The Business Concept and the Business Model
A business concept contains the essence of the enterprise in a concise but powerful manner. It stresses the value of the product offering to the target customers who would most likely buy it.
The product concept must then be translated into a business model. A business model is a formula on how the enterprise exactly plans to make money out of the business. There are four areas of moneymaking which the business model must address:
- How will the business raise revenues? What critical factors will cause the revenues to materialize?
- What will be the costs of the enterprise products and other costs of doing business? How will these costs be managed to ensure comfortable profits? What critical factors will drive the costs? How can these factors be controlled?
- What will be the major investments of the enterprise? Why will these investments give the enterprise a competitive edge?
- How will the enterprise finance the investments? How will the enterprise fund its growth?
The Business Goals: Vision, Mission, Objectives, and Performance Targets
The business goals show the future and long-term prospects of the enterprise. It is composed of the vision, mission, objectives, key result areas, and performance indicators of the enterprise.
To illustrate, let us examine the vision of Double Happiness. Double Happiness is an eatery in a bus terminal. It has three outlets located at bus terminals in Central Luzon.
Case Example 1: Double Happiness
The vision of Double Happiness is “to establish a commanding presence and market leadership as a food chain servicing major bus terminals in Central Luzon within the next five years.”
The Business Goals are communicated by articulating the basic purpose of setting up the enterprise in a mission statement. Needless to say, all business enterprises are established for the purpose of making money for its investors.
For Double Happiness, its mission statement is “to provide quality food and passenger convenience services that would generate sufficient profits for the stockholders and improve the lives of its employees.”
The vision and the mission statements must then be translated into measurable end results, more popularly called objectives.
Objectives must be more specific than the vision and mission statements. They should be measurable, achievable, and time-bound.
For Double Happiness, their stated objectives are:
- to establish a strong market presence in Central Luzon;
- to earn good financial returns for its owners;
- to delight customers with high-quality food and services; and
- to make Double Happiness a happy and rewarding place to work in.
The objectives should then be translated into key result areas or KRAs. KRAs are the qualitative manifestations that the objectives are being achieved.
In turn, the key result areas must be rendered into quantified performance measurements, otherwise called performance indicators. These performance indicators or Pls serve as the aspirational scorecard of the enterprise managers and the motivational results of the investors. However, the Pis must actually be credible to the business audience in mind.
In the case of Double Happiness, the performance indicators for each of the key result areas are as follows:
The Executive Summary
The executive summary contains everything that is relevant and important to the business audience. It is a synthesis of the entire plan. It must contain the major argumentations of the business proponent on why the business will work and succeed. It should provide the business plan audience all the arguments on why they should participate in the business venture. The executive summary should then introduce and highlight the good qualities of:
- the business proponents and their partners;
- the enterprise organization and its capabilities;
- the technology providers and their expertise and experience; and
- the suppliers and all the major service providers.
It should likewise describe the products/services of the enterprise, their features and attributes, and why they are the right ones to deliver to the customers.
The Executive Summary should then proceed to discuss and justify the Enterprise Strategy and Enterprise Delivery System. The Enterprise Strategy builds and develops the game plan for attaining competitiveness. The Enterprise Delivery System is the entire process of converting input (resources) into output and these output into outcomes.
It should then render all the major institutional, market, operations, and organizational strategies previously cited into financial strategies and forecasts.
Investment requirements should be presented along with the summaries of the projected income statements, balance sheets, cash flows, and funds flow, and their analyses and conclusions. Yields and returns, along with risks and contingency measures, should round up this section.
The Executive Summary should also contain a section on the environmental and regulatory compliance of the proposed business, as well as the more proactive programs to become a more responsible corporate citizen.
Finally, the Executive Summary should present the capital structure of the proposed business and show how this structure will respond to the investment programs and financial forecasts of the enterprise.
However, the Executive Summary can only be written last in order to capture the findings and insights of the other parts, but for presentation purposes, it is placed in the first part of the business plan.
The Business Proponents
The third section of the business plan contains information about the business proponents or stakeholders. There are four types of stakeholders:
- Resource mobilizers and financial backers
- Technology providers and applicators
- Governance and top management
- Operating and support team
If the business plan readers are the resource providers, then they will want to know who else are on board to share the burden of raising money to see the whole thing through.
If the business plan readers are the technology providers, they will want to know if there will be sufficient funds to pay for the technology.
If the business plan readers are the governance and top management team, then they will want to know what strategies and performance indicators are being proposed.
If the business plan readers are the implementing, operating, and support teams, they will want to know what programs, activities, tasks, and resources would be in place.
The Target Customers and the Main Value Proposition
The fourth section of the business plan is the Target Customers and the Main Value Proposition.
The business proponent must be very precise about the target audience or target customers. Target Customers must be of sufficient size, sufficient paying capacity, and have sufficient interest to purchase the products being offered by the enterprise. The Main Value Proposition is the unique selling proposition of the enterprise.
Knowing where the target customers are exactly concentrated, the business plan should then pinpoint what the customers buy, how they buy, when they buy, .where they buy, and what convinces them to buy. These information should then be used to justify the exact locations and marketing channels to be employed by the enterprise.
Market Demand and Supply, Industry Dynamics, and Macro Environmental Factors
The fifth section of the business plan is the market demand and supply, the industry dynamics, and the macro-environmental forces affecting the business of the enterprise.
