Preparing Effective Business Plans: An Entrepreneurial Approach

Preparing Effective Business Plans An Entrepreneurial

Ąpproach

Uhr:l l)' ~Ir C~'" g.n·»_~ C:.lld~,gin 1!. ill.l'lIhlk:lli~lu Ih l:. Ba rrinf'c r. Brllcc R. Pl' ~' raring dke li v<.: hu" il1,"-"" plans: :ln ,,: ntre rr..' nc urial a pp ro'ł c h l Brucc R. Barringl'r. p, cm. I ndud ..::~ inJcx . ISBN O- 1 3-2) 1I'~ :12-6 l. Bus in..::ss pla nn ing. 2. Enl rc pre ne urs hip. J . New bus iness c nl e rpriscs PI'lllning. 4. 5 111 <1 11 hu ,in e~,- PI .. llning. I . li lk. H D 3(). ~. B 3ńX37

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I S BN-13' 97 A-O-13-231B32-7 I S BN-lO' 0-13-231B32-b

Ded icatio n To my wife Jan.m y best fri e nd

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PREFACE

THE SURGE IN INTEREST IN ENTREPRENEURSHIP ON COLLEGE CAMPUSES AND BEVOND lllc re IS trcmcndous in te resl in e ntrep rene urshi p on coll ege ca mpuses and aroulld the wo rld . In acaclemi <1 , same 2.1 00 co Ueges a nd uni ve,rsitie s now o He r cO lll'scwo rk In enll'cprcncurshi p. up fro m juS! 380 in 1990. A s a resul! or these progrmn5. a bo ul 400.000 L1llclergr acluat e and g radua le slu cle nts took a t IC
c nlre prc ncurshi p ca urse in 2005. The Il umbe rs fo r 2006 a nd 2007 are tho ughl to be cvcn higher. O rd in a ry c iti zens a re e qllil lly int e reste d in start in g e ntre prc ne uri
Accorclin g to a reeen t slu cly compl et ed by Ya hoo! and Ha rris In lc racti ve. three in fo ur A meric" ll nclult s (72%) Iw ve cons iclcred SI Clrtin g l hei r ow n business.

THE IMPORTANCE OF BUSINESS PLANS A n importa llt 10011hal hcl ps peopl e who int c ncl to sten I (I new b us in ess is n bus iness p hI n. A bus iness plan is a writt e n d OC llllle nt t ha t ca refll II y ex pl a il1 s every a spcc t o f a new ve nt ure. A lthough ma ny e ntre pre ne llrs (I nd s ma li bus in ess people do no t w rit e Cl b usiness pl[ln be fo re they start th e il' bus in ess. it's hig hly recolll mc nded . Fo r mos t blls inesses. (l business plnn se n 'es Iwo fun Clio ns. In sid e Ih e firm . Ih e plnl1 he lps a comp[lIl y d eve lo p a " blueprin l" to fo ll ow in executing its sll'ntegies " !l d plan. O ul s ide Ih e firm . it introd uces pOle llti a l in veslo rs and o th e r st
OBJECTlVES OF THE BOOK lllC o bj ect ivcs o l' this boo k are twofo ld ,1l1C fir sl obj ecti ve is lo help s lud e nl s and o th e rs le m'lI how to wril e ., bus in ess pl a n . 111is book provicles s t e p ~ b y-s t e p in sI ruct io tls fo r wrilin g a pl (l n. Sccolld . t he boo k illlllle rses its re adc r i n t he pl'OCCSS o l' Ihinking Ih l'Oll gh Ih e issues Ih al a rc im port a nt in slClrting a bus iness. 1l1is obj ec li ve m il y be Ihe most co m pe lling ilcl "il nl ilge o f the book. A fuli busin ess pla n is wl' ill c n. clwptc l'-by-c h(l pt c r. as
xiii •

• xiv Preface

ORGANIIATION OF THE BOOK 11le boo k is o rg'lIli zed inl o fo ur distin ct pilrt S: " ar! l

2 3

4

Topie

SI:t rling Ihe Process \Vhal lo Do Before Ihe Busi ness Plan is Writl cn Prepuring:1 Business PI:t 1l Presc tll ing Ihe Business Pl an

ClllIplers inlhe !Jook

2-3

4- 10 II

OISTINGUISHING FEATURES A numbe r of distin gu ishing feal ures sel th is bCK:l k apn rt from o lhe r busin ess p lll n books thal a re
Focus

ON THE ENTlRE uFRONT END " OF THE

ENTREPRENEURIAL PROCESS

A lll lOugh Ih e prim a r)' purpose o f lh e book is lO describc how lO wrile a busin ess p lan. Ih e e ntire "fro nt e nd " o f Ih e e nlre pre neuria l process is d iscussed
Two wo rk sheets are illcluded to he lp slu de nt s and o the rs work thro ugh Ih e fe asibilil y ana lysis proccss. 111e first wo rk she el is call c-d the " Firsl Sc re e n," a nd he lps de lc rmi ne th e pre li mimlry fensibilil y o f n bu siness idea .111e second wo rk shee t is a fuli feasibi lil y lI nalysis and is Illuch tllo re co mpre he nsive. Combin ed , th e wo rk sheets represe nt a seq ue ntilll way fo r studenls to d ele rmin e the ·'fea sibi lit y'· of thei r busin ess ideas befo re Ih ey e nt e r the busin ess pla nning process. SAMPLE BUSINESS PLAN

A busin ess pla n. for a t:ictili o us compally nmned Prim e Adu lt Fitn ess. is built through Ih e co urse of th e book. Eve ry aspecI of th e p lan is described lInd discussed. 111 is p lCll1 wi ll give stude nt s
Preface

xv .

PRESENTING A BUSINESS PLAN

1l1e (in
Each o f th e first te n c1wpte rs in c1 udes a boxed fe
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ABOUT THE AUTHOR Brun:- R.

B<łrringcr

is a n associat e professor in the Depa rlme nt o f Mml
at Ih e U ni ve rsit y or CcntrCl l Flori da. He obtninec! hi s Pb. D. fro m 1he Uni versit y or Mi sso uri
Bruce's wo rk has bee ll pub lished in SI({/fcgic Mm/llgemem JOlIl'llal. Jouma! oj M Ol/ageme/lf. )ounwl ol BlIsilles:-. Vel/furiI/g, } o llmol oJ Sil/fili Business Mal/ageII/t'llf. Jourl/a! oj D elie/opli/cI/w! Elllrepr('lIeflrs"ip.
Nelv \ /CIIIIII"CS.

Hi s o lll s ide inl e resls include rtlllllill g. bikillg. (I nd rCCldin g .

• xvii .

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PART ISTARTING THE PROCESS

( H A

E R

WHY PLAN?

INTROOUCTlON O n coll ege cmnpuses
.1.

• 2

PA RT I

Startin g the Process

to the ve ntu re. but beca use th e id ea was n't a good o ne to bein g with .This process se l.s fo rth a spec ilic p
REASONS FOR WRITING A BUSINESS PLAN TIle re m e Iwo prim ory re
Two Primary Reasons for Writing a Business Plan Int ernal Iłcaso n

Forces Ihe fo unding te
Extcn ml lłc lIso n Commun icales the meli ls of a new venture lo ouls iders. such as investors and bankers

CHA PTER 1

Why Pl an?

giWC to Ladi es W ho Laull ch (hll p://www.1 ad ieswho lmll1ch.com). hig hlighI s !he accomplishm clll s o r fc tlw le entrep rcncurs:

il

3 .

We b sile Ih at

GH'CII: Lindsey a nd J wc n t to coll ege a nd studi e d textil es a t Corn ell togelhc r and il lwil yS W
Th c pa yo ff fo r Ihis Icvc l o f d cdica tio n <'I nd ha rd wo rk . w hi eh invo lved Ih e pre p
TABlE 1-1

Business Plan Format for New Venture Fitness Equipment Inc.

Tub/t, "f e (lI/rems I. II. II I. IV V. V I. V I I. V III.

IX.

Executi ve Su mmary Compan y OcsCriptiOl1 Induslry A nnlysis Mark et Annlysis Mark eting Plan Mana gc ment Team nnd Compan y Slrllcturc Operations Plan Prodllct (or Sc n ' ice) Ocsign nnd Oc\'c lo pm cnl Plan Filwncial Projec lio ns A ppendices Summary of Feas ibility A nalysis. In cludi ng C ustomer Reaction lo Ih e Prod uct or Service Support ing Induslry Reseal"Ch Reslll11es of Manageme nl Te
3 6 10 14

loS

22

25 30

• 4

PART I Starting the Process

New Venture Fitness Equipme nl pla ns lo se ll a new ge neratioll o f filn ess machines th al will take Ihe boredo m o ul of exercising indoors by eq ui pp ing its machin es (trea dmi Hs. stalionary bikes. a nd rowing machines) with tl al-pa ne l mo nito rs that will allow exe rcise rs to com pe le aga inst vil1Ufll oppOnenl s. in a 50 rt of video-ga me fo rma !. o n a variety o f simul ated outdoor courses. Spe nd a few minutes looki ng at each of Ih e topics included in Table l- l. and the n imagin e the founde rs of New Venture Fitn ess Equipm e nt ta lkin g Ihrough ea ch of these lop ics. Imagine Ihe debal e th at will inevit"bly e nsue as the fo unde rs grapple with lo ugh issues. suc h as projecting Ihe size o f the i)" in d us lry. specifying Ih e i.. ta rget market. pricin g the ir prod uets. a nd dete rmining how ma ny machines Ih ey will ha ve lo se lJ to break even in eaeh of Iheir firsl Ihree yea rs. This process fo rces a team lo not on ly work logethe r. bul to tum abslracl idea s like ··th ese machines are so greal they shou ld selllike hotcakes" in lo concrete rea lities li ke "we"llneed to se 1l 9.850 machin es e-ach yea r duri ng a ur first three yea rs lo brea k even:' The benefit o f Ihis type o f inte nse a nalysis before a busin ess is started provides a compelling rationa le for wrilin g a business pla n,8 1l1 is se ntime nl is affinn ed by G uy Kawa.s..1ki. a we ll -known Silicon Va lley e nlreprell e ur a nd ve nture ca pit a lisI. who wrol e: A li the la te-nigh!. back -o '- Ihe ell ve lope. ro mcltltic int e ntions lo c hclllge Ih e wo rlel become tangible a nd de bat able o nce they' re put o n paper. ll1US. Ih e docum en l itself is no t nea rl y as importani " S Ih e p rocess thal leads lo th e docume nl. E ve n if yo u aren 'l Iryin g lo raise money. you shou ld writ e o ne (a business plan ) a nywa y,9 1l1e second reason a busin ess plan is imp0l1 a nt is beeause it is a selli ng docume nl fo r a com pa ny. It provides a mechan islll fo r " youn g com pany lo prese nt it~df tu put ~ nl i u l in v ~~ l o rs. s u p plier ~. k ~y jo b l:' lJ1did a t l;;~ . cmll u lhe rs, In f"II.:1. lh ~ numbe r of o rga ni zati ons asking fi nns fo r copies of Iheir busin ess plalls is growing. Fo r examp te. mosl un ivers il y- a nd com m unit y-sponso red busin ess incubators. whi ch are grow ing in Ilumbe r. require a busin ess 1'].:111 from Ihe ir app lica nt s. A bu si ness incubator is an orga ni zalio n thal provides phys ica l ~ pace cmd ot he r reSOUl·ces lo new finn s in hopes o f promo ting e.cono mi e developme nt in a specific a rea . 10 A n exmnple of how inc ubators use busin ess pl ans to scree n applica nt s is pro vided by Ma ry Mosla nder. th e fou nd e r of Live Hea lthi e r.col11 . a subsc ripl io nbased fitn ess orie nled Web sit e for wom en : I att e nd ed a confere nce fo r wome n in business. wh ich was sponso red by Ih e local cha mber o f comme rce. whe re Ilea rn ed abou l th e Ma ryla nd Techno logy Deve lop ment Cen ter. which is a ph ysica l "' incubator "' fo r bi otec h a nd IT sta rlU ps. I had to wril e" business pl a n wilh fin a nei,,1 proj ectio ns a nd presenl it lo
CHAPTER 1

Why Pl an?

5.

esse ntial resou rces al my di spos
• 6 PART I Starting the Process positi ve recognition can be ve l)' helpful for a young firm and ca n eve n lead to funding. lllis sce nari o played oul fo r Jim Poss.. Ihe fou nde r o f Sea ho rse Power (hltp ://www.seahorsepowel.com ). a company th al makes in nova li ve solar-powe r I rash conlain ers. Pass sa id Ih al winning a bus iness plan co mpet iti on while he was an MBA student al Babson College helped alt ract the atte nlion o r an ange l inveslor. who ultimalely fund ed his firm . 1-ł Even if a student ar group of studenl s places high in a busin ess plan com pet iti o n and u lti matel y decides to no t stm1 the busin ess. the connections and hands-on experie nces ga ined through pm1 icipating in the competition ca n lead to positi ve outcom es. For exa mple. two Uni versity of Pennsylva nia stude nt s. Dha va l Cio salia and Jo n
WHO REAoS THE BUSINESS PLAN AND WHAT ARE THEV LOOKING FOR?

1l1e re me Iwo primar)' a udiences for a finn 's business plan . Let"s look a l each of the m. A FIRM ' S E MPlOVEES

A c\ea rl y writl en business plan. whi ch articulat es Ih e visio n and fu tu re pl
CHAPTER 1

Why Pl an?

7.

geogl'
Ex tern n] stakeho lders. such as in vc slo rs. pOlenlial busin ess pa rtn ers. pa tenlinl cuslo me rs. pri vnte nnd governm c nl -fun ded gnlll! Clwardin g a ge nc-ies. and key e mployees who a re be in g recruit ed to jo in fi fi rm . a re Ih e seco nd a udi e nce fo r il business pl a n.To a ppc a l lo Ihis gl"OUp. Ih e busincss pl <1 n Illus l be I"c nli sti c a nd 11 0 1 re fl ecl ove rco tlfide nce o n th e firm 's p
• 8

PART I S ta rtin g th e Pro c ess

GUIOELlNES FOR WRITING A BUSINESS PLAN

Seve ral impo rt
To ma ke th e best im p ressio n .
CHAPTER 1

Why Plan ?

9 .

someone to write th e pla n de nies the e nlrepre neur O l' temn ot e ntre pre ne urs the positi ve be nefjts of the wriling experie nce. as expl ained e mlie r in the chapte r. Th e appeanmce o r fh e pla n musI be carefull y th o ught o uL It shou ld look sha rp but no t give th e impressio n rłw t a lot o r money was spe nt to prod uce iL I9 TIlOse who re nd pla ns kn ow Iha l e ntre pre ne urs have limited reso urces an d expecl łhem to ael
• 10

PART I

Starti ng th e Process

. - - - - - - --\1"1'1

BU SINE SS PLAN IN SIGHT

11,11' ---------,

De"elop au Elevalor S.,eech A ve ry useflll exercise fo r a new firm is lo de ve lo p an e leva lOr speec h. An e le va lo r speec h (or pitc h) is a brief. ca refu Ily cOllstnlcted s lale me nt t hal ou t lines the me rits o f a bu siness oppo rlunit y, Wh y is it called an elevato r speech ? If an e ntre pre ne ur stepped into an e leva tor o n th e 25 1h fioor of a blli ld ing and found that by a stroke of lu ck a potcnlial in"estor was in !he sa me e leva lo r. the entre prenellr wOll ld have th e time it lakes to get from th e 25th floor lo the ground f100r to Iry 10 get th e inves lo r inl e rested in Ihe business o PP0l1llllit y. Most e]e"ato r speeches a re 45 seconds to 2 minllt es long. A n elevator speech might come in hand y o n man y occasio ns. For ex mnpl e, man y llnivers it y-spollsored ccnt e rs fo r e ntre pre ne urship hold evenls th ':H bring in vestors a nd entrepre ne urs logethe r. Ofl en these eve nt s include brea ks designed specifica lly for th e purpose of allowing e nt re pre ne urs looking for fundin g to Illingle with pot e ntial inveslo rs. llle ot he r lhing an eleva lor speech
St ep I: Describe Ihe opporluni ly or prob le m Ihal needs lo be solved.

20seCO llds

St el} 2: Describe how you r producI Ol" se rvice mee ls the opporlunit y or solves Ihe problem.

20 seconds

St el} J: Descri be you r qualificaliolls.

\O seconds

St el} 4: Describe you r market.

\O seco nds

Total:

60 seco nds

CONTENT OF TH E BUSINESS PLAN

Mosl business pla n are divid ed Lnl o sectio ns tha t rep rese nt th e major aspects o f a new venture's business. as depicted in th e business plan outline shown earlier in Tab le I-J . llle tit les of th e sections will vary from p lan to plan. altllOugh most plans fo liowa fair ly stn nd ard format. Wha t va ri es. of course, h·om plnn to p lan. is th e qualily o f the writing. th e su bsta nce o f Ihe pla n. nnd th e degree lo whi c.h th e plan c.on vin c.es the reade r Ih al the busin ess oppo rtuni ly is exc iting, feasible, d efe nsible. nnd within th e cnpa bi li ties o f Ih e peop le Inunc h ing Ih e fi rm, W riting a plan th at inc.ludes aU o f Ihese e lements is not a n easy tas k, bul ił is a n ry use ful o ne. as illus trated th rougho uI this book. lll e essence o f wh<11 sho uld be in cl ud ed in e<1ch sec ti o n o f a busin ess p lan is described in Clw pte r 4 Ihro ugh C hapter 10 o f Ihis book. A ft e r Ihe pla n is COIl1 pl eled. it sho uld be reviewed for spe lling anel gram mar a nd to ll1 ake sure tha t no crit ienl in forma ti o ll has bec ll o mil Icd.lll c re M e nLllll ero us sto ri es abOLI I bu sin ess plans being se nt to in vesto rs Ih al le ft Ollt impo rt a nt info nnati on, O ne in vestor eve n snid Ih a l he o nce rece ived ił business pla n Ihal d id n't in clude cm y co nl ac l

CHAPTER 1 TABLE 1·2 Rui

W hy Pl an?

11 .

Red Flags in Business Plans E.\plww(iOIl

FI(/~

Founders w ith tlone

ar

thei r own ma ney al ris k A poor!y ci led plan

If Ihe fou nde rs
A plan should be buil! o n hard evidence a nd sound resea rch. not gucsswork ar what nil e ntrepre nc ur .. thinks" will happe rl. n,c sources fo r all primary and second
Defining the marke t size 100 bro..1 dl y

Defining t he market fo r a new ve nture 100 broad ly shows Ih at the !ruc target mark e t is 1101 well defined. For exa rnple. snying Ihat a new ve nture w ill la rget the $550 billi on pe r yea l" ph arrnaceulica l indus' ry isn', he lp f111. nie market 0ppol1lmit y needs to be bell e r defin ed. Obviously, Ihe ne w ve nlure will target a segme nt or a specifie marke t wit hin Ihe indusu'y.

O ve rl}' aggress ive fimmcia ls

Many in vestors s kip direetly to Ihis portion o f th e pl a n, Proj ections Ihat are poorly reasoned o r unrealistica ll y optimistie lose e redibilit y. I n contmst, sohe r. we ll-reasonecl s tat e me nl s baeked bv souncl researeh and judgmelll gain cred ibi lit y qulck ly.

Hid ing ar avo iding weak nesses

It is foo lh a rdy for a new ven l1lre 10 try to downplay hici e its weClk nesses. A li firms have weClknesses, and o ft e n o ne of Ihe most imporlalll Ih ings an in vestor o r banke r ean do, beyond provicling mon ey, is to help a new venture s hore up the wea knesses Ihat il has. Ol'

Sloppiness in a ny a ren

II is neve r a goocl idea 10 mak e a re ade r wade Ihrough typos, ba la nce shee ls th al don', balance, o r sloppin ess in a ny Cl rea, TIl ese types of rn istCl kes are seen as in alle nlion lo de tCl il and hurt Ihe ered itabililY of the entre pre neuL

Too lo n g ar a plan

MosI expe ri e need reade rs o f business pla ns know exaetl y wha l the)'re looki ng fOL and lo make the m wClde th ro ugh 50 pages o f materia l jusI gets in the WCl)', Do n 'I illcl ucl e page after page of d escriptive illfo nnatio n Clboul a n induslry, for exa mple, Twa pages of " to th e point " informat ion and a nalys is is mu ch mo re vCl luable th an 20 pages eut and p.."1sted fro m the Inl e m e!.

in formClti o n fo r th e e ntreprene uL Appa re ntly_ th e e ntrep re ne ur was so focused on the co nle n' of Ihe p l
• 12 PART I St a rti ng the Process lo Ihe mse lves as operalin g in stculth Illode. Fo r exmn ple. during Ih e lim e Ih el t Dea n Kame r was deve lopin g fh e Se.gway. lh e se lf-ba lallcing. lwo-wh ee led hum elt1 Iransport e r. the proj ect was code- nmned ··G in ge r:· Othe r enlrepre ne urs gel as much a dviee as Ihey ca n and distribul e ea rl y dra fts o f the i)" busin ess plan s wide ly lo fri e nds. acquaint ances. and industry experts fo r feedback.111is was Ih e case with Melry Mos lande r. lhe e ntreprene ur quo ted e mlie r who founded Li ve Hea lthi er.com. Moslander worke d for the WasltillgfOlI POS! prior lo foundin g her firm. Comme nt in g o n her ex perience wriling a busin ess pla n. Moslander wrole. ·· 1 musI ha ve brought my bus in ess pl an lo 50 diffe renl peopl e .. . people h·om The POS! da ys. from th e fin el ncial secto r.lh e Web world. and th en I rea lly refin ed it :' 22 MEASURING THE BUSINESS PLAN AGAINST YOUR PERSONAL GOALS AND ASPIRATIONS

A not he r guidelin e for writin g a busin ess plCll1 is th a l as a plel n is be in g writ len. th e people in volved should conlinu all y measure the lype o f co mpan y thelt Ih ey a re ho p ing lo sta rt aga inst th e ir pe rso nal goals and aspi ra ti ons. 111is conside mtio n is impo rt ant fo r two reasons. Pirs!. th e o ld adage "be ca re ful what y O ll wish fo r" is as true in bus in ess as it is in o lhe r areas of life. For instan ce. if an e ntre prene ur identifi es an opportunity Ih at has a la rge upside po te ntial and decides lo writ e a busin ess pl
CHAPTER 1 W h y Plan ?

13 .

11le second re aso ll 1ha1 il is impo rtant for
A final guid e line for wriling a busin e ss plan. w hi ch was lo uched upo n briefl y in Ihe preceding section. is lo recognize Ih a t th e plan w ill in va ri ably ch a nge as it is be in g w rill e n . An a cade mi c princ ipl e ca ll e d Ihe t:urridur l)rindl)lc s tales Ih al o nce an e ntrepre neur s ta rls a busine ss. th e entrep re neur begi ns a journey dow n a pnth w here "corridors" \eading to new ve nture o ppo rtuniti es beco me appare nt. 1.\ 11le same principl e applie s during th e pre paring o f n bu sin ess pla n. A s an e nlreprene ur or team o f e lltre pre ne urs starts lesting the merit s o f a bus in ess idea and sta rl s wri ting the plan. new in sigllls w ill in va riably e me rge that we ren'l initi a ll y a ppare nt. 11lis process cont illUes througho ut th e life of a compn ny. a nd it behooves e ntre pre neUl"S to re main a le rt and ope n to new insight s a nd ide
11le re a re fo ur di stinct types o f bus in ess. tl S showl1 in Ta ble 1-3. A li of the se Iypes of busin esse s are acce pt a bl e ~ the re is no va lue judglllc nt he re. ll1is boo k. however. foc uses pri m ari ly o n li fes tyle finn s. Ill (l lw ged g rowth finn s. (I nd a ggrcssi vc g rowt h firm s. Not a ll b us in esse s g row rapid ly a nd make to ns o f mo ne y but ma y still provide th e ir owne rs sCl lisfying li ves a nd filw nc ia l securit y. Thi s boo k e qu(llI y tCl rgets Ihi s type o f bus in ess
• 14 PART I Starting the Process TABLE '·3

Types of Businesses

Typl' of BUSilll'S}'

EXp/(lllf1l;UII

Survival

A bus iness Ihal provides ils owner jus t e nough money to pUl food on th e labie and pay bills

Hand Yl11all.lawn se rvice. pa rl -time c hitclca re

Lifeslyle

A bus iness Ilwl provides its own e r the o pporlunity to pursll e a certain lifestyle and make a !i vin g at ił

HOlne based e Bay bu siness. sub shop. single-unit franchi se. clothing bout ique_ pe rsona I traine r

A business Ihat e mploys 10 o r more people_ may have severa l o utle ts_and may be introclucing ne w products or se rvices \O the marke t

Mu lli-unit franchi se. region al restauran t c ha in. Web re ta il e r ( moclest SC.1le)

A business Ihat is bringing new products a nd se rvices to !h e marke t a nd has aggressive g rowtłl plan s

Compllter software. mec!ical equip111 cIll. We b re tai ler (large scale) .IHltional restaura nt clwin

MaJ1a&ed

Gro wtłl

A ggressive Growth

THE PLAN FOR THE BOOK

Tllis book is di vided into four sect io ns as shown in FigUl'e 1-2 cmd as Iisted here: Secti o n I: St mting the Proce ss Section 2: Whal to Do Before th e Busin ess Plan Is Writte n Secti o n 3: Prepa ring a Business Pla n Section 4: Prese nting Ih e Busin ess Pl an to In vestors
A s di sc.ussed em lie r. there are twa prim ary rea so ns fo r writing a bus in ess pla n: Tll e process of writi ng
CHAPTE R , FIGURE '-2

WhyPlan'

15 .

Steps Involved in Identifying a Business Opportunity, Assessing the Feasibility of the Opportunity, and Preparing an Effective Business Plan

St~lrting

fhc Pruccss

...

Wind to Do Ildorc fhc Busilll."Ss Plan h: Writtcn

Why Plan?

D eve loping a nd Screening Bus iness Ideas

Prcparing lł llusilll.'SS Plan

f->

Feasibiłit y

Int rodu cto l"Y

I ndusIr)'

Ma rke t

A na lysis

Mat e ria !. Execulive SummaJ) '.

Ana lysis

Ana lysis

a nd

Descriplio n Clmptcr l

a f th e

Chapler 2: C hapler 3

Bus in ess C haptcr4 C halltcr S Chapter 6

-->

PK'parillg:m EfTt·(,tin' llusilll'SS Plan Ma rke ting

Plal1

Man ageme nt Team and C o mpan y

Slruc ture

Ope rations

Plan a nd

f->

I'rcscnting filc Business l'lan

Fina nc ial

Presenting

Projections

the Plan wilh

Produet (ar Se rvice) Dcs ign and D evelop rne nt Pla n

Confide nce

Chlipter 7 Ch"I)tcr 8 Ch:lptcr 9 Chllplcr 10 Chapter 11

WHAT T O D o BEFO RE TH E BUSI NE SS PLAN Is WRITTEN (CHAPTE RS 2 TO 3) As me nti oned in t he introd uctioll to th e chapter. writing a business pla n is pm1

of fi co mprchens ive process 1hat includes ( l) ielenl ifying
• 16 FIGUAE

PART I

'-3

Starti ng the Process

The Comprehensive Feasibility Analysis/Business Planning Process

Stel) I Idenlify a business idea ,

! Step 2 Screen (Ol' test) the idea lo detennine ils preliminary feasib ility,

Siep 3 F.worable resulls/proceed Unfavorable resulls/stop Ol' reevaluate idea

ComlucI a fuli fea sibilit y analysis.

Step 4 F,l\'orable 1'esult sJproceed Unfavorable resu lt sJstop a r reevaluate idea

Prepare a written business plan,

!

Step 5 Prese nllh e business plan to inveslors and o thers.

(4) writing Ih e plan.1l1ese steps, labele d "llle Comprehensive Feas ibility A nalysisl Business Plannin g Process." are depicted in Figure 1-3.A llhough th e prepa ration of a busin ess plan is essentia l. it is o ft en an insufficie nt exercise th rough whic h to compiet e a fu li and candid analysis of lhe merits of a new business idea. Sleps Ihat logica ll y precede the complelion o r a business plan. whi c.h indude the pre liminary scr ee nin g of busin ess ideas and feasibility anal ysis. are also import ant. Many enlreprene urs make th e mistake of identifying a busin ess idea a nd then jumping direct ly lo wriling a busin ess plnn to describe nnd try to gain su pport for Ih e idea. This seque nce o ften omits ar provides littl e tim e for the irnpo rtanl steps of critica lly in vesti gat in g the merits of Ihe ide n before Ihe busin ess plan is wrill en. 11le sequenlial nalure of th e sleps shown in Figure 1-3 d eanl y separates Ih e in vestigati ve porti o n of thillking through Ih e merits of a business idea from Ih e plann ing and se ll in g po rtio n of the proc.ess. Steps 2-3 cn e in vest igati ve in nature and are designed l o criti q ue the meril s o f Ih e business iden. Step 4. th e business plan. is focused on planning a nd selling. 11le injti " l sleps a re im po rt ant because the re is no rea so n to writ e a busin ess plan fo r a business idea tha t hns lit Ile ch ance o f sll cceeclin g. Th e renson it is so im pO rl
CHAPTER 1

W h y Pl an'

17 .

inh e re nl risks
ti
100

In f(1 irn ess. some elltrepreneurs are able to cOlllbill e th e steps depicted in Fi gUl"e 1-3 a nd produce

fi

very well -resefl rch ed and we ll -docum ent ed pl,tn. On

sam e occ
first-mover mlvmll
ed in Fi gure [ -3 need t o be don e in p
process down int o th e steps shown in Fi glll"e 1-3 is o more cmdul ond pruc!ent opprooch. however. unl ess this opprooch isn 't proctico l fo r o compelling reason. C hapte r 2 in th e book focuses o n h ow e nlre preneurs identify business o pportuniti es and introduces th e prelimillMY screen. which is o device fo r rapidl y assessin g th e preliminary feasibilit y of a busin ess idea (o r ideas). C hapt e r 3 describes how to co nduct n compJet e fensibilit y ana lysis. PREPARING A BUSINESS PLAN (CHAPTERS 4 THROUGH 10)

C hapte rs 4 through 10 provide an explnnation o f how to compJet e each sectio n of a busin ess p lnn nnd describe (step-by-step) th e busin ess pł
Chapter Summary L A busin ess plan is n writl e n docum e nl tlwl cme full y explains every aspecl of o new busin ess ve nture. 2. Tlle mosl e ffecti ve busin ess p lans are part of a compre he nsive process tllal in cludes (1) ide ntifying a busin ess idea . (2) scree nin g th e ideo (or ideas) lo dete nnine th eir pr elirnin ory feas ibility. (3) conductin g a fuli fea sibilil y a nalysis. nnd (4) writin g I he plan . 3. Th e re are two primary reaso ns for writing a busin ess plnn: ( l ) It forces th e fo unding le mn to work togeth e r to !wl11ll1er o ut th e c1e tnils of th e bu sin ess venture. {I nd (2) It cOl11munica tes th e me rit s of a new ve nture to out side rs. such as in vestors o r bank e rs. 4. lll e process ol' writing (l business plan forces n leam lo Tl ol onI y work logeth e r but lo tum abslra c t ideas in to co nc rele rea lili es.

• 18

PART IStartin g th e Process

5. 11H: lwu p rilmlry

6.

7.

8.

9.

H udi e lH.:e~

fo r
[irm '~

e mpl o yees

[I nd in vestors/oth er exten 1
10. A lth o ue h th e pre pa Hlli o n o f a husin ess p l<1 ll is esse llti
cient exercise through whi ch to comp1ete a fuli [I nd c[l ndid Cltw lysis o f th e merit s o f [I new busin ess venture. Steps t hat logic
Review Ouestions l. Wh
2. 3. 4. 5.

6. 7. 8. 9.

pl
10. Wh
CHAPTER 1

Why Pl an?

19 .

Application Questions ił mecli cCl l proclucts comp
I. SCl J"[I h Peters is o ne o f three founcle rs of

rei lik c to volunl ee r to wril e lite bu sin ess plan. I Im ve a cabin 0 11 a lake a bo ut nil ho ur fr o m he rc. 50 if it's a lri ght with th e two o f yOll . r ei like l o ta kc my lapt op up to the ca bin fo r fi couple of cla ys il nd IHllllmer QuI th e business plan. A ll y obj ec tio l1s?" If yo u were one o f SaHl h 's cofounders. whn! wo uld

2.

3.

-1-.

5.

yo u sa y? Wh a t a lt cl'l1 ati ve a ppl'OClc h. if nny. would yau s uggest to wl'ilin g the pl,m? Jim Bowe r. CI fri end o f yours. IHl s spe n! th e PilS! three yCClrs wo rking o n ClI' inll ovati ve new I ype o l' car a la rm . He was jusl awarde d a U.S. p<1 le nl o n Ihe dcv ice. a nd is thinking a bo ul leaving his job a l G e ne r<11 Molors lo sla rl a co mpan y to se ll Ih e a larm . Jim is pla nnin g lo a tt e nd a new business co nfe rc nce in Chi cago nex l 1110 11th . which will fe alure il nl1l11be r of in vesto rs. You kll ow Jim doesn 't łw ve a bu siness pl,m . Wh e n yOll asked Jim wha! he' lI do if he meels <111 in veslo r at th e confe re nce a nd is aske d for a copy o f hi s bu siness pla n.Jim said. " 1f that happe ns, 1'11 le li Ih e in vesto r Ih a l rei mth c r meet with him to talk il bo ut my iele as ra th er th a n go thro ugh all the wor k in· vo lved w1th wrilillg a busin ess pl a n. ]f he in sisls, 1'11 pUl togelh c r a plan ns qui ekly as poss ible a nd ge l il in th e ma il :' Describe wh(lt is wro ng wilh Jim 's thinkin g. llle founde rs o f New Ve nture Filn ess Mnchin es ha ve dec ide d lo se nd Ih eir busin ess pl a n lo a se leel group o f in vestors who Ih ey kll ow h(]ve fund ed fit Iless eqllipl11 en! compnlli es in th e pasl. n, e founde rs Ihink thnt th e grolI p ol' in vesto rs th ey have idc nlifi ed re presenl s th e jl" beSI sho l a l fllndin g a nd don'l wa nl lo bl ow Ihe e ffo rt. llley have c1 ec icl ed lo rcn d Ihrough th e ir pla n onc 11l0re tilll e be fo resending it o ut. Ma ke CI li st o fth e things th nt should be in the plan a nd the Ihin gs Ih nl should n'l be in th e plan . base d on th e mat e r iał in this cllapt e r. Lindsey Simpso n is th e fo unde r o f a co mpan y th a t plans lo sc ll a new lin e of skin care producIs Ih rough high-e nd bo uliques. Because he l' produ cts wi ll be priced at Ih e hi gh e nd ofth e ma rke t. Linclsey has cleeidecl to Iry lo project a n im(l ge of so phisli ca ti on and cl ass in evcrythin g she doe s. As a reslllt . she płan s to pily severa l Ihousalld do ll ars 10 ha vc he r busin ess plm1 profess io nall y prepared . a nd ertc h copy of Ih e pl a n will be e ncl osed in a $59.00 lea th e r binde r. Do yo u agrcc with Lin dsey's approach? If no t. what acl vice wo uld you givc he r? Spe nd so me tim e studyill g Ih e Web sil e o f Li ve He
• 20

PART I

Starti ng the Process

Endnotes 1. A. BmTelt "Hilling the BookS".. hllp:l!www. bu sinessweek.com.F
2(07). 2. "Y
PART II WHAT TO THE BUSINESS PLAN

(

Do Is

BEFORE WRITTEN

E R

DEVELOPING AND SCREENING BUSINESS IDEAS

INTROOUCTlON TIlis chapte r focllses o n haw to identi fy b usiness ide
• 21 .

• 22

PART II

FIGURE 2-'

W h at to Do Before th e Bu sin ess Pl an Is W ritt en

The Comprehensive Feasibility Analysis/Business Plan nin g Process

Ste p I Identify a business idea.

! Ste p 2 Screen (Ol' test ) the idea lo delennine ils preliminary feasibilil y.

Ste p 3 Favorable resul ts/p roceed Unfa vorable resulls/slOp Ol' reevaluale idea

Condl1cl a fllll feas ibilit y tlnalysi s.

St e p 4 Favorable resull s/proceed Unfavorable result s/slOp Ol' reevclluale idea

Prepa re a wri llen business plan.

! St e p 5 Prese nllh e business plan lo ill\'eslors and o lhe rs.

mthe r tlum settLin g o n a single ide
THREE MOST (OMMON SOURCE S OF NEW BUS I NESS ID EAS lll e first SIep in crealin g'Hl effecti ve b us in ess pl a n is se Jecting nn idea th at fi lls a need and pro vid es uni q ue vCl lu e to th e cuslo mer. Jf a new business p rov ides a producI o r service Ihat 's mere ly a differe nl versio n ot so mething Ih al 's already ava il a bl e. il has a lo ugh rond a hend. lt"s h"rd 10 ge l peo pl e lO change Ihe ir Iw bit s

CHAPTE R 2 FIGURE 2·2

Dev elo pin g and Sc reening Bu siness Id eas

23 .

Three Sources ot New Business Ideas C ha11 ging E lIl'irUIIIII cntlll Tr c ncłs

U n s ull"ccł

G aps in thc

ProblcllIs

Ma rkcłl)la ('c

O l' be havio rs a nd swilch from a produ et th at they' re curre ntl y usin g lo CI new o ne. even if the new product is bette r O l' less ex pe nsive. Instea d . Ih e most s uccessful new business ideas add va lue in a unique or com pellin g way by ca pitalizing o n o ne of t he three sources of bus in ess ideas discussed here and shown in Figure 2-2.

(HANGING ENVIRONMENTAL TRENOS

nl e first source of new bus in ess idea s is changin g e nvironmental trends. lll e most imp0l1 ant Irends to fo llow are econo mic trends. social trends. techn ologica l adva nces. and palili cal actio n and regul ato ry changes. Changes in these areas o ft en provide the impe tus fo r new bus in ess ideas. Whe n looking at e nvironme ntal trends to djscern new busin ess ideas. keep twa caveats in mind , First. it 's im p0l1 ant to dislingui sh betwee n tre nds and fads. Sta rtups typica lly d o no t have Ih e resoUl'c es to ra mp up quickl y e no ugh to lake aclva nt age o f a fad . Second . eve n Ih rough we discuss each tre nd in d ividuall)'. t he)' a re inlerconnected a nd s hou ld be cons ide red simultaneou sly whe n brainstorming new busin ess ideas. For example. o ne reason the Apple irod is sa popul ar is bec
A n und ersta ndin g of econo mi c trends is hel pfu l in det ennjning areas tha t a re ri pe for new busin ess idea s and disce rning are,l S to avo id , Wh en th e econom y is stro ng. peopl e a re mo re willing to bu y discretiona ry products and se r vices thelt e nhClnce th eir li ves. In di vid ual sectors of th e econo my hClVe. a direct im pact 0 11 co nsum er bu ying pCl tt e rns. Fo r exmnple. a d ro p in int erest mt es typi c.a lLy \ea ds to a n increase in new ho me c.ol1 structi oll . furnitu re sCl les, and appli ance sal es. Conve rsely, a string of co rpo ra le layoffs Ol' a rClp id declin e in th c stock ma rket no rma ll y lea ds lo a red ucti o ll in th e dema nd for lu xury goods. Whe n sw dyin g how ccotlOllli c forces nffcc l o ppo rllllliti es. it is im porl anl to evn lua te who has mo n ey lO spe nd and what th ey spend it o n. Fo r exa mpl e. ,lIl in crease in tll e Ilumbe r o f wo men in th e wo rkfo rce el lld Ih e ir related increase in di sposnb le income is large ly rcsponsible fo r Ih e nlllllbc l' of bo uli q ue cloth ing

• 24

PART II

TABLE 2-1

W hat to Do Befo re th e Bu sin ess Pl an Is W ritten

Companies Starłed to Take Advantage of Changes in Environmental Trends Bl/sil/ł'SS

Cllllllf.i iuf.i EJlI' irouml:llw / Treud

Resl/llill,!!. NI'Ii' Opporltlllil ;I'!;'

[':Ulllllllic Trcllcls Sea rch for altenwtives to traditional fossil fuels lik e gasoline and diesel hlel

Ethanol. biodieseL so lar power. wind-ge ne rat ed power

Altra Biofu c ls.. Sol Focus. Propel Biofueł s. Mi"solc

Tecllagc rs with more cash alld di spos
Desig ner cłoth es. CDs. MP3 players.. gmlle consolcs

Hot Topic. KarmCl Loop. SanDisk. Alicnwarc

Incrcased inte rest in diffcrent. tClstier.
Hea lthy-fare restrlUrants.. org
Chipotl e. Great Wmps. White Wave. Whole Foods

Incrcased inte rest in fitn ess
Fitn ess cCllters. in -hollse exercise e quiprn e nt. health food stores

Curves. Stair Master Exe rcise Equipme nt. Esprcsso Fitness.. GNC Nutrition Center

E-coml11erce. inlprove d supply clwin IIlClIlClgeme nt. i mproved comll1un ication . soda l networking

Goog le. A mazo n .com. Trave locity. MySpace.co lll. Facebook

Biotech -rc late d plwrm
Amgell. Cardio D x. Orex ige n. BioOnlillc

Incrcased E PA and OS HA standards

Consulting companics. software to monitor compliance

ESS. PrimaTec h. COl11pliallCe Consulting Services.. Inc.

S
Softw
CEBOS.OiWare

R I'!;·I//Iiuf.i COII/pl lllil'!;'

S.Id.. 1Trcllcl s

Tcdlllulugklll Acll'llIll'cS Deve lopl11 e nt of th e Inte rnct

Advances in biot i!chnology

l'olitin.llllld ClllllIgC$

I~ c glll:lfor y

stores tmgetin g professiomli wo men th a t IHlve opened in th e past sevew l ye
CHA PTER 2

Deve lop ing and Scree ni ng Bu si ness Ideas

25 .

income rela li ve lo previo lls gene r
A n und e rsta nding of Ihe impact of sociallre nds o n the way peo ple-li ve Ihei r li ves a nd th e products a nd se rvices they need provid es fe l1ile ground for new busin ess ide us a nd opportuni t ies. Ofte n. the re
New fu nns u f mu ~ i <.:
• lll e increasin g foeu s o n hea lt h ca re
• 26 PART II W hat lo Do Befo re Ihe Bu sin ess Plan Is Written engines to run on vege ta bl e oil. Justin Ca rva n. th e company"s found e r. got int e rested in alt e rn ati ve fu e ls while al Ha mpshire College. 1l1e comp,m y is now growin g at a rate o f mo re tha n 200 pe rcenI pe r yea r a nd is projected lo reach $2.5 millio n in a nnual sales sho rtly.l 1l1e increasing e mphas is o n gree n products is a no th e r social tre nd th at is spawning inte resting new busine-ss ideas. A n exa mpl e of a rece nt startup in t his area is Sout h West Tradi ng Co. (http://www.soys ilk .com). a bus in ess th a t s pecia lizes in e m1h-frie ndl y. alte rn ative fib e rs a nd texti les such as ya rns m ade fro m bamboo. com. a nd even recyd ed cra b shelIs. TE(HNOLOGI(AL AOVAN(ES

Technological ach'a nces provide an ongoing som ce of new bus in ess ideas. In most cases. the techno logy it self isn'l Ihe key to recognizing busin ess o pportunities. Instead. the key is lo recognize how lechn ologies ca n be used a nd ham essed lo help satisfy basic o r c hanging human needs. Fo r exa mple. the creatio n of the ce li pilOne is a techno logical ach ieve ment. but it was motiva ted by an increasingly mobile po pulation that finds many advant ages to having th e ability to co ttlmunicate with coworke rs. custome rs. fri e nds. ,md fmn ily from a nywhe re and everywhe re. Techno logica l adva ncements also provide o ppo rtunilies lo helI' people pelfo rm eve ryday tasks in a bette r ot" mo re conveni e nl way. For exa mple. OpenTable.com is a \Ve b site Ih at allows users to make restaura nt reserva tions o nlin e a nd now covers mosl o f Ihe United States. If you're pla nn ing a tri p to Boston. for example. you can access O pe nTable.com. se ket the a rea of Ih e cit y you'lI be visiting. and view descri ptions. reviews. customer ratings, a nd. in most ca5es. the me nus o f the restaurant s in the area. YOll ca n th e n make a reservat ion at the restaurant of you r cho ice a nd print a map of directi olls lo the restau ra nt. The basic tasks thal Ope nTa ble.com helps peopk perform have a lways been do ne -lookin g for a resta uranl. comparing prices and me nus. soliciting feedback trom people who a re fam ili a r with competing restaura nts. a nd getting directiollS. What OpenTable..co tll does is he lp people pe lfo rm these takes in a Illo re convenie nt and exped ie nt manne !". A nothe r aspecl of technological adva nces is thnt aft e r a lechno logy is c realed. products oft e n e me rge lo adva nce ił. Fo r exmnple. the c rea ti on of the Apple iPod has c rea ted a n entire induslry Ih at produ ces iPod accessories. H20AlIdio (http ://www.H20Audi o.com). a compan y tha t was started by fa ul' form e r San Diego Sta le Universit y students. mak es wa te rp roo f ho usings for the iPod a nd tll e i Pod nan O. 1l1e wal e rproof housin g pe rmit s i Pod users lo liste n to their i Pod while swimming. s urfing. sl1 owbo.:"l Hling. or e ngagi ng in a ny acti vit y whe re th e iPo d is like ly to ge l wet. A wide va ri ety o f o th e r accessories m e also ava il able for the iPod . from designe r cases to ca r recha rge rs. II is now est im ated that fo r eve ry $3 spe nt o n a n i Pod at.least $1 is spe nt o n an accessory.3 POLlTICAL A(TION AND REGULATORY (HANGES

Polil ical a nd regul atory ch
CHAPTER 2

Deve lop ing and Screening Bu siness Ideas

27 .

he lping othe rs comply with t he Sarba nes-Ox ley Act o f 2002. Since the aet was put on th e book s. publicl y heM compa ni es have spe nt miUions meelin g new compliance regulali ons. The ael requires eompa nies lo re lain all bus in ess reeo rds. including eleclroni c docume nts an d messages. for at leasl fi ve yea rs. lll e be neficiaries of th e
llle second approach to new busin ess ideas is unsolved problems. Proble m s can be experieneed O l' recognized by peop le through the ir jobs. hobbies. o r everyday aet ivilie s. Comme ntin g o n Ihis issue
Look for problems. Peopl e co mpla in abo ul il being h
• 28

PART II

What lo Do Befo re Ihe Bu s in ess Plan Is Written

make tll e d evice aV

paeks ca n be purch
nIe Ihird source o r business ideas nre gaps in Ihe Illarke tp lace. 1l1ere "re lnem y exmnples of producIs Ihal eonsume rs need ar wanl tlwt a re n 't
" ·,·,·.,s·r·"".,. ,,,,·,·,·,s"'·'· , '·, ···'n·'·'d'·'·" ·'" l 'ilt

1'",1>1,,,,

S"I"/;,.,,

C""'P''''J' Mai IIn"I,,"

Arlene Harri,

"'"

Many ccU phon", are 100 oomrUcalcd and th e bUHon, are loo,mall for ,eniors to use casil~·.

Dcsign a ce li rhone for ",nion that i, ea,y 10 me. ha, larg" bUHo~.nd ha, a single butlon that when rushcd eonncet, to an op
Gr.alCall (hl1 p:/łI.wu.jitterbug.oom)

Scol1 Kl igu

"'"

411 (dircetory ."i,tance) calls are "pen,.",. cosling from $1 .25 to $3.75 per .all. depending on yom ce llub r

Create a frec. nalion"ide. :>dvcni",r surported diroctory ""istanre se TVice.

Jingle Nemork,

No ","a~· ~xisted for "ranmcnt rontcrs to pay their mon(hly ront online.

Crcate a software proouet that allo,,", .panment oomrkxes 10 e nable their tenants to P"y onlinc.

Property Solut ion, (http://''.........propert)"SOlutions.com)

No filn",s routin. "'"'" 3,·ailable to helI' ""W mOlh,"rs 'la}· fit and Ixowith thcir n~"woorns al the ,~m e lime.

Crcate a Iraochise organilation that promotes a workoUl routi"" (which in'·ol,·., a 45· minute rower ,,·alk with stroIlers) that mothcrs .nd thoir babies can do log~l hero

Strollcr St ride (hl1 p:/łI.wu.s troUcrstride.oom)

No ,ervke w.s ,,·ailable 10 helI> p-eople with computer probloms at home.

Crcate an orgonizalion that makes "oouse calls" and holJ>S people sol,·c computcr problems in their homes.

Goc k, On Cali (htt p:/łI",v.,ee ksoncall .oom)

l'ul"'I""U'·""'·

(hl1p:/łI",,::.fru41 I.com)

provid~r.

•

David

B"t~man

200?

~

•

Li,. Dru.m an

,'"

Rkhard Cole

,""

• 30

PART II

W h al to Do Befo re Ihe Bu siness Pl an Is W ritt en

localio n Ol' aren'l ava il able at a lI. Pa rt o f Ihe probl e m is crcnled by large rcw ilers. slIch as Wn l· Mnrt
CHAPTER 2

Deve lop ing and Scree nin g Bu sin ess Ideas

31 .

ll ewcll legory in Ihe e lecll'Ollic ga lll es indus Ir)' ca ll ed "caslla l ga mes." llle ga mes (lrc CCls u(l1 and re laxi ng ralhe r Ihan n ash y a nd flct io n. packed and are nwde fo r IJeople who wanl lo wind down after a busy day. Cu rrc nll y. 90 peree nl of Ih e eom pany's ellslomers (l re wome n 25 years o leI O l' o lele r. which is a com ple le ly different d emo· gwphic Ihell1 Ih e youll g mal es Ihat Ihe llwin slrcam ga mc ma nu fa clu re rs targetY Anot he r Clppl'Oach lo filIin g gaps in th e marke t place is lo se rviee clll area Ih ClI is lack illg a pa rticular produel or service. For eXCl mple, S PC Offi ee Pl'Oduels (hll p:l/www.spco p.com) is Cl co tnpan y Iha l se ll s the sn llle prod ucls as Slap les nnd 0(· fi ce De pot bul foc uses o n towns lInde r 20.(}(X) in po pu la tio ll . A s a ru le o r tll umb. S PC d oesn 'I like lo ope n CI slore IhClt 's wi lhin 120 m iles of a S Inpies or Office D epol.1O O lh e r cX
TABlE 2·3 Gl/p

Companles Started to Fili a Gap In the Marketplace

;/1 1I1t' M urkerpJu('l'

Resll/rillM Nell' JJasil/ en °PJw rr/lll ily

COlllp (lII ;eS 11HII R e.mll etJ

No filn css CClll el"S dcsillncd spcci fic'll ly for WOIllCIl~

Filncss Ccn le rs Ilml nre just for worncn. fCHlu rin g workoul s a nd cxercise machin es designcd s pccifically for wOlllcn. nnd filIin g th c lime and budget
C u i"VCs.. Conlours Express. Ludy of A mc ri ca

Lad o t" 10ys Ih1l1 foeus on the inl ell eclu,l l deve loprnenl of a c hild

To\' SIOl·CS. clircct -S
Discovery Toys. Knzoo & Comp.-ln y

No lwir cn re.s kin cn re. and body care slOl'es Ihal arc freshe r a nd more sophisticatcd 111<111 standard 8 (1lh ,l ncl Body oulle ts bul less upscale IIHm high-c nd sto res such as Nords trorn 's a nd Sa eks

Spccinll }' boutiques Ihal offer fresh. new n
Aveda . Origins. Scp ho ra

RCSla Ul"Clnts Ihnl a rc bolh fast and se r"e goocl food

Fas t-casual restaUl"ClIl IS Ih al combine Ihe advan lages or f'l sl· food (fas l se rvicc) aud cas ual dining (goocl foO(I)

P
Shorlagc of dOlhing slO1'es Ihal se ll fns hionable clolhing for hm'd-Io-fi\ people

Boutiqucs Ihal sc ll fas hiOlwble d Olhing for h
Casual Male.Ashlev Slewar\. Casua l Piu-s. iGigi

• 32

PART II

W hat to Do Befo re the Bu siness Plan Is Writt en

TECHNIQUES FOR GENERATING IDEAS 11le three sourees o f new business ideas are used b y people in both subtle cmd ove rt ways. So me p eople r ecognize Ilew business idea s Ih rough casual o bser v
11lc m ost com m o n way lo genera te busin ess ideas is Ihro ugh brainSIOr1l1in g. lll c t erm hrai ll s łur miu g is a ca tch phrase Ihalm eans d ifferen\ Ihings t o differenl peo· ple. Tec hnicall y, a brainsto rming " sess io n " is target ed to a specific top ie about

BUS IN ESS PL AN INS IGHT

1 I:

Wh" th e Most Originalld ea, Are n 't Always th e Best

Id ełls

When cOllsideri ll& business ideas. it's irnporl
E l';!)";"$: !Jrmhf('ll; Exisling Ma rkets

I

New MClrke ls

3

Nt' l\! Pro(/lIc/!)'

