Business Plans For Dummies

Paul Tiffany, PhD, is a professor at the Haas School of Business, UC Berkeley, where he teaches courses on public policy and management. He is an expert in business strategy and management. Prior to beginning his career in academia, Tiffany worked as a business consultant and continues to lead his own consulting agency. Steven D. Peterson, PhD, is the senior partner and founder of the management tool development company Strategic Play Technologies.

Introduction 1

About This Book 2

Foolish Assumptions 3

Icons Used in This Book 4

Beyond the Book 4

Where to Go From Here 4

Part 1: Getting Started with Business Plans 5

Chapter 1: Preparing to Do a Business Plan 7

Identifying Your Planning Resources 8

Checking out the variety of sources out there 9

Surfing the Internet 9

Purchasing business-planning software 12

Seeking professional help 12

Finding friendly advice 13

Assembling Your Planning Team 14

Setting the ground rules 15

Delegating responsibility 15

Putting Your Plan on Paper or in Cyberspace 16

Executive summary 17

Company overview 18

Business environment 19

Company description 19

Company strategy 20

Financial review 20

Action plan 21

Chapter 2: Understanding the Importance of a Business Plan 23

Bringing Your Ideas into Focus 24

Looking forward 25

Looking back 26

Looking around 27

Taking the first step 27

Understanding the Planning behind the Plan 28

Is planning an art or science? 28

Why planning matters 29

Satisfying Your Audience 30

Venture capital 31

Bankers, backers, and bootstrappers 33

Chapter 3: Setting Off in the Right Direction 39

Understanding Why Values Matter 40

Facing tough choices 40

Weighing utilitarianism and other philosophies 41

Applying ethics and the law 42

Getting caught lost and unprepared, if not naked and afraid 43

Understanding the value of having values 44

Clarifying Your Company Values 46

Putting together your values statement 46

Following through with your values 48

Creating Your Company’s Vision Statement 48

Chapter 4: Charting the Proper Course 51

Creating Your Company’s Mission Statement 52

Getting started 52

Capturing your business (in 50 words or less) 55

Introducing Goals and Objectives 57

Why bother? 57

Goals versus objectives 58

Efficiency versus effectiveness 60

Minding Your Own Business: Setting Goals and Objectives 61

Creating your business goals 61

Laying out your objectives 62

Matching goals and objectives with your mission 62

Timing is everything 63

Part 2: Describing Your Marketplace 67

Chapter 5: Examining the Business Environment 69

Understanding Your Business 70

Analyzing Your Industry 71

Configuring the structure 73

Measuring the markets 75

Remembering the relationships 78

Figuring out the finances 80

Coming up with supporting data 82

Recognizing Critical Success Factors 85

Adopting new technologies, procedures, and policies 86

Getting a handle on what counts most 86

Determining what drives your business 86

Looking for a great location 87

Dealing with distribution 87

Marketing mind games 87

Getting along with government regulation 88

SWOT: Preparing for Opportunities and Threats 89

Finding warm and soothing waters 89

Scanning for clouds on the horizon, ice on the water, or worse 92

Chapter 6: Slicing and Dicing Markets 95

Separating Customers into Groups 96

Identifying Market Segments 98

Who buys 99

What customers buy 103

Why customers buy 107

Finding Useful Market Segments 110

Is the segment the right size? 110

Can you identify the customers? 111

Can you reach the market? 111

Becoming Market Driven 113

Chapter 7: Getting Up Close and Personal with Customers 117

Keeping Track of the Big Picture 118

Categorizing Your Customers 119

Comparing generations 120

Defining your good customers 121

Handling your not-so-best customers 122

Scoping out the other guy’s customers 123

Discovering the Ways Customers Behave 124

Understanding customer needs 125

Determining customer motives 127

Figuring Out How Customers Make Choices 128

Realizing perceptions are reality 128

Setting in motion the five steps to adoption 129

Understanding the Global Customer 130

Serving Your Customers Better 132

Looking at a Special Case: Business Customers 134

Filling secondhand demand 135

Decision-making as a formal affair 136

Knowing the forces to be reckoned with 136

Chapter 8: Covering Your Competition 139

Understanding the Value of Competitors 140

Identifying Your Real Competitors 142

Considering competition based on customer choice 143

Paying attention to product usage and unexpected new competition 146

Spotting strategic groups 147

Focusing on future competition 149

Tracking Your Competitors’ Actions 151

Determining competitors’ capabilities 151

Assessing competitors’ strategies 153

Predicting Your Competitors’ Moves 155

Figuring out competitors’ goals 155

Uncovering competitors’ assumptions 156

Competing to Win 158

Organizing facts and figures 158

Choosing your battles 160

Part 3: Weighing Your Company’s Prospects 161

Chapter 9: Assessing Where You Stand Today 163

Doing Situation Analysis 164

Identifying Strengths and Weaknesses 165

Keeping frames of reference 165

Defining capabilities and resources 166

