ENTREPRENEURSHIP

CHAPTER 1: PLANNING THE ENTERPRISE

1.1 WHAT IS A BUSINESS PLAN FOR?

Entrepreneurs who plan to enter any business endeavor must have a business plan on
hand to guide them throughout the process. Different business plans are prepared for different
purposes. There are business plans written prior setting up an enterprise, which are similar to a
prefeasibility study and a feasibility study. Many new enterprises need to convince prospective
business investors about the soundness and potential of their business. They need to convey
the capabilities and competencies of their owners and managers. They must be able to “sell”
the proponent and the business proposition to this audience. These are situations when a good
business plan is needed.
There are business plans that are written during the first few years of the enterprise in
order to guide the entrepreneur on which strategies would be most beneficial for the
enterprise to take. And there are business plans that are focused on bringing the enterprise to
a higher level of growth, a period where the enterprise has already reached its peak and
would want to enter into another endeavor by recreating and re-establishing itself.
Clearly, a business plan serves many masters. First, it serves the entrepreneur who must
set a navigational course. Second, it serves investors and cautious financiers. And third, it
serves the managers and staff of the organization so that they will know the strategies and
programs of the enterprise.

The business plan must have a specific audience in mind and what important questions
do this audience want to be answered. In order to aid the entrepreneur in getting his or her
business plan organized, the following format may be a good start:

I. Introduction
A. The Business Concept and the Business Model
B. The Business Goals: Vision, Mission, Objectives, and Performance Targets
C. The Business Offering and Justification
II. Executive Summary
III. The Business Proponents: Organizers with their Capabilities and Contributions.
IV. The Target Customers and the Main Value Proposition to the Customer.
V. The Market, Market Justification based on the Industry Dynamics and the Macro
Environmental Factors Affecting the Opportunities and Threats in the Market, the Size,
Potential and Realistic Share of the Market.
VI. The Product and Service Offerings.
VII. The Enterprise Strategy and Enterprise Delivery Systems: Business Competitiveness.
VIII. The Financial Forecasts and Expected Returns, Risks, and Contingencies.
IX. Environmental and Regulatory Compliance.
X. The Capital Structure and Financial Offering: Returns and Benefits to Investors, Financiers,
and Business Partners,

For each of the above items in the business plan, it would be good to have an idea of what
they should contain.
1.2 CONTENTS OF THE BUSINESS PLAN
The Business Concept and the Business Model

A business concept contains the essence of the enterprise in a concise but powerful
manner. It stresses the value of the product offering to the target customers who would most
likely buy it.
The product concept must then be translated into a business model. A business model is a
formula on how the enterprise exactly plans to make money out of the business. There are four
areas of moneymaking which the business model must address:
1. How will the business raise revenues? What critical factors will cause the revenues to
materialize?
2. What will he the costs of the enterprise products and other costs of doing business? How
will these costs be managed to ensure comfortable profits? What critical factors will
drive the costs? How can these factors be controlled?
3. What will be the major investments of the enterprise? Why will these investments give
the enterprise a competitive edge?
4. How will the enterprise finance the investments? How will the enterprise fund its growth?

The Business Goals: Vision, Mission, Objectives, and Performance Targets

The business goals show the future and long-term prospects of the enterprise. It is
composed of the vision, mission, objectives, key result areas, and performance indicators of
the enterprise.

To illustrate, let us examine the vision of Double Happiness. Double Happiness is an eatery
in a bus terminal. It has three outlets located at bus terminals in Central Luzon.

Case Example 1: Double Happiness

The vision of Double Happiness is "to establish a commanding presence and market
leadership as a food chain servicing major bus terminals in Central Luzon within the next five
years.
The Business Goals are communicated by articulating the basic purpose of setting up the
enterprise in a mission statement. Needless to say, all business enterprises are established for
the purpose of making money for its investors.
For Double Happiness, its mission statement is "to provide quality food and passenger
convenience services that would generate sufficient profits for the stockholders and improve
the lives of its employees.
The vision and the mission statements must then be translated into measurable end
results, more popularly called objectives.
 Objectives must be more specific than the vision and mission statements. They should be
measurable, achievable, and time-bound.

For Double Happiness, their stated objectives are:

1. to establish a strong market presence in Central Luzon;
2. to earn good financial returns for its owners
3. to delight customers with high quality food and services; and
4. to make Double Happiness a happy and rewarding place to work in.

