Business Planning - AdGrovecom - Essay Example

Assignment 1: Business Planning Name Tutor Unit Code Introduction Business planning is a strategic component for every business. It is a very much involving exercise that calls for detailed thinking and in-depth business analysis. Appropriate information has to be gathered in order to put down a business plan. One has got to think of the future of their business. The document offers a clear picture of what is to be done and how it will be done, cognisant of the potential risks (Mckeever, 2001). This paper reviews two business plans from two different business sectors: (1) Zero Incident Frequency (Zif) and (1) AdGrove.com. In particular, the review is based on the businesses’ strong points, weak points, and areas of improvement. Moreover, the challenges encountered in preparing business plans and recommendations as well as the lessons learnt and demonstrated competencies are indicated. Brief Description of the Business Plans This section describes the general business idea contained in each business plan. It also gives an overview of what is to be done and how it will be done. Zero Incident Frequency Business Plan The first business plan outlines the business involving the production of medical devices, particularly medical syringes. The company, Zero Incident Frequency (Zif), seeks to produce syringes that are safe, easy to use and are of excellent value. The annual demand for the needle syringe devices is estimated to be $1.5 billion. However, the industry experiences accidents that cost around $1.2 billion every year. This is because some needle sticks get stuck with an unprotected needle in the course of a medical procedure each year. Moreover, more than $3 billion is expensed each year in testing and treating injured health care personnel. Besides, the syringes currently available in the market come with few safety benefits and cost more to produce. Zif presents the following two commercialisation options from which one will be selected: 1. License the product to a reputable medical device company. 2. Build expert tooling and contract industrial and supply functions. The company will at first target a niche market of psychiatric and pre-filled nuclear medicine syringes before spreading out to the overall syringe market. Zif will make use of the existing technology to produce safer, easy to use, and low-cost syringes. The company will be structured as a corporate entity so as to raise the required capital and limit shareholder liability. Zif will initially hire staff temporarily and par them based on hourly rates. Permanent salaried positions will be offered once and individual demonstrates technical proficiency and can work within the company’s environment. Zif will operate under the values of integrity, teamwork, individual, performance and community. The company’s vision is “To obsolete the standard syringe through superior design, performance, and value” and the mission is “To provide a high return on investment through the marketing of safe, reliable, and effective medical syringes.” Finally, table 1 below provides the financial summary for each one option: Table 1: Zif Financial Summary Option 1 Option 2 Approach License Manufacture Capital investment $400,000 / 20% equity $1.87 million / 30% equity Overall NPV $1.3 $4.4 Return on initial investment 191% 176% Source: Business Resource Software.com AdGrove.com Business Plan AdGrove.com is an online advertising infomediary. The company seeks to provide a one-stop shop for demographic data, ad campaign program planning, ad rates, ad buys, plus innovative development. These services are expected to significantly cut down on transaction costs and time for buyers and sellers of advertising spots. The company, AdGrove.com, Inc., is located in Austin, Texas but conducts its operations through the Internet at www.AdGrove.com. The company aims to offer a comprehensible website from which its customers - advertising sellers and buyers – can access free and fee-based services to meet their needs. AdGrove's will initially target the very much fragmented sellers and buyers of advertising space in the radio advertising sector. AdGrove.com seeks to serve a market comprising both the business-to-business electronic commerce industry and the advertising industry.  The advertising industry has a market value of over $190 billion and is projected to grow at a compounded rate of 5.7 per cent every year. Radio advertising represents $17.7 billion with 12,275 radio stations in 268 key markets. AdGrove.com’s primary target market is the small businesses (below 500 employees) and radio stations. The company offers spectacular competitive space as a high-service and low-cost provider of advertising services for small businesses. AdGrove.com will market itself through strategic alliances, PR campaigns, educational advertising and regional sales personnel. The company will pursue a three-phase start-up operational plan. The company will be managed by individuals with far-reaching know-how in the Internet, marketing, and technological sectors. Expert consultants in the sectors will also be hired. Table 2 below indicates AdGrove.com’s financial and operating statistics for the first five years; Table 2: Financial Summary and Operating Statistics Key Operating Statistics Year 1 Year 2 Year 3 Year 4 Year 5 Employees 27 57 78 86 98 Financial Statistics Revenue 53,700 2,265,000 12,770,000 19,200,201 26,900,000 Expenses 4,130,597 8,029,597 9,564,866 11,685,887 13,213,244 Net Income -4,076,897 -5,764,597 3,205,134 7,514,314 13,686,756 Source: Business Resource Software.com Strong Points and Justification Each one business idea has some captivating element. Below is a description of the strong elements that are contained in the individual business plans. The points are accompanied with justification for their contemplation as being strong. AdGrove.com presents an elaborate market viability outline for their product. The business plan shows in-depth understanding in the advertising industry and how the company seeks to offer from what currently exists. The market analysis indicates the benefits the product seeks to offer to the buyers and sellers of advertising space. The business plan also identifies the competitors and clearly explains how their products are differentiated. There is a clear indication of the gap in the market that AdGrove.com seeks to fill. Besides, the company targets small businesses that are