Business Economics

Lecture #3

BUSINESS PLAN

April 14, 2016

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I N PREVIOUS LECTURES , WE EXPLAINED ECONOMIC
UNDERPINNINGS OF BUSINESS

▶ We talked about the supply and demand model, showing

impact of market changes on equilibrium price.
▶ We talked about theory of firm, explaining cost structure
and its derivation.
▶ We talked about various market regimes, from perfect
competition to oligopoly.
▶ We discussed how firms strategically interact with each
other.

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T ODAY, WE WILL DEFINE WHAT A BUSINESS PLAN IS
AND HOW WE SHOULD CREATE ONE

▶ A business plan is an important document for any

business and it can be written for a variety of reasons.
▶ Internally, it can help owners and managers crystallize
their ideas, focus their efforts and monitor performance
against established objectives.
▶ Externally, the business plan can act as a medium for
attracting finance for start-ups or expansion.
▶ There are several ways how to create a successful business
plan, but all of them follow a similar logic.

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▶ Cover page and executive summary

▶ Company and product presentation

▶ Market description

▶ Operational and financial plan

▶ Risk factors and their mitigation

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T HE BUSINESS PLAN SHOULD START WITH A COVER
PAGE AND TABLE OF CONTENT

▶ On the cover page, we should find the following

information:
▶ name of the company
▶ address
▶ url address
▶ telephone/email

▶ In a real business plan, you may also introduce on the

cover page a confidentiality notice, number of copies, etc.

▶ The table of contents is advisable in a real business plan.

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T HE FIRST SECTION OF YOUR BUSINESS PLAN SHOULD
BE THE EXECUTIVE SUMMARY

▶ An executive summary is
▶ NOT an introduction
▶ NOT a preface
▶ NOT a random collection of highlights

▶ An executive summary is the business plan in miniature.

▶ The executive summary must be logical, clear, interesting

and exciting.

▶ If it gets the readers attention, the rest gets read.

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T HE FIRST SECTION OF YOUR BUSINESS PLAN SHOULD
BE THE EXECUTIVE SUMMARY

▶ The executive summary tells

▶ who you are,
▶ what your strategy/vision is,
▶ what you are doing and/or propose to do,
▶ what is the market,
▶ how many $$$$ do you need and what will you do with
them,
▶ what your sustainable competitive advantage is.

▶ When the reader is finished, he or she should be able to tell

someone what you are up to.

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T HE FIRST SECTION OF YOUR BUSINESS PLAN SHOULD
BE THE E XECUTIVE S UMMARY

▶ The executive summary should contain:

▶ description of the business concept and the business,

▶ the opportunity and strategy,

▶ the target market and projections,

▶ the competitive advantages,

▶ the economics, profitability and harvest potential,

▶ the team.

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▶ Cover page and executive summary

▶ Company and product presentation

▶ Market description

▶ Operational and financial plan

▶ Risk factors and their mitigation

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AT THE BEGINNING , YOU SHOULD DESCRIBE YOUR
CURRENT AND TARGETED POSITION

▶ You usually start the business plan by introducing

yourself:
▶ what is the ownership and legal structure of your (future)
company;
▶ what is the management structure;
▶ how many employees are there;
▶ what is the location;
▶ what is the past performance of your company (if
appropriate);
▶ what are your current assets.

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AT THE BEGINNING , YOU SHOULD DESCRIBE YOUR
CURRENT AND TARGETED POSITION

▶ You also specify what your objectives are.

▶ You objectives are clearly mainly economic (sustainable

profit), but you may also specify:
▶ turnover target,
▶ market share target,
▶ non-financial targets (prestige, innovation, etc.).

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Y OU SHOULD PRESENT IN DETAIL THE PRODUCTS OR
SERVICES THAT YOU WILL OFFER

▶ You should provide a detailed description of products or

services that you will offer, which should be clear even for
people who are not familiar with your business.
▶ You should describe product’s unique qualities and
explain how it is different from what your competitors
provide.
▶ You can mention any property rights (if applicable) or
regulatory issues (if appropriate).
▶ You should describe the most important points of the
manufacturing process and necessary facilities.
▶ You should describe how you will launch the production.
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▶ Cover page and executive summary

▶ Company and product presentation

▶ Market description

▶ Operational and financial plan

▶ Risk factors and their mitigation

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Y OU HAVE TO DESCRIBE YOUR CLIENTS , YOUR SALES
PLAN AND YOUR MARKETING STRATEGY

▶ You have to explain who your customers are.

