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Master Curriculum Student Edition.pdf
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Master Curriculum Students Edition

©Copyright Project ECHO November 2010

Table of Contents

Page:

Introduction to Project ECHO 3

Module 1: Introduction to Business Plans 10

Module 2: Business Description 22

Module 3: Industry & Market Analysis 30

Module 4: Competitive Analysis 44

Module 5: Marketing Plan 53

Module 6: Operations Plan 63

Module 7: Management Team & Organizational Structure 71

Module 8: Financial Plan 83

Module 9: Executive Summary 93

Module 10: The Presentation 99

Final Test 110

Page 2

Introduction to Project ECHO

WELCOME TO PROJECT ECHO!

What is ECHO?

ECHO stands for "Entrepreneurial Concepts Hands On”

❖ VISION:

o To create additional career choices for every high school student.

❖ MISSION:

o To inspire and engage high school students through hands-on

entrepreneurial experiences by developing and teaching curriculum, partnering students with mentors, hosting business plan competitions and creating opportunities for students to start and run small businesses.

❖ GOALS:

o To provide our students with interdisciplinary project-based learning to

develop entrepreneurial business and life skills.

o To provide our students a competitive edge for college entrance and career

development.

o To provide positive role models to our students through graduate level

mentors.

o To increase awareness among our students, the public, and the private

sectors of entrepreneurial opportunities.

o To build networks/alliances between our students and their communities.

We believe in...

E

ntrepreneurial Spirit: Fostering creative innovation, curiosity and

entrepreneurial spirit in every student.

C

hoice: Offering a space for students to explore their strengths, follow

their inspirations, and choose their own life path.

H

ands-On: Providing experiential learning – a setting highly effective for

students who flourish in a “learn-by-doing” environment.

O

pportunity: Expanding employment opportunities for all students.

Page 3

Introduction to Project ECHO

What is The Business Plan Competition?

The Business Plan Competition program has three components:

1. The business plan curriculum 2. The mentor program 3. The competition

A team can enter into one of several categories.

Students are given access to an online curriculum, which guides them through the process of conceptualizing and writing a business plan. Project ECHO coordinates mentors from the UCLA Anderson School of Management and other universities to work with the students on the various sections of their business plans and to coach them for their presentations in the competition.

After twelve weeks of mentoring, the competition is held at UCLA Anderson’s state-of-the- art auditorium. Student presentations are evaluated by a judging panel comprised of local entrepreneurs, business leaders, investors and members of the Anderson community. Through participating in the competition, students obtain a deeper exposure to elements of business practices, build relationships with local business professionals and gain confidence in their presentation and communication skills.

The goal of the Business Plan Competition program is to motivate high school students through planning and preparation to start or expand successful profit-making ventures.

Introduction to the Curriculum:

The curriculum consists of 12 Modules or chapters. Each Module is to be studied in sequence. Sections of the Module may include:

✓ What to expect in each chapter, listed as Key Concepts & Vocabulary. ✓ The Snack Shack example. ✓ Discussion and readings of key concepts. Many are related to the Snack Shack. ✓ Activities: At least two per module. The activities include:

o Rubrics or scoring guides for some activities, located in the appendix to the

module. o Class Discussion topics, which can be used for individual, class or writing

reflection. ✓ Real world reference Examples. ✓ A Quiz to check for understanding.

Page 4

Pre-Test

Before getting started with this program, please take this pre-test. ALL Project ECHO Students must take this MANDATORY PRE TEST prior to beginning the Course.

PRE-TEST

Question 1 Choose one answer. The action plan:

□ a. Is a graph showing cash flow and gross margins.

□ b. Explains how you will make a profit.

□ c. Explains how you will raise money to start the business.

□ d. Summarizes how you will create and deliver your product or service.

Answer:

Question 2 Choose one answer. In starting a business, a barrier to entry is:

□ a. Something that prevents a company from entering the market.

□ b. An age-limit restriction on someone operating a business.

□ c. A brief, temporary roadblock on the street.

□ d. A locked door that prevents customers from moving freely.

Answer:

Question 3 Choose one answer. When people speak about the bottom line, they are speaking about:

□ a. Gross Profit

□ b. Gross Margin

□ c. Net Profit

□ d. Owner’s Equity

Answer:

Introduction to Project ECHO

Page 5

Question 4 Choose one answer. A business plan is important because:

□ a. It allows potential investors to understand the business and invest.

□ b. It is important to understand all elements that go into starting and operating a

business.

