Chapter 3

Developing Business Plan and

Business Models

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 Outlines

 The lean start-up principle

 Business model canvas

 Feasibility Analysis of a new venture

 Business Plan

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• “A startup is a human institution designed to deliver a new
product or service under conditions of extreme service and
under conditions of extreme uncertainty’’
• "having an original vision and then ref ining and testing it
along the way through tightly controlled experiments“
• “not about asking what customers wants but testing the
original vision based on what customers do”
• The Lean Startup applies to all companies that face
uncertainty about what customers will want
• The Lean Startup method is not about cost, it is about
speed.
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 Lean start-up Principles
• Lean Startup principles focus on minimizing waste and
maximizing learning in the process of developing a new
business. This approac h is espec ially valuable for
entrepreneurs looking to innovate and ef fic iently validate
their business ideas. Here are the core principles:

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 The fundamental activity of a startup is to turn ideas into
products, measure how customers respond, and then
learn whether to pivot or persevere.
 All successful startup processes should be geared to
accelerate that feedback loop

 Pivot: change directions but stay grounded in what we’ve

learned.

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Feedback loop

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1. Build-Measure-Learn Cycle
Build: Start with a minimum viable product
(MVP), a basic version of the product that
includes just enough features to satisfy early
adopters.
Measure: Collect data on how customers
interact with the MVP to validate hypotheses
about the business model.
Learn: Analyze the data to learn whether to
pivot (change direction) or persevere (continue
on the current path).

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2. Validated Learning
• Entrepreneurs must focus on learning what customers
actually want through experiments rather than relying on
traditional market research. This involves testing
assumptions through direct feedback and real-world usage.
3. Minimum Viable Product (MVP)
• An MVP is a simplified version of a product that allows for
quick feedback from users. It helps in testing core business
hypotheses with minimal resources, enabling faster
iterations based on user feedback.

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4. Pivot or Persevere
• After measuring the results of the MVP, entrepreneurs must decide
whether to pivot (make a fundamental change to the product or
strategy) or persevere (continue refining the current approach).
5. Continuous Improvement
• The Lean Startup methodology emphasizes ongoing adjustments
and refinements based on customer feedback. This iterative
process helps in developing a product that better fits market needs.
6. Innovation Accounting
• This principle involves defining metrics that measure progress and
success in a startup context. It focuses on actionable metrics that
can guide decision-making rather than vanity metrics that don't
provide real insights.

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7. Customer Development
Engaging with customers early and often to understand
their needs, pain points, and behaviors. This ongoing
dialogue helps ref ine the product and ensures that it
meets real market demands.
8. Sustainable Growth
Lean Startup principles encourage businesses to focus
o n sc a l a bl e a nd sust a i na bl e gro w t h st ra t e gi e s,
emphasizing long-term viability rather than short-term
gains.

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 Cont…
Benefits of Lean Startup Principles:
Reduced Risk: By validating ideas quickly, entrepreneurs
can minimize the risk of building products that do not
meet market needs.
Cost Ef fic iency: Using MVPs and iterative testing helps
save time and resources.
Faster Time to Market: Rapid testing and learning allow
startups to adapt quickly and bring products to market
sooner.
Overall, Lean Startup principles provide a structured
framework for entrepreneurs to innovate and respond to
market needs efficiently, making it a powerful approach in
today’s fast-paced business environment.

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 What Lean Start-ups Do differently
• Lean • Traditional
Strategy Strategy
 Business Model  Business Plan
 Hyphothesis-driven  Implimentation-driven
New-Product Process New-Product Process
 Customer developmentGOYA
 Product Management
Engineering
 Prepare offering for market following a
 Agile development linear, step-by-step plan
 Build the product iteratively and increamentally
Engineering
Organization
 Agile or waterfall development
 Customer and agile dev’t teams
 Hire for learning, nimbness, & speed
 Build the product iteratively, or fully specify the
product before building it
Financial Reporting
Organization
 Metrics that matter
 Customer acquisition cost, lifetime  Departments by function
 Customer value, churn,  Hire for experience and ability to execute
Failure Accounting
 Expected  Income statement, Balance Sheet, Cashf low
 Fix by iterating on ideas and pivoting away statement
Speed Failure
 Rapid Exception, Fix by firing executives
 Operatesson good-enough data Speed
Operates on complete data

