CHE 458 – Unit 4 Entrepreneurship and Business Development PDF

07/08/2024 CHE 458 – Entrepreneurship and Business Development (Unit 4) LECTURER: Kenneth Asamoah Boateng, PhD 1 Course Content CHE 458 Entrepreneurship...

07/08/2024 CHE 458 – Entrepreneurship and Business Development (Unit 4) LECTURER: Kenneth Asamoah Boateng, PhD 1 Course Content CHE 458 Entrepreneurship and Business Development (3, 0, 3) Entrepreneurship and free enterprise. Types of business and registration. Law of contract. Business planning and reporting. Product and service concept for new ventures. Market and market development. Organization and financing new projects. Current trend, e-commerce. Case studies. 2 1  07/08/2024 UNIT 4.0 THE BUSINESS PLAN 3 4.0 The Business Plan Objectives: o Describe the nine building blocks of a typical business model. o Identify the weaknesses, strengths, threats and opportunities of a business concept. o Outline the process involved in planning for a successful business. o Identify the components of a business plan. o State the difference between a business proposal and a business plan. o Identify the outputs of the business planning process. 4 2  07/08/2024 4.1 Developing Your Business Concept How does one progress from business idea to business concept ? Systematically exploring a business opportunity ensures that a business idea grows into a business concept, which flowers into a business plan, resulting in the implementation of a successful business. 5 4.1 Developing Your Business Concept Topic Objectives Upon completion of this lesson you will be able to: Distinguish between business idea and business concept Discuss how business idea is transformed into a business concept Explain the processes involved in developing a business concept 6 3  07/08/2024 4.1 Developing Your Business Concept Business Idea Versus Business Concept A good business idea is what can be transformed into a great business opportunity The initial idea is the first spark of Entrepreneurship Most do not put energy into the initial idea to grow it It will require time (and money) in creating a solid business concept that can be shared with others 7 4.1 Developing Your Business Concept Business Idea Versus Business Concept The business concept describes… The business you wish to create The market it serves The potential competition facing the proposed business Creation of a business concept is the first step in creating a business plan Converting idea into concept requires research and exploration of the idea 8 4  07/08/2024 4.1 Developing Your Business Concept Business Idea Versus Business Concept The business concept helps to answer this question… Are there potential customers out there who are willing to pay for my services or products? A viable business concept needs to determine whether there is sufficient revenue potential to ensure profitability over a period of time. 9 4.1 Developing Your Business Concept Components of A Business Concept Creating a business concept document is a critical task for business start-up or improvement of an existing venture The business concept can be summerized in a document of two or three pages 10 5  07/08/2024 4.1 Developing Your Business Concept Components of A Business Concept Answer the following questions as first steps in developing the business concept… WHAT does the product or service do? HOW is it different from other products or services? WHO will buy it? 11 4.1 Developing Your Business Concept Components of A Business Concept WHY will they buy it? Price? Convenience? Provides sense of safety/security/well-being? Better than what is currently available? Pleasurable experience? Uses new technology? 12 6  07/08/2024 4.1 Developing Your Business Concept Components of A Business Concept WHERE Geographic location of business and customers. WHEN will it be ready to be sold? Concept, start-up, initial operations phase. HOW will it be promoted and sold? Will it be sold or marketed online? After development, the business concept is tested for feasibility prior to developing the business plan 13 4.1 Developing Your Business Concept Transforming Business Idea Into Business Concept Some guidelines to consider on developing business concept – The Africa Report (2010) Identify the marketplace Begin small Know who you are Research the market Test the idea in the marketplace 14 7  07/08/2024 4.1 Developing Your Business Concept Business Idea: Provide repair and troubleshooting services for PC and MAC hardware and software. Potential Scenarios: Provide services from a static retail location where clients bring their hardware in for servicing/repair. Provide mobile services and go to the client’s location. Provide services to individuals and home based businesses. Provide services to medium to large corporations. Provide support and guidance via telephone and virtual control of local PC/MAC. 15 4.1 Developing Your Business Concept Refine scenarios – Select those scenarios that are viable for further study and eliminate the rest. As you go through Step 1 you should accomplish two things: Through the process of elimination you will reduce the number of scenarios/models under consideration for further study. Refine and combine the remaining viable business scenarios/models. 