□ c. It creates a blueprint for how the business will operate.

□ d. All of the above.

Answer:

Question 5 One way a product/business can have a competitive advantage is to have the best distribution method.

□ True □ False

Answer:

Question 6 Choose one answer. The Executive Summary:

□ a. Documents how much the executives will get paid.

□ b. Provides a big picture view of the business plan.

□ c. Is a section of a business plan only available to executives.

□ d. Summarizes the roles of the executive’s duties.

Answer:

Question 7 Choose one answer. Which of these would take the most planning to get money to start a business?

□ a. Invest your own money.

□ b. Borrow money from friends and family

□ c. Borrow money from a bank.

□ d. All of the above.

Answer:

Introduction to Project ECHO

Page 6

Question 8 Choose one answer. Which of the following is NOT an example of marketing a product?

□ a. Giving away coupons for the product.

□ b. Borrowing money from a bank to pay for the product.

□ c. Advertising the product on TV.

□ d. Buying print ads in a newspaper.

Answer:

Question 9 Choose one answer. The Marketing Plan:

□ a. Outlines the personnel organization for the business.

□ b. Explains what each commercial for a product will look like.

□ c. Explains how a product will be manufactured and produced.

□ d. Relates a business’s marketing strategy.

Answer:

Question 10 Choose one answer. A Value Proposition is:

□ a. The benefit that a vendor promises a product will provide to a customer.

□ b. The benefit that an employee gives to the business.

□ c. A payment or exchange of something of value for an item.

□ d. A law passed by the government ensuring that businesses give value to

customers.

Answer:

Question 11 Writing a business plan means that the business will be successful.

□ True □ False

Answer:

Question 12 It is not important to analyze other competitors.

□ True □ False

Answer:

Introduction to Project ECHO

Page 7

Question 13 It is important to talk to potential customers before writing the business plan.

□ True □ False

Answer:

Question 14 Owner’s equity is the amount of money that a business earns.

□ True □ False

Answer:

Question 15 The Executive Summary is the most important part of the Business Plan.

□ True □ False

Answer:

Question 16 It is best to charge the highest price for a product so that more money is made.

□ True □ False

Answer:

Question 17 The most important part of a business plan is the appendix.

□ True □ False

Answer:

Question 18 A business plan should never be more than 10 pages.

□ True □ False

Answer:

Introduction to Project ECHO

Page 8

Question 19 One should always research the marketplace that the business is a part of.

□ True □ False

Answer:

Question 20 There are many ways to finance a business.

□ True □ False

Answer:

Question 21 Please choose how you feel about the following statement (there is no correct or incorrect answer for this question). Choose one answer.

I feel comfortable starting my own business:

□ Agree

□ Disagree

□ Neutral

□ Strongly Disagree

□ Strongly Agree

Question 22 Please choose how you feel about the following statement (there is no correct or incorrect answer for this question). Choose one answer.

I feel comfortable writing a business plan:

□ Agree

□ Disagree

□ Neutral

□ Strongly Disagree

□ Strongly Agree

Introduction to Project ECHO

Page 9

Module 1: Introduction to Business Plans Module 1: Introduction to Business Plans

KEY LEARNING CONCEPTS

✓ Definition of a business plan

✓ How business plans are used

✓ Key components of a good business plan

✓ Main sections of a business plan

VOCABULARY

✓ Action Plan

✓ Business Description

✓ Business Plan

✓ Competitive Advantage

✓ Cost

✓ Executive Summary

✓ Financial Plan

Page 10

✓ Industry & Market Analysis

✓ Management Team

✓ Markup

✓ Marketing Plan

✓ Operational Plan

✓ Retail Price

The Snack Shack Example: Your Idea

It would be great to make some extra money to buy clothes, games or whatever it is that you want to buy. A girl two blocks away sells some drinks and cookies outside her house, and she seems to make money. There are an awful lot of people who walk by right where you live. An idea comes to light: these people walking by your house might be willing to purchase a snack from you. It could be that you have the power to sell snacks and make some extra money on your own.