The objectives should then be translated into key result areas or KRAs. KRAs are the
qualitative manifestations that the objectives are being achieved.
In the case of Double Happiness, the key result areas for each of the objectives are as
follows:

Objectives Key Results Areas

1. To establish a strong market presence in 1a. Number of food outlets in major bus
Central Luzon. terminals in Central Luzon.
1b. Sales volume attained.
1c. Market share in Central Luzon

2. To earn good financial returns for its 2a. Amount of net profits realized for the next
owners. five years.
2b. Return on equity (ROE)
2c. Return on assets (ROA) or return on
investment (ROI)
2d. Return on sales (ROS)

3. To delight customers with high quality 3a. Growth in sales per outlet
food and services. 3b. Percentage of repeat customers
3c. Number of customer commendations or
complaints
3d. Awards and recognition given by the
community or the government for excellent
service
3e. Customer survey rating to ascertain
customers degree of delight.

4. To make Double Happiness a happy and 4a. Compensation and benefits of managers
rewarding place to work in. and workers are above industry rates.
4b. Management and employee turnover.
4c. Number of job applicants compared to
other similar establishments.

In turn, the key result areas must be rendered into quantified performance
measurements, otherwise called performance indicators. These performance indicators or PIs
serve as the aspirational scorecard or the enterprise managers and the motivational results of
the investors. However, the F1S must actually be credible to the business audience in mind.
 In the case of Double Happiness, the performance indicators for each of the key result
areas are as follows:

Key Result Areas Performance Indicators

2014 2015 2020

(Now) (one year (five years
later) later)

1a. Number of food outlets in major bus 3 5 20

terminals in Central Luzon.
1b. Sales volume attained. P 7 million P 13 million P 60 million
1c. Market share in Central Luzon. 2% 3% 12%

2a. Amount of net profits realized for the next P 1million P 2 million P 10 million
five years.
2b. Return on equity (ROE) 30% 40% 60%
2c. Return on assets (ROA) or return on 15% 20% 30%
investments (ROI)
2d. Return on sales (ROS) 14% 15% 16%

3a. Growth in sales per outlet. 20% 20% 20%

3b. Percentage of repeat customers. 30% 40% 50%

3c. Number of customer commendations; 4 out of 20 6 out of 20 10 out of 20

number of customer complaints. 1 out of 20 1 out of 50 1 out of 100

3d. Awards and recognition given by the None One by Two by

community or the government for excellent Bulacan Central Luzon
service. Chamber Provinces.

3e. Customer survey rating to ascertain 3.5 4 4.5

customers’ degree of delight. (on scale of 1 (on a scale (on a scale
to 5) of 1 to 5) of 1 to 5)

4a. Compensation and benefits of managers Same as 5% above 15% above

and workers are above industry rates. Industry Industry Industry

4b. Managements and employee turnover. 3 out of 10 2 out of 10 1 out of 10

per year per year per year
4c. Number of job applicants compared to 10% more job 20% more job 30% more job
other similar establishments. applicants applicants applicants

The Executive Summary

The executive summary contains everything that is relevant and important to the business
audience. It is a synthesis of the entire plan. It must contain the major argumentations of the
business proponent on why the business will work and succeed. It should provide the business
plan audience all the arguments on why they should participate in the business venture.

The executive summary should then introduce and highlight the good qualities of:
1. The business proponents and their partners;
2. The enterprise organization and its capabilities;
3. The technology providers and their expertise and experience; and
4. The suppliers and all the major service providers.
 It should likewise describe the products/services of the enterprise, their features and
attributes, and why they are the right ones to deliver to the customers.

The Executive Summary should then proceed to discuss and justify the Enterprise Strategy
and Enterprise Delivery System. The Enterprise Strategy builds and develops the game plan for
attaining competitiveness. The Enterprise Delivery System is the entire process of converting
input (resources) into output and these output into outcomes.
It should then render all the major institutional, market, operations, and organizational
strategies previously cited into financial strategies and forecasts.
Investment requirements should be presented along with the summaries of the projected
income statements, balance sheets, cash flows, and funds flow, and their analyses and
conclusions. Yields and returns, along with risks and contingency measures, should round up
this section.

The Executive Summary should also contain a section on the environmental and
regulatory compliance of the proposed business, as well as the more proactive programs to
become a more responsible corporate citizen.
Finally, the Executive Summary should present the capital structure of the proposed
business and show how this structure will respond to the investment programs and financial
forecasts of the enterprise.
However, the Executive Summary can only be written last in order to capture the findings
and insights of the other parts, but for presentation purposes, it is placed in the first part of the
business plan.

