ENTREPRENEURSHIP AND ENTERPRISE DEVELOPMENT BAD199 AND BAD 395 FALL 2011 SEVENTH LECTURE: BUSINESS MODELS AND

MAKING THE BUSINESS CASE

Academy for Entrepreneurial Leadership Department of Business Administration Illinois Business Consulting Paul Magelli

EXERCISE I THE ONEPAGE BUSINESS PLAN

DISCUSSION OF YOUR ONEPAGE BUSINESS PLANS

WHAT DID YOU CONSIDER ESSENTIAL? 1. 2. 3. 4. 5. 6. ETC.

SELECTING A BUSINESS MODEL GIVEN THEIR NATURE, SCOPE, AND VARIETY

Wm. Bygrave: The Entrepreneurial Process

1. This IS the entrepreneurial age 2. E is the essence of free enterprise as creation of new businesses given market economy its vitality 3. Generate MOST of the new jobs 4. Transform the way we live 5. An entrepreneur is someone who perceives and opportunity and creates an organization to pursue it 6. The entrepreneurial process involves all the functions, activities, and actions associated with perceiving opportunities and creating organizations to pursue them. 7. Asserts that 90% of new high-potential businesses are founded in industries that are the same as or closely related to the one in which the entrepreneur had previous experience 8. Personal attributes AND environmental factors are the two key factors (Achievers;role models; in the air (silicon/babson,MIT) [Note: Bygrave reportedly asserted that it was not possible to discern the predictors of enterpreneurial behavior/outcomes.

Entrepreneurial Model:
Communication

Opportunity
Business Plan Ambiguity

Resources

Creativity
Uncertainty

Leadership

Team
Capital market context

Founder

Entrepreneurship Education Model:

Industry, Markets, Customers, Margins, Competition
Lawyers, Bookkeeper, Personal Services, CPA

OPBP
(language and code for communicating quality of three driving forces)

Ambiguity

Creativity
Uncertainty

Leadership

Team
Capital market context

Founder
(juggler)

A MODEL OF THE ENTREPRENEURIAL PROCESS

DISTINGUISHING CHARACTERISTICS:
Cognitive and Intuitive Skills to Identify Opportunities Uncanny Ability to Locate and Secure Resources Quick to Move Toward Actualization into Business Capacity to Move Beyond Early Stage into Fast Growth Sufficient creditability to move to IPO, Cash Out, or Partnership

STAGES AND INTERSECTIONS OF ENTERPRISE DEVELOPMENT

1.

2.

3. 4.

5.

STAGES CURIOSITY AND/OR PURPOSEFUL RESEARCH/DISCOVERY TRIGGERING EVENT (THE A HAH MOMENT) PROOF OF CONCEPT/PROTOTYPING IMPLEMENTATION: STAGE 1 GROWTH AND DECISION TIME: MORE INVESTMENT $; SELL; MERGE;??????

THE INTERSECTIONS of E
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

THE PERSONAL/INTERPERSONAL THE PSYCHOLOGICAL THE SOCIOLOGICAL THE POLITICAL THE ECONOMIC THE FINANCIAL THE LEGAL THE EDUCATIONAL THE ORGANIZATIONAL THE MANAGERIAL ENOUGH????????????

THE EWING M. KAUFFMAN FOUNDATION THE ENTREPRENEURIAL PROCESS

Value / Meaning Innovation

Intellectual Capital
Research Creativity Exploration Ideas, Discoveries Inventions New Knowledge

Entrepreneurship
Entrepreneurial Activity (Know How and Resources) Entrepreneurial Growth (Know How and Resources)

Entrepreneurial Economy

Conducive / Supportive Environment Knowledge Sharing

Jobs

Alliances Government Industry

Wealth Economic Independence Higher Standard of Living

Non Governmental Org and Universities

WHAT IS A BUSINESS PLAN?????

WHAT IS A BUSINESS PLAN????