16 8  07/08/2024 4.1 Developing Your Business Concept 17 4.2 Business Model After developing a business concept from the ideas generated through the opportunity recognition process, the next step is to test its viability through the process of business modelling. The topic “Business Model” will take us through the process of describing, assessing and improving your potential business model. Topic Objectives 1. Describe a business model using the nine building blocks 2. Assess your own business model to determine weaknesses, strengths, threats and opportunities of the business concept (SWOT analysis). 18 9  07/08/2024 4.2 Business Model Business Model Definitions The business model is the business logic of making money. The developed business concept is still an idea that may or may not work (www.arvertica.com.) The business model development process can be used to better understand the customer and what the customer wants, needs and is willing to pay for. The business model can be used to understand what it will take to turn a business idea into a sustainable business opportunity as a fundamental knowledge that will benefit the entrepreneur in the process of starting or expanding the business venture. 19 4.2 Business Model The Nine Building Blocks of a Business Model Business models will vary based on the type of products and services being developed and the type of industry/sector being serviced. However, all business models have some common elements. To be studied is the Model by Alexander Osterwalder. The nine components of the Osterwalder business model represent the following: 20 10  07/08/2024 4.2 Business Model The Nine Building Blocks of a Business Model 1. The value proposition of what is offered to the market. 2. The segment(s) of clients that are addressed by the value proposition. 3. The communication and distribution channels to reach clients and offer them the value proposition. 4. The relationships established with clients. 5. The key resources needed to make the business model possible. 6. The key activities necessary to implement the business model. 7. The key partners and their motivations to participate in the business model. 8. The revenue streams generated by the business model (constituting the revenue model). 9. The cost structure resulting from the business model. 21 22 11  07/08/2024 4.2 Business Model 1. Value Proposition A customer value proposition is a business or marketing statement that describes why a customer should buy a product or use a service. It is a set of products and/or services that provide value for the customer. A business can have more than one value proposition, each catering to different segments of your customers. Questions you will need to ask to identify the value proposition for each customer segment: 23 4.2 Business Model 1. Value Proposition (cont’d) What do you offer to the market? What specific products/services do you offer each customer segment? What customer needs does the value proposition cover? Are the service levels different for different customers? The customer segment and the value proposition are the heart and soul of any business model. It is necessary to match each customer segment with each value proposition as the business model is being laid. 24 12  07/08/2024 4.2 Business Model 2. Customer Segments Something to remember when growing a business: NO CUSTOMERS, NO BUSINESS. The purpose of a business is to create a customer (Peter Drucker). The customer is the source of revenues for the business. An explicit understanding of the customers for the business is a fundamental ingredient for this building block of a business model. Some basic questions you need to ask when identifying who your customers or potential customers are: o Who do we create value for? o Can we group them according to § What you offer? § The channels you communicate and distribute your offer? § By the relationships you keep with them? § By the profitability of each segment? 25 4.2 Business Model 3. Distribution Channels If you know your customers and what you can offer them, the next thing is to explore how you to distribute your products and services to the customer. Various communication and distribution channels are available to reach the customer, choosing the right fit is critical for you to have and maintain competitive advantage. This is all part of your marketing effort and plan. Cost of distribution is important as that will affect the bottom-line (profit and profitability). Key Questions: o What do we offer to the market? o What is the specific bundle of products and services you offer each of the customer segments? o Which customer needs does each value proposition cover? o Do we offer different service levels to different customer segments? o What is the best way to distribute our products and services? o How should we communicate and engage our potential customers? 26 13  07/08/2024 4.2 Business Model 4. Client Relationships Good relationships with your clients is vital in meeting their expectations and ensuring they are return customers. Customers who pay premium prices will expect quality customer service and support. A clear strategy for customer relationship management for each customer segment in the business model is necessary. Key Questions: o How do we develop and maintain different types of client relationships in our business model (e.g. more or less intense, more or less personal)? o How resource intensive is each of these client relationship in terms of time consumption and other costs ? o For each client segment, which client relationship types and mechanisms do we develop and maintain? o What type of customer service and support must I establish? 