As you become more and more enthusiastic about this idea, you start planning which snacks these people walking by would most likely buy. Candy bars may be the easiest to sell at first, but with an extension cord, you could add a microwave and freezer to make frozen burritos and pizzas. You also have some material in the garage to create a little shack so that all of the food is in the shade. The appropriate name for this business suddenly pops into your head--"The Snack Shack." This business seems pretty simple; to build and set up a little shack right outside where you live. You need to find the cheapest place to buy all kinds of snacks and sell those snacks for a little more than what you paid for them. Customers will be the people walking by and those in cars

Module 1: Introduction to Business Plans

that may pull over. You can find cheap snacks at one of the large warehouse stores and then charge a little more than what you paid for them. The money left over will be money that you make. At this point, this is an exciting opportunity that you think can really work. Already, you are thinking of ways to attract more people, and you know there is a lot of planning to do in order for The Snack Shack to really work. So, you set out to write a business plan in order to determine whether this idea really can work.

Discussion: What is a Business Plan?

A business plan is a document that presents all aspects of a business – what product/service you offer, how it will be sold, potential profit, and operating details. It can be used to acquire money for your business, or simply as an operating guide to follow. Business plans set sales goals and clearly define the company’s overall goals. Business plans are ever changing. As the business grows, the plan develops and changes. The business plan tells the reader what your business is now, past accomplishments, and how the business plans to grow in the future.

Why does an entrepreneur need a business plan? Business plans are used for several purposes, and plans are tailored to address specific audiences. The United States Small Business Association classifies the three primary uses of a business plan as: Communication, Management, and Planning. (http://www.sba.gov/smallbusinessplanner/plan/writeabusinessplan/index.html)

As a Communication tool, it is used to attract investment capital, secure loans, convince workers to hire on, and assist in attracting strategic business partners. The development of a comprehensive business plan shows whether or not a business has the potential to make a profit. It requires a realistic look at almost every phase of business and allows you to show that you have worked out all the problems and decided on potential alternatives before actually launching your business.

As a Management tool, the business plan helps you track, monitor and evaluate your progress. The business plan is a living document that you will modify as you gain knowledge and experience. By using your business plan to establish timelines and milestones, you can gauge your progress and compare your projections to actual accomplishments.

As a Planning tool, the business plan guides you through the various phases of your business. A thoughtful plan will help identify roadblocks and obstacles so that you can avoid them and establish alternatives. Many business owners share their business plans with their employees to foster a broader understanding of where the business is going.

Activity 1-1: Pitch Your Business Idea

Type: Individual or small team research/planning activity with five-minute presentation. 30-point scoring guide located in appendix of module.

Goal: To convince your classmates that your business idea is the best business to invest in; that it will make the most profit and be the most likely to continue to grow and succeed.

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Module 1: Introduction to Business Plans

Preparation: Take the Snack Shack idea and apply your own information. Prepare to pitch the following to your class:

1. Describe the people who walk by your house. Give average age, why they are usually

walking (to get to school/work, to go to the store, to talk to neighbors, etc.), if this group is usually health conscious or not, if they usually have extra cash in their pocket and about how much they may carry with them regularly.

2. Explain why they will want a snack. Is it hot and most people are thirsty? Are they teens

always hungry for an appealing snack? Are they young children who like sweets after school? Are they athletic and looking for a tasty snack, which is also good for them?

3. Explain the first snack or drink item you will sell. Give a complete description of the item,

cost (what you pay per item), retail price (what they pay you for the item) and the markup (difference between the two: retail price - cost = markup). Ask your teacher if you are to research prices at local warehouse stores online, or if you may choose from the following options:

a. 24/box, 4 oz granola bars in peanut butter or chocolate chip, $10 per box cost.

b. 24/case 20oz energy drinks, $18 per case cost.

c. 24/case 4oz frozen 100% fruit bars, $13 per case cost.

d. 36/box 4oz rice-cereal crispy bars, $10 per case cost.

e. 24/case 20oz flavored water with vitamins, $20 per case cost.

f. 24/case large assorted candy bars, $10 per case cost.

g. 36/box 6oz frozen bean/cheese burritos, $14 per box cost.

h. 6/pack box pop-in-toaster tarts, 2 tarts per pack, $3 per box cost.

4. Describe how people will discover that you have a snack to sell, and how you will make

them want to buy it. Will you make a poster board and tape it to a table? Will you write with sidewalk chalk and use arrows? Will you hang signs from neighbors’ trees? Will you have a friend pass out fliers at the nearby bus stop? Will you advertise at the local school, with fliers on neighbors’ doors or other? Will you give discounts if they buy more than one of your snacks?

5. Give a plan on how you will get all the work done. Will you be able to do all the work

yourself, or will you have to pay a friend to help? Will this friend be in charge of something in particular? Who will set-up, shop for the snacks, deposit the money, clean up and make signs/advertising?

