The Value of Business Planning Before Start-Up - Essay Example

?After fine dining and then fast food, we, a group of four friends from the same industry decided to start something different of our own. Having worked for several years in the industry, we felt it was time to be creative and introduce something new in the sector. We wanted to be within the industry as we had indications that the food and beverage industry was expected to achieve 20% growth by 2010. Besides, our experience and expertise was in this field. We recognized the high potential in the sector. We recognized the need for road-side snack-based fast food outlets. People now seek to consume food as they shop down the town streets. We had a brain-storming session where we invited some friends over who are not from this industry. We wanted different perspectives and wanted to challenge our own assumptions. People sought something different from the standard menus of Mcdonald’s and Burger King. At the same time people also wanted the freedom to choose their salads and fillings. This immediately led us to the concept of Subway and then we were overwhelmed. We decided to combine the concept of Subway with the road-side concept but we would not restrict ourselves to sandwiches. We decided to include several snack-based food items. We believe this would create a point of differentiation, which according to Porter can provide competitive advantage. This prompted us to fill the gap and set up a fast food joint in Kingston, which has very few such outlets. We then started evaluating where we have the necessary skills and expertise. We found that all four members of our team for the proposed venture have sufficient experience in the fast food industry and have served in various capacities with renowned corporations. The formation of the team itself can affect subsequent performance (Owens, Mannix & Neale, 1998) and hence we made sure we were a team that was comfortable to work with. To ensure high level of effectiveness, we ensured that each member contributed to necessary technical skills, knowledge, expertise and ability. This was because we recognized that each individual would be able to contribute their knowledge or expertise to solve a jointly owned problem which would be difficult for an individual to solve on his own (McGreevy, 2006). We had defined individual roles, and rules of interaction as well as an agreed system of decision making, as this would help enhance learning for the team members as well as others in the organization (Macneil, 2000). While each member of our team contributed diverse skills and knowledge, we also ensured that we shared the same values, beliefs and attitudes which could facilitate coordination and communication. However, we soon realized that setting up a business is far different from designing and thinking of a business plan. We first tried to think whether we really needed a business plan. We decided to prepare a business plan as this would help us evaluate the business opportunity (Chwolka & Raith, 2012). Besides, we needed external funding and investors need to see a business plan before they decide to invest (Mason & Stark, 2004). We knew we had the resources such as technical know-how and experience but we realized that putting our thoughts on paper would help us understand whether we can achieve what we expect to. Ideas were fragmented since none of us had experience as entrepreneurs before this and we needed to assimilate and evaluate our thoughts. A business plan was just the right tool to organize out thoughts on paper. A business plan can be informal or a formalized plan, and is essential for both internal and external purposes. It defines how the venture would operate in the current business environment but we also needed to evaluate performance after five years because we planned to expand in about five years, when more funding would be needed. Business plan is a strategic planning document that serves to guide the business and also act as a monitoring device as the business progresses (Richbell, Watts & Wardle, 2006). Presenting the plan has helped us understand the different aspects that are important in running a business. For instance, prior to charting the business plan we were overwhelmed that we would make such and such profits but as we formalized the plan we discovered that the business is highly dependent on the external business environment. Our efficiency and expertise can be diluted in the competitive business environment. We claim to have a product differentiation strategy but barriers to entry are low in the industry. Besides, employee poaching is very common and competitive advantage is easily replicable. We may become market leaders in the chosen category but this status may be short-lived, is what occurs during reflection. This would increase the bargaining power of buyers as consumers would have more options, thereby diluting our sales. We also appear to be confident of receiving 50% of the initial capital investment as loan from the bank. Banks also evaluate the financial standing of individual directors of the company and we have not evaluated that in the business plan. We have estimated that by the end of the third year we shall start making profits but all the above factors can alter the figures. Perhaps we have been optimistic in making our projections. Nevertheless, even if we take all the above into consideration, we expect to make profits by the end of the fourth year, if not the third. Opening of fresh outlets may be slightly delayed but by and large we do not expect drastic deviation from the projections. We have not taken into consideration product diversification over a period of time. We have only considered changes in the business model such as appointing franchisees instead of opening our own business outlets. However, product diversification and innovation is a critical aspect given that consumer demands are ever-changing and the business environment is extremely volatile. We need to keep this in our plans and start product innovation by the end of the first year so as to constantly have something new to offer to our discerning customers. References Chwolka, A., & Raith, M.G. (2012). The value of business planning before start-up — A decision-theoretical perspective. Journal of Business Venturing, 27, 385–399 Mason, C., & Stark, M. (2004). What do Investors Look for in a Business Plan? International Small Business Journal, 22(3), 227–248 Macneil, C. (2001). The supervisor as a facilitator of informal learning in work teams. Journal of Workplace Learning, 13 (6), 246-253 McGreevy, M. (2006). Team working: part 2 – how are teams chosen and developed? Industrial and Commercial Training, 38 (7), 365-370 Owens, D.A., Mannix, E.A. & Neale, M.G. (2003). Strategic Formation of Groups: Issues in Task Performance and Team Member Selection. Retrieved from http://www2.owen.vanderbilt.edu/david.owens/Papers/1998%20Owens%20Mannix%20Neale%20-%20Strategic%20Group%20Formation%20-%20JAI.PDF Richbell, S.M., Watts, H.D., and Wardle, P. (2006). Owner-managers and Business Planning in the Small Firm. International Small Business Journal, 24(5), 496–514 Read More