Business Model Development
Business Plan – methodology
Business plan is an old fashion methodology, usually asked by commercial bank, national funds, and EU funds or investors. It is a way of thinking about your business what will end up with a briefly elaborated document – project plan and timeline of your business idea or project. It is also a way of planning and tracking your business progress due the time. It is possible to find many variations of business plan, but content is pretty similar and focused on this few topics (Retrieved June 25, 2016 from http://bit.ly/29xSF5B; or Retrieved June 25, 2016 from http://entm.ag/29xTfAh) or some more academic sources Covello and Hazelgren (2006):
- Front cover,
- Executive Summary,
- Explanation of business idea,
- Presentation of entrepreneur and team,
- Analysis of the industry,
- Technical and Technological aspects of the business
- Product/services description,
- Marketing and sales plan,
- Operational plan,
- Management and organization plan,
- Financial plan,
- Return on Investment/Risk assessment.
- Sensitivity analysis.
Some useful resources for reading could be: Berry, T.: A Standard Business Plan Outline, (Retrieved June 25, 2016; http://bit.ly/1LdQ39a).
Take a look at the following You Tube video (How to write a business plan) and explore the content of a business plan. No matter you write for this course think about the appropriate content of a Business Plan, as it will help you understand your business better.
Front cover consists of usual information as an introduction to any seminar or thesis you have already prepared during your study. Front cover of your business plan needs to have this information: project name, company name and logo, authors (names, titles/competences), city, and date.
Content is a brief list of the business plan sections, chronologically listed, list of tables, abbreviations or other appendixes (Tables, Figures, Pictures) details with page numbers added. You should use a text formatting program (use the heading system) while writing your business plan. When you finish, you should just simply check out your content to be sure it is updated according to the final version.
Executive summary represent a concise overview of the most important information presented in business plan, need to be written in a way to rise interest of reader (whoever they are, bank officers, investors, partners, suppliers) to read the rest of the document. Usually is prepared at the end of the process of development/writing business plan, when you know all relevant fact about your business, executive summary may be placed at the beginning or at the end of the business plan document.
At the end of development process of your business plan, write down short summary (no longer than 1 page) of your business plan. Put it at the beginning or at the end of your business plan. Do not forget to prepare cover letter and update of content list!
INSERT IN YOUR FINAL ASSIGNMENT!!! Write down a short summary at the end of the whole process.
Business idea was already discussed in this part of your course, it is brief explanation of your business idea, aspect of innovativeness in it if there is any. In this part it is good to explain your idea in a simple way and the differences between existing products or services on the market. The most important part is explanation of innovativeness (problem and solution we already mentioned in Lean Canvas Model). And last, but not least, for good business idea explanation use data, market researches and other available information to support your new project or innovative business idea, and moreover anticipate existing competitors and substitutes at the market you plan to enter.
You have already prepared explanation of your business idea in previous sections. Now rethink it and be sure that you include an explanation of the innovativeness of your idea, relevant data, market research analysis and other important information that support your business idea.
ASSIGNMENT 15!!! Expand and complete all previously mentioned problems and solutions in the description of your idea. Limit it to up to 2-3 pages and submit it as your 15th assignment.
This part of business plan is focused on the entrepreneur or entrepreneur’s team skills, knowledge, experience – shortly references and potential for development and realization of proposed idea or project. Whoever will read your business plan it is interesting in your capacity for realizing the idea presented in your business plan.
Newly established companies, particularly information technology (IT) oriented ones are usually established by more than one person, i.e. by a team, primarily because of the complexity of that type of business and the necessity to have people with different type of knowledge and skills in the team. The completeness of your business team will be seriously evaluated during the investing or fundraising process, and the quality of the team is very important to start and run the business. Do not forget to have a team member who is an expert in the field of your business and a member who is sales and marketing expert. If it is an IT business than you might need to have an IT developer who has the knowledge you need to realize your idea or you might outsource it to an IT company who will be in charge (for the IT part of your business). For some complex IT solutions, you sometimes need to prove that it is possible to put your idea into practice. Check out the article The Dream Team: Hipster, Hacker, and Hustler (Ellwood, 2012 Retrieved, April 19, 2016, http://bit.ly/2doFRi6).
