Crafting a Business Plan and Building a Solid Strategic Plan Chapter 5 Crafting a Business Plan and Building a Solid Strategic Plan

Business Plan Business Plan: a written summary of an entrepreneur’s proposed business venture, its operational and financial details, its marketing opportunities and strategy, and its managers’ skills and abilities. To get external financing, an entrepreneur’s plan must pass three tests with potential lenders and investors: the reality test, the competitive test, and the value test.

Financial Criteria Small business owners need to be aware of the criteria bankers use in evaluating the creditworthiness of loan applicants – the five Cs of credit: capital, capacity, collateral, character, and conditions.

Capital Lenders expect small businesses to have an equity base of investment by the owner(s) that will help support the venture during times of financial strain.

Capacity A synonym for “capacity” is “cash flow.” The bank must be convinced of the firm’s ability to meet its regular financial obligations and to repay the bank loan, and that takes cash.

Collateral Collateral includes any assets the owner pledges to the bank as security for repayment of the loan.

Character Before approving a loan to a small business, the banker must be satisfied with the owner’s character.

Conditions The conditions (interest rates, the health of the nation’s economy, industry growth rates, and so on) surrounding a loan request also affect the owner’s chance of receiving funds.

Competitive Advantage the combination of factors that sets a small business apart from its competitors and gives it a unique position in the market that is superior to its rivals. It is the differentiating factor that makes customers want to buy from your business rather than from your competitors.

Building a Competitive Advantage Products they sell: what is unique about the products the company sells? Service they provide: what services does (or can) the company provide to deliver added value and a superior experience for customers? Pricing they offer: some small businesses differentiate themselves using price Way to sell: including extended hours, internet, home pick- up/delivery Values to which they are committed: creating good for society and the environment

Strategic Management Strategic Management involves developing a game plan to guide a company as it strives to accomplish its vision, mission, goals and objectives, and keeps it from straying off its desired course.

The Strategic Management Process Step 1 - Develop a clear vision and translate it into a meaningful mission statement vision. A mission statement is an enduring declaration of a company’s purpose that addresses the first question of any business venture: “What business am I in?” Vision provides direction, determines decisions, inspires people, and allows for perseverance in the face of adversity.

The Strategic Management Process Step 2 - Assess the Company’s Strengths and Weaknesses Strengths are positive internal factors that a company can use to accomplish its mission, goals and objectives. (ex. special skills or knowledge, loyal customers, positive public image, ) Weaknesses are negative internal factors that inhibit a company’s ability to accomplish its mission, goals and objectives. (ex. lack of capital, shortage of skilled workers, inferior location)

The Strategic Management Process Step 3 - Scan the Environment for Significant Opportunities and Threats Facing the Business Opportunities are positive external options that a firm can exploit to accomplish its mission, goals and objectives. Threats are negative external forces, such as new competitors, government mandates regulating business, economic recession, technology advances making a product obsolete, etc.

The Strategic Management Process Step 4 - Identify the Key Factors for Success in the Business Key Success Factors (KSFs) are the factors that determine a company’s ability to compete successfully in an industry. These can include cost factors, such as manufacturing cost per unit, as well as other, less tangible factors such as superior product quality, solid relationships with suppliers, superior customer service, prime store locations, etc. Each industry will have its own KSFs

The Strategic Management Process Step 5 - Analyze the Competition Direct Competitors - offer the same products and services Significant Competitors - some of the same products and services, and there is competition in several key areas Indirect Competitors - the same or similar products or services only in a small number of areas

The Strategic Management Process Step 6 - Create Company Goals and Objectives Goals - the broad, long-range attributes a business seeks to accomplish; they tend to be general and sometimes even abstract Objectives - more specific targets of performance, commonly addressing areas such as profitability, productivity, growth and other key aspects of a business. Objectives are - specific, measurable, assignable, realistic yet challenging, timely and written down.

The Strategic Management Process Step 7 - Formulate Strategic Options and Select the Appropriate Strategies Strategy - a road map of the actions an entrepreneur draws up to fulfill a company’s mission, goals and objectives Cost Leadership Strategy - a strategy in which a company strives to be the low-cost producer in the industry Differentiation Strategy - a strategy in which a company seeks to build customer loyalty by positioning its goods or services in a unique or different fashion. Focus Strategy - a strategy in which a company selects one or more market segments; identifies customers’ special needs, wants and interests, and approaches them with a good or service designed to excel in meeting those needs, wants and interests.

The Strategic Management Process Step 8 - Translate Strategic Plans into Action Plans Implementing a strategy successfully requires both a process that fits a company’s culture and the right people committed to making that process work. Divide the strategic plan into projects, defining each by its purpose, scope, contribution, resource requirements and timing.

The Strategic Management Process Step 9 - Establish Accurate Controls Balanced scorecards - are a set of multi-dimensional measurements that give managers a quick yet comprehensive picture of the company’s overall performance. Balanced scorecards looks at a business from five important perspectives: Customer Perspective Internal Business Perspective Innovation and Learning Perspective Financial Perspective Corporate Citizenship