The Business Proponents

The third section of the business plan contains information about the business proponents
or stakeholders. There are four types of stakeholders:
1. Resource mobilizers and financial backers
2. Technology providers and applicators
3. Governance and top management
4. Operating and support team

If the business plan readers are the resource providers, then they will want to know who
else are on board to share the burden of raising money to see the whole thing through.

If the business plan readers are the technology providers, they will want to know if there
will be sufficient funds to pay for the technology.
If the business plan readers are the governance and top management team, then they
will want to know what strategies and performance indicators are being proposed.
If the business plan readers are the implementing, operating, and support teams, they
will want to know what programs, activities, tasks, and resources would be in place.

The Target Customers and the Main Value Proposition

The fourth section of the business plan is the Target Customers and the Main Value
Proposition.

The business proponent must be very precise about the target audience or target
customers. Target Customers must be of sufficient size, sufficient paying capacity, and have
sufficient interest to purchase the products being offered by the enterprise. The Main Value
Proposition is the unique selling proposition of the enterprise.

Knowing where the target customers are exactly concentrated, the business plan should
then pinpoint what the customers buy, how they buy, when they buy, where they buy, and
what convinces them to buy. This information should then be used to justify the exact locations
and marketing channels to be employed by the enterprise.

Market Demand and Supply, Industry Dynamics, and Macro Environmental Factors
The fifth section of the business plan is the market demand and supply, the industry
dynamics, and the macro environmental forces affecting the business of the enterprise.

It is normal for enterprises to actually expand their product offerings to include the other
segments of a bigger market. The business proponent should examine all the opportunities in
this bigger market in order to determine what exactly influences this bigger market.
The business plan should estimate the total market supply and demand for the product
offerings of the enterprise. The business plan should then determine the major critical factors
that influence this market demand and supply.
Once these critical factors or variables are determined, the business plan should then
forecast the future demand and supply. If these physical factors are expected to remain the
same, then most likely, the future forecast will follow the past trends. If not, the future estimate
of demand and supply should be revised according to the new variables influencing the
demand and supply.
The market analysis and forecasting exercise should lead to a quantification of the current
and prospective size of the market. Both the current and potential consumptions should then
be dissected.

The business plan should discuss the relevant industry dynamics:

 Who are the competing enterprises in the industry and what are their comparative
advantages and disadvantages? What business models and strategies are they
employing?
 Who are the suppliers in the industry and what are their capabilities and bargaining
power?
 What are the channels of distribution being used by the industry? How effective are
these channels?

Both the industry players and the market are affected by the macro environment, which
includes the social, political, economic, ecological, and technological (SPEET)forces. The
business plan should discuss the major trends and changing patterns in the macro-
environment, which would have significant impacts on the relevant industry and the behavior
of consumers.
 Social environment includes the demographics and cultural dimensions that govern the
relevant entrepreneurial behavior. The structure, social status, and dynamics of the
population at large, as well as the people's beliefs, tastes, mores, customs, and traditions
dictate the major parameters of market behavior.
 Political environment defines the governance system of the country or the local area of
business. It includes all the laws, rules, and regulations on allowable and disallowable
business practices.
  Economic environment is mainly driven by supply and demand forces. It is the same
factor that drives the interest and foreign exchange rates to fluctuate with the
movement of the market forces.
 Ecological environment includes all natural resources and the ecosystem that defines
the habitat of man, animals, plants, and minerals.
 Technological environment makes or breaks competing participants in any industry.
New scientific and technological discoveries often lead to the launch and
commercialization of new products with superior attributes or to rendering the old ones
obsolete.

Product/Service Offering: Description, Evolution, and Justification

The sixth section of the business plan is the product/service offerings that should contain
a description, evolution, and justification of the product/service offerings.
The products/services must be described by highlighting the features and attributes that
would most appeal to the target customers. The business plan should also prove that the
products/services would be accepted and carried by the distribution channels.

Enterprise Strategy and Enterprise Delivery System

The business plan should expound on the Enterprise Strategy (ES) by mapping the
competitive landscape and by situating the enterprise and its competitors as to their strategies
and chosen positionings.

