PLANNING
i) The Planning Documents
To launch a new business or a major research and development project without a comprehensive, precise, detailed, documented plan is lunatic. Only through rigorous planning can the inevitable risks be minimized.
There are three kinds of plans and it is important to distinguish among them. They are:
The Strategic Plan
This plan is more general and less detailed than the business plans described below. The strategic plan takes a long-term perspective (usually at least a decade) and addresses the basic opportunities or dangers that a venture might face. It concerns itself with the outlook for an entire industry or broad product category or with the evolution of a particular technology. Changing lifestyles, social norms or political priorities would also be considered. A strategic plan therefore should provide a venture with a basic sense of direction for the future. For any major undertaking a strategic plan is essential.
The Preliminary Business Plan
The difference between the preliminary business plan and the business or action plan is that the preliminary business plan may NEVER be used to justify any major commitment of resources. A preliminary business plan is not the basis on which you launch a new business or large-scale research and development project. Rather, it is the basis on which you investigate the possibility of starting a new business or undertaking a major program of new product development. In particular, the preliminary plan helps you to decide whether you can justify the effort and expense of conducting a market survey and possibly a test-market. Of course, if you cannot justify a market survey, you cannot justify the launch of a business or a research and development program.
The preliminary plan follows the same basic format as the action business plan except that it does not contain market survey and test-market results. It does, of course include market research or analysis based on published information. However, the preliminary plan is less detailed and less documented than the action business plan.
The Business Plan
(The Action Plan or the Business Action Plan)
The business plan answers every question you need to ask to launch a new business or major research and development effort. And it answers them BEFORE you start. Moreover, each and every answer is documented with respect to where you obtained the information and why exactly you came to this particular conclusion. You never spend serious money without having a business plan in place and finished.
But note that a plan is an anticipation of the future; it is not a guarantee of the future. Therefore, your plan needs contingency pathways and some built-in flexibility. Nevertheless, you may well encounter some unexpected development that renders part of your plan inoperative. Do you then abandon the plan and proceed on an ad hoc basis? No. You abandon the existing plan, but not the art of planning. In other words, you stop and generate a new and complete business plan and set off again into the future.
The Basic Requirements of the Business Plan
The following elements are usually present in all business plans. However, particular situations or personal preference may alter the sequence or some of the content or involve additional information. Such amendments should support the fundamental logic of the plan which is to provide documented answers to all the significant questions involved. It is better to err on the side of more information rather than less.
The Product
The Market
Research and Development
The Production
The Marketing Strategy
The Organization
The Leadership of the Venture
The Evaluation of Risk
The Financial Analysis
- projected assets and liabilities
- projected profits
- projected cash flow
The Technical Format of the Business Plan
A business plan should have a title page which provides the name of the company, its address and the name and phone number of the company's principal contact person. It may also have a notice stating the conditions of confidentiality under which the document should be handled. This may also be combined with a agreement of non-disclosure which persons to whom the plan is presented are asked to sign. There also should be a separate page each for a table of contents and a summary page. The appendix of the plan would contain the detailed pro-forma budgets, engineering drawings or reports, the detailed market survey results and sample questionnaires, sample advertising copy, background information and documentation and so on.
ii) Marketing Notes
The Marketing Strategy (How to Sell Your Product)
You should decide how you will approach your customers and your competition simultaneously.
Having decided who your target market is you now decide:
You should make these decisions and plan in light of what you expect to be the competition's reaction to your entry into the marketplace
Or, how are you going to wrestle your consumers from the competition? How are you going to keep the competition from your new customers?
The utility/price inequality should provide a framework for your marketing strategy.
Key Marketing Questions
The Product Message
Are you going to compete on utility or price? Or both?
Have you prepared your message keeping in mind all your products advantages and disadvantages?
Are you going to ignore the competition or directly attack their product?
Is your product message short and clear?
Is your central message a solution to a problem or a better way to happiness?
Is your message precise about exactly how your product will advance the consumer's happiness?
Is your message applicable to most media of communication?
Is there anything in your message which is disharmonious with contemporary social mores?
Getting the Message to the Consumer
Are you considering every medium of communication?
Are you fully aware of the heavy costs of advertising and promotion?
Can you strip your product message down to its essentials to minimize expense?
Do you realize that in the short run only a small proportion of the target consumers who are exposed to your message will buy?
How are you going to attract the consumer's attention to your message?
Delivering Your Product
Are you considering every possible avenue of distribution?
How much control do you wish to exercise over your product at its final point of sale?
Are your prepared to share the reward of your product with the distribution network?
Do you recognize the long lead times involved in the distribution pipeline?
Dealing with the Competition
What is the competition's greatest vulnerability and how are you going to exploit it?
What is the competition's greatest strength and how are you going to counter it?
What is your greatest vulnerability and how are you going to protect yourself?
What is your greatest strength and how are you going to capitalize on it?
Have you developed contingency plans based on the anticipated moves of your competitors?
Have you checked to see if your product message is open to an obvious retaliatory response by the competition?
What are you doing to market your product that the competition is not?
Even though you may not intend to sell your new product yourself, you still need to complete a marketing strategy. If you intend to sell or licence your product to someone else to take to market, you need a marketing strategy to attract interest and to help you strike a good deal.
Preventing Imitation
In most cases imitations of your new product can only be delayed or minimized, not absolutely prevented.
Explore every legal means to defend your product (patents, industrial design, copyright, trademarks). But remember that these legal barriers are not perfect.
And there may be considerable expense involved, especially with patents. You have to decide if that expense is worth the probable benefit.
At the very least you want to delay the imitators, to increase the time it takes them to enter the market.
To do so:
Keep your plans and activities as confidential as possible. You must consult with many persons, but it should be on a need-to-know basis. Your overall plan or strategy should be restricted to very few persons. But do not become paranoid; or you will be the one who is slowed down.
Use legal barriers to force your imitators to redesign or rewrite.
Complete as much of your planning, research and preparation as possible before the test market. If you have a positive test result you much know exactly what you are going to do next. And do it at once. Delay at this stage can be deadly.
To speed yourself into market, you may wish to have prepared a relationship with an existing major market player.
iii) What is Moderate Risk
It is the difficult balance between two CONFLICTING situations.
- Risk nothing and you do nothing
- Risk too much and you get nothing
Or, in other words, you can fail by either taking TOO LITTLE RISK or by taking TOO MUCH RISK.
So how do you select the "best" blend of risk?
You forego gambling, but you look for a level of risk you fell comfortable with, consistent with being able to feel a sense of accomplishment.
Educate yourself about this sense of accomplishment.
But do not force yourself into risk beyond your comfort level. Otherwise, you will be easily "spooked" and end up shooting yourself in the foot.
Two risky aspects is asking for failure
For example, if your venture involves a NEW product, then you
- have ample capital
- use established channels of distribution
- promote and advertise heavily
- do volumes of research
- access experienced personnel
- use established manufacturing methods
In other words, do everything else in a conservative fashion; in a time-test fashion.
Or, if your venture involves an innovation in distribution, then you
- have an established product - have ample capital - etc.
Or, if your venture involves an innovation in capital-raising, then you
- have an established product - use established channels of distribution - etc.
Riskiness is a direct reflection of the degree to which anything is a departure from the established or routine.
In the event of a new venture with a very risky product (very dissimilar), then everything else must be very conservative.
More capital is necessary, More research is necessary, More experienced management is necessary, etc.
In practice, making judgements about risk is difficult.
That is why managing innovation requires skills of the highest intellectual order.
Next Section: References for Entrepreneurship