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 Business Model Canvas
 Rather than engaging in months of planning and research,
entrepreneurs accept that all they have on day one is a series of
untested hypotheses basically not more than an idea. So instead
of developing a business plan, founders summarize their
hypothesis in a framework called business model canvas.
 The business model canvas is a diagram of how a company
creates value for it self and its customers
 The Business Model Canvas as well as, ref lects systematically on
your business model, so you’re freely to map each of its elements
to your real business components.
The 9 building blocks of the Business Model Canvas:

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14
What Is A Feasibility
Analysis?
• Feasibility analysis is the process of determining
whether a business idea is viable.
• It is the preliminary evaluation of a business idea,
conducted for the purpose of determining whether the
idea is worth pursuing.

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 Benefits of a Feasibility Analysis
 I d entify v iable c o nc epts, inc lud ing c o mplementary
products/services
 Get it right the first time; avoid obvious pitfalls
 Save valuable time and money
 Validate it is what the customer needs, wants and will
purchase

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When To Conduct a Feasibility Analysis

• Timing of Feasibility Analysis

– After concept statement evaluation
– After opportunity recognition, before business plan
– Before a lot of resources are invested
• Four Components of Full Feasibility Analysis
– Product/Service Feasibility
– Industry/Market Feasibility
– Organizational Feasibility
– Financial Feasibility
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Role of feasibility analysis in developing
business ideas.

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• Product/Service Feasibility
• Concept testing
• Usability testing
• Industry/Market Feasibility
• Industry attractiveness
• Market timeliness
• Identification of a niche market.
• Organizational Feasibility
• Management prowess
• Resource sufficiency
• Financial Feasibility
• Capital requirements
• Financial rate of return
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Feasibility Analysis Process

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 Feasibility Analysis Outline

• Cover • Product/Service
• Executive Summary Development Plan
• Title Page • Financial Plan
• The Business • Timeline
Concept • Bibliography
• Industry/Market • Appendices
Analysis
• Founding Team

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22
 Business plan
• The business plan is a comprehensively written down
document prepared by the entrepreneur describing
formally all the relevant external and internal elements
involved in starting a new venture.
• Preparing a business plan is one of the most useful
things that you as an entrepreneur or potential
entrepreneur, can do.
• When it comes to creating a business plan that
attracts investors.
• Every business should have a business plan. 23
 Importance of the business plan
• The business plan is valuable to the entrepreneur, potential investors,
venture capitalists, banks, f in ancial institutions, new personnel's
suppliers, customers, advisors and others who are trying to familiarize
themselves with the venture, its goals, and objectives.

a) helps to understand the feasibility and viability of the proposed venture,

b) facilitates in assessing and making provisions for the bottlenecks in

the progress and implementation of the idea,

c) discusses the potential for success of the project along with the risk
factors involved.

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c ) helps in prov id ing guid anc e to the entrepreneur in
organizing his/her planning activities
• as such:
– i) identifying the resources required
– ii) enabling obtaining of licenses if required etc.
– iii) working out with legal requirements as desired by the
government.
d) helps in satisfying the concerns, queries, and issues of
each group of people interested in the venture.
e) provides room for self-assessment and self-evaluation,
requiring entrepreneur to think through various scenarios
and plan ways to avoid obstacles. 25
Cont…
f) though not desirable, at times, business plan helps to
realize the obstacles which cannot be avoided or
overcome, suggesting to terminate the venture while
still on paper without investing further time and money.
g) as the investors/lenders focus on the four Cs of credit :
character, cash f low, collateral and equity contribution,
it is the business plan which ref lects the entrepreneur's
credit history, the ability to meet debt and interest
payments, and the amount of personal equity invested
thus serving as an important tool in funds procurement.

