in, as it is better to have one than not in this circumstance. The technology plan describes the state of the technology presently available and how the new technology revolutionizes the way things are done. This was the case for the traveling wave reactor (TWR) technology running on depleted uranium of TerraPower, discussed in the opening of this chapter.
The marketing plan, the next section, begins with a discussion of the market segment and target market for the product/service. It defines, usually through using one or more segmentation techniques, the most appropriate overall market and target market and its size. Of the many available segmentation techniques (demographic, geographic, psychological, benefit, volume of use, and controllable market elements), the two most widely used ones, particularly for entrepreneurs and small- and medium-sized enterprises (SMEs), are demographic and geographic, as this is the way that much of the secondary data are published. SMEs are smaller enterprises defined by size category that varies by the industry the company is in; it is established by the government of the country. In the United States, the U.S. government allows SMEs in the construction industry to be larger than SMEs in consulting.
If the venture is BtoC (business to consumer), then the most important market data are the demographics of the selected geographic market. The most widely used demographic variables are age, income, and gender to determine the size of the market and a typical customer profile. For a BtoB (business to business) venture, then the business market needs to be identified using the classification (country) system of the country for the industrial (business) customer being served. The North American Industry Classification System (NAICS) code in the United States, the Standard Industrial Classification (SIC) code in Korea, and the SIC code in China each use a numbering system to classify each industry and specific products/services in that country. A sum of all the output of these numbers is the gross national product of the country. This procedure will provide the trends, size, and growth rate of the particular industry market, which can be used to develop the typical customer profile.
Following the delineation of the target market, a marketing plan needs to be developed to successfully reach and sell to that target market. The marketing plan has four major areas—product/service, price, distribution, and promotion—as indicated in Table 2.2. The product/service part describes the characteristics and quality of the offering, the assortment of items to be offered, the guarantee, any servicing provided if needed, and the packaging. The latter can be very important for entrepreneurs and SMEs in the BtoC market as it can be a major area of distinctiveness as well as a sales tool in the distribution center(s) used.
The second variable, price, is closely related to the product/service, particularly the quality level. The price, the most badly executed of the marketing areas by entrepreneurs and SMEs, needs to reflect the competitive prices, the costs, and the consumer reaction to the price. If a distribution system is used, then there will be a chain of markups on the cost, as indicated in Chart 2.2.
Table 2.2
The distribution area has two major aspects: distribution channels and physical distribution, which together is called supply chain management. The distribution channels include entities handling the product, such as retailers, wholesalers, and representatives. The physical distribution, or logistics, is becoming an increasingly important area and includes transportation, storage (warehousing), and inventory.
The final area of the marketing plan is the promotion area, which is composed of advertising, personal selling, publicity, sales promotion, and social media. The latter three are particularly important for entrepreneurs and SMEs as they can be used to produce multiple exposures cost-effectively. Social media, including the website of the new venture, are a particularly useful area. A marketing budget needs to be prepared for the first year indicating where the money will be specifically allocated to promote the company and achieve the initial sales of the first year. This first-year sales figure concludes the marketing part of the business plan and is a good start for the next section—the financial plan.
The financial plan, the next part of Section 2, focuses on a discussion of the created statements indicated in Table 2.3. These will be discussed later in this chapter following the discussion of the business plan.
Following the financial plan is the production or outsourcing plan, which indicates how the offering will be developed and produced. Some service ventures will not have this part in their business plan as they are not producing or outsourcing anything. Each individual cost needs to be specified so that an understanding is provided of the actual costs involved in the final offering and how much this can be reduced through economies of scale. All suppliers or outsourcing firms should be described in detail.
Chart 2.2 Channel Members and the Price
Table 2.3
Following the production (outsourcing) plan is a short section—the operational plan. This describes in detail how the company will operate, including the flow of goods and orders. An important aspect discussed here is the exit strategy by which investors will get their equity and a return on equity, hopefully in a 5- to 7-year period of time from the initial investment. There are basically three ways to provide this exit and return desired: (1) retained earnings of the venture, (2) selling to another financial institution or firm, or (3) going public and being a publicly traded company. The most likely exit avenue is selling to another firm and, if this is mentioned, then three to four likely exit firms in the industry area need to be identified and discussed. Section 2 concludes with a brief summary that completes this section of the business plan.
Section 3: Support (Backup) Material
Section 3 contains all the backup material to support areas in Section 2. This includes secondary support data, any research data, contracts or leases, the patent document, and most notably the résumés of the entrepreneur and members of the management team. Nothing new should be introduced in this section.
Financial Information
The financial information contained in the financial plan consists primarily of the 11 financial statements indicated in Table 2.3. All but one of these are actual statements of any operating company. While having the same content, the difference in these statements is that they are forecasted—pro forma—statements that at the end of the time period will become actual statements. The one new statement is the first one—the sources and uses of funds statement—which describes how much money is needed (uses) and where it will come from (sources). The uses part often includes money for renovations, inventory, working capital, and/or reserve for contingencies. Each use statement will include working capital—the money needed until the venture positively cash flows, the point in time when the revenues from operations exceed the cost of operations. Sources of money will always include the entrepreneur and usually friends and family. The other sources of finance include banks, private investors, venture capitalists, and/or grants, which are described in Chapter 9.
Business Plan Development and Update
The business plan is a very important document both
