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Every startup business will be required to submit a business plan in order to attract investors. In fact, preparing the business plan is a crucial first step, particularly for first time entrepreneurs who have no prior experience. Hence, the business plan is more of a process and work in progress than an end in itself.
There are numerous benefits to preparing a business plan. First, it is an excellent way for the entrepreneur and his prospective partners to learn more about the business and to gain critical insight into each other's style, strengths and weaknesses and how they will work together. Two, it is a great tool with which to communicate and to persuade stakeholders, including potential backers, team members, key new hires, directors, brain trust prospects and strategic hires. Three, it will prevent any temptation to jump ahead prematurely, as well as limit sloppiness regarding the hard thinking, the necessary research and creative problem solving. Four, it will test the entrepreneur's commitment and prevent him from losing focus. Five, it will save the entrepreneur time, help him avoid common mistakes and help create order out of what is fundamentally a chaotic and in many respects, unpredictable and unplanned event. Finally, it will help the entrepreneur create the best (but not perfect) road map and blueprint for the entrepreneur and his team to move ahead.
The report evaluates the contents of the business report of a startup, Aegis Performance Apparel which intends to sell snowsports apparel. It does so from a number of perspectives. One, it benchmarks this plan according to the ten required sections of an entrepreneurial business plan. Two, it identifies the strengths and weaknesses of this plan. Next, it examines the clarity and standard of the business plan presentation with an appreciation of the industry sector in which the EBP is based. Finally, it will explain whether the writer is willing to invest in this proposal and with what justification.
The executive summary is satisfactory and is of an acceptable length. It outlines what the business is all about and shows how the company's products will make a difference in customers' lives in terms of their personal safety and appearance. It provides an overview of the industry with an emphasis on the target market, growth opportunities of the company and what competitive advantages it has in relation to its competitors. The executive summary also summarizes the resumes of the management team and the board of directors. It briefly describes the business operations, how marketing will be done and ends with a summary of the key financial indicators of the company.
This section provides the technical details of the products. They comprise jackets and pants that provide a removable fitted protective padding layer incorporated into a fashionable shell, as well as integrated knee braces. Even though it is common to include an industry background in the business description section, Aegis has placed it into another separate stand alone section which is rather comprehensive. In the business description section, we learn of the company's mission and core values. It also describes the products in detail including why they are unique, including research, design and development. While there is no statement of sustainability per se, there is a section which describes the business model and how it is sustainable in the long term.
Information in the market research and analysis section needs to support the assertion that the venture can capture a substantial market in a growing industry and stand up to competition. Here, the company has done an excellent job. It provides a comprehensive description of the target market, its target customers, size of the market, competition and estimated market share over time. The supporting data for this section is included in the appendices which is a good idea as the busy reader may not have the time and patience to read through the methodology and findings sections of the market research. If one failing can be mentioned, perhaps it is that this appendix reads too much like a scholarly journal article rather a business report. It could have been rewritten to sound more conversational rather than dry and academic.
The marketing plan describes how the sale projections will be attained. The marketing plan needs to detail the overall marketing strategy that will exploit the opportunity and the company's competitive advantages. The Aegis marketing plan is placed in a separate section entitled "Sales and Marketing". This contains the company's marketing strategy, its pricing strategy, advertising and promotion. There is also a budget on how much it will spend on marketing activities.
This section begins with an overview of the company's organization. It then describes the production plan, which comprises materials sourcing, sample production and goods manufacturing. It then explains the pricing model for the products and the distribution plan. The description of operations and controls is divided into goods quality and inventory control, retailer relationship observance and cash control. Next, it has an action plan and schedule. This describes its patents and trademarks, product development and location.
This section also differs from the norm by including items that would normally be placed elsewhere. For instance, it has a contingency plan. This explains what Aegis will do under different scenarios, for example during drastic decline in snowsports participation, poor snow years, forecast demand is too low or too high, significant increases in interest rates and insufficient patent protection. These should ideally be discussed in a separate section on critical risks.
However, this section does not explain the capital equipment required, the sustainable development measures and the organization structure.
This section of the business plan includes a description of the functions that will need to be filled, a description of the key management personnel and their primary duties, an outline of the organizational structure for the venture, a description of the board of directors, a description of the ownership position of any other investor and so on. Here, the management team is described. Details of their resumes are included in the appendices. The legal and management structure of the organization is discussed along with the professional support that the organization will receive. There is a detailed description of the board of directors.
The development of a business has risks and problems and the business plan invariably contains some implicit assumptions about them. This section should contain an overview of the potential problems or fatal flaws that the company might face, its obstacles and risks and alternative strategies and contingency plans to handle problems and risks. The discovery of any unstated negative factors by potential investors can undermine the credibility of the venture and endanger its financing. Aegis has included them in the operations section. While this is acceptable, it minimizes the impact the section might otherwise have if listed separately. It may also cause the business report to lose some credibility.
The financial forecasts are basic to the evaluation of an investment opportunity and needs to represent the best estimates of financial requirements. The purpose of the financial forecast or plan is to indicate the venture's potential and to present a timetable for financial viability. It can also serve as an operating plan for financial management using financial benchmarks. In preparing the financial plan the entrepreneur needs to look creatively at the venture and consider alternative ways of launching or financing it.
Aegis has included comprehensive financial information. This includes the monthly cash flow and income statement for the first 36 months of operations. It also estimates the consolidated annual income for the first seven years and the balance sheet for the first three years. In addition, it explains its sources of working capital, how it will manage working capital and a breakeven analysis. Furthermore, the company clearly shows the startup requirements and the startup costs. There is detailed explanation on the individual costs per unit.