Monitoring critical success factors 177

Analyzing Your Situation in 3-D 180

Getting a glance at competitors 180

Completing your SWOT analysis 180

Chapter 10: Profiting from Your Business Plan 183

Describing What You Do Best 184

Looking at the links in a value chain 184

Forging your value chain 187

Understanding your value proposition 189

Putting Together a Business Model 190

How will you make money? 191

How’s your timing? 193

Making Your Business Model Work 193

Searching for a competitive advantage 194

Focusing on core competence 195

Sustaining an advantage over time 196

Earmarking Resources 197

Chapter 11: Figuring Out the Financial Details 201

Reading Income Statements 203

Rendering revenue 203

Calculating costs 205

Pondering profits 206

Interpreting Balance Sheets 206

Ascertaining assets 207

Categorizing liabilities and owners’ equity 210

Examining Cash-Flow Statements 211

Moving money: Cash in and cash out 213

Watching cash levels rise and fall 214

Evaluating Financial Ratios 214

Meeting short-term obligations 215

Remembering long-term responsibilities 217

Reading relative profitability 218

Chapter 12: Forecasting and Budgeting 221

Constructing a Financial Forecast 222

Piecing together your pro-forma income statement 224

Estimating your balance sheet 228

Projecting your cash flow 230

Exploring Alternative Financial Forecasts 231

Utilizing the DuPont formula 231

Answering a what-if analysis 233

Making a Budget 233

Looking inside the budget 234

Creating your budget 234

Part 4: Looking to the Future 239

Chapter 13: Confronting Uncertainty 241

Understanding the Dangers of Ignoring Change 242

Defining the Dimensions of Change 243

Governmental trends 244

Economic trends 248

Cultural trends 253

Technological trends 255

Anticipating Change 259

Preparing for a Changing Future 261

Chapter 14: Thinking Strategically 265

Applying Off-the-Shelf Strategies 266

Leading with low costs 268

Standing out in a crowd 274

Focusing on focus 276

Changing Your Boundaries 279

The evolution of new strategic models 279

Outsourcing and offshoring 280

Leading and Following 281

Market-leader strategies 282

Market-follower strategies 282

Tailoring Your Own Strategy 284

Chapter 15: Growing Up, Growing Bigger, and Growing Old 285

Facing Up to the Product Life Cycle 286

Starting out 287

Growing up 288

Maturing in middle age 288

Riding out the senior stretch 290

Gauging where you are now 290

Finding Ways to Expand 292

Same product and same market 294

New market or new product 296

New product and new market 300

Managing Your Product Portfolio 302

Utilizing strategic business units 302

Aiming for the stars 304

Asking Two Final Questions About Growth 309

Knowing that, yes, growth is good 309

Managing growth wisely 310

Part 5: Putting Your Business Plan into Action 313

Chapter 16: Shaping and Shape-Shifting Your Organization 315

Recognizing That Form Follows Function 315

Putting Together an Effective Organization 317

Choosing a basic design 317

Focusing on a functional model 318

Divvying up duties with a divisional form 318

Sharing talents with the matrix format 319

Dealing with too many chefs in the kitchen 320

Finding what’s right for you 321

Thinking and Organizing for the Future 322

Chapter 17: Leading the Way 325

Encouraging Leadership Roles 326

Leading from the front or the back 326

Looking at leadership styles 327

Developing Business Skills (And Having the Right Personality Traits) 328

Evaluating personality traits 328

Distinguishing appropriate skills 329

Creating the Right Culture 330

Following Through with Your Vision 332

Bringing Your Plan to Life (And Making a Final Check) 333

Part 6: The Part of Tens 335

Chapter 18: Ten (Or So) Signs That Your Business Plan Needs Refreshing — or Worse 337

Your Business Goals Change Abruptly 338

You Don’t Meet Your Plan Milestones 338

New Technology Makes a Splash 338

Important Customers Walk Away 339

The Competition Heats Up 339

Product Demand Falls Sharply 339

Revenues Go Down or Costs Go Up 340

Company Morale Slumps 340

Key Financial Projections Don’t Pan Out 340

Too Much Growth, Too Fast 341

An Unwanted Surprise Pops Up 341

Chapter 19: Ten (Or So) Questions to Ask about Your Plan 343

Are Your Goals and Mission in Sync? 343

Can You Point to Major Opportunities? 344

Have You Prepared for Threats? 344

Do You Know Your Customers? 344

Can You Track Your Competitors? 345

Do You Know Your Strengths and Weaknesses? 345

Does Your Strategy Make Sense? 346

Can You Stand Behind the Numbers? 346

Are You Really Ready for Change? 346

Is Your Plan Concise and Up-to-Date? 347

What’s the Worst That Can Happen, and How Will You Deal with It? 347

Chapter 20: Ten (Or So) Business-Planning Never-Evers 349

Failing to Plan in the First Place 349

Shrugging Off Values and Vision 350

Second-Guessing the Customer 350

Underestimating Your Competition 350

Ignoring Your Strengths 351

Mistaking a Budget for a Plan 351

Shying Away from Reasonable Risk 351

Allowing One Person to Dominate a Plan 352

Being Afraid to Change 352

Forgetting to Motivate and Reward 352

Faking It 353

Appendix: A Sample Business Plan 355

Index 381