6. Show how much profit you plan to make. Be sure to show exact figures for:

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Module 1: Introduction to Business Plans

a. Total cost of product: This is the cost of the product you sold for the month. Example: The total cost you of bought product a box used of to 24 calculate granola bars the profit for $10, would but be sold $8.33 only ($10

20 of 

them. 24 x 20). Remember though that you have to pay up front for all the granola bars you buy, so you should try to buy only as many as you think you will sell.

b. Total operating cost: If your mom didn’t want you to use the toaster for the pop

tarts or microwave for burritos you are selling, but finally agreed to “rent” the toaster/microwave for $1 per day, then add this cost. Same with the neighbors, who you had to convince in order to use their tree for your advertising signs. Add any cost of materials such as poster board, markers, napkins, tablecloths, printing for fliers, money you had to pay for your friend to help, etc.

c. Estimate your sales per day to calculate your income. Make sure to justify HOW

you figured this part out and WHY you think these figures are pretty accurate. Calculate for the first month, example: 10 drinks sold per day at $2 each, multiplied by 5 days (Monday – Friday) per week = (10 x 2 x 5) = $100 for the week, then multiply by 4 for the month ($100 x 4) = $400 total income for the month.

d. Calculate your profit for the first month using the following:

Income

minus Total Cost of Product

minus Total Operating Expenses

equals Profit for the Month

e. Show your profit for the month.

7. Explain how you will increase profit through adding products or attracting new customers

the second month.

8. Present to class.

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Module 1: Introduction to Business Plans

Activity 1-2: Researching Examples

After the business-idea-pitch activity, take a look at some more detailed business plans, preferably a business that is related to your new venture or a venture you would like to start (e.g., catering, retail, printing facility, carpentry). Free sample business plans can be downloaded at www.bplans.com or http://www.businessplans.org/businessplans.html. Some specific examples can be found here:

Aquarium Services Example for high school student start-up: http://www.bplans.com/aquarium_services_business_plan/executive_summary_fc.cfm

Coffee Shop Example: http://www.bplans.com/coffee_shop_business_plan/executive_summary_fc.cfm

Convenience Store Example: http://www.bplans.com/convenience_store_business_plan/executive_summary_fc.cfm

Retail Clothing Example: http://www.bplans.com/clothing_retail_business_plan/executive_summary_fc.cfm

Shaved Ice Beverage Example: http://www.bplans.com/shaved_ice_beverage_business_plan/executive_summary_fc.cfm

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Module 1: Introduction to Business Plans

Discussion: More on What Makes a Good Business Plan

If you get a chance to compare several business plans, you may think some are really good and some not so. One of the keys to a good business plan is that it has specific, realistic goals, and spells out clearly how these goals will be attained. This is also often referred to as an action plan. The action plan clearly summarizes how you will create and deliver you product and services. Listed here are some of the key elements which make a good business plan.

A good business plan must be:

➢ Easy to understand and make actionable

➢ Specific with concrete and measurable objectives

➢ Realistic with tangible goals, budgets, and milestones

At first glance, the reader should be able to understand the business, product, and competitive advantage. Competitive advantage is the main reason a customer would buy from one company over another competitor. The plan should be well written, and have a professional tone with no grammar or spelling errors. The purpose of a business plan is not to teach the reader, but to persuade. Be sure to avoid phrases such as “to have a good business you must ... “. It is more appropriate to write “in order to increase sales we ... “.

Activity 1-3: Online Reading

For more on tips to writing actions plans and setting goals: http://www.entrepreneur.com/management/leadership/article201888.html

Activity 1-4: Class Discussion Points

As a class, or in smaller groups: Compare two or more business plans from the online samples or other sources and discuss which one YOU would invest in and why. What elements do you feel made one plan better than the other? What areas were weak or strong? Which industry do you feel has a better chance in our current economic environment or in the local area described?

Discussion: Introduction to Main Sections of a Business Plan

The following is an introduction to the seven main sections of a business plan. You may see similarities to the Pitch Assignment you completed for the Snack Shack.

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Module 1: Introduction to Business Plans

Executive Summary – this is the most important section of the business plan because it is the first (and often only) section that investors read prior to making a decision of whether to invest in your company. Potential investors decide upon many business plans after reading the executive summary. They may not even read the entire document before they reject a plan, and may decide to meet with a company prior to completing the document. The Executive Summary highlights the most important points of the business plan. It needs to be engaging so that the reader wants to read on.