27 4.2 Business Model 5. Key Resources Every business requires physical and human resources to accomplish its value proposition. Some of these resources include employees, contractors, suppliers, office space, infrastructure and other tangible assets. For the business model to work successfully, these key resources must be deployed efficiently and effectively to support the value proposition and your customer segment. Key Questions: o What are the key resources we rely on to run our business model? o How do these resources relate to our value propositions and their corresponding customer segments, channels and relationships ? o What resources do not add value to the company? 28 14  07/08/2024 4.2 Business Model 6. Key Activities Certain key activities must be performed in order to implement the business model and service customers. These activities form the core processes that the business engages in order to produce the value proposition for the customer segments. The processes and activities will change based on the type of products or services you provide, the industry or sector you are serving and the type of business scenarios you are trying to work in. For example, the business may require a delivery service or use of courier to deliver products. Such an activity is crucial to fulfill the value proposition. It is also possible to get them done through a network of partners. Key Questions: o What are the main activities we operate to run our business model? o On which key resources do they rely? o To which value propositions, channels or relationships do they contribute? 29 4.2 Business Model 7. Key Partners (Partner Network) In some business ventures key activities may call for specialist knowledge or equipment which can be provided through key partners (outsourcing). Access to certain national or international markets may require companies located in the target audience. So the question you must ask yourself is: How do we leverage our own business model by partnering with other businesses? What does your business want to do by itself and what does it want to do with partners? Key Questions: o Which partners and suppliers do we work with? o Which key resources do they relate to? o What is the cost/impact of partnering? o To which value propositions, channels or relationships do they contribute? 30 15  07/08/2024 4.2 Business Model 8. Revenue Flows Revenue from customers provides the backbone for any business. This is generated as result of value created for the customer through our value proposition. Revenues can come in various forms: selling, lending, commissions, licensing etc. from one or more of the customer segments. Key Questions: o What are the revenue streams? o What are the revenue streams from each customer segment and value proposition? o How much is each revenue stream’s contribution to overall revenues in terms of percentages? 31 4.2 Business Model 9. Cost Structure The business model incurs costs that can easily be traced back directly or indirectly to each component within each of the nine business building blocks. By simply listing the most important costs incurred, you will be able to easily link them to a building block. Key Questions: o What are the most important costs in our business model? o Can the cost requirements be easily connected to a business model building block ? o Can costs be calculated for each customer segment? 32 16  07/08/2024 Activity – Business Model Assessment Think about your own business opportunity and potential model and answer each of the questions. Business Component Questions to Ask Customer Segments: Do we know our customers and their needs good enough? Are some customer groups likely to defect soon? Do we regroup different customer segments well enough? Value Proposition: Does our value proposition still cater well enough to our clients’ needs? Do we know how our customers perceive our value proposition? Are our competitors offering similar value propositions at similar or better prices? How well are our customers served by other competitors? Revenue Streams: How sustainable are our current revenue streams? How diversified are our revenue streams? Are we dependent on too few revenue sources (e.g. from some big clients or one single business)? How well do we price our value proposition? 33 Activity – Business Model Assessment Business Component Questions to Ask Communication and Do we have a well thought-through communication and distribution channels Distribution Channels: design? How well do we reach our clients? Do we know how successful our channels are in terms of customer acquisition? How well are our different channels integrated? Do we know how cost efficient are our channels are? Do we use the right channels for the right clients (e.g. in terms of profitability)? Customer Relationships: Do we have a customer relationship strategy? How good are our relationships with our best customers? Do we spend too much time and money in relationships with unprofitable clients ? How well are we doing in managing our customer relationships (e.g. follow- up, etc.) 34 17  07/08/2024 Activity – Business Model Assessment Business Component Questions to Ask Key Resources: Do we dispose of the right key resources in terms of quality and quantity? Do we dispose of to many resources internally, leading to a lack of focus? Key Activities: How efficient are we in performing our activities? Do we perform too many activities ourselves, leading to a lack of focus? Partner Network: Do we use partners enough? How well do we work with our existing partners and suppliers? How dependent are we on our existing partners and suppliers? Cost Structure: Is our cost structure appropriate (e.g. low cost business model = low cost structure)? Do we clearly understand which parts of our business model have the highest costs ? How lean is our cost structure? 