2 4

Ad:lpled from Pl:lnWare. 'Gctting New Busin.:ss Jdeas. :lecesscd al hll p:l/www.pb nware.org. Ma y l. 1IM!7.

CHAPTER 2

Developing and Scre e ning Bu s iness Ide as

33 .

which
Focus

GROUPS

A focIIs group is a gothering of 5 to 10 peop le who a re selecled beca use ot th eir re la liollship to the issues being discussed. A llh ough foeu s grau p:; a re used for a vari ely o f purposes. they can be used to helI' generate new bu sin ess id ea s. Focus grau ps Iypicall y in volve a graup of people fami lja r with a lopie. who are broughl togeth er to re spond to qu estio ns and shed li ght o n on issue th ro ugh the give-and-take nalure of o group di seussio n. Focus groups usua ll y wo rk best as a fo llow- up to b ra inslorming. when Ihe ge neml ide" fo r a business has been fOrllltll "ted . such as ope ning " filn ess cenl er fo r th e 50+ clemogr"phic. bul furth e r re fin el11 enl of the ide" is needed. Usua ll y, focus gro ups " re conduclecl by train ecl mod emlors. The Ill oderator's prim
• 34

PART II

W hat l o Do Befo re Ihe Bu sin ess Plan Is Written

depends o n th e moclem tor's a bilit y to as k questi ons a nd keep the di scuss io n on trac k. For exmnp le. to furth el' explo re th e ideil of o pe nin g a fitn ess ce nte r designed specifi ca ll y fo r o lde!" peo pl e. a foeus gro up mi ght be asse mbled t ha t CO I1sists of ID peopl e who are 50 yea rs o lei ar o lder a nd a re members of generic fjtn ess ce nt e rs. 1l1e mode rator might as k. "Wha t is it th a t you don ' t lik e abou t your fit ness cent e r?" A 7 1-yea r-old num might s ay, " I do n 'tlike the classes that a re offe red . 111ey inc\ud e va rious types of aerab ics an d spinning. whi ch 1 don' t mind , bu t th e musie is too la ud . the paee is 100 quie k. a nd they a re a lways taught by guys a nd gals in th e ir twenties who have no idea of what I'm going th rough in life:' Th e moderato r may Ihen as k th e group. " How ma ny of you woul d fee l more comfo rt able if the cla sses in yOlll" fitness cente r were laught by peo pl e yOlll" own age?" If 7 o ut oft h e 10 hancls shot u p. you mighl have just di scovered on e refineme nl for yOll r bus in ess ide il. O n som e occasions, hybrid foeus grau p m e thodologies are used to ac hi eve specific ins ight s a nd goa ls. An exa mple is C ullege DWll-llls. 1111S approach involves pay in g a pair of co ll ege stu de nls to hosl a part y at thei r campus a nd providi ng th e m a bu dget to bu y food a nd snacks, Durin g Ih e pm1y. the hosts inte rview a nd videotape o th er stuelen ts ilbout specific marke I issues o r busin ess ideas. E ve rylhing is up-frollt-th e pa rt ygoe rs m e to lel th al th e info n na li o ll is be ing collecled for il ma rk et resea rch firm (on behalf o f a clie nt ). Most stude nts are coope ralive. On e stude nt . comm e nling on a Coll ege D rop- In party he a tl ended.sa id " E verybody knows it eosls a lo t lo th row a pa rt y and if a ll they have lo do is give up 10 minul es of time to o ffer Ihe ir op ini ollS. it 's a no-brai ne r !"]] LIBRARV AND INTERNET RESEARCH

A third approach lo gene r
CHAPTER 2

Develo ping and Scree ning Bu siness Id eas

35 .

new ideas for fitn ess cente rs o r help affirrn an ex istin g ide
FlRST SCREEN After
• 36

PART II

Wh a t to Do Befo re th e Bu s in ess Pl a n Is Writte n

e nd of this ch
Hig h-pote nli a l idea s m e typ ic
CHAPTER 2

Deve lop in g and Screen in g Bu s iness Id eas

37 .

positio n. A l same po int . Ih e mark e t malures. a nd t he windo\\' o f oppo rt ullil y cl oses. An import
2:

INDUSTRy-RELATED ISSUES

TIle indu stry Ihal a comp" ny e nt ers is extre mely import
• 38

PART II

TABlE 2-4

W hat lo Do Bef o re Ihe Bu siness Plan Is W ritten

Average Net Income for Firms in Certa in Industries

flldllslry

A I'I!N/f!.t' Nel fll colI/ l!

Ad"ertis ing Book publishcl'S Eleclronics and appliance slOres Food and bevcrage stores P hannac e u ł ical proclucts Te leco rnrnllllicClt ion s

5.0% 7.5% 2.5% 2.2% 1-'.4% 10.1%

o lde r. crowd ed. slow-growt h industri es Ilwt defy th e industry's norms and provide attmcli ve oppo rtuniti es for new firm s. 11le avem ge opera tin g margins for Ih e firm s in an induslry il re also impo rt an!. Same indus lries simply provide more opportunities fo r profit s tha n o the rs. Fo r exa mple. BizStals records the ave rage net income for finn s in cel1a in industries. accorcling lo the most recentl y rep0l1 ed informatio n as shown in Tab le 2-4Y~ (If you' re looking fo r net income esti mat es fo r ,m induslry you're interested in . BizSlat s and IBI SWorld fl re Ih e besl bets. Bi zSta ls is mo re li mited than IBI SWorld in tenns o fth e Ilumbe r of industries Ihat il fo ll ows.) 11lis chart provides a visua l depiction of how much average profil abilit y va ri es by indu sIl)'. Ve ry de la iled and comprehensive industry data. whi ch is sllffici ent to mak e an in fo nned judgme nt 0 11 each ilem in Part 2 of the Firs t Scree lL is ava iIable through Mint e\. IBISWo rld , a nd Sta nd ilrd & Poor's NetAd vantage. 11lese resources are typica ll y fr ee if acce ssed through a univers it y library Web sit e, PART

3:

MARKET- ANO (USTOMER-RELATEO IsSUES

11le iden tificil tio n of t he la rget market in which the firm will colllpete is extre mely impo rt fln!. A til rgel market is a pl ace wilhin a lmger in duslry O l' ma rket segmen t Iha t represent s a nalTower group of cus lomers wit h simil ar interests. Mosl new firm s do no t start by sellin g to broad ma rk ets. lns lead. most stmt by idenlify in g an emergin g or underse rved nic he wilhin a Imger market .·l he abilil y lo neat e "ba ITi ers to entry" is an impo rtani aspecl of any firm 's potenlia l competiti ve adva nl age, A barrier tu cntr)' is a condit ion Ih al crea les a dis in centi ve for a no ther firm to en le r a company's !liche market. Barrie rs to enlry ca n be crea led through a number of means. such as economies ot sca le. producI differenti"ti on. unique access lo d istributio n chann els. " nd inte.llectual propel1 y pratection. such as patents. Mintel publishes pe ri od ic report s Ih at describe the purchasin g power o f various age and de mo graphic gro ups. alo ng wit h th eir spending patterns. ln lenn s of Ihe purchasing power of people in a specific geographic area.Amel'ica n Factfinder. dl'awin g o n CCIlSUS data, p l'ov idcs access lO Ih e med ium ho usc hold in co me fo l'
CHAPTER 2

Deve lop ing and Screening Bu siness Ideas

39 .

of a new product o r ser vice is anoth e r im porta llt conside mtion. A new firm typica li)' does no t Il
4:

FOUNOER- (OR FOUNDERS-) RELATED ISSUES

TIlis po rti o n of Ih e Firsl Screen re quires I he po te ntia l fa und e r a r fo under s o f Ihe busin ess to compIel e a se lf-assessmenL so it is impo rt anI to be ho nest Clnd fair. Few finn s. partieularl y if th ey a re be ing sta rled b)' youn ge r peop le. will seore high o n e
• 40

PART II

W hat l o Do Befo re Ihe Bu sin ess Plan Is Written

that th e new firm is consistent with t he found e r 's (ar foundin g temn 's) pe rso nal goa ls cllld asp iratio ns. A parti c u l a rł y impo rt a nt issu e is th e lik elihood that a firm will be ab le to put toge th e r a tea m to Jau nch a nd grow th e new venture. A s o ne ex pe rt has put ił. " Peo ple a re th e o ne fa cto r in produc! ... th at animates all th e othe rs: d6 A good start is for a firm to asse mble a n advisory boa rd, whi ch will assist in futme recruitm ent a nd se lec ti on effort s. PART

5:

F'NANC'AL ISSUES

TIle initia l ca pita l investment needed to stm1 a firm is impo rt alIt. A lthough an exact estim at e is not need ed at this point. il is im port a nt to l1 it s in itia l i1l\'es tm e nt is
CHAPTER 2

Develo ping and Screen in g Bu sin ess Id eas

41 •

quick ly.
Chapter Summary I. Th e three most cOll1m o n sources of new busin ess ide
enviro nm e nt
• 42

PART II

W hat lo Do Befo re Ih e Bu s in ess Pl an Is Written

8. O ft en. Ih e besl new business ideas eme rge whe n Ihe ge ne ra l noti o n of an Ldea is merged wilh exlensive libra ry and In lelllet resem'ch. 9. a nce a bus iness idea. o r seve ral ideas. have bee n chose n. il is im po rt an I to h ave a way to qu ickly assess Ibe me rit s of Ih e idea before subjecl ing the idea to a fu li feasibilit y analysis. Th e Firs l Scree n provides a mecl mnism for qui ckLy assessing the meril s o f a bus in ess idea. 10. A ltllOUgh eompleting Ih e Firsl Sereen does ta ke so me research and a nalysis. LI is no l mea nl lo be a lengthy process. 1t contains 25 it e ms and shou ld be able to be comple led in less tha n a n hOlll".

Review Ouestions 1. W hal a re the Ihree most commo n sOUl'ces of new bus in ess ide as?

B riefł y

cl escribe how each of Ihe sources spawns po tentia l business idea s. 2. '\lh a! fo ur e nvirotlme ntal tre nds provide Ih e richest sOlll"ces o f new business ideas? Lis! each en vironme nl a l tre nd and pro vide an exa m ple o f t he type o f business idea Ih at it m ight e-rea te. 3. E xplain how "un so lved proble ms" ca n n ea le a busin ess idea. Provide an exa mple Ih at was no! ment io necl in th e chapler o f a business tha l was crea ted b y solving an unsolved proble m. 4 . E xpla in how findin g a gap in Ihe market pla ce ca n \ead to new busin ess ideas. 5. D ese-ribe the fOllr ca legories of new business ideas a nd th e most reaListic ca legori cs fo r new firm s. 6. D escri be Ihe brainsto rming process. H owca n brainslormin g be used to ge ne rale new busin ess ideas? 7. D escri be how a focus group is set up an d how il can be used lo generale new business ideas? S. Exp lain how l.i brary a nd Inte rn el research can be used lo ge ne rale new busin ess ideas? 9. Wh y is il necessa ry lo q uiekl y assess Ihe me rit s of a busin ess idea before eonclucling a feas ibi li ly a na lysis a nd wrilin g a business plan? 10. D escri be Ihe makeu p and the pu rpose o fth e First Scree n .

Application Ouestions I. Tim Je nsen thinks he has ide llli fjed a new e-commerce id ea. bul he wa nl s lo

Lll Clk e sure Ihal he is n'l just fo ll owing a hu nch. Whal cril eri a can Tilll use lo LllClk e sure Ih al his bus in ess id eCl has a fundam enl all y so und basis? 2. Mega n Ho lm s just fini shed rea di ng thi s chapter and wasslruck by Ihe ideCl o f ope nin g a fi tn ess ce nI er fo r people 50 yea rs o lei a nd olcle r. She is in te resled in I'un ning wilh Ih e idea. bul firs l wa nls lO ma ke s ure Ih al il is cOlls isle nl wilh clmn gin g ecoll o mi c trends. SOCiCl I Iren ds. a nd techno logica l Cldva nces. Ma ke
CHAPTER 2

Deve lo pin g and Sc ree nin g Bu sin ess Id eas

43 .

3. Think
Endnotes I. 2. 3. 4. 5. 6. 7. 8. 9, 10.

IL 12. 13. 14. 1S. 16 17.

Firsl Rese
(Moy 4. 2(0).

APPENDIX

2 . 1

First Screen PART 1: STRENGTH OF THE BUSINESS IDEA Fo r c;lch il c rn . circle Ihe most "pprop ri:ll c illl SWc r :1I1c1 make no t e af th e (-1). (O). a r (+ 1) s<:on:.

( - I)

,\/mletll/e I'V/ell/itll (O)

I IigIl I'O/ell/itll ( + I)

We
Mode rat e

Strong

Not timcly

Modc r.1t ely limcly

Very timcly

Lo.....

M ediUIll

High

4. Ex lcnl IQ which the clIsl o llle r is snti sfied by co rnpc ti ng pt'(){!ucts Ihal m e a lre
Vcry S;lI isficd

1\'lodc r
5. Degree to which th e idc
Subslnnlial

1.01\' Polel/littl

I. Exlent to which Ihe idea:

•

Tnkcs ad"C1nłage af :Ul

• •

cnvi rOllm cnl C1 llrc nd Solves
2. Tirnc lin ess a r c nl ry

(O

nwrkcl

3. Ex lcnl 10 which Ihe idea - "dds "aluc" fo r il s buye r ar end li SC ..

satis fied

Not ve ry sati sfi ed o r ambi va lc nt

ch
. 44 .

Mode mt e clwngcs requ ired

S malił o

no changes required

CHAPTE R 2 PART

2:

Deve lopin g and Scree ning Bu siness Idea s

45 .

INDUSTRV-RELATED ISSUES Lo!\' POlell/iul ( -( )

MOllem/e !'olm/ii,! (O )

(+ ()

I . Numhc r of compc tilo rs

Ma ny

Few

No ne

2. StaglJ ar induslry life cyck:

Móll u!"i ly plHlSIJ Ol" cl cclin c

Gl"owlh phasc

E mcrgc nce phase

I ii!:" 1-'00elllial

plwsc 3. Grow lh l"alC ar indusn y

Lillk Ol" no growth

M oderal e growlh

Slrong growl h

.t. Imponancc ar indusu·y's prod ucls and/ar se rvices lo cuslomers

"A mbiv
" Would likc lo hnvc"

" MusI ha vc"

5. Indu sII)' ope ..... ling

L aw

Mode ..... l e

Hi gh

marglns PART

3:

TARGET MARKET AND (USTOMER-RELATED Is S UES ! .Oll' ! 'o/('llIilll

(- ()

M O(ferl/le I'o/(' II/illl (O )

/fig" {'o/ell/iol (+ ()

May be abłe lO idc ntify

I(lenl i fi et!

May or llIay nOI be abl c lO cI"e
C c.lll creal c

L ow

Mo
Hi gh

4. Ease o f m
L aw

ModernI e

Hi gh

5. Growlh pOlential of l arge t

L ow

ModernI e

Hi gh

l. Idelllifical ion or Inrgel Ill arkel for tllc !,!"Oposcd new ve nt ure

Di fficul llo

2.

U na błe 10

Abil il v 10 ercal C '" bnrric !"s 10 c nl ~·Y" fal" pOlenlial

idcllIify

crcn le

cO lllp c t i l o r~

3. Pu rchnsing power o f custolll crs

markeI

• 46 PART

PART II

4:

Whal lo Do Before Ih e Bu s in ess Plan Is Writt en

F O U N DER- (D R F O UN DE R S- ) RELATED I SS UE S 1.(111' POIl'lIIi,,! (- I )

!\Iodallle l'olellli,,1 (O)

IliK" I'o{l'lIIil/! ( + I)

No e xpe rie ncc

Mode ral e cx pe ricn cc

Expe ri e nced

No s kilIs

Mode ral c s kilIs

Skilled

3. Exle nt o r the found e r o r fOllnde rs professio n;11 a nd social nc lwo rks in Ih e relevan l indu sIr)'

None

Mode mI e

Exte nsive

4. Exlent lo which Ihe

Wea k

Mode r
Slrong

Unlik e ly

Mode ml e ly likcI)'

Ve l)' like ly

(-I)

!\Iodall/t' I'o/elllilll (U)

I IiK" I'II/l'lIIio! (+ I)

l. Inili,,1 c'lpil
High

Modc rilt e

Low

2. Numbe r of revenue

One

Two lo three

More Ih
Mo rc th:Jn Iwo yca rs

Olle to IW O ye
Less Ih;11l o ne ye ar

WC:lk

Modcsl

SI rong

Lo w

Modc rill c

High

l. Faunde r ar founcl e rs

expe rie nce in Ihe in duSII) '

2. Fo ullClc r a r fo und c rs s kilis as Ihev rdatc 10 Ih e propo~e d ne w ve nlure 's pnx lucl a r se rvice

proposed Ile w ve nturc Illccts Ihe founcl c r o l' fOllnde rs personal &o
PART 5 : FINANCIAL I SS UE S

1.0 1\'

l'o{t'III;O!

clri vc l'S (wa ys in whi ch !he com pan)' mak es mo ncy)

3.

Tilll c 10

brcak e"cll

4. Fi nancia l p CrfO t'lll
or

similal' busillesses

5. Abilil )' 10 fund inilinl prCKI ucl (ar service ) deve lo pme n I a nd/o l' in itial stanup cxpe nses from pe rsona l funds Ol" vi
CHAPTE R 2

Develo p ing and Screen ing Bu si ness Idea s

47 .

OVERALL POTENTIAL

Each parl has fivc il e ms. Sco res will range from - 5 lo + 5 for each part. 1l1C score is a gu id c~ l herc is no eslabl ishc d rule-of-I h u m b for l he num e ri c'll score 111<11 equCll es 10 hig h pOlc nli al. 111 od o.: l";1I1; POIl; 111ial. Ol" lo\\' pOICllliul fol' e;lo.:h p
Sm/"/' (- 5 10 + 1)

()1" (,1"II1I1 1olelllial of IlIt, NI/sil/es.\ Idea Jj l/.wd 011 EI/clll 'arl

S lIggt'Jlio/l.I/in· /1If{J l"Ur illg 11It' /'olfll lia!

PClrl I: Sll"e nglh of Bu sinl;ss Idea

Hi gh pOle nlial Modc l"
D D

Lo\\' pOlc nli,l1

D

Parl 2: In clusIl"y- Rc lClt ed Issll es

Hi gh pOlc nlial

D

Mode r"le pOlc nliClI

D

Low pOle tlli,!I

D

PClrl 3:

Hi gh pOl e nlial

D

l ';n gCl Mmkcl !Ind Cuslonler- Re I.al ed Issues

Mode rnIe pOlc nli ,ll

D

Low pOle nlial

D

PClrl 4:

H igh pOl e nliClI

D

FOllIK!c I ~ (Ol" FOllndcrs-) Rc lnl cd Issues

Modc l";ll e pOlo.: nli<11

D

Lo w pOle nlial

D

Parl5:

Hi gh pOl c nliClI

D

Fin"ncia llssues

Mode rale pOl e nlial Low pOlcnli,lI

D D

Hi gh pOl c nliClI pote nlial Low pOlc nli,tl

D D D

Overa ll Assessmenl

Mode ra1l:~

SIlIllIIlary - bri ef1 y su m l11ari ze yOllr jllSI ifica l ion for yOlll" over" II

a ~se ss l11enl:

• 48

PART II

W h at to Do Befo re th e Bu sin ess Pl an Is W ritten

APPENDIX

2.2

Internet Resource Table Resource to Help Complete the First Screen Applicab!t' f>lIl"IS oJ Firsl SerC('1I

Cvsl/A m i/flfJilily

SOl/ree

IJcseriplioll

Ame ri can Faclfinde r (hltp:/Iwww. fact finder. census.gov)

An easy-to-use portal fo r oblaining censlls data. One quick way to retrieve data is lo ge t " "Fact Sheet"' on a geographic mea (by cily. county. or ZIP code). which provides popubtion. medium household income. demogmphic breakdown ("ge. gender. 1"
Part 3

Free

BizS lals (h II p:/1 www.bizslat s.coll1)

Has a vari ety of detailed fin a ncial data on vario us retail categOl·ies. On the s ite. a use r can type in the projecled income of a firm. by induslry. a nd rece h'e a mock in come stat e rne nl in re turn.

Parts 2 and 5

Free

Business & COmp,1I1Y Resource Cenler (http://www.gale. corn/ Bus iness RC)

Access 10 informatioll on Ihe o rganization Ctnd slruc1Ure o r ind uslri es. Cllnelll industl) ' tre nds. a nd olher information .

Parts I and 2

Fee based: Iypically free if accessed Ihrough a uni vcrs ity li br
Cit y- Data.com (http://www. city-data.com)

Conlains de lailed infornwtion on cities.. including median reside nl age. medi"ll house hold income. e thnic mix or residents. and aerial ph o tos.

Part 3

Free

COUI1łV

Good resolll"ces for looking Parts 2 and 3 at business a<""livity. indudin g t he 11 mIlber or cOll1pe litors. ,lt n cil )'. CO UlU )'. Ol' s tale level . For cxample. you C,Hl find I he n u mile r o l' drycleall crs (or lm)' olhe r business) in a spec ific Z IP code Ol' cil )'.

Business Patte r~s (h ttp:// www.ce nsus.e.ov/

!.! pcdJcbp/vic~\'1

cbpview.html)

Free

CHAPTER 2

Deve lop in g and Sc ree nin g Bu sin ess Id eas Applicable Par ls Firsl SereclI

49 .

Dr

SOlIrel'

f)escriplion

Hoovers Online (http://www. hoove rs. com)

Brief histories m1(1 financial Parts 2.3 . infonnation on comp[lnies. a nd 5 indllstries. pe opl e. [Ind products. Pre lllium service provides access to de t<1ile d financial info rnmtion ancl IO-K re ports for publicly t]"[Jdecl firm s.

Free: prc millll1 ve rs io n aV<1il<1ble on [I fe e bas is or typically for free if
IBISWorld (http:// www.ibi swor1cL com )

De t<1ile d re ports [lv<1il<1ble on hundre cls o f indllstri es. including industry st<1t s. tre nds. buye r be h
Parts 1. 2.3. and 5

Fee basecl: typically frc e if [lccessecl tlll"ough a uni ve ls ity library

Lex is-Nexis Acmlemic (http://www. lex is ne xis.c0111)

Prov ides [lccess to sales dat[l for public m1(1 priv<1te firm s.. which c[ln be searche cl in a nllrnbe r of II seful wa ys. He lps stm"tups estimat e th e financi a l pe rfornmnce ofs irnilar bus inesses. Go 10 " Bus iness" <1nd th e n "Col11pmly Financial."

Pal1 5

Fec-b<1sed: typically fre e if [lccesscd throu gh a uni vels ity library

M[lgPort[ll,com (http://www .111"gport" I.com)

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Prov ides ne m" instmll [lccess to fin
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De t"ile d re ports (lv<1il
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• 50

PART II

What to Do Befo re the Bu sin ess Pl an Is Writt en A pplicllblc

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Parts l. 2. 3. 4.
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COI11)

CHA PTE R 2

Deve lopin g and Screening Bu sin ess Ideas

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51 •

J'lpplicabll' Pl/fis o! Finl SlTl'1'1I

Cosl/ J'I m ilI/hi/ii)'

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and 5

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( H

E R

FEASIBILlTY ANALYSIS

INTRODUCTION lllis chapt er focuses 0 11 assessin g th e feasibilit y of a busin ess ide" . Feasihility llIwlysis is th e proce ss o f de te rminin g if " busin e ss id ea is via b1e. In C1H1pte r 2. we int rocluced th e First Screen. which is a tool fo r qui ckl y assessing th e m crit s o f busin ess ide ns. A fea sib ility (lJw lysis is
. 53 .

• 54

PART II

FIGURE 3-'

Wh at to Do Befo re th e Bu siness Plan Is W ritt en

The Comprehensive Feasibility Analysis/Business Planning Process

Step I

Identify
ł

Step 2

Sercen (or test) the ide" to determin e it s pre lirnin
Step 3

F"vomble result sJproceed Unf" vor
Conduct a fuli feasibility analysis.

Step 4

F" vombl e result slproceed Unf"vor
Prep"re
l Step 5

Present the busin ess pl"n to in "cstors tlnel othe rs.

NOTC:

ShaJc d sKI' is coverc d i n t his chapte r.

TEMPLATE FOR (OMPLETING A FEASIBILlTV ANALVSIS 1l1e te m pial e fo r co m ple tin g " feasibilit y a nalysis is shown in Table 3- 1. 11 in cludes an introducti o n. th e fo ur pmls o f fe
CHAPTER 3 TABlE 3· '

Feasibility Ana lys is

55 .

Fuli Feasibility Analysis

Intro(llIdiOIl A. Nam e ol' Ihe proposed business B. Nam e ol' the faunde r (O l' founde rs) C. One paragmph smnmnry o flh e busin ess IJa rt I: Prodlld/Scnil'c Fcasibilih A. Producl/se rvice desirabilii\' B. Producl/sen'ice de mand . Part 2: lndustryrr:lrgct Market Fcm:ibility A. IndusIr\' atlraclive ness B. Ta rgel l11a rke l atlracli ve ness C. Markellimeliness Pa rt 3: Organizational FC:lsibilit)' A. Mannge me nl prowess B. Resource s uffici e ncy Pa rt 4: Filllllldal FC:ls ibilih' A. Tola l sIarlup cash ,; eeded B. Financial pe rformance ol' similar businesses C. O verall financial atlracli ve ness of Ihe proposed ve nlure SlImmar)' :lIId Condllsiun (C i r('/(' CO"t'CI respmlJt'.)

Producl/Se rvice Feas ibili lv Induslry/Market Feasibility Organizationa l Feas ibi lit y Financial Fe':ls ib ility O veral l Assess rn ell t Suggestiolls fOl' Improvillg Fe.1Sib ili ty in One Ol' Mo re AreOls

Not Not Not Not Not

feasible feas ible feasible feasible feasible

Uns ure Unsure Uns ure Unsure Uns ure

Feasible Feasible Feasible Feasible Feasible

researeh. Prilllar~' rcscardl is o riginal re search that is collected by th e perso n Ol' pe rs ons com piet ing the nnalysis. It norm ally incIudes taJking to indust!'y ex pert s. ob taining feedback from prospecti ve clIsto mers. and administe ring surveys. Secol}(hu~' rcscilrch probes data thal is already coll ected. 1l1e dat a ge ne rally indudes indusI!'y studies. Ce nsus Burea u data. company repo rts. and o th e r pe rtin enl info nnati on glea lled Ihrough li brary an d lnte m et re search . II shouJd be e mp has ize d Ihat whiJ e a feas ibiIit y a na lysis tests the merit s of a specifi c idea . it a llows mnp le o pportunit y for th e idea to be revised. alt ered. and cha nged as a result o f the fe edback that is obtained a nd the ana Jys is th at is eo n· d ucted. 1l1e who le ide
• 56

PART II

W hat lo Do Befo re Ihe Bu sin ess Plan Is Written

he lp dete rmin e whelhe r a n idea is fe ns ible bul also help shape a nd molel th e idea. nle imporlance of Ihis not-ion is nffirm ed by R.G. Cooper. a widely published
PRooucy / SERVICE FEASIBILlTV

Product/se rvice fe,1sibi lit )' is a n assessme nt of th e overall appe
n, e firsl compo ne nt of productlse rvice feasibilit y is to affi rm tb a t the proposed produet or se rvice is des ira ble and serves a need in th e mark elp lace. llle foll owing qu estions spea k lo the basic appea l o r Ihe product : • Does ilmake sense'? • Is it reasonable? • Is it so mething Ilwt consu me rs will get exc iled a bou t? • A re the re
CHAPTE R 3

Feasibility Ana lys is

57 .

prospectiye custo me rs to so li cit th eir feedback. [t is no nna ll y a one-page docume n!. wh ich includ es the foll owin g: • A descripti o n of th e product a r service • lll e int e nded targe t mark et • Th e benefit s of th e product

Ol'

se rvice

• A desc ri pti o n o r how the product Ol' seryice will be positi oned relati ye lo compelilors • A descri ptio n o r how Ihe product Ol' seryice wi ll be so ld • A brie f descriplion o f Ih e compa ny's manageme nl te
• 58

PART II

FIGURE 3-2

Wh a t to Do Befo re th e Bu s in ess Pl a n Is W ritt e n

Concept Statement: Prlme Adult Fltness

Prudm't Prinlc Adull Filness will be a filn ess cenler fo r people 50 years olei ,md older. TI1C cenl er will be Iwo-Ihirds Ih e size or an ave rage Bali)' Filn essCenler l)f G okr s G ym and will k,llure exercise lIwchines. classes. and worklHlls Ih
Target Market Prinl e Ad ull Filness wi ll be locakd in Ceni rai Florid,t. one o f Ihe fasl esl growing areas for peopl e 50 yenrs olei ,md older in Ihe coulllry. 1i wi lllimil ils membcrshi p l o people 50 years old and older. Allhough Ihe filn ess indll stry itscJf is l) n a sleacl y growIll curve. wc bcli eve Ihal existin g ["itn ess ce nte r s
Hol\'

Prill1t~

Adnlt ntm'ss Will Re I'ositiullcd ReJath'c to COll1petitors

PrilllC Adull Filness will be Ihe onl y filn essce nler in CenI rai Floricl a exclusivel y focuscd on per,!,l e 50 years oki and older. lis ameniti cs will be equallo Ih e major c0111petilors in il s larget market. which include Li fe Tim(' Filness. L A Fi lncss. ancllhe YM CA. T he company"s apprOitc h will rree il lo focus exclusivcly on Ihe n ce d~ or ils clienl ele.

l\lanagcl1Ic llt Tcalll Pri1l1 e Ad ull Filness is led by ils cofo und cr~.Jen:: m y Rya n and Elizabel h Si 111& JćTC m)' sl arl ed a success ful filness center in South Fl orid a and grc \\' il l o 38 ullits in 3 yea rs before se lling ill o a major chain. Elizabe lh Si111S wo rk ć d wilh Jerem)' in his las I ve nlure and has 19 yca rs experi ellce as a ce rlifi ed public acco unlanl .

fim lllCi
CHAPTER 3

Feas ibility Analysis

59 .

state menL lik e the o ne shown previously in FigUl'e 3-2, with a surve y to complete but also to e ngage in ve rba l give-and-take with as Ill any induslry e xperts and prospect ive cu sto lll e rs as possible. PRODUCT/ SERVICE DEMAND

llle second cOl11po ne nt of producll service feasibilit y a na lysis is 10 dete rmin e if the re is de mand for the procluct o r se rvice. A usefu l technique to gain a pre lim inary sense o f the d emand for a produet o r se rvice is to adm iniste r a bu ying in te ntions survey. Bllying Intcntiuns SlIrvcy. A bu)'ing illtclltiolls StU\'c)' is an instrum e nt that is used to gauge custom e r int erest in a produet or se rvice. II consisls o f a cO l1 cept stnte ment (o r a s imibr description o f a produet o r se rvice) with a short survey attached. 1l1e stat e mellt and th e survey shou ld be distribut ed to 15 to 30 pote ntial cllstome l"S (do 11 0t includ e any o f the peop le who completed th e conce pt s tat eme nt test). Each participanl sho ul d be as ked to read the state me nt a nd complete t he survey. 1l1 e survey typkally feat ures a questi on that looks something like this: How likely would you be to bu y a pro duct (or se rvice) like this. if we l1lake it ? ~_ _

Defillit ely would buy Probably would bu)' ~_ _ Might o r mjght not bu)' ~_ _ Probably would no t bu)' ~_ _ Defillilel y would 1101 bu y ~_ _

1lle Ilumber of peop le who indi cate th at they defillirely would bu y is typically combin ed with the Ilumbe r who indica te that th e probably would buy to ga uge customer int e res!. O ne cave (lt is th(lt peo pl e who S
Ol"

service? lllis

• Whe re would yo u ex pect to find this product or serv ice for sa le? nI is ma y provide in sight into sales .. nd dist ributi on . nle surve)' shou ld be kepi sho rl 10 Illa ximize participalion. To find peop le to Inlk Ih rough n produet o r se rvice iden Ol' lO renet to a cOll cep l stnte ment , e ntre pre neurs s hould cont act industl) ' trade assoc iatiom and atte nd in d usU'y trade shows. We b sit es Ihm provid e n dirceto ry o f Ihe trade associatio lls in <111 in duslry nnd di splay <1 schedul e ot' Iracie show c1Clles anclloca ti ons are incl ucled

• 60 PART II W hat lo Do Befo re Ihe Bu s iness Pl an Is Written in th e In te rn et ResoUl·ces Table (A ppe ndix 2.2)
Indu stryfla rget ma rk et feasibilit y is an assessme nt o f th e ove rall appea l of the industry a nd th e ta rget m
lndustri es VaJ) ' in te rms o f th e ir ove rall att ract ive ness. In ge ne ral. the most att ractive industries for startups a re large and growing.
CHAPTER 3

Feas ibility Analys is

61 .

Resou rces Table in Appendix 2.2 at the e nd of Chapte r 2 lo ide ntify sources th at will help yo u nw ke your assess me nt s. lBI SWorld . St and a rd & Poor's Ne t Advantage. and Mi nt e l a re pa rticularly useful resources for thi s secti on of th e fea sibility a nalysis. TARGET MARKET ATTRACTIVENESS

As me nti o ned. a target marke t is a pl ace within a Imger ma rket segme nt th at represe nt.s a nnITowe r group of c-uslome rs wit h simila r needs. Most sla rtups simpl y do nol have lhe r e~m u rce s needed 1.0 pm1icipate in a hroad rmlrk e t. at le nsl initi all y. In slead. by focusing on a sma lle r tnrgel marke t. a firm C
• 62

PART II

What lo Do Before Ihe Business Plan Is Written

sha rp decline. the nieh e market that H20Au dio is pioneeri ng wou ld be muc h less
CHAPTER 3

.------.. ,: 1 Somełillle s

Feas ibility Ana lys is

BU SINES S PLAN IN SIGHT

63 •

1 :- -------,

a COlIIl'any Needs More Than One Tar geł

l\1 ar k eł

In 1993. Jeff Sacree stm1 ed Gecko. a small British comp':lIly tlwt made c ustorn surf bo.'1rds fo r ł oca l s urfcl'S a nd retail shops. Having comple ted no industl)' or t
H c~ d!!car

ho me ragc ( hll p:/Iwww.gec ko he adgcar.com).Accesscdi\b y I(). 2un.

ORCANIIATIONAL FEASIBILlTY ANALYSIS

O rg anizatio n al feas ibi lit}' nna lysis is conduc te d to dete rmine w h e the r a proposed bus in ess h as suffic ie nt m ana gem e nt expertise. orga niza tio n a l com petence. a nd resources to su ccessfull y launch it s bus in ess. Th e re a re twa p ri m ary issu es to cons idc r in t his (I re n: ll1
tea m. wheth er it is

(l

so le entrepreneur o r a Im'ge r gro llp. llli s tClsk requ ires th e

• 64

PART II

W ha t lo Do Befo re Ihe Bu s iness Pl a n Is Written

individu nls startin g the firm to be ho nest a nd c
1lle second ste p in o rg,mizat io nal feasibilit y mw lysis is to determine whe th e r the pro posed ve nture has ar is ca p
CHAPTER 3

Feas ibility An a lys is

65 .

kn owledge. nnd technologicn i ex pe rtise nnt ive to t he m en . 10 For exnlllple. t he re is a cluste r of med ica l dev ice compani es in th e Twin Cili es are
Fin anci
The fir st issue refers to th e to tal eash needed to prepare th e busin ess to mnk e it s fir st sale. An aclunl blldget should be prepared th at lists ali th e a nticipa ted openlling expenses and capitnl purchn ses lhat will be needed to get t he busin ess upa nd-runnin g. After n tota I fi gu re is arrived at. all expJanati on o f whe re t he money will co me from should be provided. Avoid curso ry expJan
• 66 PART II What lo Do Befo re Ihe Bu s iness Plan Is Written FINANCIAL PERFORMANCE OF SIMILAR BUSINESSES

11le second component of the fimm cial feasibilily ana lys is is estimating a proposed st
CHAPTE R 3

Feasibility Ana lys is

67 .

tlumbe r o f custome rs who come in and o ut of th e stores durin g va ri olls times of the da y. 11le assessme nl too l associated wit h this to pie is incl uded in the fuli feas ibility analysis that appea rs in A ppendix 3. 1. OVERAll FINANCIAl ATTRACTIVENESS OF THE PROPOSED VENTURE

A num ber of other factors a re associated with evaluating th e financia l all racti ve ness o f a proposed ve nture. Aga in. at th e feasibility analysis stage. the extent to whi ch a proposed bus in ess appeaJ"S positi ve relati ve to ead facto r is ba sed o n an estimate o r fo recast mlher than actual perfo rm ance. Impo rt
Chapter Summary I. Feasibi lity analysis is th e process of determining if a busin ess id ea is viabl e. 2. Primary resea rch is origina l research that is collec ted by th e pe rson o r perso ns completing the ana lysis. 1t normally includes taking to industl")' ex perts. obta ining feedback from prospecti ve cuslo mers. and administe rin g surveys. 3. Seco ndary resea rch probes d ata thal is a lrea dy co lJ ected .1l1e d ata ge ne ratly in cludes indus lry studi es. Censlls Bureau d ata. co mpany repo rt s. an d ot he r pe rtine nt info rm ation glea ned lh rough library and In tern et research . 4. Producl/service fea sibi lily is an assessme nl o f the overall appea l o f the product or service bein g proposed . It s Iwo co mpo ll enl s ,He product/se rvice d esirability and product/se rvice d emand . 5. A concep t test in volves showing a p relimin ary d escriptio n of a prod uct a r service idea. calJ ed a cO ll ce pl state ment. lO indlIsIty ex pe rt s
• 68

PART II

W hat l o Do Befo re Ihe Bu sin ess Pl an Is Written

7. Industry/target ma rke t fe
Review Questions I. Wh at is a feasibilit y
business pla n? 2. Wh at a re the fo ur individua l co rnpo ne nt s of a fuli feasibility a na lysis? 3. W hat is fh e diffe re nce be lween primary rese
Application Questions l. A nn S e nn e t!. a fri c nd o f yours, recentl y inb e rite d $ 150,000 fro m
CHAPTER 3

Feasibility Ana lysi s

69 .

malI. A llil lw s always wa nt ed to o pe n .. cosmclics sta re for wOlllc n and feels no w tSher chance- she has th e mo ncy she needs and th e space in the mali tS 'l V
2.

3.

-I .

5.

A nn a quizz ic
Endnotes I. R.G, Cooper. Pro(ll/cl L t'IIdersllip: C /"l!at;lIg mili / .fllII /C!Jillg ,')'/1 pa;o/" M.'II' / Jw (IIł< 'IS ( R e~l(l i n g.. MA: Pe rse lls Books. 1(98). 99. 2. B. R. B
(200"),4 1- 5". 9. A C. Cooper. F. 1. Gillle no-G
APPENDIX

3 . 1

Fuli Feasibility Analysis NOI(': Ali fi e lds c
INTROOUCTION A . Namc of [he proposcd busin ess B. N ame o r the fo under (ar fOllndcrs) C. One parag r
PART 1: PRODUCT / SERVIC( FEASIBILITV

ISSUES AOORESSED IN THIS PART A. Productlse rvicc d cs irnbilit y B. Product/se rvice d e m
ASSES SMENT T OO LS C UIłl:Cpt

StOlI cIII cni T t:'st

\\' Iit e fi eOll ce pl s lat c me nl fo r your prodllclJservicc idea. Show thc COlleepl st:lt e mc nt to 5 to 10 people. Se 1ce! pc ople who wil l give y Oll infonned and candid fe edbnck.

•

AII
• SUIl1Illcopl e who Ihink il isn 'l feasible. and an y additiona l commenls Ihal were made • Other cornrnellts and s uggestio ns

. 70 .

CHAPTER 3

Feasi bility An alys is

71 .

Bll ying Intclltiuns Sun'c)' •

Distribute the conce pt stateme nt to 15 to 30 prospective custol11e rs (do not inc1ude
•

Along with th e raw d
•

One cave
How like ly would you be to buy th e product ar service described above? ___ _ __ ___ _ __ _ _ _

Definite ly woukl bu }' Prob
Additional questions ma y be adcled to th e buyin g int e ntions surve }'.

ConcJlIsiulI (e xpand fields mld report findin gs. in discms ion form. for each area ) A. Product/service des irability B. Productlservice de l11and C. Product/service fe as ibilit y (circl e th e correct respon se)

NOl Fe{lsible Ul/sI/re D. Suggestions for improving procluct/service feas ibilit y. PART

2:

Feasible

INDUSTRy / MARKET FEASIBILlTY

ISSUES ADDRESSED IN THIS PART A. Industry attractive ness B. Targe t marke t
ASSESSMENT TOOlS

IlIdustry Attradi\'l'IIl'ss • To Ih e e xt e nt poss ibl e.
A ssess th e
• 72

PA RT II

W h at to D o Bef ore th e B lJsin ess Pl an Is W ritt en

Industry Attractiveness Assessment Tool (used t o assess the broad

in du s łry,

rather than the specific t arg et market, you plan t o enter ) 1,01" 1'011'11/;1/1

M O(It'I'(I/i' l'oli'lIlhll

/l ig" 1'olelUi"!

l. Numhe r o f compelil o rs

Man)'

Few

No ne

2. Age or indusIr)'

Old

Middle aged

Yo ung

3. Growlh r;ll c of indu slry

Linie o r no growlh

Mod crale growlh

Slro ngg rowlh

4. Ave r
Low

Medium

H i ~h

5, Degree of induslry

Conec nl rnl ed

Neilh e r conce nlr
Fmgme nl ed

6. Swge of indusI ry lif!.'! cycle

Malurily phase Ol' decl ine phase

Growt h phuse

Emcrgc ncc plmse

7. Impo rt
"A Illo iv
"Would like lo .. hnve

" Mus l l1<1 ve

Low

Med ium

H igh

9. NlIl11 be r ol' exciting ne w prod- Low

Mediul11

H igh

Ne ulra l

SI rong

eoncc nlrali o n

prod ucIs a nd/o r se rvices to cu<: tomers 8. Exte nl lO which business and c nviroll lll c nla l lrc nds are 111 00' il1 g in f
..

UCI
10. Lo ng-tc rm pros pecls

Targct Market •

Wcn k

Attr:u: łivcncss

Ide ntify Ih e portioll or spccific mark et wilhin your oroade r ind lls lry that you pIanI a targc l.

• Assess Ihe al traeliveness o ft he targe l I11nrke t 011 cnch of th e following dirne ll sio ns. Target Market Attractiveness Assessment Tool (used l o assess the specific target m arket, rather than Ihe broader industry, you plan to enter) I ,(JW I'o/ell/;n l

i\!Ofkrml' /'olemllll

/fi!:" Ih/e/I/iol

I. NlImoe r of eompe lilors in ta rget Illark el

Ma ny

Few

None

2. Growth rale of firrn s in th e target Illmk el

Little 10 no growth

Slow growlh

Rapid growlh

Lo"

Medium

H igh

3.

Average net incorne for fi rms in the ta rget ma rke i

CHAPTE R 3

Feas ibi l ity Ana lys is

73 .

1.01\' l'Oli'llIia/

Moda{/Ie l 'oll'llI;a'

II igIl I'o/ell/i,,/

4. MClh ods for gc ncra lin g reve nue in Ihe induslry

Unc leH!"

SOtllCw hal cleil l'

Clca r

5. Abilil y lo c re
U nnbl e to cre:l\e

M
C
6. Degree la whi ch cus lo me rs feel salisfi e d by th e current o fr... rings in the targe t marke I

Sa tis ficd

Nc ith e r sa lis fi ed Ol' di ss
Uns
7. Pot cn[i.-.l [oe mploy lowcos[ gue rrill
Low

M od c ralc

I-ligh

Excilc llle nl surrounding new product/scl"\'icc offc l'in gs in the Itlrgel ma rke t

Low

Me dium

High

K

J\'I;ukct Timclillcss DCle nninc I he ex le nl lO which Ih e "w indow o f o ppor\unity" for Ih c pl'oposed business is o pe n Ol' c losee! b
De le nnine Ih e lirne lin css

or e nl e ring 11 s pecific ta rgc llll a rk el bascd o n o lhe l" cril cria.

Market Timeliness Assessment Tool Lol\' POleli/iti/

ModamI' l 'Olelllinf

IJigll POIell/inl

C uslo me rs are n0 1 in ;1 bu,,ing Ill ood .

Custorners a re in :l nlode l'al c buying 111 00d

C usto ll1e rs a re in : 111 ngg rcss ive buying Illood

2. Mome ntum o f Ihe m:lrke l

SI:l ble lo losing 1II01l1e nlulll

S lowly gaini ng 1ll0 rn c nlum

R
3. Necd for a Il e w firm in Ih e

Low

M od c ralc

I-ligh

Low

M(.!diulll

I-ligh

L1 rge firm s e nt e ring th e mark e t

RUlllon; 111<11 large firm s Illay be en te rin g the ll1
No large r finn s en le red th e mark e t O l' tlre rumo re d to be e nte ring the mark e t

L

Buyi ng mood o f clls lome rs

ma rke t w ith you r o ffe rings or geogmphi c 10Crllion 4.

Ext e nl 10 which business a nd environ me nl al lre nds are Illovi ng in fH"or or th e t:lrgc ! mnrke t

5. Rece nl 01' pl:llllled e nl rance o fl nrge firlll s imo Ihe market

• 74

PART II

What to Do Bef o re the BlJs in ess Pl an Is W ritt en

Cu ndusion (exp:lIld ficlds and repo rt findin gs. in discuss io n fonII . for e:tch
In dust ry ,111 mctiveness Targc t marke t allracti "c ncss M
U I/Sll r/!

Fc{/si !J {e

E. Suggesliolls fo l' illlproving indusll)'/ Ill :t l'kel fe:tsibilil y.

PART

3:

ORGANIIATIONAL FEASIBILlTV

ISSUES ADDRESSED IN THIS PART

A. Man
ASSESSMENT TO O lS

Maml gc lII l'1I1 Pnlwcss Use [he fo ll owing lab ie lO cand idl y and o bj eclivc ly ral c I he " pro wess" of th c found e r or group or fOlllld crs who will be st::lrling Ihc p!'Oposed ventlll'e. Management Prowess Assessment Tool Low { 'oIl'lIli(/{

M odcmlc { blelllill{

lligh ('oll'lr l ia{

La w

Mode mI e

High

No ne

Mode rat e

Exle nsive

No ne

Mode mI e

Extc nsivc

4. Dcplh o fpl'o fessio n::ll
Weak

Mode rat c

Sl ro ng

5. C rc'lti vilY
Law

Modc rilt c

High

No ne

Mode rat c

High

No college educalion

Sotne coll ege educa lion but not currenlly in college

Gradualed or are currentl y in college

I . Pilssion for Ihe busin css

ide
2. Rc1e va nt indusi I')' cxpc ric nce J. Prio r e nlrep re ne urinl

expe rie nce

ment leam Ill cmbers

6. Expcl'ie ncc and cxpC 1'1 isc in cash tlow Illan ::lgcment 7. College gradual e

CHA PTE R 3

Feasibility Analysis

75 .

R CSlt Url" C S llfti dC lI l"~r

• nlC focus inlh is 5eelio n is o n 1l 0n fin 'lIlci;:l1 rcsourccs. Use Ihe ro llowin g Inble youl' "" reSOlll'cc s uffi ciell cy" in cach cal egary,

10

I'a le

• nie lisI o f reSO lll'ces is no l me

(ZJ

Resource Suffi cien cy Assessm ent Too l UII /il/gs

N.t'.\"OIIITI' SIIJfickl/cy

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Officc Sp
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Lab spaec. ma ll llf;:lcluring space. Ol' sp,lee 10 lallnch n sc rvice busin ess

@

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Co nlmcl rna nufactu re rs a r oul so ul'ce providers

@

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(j)

@

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®

Kcy Slippo rt pc rsonncl ( nowa nd in thc fUlur c)

@

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Ke y equ iprne n\ neede d lo ope rat e I he business (CO llI pu Ic r5. machine ry. cle li ve ry ve hit les)

(j)

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@

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Abil il Y10 form fa vornblc busin ess parlllc rships

(j)

(j)

Key ll1;:lnnge llle nl ernployees (nowa nd in !he fU l ure )

Na/il/gs: Slrollg. !'h' lIlrol, II't'tIk

Ul'

Proxim ily lO similal' firrn s (for Ihe pll rpose of kn owledge s ha rin g) Proximi ty lo slIppliers Proxilll ity lo custolllers Proxillli ty lo a major research 1I11ive rs il y ( if app licnbl e)

• 76

PART II

W h at to Do Befo re the Bu sin ess Pl an Is W ritt en

CO lldus inn (cxpa nd fi c lds and rcp011 fin d in gs. in discllss io n fo rm . fo l' eac h are a) A . Ma nagem ent p rowess B. ReSO llrce sllfficie ncy C. Orgil ni 7-,,'l ti ollll l feasibilit )' (circ le the eon c et res po nse ) 1~!(I!l ible Not Feasible Umll!'e D. Suggesti olls fo r improv in g o rg<1 ni w tio na l fcasib ilit y

PART 4: FINANCIAL FEASIBILITV I SS UES ADDRESSED IN THIS PART A. To ta l sta rtup cnsh neede<[ B. Fin
A SSESSMENT T OOLS

• 111e st;-artup Cosls (which incl uclc c;-apil,,1 in veslrn ellls and ope rating expe nses) sho uld include a li the cosls neeess;-a ry for Ihe business lO Ill ake il s fi n;! s'll e. New finn s typ icn lly need mo ne y fo l' n host of pU l'poscs.. incl ucling Ih e hiring o f pe l'so nn cl. o ffice Ol' 1ll:Jllufacturill g s pace. equipmc nl. trainin g.l'cscnl'c h and d e ve lopmc lll. ma rke tin g. and th e initi a l prod uet roll o ut. •

A t th e fe asibility a nalysis stage. it is no t 11 ecessa ry fo r Ih e 11 li 111 be I' lo be exacl.l-lowcvel'. Ihe 11umbc r sho uld be fnirl y accHr
• 111e 100a l st
Tota l Sta rtup Cash Needed (to Make First Sa le) C{/pi!al llll'ntlllel/ts

Propc l't y Furnitlll'c and fi xlures Co mput e r eqllipme nt Olher cquipm cnl Ve hicl es

Ali/Ul/lit

CHAPTER 3 ()pe/'millg r:xpt'llse,\

Feas ibili ty Ana lysis

77 .