The business plan should then show how the Enterprise Delivery System (EDS) would
enable the business to implement the Enterprise Strategy.
The Enterprise Delivery System starts from the Input (resources mobilized), proceeds to the
Throughput (the transformation process where input are converted to output), and produces
the Output (the products/services). The Output are then marketed to the customers (in the
case of goods) or experienced by the customers (in the case of services). Customer
satisfaction level, profits generated, and the performance of people from the transaction are
the Outcomes of the EDS.

Table 1.1 Enterprise Delivery System

Input Throughput Output Marketing Desired
Outcomes
 Harnessing of  Conversion of  Goods  Positioning  Customer
human, money input into output produced or  Product satisfied
and physical and the services  Packaging  Sales volume
resources. transformation delivered.  Place attained.
process within  People  Profits
 Resources the factory or  Promotion generated
mobilized service shop.  Price  People
performance
- Money
- Men
- Machines
- Materials
- Methods
- Management
 The EDS involves the harnessing of human, money, and physical resources from well-
selected sources.

These resources become the input (money, men, machines, materials, methods, and
management) which the Operations unit within the EDS (1.e., the manufacturing or service
delivery personnel) will convert or transform into output.
The output will then be delivered to the customers through the Marketing unit of the EDS.
The products/services of the enterprise are positioned to meet the requirements of the
selected market segment by choosing the right packaging, pricing, promotions, people for
selling and distribution, and places or locations where the targeted customers can best be
found.

The Operations and Marketing units are supported by the Finance, Administration, and
Human Resource Management units, which oversee the flow of money, the procurement and
maintenance of machinery and materials, and ensure the proper deployment and
development of people.
The EDS serves as the enabler of the Enterprise Strategy. The business plan must
demonstrate how the EDS and the Es tandem lead to the attainment of the desired enterprise
outcomes.

These business outcomes should reasonably include:

 High customer satisfaction levels;
 High sales volume, market share, and market reach;
 High financial returns; and
 High people performance, productivity, and morale levels.

Financial Forecasts: Expected Returns, Risks, and Contingencies

The eighth section of the business plan is the financial forecast including the financial
returns, the financial risks, and the financial contingencies.
The business plan must translate everything that we have discussed so far into financial
forecasts and outcomes.

From the financial forecasts, the business plan should then calculate the expected returns
from the business. The important return calculations are the following: (1expected return on
sales; (2) expected return on assets or investments; and (3) expected return on stockholders'
equity.
The business plan should also calculate the long-term returns, using the time value of
money. This means estimating the internal rate of return and the expected net present value.
The business plan should then evaluate both the business risks and the financial risks
involved.

Environmental and Regulatory Compliance

The ninth part of the business plan is composed of the environmental and regulatory-
compliance.

The business plan must articulate the laws, rules, and regulations governing the business,
and the industry that the enterprise is in. It should ascertain that all the necessary permits,
licenses, and authority to use proprietary intellectual capital had either been secured or would
definitely be secured.
 The business plan should also assure the reader that all the necessary local government
ordinances and barangay ethics would be followed by the enterprise.

Capital Structure and Financial Offering: Returns and Benefits to Investors, Financiers, and
Partners
The tenth section of the business plan contains the capital structure and financial
offerings of the enterprise including some discussions on who are the investors, the financiers,
and the partners of the enterprise.
Finally, the business plan must appeal to its target audience. It must highlight for them the
main features of the business plan that they are looking for.

Challenge Yourself

Challenge 1: How does your Business Plan look like?

Prepare an initial outline of how you want your own business plan to look like. This assumes
that you already have a business endeavor that you would want to enter into. Feel free to
add contents to your initial outline.
You may have to answer the following questions in paragraph form:
 What will be the contents of each section?
 How extensive will each section be?
 Which audience will you prioritize in terms of customizing the contents of your
business plan?

Challenge 2: Create/make the following:

 Business Plan (only the following parts: (A) Introduction (The Business Concept and the
Business Model; The Business Goals: Vision, Mission, Objectives, and Performance
Targets; and The Business Offering and Justification) (B) Executive Summary; (C) The
Business Proponents: Organizers with their Capabilities and Contributions; (D) The Target
Customers and the Main Value Proposition to the Customer; and (E) The Market, Market
Justification based on the Industry Dynamics and the Macro Environmental Factors
Affecting the Opportunities and Threats in the Market, the Size, Potential and Realistic
Share of the Market.

 The Business Goals: Vision, Mission, Objectives, and Performance Target of your business