35 4.2 Business Model Summary Developing your business idea requires an in-depth analysis of many aspects of the business environment and proposed business model in order to evaluate its potential success. 36 18  07/08/2024 4.3 Business Planning In this topic we review the content of a business plan and the recommended process for creating one. Objectives 1. Define business plan. 2. Outline the contents of a business plan. 3. Describe the steps in producing a business plan. 4. Distinguish between a business proposal and a business plan. 37 4.3 Business Planning What is a Business Plan ? A Business Plan is a document that describes in detail how you propose to implement and management your business from Stage 1 - Start-up, to at least Stage 3 - Success. A business plan builds upon the results of the initial analysis of the business idea and the findings and observations described in the formal business proposal. It describes how you move from what you propose to how you start and grow the business. 38 19  07/08/2024 4.3 Business Planning Why spend the time and effort creating a business plan? Isn’t your business idea and proposal good enough? Good questions, but it is no different than building a house. You can have a concept of what your house will look like, the number of rooms it will have and a general idea of how it will be built. But what you need before you can begin construction is a detailed set of blueprints to guide the construction. Without blueprints the house may not look like your initial idea envisioned. 39 4.3 Business Planning Some of the benefits of creating a formal plan for your business are: Provides a multi-year strategic direction for the business. Sets out a clear path to your short term and long term business goals. Allows you to anticipate future strengths, weaknesses, opportunities, and threats to your business and create strategies to counter them. It provides a framework for resource and financial controls. Becomes a useful tool for communicating with bankers, other lenders, suppliers and customers to demonstrate that you have a solid plan and therefore should be supported. 40 20  07/08/2024 4.3 Business Planning The business plan should describe all nine elements of a typical business model. Customer Segments; Value Proposition; Revenue Streams; Communication and Distribution Channels; Customer Relationships; Key Resources; Key Activities; Partner Networks; and Cost Structure. 41 4.3 Business Planning Business Plan Outline A typical business plan should include the following sections. Some of the information will have already been captured during the creation of your business idea, business outline/proposal preparation and business model considerations. 1. Executive Summary: In this section, you should provide an overview of the most important selling points of your business idea. Keep it succinct and to the point: a good way to think about it is that this may be the only part of the whole plan that gets read, so it should sell your business. 2. Company Description: Describe your business idea in this section. Elaborate on what industry and what products/services your business will provide Include the legal form of your business entity: sole proprietorship, partnership, corporation, etc.; the business hours and the seasonality of the business, if appropriate. You may also include the location of your planned business. Sometimes location of the business may be the key to its success. 42 21  07/08/2024 4.3 Business Planning 3. Strategic Plan: In this section, detail the vision, mission and values and strategies you will follow to attain your business goals. Go over what you want to do, where you want to go and how you will get there. Produce measurable and observ able strategic goals. 4. Market Analysis: Describe the results of your market analysis. Explain the industry that you are selling into. Include target markets and descriptions of any specific customers. Explain your marketing strategies and plans, including how you will deli ver your goods or services to your target market. Explain your pricing strategies. 5. Competitive Analysis: You will need to explain who your competitors are and how you can gain a competitive advantage. Explain your competition and compare your business idea to them. 43 4.3 Business Planning 6. Impact of Technology: Provide an overview of the technology you will use, if any, and how new developments in technology may or may not affect your business. 7. Business Operations: In this section, explain how you will conduct your business. Focus on what makes you better than the competition as far as operations. 8. Management and Ownership: This is where you should outline the key personnel that will be part of your business. Explain their skills, education and what they bring to the company. 