DISCUSSION OF THE MAGELLI BUSINESS PLAN MATRIX

1. The key is the idea; if the idea can be substantiated, then 2. Conduct due diligence; in doing so, identify 3. The POW factor (is it addictive?????) 4. Give some thought to the value of the idea 5. Is it disruptive (the more it is, the greater the value, provided it works) 6. Identify its transformative characteristics 7. Time to think about are there customers; if so, describe a representative one 8. At this point, begin identifying its competitive advantages 9. What is its value proposition 10.Begin to think about fundssources, amounts, liquidity, etc. 11.T, the most overlooked variabletime, how much do I have 12.If the first 11 factors are in order, begin the feasibility plan process 13.Begin by writing in one sentence: What is the business 14.What is the product, service, product/service 15.Having done this, is there an existing market 16.If so, how will I capture a share of the market 17.This introduces the need to conduct an analysis of the industry analysis (the
characteristic of the firm should be preliminarily identified: pc/mp/o/d/m)

Magelli Matrix: Continued

18.Initial decision about price and pricing policy need to be moved
forward 19.Pause and conduct another quick assessment of firms value 20.How will the new enterprise be promoted 21.Time to identify the management team 22.Inventory the level of personal investment from a cost perspective: sunk, fixed, variable 23.Begin to think about the burn rategiven the initial 22 steps 24.Analyze financial source of expended funds, amount of available funds and determine the rate of fund expenditure 25.Develop an implementation timetable 26.Assess again the financial value of the enterprise 27.From the offset, what is the CEOs views on exitgrow the business; partnership; build to sell; IPO; close out; other 28.Time to write an EXECUTIVE SUMMARY for the Business Plan

29.What does the class what to add to this summary?

1. Serves as an ongoing extension of feasibility

IMPORTANCE OF BUSINESS MODELS: MACRO PERSPECTIVE

analysis (does the business make sense) 2. Focuses attention on how ALL the elements of a business fit together and how they constitute a working whole 3. Describes why the network of participants needed to make a business idea viable and determines if they are able to work together 4. Articulates a companys core logic to all stakeholders, including the firms employees

THE BUSINESS PLAN

Defines a new business Certifies need for financial resources Defines agreements between partners and players Sets a value on a business to be created, sold for legal purposes Evaluates promotion of an existing product line, new product line, or expansion of new or existing product lines Creates regular review, mid-course modification, and/or correction Provides opportunity or forces discussions and/or debates that might otherwise not occur or occur under the right circumstances

THE BUSINESS OF THE BUSINESS PLAN

(Disclaimer: To my knowledge, I have am not aware of THE business plan. Discussion, discourse, debate, and disagreement continue. What follows is a perspectivetreat it accordingly.

WHAT IS THE VALUE OF A BUSINESS PLAN: The value of a business plan is the decisions it influences and ONLY then about how much money is at stake. Plans must be measured by resultsnot by the style of the prose, research, detail, etc.
Business plans DO NOT sell new business ideas to funders. Funders invest in people and ideas, not plans. The business plan is the mechanism to present the proposer WHO, then can showcase the idea.

Work on a plan that has a minimum of not less than two and up to three years; thereafter, of little use (of course, there are exceptions)
There is NO specific order in which a plan is developed

Separate your feelings/emotions/passion from the plan; in fact, manage your passion.

If a family, do not mix family with businesssimply talk family when you talk family and an absolute must talk business when you talk business.

There is NO specific order in which a plan is developed

In MY view, IN THE FINAL ANALYSIS, THE SEVEN KEY COMPONENTS ARE:

1. Is the idea (whether a business and/or a service) addictive? 2. What is the absolute competitive advantage (nonduplicity)? 3. What is the value proposition for the entrepreneur and the consumer? 4. Is it disruptive (will the legacy system enable it?) 5. What is the price point/profit margin and when will there be profit? 6. What is the cash-flowthe burn rate of your assets?
7. WHAT IS THE EXIT STRATEGY? WHAT IS THE EXIT STRATEGY? WHAT IS THE EXIT STRATEGY? WHAT IS THE EXIT STRATEGY? WHAT IS THE EXIT STRATEGY? WHAT IS THE EXIT STRATEGY?

THERE IS A GROWING LITERATURE

Executive Summary What are the ventures primary products/services? Who are the ventures primary customers? How are products/services marketed/distributed? Who is the management team? How large is the organization? How many employees will the venture have? Where is the organization located? Where will the venture be located? What is the anticipated sales demand by product/service for one, two, three years? Where do revenues exceed expenses by product/service? Where do revenues fall short of expenses by product and/or service? What resource development strategies will be undertaken to offset losses? When will the venture break even?

