Business Planning Process - Essay Example

?Critical Appraisal of Business Planning Process Introduction An efficient business plan is the real foundation stone of any successful business venture. A business plan is important for an entrepreneur because of the various purposes that it serves. It gives an overall idea of the actual purpose of the venture. The entrepreneur will have an overall idea about what he/she intends to do with the business venture. Thus the main component of a business plan is the core business objectives. It guides the business in its day to day activities. “A Business Plan is the foundation, or rather a springboard, towards the establishment and growth of a new business, particularly in the later stages of growth.” (VCgate, 2010) The importance of a business plan also lies in the fact that it is the tool that helps to fetch the required capital for setting up the business. In most cases, the entrepreneur himself will not be capable of raising the required capital for the business. Sometime, even when the initial capital is brought in by the owner, further expansion or the need for additional working capital requirements will force him/her to approach a venture capitalist or financial institution. In any of these cases, the clarity of the business plan is what convinces the concerned institution for granting finance. A good business plan should be prepared based on an outside-in approach. An entrepreneur should have a good understanding of the external environment in which the business will operate. A vision and mission for the business forms the two main components of the business plan. Vision is the ultimate goal that the business wants to achieve and mission statement states in brief about how the vision will be achieved by the business. Thus a well charted out business plan is an inevitable component for a successful business venture. The following section will give a critical analysis of the various steps of the business planning process. Elements Idea Generation: Idea generation is the process in which different kinds of business ideas generate in the mind of a person or a group of persons intending to start a business venture. There are three main activities inside this stage that completes the whole process of idea generation. They are identification of a problem, idea generation and selection of the best idea. Identification of a problem that exists in the market is the first step that an entrepreneur should take. “If you keep up with your industry, talk to customers, study what is not working in your business, you should have a ton of problems you would like to solve.” (Starak, 2006) Identification of problem will lead to finding of various alternative solutions for the problem. All ideas should be screened well and the entrepreneur should select the one best solution that becomes the real business idea. Thus it can be said that the first thought that should come into the minds of an aspiring entrepreneur is a market problem. Strategic Objectives: Strategic objectives refer to the core business objectives of the venture. It mainly consists of the vision and mission of a business. Apart from that, it also consists of the other objectives of the business. Formulating good strategic decisions are extremely important for the success of a business. Most of these objectives are long term in nature. Therefore, an entrepreneur should have good foresight in order to formulate clear business objectives. Also, the entrepreneur should have a good understanding of the market and environment situation in order to make the objectives clear, focused, realistic and achievable. The objectives are the motive behind a business success. The various strategies that the business should take will depend mainly on the business objectives. Clear objectives imply that half the work of an entrepreneur is complete. He/she just have to manage the business to make sure that it is operating as per the objectives. Market Analysis and Research: It was mentioned that an understanding of the market is very much essential for idea generation as well as for formulating objectives. “Market research is a study of your consumer’s preferences and your competition. Sometimes you’ll hear it called a feasibility study.” (Greenstreet, 2005) Market analysis mainly involves a detailed study of the customer preferences. The entire analysis should revolve around the four P’s product, price, place and promotion. This is where the outside-in approach again gains importance. Marketing in the current situation is initiated by the customers. Marketers understand the perceptions and requirements of the customers, then produce, price and promote the products as per that. This will enable better acceptability of the products by them. Therefore, good market awareness is very much essential to bring out a successful product and to market them to the targeted customers. Understanding the Competition: Though the market analysis consists of understanding the existing competition, this process should be dealt in separately in the plan. Understanding the competitors refers to having a clear idea of the products, product attributes and marketing strategies of all the competitors existing in the market. “When a company positions its brand in a customer’s mind, it is positioning that brand against other brands. It is critical to understand the strengths, weaknesses, opportunities and threats of each of those competitors along with the industry structure itself.” (Branding Strategy, 2007) An entrepreneur’s knowledge about the competitors will enable him/her to innovate ways to make their own products unique in the minds of the customers. Competitors will involve both direct and indirect competitors. Moreover, competitor analysis is an ongoing process. Keeping a continuous watch on the moves of the competitors is essential to make sure that the business formulates counter strategies to sustain in the market along with them. Otherwise, the chances of becoming obsolete in the market are high. Understanding Financial Numbers and Projections: As the name signifies, this step involves an understanding of the required financial aspect of the business venture. “For start-up entrepreneurs, creating a one year, three year and five year projections form the cornerstone of the business plan and drive many of its major considerations.” (Corrente, 2011) Finance is in fact the life blood of any business. An improper or no forecast of the cash inflows and outflows will put the company in trouble. As stated in the definition, an