea generation is the process in which problem under consideration is understood and ideas to solve that problem are generated and communicated. It is the basic element of business plan on which the success of business relies heavily. An idea that understands the problem only at surface and does not address the core depths of issue will result only in short-term success and ultimate failure. A successful idea is the one, for a new business, that is feasible and profitable. Idea generation is the rigorous task (Legrand 2011, p.125). It requires a great analysis and commitment to arrive at successful business ideas. Most of the business failures trace to unworkable business ideas. Business idea turns out to be a failure because of very common problems that include; surface understanding of problem, improper understanding of environment where idea is to be introduced and miscalculations in assessing future potential of idea generated. These are the most common areas that are not properly addressed while proposing any idea. In organization, a leader can take steps to help in generation of useful and successful ideas. He/she can do so by directing idea generators in a way so as they may not overlook the common areas of mistake that result in ultimate failure of business plan. Group idea generation is the common organizational practice. It offers the benefit of the pooled knowledge f group and ensures a proper critical analysis of idea before it is implemented. 2. Strategic Objectives: The term ‘Strategic Objectives’ refers to the concrete financial and non-financial goals that an idea is supposed to achieve. Setting of strategic objectives serves various important purposes in a successful business venture. It defines the targets in concrete terms and also the role of different functional units of organization for achievement of strategic objectives. Strategic objectives outline the amount of financial and non-financial resources that are required to make an idea a success. This is a critical step in business plan. A business idea can be a failure if its translated strategic objectives are vague, unclear and ill-calculated. A major coordination problem, among functional units, will arise in case the objectives are not well understood. A successful business plan is assumes a strong reliance on the clearance of goals and elements necessary for their achievement. Strategic objectives should be set by involving all functional units because it would be the realistic and practical cooperation among these functional units of organization that will translate objectives into tangible outcomes. 3. Market Analysis and Research: Market research and analysis of a business plan refers to the actions taken to understand fully the target market for new idea. There are various examples where an improper understanding of target consumer insights has led to the failure of a business idea. ‘New coke’ idea by Coca-cola was a deadly failure. An idea can only be sold if there are buyers who are willing to purchase it. A whole set of complex factors operate simultaneously in conditioning the willingness of a buyer to purchase any product. An understanding of culture, personality, social class, demographics and other factors is important to evaluate whether an idea would be a success or failure. 4. Understanding the Competition: ‘ Understanding competition’ for a business plan means evaluating the ideas and their effectiveness that already exist in market and that are somehow similar to the idea of business plan. A business idea would be a success if the competing ideas, already incorporated in target market, are well evaluated in terms of their market share, customer loyalty and positioning. A new idea that faces a strong competitor is a risky venture. Understanding of competition will contribute to the success of business plan by providing for special areas of improvement, that a new idea must encompass, to gain edge over competitor. 5. Cash Flow: ‘Cash flow’ section of balance sheet refers to the quantitative statement about the cash inflows and outflows of the new business idea for a specific period, usually one year. Cash flow projections are very crucial to the success of business venture for these projections enable idea owners to determine the cash shortages that are likely to occur at various time points. Moreover it also provides an insight into possible cash surpluses which is important information to plan their most profitable use. Unrealistic projections would result in ultimate failure of idea for several reasons. Firstly investors would lose confidence in idea and also a firm will not be able to arrange other- route financing (through banks) when it is much needed. Business idea that promises positive cash flows is also an important factor to develop the credit-worthiness of the firm. Hence a realistic cash flow projection is vital to a successful business venture. 6. Financial Forecasts: Financial forecasts refer to the more concrete and quantitative performance appraisal projections of the business plan. Most commonly used financial forecasts include; Profit and Loss forecasts Cash flow forecasts Balance sheet forecasts Financial forecasting is done normally for 3 to 5 years. These forecasts serve a very important purpose form investors standpoint. Investors get concrete idea about future profits, financial health and cash streams that are likely to occur in business in the coming years. This allows investors to conduct more rational analysis about their investment decision in business plan. A misleading financial forecast is likely to be very dangerous for the organization for it may earn some support in the short-run but, in the long-run, it will cause ultimate failure of business idea due to the shattered confidence of investors. Moreover, financial forecasts must also clear the assumptions on which they are made for the fairness in representation to the stakeholders (Businesslink n.d). Competitive Strategy: Competitive strategy refers to how a company competes in a particular business. Competitive strategy is concerned with how a company can gain a competitive advantage