Business Description – this section is the second most important section of the business plan because it describes the business opportunity. It must present an exciting and compelling investment opportunity.

Industry & Market Analysis – this section describes the characteristics that define your industry and target market based on a customer needs analysis. This section also addresses the strengths and weaknesses of competitors and how your business differentiates itself from the competition.

Marketing Plan – this section addresses how you will enter the market, how you will attract and retain customers and how customers will know about and be interested in your product/service.

Operations Plan – this section delineates how you will produce/procure and distribute your product. It also examines the costs for each stage of production/procurement and sales/distribution.

Management Team – this section describes the organizational structure and ownership of the business. It also highlights the management team’s experience and planned responsibilities.

Financial Plan – this section shows the current financial status of the business and projects revenues and net income into the future based on the operations and marketing strategy outlined in the plan. It also presents a summary of key financial data.

Page 16

Quiz: Introduction to Business Plans

Eight Questions Total Question 1 Match the following headings of a business plan with their description.

Executive Summary Business Description Industry & Market Analysis Marketing Plan Operations Plan Management Team Financial Plan

A. This section is the second most important section of the business plan because it describes the business opportunity. ____

Answer:

B. This section describes the characteristics that define your industry and target market based on a customer needs analysis. This section also addresses the strengths and weaknesses of competitors and how your business is differentiated. ____

Answer:

C. This section delineates how you will produce/procure and distribute your product. It also examines the costs for each stage of production/procurement and sales/distribution. ____

Answer:

D. This section shows the current financial status of the business. It projects revenue and net income into the future based on the operations and marketing strategy outlined in the plan. It also presents a summary of key financial data. ____

Answer:

E. This section describes the organizational structure and ownership of the business. It also highlights the management team’s experience and planned responsibilities. ____

Answer:

F. This is the most important section of the business plan because it is the first (and often only) section that investors read prior to making a decision of whether to invest in your company. ___

Answer:

G. This section addresses how you will enter the market, how you will attract and retain customers and how customers will know about and be interested in your product/service. ___

Module 1: Introduction to Business Plans

Page 17

Answer:

Question 2 Choose one answer. Which of the following is a better use of language when writing a business plan?

□ a. “to have a good business you must”

□ b. “in order to increase sales we”

Answer:

Question 3 Choose one answer. Which of the following is NOT true about a business plan?

□ a. It tells the reader about your business’ present state, past accomplishments, and

how the business plans to grow in the future.

□ b. It is a document that presents all aspects of a business.

□ c. It should not change.

□ d. It is used as a benchmark for managers as a sales tool to secure funding.

□ e. It is a clear statement of the company’s goals.

Answer:

Question 4 Choose at least one answer. Why does an entrepreneur need a business plan?

□ a. As a product sales tool.

□ b. As a management tool.

□ c. As a planning tool.

□ d. As a communication tool.

Answer:

Question 5 Choose one answer. The markup on a product is best shown in the following equation:

□ a. Markup = Retail + Cost

□ b. Markup = Cost + Markup

□ c. Markup = Retail – Cost

□ d. Markup = Cost – Retail

Answer:

Module 1: Introduction to Business Plans

Page 18

Question 6 Choose on answer. Competitive Advantage is:

□ a. How well the sales team competes for highest volume.

□ b. The advantage a business has in acquiring capital funds.

□ c. How well a business can attract customers to purchase from them, rather than

another company.

□ d. The business plan that has the most competitive management team structure.

Answer:

Question 7 Choose one answer. To calculate monthly profit, the following needs to be considered:

□ a. Income, cost of product, hours worked.

□ b. Income, hours worked, operating expenses.

□ c. Income, starting capital, expenses, ending cash balance.

□ d. Income, cost of product, operating expenses.

Answer:

Question 8 Choose one answer. An action plan can best be described as:

□ a. A summary of how a business will create and deliver its product or service.

□ b. A graph showing how much profit a business will make.

□ c. A clear plan on who will manage the business.

□ d. A summary of the business history or idea history.

Answer:

Module 1: Introduction to Business Plans

Page 19

Module 1: Introduction to Business Plans

Appendix: Module 1

Activity 1-1: Pitch Your Business Idea RUBRIC/SCORING GUIDE - 30 points possible Section of Assignment

Page 20 Exceeds Standards 5 points

Meets Standards 3-4 points

Does Not Meet Standards 0-2 points

1 & 2: Description of people who walk by your house and why they want the snack.

