Ch. 5 Small Business

Comprehensive business plans will require information about the industry, competitors, and customers. Owners or the writers of the business plan should be aware of...

where they can obtain this information

Competitive strategy

while competition is beneficial to customers, it is not always beneficial to those who are competing. Competition may involve lowering prices, increasing research and development (R&D), and increasing advertising and other expenses and activities—all of which can lower profit margins.

Clearly specifying your strategy should be seen as an end in itself. Requiring a company to specify its strategy forces that company to think about its core issues, such as the following:

• Who are your customers? • How are you going to provide value to those customers? • Who are your current and future competitors? • What are your resources? • How are you going to use these resources?

Basically, there are two main reasons for developing a comprehensive business plan:

(1) a plan will be extraordinarily useful in ensuring the successful operation of your business; and (2) if one is seeking to secure external funds from banks, venture capitalists, or other investors, it is essential that you be able to demonstrate to them that they will be recovering their money and making a profit.

The four "generic strategies" that can be applied to small businesses are...

-cost leadership -differentiation -cost focus -differentiation focus

Identify significant changes that might impact the business:

-major shifts in customers notion of value -shifts in economic environment -entrance of new competitors

There are several ways that a firm can adopt a focus perspective:

-product line -customer -geographic area -particular distribution channel

The five forces model

-the power of suppliers -the power of buyers -the threat of substitution -the threat of new entrants -rivalry within the industry.

Forecasting for the plan:

-the size of the business -The analytical sophistication of people who will be conducting the forecast -The type of organization -historical records

Excuses for why people are reluctant to a formal plan:

-we do not need a plan -I am too busy to plan -plans do not produce results -we're not familiar with the planning process

Particular distribution channel

. Firms may wish to limit themselves with respect to the means by which they sell their products and services. Amazon began and remains a firm that sells only through the Internet.

Customer

A firm concentrates on serving the needs of a particular type of customer. Weight Watchers concentrates on customers who wish to control their weight or lose weight.

Product Line

A firm limits its product line to specific items of only one or more product types. California Cart Builder produces only catering trucks and mobile kitchens.

Producer Price Index

Businesses that provide services or are focused on business-to-business (B2B) operations may find these data more appropriate for estimating future prices.

Value line investment survey

Concise company and industry profiles are updated every thirteen weeks.

Components of a Business Plan:

Cover Page Executive Summary Vision and Mission Statements Industry Review Products and Services Marketing Plan Management Team Financial Statements Income Statement Balance Sheet Cash Flow Statements Additional Information Appendix

Geographic Area

Many small firms, out of necessity, will limit themselves to a particular geographic region. Microbrewers generally serve a limited geographic region.

NAICS is the

North American Industry Classification System

Evaluating strategies

Once a strategy is selected, all aspects of the business must be tied to implementing that strategy.

Qualitative Sales Forecasting Methods:

Simple Extrapolation Sales Force Expert Opinion Delphi Historical Analogy Market Research

Whatever definition of strategy is used, it is often difficult to separate it from two other terms:

Strategic planning and strategic management

Strategy 2

The determination of the long-run goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals

Standard Industrial Classification Manual

The industry classification system that preceded the NAICS

State and local personal income and employment

These databases provide a breakdown of personal income by state and metropolitan area.

Consumer Expenditures Survey

This database provides information on expenditures and income. It allows for a remarkable level of refinement by occupation, age, or race.

Consumer Price Index

This index provides information on the direction of prices for industries and geographic areas.

US Census

This is a huge site with databases on population, income, foreign trade, economic indicators, and business ownership.

U.S. Small Business Administration (SBA)

This is an excellent site to begin researching a business plan. It covers writing a plan, financing a start-up, selecting a location, managing employees, and insurance and legal issues

National Wage Data

This site provides information on prevailing wages and can be broken down by occupation and location down to the metropolitan area.

