In the second session of Entrepreneurship and Small Business Management * at Aquinas College the Millennials explored feasibility analysis, business model and strategic planning processes with additional guidance from our guest entrepreneur, Tom Senecal of Lasers Resource Inc.
Feasibility Analysis and Business Model
Can I find a need in the market that I can test with a viable business model? The best business ideas start with a group of customers with a common problem or need. Assess these ideas by examining a need in the market, developing a solution for that need and determining the entrepreneur’s ability to successfully turn that idea into a business. This requires forward thinking about the lifetime value the solution would provide these customer clusters (see Calculate potential by Lifetime Value).
Challenges to becoming an entrepreneur
Tom Senecal, President of Laser’s Resource Inc., shared his very personal story and insights to starting his business back in 1991. Already a successful sales rep for Digital Equipment Company, he took a pay cut to go off on his own. To become a laser printer toner cartridge remanufacturer, he put in his own funds and obtained collateral from his father, who also was a business owner.
When Tom explained the desperate moment he was out of cash for Christmas presents, he made the decision to focus his time and efforts on the best prospects by cold calling during the day and deferring administrative tasks to after hours.
25 years later, Laser’s Resource takes care of copiers and printers helping organizations control costs and improve print processes by using print software for document workflow improvements. Tom’s business has grown to a $4.5 million enterprise with 25 employees and a family atmosphere, where he can take time off and reap the profits. Not too bad for an Aquinas graduate with a Master of Management degree.
Students responded well to Tom and later discussed that they believed an entrepreneur must face adversity to get into that mindset. Surprisingly, they also thought it was unavoidable and must be expected as part of the challenge!
Idea Sketch Pad
Use the idea sketch pad as your planning tool for feasibility analysis to determine whether the entrepreneur could transform the idea into a viable business by examining:
- Offering – a description of the product or service.
- Value proposition of how your business will be important to the customers.
- Core competencies to differentiate from competitors.
- People on the management team.
The sketch pad helps entrepreneurs visualize gaps or weaknesses and change the idea to improve its chances for success.
Next comes analysis of the industry and targeted market segments to determine how attractive an industry is and to identify possible niches to occupy profitably. Porter’s Five Forces of Competition based upon:
- Rivalry among the companies competing in the industry,
- Bargaining power of suppliers to the industry,
- Bargaining power of buyers,
- Threat of new entrants to the industry
- Threat of substitute products or services.
The third component of a feasibility analysis involves assessing the financial feasibility:
- Capital Requirements (money needed to start the business).
- Estimated earnings (forecast the earning potential).
- Time out of cash (estimate total cash needed to sustain the business until achieving break-even cash flow).
- Return on investment (based on estimated earnings and the capital requirements).
Business Model Canvas
Develop and test the business model using the Business Model Canvas (pictured above):
- Customer Segments. Identify a segment of customers who have a clearly defined need. It’s easier to focus on a specific market niche(s) where you can excel at meeting customers’ special needs or wants.
- Value Proposition. Identify and focus on one or two benefits of your offering that stand out to customers over competitors and motivate them to purchase from you.
- Customer Relationships. Determine the level of customer service expected by your customers. How will customers want to interact with the business (intensive personal service, limited engagement or automated interaction)?
- Channels. List both communication channels (promotion) and distribution channels (product placement).
- Key Activities. Build a basic checklist of what needs to be done to open the business and ensure its long-term success.
- Key Resources. Identify the human, capital, and intellectual resources needed for the business to be successful.
- Key Partners (external stakeholders). Include key suppliers, key outsourcing partners, investors, industry partners and advisers.
- Revenue Streams. Determine how the value proposition will generate revenue (one-time sale, ongoing fees, advertising, etc.).
- Cost Structure. Identify the fixed and variable costs.
We will elaborate on these in the subsequent articles.
Value Proposition Test
For a final test of understanding the customer, students will later ask themselves, potential customers and other entrepreneurs:
- Do we really understand the customer problem?
- Do customers care enough to spend their hard-earned money on our product?
- Do customers care enough about our product to help us by telling others?
The key to differentiation is getting buyers to ask, “Why choose you?” See Does Your Value Proposition Differentiate You?
In a real venture, entrepreneurs would:
- Test business models on a small scale before committing serious resources.
- Develop simple prototypes to test key assumptions by engaging real customers.
- Begin the lean start-up process using minimal viable product.
- Pivot their business model (change product, target customer or revenue model) until ready to expand.
Business Plan and Strategic Plan
Can I write a business and strategic plan to raise capital and grow? A solid business plan is essential to raising the capital needed to start a business and needs to be believable, often including practice pitching it. Growth of the business comes from a sound strategic plan.
Business Plan Tests
- Reality: proves market exists for your offering and you can provide it for cost estimates.
- Competitive: evaluates company’s competitive position and management’s ability to create edge over its rivals.
- Value: proves venture offers investors attractive ROI with high probability of repayment.
These criteria were used to evaluate plans submitted later by students.
Business Plan Templates
Numerous Business Plan Templates are available and share common elements:
- Title and Table of Contents Pages
- Executive Summary
- Mission and Vision Statements
- Description of Offerings
- Business / Industry Profile
- Competitor Analysis
- Marketing Strategy
- Entrepreneurs’ and Managers’ Resumes
- Plan of Operation
- Pro Forma (projected) Financial Statements
- Loan or Investment Proposal
To make your business plan stand out, you should at least brand its templates and prepare to present it following some basic guidelines, which we cover later.
Strategic Planning Process
Strategic planning is a reiterative process critical for success and makes it easier to understand where to pivot the business model.
- Develop a clear vision and translate it into a meaningful mission statement.
- Assess the company’s strengths and weaknesses.
- Scan the environment for significant opportunities and threats facing the business.
- Identify key success factors.
- Analyze the competition.
- Create company goals and objectives.
- Formulate strategic options and select the appropriate strategies.
- Translate strategies into action plans.
- Establish accurate controls.
To prepare students to begin using these concepts, they were to develop an Elevator Pitch using guidelines from Success Magazine. They included the context (business idea or one they may be considering), the benefit (WII-FM), identity of the best target customer(s), their point of differentiation (USP) and the clincher (emotional hook).
In our next article, we’ll discuss forms of business ownership, franchising, developing the Marketing Plan and insights from our next guest entrepreneur.
If you are a startup, experiencing growth pains or need a business mentor – then Tempest can help to ensure that your objectives and procedures are clear, match your organizational DNA and are assigned to the appropriate individuals, as well as monitor and analyze performance. Should you need help improving the effectiveness of your business development efforts by getting customers and vendors involved in promoting how well your products or services meet their needs, contact us or find out how in our Marketing Planning and Marketing Communication Workshops.
* Using the text: Essentials of Entrepreneurship and Small Business Management, 8e. Norman M. Scarborough and Jeff Cornwall. Pearson Education, Inc. 2016.