Lack of knowledge or resources may results in partnership with others, so some useful advices regarding the issues which need to be resolved before starting a partnership are (Dizik, Retrieved, June 17th, 2016: http://bit.ly/12BDXit):
- Get an outsider’s perspective about your partnership,
- Solve problems before they happen,
- Clearly outline your job responsibilities,
- Consider all partners in the decision- making process.
It is also possible that over time you and your partner(s) will develop business ideas, and interests in different ways and change perceptions. In that case it is time that each of the partners starts their own business. That is the moment when all previously developed responsibilities and ownership agreements and contracts details will prove to be very valuable.
Think about your Team, its competences, qualifications, knowledge and experience in the business you are planning to enter. Provide a detailed explanation of it, and be sure that whoever reads your business plan will look for proof that the team you have is capable to realize this business idea.
ASSIGNMENT 16!!! Write it up to 2 pages about your team, its competences, qualifications, knowledge and experience and submit it as your 16th assignment.
While developing a business plan, you need to be familiar with the industry you plan to enter with your product or services. The analysis of the industry is necessary prerequisite for that. Before you can start developing your business plan, you need to explore the possibilities of your idea/project placement within existing competitors and industry as a whole. For that purpose, you can use some of the available methodologies such as: SWOT Analysis or Porter’s 5 Forces. After you explore the industry, it is very useful to write it down as a description of company’s future business environment.
Carefully analyze the Industry you plan to enter with your business. You have already worked on it in the problem elaboration section. Now apply one of suggested methodologies. In this assignment you need to show that you understand the existing competitors, substitutes, entry barriers if there are any, and you need to explain how you will fit the market.
ASSIGNMENT 17!!! Write a 2-3 page analysis of the industry you planted to enter and submit it as your 17th assignment.
For most businesses you need to explore those resources, availability of them, price, intellectual or other rights (if there are some). Every business is specific in terms of technology they need for starting and maintaining the business. Check out available technologies, capacities and prices if you have some machines or devices. Also, be aware that some of the modern businesses use Software as a Service (SaaS).
Generally, there are several determinants that influence the choice of technology that the companies make. Some of them include, but are not limited to (Blackman, 1999):
- Company size – the size of the company determines the company’s ability to spread the risks, access finance and take advantage of economies of scale associated with the use of technology. The larger the firm, the more probable it is that the technology acquisition will be perceived profitable.
- Beliefs about the return on the investment in technology – more optimistic expectations regarding the returns on the investment in technology lead to higher perceived profitability of the technology and hence, positively influence the decision for technology acquisition.
- Search costs i.e. transaction costs for learning about a new technology – the higher the costs, the lower the propensity to acquire that particular technology.
- Characteristics of the technology – the more advanced the technology, the higher the expectations regarding its returns and the higher the propensity to acquiring that technology.
- Market structure and competition – companies that operate in highly competitive markets are pressured to obtain advanced technology more quickly.
Also, depending of your business idea companies can acquire one or any of the following technologies (Retrieved, June 19th, 2016: bit.ly/15Gb2hS):
- Technologies for the production of goods;
- Technologies that enhance the properties, features or qualities of a product used in order to create a commercially relevant advantage such as cost, convenience, performance or safety.
- Technologies that modify a production process or manufacturing system to bring about some advantage or leverage.
You have already thought about the Technology you will need for your business idea. Now, you acquire some new knowledge about the important factors you need to consider when choosing the technology for your business.
ASSIGNMENT 18!!! Write a two page analysis of the technology you plan to use and submit it as your 18th assignment.
Location could be very important part of the business planning for some businesses, and for some Internet based businesses is mostly unimportant characteristic of the business at all. When location of your business is important, explanation provided here it is usually concentrated on micro and macro location aspects of the businesses. If your location is not important on the beginning you can use your room/home/garage (like Apple, P&G or Harley Davison did) or something similar as location. If it is important for some types of business, for example if you open restaurant (or any other business when you need to have ownership/rent to specific building/office) you need to be aware of possibilities to have that location? Or maybe you owed something suitable for your business on top location and it is kind of competitive advantage you have on the start?