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 Business Plan Mistakes
• The plan is poorly written
• The plan presentation is disordered.
• The plan is incomplete.
• The plan is too unclear
• The plan makes unfounded or unrealistic
assumptions.
• The plan includes inadequate research
• You claim there's no risk involved in your new
venture.
• You claim you have no competition. 27
 Business Plan Outlines

Sample Business Plan Cover

 NAME OF BUSINESS:
 TYPE OF BUSINESS:
 PREPARED BY:
 NAME OF OWNER:
 PHONE
 E-MAIL:
 DATE:

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 Components (contents) of Business Plan
1. Executive Summary
2. General Company Description
3. Products and Services
4. Marketing Plan
5. Operational Plan
6. Management and Organization
7. Financial Plan
8. Assessment of risk
9. Appendices ..
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 1. Executive Summary
 Explaining who you are, what you do and why
 state clearly how much you want, precisely how you are going
to use it, and how the money will make your business more
profitable, thereby ensuring repayment.
• Name of the venture/company
• Address of the venture/company
• Nature of business (form of organization)
• Addresses of the principals/partners
• Statement of financing needed
• Names of the principals/partners
• Statement of confidentiality of the report
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 2. General Company Description
 What business will you be in? What will you do?
• Mission statement (business purpose)
• Company vision (statement about company growth)
• Business goals and objectives
• Brief history of the business
• List of key company principals
• Legal form of ownership: Sole Proprietor, Partnership,
Corporation, Limited Liability Corporation (LLC)? Why have
you selected this form?
• Business philosophy: What is important to you in business?
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 3. Products and Services

 Why you are in business , What your products

and services are and how much they sell for
 How and why your products & services are
competitive
• Specif ically describe all of your products and
services
• If applicable, reference a picture or brochure of
your products, which would be included in the
plan’s appendix
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 4. Marketing Plan
 Basic information about the industry you operate in and the customer needs
you are fulfilling
 The scope and share of your business market, as well as who your target
customers are

• Describe your business industry and outlook (market size, main competitors,
market segment(identification of the customers) and industry participants )

• Define the critical needs of your perceived or existing market

• Identify your target market (market need, market trends and market growth)
• Distribution Channels
• Describe what share of the market you currently have and/or anticipate

• Industry forecasts (SWOT analysis of your company)-

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 5. Operational Plan
 Explain the daily operation of the business, its location, equipment, people,
processes, and surrounding environment.
• How and where are your products or services produced?( Production
techniques and costs, Quality control, Customer service, Inventory control and
Product development etc.)
• Describe the type of location you’ll have (Amount of Space, Type of building,
Zoning, Power and other utilities
• describe Legal Environment (Licensing and bonding requirements, Permits,
Health, workplace, or environmental regulations, Special regulations covering
your industry or profession, Zoning or building code requirements, Insurance
coverage, Trademarks, copyrights, or patents (pending, existing, or purchased)

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• Explain the Personnel( Number of employees, Type of
labor (skilled, unskilled, and professional) Where and
how will you f in d the right employees, Quality of
existing staff, Pay structure, Training methods and
requirements)
• Identify key suppliers ( Names and addresses, Type and
amount of inventory furnished, Credit and delivery
policies, History and reliability)
• Machinery, equipment and materials (Raw materials,
Consumables, Stationery, Machinery and tools , Safety
materials and Power and water consumption)
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 6. Management and Organization
 The legal form of ownership for your business and Who the
leaders are in your business as well as their roles
 The general flow of operations within the firm
• Provide a description of how your company is organized as well
as an organization chart, if available
• Describe the legal structure of your business (proprietorship,
partnership, corporation, etc.)
• Identify necessary or special licenses and/or permits your
business operates with
• Provide a brief bio description of key managers within the
company
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 7. Financial Plan
 Have a good understanding regarding the
f in ancial capacity and/or projections for
your company
• Profit and loss projection
• A cash flow projection
• A projected balance sheet
• Break even calculation
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 8. Assessment of risk

 Evaluation of weakness, new

technologies, and contingencies plan
– Business Risks

– Marketing Risks

– Operational Risks

– Human Resource Risks

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 9. Appendices (contains backup material)
• Company brochures
• Resumes of key employees
• List of business equipment
• Copies of press articles and advertisements (if available)
• Pictures of your business location and products (optional)
• Information supporting the growth of your industry and/or
products (optional)
• Key business agreements, such as lease, contracts, etc. (optional)
• Price lists from suppliers
• Facility layout
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