GDP by State and Metropolitan Area

This will provide an accurate guide to the overall economic health of a region or a city

Quantitative Sales Forecasting Methods:

Trend Analysis Moving Average Seasonality Analysis Exponential Smoothing Causal models— regression analysis

NAICS

a numeric industry classification system that replaced the Standard Industrial Classification (SIC) system. An electronic version is available from the US Census Bureau

Strategy 1

a pattern of objectives, purposes or goals and the major policies and plans for achieving these goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or to be

Strategic planning

a series of techniques and tools that would enable organizations to achieve their specified goals and objectives

Once a given strategy is selected...

all of a firm's operations should be geared to implementing that strategy.

No strategy will be successful forever and therefore needs to...

be constantly evaluated

Strategic planning often became a...

bureaucratic exercise where people filled out forms, attended meetings, and went through the motions to produce a document known as the strategic plan.

Businesses may have to raise capital from external sources—bankers, venture capitalists, or angel investors. Each type of investor will expect a ...

business plan. Each type of investor will be more or less interested in different parts of the plan. Business owners should be aware of what parts of the plan each type of investor will focus on.

Strategic thinkers often break...

commonly understood principles to reach their goals

What business strategy is all about is...

competitive advantage

He said that focus strategies can be segmented into

cost focus and differentiation focus

Strategy can be reduced to four major approaches -

cost leadership, differentiation, cost focus, and differentiation focus.

Some businesses should make it a practice of conducting scenario analyses. This is a process of

examining possible future events and what should be the response of the business.

Many small business owners are reluctant to formally plan. They can produce many...

excuses for not planning

Although business plans come in different "sizes and shapes," they should have some key sections:

executive summary, mission statement, industry analysis, marketing plan, description of the management team, and financial projections.

The planning process for a small business must always ...

incorporate the notion of customer value and recognize that this notion can change over time.

planning

is a critical and important component of ensuring the success of a small business

SCORE program

is a partner of the SBA. It provides a variety of services to small business owners, ranging from online (and in-person) mentoring, workshops, free computer templates, and advice on a wide range of small business issues

Forecasting

is critical to the success of any business.

Strategic thinking

is the creative analysis of the competitive landscape and a deep understanding of customer value. It should be the driver of the entire process.

Differentiation can also be achieved by...

offering a unique design or features in the product or the service

Possible sources of capital

personal wealth personal loans credit cards banks venture capitalists angel investors

The proper management of a firm's cash flow requires a commitment to

planning the management of one's cash flow.

Strategy identifies how a firm will..

provide value to its customers within its operational constraints.

Some form of formal planning should not only accompany the start-up of a business but also be a ...

regular (annual) activity that guides the future direction of the business

A cost leadership strategy...

requires that a firm be in the position of being the lowest cost producer in its competitive environment.

a differentiation strategy includes...

requires that a firm be in the position of being the lowest cost producer in its competitive environment.

Adopting a differentiation strategy requires...

significantly different capabilities than those that were outlined for cost leadership. Firms that employ a differentiation strategy must have a complete understanding of what constitutes customer value. Further, they must be able to rapidly respond to changing customer needs.

There are many different approaches to forecasting:

some are simple extrapolations of trends, while others can be computationally complex. The business should use a forecasting system that is not only accurate but also makes the users feel comfortable.

Which concept is often left out of large bureaucratic organizations?

strategic thinking

Strategy is from the greek workd

strategos

Any firm, regardless of size, needs to know how it will compete; this is the firm's

strategy

strategos

the art of the general, namely a military leader.

Strategic management

the organizational mechanisms by which you would implement the strategic plan

The business planning for a start-up business should consider if,...

the owner(s) is/are ready to accept the challenges of operating a business.

The books definition of strategy:

the path by which it seeks to provide its customers with value, given the competitive environment and within the constraints of the resources available to the firm

The extent to which a strategy should be articulated in a formal manner, such as part of a business plan, is highly dependent on...

the type of business

Although e-business and e-commerce options may not be considered in the original plan for a business, if they are eventually considered,

their successful implementation will require a detailed plan

The complexity and difficulty of building a comprehensive business plan can be significantly reduced by

using one of the available business-planning software packages.