AII/OIIIII

L cg
CUIU)w ri sulI uf thc F'imllu:i;d PcrfUnmlll('l' uf Prnpu:"icd Vcn turc tu Similm Finn s •

U se Ihe following tablcs l o co mpare lh e proposed new venture 10 sil11il
Compari son ot th e Financial Perform ance ot Proposed Venture t o Similar Firms Assessment Tool Annual Sales Es/iII/II/e uf I'ropused Ven/llres A/llluat Sa!es- rea/' t

ESl ill1;llc of Ycar I Sales Summ ary: H ow proposed an nU il1 sClles, on ave rage, colllpa r es 10 similar finn s (circl e one)

Iklmr !\ref(l,l,'(' Estimate ofYca r 2 Sales Su mmClry: H ow proposed (lI1 n ua I sClles, on <1vcrage, compilres to similClr finn s (circl e one) !Je/OlI' !\I!erage

I \\'emge

Er:p/al/II/iullllf !lolII/lie Es/iII/o/e Was CUIII/'II/cd

• 78

PART II

W hat to Do Befo re the Business Pl an Is Writt en

Net Income f:': .fiwflle o[ I'IVp wetl Vel/lll re:"· N I'l Inco me- Yefl/" J

f:"' l'!w/{/Iiol/ o[ f!ow lIII' ' :'sfimole \-VI/S CO lll fJ J//etl

ESli l1W 11! a r YClI l' I N" I lncOIllC _ _ _ __ S umm a ry: How proposed ne l incOIn e.on ave ra gc. cornp
AI'erage

AbVl'e A l'crag e

On'nlll Filla nd al A ttrad i" c ness nf fh e Pn ll'Hscd Vent ure •

fo tlo wing rncto rs ;u c im po rt " nI in n:gnl'd 10 I he o\'e l'a ll fin ,-uleia I ;lII r,lel iw ness of th e pro posed h us iness.

n I l!

• A ssess th e sl re ngt h of eaeh faclo r in Ihe fo llowing la bie,

Overall Financial Attractiveness ot Proposed Venture Assessment To ol 1.0 1\' I'O/t'milll

M odem/e Po/emiliI

I/ igll " OI('nlilll

I . Swady a nd r;lpid growl h in sales d uring Ihe firsl one to Ihree yenrs in a clearl y defi ned lilrge l ma rket

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Mode rnl e ly like ly

H ighl )' likel)'

2. High pe rccnlngc a r reclI ni ng

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Mode rnI e

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3. Abi lil v 10 fo recasl in eom e nnd expc nses Wilh :l H:.1Sotwblc degret uf cert
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in co rn e~ mea nin g

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5. A\'nil nbility of ex il o ppol'lullity for in vesto r if <tpplicable

CHA PTE R 3

Feas ib ility Ana lys is

Condusiun (re p0l1 finding for e"ch "re,,) A. Total startup c
UI/Sllre

t ;i'asible

D. Suggestiolls for improving fin"nci
OVERALL FEASIBILlTV : SU M MARV AND (ONCLUSION Ol'erall fi' {/sibifily oJ Ille Busll/ess 1(//'/1 I1 l1se(/ Oli

Eacli Pan

ProductlM
Not feasible Unsure Feasible

D D D

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Not feasible Unsure Feasible

D D D

Orgmlizational Feas ibilit y

Not feasible Unsure

D D

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D

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D

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D D

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D D

FC
D

Financial Feas ibilit y

Ove r
SlIggesl !O/lS for Imp ro\'!ng Ifle rt'asibilil v

Condlls ion -brie f1 y sUlllnwrize your justific"tion for your ove m ll assessrnent.

79 .

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PART

III

( H A

PREPARING A BUSINESS PLAN

E R

INTRODUCTORY MATERIAL, EXECUTIVE SUMMARY, AND DESCRIPTION OF THE BUSINESS

INTRODUCTION As cliscllsse d th rougho ut th e baok.
elltre pre ne ur provides th e busin ess plon to
Thi s dwpt e r begin s o ur d iscll ss ion o f how lo writ e " busin ess pl a n. AltllOUgh expert s v(l ry O ll th e o rder o f th e topics in a busin ess pl nn. most plilns fo lI ow" f(l irl y sl
summ
. 81 •

• 82

PART III

Preparing a Bu sin ess Pl an

first things peopl e o bse rve in
(OVER PACE AND TABLE OF (ONTENTS A s me ntion ed in C hapte r I. to nw ke th e best im pression . a busin ess pl<1 n should foli owa conve nli onal fo rm al.1l1is ad vice stmts wit h th e cover p
1l1e tu\'cr IHJgC should inel ude th e name o f th e compa ny. it s stree t
one. Thi s inform ati on sho ulcl be ce nt e red at the top of the page. The botto m of th e pa ge sho uld inelude inform alio n
CHA PTER 4

Introductory M ateria l, Exec utive Summary

83 .

Th e s ingle most impo rt fl nl il e m on Ih e cove r page is Ihe contact informati o n fo r the au th Ol's o f th e pla n. Yo u wa nt to make it ext re mely easy for anyone reflding th e p la n to be flble lo contact you. TA8LE OF (ONTENTS

A łabie uf cOllłcnł s should foll ow th e cover page. It sho uld l.ist th e main sectio ns. subsections. a nd
EXHUTIVE SUMMARY Tlle cxecllłi\'e SU IIIIIHU)' is the first it em th fl l appems in a busin ess plan. lllis short ove rview of the e ntire p lan provides a busy rea de r with eve rything thal needs to be kn own about th e new \'ent ure's d istincti ve na ture. In ma ny instances. an in vesto r wi ll firsl ask for a copy o f the exec uti ve summary a nd will requesl a capy of the fuli business pla n o nl y if th e executive sunll11 a ry is suffi cien tl y con vin cing. llle executi ve summflry. th en . is (lI'guably the most imporlant seclion o f Ihe business plan. l If it doesn 't int e resl a nd exe it e the reack r. it"s unJikely th at the re
A n executi ve suml11
• 84

PART III

FIGURE 4-1

Preparing a Business Plan

Table ot Contents IPrime Adult Fitness Business Plan)

Tahle ofContents I. ExeclIlive SUlllmary Cornpan y Dcscripli o n .................................. . . II. 111 . Induslry Analysi s ...................................... . . Induslry Sizc. G rowlh Ralc. ilnd Sa les Projeclio ns ........ . . lndusl ry Sl ruclure ........................................... . Na lure o f Parli cipanls ................................ . . Kc)' S u cces~ Faclors ........ .. . . . . .. . . . • . . ln du~lry Tre nd s ............................................ , . Long-Te rm ProspecIs Markc l Analysis ...................................... . . IV. /v!
3 6 6 7

7 S 8 9 10 10 II 12 l3 14 15 15 lO 17

17 lS lO

19

20

20 22

23 25 26 26 27

28 29

30 30 31

32 34

36 38

be prese nl ed in Ih e s
CHAPTER 4 FIGURE 4·2

Introductory M aterial , Exec utive Summary

85 .

Executive Summary IPrime Adult Fitness Business PianI

Int ulłllldilm

tl)llVC r $21 hi[[il)11 in 2(I(I6, up ~ ulh lanli , lll y fh' 1ll 20()[ '111":: indu~ · g r(l wlh has bec ił dri venlargd y hy midll[c-.. ged and (lIder [)Curie. whll a re incrcasingly cOlłce rned abo lII Ihe ir health and filn ess. A gar in Ihe induslry is Ihe laek o f filness ce lłl e rs Ihal f{ICUS excl usi\'cly o n pcoplc 50 ycars Illd and \l Ida. who prc fc r ił diffc rc nl Iypc or rilnc~s cXIX' rie ncc Ih an yo ungcr pCllpl..::. Prim..: A dult Filn c~~ wi ll filIIh al gC u,,\:s cxclu"ive ly o n Ihal clicnld c. 1111.'

riln c..;~ i ndu ~ tr)' ~ r..::w

Iry'~

CO.lpany OesnipliHn Prime A dull Filn css i'i propo.~ ill g to operale iI 2l.6OC) Sl.luare fllOI facilil )' in O\'ic\lo. FL. i. \J r O rl alKIt). O\'icd\1 i'i an ide
IndllslrJ Ana l~'s is Primc A du[1 Filn c~~ wilt compe te in Ihe ·" nlnl.'s'i ;I nd Rec rcalillnal Spllrt s O.:nl e rs" intłus lr y (NA JCS 71394 ). 11Ic $2 1 billil,n ind u ~ lr y i..; in I he gn 1wlh ~t
l\lcmhcrship Gna l

Tulili PrujCl'h.·d Inmmc

2.\00 unit-. 2.226 unii "; 2.360 llnil s 2.502 llnil s

.$ I NJO.3iJ,s $2 .-1 16.5 14 $2 .561.955 $2.7 [6.124

111(' cllrnpa ny. lh rouSh k lCu' gHlUp" Hnd a "ludy cU lltłu c l ctl hy il s C ll ~ h\ lll e r A dvisur y Boa rd. bclievcs Iha! 50 pe rcelll o l' ils I11cl11bc rship will co me from pcoplc who al rci.dy hc lóng ttl a titness cent e r. and 50 pe rccnl will he new tIle mhcN.. draw n in hy il s uniqllc concepl. If 50 percenI o l' revenues come fromlh c exist ing mark cl.lhat mcans PrimC' A chlIt nl ness will Ileed lo caplure a ll llA4 pe rce nI share o flh c 50+ marke i fo r pcoplc in Se mino lc Co unlry. FL. who currc ntly bc lo ng lo a titncss ce ni e r. The company is co nfidelll Ihal ils l11embc rship goals are achie\'a bl c.

• 86 PART III Pre paring a Bu sin ess Pla n FIGURE 4-2

(continued)

l\I ,ukcting 1)lan 111e o vera ll o bjcc tive o l' Primc Adult Fi lncss's marke ting st ralegy will be to make people 50 years old and o lder awa re (lf the heJlt:: fi tsof e xe rcisc, and to sdl them on the idea of Prim t:: Adult Fit ness as t he !Jesl place fo r them to eithe r sta rt a r to continue exe rcising. T he company's poin ts of diffe ren tiation arc as follows: Onl y fit ness cenle r in its largc t ma rk e t exclusivc ly for pe oplt:: 50 years olei a nd o lde r Slro ng e mphasis placeJ on lhe social aspecl of bclo nging to a fitness cent er \Ve ll train ed staff !lwt cmes aOOm th t:: needs and lives of o lde r pcople 111e cOl11pany's promo li o na l aclivities will includc a mixlllrc o f Iraditio na l and grassroots marke ting lechniq ues. The company has establishcd cohnuuling rclatio nships wil h Ce nIra i Florida H ealth Food and O\~edo Doclo t"s and Surgcon's MedicCl I pmclice. TCll ks are cu rre ntl y undc rway lo solidify 1he spc ci fi cs o f Ihese rclal ions hips. 1\I ,lnagcmc nt TClI m a nd Co m p<my St m l1 urc A fi ve-me mbcr manage ment le,1Il1 is in place. led by COfOllrH.le rs Je rem y Ryan . age 46. and Elizabcth Sims. age 49. Ryall sIarte J a filn ess franchisc in SOlllh Flo rida and grew il to 38 unils be fore sc lling to a la rge r compan y. He has 14 years o f addi tio nal expe ric nce in lhe industry. E lizabelh Sims. who worked wilh Ryan in his fo rmer vc nlure.is ił C PA wilh mo re Ihan [9 ycars o f t::xpe rie ncc. P rimc Adlllt Fi tness has a fi ve-mc m be r Bo ard o f Directo rs. a fOllr-me mber Board o f Advisors.. and a IO-membe r C usto rner Ad visory Boa rd .

Opcrati ons and Dc w lo pmc nt PIli n Prime Adult Filness has signcd a seven-year Icasc. subjccl to funding. fo r Ihc 21 .600 sq uare fool facili ly il pJans lo occupy. TIlt:: lease includes an o plion lo buy Ihc faciJity allhe e nd o f the le rm. T he 21 .600 squarc 1'001 bui[ui ng wi ll require $1 mi[Ji on in re trofilling. Prc liminary plans for the rct ro filling have hce n deveJo ped by an archit ccl expe rie nced in designing builuin gs suilab[e fo r an o ldc r clic ni ele . T he re lrofi lting nf Ihe bui[ding will be do nc wil h e XlreTlle sensilivil y lo Ihe compa ny"s large l market. F1na ndal Proj cl'tio ns 111e busin..:'ss p la n in cludes il fu li se l o f pro fou ml incolll..:' stak lll e nt ~ balan;es s h ..:'..:' h .. and cash (l ows (five ycars in colllc slalc menl s and ba[ance shec ts. and fOllr years C'dsh rlows). 111e compan y projecls an o pe raling lass fo r 2009 (lts i!lilia[ yca r o l" operalions) a nd slcad y gains from Ihal poinl forward. Projeclcd ROS is [3.1 pe rceni in 20 10. 10.5 pe rcent in 201 1. and 11.3 percenI in 20 12. Ne l income is projecled to be $3 J 7 .7-łD in 2010 and $269 .670 in 201 1. Thc compan y wil l re ma in cash na w posilive Ihro ughoul il s sta rlup period . Flmdin:; SOllght 111C compan y is sec king $5 15,00J in invcst mcnl capilaJ.

O ne Ihing lo be prepa red for is Ihal an increasingly conUll on pracli ce a mong in veslors and ot hers is to ask for (I sho rt Powe rPoi nt ove lv iew o f a business plan ra lhc r IlulIl al1 execlIli ve slI l11mary. Inveslors d o Ihis bcca usc cl ickin g Ihro ugh .. dozen o r so sli des is an even qu icker wa)' 10 size up a business idea th
CHA PTER 4

.------.. ,: 1

Introd uctory M aterial, Exec utive Summary

BUSINESS PLAN IN SIGHT

87 •

1 :- -------,

Wrife fhe Piteh and Then Wrife fhe Plan Guy Kawas..1ki. a well-know inveslor and e ntrepre neuL has an in le resting Ih eory about business plans and PowerPoint presenta lions (ar pitch es). Kawas
M o re inform atio n aboul Ihe va lue of d evelo pin g a PowerPo inl o ve rview o f yom bus in ess p lan is provide d in Ihe fo llow ing Business Pl a n Insig hl box. E ven th o ug h Ih e executi ve s u mmary nppea rs nt th e beg innin g o f the b us in ess pla n , it s ho ul d be w ritte n last. Th e p la n it se lf w ill evolve a s it 's w ri tten. so n o t everything is known nt the outse l. ln additi on, if you wri te the executi ve s umm<1ry firs L you lU n th e ris k o f Ily ing to wrile n p la n tlw t fit s the executi ve sum mmy ra th e r tha n Ih inkin g th rou gh eac h pi ece o f the pl<1n indepe nd ently.2

(ONTENT Each sect io n of the execuli ve s um m<1ry s ho uld cOlltain a Sh0l1 syno psis of the m ate rial th at 's provid ed in Ih e sa m e sectio n o f Ih e broa cle r p lan. To fit nil o f the ma te ria I illt o Iwo pnges. e ach scclio ll musI be c ris p a nd co nc isc, lllc seclio ll hCild· ings shou ld be labeled in boldfaced Iype lo a llow tlte m lo stand out frol11lhe te x!. Th e p rim a!'y go a l o f an executi ve s umma ry is to ca pt u re th e reacle r's all e n· lio n . To do Ihi s, lhe to ne s h ould b e b us in csslik e ye t cOll vey a scn se o f exc il e m c nl n nd a nti cipat ion. Each sectio n s h o uld be factua l a nd we ll w ri tte n an d s ho uld

• 88

PART III

Preparing a Bu sin ess Pl an

show tlUl t you IHlve conducted rese m ch to e nsure th a t your assum pti ons a re correct. You shoul d avoid using u lot o f technica l a r in dustry-specific ja rgon . unl ess you're writin g fo r a ve ry specifi c aud ie nce . such us u group ol' angel in vesto rs specializin g in your industry. You should also try to conn ect with your readers on bo th mI obj ecti ve and a n e moti onullevel. if possible. Fo r exa mple . in th e executi ve summ a ry shown in Fi gure 4-2. we qu ote a 71-yea r-old Ill an who pa rticipa ted in the buyin g int e nti olls survey th at we ad ll1iniste red as pa rt of a ur fe
COMPANY OESCRIPTlON 1lle tll uin body of th e busin ess pl a n begins with a gene ral descri p!ion of th e com pa ny. Alt hough at first glance t hi s sectio n may seem less criti ca l t han ot he rs. it is extremely im port a nt. fi de mollstra tes to your remie r th a! you know how to

CHA PTER 4

Introdu ctory M aterial , Exec utive Summary

89 .

tra nslate an idcCl in lO a busin css, 1l1c re a rc a lso iSSlles wilhin Ih issecli o llth all ake Cl 10 1 o f tho ughl a nd pla nn ing, such as you r cOl1l pany's lniss io l1 and il s legal fo rm of busin ess owne rshi p, A co mpil n)' dcscrip l io n fo r Prim c Adu1t Fi tncss is prov idcd in FigU1'C 4·3, 1l1C descriptio n shows th e maj o r headings Ih al are included in the seclio ll , The headings are la beled in boldfa ced type lO ma ke Ihe m lO sta nd o ut fro m the lex!.

FIGURE 4·]

Companv Oescription IPrime Adult Fitness Business Plan)

Inl nl(lul'lillll Primc AduH Filncs:. is propming to opcn\tc il 21 .6tXJ sqllaro.! fool fitn ess cc nte r, speci lic':IJt y for pcoplc 50 yea rs o lei .:Ind o lde r. in O vicdo . FL ił subllrll ofO rtando. lllC ce nte r wi ll pio Ileer a I1 (!W Clll1cept in ritn (!~s- it will he f\lr cxcl u ~iv(! ly f(lr pc\lp lc 5U ye "r~ tlili
CUIII)any ł"l l:.l urJ In Ihe sUllImc r o f 2007. Jc rc m)' Ryan. a cofo unde r o r Pri me Adult Fitness. WilS making 11 presenlalio n a l 11 fi lness induslry conkre ncc in Alhlllta . During Iht! Q&A pe riod fo llowing his r resc nl alill n. a 1I10mhc r o f Ihc iHlJic ncc a>;kcd . " Why im-t Ihe rc a filn es.;;; ccn lCr conccpt d e~l g n cJ >; p...:ci fi cil lly fur older pcuplc'! C ur"...:s hit li hUIl1~ run hy pi\ ł ll ...:c rin g;l nln cs~ cent e r j u>;t fo r wUllIen. W h)' nul 11 lil ncs>; ce nt e r j ust for ulller lx.:llplc T Thal qucsIio n changcd Jeremy Ryan's life. A lo nglime filn ess indusI ry vcle ra n ilnd all mc,lt e o f fit ncss fo r (lIde r IlCllple. he had neVcr t ho ught o l' oJlC n ing a fi l ness cen to.! r cxclusi"cly fllr o lde r petlplc. l n N(we l11hc r a nd DeCe m he r l' f 211U7. iI ft.!il\ihilil Y
S I :lh~ lIIc nl

nic mission ol' Prime Adu lt Fitne>;s b tl' makc exc rci\;.' and fi lm:ss a vi bnllll and .. atbfying part o f the li"es ol' l)Cople who (lre 50 ycars o ld ilnd o llle r. T:l glille 111~ Clllllpiln y' .. lagline. which will Ix: an impml' lIlt parl tlI' its hrallding strateg)'. h " Meel Yo ur D reilIllS." lllC tagline. which e mc rged from a focus group sessio n. captu res th c essence o f what fi tncss ultimatc ly ilccomplishcs for pcop lo.! o f all agcs. lt he lps pcop le fccl hc llc r. live 1t lIlge r. and Icad 111 \ lrt.! sal i:.fy ing li vc~.

}'rodm'l ,md Se r\'it't_'S nll~

dcsign of lhe Primc AlIu li Fi tness offc ring has bccJl gu ided hy lhe rcsul ts o fil s feasihilily ana ly.,i:.. '1'\ \ pr\l]lo.! rl y de to.! rm il1 e Ihe inl e ró l" and pTere n.· nec .. of its po te nli .. 1d ic ntcle. il1 NIWclllhc r 2007, l he cI1lllpany di~t rihut cd it>; ct)ncept ~ 1 al c llle nl and li
client cle.

•

90

PART III

FIGURE 4-3

Preparing a Bu sin ess Pl an

(continued)

HI/ln ,\ CIII,\'s/'l mld 1'/'IIgnl /l /.\', Filrless clas.'i:" and r n\g ralll.~ wi ll Ix: om.: ri:d al varillu.' liml:s during Ihc day. 111c classes will incluue wal er acrobics.low illlpael land aerobi cs. yoga. Pilal es. hod y sculpl ing. and scveral ol hers. Nonl radi tional classes will also he o fk red. ),uch il)o oulJoo r " wil lking" cI'I;';),C"; wherc flK' l11 h,,"! f">; wi ll walk in da>;),c..; I hwughIIU I Cc nlral Fluriua nd ghhorhllllds, Selll il/(lI)' III/d lI'orksllOps. Sc minars wid workshops will be o ffered on nll l rili on. slecp. ncurllhics ( brain c xerciscs) . a \"Oidi ng back and neck pi lin. aging wilh Jignily. and olher II)pi cs.

Alrl,\'Jt/g<' w/d l'lrpit"al "I7/('/'opy.

M 'ł ~"< l gl.:

and physicallhcr apy ~e r \'itc". hy full y cc n ilkd

pe rsonnd. will he orre red allhc cenl er.

Safely. Allcnlion to cIelilii in regard l o saki}' and supjJIl rl for Ihe needs o f older people will he ".'\'idl' llIlhrllughoul Ihe cenl i: r. EII/OIi(//wl SlIl'l'0r/. Prime Adull R I ni:";s wi ll real uri: ,I cari ng ..;1 .lff I haI i ~ dedica l . :! i.I lo Illceling Ihe nceds o f i ls oldcr cJielll cle in an lIpl ifling. lllolival ing. and fun '1IIllOSphi:ri:. CIIITcnl S IlIflIs Pri me Adull Filll..:!ss is poiscd l o COIllIll..:!l1 CC ope rali olH on January 1. 2009. Sincc il was incorpnTal ed on January 8. 2008. Ihe fo llowing mi les lones havc heen oolllpl eled. and I hl: following mil csl onl.!s re11m in 10 he cOlllplCll.!d fo r Ihe comp.lIl y 10 sl;r rl npeTillions. M ikslllne), Cl1mplcl eJ Feasi bilil y
pl,lIl COlllplel l.!d

Fi\'e-Illemher management Il.!i\m i n plac..:! B oa rd o f dirccl ors. ge neral ad visory board. and eUSlOlllc r advisory bomd in place Si:w n-yca r kil),e.

~ \I hjecl

lu funtlin ,g, sigocu nn 21.600

~ qu ;lTl: 1"001

huildi ng

$325.1W inv..:!sl i:d hy lIl a ll a~i:I1lC n[ I<.:a lll $175 .000 in v..:!sl etl by angd invesl o r

$60,OCIO ~ r<11I1 o hl ai ned fro m Heall hy A n er 5(1. an org;r oi7.al ion suppor l i ve o l' I he missioll and gO
cla ssc~.

hire pc rsonncJ

Prl.!parl.! for grand opening

FlIIlIllng SUlIghl A s dcseribcd in dclail in l he business plan. Prime AduJt Filncss i s sce ki ng $5 l 5.00J in i ll\'cslmenl capi I:! !. Lq;ul Stu lu,> 111111 Owncrship Prime AdllH Filncss is a Li milCd Liabilily Corpl.1 ralion ineor po nll eJ in I he slal c or Floridll. II is curr..:! nll y owncd by il s m anagcmenl IC
CHAPTER 4

Introd uct ory M ateria l, Exec utive Summary

91 .

lll e company deseriplio n s ho uld slart wilh (l bri ef inlrod ueli o n. which provides an o ve rvie w oflh e compa ny and re mind s Ih e read e r o f th e rea son il is slarting. Demographic in foll1lClt ion s hou ld be also provided . includi ng Ih e na mes of the founde rs. the address of the eompan y"s hea dqu a rt e rs. a nd conl aet info rm atio n fo r the le(l d e ntre pre neuL lll e re a re two imp0l1an t point s to be mindful of as you s la rt wril ing thi s sectio n a nd pre pare to t
llle Compa ny Hislo ry section sho uld be bri ef. but sho uld ex plain whe re Ihe idea for Ih e co mpa ny ca me from and th e dri ving force be hind its ince pli on. If il is a st m·tup. simpl y me ntio n th
• 92

PART III

Prepa rin g a Bu sin ess Pl an

MISSlON STATEMENT

A missiun statcmcllt de fin es why a co mpa ny exists (l nc! what it asp ires to become. 3 If c(l]"e full y writt e n (l nd lIsed properl y. (l mi ssion state ment C(l n defin e th e p(l th a com p(l ny t(lkes a nd act as it s fin (l nci(ll a nd mOla l com pass. Fo r a busin ess pl(l n . a we ll -wrin e n mi ssio n sta teme nt de mollstra les th a t your busin ess is focused (l nd yo u C(l n (l rli cul a te it s purpose elea r a nd d istinctl y. Th e tri ck to writing a n effecti ve mi ss io n state me nt is to m t icul

:"Jol be a mini -overview of th e busin ess Descri be wha t ma kes your comp(l ny cl iffe rent Be honest - don ' t c.l (l im to be so me t hill g you (l re n' t Co nvey p(lssio n a nd stick in th e min d of the rea cle r Defin e yOllr "" reason fo r be in g" Be risky a nd ch(l ll e nging bul achievab le Use a lo ne Ilw l besl re fl ects yo ur compa ny"s culture Be some thing th at eve ryone in volvecl wilh Ih e firm C(l n re bI e lo In volve eve ryone in yo ur tea m in il s crea lio n

Exa mples of severa l missio n sla le me nl s m e shown in T
TABLE 4-1

Examples of Mission Statements

Googlc Organize th e worlcl"s infornmtion
cBay c Bay's rni ssio n is 10 provide agloba l Iradin g pl tllf01m where prttclically a nyo ne Ctl n lr.:lde pmcli c.:l ll y tlnylhing. Intel De iighl o ur cllslorners.. employees. .:lnd share ho lders by re le nl lessly del iverin g 1he plalform and lechn o logy .:ldvancellle nls Ihtll becollle essenlitll lo Ihe Wtly we wark and live. Ocli De1 rs mi ssio n is lo be Ih e mosl s uccessflll compule r com pan y in lhe world tl I delivering lhe besl clI sIomer cx pe rie nce in ll1a rkels we se rve.

CHAPTER 4

Introd uct ory M ateria l, Exec utive Summary

93 .

A long with a missio n state.me nt. some corn pa ni es have matt os or taglines Ihal m e effecli ve in eonveying their purpose and buiJding the brand, E xmnples of famous mo tt os Ol' laglines inc\ude G oogle-"Don 't be evil ": Nik e - "" Just do It r ': MySpaee - "A space fo r fri e nds": and Noki ,, - '"Con neclin g peop le:' Some CO lll pa nies, such as Nike a nd Noki a, have buill th eir e ntire branding eampaigns aroUlld Ihe i.. laglines, If your company has a mo tt o o r lagline. il sho ul d be menlio ne d in Ihis seclio n o f the pl an, lll ere is no sel procedu re for how lo com e up wilh a mission sla te me nt o r tagli ne, Ofte n, Ihe founde rs and e m ly e mp loyees of a co mpa ny get logethe r and simpl y bra in storm ideils, The fo llowing anecdote aboul how G oogIe ca ll1 e up wilh Ihe motto " D on 't be evil " may be helpfu l lo you in thinkin g about how lo eome up with a l11i ssio n s lal e me nl or mo tto fo r yO lll" company, ln Jul y 200 l. as Google was beco ming larger. a nd Ihe fou nde rs were wonied Ih al il l11ighl lo se il s co rporate ielent il y. SIacy Sulli van, the hea d o f Google's HR depa rlm e nt. rounded up a cross sectio n of e mployees wi th th e missio n o f cla rifyin g G oogle's co re valu es. According lo a we ll -rega rded book o n Ih e ea rl y histo lY of Google. Ihe meeting spu tt e red SOlll e, as the peop le in Ih e roo m suggested ge ne ric cliches like ""treat eve ryo ne with respect"' a nd " be on lime fo r mee ti ngs." Th e fo ll owing pieks up the descriplio n of Ihe meeling direcll y from th e book: lll e e ngin eers in the room were rolli ng the ir eyes, Pat e l (a G oogle e ll1ployee) reca lls: " Some of li S we re ve ry a nt icorpo rate. a nd we didn 'l like the ide" o f ali of Ih ese spe cifie rules, A nd e nginee rs in gene ral like efficie ncy - th e re had lo be a way tosa y all Ih ese Ihin gs in o ne slate me nt , as o pposed lO be in g so spec ific," llw I 's whe n Pa ul Buc h he il . anol he r e nginee r in Ih e group, blurt ed out whal would become Ih e mosl imp0l1an t Ih ree word s in Google's corpora le hislory, Paul sa id, "A1I o f Ih ese Ihings ca n be covered by jusI say ing. Don'l be ev il: Pal el reea Us. "And il jusI kiml of sluc k ,"-ł llle sto ry goes o n lo exp lain Iha l lo re in fo rce Ih e phrase, Pale l scribb\ed " Do n"t be evil " in Ih e corn e r o f nemly every whiteboa rd in th e company. The p hrase cnught 0 11 and becall1 e the rallyin g ery fo r Google 's e mployees. COll1m e nting o n Ihe im porl ance o f " D on'l be ev iL" which is sli ll promin e nt nI Google loday. La n )' Page, one of l he compa ny's cofoun de rs. sa id, "W hen you "re making a decis io ll , il ca uses you lo think . 1 think Ih al 's good:'5

PRODUCTS AND SERVICES

llle Prod ucIs and Se rviees sect io n shou ld include a n ex p lanal io n of your producI a r se rvice. beyo nd whal you sa id in the execuli ve su mm a ry, Include a descri ptio n o f how your p rod uc! o r se rvice is uniqu e and how you pla n lO POSil io ll i! in th e mark etplace. A pro duet Ol' se rvice's l)UsitiulI is how il is silll il ted re lil ti ve 10 ils riva ls. Jf you p[il ll to ope n a new type of coffee sho p. for exa mp le. yo u sho uld ex plai n how your co ffee s hop diffe rs fro m olh e rs ilnd how il will be posil io ned in

• 94

PART III

Preparin g a Bu s in ess Pl an

its mark et in tenn s of th e produ cts il o ffers. it s loc
llt e C urrent Status secli on should reveal how f
CHAPTER 4

Introdu ctory Material, Execut ive Summary

95 .

an
TIl e Lega l St
• 96

PART III

Preparing a Bu sin ess Plan

SELECTING THE NAME FOR A BUSINESS A lth o ugh se lecti ng a n
1l1e primary co nsiderntio n in nal11in g a b usin ess is thal the Ilam e sho uld co mpleme n t Ih e Iype o r busin ess the company pla ns lo be. II is he lpful to d ivide eomp anies im a fa ul' cn lego ri es to discuss Ihis iss ue. CUSTOM ER- ORIVEN COMPANIES

If a company pla ll s lo foeus o n a pa rtictll ar type o f consum er. it s n
If a comp<1 l1 y plal15 10 focus o n a pa l'li c ul ć1 1' producI 01' se rvice. it s nmne sho uld ref1ecl Ihe ad va nl ages Iha l il s procluct ar se rvice provicle. Examples inc\ucle 1-800FLOWERS. X M Sa tellit e Radio. Who le Foods Marke lS. and Jiff)' Prinl. lll cse compa nies Iwve nntncs Ihat wc re chosc n 10 l'eflec I th e dislin cli vc attr ibul cs a r the pl'odllcl Ol' se rvice Ihe compan y o ffe rs. regarclless o f Ihe cJie ntel c. INDUSTRY-ORIVEN COMPANIES

If a compan y p[al15 lo focus o n a broad ran gc o f produ ets ar services in a pa rticular indusII'}', it s name sho ulcl rc fl ect Ih e catcgory il is parlicipati ng in. EX
Some compani es are founded by indi viduals who pUl such an indelibl e slamp o n the compan y Ihal it may be smarl lo name the company afler ilS fou nder. Examples include Be n & JelTy's Homcmade. Cha rles Schwa b. Dell In e.. Liz

CHAPTER 4

Introdu ctory Material, Exec utive Sum m ary

97 .

Claiborne.
Ma ny lega l iss ues are invo lved in l1 al11 itl g a bus in ess. a nd these sho uld be addressed befo re the busin ess p lan is fin a li ze d. 1l1C ge n e r a ł rul e for bu siness na mcs is Ih a l Ih ey mUSI be u ll ique. In o th e r wo rds. in mos t insta nces. the rc nHly not be tllo re Ihan o ne b usiness per na me pe r slat e. In addili o n. a new b usiness m a y not ado pt a na me Ih at is confu s in gly s im il a r lo an ex islin g bus iness. 1l1is regu la ti o n p reve nts a new ove rni ght d eli ve r compa ny fro m namin g it se lf Fed Exlra. for exa lll p le, wh ich FedEx would undo ubt ed ly cla im is co nfll s ingly simi lar to il s na me. To de te nnin e whet he r a Il
• 98

PART III

Preparing a Bu sin ess Pl an

A brief mention sho uld be milde in Ih e business pl il n thal a company's nmne has been regislered a nd trade marked. and Ih at the Inte rn el domain nallle has bee n secured. If Ih ese aCli vil ies have no t bee n comple led. you should me nlia n thal th ey me pending so the reacler of the plan knows you a re aware of Ih ei!" importance.

Chapter Summary I. The executi ve summ a ry a nd the cOlllpany descriplio n a re arguably the most

2.

3.

4,

5.

6.

7.

S.

9. 10.

imp0l1 iln t secli ons of a busin ess pla n beca use if the reader's int eresl isn 't cn ptured ea rly o n. the plan is ulllike ly to ge l read . Th e cove r page should include the nam e o f the compa ny. its street address, its e-m ail address. its phone num ber (land based and cell). lh e dale. th e cOlll act informiltion fo r Ihe kad e nlrep re ne ur. and the compa ny"s We b s it e address if il has o ne. The labie of con tenl s shou ld foUow the cove r page an d shou ld li st the main secl io ns. subsections. and appendices lo the plan a long wilh their correspondin g page numbe rs. Th e executive summary is Ihe fir sl il em t hal appea rs in a business plan . lt is a sho rt overview o f the en lire pl a n th al provid es a bus)' reader wilh eve rylhing about Ih e new venture's d istin cli ve nalure. The mo st import'1Il1 Ihin g lo remember whe n wrilin g a n e,xeculi ve summ ary is Ihal it's no l an introductio n Ol' a preface lo the business pla n . lll stead . it is mean l lo be a summa ry of th e plan il self. Even tho ugh th e execuf ive summa ry appea rs at fh e beginning o f fhe bus in ess pl a n . it shou ld be wrillen last .1l1e pl
Review Questions l. Why is il impo rt anI for
lio n sho u ld Ihe cove r pa ge cOIlI
CHAPTER 4

In troductory Material , Exec utive Summary

99 .

-t. A t what poi nt in Ihe process ol' p utt ing togeth e r 5. 6.

7. S. 9. 10.

i1 bus in ess pla n sho uld Ih e execuli ve sumnl
Application Questions I. Je re m)'
• 100 PART III Preparing a Bu siness Pl an 3. Mary C ampbell is plann ing 10 ope n a re tai l sta re Ih al sells upsca lc cookw<1 rc. She spe nt the p<1 st thre e rno nth s wrilin g a business p lan a nd is very proml of ił. II is wcll wril1 en. in cludes deta il ed indus II")' ćlIwl ys i s. and contnins Ihree ye
Endnotes l. 1. Tornmons. A. Z1charn kis.. a nd S. Spi nelli. Bl/sil/e.H PIlIlIS Thm \York. (New York : McG r.aw-H ill. 2004). 2. E. Siege l. B. Fo rd. (Ind 1. Bornstein. Tlle Emsl & Young Business P!tm Guide (New York: Joh n Wil ey & Son$. 1993). 3. J. Ba mey (I nd \V. Heste rl}'. Slrmcgic MlIIllIgl'Jllelll al/d COlllpelilil'e A d"(lIIwge (Uppe r Saddle Ri ver. NJ : Pre ntice HalL 2006). 4. 1. Ballel le. 1'111' Sl'{/rc!J. (New York: Po r1folio. 2005). p. 138. 5. 1. BalIe Ile. TlII' Sl'{/rcll. (New York : Portfolio. 2005). p. 138.

( H

R

INDUSTRY ANALYSIS

INTRODUCTlON An industr)' is a group of firm s producin g a simi\<1]" produet o r se rvice. soch as a irp];:l11 es. mus ie. e lectro nic gam es. a r fitn ess club me mbe rshi ps. Industri es vmy ,dong mon y dimensiolls. illc\uding size. growt h r
busin ess pla n. It 's impo rt
• 101 •

• 102 PART III Preparing a Bu siness Pl an making o r lo sing mo ney? What impact is o rgan ie fa rm ing having o n pes li cide s
• A s mo re wome n hnve e nt e red th e wo rkfo rce. the demand for bu sin ess attire has inc reased . • Opportunities me inc reasing for wo men 's clothi ng retailers to cOlllpe te in niche ma rke ts such as petit es. plus -s ized clot hing.evenil1g wea r. ca sua l we ar. sportswea r. a nd upsca le clol hing. • The industry is Illade up of a la rge nUlll ber o f slllall compn nies. • Th e ca pit al cosls associa led wi liI ope ning a single stare a re relali vely low. • Th e onl y barriers to e nt!'y assoc ialed wit h ope ning a single sta re a re brand awareness a nd Ihe leve l of co mpe lilion in a loca l a rea. • Mass me rchandisers lend to focus Ih e ir offe rings on youlIger women. whe reas boutiques te nd to focus o n Illidd le-aged and o lde r women who le nd to have mo re discre tio nary incolll e. ln addition. o lde r wome n ha ve Ih e most troubl e findin g t he right clo th es. m aking Ih e perso nalized se rvice o ffered by bo uliqu es a ttracti ve. Togelh er. Ih ese factors a nd tre nds poi nt directly toward oppo rtunilies to o pen specialty clo thing sto res Ol' boutiques a nd suggest the Iypes o f sto res Ihat a re th e most preva le nt.llti s type ot in formatio n provide s a so lid foundat io n for t he business plan fo r a com pany such as O li vine (http://www.o livine.ne t). thesingle-store wome n's clot hing bo utique in Sea ttle int rod uced in C hapte r 2. 11 takes an understa lldin g of a n industry's c haracte ri stics and Ire nds. howeve Ll o prope rly ide nt ify m1Cljustify Ih ese types o f OPPOl'llllliti es. Now le t"s look nI Ihe first major seclioll in nn indusI l')' a nnlys is a nd why it"s impo rt ant.

CHAPTER 5

In du st ry Ana l ysis

103 .

INDUSTRY DEFINITION lll e firs l seclio n o f Ihe induslry a l1 f1 lys is sho uld bri e f1 y (no rno re 111fItl severfl l senle nces lo ng) clesc ri be Ih e firrn 's induslry, lllC in d ustlS's SIC cod e fl nd NA ICS code sho uld be p rovided , lll e o ld e r SIC syslem wa s repl fl ced by Ihe NA ICS in 1997, fl lth o ugh S IC codes M e st ill used , TIu." NA ICS sysle ms ex pflllded Ih e IlUIll ber o f induslry secli o ll s fro m 10 lo 20 lo reflecI Ih e broflde r Ilum be r o f induslri es Ihnl hnve COllle inl o cx iste nce. A ni ce sid e-by-sidc di spl,,)' o f bo th syste ms is ava il fl bl e nI Ihe U. S. Ce nsus Burefl u 's Web s ite fil hllp:/lwww.ce nsus,go v/epcd/ www/nnicstflb.hllll . YOlt ea n id cllti fy yO lll" indus try's S IC rocie a nd il s NA ICS cocle allhis site. A ltho ugh il Ilw y secm like icl cnlifyin g il co rn pil ny's induslry is n simpic lask o it"s flctu a ll y il lough ca li in ma ny instances. A firm 's induslry can be defined na rrowly Ol' b ro ad ly, Fo r in slil llcc, is Prim c Ad llll Filll CSS in Ih e filn ess ce nl e I' indusIr)' or Ih e recrea ti o n indusIl) ' ? Is Je l Blue in Ihe
• 104 PART III Prepa rin g a Bu sin ess Pl an FIGURE 5-1

Industry Definition IPrime Adult Fitness Business Plan)

Prinle Adllll Filness will compele in lhe "Filn ess and Recrealional Sporl s Ccnl ers inlh e US·· indllslry (NA J CS 71394
Goods M mlUf
INDUSTRV SIZE, GROWTH RATE, AND SAlES PROJECTlONS nli s seclio n o f Ih e induslry
CHAPTER 5

In dustry Ana lys is

105 .

1lle re are fo ur ge ne r
insuffici ent.ln add ilio n to th
illTUSS

lh e U nil e d Slil! es. In lh ese ins l<mces, il mi glI! be u f inl e res l lu

yOlll' re
th e industry atw lysis. start lay ing th e groundwork for why a cOll1p
An industry's size is no rm
• 106

PART III

FIGURE 5-2

Preparin g a Business Pl an

Industry Size, Growth Rate, and Sales Projections IPrime Adult Fitness Business Plan}

20(0

2 1HJ.ł

1005

2lHJ(,

$ IKA hi llillll

$19.7 hilli ull

4S.28.t

$ 17.3 hillitlll .t9.5.t.t

5U523

5 1.2.t5

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-UHA I I'i

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ry S;l k~ Num bcr o r

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Emplllyllh.' 1l1

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111(13

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IndusI ry Sa lcs Numhe r lII' Eslabli shrne nls

5A % 2.A I K,

-U.7%

EmpJtl)'melll

2l.H16 3.6"/"

l1HI5

5.2 %

35 % 2.0%

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.t .I'X,

2,(J'}'"

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2.\)'Y"

Industry S:llcs l'roj Ct1inns

2jHI7

2ltUX $22.5 billio n 3.3%

$2 I .l': bi llion

Induslry Sn les G ro wl h Ra lc

3.7%

G l1Iphs

5.0

26

24

•o

o C-

22

" 20

-

~

o

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~

3.5

O

•

c-

-"o

3.0

~

'n

2.5

, . LL~~~~~~~~ 200-ł

2005 2006 2007 200X

2.0 ~-=-:-=-:-=-:-=cc 2004

2005

2006

2007

20()x

Somce fo r all illforma lio n: IBIS \Vor ld . l\h y 15. 21()7. S U l1lll1ar~'

111e induslry is in Ihc g,ro wlh pha"", of il s li fe crc le. G rowlh is bc ing drive n prim arily by il n inc n;,I ~e d a W,lre ll CS~ or I he impo r1 allce o l' filn cs'i ,Ind cxe rcisc. '111 C ind 1I ~ 1 ry\ hi ggc~ 1 challe nge is co mpe lillg fo r Ih<;.' Icisurc lime o l' il s cuslo llle rs. Timc si rappo.! d cuslo lll\:rs cHo.! less likd y 10 rrcquclll ,I rilnc'is cluh a r o lhc r ro.!crCillio nal SpOrl S c('nlC' r. Th\: 11Irgo.!'il ~ cg m.: nl t\r 111t..' illdu ~ l ry. fil l lC~~ cć nl l..' r ~, b gruwing al lIl1l\ l rć rapid raIl..' Ihan lhc indus lry as li wh o le. According to Ihe Intc rn alio nal He allh. RilCqllCI & Srx>rl scJ ub Associalion ( IH RSA ).l he nllmbe r of filn ess clubs (in Ihe Uniled SIales) grew by 1 -ł.O pe rcl:! nt fro m 2003 lo 2004 and 8.3 perce ni rro m 2004 lo 2005. lllC' Filness and Rccrealio na l Spo rls Ccnle rs in uuslry is ~rowi nga l a fa sle r rille I.han threc inJuslries Ihal co mpe le fo r ils cllslo lller's doJl ars - Spo rling a nd Alhlct ic GooJs Manufacluring (which makes homc fi lncss eqllipmenl ). Go lr COll TSe ilnd Co unlr y Clubs.and r.,'larinas'

CHAPTER 5 TABlE

5· '

Indu stry Ana lysis

107 .

Women's Clothing Industry Breakdown

Sekli/ellI

Tops (incl llding t-shi rts. s hirts. biolIses. and swea le rs) Pa nls. jea ns. sharts. and s kirts D rcsscs Coats..jackets. and s uits Sports apparel ( includi ng swill1\\'enl'. sweat tops. ele.) O lhe r
Pt'ree/II of Sale!>'

32.0 % 24.0% 18.0%

17.0% 6.0 % 3.0%

If your indus lry is broke n down inl o eas il y ide nlifi a ble segme nl s. it ma y be ap pro prial e to re po rt the share (in pe rce nta ge) of eaeh segme nt. Fo r exarnple . th e $37.5 millio n wo me n's clo lhin g induslry is broke n down as shown in Ta ble 5_1. 3 lBIS World provides this info nnalio n o n induslri es Iha t are ide nlified by NA ICS cod es. Il"s a judgmenl ca li as lo whelh e r this level of d e tali is a ppro priat e for your p lnn. Som e pla ns a lso repo rt th e eontributi onlhat a specifie industry ma kes to its larger indust!'y seeto r. For exmnpl e. for Prime A dult Fitn ess. th e industry it wiU pm1i cipale in. Mlness a nd Recrea ti onal Spo rts Centers (NAI CS 71 394). ge ne r Cl ted 10.2 perce nt of Ihe sClles of its la rge r induslry secto r. Arls. Ent erlninme nt. Cl nd RecreCltio nal Se rvices (NAI CS 7 1). INDUSTRV GROWTH RATE

An induSII) "S growth ra le ~ h ould be repo rt ed o n Cl pe rce nlnge basis. ClS shown in Ihe Prime A dult Fitn ess induslry ana lysis in Figure 5-2. Yo u should provide Cl n int crpretati on of what the llumbcrs Illca n. The rc are num y ways to do this. Same pla ns comm e nt o n how th e industry growth rat e compa res to similar industri es.. Nole Ih at in it s indu su'y a nalysis. Prime A dult Fitn ess compares Ihe growth rat e of its induslry. fitn ess ce nt e rs. lo three industries tbat compete for it s industry's doll ars - Spo rting and Alhl elic G oods Manufacluring (whieh I1lClkes ho me fi tness equipm e nt ). G o lf Courses
• 108 PA RT III Prepa ring a Bu siness Pl an numbers. nnd We b sit e nddresses o f the nHljor tra de assoc iatio ns rel ated to a p
BUSINES S PLAN IN SIG HTS

I :L-------,

Filuling Indnstry Sales Data by Knocking On Doors If ) ou're ddining a new indus try. s uch :-as iPoe! accesso ri es. o ne ch c ca scs. fi nd ing lh e infonnali on becomes some whal or n scnve nger hun l. A ml lik e in ,I sca venge r hun\. a willingness lO knock on doors a nd dogged dcl e rminalion lll
• Typc " il>od ;I(.'Ccssorics ind usI I) '" illl o Ih c Googk Ol' Yah oo! S!;ilrch bar Ih e informal io ll has already bee n eompi led by a ["dia ble source.

10

SCI..' if

• lI'y lodelc nnin e if Ihe re is a Irade nssoc ialion o r
O lli.'

CHAPTER 5

In dustry A nalysis

109 .

INDUSTRY SALES PROJECTIONS

11lis seeli o n sho ul d report fulu re sfl les projecli o ns fo r your in d uslry. If you fl re reporling o n fl n eSlflb lished ineluslry. IBI SWorleL Slfl ndfl rd & Poo r's Ne lAdvflnIflge, Mini e!. fl llel simil fl r sourees repo rt Ih e ir pred icti o ns. You e,m guo le from th ese repo rt s. bul you shou ld do so spm in gly. Mosl of Ih e refl de rs o f your pla n fl re mo re inl e resled in whfl l yo u Ihink IIu1I1 in whfl l Slfl nda rd & Poor 's o r Minl ei think s.As indi efl led efl rli e r in Ih e boo k. fl busin ess pl
INDUSTRY CHARACTERISTlCS 111is seeli o n lfl lks
111 is I opic is pmt icul m iy i111 pOrt fl nI. A n inelust ry's size and its g rowl h mte , regfl rdless of how positi ve Ih ey fl re. fl re bfl siefl ll y mont po int s if fl n in d uslry isn' t slruclura ll y fl tlmctive fo r fl stm tu p. hulustry strudurl,;', in Ih e conl ex l of fl busin ess p lfl n. re fe rs to how concentr
• 110 PART III Prepa rin g a Bu sin ess Pl an FIGURE 5-3

Industry Characteristics IPrime Adult Fitness Business Plan)

Industry Strul1urc l llC induslry is fragl11 cnted. wilh Ihe 101' four rirl11 s accounling fo r onl y 13 perccnt o l' indu sIry s
•

•

•

Tlle A gilIg of lIII' I'opalmio// . Appr ax i millc1y 25 perce nI or fil ness ci u b mcmbcrs arc 55 ycars o lJ a r o ldc r. as are 23 Ik: rccn I a f a II A mcri cans. A s 1ime gocs o n. o lder A meri cans will 111ake up even 11 Jarger percent age of lhe populalion. wh ile Ihose aged 25--44 wi ll dec line in nU111bers. As a rcsull a r Ihese lrc nCls. lhe induslry is shirting ils emph asis 11way fr o m a focus o n lh c youngc r de1110gTilphic lo
Natu n' uf lJ:lrtidpants Finns in the Indu str~'. lllC indusI ry i s co111prised o l' a wide vmiel y of parl icipanls. rangin g from largc. fu II -se rvice fitn es:o; eoJn lers run by Imge chains. 10 srn a II. ~ in glc -e m ployee da nce SI11dios and ice skaling rink s. No singk firm caplures 111 0re Ih an 5 poJrcenl ol" induslry sa les. Thc Imges l firm in !he ind uslry is Bally Tll !
shown below.

lllC most C0 11l1110 n wa y 10 sl.'!gmc nt lh e indusl ry is by prodllct/ser vice as

CHAPTER 5 Industry An alysis FIGURE 5-3

111 .