entrepreneur should always consider at least 3 years down the line while making the forecast. All other influencing factors like interest rates, etc., should also be considered while making financial projections. This section of the report is extremely important for convincing the banks and financial institutions for availing loans and inviting investments. Another benefit of financial projection is that it will help the business to anticipate problems and take necessary steps based on the plan. In most cases, financial projection is done by external parties as the entrepreneur may not be aware of the techniques and tools that should be used. Moreover, a good financial projection requires detailed knowledge about the market conditions. Competitive Strategy: Competitive strategy refers to how a business intends to compete within the industry. “Competitive strategy is concerned with how a company can gain a competitive advantage through a distinctive way of competing.” (HBR, 2011) Developing competitive strategies involves a clear analysis of the market and competitors. An entrepreneur can use tools like Porter’s Generic Competitive Strategies in order to analyse the market and develop the most suitable strategy. Forming any of the four generic competitive strategies of cost leadership, differentiation, cost focus and differentiation focus is important for right way of product placement in the market. Scenario Analysis: “The importance of scenario planning and analysis in our business environment is that it enables us to build competencies in strategic planning and decision making.” (Bovay, 2008) An entrepreneur should perform scenario analysis to anticipate the probable future events that will affect the business. Based on this, action plans should be formed that will help the business to cope up with such events. Through the action plans, an entrepreneur and business will be better prepared to handle such possible situations in the future. Summary The above analysis has shown that every step in the business planning process has its own contribution for the successful running of a business enterprise. A market is not saturated in any cases. Every new development in the economy and market throws out several opportunities for the entrepreneurs. It may not be readily visible. How best a person can understand the problem and find a solution for the same determines the development of new business ventures in the economy. It involves continuous reading, research and analysis of the changes in the environment. A good entrepreneur is always up to date about the changes happening around him/her. This awareness is not only essential for the initial idea generation process but also for every stages of business planning. Entrepreneurs can be successful only if they are aware of the day to day changes in the business environment. It can be said that idea generation is a behaviour based element. The success of idea generation will involve the imagination capability of an entrepreneur. A person with good thought process can generate better ideas. Imagination can also be referred to as the extent of creativity in an individual. The process of strategic objectives needs the psychological skills of an entrepreneur. Steps like market research, financial forecast and scenario analysis are related to the technical skills of the entrepreneur. Common Entrepreneurial Skills There are certain skills that help an entrepreneur to be successful in the business venture. It is not necessary that a person should possess all these skills to be successful in the business. But the presence of the skill will enable better business administration. Some skills are inherent within the person while others are developed through vigorous learning. The common entrepreneurial skills possessed by successful entrepreneurs can be categorised mainly into four classifications such as Personal Skills, Interpersonal Skills, Critical and Creative Thinking Skills and Practical Skills. (Mind Tools, 2011) It is often observed that interpersonal skills and creative thinking depends mostly on the inborn capabilities of a person. While the personal skills and practical skills are mostly learned as a result of frequent interaction with the outside world. A more detailed insight into each of the skills can be seen as follows. Personal Skills: As the name signifies, personal skills refer to the qualities inherent in a person. This generally refers to the personal traits of the individual. Vision is the primary personal skill of a successful entrepreneur. It refers to the skill of foreseeing a successful future. If this skill is set right, everything else will follow. The second personal skill is commitment. A feeling of commitment will enable a person to perform well in whatever he/she is up to. Initiative is the next skill that will help an individual to be successful in managing business. Initiative refers to the ability to initiate or begin an activity before anyone else could do that. It also involves identifying the improvement areas in an activity. Determination is the next important skill of a successful entrepreneur. Determination is the quality that measures an individual’s inner drive to achieve the desired results. A person with determination is expected to see fewer failures in any venture. They are ready to go to any extent for achieving the desired results. Another personal skills that is inevitable for an aspiring entrepreneur is the risk taking ability. More profits can be generated only by taking more risks. Ethics is also a common entrepreneurial skill though the extent to which it is being followed is a matter of debate. A good entrepreneur will always hold on to the ethical values in order to manage business in the best possible manner. Interpersonal Skills: Leadership and motivation are the two primary interpersonal skills required for a successful entrepreneur. Entrepreneurship involves proper synchronisation of the available resources for achieving a common goal. This is possible only if a person is able to lead the process and motivate others to perform the activities. The next important interpersonal skill required for an entrepreneur is good communication ability. A person should be able to communicate ideas orally as well as through written communication. Best deals happen in the business only through effective communication. Listening is the next major interpersonal skill. Listening involves the ability to listen and understand others. Listening plays an important role especially in the case of employee