Provides detailed description of two or more potential customers, including average age range, estimated available spending money, likes and why they will buy. All details provided are relevant to business.

Provides detailed description of one potential customer, including average age range, estimated available spending money, likes, and why they will buy. Most details are provided

Description is not thorough. Details are not relevant to business. Difficult to understand.

3: Description of product and pricing.

Description of product is thorough and includes three or more descriptive details. Accurately explains cost, retail price and markup of item. Pricing information is presented in a format that is easy to read and understand.

Description of product includes at least two details, such as size and brand. Accurately explains cost, retail price and markup of item.

Missing one or more elements. May be hard to understand, inaccurate or not credible.

4: Marketing Plan, or how they will know about you.

Identifies three or more ways in which customer will find out about the Shack and includes two or more incentives or promotional ideas.

Identifies two ways customer will find out about the Shack and includes one incentive or promotional idea.

Plan is missing details on how to attract customers to buy from you. Lacks incentive or promotional idea.

Module 1: Introduction to Business Plans

Section of

Exceeds Standards

Meets Standards Assignment

5 points

3-4 points

Page 21

Does Not Meet Standards 0-2 points

5: Personnel Plan

Identifies who will be responsible for the five jobs indicated in the text + provides list of additional work tasks and responsible parties that thoroughly details operations. Provides detailed explanation of all jobs.

Identifies who will be responsible for the five jobs indicated in the text: set-up, shopping, deposits, clean up and advertising. Provides detailed explanation of each job.

Personnel plan does not address five required jobs and/or does not include enough information on tasks or who will do them.

6 & 7: Potential Profit and Future Plans

The figures are believable and calculations are accurate. Calculations are presented in a table that is clearly labeled and easy to understand. Provides two or more ideas for second month and states how this will increase sales volume.

The figures are believable and calculations are accurate. Provides one idea for second month and states how this will increase sales volume.

One or more of the main figures (sales estimates, costs, profit) and/or calculations are missing or grossly inaccurate. Idea to increase sales in second month is not clear or may not be consistent with image or customer wants.

8: Presentation

Accurately presents all information included in written plan. Demonstrates excellent presentation skills: organized, speaks clearly, and makes eye contact.

Accurately presents all information included in written plan.

Missing some information from written plan. Lacks good presentation skills: hard to hear, unorganized.

Module 2: Business Description

Module 2: Business Description

KEY LEARNING CONCEPTS

✓ How to write a business description ✓ How to write a mission statement

VOCABULARY

✓ Business Model

✓ Value Proposition

✓ Mission Statement

✓ Utility

Discussion: The Business Description

The Business Description section is the second most important section of the business plan because it describes the business opportunity. It must present an exciting and compelling investment opportunity. The business description has the following 5 parts:

1. This first section needs to “wow” the reader with your business concept, including the

a. Description of product/service.

b. Description of main (target) customer (discussed more in subsequent

modules).

c. Unique benefits to the customer. This can be stated in a value proposition, which summarizes why a consumer should buy your product or use your service. Expressed in a concise statement, this value proposition should convince the reader that your company’s product or service will add more value or better solve a consumer problem when compared to similar offerings by other companies. A “must-have” compelling reason to buy is critical to the success of any new product. It becomes the central theme of marketing strategy and the basis for advertising and promotion. You can think of a value proposition as the “pain killer” for the consumer’s “pain.” Some examples of the “pain” could be “no time to shop,” “want to look good to peers,” “not enough money for name brands,” etc.

d. Marketing of the product/service, or how you will reach the customer.

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Module 2: Business Description

2. Describe the business model, or how the business makes money. Is this a retail

establishment where you will purchase items wholesale and resell at a higher price as a convenience to the customer? Is this a service business where you will travel by truck to customer’s homes and clean their swimming pools for a fee? Will you have a website that will redirect customers to another site for a “per-click” fee? Will you be the manufacturer or producer of a product? There are many possible business models. Be specific.

3. State the purpose of the business with your mission statement. A mission statement

is one sentence to one paragraph that describes the purpose and goals of the business. Some businesses have more than one mission statement. For your business plan, one statement with the company’s type of business and your goals to meet consumer, market or investor needs is probably enough. Larger companies such as Starbucks or Ben & Jerry’s may have several mission statements to address investors, customers, employees or community goals separately.