You have already thought about the Location of your business. Now, you gain some new knowledge about the important factors you need to consider when choosing location.
ASSIGNMENT 19!!! Write a two-page analysis of the location in relation to the business you plan to start and submit it as your 19th assignment.
In the marketing module of this course you learned about product development. In this section you need to describe your product/services in more detail providing its specific characteristics and benefits. Therefore, create a list of all the products/services you will offer at the beginning and provide a description for each of them (Use Table 1 as the template).
Table 1 List of product/services
Remember that at today’s market, products and services are developing much faster than ever before. Figure 1 show the development cycle of a typical product from the development stage to its decline.
Figure 1 Life stages of a product
Source: Kotler (2006:272)
Another important consideration that should be taken into account is how to make pricing decisions about your product or service. Figure 2 shows that pricing depends on internal factors, which include company’s objectives, strategy, costs, and mission, and external factors, which include the market, the competitors and the broad environmental factors such as the economy, legislation, and the government.
Figure 2 influences on pricing decisions
Source: Kotler (2006:304)
You have already thought and written about Products and Services you plan to offer on the market. Now, prepare a list of your products/services and explain their characteristics.
ASSIGNMENT 20!!! Write the list and accompanying characteristics submit it as your 20th assignment.
Market analysis is a necessary starting point for any business idea. Before you start developing any of your business plans it is important to know relevant information about market, products, competition and suppliers. Research results can be an excellent input for the development of a business plan. Market analysis need to include (See more, Marusic, 1998:10-12):
- Recent market situation – What companies own business in desired industry? What kind of reputation do they have? Can you find a market niche? Or maybe you can start a brand new business which is a real innovation on the market?
- Target groups – Who is your customer? Or who can become one? Where do they live? What characteristics do they have? What is your target market’s micro and macro location?
- Market environment – demographic, technological, political, legal and regulatory, socio-cultural, educational, economic environment.
- Competition – Who are your competitors? What is your position in comparison with your competitors?
- Product and service – What products and services will you offer? How do they meet market needs? What will customers buy? What do customers need? Can you export your products/services?
- Prices and profitability – Price strategy and profitability depend on the industry and are also related to the ability of your management to produce profit, i.e. how they manage costs and revenue. Generally speaking, innovations generate higher profit in the beginning.
- Sales and distribution channel – how do you plan to sell your products? What channel will you use? Will you use outsourcing for distributions? What is your plan for future sales?
- Human resources – your business will not succeed without qualified employees. These qualified employees need to have the right education, skills and strong willingness to be successful at work. They also need to be satisfied and proud to work in that company. Measurement of employee satisfaction is important for business success. What professions do you need? Can you get qualified employees? What skills do they need to possess? What skills do they need?
- Company’s (Entrepreneur or business) resources – an existing or new company needs to analyze its market position. Many existing managerial tools can help an entrepreneur in estimating its recent business and resources position for business startup. (SWOT, PESTLE, Porter)
- Where can you reach inputs for your business? Can you find suitable inputs (Quality? Quantity? Prices?)
You have already done certain market analyses; keep the results in mind before you do your marketing and sales strategy.
You have studied the strategy of marketing policies and all marketing-related aspects of your business. Use what you have learned in the Marketing plan Module, and shape up all details about the 4Ps – product, place, promotion and price. If you plan to provide services it is good to consider here the 7Ps concept where people, physical evidence, and process are included.
In the marketing plan, it is good to explore and elaborate your marketing and sales plan, accompanied with the promotion you aimed to do. Before you do it provide readers with information about your market – total market, target market, segmentation you will employ. Also, do not forget to present the current situation at the market you are planning to enter, what competitors or substitutes are present at the market, what market shares they represents now.
Table 2 Sales projection for first 5 years of business
|Product/services||Sales quantity 1st year||Sales quantity 2nd year||Sales quantity 3rd year||Sales quantity 4th year||Sales quantity 5th year||Total sale in first 5 years|
Try to make as precise sales forecast as possible for each product/service.