Description of the Organization Organizational Review 1.What is the overall organizational structure? What is the ventures structure as related to the organization? 2.What is the history/evolution of the organization and the venture? 3.What is the product/s or service/s of the organization? How are the ventures products or services related to the organization? 4.Who is the ventures target customer/market? 5.Is the organization new, established, growing, declining, etc.? 6.How will the venture operate (i.e. independent, nonprofit, affiliate, subsidiary)? 7.What are the unique characteristics indicating success?

Management and Personnel

Describe the qualifications of the management team. What is the relationship of that team to the organization? Why will they make this venture a success? What are the responsibilities of each? Who performs that planning function? Who reports to whom? Where are the final decisions made? What outside professional services are required, and who will provide them? How many staff will the venture require in year 1, year 2, year 3? What functions will each perform? What skills must each have? Are the positions full or part time? Is training required?

Product/Service Delivery
1.Which aspects of this process will the venture undertake internally, and which will be provided by others? Who will provide them? 2.What are the requirements for fixtures, furniture, machinery or other equipment? What is the process required to develop and implement the product/service? 3.Will seasonal or other cycles affect product/service delivery?

4.How will the venture design new products or develop new services?
5.How with the venture conduct evaluation/quality controls? 6.How will the venture benefit from the experience of other existing product/service models?

Venture Environment 1.What are the unique characteristics of the organization and venture structure? 2.What are the major strengths and needs of the venture in relation to its products/services? 3.What are the venture teams relevant product/service execution capabilities?

4.What technical expertise (personnel, marketing, product or service specialty) does the venture team offer?
5.What financial resources does the venture possess?

6.What benefits do the ventures products/services offer to the community?

Market Analysis: Market Demand and Competitive Position 1. Market Demand 1.Who is the target customer/market? 2.Who is the typical customer (age, sex, issues, geographic location, etc.)? 3.What geographical area will the venture target? 4.What is the present size of the market? 5.Will the venture team need to recruit new customers? What is the growth potential? 6.What other organizations/companies will the venture partner with?

Competitive Position 1.Who is the competition? What are their strengths and weaknesses? How are they different from the organizations venture? 2.What is the organizational venture position in relation to its competitors (nonprofit and for profit)? 3.What is the ventures competitive edge in the sector as a whole?

Marketing Plan How will the venture promote its products/services? How will the venture retain current customers? How will the venture recruit new customers? How will the venture provide its products/services? What is the pricing strategy? What strategies will the venture use to cover its costs? Are there natural service/product demand trends or cycles? If so, how will these be addressed? How will the venture handle the public relations/advertising function? Will the venture conduct ongoing research and development?

Financial Plan Cash Flow Analysis Break-Even Analysis Revenues Government Grants Corporate or Foundation Grants Contracts Philanthropic Giving Program Related Investments Fees for Service Earned Income Earnings on Investments Debt/Loan Line of Credit Family and Friends Credit Cards Angel Network Venture Funding Other

Expenses Personnel: Wages, Benefits & Taxes Communication: Advertising, PR, Development Rent & Utilities Professional Fees & Services Supplies Transportation Professional Development Insurances Debt Service Capital: Building & Equipment Contingency Entertainment

Supporting Documentation Resumes of Key Management Board List Market datastatistics List of products/service offerings Floor Plan indicating requirements for space Capital-equipment list Quotes and estimates from vendors Rent, lease, or purchase agreements Letters indicating a line of credit or loan Letters of intent form potential customers or collaborators Letters of support from others in the industry or from corporate offices Legal documents, such as incorporation documentation status and determination letters Annual report, annual audit, and financial statement of the parent organization License agreement with legal proof Supporting documentation for any assertion made in the business plan

SUCCESSFUL VENTURES
Let us put to restthe question of whether a fully developed business plan is necessary, as some recent research has indicated otherwise. The plain answer is yes and with no conditions attached. Here are the reasons.

THE BOTTOM LINE from

1.COMMUNICATION:

Stakeholders and employees, and subsequently friends, family, potential employees, investors, and consultants, must read, understand the business model and product [and/or service] concept being developed. The ONLY practical answer is a written business plan.

2. DIRECTION: The plan

also provides insight into the founders philosophy, management style, cost containment, provisions for employees, and exit strategies.

3. PLANNING:

OPERATIONALLY, A START-UP AND ITS MANAGEMENT TEAM NEED A BLUEPRINT TO FOLLOW; PRIORITIES ARE SET AND FOLLOWED, PRODUCTS ARE TESTED, FINANCING IS SECURED ONLY BY ADVANCED PLANNING.