Icontinued)

•

11.6%

H C
D

Dance Stud io

D

Swimming Pools

D TClln is CO llrl s 11.7%

I:J D

21.4%

Clit'ntl'lc. 11lc

c li ~ nt dl.'

Rinks ( lec and Ro lle .. ) Oth e r

o t" 1h,..: indll ~ tr y is sC~Ill l! nl c d as foli o\\',,A llImal HilUschll!d Inn ll11c

Sharc uf Mar";(~t

Agt 6--11 ycars lllll 12- 17 ycaN old

Innlme

S h lU C

1X-J..\ VcaN oJd 35- 54 y.:a~ oJeJ

S'X, J5 'Yu

$25.IJOIJ II' $.ł') .'JI)I) $SI I.um II ) $7-1 .1}<.)l)

23 %

33%

$75.000
50%

55 lind olelcr

20%

Kc~'

uf I\ I.ukct

8%

< $24.91}9

-1-%

1 t)'J{.

R.. tlH~

To gai n as vivid a picIU re of (he indusl ry froUl I he sourccs ci l ed.

Ta tal Rc\'cnuc!Ccnlcr

EB ITDA '):, 0 1''1'1)1,11 Rcvc nu ... ~ EB rT o/., 1 1 fTI 'łal R C\\: llll c..;

a~

possibl c.lh c followi ng

211114

2.07 million .{ OO'Y..

2. 17 millio n 16.6% 5.7'J{.

').()() 'J{,

Avo.:ragc M cmbcrslCcnlcr

3.U9 1 ·O.f.:%

Rc \"c nuc / M cJll h..: r

$683.00

Indoor Sljuarc FoolJMe mbe r R...'\\!IlUc / lmlllllr Slluarc FIlII!

l-U $-I6.YS

N on - Dll c~

27.2%


% o f Rcvc nllC

f: /l l 1'0/\ -l'(/l"II i/J~~ I)/'frm'

illlt' r est, ltI.w.\".

wcrc uhlilin cd

! IIIJ]

Tot.11 PayrlllJ as li % of Salcs Ralc Ilf Mcmh..:r Re' elll jon

Rcvc nllC as

ril(io~

,",7.7%

(k/Jreriali(JII. mul

3.1 74 -13.0% 69.2% $719.00 13.3 $-IS.XI 2K 1'Yu

{/j/l(mi~{//i(}1I

HIJl {" - el/mil/g.l· (Je/ ol"t' ill cOllie /(IW.I An~ rll:;C

C lub Prkt-'S (cnrollmc nt fces llrc unc-t il1lc k't!s)

Regular lndividllal (single adull ) Corporat e Individ ual

Ell w llmc llt Fcc $1 50.00 Wi'.50

I\ lo llthly O IlCS $55.00 $48.00

• 112 PART III Prepa rin g a Bu sin ess Pl an FIGURE 5-3

(continuedl [nrulllllc nt Fcc

COllp[C Fami[ y

$ [99.00 $ [99.00

Junio r Se nio r Citizc n

$99.00 $ 100.00

l\I()lIthl~'

I)lIcS $89.00 $89.00 $39.00 $44.62

SOl/fec: Survey or 1\jł> fi tncss cl ubs co llcc tcd by thc Internati onal Hca lth . R.1Cq uct & Sport scl ub Associa tion (I H RSA). Thc I H RSA is a nonprofi t t rade msociation that rc prcsc nts ń.5I~) fitn css

cl ubs and

rcc rca ti o n ~tI

faci lit ics worl dwidc. N Ul11 0crs arc rcport cd o n a ycarl y basis.

Cust Strm'tllrc Ratius Ih~1II

Pcn'c nt of Cost

Wages P urcłwses

D cpreciatio n RenI A dve rtisin g Uli[ilies Olher Profil

29.3% 18.2% [5.5% 12.5% 5.0% 3.4% 7. 1% 9.0%

SOl/fec: 1B IS\Vorl d. r...-1a y 25 . 2(~ 17. K(~y SlIn'css radun; TI1C keysuccess facto rs for Ih c induslry arc as follo ws:

•

•

•

•

/.. OCllIiOlllllld I l/come. 1I is imporl anll o [oc
CHAPTER 5

In dustry Ana lysis

113 .

m e necessmy lo p
nI e nex l secli o n of Ihis porlia n of your busin ess pla n de
• 114 PART III Preparing a Bu siness Pl an reade r with a "fee l" for the nalure a nd m ix lure o f finns in yo ur ind us lry. Who a re Ihe majo r playeIs in th e induslry? Wlmt pe rce nt age ofmark e l share d o they co ntroi? A re th e m ajo r competitOls o nline firm s Ol' tradilio nal finn s? You also want your remie I' lo visuallze how your firm will fil in Ol" see Ihe ga p th at you r firm wiU fili. A lthough the in duslry a nalysis does not talk about your firm per se. th e reade r knows whal your compa ny is by read in g t he previoll s sect iOll s o f Ihe pla n. Dra w a me n tal map fo r yo ur reader Iha t shows exac tl y whe re your firm wiLi fit lnl o tll e industry. You sho uld also disc uss how the induslry is segme nt ed . This discussio n can get fa irl y complex beca use industri es ca n be segm e nled in d iffere nt ways. For exa mple.lhe computer industry ca n be segme lll ed by product type ( i.e .. lmndh eld comput e rs. laplOps. peso minico mpute rs.
Il's im porta nt to re port all induslry's key fil1all cial mlios and othe r mlios of inle resl. 1l1is in formation 1I0 t only provides furth el' insight Into Ih e sl ruclu re a nd a ttracti veness o f an induslry, but il also provides a po int o f refe re nce to compare a compa ny's fin ancial a nd no nfin a ncial projecti ons against. For eX
Kcy Sll ccess fa clOIS in every indu su'y clc fin e whnt a n o rgan iza li o n in IIl e induslry has 10 be good at 10 be successful. Mos l induslri es have 6 lo 10 key fa cto rs. Most

CHAPTER 5

Indu stry Ana lysis

115 .

of fh e sueeessful firm s in an induslry are co mpele nt in tl 11 o f Ih eir in dustry's key suceess fa elo rs. a nd Ihey Iry to diffe re nlitlte Ih e mse lves by exce11ing in Iwo o r three tl reas. You sho uld ide nli fy Ih e key sueeess ftl eto rs for your indusII")' and report Ihe m in Ih e indusl!"y a nalysis. If Ihey are n'l readily a ppare nL re ading Ihrough [B ISWorld a nd Minl e i induslry profik s a nd lookin g al in duslry Imde jo urna ls and magtlzines should revea l Ih e m. A leehnique Ihal so me peopl e find helpful in ide nlifying an induslry's key sueeess fa elors is lo pose lile rh elorieal queslio ll. " Fo r a compan y lo be s ueeessfu l in Ihis indu sI I")'. il must be good al ... (l isI 6 lo 10 il e ms)"'. 111e answe r lo Ihi s quesli oll is a good slartin g po inl in asee rtainin g Ih e key suecess f
INDU5TRY TREND5 111e fin al [Xlrti on o f a n industry a nalysis dea ls with induslry Irends. 111is is arguabl y Ihe most importanI sectio n of an induslry ana lysis because ił o fl e n la ys the foundati o n fo r a new bus in ess idea in an indus lry (i.e .. o lcle r people a re becoming increasingly int e reSled in fim ess - Ihus. m tlybe a filn ess club jusI for aclults ma kes sense) .
• 116

PART III

FIGURE 54

Preparin g a Bu siness Pl an

Industry Trends IPrime Adult Fitness Business Plan)

llle re
Indllstr~'

Americans are illcrcilsingly aware of Ihe necd for e xe rcise. weighl conl roI. gooel nulrilion. and a heallhy lifesly le
Indll str~'

LeislIre limc is becoming less avaiJable. Timc-slrapped consume rs fin d il ha rde r 10 makc lime lo frequc nl a filn ess cenle r. Increasing prices for gasolinc and health carc are Jowe ring consu me rs' disposablc in comc. Americans are bccoming more and more o hcse. wilh } ·t I !,c rccnl of all iH.JUJt S agcd 20 lo 74 co nsillered ove nn:: ighl. Man y of lhese indi vidllills ma y nol see Ihcl11sc lves as fil e nough lo work out.

resoUl'ces such fi S IBI SWorlc1and Standa rd & Poo r's NetAdvan tage. and th rough ta lki ng to in dust ry participan ts. 1l1e Int ernet Reso urce Table in Appe ndix 2.2 at th e end of Chapter 2 provides Web s ite addresses that me helpfu l in identifying the SOUl'ces o f this inform ation . Man y in dustl"i es alw lwve int eres t groups thal sponsor \-Veb sites to promate th e ir industry and ta lk about curre.nt tren(k Fo r exa mp le. th e Web site Style.com (http://www.style.co m) is a fashion industl"}' sit e thal has a s peci al sectio n d edica te d to " news a nd lre nd s" in fa shi on . The ind ustry trends portion of the Prime Adu lt Fitn ess industl)' ana lysis is provided in FigUl'e 5-4. ENVIRONMENTAL TRENDS

A s d iscussed in Clwpte r 2.e nvironm ent al trend s are ver y important.1l1e stre ngt h oC a n indusliS often su rges Ol" wa nes not so much beca use of the ma lwge.men l skilI s o f the finn s in an indu st ry. but beca use e nvironm ent a llrends shift in favor o r Ol' ng,]inst th e productsol' se rviccs sold by Ih c fil'llls in the indusIr)'. Th e most import ant environmenta l trends are econo mic trends.socia llre ncls. tech no logica l
CHAPTER 5

In dustry Ana lysis

117 .

lhrough cach a rca to de te n n inc ifth c rc iI re Ire ncIs that are positi ve ly Ol' ncga tivcly i1ffcclin g yOlll' induslry I hal sho uld be comlllc nt ed o n. Fo r eX
• 118

PART III

Preparing a Business Plan

• A recent upswin g in hote l a nd mote l co nstructio n h
Othe r tre nds impact indu st ri es th nt are n't e nvironme ntal trends per se but ,He impo rtani lo menlio n. For example. are profil Imugins in th e indus u)' increa sing or fa lling? ls innovatio n
LONG-TERM PROSPECTS llle indusi I")' nna lysis sbo uld conclude wit h a brief stal ement o f your be liefs rega rdin g Ih e lo ng-term prospec ts fo r th e industry. No new information s hou ld be provided nt Ihis point. Jn stead . dra w trom Ihe precedin g secli ons of Ihe indusIry a nCl lys is lo suppo rt yOlll" concl usio ns. You r concl usio ns sho ul d be precise Clnd lo Ih e po int. No mo re Ihall seve ml senle nees a re required. Whe n yOll read Ihrough re porls o n your industry. from JBI SWorld . MinI e!. ond Stonda rd & Poor's NetAdva ntn ge. th e report s wiU include their tlssessments of th e future prospeets o f the indusII)'. Resisl simply repe,lIin g what othe rs
CHAPTER 5 FIGURE 5-5

In dustry Ana lys is

119 .

Long-Term Prospects (Prime Adult Fitness Business Plan)

TIl€ induslry is likely 10 maintain ils curreJ1llrajecl ory. An increasing inleresl in filn ess and Ihe cmergencc nf new cnncepls such as C urves (j USI for women ) and Culs (j USI for men) wi ll co nlinu e lo spur grow lł1. bullhe indu slry's gr owl h ral e iSIl '1expecled l o exeet:d ils reeenl 3.5 pereenll n 3.9 perce ni annual leve ls. Thc gr\)wt h in Ih e filn ess eenler segmenl of Ihe indllsl ry may be higher. TI1C aging of Ihe populalion is a long-Ierm posilivc Ircnd for Ihe induslry. Older pcnple are becoming illcreasin gl y inleresl ed in filn ess and have more mo ney and spare lime l o devole l o a filn ess cenler. TIIC nalure nf Ihe indllsl ry is likely lo ch,lIlgc as a result of I his de\"elopmenl. Recreal iorwl ce nlers Ihal realUre vigoro us exe rcisc. such as ra cquc\ball and ler1l1is clubs.are likcJy lo suffer. whereas riln ess cenl ers Ihal o ffer specia lized classes and cquipmenl for older people ar~ likcJy lo benefil.

HOW THE INDUSTRY ANALYSIS AFFECTS AND IS AFFECTED BY OTHER SECTIONS OF THE PLAN Industry a nal ysis is a foundational aspect of eva lu ating th e lll e rits of a prospecti ve busin ess venture.llle induslry Ihal a co mpan y participales in . as a result of il s stru cIuraj characl e ri sli cs. hislori ca l co ndili olls. and curre nl Ire nds. basica ll y defin es Ih e play in g fi eld thal a firm wil l participate in. A carefu l ana lysis of a firm "s induslry also lays oul whal is rea Ji sli ca ll y possible and wlwl isn "1 realistica lly possibJ e for a startup lo acllieve. 1l1e re m e some finn s. lik e Dell in Ih e co mput e r ind ust l")' a nd Starbucks in th e specia lty restaura nl industry. which bas ica ll y turn ed th eir indu stri es upside down by introducing new busin ess models and o ut performillg th e ir industries on most if not all me tri cs. However. th ese firm s a re th e rare exception rath e r than th e rul e. Most startups a re constrained enough by th eir industries th a t th eir performance fall s in lin e with wh(lt you would expect afler reacling th eir industl")' ana lysis. Th e industl")' anal ysis affecls Ih e o lh e r secti ons of th e busin ess plan in that it provides a po int of refe re nce to work from . Sawy busin ess pl
• 120

PART III

Preparing a Bu siness Pl an

Chapter Summary I. A n industry is a group o f finn s producing a similar product Ol" se rvice. such as airpla nes. mus ie. electro nie ga mes. Ol" fitn ess club membershi ps. 2. Separatin g the analysis of a finn 's industry and it s ta rget mark et is impo rt ant because it 's pre malure fo r a new finn to se leet. o r even talk abo ut . a speeific ta rge.t marke t until an unde rstandi ng of th e broade r industry is obta ined . 3. lt"s import a nt that th e indus try a nalysis appear early in a business plan beca use it log iea ll y precedes th e ana lysis o f a firm 's ta rget marke t and its marketing s trat egy. II a lso helps set up and support the remain der of th e plan. 4. 11le maj or secti ons o f an indust!"y ana lysis in clude industry definition : industry size, growth . and sal es proj ections: ind us try charilcteristics: industry trends: and lo ng- term prospeets. 5. If yo ur firm o perates in two Ol" more industri es. you sho uld ide ntify a ll the industries th at it pa rtieip ates in a nd reeogni ze th at it will be necessary to conduet an industry ana lysis fo r each o f th e indu stries. Some disereti o n is ,11l0wed regarding the we ight p laced o n the indi vidual a nalyses. In som e instan ces. when a firm opera tes in mo re than o ne indust!)', it ma y be appropria te to eon duet a fu li anal ysis o n the primary indust!)' th at firm ope rat es in and a n abbreviil ted analysis o n the o th er. 6. Th e key to the indus try size. growth. a nd sales projecti ons po rtion o f the ana lysis is to nol just report th e nu mbe l"S. Make sense of the num bers and prese nt th em in a way th at builds the credibilit y o f your bu siness plan. 7. Th e· fo ur key issues to dea l with in th e indu st!")' characteri sti cs seeti on of the analys is are indusu'y structure. th e nature o f the participant s in an industry. key rati os. a nd th e industry's key success fa ctors. 8. Th e topi e of industry structUl'e is pmticularl y important. An industry's size and its growth rat e, regardless of ho w pos iti ve th ey are·. a re basieall y moot points if a n ind ust!) ' isn 't stru ctura ll y attracti ve fo r a stm·tup. 9. llle industry tre nds po rtio n of an indu stlS ana lysis is arguably the most imp0l1 an t secti oll beca use it oft en lays th e foundCltio n fo r a new business idea in an indu st!")'. a nd it typicall y provides th e jus tifi ca tio n for cla ims made ear li er in th e in d ustry ana lys is. 10. Th e indusu)' ana l)'sis should condude with a brief state me nt of your be liefs regarding th e lon g-te rm prospect s fo r th e in dust ry.

Review Questions I. What is an industry? Wh )' is it impo rtanI lo indude an -- in duslry analys is" in

a business pla n? 2. Wh)' is it impo rtanI Ih at the indusI!")' ana lysis focus strictl )' o n a finn 's in d usIry ral her tha n it s indu str)' a nd il s target mark et sill1ult aneolls ly? 3. Wll y is i1 impo rt il nt fo r nn indusu'y mlil lysis to appea l' ea rl y in il business plan ? 4. Wll y is iclcnl ifyin g a cO Jll pa ny's indust!")' t1l o ugh cali inllwn y ins t
CHAPTER 5 Indu stry An alysis

121 .

5. Wh
Application Questions I. YOll jusI rev iewed
shoes w ith roll e rs o n Ih e boil o m . whieh will
• 122

PART III

Preparing a Bu sin ess Plan

5. O ne industry m e nti o ne d in th e c\Hlpte r th
Endnotes I. " Wo men's Cl othing Stores in th e US: 4481 1" ( I BI SWorld Industry Re port ). http://www. ibisworld.cO Ill.cllIliqueJ fOl AI/ulyzil/g Indllsllics (II/d CompelilOls (New York: Free Press. 1980). 5, M. J. Sil ve rs le in. Trt'{/S/lre I / lili I (New York : P011 fol io. 2006). 6, " Leisure Praducls" (SI
( H

E R

MARKET ANALYSIS

INTROOUCTION 1lle indusi l"}' (l 11(ll ysis secti o l1 o f a business plan is Il o rm nll y fo lIowed by th e ma rk et 'lll Cl lysis. Wh e reas t he indusIl"}' analysis focllses 0 11 t he bro
. 123 .

• 124 PART III Prepa rin g a Bu sin ess Plan specifica ll y fo r o lder people. fo un d thro ugh a survey o f ce li pho ne users th(l l th e mosl impo rl ant femure fo r users (lge 55 and o lde r is just th e abi lit y to ll1 (lke o r recelve voice ca lls. As (l result. G reatCa lrs pho nes a re sim pic and easy to use and focus prinw ril y o n Ihe ease o f ll1aking and rece iving ca lls. In co ntrast. anot he r celi pilOne sc rvice sla l"tu p. He lio (htt p://www. he li o.co m). is targe tin g the youth ma rke t. CO ll siste nt wil h the need s o f it s nw rk e!. He li o is producin g mo re styli sh ph o nes Ihat o rfe r Cl dva nced feil ture such as musie d ownloads and lex t messilgin g. 1 111e second reil SOIl a nwrk et fl llal ysis is impar lall1. if da ne properl y. is tlwt it affinn s thilt a compa ny has il we ll tho ughl o Ulla rgel Ilwrk e1. unde rsla nds its cus10rnel"S. a nd ca n gene ral e sa les in the face of compe t ili o n. II also communi ca les th e amo unt o f pOl enti al that exisls in a finn 's ta rget mark et. 11lis lall er point is particul arl y impo rt<1l1t beca use th e pOle llti a l o f a finn 's ttl rgel ma rk e t s ho uld be cO llsiste nt with it s ove rall gOil ls il nd ilspirati o lls. lf a firm wil nl s lo raise i nvcslmenl cil pil (l l. fo r exalllpl e. it musI d el11 0 nSlrfl te tl1<11 it s I
MARKET SEGMENTATlON AND TARGET MARKET SELECTlON To succeed. a firm must a tlswe r Ih e basic questio n: "\Vho a re a ur custo me rs. and how will we a ppea l lo th emTTo d etermin e th e custo me rs. yo u first segme nt the in duslry Ih a l the firm will p.utic ipa te in and th e n id c ntify the spec ifi c larget I11 nrk e l il will ta ckle. In same cases. (l firm will Iw ve twa mnrke ls. a nd yo u sho uld d escribe th e c1w racteri slics o f ba lh nw rkets. Fo r exa rn ple. if yO ll plan lO seJl your products through a ret ai l sto re. yOll have twa Illarke ts -Ih e relai! stares and th e e nd user o f your produ ct. YOll can use your judgme nl regarding how much weight lo apply to each market analysis. n1 e mark et segmenlati o n and l argel markeI se lection po ni o n of the Prim e Adult Fitn ess mm'ket an i'l lysis is shown in Fi gure 6- 1

CHAPTER 6 FIGURE 6-1

Market Ana lysis

125 .

Market Segmentation and Targeł Market Selection (Prime Adult

Fltness Business Plan) I\ I.uket Segment .. 'i"n FtlTIJW purpl\~~ lIr Ihc Prim\! Aulllt Filn c~" hu~jllc~" pl'lIl.IIK' "1 1n c~~ and Rcc n.:alin[l,,! SpOrl S CC lll c r~ in III...: U.S. indu ~ lr y b ~C~ llh! nl c J hy prtIlIUCII Ylx'
11rl "lm't/Sc r\'!fc Hcallh and Filii !.!"" Club.. Olher Rink s (iec ilnd roller ) li.: nni ~ Cl\U rl ~

11I (ItISH~'

Salcs

-Il.l% 21.4% 11.7% 11.6%

Swilllll1ing Puo l ~

8.3%.

Dan ce Sludios

5.9%.

A:,.:c ur nu~'Cr

Sha re uf Indllstty S:llcs

6-11 yca rs o[t! 12-1 7ycarsold 18--3-1 yc a TS (lld 35-5-1 yC
-1 % 8% 35% 33%

55 and 1I1dc r

20%

A dllili\\llal w1 fllr lh": lll. C l/ITI'III filllt'SS <"I.'III/'/"S lIrt' 1101 1I/('t'lillgs II/I' IIt't'lls of o/ikr pt'op!e. As illust rakt! in l ho.: "'Buyer Bchavior" scclio ll shown hel owo all-purpuse fitn css cenl crs clfe nol ahlc l o IllTe r Ih..: l.! n Virtllllll l.! nt . pr og ra m~. lI r Illix III" cI;t,~c.., l hal ilre Ilplimill for \llt!c r p":(lple. A~ ~ hl)W n hy Cu rv..: ... 11I1 \: rIlat illl1;tl and 111h c r ~. a pl. leni iatl y prl1fil ah le bu~il1c~s IIllxk l in lhe fitncss induslry is ltllargc l a ~ in gle d..:mograph ic very wcll by llfrering a tailorcd envi ronmenl and mi xt urcs of classes and fa c iliti c~ 11I.I"IITlIIICe .lIIb.\i(fic.\. An in c rcil~in g 1l1l11lh..:r tIr hC,1 11h in.,u rers
Tilrgct MlIrl.:et Sizc Primc Adult pl ans l o open a single loc
• 126

PA RT III

FIGURE 6-'

Prepari ng a B llsiness Pl an

(continued)

SII'p I : De le nnin o.! Prim\: A duU Filne~'\'s I rad..: a r..:a: We fee l l hal Se millo le Counl y. Flo rida. lhe cO llnly Ih al O viedo is local cJ in. re prcscnls a rcasoll ahlc approximalio n of Prime A dllll Fi l n css'~ Irade a re a . Musi re lail o ull cl<; ohlain Ihc maj o ri ly u f I hc ir hu ~ i no.!s'\ frlllll ił 5- Il' lO-mi lo.! r;ldlU ~ or Ih..:ir klCill in n hl'("" U ~C pcopl c are nl,1 will ing lll dri vc rUrlh ~ r if
SIt'1' 2: D ": I..:rmille lh..: IHlmh..:r oj" pcup l..: 50 )';" i1T~ \lld an J Illde r in Prime AduJt Filn o.!~<)' I rade a r..:'a. A cco rding lo Ihe Me lro Orlando Econo mi c De vdo pmc nl Cornmission. whi ch has mo re cllrrenl dala ,waibhle IIWlllhc U.S. Cc nslIs BlIre,HLthe rc aro.! 52.617 pcoplc 55 ycars Illd ,Ind Illde r living in Sernillllk! CIIUlll y. Ni l hre akdllw n i ~ PTlw ided fllr Ihe numlx: r Il f I)o.!opic 50 )'em ), n ld o r o lder. We do kllow Ihal lhe rc a re 3L95H 1:k..'Oplc whu a re -'5 10 54 ye "r Sel11illuk ClIUlll y 5{1 y...: a r~ \..lIt! lIr ok!...'r. A Illlal III' 1 7.~ pe rce nI u f l he respundcnl:-. i ntlical.::d I h,,1 I he)' bc long lo il fil n e~~ cen Ic r. Ih ~ lo lal size (in do ilms) o f Primc Ad ult Fitn ess's large l mark'::l fo r 200'0:. h IIId ~Irllld e r Ih .. 1 he lllt1!! hl:l filll '::~s cc nl e r) x 12 1ll111l 1 h ~ p.:: r year = $7.65-'.14U]. Revcnue Driver #2: O ne-li me e nrollmenl fe cs. Th e a\'e ragc o nc -lime enro llmc nl fee for joininga !ilncss cenl e r in Scrnino le Counl y i<; $1 {~ I (uli Iypcs IlI' c..:nl e,,). Fitn es~ c..:nl.:: r~. lin ave ragI.'. tu rn Iw..:r
SU'l' .l" Dd e rminc Filn e~'i cl ull~

CHAPTER 6 FIGURE 6-1

M arket An alys is

127 .

(continuedl

lo 20 perccnl. Thus.20 pcrcc lll on 101' of lhe income from revc nuc drivers#1 and #2. whi ch lol aJs $7.977.940. is $1.595.588. S lIl1IlI1ar~':

$ 7.654.140 $ .)23.800

M cmbc rship dlh::S One-li me membcrship fces

$ 1595.588

Olher inco me Tolal sizc of filn ess club market for Prime Aclull Filness's lradc m ea

$ 9573.528

SIep 5: D el ermine lhe l ol Cl I size (in dollars) o f Prim e Adull Filness's lClrgel m Cl rk cl for 2009. 201CJ.a nd 2011.

Minl ei es limales lh Cl l filn css cl ub saJcs across lhe Uniled Sl al cs will grow by ilpproxi nWlely 4.25 percenI ove r lhc nexl seve ral yca rs. T his is a sl rongc r growlh rille lh an lh e broHder Filness and Sporl s Cc nlers inlhe U.S. induslry.as rcpo rl cd in lhe indu slry anal ysis scclion of lhis business plan. A 5 r ercc nl fi gurc is uscd bel llw.accounling fo r lh e highcr r crccnlagc of pcople 50 yca rs old and oldcr lh Cll li ve in Sc minole Counl y comparcd l o lhe nalional ave ragc.

2003: :$ 9573.528 2009: $10.052.205* 20 i'J: $10.55·..814 2011 : $11.082554

* Primc Ad ull Filncss plans lo o pe n o n Januar y 1 21HI\I.

MARKET SEGMENTATION

In ma ny in stances. Cl firm will alrea dy have shown how it s inc\ ust1"y is segme nt ed in th e in dustry a na lys is porti on of th e busin ess plan . lf this circu msta nce appli es to your pla n. s im ply recapp ing th at a nalysis in this secti o n ma y be approp ri ate. If you're start in g frOlll sc ra tch. yOll shoulc\ explain th at ma rk e t segme nt a ti on is th e process of divic\in g a nw rk et int o distin ct subsets (o r segme nls) th at behave in th e same way o r have simil ar needs.3 A n im port ant decision you 'lln eed to ma ke is to how to segme nt your ma rket. Ma rk ets ca n be segme nt ed in many ways. such as by geography (city. state. country). de mograph ic var iabies (age. gen der. famil y size. in come) . psychographic variabies (person<1 lit y. lifestyle. va lues). be havioraJ va ri ab ies (benefit s sought. p roduct usage rate. brand loya lt y). a nd product type (va ri es by p rod uct). Sometim es a firm segment s ilS market on 1l10re tll<1 n one d im ension to d rill down to a specific ma rk e t segme nt th a t th e firm thinks it is uniquely capable of servin g. Fo r exa mp le. in its mark e t <1 nalysis. G reatCa l1. th e cel i pilOne se rvice provider fo r olcler peop le. probab ly segme nt ed lh e ce li pilO ne ll1 <1 rke t by age <1 nd by benefit s sought. Helio usecl this sa me segment <1ti on stra tegy by targeting younger llsers a nd fea turin g a more sophistic
• 128 PART III Preparing a Bu sin ess Plan To test whe th e r you hflve segme nt eel yOUl mfl rk e t successfull y. th e requireme nts for successful mmke t seglll entoti on me as fo ll ows: • Homogeneit y o f needs
As allu ded to previously,
CHAPTER 6

M arket Ana lysis

129 .

be chosen because it isn'l consiste nt with fo unde rs' passions a nd/or co re compete ncies. ln th ese ea ses. lhe founders no nmtll y se leet th e ta rget m a rk e t th"t rep resent s th e best fit fo r the m bot h p rofession"lI y [llld pe rson"lI y. nl e biggest mist" ke th at peop le ma ke whe n seleeting a t" rget mmk et is to denn e th eir l
multa neously. Startll ps a re usua ll y best se r'led by segmenting th eir industry e
Estim (l lin g th e size o f" target mmk e t C(l n be" lricky propositi on. ln ma ny cases. you nee d to lit e r"lI y in vent a me th odology for l11 " kin g your estinw te. 1l1e fir st rul e o f thlllllb is to not m" ke fri vo lous pred icti ons.A lth ough th e re m"y be occ,,sions whe n yOll h(lve to m"ke (l n educa tecl guess or estim a te. th e key is to ex plain th e p(llh th " t led yOll to your conclusions. [fth e reader o f your plan di see rns thM you are simpl y guess ing. with no c1ear rntion(l!e for your guess. th e creclibilit y of yOU!' plan will be co mp romised. Jf you are producing a product th at is a n e nh(l nced version o f somethin g th at is already ava ilabl e, such as " new type of toy or electronic g" me, th e nurn bers will be fairl y easy to get. IBI SWorld. Mint e\. St(l ndmd & Poor 's Ne tAclva nt age. a nd similm resources tra ck th e sizes of indllslri es and segme nt s within in dusl ry on (l

• 130

PART III

Preparing a Bu siness Pl an

b road basis. Yo u ca n eSI place lO sta rt in rega rd to induslry pa rti cip
CHAPTER 6

Market A nalysis

131 .

good so urces of info rmntion. Most pcaple a re f1 alte red to be as ke d fo r the i..

insight s and opinions. A lon g wilIJ re po rt ing th e approxi mnl e sizeof CI firm 's 'a rget ma rk e t. lhis secli o n o f t he m arket all
or

process fo r disce rnin g trcncls discussed in ChapIe!' 5. whi cl l covc rcd indusI ry [l11(1 lysis.c.m be .. ppli ee! he rc.A n eXC1 m p le o l' Ihe Iype o f l re nd Ilwl sho u ld be re po rte d is Cl I re nd Ilwl is eurre nll y IClking plClce in Ihe e lecl roni e ga m es indu slry.1l1e industry is i nc rea si ng ly sp re adi ng beyond ils yo ullg Ilw le cl icn Id e. il nd new Illa rk e l segm c n ls Clre be in g pio n ce red. A li eX
Buyer Behavior IPrime Adult Fitness Business Plan)

lllc folltlWing
Filn e'i~'s

rilnc~), cluh

purcha'ic lk:cisiun rur peopl<..: in Pri nw

largc lmarkcl :

M olil"f/lioll. tvlol i valion r c nlllin ~ thc kc)' to rec ruilill g ncw mcmbc rs and kccping lhcm cllgag..:d. A ccohling 10 a surv!.')' ctlmm is.,illllCU hy Minid . fl7 pc rcCnl t1r ntlnriln Cs~ duh m e mhc r~ ~aid Ihcy W\lukl j\lin a !il nc'i), cluh if the)' kncw the n C li\'ilic~ w{luld kce p Ih em ll1olival cd . !II /'OII/(' fe \'1'I. Pcoplc wilh incollles or $75.000 or mort m c mosl li kcJy lo join a filness ceni eLiI ~ 1 ,lli), li c lhal worb in filvor uf Prim e Auu ll Filnc),),.A IOI >! J of 39.5 per ceIII of htlll ...cllllh.b in Scmi nok Cl 1llnl y. FL. tw \'c i ncomc), k w h. or $75JMIO tlf morc. whk h i ~ wel l ahovc lhe 1l
• 132

PART III

FIGURE 6-2

Preparing a Bu siness Pl an

Icontinuedl

"My IIl1sblllld dinl \\'111'11 he \1'11.'1 ollly óS. //1' was OI"i' nI'l'iglll (//ullle" ('r i'xacised. TIuli SCf/ rI'S me. 1"/1/ 7/11011'. (llId /1I'mJllo liw /ollg mOlIgIl 10 SI'I' my grlllllklli/drl'lI grolł" liP. I sllOu/d joill li fillll'SS ("('1111:'/" mili slan exercisillg. bilI lIII' dlOicl's confllsl' m/'. / wish 501II1'0lle \\'ollM wkt' 1/11' by l III' IUllld IlIul sila\\' me wllll/lOdo.·· (Re lired School Adminislralo r. agc 7 \) I'rogmms a/ld f"ci/ilies. O lcle r peopl o profc r a d ifft.' ron t mi xlu re o f p rog rams a nd di fre renl Iypcs of fi Iness ll1achines I han l he popula li on in ge ncral. As a resull. o lde r people who belong to aJJ-puqx>se filness cenl crs are frustn ll eJ wilh exc rcise machin es a nd progn\lllS thal o ft e n do n't sui l Iheir spcciftc necds. To illllslmt c Ihis poinl. lhc fo llowing is ił compa ri son or Ihe 10 n1l1s1 po pul ar prog ram offered by tl Jl- purpose ft lness cen le rs o pposed lO Ihe 10 p rogrtl ms prcfc rred by Ihe 196 Seminolc Count y rcsid en ls 50 years o ki and o lde r in Dur slIrvcy. lllC sllTvey illu slrat es Ih e pote nli a l benefil o f lailo ring a fitn css cent e r speci ft call y lo 50 + ind ivid lla ls.

Top 10 Prngr.tms OtTcrl-'(1 h)' A II-Purpnsc Htness C luhs (in order of lXIIlularity) 1. 2. 3. 4.

Pe rsona l Training Ste pJBcnch Acrohics Filness E valu a lio n Ca rdio Kickboxi ng o r Similar AClivity

5. Yoga

6. 7. 8. 9. 10.

Strcnglh Training Low Impact Ae robics High Impacl Ae ro bic,; Group Cyclin g C lasses Child Carc

Top 1\1

Prugr.t m~

Prcfcm.'(1 by a SlImple

or 196 Pcople 50 l'ears O ld and O lder in Primo Ad ult Fitncss·s Tr.ulc Areu l. Low Impacl Ae robics 2. Pe rson al Traming

3. Yoga Filness Evalu ati on

•• 5. Slrenglh Training

6. Nulrilio n a nd Lil"cslyle Classes*

7. 8. 9. 10.

rndoo r Walki ng. Track * Bod y Scul pting* Massagc* Pila tes*

" Not in list of lop III p rogra m ~ o ffc rcd by all-purposc fitness cc ntcl"S. Sourcc for Top lU Pro~ra ms Offcrcd at Filness Clubs: Inte rnalional Hea lth. Racquct & Sporlsclub Associati on ( IH RSA). Lo("tllioll ofl'xt'rcise. Pcop lc who arc 55 yca rs o ld and o lde r a rc mo rc inclin cd lo cxe rcisc indoors Ihan il ny o lhe r agc grolI p. -nlis stalislic is pa rlicularly impo rl a nl when considc ri ng a Florida a ud ie nce. whi ch may be mo re incline d lo cxercise indoors as a resul l o f Ihe he al a nd hllmid ily. 1//:'{//I11 COl/ceTIIs. A lo tal Dr 70 pe rcen I a r pcople 50 years o ld a nd o lde r have a llcast o no.: cllTo nic he':llth condi li o n. T hc mosl co mmo nl y rcport ed conditio ns llre back problems. spine problems. a nd il nh ri lis (parlicula rl y in females) A s a result . acccss 10 ph ysica llhc ra py a nd c xe rcisc regimcs Ihal addrcss Ihcsc pro blems is im po rla nl lo Ihi s age group. Sodll l imeraclion. Oldc r pcople o ft c n crave pos iti\·c social inlc racl io n wilh Iheir pec r gro up.As li resul \. litncss cent c rs Ih al provide o pporlunitics fo r socia l inte raclio n and provide ope n spaccs wilh tablcs a nd re frcshments whe rc pc ople can ga the r and socializc IU1\'e a n ad vanl age.

CHAPTER 6

Market Anal ysis

133 .

BUYER BEHAVIOR lt 's impo rt ant to include a seclio n in the market cllla lysis tha t deals directl y with t he behavior o f the consum ers in a firm 's target marke t. A s me llti oned ea rlie r. th e tllo re a sta rtup knows abo ut the cOllsum e rs in it s tMget market. th e mo re it ca n geM products or se,rvices to accommod ate t heir needs. llle bri ef discussion of bu ye r be ha vio r in th e Prim e Adult Fitn ess market ana lysis, art iculated as bu llet po in ts. is reflecti ve o f this. The company unde rs tancls that th e key to attra cting people to its cent er is to provide an "enviro nm e nt " th at mo ti va tes th em to participate. As a result . in the market ing (Chapt er 7) a nd operatio ns (Cha pter 9) sectio ns of th e plan. you 'lI see the spec ifi c steps thnt Prime Adulf Fitn ess plans to ta ke to tailo r its cent e r specificnlly fo r the needs o f its clie nt ele nnd make th e cent er a n uplifting and sociall y satisfyin g place to exe rcise. llle Prime A dult Fitn ess plan high li ght s natio nal statistics tha t show th at people with annu al in comes ot $75.000 or mo re aJ·e t he most lik ely to jo in a fitn ess cent er. a statistic th at wo rks in fm'o r of Prime Adult Fitn ess. A total o f 39.5 percent of house ho lds in Se min o [e Count y, Fl orid a. tll e loc
• 134 PART III

Prepa rin g a Bu s in ess Plan

business-ta -bus in ess SlarlUps. il 's impo rl
COMPETITOR ANALVSIS A compc lil o r annlysis is a d e tail ed ana lys is of a firrn 's co mpc lilio tl . lt he lps a finn und ers la nd th e pos itio ns o f it s m aj o r co mpe til ors a nd th e o pportuniti es Ih at are aVCl il ab le 10 gain a competiti ve ad vCl l1l age in o ne Ol' mo n: a reas. 1l1e cOll1pe lit o r ana lysis (l Iso cOl11lllUniCal es to !he re aders o f y O lll' bllsiness plan tlw t yOll have a co m pkt e ullde rslandin g o f yom finn 's compe tili ve e nvirotll11 c nt. O ne thin g you ShOllld neve r sa y is th nt yOll don 't ha ve a ny compet it o rs. Eve n th o ugh a com pan y like Prime Adult Fitness may be th e o nl y filne ss ce nt e r in il s area Ih at ca te rs slrict ly to o ld e r pcop le. it s pOle llli
ar:

olRECT, INDIRECT ,

ANO FUTURE COMPETlTORS

llle first step in a competitor a nalys is is de termining who th e com pel ition is. De pending o n Ih e na lure of the bu sin ess. Ihis may be a more diffi cult task tlum yOll mi ghl think. Fo r exa mple. take a com pa lly such as Blu e N ile (hll p:/Iwww .blueniIe.col1l ). Ihe o nline jewe lry sta re. Primmil y. th e compa ny se lls jewelry. but Blu e N ik is nol o nl y in the jcwelry bus iness. Beca use jewe lry is ofte n given for

CHA PTER 6 FIGURE 6-3

Market Ana lysis

135 .

Competitor Analysls (Prime Adult Fitness Business Plan)

Dircft Cnmpctitors 111cn: arc 32 fi lll ~"... ce nlt' r-.; in Se milllllc w unl y. FL. Th ey folll)w~:

10 a il-purptlSC large ce n h..:rs. indwJ ing !luce Yr..,ICAs. o ne Bil lly To ta] ntness Ce nt er. Iwo Gold's G yms.. mu] Iwo LA Filncss Cenl c rs 11-\ smallc r. mor.;: lighlly foc usct.l ce nIe r-;. indudill:,! 9 Cur \'C~ filn e~!'> ce nlas -I

~ m;lllc r ce nl c ~

111ere are no fi ln e~~ cc nl er~ in Sc minolc count }' Ih al focus slrktl)' o n th ~ 5U+ de mograph ic. 111e re ne fit s o f Ihis dc mog raphic. howcvc r. arc app..rcll I lo a ll ce nle rs. which a re slarling lo llffu nhHC pnlgr
Indircd Cum Ile/n u r!'> Indireet compct il o rs inclmk co mpanies Ih al se ll ho mc riln ess equipmc nl. Se minole COUIlI )' by li numb,,; r of "po rling goods ~ I o rc~ Ihal .,cll Ircadmi lls. excrcbe hi kc.;. rowing mach i n c~" and u l Iwr hollll! cxe rei'\\..: e{lui pIlIc nI. N a tioll wid~. aecordi n ~ lu I B ISWorld . Ihe ~ porlin g gond Slorc imluslry has grown by i lll ,tve ragc of 3 pe rcclll o\'c r Ihe IM'illhrcc ycars (slightl y less I han I he fil ness cen Il! r indu sITY). l11(' rl! are also a IlUlllbcr of Web silcs I hal ~d l cxc rcisc cq uipmeJlI. induding c Bay. Accurd i n ~ lo Pri me Ad ull Fil n e~s ' s sur \'c}' a f 1% Pl \I\'nl ial Cll \lol11l.'r.; in 50.:I11i lwic C\.! li nI )'. 19 pc rcent Ilf I hl! res pl1ndenls i lid ka led Ihal Ihc}' \.l\vn hume exe rcisc cl]uipl11c nl valucu a l $2UO OT lllure.A n in c re a ~c in I hl' grnwlh ral e o f Ihe ho me exe rcisc e quipme nl Illarke l puses a Ihreal lo all filn css ccnle rs. Primc Adult Fil ncs~ i IIdud.:d. i ~ ~c r\' i ced

Flltllre Cumpetit lJrs lllc 1ilness inlluslry slllluld conlinue lo grow. as ind ie'lled ill Ihc induslry anal ysis cmlie r in I his husin.:ss plan . Sc mino lc CO Ulll y wi II refl ec l I his growl h. S<.: vc ral nasce nI 50 + filn ess chains cx i ~ 1. including Ni fl)' Arle r 50 and Cluh 50 (wilIch i-.; for IK~(\p l c -I(J yeM' \l ld mld llldcr). 8 1)Ih uf Ih csc clllllpanics arc X! lIing fran chi.,c:-. and cuuld I11m'o.: inl \l Ihc SC l11ino k COUIII )' mark e t. Olhe r SI
ritn c~)O

Cl'ntral "·I.. rid:! Y!\ICA

I.A f] lIwss

Guld "s Gym

Gcugnlphic loealion

Even

Evc n

Even

E vcn

Staff

AeJvanlage

Eve n

Evc n

E ven

Fit ness prog.rams offercd

Advantagc

Adva n lag~

E \"cn

EVCIl

Primc A dlllt

• 136

PART III

FIGURE 6·3

Preparing a Business Plan

(continuedl

IJrill1t.' Ad nlt Fitness

Cenlm l Flurida Yl\ICA

LA Fitllt.'ss

Gold's Gym

Brcad lh and q uitlily o t cquipme nt

Ev;:n

Eve n

Even

Even

Pricc

Even

E"e n

Even

Even

SociaJ in tcraclion

Adva nl agc

Advan lage

Even

Even

Tai Jorcd Services

Adva nl agc

Di sad va nlage

Disadva ntage

Disadvantaoe o

Brcadl h or CJient e le

Di sad vanlage

Advanlitgc

Ad valllage

Advantage

Nlllllt.'

SUllI mary llle grill shows Ihal Primc Adu ll Fi lness will compc le o n pa r wil h ils close~ 1 compet ito rs o n geographic 10cat ioJl. brcadlh a nd quali t} of c quipmeJlI. and price. 11 intcnds to estabJish an adva ntage in te rms or the <[U alit)' of its staff and the programs il offers. [ts clcar~s t absoJu1C ad va nlagc is l he la iJorcd sc rviccs it offc rs. This aclvilll1
gift.s.. th e comp,lIlYis also in the gitt busin ess. If th e company sees it selt as in th e gitt bus in ess mlh er Ihan jusl Ih e jewe lry busin ess. il has a broader se t of cO ll1p e til o rs ~ and op p ortuniti e s ~ to cOll sicler. You should lis I your direct competilo rs. indirect competil o rs.
No rm ally it"s impossible to ide nli fy all o f yom direcl and indirec t compe lit o rs. let a lo ll c your futu re com pe tit o rs. A s a rcsult . yo u sho u ld lis I a hand ful o f co mpctil o rs Ol' cI
CHAPTER 6

M arket A nalysis

137 .

assessmenl o t t he scope and inte nsity of )'our compet ition. Yo u'll have the oppo rt unily lO ta lk aboul )'our com pet iti ve adva nt age afle l" y O ll prese ll t your co m pe titi ve

ndvi1lltage grid. Th e !lex! sectio n focuses o n you l" compe tit ive
CO Il1 -

pa riso ll o f yaur firm t o )'o llr m aj o r com peti tors. To comp1el e CI meani ngful C0111-

pelili vc
)'O Ul

BU SINE SS PLAN IN SIGHTS

J]Ii1

--------,

Sources ol" COIllI)etiti"e Intelligence To COl11plclC n Il1 C; l1lill ~ ful colllpc lili vl! nn" lysis ~ ri J. n slanup mUSI lirs l unde rs!and Ihe s lralegies and beha viors o f ils compelilOrs. 1lle infof1 mlion Ihal is ga lh c red by a li n n lo le mn noou I ils compelil ors is refe rred lo as CIJIIIIK'tith"c illtclligcm·c. Obtnining sOll nd compctilive illte lligence is nOI .:llways an e"sy tas k. If .:l compelilor is a publicl y tmdcd !"irin. ,I ckscript ion of I he finn 's husin ess "nd its finand,ll in f0 l111a tion is ,lv" il;l blc I hro u ~ h al1lllwl rcporls fil ed wilh the Sec urili es a nd Exchange Conuniss ion (S EC). l1l esc re porls me pu blic records and are availa ble at the SEC's Web sil e ( http://www.sec.gov). More oftcn Ihan nol . howcvc r. a nc:w firm will co mpe lc prima rily against olhc l' pl'i valt' tOl11 pani es. In Ihcsc insln nces. lhc task is Ill orc difficu lt . Pri valc cornpani es arc nOI required lo di vlllge in fo rmalion lo Ih e publi c. As a resuh. whe n pre paring yOll r bus in ess plan. you ha ve lo find ways lo e lhi ca ll y oblain inforrnalion abom yo ur cO l11 pe lilo rs. H e re a rc "01111! suggcsli o ns fo r doing lh al: • A tl e nd co nfe re nces a nd Imde shows. Most induslries have confe re nees an d Irade shows al wh ich finns laik aboul !he lal est tre nds in Ihe ind uslry and di sp lny th eir p roduCIs. •

Rend induslry-rc lalcd I rndc publiclllions. l11;'1 gazines. nnd We b s it es, alon g wilh ge ne rai bu siness Ill agazi nes, sll ch as Bm'illess lU cllld BI/siness lI'eek. Read in duslry rc po rts vi.:l onl ine resources s llch as IB ISWo rld . Mini e !. a nd SI;lIldard ,md Poo r's. For cxamplc, fo l' each of IlI e industri cs Ilw l il covel'S. I B ISWorld has a sec lion in its re port ti tl ed " Maj or Compe lil ors." Purchase competit o l" products to und el's!.:md their fealu res. be nefi ls.'ll1d "ho l'l comi llgs: 'nl C pl'ocess of pUl'clwsing Ihe prod ucI wi ll
• Study co rnpe lilO1's ' We b s it es. Ma n)' companies p Ul ;'I lot of inforrn3tion on Iheir We b sites. including Iheir compa ll y's hislory, profil es of the ir mnnage l11e nl teams. product informati o n. a nd Ihe lalesl news abolll Ih e compnn y.

• 138 PART III Pre pa ring a Bu s in ess Plan (OMPETITIVE ANALYSIS GRIO

A com pelilive mHll ysis g rid is
ESTlMATE OF ANNUAL SALE S AND MARKET SHARE lll e fin (l l seeti o n o f t he tllmk et a nalys is foeuses o n compuling
CHAPTER 6 FIGURE 6-4

Market Ana lysis

139 .

Estimate ot Annual Sales and Market Share (Prime Adult Fitness Business Piani

Eslimatc o r A nnlllll Sak-s 111<.' fo llowing s t cp~ wc re ta kc n to

c~tilllal c

thc sizc IlfPrirn .... A dult Fitncss's illll111al

s a l l!~.

SIep I: D c lo.:r1l1illl! (h..: Ilurnhcr \lI' rnc lllbc r~ Pr im\.: Adull Fitn c :-,~ will havc. Primc Ad uH FiIJll'ss's l argcl is 2.1 00 mcmbc rship lIni ts wit hin 12 Illonl hs or opcning ils dooN. A " unir' is a ~ in g k Illcmhcr OT a coupk' p:tying f\'T a couplc"s IllcmhcNhip. Siep 2: 13
uni1s. II is projcc ting 2,[ 00 mc mbc rship units al lhc end ol' 2009 (firsl yca r or o pc raliu n ). 2.226 in 201 0.2.360 in 2011. and 2.502 in 2012. 11 wil l ~'C n e ral l! incorn c in Ihe following Ihr.:t:!

W;IP,: l\Icmhcrship ł'ccs: 111C Illcrnbership fl' cs will be $70 pa lIltJnlh for a singic rncmbcrship and $92 .50 pef 1110nl h ro r a C\ltl pll' ..... mcmhc f!>hip. B
llH.tIJ

M t~ mb e rship

U nit [nrollment l)ruj cl1ion

NUllher ul' New

S in ~l e

Couplcs

I\ l cmhers

I\ l cmher!>hill

M cmbcrshlp

January

Fo:hnwry f..,l arch

180 I ~(J

RO XO 75

Tntal

260 260

Jun ~

175 175 15U ISO

Jul y

IIXl

"J35

AugUSI

gO

35

11 5

Sc p4 cmhc r

70 70 70 70

35 35 35

!OS !U5 105

April rVIiI )'

O clob..:- r N O\'cmbc r D Cl'cmhc r l u la[

I A7U

75

"I

[35

95

630

2, 100

2009: $1 .251 .275 (bascd on cnrollmclll li mi ng and projcclions)

$2 .050.1 46 201[ :$2.1 73.560 20[2: $23().ł.342

210 210

25

l)rujCt1Ccl mClllhcrshil1 inl'UIIIC: 201 ~:

250 250

• 140 PA RT III Prepa rin g a Bu sin ess Pl an FIGURE 6-4

(contlnued)

Onc·Tinw [nrullment Fees: Prime Adull Filness's o n ~ - lim e enro llme nl k c will be $1 50 for boi h singJcs and couplcs. An allrilion rai c of 25 perceni per yea r is
50 'h o f revenues W ille Irom lhe e xisting marke t. Prime Adull Fitness will need lo caplure an 11.44 % share o f the 50+ markc l for pcople in Semino le Counl y. FL who cUTTenll y be long 10 11 filn ess cenle r. Wc fecllhis num be r is achi cvabl e.

