The spirit of entrepreneurship

AS and A Level Business Studies

THE SPIRIT OF ENTREPRENEURSHIP

Marvin Catacutan 011152667

Yonatan Kachko 013855978

Melanie Low 024803819

Qaiser Mian 015179260

Melissa Pereira 014713424

Winter 2004

Submitted

Dr. Mary Han

School of Business Management

in partial fulfillment of the requirements

for

ENT 526 – Introduction to Entrepreneurial Behaviour

April 2, 2004

Ryerson University

EXECUTIVE SUMMARY

Planning is a critical stage in any new venture. Business plans offer a detailed outline of how an entrepreneur expects to run their new business, and forecasts how the new venture will do. It is said that this is a very important tool in any successful venture.

However, is this really the case? As the business world changes everyday, an entrepreneur must be able to think quickly and respond to changes as they happen. Business plans can hinder a new venture’s growth as the entrepreneur must then take the time to update their business plan. Time that otherwise could be used to make important business decisions. A substantial part of the business plan involves financial data. Most of this data consists of forecasts, which is open to interpretation by both the entrepreneur and the investors studying the document. Whether the forecasts are reliable is very subjective.

On the other hand, business plans can be beneficial as it allows the entrepreneur to clearly define and communicate their goals and objectives. It also helps the entrepreneur establish a framework for making management decisions. It helps the entrepreneur establish their vision, and move towards their goals and objectives. It is also a very useful tool in obtaining financial capital, and is often the first thing asked for when approaching banks and investors.

As every business venture and entrepreneur is different, so differs their need to possess a business plan. Some entrepreneurs find the business plan an aid for their venture, while some find it hinders their business planning and instinct. Only the entrepreneur can decide if a business plan is right for their business or not.

Introduction 4

Who Needs a Business Plan? 4

A Business Plan Will Do You Good 7

Conclusion 9

References 10

Appendices 12

INTRODUCTION

New business ventures start up everyday. Some are successful while others struggle to gain capital for their venture. Many entrepreneurs rely on their own saved funds, and the funds of family or friends to help them launch their business. Many entrepreneurs also need outside capital to be invested into their venture. Gaining this capital is a challenge. Many feel that a business plan is a beneficial tool in aiding entrepreneurs in acquiring a loan from either a bank or a venture capitalist. A business plan is a written document that clearly identifies, defines and explains a business opportunity. It outlines in detail how the entrepreneur is going to take advantage of the opportunity successfully. Bill Sahlman believes that although the business plan can be a valuable tool, it is not necessarily the only tool that can be used to secure a loan. Instead, he states that there are four dynamic components of an entrepreneurial process or venture: the people, the opportunity, the external context, and the deal (Sahlman, 1999, p.138). As long as a proper relation between these four components exists, there is no reason why a entrepreneur cannot be successful without a business plan. This paper will discuss the disadvantages and advantages of establishing a business plan for an entrepreneur.

WHO NEEDS A BUSINESS PLAN?

Businesses will fail. That is inevitable, like death and taxes. There are good times and hard times but all things come to an end as is clearly illustrated by examples such as Enron and Air Canada.

“The uncertainty and fast pace of entrepreneurial situations undermines the value of business planning” (Bird, 1998)

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WHO NEEDS A BUSINESS PLAN?

Businesses will fail. That is inevitable, like death and taxes. There are good times and hard times but all things come to an end as is clearly illustrated by examples such as Enron and Air Canada.

“The uncertainty and fast pace of entrepreneurial situations undermines the value of business planning” (Bird, 1998)

In today’s business world great significance is placed on a plan, be it a business plan or marketing plan or even a five-year plan. How effective are these rather dense documents that the financial and business community at large relies on to make decisions? Are business plans tools for success or crutches for compliance? This section will pose certain arguments that attempt to place a realistic perspective on the importance and reliability of the use of business plans. The purpose here is not to trivialize the use of business plans but rather to think beyond them, to evaluate their use and functionality, in terms of real world applications.

Businesses and plans change at the rate of thought; they cannot be bound in the realm of ink and paper. There is no constant in business, markets, and tastes, as circumstances change exponentially. The amount of time and effort that goes into the business plan only takes away from the tasks that require the real attention of the entrepreneur, the decisions that may have a greater bearing on the success of ones venture (Carter, Gartner & Reynolds, 1996). Therefore, putting these thoughts and ideas on paper serves no real purpose to the entrepreneur. In fact it can be argued that the actual benefit to the entrepreneur is only for the procurement of financing and selling the idea to third parties.

If the Richard Branson’s, Bill Gates, Donald Trumps, Vanderbilt’s and Carnegies of the world where encumbered with the writing of business plans the business world would be the poorer for it. These entrepreneurs are and were successful, they had vision, passion and skills to make themselves successful, they were not people that would give thought to writing lengthy business plans, they were go-getters, they were people that relied on intuition to guide their business decisions, the bureaucracy of institutions would have stunted the creative energy and breadth of thought that these individuals brought to the business world. They managed to do quite well without having to ever write a one hundred page business plan. Were they lucky fools or entrepreneurial geniuses? The pendulum could swing either way, however, it is worthy of consideration that perhaps that the secret of their success was not in the rules they followed but rather those they didn’t.

Decisions have to be made immediately, reactions have to be instantaneous if all great entrepreneurs had to invest long lengths of time and great deals of money writing up documents that may or may not aid in the realization of their vision then a lot more trees would be sacrificed for a lot fewer results.

The most critical of information contained in business plans i.e. the financials are based on forecasts and estimates, and they remain just that, whether they are a reliable tool for decision making is a question as subjective as the opinion of the person interpreting them.