Table 3 Revenue projection 1 – 5 year of the business
|Product/services||Sales (in EUR) 1st year||Sales (in EUR) 2nd year||Sales (in EUR) 3rd year||Sales (in EUR) 4th year||Sales (in EUR) 5th year||Total sale in first 5 years|
|TOTAL (in EUR)|
In this step (Table 3) you need to multiply the planned amount of products/services (quantity) with the individual price/price per unit in order to calculate income for individual products and the total revenue.
Table 4 Promotion plan (suggested fields)
|Activity||Time table (when, period)||Costs (in EUR)|
|Point of sale promotion|
|Social media campaign|
In table 4 you will suggest the promotion plan you will design for your business. In this phase of planning you will propose a timetable of activities and cost per activity with the aim to identify the total cost of future promotional activities.
Develop your marketing and sales strategy. Do not forget to explain your market situation, segmentation, target market.
Use Tables 2, 3, 4 as templates.
ASSIGNMENT 21!!! Write your marketing and sales strategy and submit it as your 21st assignment.
A detailed plan describing planning activities that need to be performed and managed due the time to execute strategies, how you plan to perform your activities with timeline.
Develop your operational plan.
ASSIGNMENT 22!!! Write the operation plan and submit it as your 22nd assignment.
With the aim to organize its business each entrepreneur, i.e. manager, needs to have the same basic understanding of his business and define:
- how many people are necessary to run his business,
- what education and experience background do they need to have,
- what the main responsibilities for each of them are, what the job description for each position is,
- how much will they cost the company?
- they represent only founders (your team you mentioned before) or now you include some employees
- whether you will pay your employees or they will be volunteers
It is the description of the company’s organization structure, human resources you need to start and run your business in terms of experiences, education, skills, capabilities, hierarchy, and responsibilities. You need to considered obstacles that your startup will face in the attempt to reach high quality employees. You may therefore consider having some team members, who already have the required skills or knowledge, as your partners. And last but not least, it is important for you to take into account the high cost of employment in most countries. Start your business by paying special attention to ways of reducing your employment cost at the beginning.
Table 5 Projection of employees with accompanied costs – example for Trade Company with 2 shops
|Position||Education field||Education level||Work
|Gross salary in Croatia||Net salary||Number of employees||Total in EUR|
|Manager (owner)||Economy||Bacc. Or MA||3 – 5 years||2000 EUR||1050 EUR||1||2000|
|Accountant||Economy||Bacc. Or MA||3 – 5 years||1440 EUR||800 EUR||1||1440|
|Shop assistants||Economy or field of core business||Secondary school||1 year or more||900 EUR||500 EUR||6||4500|
Source: Author projection
Organizational structure determines how the roles, power and responsibilities are assigned, controlled, and coordinated, and how information flows between the different levels of management (Retrieved, Retrieved, June 5th 2016: http://bit.ly/17Sn8GN). Organizational structures answers further questions:
- What are the functions and duties that need to be addressed?
- Who will do them?
- Who will be in charge of the day-to-day operation of the business?
- Who will report to whom?
Develop your Management and Organization plan. Use table 5 from example. Don’t forget to consider salaries from the business’s point of view (bearing in mind your country’s legislations and calculating all the costs/taxes/any other additional expenses you have to pay per employee).
ASSIGNMENT 23!!! Write your management and organization plan and submit it as your 23rd assignment.
Your current financial situation, to be more precise the financial resources you have and you need to start a business and predictions about future cash flow are extremely important. In this part of the business plan you need to predict the financial future of your venture. It is hard to be precise and in this forecasting and the forecast enables you to be more optimistic or pessimistic if you do not explore market possibilities of your business. In any case, you need to predict your revenues (per product/services or groups of them) and the cost of your business. You need to briefly develop the structure of your investment (machines, software, intellectual rights, etc.) and sources for financing it.
To help estimate financing costs you will need to (raise to) get your venture off the ground, you can use the following checklist. You should keep in mind that not every category applies to all businesses. The best thing to do is to estimate the monthly amount needed for the functioning of the business.
- Salary of owner-manager (if applicable)
- All other salaries and wages
- Delivery expenses
- Maintenance (facilities/equipment)
- Legal and other professional fees
- Lease (equipment/furniture)
- Inventory purchases
You should also consider one-time costs.