4. Give some background information and history, such as how the idea was developed

for a new business, or a more elaborate history for an existing business. This will help you lead into the next part of the description.

Your company’s current status and future plans must be stated in this section. What is happening in the business right now is crucial. Are you overcoming a big setback in sales or are you beginning to interview for new hires? This should directly tie into your future plans. Will your new business start sales by May, or will you increase sales by five percent in six months with your new proposed addition?

An existing business should clearly state the purpose of the business plan. For example:

• To add new products

• To increase value or utility for existing products. Utility is the usefulness of a product. A new use for a product may create a greater desire for purchase or a want for the consumer to purchase more of the product

• To enter new markets

• To improve the business (increase profit, lower costs)

5. Some of the above is addressed in more detail in other sections of the business plan,

so the business description should be brief yet powerful enough to “hook” in the reader’s interest.

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Module 2: Business Description

Activity 2-1: Business Description for Snack Shack

You’ve found some potential investors for the Shack based on your “pitch” from Module One. They want to see some more concrete details. Your job is to convince them by developing a Business Description using all of the components described in this module. Use the Scoring Guide in the Module 2 appendix to guide your work.

Activity 2-2 & 2-3: Preparation for Mentor

2-2

Prior to Mentor Meeting New Business Exercise:

Complete the Business Plan Form (see appendix) prior to your mentor’s visit. Share the completed form with your mentor to begin your discussions.

2-3

During Mentor Meeting Exercise:

Complete the Business Concept Development Exercise (see appendix) for your ECHO plan, in class with your mentor or teacher.

Business Description Example: Fresh L.A.

Fresh L.A. is an affordable, healthy, organic and delicious catering company for people of age 15 and older. Fresh L.A was founded to address the lack of healthy eating throughout our community of Southern Los Angeles. Catering organic food to the community will benefit our customers because it provides them with a choice of a healthy life style.

Our mission is to provide our community the opportunity to fight against diseases such as obesity, cardiac/heart related diseases such as diabetes, high blood pressure, etc. South L.A is known as a community that is rife with fast food restaurants and poor quality food.

Fresh L.A.’s Mission is to:

❖ Increase access to healthy foods in low-income neighborhoods. ❖ Decrease exposure to fast food and soft drinks in the community. ❖ To educate people in the community about healthy eating and the benefits of

eating organic food.

Right now we have many fast food outlets in our neighborhood but we are lacking places that offer healthier menus with fresh food, which is why Fresh L.A is extremely vital in our community.

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Module 2: Business Description

More Reading: Online Resources

More on Value Propositions: http://entrepreneurs.about.com/od/businessplan/a/businessconcept.htm

More on Business Descriptions: http://www.sampleplan.com/articles/how-to-write-a-business-description-for-a-business- plan.html

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Quiz: Business Description

Five Questions Total:

Question 1 How a business reaches its customers is an element that should be included in the Business Description section.

□ True □ False

Answer:

Question 2 The questions of, “what is the pain your customer feels” and, “what painkillers does your business offer” should be ask when defining your market.

□ True □ False

Answer:

Question 3 A company's value proposition is the discounted value you provide to your customer off the retail price.

□ True □ False

Answer:

Question 4 A mission statement defines the goals of a company and is used by employees, customers, investors and the community.

□ True □ False

Answer: True

Question 5 A business model can best be defined as a business that is considered the best within its industry.

□ True □ False

Answer:

Module 2: Business Description

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Module 2: Business Description

Appendix: Module 2

Activity 2-1: Business Description RUBRIC/SCORING GUIDE - 25 points possible

Section of Assignment

Page 27

Does Not Meet Standards 0-2 points 1: Business Concept

Exceeds Standards 5 points

Meets Standards 3-4 points

Missing this section entirely or details on 1-2 items.

2: Business Model

Clearly defines a

Defines business compelling

opportunity with business

details on 2-3 of the 4 opportunity. Gives

items, or may not be details on

clear why this is a product/service,

good opportunity or customer, benefit,

not clear in one or and marketing.

more areas.

Missing the details to describe the business model and how it makes money.

3: Mission Statement

Explains the type of

All acceptable business and how

business models this particular

receive 5 points. business will make a profit.

Statement is one

States goals and

Is missing purpose sentence to one

purpose of business

and/or goals of paragraph long and

but may have minor

business, or has states purpose and

grammar or spelling

major spelling or goals of business.

mistakes. Is easy to

grammar errors. Is Has no grammar or

read and understand.

difficult to spelling mistakes. Is

understand. easy to read and positive in demeanor.