It is normal for enterprises to actually expand their product offerings to include the other segments of a bigger market. The business proponent should examine all the opportunities in this bigger market in order to determine what exactly influences this bigger market.
The business plan should estimate the total market supply and demand for the product offerings of the enterprise. The business plan should then determine the major critical factors that influence this market demand and supply.
Once these critical factors or variables are determined, the business plan should then forecast the future demand and supply. If these physical factors are expected to remain the same, then most likely, the future forecast will follow the past, trends. If not, the future estimate of demand and supply should be revised according to the new variables influencing the demand and supply.
The market analysis and forecasting exercise should lead to a quantification of the current and prospective size of the market. Both the current and potential consumptions should then be dissected.
The business plan should discuss the relevant industry dynamics:
- Who are the competing enterprises in the industry and what are their comparative advantages and disadvantages? What business models and strategies are they employing?
- Who are the suppliers in the industry and what are their capabilities and bargaining power?
- What are the channels of distribution being used by the industry? How effective are these channels?
Both the industry players and the market are affected by the macro environment, which includes the social, political, economic, ecological, and technological (SPEET) forces. The business plan should discuss the major trends and changing patterns in the macro-environment, which would have significant impacts on the relevant industry and the behavior of consumers.
- Social environment includes the demographics and cultural dimensions that govern the relevant entrepreneurial behavior. The structure, social status, and dynamics of the population at large, as well as the people’s beliefs, tastes, mores, customs, and traditions dictate the major parameters of market behavior.
- Political environment defines the governance system of the country or the local area of business. It includes all the laws, rules, and regulations on allowable and disallowable business practices.
- Economic environment is mainly driven by supply and demand forces. It is the same factor that drives the interest and foreign exchange rates to fluctuate with the movement of the market forces.
- Ecological environment includes all natural resources and the ecosystem that defines the habitat of man, animals, plants, and minerals.
- Technological environment makes or breaks competing participants in any industry. New scientific and technological discoveries often lead to the launch and commercialization of new products with superior attributes or to rendering the old ones obsolete.
Product/Service Offering: Description, Evolution, and Justification
The sixth section of the business plan is the product/service offerings that should contain a description, evolution, and justification of the product/service offerings.
The products/services must be described by highlighting the features and attributes that would most appeal to the target customers. The business plan should also prove that the products/services would be accepted and carried by the distribution channels.
Enterprise Strategy and Enterprise Delivery System
The business plan should expound on the Enterprise Strategy (ES) by mapping the competitive landscape and by situating the enterprise and its competitors as to their strategies and chosen positionings.
The business plan should then show how the Enterprise Delivery System (EDS) would enable the business to implement the Enterprise Strategy.
The Enterprise Delivery System starts from the Input (resources mobilized), proceeds to the Throughput (the transformation process where input are converted to output), and produces the Output (the products/services). The Output are then marketed to the customers (in the case of goods) or experienced by the customers (in the case of services). Customer satisfaction level, profits generated, and the performance of people from the transaction are the Outcomes of the EDS.
Enterprise Delivery System
The EDS involves the harnessing of human, money, and physical resources from well-selected sources.
These resources become the input (money, men, machines, materials, methods, and management) which the Operations unit within the EDS (i.e., the manufacturing or service delivery personnel) will convert or transform into output.
The output will then be delivered to the customers through the Marketing unit of the EDS. The products/services of the enterprise are positioned to meet the requirements of the selected market segment by choosing the right packaging, pricing, promotions, people for selling and distribution, and places or locations where the targeted customers can best be found.
The Operations and Marketing units are supported by the Finance, Administration, and Human Resource Management units, which oversee the flow of money, the procurement and maintenance of machinery and materials, and ensure the proper deployment and development of people.
The EDS serves as the enabler of the Enterprise Strategy. The business plan must demonstrate how the EDS and the ES tandem lead to the attainment of the desired enterprise outcomes.
These business outcomes should reasonably include:
- high customer satisfaction levels;
- high sales volume, market share, and market reach;
- high financial returns; and
- high people performance, productivity, and morale levels.
Financial Forecasts: Expected Returns, Risks, and Contingencies
The eighth section of the business plan is the financial forecast including the financial returns, the financial risks, and the financial contingencies.
The business plan must translate everything that we have discussed so far into financial forecasts and outcomes.
From the financial forecasts, the business plan should then calculate the expected returns from the business. The important return calculations are the following: (1) expected return on sales; (2) expected return on assets or investments; and (3) expected return on stockholders’ equity.
The business plan should also calculate the long-term returns, using the time value of money. This means estimating the internal rate of return and the expected net present value.
The business plan should then evaluate both the business risks and the financial risks involved.
Environmental and Regulatory Compliance
The ninth part of the business plan is composed of the environmental and regulatory compliance.
The business plan must articulate the laws, rules, and regulations governing the business, and the industry that the enterprise is in. It should ascertain that all the necessary permits, licenses, and authority to use proprietary intellectual capital had either been secured or would definitely be secured.
The business plan should also assure the reader that all the necessary local government ordinances and barangay ethics would be followed by the enterprise.
Capital Structure and Financial Offering: Returns and Benefits to Investors, Financiers, and Partners
The tenth section of the business plan contains the capital structure and financial offerings of the enterprise including some discussions on who are the investors, the financiers, and the partners of the enterprise.
Finally, the business plan must appeal to its target audience. It must highlight for them the main features of the business plan that they are looking for.