many. This offers room for scalability of the business. Moreover, AdGrove.com has included a product feature comparison with their competitor in the market analysis. This indicates how they seek to fulfil the customer needs. The analysis also provides additional information that is vital in coming up with fitting marketing strategies. Both business plans rely on good financing. Zif Medical Services is seeking $400,000 (option 1) and $1,870,000 (option 2) in equity financing. AdGrove.com seeks to attract up to $2 million in equity capital. Equity financing is more desirable for start-up investment compared to other sources of finance, such as loans, that can be quite expensive. Potential investors have the opportunity to earn dividends, should the businesses perform well. The return on investment is also attractive; Zif’s ROI is 191 per cent (option 1) and 176 per cent (option 2). AdGrove.com will offer its investors a ROI of 70 per cent. There is also evidence of wide research. Research is an integral part of business planning. Information and data informs on the industry characteristics and therefore makes easy the process of decision making. The business plans outline the various resources relied upon in planning for each section from industry analysis, competitor analysis, market analysis and planning. Weak Points and Justification Even as each business plan brings out strong points of the business idea, there are some areas that may weak not strongly support the idea. In this section, each business plan’s weak areas are indicated along with their justification. Understanding the market buoyancy is greatly important for any business idea. Zif Medical Services business plan does not present an elaborate market analysis. The business plan simply distinguishes the product they seek to offer from the rest. There is no detail of the competitive forces within the industry. An investor would find it difficult in understanding the ease of entry, barriers to entry and the bargaining power of buyers and suppliers within that industry. Both business plans do not outline how quality assurance will be integrated in their operations. Today, quality standards as outline under ISO-9001-2000 are a vital element of each one product. Should the companies end up producing low quality products, it will be hard to rise again. It is good to produce low-cost products, but there should be no compromise on their quality. This is a crucial part especially in the medical field as Zif Medical Services seeks to produce safe syringes. Quality must be an integral element in the safety considerations. Another point of weakness is the operational and management plan. Both business plans have not clearly indicated the assignment of responsibilities among the people in the companies. What has been captured is a point form indication of operations, the management staff and other technical staff. Therefore, it would be difficult to hold particular individuals responsible for their inactions or failures. Clear designation of responsibilities informs the how staff will be recruited. AdGrove.com has included and exit strategy but Zif Medical Services has not included one. This points to a weakness in Zif’s business plan. The lack of the exit strategy shows that the business has no clear future plans. An investor or financier has no clue of the future opportunities for the company. It also limits the development of strategies geared towards the exit strategy. Business Plans Improvement The weak points point to areas that can be improved on to make the business plans more comprehensive. Below is an explanation of how the individual business plans can be improved. The current business world has evolved to a large extent. Investors and lenders have much more work to do meaning that they have lesser time to go through lengthy business plans. To attract the intension of investors, from whom they seek to raise equity capital, Zif Medical Services and AdGrove.com should consider trimming down the size of their business plans. However, the overall message and intention should not be lost. Zif Medical Services has done good to write on the product design. However, it would have been better if they would offer a minimal viable product (MVP). Salhman (2008) states that business ideas are conceptualised based on environmental influences, such as demography, media and age, among others. An MVP is easier to sale to investors as they can interact with the product in real sense. The investors also want to mitigate their risks as much as possible. Investing in an idea that is to be started from ground is riskier. Both business plans have included the businesses financial projections. However, there is no indication of the break-even projections. The break-even point is a critical consideration in whichever business. It shows when the business is expected to equate the expenses to the incomes. The investors require such crucial data and I suggest that it ought to have been included in the financial estimates. The area of management could be improved by indicating how the human resources and employees will be managed. It would be appropriate to include an organisational responsibility chart. Under the appendix, the business plan may as well include the skills and experience required for each position. Training programs can as well be indicated. Today’s business environment is also evolving in terms of the return people seek from the business given the considerations of the triple bottom plan. Some investors are concerned about the environmental, social and profit aspects of the business. We have seen the emergence of environmental and social entrepreneurs who are not very much concerned about the profitability of the venture. It would therefore be appropriate to consider the responsibility of the business to the environment and society. The business plans could be enhanced by indicating how social and environmental practices will be incorporated. This is disposed to attract additional investors and foster goodwill. Challenges and Recommendations Business planning is a demanding exercise. It calls for detailed strategic analysis. Therefore, challenges are bound to be encountered in putting together a business plan. In this section, the conceivable challenges are outlined together with fitting recommendations to help overcome them. One of the main challenges that face the modern world is the issue of technology. Zif Medical Services and AdGrove.com