44 22  07/08/2024 4.3 Business Planning 9. Organization and Personnel: Provide an explanation of your personnel needs in this section. State how many employees you will need, how much you will pay them and how t hey will be paid. Also explain the personnel organizational structure. Make sure you go over the process for personnel recruiting, selection, evaluation and training. 10. Capital and Usage: In this section, you must detail what capital you will need, if only for start-up or for operations, for how long and re-payment strategies. Start with how much you will need to start followed by a realistic projection of needs. Include all sources as well as the applications of cash within the enterprise, highlighting how that cash will be utilised. 45 4.3 Business Planning 11. Financial Information: In this section you make projections for future gains and losses. You should list them quarterly until the business breaks even then annual reports are fine, if you are submitting a plan for a few years. Make sure you include the following items in this section: Recording: State how you plan to carry out the systematic recording of the enterprise’s income and expenditures, assets, liabilities and owner’s equity, in order to determine its financial performance and financial position. Breakeven analysis: the volume of sales sufficient to cover all fixed and variable costs. It is the point where revenues equal costs. Capital Equipment list: A statement that includes the details of the required operating equipment and its corresponding value. 46 23  07/08/2024 4.3 Business Planning Cash Flow Statements: Show the inflow of dollar from receipts into the business, and the outflow in the form of expenditures made by the business. Use your estimated figures for revenue and expenditures. If your funding options include a request for funding that will span over the course of a couple of year of operation, then you may want to include more in depth financial information, based on realistic projections, such as: Balance Sheet: It shows at a point in time the firm's position with regards to assets, liabilities and net worth, or owners’ equities. Income Statement (Statement of Financial Performance): It shows all the revenues and expenses over a specific time period, which result in the profit or loss from those transactions and cash flow statements 47 4.3 Business Planning 12. Appendices: Make sure you include all documents you used to substantiate our business idea here. Include resumes, references, SWOT analysis, competitive analysis, copies of studies done or anything else to back up information in the business plan. 48 24  07/08/2024 4.3 Business Planning STEPS IN PRODUCING A BUSINESS PLAN Abrams (2000) - The Successful Business Plan identifies five key steps in the production of a business plan. 1. Layout or define you basic business concept. You have a business idea that you can turn into some form of business outline. Describe your proposed products and services. 2. Gather data on the feasibility and specific of your concept. This means conducting a market analysis and competitor analysis. 3. Focus and refine your concept base on the data compiled. Produce a more detailed business proposal, that includes a description of the market, how to gain the competitive edge, refinement to your proposed products and services and other information you identified during your data analysis. Produce pricing model/strategies. 49 4.3 Business Planning STEPS IN PRODUCING A BUSINESS PLAN 4. Outline the specifics of your business. Make sure you address the nine building blocks of a business model. Identify unique customer services or support that you need to provide to ensure business success and customer satisfaction. Identify your marketing strategies. Complete a strategic plan with strategic business goals. 5. Put your plan into a compelling format. Fill out the details of your business into a business plan tailored for your unique business entity. Provide the financial data needed to convince lenders and investors about the soundness of your plan. 6. Share the draft plan with others. Have them consider the risks and potential of success of the business. Address any risks that they identify. 50 25  07/08/2024 4.3 Business Planning Some things to think about as you produce and implement your plan. 1.No business plan is cast in concrete because the planners cannot consider all variables that will potentially impact on the plan. Be willing to change it and revisit earlier decisions. Make changes to the plan that reflect the realities of the business environment. 2.A business plan should be revisited every two or three years or when all of the strategic business goals have been achieved. 3.Don’t shelve the business plan. Use it to guide all business decisions, investments and management issues. 4. Ensure you create ways of measuring business plan success. 51 4.3 Business Planning Summary A business plan is more detailed than a business idea, outline or proposal. A business plan covers your business structure, your products and services, your market research and marketing strategy, and your complete budget and financial projections for up to five years. It is the tool that will guide your future business operations for the first three to five years of business growth. 52 26