Th e first way to estim a te th e sales fo r a new busin ess is to cOllt act th e premi e r tra cie assoc iati ons in your illdustry a nd ask if th ey track th e sales nllm be rs for busin esses Ih at are simil ar to th e busin ess yOll plan to sta rt. If th e trade associalion cl oesn 't tmc k Clctu al sales num be rs for com pa ra bl e busin esses. ask if t he re are othe r rules o f thllm b or me trics th at help new compmli es estim a te sCl les. For exmnple. ma ny industri es collect statisti cs such as ··ave rage sales pe r squa re foo t" or ""average sa \es pe r em ployee " fo r th e finns in their industl")'. 1l1ese 1l11l1lbers Ill Cly be hdpflll to yOll in estim ating your initi al s
CHAPTER 6

Market Analysis

141 .

on lin e trade associatio n directo ri es lisfed in Ihe lnI e m et Resources Table Hl Appe ndix 2.2 al the end o f ChapleI' 2. Th e second wa y lo eslimale a new firm 's sa les is lo find a co mpara bl e firm. ar a compa ny Ihafs selling a compamble produc!. Ma n)' fin a ne-i al expe rls fee l Ihat Ihis is Ihe most effecti ve a pproach. For exmnpl e. if you are plmllling lo open a wom ,lI(s clo thing boutique. fry to find a boutiqu e that is similal' TO the o ne )'OU m-e pl a nning, and simpl)' cali Ihe owne r and as k fo r a chan ce lo laik lo him or hel' aboul Ih e business. You should try lo find a stare oul of yo ur Imde a rea 50 Ihe owne r does n'l see you as a pOlential compel it o r. As indicaled in Cha pler 3.even if the owne r is onl y wi llin g lo ta lk in ge ne ml te rm s (i.e .. a ur an nual sales a re beIween $300.000 a nd $400.000 pe r yea r). Ihat info nn ali on is bell er Ih an nOlhing. Of course. you' lI need lo use com mo n sense to adjust Ihe numbe rs based o n whelh er your slo re will be sma ll e I' Ol' la rge r th an Ih e comparable store. will be in a bell er locatio n or a poore r loca li o n. a nd sa o n. You sho uld report yOUl" assumplions so i.-s ci em- lo Ihe rea der o f your pla n exact l)' how you a rri ved al your sa!es estimat e. If )'o u're planning lo se ll a product. such as a new Iype of iPod ilccessory. lh e Sil Ille CIpp roach il pplics. TI) ' lo find CI compClll)' thClt wO II ' 1 be il dircct compelit.or Ihal is se lling a simi lar producI. and Iry to a rmnge a lelepho ne appoinl me n I Ol' e ngage in an e- m
• 142

PART III

Pre pa rin g a Bu s iness Plan

Some lim es Ihe l11Ullipli c(ll io n melhod gels fai 1'1 )' cOll1plica! ed . il nd yO Ll hilve lo eonsider severnl indusl ries Cl nd conducl prirllill)' reseMch lo gel a good eSlitlH1t e. For exarnple. if you had start ed H20Audio. the compan y Ihat makes wate rproof ho min g fo r th e Apple iPod . how wo ulel yOll have used Ih e Illulti plica ti o n Ille lh od lo estim a te yOlll" initi(ll sa les? O n(' wny to a pproaeh this Ins k wo uld be to gal he l' da la on the lotni nUll1ber of people who regularl y engage in sport s where they are like ly to get wet. whi eh is H20Aud io's target Ill nrket.ll1 ese spo rt s include swirn111 in g. surfing. snowhmrrding. snork c li ng. and s ill1 il i'lr ilcti vit ies.. lll C ne x! ste p WOlr Id be 10 loea le dat a o n th e nurn be r o f peopl e who liste n 10 nil iPod whil e exe rcising or engaging in outdoor aeti vities. Workin g with th ese num be rs. you cou ld then estinHlt e th e perce nt nge o f people wh o e ngage in wn te r Sp0l1S who are i Pod users. YOll wo uld th e n Iw ve lo condu cI primary rcsen rch lo Il1nk e nn estimnt e o l' Ihe perce ntnge o f those people who would bu y your product and Ih e ave rage mnount t hey would spend .1l1e primnry resenrch acti vities rnighl in volve distributing yom conce pl st
Chapter Summary I. Th e mark eting (l1wlys is secti on o f a bu siness pla n is distin ctl y cliffere nt from the markeling sect io n. nI e mark et annlys is section focu ses o n describin g a iirm 's targe t nli1rk et. cllsto llle rs. (I nd compctil ors: how it will compete in th e tlli1 rke l pi nce: a nd pOIe n Iial sal es (I nd ma rk et sh are.. In eon! rast. Ihe mewke t ing secti o n focu ses o n the cJ(lssic nmrketing functi o ns. includin g producL price. promo t io n. a nd dist ri but io n. 2. ll1 e Ilw rkel anil lys is is (In extremel y impo rlnnt secti o ll o f il busin ess plan fo r two reason5. First. it helps de fine the nalure of the bu siness mld th e rema in de r of the plan. Second . it nffi nns th al a co mpany has a we ll th ought o ul target marke t. unde rslands il s ClIsto lllc rs. nnel can ge ner(l tc sal es in Ih e face ar com pel i ł ion. 3. Mark et segmcntntio n is the procc ss of di vid ing a mnrke l into distinct subset s (or segme nt s) Ih al be have in th e smn e way or ha ve similar need s. An excit ing eleme nt o f til e cntrepre ne urinl process is that it o ft e n results in the ide nlificat ion of new segments o f a n industry that weren·t previously conside red .

CHAPTER 6

Market Analysis

143 .

4. A ft el" a firm segmenls il s market. il selcclS
Review Questions I. Expl ain th e purpose o f rh e m nrk e r ,1nalysis secr io n of a bu siness plan. 2. Descri be th e d ifference betwee n t he mark et analysis seclio n and lh e marketing pl an sectio n o r a bus iness plnn. 3. E xpl ain th e process o r mar ke t segme nt a li o n a nd why it 's im porl ant fo r " finn to select
• 144

PART III

Prepa ring a Bu siness Plan

Applicat ion Questions I. A fri e nd o f you rs just co mple ted a 42-page business plan for a solar powe r

2.

3.

4.

5.

compa ny. 1l1e compa ny wi ll be askin g fo r $4 mi ll io n in ven ture cap it a l fUll din g to ram p up product ion of a ne w type of solnr pa ne l the y ha ve deve loped. W hile lookin g Ihrough Ihe pla n. yOlln oliced Ihat Ih e compa ny will be largelin g thre e se gment s o f I he so lm e ne rgy markeI: comme rcia l use rs. res ide nti a l us e rs. a nd go ve rnme nl buildings. Whe n yo u asked you r fri e nd if he Iho ught th e com pa tly mighl be spreading il self 10 0 thin . he replie d by sayin g. "No. 111 fact. we Ih o ughl aboul large tin g add ili ona l se gme nl s. We wml! lo show Ih e VCs Ihal we have broad mm kets for O Ul" producI: ' Do you Ihink your fri end 's large l mmket slrat egy is wise ? Expla in yOlll" a nswer. Accord ing to Ih e chapler. o ne wa y Ih al mark els m e segme nl ed is o n psych ographic va ria bies. E xpla in whal a psychographic vmiable iso ilnd provide thre e exa lllples o f Ill a rk et s th a t might be seglll ent ed on o ne O l' mo re of th ese va ri abies. R ecrea le Prim e Adu lt Fitness's estim ate o f th e s ize of its targe l market. and subslitul e the count y Ihat you r coll ege of uni versity is loca te d in fo r Semino le Cou nty. Flo rida . How do your numbe rs co mpilre with Ih e numbe rs rep0l1 ed in Prim e Adult Fitn ess 's estim a te ? Pul yo urse lf in the p lace of a n in veslo r liste ning lo Prime Adult Filn ess pre se nt the marke i ana lysis p0l1 io n of it s busin ess pla n . Think of thre e pe ne lrat in g q ues li o ns Ih a l y O ll wo u ld ask a bo ut the ir ma rket ana lysis. Expresso Fitness is producin g an exe rcise bik e thill keeps ilS us e rs e ngaged an d mo ti va te d by turning the bik e illl o a so rl of vid eo ga me. Go to E xpresso Fitness's Web s il e (http ://www.expressofiln ess.com ) .
Endnotes [. D. Cl ark. "Start -Up lo Tailor Wi re[ess Se rviee for Seniors." Tlle Wall Sm'el ] ollrl/al. Apri[ 3.2006. 2. Prieew
( H

R

MARKETI NG PLAN

INTROOUCTION 1l1is c1Hlpter builds o n Ch"pter 6. which cli scusse d th e lllflrke t ClIHl lysis. Whereas t he rnmk et
• 145 •

• 146 PART III Preparing a Bu sin ess Plan to reinfo rce how yom produ ct provides it s user uniqu e vO best ea plmes ił. We were spendi ng l ens o Cmil lions o f doll
CHAPTER 7

M arketi ng Pl an

147 .

T hi s mark etin g ch
ma rk eting SlrCltegy. pricing strat egy. SClIeS process a nd promolioll s mix . and d isIribution and sales. 11l C OVCI'
FIGURE 7-' O\"t~ r:lll

Overall Marketing Strategy IPrime Adult Fitness Business Plan}

MarkcIing Strateg."

111C 0"cmJl ohjcclive o r Prim c Ad utl Filnc'is\ markCIing str
ilccompli<;h this (lhjec1i vc lhrou g,h spla, hy ilLIs. Ou r \l"Cr..11I ilppwil eh will be 1\) gCllc r:lh:: gra'iS roOIS SUPIXHI and wo rd-of-lllllUIh rde rnlb I hwugh iI ~;.:: ri ;.::s o f Illark e l ilig lile lies I hal will d;'::lllo llsl ralc how <.!xc Teisc .lIld m C lllhc r ~hi r ill Prim!.! Au ult Filllcss c llhlllle!.!s I hc li w'i o f OUT Illc mhc r:-.. D ur Illarkc ting, ~ Irill <.!g y i ~ also ba~cd u n Ihc 11\)liolllh,1I mmkcting is ..:vc ryoll":·s r<.!sp\J nsi bil il Y-our ~ Ia fr. \J ur e mpl o)'<.!cs. OUTdi rce lo n,. o u r allvisory t'lo.ltIrd 1ll ;.:: m be r~. a nd c Vo.! n our mc mbc r:-.. E w ry program. cvc ry cla s~. c vc r)' picce of c quiplllo.! nl wc bu }'. and cvcry inlc racliml wilh u UT ml' lll be r:-o will be ba:-o;.::d o n Ih;.:: gua l o f lu lfilling o ur lllbsio n. whic h i:-o cxprl':-osed Ih ro ugh our tagline " Mccl Yo ur O rcanb:' Wc so :-olrongly hcl icvc Ihal pcoplc 5U )'ears and o lde r wanl 10 be filIInd kad hCll lth y lives Ihal we'vc ere al;.::u li filn ;.::ss ce nl c r jusl fo r Ih em . \ \le wan l o ur la rge l Jllarkd lo kno w how much Wo.! eare.l lwl :.enl illlcnl will be H: nec lc d Ihro ugh o ur markding SIraleg)' a nu lac lics. Wc are a lso ko.!e nl y :lwarc Ihal wc llIusl reac h o ur llIo.! rnbe rship glla ls. The nurnhc r 2. 100 is o ur Illc mhc Tship goa l fo r 20 10. Thal Ilumhe r wi ll he a mo livalio nall ool a nd will he Ihe ce nI Ta Imc I ric wc usc lo ho lLl o llTsclvcs accounl ahle flIT I ra nsla lin g o u r ca ri ng ali iludes lnl o h u ~in ess re'iUlls. 1l1e sloga n " Lc t"s Ca re Eno ugh 1(1 Reach 2.101]"" will appc a r o n a li o ur inl e rna! d oeu mc nl s and will he a celll ra i parl nf our cmp lo yee Jllol i Vitl io n prog ram . l)u~lt[oning

Prime Adu[ 1 FilJlo.!ss·:-o la rgcl marke I is Ihe hca[lh and fi ln.:s:. dulJ mark o.!! for peoplc 5U ycars olei and o lekr. lis po:.ilio l1 iUl lw marke I is lo ork r a lailorcd o fl"0rin g (Illo.!
•

nr Oillcrc njjalinn

On ly fil ncss ce nl e r in o ur largcl markcl excl usive l)' fo r pco ple 50 )'ears o lLl and o ld er SI r\1ng e rnpha~i s plilcc\1o n Ihe ~ocia l aspecl of he lo llgin g lo a filn css ce nle r Wcil-I rnined ~ I aff I hal eMes aho ul 1he ncet.is :md li \'es o r o lde r pcoplc

)'m
• 148 FIGURE

PART III

7-'

Preparin g a Bu siness Pl an

(continued)

Prime AduJI Filness's sccond and Ihird p,,. inl s or diffe rt:: nlial io n. a SIrong cmphasis o n socializalio n and a Iraince! and ca ring sl
","

:Q

(YMCA)

p ci:

"

.~

"

«

Prime Adult Fitness

Cornmunity Cen ter Filness C lubs

Q

"'"=

C urves Inte rnati onal

r-

"

------------

Low Low

High Tailored to Ih e Specific Needs of Clierllele

OVERALL MARKETING STRATEG Y l\'l arkcting strateg." refers to a firm ·s approach lo marketing il s products a nd services stated in broml te rms. which forms th e bas is of all of il s market ing- re lated
CHA PTER 7

Marketing Pl an

149 .

llle re are Iwo a dditio mtl pa rt s t o this secti on : pos il ioni ng s tr
of differe ntitlti o n. POSITIONING STRATEGY

Afte r selecting il target mm ket. th e tl ex t step is fo r a firm to se lect a "positio n" in the mark et. Pusitioll is co nce rned wit h how a firm is situat ed relat ive to its ri vals (Ol' pot ential ri vil ls) . In a sense. a positio n is th e part o f il specific target market that a firm is claimin g fo r il s o\\'n. To unders ta nd a firm 's mark et positio n. you need to study the feil tures of its goods or services. Fo r eXil mple. BMW 's position (lu xury) in th e automobil e marke t differs from Chevrolet's position ( functi Olw l). C lea rly. these prod ucts differ from o ne anot he r in substillltia l WilyS. E ve n \\'ithin the luxury a utomobil e market. BMW's position (more sport s-dri ving o rie nt ed) diffe rs from thal o f Infinity (mo re luxury-fea tures o rie nt ed). A s shown ea rli er in Figure 7- 1. Prim e A dult Fitness ha s posi tio ned itse lf at the to p end of the fitn ess nwrk et. in te rm s of th e nm ge of amenities offered. fo r its target market (people 50 yea rs o lei and older).1t will o ffer it s members acc.ess to a premie r select io n o f exercise equipm ent. fitness c1a sses.. a nd ot he l' programs. in a modern . comfo rtable 2 1.600 square fo ol facilit y. ln exchange for these a men ities. Prime A dult Fitn ess will cha rge a mo nthly member ship fee that is il lso at the top e nd of th e market. llli s is Prime A clult Fitn ess's positio n. TIle re
Yo u shou ld also c1 ea rly arti cu la le yom speci fi c poi nts o f diffe rentiati o n ea rl y in t he marke ting plan sectio n of your busin ess p lan.lllese poi nts were illuslra ted in your co mpe titi ve ana lysis grid in Clwpte r 6. l l's typ ica ll y best to lim it th e po ints of differenti alion that you talk about to two O l' th ree points. to make th em memorable and di st-inct. A lso. make sure t hat the va lue of th ese po int s is easy for your read er to see. Fo r exa m ple. ZU CA (http://www.zuca.com). the backpack o n rolle rs. has two distinct point s o f diffe rentiiltio n: it re li eves back pa in by putting t he backpack on rol lers. and it 's sturdy enough fo r eith er a chiJ d Ol' a n
• 150

PART III

Preparing a Bus in ess Pl a n

which the produet is so ld . a nd few re taile rs with e nough shelf space to ca ITy 20 diffe re nt colors of a backpack. This type of disconnecl or nCli vety undermin es the c redibility o f a business plan. lll e re are man y o th e r pot e nti ClI sources of diffe re ntiat ion . Noel Capon. a m a rke ting expe rt
PRICING STRATEGY llli s sectio n sho uld exp la in how you plClIl lo price your producI Ol' se rvice. Price is a n important iss ue beCCluse it de te nnines how much money a co mpan y ca n emil. lll e p rice a company c hm'ges for it s produ cts also sends a elea r message lo its Imget cllslo me rs. Fo r exa mple. Oak ley (ht1p://www.oa kley.com ) pos ili o ns it s sun glasses as inll ovil ti ve, sta le-of-Ih e an procluc ts Ihal a re bo lh high qualit y a nd visua ll y appea ling. llli s positio n in th e ma rk ei suggesls Ih e pl'e miulll pl'ice Ih <11 OClk ley charges. If Oak ley Cldvertised inn ova li ve. s t
CHAPTE R 7 FIGURE 7·2

Marketing Pl an

151 .

Pricing Strategy IPrime Adult Fitness Business PianI

Pridng Str.ltcg~' Primc Adult Fi tncss will mlopt a policy o f value-based (opposed to cost-based ) pricinf!, a nd will price its initial e nrollme nt fe e ilnd monthly me mbcrship fee o n two crite ria:

.•

Curre nt pri ces cha rgcd by d ircetor com petitors in ils t rad e a re a 111e pe rccived va lue of its se rvic.: by ił s I,t rgcl clicnte le

Primc Adnlt Fitncss's Prkcs ' -s. Dircl1 Compctitors llnd Nll1io nlll An~ fllg('~ Pri me Al/liiI Fil/l ess

Direcl Compl!l;wrs i/l Trat/e Area

NIU;O/UI/ A t·('rtlf!,f!

ln itia l (Onc -Timc ) Mc mbc rship Fee

Single : $150 Couples: $150 Fami ly: n/a

Single : $1 -ł5 Cou ples:$ 165 Fa mily: $165

Singl e: $150 Coup les:$199 Family: $I99

Mo nlhl y Mc mbc rship Fee

Single : $70 Couples: $92.50 Fami ly: n/a

Single: $72.50 Cou ples: $87.50 Fa mily: $87.50

Singl e: $55 Coup les: $89 Family: $ 89

Direcl Compclilors.. Prime Ad ult Filness Sur\'ey Naliona l A\'erages: Internatio nal Health. Racqu et & SporL~cl u b Association

SOllrces:

Summary llw pricing schcdu1c sho wn above dCJllo nslrales Ihal Prime Adult Fitness's priccs m e on par with ils dircet compc tilors and natio nal ave rages. Thc schedule was subj celcd lo scru tiny in Ihrec focus g roups. a nd no serio us objcclio ns wcrc raiscu"

a ren'l the)'?" In additio n, th e lowe r priee wouldn 'l gene rate the sa le s reve nu e Oakley nee ds lo co ntinu ously di ffe renli ate its sun glasses from co mpetito rs' products in ways Ihal erea le va lue for its custo mers. In Ihis sectio n. you should state how yOll plan to priee your produet or service a nd pro vide a bri ef rati onale for yom prieing philosophy. TI1 e Prime Adult Fitn ess business plan. shown in FigUl"e 7-2. plainly stales it s pricing po ljcy a nd Ihe n shows a compariso n of Ih e prici ng structme to di rect competito rs and nat ional averages. A ltllOUgh at firsl gla nce. price seems like a slrfli gh lforwa rd lopie, il is act ually quit e complex. There are diffe rent me th ods fo r dete rmining n prod ucI's price. and a va rie ty of o lhe r issues are in volved . TIlis pa rt o f th e marke t-ing plan includes Iwo secr-io ns: cost-based vs. vn luebased pri cing and olh e r pri cing- relate d issues. ( OS y-BA S EO P R I ( IN G VS, VALUE-BA S EO P R I ( ING

TIl e Iwo me th od s fo r dete rlllining the price of a produc! Ol' se rvice are eost-based pricing and va lue-based pricing. In cust-bascd I)rid n g. Ihe li si price is del enn ined by adding a ma rkup perce nl age 10 a prod ucI's cosl.111e ma rku]) pe rcc nl age nUt)' be slandard fo r the indusIr)' o r may be arbitrarily delermined by yOll . 111e ildva nlage af Ihis 1l1elhod is Ihal it 's slr
• 152

PART III

Preparin g a Bu sin ess Plan

111e disnd v<mt <1ge is tlw t irs not <1 lw<1ys e<1sy to eslinw le wh <1 t til e costs of n produ et will be. p<1 rtic ulml y for <1 stm"tup. Aft e r a price is set. \"
Most expe rt s "'<1 rn stnrru ps to resist th e te lll ptation to chmge n lo\-\' price for th e ir products inlh e hopcs o f c<1plurin g mm k ct shnrc. 1l1is
CHAPTER 7

Marke ting Pl an

153 .

a nd WebS ho ls (http ://\V\Vw.\Vcbs hols.com).orrer ,, simil iH se rvice fo r rree. O stcnsib ly. Ih e re,1S0I1 SmugMug is "ble lo c1wrge a fee is Ih al il offers higher levels of CHslome r se rvice " nel has a more lIser-fri cnc\ ly illl crface (in Ic rm s of ho\\' yOll vie\\' yo ul pllO tOS o nl ine) Iha n it s cOl1lpel it o rs. But Ihe ow ne rs o r SmugMug rceJ IlwI it s abilil )' lo charge goes beyo nd th ese obvious po inl s. Some o f Ih e free sil es ha ve closcd "b rupll y. a nd Ih e ir lI sers hnve 1051 p h o l o~. Srn ug M lig. bec"lIse il charges. is scen fi S mo re rc liablc nnd d epe ndab le fo r Ih e lon g te rm . (Who wn nl s 10 lose Ih ei.. pho los?) In ndd ili o n , Ihe o\\'ne rs he lieve Ih a l wh e n p eop le pn y fo r sorne lhin g, I hey in natel y assign a hi gher va lu e lo ił . As a re~ ult , SmugM ug users lend lo treal Ih e sil e wilh respecl. by posling allrac li ve. high-qua lil y pho los Iha l iHe in good tnsle. SUllIgM ug's lIsers nppree ia tc Ihis r"cel o r the sile, eo rnpa red lo th e free sit es, wherc unsee ml y pllOlOS o fl ell erce p in .5 Th e ovenn chin g po int o f Ihis exa mple tl nd Ih e prece ding c\iscllssio n is Ih al th e pricc yOll 're Clble to chnrgc is large ly fi fu nclio ll o r ( I) the objcc li ve q uali ly o r youl producI Ol' se rvice Cl nd (2) Ih e pe rcep tion of va lue Ih nl yOll creale in Ih e minds of yOllr cllslo me l"S relal ivc lo co mpl eti ng prod ucts in Ihe rnarke tplace. YOlt shou ld ctl refu ll y assess etl ch o l' th esc crit e ri a as yo u sel yo ur pri ces and dcvclo p yO lll p ricing philosophy. Th e nex t sec łi o n focll ses o n n firm 's stt les process
Sales Process and Promotional Mix IPrime Adult Fitness Business Plan)

S:II I'.~ I)ru~:c ... s (ur C~· dl~ ) A foundal ion1l 1 aspccl nr P rillle Adu ll Fi Iness's sa les ,mcl prollIlII in nal sIral eg}' is il s sil les pro:-CSS. lllis is Ihc proces"" Ihe ctl lllpany willusc lo ren u il me mhc rs a nd is Ihe prllccss Ihal lhc in -htl u).c ~Iaff wi ll f(\ lIo\\' wh<.! llllCl1pll.' walk inl o Ih...• ce nl er a nd inquire al'H.IUI nwmhc rship. A l limes. Ihe proecss willlakc , wce ks lo unl"old. il" Primo..' Alt ul i Fil n c ~~ lX! r~ \lI1 n c l havc llluJtiplc eo nlacl s wilh a prospeci. and al limes Ihe p meess will u llfold in II few minul cs. as an cmployce rrovide'i a prospccl a lo ur nr Ihe facilil }'
lI'UYl' l'rimc Al/liII Sf{/~I'

;11 l -'rflCI.'s\

l. Prospccling. (u r 'ialcs kall )

111/.'

HIII('s.~

Will Sup/wrl ElId / PlltIst' of

I'rtl(·~

Re fc rrabi from cllrrcnl memhc rs. Dircel mail ( l ;lrg~ lil1 g hllu),c l1o ld). lh
• 154 PART III Prepa rin g a Bu sin ess Pl an FIGURE 7-3

Icontinuedl

2. Thc initial cont acl

• Ali e mployees will be provided lraining in building rapport wilh prospeeis. • Prospccts a rc provided an info rl11 al io n packCl abo ul Prime Adul! Filncss. Radio and prinl mis will direel prospcets lo P rimc Adlll! Filn es~'s We b sile. whieh conl ains 11 sl1l1rl video and olher prom olional ma lerial.

3. QlIalifying lhe lead

Ali e mployees will be train ed lo assess whe lh" r a pTllSpeCI represenls a Cjllalificd lead. Prospec ls Ihal a re qualified as goou leads will be offe red a lo ur of Prime Adul! Filness's fa cililies. • If a Cjualified Icad does no l join inilially. he a r she will be cont aeted by pilOn e as a fo llow-up lhr ec da ys 11rtc r IlIc vbil.

4. Sa les prese nt alio n

Qualifi ed Icaels will be providc d a facilil y lo ur. QlIalifi cd leads wi ll he shown a shorl film (nine minules) fca luring Prime A(hll! Filn ess's fa cilit)' and progrill11s and Ihe bencfit s of filn ess for o lelcr peoplc. • A paekel of lcslimonials will be devclopcd ove r time and provided lo prospeeis a~ parl a f Ihe ~al cs presc nlalio n process.

5. Mee ling object io ns and eoneerns

• Emplo)'ees will be lrained on how lo mee llh e mos l eo mmo n and o bvio us o bjecli ons 1111c! conee rm. [n regard to price o bjeetions. a broc hure has bee n preparc d lhal eompares (I) Pri111e Adull Filn ess's inilia l (o il e-lillle) e il rollllle nllee a nd Illo nlhly me mhc rship ke to o lhe r filn ess cenle rs ilnd (2) Ihe cosl o f joinin g and belo nging to a filn ess cent er as o pposcd lo o lhcr ro rms of reereali on and enl e rlain me n l (i.e .. boaling. golt"in g). • A simi lar brochllTe has been prcpme d lo cornpare Prilllc A(hll! Filncss's a lllcnilics lO Ihe amc nitics o f o lhe r t"ilnessce nte rs.

6. CIosing lhe sale

• A li e mployees will be train ed lo ask Cjualifieu prospecIs tl) join.

7. Fo llow-lIp

• Eaeh ne w memLX)Twill be cont acled by pho ne 30 da ys a ne Tthey join as a eourlcsy lo see how things me guill g. A fl e r IlwI.III;:)' will be l:l'lll al:leU by pllllne o nce a year. Each phone ca li wi ll also be used lo ask for names n r rel"errals. • Prirne Ad llll Filness will pra duce a rnonthl y Ilewsle tteT thal will be mai kd to cach mcrn bcr. • Prilllc Ad ull Filness's slaff
' Dcscr ibed lInder pl"Ol11 o ti o nal activiti es.

CHAPTER 7 FIGURE 7-3

Marketin g Pl an

155 .

IcontinuedJ

PruR1utiunal Al1i1'it ics

Olhcr pn l lll\ llk1lHłl acli viti c:- .mU

•

IlI c li c~

are planncll 11\ fullllws:

l'ilrtI/t' I'slli" \\'i/ II G'lIlmf F1o ri(/fI /I('lIlll! "-00(/. Prim!.' A dult Filll!.!'~ Iw" cnl crcd inl n cobranding rc latioJlship wi lh Ce nt ral Flurida Hcallh Food. C:nl ral Florida H callh

F\)\IU will rc ri(ldic,tll y plilcc WUp\lll'i in ils ~ h\lppin g

•

•

•

•

·

ha~s

iI

lhill pnw iJc ;I CCCS~ hl prcmi -

UIllS for tak ing. a 10tH o f Prirne Ad ult Filness's faci lili e~ POr/IIt'I:,-lIi!' I\'i/II 01'iedo J)Ol'lOr :, {/Iul SlIrg{,(I/I :\ M edicII! I'rl/c/ic/'. Pri mI.' A du II Fil ncs'l has ..: nlc rct! i nlo a cohranding rdat ionship wil h Ovkdo D ocl o r"s and SlIrgco n"s llH.:d-

ical pnlClicc. which will covc r .. ran~c uf activilic" Fo r cxarnpk. [he rr;lelicc will pc ri odically show li film lhal fca l u r~s Primc Ad llll Filness a nd Ihe bc ncfil s o f exc rcise for ollll.: r pc\lrle in thc wai ling rl'lOIll ~Ir il ~ raciJit y. D o wn /o l/ds [roili lI'eh Sile. Prime Adull ł-Iln css will place info rrnalio n o n il~ \ \lc h sile Ihul a U! he dl)wn lua dcd . S\I IllC nr Ihe ri c h c~ 1 inforll1 <1 lit)n will (I.! (łuire a frcc rcgi ~ lra lio n prior lo [he do wnloau. T he n am ~s a nd atldrcsses lakc n fro mlhc rcgislral io ns will be u-.cd
i\nnual l\"l;lrkcting Uudgct l InII

nl/{~t:l'f

Pru lIlot io nal mat c ri al (hrochllrcs. hil ndo llts) Radio ad vc rli~i n g Pri nt advc rtising We b sile ma t e riał. upda t ing. lll1d sllppo rl (50% \lfC\I~ t ll f'lIprllr lillg ., il c) Updaling fi lm portraying Prime Adlllt Filn c,~ and the I~ n e fil l) r nl ne~s fo r t)I\.kr people Ol he r (includi ng loca l s pon ~ors hi ps a nd COl11l11uni Iy suppo rl )

$ 12.00U $ 16.00u $ 12.{)()(l $ 6 .000

To lal

$ 56.000

$-LOIIU $ 6.000

SAL ES PROC ESS AND PROMOT I ONS MI X A finn 's sales process (o r cycl e) de picls Ih e steps il goes th rough to icle nlify prospects (Ind c10se sales. A firlll 's pro lll o li o llS mi x refe rs to Ih e spec ifi c ł ac ti cs ił uses. sllch as adve rtisin g a nd publie re latio ll s. lo suppo rt the s(l les proce ss and e ll hance ilS o ve rall brand. Th e enlirety of th is process is typiea ll y scrutinized c(lretul.l y by disce rning re(lders of a busin ess pl
• 156 PART III Preparing a Bu sin ess Plan This secli o n in cludes Iwo su bsec li o ns: sa les process and pro mo lions mix. SALES PROCESS

A finn 's salcs ImH..~css (O l' cycl e) refers lO Ihe steps il goes Ihrou gh lO establi sh rela li o nshi ps wilh clIslomers and close sales. The process va ri es by firm . bu l normall y includes Ih e fo ll owin g st eps: l. Prospect for (O l' ga th er) sales leads.

2. 3. 4. 5. 6. 7.

.\1ake Ihe initia l co nlacl. Q ualify Ih e lem!. .\1ake the sa les p rese nt atio n. .vlee l o bj ec li o ns and concerns. Clo se the sa le. Foll ow up.

O stensibly. fo llowin g a strll ctured process to ge nerate and cl ose sa les be ne fit s a firm in two ways. First. il e rmbI es a firm lo fine-tun e ils approach lo sa les and build unifo rmit y inl o Ih e proces$. Seco nd. il he lps a firm qu alify leads. 50 Ihe firm ccm spend its lim e Cl nd mo ney pursuin g th e mos l lik cly bu yers o l' th e pro du cI Ol' seryjce. Most wc ll -lll
A firm 's promol io ns mix in cludes Ih e s pecific taclics Ih at CI firm uses lo commuIlica le witIJ po tenti il l cllsto me rs. The il pproilches to prom o tio ns discussed he re incl ude C1d vertising, publi c re lC1l io lls. Cl nd o th e r promo ti o ns- re lC1 lcd ac ti viti es. ADVERTISING

Advcrtising is lll akin g peo ple awa re o f CI prodllct in hopes of persuadin g th em lo bu y it.1l1 e majo r goa ls o f adve rt ising are lo rilise clIslo me r awa reness of a p roduc!. ex plain a product's compara li ve feCl tures ilnd benefil s. and create a n associalion between a p roduct a nd a certain li feslyle (or CI certil in o bj ecli ve in a business-t o-busin ess conl ex l). 1l1ese goa ls ca n be accomplished through a Ilumber of med ia. inc1udin g direct l1l
CHAPTER 7

Marketing Pl an

157 .

would be Cl clve rtisecl throug h Cln induslry ITClde n1ClgClz in e. whe reCls Cl eo nsumer produet wou lcl be Cl d ve rtised throu gh th e med ium most like ly to be viewed by th e compally's tClrget
Public re lat io ns re fe rs to e ffo rl s to est
• 158

PART III

Preparing a Bu siness Plan

In mos l C<1ses. finn s bel ieve fh
Mml)' o th er aeti vit ies C
CHAPTER 7

.---------i::1

BUSINESS PLAN INSIGHT

Marketing Pl an

159 •

Ii

Sellillg Bellelils Ralher TIHm Fealures Man y startups rnake th e mist"ke of promoting the fe"tures r
TIlis type ot initiati ve is o ft e n pursue d to try to crea te ··buzz·· a r wo rd-of- mo uth <1dve rti sing for a praduct Ol" se rvice. C rea ting buzz mea ns creal in g aware ne ss a nd a se nse of a nlicipati o n a bo ul a co mpan y a nd it s o ffe rin gs. 1l1is pracess ca n sl
DI5TRIBUTlON AND 5ALE5 l)islrihlltiulI e llcompa sses all Ihe aCli vities Ill al move a firm 's pro ducI [ro m its pl ace of o rigin lO th e co nSUlllc r. For a company li kc Prim c Adul t Filn ess. dislri bllti o n is tl o t a major issue beca use it's a se rvice busine ss Ihal pravides fo r it s ow n s
• 160 PART III Prepa ring a Bu siness Plan separa te distributio n
1l1e first ste p in d etermining a di stributi o n a nd s
CHAPTER 7

Marketing Pl an

161 .

to ea n y its bags. Three 1110nths lat e r. Timbuk2 b
nle desc ripl ion o f your distri b uli oll
• 162

PART III

Prepa ring a Bu siness Pl an

w hk h WilS th e CO ll velltiOIl
fo unde d. Simil arly_ IKE A (http://www. ikea.co m) .the Swedish furn itu re eo mpa ny. introduced a new concept in the furniture industry by o peni ng ret ai l o utle ts th at me essentia ll y display stOl·es. and a ft er a n item is selected . the purehaser is directe d to a loading doek whe re a boxed an d unasse mbled vers io n of Ih e ire m is provided. 8 0 th of these compa nies have sueeeed e d. in pa rt. because th e ir approach to d istri butio n a nd sales we re no ve l and fit th e ir respecti ve ta rget markets. De ll's targe t ma rke t is th e business eusto me r who doesn' t need he lp from a sa1esper so n in a re tai l sta re to buy a comput e r an d who a re gla d to avo id a trip to the sta re. IKE A's target ma rk e t is sing1es and youn g fa mili es who do n 't mind tr
Chapter Summary I. lll e best way to descri be a compan y's mark e ting pl
2.

3.

4.

5.

6.

7.

in g ma rke ti ng strategy. posit ioning. .: a nd s
CHAPTER 7

S. 9.

10. II.

Marke ting Pl a n

163 .

producI o r se rvice ralher Ihan cosl plus markup. whic h is a fo rm ula Ih at ignores Ihe cus lo me r. A firm 's s[lies proeess (Ol' eycle) refe rs to Ih e steps it goes Ihrough to est
Review Questions I. Deseribe the differe nce betwee n th e ma rke t a nalysis sectio n of a bus iness pl nn a nd th e ma rk e tin g seetio n. 2. Wh y is it impo rtant fo r the mark eting plan lo be develo ped wit h Ihe eustome r pl"inly in mind ? 3. What is a eompany's marke lin g stral egy. a nd why is it importa nI ? 4. What is mea nt by a com pa ny's "positioning" stmtegy? 5. What is th e purpose o f" produet atlribute m"p? 6. Deseribe the diffe re nee bet ween eost-bnsed priein g and va lu e- based pri eing. 7. What is th e priee-qua lity attribulio n? S. Deseribe the diffe re nees be lwee n advertis ing and pub lic relatio ns? Whie h of Ih e two alt e rn a ti ves do startups le nd to p refer'? 9. Provide several exam ples o f public relntio ns stmtegies. 10. Describe how finn s sho uld approach the topie o f di stribulio n a nd seli es.

Application Questions 1. Spe nd some li me looking at ZUCAs Web sit e (http ://www.zuca .eom ). Com-

me nt o n eaeh e lem e nt of Z UCA's ma rk etin g pla n ( product . priee.pro mo lioll. and di slributi o n and &lleS). On" sea le of I lo 10 ( 10 is high). ra te th e stre ngth of Z UCA's ove m ll mark et in g p lnn. Justify yo ur rating. 2. Ka thy has developed a new Iype of smoke det eelor t hat is much more sens iti ve Iha n pre violls ge nera lio ns of s mo ke de lect o rs nnd is p"niculnrly gen red lo peopl e who li ve in sn1<111 s paces. sueh as apmtme nt s Ol' d onn roo ms. Kathy cloesn't kn ow how to p rice Ihis pro d uc!. Describe to Kat hy th e twa mos t C0 1111110 n Ill e thods o f pri cing.
• 164 PART III Prepa ring a Bu sin ess Plan
Endnotes N. Capon. nI(' Mark t'ling MIII 'l'IIs (Ne w York : Crow n Busin css. 2(07).1 3 1. "L.:"lur
( H

E R

MANAGEMENT TEAM AND COMPANY STRUCTURE

INTROOUCTlON This pivot
• 165 •

• 166 PART III Preparin g a Bu sin ess Plan TABLE 8-1

Combinations ot Ideas and Management Teams U"/e~" ('(/

Unt<':sted Ide
Jl!al!aR elllelll Telllll

Tewn/ t\!(II/((R,elllt'II' Tea /ll

3

4

l

Kc~':

1. Untested ide
a nd th e t ype o f fun d in g o r fim ll1 c ing th ey're see king. Th e 2 X 2 m atri x shown in Table 8- 1 illustr
CHAPTER 8

Manageme nt Team and Compa ny Structure

167 .

adviso ry bOCl rd. Prime a lso re pOlt s th al il has rece ived ad vice from seve ral unpaid consull a nt s. TIl ese Iypes of effo rt s
MANAGEMENT TEAM TIle manage me nt te am o f a new firm typiea ll y eonsists o f th e fou nde r o r foun ders a nd a handful of key ma nageme nt personneL Eml y stage firms ma y ha ve o nl y the foun de r or fo unde rs and plans to adcl additio nal pe rsonn el. Th e descriptio n of a fillll 'S manageme nt lea m should be large ly fac tu
• 168

PART III

FIGURE 8-'

Prepa ring a Bu si ness Pl a n

Management Team and Company Structure (Prim e Adult Fitness Business Plan)

I n t tl l(lU l'rillll PrinlC AdllJt Fi tncss's managem enl phi losophy focuse s o n int egrit y. le wnwo rk . e nlłms ia s m. (lnu pw vidin g a .. 'imulaling c n vi rOllll1<.! nl fM hIll h Ilw compan y's <.! mplo)'l'es anu il ~ me lllher;. E1I1ploycc1> will he sclecleu hascd o n lhe ir qua lil'icaliom, fnr lhe jl)b and lhc ir coml1lil me nl lo se rving Ihe physica l and me nlal hcalth neeus of o ur 50 + -yea r-o ld I11c mhc rs. Manageme nt T eUlII

Je rellly Ryall. Cofllllndc r V P of sales for a pri val e ly he ld M iam i filn ess ce lll er Ihal grcw lo 5.500 me mbc rs. Je re m y ha ~ an MBA fr\\1l1 Mi;lllli Univc ..... il y and ha:. puhli .. hcll nl\lrl' IlwlI :;O Ilrlicks in fi tllc1>" l rade jou rnal s and Ililli onal nwgilzi nes rc gardi llg I he Fil ness neells o f o lde r peoplc. Je rc my's passio ll fo r filII e",," i" Jrawn largcly rro m hi ~ falh e r whn. an e r .. urvi v in ~ a heM I al!'I> ce nle r a nd cxc rci~i n g rcgula rl y. Toda}'. Jcre my's falher is an acl ivc 73-yea r-old re lirce. Eli/a h<.!l h Si m ... O.) f( lunde r and II priva lcly owned I'iIn es~ chaills. Sa rah Pl'I crsoll . eOo. Agc 51 R espon ~ i b l c fo r lhe da y-lo--day ope ralio ns of lhe colllpany.lhe Illainle llance of Ihe comp,l' n y" fa cililic". ,lIld t he ;C lllinlll c~ inf\ mnat iu n II \ aged 50+ individual~ ił hllUI nUl dl il In. physica l ne"s. and l11e nlal hcallh. Sa rah has a m:lsle r's degrec in exl ucalio n fromlhe Univc rsil y o f Virginia.

nI

Ji II Cil rnphd l. Prug ram ~·l a lla gc r . Ag!.! 52 R c~ po ll sjbJc fo r ,l lIlhe filness illld rcłale d classes Ih;tl will be o He red by Ihe company. Jill i ~ an e Xl!rcisc physio lo gisl and ha .. spc nl Ihl! pilSI 12 yc;trs pTc.
A lex Jack..otl. Ma rk eling and Salc1>.Ag!.! 57 Rl!slx lt1siblc for marketi ng. salcs. a nd mCIll lX'rship g,rowtll ror Ihe compilll}'. A lex ha ~ II )'I!a rs l'xp;c\·cnll " .. aks persnn u f lhe yl!ar" awan.k Pri \l r to lhal. he spe nl 25 )'I!ars in lhe U.S. Marille Corps (11 yca rs as a rcc ruill!r). Alex is a wo rl(klass lrialhl ele fo r his agc group. S killl)rułil e

and Gaps in I\lanagemcnr Team

llle follo wi ng ski II profi le dc picls Ihe m osl imporlanl skills required al Ihe 101' nwnage me nl lea m level o l' the co mpan y and whe re Ih e gaps cxisl.

CHAPTE R 8 FIGURE 8-'

Ma nag e ment Team and Company Structure

169 .

(continuedl

.2 -

"E "o

x

J<:: rcmy Rym!

x

EliZ
x x

Sant h Petcrson

x

x

Jill Ca mpbcll

x

Alex Jackso n Gap l

o o

Gap 2

x = posili on fill c(L 0

= pm ilion v,tcanl

SIlIl111lary: Two significant gaps cxist in lhl' Jllanagl'Jllcnttl'aJll : lhe direc lor of H RlRccrlliling and the director of Membc r Care and Rclat ions. Bul h positioJ1S will be rccrui ll.!d and filled within si x months. Cllrrcntly. lhe H RlRecruitin g posili on is bcin g fill ee! on li vo llln lec r basis by Tirnoth y Kcmp. li Primc Adlllt Fitness board membcr and angcl in vcstor.lllC M cmber Carc
Pl'rsO/w'

Pcrn'lII OWIlt'rslliIJ in CO/llpfll/y

i/l COII/I)(WY

I/I,'cwm(,/lł

Namc

PO!; ił iO/l/AJJi" ia ł iO/l

Bast' Com IW/lW/ł iO/l

Jeremy Ryan

Cofollnder and CEO

$68500

20.0%

$1 00.000

Elizabct h Sims

Co- folln der
$62.000

20.0%

$1 00.000

Sandl Pctcrson Chief Operalion s Offi cl'r

$60.000

10.0%

$50.000

Jill Ca mpbcJl Alex Jackso n

Program Manage r M ark eting
$60.000 $58500

7.5 % 7.5 %

$37500 $37500

Timolh y Kemp

Board M cmbcr and A n!:!.'" 1 [ nvcsto r

N/A

15.0%

$175.000

Oplions r ool Tot
20.0% $309.000

100.0%

$500.000

• 170

PART III

Preparing a Bu siness Pl an

MANAGEMENT TEAM PERSONNEL

A bri ef profi le o f each membe r of the manage me nt tea m sho uld be provided. sta rtin g wit h th e founder Ol" founde rs of th e firm . Each profil e should include Ihe foll owing in fo rma li o n: • Titl e of Ih e po sit ion. • Duties a nd respollsibilit y o f Ih e POs il-io n. This ite m should expla in spec ifica ll y wh at the ind ividu ::l 1 will do a nd how th e ind ividua r s wor k wi ll contribute lo Ihe d evelopme nl o f Ih e firm . • Previous ind ustry a nd re la led expe ri e nce. lllis ite m sho ul d explain who th e individu al has work ed ror a nd how Ih e individua r s p
CHAPTER 8

Manageme nt Team and Compa ny Structure

171 .

mana geme nt tea m ski li profile is a gr id th at lists the m ajor skilIs need ed in a firm on th e horizont a l axis (ma rket ing. fitHln Ce, nHl nu fClct uring, n .e le.) a nd Ihe cUlTenl me m be rs o f Ihe lll
Yo u must also fu lI y di s cł ose the ow ne rship structure o f the new ve nture a nd th e com pensa ti on o f th e me m bers of the manflge me nt tea m. This shou ld be done in a table format becau se it"s ea sie r to quickly assess Ihe info IllHl tion. 111e owne rs of the firm may incłude mana geme nt tea m mem bers a nd out.s id e in vesto rs. Prime Ad ul t Fitne ss. as s how in Figure 8- 1, listed each owne rs, t he ir perce nt owne rshi p in th e co mpa ny. and the ir base compe nsa ti o n. if the y me e mpl oyed by the firm. 11le ownership percentages may no t a lways add up lo lOO pe rcenL if the firm has established an o pti ons pool for future hires. as in th e case wilh Prime Adu lt FilneSs. A n ul}tions IUlul is an inve nt ory of company stock, usual ly in th e neighborhood o f 15 perce nt to 20 perce nt o f the tota l stock. which is se t Cls id e for future empl oyees. H av ing a n o ptions poo l is pmlicu la rl y import a nt if a firm is looking for in vesto rs. Att racting high-qualit y peop le to a st.a rtup oft e n necessila tes the grantin g of stock o pti olls as a n in centi ve form of co mpensat io n. Investors know this and will be reassured ifth e owne rs of th e firm also re
11le re is a conllllo n se t o f mistak es lo avoid whe n p uuing toge ther your initi al man ageme nt tea m and writing th is sec tio n o r the busin ess pl a n. n1 ese mista kes

• 172

PART III

Prepa rin g a Bu siness Plan

l'aise red fl ags and undermin e the credibilit y o f youl' plal1 .111e most com mo n mislakes ,n e as fo llows: • Pl ac.i ng unquali fied fri ends Ol" fam il y mcmbers in k ey ma n<1gcment pos iti ons • A sslllllin g Ihm prev ioll s SlI CCCSS in o lll er industrics [l ul onwti c.all y IrCHlslat es to yom induslry • Present in g a "one- nHln tea m " philosophy- mea nin g that one person (ar <1 smali grali p o r people) is wcarin g all l1(1I S witl! no pl[lns l o bolsler Ih e leam • Hiring 101' rnall age rs wil houl sharin g ownersh ip in I he firm • :"Jot di sclosing managemenl team skill Ol" competenc.y gaps • Vague Ol' uncl ear plan s for filI in g Ih e skill or co mpel ency gaps Ih at nre di sd osed Ol' d C<1 rl )' ex isl Jf any of these items are present in your manageme nt team [I nd yOllr business pbn. you should rev iew Ihem lO conl emp late if I hey sho uld be l'ev ised Ol' correc led. Th e nex t seclion o r Ih e plan focuses on Ihe role o f a new rirm 's boa rd or directors in rega rd to it s management te
Board ot Oirectors iPrime Adult Fltness Business Plan)

Prilll~' AduJt filn ~ '), \ Bu'l rll \,f Din.!Ch, rs wa'i fllrlll..:d whe n Ihc W lllp'Ul )' w.. ~ incu rrurill c d. A III'Il
O lll... idc Dircl'hH~ Dr. Ke nnc lh Jmni;.;o n. Fwnily Praclice Ph ysician Ag;c (,2 Dr. Jami"'tlll pr;lclicc.s mCi.lici nc i n O vkdo. Flori da. I hl 11\ lnll.: tlf Prim..: Ad ulI fil n..::s, ;lnd is lin UU Ispokcn iluvocah: (lI' filn ..:s~ and pr-.:vc nlive ho.:allh car ~ fo r pcuplc 50 ye ar~ o ki and u luer. D r. Ja mison rcccivcd his MD from Dukc Univcrsily anll is bo arJ cc rtificd in famil y pracli ce medicinc. Dr. Jamison wril es a widc:l y r":ild column fo r a Illca l pa pc r o n hea llh· rel;ll cd i s~ u cs. Marlh a Ford. All o fl1 ey.Agc 52 Ms. Ford is li part ne r in Ihe law company Ca mphe ll. CilITlphe ll & Ford . She spe cia lizt:'s in providing; k g,tl ;llIvicc 10 ~ lilrlUpS ,Ind "nwll hu ~ in c ...s..:s. Ms. Fo ru r..:cc ivc d he r la w d egre..: I'TlI I1l I he Uni\' e r ~ i l y \,1' lowa . Timol hy Ke mp. Rct ired Enlre pr..: ne m.Angd I nvcslo r.Age (H tvl r. Ke mp is ,I re lin..'<.l e nl rc prc ne m . having sIarl eJ a nJ sold fi v..: ~ ucccss fu I compalI ies. He Il
CHAPTER 8

Manage m e nt Te am and Co mpany Structure

173 .

BOARD OF DIRECTORS 1l1e import al1 ce of thi s secti on vCl ries by p lClll. If CI new ve nture orga nizes as a co rpo ratioll . il is lega ll y requirc d lo hClVC a boa rd of dir ec ł o rs .A htHlrd ul' dircd u r~ is CI panel o f i ndi vidu fl ls elected by a corpora l io l1 's shareholders l O ove rsee Ih e mnnagc menl o f Ih e firm . In a ver y ca rl y slagc firm .or a smali fi rm . Ih e bo
TABlE 8-2

Attributes of an Effective Board of Oirectors

• Sl rongcomllllln ic<"lt ion wit h the CEO CUSlOlller· focused point of view • COInplemenlary mix of 1
• • • • • • • •

MClllhcrs Slrong perso n a ł ;md profcss ional netwo rks Willingness lO rnake persona l inl roducl ioll Son behalf of Ihe firm Emotiona l stabil ity Strong interpersonal comlllunica lion skili s Pnlt ern recognition skil is Abi lit y 10 p;11"111 er IIlVestm enl and opem ting expe riencc Abi lit y and wil1ingness lo mentor the CEO and top Ill
Source: AJapled fro m D. Ja rre and P. Le"e nso hn . ·'A ft .:: r Ihe Te rm Shee l: Ho w Vc nl urc Bo a rJs Infl uulce the Succcss Ol' Fa ilurc o fTcchno logy Co mpanies..: White palX= L Lc\'cnsohn Ven ture Pa rtne r.s ( http://www.lcvp.eom ).No\.c mocr. 2()\J3.

