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CHAPTER THREE

IDENTIFYING MARKET AND DEVELOPING BUSINESS MODEL AND BUSINESS PLAN

This chapter covers the following major topics:

i. Briefly introduce innovation

ii. Give bird-an-eye-view on market Research

iii. Briefly introduce business canvas

iv. Introduce business plan

3.1. INNOVATION IN THE MARKET PLACE

What is innovation?

What is innovation?

It is invention / idea of new products, processes, production, methods, organizational forms… or

An elementary improvement of a system and its successful application.

Innovation can be radical (disruptive innovation) or incremental innovation.

Dimensions of innovation

New service concept

New client concept

New service delivery system

Technological options

NB. Innovation is highly linked to creativity and successful commercialization of invention

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Ten types of innovation

Innovation occurs across the value delivery system. Accordingly one can identify ten type of innovation.

Finance

Process

Offering

Delivery

Business

Networking

Enabling

Core process

Product

Product

Service

Channel

Brand

Customer

model

process

performance

system

experience

How an

Value chain

Routine non-

Differentiating

Basic

Structured

Assistance

Conduits

How value is communicated to customers

All aspects

enterprise

differentiating

proprietary

features

offering

provided

through

of

makes

process often

processes

and

with an

to

which

customer

money

outsourced to

functions

array of

prospects

offering

 

interaction

others

tolerable

and

reach

with a

customers

customers

company

and its

brands

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Innovation pays

Innovation pays Market research (overview) Which information?  Based on that, define what kind your information

Market research (overview)

Which information?

Based on that, define what kind your information you need for reaching a decision

Are you interested in having more insight about the market?

Do you want to recognize a market opportunity?

Do you want to learn more about the costumer’s profile?

Do you need some numbers about the market size?

Do you want to understand your competitors better?

Do you need to try a new product before launching it to the market?

Do you need a distribution channel partner?

Why market research?

Research has shown that common marketing related danger of entrepreneurs:

Overestimating demand

Underestimating competitors response

Making uninformed distribution decisions

Research criteria related to market research

response  Making uninformed distribution decisions Research criteria related to market research Page 5 of 14

Business canvas

A business model is the conceptual structure supporting the viability of a business, including its purpose, its goals and its ongoing plans for achieving A representation of a company's business model can be incorporated into public relations (PR) material and is useful to share with customers and partners.

A business model

It is the way a company organizes and manages itself to deliver useful products and/or services for customers in exchange for economic value.

It is the conceptual structure supporting the viability of a business, including its purpose, its goals and its ongoing plans for achieving them.

A plan for the successful operation of a business, identifying sources of revenue, the intended customer base, products, and details of financing.

business, identifying sources of revenue, the intended customer base, products, and details of financing. Page 6
business, identifying sources of revenue, the intended customer base, products, and details of financing. Page 6
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Business plan  A business plan is ‘a selling document that conveys the excitement and

Business plan

A business plan is ‘a selling document that conveys the excitement and promise of your business to any potential backers or stakeholders.’

The business plan allows:

The presentation of the opportunities and risks

The development of the negotiating strategies

Financial and capital planning

Benefits of Good Business Plan

Assist in raising capital

Help entrepreneurs gain a deeper understanding of the opportunity they are envisioning

Serve as a guide for entrepreneur

Instrument to secure strategic partners

Instrument to gain credibility in the eyes of various stakeholders

Format and Design of Business Plan

Cover

Table of contents

Executive summary

Enterprise description/ Legal statues

Product/service

Market/sector

Marketing and distribution

Operation plan

Enterprise management

Financial planning

Appendix

Cover

Name of the company (including logo)

Its full address

Table of contents

Executive Summary

It is not the introduction, but a compressed “compendium for the management”.

The presentation quality is not only decisive for the financing opportunities but

also for the project rejection!

This summary should be written always at the end, since only after the rest of

the chapters has been elaborated, it is easier to formulate the ideas and goals in

a more concrete and precise way. This summary should be readable and

understandable in less than five minutes.

A good Executive Summary gives me a sense of why this is an interesting venture. I look for a very clear statement of the long-term mission, an overview of the people, the technology, and the fit to the market”

Contents of Executive summary

Description of the business idea (concepts)

Short market description (industry overview, competitive advantage, business

model )

Crucial success factors and risks

Management team (knowledge, skills, experience …)

Financial goals (financial snapshot)

1. Enterprise Description/ Business description

This part contents some important background information regarding the enterprise

A) Description of the business goals

What is the company’s main objective?

Indicate financial goals (1 st , 2 nd , 3 rd years)

Specify the amount of anticipated sales revenue

Indicate the profit margin to obtain in planning horizon

B) Form and legal status of the business

Contents:

Foundation date

Legal form and tax aspects

Owners distribution and structure (full address)

Brief history

Location analysis (if required)

2. Enterprise Management

This part contents the description of the most important people (founders) and the company’s structure

Contents:

Key people (qualification, experience in this sector, commercial know-how)

Company’s organization

3. Description of product / services Description of product and service features:

Specify quality

Product status

Comparison with the competitors’ product or service

4. Market and marketing plan

This parts covers “

a) Industry, customer and competitors’ analysis (overview

Industry

Describe your overall industry in terms of revenues, growth, and pertinent future trends.

How strong the opportunity is? Examine

Market demand (if market is growing >20%, the opportunity is more exiting)

Market size and structure

Margin analysis (>40 %)

Customer

Who is the customer?

What is the core customer wants?

Their buying preferences

The competitors

Who are the major players, their strategy, and level of competition ….

Analysis of the general conditions and the market opportunities covers the following:

A) Analysis and identification of the essential basic conditions

Economic development and its trends

Technology development -state-of-the-art

Relevant social, legal and environmental factors

B)

Description and development of the sector

Kind of sector

Current and future (3 -5 years) size, and market volume

Segment description

C)

Profile development of the target-market/the clients

Who are the potential clients?

Which service/product are these clients wishing?

Are there specific products /service characteristics that are particularly important?

D)

Competitors analysis

Competitors’ products/services description

Competitors’ market positions (market share)

Competitors’ strategies and practices (distribution channels, price formation, advertising, service)

Response strategies to possible new competitors

E) Sales-forecast presentation

Market share

5. Financial planning

i. Clear planning horizon 3 to 5 years

Long-term planning are often mere speculation

ii. Monthly terms

In order to identify liquidity problems during the first year, it is important to make an income-outcome comparison on a month basis.

iii. Realistic planning

Best Case und Worst Case Scenario

Only integrate realistic data and assumptions

Justify estimates

Financial plan decisions (in brief)

Determination of financial requirements? (How much?)

Identification and source of finance (source and use of fund table)

Choosing between debt and equity financing option (which one is better?)

Convincing profitability potential of new venture ( prepare pro-forma balance sheet, projection of cash flow statements )

Source of capital

Critical risk  Every new venture faces a number of risks that may threaten its

Critical risk

Every new venture faces a number of risks that may threaten its survival

Risks are usually associated with (market interest and growth potential, competitor’s action and retaliation, time and cost of development, operating expenses, availability and timing of financing…)

The BP should recognize potential risk, then state contingency plan

Clear financial planning should indicate:

The financial planning covers (preforma balance sheet; prefoma income statement; cash flow statement ; breakeven analysis; payback period; NPV and IRR)

Use source and use of fund table

Conclusion

The BP is just more than a document; it is process, a story.

It provides the entrepreneur with keen insight needed to marshal resources and direct growth.

It also provides talking points so that entrepreneurs can get feedback from a number of experts, including investors, vendors and customers.