through a distinctive way of competing (Porter 1980). In competitive strategy analysis the critical information about the competitor is outlined. This includes; Identification of competitor Market share of competitor Business Strategies of competitor Doing a competitive analysis is the vital to business success. This allows the new business to define its target market precisely and to develop strategies that could be effective enough to offer a profitable entry to a new business in the existing competitive market. Competitive strategy analysis ensures investors about the professionalism and planning effectiveness of a business. It is a positive point for an organization if its investor’s are ensured about the distinctive competitors and winning strategy that organization will develop to get a profitable entry. Scenario Analysis: Scenario analysis is the evaluation of performance in the different scenarios of business. Scenario analysis of business plan gives an insight about the economic and other changes that may have an impact upon the business. And it reflects the performance of business in such scenarios. This is an important analysis that gives investors wider information to reach at the investment decision. It presents company as fair and earns it optimism of stakeholders. Summary: Business plan is the projected picture that a business is likely to frame itself into. It includes the critical elements of idea generation, competitive strategy, scenario analysis, competition and others. It is the basic document to earn the investment from the investors. Critical information about business should not be misleading and overstated. Part 2 Introduction: Entrepreneurship is typically an ancient concept. Somehow individuals have reflected entrepreneurship form their very origin. The term entrepreneur has not been agreed to have one specific definition. Several scholars from several fields of study have defined the term differently. Most generally accepted explanation of the term entrepreneurship goes like ‘A process in which individual undertakes and organizes organizational resources in a way so as to promote growth and success of enterprise’. Entrepreneur plays a role of custodian of an organization’s overall survival. Today’s competitive era requires top quality entrepreneurial skills for the success of an organization. Entrepreneurship is a complex process and it requires a wide range of skills to perform it effectively. There is vast range of entrepreneurial characteristics that an individual must develop or hold in order to be successful entrepreneur. Following discussion reflects to some of the characteristics that are discussed in the literature of entrepreneurship and are considered to be crucial for effective entrepreneurship. Entrepreneurial Characteristics 1. Cooperativeness: An entrepreneur cannot be successful unless he/she is able to tape remarkable motivation of its team members. Cooperation and standing beside with team, especially in their problems, is likely to earn entrepreneur the support of team members. And he/she can, thus, execute organizational plans successfully. 2. Strong self-efficacy: Self-efficacy is the people’s judgment of their capabilities to organize and execute courses of action required to attain designated types of performance (Lenz, Shortridge and Bagget 2002). A strong perception of one’s capabilities to perform challenging and complex tasks is what is extremely useful to the every minute of entrepreneurship. An entrepreneur faces several situations that are new and not necessarily fall into entrepreneur’s province. In such situations, in the absence of strong self-efficacy, an entrepreneur cannot mark a success to an organization. 3. Opportunity and Goal-orientation: Opportunities not necessarily reflect themselves to common observation. Identifying an opportunity may require an in-depth analysis and extraordinary caution. This requires an entrepreneur to behave extraordinarily so as to enable the organization to tape any possible profitable opportunity. Moreover, a non-directional approach is not going to lead organization to the optimum of success. Strong goal-orientation is thus believed to be the important characteristic of entrepreneur (Kuratko, Hodgetts 2007). 4. Internal Locus of control: Internal locus of control refers to the degree to which people believe they exert control over their destinies. People with internal locus of control are more likely to; Be attentive to the aspects of environment that provide useful information for future Place greater emphasis on striving for achievement Be more attentive to develop their skills Ask more questions (Whetton 1991) These attributes of internal locus of control play a pivotal role in the entrepreneurial success. 5. Communication: An entrepreneur is likely to remain in continuous contact with the stakeholders, internal or external. Such contacts can only result in desired outcomes if proper communication of expectations is made to them. Communication process is highly personal and depends upon the individual’s selective perception. It is, thus, easily prone to ineffectiveness. With this inherent limitation in communication process, it is impossible for entrepreneur to lead organization in successful way unless he/she is not capable of communicating effectively. 6. Change adaptability: Change is the only constant phenomenon. The social entities that cannot come up with the change turn out to be obsolete and unsuccessful. In fact, business environment is in rapid change due to the changing technology and other factors. This necessitates an entrepreneur not only to be change adaptable but also to be change agent to direct organization to a successful journey. 7. Networking: Meeting with people and developing relationship with them offer great business prospects. It is an effective mean to dig out some potential clients (Chandler 2007). Moreover, networking offers information about competition and much more that is necessary to business success. An entrepreneur must possess networking skills. 