That is not to say however, that no planning needs to be done. Every entrepreneur needs to partake in the due diligence process before proceeding, however, if a person uses precious time to write up a business plan that they will have to only end up updating, changing or even in some cases discarding the investment would make it to dear a proposal for a document that likely contains inaccurate information and is very likely to become outdated (Allinson, Chell & Hayes, 2000). Most entrepreneurs have a plan of action and methodology in place in before they make a decision. It is not how well a person can articulate themselves that bears any relevance to their business acumen rather it is the non tangible, gut feeling and self confidence that usually wins the day. If a venture is bound to fail no amount of investment in a business plan will be sufficient. Business plans are purely academic exercises, undertaken primarily for the satisfaction of third parties (Zingher, Blanco, Zanibbi & Mount, 1996). Would a business plan have saved Conrad Black from losing his company?

A BUSINESS PLAN WILL DO YOU GOOD

However, many still feel that in today’s competitive environment, a solid business plan can be considered to be a key success factor for entrepreneurs who are planning a start-up venture or expanding their existing business.

“Planning plays an important role in determining the degree of success realized by a new or small business,” (Hermozi, Sutton, McMinn, Lucio, 2002).

A business plan is an excellent tool used by business owners to clearly define and communicate their goals and objectives. A well developed and well written plan can provide unlimited benefits to a business venture (Hermozi et. al., 2002). This is not to say however, that every business can benefit from a business plan. Every business venture has unique characteristics and individual circumstances. Therefore, entrepreneurs must be flexible and adaptable to the needs of their business.

There are three major reasons why a business plan is a good document for business owners to have:

It is an effective education and communication tool to define and sell ideas.
It can help raise necessary capital for the business venture.
It establishes a framework for making management decisions.

As Patricia Crawford-Lucas (1992) stated, “A good business plan can help make a business credible, understandable, and attractive to someone who may be unfamiliar with the business.” It is a tool for entrepreneurs to document and formalize their idea for a new venture. A business plan defines in as much detail as possible how the business will operate once in the market. The idea is developed in the plan and objectives are set out to establish how the new venture will succeed.

Hermosi et. al. (2002), believe that “a business plan is a requirement if a new or small business hopes to obtain external financing.” In order to raise much needed funds for a start-up or expansion project, a well-crafted business plan is the best tool to use. The first thing that a bank, venture capitalist or any prospective lender wants to see is a business plan. They want to see objectives, an in-depth analysis of the business opportunity including the risks and foreseen obstacles (Brown, 1996). The two must important sections of the plan that the bank seeks to examine are the financial statements and management team. If the bank views the business as viable and profitable based on these sections, then it is most likely that they will loan the business money.

Not only is a business plan used to raise capital for the venture, but it can also establish a framework for the business. The framework can then be used as a basis for making important decisions. Joseph Mancuso backs up this statement claiming, “A business plan is a road map that gives a business direction.” (Brown, 1996) Once the business plan is created and the venture is running, the business plan must not be forgotten. The plan should not only be viewed as a start-up document, but should be used as tool to help manage the business. As Shead, national account executive for Xerox, stated, “Unless you monitor and record ongoing trends in your market, it’s impossible to chart your company’s future” (Brown, 1996). An organization’s business plan should be continuously updated and tailored to the most recent accomplishments of the venture.

The process of strategically thinking through a business idea and documenting it on paper can potentially save a company valuable time and money. Crawford Lucas (1992) suggested that while a good business plan does not guarantee the success of a business, it can reduce the odds of failure. Further research by Crawford-Lucas (1992) indicated that businesses that employ business plans are typically more successful than those who do not develop their ideas on paper.

CONCLUSION

As discussed in the paper, there are disadvantages and advantages in writing up a business plan for a new venture. However, there is no final conclusion on this matter. An entrepreneur will need to determine themselves if a business plan is a suitable tool for their venture. Only they know the structure of their new business, and if a business plan will aid or hinder that new business’s development and growth.

REFERENCES

Allinson, C., Chell, E., & Hayes, J., (2000). Intuition and entrepreneurial behavior. European Journal of Work and Organizational Psychology. 9(1). (pp. 31-43).

Betkoski, D., Ometer, L. (2000). Documenting your future: how to write a business plan. Journal of the American Dietetic Association. 100(3), pp. 293-295.

Bird, B., (1988). Implementing entrepreneurial ideas: The case of intentions. Academy of Management Review. 13(3). (pp.442-453).

Brown, C. M. (April, 1996). The do’s & don’ts of writing a winning business plan. Black Enterprise. 26(9), pp. 114-119.

Carter, N., Gartner, W., & Reynolds, P., (1996). Exploring start-up event sequences. Journal of Business Venturing. 11. (pp. 151-166).

Crawford-Lucas, P. A. (1992). Providing business plan assistance to small manufacturing companies. Economic Development Review. 10(1), pp 54-59.

Hormozi A.M., Sutton, G. S., McMinn, R. D., & Lucio, W. (2002). Business plans for new or small businesses: paving the path to success. Management Decision. 40(7/8), pp. 755-763.

Sahlman, W., Stevenson, H., Roberts, M., Bhide, A., (Eds) 1999. Some Thoughts on Business Plans. The Entrepreneurial Venture, Boston: Harvard Business School Press.

Zinger, J. T., Blanco, H., Zanibbi, L., & Mount, J., (1996). An empirical study of the small business support network – The entrepreneurs’ perspective. Canadian Journal of Administrative Science. 13(4). (pp. 347-357).