One-Time Start-Up Costs:
- Decorating and remodeling
- Installation of fixtures/equipment/furniture
- Starting inventory
- Deposits with public utilities
- Legal and other professional fees
- Licenses and permits
- Advertising and promotion for opening
- Accounts receivable
- Cash reserve/operating capital
When you think about possible sources of funds for your business be aware of the situation on the global scene, and check out the list of potential sources (Retrieved from July 2nd 2016, http://entm.ag/29mGJUe):
- Funding by entrepreneur
- Family and friends
- Small business grant
- Crowdfunding campaign
- Local Angel Investors
- Venture Capitalist investors
- Incubators or accelerators
- Strategic partners or customers
- Trading of your equity or services
- Bank loan or credit.
When you estimate expected costs one by one you can calculate what amount of money/investment is necessary for your business. In the available literature the balance between the required capital and the one you actually have is known as the dynamic alignment of financial resources and sources of capital, which is presented in Tables 6 and 7.
Table 6 Financial resources necessary for a business (example)
|Rent for office (1st year)||5.000|
|Material resources for production (if you have one) (1st year)||10.000|
|Employees costs (for 2 months)||5.000|
Table 7 Sources of financial resources (example)
|3F (Friends, Fools and Family)||5.000||12.5|
|Money won on Start-up conference X||10.000||25|
Keep in mind that the total financial resources necessary for a business (Table 6) and the total amount of financial resources (Table 7) need to be in balance. Otherwise, if you have less financial resources (money) than you need you will not be able to start a business or you need to find it before you start it. On the other hand, if you have more money than you need the question is whether you are using the available financial resources in the best way?
Table 8 Projection of the revenue for the 1st year (example)
Table 9 Projection of the costs for the 1st year
To create income statement you need to identify all costs related to your business. Costs will be in a strong correlation with the particular business, and need to be planned. Even though each business can have different costs, some of them could be common for most of start-ups such as: rent for the office space, office equipment (table, computer, communication and transportation costs, inventory and other office supplies), employees costs, material costs (particularly production costs), patents, licenses, software, interest, utilities (Table 9).
Table 10 Income statement, projection for 5 years
|1st year||2nd year||3rd year||4th year||5th year||Total|
|3.||Profit before tax||20,509.00||42,616.00||16,368.00||31,658.00||47,458.00|
|4.||Tax (20 %)||4,101.70||8,523.20||3,273.60||6,331.60||9,491.60|
Table 11 Cash flow statement example
|Cash Flow Statement
Fiscal Year End 31 December
(all figures in USD)
|Cash Flow From Operations|
|Additions to Cash|
|Decrease in Accounts Receivable||15,000|
|Increase in Accounts Payable||15.000|
|Increase in Taxes Payable||2.000|
|Subtractions From Cash|
|Increase in Inventory||(30,000)|
|Net Cash from Operations||2012,000|
|Cash Flow From Investing|
|Cash Flow From Financing|
|Cash Flow for FY End 31 December||1.522.000|
Develop your financial plan, use tables provided as example as a template for the development of your financial plan.
ASSIGNMENT 24!!! Write your financial plan and submit it as your 24th assignment.
Risk assessment is the overview of all potential risks that the company may face and a projection of sensitivity analysis for all predictable risks. When you identify your risks you need to penalize your cost and revenues with possible negative changes and find out how they will affect your profit.
Every business, especially start-up projects is very sensitive to positive and negative influences from its internal and external environment. Global crisis, recession or the increase of input cost can be very dangerous for entrepreneurs’ business. In the phase of developing a business plan it is crucial to identify and incorporate those influences.
The review and analysis of critical potential factors and projections of their negative impact on a business are in the focus of sensitivity analysis. Sensitivity analysis is an investigation into how projected performance varies along with changes in the key assumptions on which the projections are based (http://bit.ly/1623kdT – Retrieved, July 2nd 2016).