Harvest or Long Term Strategy
This is included in the Operations section and is termed "Future growth and direction". This section explains how future growth will occur and what will generate it. However, it does not explain how retained earnings will be used in future paths so it is unsure whether the company intends to have a high dividend payout. Furthermore, it does not identify successors. This may be due to a troubling section on Exit Strategy in which the founders plan to divest themselves once the brand has been established and sell the business concern to a larger entity. Hence, this seems to imply that the founders do not intend to remain with the company in the long term and do not care who takes over as long as they can make a profit.
Implementation and Milestone Schedule for 3 to 5 Years
In the Aegis business plan, this is not shown as a stand alone section but as part of the appendices. The time frame is also considerably shorter as it merely encompasses the first two years of operations. The timeline is expresses by way of a modified Gantt chart but it only focuses on the key activities involved in getting the company started. There is no further description of what the company wants to achieve down the road and the absence of this seems to imply that the entrepreneurs themselves have not figured the matter out properly. Indeed, the absence of this section becomes obvious in light of the Exit Strategy since the founders plan to leave the startup once it becomes successful.
Appendices and Bibliographical References
The entire business plan is 48 pages long. Out of this, only 21 pages are devoted to the report itself while the remaining 26 pages are appendices and the last page is a bibliography. On the flipside, it can be argued that the entrepreneurs have provided a very comprehensive set of supporting data but on the downside, it may appear to have too much unnecessary information.
Strengths of Business Plan
To begin, the company is very clear about its goals which it sets out in specific terms in its vision and mission. The importance of an organization's goals cannot be overstated as they define the purpose of the company. Hence, the company is very clear about what it wants to do and how it wants to do them.
One of the strengths of the business plan is its marketing research and analysis. The entrepreneurs have done an excellent job in researching their market, their competitors and identifying target customers. They have shown how much the market is currently worth and how much it could potentially be worth. The marketing plan is also clear and shows how the company will go about selling its products.
Another major strength is the financial plan. The entrepreneurs show the breakdown of their income and expenses with great clarity and they demonstrate a good understanding of the key financial issues involved.
Weaknesses of Business Plan
The business plan downplays the risks involved by putting them under the operations section, when in reality, this should be a stand alone section. While the company has explained the risks involved, it does not highlight them as much as it should have. In addition, the company did not list enough worst case scenarios. At worst, the company anticipated a drastic decline in snowsports participation, but the business model did not include contingency plans in the event of an economic meltdown. Written at a time when the American economy was still booming, the entrepreneurs did not anticipate and prepare measures if the country were to suffer from a prolonged recession that affected all economic sectors, which was precisely what happened in 2008 to 2009. By not fully considering all the scenarios, the company did not measure the full extent of operating risks.
There is also no section on sustainable development measures. Today, many investors are extremely environmentally conscious and would only invest in companies that are committed to sustainable development. Aegis is a manufacturer and all manufacturers will impact the environment in some way. Even though much of the manufacturing will be done overseas in China and India, it is important to know how the manufacturing process will impact the environment. Also, the company needs to show how it will obtain its raw materials and whether this is done in a sustainable way. These are some of the considerations that certain investors want to see.
The business plan should have included better graphics of design prototypes. The sketches are vague and not very attractive. Granted, the products are still in the design phase but it would have been better to make prototypes and photograph them or at the very least, use computer software to show how the finished goods would look like. This would make the products more appealing to potential investors.
Clarity and Standard of Business Plan Presentation
The language and tone of the Aegis business plan are appropriate. The sentences are short, clear and employ the active tone. Usage of jargon and technical words is kept to a minimal, which is important as financial backers may not necessarily have the same background knowledge as the entrepreneurs. Overall, the report adheres to the accepted norms of business plan formats as it includes all of the important elements. The main text is reserved for the important points while the explanations are provided in the appendices. The diagrams are also clear and properly labeled.
In terms of presentation, the business report is sufficiently attractive. The font size, spacing, paragraphs and pagination are appropriate. We would have preferred fewer footnotes as they tend to distract attention away from the main text, but this is a matter of personal preference. Each appendix could have been clearly labeled, for example Appendix 1: Financial Statement which would have made cross referencing much easier.
Appreciation of the Industry Sector
The preparers of the business report have a clear and deep understanding of their industry. They know the market size, its various sub-segments, key competitors and identifies the niche needs for which the company could fill.
Preparedness to Invest in Business Proposal
Our preparedness to invest in the business proposal is based on what we know in hindsight. In hindsight, everything looks so obvious even though at the time the event occurred, things may not be as clear. Without the benefit of hindsight, we would have been prepared to invest in the business. The business model and plan are based on sound fundamentals and the economic projections seem reasonable. Indeed, the entrepreneurs have found a niche in which there is a need for fashionable and safe snow sportswear, but there were no companies at present to fulfil the need. Based on this, it would seem that the company products would find favour with customers.
However, in hindsight, this does not seem like a very good investment. The 2008 sub-prime mortgage crisis was one that few anticipated, let alone foresaw how it would snowball into the great economic recession of 2008 - 9. Many industries were badly affected, especially peripheral industries like sportswear. It must be remembered that snowsports are discretionary recreational activities. When people are retrenched, faced with the prospects of unemployment or have their wages cut, it is likely they will be forced to cut back on unnecessary expenses like recreational sports.