grievances. Negotiation skills are other most important interpersonal skills required for being a successful entrepreneur. As mentioned earlier, negotiation skill is also important for making better business deals with other parties. Teamwork is an interpersonal skill that is equally important. A manager or an employee does not manage the day to day problems singlehandedly. It is a collective effort of a group of people. A person cannot be a good entrepreneur if he/she is a bad team player. A good entrepreneur should also be rich in maintaining personal relations. Empathy and consideration for the people is a required skill. People should be treated with utmost care so that their morale level is improved. Another important interpersonal skill is conflict resolution. No business can run without any sort of conflict. It may be minor or major based on the size and nature of the business. A good conflict resolution skill will help an entrepreneur to bring prosperity to self as well as for business. Critical and Creative Thinking Skills: This section refers to the skill sets that enable innovation and creativity in a business venture. Creative thinking ability is the primary skill under this category. Creativity refers to the ability to look at things in a different angle or different way of thinking. Terms like out of the box thinking also refers to the same skill. Creativity fosters innovation in an organisation. Innovations give rise to better products and service offerings. Thus creativity is a really differentiating skill. Problem solving is the next major creative thinking skill. A critical thinking is very much essential for generating better solutions for problems. Every business problems have a solution. It is up to the entrepreneur as to how well he/she comes out with the most feasible solution. Opportunity identification forms the most important component of critical thinking. The entire business environment is a pool of opportunities among which the entrepreneur will have to identify and carry on the best among them. This is possible only if the entrepreneur goes deep into the available opportunities. To an extent, creative thinking is an inborn skill. But it can also be developed through continuous practice. Practicing the skill may not be an issue inside a business environment as an entrepreneur will be responsible for timely decisions in a business enterprise. Practical Skills: Practical skills refer to those skills that are essential for the day to day running of a business and for producing better goods and services. The primary skill among them is goal setting. It measures whether a person has the talent to set better goals and try to achieve such goals within the given time frame. Decision making skills is the next important practical skill. In a business environment, a person will have to take decisions at totally unexpected circumstances and within a limited time frame. Therefore, the success of the entrepreneur lies in the ability to take quick decisions. Merely making decisions will not serve the purpose. Such decisions should also be beneficial for the functioning of the business. Planning and organising skill is another important practical skill required for being a successful entrepreneur. It involves having a clear idea about what should be done for achieving the desired results. After having a good and achievable plan, the entrepreneur should have the ability to bring together all the resources for the planned activity. The final essential practical skill is knowledge. The importance of knowledge has been clearly discussed in the business planning process. Knowledge of the business, industry, laws and statutes governing the business, and the day to day changes in the environment, etc. are required for better management of the business. An entrepreneur cannot limit the knowledge requirement to any benchmarked level. The higher the knowledge level, the better the success of the entrepreneur. Self Identified Skills The critical analysis of the entrepreneurial skills has helped a lot to compare my skills with the common skills to be possessed for being a successful entrepreneur. From the skills that are being listed above, ethics, vision, and commitment are the personal skills that I possess. Risk taking ability and determination are the skills that should be developed among this category. Among the interpersonal skills communication skills, teamwork, personal relationship and leadership are the qualities that I possess. Areas of improvement are negotiation skill, listening and conflict resolution. I have to develop the overall critical thinking ability. Finally, among practical skills, goal setting, planning and organizing and decision making are the self-possessed skills. Area of improvement is knowledge. It is highly important that the development areas are focussed on in order to become a successful entrepreneur. All the development areas of risk taking, determination, negotiation skill, listening, conflict resolution, critical thinking, and knowledge are equally important skills. Risk taking is necessary because, in business more profits arise only as a result of more risk taking. Shedding the hold back attitude is one method to improve the risk taking skill. Similarly, determination is important because without it a person cannot reap the expected benefits. Developing these skills will enable oneself to be a better entrepreneur. Spending fixed time every day to update the changes happening in the business environment is the method to be adopted for improving knowledge. All these skills can be developed through its continuous practice in the day to day activities. References VCgate, 2010. The importance of a business plan. [Online] Available at: [Accessed 4 December 2011] Starak, Y., 2006. The Mysterious Art of Idea Generation. [Online] Available at: [Accessed 4 December 2011] Greenstreet, K., 2005. Ground Truth and the Importance of Market Research. [Online] Available at: [Accessed 4 December 2011] Branding Strategy, 2011. Understanding the Competition. [Online] Available at: [Accessed 4 December 2011] Corrente, W., 2011. Successful Entrepreneur’s Know The Importance of Financial Projections. [Online] Available at: [Accessed 5 December 2011] HBR, 2011. Competitive Strategy. [Online] Available at: [Accessed 5 December 2011] Bovay, K, 2008. Why is Scenario Analysis (and planning)Important to Your Small Business. [Online] Available at: [Accessed 5 December 2011] Mind Tools, 2011. Entrepreneurial Skills. [Online] Available at: [Accessed 6 December 2011] Read More