• 174

PART III

Preparing a Bu siness Pl an

If you include Ihis sectio n in you r pl
A hllOUgh a boa rd o f di rectors has forma i overs ight responsibilities, il s most usefu l role is lo provide guid anee a nd su pport to th e IlHlnagers of the firm . Many we ll -in tended entre prene urs and ma nage menl teams simp ly "elon'l know what theydo n't kn ow."whi ch often result s in misste ps ea rly in th e life of a stm1 up. Expe rie nced board members o ft e n see these pOl ential misste ps before they oecu.. an d he lp manage ment leams avoid the m. Many CEOs int e ract with th e ir board me mbe rs h'equenll y and a bla in im portan t inpul. nie key to making this happen is lo selecl board membe rs with needed ski lIs and usefu l e,xpe ri ences who are willin g to give ad vice and ask insighlful and probing qu eslions. Th e ext ent to whjch an effecti ve board c
Provicl i ng legiI imacy fo r CI fi rm is ano lhe r impo rt a nt fll ncli o ll o f a boa rd of direclo rs" Wcl l· kn own and respcc led bOilrd mc mbc rs brin g instant credibi li ly 10 lh e fillll . For exa mp le,j ust imagin e Ih e positi ve buzz a firm could generale if it co ul d say th al Ma rk Cuban , Ihe cha irm
CHAPTER 8

Ma nage me nt Team and Company Strllctllre

175 .

as s ig mtling. Presulll ably. a high-qu alil y illd ividu il l woul d be re lUC!alll lo se rve o n the boa rd or
,I

incl ud in e th e hOilrd o f directo rs. th
1'0 01 in th e doar wilh pOle nti al su pplie rs a nd cus lome rs, Boa rd me mbers a re also oft c n instru me nt.. 1 in helpin g young fi rm s (l rrange fin
Board 01 Advisors (Prime Adult Fitness Business Plan) Filll cs~

has IWO aCI ivc hWlnb

(I r advhllr~,

'111 c genc ral

;1l1\'i,~I )r y

or 4 mc mhc rs. and Ihc cuslo mcr ad "isory boa rd consbls uf 10 mem bers.

bua rd

cl m ~i ~ l s

G ... Il'ra l A(hboory Iłu:!rcl Dr.Jast'n 5 Icl' tc. Sporl s rvkdicin c Speciali"l Agc:n Dr. SIecle is a slhlrts lTledicinc spccia lisl praclici ng al ił local dinic. Hc has a passion fo r Ihe ca rt,! o f o lJe r peuplc anJ att racIs man y aCli "c t,Jdc r adulls lo his praelice. Dr. S\cl!l 's passio n for the carc ol' o lde r a (ILIU ~s l (,: l1l ~ parli ;I Jl y fro m pcr\on al ex pc rie ncc. He illld his wifc arc Ih..: prinw ry c itf cg i ",.' r~ lo hb ma Ic rnal g r~ Hld fal he r a nd h i ~ wifc's P'lh.' ru:tl grandnl\ II h... r. I'rimm')' rolt': To pw" ide m..:d ical ad " ice u n Ihe selecIio n of e xercis..: equipme nl a nd cla ~scs. and lo pro"ide Iraining lO Prime A(hlll Filncss's inslruclors rcgarding ho \\' lo hel I' \lIder p.;!llpl c ( pa rlicul a rl y lh\)sc who IH1 "C lWI hec n cx c rc i ~ in ~) C<;lahlish an appr u pria le ,11111 excrci<;c rcgimc,

""re

Cyn 1l1ia Rain ~. Public School Teache LAgc 66 tvls. Rain <; i<; a li fdo ng resident uf Central Floridil anJ h as laugh t al Ovicl1o High School f( lr 26 yc" r~ She i~ aClh'c and ha ~ hdong;.;d III filn e<;~ cl uhs fo r man )' )'Cll N

I'rimm)' rolt>: To pro" idc a lay pcrson's ad"icc \1 11 Ihe ~.:- Jccl ion o l' exc rcise cquipmcnl a nd clilsses. and lo provide [o urs. o n a \'olu nlcc r hasis. o f Prime A dull Filncss's facilil )'. C li nica l P~)'clhlhlgi s 1. A gc -ł 6 f\h Torre~ b a clinie;11 p<;yc h\)lllgbl. havi ll g sllC'nl Ihe 1.. <;1 lU yClm of hc r carcer wu rking in Ihc wc llness fi e ld fo r o ldcr adull s. Her particulil r speciall)' IS ne u robies. which is a rł.! l ali "c l y ncw field thal focllscs o n me nlal excrcisc. Prime Adull Fi[ncss will ha "c SCVC fil 1 cJasscs foe us.:.:d (111 ncurohics and will fcalurc a Ih.' Ufllhi cs ce nle r in ib facilil )'. I'rimmy role: 'Ii) helI' ~ h arc Pri me A lIuU 's Fil Il CSS'<; ll[lproaeh I CI Il e u rohic~ , IhY.
T\l rrc~.

Brad le)' Manning.

Rc lin~ d

FundraiscL Agc 66

Mr. Mannln~ l.pc n\ llle m
"ariotl~ fundrai ~ in g

mies. prim..rily

Primory rok: To pro" idc aJ"icc fo r bui Idi ng mCl11 bc rship. C II~tollll'r Ad\' I~ ur~'

Buard Primc Adult Filness mainlains a J()..l11c l11bc r cuslomc r adviso ry board. 1l1c IxxlrJ me mbcrs part icipalc in foeus groups. scrvc o n cOl1lmiuccs Ihal art' hc lpin g shape I he aclivities uf lh e compa n)'. and parl icipal e in rcJaled aCli\il ies. Board I11c m be rs scr"c o n a volunl ee r basis for a one -year Icnn .

• 176

PART III

Preparing a Bu siness Plan

lll ese guida nee cll1d legitimacy issues shou ld be woven inl o th e sho rt descriplio ns of Ihe boCl rd membe rs provided in Ihe bus iness pl an . as approprinl e. A fina l po int is Ilwl th e majorit y of firm s will have an ac.ti ve board o f directors a t so me po int if they grow to a ny apprecinb le s ize. A s a result . if a eompa ny eUlTe ntly doesn't ha ve a boa rd of directo rs. it ma y be pru(!ent fo r th e business plan to indiea te Ihat it a nti cipates ha ving a board o f d ireetors nt some po int inlhe future and wi ll nl
BOARO OF AOVI50R5 A board of advisors is a panel of expe rt s asked by a firm 's ma nage rs to provide coun sel and ndviee o n a n ongo in g bas is. Un like a boa rd o f directors. a board of adviso rs possesses no legaJ responsibi lity fo r th e firm and gives nonbindin g advice. 6 A s a resu lt. nUlIly people a re Illore will ing to se rve o n a co mp
CHAPTER 8

.---------i::1

Manageme nt Team and Compa ny Structure

BUSINESS PLAN IN SIGHTS

177 •

Ii

Slruggling with Prodllct De,'e10I)lllellt'!: COlIside. Setting Ul) a Cu słomer Advisory Board AltllOUgh mosl firms Ihat have a clI siorne r
meel Ihree a r foUl" limes a yeM al Ihe compa ny"s offiees Ol" in anot he r loca lion. Ot he r ndvisory boarcls mee t in an o nlin e e n vironment In same cases. a firm's b oa rd of a d visors will be scaltered across t he coun lry. m ak ing il more cost-effeetive fo r a fi rm 's m"'lagers lo int eract w il h the m e mbers of Ih e boa rd on Ih e telepllOne ar via e- ma il rathe r tlwllbrin g t he mtogetherphysica Il y. l nt h esesi luat ions. bo
• 178

PART III

FIGURE 8-4

Preparing a Bu siness Pl an

Other Professionals IPrime Adult Fitness Business Plan)

Prilllc Adull Fil ncss relics on lhe advicc, eounse l. and cneou ragelllcnl ol' profcssiollals in aur cO llllllunil y on an as- neeekd hasis. N onc ol' our pro fessional ad visors are paid it regu l <ł r rclaillcr.

Olhcr PwfcssiIJnltls A llo rn cy. CilITlcron C<łmpbcll. partner in lhe l aw firm of Ca mpbcl l. Ca mpbc ll & Ford. Mr. Carnpbcll i s a wc JJ-known Orlando. FL attorn e}' wil h 23 }'cars o f expcrie ncc. Mr. Carnpbell i s the partner ol Prime Auull Fi tncss boa rd membcr MarlJm Ford . e PA, K atlieri ne ClieJl, Pri v
Teehn o logies (http ://www.i lltouchh ealth .co m).a medieal robo tics com pan)'. has a boa rd o f directo rs il lon g wit h a busin ess and strateg)' advisory boa rd , an applicatio ns il nd clini ca l advisory bom'd, and a scie ntifi c and tech nical ad visory boa rd.9 A ltllOUgh having a bo ard o f advisors is wide ly recomme nded in startup circles. most startups do no t have o ne, As a resu lt . o ne wa y you ea n ma ke your startup sland oul is to have o ne o r more boaH!s o l" adviso rs. In te rms ol" )'o ur busin ess plan. you sho uld id entify your boards o f advisors and provide a brief bio for e
OTHER PROFESSIONAlS At tim es, o lh er professiolla l assum e impo rt anI roks in a new venture's success. If this
CHAPTER 8

Man ag em e nt Team and Company Structure

179 .

illust rat es th is poin t. Durin g it s beginnin g stClges. eBay's pa rtn crs. Pie rre O mi dYM Cln d Jeff Sko ll.decided to reeruit a C EO. Th ey wil llt ed sa meone who W
Prille Aclult

Organizatlonal Chart (Prlme Adult Atness Business Plan) fitn ~"

Organilatiun:11 Chart

lllc ~c ni u r s tarr re porlS 1\) CEO Je remy Ryan as ~ho\Vn he low. Fin an ce ~~ ACCollllting is a Seni\\r Vice P rl.!~ id..: nl po-.:i tio l1 . eOo. Progwm MlI nagcr. Marke ting;.'\: S'll c~. HIVRcc ruilin g. and r-,'k mh..:r Care & Rclatiolls idellI IXlsltiull'\. Each VP will be r..:!>po n~ ihle for lhe ir rcspeclive e mployees.

CEO J eremy Rya n

Finance and Accollnting E liza be th Sims

InforTl1
I

COO Sarah Pe te rson

Prog ram Manager Jill Campbe ll

Mark etin g a nd Sa les Alex Jackson

H RlRecruilin g Vacanl

Mem be r Ca re a nd Relalions Vacanl

• 180 PART III Preparing a Bu sin ess Plan COl1sultant s ll1 ake up a noth e r impo rt ant source o f advice for ma ny sta rtu p finn s. A l'UIlSlIlt,lIIt is a n indi viclual wh o gives professiOlwl or expe rt advice. Consult ants fali into two categori es: pa id consult a nts a nd un pa id consult a nt s. Unpaid consult ant s include o rganiza ti ons sue h as the Smali Busin ess Development Cente r (http ://www.sba.gov/sbdc) a nd SCO RE (htt p://www.score.org). 1l1ese SOUl"CeS oft en prove to be ve ry usefuL Stmtu ps gene rall y lIse pa id consul! ,lllts spm ingi)" beca use of th e costs in volved. All exeepti on might be a sta rtup th at needs help in a specialized area. sll ch as buildin g a product prototype or providing independe nt ee rtifi ca tion of the techni ca l me rit s or safety of a particular product. In additi on. some sta rtups use services of consulting compa ni es such as Bain & Compa ny (htt p://www.ba in .com) ane! Acce nlUre (hllp :!/www.aceemure.eom) but usuall y on a limit ed basis. In all eases. sources o f mi vice should be noteci in th e busin ess pla n if th ey m e substanti ve a nd worth me ntio n. Aga in . th e im pression you wa nt to give is th at you are actively e ngaged and are seekin g advice rega rd in g your busin ess venture. Th e nex t secti on of this pa rt o f th e busin ess plan focuses on compa ny strueture. 1l1is section of Prim e A clult Fitn ess's busin ess pl a n is shown in Fi gure 8-5"

COMPANV STRUCTURE 1l1is sectio n foeuses o n how your co mpa ny will be structured. E ven if you are a sm ali firm , you shoul d outlin e how th e com pany is currentl y structured a nd how it will be stru ctured as it grows. It 's im port a nt til at the int e rn
CHAPTER 8

Ma nag e m e nt Tea m a nd Company Stru cture

181 .

sam e unfi1\ ed boxes o n th e o rg
Chapter Summary J. Th e nwnage m ent temn ,llld compa ny st ructure section is pivot
• 182 PART III Preparing a Bu sin ess Plan

7.

8. 9.

10.

te
Review Ouestions L Why is th e "'tll
pi vot
2, To what degree does the way a firm
3. 4. 5. 6.

7. 8.

9. lO.

"n indi c" li o n o f th e extent to which th e m
Application Ouestions I. Kath y Jon es. " friend of yours.just fini shed n busin ess plelll for a quick printill g se rvice she pbns to open. When you looked over K"thy 's pl
CHAPTER 8

2.

3.

4.

5.

Ma nag e m e nt Tea m a nd Comp a ny Structure

183 .

bon rd a l some po inl in I he fulure. Whe n you snid lo Knlh y Ilml Ih is secli on of Ih e plnl1 looked lik e il wns in co mple le. Knl hy seemed su rprised. nnd as ked you whnl she leJI out. Whal would you tell he r? Melnnie Ford hns rend seve rnl boo ks o n how to writ e a business plnll. A li of Ih e books explnin ed Ih e impo rt a nce o f the ma nngeme nl le
Endnotes I . .I. K\Jr I 7m~ n . Sll/rlt/p.l· TIuli Work (New York: Porlfol io. 20(5). h. 2. K. Eise nlmrch and C. Schoon hoven . ·· Org'lIl izational Growth: Linking Found ing Team Strategy. Environmenl. and Growth alllong U,S. Semiconductor Ventures. 1978-1988: ' A dmi/liwlIIh'l! Sl"ie/lce QI/arla/y 35 (1 990): 504--529. 3. D. Jaffe and P. Levensohn. ··Arter the Term Sheet: Ho\\' Ve nture Boards Influe nce th e Success Ol' Failure ofTechnology Companies:' White papcr. (Leve nsohn Venture Pa rtne rs. November. 2003). http://www. levp.com. 4. R. Charan. !1olm/s (1/ Work (Sa n Francisco: Jossey- Bass Publishers. 1998) .3. 5. L. W. Buse nit z. J. o. Fiet. a nd D. D. Mosel. ··Signaling in Ve nture Capi talist-New Ve ntllreTearn Funding D ecisions: Does II Indicate Long-Terrn Ventu re Out comesT EIII/"eprel/i'IIrsllip Jh eory al/d Prlwice 29 (2005): 1-12. 6. A. Sherman. FIW- li"ack !1usi lless Grow,h (Washington. D C: Kiplinge r Books. 2001). 7. ·· PeaTured MOIll In\'enlors: I.aun! l Jdn ll " (Molll I nvc nlor<;). hll p:/Iwww .molllin"e n IOI"S.CO I11. (June 22,2007). 8. Cooliba r hOlllep..1ge. ht lp:llwww.cooliba r.colll (Jul y 10.2007). l}. Int Ollch Hc;lIt h hOlllpage. hllp:llwww.into uch he alth .colll (J uly 10,2(07). 10. R. SIross, ellop (N~w York : C rowll Book$. 2(00). 29. II. 111"cstorwo rds.colll homcpage. hl1p:llwww. in vestorwords.colll (Ju ne 22.2007),

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( H

R

OPERATIONS PLAN AND PRODUCT (OR SERVICE) DEVELOPMENT PLAN

INTROOUCTlON llli s chapl e r is divided illt o two p
should f1ppcm in eve ry business p lon. Th e seco nd 1w lf o fthi s choPl er fOCllses on (J topie Ih a! is singkd oul in so me busin ess pl
• 185 •

• 186 PART III Preparing a Bu siness Pl an provicle 100 Illuch in fo rm at io n. the rea cle r may be li eve Iha l yo u
OPERATlONS PLAN 1l1e HIll'r
CHAPTER 9 FIGURE

g-,

Ope rati ons Plan and Prod uet Deve lopment Pl an

187 .

Operations Model and Procedures IPrime Adult Fitness Business Plan)

Intrudm:tion Primc Adull Filncss will opcral c a full -scrvicc filne'ls cenl er for pcopJc 50 years old or older. TI1C nperatin g model and proced ures for lhe cenkr are explained in lh e following seclions.

Gcneral Approa('h to 0p('rations Operalin g a filn ess cenler for people 50 yem s and older i s a unique ~iluali o n. II requires a card ul balance ar nol dr
Bad, Stagc (Bchincl the S('cncs Opcrations Al'th'itics ) • SIa!! Sell'clioll. The staff and empl o)'ees will bo.: card ull y so.:: lo.::cted.Along \\ith the skilI s tlley need to perform their job, staff members mu st be
• Operalio/ls lv/all/wl. An operalion s Illwmallws bee n prepared 10dl)cul11enl and arliculate Ih e day-Io-day operalional procedures nf Ihe cenler.

• Exercise Classl's al/d Progrtlllls. The exereise cI
• Exercisl' i\'f(/c!Jill es. The exercise nwchines will be modern and ulJ.! o-dalc. Specific e111 p loyees will be Irailled to mainlain Ihe nmchilles.

• At/ell/ber M Oli vmioll. On e ar Ihe mosl imporlanl ingredienls lo our success wil l be l o makc our members feel safe. sccure. and success ful. Older exerci ses need l o feel Ihallhe staff ca res
• Elllployce OriclI/mioll. Ali cmployees will go lhrough a lhrce-houT OriClllalion bc fo rc Ihey hegin wark. where Ihey will beeol11e acquainl ed with lhe operalion s Illanual and the philosophy of the cenlcr.

• 188

PART III

FIGURE 9-1

Prepa rin g a Bu sin ess Pl an

(continuedl

• Ell/p/o yee Ed I/ cmioł/. Staff members and l each e T~ wi II rout in ely alt end work shops and confc rences to undersland cu rrc nl I remis in ri Iness. o blai n ce rt i !"i w l io ns. and tal' in lo o lher resources. r:.·mergellcy PItiI/ s. Ernc rgcncy aClion plans.. polici.:5.. proccdurcs. and rul "s 11:I\'c bc" n csl:.b lishcd and are Jocu n10n led i n I he operalion s rnanua I. Ali employees will be IraineJ in Ihe procedures. TI1Cre will be no ambiguil y o r inclecision when an c mergcncy occu rs. [ f a mCI11ber is injured or needs rn edical allc nlio n.all empl oyees will know Ihe procedurc lo follow. • Wail" ers. An eT ,1 member fini shes orientatio n (whi ch is required fo r all new memhers). he or she will be askeJ 10 sign a wa i ver. TIle waiver acknowlc dges Ihal Ihe indi\idual has gone Ihrough l he o ri enlalio n. undc rslands Ihe ri sks o f e;.:e rci se. has checked wilh a docl or aboul starting an exercise regime. and ho lds Prime Adull Filn ess haT111less if any Iype o f medical pro blem occurs.

Frunt Stagc (What thc 1\"Il' IIlIU'rs Sec and Experi('m'c) !Heli/ber Tal/n. A prospeclive member will IX' provided atolIT of I he fa cilil)'. and o ffer ed a free 10-c[;IY Iriallx:ri od to Iry Ihe facililics and classes. ( Facilities Ihal use Ihi s approach normall y experience an 80% lo 85% conversi on rai e.) • Oriell/mion. After an individ ual decides lo join. he OT she will go Ihrough a 30-minul e ori enlali on bcfore lx:ing m e allowed l o start usin g Ihe f'l Cilit y. • Opera/ing /Iol//"J. TI1C ce nt er will be o pen from 6:30 am unliI 9:00 1'111 Monda)' Ihroug h Salurday and will be closed o n Sundays. Sw!! A nislal/C"f'. Filness cent er slaff will be aVililable lo teach mc rnhers how 10 use Ihe equipmen I. en COlI ra ge Ihem wi Ih I ips on form. and helI' I hem I ra ck I hei r dforls. Fill/ ess Classes III/d Program.\". T hc filn ess classes and programs wil l be offered al various limes dllTin g Ihe day. M osl c lasses will run eilh er 30 o r 60 minut c s. No nlraditi o nal classcs will also be offcred. such as ou Idoor ··wa lkillg·· cla sses whcr e membeTs will wal k in groups lhrl)ugh neighborhood s n ć, lr Ihe ce nt er. • Works/lOps. Alon g wilh filn ess classes. workshops on nulrition. slecp. dance 1110\'e111en Is.. anclneurobi cs (hrain ~ xcr c i ses) will be provided.

• Flllllily SlVims. TIlere will be Iwo schcclulc d ··family swim s" per we:e k where mc ml'ICTs can invil c Ihcir r;]l11ili e~ as el1Csl<; lo 11..;e Ihc I:lrger pno l. lillC" I" will nol he Iwrl11ill C(l al ol hc r limes during Ihe we~ k. Olher filn ess ce nlers hav~ fOll11d Ihal eSlabli shin g a ··guesl policy"' allcviatcs po\cnlial conrticl s r~ garding Ihe usc ol" facilili es.

• MU/lipl/lp oJC Roołll Rel/ta/. TIle n1ll1lipurposc rooms will be ,1vailabl e for rc nt. by members only. for special occasio llS such as birlhd<:l)' partics and anniversa ry parli es. Pml ol"l he reason for doing this is lo make Ihe cenler a cenirai place in au r member"s lives. • Gall/(' I?oolll. A we ll-stoc ked game room will be ilvailable for 111embc rs l o pa )' mindst im ulali ng games. such as Sudoku. a nd socially sti m ulating games. such as bridge.

• lvloll/h/y New.',. /eHel:

M C 111b~ rs

\\ill rcceive a mo nl.hly newslctler.

In\·entory Because nf Ihe nalure o f ils operali o ns.. Prim c Adull Filness will no t be req uired l o c,lrry a significanl amounl of inve nl o ry.

Sl"hcdul(' of C las s t~s and

l\Ianag e lll (~ nt

of I'cak

Till1(~s

To make nwximul11 use o f our prl)posed facilily.lh e c lasses and progr ams will be schedul c d Ihroughoul Ihe e1ay. lo re li cv~ cllng.esli o n in Ihe ce nte r al oLwious peak limes of Ih e da )'. which are bdore and after work. P rim e Adull Filness anli cipates Iha l 50 % o f il s cJienl elc will be retirees. A s a rcsult. Prim e Aclull Filness sho uld no t eXIx:ri encc the early morning and late aft ern oon bolllenccks expe ri enced by most filn ess cent ers.

CHAPTER 9

Operati o ns Plan and Prod uet Deve lop ment Pl an

189 .

OPERATlONS MODEL ANO PROCEDUR E

1lle prima ry objecti ve of this sect io n is lo show tha t you Iw ve a firm g rasp o n the ope ra tiona l d e tails o f l'lUnchin g a nd I"llllllin g your busin ess. II is usuall y no t necessa ry to includ e a ste p-by-step descr iptio n o f how Ihe bus in ess will be ru n. but nHljor il e ms sho uld be cove red. A s me nlio ned previo usly. in ma ny in sta nces the ope rations section o f a busin ess pla n will no t be ca re full y di ssected. but in some instan ces. the info rm a ti o n Ih
• 190

PART III

FIGURE 9-2

Prepa ri ng a Bu siness Plan

IKEA's Operations Flow Diagram (IKEA only performs design, ship and warehouse, and sale)

Fu rniture designed

by IKEA

I Part s made by contract n1<] nufacturers

Parts bundled and shipped to IKEA ware hollse stm·es

Pm1 s bundled and shipped to IKEA wa l'e house for sale through we b site

I

I

Re tail sale

I nt e m e t sale

I

I

Asse mb ly and de live l"Y to home provided by custome r

Shipped to custome r: assembl y provided by custom e r

• A n explana tio ll of how seasonal p rodllcti on loads will be ha ndled wit ha u t serviee d isru plion (ll o n na ll y accomplished by bui ld ing up in vento ry a nd usin g pmt-tim e he lI' d uring pe ak pe riods) • An exp la ll a tio ll of how your qu a lily control will be ma naged • A n expla na tio n o f hO\\' youl" a ft e r-sa le se rviee. if applic[lble. will be

ł w n d l ed

An exa tll ple of how th ese isslIes co tlle int o pl[ly is provided by Oopsy D
CHAPTER 9

Opera ti o ns Pl an and Produet Oeve lopm ent Pl an

191 .

D
FIGURE 9·3

Business location lPrime Adult Atness Business Piani

Prim e AduJt Filness is proposing lo opc ral e a sin gle facilil )' al 20 1 Oak Dri ve in Ovi edo. FLll1is local iull i" cUJ1~id c rc J 10 be ideul fur PrilllC A dult Filn css fur l hi.' following r C a ~\I Jl ~:

Adn mtagt.'s uf LU(.'lltiu lI I dca/ COII/lllllllilY. Ovied\1 has a highcr pc rce nl ;l ~e nr ll ld...'r peopk ill1d j1Cllpk wil h 11 highi.' r inconli.' tłUll1 11<1 liol1,11 avenlse .... Bulli ol' th ć~e nli.'l ric:- ar ć impl.lTlun l 10 "up purl
SII/mrh ofGr/tlllIlo. O vicdn is a suhurb u f Orlando. AltllOUgh O viedo's popul alion is \Inl y ~O.Otl\ l. il b part \11' a \k n sć l y p<..' pulal ćd \uhurh;ln , Ir ć
I'fOxilllily

/o

Supplil'r.... L oc1lling in ,111 urhan "rea r rovides Ih e comp
1I cces~

10

~u ppli e r,.

Prvximily Iv Ul/iI'asily. Priml:' A dulll-l l ness will be 12 miles rrom Ih e Universil y of CenIrai FloridCl. which is a l a rg~ uni versil )'. n1 e proxirnil y lo lhe uni ve rsit y pmvides Ihe cvmpany "Iccess 10 li labor 1'001 of young people who enjo}' wo rking in 11 filn ess c nviron menl and havc a pass ion for work i ng wi lh o l der pcopk. Prime Adull Filness pl1ms lo work wilh Ihe universily \O arrangc wark sludy inl crnships for sludcnls.

• 192

PART III

Preparing a Bu sin ess Pl an

BUSINESS LOCATlON

111is seclio n o f yom pl an desc ri bes Ihe geographic loca li o n o f yOllr business. In so me in slnllces. locil lio n is
CHAPTER 9 FIGURE 9-4

Ope ra ti o ns Pl a n a nd Prod uet Deve lop m e nt Pl a n

193 .

Facilities and Equipment IPrime Adult Fitness Business Plan)

How the E'Iuipnwnt and Prugrams Are Bdng Choscn An overar ching o bjec li\'c oj' Prime Adull Filncss is l o nwnagc a filn css fa cilil y Ihal has programs. classcs. and equipmc nl spccificall y lailo rcd for o ur ulrgel audicnce - people 50 ycars o ld and o lder. To accomplish Ihal go aLlh e fo llo wing sleps have been compl eled anu are cu rrenll y underway l o guide our sclecli o n o r fa eilil ics.. program s. and eljuipmc nl.

Visils /() O/ha N/ll ess CeJller.I'. AllIlOugh Ihere is no l '. lll e Prim e Adull Filness inilialmanagemenl team has allended three induslry Irade sho ws Ihal display filn ess equipm enl and program 111alerial. • l \ dl' isory f] oards. tll1 11ll he I'ri111c A(!tlll FilIless t.iellcral Aclvisory tloarcl an clllle Cusl omer Advi so ry Bo ard ha\'e becn aClively invo lvcd in providin g illpU I o n impo rlanl to pies.

BIlilding and rlltllre Growth Pri mt: AcJult Fil ncss ha ~ ide n I ified a 2 1.600 s<łuare fool. I wO-SIl1ry fa cilil y (20 I Ollk Drivc. Ovicdo. FL ) Lhal is available f M Ic ase.lllC company has signed an opti o n lo Ic ase the properl)' for ~cvc n years. pending fundin g.wilh an oplion l o buy Ih e properl y al Ihe end o f Ihe seven-year Icase.lllC facilil )' wa s buill by a real eslale invcslmcnllrusl in 199b' and was leased l o a majo r fitn ess chain. which occupi ed Ihe fa cilil)' and uscd it as a filn ess center unlillhe chain re lrenched and cJ osed;t1l of ils fitn ess cenler s in Ihe SOlllh easl United SUlles. For purpl1se o f comparison. Ihe average Ball y To lal Filness o r Gold's C ym is in the 30.000 ~ quare fool Hl11gC. Prime Adull Filncss is proj ecli ng 25 02 memhership u n ils by 2012 . Al o lal o f 2.202 111 e mbe r ~ hip lI nil s (a membership uniI i s a single o r a coupk,s accounl ) Ira nslalcs into 3.250 people Ihal will be usi ng Ihe fa cilil)' (one coupl cs acco unl mt:an s Iwo people will be mi ng I he fa ci IiI y). lllC buildillg's capacil)' is 3.500. If Pri me Adul t Fi I ness grows ils me111bership uniI hase be)'l111l1 2.502. il will dl) il b)' o pening a facilil y in lt new locali o n,l o lap inl o a new Irade ar..::a.lllc building willlakc so me rc tTl1filli ng to suil c Pril11 e Adull F'iln..::ss·s nCE'ds. llH' PT()c('ss lo compl Cl l' Ihi s work 1mcl 111(' cosl s in vo lved arl' discussed in a bler parl nf I he plan. llle bui kling, afkr 1he rCl ro fiu ing is compie l e. will f..:: aturc 1hc fo llO\\i ng: • A rOllT lanc fitn ess pou l (83 dcgre es) • A therapy pool (93 dcgrees) • A gcnc ral c xc rcise room th al incJudes the filn ess equipmenl • Four ro 0111S fo r exerci sc cla sses and progr
• 194 PART III Prepa ring a Bu sin ess Pl an FIGURE 9-4

(continuedl

• r-.kll'S and WOI11Cll 'S lock!) r room A reCCplil) n arca dcsigncd 10 c ncourage pcop le [o gal hc r and linger A sui le ~pcc iall y eq uipped for massage and physical 1I1erapy A kil chen A eoffce
~pacc

for [he slaff

• Three sllwll j
,1rC
(i.c , waler Iwale T. furrw ce.ele.)

• Gu esl re~ [roo m s

[ tluipnw nt Prim e Adull Fil ness is in [he process of sel ecl ing fil11 CSS equipmenl 1hal wi II fa cilila le lhe specific necds of our cJicnlele. G cnc raJly, lo wcr intensil y equipmcnl will be ehosen lhan [h al oHered by a lradilio nal filn ess ce nIer. and \\eighl s
FACILlTIES ANO EQUIPMENT

nli s sect io n descri bes
CHA PTER 9

Operations Plan and Produet Deve lo pment Pl an

195 .

If you wi ll be prod ucing a pro cluct " nd will co nlracl o r o ul so urce your p rod ucti on . you sho uld co mm ent o n the fa cili ties of yo ur busin ess partn e rs. IJ th e contrilcti ng 0 1' o ut sourci ng will be clo ne in a foreign co untry. yOll s ho uld cx plttin how yo u IOCfl lcd your cOlltraclin g 0 1' Olll so urce parlne r " nd how you kn ow th at it s facilit ies al"e suit able for your purposes. You maya iso wa nt to CO lllll1 e nt o n th e clegree to whi eh yOll wi ll ho ld yom fore ign pa rtn e rs accountable fo r th e work ing condili o ns illlb c ir fncl o rics nlld fo r the ir c Il virOl1 11lCnlill stnnd ards. I f yOlll" f
progrCllnme rs, a lo t of explan ati on is not required. If yom bu sin ess plan is fo r a restmmlnt Ol' rela il storc. and you
Operations Strategy and Plans IPrime Adult Fitness Business Piani n ClwCC II

U ll siIlCS~

Slr:ll c:,:., ' and O pCt:lli llllS S It:IICI;J

llle Prim o.! Adull Fil n..:", hu,int:ss

~ I ral e gy

:Hld CUllIpetili\'c

adv<ł lll a gc

hinge u n IWll lhingl>:

(I) mcc!ings Ihc needs o r our 50+ year o ld clic nIe le in a manner Ih al is spcci fi ca lly la ilo red lo Ihem. aml (2) reaching om allllllalmembe rship gOilI:. Ih rollgh new me mhers and membc r rc lenlil111. Our \'per,11 iII lIS ~ I nt1 egy, de»(:rihe d previl l u ~l y, i~ spcci fi cally gC ilrcd 10 nK'di ng Ihc~l' \ \bjccIivcs.
,"..;. Conlr:u1 AI1i"llil',' To mainl ain co nsisle ney for o u r Ille moc rs. fuli-Ii me and parl-lime c mploy..:cs wi ll conulIct Ihe \'a:-;I majori!)' o f o ur orc rati o ns. COlllracl employees wi ll be llscd IlCcasio na lly lo leach ~ pcci ali zc d d a s ,c~ 111c rc are IWII excc p li \lIl ~ l \l lhi ~ genc r.. 1 ruk : MI/s.mg/' Serl'icI'. A l1l a~-;agc se rvicc will he o Hc rcd I!lUlIr fa cilil y o n a fcc ha ~i s. l11<.! scniec will he o ffc rcd by a loeal ma ss11ge com pan}'. which is fu li)' ccrlifi ed and has bcc n cardull y ~c lcc l c J . Primc Adlllt Filness will reccivc a li cc n ~ ing illcomc r"prc~c nlillg ;. pc rccll lagc of Ihe fces collecled. I'hysiat/ TllcH/p}: A physicallhe rapy service will a lso b(' o ffc rc d and \\ill be sla Hed by pc rsollncl from an O rl11ndo area hospil al. Primc A dult Fi lness will rcceive a licc nsing incornc rcprcse nlin g a pc rccnlage of Ihe fees eollcctcd.

• 196 PART III Preparin g a Bu sin ess Plan OPERATIONS STRATEGY AND PLANS

nli s sectio l1 de
r-------1i ~ SINESS PLAN INSIGHTJ::i- - - - - - - - , Outsourcing the M3IlIIl'aclurillg ol' a ProducI: A Practice That Requires More Work Thau You Might Thillk Mnn y startllps thnt plan to produce a product indicate in th e ir busin ess plnn that the actllal production of the product will be "outsollrced" or produced by a contract Illanufaclllrer. A It hOll gh t h is approach SO LI nds good a ncl is often sllccessfu lIy im ple mented. it requires more work and explaining than you might think . Often. companies are not ab1e to find a partner that can build its entire product. [n these in stanees. seve ral Ollt somce partners or contract nwnllfactllrers must be loeated. and th e company IllUSt eoordinate th e work among its pflrtners. [n addition. in most eases.. th c production of a eompnny's product is n't simpl y handed over to another eompany with no furth er work involved. A eOlllpany rnust consta nt Iy mon itor t he q U
CHAPTER 9

Operatio ns Plan and Produet Devel opment Pl an

197 .

As a result or these standards. P
PROOUCT (OR SERVICE) OEVELOPMENT PLAN A s in d ica tecl at the o ut set of this chapt e r. if you
llle purpose o f this sectio ll is to d ese ribe th e present sl
• 198

PART III

FIGURE 9-6

Preparing a Business Pl an

Development Status and Tasks (Prime Adult Atness Business Plan)

TIl11d inc

If fumJ ing is o hl a ined. Prime Adult Filn ess will o pe n al 201 Oak Dri "e in O vicdo. FL o n Ja nuary l . 2U09. Thc fll llllwing ll1 i k~ l un es ha w ocen cUlIl plcleu
F..:hrUilry- fvla rch. 200R

to

fe a~ ihi lir y ; Hl a l y). i ~

• I IIcllrpt1ralc d hllS i n c~). Sc lcctcd ho a rd (lf tlircclo r' iln d il d vi ~o ry • Appli ed fo r t r a~lc m arks a nd copyrip,hl s

Ja nua ry.20J R

Mil cSł lln cs

COm plCh!d

h(l ilr d ~

• Signell sc"c n-year I Cil ~C o n huild ing (slIhjcct lo fund ing) • Hired a rchirecl to pla n building re lrofi uing • Hiretl. by lwu fu un de rs. lhree ulh L'r llIem be rs uf inilil1 l manage menl te .. m • Cond ucled a se rie" o f I'clCu ~ g ro u p". v i si l ~ lo (llh c r fit nes., cc nlc f'i. and "pccia J IIlcel ings a r 1hc advisory b(\ard ~ lo pl an Ihe re lrol1 l1 ing uf Ih..: hllilding. hcgin '\C lccling III ness c<łui pm c nl . a nd "IiItI pJ anni ng Ihe initia l cla"scs for Ihe ce nl er

nt, Cumplctc tl

Apri l- JlInc.2oo8

• O hlain cilll1lllil me nl for fund ing. Begi n rClruritt ing o l' buillling whc n fllndillg is ublailled

July- O clo bcr.2008

• SUI>cr" isc rClro llll ing o r b uildin,g Mak..: fin a l dccisio Jls 0 11 rilnc~s e qllip mc lll colll pkt e plan ning t)f inilial cI ..."s..:). and pw gnum

Nove mbc r - Decc lll h..: r. 2u(~~

Bcgiu hi rin g a ud Ira in iug staff a nd c mpluyce .. III ope n h u ~ in e~s

• Ramp u p ma rketin g a nd p uhli c rda lio ns initia li \'cs Begin o ffering "pil ol " c xc rcisc- cJasscs lo solk il fccd back 1-10' 1 th rce " pe n h ll ll :o.t.'~ Ja nuary 1. 2009*

Havc grand ul)Cniug a nd bcgin o pc rat illllS

RClm fittin g nf Ił llildin g llle 21 .600 squa re fool hllilding Prime A dult ntncss will occupy will rcq llirc ap proxim at cly $ ł milJiun o l' retrol'ill ing lu ma k..: suilabk fur Ihe cumpany's p urposcs. Primc A dult Fi ln ..:~s will pily fo r 75% ll f Ihe rdrofiu ing.
• Maximlllll lISC o f na lura llighl lhro ugh ins la1Jing addi lio na J skyJights a nd windows Re ductio n in noise Ihro llghulll the facilil y thro ugll lhe insla lla lio n o f special no ise redllcli o n Ill a l e ri ał

CHAPTER 9 FIGURE 9-6

Operatio ns Pla n and Produet Deve lopment Pl an

199 .

Icontinuedl

A n improveme nl of Ihe \'C nlila tio ll system th ro ugho ll t thl! blli lding sa lhat lh e loc ke r roOIllS can be war11lo.:'r [hall lhe e xereisc a re as Rcsll rfaee lhe are as aJjaec nl lo the swinunin g pools with spccial mate riallO a ll evia te eonee rns abo lIt slipping on lhe surfaee Installation a r ra mps for clll ering and c xili ng bath pools (lO aceommoual c peoplc who havc Iroll bil" na viga ting slairs to wa lk into Ihe pool o n a n c \'en surfaee ;' Insta llatio n a f speeial a ss i ~ l a n ee loekc r room spaee i n both Ihe mcn's and womo.:' n·s locke r rool11 10 accommodate physiea llhc rapy [latie nls (who ma y nced assistanee dressing bcfo rc "IIHI afte r poo ltrcallTlc nls ) Installatio n of addilional grab bars lhro ugholll lhe fadlit )' Updali ng lh e eolo r sc hcmes a nd gene ral d ć co r a f the faeiJit y Installatio n of lI[x laled in fo rma lio n sysle ms

includes prod lle-t concepti o n. prolotyp in g. in iti al prod ucli o n. and fuli produc ti o n. De pe nding o n the soph isti ca tio n o f your product- or se rvice-developm e nt process. producls a nd services typica lly pass tests th,,1 pro be th e ir pe rfo rma nce a nd technical me rit s as th ey pass fram o ne step in the d eve lo pm e nt process to the next. Yo u sho u ld expla in the process yo u'" follow lo Illove yom produ et fro m o ne stage to the next. You sho uld describe specific a ll y th e poi nt Ilwt your product O l' se rvice is at a nd provide a time lin e Ih al descri bes th e re ma inin g ste ps. Prim e Adult Fitness. as shown in Fig ure 9-6. fm me d it s tim elin e in t he co nt ex l o f milesto nes. Yo u sho uld a lso d escri be how th e process of comple ting th e de ve lopme nt of yom produ ct O l' se rvice will unfo ld . in te rms of th e ste ps Ih a t need to be com pleted and th e people who will be in vo lved . Ma ny slartups. fo r exa mple. in volve prospecti ve CllStome rs in teslin g emly versio ns of th e ir p rod ucts and services lo obta in feedback. If th ese types of tests Imve a lreacly bee n conducled. you sho uld briefly comm e nt on th e proc,e ss you 've used and yo m result s to d a te. If you are a ve ry ea r ly stage firm a nd o n ly hilve a n ide a. yOll sho uld c" re full y explain how a prol o type of your prod uct will be maci e. A l,rotut)'(1l" is the fir st phys ica l de pictio n o f a new prod uct.~ For a new p roduct. slIch as Z UCA's backpack o n roll e rs or H20Audio's wa terproo f ho using for th e Apple iPod.
• 200

PART III

Prepa ring a Busin ess Pl an

Fo r u compull y lik e Prime Adull Filness. which will llol pro duce a ph ysicul produet. n protolype ca n lake Ihe fo rm of a "sa mple d As you wril e this secli o n o f your overa ll product o r se rvice deve lo pme nl pl
L e l't~1

J: Remly lo Co. Compan ies at thi s stage have comple led d evelopme nt
ready lO be inlroduced lO Ih e m
wo rks but iSll 't ready for marke lin g nnd producli o n beca use il s li ll needs
CHAPTER 9

Operation s Plan and Pro du et Deve lopme nt Pl a n

201 .

Lel'I'II: A (,'retll hhm , 1111/, .,. CO lll p,lIli es Il ave al1 idcn for

,(1 prodll ct 01' SC ]'vice bul hnven'l Ill oved beyo nd Ih e iden stage. No prototype o f tll e prod uet ex ists,

Acco rdin g to Ri ch nnd G Ul11pel'l irs tOll gll for L cvel I CO lll p
1l1is secti on sho ul d disclose nny Ill
Challenges and Risks IPrime Adult Fitness Business Plan)

"1111.' fI lIIo wi ng chall engcs and ri sks are associal cd wil h I he design. mai n Il.' rw ncc.
!'lIre/wsI' (//ul l llslOlll/lirm o[ Fillll'.\.\ h'{luipml'lIl, Thc nllu l dccisillns !\ lr p ur c h a~i ll g and leasin g nl n es~ eqllipmenl are cllrrenll y underway and wi ll ramp up once fu nding is oblained. Any deJays in Ihe propcr shipping and in slallalion of cqllipmcnl wOll ld sevcrcl y i Il1p~r C I I he ~ch e du l c d opc lli ng dale. h:rcr'('ilillg CoSI.\ ol Ulldgt'll'({ 1!I'lIIs. ·n1\.' i n il i,1I uj1elli ng alld sl,lIli n ~ \lI' I he racilii y h a~ hce n carerlll ly budgcl cll . m, shuw n in Ihe firwll cial ~ec li ll n nf Ihi ~ pl an . Excccd ing Ihe hllclgel wOll lcl be problcrnalic ror Ihe firm li nallci all y. "/11111 Cll'tI/'IlI/cl's [rom Ihe Cily of Ol'iedo IIl1d Selllillole COI/III.I'. FL Fi nal clema nces rcga rcli ng ci I y and counl y regll lir lions perl aining lo I he ope ning of our raci lity carmol be cornpl elecJ 1I11lillhc bllildi ng rClrofilling illitialive is com pIele. Primc Ad llll Filn ess isco nridenllh allhe risks inherelll in Ihese rOllr il clIls havc been minimized.

• 202

PART III

Prepa rin g a Bu s iness Plan

mark e t. Yo u sho uld be "e ry ca ndicl ilncl lra nspa re nt in ide ntifyin g these issues fo r Iwo rcasons, Fil's l. yO lll' rca cler will il nlicipClt e Ilwl chall c nges
1l1is sec.tio n sho uld p rovide o buclget for th e re maining des ign ond d evelopm elll wo rk Ihn! needs lo be done l o bring yOllr producI Ol' se rvice to Ill nrkel. llle budget sho lll d inclllde th e cos ls of lo bor. mat eri o!. con sultin g fees. proto typi ng. usabilit y test in g.
and

Costs (Prime Adult Fitness Business Plan) Ll cn' h'IJlllCnł HIIII gC ł

lllC hudgct m,slIcial cc! willi Ih..: bu ildillg aniJ f
licIlI

CoSł

R C ln \ l'illin ~ Buildin ~

E M rcisc E~luiprncnl· Oflicc and Compul er Equipment Fumi lurc S
$ 75U.l'MJ() $ ISO.r.XKI $ 60.000 $ ~.l X IO $ ~).rXK) $ IS.L'OO

Tol al

$1.O-łS.OOO

A l ulal of $150.lXXJ o f cxc rcisc cqu iplllCll1 w ill be oblainciJ as fo ll ow~:

MclhlJd Uscd tu Obtain Purchasc Lcasc Financcd by vc ndors

[tluipmc nł

$ 50.000 $ 50.000 $ 50.000

CHAPTER 9 FIGURE 9·9

Operatlo ns Plan and Produet Devel opment Pl an

Intellectual Pro perty (Prime

Adułt

203 .

Fitness Business Plan)

Pale nls

DlIe lo Ihl' nalurc o r ils o pc nuio ns. Prim" Ad ult Filncss does not an licipalc fi lin!! fo r a ny pal Cnl s.

Tratlemarks

Ali a r Primc Adult Filn css's dislinclivc marks. inclmling il s name. ils logo. and ils laglin e. ha\'c bcc n lTade ma rked. lis In te rne l donlain namc (h llpJ/www.primcad ll ll fi lncss.com ) has been oblained.

Copyri ghls

Thc company wi ll TOulin c ly copyrighl appro priale male ria !.

Tratle Scc re ls

Prime Adllll Filness cansiders Ihe following rnale riallo be Irade sce rels: opc ral ing manuals.. cmployce o rie nl a lio n male ria!. rnc rn bership lisls.. prospccls lisls. business pl an. res ult s o r membc rship slIrwys.
in you r indu su'y to a rri ve a t
1l1is sect io n should describe a ny p
• 204

PART III

Preparing a Bu siness Pl an

advan t
CHAPTER 9

Operations Plan and Prod uet Deve lo pm e nt Pl a n

205 .

busin ess pla ns to e nti ce thl' ir rl'a dl' rs to w
Chapter Summary J. This chapter is divided int o two part s. Th e first part of th e ch
• 206

PART III

Preparing a Bu sin ess Pl an

7. Most products foll ow a 1 0~'d ca l pa th of develo pme nt th at includes product concepli o n. pro to typing, initi
Review Questions I. Wh y is it im po rt mlt to include an oper
Application Questions J. R
CHA PTER 9

2.

3.

4.

5.

Operati o ns Pl an and Prod uet Deve lopm e nt Pl an

207 .

Spe nd so me lim e looking al Rada r Go lf's We b site lo gel acqua inted wilh ils product o l'fe rin gs. Whal do you Ihink we re Ihe mfljor "opera lio nfl l" issues Ih fl l Rad a r Go lf included in il s busin ess p la n? Gene Palt e rs o n. a pro fess io na l acqua inl a nee of yours. as ked you lo review his bus in ess pla n. Ge ne's p la n is for a new iPh one accesso ry, whic h will all ow people lo use th eir iPh o ne as a ka raoke mac,bi ne. Gene is pa rticul fl rl y p roud of Ihe operalions section o f Ihe p la n. which describes in pa insla king de ta il Ih e lechn ology be hind conve rti ng a n iPho ne into fl ka rao ke l1l achine fl ll d exp la ins in a step-by-step man ne r how the busi ness wi ll be run . In tota l. th e operations sectio n of G ene 's plan com prises II of th e 29 pages o f the pl fl n. G ive Gene som e fee dbflc k rega rd in g the scope a nd le ngth o l' th e operal ions section o fh is pla n. Imagi ne that you ha ve in venl ed a new type o f backpack fo r slude nt s lo ea rry th e ir books o n ca m pus. A s pa rt of your bu siness plan . you ha ve dec ided to "out source" łh e "cł u ,, 1 m
Endnotes I. A. Zachamkis. -1l1e Business Plan," in Fhe PorU/b /e MIJA in Fil/al/ce lIIIlI Acco//IIIiI/g. ed. John L. Livingstone "nd T. Grossmttn (New York: John Wiley & Sons.lnc .. 2002). 260-290. 2. Marn In \'entor's Network horne pttge. hll p:l!wWw.mornill\.entors.com (July 5. 2(07). 3. Silpttdtt Design 's hornepage. htt p://www.silpttda .co m (July 5. 2(07) . 4. Arneric.ll1 Mm·ketin g Assoc iation Dictionary of Mm"ketillg Terms. http://w·ww.rna rketingpowe r.com (Jul y 6. 2007). 5. lll C Us..lbility Company homepage. htt p://www.theusabi litycompttny.col11 (July 9. 2(07).

6. S. Rich and D. Gumpert./JlIsillt'SS P/mIs Tli(/{ Will (Cambridge, MA: Ha rper & Row. 1985).

This page intentionally left blank

( H A

R

FINANCIAL PROJECTIONS

INTROOUCTION Th e fin"l secti on of fl business pl
yO ll

prep
yO lll"

sfl les forecasl s in

Ch<tpt e r 6,,, Il1flrk e tin g budget in C hapt e r 7,
• 210

PART III

Prepa rin g a Bu sin ess Pl an

mo ney w hi le yOll ' re nllnpi ng up th e b us in css. Fo r exal11pl e, a s you 'lI sce lal e r in Ih e chap le r. Prim e Adult Fitness's fin a nc ia l projecli o ns lo o k ve ry promi sin g fo r 20 10 a nd beyo nd. B ut il s sIa rlup yeilL 2009. is proj e-cte d lo be c hJow le r s loo k a l Ih e firs l secl io tl in Ihis c ha pt e !'. th e SOUl'ces a nd uses or flllHls slat c ll1 c nt.lll c Prim e Ad ult Fi I IlCSS sO Ul'ces
SOURCE AND USE OF FUNDS STATEMENT llle sOlln.:c and ust' ot' furHIs stulclllt'nt is a docum e nt 111<11 I"ys ou l specificC1l1 y how muc h ma n ey a firnl ne eds (i f the inlention of the busine ss pla n is lo rai se ma nc y). whe re the ma ncy will come from. a nd wh(lt Ih e mo ne y wiJI be used fo r. Nonn a lly. a pani o n o t Ihe s la rtup tunds is provided by the founders ar th e initial

CHAPTE R 10 FIGURE 10-1

S lIlI rn~s

Fi nan cial Project ions

211 .