seek to operate under the auspices of technology. However, technology keeps changing in an unpredictable way as individuals keep coming up with new inventions. Technology plays a huge role in every business. Therefore, it would be appropriate for the companies to keep tracking technology changes and seek to leverage on the appropriate methodologies in keeping their businesses modernised. Businesses also face the challenge of being able to keep concise and clear business plans. This requires carrying out appropriate research before the business plan is written down. Research should cover all sections in order to uncover critical information that should be included in the business plan. The business planning process needs a lot of information from diverse sources. Moreover, new business opportunities keep on emerging. It is therefore vital for the companies to be able to integrate new ideas that suit the business along with the vision that guides the business. This is because every new development comes with risks that need to be regularly reviewed. The companies also face a challenge in coming up with the appropriate financial projections. Inevitably, business plan readers must go through the ‘numbers’. Forecasting is not an exact science. It is appropriate for the business plan to reflect appropriate, defensible and consistent figures. An appropriate model should be used in making the projections. They must show how the business will generate cash flow and run in a profitable fashion. Each expense, such as salaries, need to be factored in. Lessons Learnt and Demonstrated Competencies This section outlines the lessons learnt from business planning and strategic analysis. The lessons also contribute to the competencies demonstrated in the business planning process that will be indicated below. Business plan writing is a very much needed skill in the today’s business world. Lenders, investors, and other organisations take business plans seriously. It is through a business plan that businesses communicate their idea. Interested parties cannot merely depend on the word of mouth in presenting an idea to them. They would want to see whether the market for the product exists. A business plan is not just any other document. It is used to attract investors or get financing. So the business plan must be prepared under a standard format. The business plan should have nine key sections. These include the executive summary, business description, industry analysis, market analysis, marketing plan, operations plan, management plan, financial projections, and appendices. The executive summary is supposed to present an overall picture of the business idea in a single page. Lenders and investors skim through the executive summary to see whether the idea presents makes any sense to them. Therefore, it must be prepared in a concisely and clearly. The industry analysis helps the business to identify with potential business risks as well as problem areas and therefore can mull over appropriate mitigation measures. It also helps to identify the business trends and capital requirements. Methods such as the porter’s five-force model, SWOT and PESTLE analysis come in handy. Attention also needs to be on the competitor’s. This is crucial for enabling proper strategic planning. It also informs of the marketing strategies to be employed so as to grow the market share and revenues. The business plan should describe the market into which the products or services will be sold. The marketing plan outlines the marketing strategies that link up to the other aspects of the business plan. The operations plan describes the way things will get done. It contains the day-to-day operational activities of the business. It links up to the management plan that outlines the owners and key management personnel and their roles in the organisation. Finally, the financial plan indicates the financial data, including incomes, cash flow, and balance sheet. The data is used to make future projections based on a number of assumptions regarding future market trends, along with other influencing factors. The appendix provides detailed additional information such as graphs, supporting reports, pictures, and other information. Through the analysis, the ability to critically analyse a business plan is demonstrated. Critical analysis and strategic thinking are fundamental in business plan analysis. A company has got to critically evaluate the success of an idea should it go to the market. The company must as well be able to strategize on how to penetrate the market. This involves looking at whether the business plan shows that the business demonstrates a general understanding of the market and a keen consideration of the industry trends and competition. Also learnt from the analysis is the business ability to identify the financial and operational analysis for each one business plan. Ideally, an investor puts their money where they expect a return on the invested capital. Therefore, financial matters are so important for every one business plan. Investors are so much concerned on the cash flow from the business and how this will translate into payment of dividends or growth of the business such that they can sell off their shareholding at a higher price. Lenders need to understand whether their loans will be paid back. That’s why financial analyses on the net present value, return on investment and payback period matter in a business plan. Operational expenses also need to be checked so that they do not eat into the revenues too much. References AdGrove.com (2003). AdGrove.com Business Plan. Retrieved August 10, 2015 from: Business Plans.org: http://businessplans.org/AdGrove/adgro00.html. Barringer, B.R. (2008). Preparing Effective Business Plans: An Entrepreneurial Approach. Prentice Hall. Helmrich, B. (2015). Writing a Business Plan? 13 Challenges to Overcome. Business News Daily. Crown, C. (2009). The Challenges of Growing a Business and How to Meet Them. GOV.UK/ Business. Mckeever, M.P, (2001). How to Write a Business Plan, Nolo. Rhee, M. and Mehra, S. (2006). Aligning Operation, Marketing and Competitive Strategies to Enhance Performance, International Journal of Management Science, 34. Sahlman, W.A (2008). How to Write a Great Business Plan. Harvard Business Press Book. Zif Medical Services (2000). Zif Medical Services Business Plan. Retrieved August 10, 2015 from: Business Plans.org: http://businessplans.org/Zif/Zif00.html. Read More