Entrepreneurship and Innovation as Means of Economic Growth

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Globally there is a growing emphasis on encouraging entrepreneurship and innovation as a means to foster economic health. As globalization reshapes the international economic landscape and technological change creates greater uncertainty in the world economy, entrepreneurship is believed to offer ways to help to meet new economic, social and environmental challenges. While the 2009 economic recession has had an adversely affected entrepreneurial activity; as per the 11th report in the GEM series 'entrepreneurship can also help reverse a downward economic trend'.

In Mauritius, over the past few years, the Governmental have deployed much effort to promote entrepreneurship and they have put in place different programmes to build the entrepreneurial capacities of SMEs. The objective of these programmes is to encourage entrepreneurs to follow their passion, whatever that might be, and to marry those, with a set of skills - from writing a business plan to salesmanship and from the principles of market research to the ability to lead and work in teams - which will dramatically improve the likelihood that they'll be able to create an economically sustainable life around that passion.

The Small and Medium Enterprises Development Authority (SMEDA) is an agency of the government that supports and facilitates the development of entrepreneurship and SMEs in Mauritius. The bottom line mission of the SMEDA is to help Mauritians start, build and grow businesses. To enable entrepreneurs secure financing from Banks, and monitor their businesses afterwards, SMEDA assists them in the preparation of their business plans.

As goes the old business adage, "nobody plans to fail, but many fail to plan". According to R.M Abrahms (1995), 'in the tough economy, where the market is unforgiving, and there's less margin for error, lack of planning is the leading cause of failure in new businesses. In this context the business plan is an indispensable tool for entrepreneur, not only because of its importance to the fundraising process, but also because of how it helps businesspeople to crystallize their strategy and evaluate their process.  

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A business plan can be defined as "an effective tool used by businesses to organize goals and objectives into a coherent format especially for new or small businesses". The primary purpose of a business plan is to explicitly illustrate on paper the operations of the business in the current market so as to attract potential financiers. However, a business plan should not limit itself to as a start-up tool. Bearing in mind that a business plan is highly correlated with the performance of the business and that it contributes to the growth of the firm (Orser et al., 2000), it should regularly be used as a benchmark to identify goals achieved, find areas of improvement, clarify future goals and evaluate the progress of the firm.

Hence, it should include the following pertinent components:

Introductory elements - to present the preliminary information about the company and where relevant facts and figures can be found in the document. As such, it should include the cover page, table of contents and executive summary.

Business section - to provide specific and organized information on how the business will operate. It should therefore firstly describe the company itself like for instance its vision, mission and overall objectives. Besides, most importantly, it should give an overview on the industry the firm is penetrating, the product or service marketed, the pricing, the target audience and the potential competitors. After defining all these, it is important to incorporate them in the marketing plan.

Financial statements - to define how financial resources will be managed by making use of the income statement and balance sheets to present financial data.

The appendix - to document assumptions made in the business plan.

At the end of the day, a good business plan does not necessarily guarantee success but it can go a long way towards reducing the odds of failure (Crawford-Lucas, 1992).

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A research from the University of Maryland's Robert H.Smith School of Business pointed out: "Entrepreneurs should be perfecting their business, not spending hours refining how their plan looks like on paper". While entrepreneurs are focused on the writing up of the Business Plan, they might unfortunately miss out some key practical factors that would make their enterprise a successful one. For instance, the patience and time put in refining a business plan could be used in doing something more productive. Other factors would include:

Understanding the real market needs:

While focusing on the market analysis and marketing plan, i.e. Identifying and sizing the market, identifying and evaluating competitors, means for attracting and retaining customers, type of media, etc.., entrepreneurs tend to look at the market from outside. Sometimes they do not sufficiently experience the market or come close to it, to really understand the market needs. Consequently, business plan will not be 100% accurate and hence entrepreneurs would develop a perfect functioning plan but with no real basis.

Focusing on Human Capital:

It is well known that people is one of the most valuable asset an organization has. With the business plan, entrepreneurs tend to focus on the organization structure, management, Vision and Mission, but less on the people side, i.e Kind of people to recruit, any particular laws and regulations, any prevailing level of pay, motivation factors or even the need to work overtime or odd hours.

Development of Conditional thinking:

In the business plan, the entrepreneur focuses on what s/he is going to do, the reasons for developing the business and what type of product or service will be offered. However, entrepreneurs do not demonstrate nor develop conditional thinking, e.g. what are we going to do to respond to changes or what's next. Unfortunately, world events, such as Recessions, Wars, Changes in legislation, are not always predictable. Some entrepreneurs do develop risk analysis and contingency plans, but in real life, what is required from a business person is not to describe every single scenario or risk, but instead to show ability to "entertain possibilities and draw inferences", Iffy beliefs: Conditional thinking and belief change, 2007. The conditional thinking is of upmost importance. "People make decisions, plans don't" W.Sahlman, Professor of Business Administration at Harvard Business School.