Source and Use ot Funds Statement IPrime Adult Fitness Business Plan)

uf Funds

SOlln 'e Mamlgemenl Team I nveslmenl Angcl I nvesl or - Timolh y Kemp G ran I from l/ ('(IIIII )' After 50 Lin ~ o f Credil wilh Ovi edo Sccurilv B ,mk ($ [00,000 L OC $50,000 l o be disbt;rsed when business opens) Tola[ Funds Coml11illed Tola[ FUlllls Requircd Tol a[ Funds Nceded fr om ,m Equil y [nvestor

A lI1 u unł

$ 325 ,000 $ 175,000 $ 60.000

50,000 $ 610,000 $ 1.1 25,000 $ 515,000

$

Uses of Fund.. C\J~ł

Rclrofil Bui[ding (including archilecl ) Excrcisc Equipl11enl - PlIrchase Olllrighl OlTicc and Cornput er Equipmcnl Furnilure Sa[cs <met fvl arkcling Altorn ey Fccs I nilia[ I nvcnt or y Olher Ca sh (workin g capila[ and reSN\'C l o ro ver 2009 [osS(.-'S) Tot a[ Rcquired Funds

Ił e m

$ 750,00J $ 50.00J $ 60.000 $ 30.00J $ 40.000 $ 10.000 $ 20.000 15.000 $ $ 150.000 $ I .1 25.000

" Appro xim:ltc ly $2S.l'H HI in :Idditio nal startup costs havc bccn boots tr:lppcd by fo undc rs.

Illflnageme nt tefl m: n po rti o n is co ntribut ed by flll eflrly in vesto r. such ns fin nnge l in vesto r. fi fri e nd. o r a famil y me lllbe r ot o ne o fth e founde rs: and th e re mainde r is what 's still needed. Th e level o f d e tni!. reg
• 212

PART III

FIGURE 10-2

Preparing a Bu sin ess Plan

Assumptions Sheet IPrime Adult Fitness Business Plan)

T he fi m\ncial sIlIle me n ls dcpe nd o n impOrl a nl assumptions. T he key underlying assumpli l) ns me
1. Inte resl in filn ess and exe rcise wi ll re nmin slro ng. SOIl/res: 1\." l intd. IB lSWoIId. In te rnatio na l HcaJt h. Racquc t &. S po rt scJub A ssoc iilti o n

2. Wc ass ume access lo equily capil
J. Sa les forecast s are based o n llle analysis presenl eu in lhe "marke t l1llal ysis"see li o n o f this business plan. Sa les are proj ected lo increasc 6% pe r yea r. 2. Cosl of G oocJs So ld (COGS): 275 % o r net sales SOI/HOCS: Rcsults o r a sur vey o r 88 rilncssce nle rs. in lhe same salcs range lIS P rimc Adull Fi lness. cllncJuctecJ by Bizfvline r (hl l p:l/www.bizmincr.co lll) 3. Wc '

1. Accul11ul:l1io n o r accounl s reeeiva hle is comisle nl wilh industry norms. 2. n 1C re lro ritling or lhe building .md lhe k:asing o r litncss equipmc nl are "on lhe halan ce sheel " l ransactio ns consistc nl wilh no rma i ilccOllllling pracl ices.

sta rte d. Pl acin g <1 le tt e r frolll tll e directo r or preside nt of He
ASSUMPTlONS SHEET A n
CHAPTER 10

Fin ancial Projecti ons

213 .

Fo r cX Ilmp le. ir yOll bclieve Ilw l Ih e U.S. ecoll olll y will re milin s lro ng. and tlwt's a n unde rl yin g assumptio ll driving yom sa les projeetio lls. th e n yOll sho llld stal e Ih al asslllllplio n. In thi s in slanee. yOll wouldn 'l eil e a specific so m ce-yoll 're rcfl ecIin g a conse nsus " i ew. ( 11 's Ih e n up lo yO llr reader to agree Ol" disagrce.) Ol he r ass umpt ions will be bascd o n ve ry s pec ific infonna ti o ll . a nd yOll s ho uld cil e Ih e sam ce fo r yOllr assumplio n. Fo r exmnpl e. 0 11 its pro fo rm a incomc sta te me nt s. Prill1 e A dull Filn ess com put es il s cos l af good so ld (COGS) at 27.5 pe rce nI o f sćl l e~. A BizMin e r (hll p://www.h izmin e Lcom ) survey af ~R fitn ess ce nt e rs. in Ih e sam e S<1les ran ge as Prilll e Ad nlt Fitl1 ess. re porled COG S from 24 lO 32 perce l1!. A s s hown in Figure 10- 1. Prime Achil! Fit ness ciles BizMin e r as a sa m ce inlll aking Ihis asslllllpli o ll . In many in stan ces. Ih e asslllllplio n shee t re fe rences em lie r porti o lls o l' Ih e bus in ess pl a n. For eX ilmplc. Primc Ad ult Fi tness cOlllput cd ils salcs p rojec lio lls in Ih e l1lil rke t an"l ysis sectio n o l' th e plan . whe re a fu li ex plannti o n o f whe re th e numbe rs cmn e fro m wns provic\ec\ . lll e explanat ion cloesn 't need lO be re pea lecl he re, A ltho ug h Ihe assumpti o n sheet is a n ly Ill ea nl lO CO lllme nt o n Ihe mosl criti ca l nUlllbe rs lIsed lo pre pare Ih e fin ancial stal clll e nl s, jt's imposs ibl e lo ove re ll1 pha size the impo rt a nce of cO tlveying 10 your re ncl eI' Ihal your sla te me llt s m e bujll o n good clnlil. TllC o nlin e reso llrces sho\Vn in Appe ndi x 2.2
PRO FORMA FlNANCIAL STATEMENTS lllC pru furIII .. (nr I)rujcdcfl) tiu 'łnd'll shltCIII Cllt:oo nre 1hc hemt o l' Ih e fin a ncial sect io n o l' a busi ll ess pi nII . A lt ho ugh nI fi rsI gl<1llce pre pa rin g fi nn ncia l stal eme nts appen rs to be " lecli o us exe rcise, it's a fairl )' straightfo rwnrd process if Ihe preceding sectio ns of yo ur plnn are th o ro ugh. lf your plan has been bu ilt in Ihe man ne r clescribee! in Ihis boo k. mosl of Ihe harc! wor k, such as projecl in g sa les and crealin g (l l1l (l rk eting budget. has already been do ne. ll1 e fin ancia l stalem e nl s also re present ,he culmina lio n a r fin ale o f th e enlire plan. A s a res lllt , it's inl c restin g to see how th ey turn o ut.

• 214 PART III Prepa ring a Bu sin ess Plan A firm' s pro fo rm
nI e !HU forma inl:ome st:ltclIlent re tl ects the projected result s of th e o pe ra ti ons for a firm for " given pe riod Oflill1 e. It records all th e proj ected sales
• ."'el sa/es. Net sa les consist o f total sales mi nus all O\va nces fo r re turn ed goods a nd di sco unts. • Cosl oj goods sold (COGS). COCS includes all th e direct costs associ
CHAPTER 10

Finan cial Projecti on s

215 .

FIGURE 10-3 Pro Forma Income Statements 2009. 2010. 2011. 2012 (Prime Adult Fitness Business PianI l'tI. Furn)ll

IIWuru~' S l llU' m ~' nl

2ut") 11'11"'1 Y~' lIr I.r I lu ~ lm'~s l

n 'hrullr.\'

;\ l lIU'h

AprU

,\ I li'

.llIn~·

G rfl ~s

60.890

83.000

102.600

12J.71O

135.360

152.020

N ~" Slll~' _

60.tl'XI 16.740 44. 150

~lOOU

102.600 28.210 74.390

123.710 34.020 1\9.690

135.360 37.220 91\. 1-ID

152.u20 41.800 110220

25.750 16.000 3.fP-0 10.800 1.000 27.000 5.R50

25.750 17.000 3J«l()

25.750 17.000 3.1:190

10.980

1O.~80

25.750 17.000 JB90 10.9S0

1.300 1..100

3.000 4.000 1.100

J:.nulu~'

Sllks ( Rclurncd Goods and Discounts)

(COSI of Goods Sold) (;n, ~.\o Pru",

22.820 60.180

E "IH· n 't'., - C.~·Ih'rlll

IInd Admln b 1nuln: Officcrs Corn pcnsalion Salarics and Wages P
112.Q20

N ~'l l nl'''1I1l'

(~.770)

25.750 16.000 3.820

25.750 16.000

10.800 1.000

10.800

27 .000 5.850

27.000 5.R50

I .JOO I..JOO 3.000 10.000 1500 500

3500 1.500

Ju l~'

AlIglI _1

3.ff.W

1.000

1.000

1.000

I.f'OO

27 .000 5.R50

27.000 5.i550

27.000 5.R50

1.300

1300

1.400

3.000 9.000 1.500

1.300 1.-100 3.000

1300

1.-100 3.000 7.000 1.500

3.())0

3.000

3.000

1.500

1.500

500

500

500

500

500

3.500

3.500

3~'iOO

3.500

3.5tHI

1.500 11 1.920 (51.7-10)

1.500 109.920 (35.530)

1.500 108.170 ( IK4S0)

1.500 107.170 (9.030)

Sl'pWlI1hl'f ( h'wlwr N''''l'II1IN,'r Ikn'mlw r 167.2((1 176.150 185.100 191.540

(; ru ~.\o Slll\o.~

153.030 159.750

( RelUrned Goods and Discounł s ) Nl'l Sllll' ~ (COS1 Ol GoodsSold) (;rfl ~s Pronl

153.030 159.750 42.080 -13.930 11 0.950 115.820

167.200 45.9.'«1 121.220

176.150

1~5.l00

-IR.4-IO

50.900 134200

25.750

25.750 18.0\XI 3.940 11.160

25.750 19.000 3.991.1 11.340

25.750 19.0tXJ

1.000 27.000

1.000 27.000

1.000

1.000

5.850

5.850

27.000 5.850

27.000 5.850

127.710

19 1.540 52.670 138.870

1.400

1.500 107.170 3.U50

Tulili 1.690.350

1.690.350 -I&V'QO

1.225.5-10

E~pl' n~~ -(;('m' r;11

lln(/ A(lmlnl~ lrll1rH' Otficcrs Compensalion Sal:lri",s and Wages Payroll Taxes Employee Benefils Profe.ssional Ser\'ices Building Re n! Ulililies

25.750 18.000

IM.OOO

3.9-J{J

3.940

11.I60

IUW 1.000

1.000 27.000

5.850

27.000 5.850

3.99:1

25.750 19.000 3.990

11.340

1 1 .3-łO

J(1j.000 210.000 -16.920 D2.lWI 12.000 324.000 70.200

• 216

PART III

FIGURE 10·3

Prepa rin g a Bu siness Pl an

(continued) JIII~'

Telephonc. lnt c rncl . ,1Ild Web Sile Fitllcss E(IUip mc nt Lease Ins urartre ł\'l arkc t ing

Su p plies hll c rcsl ·rhx.:.-s 01 hc r G e ne ral and A dm in E xpcnSl..'s Dc precia tion a nd A mo rtiza ti o n THI:tI ESI'I'n'I" Nl't lm'unU'

,\II!!I'"

SI'p h'l11hl'r (I r ulhl' r

N II"I' m łH,' r

Ikn'nthn

Tu l:11

1300

1.300

1.300

1.300

1.300

1.300

I..JOO 3.000 2.000

I..j()() 3.000 2.000 1.500 500

1.400 3JJOCJ

1.400 3J)()()

2.00CI

2.000

1.500 500

1.500 500

1...100 3.(0) 6.000 1500 500

1.400 ;\.000 6.000 1.500 7.250

56.000 18.000 12.750

3.500

3.500

3.5()O

3500

3.500

4 2.()()()

UOO

1.500

107 .400 3550

lu7.400 8.420

1500 107.4())

IjOO

"'" 3~<;()()

13.820

15.600 16.800

y,.OOO

1500

1.500

1.500

18.(}()()

100.630 19.080

112.630 2 1570

119.3S0 19.490

1.320. 11 0 (94570)

1h{'flm c:1' a l'I·U't'nl oI"Gw~sS:tl cs

I'w Fu m l:1 Inrunll' S I :łIt' II1 I' 1lI lUlU ISI'I'unll )'l'at ul" 1I11., th'll ' ) J:tn u :tr~·

Fd}fu:łt~·

Marl'h

Aprll

M a~'

Jllnc

(; r ll~~

2(1 1.40H

2U1,4()()

201.4(x)

20 1.4ex)

2u l.400

201.40n

NI'ł Sa k ~

20 1.4UI.l 55.3&1

2UI.4oo 55,380

20 1.4(X.I 55.380

20 1.-100 55,380

201.400 55380

201 .4(~ )

14Ó.02H

146.020

14Ó.n20

14Ó.020

I 46.02f1

146.02u

25.750 20.000 4.070 11.500 1.1\00

25.75!1 20.000 4.070 11.500 1.000 27.0f'() 6.15U

25.750 20,000 4.070 11 .500 7.1\00 27.000 6. 1.50

25.750 20.000 4 ,070

6.1 .50

25.750 20,000 4.070 J 1.500 1.000 27.000 6,150

27,((K1 6.150

25.750 20.000 4.070 11.500 1.000 27.000 6.150

1,40U

1.400

1.4(11

1.400

1.-\00

I.4ULl

10400 3.1511 10.000

1.400

l.4m

lISO

:l. ISO 7.000 l.:i lr l 500 5.200

I..J(J(\ 3.150 3.000 150() 500 5200

10400 3.1511 3.000 1.500

500 5.200

9.000 1.500 500 5.2()()

1.400 3.150 4,000 1.51)) 500 5.200

3.670

3.670

3.670

3,670

3.670

3.670

1.500 123.790

1.500 122.790

1.500 120.N)

1.500 123.7<XJ

1.500 [ 16.790

1.500 116.790

22.230

23.230

25.230

22.230

29230

29.230

S:I! I'._ ( RelUrn oo G oods .m d D iscount s)

(CoSI or G oods Sold ) ( ; rll~~ Prun,

55.380

E x pl' nsc~ -

(; I·nl·nt l a nd Adnllnl' lrlu ln ' O fficc rs Compc nsatio n Sala ri es and Wa ges Papo lI Ta:o:cs Em ployec Be nc fi ts Professiomil Scrviccs Bui l(Iing Reni Uti lilies Tclephonc. lntc rncl. lind Web Siw O fficc E q uipme m Leasc hlsurancc ~'I a rke ling

S UI)pli cs Intercst Taxes Ol hc r G c nc rll l a nd A d min E xpc nses De prcciation a nd Amu rlil.ali ull Tulal E.'\;pc nscs Nl'! Im 'UIIII'

27.()('(j

uoo

11.500 1.000

.\00 5.200

CHA PTER 10 FIGURE 10-3

Finan cial Projections

217 .

Icontinued) Jul~'

'.rl •• ht'r

i",""\'mhl'r

I h 'n'l1Ih\'r

2U1.400

2U 1.400

201 ArO

201 .400

2U I.4OO

201.110

2A 16j lO

i"t' l Sa lt,~ «('OSl ofGoods Sold )

201.400

201.400

201.400

201.400

20 1.4110

201,110

2,416510

55.)S(l

55.380

55.380

55 ....s0

5, .)S(l

55.360

664540

Gwss Pront

146.020

146.020

146.020

146.020

146.020

144.750

1.751.970

25.750 20,000 4,070 11 .5011 1.000 27.000 6,150

25.750 20,000 4.070 11.500 1.000 27.000 6, 150

25.750 20.000 4.070 1 LiOl I 1.000 27.000 6.ISO

:~.'i.750

;,).000 4.070 11.500 1.000 :'7.000 6. 150

25.750 20,000 4.070 11.500 1.000 27,000 6.150

25.750 20,000 01.070 11 .500 1.000 27.00J 6.150

309.000 240.0fXl

18.000 324.000 73.t'Oi

1.-iOO

1.-iOO

IAOO

1.0100

1.0100

IAOO

16.:S00

1.400 3, 150 2.000 1.500

1.-iOO 3, 150 2,000 1.500

IAOO 3.150

1.0100 3. 15u

2.000

500

500

5,200

5.200

1_<;00 500 520)

1.500 500 5.200

IAOO 3.150 6JlOO 1_<;00 7150 5200

16.800 37.H(XI

2.OCKJ

1.0100 3.150 6.000 1.500 500 5,200

18.000 12.750 62 AlXJ

3.670

3.670

3.670

3.670

3.670

3.670

oi-U.40

( ; r .I'<~ Sl.lt'~

AII:':U_'1 S\' lm 'mht'r

Tul :11

( Rcl urnoo G oods :md Disoou nt s)

['\;pt.' h"'·~ -

( ;t'nt'ra l

\•• d A (tmlnl~ lt :.tl'"t' O fficcrs Compcnsation S al:lri es :lnd Wages Payro ll Ta xes Employce Bc ncrits PJOfessiona l Scn·i<;:cs Building Re ni Ulilitics

·»1.140 I J~ .OO:I

T~l c pho ne. l nICrlle l .

and Web Sile rilness Equipme nl L.ease lr,sura nC
56.000

1.500

1.500

1.500

!.500

1.500

1500

18.000

11 5,790

11 5,NO

11 5.7<;()

11 5.7YO

119,790

126.541)

1.43-1.2.10

30.2.10

30.230

30.230

30.230

26.230

IY210

3 17.740

Inn.m{' :.s a '·I.'tt'\.'nt III Gross S:lI l's

13. 1

Gr,,!!'s S:.!t-s ( Rcl urne
2.56 1.290

i"t'j S alt', (COSI or G oods Sold )

2561.2W 704.350

G nl'<s Pront

1.856.940

['\;pt.' n"i.'.' - ( ;t'lIt'ra l :md I\ dmlnl_tt:uh t· Of1iC\: r~ COlllpCllsal io n Sal:lri cs :lnd Wages ~ yro ll Taxes Employee Be ndils I'JOfessio na l Serviccs Building Re nt Ulililics Tdephone. lnt c rne 1. and Web Sile Filn css Equipme nl L.ease

3<17.540 254.400 56.1 10 158.560 19.080 324.000 7&220 17.800 16.800

• 218

PART III

FIGURE 10-3

Preparin g a Bu sin ess Pl an

Icontinuedl

Insurnnce

4U.U7U

M~ rketing

59.360 19.080 12.750 68,820 46.680

SLlpplies IntereSI T<Jxes Other General and Admin Expenses Depreciation and Amortization

18.000

Tułal E~p('nsl's

1.587,270

Ne t IIH'ulllt'

269.670

Inl'ulIIl' liS li P('rl'\.'nt

"r Cross Slllcs Pru Furma Inl'ul\1(,

10,5% S ł l lt l' nll'nl

20 12 t F"urlh Y('ar uf

nllsln('s~ .

Cruss Slllcs

2.7 16. 130

( Returned Goods and Discounls) N('t Saks (COSI of Goods Sold)

2.716,130 746,930

Gr" ss Pr"nl Expl' n-'l's - Gl' nl'ral an d

1.969.200 Adml nl~tmłhe

Officers Co rnpensnlion Sa [~ ries ~ nd Wnges r ayro ll T~ xes Employee Bencfits Pro fessional Services Building Re nt Utilities Te[epho ne. l nternel, and Web Site Fitness Equipme nl Le~se Insurnnce M~ rkeling

SLlpplies Interesl T8xes Other General and Adrnin Expenses Depreciation and Arnorti zation TOlal

1&860 16,800 42.470 62,920 20,220 12,750 72.950 49,480 18.000

1,660. 190

E~p('nscs

N<'I In(,ol\ll' Inl'ullle as li

42 1,390 269,660 59.470 168.070 20.240 324, OClO 82.9 10

309.010 Pl'H'l'nł

ofGross Sllks

1l.3

pa rl ion of a firm 's busin ess plan and
CHAPTER 10

Financ ial Projections

219 .

Ad ult Fitn ess ll se d !his Ille thod in prepa rin g !he e xpenses p0l1 ion of its pro fo rma illCome state me nts. One ra tio of particu lm import ance in eva luating tl finn 's pro form a inco me sta te men ts is a firm 's projected profit margin s. or re turn o n sales ( ROS). TIlis number is computed by d ividing ne t income by net sa le s. Beyon d 2009. its s la rtup year. Prime Adu lt Fitn ess's RO S is projec led to be 13. 1 percent. 10.5 perce nI. <mcl 11.3 pe rcent for th e yea rs 2010. 2011. an d 20 12. respecti ve ly. TIlese ,ne he allhy num bers. IBI SWo rl d. as re[XHted in t he "industl)' antl lysis" sec-ti o n of thi s busin ess plan. report e d tha t Ih e a verage ROS for a sample of 1% fitn ess cente rs was 9 percent. Prime Aclult Filn ess's highe r perce nlages likel y reflect the grea ler sca le of its ope ralions Ih a n mail y of the fil ness ce nl e rs in th e survey. A ny time an appment discr e pancy appea rs in tinancia l rat ios. you sho ulcl be prepa red to expla in th e discrepa ncy a l a minul e 's no li ce. Fo r exa mpl e. Prime Ad ull Fit ness's projected drop from a 13. 1 pe rce nI ROS in 20 10 lo a 10.5 percent ROS in201 I may re quire an expla nat ion in a n investor presen ta ti o n. lll e projec led drop is du e lo th e compa ny's pla ns to add a VP of St ra legic Pl a nning position to it s top ma nage me nt lea m in Ja nua ry 2010. as mentio ned previo usly. at a cosl of $70.00CI a year plus be ne fit s. nIe salary and be ne fit s a re re fl ecle d as a 70.00CI+ inc reCl se in e xpenses. witho ut a corresponding inc re ase in sales. 1l1is is wha t's causing Ih e drop in 20 10 ROS. Pro fo rm a inco me sta leme nls Cl re use ful in e nvis ion in g a fi rm's overa ll ea rn ings potentia l Clnd prospect ive c ha nges trom yem to yeClr. 1l1ey do n·t. howe ver. provide a n indical io n o f a firm 's CClsh po sitio n. A firm ca n shO\\- exce lle nI sa les Ilumbe rs. bul if the sCl les accumul a te as accounls rece ivab le (or Clre us ed to bui ld in ve nt o ry). a fillll c a n ru n o ut ot c asll desp ite glowing in come stat eme nt s. As a resu it . en thus iaslll tor impre.s:'> ive sa les a nd net incom e tig ures o n pro to nn a income sta le men ts a re usuCllly te mpered. nI e sa les slill ha ve to be rea lized a nd th e money ha s lo be collecte d fo r th e result s to be meaJling ful. St ill . Prim e Adull Fitn ess's growth in ne t sa les a nd net income d uring th e pe riod projected cle mo nstra les the upside potenlia l o f the o ppo rtunily. If e ve rything goes ri ght. a nd the compa ny IClu nches as pla nne d. Ih e nu mbers appeal' lo be rea li slic a nd feas ible. nIe ke y phrase. however. is th a t eve rythin g musI go as planned . U ltima te ly. your reade r must h ave confide nce thal yo u a nd your leam ha ve the abilit y to execute the opport unity. Th e seco nd se t o f pro forma financ ial sta tements Ihat are nOlllla ll y preparecl are Ihe pro forma ba la nce shee ls. Prime Adult Fitness's pro ba lances sheels fo r 2009.2010. 20 II. a nd 2012 are shown in FigUl"e 10-4. BALANCE SHEET

Unlik e the pro forma income stal e me nL whic h cove rs a specific pe ri od o f tim e. a I)ro f'nrnm bulmlcC' shcl"t is a projectio n of a firm 's assets.l ia biliti es. Cl nd oWll e r 's

e quil y at a s pecific po inl in tillle. The to p of a baltl tlce sheet (o r the le ft -ha lld side. depe llcling o n how it is d ispICl yed) . shows a rirm 's asse ts. whe re as Ihe boll o m (Ol' ri ghl -hand sicie ) shows ils liab iliti es and owne r's equil y. ll1e assets a re li ste d in orde r or the ;r "I iquiclil y." o r Ihe le ngth o f tillle it tak es to COll vC I1 Ih e m lO cash.

• 220

PART III

FIGURE 10-4

Prepari ng a Bu siness Plan

Pro Forma Balance Sheets 2009, 2010, 2011, 2012 IPrime Adult Fitness Business Plan) 1/ 112009

121:\ 1/2009

12/J 1/20 10

1213 1/20 11

11/31/20 12

Stan uf

End ur nrsl ~'('ar

End uf S('l'onl! )'l':lr

E nd uf Ih lrd )'(':I r

En d uf rnurlh ,\'l'ar

20,000 10.000 230,000

[40,930 50.000 35,000 17500 243.430

31 7.170 100,000 45,000

426,840 150,000 50,000 25.000 65 1.840

748,850 150,000 50,000 25.000 973,&'=; 0

[00,000

125 ,000

175,000

30,000 60,000

35.000 70,000

35,000 72.000

185,000 35 ,000 55,000 [00,000

[85,000 70,000 60,000 [00,000

[90,000

(1 8,000) 2 [2,000

(36.000) 246,000

(54 ,000) 32 [,000

(72.000) 343,000

420,000

455 .430

708,[ 70

972,840

[,3 16,850

100,000 25,000 10,000 135 ,000

[25,000 35,000

[50,000

50,000 50,000

75,000 25,M 90,000 190,000

t60,OOO

t95,OOO

50,000

40,000

30,000

hushu'ss ASM'IS C urre nl Assets Cils h il nd Cilsh Eq ui ville11ls Account s Receivil ble [nve nlO ry Olher Currenl AsselS Toln[ Current Assets Fi xed Asse ts Filness Equipm ent Vehi cles Furniture Offke Equipm enl Less AccumukH ed De preciiltion Tol n[ Noncurrent Asse ts Olher AsselS Total Asse ts

200,000

462.170

Ll:lb lllllcs O ment Li(lb ilities Account s Pilya b[e Accru ed E xpen.s cs Short -Tenn Notes PilY
4 ~, OOO

50,000

40,000

30,000

[00,000 320,000 O

230,000 320,000 (94.570)

165 ,000 320,000 123,[ 70

[60,000 320,000 492,840

195,000 320.000 801.850

420,000

455 .430

708,[ 70

972,840

1.3 16.850

Th e liabililies nre liste d in Ih e o rde r in whi ch Ih ey musi be p
CI/rren! asselS. C urrcnt asscts inc1ude cnsh plus il e ms 111<11 nre renclil y con ve rt -

ible lo cnsh. 1t also indudes it e ms such ns
CHAPTER 10

Fin anc ial Projectio ns

221 .

• Fixed assels. Fixcd assets <1re <1ssels usecl m 'e r <1 longe r tim e frmn e. such as re<11 estale, bu ildings. equipm e nt. and furnill1r e.

Th e maj or categories o f li abilili es listed o n a balance sheet are the foll owin g: •

CI/rrell! liabilities. Current Iiabilities indude o bli gatio ns thM are pa ya ble wit h in a yem. incluclin g account s p<1yable, cKcru ed ex pe nses. and th e current po rli on of long-te rm debt.

•

LOlIg·{em/ fiabiliries. Lung-tcrm Iiabilities indude no tes or loa ns tlUlt m e repayab le beyond one yem. inclucling li abilities assoc iat ed with purclw sing rea l estate. bui ldings,
•

OJtlller s' eqlliry: OWllcrs' Ctlllity is Ih e eq uit y in vested in th e busin ess by it s

owne rs plus Ih e accumu la ted emnin gs reported by th e busin ess <1 fl e r pa yin g di vidends. B" I"'lee sheels. reg" rdless of whether th ey "re ilctu<1 1or projected, m e somewhat deceiving. Firms spend money on n1<1n y things Ilwl neve r show up on th eir bal <1 nce sheets. Fo r exa mpl e. m"n y operating lea ses. lik e Prim e Adu lt Fitness's lea se of fitn ess e quipmenł. are ·· off balance shee t" tr
• 222

PART III

Preparin g a Bu sin ess Pl an

nsset r
Ma ny o f th e remlers of your busin ess pla n will co nsider your pro form a cash fl ows to be th e most va lu
• Operarillg aClivjries. 0l}crating activities inclu de ne t income (o r loss). depreciatioll .
• IlI vesrillg acriviries. III\'Cstillg activitics in clucle th e purchase . s
• Fil/allcil/g (lcri viries. Fi mili d lig adivitics include C
CHAPTER 10

Fin anc ia l Projections

223 .

FIGURE 10·5 Pro Forma Cash Flow Statements 2009, 2010, 2011 , 2012 (Prime Adult Fitness Business Plan) I'ro> 1;"rIl101

("~,h

FI"", SI,lh'IIWIII

J~II .. "r~

2ł11 ~)

4Fi,",,1 Vt'"r " f 1I .. , ill t"',1

F~ "'rmlr~

M"rdl

" llri!

M ll~

JUII ~

53.700

C".h I"'hlll \,{' m Ih·):i nnill).! "f1\ I'
1J33RO

83.790

36410

S~'i80

(68.770)

(51.740)

(15.530)

( 11'Io.4tiO)

(9.0.10)

3.050

4.COO

4.o.XI

5.000

5.(k))

6.000

2. 100

2. 100

2.100

2.100

2.100

6.000 2.100

!OOJMIU ( B{'~i n ning

of Yea r)

Ca. h n" ... rrolll U jJt'mting Al'li. hit·, Net i noolll~ I\ d d itions (soufees of ellS h) DC{'re;lS<;' in ;lCCOUI1!S reeeh'a bJ e D':''Cfe:lS<;' in ill \"<.'n IOI)· Inercnsc in occou nts !X1)';l"lc IllCrcasc iu occrucd e~ pe nscs I ncrea~ in sJłOrt-term nOles

50.000

pa}'1Ibl~

DtXl'ellS<;' in o lh cl'eUHc nt assc ts D ep r~ cia lion

SUb ll' ne liolls (uses o r cash) D ~-.:re: lS<;' in llCCOUllIS pnya bl c DC{'fCll5e in llCCr\lCd f.'xpenses DC{' fCllS<;' in shOn -lf.' rm no tes pa}'nbl ... Incrclls ... in occou nts r.xci\'nb kl InCfcase in Ol her cm rc nt asiiClS Incrcase in ill\'c llI o ry Tow l A dj ust mell lS

1500

(4100)

1.500

(4.200)

1.500

1500

1.500

1500

H .200)

(4100)

(4100)

( 1.250)

(1250)

(4100) (2.500) (1150)

53.700

58.400

(5Joo) (1150)

(1.250)

(1.250)

e'l, h FI
(uses o r c;lsh ) Purch" iiC of fitn cS!; e 'luipmcllt l'urcha iiC or \"c hicJf.'s I'lt rch:>sc or furn ilUl'c I'u rchase or office C'IUipllloe nt

(12jOO)

( toJOO)

LI,h FI" ... rrum Fimll1du):. A ... i.-iti.·~ A d d itions (sources of cas h l Inaease in lo ng-tel' m notes pll)'able Increase in mOl'lga ges pa yable Subuacliolls (uses o f cash ) D ~'Cfe,lS<;' in lo ng-t(' rm notes payllble DccrcaS<;' in lllOl'l gilgf.'S p.1.yablc

C;I,h 1I;,l:llln' ;.t End "rM"nllt

133.380

83.700

36.4 to

85SO

• 224

PART III

FIGURE 10·5

Prepa rin g a Bu siness Pl an

(continuedl S llm l1l;ir~'

Itabu n- :II 1Il').!innillg uf l' I .... lh

NU\"l' II1IIl' r U I" 'I' llI hn

Wu r Yl' ~r )

101.I-łO

120.870

lJS590

200,OOJ

U~20

19.080

lU7U

19.-190

(9-ł .570)

7.500

7jOO

7.500

7jOO

7.500

75.00}

2. 100

2.100

2. 100

2.100

1.900

25.00J

A U).! lb l

SI'IIU'lIIhl'r Odu bl'r

58.400

67hOO

8 1.670

3.550

8.-120

7.500 2.100

Jul,' C~s h

ClI,h ' ..I..... rru m Opl' m llu)! i\d j.jlil 'S

Net incolll{'

Addi1ions (source5 or cash)

in l10c0UIl IS rc(ci\'ahle D':' C I'c:tSC in in\'clltory Inuc
pl1)'able

Incre
Incrcase in sho n -telm 50,(0)

notes pityable

DC\:I'CI1SC in o ther o;:urfi' nl

a~5e I S

Dcprcdation

1.500

1500

uoo

1500

uoo

1.500

18.000

(-'.200)

(4.200)

(UOO)

(4.200)

(.t200)

(3.800)

(50.000)

(IOJXX» ( l .lSU)

( 1.250)

( 1.250)

( 1.250)

(1.250)

( 101m) (I$.COO)

Subu acl ions (us.:'s of cash) l ncreasc in
rcccivablc D ecl'eilSC in shOl'I -te rl11

notes p..l)'o1blc lncrease iu in\' e nl ory Dccl'casc in accoull ts p<Jy
( 1250)

(7.51)')

CXpCU 5eS

TOIIlI Adjus IllIc nl s C~" h

I:[u" frum In" ('sling Af1 i'-ili\'s

Suuu ;u.:liou., (uso;'., u f

r;l~ h )

Purcha sc of filllCSS cq uipmcllI Purc hasc of w hic les Purchil sc of furnilllre Purchllsc of office cquipmcllI Tow J AdjuSIJlICIIIS (':1,11 1-'1 1)\' rrum FillOl u\'i ng !-\ \1 j' -ilil"i

Additio ns (sources o f cash) Incwase iu Jon g.term nOles p.lyable Incrcase in Ill(HIS"gcs pnya blt"

(12.500 )

(S.tJOO)

(25,(W) (5.LUJ)

(IOJOO)

CHAPTER 10 RGURE 10-5

Fin ancial Projection s

Icontinuedl

Sllbl r
67.600

I'w

C",h U;Ihllll'{' al url\l u ulh

C;t~ h

Furnl ~

8 1.670

JOLl40

120.870

135590

(IU.OOO)

( 1000)

1-łO.9JO

140,9.111 (End or Yellr)

Ca,h n",.. SI,tl e ll l<' nl 10 lU (Sl'(", md \'l"U nr IIII , im",') "'I>ril

1\1 u~

JIIIIl'

11i5.990

208510

n.L~5 0

2595SO

23130

25.230

11230

1\)130

29230

1500

2500

2500

2500

2500

2.500

IjOJ

IjOO

1.500

1.500

I jOO

1.500

H.2oo)

(-UOCI)

(·1.200)

(-',200)

(4.200)

(-1.200)

J:tltlmr)

Fd m ';tr~

14(1,9.\0 (Bcgin n ing o rYellr)

162.<J60

21130

M:m 'h

nl'::i nn ill~

FI.. II rro ll] UPI·r-d lill:;A\·thiti,·,

Ne l Lllcomc AdJi lion5 (sources o r e:lsh) Occ:rc:lsc in llC\:o unts l'eed\'llb le Oecrcnsc in in\'{'nlol')' [ ncrea~c in OCCOUIlIS pa)'llb lc [ncreasc in occrucd cxpenSo.."'li [nercase in s horl -t e rm nOles payable D.xreao;e in o the r curren t asse ts O.::prc d a ti oll Sllb u'ae liolls ( uses o( co1s h) DecrCilse in /lccounts p:l)'llbl.:Dcel'case in accruc<.l expenscs Dcercase in shor l-1Cnl1 110 lCS 1>Il)'nblc Incrcllsc in an:OIlIllS rccci\'nblc Incrc/lsc in o lher roL"rc nl asse ts Incrc/lse in in\'c lll o r)' TOla l AdjuslLUe nl s Cll~ "

FI" ... rrUIII l."

(2.500)

(2.500)

l'~lin~ A Cł;,-ili\"

Sublrnc tio ns (uses of cas h) Pureha sc o( filne~s e qu ip mcm Plll'eha sc of \'Chides ['ulell:lsc of furniturc l' ul'eh:.se of ofrlec cq uipmc nl Clt~ h

225 .

(25J)(Xl)

FI.. I\ rro lll Fin:mdng

Al"1i,ilil'~

A<.I<.Ii tiolls (sources o r e:1sh) [nnellsc in long- tcrm nOles paynbl<.' [nc reasc in morlgnges pD)'o1 t->k Sublrae lio lls ( u5es of ca sh) D.xrcase in lotlg·le rm nOles payable O.xren.";e in morlgages p.1yable C'I~ II 1.1,.\;111<,(' ,,1 E nd uf Mumh

162 .960

185.990

208.520

230550

259_'i80

261.110

• 226

PART III

FIGURE 10-5

Preparin g a Bu siness Pl an

(continuedl S UIIIIIl
Jul ~

SI' I)h 'IUIll' r

Ut'l" bN

N"H' IIILIl'r U "I'I' mh l'T

Irur \ " 'ilr)

("n_ h !\;ll ;Ul I'l' ;11

Itl'gillnillg ur

M" nlh

26 1.110

291.1 40

32 Ll 70

~ .700

378.730

362160

140.9.30

3(),230

30.230

30230

30.230

26,230

19.210

3 17.7411

2.500

2.500

2500

2500

1.500

1.500

1500

1500

I.sOO

1500

17,500 18.000

(4.200)

(4.200)

(4.200)

(4.200)

(3.soo)

(50JOO)

(.lO,OOIl)

(-W.OOO) (2.500)

( 10.00)

(2,"iJOO)

(SO/ID)

(2.00))

(2.00))

Cli_h FI"" rru m !IIJI·r-.. li ll l! A I' li " i l il~

Net inrome Addiliom (sourccs or cnsh) D ecn:~I1S(' in aCCOUll lS

rece ivab le

Oecre
25.(0)

Illnease in accl'U<' d

cxpcnscs I IICl'(,'l1SC in shon- Icnn Il OICS paya ble O ("Creilsc in o llwr

currcnl nSSCt5

17300

Deprcciation Submlcl ion ~

(mes a f cilsh)

I nCri.'l1S<." in accounts rccc l\'uble D ecre
In<'l'cas.e in in\'clllol')'

(4.200)

(2.500)

(80.(00)

D ('Crease in a CCOUll1S p ayabl .. I ncrc/l~(, in o lhcr curfe m nSSi:'ts

Docn:.'l1se in a.:crucd c1ipenses TOllll Adjus lmc nls

C;t_h 1,'1"", r W

IIl

I l1 w~,ill g ;\ \',i,-i t k~

Sublracl iolls (uses

orcash)

Purch
C
or or

Purclwsc \'chiclc~ Purcha se fu rn iturc PUfch
C.l_ h 1'1111' fr" m nn:lnl"inJ; A ,1i. il i ,'~ Addit io ns (sourccs of cas h )

InCl'CllSe in long-term nOH.'S p..lyabl<.>

Inut;'ilSt' in lllortg.1ges paya ble

CHAPTER 10 Financial Projections FIGURE 10-5 Sub u ~clioJls

227 .

(continuedl

(uses or c.:łsh)

Dccl'cilsc in long-Ie m1 notes pa yab le

(10,00)

( IO,(XXl)

317.170

.\17. 170

Dcn cilsc in Illort gagcs Pilynblc

nal.im',· ltl End "fi\lu lllh

C;j~ h

291.140

32 1.I 70

~8.700

378.730

3621ro

( End of Ycnr)

('w. h nabua'(' ,II Ih';innillg ufV"'lr C;l~ h 1:1." , frolll 0lll·r;ttillgt\ ,'thiti(',

31 7,170

Net income

269,670

Addilions (soUl'ces or cas h ) DeCl'e
in in\"cntol'y

lncrcasc LI1 aa;:OUIIIS p.1yable Inacas.c in acrru{'d cxpc nscs

lncrcase il1 sho n -Iefl ll notes payable Dccl'c:tSC in olhcr cuncnt aSSC IS Oqneda lion SubU'aclions (uses or cash) lncrcase in ilCCOUllIS re<:clvilbJe

Doxl'eilsc in .shOl't-term notes J>t1ynble J ncrea~e

25.'-0:) IO.Dl

18.U) (50JX(J)

(10000)

in invelllory

(5.000)

Dccn:.'ns.:.> in ncoou nls pll)'able I ncrca~e in o th crcurrent Ilsscts DCCn!ilse in acc l'll\!d exp,mses

(2500J)

To",1 Adju5tlllcn ts C >I,h ' ;10",- frum

111 H'~'ill ;:

A .. li,-i'iI:~

AdJi,ions (soUl'ces of cas h) Sale or fj tn css eq \lipllle nt Sale of \'chiclcs Sale or rum iture Sale or orfice eq uip lllenl Subll'aClions (uso:os of cash)

PurclHlS<.' or fitnc~~ eq uipmclll Purchase or \'chido:os PurchilS<.' or furn i ł\lfe PUI'chase of orfice equiplllen,

(1000) (3500) (200OJ)

(28000)

To IlI 1Adjuscmcnls

C'I,h ';In\\ frum Firmndll;: A.ii, ili('li AdJi,ions (soUlcesof cas h)

Increase in IOllg-terlll nOles p:lynhlc Incrcasc in morlgages payable Subll'lIc,io ns ( uses or Cllsh)

OoXfe;tSC in long-Ieml HO'e-'! payable Occrellsc in mOrl gagcs pa~'
{J ry~·;rr

(30000) -ł26.8-łO

• 228

PART III

FIGURE 10-5

Prepa ring a Bu sin ess Plan

(continuedl 1'.0 F".",a

Ct~ b Ct~ b

C,,~ h

lI aht tt rl' ;tl lh'gi nnitt g OrYl"lr FI" ... from Ope nttitt g A..ti>- iti ~~

N~t inoonw Additions (sources or cllsh) ~'Crease in llccoums receivabl~ ~'I.'rellse in ittventory Increase in llCCOltttls JAlyllble It!creas.: in llccfued expenses l ticrease in shon-term notes payabJe ~'Crellse in other cltrt'ent ass.et. [\>preciation

FI",,- S t"t<''''~ttt

20lł

( F"".th Y<'ar ol' B"s; ness ) .t26,&l0 309,0\0

25,CXXJ 10,CXXJ 18,CXXJ

Subll'llctions (uses or cllsh) Increase in llCCOUttls r.:cei"able [)ecrellse in short -term notes paYllb[e l r,crease in itl\'emol)' [)ecrellse in llCCOUlllS payable Increase in other CUlTent 1l5.et5 ~'Crellse in accrued expenses TOI1lI Adjustments C~~ h

FI",,· h"m Itt H-, t;tt ;; Ad ;'-;I;,",

Additions (soltrces or cllsh) S~[e of fttness <'quipment Sale of "ehicles S~[e or fumiture S~[e of office equipmcnt SUbll'ilction5 (uses of cllsh) Purchllse of fitness equipmem PUfchllse of ""hicles Purchllse of fUl'l1illlre Purchll se of office equipment TOI1l[ Adjustments C IS. F]"". tr"m

Fi",m r itt~

(35,CXXJ) (5.0J0)

Al1j,-iti,'s

Additions (soUl'ces or cllsh) Ir,crease in long-term notes pllyllble Increase In lllortgllges payllble Sltbullctions (uses of cllsh) ~'Crellse in tong-term notes payab[~ ~'Crease in mortgages JA1yable CI~~

I.\ ahtttre at End of

~ I o nth

7-ł8,850

positi ve fi gures. In regcml to o pe rating activities. a n it e m like depreciation is shown as a positi ve fi gure because it was dechICt ed from ne t in come on th e in com e stat e me nt but was no t a cash expenditure. Simil arl y. nn in crease in account s receivable is shown as a nega ti ve it e m because it was added to your net income but wasn't coll ected as cash. Th e trea tm e nt of investing a nd filla\lCin g activities is Ill o re straightforward. Jf you bu y a pi ece of equipm ent. th " t subtracts from your cash. If you ta ke out a loa n. th a t mJds to your cash. Jf you make a prin cipl e paym e nt on a loa n. til at subtracts from your cmlL a nd sa fo rth . nI e cl osest "t te ntion is typ ica ll y paid to operat in g acti vilies because it shows how changes in a

CHAPTER 10

Fin ancial Projecti ons

229 .

cum p
cClsh it IlCl S ClVCl il Clble to tllCl int Cl in ro utin e Clcti vit ies. A s stClted eCl rli e r in th e ch
• 230

PART III

Prepa rin g a Bu siness Pl an

r----------ill

BUSINESS PLAN IN SIGHT

1 ---------,

Bre.k-Evell Amllysis: A Simple Vet Very V.lu.ble C.leulatioll Brea k-even analysis is a calcul
=

35,417 uni!.\"

lllis nurnber rneans Ihal you'lI have lo seJl 35.417 "uni ls" or smoolhi e drinks pe r year to break eve n.llmlllurnbe r brea ks down to 98.5 s mooth ies pe r day, on ave rage, b.1sed on a 360-day ye
=

46.666 units.

On a d
day lo 130. You'll ha ve lo Ih e n decide whe th e r Illovin g lo th e new localion w ill provide yOll wilh sufficie lll increased s
A n ot he r fi na n cia l in s t r ume n t Ilm l is ofte n used b ul was not compute d fo r Prim e Adult Fi t ness is th e b rea k -e \'en a n a lys is. A n expla n at io n o f the b rea k -e\'e n
CHAPTER 10 FIGURE 10-6 Prołitahi li t~·

Financ ial Projections

231 .

Ratio Analysis IPrime Adult Fitness Business Plan)

Ratios

Re lurn o n A ssc ls ( ROA) ROA = nel income/a\"C rage lo lal assels Re lurn o n Salcs (ROS) ROS = ne l inco me/ne l salcs

211(11)

2010

20 II

2u l 2

NA

54%

31%

17 %

NA

\3.1%

10.5 %

11.3%

A\"e rage (ola! asse ls = beginning lo lal assc ls + c neling lolal
Cu rre nl ra lio Curre nl asselslcurre nl liabilitics

211119

20 III

20 II

20 1.2

1.28

3.41

-l.OS

5.00

2(1)')

20 111

21111

211U

50.50%

23.30%

16.45%

14.8 1%

O" crall Finanda l Stabi lity Ratios

De bl ral io To la! de bl/lo lal assels

RATlO ANALYSIS TIle most pracl ica l wa y lo int e rprel o r mak e sell se o f a firm 's histo rica l Ol" pro fo rma fin a ncia l sta le me nls is t hrough ratio iłllal ysi s. In ge ne raL rali os a re co mpuled by lak ing numbe rs ou l o f fin ancia l slaleme nls and fo rming rali os wilh Ih e m. Each rat io has a part ic ul
• 232 PART III Preparing a Bu siness Plan Ih e mno unl of in co me ea rn ed
Chapter Summary J. 11le fin al seelio n o f n busin ess pl a n prese nl S a finn 's p ro fo rm a fin a ncial projectio ns, Hm 'in g compl e ted Ih e previo lls sec lio ns o f the pla n, irs e asy 10 see why l he fi na nci al project lo ns COI11 C Insl. 111cy lake Ih e pla ns yOll \ 'e d cvel o ped a nd e xpress the m in finan eialt e rms, 2. ll H~ source [I nd use o f fun d s sla le me nt is (l docume nt Ihal [ays OUI specifi ca ll y ho w Illu ch Ill o ncy a firm necds ( if Ih e inl e ntio n of Ih c busin ess pl a n is lo ra isc money) a nd whal the mo ne y will be used fo r, 3, An assulllpti o ns shec t is a n ex pl a na ti o n o r Ihe most c ritica l assumplio ns Ih nt yom fin a ncin l slalClll cnl s a re based o n. 4, 111C pro form a in com c slilt c mc nt ref1ecls the proje ctcd result s o f the o pe ril lio ns fo r a firm fo r a givc n pe riod o f tim e. II rccords a ll th e proj ecled sa les a nd ex pe nses fo r Ihe give n pe ri od a nd s hows whe lh e r Ihe firm s will be mak in g il profit or e xperie ncing a la ss, 5, Pro fo rm a inco mc sla te me nt s
CHAPTER 10 Fin ancial Projection s

233 .

Review Ouestions I. 2. 3. 4. 5. 6. 7. 8.

9.

10.

W h y is th c filHlll Cicd pl nn typicCl ll y o ne o f Ihe InsI clwpl ers in CI business pl cm ? Wlw l is Ih e pll rpose o f n sOUl'ces Cl nd lI ses o f fllnds sl nt ement ? W h al is Ih e purpose o f nil assurnplio lls shee l ? Bri efl y dcscribe Ihe Ihree pro f 01"111<1 fin nncial sl al cmcnl s tlw l sho uld be in cl lld ed in a busin ess plan. H ow is il possi blc for
Application Ouestions I. Suppose (] fri end o f yO llrs showed you Ihe pro fornw income sl al ements fo r his stenIu ]> al1d excJ<1 irned excil edl y Ihnl duri ng its firsl Ihree yC<1 rs o f oper Clti ol1 . his fi rm will 111ake CI nel incom e o f $200.000 per yeCl !'. whi ch is jusI the alllo llnt o f moncy. $600.000. Ihnl I he firm will need l o pCly o ff <1 Ih ree-yen r 10(111 . Explain l o yO llr fri end why he 111ighl not nClll ally have $600.000 in cash. evcn Ihough his pro fOl"llw inco l11 c stal ement s say th at he will e<'l rn I hn! amo lln ! o f money. 2. Supposc a colleaglle o r yOllrs is gea rin g up to writ e n busin ess plan for a busi* ness sil e plans 10 stnr!. She !old you she pl ans l o prcpme th e finall cial stfll eIT\I;: l1 t ~ first. lu gd th ,l! j ub oul u f Ih t: wil y bdore shc [clL: kks Ih e resl u f Ih e plan. Explaill 10 yo ur coll eague Ih e !"l aw in h er app ro[lch. 3. K nte D odd . a rri end o r yours. has deve loped il new wireless [l pplicil ti o n Ih at she fee ls wil l revo lut io nize Ihe co mmu lliea li ons in d uslI·y. She has bec n lu rn ed down by several po tenti al investors who seemed to like Ih e idea but insisted on see i ng pro fo rm a filwnei al stntement s [lS parl Or [I business plan. K ate does n 'l Ihink il 's a good use o f hel' l ime l o deve l op pro form a fin anci al stat emenl S. She believes. " If Ihe produ cI is good enough. Ih e fi nancia ls wiU tak c cCl re o f lh emse lves:' W hy is K al e's positio n 11l1wise? In your opinion. how co m mon is Ih e posit ion K ale is lakin g aboul finan ciCl I stal emenls'? 4. A l CI conference yo u atl ended recc nll y. yOll we re dwtl in g wilh a group of peopic. and Ih e subj ect cClm e up Ih al yOll recent ly co mpleted fi business plan. in cl udi ng a fuj] se l o f pro forma fin nncial proj ecl ions. On e o f Ihe people i n Ihe con ver sa ti on ask ed you. ""H ow inthe wo rld do you proj eel inco me and cxpenses fo r CI business lh al doesn 't exist?" W ri te oul a bri ef Cl llswe r to I his question.

• 234

PART III

Preparin g a Bu sin ess Pl an

5. Re fe r to lh e vig ne tt e

Endnotes 1. DUli & Brndstreet. {ndlls/ry NorIlIs & Key Business I?mios: S/tJlis/ic.\· VII OVe/" 800 LiI/es oJ Business. {) esk Top Edi/ivn (New York : DUI1I1 & Br(ldstreet.2003). 2. L. Tray, Alnwl/tle o! Business (II/d Indlls/riol {'II/ol/cial U(J/in~· (New York: CC H,

Il1c., 2oo7). 3, S. Rich illld D. GUlllpell. B//Jif/t'.'·')· PIl/lis 111m

\ł'Vlk

(New York: Hilrper & Row, 198.."1).