▶ You should segment the market: group consumers by
some criteria.
▶ You should target the market: chose which group(s) to sell
to.
▶ You should evaluate what is the absolute size of your
market - it has to be large enough too be worthwhile.

▶ You should also specify what your pricing policy will be.

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Y OU HAVE TO DESCRIBE YOUR CLIENTS , YOUR SALES
PLAN AND YOUR MARKETING STRATEGY

▶ You should describe how you can approach the market

and what your sales pipelines will be.
▶ You should position the market: find the optimal
marketing strategy for the segment you are targeting.
▶ Determine what consumers currently think about your
product (with respect to competing products).
▶ Decide what you want consumers to think about your
product.
▶ Figure out how to make them think what you want them to
think.

▶ You should not forget to mention possible trends and

developments expected in the market in the future.
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Y OU HAVE TO DESCRIBE YOUR CLIENTS , YOUR SALES
PLAN AND YOUR MARKETING STRATEGY

▶ You should not forget to mention possible trends and

developments expected in the market in the future.
▶ How to evaluate these trends:
▶ statistical demand analysis,
▶ extrapolation,
▶ surveys,
▶ test markets.
▶ Do not forget that company can grow by expanding
market size or stealing market share.
▶ Size of the potential market depends on how broadly one
thinks about the product (are coffee and tea substitutes?)

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Y OU HAVE TO DESCRIBE THE LEVEL AND CHARACTER
OF COMPETITION YOU FACE IN THE MARKET

▶ You have to define who your competitors are.

▶ You have to determine what their strengths and
weaknesses are - in terms of quality of products and
services and in terms of prices.
▶ You should try to foresee what the response of the
competition will be when you enter the market.
▶ You should evaluate the relative importance of each
competitor.
▶ You have to stress how your product is superior.

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▶ Cover page and executive summary

▶ Company and product presentation

▶ Market description

▶ Operational and financial plan

▶ Risk factors and their mitigation

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Y OU HAVE TO PROPOSE AN OPERATIONAL PLAN AND
TIMING OF YOUR PROJECT

▶ You have to describe in detail how you are going to

proceed in launching the plan.
▶ You have to set up a list of task for the short run and the
long run, in which you show the expected deadlines for
individual steps.
▶ In the operational plan, include not only the launching of
the project, but also some projection for the beginning
period in which your business is supposed to stabilize - it
should be clear what is the time horizon necessary for your
business to become profitable.

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T HE CORE OF YOUR BUSINESS PLAN SHOULD BE A
FINANCIAL PLAN
▶ You have to state your initial simplified balance sheet (that
will make clear what you need to open your business).
▶ Based on this, you will summarize your funding
requirements and you will indicate where the funds
should be coming from (individual investors? bank
loans?).
▶ You should also provide detailed projections for your
income statements, showing what costs and revenues you
expect to have.
▶ The projection can be different for initial phases of your
project and for later phases.
▶ You have to show that your project has the potential to
generate stable profit. . . . . . . . . . . . . . . . . . . . .
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▶ Cover page and executive summary

▶ Company and product presentation

▶ Market description

▶ Operational and financial plan

▶ Risk factors and their mitigation

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Y OU SHOULD FINISH YOUR BUSINESS PLAN BY A
SWOT ANALYSIS

▶ The SWOT analysis helps you to summarize your project.

▶ It helps you to analyze your Strengths and Weaknesses,
and to identify both the Opportunities open to you and the
Threats you face.
▶ Strengths and weaknesses are internal to the company. You
can change them over time but not without some work.
▶ Opportunities and threats are external - they are out there
in the market, happening whether you like it or not. You
cant change them.

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. . . .... .... .... . . . . .
I N THIS LECTURE , WE EXPLAINED HOW A BUSINESS
PLAN SHOULD BE WRITTEN

▶ The overall appearance of your plan should be

professional.
▶ The plan is a selling document - don’t lose sight of the
vision.
▶ The excitement must come through.
▶ However, the plan must be defensible.
▶ How NOT to do it:
https://www.youtube.com/watch?v=aFdBcYN3sNw
https://www.youtube.com/watch?v=st0V9XbOtdY

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T O BE CONTINUED . . . :)

▶ Road plan:

▶ The plan (around 10 pages long document) has to be

submitted by email by May 31.

▶ Presentation dates: May 5, May 12, May 19 (for signing up,

check your email).

▶ Next week, we will start to talk about financial statements

of a company.

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