Making the Business Plan a living document:

Many entrepreneurs have the tendency to file away the business plan after the business has started. As such, the business plan does not have any practical value. Most entrepreneurs do not integrate the document in the planning process, nor is it reviewed as the company grows and moves forward. The business plan becomes a dead document and entrepreneurs are not able to extract the maximum use of the business plan in real life.

Unfortunately, business plans are mostly used as a way of finding funds to start up the business and only shows how a company would operate on paper.

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Direction

The most important reason behind a business plan for the entrepreneur is to organize his thoughts and create a vision of where he would like to be in 5-10 years in the future. Creating this vision becomes motivational because it allows seeing the possibilities that can be created for the business.

Having a multi-dollar idea is useless if the entrepreneur cannot effectively communicate the idea to others and convince them it is viable. By writing a business plan, entrepreneurs are forced to contemplate all aspects of the business, including those which may have been given little or no thought at all. The research and brainstorming being done helps to figure out where to go and gives a direction to take the business, for example, how will the company make profit? What personnel will need to be brought on board? Who will the customers be?

Producing clear solutions not only help to create a viable business plan but also give the business idea into a form where it can be properly criticized and analysed. It is crucial that all of the planning and research be completed before the business takes off.

Attracting outside funding

Most startups cannot launch without funding from investors and lenders beyond the founders of the company. Most funders will not consider putting money into a company without seeing a well-written, convincing business plan as a preliminary step to choose who to fund. Presenting these potential investors with a business plan discussing the entrepreneur's plan for victory is one way to reassure them. In fact, most banks will not even consider lending to a small business if they are not presented with a business plan.

A business plan is needed to encourage external investment into the company, whether it is though loans or equity investments. The business plan must attempt to convince funders to move on to direct talks with the founders, to go through their own process of due diligence and to move on to negotiations over the financing deal.

Thinking through strategy

The process of creating a business plan requires the entrepreneur team to go through research and analysis, on the market, customers and competitors, systematically creating a better foundation for strategy.

A business plan serves the purpose of letting entrepreneurs "make mistakes on paper" before making them in wasted rupees, cents and time. Having to write down the strategy also creates an opportunity to ensure all the founders are on the same page. Putting the plan on paper allows time to consider how the elements of a strategy complement the research done and the resources of the firm. Taking into account all the parts of the business and how they relate to each other encourages elimination of parts of the business that do not relate to the greater vision. Hence the entrepreneur exhibits cohesive strategy. After all, strategies are all about building a company over time.

Where things are out of the way fruitful discussions can be made since things are still at an early stage and plans are still more flexible. It also allows advisors and managers to give feedback on the plan of action.

Evaluating progress

When kinks are worked out, the plan becomes an excellent tool to direct the company. It should include the high level actions the firm must take, which can then be broken down into specific schedules and actions by the company's managers. While the action plan outlined in the business plan is being implemented over the first months and years of operation, the business plan is both a guide and a means to see how well the results of the business stack up to the projections made early on.

Market feasibility study

By its nature, a business planning process begins with a study of the market for the business's intended products or services, the strengths and weaknesses of competitors and substitutes and the exact needs of potential customers. This research thus proves the fiscal and business viability of the proposed business. It provides evidence of the justification (validation) of the business itself; whether it has a real chance at success.

Organize plan of attack

Entrepreneurs have many new areas to focus on during pre-launch phase and early stages of the company: legal and insurance requirements, fundraising, marketing, sales, operations, financial management etc. To handle all of them simultaneously, a plan is needed. The same plan that funders will look at becomes the basis for an internal plan of attack, giving ongoing guidance to the management on the steps to move towards launch.

Conclusion

Depending on the use of the Business Plan, it can be of relevant practical value to the entrepreneur rather than just an intellectual construct. Planning a business constitute an important element in the start up process. The important components of the plan are: a description of the product/process, a description of the target market or industry analysis, the value proposition, the firm's competitive advantage, the business stage, description of the team, the marketing plan and the financials and revenue model.

It is seen that most business owners are apprehensive to write a business plan but a well developed business plan can have lots of benefits. It helps to identify potential problems and also evaluate opportunities. One of the most important aspects of the business plan is in the search for funds. Investors and other capital providers rely on this tangible document to evaluate the probability of success or failure of a new business venture. Therefore, the plan must be explicit and all assumptions well documented. The ability of the entrepreneur to acquire resources and the process of inputs conversion to value added outputs meant for the target customers must be well described in order to give sufficient cues to capital providers.

However, the views differ regarding the correlation between the business plan and the outcomes. It is recommended that business owners revisit the plan regularly after implementation .The business performance should be monitored continuously to verify the implementation and relevancy of the strategies as per the business plan which gives direction to the owners. A process to collect real data from customers/market must be established. Based on the actual data, the initial business plan which most likely contains many untested hypotheses must be reviewed to suit the real market conditions.

Hence, to conclude, the Business Plan is of considerable value to the entrepreneur if used and improved continuously even though it is limited in its ability to communicate the entrepreneur's enthusiasm.

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