Chapter 10

Question 1

preparing to write a business plan

Answer 1

1) identify who is responsible for what
2) develop a timeline based on tasks identified
3) hold the team to the timeline and work diligently to get the plan done

Question 2

concerns when considering a business plan and entrepreneur for a loan

Answer 2

1) the amount of money the entrepreneur needs
2) the kind of positive impact the loan will have on the business
3) the kinds of assets the business has for collateral
4) how the business will repay the loan
5) how the lender will be protected if the business doesn’t meet its projections
6) the entrepreneur’s stake in the business

Question 3

proof of concept period (don’t have to memorize)

Answer 3

customer sales
purchase order
final product
letter of intent for beta test
working prototype

Question 4

micro strategies

Answer 4

increase in uncertainty, fewer available resources, and a need for more innovation; calls for startups that can move and adapt quickly as they implement smaller strategies to accomplish near-term outcomes on the path to bigger, longer-term goals

Question 5

entrepreneur’s micro strategy for proof of concept

Answer 5

outcomes: what do we want to achieve? why do we want to achieve this outcome? what is the value?
assets: what do we have that will help us achieve the outcomes we seek? do we have all the assets we need to achieve our outcomes?
actions: what specific tasks do we need to do to accomplish the outcomes? will our actions accomplish the outcomes we seek?

Question 6

Types of market evaluation

Answer 6

Total available market (TAM)
serviceable available market (SAM)
serviceable obtainable market (SOM)

Question 7

Technology readiness levels (don’t need to memorize)

Answer 7

1) new concept proposed
2) academic research to validate concept
3) lab proof of concept research
4) proof of concept validation in relevant environment
5) breadboard demonstration– primitive prototype
6) prototype demonstration
7) demonstration of pre-production hardware in operational environment
8) extended operation– system completed
9) commercialization

Question 8

business part of business plan

Answer 8

provides the key information a reader would want to know about the business so that the rest of the business plan makes sense; start with elevator pitch

Question 9

industry/market analysis

Answer 9

the environmental context for your business; determines whether the business can be profitable

Question 10

product/service development plan

Answer 10

provides a detailed description of your product or service and the timeline for completion of the prototype and final product or service

Question 11

founding or management team

Answer 11

present the qualifications of the team, how they will cover the critical tasks, and what gaps, if any, there are in the team

Question 12

organization plan

Answer 12

discusses the legal form of organization that the venture will take; deals with the entrepreneur’s philosophy of management and company culture; includes an organization chart showing key management, talks about personnel required for specific duties and employee incentives, and discusses the use of strategic partners

Question 13

operations plan

Answer 13

contains a detailed description of the business operations, including those processes that the new venture will own and undertake in-house, such as assembly, and those that will be outsourced to a strategic partner, such as manufacturing; explains how the business will operate, where it will get its raw materials, how a product will be manufactured and/or assembled, and what type and quantity of labor will be required to operate the business

Question 14

marketing plan

Answer 14

distinct from marketing analysis; the strategy for communicating the company’s message, developing awareness of the product or service (brand equity), and enticing the customer to purchase; includes a discussion of the plan’s purpose, the market niche, the business’s identity, tools that will be used to reach the customer, a media plan for specific marketing tools, and a marketing budget

Question 15

financial plan

Answer 15

demonstrates the financial viability of the venture and explains the assumptions you made in doing the forecasts; statement of cash flows, income statement, balance sheet

Question 16

current ratio

Answer 16

provides information on the company’s ability to meet short-term obligations;
total current assets/total current liabilities

Question 17

profit margin

Answer 17

uses net income and net sales from the income statement to give the percentage of each dollar of sales remaining after all costs of normal operations are accounted for;
net income/net sales

Question 18

return on investment

Answer 18

provides a measure of the amount of return on the shareholders’ investment based on the earnings of the company;
net income/shareholders’ equity

Question 19

inventory turnover

Answer 19

measure of the liquidity of the inventory or the number of times it turns over in a year; helps to judge whether the business has too much capital tied up in inventory
cost of goods sold/average inventory

Question 20

break even analysis

Answer 20

tells how many units must be sold before your company can achieve a profit or the sales volume required to be profitable;
total fixed costs/(selling price-variable costs per unit)

Question 21

growth plan

Answer 21

discusses how you plan to take your business from startup through the various stages of growth and outlines the strategy that will be used to ensure that the business model is sustainable and continues to scale over its life

Question 22

contingency plan

Answer 22

presents potential risk scenarios, usually dealing with situations such as unexpected high or low growth or changing economic conditions, and then, fore each situation, suggests a plan to minimize the impact on the new business

Question 23

timeline to launch

Answer 23

lists critical milestones and gives the reader a clear sense of when the business will launch

Question 24

appendices

Answer 24

put items that support your claims in the main body of the report– things like resumes, calculations, surveys, spreadsheets, etc

Question 25

end notes

Answer 25

the linked citations to material in the main body of the report that were gathered from sources other than the entrepreneur

Question 26

mistakes in developing a business plan

Answer 26

boring your readers to death
trying to do too much too soon
drowning your plan in jargon
rapid growth that requires capabilities beyond those of the founding team
one ringleader in a 3-ring circus
performance that exceeds industry averages
price as a market strategy
not investing capital in your own business