PART

IV

PRESENTING THE BUSINESS PLAN

CHAPTER

PRESENTING THE PLAN WITH CONFIDENCE

INTROOUCTlON If yo ur busin ess plan piques th e int e rest o f nn in vestor or bn nk er. or you e nt er it

in to n busin ess plnn cOlll petiti on . you' lI nOrl11
. 235 .

• 236

PART IV

Prese ntin g th e Bu siness Pl an

PREPARING FOR AND DELIVERING AN EFFECTlVE BUSINESS PLAN PRESENTATION lll e first set of issues to t hink a bo ut nft e r you've been asked to t11
nI e initi
CHAPTER 11

Presentin g th e Pl an w ith Con fi dence

237 .

conn ecli on in l O yOlll" p resenl ali o n. or brin g il up during Ih e infonn al mi llul es befo l"e Ol" arl cr your prese nwlion. As lon g ClS you com e across fiS sin cc rc. peo ple nOrllw ll y cOllsider il il complimenl I hal yOll we nl 10 I he tro ubl e o f lea rnill g aboul Ihei r bClckground s. The olher l ask s in volved in prepa ri ng for fi busi ness pllln prese ntllli on co nsist o f (I hodgepodge o f llct iviti es. A ny one o f Ihc aCli vili es. howeve r. co uld be problem fl l ic if nol handled co rrec ll y. Yo u should mCl ke sure l o k now how lt1uch l i me you have clll d pl an acco rdi ngly. nie num ber one rule in makin g a prese nl alioll is l o follow [he rul es. lf an ange l gro lI p l ell s yOll Ih fl l you 'll have I hOllr. bul 30 min ul es o f I he hour is reser ved for q uest ions and nll swers. yOll r shoul d ca refull y lim e yOllr presc nlali oll sa il doesn 'l lasl For mo re Ih an 30 millll tes- no exclI ses. You sho uld also d ress appro pri al el)'. II' )'ou 're ull sure o f wh al l o wear. cali the recept ia ni sl of Ihe firm III which you' ll be preselllin g and ask fl bOU I atli re. lf Ih al raul e isn'l practi cal. il 's alw
• 238

PART IV

Prese nting the Busi ness Pl an

DELlVERING AN EHECTlVE PRESENTATION

Ma ny books ha ve bee n wl'itl e n abo lli d eli ve l'in g effecli ve prese nl Cl t io ns. a nd yo u ma)' wn nl 10 vis il )'our libra ry and browse thro ugh sevc wl a r the books. Two parli cuJa rl y good boo ks a re Kllockollf Presellfmiolls 1 by Dia ne DiResl
CHAPTER 11

Prese nting th e Pl an wit h Co nfid ence

239 .

to conll ect with your uud ie nce. lll e fo llowin g is u bri ef li st of techniques th ut prese nt e rs use to try to
PREPARING THE CONTENT OF AN EFFECTlVE BUSINESS PLAN PRESENTATION lll e second compone nl ot puttin g togeth e r a n effecti ve busin ess pla n present ution is to det e rmin e th e content la present. A s im po rt a nt as th e issues a re th ut we re just cove red . th e present
• 240

PART IV

Prese ntin g th e Bu siness Pl an

focusin g on th e a reas lIw t excit e th e m the most. m th e r th
SAMPLE BUSINESS PLAN PRESENTATlON nI e prese nt ati on stl1 rts witIJ a title slicle, whi ch is no rnUl ll y projected on th e screen whiJe your audi e nce is assemb lin g a nd before you sta rt your fo rm ai relll m ks.

CHAPTER 11

Presenting th e Pl a n with Confidence

241 •

Company Name/Logo Name of Founder(s) COll tact Illformatioll ot Foullder(s)

Ack now ledgeme llt ot Wh om the Prese ntation Is Being Made To

Date

Cumlllcnts: Thi s slide sho uld be shmp Cl nd un cllltt e red. M
• 242

PART IV

Presenting the Business Plan

Slide 1: Overview • Briet explanation ot yonr procluct or service • Sbort explanation ot the key points that will be cOllveyecl in the presentation • Short cliscussion ot the potential positive outcomes (business. societal. tinancial) that will result trom the launching ot the business

COllllllcnts: This slide should give yo ur audience an ove rview o f you r business
CHAPTER 11

Presentin g th e Pl an w ith Confidence

243 .

Slide 2: The Proble m • Exp lain the problem to be so lvecl Whafs Ih e pai n? Wh y are n' l cuslomers sa lisfi ed wi th curre nl solutions? Will th e problem gct better or worse aver tim e?

• Valiclate the problem via resea rch Wh"l cia your pot ential custamers think ?

What do the experl s say?

• H ow bi g is the problem ?

CUlIIlIIl'nls: h 's Cl lways bes l to fir st talk
• 244

PART IV

Pre senting the Bu sine ss Plan

Slide 3: The Solution • Prese l1t your busin ess as th e solution to the problem - D escri be how yo ur 50lu lion i5 dislincll y dine re n! from oth ers th at are addressing th e same pro bl em

• Oescribe the deg ree to which your solution makes your customers li ves rich er o r more effi cie nt or effecti ve • Talk about how you' lI erect barrie rs to entry to prevent oth ers [rom quickl y co pying your soluti on

Presen l your busine ss as Ih e so luti oll lo Ih e proble m, Descri be how yOllr SOllllio l1 is be tt e r Ihan o lh ers. For cx ampl e. in Prim c Adult Filll ess's casc o Ih ere are I1HlIly <1l1 -purpose filn css ce nt ers Ilwl <1re sta rtin g to o ffer cl nsses fo r o ld e r peo ple . bu t Prirn c Adu ll Filncss will be th e o ni )' cenl e r exd/lsi Fely fo r o lde r peo ple, Ta lk nbo ut ho w much diffe re llce yo ur busin ess will ma ke in the li ves o l' your cuslo me rs, Wi ll )'our so lutio n he Jp your custo me rs
CHAPTER 11

Presenting th e Pl an with Confidence

245 .

Slide 4: Opportunity and Target Market • Articulate your specific targe t ma rket - Ta lk C1 bout busin ess and environm elltal trellcl s th at me provicl in g your targelmark el 1l1 0menttllll

• Show. graphica ll y if poss ibl e. th e size of your target market, your projected sa les (three yea rs minimum), and your proj ected ma rket share Explain how you mrived at your sa les fi gures - Be prepared to defend yOllr numbers

Ar t icul
• 246

PART IV

Prese nting th e Bu siness Pl an

Slide 5: Technology • Talk about your technology, or unique aspects of your product or se rvice, if appropriate - D o n-t talk in nn overl y lechIlical manner

- Make your descri ptions easy lo und erstancl

• Show pictures or descriptions produet prototype

ot your produet ar your

- If app licable, bring a pro lo lype lo Ihe prese nlalio n

• Talk about any intellectual property issues that are in vo lved

CUlllmcllt~:

This s lide is opti onal bul is norm nll y includ ed . You sho uld tel lk nbout your tec hn ology O l'
CHAPTER 11

Presenting the Plan wit h Confidence

247 .

Slide 6: Competition • Discuss your direct. indirect, and future competitOl's • Show your competitive analysis grid • Use the competitive ana lysis grid as a way to discuss the adva ntages you will have over your competitors - T alk about why you th ink your points or competitive advantage are susta inab le

- lf yOllr ex il strategy is lo be bOllghl by one of yo ur large r competitors. this is a good place to introduce th e possibility

Comlllcnts: Lay o ut your compe titi ve l
• 248

PART IV

Prese nting th e Bu siness Pl an

Slide 7: Marketing and Sales • Oescribe your overall marketing strategy • Oescri be your pri ci ng strategy • Talk about your sa les process Explain what moliva tes people (co mpanies) in your ind usl ry l o buy

Explain haw ya u"1I make your eusl o mers aware ol' your pr ad ueL ar ser vice Explain how you"lI reach your cusl o mors • Descri bc whe ther you' ll fie ld you r own sales force or wi ll work th rough ill te rmediar ies

CUllllllcnts: Begin by d eseri bin g your ove ra ll mar ke ting strat egy. Descri be your p ricin g st ralegy and whe the r you plan lo feature cos l-plus pricin g Ol' wllue-based pricin g. Describc how your price(s) will cO l11 pa rc to your com pctit ors. Ta lk a bou l your sa les p rocess. a nd wa lk )'our aucli ell ce th rough how peo pl e will become aW
CHAPTER 11

Prese nting th e Pl an with Confidence

249 .

Slide 8: Management Team • Describe your existing ma nagement team D escribe their backgrounds and expertise Describe how the ir backgrounds and ex perlise are key 10 th e succcss ar ya ur venture D escribe haw the team works tagel her

• Di scuss the gaps in the management team ancl how you plan to fili them • Briefly cliscuss your boarcl of clirectors ancl/o r boarcl of aclviso rs

COllllllcnts: As e mph asizecl Ihrougho uI Ihis boo k. your auclience will see your tl1
Explain how th e tea m ca me togeth er Imci how th eir backgrounds and ex perti se Cl re keys lo I he success o f your firm . If you·ve pUl logel he r Cl bO
• 250

PART IV

Prese ntin g th e Bu siness Pl an

Slide 9: Financial Projections • Show a summary of your income pro jections a nd your cas h tlow projecti ons for the first three- fi ve yea rs Condense the proj ections as appropriate to fit them anto a single sli de If th e font appea rs to be too sma lI. use an add iti o nal slide

COllllllcnts: Show a sUllll11ary of your in eol11 e proj ecti ons and eash f1 0w projectio ns fo r th e firsl Ihree to fj ve years. lf Ih e fonl seems 100 SI11 <1 11. use <1 11 additi o nal slicle. M(l ke sure lo have Ih e aelual projecli o ns (lva il a bl e if anyone wmlls lo see 1110 re c1elail. Kn ow your numbers eold. Y O ll shouldn 't st li 111 bl e o r hesil.'l te if .'l sked a bout .'l ny number in th e p rojeclio ns. Be prepared lo expl ain th e assum pti o ns behind yom numbers. Describe yo ur projected return 0 11 sales in th e eonl ex t of induslry Il o rm s.

CHAPTER 11

Presenting the Plan wit h Confidence

251 .

Slide 10: Current Status • Highligbt the milestones achi eved to data • Describe how much money tbe founders, the management team, and any early investors bave put into the firm - D escribe how th e money has been spent

• Describe the curre nt ownership st ructure of the firm • Describe the firm 's form of business ownersbip (i.e., LLC, Subchapter S Corporat ion, C Corporation)

COllllllcnts: Describe Ill e curre nl sl
• 252

PART IV

Presenting the Busine ss Pl an

Slide 11: Financing Sought • Sh ow a SOUlTes and uses of fund s sta teme nt th at lea ds you to tbe fin ancing you seek - Thc sourccs and uscs ar fUll ds statcmc nt shoul d spcci fy, to th e ex tent possibl e. specifica ll y how you'lIuse th e rund s

• Show the mil estones you'lI be a ble to accomplish a ft e r you rece ive the fundin g you' re see king

CUIIUlIClłtS:

lllis s li de Inys o ul s pecificall y how much finnllcin g you 're see king nnd how you 'lI use the money, Be pre p.:1red to tn lk about how much of yourfirm you 're willjng to give up if you 're prese nling lo equil y in veslors o r th e type of le nns you 're look ing for if you 're trying lo obtain n ba nk loa n, Show th e mi lestones you 'll be able lo accomp lish aft e r you receive th e funding you 're requ esting,

CHAPTER 11

Presenting th e Pl an w ith Confidence

253 .

Slide 12: Summary • • • •

Summarize the strongest points about your venture Summarize th e stroll gest points about your team Discuss your exit strategy Soli cit feedback - Se l up a fo llow- up meclin g ir possible

Bring Ih e prese nl a li on lo i:l c1 ose. Summa rize Ih e st rongest poinlS (two to three I11 llx imUIll ) "bo ut yOUl' venture a nd yo ur te mn . Disc uss yo ur ex it stra teg)'. So licit feed back if )'ou're presenting to e quit y in vesto rs o f b(l nk ers. Jf you're presentin g in a bus in ess plan compe titio n. tlwllk th e jlldges for the ir pa rticipntio n. Be ready 10 answe r a ny questio ns a bo uI your new venture. CU IIIIIIClItS:

Chapter Summary I. Jf your busin ess plml piqlles th e int e rest o f nn investo r ar bml ke r. Ol' yO ll e nl e r it int o a busin ess plan cOl11pe titi o n. you' llno rm ally be aske d lo nwk e a ve rba l presc n1.a lioll o f Ih e plan . O n Ih ese occasio ns. you musI be pre pa red lo prese nt t he pl" n with confidence and po ise. 2. Mos t of LI S do no t routin e ly ma ke ve rba l present a tio ns. sa cn reful plan ni ng a nd praClice pa)' off. 3. 1l1e fir sl se l of issues to think a bo ul a fl e r yo u've bee n aske d lo ma ke a ve rbal prese nt al io n o f your busin ess pl11 11 is how to pre pare fo r Ihe lask and how lo delive r clll e ffecti ve presc nt a li oll . How you prese nt yourse lf a lld the ma ml e r in whi ch yO ll in te ract with the peop le you will be prese nting to ma ke s <15 much diffe re nce a s th e pla n il self.

• 254

PA RT IV

Prese ntin g th e Bu siness Pl an

4. YOl! shollld l1l
Review Questions I . W h y is i l impOrl
CHAPTER 11

Prese ntin g th e Pl an wit h Co nfi dence

255 .

Application Ouestions ]. You recentl y S
Endnotes I. D. DiRestil. Kll ockolll Pres /'lIIa/iom (Worcesler, MA: Chandler Ilouse. 1998). 2, M. Kus hner, Pr/'sell/a/iol/S for Dllllllllies ( Indi" 11<1 pol is, l N: 2004) . 3. D. DiRest". Kll ockolll Pr/'seJl/miolls (Worcester. MA: Chandler HOllse. 1998).

This page intentionally left blank

NAME INDEX

Po rl
B Batc man . David. 2Y Ik rku .... David. I) Bczos. Jef[ \1)2 Bo i ..;.:. Run. 1-16 Buchh cil. P'IIII. 9:-

c C:Jpo n. Nud. 150 Cal'\" an. Ju:.lill. 26 C ha nm . Ram. 17-1 C irll\"olo. Tish. 341 Cu lo.:. Hic ha fl1. 2tJ COOI'':T. R .(j., 56 Cuhan . /\brk . 17-1

Jngc mi. C lu blillc.. 27- 21}. 1,1\

J

R

Joos. Bill. 9

K K;lg k:. BI)I>. 17\'

Kame r. Dcan . 12 Ka w'ł ~lki. Gu)'. -I. LI. x7. \1 15 K..:tl.:r. L vrna. ] (1 Kl'Hlse. Sh:lrdlc. 5:-;

KliF": !'. Scult. 2.., Kot kr. Ph il ip. 27

D DiR ..:~ I ;I . Di 'II1':.2JH Druxm:lll. Lisa. 2lJ, 15"":

Ku rlz nwll. Jod. 124. lóS Ku' hncr. l\ l:i tcolm . 2~x

O wig hl .fI,'l ik..:.l"l

M

G

Mu, lanckr. fo.hry. -ł-5. 12 l\'lu llill!
G oizul'la, Robert o. Lió G\"HJ~ I'lCl' J . JI'n .. lh:ll1. fi G osalb . Ohaval. 6 G ump.: r!. D,wid . 21"l-2t ll. 22\) Gupla. Sunn y. 177

P\ ~ '. J i lll .6

PllCC. R o iK I'! W .. <.J

R ich. S t:m k y. 2110....201 . 22\} Ro bc rl :-.. D
s Sac l"cc. Jdf. h] SaliimalI. Willia m A .7 S I;(,II. Jdf. 179 Sellnc bLlrll. Marcc ll c . 33 Slr".\...... lblllbII. 17lJ Sulli va ll . Siacy. IJ3 Sm;all Nic h,,!:,. lX

u Udali. L:lUra .lt'. 14IJ. IW. 176. 1,-:S- I X6

o O miU)':H'. Pk ......:. 17\)

w Wa lsil. r... lic hac l. l l\}

p

Whiling. Owen. 2-.~

H

Page. LUT}'.'JJ

I-Iarris. A rl c ne. 2\1

Palcl. <,I]

Wic he r. Li lllhcy. 1-3 WiI k i n ~. Ba rh. J()

W hitm an. M cg. 17lJ

.

257 .

This page intentionally lefi blank

SUBJECT INDEX

l-X4 MI· FLO WE R S,lJA

B

A

baby hoolllc l's. 24-25. 11 7 bae k s lagc/fro l1l :.lage 0 1X'ra tic n\ plans. IX\) bac kpae ks. 2S ha la nce ~ h ecl 1>. S('(' pru fo nn:1 ba la nec s hec ls: ralio a n ~ l y:.cs hank c l~. rc l:ltic n!
,.C(LlUO'an t " ;j'

I1WIl ;I !!o.: m ..: llł

I C

ilu v..: rli, ing pbn ..... 156-157 Sf-e a/so m arke tin g pla ns auvbm'y hlXlru~.1 7"- 1 71:\ aggr.:s.\h'c gwwlh busim::.:.cs. l ~

ot BtU';IIt'j 'S

wil h.1 7ł1

llldllsrr;u{ FhulI/cial

lo c lmy. :1-".1)-1. 2..t.ł Bc n & Jcrry's HOIIK lllad c. \Jó

Rm;os. 21:;

B ~' n c hm ark \ 'c nI Uf~'

AIII/fllI(lC

(I//(/

A mazo n.com.l"'2

Amc ri ci'll En:tfinuo.: r. 31\ A mc ri can InSl ilut e o fGr:.phi c A n .... ZIMI al1llUal s:lks cs l i ma lc~. 1:l)·q·,Q A pplc i Pod .23.26,ń l . 1/)3. 150 ill>~e t s. 21 1. 220 cu rrc nl. 2211, 222 t'ixcd.221.122 irn angihlc.221 intdlcclu:t l. 203-2ns I iquidit )'. 2 19. 22 J. 232 pro fu rma balane..: ~ h..:c t . pr~,j cc lion

of a ~sc l ~. 2["

proll:Clion. 27 ,hml-term. 22 1. 232 sourccs and lI SC!> o l' funds ... talc lllc nl ikm ... a~ i nilbl :l ~~ h ;l lld

liahi li ties.2 11 ,h.:cl. 2 12-2 1J a llo rn cys !"L.nn \l f husin..:, ... \lwn..: rship. rc te mio n fo r. 45 man :l ~e nl "; l1l kams Illc m bcrs. 1 7~ pale nI ap pliealions. rc le mio n fo r. 20.4 alo~ umrli ll nl>

h
Capi la!. 17'" Big :md TillI Guy:..lJ(' Biz MincLM BizSlab. J),«. h6 Blue Nik. l ]..l blla nJ:. ~,r au visor:.. 176- 17s hll;mJs ~ I r dir ccl o r~ :Illribut...>s o fboard. 173 guid ;m co.:. 1 7 .ł

insidc dircclo rs. 173 k gili macy. 174-1 7f> o uls idc dircclo rs. I D BO<..Iacio us.. 30 br;li Ilsl\, rlllillg. ~2-33 IW:lnding d c ~ig ll d C lll c nl ~ \) inld lcc lu ~l l' ro pe rl y. 27.

2(13--205 logos. 47 mis:.io n \ Iat em..:nl:.. \)2-"'3 nam" M.'lce tion. 96 nic he ma rkc ls. 3x. 113 p; ll ,.; nl ~. 94. '17. 2113--2115 po ints o f diffcre n lbtio ll . 14\).... 150 pos il io ning :.trak gy. 4}-',14. I·N

I'u b lic re latio ns.. 157- 15X lag lines. \)3 trade marks. \)7

valuc-has<.xl rrieing. 152 Sce also l1I a rk din~ I'lans bn.-ak -cven a na lyscs. 2)11 Busines:. & Company Re\ourcc Ccllle r. 37 b usincs:. ideas.. ne w ecoIll'mie tn.:nd s.. 2~25 c nviro nmc nlallre nds.. 23--27 ga ps in markd place.2S-3 1 ncw e ompal1i e.~. 24 pu liiical a nd n:gu lal u ry ch;. I1 ge~. 2(-,-27 socialtr..:nds. 25--2(-, tec hn u logie'll ;ld V:l neó. 2(-, u l1sol"cd pro hlcrm . 2 7- 2IJ See (lIso Fir~ 1 & 1'0.:..011 b usi ness incubators.. 4 Ilu!> incs~ l o~a li o n~ . IIJ2 hus iness nnmes bramI. t)(i legii I i ss ll c~. (17-(11\ lrad l' rn arb•. IJ7 I y pe~

"f llu \ in ~·\~.IJ(,-IJ7

b us iness ow ne rs h ip. 171 Iypes. ,,:; h usincs." plnn eompc lil ions. 5-6.237 b u s inc:-.~ plans. ddinil i\>n. 1.)'« l BI/sim'ss P/mrs Tlurt lViII ( Rkh a nd Gumpe rt ). 2U/ l B/lsim'ss Pltms TI/{II lVork ( R ic h and G um pe rt ). 22IJ husine ss t rcnds t: nviro nme nla!. 23-27 indusl ry.II;;- II),« la r~d marke t. 12'1-1 3 1 Ilu s ine~~ t y pc~ 13-- 14 nnmil1g.4ń-Y7

0\\ no.: r:.h ip t ypcs. IJ5 buye r be ha vio l'. 133- 134 buying inlcnlio ns s ur"cys.. 59 bu:t..z .15IJ

• 260

SlIbj ect Index

c C CLll'llOr:llio n .... 1ł5 C lrlridF.c Wu rld . (.,2

c:l'h. ~ I :I nur. 55. łlS

221-2.' I fl o\\' ~ Ia l c m c nls. 222

cunsul l:HlI:.. 1..... 0 :u.hIXlr) hua nh.. 1 7ń- 1 7 ..... cu nh:nt of hu..inc ...' plan I'rc ...... nt a tio n .231J-2--łH c\. nl e llt uf CXcclIll\ c ~ umlll :.ry.

. . . 7-ł\X

C:I\ h fI,I\\'. c ,, ~ h

fill
c.:l l phOll l· ... ~H.l\I. 1 23- 1 2~ chalkng.::s :md rb.I;~. 201-202 ch:' lIg..-, in business I'lan~ IJ

Ch'llk, Sdl\\ab. '16 Cil)'. l)al ;l'C<'(1l .3,'i clu\wr .... (w-ó.'i

Cu'lch.16 1

(COGS).21--ł C\I~ I ~

co\l·h:' ''o.:d pricing.151-151 \1..::.d,lpm . . 1II plan \. 2H2-2(1~ I! I-...: ra t ing cx r(' n ~cs.. 214 1';ll c nt ,.2 0-ł

Cl'Ca·Cola.l:\(, COGS (CU~ l l.r g(l(l(h :.oIJ).114 Collcg..:: D rop· ln:-..J..ł culllp:l nk:-.. proJuct-<Jri\'t.' n :Ind \C l'vicc-Jrin,'lI. '.Iń NIll P:.ny dCM riptio m. co m p:łtl)' hi\lory. II[ curf.:nl \ Ialus. \.14-"5 mi ~ i (j n \ I ah:: rnc nls. \l2- Y] pf(l\l uC I ~ illh.l

O lolihar. l 77 cu py .. i g ht ~ 21f3--20S coq "l\lr:ltc ' 1 ,.HI ~.l)5 c(lI"ridol' rr inciple. U CUl>I· hilscd pricing. 151-151 c,1).1 nf gHL>lh w id

'tr yices.. 11.\-1'-,

CUIlI!,:!II)' 1.k"c l,'plll\.' nl .

dCh: lopmclll u f cumpan y COIIl,,:lIl)' h b ll) l") in ~u, in c,~ plan . tJI

co\'..: r ]1<1 gC\ . ..... 2-t'3 c ur r"::ll l a\\cI:s.. 220. 222 c urrc lllliahilitics.221 c Uffo.'nl t a lio. ~11 c urrcn l :-.tatlls o f cOllll'a ny d e\ cl up m c nt.t.,I-ł-t.,IS

plan 1'1 t.'\\: tltati oll. 251 clI~ t \ .mc r a d. i...... t")' hoanh. 177 ctl slo mc r-d rh'c n co mp:.ni('l>, 9ft cu ~ l um e "- I clalt.'d b.l> lI o.:~ and Fir:-.I Se n· o.: n . ~:',-~II

St'!'

com r :m}' !> lru c lure.l~ I-- \l';l cump:H:łhk' hu"nc'~~

financia l p.,Tfu rrnance.óf>.-ń7 ... ,.h.:sc'li m al..:::s..I-ł1 c'Jmrll."II\
plan

rr~·\l· n l aliu n . ~-ł 7

c~lm p..~ lili\llI '

f,lr ht.' ...1 h u~i n ..::, ... pla n"- 54> cump..·lilh o.: alla l y~ isgrid . lJ"'" c\Jmpt.'lili vt.' inl..:: lligence.137 c,JIlc.: rllrat o.:d indu s lri~ IOl).113 conc..: pl l> talt:: mc nb.. 5ń-57 concl' pt l e~l:... 5f-.-.57 con~ I ;U1t nllio I11c lhOO. 2 I"'"

0/111 <.1: Br(/(Islren Imllwr)'

Nort//S II/IlI Kt·y Busin('ss

RfI/;o~·.

213

E cilrhuds. 27- 2X. 37. '-')1 cBa)'.1 7X-17l) Ec,)Ill.mk Elol'iL11l
ecunu mi e tr.:nd .. :md nI.' .... hu~ in ..... ~ idt.''''>.. 23-25 l'Ic\'ill u r ~I"ccc h t.',. 10 Elle n T rac.:y. 2-ł ~· ml' l l.)et." an u bu,ill":"s

1'1 :111:-' (.......7 c rwir'onm c nlallrc nd ~

t.'co rlomic Ir.:nds.. 23-25 inJu:-tr y ;1Il:ll r~c).. 111....... 1 t.'I nc\\ c{l l1lpani l.'~. 2-ł r o litic:ll :lIId regulatory changcl>.. 2ń-27 'i(>Cia l trc nds. 25-2" IcC" hnu lugical ad va nc..·... 2ft ~·lluipn1l' nl. u ...... criplill rl in (l 1-...: r;lIi on ~ rl:1ns. I ll-ł- IY 5

t.' \IUII ) ............ "5 ,'WI1 ..·I'\· C(I"i ly. 22 1 c~ l i lll al..::\ o f annual ~ak).. Ux.-I -ł2

D D :li \}' Rock .:>O DilyJcI . II J (.k ht rall l'.221 dcli"c ry (. f hu~i n e'iS pl:ln rrc~ lIlaliu n. 23ł1-2Jt.,I

D d l. Ine.. Ij(,. III!. Iftl-Ift] D ..:: mo C,.łlk ....·llct.'.237 d l'~c .. il'lio n o f c(l rnpan y. Ser cullll'any ucsc ripli um. dC" d ,'prn"'l1t ,,1' cl. ml'
SN' lIlso prod uC" t (Ol' s..:rviCl... ) \1c'T loplll~· nl pbns dilll'l'c nl ialion. Set' branding di"l.'cto l"'\. Scc boa rd s o f dircclo rs di ~ lribulion issucs.15Y- lh2 D ug:; lt.' r. hl dOJllilin n:lIl1 D.. Y7 Dr)' Sod a. 5ł'

"::' a !lIating • i"hilit y \. f h u,i n ~'" o ppo rllloitk, tf'(l l f(lr. St'c Firs l Scr..'t.' n ~·x~'c uli .·t.' .. ummaric ... 5 conl e nt . X7-.'\ł\ fllnnat. . . . 3-t'7 1'0 ........ Po int lI\'crvio.:w. Sft ': X lx'n~"

o l'c l"ali ng. 21--ł

Si't' ,,(so

cm l~

";>:lx' fI iI<,h-ieo.: I ll lll 'lII:1ft~·n"IC n l. ad\"isory hoards. 17h- 17N eXlc rn a l r.:asons fo r bu.. ir"ICs.. 1'1;111"- 2

F Face hoo k. 2--ł . 25 faci lil i..:s.. J csc ril'li on in 0 lx: r:tli o ns pb ns. I Y-ł- IY5 fca ... ibility a nal yl>Cs ddinili o n.5 3

S ubj ect In dex rinancial fcas ibilily conlp:lrabl c pcrfo rmallCCs, (
fin :lneial allraclivcncss, "7 slartup cas h. "5 induslry ::lI1d lnrget marke I feasibilily induslr ya llraclivc ncss.

"''-''I markcllimclincss.62-fi3 targcl mar kc l nllraclivcncss. hl--ń2 o rganiznli o nal fe asibilil y manage me nt prowcss, 63--fi4 n:~ource ~ uffici c nc y. fi4--ń5

producls and ser vices fe asibilil y producls and scrviccs de nwnd . 5'+-fi1) pro uu cls and servi ces desirabilily.5("l-5\) l e mplal c.7(J-7'-ł

Fcdl'l"a l Tr:ldc Commission (FfC) . 27 fccuback . S. 11 - 12.57. R7. l)5. I '-ł9-2(~ I. 237. 253 fi nn ncin l ma II e rs, 209- 211! assumplions shecI. 212- 213 balanec s heets. Ser pro form:l b:ll:lnce s hcc ls fe asibilil y nnalyscs, 65--ń7 financial sl:lle mc nls. See pro forma rinaneial Slalc n1Cnls :Ind Fi rsl Screcn.4I1--4 1 incomi;' s lalc mc nls. Ser pro forma inco mc slalt' l11c nls pl,Hl prcsl'nlalio n. 250 projecli o ns . 20'-ł-210

fina neing aelivilies. 222 Fire fl y /".-lo bilc. 2';'; Fi rsl Scrc t' n. 21 - 22 . 35--4 I financial i&s ucs. 40- 4 I foundc r-rclakd issues. 3Y--40 induslr y-re lalcd iss ues. 37- 3X market- and CUSIOI11Crr..::latcd iss ucs. 3X-J\) s lre nglh o f bus iness idea. 3("l-37 tcmplalc.44--47 See (lIso new bus iness iclcas

"five fo rces" mo([e l. l 13 fix ed assCls. 221. 222 Fliekr.15 2- 153 foeus gro ups, 33--34 fo rcign o ulsourcing. 1\)5 fo rm of business owncl's hip.l)5 fo rmat o f excculi vc sumnwry. iO--K7 fo und c r-rdatcd issucs and Firsl Scrcen. 3\)--411 fo und c r~' a grcc mCnls. \)5 fo und c rsa nd ro les.ISI fragm c nled induslries. IWł.113

fro nl slagc/baek ~ la ge o pl'l":llio ns plans. It->l) FTC (Fcderal Trade Coml11ission).27 funding and plan prescnlalio n. 252

G ga ps in l11arkdplaec. 2t-:- 31 Gccko H cad Gcar.A2--ń3 Gccks o n Ca lI. 2') G c nc ral Mo lo rs.l)fi gc ne rall'arlnCrs hips. \)5 godadd y.eom. 97 Google.93 Grcasccar Vcgclabk' Fucl SyslCI11S, 25-2ń GrealCall l nc .. 2t->. 29. 123--124.127 "'grcen" prOd UCls, 25- 26 Sec (lIso c nviro nme nlal lrc nds grid . eOl11pe li li vc analysis. 13,~ gross l11argin. 152 growlh ratc. indus lry. 1117- Jll.~ guidelinc..~ fo l' bus iness plans.S--l) guilars, J()

H Hdio. 114. 127 h igh-in \'0 Ivc l11c nI purchascs. 134 H10Audi o. 2". fil. 1113. 1.'-:9 HOl11e D e po !. \j6 Hoovcrs.1 41 Ho pc Lab.131

261 .

I B ISWorkt. 3h--4II."''' iConcludc. 177 id ea~. gencrali ng brainslo rmi ng. 32- 33 foe us groups.33- 34 librar y and illlc l'nc l researc h. 34- 35 Sec also new business idc as ide nl ifical io n of co mpc lilio n. 134- 137 idc nl il y o f o rgani zalio ns. Scc branding iH earSafc e arbuds. 2X. 37. l) I IKEA . 1"2. IS'-ł-I\JO iml'o rlan cc of managl'l11c nl le:lms. 1fi5 - 1ń 7 i ncol11c slalc mc nls. Sec pro fo rma incol11c slalc nwnls: mlio anal yses induslries.. fragmenled and conccnlrale d.IOV.IIJ indus lr y dcfinili o n. fiO . 11II gt'owlh rale. 1117- 11).'-: lo ng-rangc :lnalys is. liK parli c ipanl ~. 113--114 s:lIcs projcelio ns. IOl) sizc.1 1l5- HI7 sll'uclurc. I()V. lU sucel'SS faclo rs. 1 14- 1 15 lrc nds.115- 11S i nduslr y
• 262

Subject In dex

inte rn cl J o m ~ inn a m cs..'J7 l'esl'~ l'c h . 34- 35 , 141 l'esoul'ec tabIcAi'i- 51 I'cso ul'ees.Jfi.J7 , NJ--ńI.1114

~ a lcs es tim ~ tcs.. l'esc~ l'c h.

14 1 lnt o uch Techno logks.. I 77- 17ti. inll'oU ueto l')' ma le l'ia l in business pl ~ n ,,'iI -ti.J in vc nto ry issues. l'Jl in vcs ting ~cti v iti cs. cash rt ow state me nl. 222 in vcs t o r~ , 1- 2. 4- 5, 7- 11. 4 1. ,'';6. IM , 20\} re la ti o nship with. 17X iPo d, 23 , 2fi.fil. 1113. 1511

Li vc Hea llhie r.eo m. 4- 5.12 Liz C l ~ ibor n c. 'Jfi- 97 l oc~ ti o n s of b usincsscs. I 'J2 logos, \J7 lo ng-le rm Iia bil ilics. 221 lo ng-le rm pros pects. ind ustr y :lI1al ys is. II X low in \"o lvc mc nl purc h ~ses. 134

s~ l cs..15\)- 1"2

M

salcs

"" l ~g i c

Jo h nson Enlc rprises, 'J7 Mag Po rta l. 37 nwnagcd g rowth b usincsses. 14 ma n
J

nw nagc mc nl ka ms

J iffy Prinl. 'Jfi J in glc Ne l wo rk s.. 29 J illc rbu g.2N

K kc)' I'clatio nships ide nlificd in plan . 17,''; K l/ockoUf Prescl/ulfiollS ( DiR es t ~).23~

Kra fl Foods.. \)() Kurt zman G ro up. 12\)

L L~Ji es Who Launc h. 3 La undrcss.. T hc. 2- J k ga l issues :Ind bus illCss na mcs. \J7- \J$ legal s lalus of co m pani c~ , \)5 lia bilitics, 211. 22() balancl' s hee ls.. 219 curre nl. 221 , 222 10 ng.!e rm .221 ownc rs' cquit y. 221 s ho rl -le rm.232 librarya nd in k' rn cl resc a reh. 34-J5 li fcs lyk b usinesses. 14 limit c ~lli ab ilit y compa nicli ( LL C~) , \)5 Linc ns N Things, \j" liquid il y a nd liquiJ assets. 21 'l, 221. 232 liquid it y ratios. 232

I'ersus m ~ rk cl a na lyscs. 123 ove ra ll slratcgy.14X- 15IJ pla n prcsc nt ~ t io n. 24.'\ po inls o f d iffc l'e nlia tio n. 14\)- 150 pos itio n, 14\J prici ng stratcg)', 1511- 15:; pro mo l io ns. 15X- 15\) pro mo lio ns mi x. 156- 1:;\) public rda liom. 157- 15i'i

co mIK n s~ ti o n .171

impOrlance, I".'i- 167 ownc rs hip. 171 personne l.17l J-- 17l plan prcSi.' nta lio n. 24IJ pl"O blcms..171 - 172 red rtags..171 - 172 m ~ rk cl a na lyscs ~ nnu ~ l salcs a nd nwrket sharl'.13x-- 142 buyn be ha vio r. 133-- 134 co mpet itio n ~ nd co ml'c lilo rs, IJ4- 13i'i dcfi nilio n.l23 im por la ncc, 123- 124 marke l scg m c nt ~ li o n . 127- 12,'\ rersus market ing, 123 t ~ rgcl m ~ rk ets. Scc la rget ma rkds nWl'kc l-rc lal cd issucs a nd Firsl Sc rccn.3.'\- J\) nw rk cl scgmc nla lio n, I 27- 12i'i ma r ke I sha re cslima lcs. 13,';- 142 ma rk c l limcl incss a nd fcasibilil y a nal ysis.. fi2--ń3 nw rk cl lrl'1ll1s. 12\)- 131 M nrkt'fillg Mn "clIs

(Capo n), lSU pla ns advcl'lis ing.l.'ifi- l.'i7 cos l-basl'd pricing.151 - 152 dis lribulio n, I 5lJ.-1 "2 gross nw rgin . 152

m ~ rk c tin g

155- 150 pricin g. 152 ma rk d ingst ra tegy.1 4,''; - I.'i1 1 ma ltresses.117- I IS "'·l in tc 1. 34.3fi- JY, 66, 11J7- 10i' missio n st:lle mc nls.. \)2- 93 misL'I kcs dc pa rtin g fro m bu s in~ss pla n eon\'e nti o ns.i' in \'csliga lin g mCl"ils of ideas, I" ma nage mc nt tca ms.. commo llmisl
v~ lu c · basl'd

as~c l1l b lin g,171 - 172

la rgcl m ~ rk ct idc nlifieatio n. 12\) mode ralo rs of foe us gro ups.. 33- 34 multiplic:t lio n met hod fo r sa les eslimatcs. 141 musica l inslrulIlC nt salcs, 25 MyS paec, 24. 25

N NA ICScoues.1113 na mi ng b usi n es~cs bra nd. \Jo legal issucs, IJ7- \)i'> lrade ma rks. \)7 lytx"s o f bus incss. \)0- Y7 nd illco mc cslimalcs.. 3.'\ net salcs. 214 N e t Adv~ nl agc , JS, 31) new bus iness i dc~s cco no mic lrc nds. 23--25 l'llViro nmc nla llrc ncls., 23--27 g:lps illllwrkc lplaec,2,'';- Jl nl'W comlxl nics, 24 po lilica l :Ind rcgulato ry c h ~ n gcs.20-27

sociallrl' nds. 25--2" ll'c hno logica l adv~ nccs. 2fi

Subject Index un!tIJh 'cd I'fobl
,J",fin",d illduslri e:>.. S,II<:, Il~-': nich ... llIa r k... ls.. 3)0:. 113

11",\\ 1)'

p pAS (II o m... n·s c lOlhing bo utique).341 Pllrc rHW;llch. C r~o,l ;1 1 il y-d rh".:n c ompani ,-,~. W.....1I7 pe rson n.:! ,Khi ~ I')' boa rds.17ń- 1 7,s

o Oaklcy,15B-ISI OEM (o ri gi n:ll c<juipmc llt m'lnufaclur.: r). IW 0 Ii vin .... 2-1. Iu2 u n-line pho to s haring. 1:'2-1:'3 Dops)' [);lisy. I'~)... I"1 OpcnTahk.co m. 2ń

opc rilting aCl iv it ies. 222 o l\C rating cxpc nscs. 21 -1 o pcr.llio ll,> hack sl,tgdfrolll slagc.. ISY husine~s 1000a lio l1. I Y2 f:lI:ilitk'),
ill \'.: nlOry i,sucs. IYI 0 1\C1';llio n5 n ow diagra m. ]tN 0 llC r;llio lls mod e l. 1)0:"-1\,11 op...' rat ioll~ ~ lra l cg).

or

I'rcparalio n .23ń-23 7 ~ mpk

1tJń-\ Y7

plan, \ŃfI procl.'durc. IX9- \ \l1 ortio n ~ 1'001. 171 org,a nil
direclOrs.. Set boa rds o f d ir\-'C tors c mployec!>' ń-7 ma n;lg.c me nt teams.. \71l- 171 ph\)IO ~ h al'ing sile.'> . ! 52- 153 1"lI., litic;ł l cha ngcs a nd n.:w hu sincss ideas. 2ó-'17 POpC;t p Garncs. 30- 31. 131 posilio n o f prOO ucts and ~ rviccs. Y3-IJ-I lX>l>ilio ning. !!olmtegy. 1-1\,1 Po\\.::r I'o int prc:><.· nta tio ns. ~...'7 ~Imp le pr.:.'>Cnt ati o n. 241 1-25.1 PI'(' P:II'
'15

IH'llwgl' mc nll l·a m'\.17 1 ulI n\-' r~ hip o f co mpank-:..Y:'

Po\\cr Poi nl I'r.:.'>C ntalio n.2-1U-2S3

PreSelltlll;OIlS for Dummit>s ( Kushne r).23X pricc-qu;ł li t y al lri bulioll .152

lwicing CO~ I -I'ascd .ISI - 15 2

sl ra l.:gy, 151 1-155 va lu.:-based.152 primar}' l'c'L'arch .:"ó5 pro form:1 b31a ncc s h\-'C t,

21 <J-lll cu rr~' nl

3SSCIs.. 2'10

curr~' nlli abi l i liC5..

22 1 cUI-r... nl ralI0.11 1 J L' h l ntli u.121 fi xL' d a ~'L'ts.. 221 lo ng'le rm li;thi lili L' s.. 121 ,,1\ n .: I' ~' "'\lui l)'.12 1 1101kin g <::'ll'il
263 .

p ro forma fin ancb l s lale nle ll l'> brca k-cv", n 3Ilal)'scs.. 230 Ca~h flo w. 222- 2JI COG S.2 1-1 inlrOO uclio ll.213-21-1 liCI -':Iks. 11-1 Of'C rali ng cXIK llses.. 21 -1 pro fo rma bala ncc s heel:\.

21') 222 pro for ma inco mc !!o1:Ih! me nls.. 21-1-21 y IlI'o forma inco me slal.:m.:: nl s.. 2 1-1-2 19 COGS.21 -1 co nsl3nt ralio me lho d o f forcca~ ling. 21 :S IWI .).1 ks.21 -1 oremli ng. cXI'':llscs.. 21-1 ROS. 2 II) Prl)acli \'.S7 pro bkms wit h manag.: m .::nt tcams..17 l- 172 producl a Hribule m ap. 150 prOOucl de mand and rea,>ib ili t )' a n alys is.. 5'ł-ót1 p ruduc l d.:~ irabili ly and fc;lsibil il y anal ysis.. Sń-5Y producl-dI'i\'<.'1l compa ni es. % pl\" luct ( O l' s.e r\'ice) d e\'d o pme l1l plan ~ ch311.:'ngcs and risks.. 211 1-2tJ2 COSIS. 202- 203 dc\'clopmc nt sla tus. 11,17-21'11 intc ltec tu:11 prore r1 y. 2113-205 pru lo lyp...':>.1W--2UO ~ Ia g~'s o f J c\'elo pmc nl. 21Hl-201 us.1 hilil }' Icsling. 21 H. See lIlso dc\'clo pl11c nl o f co m ra n)' p roduc t~ a nd se r\'iccs kas ibi lil)' an a Jyscs. 5ń-(.I . position . Y3-9-1 Sl.'ction o f busi n.::ss pla n. tJ3-W profita bil il )' ra lios.. 2.1 1-232 PI u llIc lh.:u, L;lho r;il l' l i~', 121' pro lll ul i o n ~ a nd l11ark c tin ~ 1'1:l1l s..IS~ 151)

])I\ >llhll j(' Il ~ mi,\;. I Sh-I SI) I' I'\'I'.:.-I y Sulutiu ll:\. 2\) prUl'rk'l u rshir">. '15

• 264

SlJb ject

Index

P r"Ou e~ 1. ~ ..1.7 pru J .:~ ti o n

uf a ~.-.c t :,. 27

pro tot yr.:s. I"")- 21M) provisi\. mllp:ll': lIt app licatio ns. 2114 S('('fI{SO p;lt l'nt~

puhl ic

r\' l atio n~

and mark.: tin!! IS7-I:;X purc h:I'':s. high - a nd 1( '11 involn: mc nl. IJ-ł r lan~

R rai io ,1Il:ll ySl'!<.. 1l-l . 23 1-2.12 eUllslanl rali o mdhod. l1S c urre nl r;lti\,. 221 dd' lralio.22 1 liq uidity mlios.131 '>Vl r:11 1 fin a llc i:11 :-1;lhilit y ralio:.. 232 profilabi lil y ralios. D l -Dl ROS. 2 1'J. St.'t' rati u analys..::. Rc ·j\·lission.131 r':; I~ () n, roI' husiness pl:lns. 2--ó R.:d Hull .l:;X r.:d fl:l~ in busi ncss plans. 1 L 171-172 rc g ul 31u ry cha ng.:s a nd ne w husi n,-,!'iS iJ,-, as. 2h-27 rC''::lrch indus II')' data .."X inl ~ rn': l n:MIUI' C'-' lah k.-lX-SI li blar)' a nd inll.'rn.:1. 3+-35 prim:lry. :;5 ~e cun d;II"}'.

:;5

reso urce s ufficic ncy anu k; 1 ~i hilil y ;Ul:II}',i, M--ó5 re lurn o n a ~sd~ ( ROA ). 231-~32

I..... lurn I'n ~ak ~ ( ROS). 21 <.). 2.11 reve nuc drivers.-lO ri:-k, ,md cha lkn g.::-. 2111 -2112 ROA ( !'durn o n a~scl s) . 2:-1-232 " rllau slw\\ :,." 237 Roa(/lIIflp to EllfreprclI l'uria!

5 11ccess ( Pricc). I) ROS (rd um o n salcs ). 21 11. 231

s S corporalio n ~. \.15 sal:lrics fo r manage me nl Ica ms.. 171

,ak~

MJUrces o f new

:lIlllu:.1es limal ....:.. figu rcs fo r nc w in du ~ lri<.'s.

m-.:

pl;lII prcs<.' nlalio n. 2 -l~ p ro fllrlll;1 inC\l l1l\' ~I a l c mc nls. ne l ~ak , 21-l pr uc ... s.~. 155--156 pr,lj.:cti,.,n , II"') sak~ and ma rk ':ling plans. ISlJ--lf.o2 sak~ pr\\c.:s~. 155-- 156 sam pic Po wer Poinl

So ul h Wcsl Tr:.ding Co .. 2fi spe Orfic\.· I' roduel :-... ~ I s labilii)' mlios. 232 ,wrf. 5t'" I'.: r~" nll d Sla nJard ...~ 1\.lVr ·~ NdAd vanlag.... 3.'(:W Starhll ck\. II'} ~ Iarlul' cash. 55. 65 SWrlllpS Tlml Work ( Kurt l. l1Ian) .I2'ł s lalu ~

(2I MI2).27 SCO RE.1 X(J. 2 10 Sea ho rse Power. fi ''::Irc h .: ngi n .:~. 37. _N scco ndar y rcsca rch. 55 ~~'g m c nt :11 i, 111 \l f ma rk.: I. 127-12x Sdccl Com fo rt. I ! 7-11 ~ ~df-;I ss•.'ssm e lll for com[":U1 )" fOUlld": I's.. :N-41 1 ser" icc d '-' ma nd and fca~ihi!i l y ,1tl"l y,i~. ~<j....ńl)

se n 'kc dc~ irahi!il r :mu k :ł,ihil il

y anal y~ i ~ 5h-S<j

,\"rl'ic.: d ":l'dopm.:nl p lan, 5t,(, producI (Ol" :;(: r vic\") d Cl'l'lopm.:nl plan' serv ic.:-driv..:n companies. W. ~ h :lr ... h.... l(kr'· :! grl·c Ill01l1 . 1)5 ~ ho r\-l .: rm
o f compal1)' d "'\·I.· I ,'pm 0 1l1. 1J-ł--1}5

pr"'~"" I H ,lIi lln.l-lII-253

Sarba n.:.s-Oxlcy A c l

h u ~ in,-,s.... id c a~

22-27

I3X-l-ł2

~ I c:. lth ITK>d C .

12 opl io llS. 171 \Ir.:n glh uf bu ~ i n ..:'~ id.:a a nd Firs l Scrcen. 3h-37 SII'OII.: 1' Strid es.21J. 151-\ ~ Iru clur.: o f inuus lry. 111'1. 11 3 'ucccss factu!':.. indu \I I) '. 11+-115 'lIrvcys. bu yin!.! intc nlio ns. 51} ~ ur\'il'a l hu,i n c\~ ... s. l-ł ~ I uc k

T 1 ; lhk~

uf conl ,-, nls in pbns. 1-\3

hu ~ill e$s

laglincs. 113 1;lfgc t m:lrkdS-. ~X-~I). (>41. IUl f.:as ibilily a na l}'scs. ń 1--61 pre~c nlal iun lir plan,. 2-l5 sclecling.12X- 1211 size and Irends.1211- 131 l... chn l,I,,!!;.ic;11 ;ld l';1I1 C"'~ ;lIld II ":\\' hlls in.:s~ ide a:;, 2ń l... chn o lll!!;.Y a nd I'rcs\'nlali,JIl lI r pbn:;, 2-łf.o Ic mplalcs k :l ~ ihilit y ;11l:ll ysi, 7ł)-7') Fin;1 Scr..:e łl.-ł-\.---I 7 Pow(' r Po inll'fCSl" nl a lio n. 2-l0--2SJ Te mpur- Pedic Inte rnalio na l. 11 7- 1 IX Thc Lallndrcss.l- J TlI(' New Business Road Tesl

( MlIllins). In R..:gistc r. 21 MI

Tho m a~

Tim bu k 2.l ńO- lńl

lil k 1':lgcs in bus iness pla ns. ~l-K,

Subj ect Ind ex n Vo,:'7 100 1fur evalu;lling via bilil y of business o ppOrlunilies. Set' Firs l Scrce n To ry Bure h. 24 trade associali o ns, 5l).....fifl. 130

salcs estima te infurmalio n. 1411- 141 lr:ldc jo urnals, :W. 4n. lJn lr:ldc sl'crds. 20:'- 205 lrade sho ws. :;\)--fiO lradc marks, \)7, 2m- 205 trcnds econo mic. 23--25 e nviro nme nlaL 23- 27 inJustry, 115- 11 ~ socia!. 25- 2fi largc lmarkct.1 21J--1 3 1 lypcs of bu s in cs.~es. 13--14 naming, \)h- \)7 ownership lypcs, \)5

u unso lvcd pro blcms and new business ilkas. 27- 29 U.S. Palc nI and Tradc mark orfice (USPTO). \)4 . \17,21)4 usabilily lesting, 21HJ US PTO ( U.S. Pale nI and Tradc mark Office). \).1. 97,2114

265 .

wet labs, fi4 Who lc Foods I\'b rkc ts. <JI) wind ows nf o ppo rl unil y. 3(,. 37 origin of mcta pho r. 36 limcJiness of produel O l' sel'vice. fi2 wo me n'sclolhing bo utiques. 102 wo rking eapilal, 22 1

x

v

XM Salc llil c RaJio, \)h

va luc -bascd pricing. 152 virlual pro lot ypc, 2 (~J

y

w warning signs in bu ~ in css pl
Yogiloes, 2oS Yo uTubc. 37

z ZU CA. 2K 37, 149, lfitl, 17(;, l oS5- 1~()