Finance

Topics: Generally Accepted Accounting Principles, Financial ratios, Profit margin Pages: 27 (6931 words) Published: July 14, 2013
Chapter 2

FROM THE IDEA TO THE BUSINESS PLAN

FOCUS

In this chapter we examine how one can move from an idea to a determination of the feasibility of the related business opportunity. We present an opportunity screening system to aid in determining whether an idea should be discarded or pursued. We conclude the chapter with an overview of a business plan.

LEARNING OBJECTIVES

1. Describe the process of moving from an idea to a business plan 2. Understand the components of a sound business model
3. Identify some of the best practices for high growth, high performance firms 4. Understand the importance of timing in venture success 5. Describe the use of a SWOT analysis as an initial “litmus test” 6. Identify the types of questions that a reasonable feasibility assessment addresses 7. Identify quantitative criteria that assist in assessing a new venture’s feasibility and its ability to attract external financing 8. Describe the primary components of a typical business plan

CHAPTER OUTLINE

1. PROCESS FOR INDENTIFYING BUSINESS OPPORTUNITIES
2. TO BE SUCCESSFUL YOU MUST HAVE A SOUND BUSINESS MODEL
A. Component1: The Plan must Generate Revenues
B. Component 2: The Plan must Make Profits
C. Component 3: The Plan must Produce Free Cash Flows
3. LEARN FROM THE BEST PRACTICES OF SUCCESSFUL ENTREPRENEURIAL VENTURES A. Best Marketing Practices
B. Best Financial Practices
C. Best Management Practices
D. Best Production or Operations Practices are also Important 4. TIME-TO-MARKET AND OTHER TIMING IMPLICATIONS
5. INITIAL “LITMUS TEST” FOR EVALUATING THE BUSINESS FEASIBILITY OF AN IDEA 6. SCREENING VENTURE OPPORTUNITIES
A. An Interview with the Founder (Entrepreneur) and Management Team: Qualitative Screening B. Scoring a Prospective New Venture: Quantitative Screening C. Industry/Market Considerations

D. Pricing/Profitability Considerations
E. Financial/Harvest Considerations
F. Management Team Considerations
G. Opportunity-Screening Caveats
7. KEY ELEMENTS OF A BUSINESS PLAN
A. Cover Page, Confidentiality Statement, and Table of Contents B. Executive Summary
C. Business Description
D. Marketing Plan and Strategy
E. Operations and Support
F. Management Team
G. Financial Plans and Projections
H. Risks and Opportunities
I. Business Plan Appendix
SUMMARY

APPENDIX:
APPLYING THE VOS INDICATORTM: AN EXAMPLE
Companion Systems Profile
Market Opportunity
Products
Management Team
Companion Systems Assessment

DISCUSSION QUESTIONS AND ANSWERS

1. Identify three types of startup firms.

Salary-replacement firms are firms that provide their owners with income levels comparable to what they could have earned working for much larger firms. Lifestyle firms are firms that allow owners to pursue specific lifestyles while being paid for doing what they like to do. Entrepreneurial ventures are entrepreneurial firms that are flows and performance oriented as reflected in rapid value creation over time.

2. Briefly describe the process involved in moving from an idea to a business plan.

Refer to Figure 2.1 “From Entrepreneurial Opportunities to New Businesses, Products, or Services.” Start with “ideas,” then assess the “feasibility” (finding an unfilled need), and then develop a “business plan.”

3. What are the components of a sound business model?

The components of a sound business model are the ability to generate revenues, create a profit, and produce free cash flow. These components must be achieved within a reasonable time frame as the venture progresses through the early stages of its life cycle.

4. Describe the differences between entrepreneurial ventures and other entrepreneurial firms.

Entrepreneurial...
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