8. Decision-making Business situations, especially in this modern age, require large number of decisions that must be taken so as to keep business competitive and surviving. Many decision-making situations require unstructured decisions. In such a scenario an entrepreneur that lacks right decision-making skills will be a sure failure. 9. Understanding of cultural diversity Globalization has resulted in workplace diversity where people from different cultures work together. Cultural diversity dimensions influence organizational behaviors and outcomes (Cox 1993). It is of utmost need to an entrepreneur that he/she should understand different cultural values and deal with people considering their cultural aspects. Entrepreneur should also be able to reinforce, positively, the appreciation of cultural diversity among employees so as to avoid interpersonal rivalries on the basis of culture. 10. Inspiration and conflict-handling Conflict, if not managed properly, is a very destructive phenomenon for the organization. A successful entrepreneur must possess the skills to resolve conflict constructively. Moreover, since entrepreneur plays a role of model, he/she should remain motivated and be a source of inspiration for others. Inspiration can be reinforced by the actions and strategies an entrepreneur pursues in his/her daily course of action. For example punctuality by entrepreneur is likely to inspire other members to be punctual. 11. Self-discipline The possession of self discipline enables one to choose, and then persevere with actions, thoughts and behavior, which lead to improvement and success. It also gives one the power and inner strength to overcome addictions, procrastination and laziness and to follow through whatever one does (Sasson n.d). Hence it becomes a vital characteristic for an entrepreneur to be self-disciplined in order to make business venture a sure success. Reflection upon My Personal Entrepreneurial Characteristics: From the literature on entrepreneurial characteristics, I understand that much of the characteristics are developed during different spheres of life. I believe my education has been contributing much in the development of my entrepreneurial skills. Assignments and other academic requirements have added significantly in ‘Goal Orientation’. I feel goal orientation is enhanced into me. Moreover, the changing rules and course descriptions have added a lot in making me ‘Change Adaptable’. I have started to appreciate ‘cultural diversity’ due to the networking with the people from different cultures. In addition to this, literature of entrepreneurship helped me understand the benefits accruing to me due to ‘Networking’. Theories have infused a sense of ‘Right decision-making’ into me and I am looking forward to take my decision under the entrepreneurial system. Seminars and workshops have helped me to sense the real difference that inspiration and ‘Effective Communication’ can make in the lives. Literature has helped me to understand and appreciate common problems that occur during the communication process. Moreover my social life, inside or outside the university has helped me understand the privileges of ‘Cooperation’. I understand that my life so far has successfully inculcated some flavors of entrepreneurial characteristics inside me. And my positive understanding of such characteristics is the reason to make me believe that I will explore more about them and will develop them to the highest possible degree. For I understand effective entrepreneurship inevitable to any aspect of life. Conclusion Effective entrepreneurship has, historically, remained a key factor to the business success. It is even truer in the current business scenarios where competition, change and globalization are the inevitable faces. Effective entrepreneurship requires inculcation of certain characteristics that are actually, in their practical translation, the actions of utmost importance to the success and growth of organization. Such characteristics include goal-orientation, effective decision-making, communication, networking abilities and so on. These key characteristics come into play in every single moment of entrepreneurship. And entrepreneur will be an ultimate failure if he or she does not live by such characteristics in practicing entrepreneurship. Social life, especially university education, plays a vital role in in-rooting entrepreneurial characteristics amongst the individuals. Process and tasks in universities call into play several entrepreneurial characteristics such as, cooperativeness, goal orientation, communication and understanding of cultural diversity. Moreover a positive understanding of the literature on entrepreneurship is of equal importance in order to make individuals to reflect upon their lives in entrepreneurial perspectives. Because entrepreneurship is not only the process of business rather it applies equally to other aspects of life as well. References 1. SCHWETJE, GERALD, & VASEGHI, SAM. (2010). The Business Plan How to Win Your Investors' Confidence. Gardners Books 2. WEISS, D. S., & LEGRAND, C. P. (2011). Innovative intelligence: the art and practice of leading sustainable innovation in your organization. Mississauga, Ont, J. Wiley & Sons Canada. 3. Businesslink n.d prepare a business plan, accesed on November 28,2011 4. PORTER, M. E. (1980). Competitive strategy: techniques for analyzing industries and competitors. New York, Free Press. 5. LENZ, E. R., & SHORTRIDGE-BAGGETT, L. M. (2002).Self efficacy in nursing: research and measurement perspectives. New York, Springer Pub. 6. KURATKO, D. F., & HODGETTS, R. M. (2007).Entrepreneurship: theory, process, practice. Mason, OH, Thomson South-Western. 7. WHETTEN, D. A., & CAMERON, K. S. (1991). Developing management skills. New York, NY, HarperCollinsPublishers. 8. CHANDLER, S. (2007). From entrepreneur to infopreneur: make money with books, e-books, and other information products. Hoboken, N.J., John Wiley & Sons. 9. COX, T. (1993). Cultural diversity in organizations: theory, research, and practice. San Francisco, Calif, Berrett-Koehle. 10. Sasson, Rameez. The benefits and importance of self-discipline, accessed on November 28, 2011 from 11. Top of Form Read More