The main element of sensitivity analysis is the projection of resistance of the business idea, project sustainability under critical and negative factors. Potential critical factors for a business can be:
- Overestimating market possibilities for selling products, goods or services
- Forgetting about other possible entrances on the market
- Forgetting about possible delays in the development of product/service
- Underestimating of businesses costs
- Deterioration of short-term and long-term credit conditions
- Unpredictable scaling down of prices of products, goods or services on the market
- Increase of business inputs prices (materials, raw materials, services, employees, energy, oil…) on the market
- Considering some investment as for sure which are simply not
- Overestimating funding from alternative sources (Crowdfunding, Crowd investing, Crowd equity…)
Sensitivity analysis means studying a business project to gain an insight into potential negative and critical factors which can affect a business during its life cycle. It also means analyzing revenues and costs of projects for any specific factor of risk. Through all previously conducted analyses, an entrepreneur needs to identify potential risk factors and trends in the industry. Sensitivity analysis will show the sustainability of a business idea under pressure of an unpredictable business environment.
Table 12 Sensitivity analysis (template)
|Critical factors||Intensity||Costs||Revenue||Profit before tax||Net profit|
|A) RAVENUE REDUCTION|
|A1) Lower selling quantity||10%|
|A2) Lower product prices||10%|
|A3) Lower total revenue||5%|
|B) COSTS INCRASEMENT|
|B2) raw material||20%|
|B5) total costs||10%|
|C) TAX INCRASEMENT|
|D) COMBINATIONS OF FACTORS|
Some interesting insight about the business plan could be read in a paper released by Harvard Business School: Some Thoughts on Business Plans, available online via Google and How to Write a Great Business Plan (Sahlman, 1997, Retrieved, April 18, 2016 from http://bit.ly/2dNl20L). At the end of the theoretical part of this course it is important to stress the existence of two different business model methodologies, Lean Canvas and Business Model Canvas Generation in addition to the Business Plan.
Table 13 Similarities and differences between Lean Business Model Canvas and Business Model Canvas Generation
|Field||Lean Business Model Canvas||Business Model Canvas Generation||Business Plan|
Sources: Author comparison
According to all mentioned in table 13 it is obvious that both business model methodologies consist of the same aspects as the business plan. Furthermore, in a business plan you can include all we have mentioned before so for the purpose of your final assignment you will present your business idea/project by developing the business plan.
After you read all the related readings, watched all videos it is time to start with the development of this part of the assignment. Think about your idea, explore all related information and write business plan for your idea/project. Proposed content is added as a part of this course.
Good luck with your work.
 Employees’ costs are calculated according to an average salary for that position in Croatia and Croatian taxes and other payments for that position.
 This is just an example, for your particular business please check out the list of potential costs which was presented before.
 For most startups it is almost impossible to get the Trade loan or any other commercial bank financing. Usually, bank loans require mortgage what is mission impossible at this stage of a new business. So in this book loans will not be presented. If you are in a position to get one you need to be aware of all other costs such as: fees, issuing required documents, interests and finally the loan. For that purpose you can use a loan calculator such as: http://www.online-calculators.co.uk/interest/loanrepayment.php
 Taxes vary from country to country; currently in Croatia profit tax rate is 20%.
Introduction to the module
Business planning and business model development is the last module of this course. In the previous modules, you learned about different topics that will be very useful for this final part of the course. Now it is time to integrate all knowledge acquired so far and apply it in the process of developing a business plan for your own business idea/project for this course. The business plan is your final assignment for this course (you are required to submit).
Download here related workbooks before starting the course:
All assignments in this course please submit to firstname.lastname@example.org (UNIST students), email@example.com (MDX students), firstname.lastname@example.org (UMA students).
Ivana Bilić, PhD, is an Assistant Professor at the Department of Management of Faculty of Economics, University of. She is an alumna of JFDP exchange program financed by U.S. Department of State. Her main scientific interests are public relations, corporate communications, community management, crisis management, entrepreneurship, and reputation management. Dr. Bilić is a member of national public relations associations and former President of the U.S. Alumni Community of Croatia, and currently served as the President 3psplit.org. In scientific area she has published two book chapters and more than 20 articles in international peer-reviewed journals or international scientific conference.
For mentorship support in developing your business plan, discussion and course related questions visit the FORUM.
- Lectures 4
- Quizzes 0
- Duration 90 hours
- Skill level All levels
- Language English
- Students 14
- Assessments Self