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 All aspects
enterprise differentiating proprietary features offering provided through communicated of
makes process often processes and with an to which to customers 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

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?

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  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

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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
them. ... 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.

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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

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  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

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  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 (1st , 2nd , 3rd 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:

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  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 %)

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 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)

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  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

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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.

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