Module 2: Business Description

Section of

Exceeds Standards

Meets Standards Assignment

5 points

3-4 points

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Does Not Meet Standards 0-2 points 4: History & Background

Gives history and background information so reader understands idea and is compelled to agree this is a good idea. No grammar or spelling errors. Is easy to understand.

Has enough history and background details for reader to understand business idea. May have minor grammar or spelling mistakes. Is easy to understand.

Is missing purpose and/or goals of business, or has major spelling or grammar errors. Is difficult to understand.

5: Current Status & Future Plans

States current status of business or situation and future plans so reader understands where company is headed. Uses numeric details such as sales or market increase where possible.

States current status and future plans, uses some numeric or other details to back-up projections or situation.

Difficult to understand either current situation or future plans, or both. Missing details.

Module 2: Business Description

Activity 2-2: Project ECHO Business Plan Form

Team name:

School:

1. Product or service being offered:

2. Will you be producing a product, purchasing and reselling, providing a service or other?

3. Why are you creating this company?

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Module 2: Business Description

4. Will this business be located on campus or off-campus? If off-campus, where?

5. When will you start producing the product? When will you be delivering the product/service?

6. Who are your customers?

7. Please provide a brief description of your business (4-5 sentences):

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Module 2: Business Description

Activity 2-3: Business Concept Development Exercise

Team Name:

Market Definition

Who are your customers?

What is their pain?

Value Proposition

What are the benefits or “painkillers” that you provide?

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Module 3: Industry & Market Analysis

Module 3: Industry & Market Analysis

KEY LEARNING CONCEPTS

✓ Understanding the industry your business is in

✓ How to conduct an industry analysis

✓ Writing a simple industry analysis section

✓ Defining a target market

VOCABULARY

✓ Bottom Line

✓ Demographic

✓ Industry

✓ Industry Costs

✓ Industry Description

✓ Industry Drivers

✓ Market Analysis

✓ Macro Costs or Trends

✓ Market Growth Rate

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✓ Market Niche

✓ Market Profitability

✓ Market Share

✓ Market Size

✓ Market Trends

✓ Market Segmentation

✓ Psychographics

✓ Target Market

Discussion: Industry Research & Market Analysis

The Snack Shack idea seems great, but how can you be sure it will be successful? Performing an industry and market analysis will help you determine whether your idea is really going to make money. There are other reasons that people start businesses besides making money, but if the business does not make enough money, it will not be able to survive.

Convenience Store Industry

Retail Food Industry

Target Market

Snack Shack’s Segmented Market

Module 3: Industry & Market Analysis

An industry can simply be defined as a group of particular businesses that share similar traits. For example, McDonalds, Burger King and Carl’s Jr. are all in the fast food service industry. Other examples include the fashion industry, health industry and sports industry. When defining your industry, it is important to be as specific as possible.

The Snack Shack could be in the retail food industry (which includes restaurants, convenience stores, food trucks, kiosks, markets etc.). To get even more specific, you could say that you are in the convenience store industry. Once you have determined your industry, it is crucial to do analysis to determine how the industry functions in your area.

The Industry Description describes the characteristics that define your industry: size, growth and characteristics. The Market Analysis should demonstrate that there is demand for your product/service.

In the Industry Description section, you should discuss any relevant macro trends: larger- scale trends that affect the entire country, the government or the world. Some other trends to consider are technological, economic, social, or regulatory. Demographic trends refer to population statistics such as age, race, family size, education level, religion, etc. Other trends to consider include regulatory and industry trends (e.g. changing customer needs).

Effective analysis of your industry includes:

➢ Discussion of characteristics that define the industry

o What do convenience stores sell? o Who generally goes to convenience stores? o How big is this industry as a whole?

➢ Historical and current trends of sales and profits (including any patterns of change

occurring)

o Has there been an increase in the number of convenience stores, increasing

the competition and lowering prices?

➢ Description of the strategic opportunity (why now?)

o Have there been changes in consumer preferences (e.g. eating on the run vs.

restaurant dining)? o Have new needs or wants arisen (e.g. carrying healthier food choices because

consumers have become more health conscious)?

➢ Description of industry drivers and which ones impact your business. Industry drivers are the main causes of the trends that tend to lead a particular industry in one direction or another.

o What are the main causes of trends in this industry, and do they have a positive

or negative influence on this business? o Are there any laws that restrict new convenience stores opening? o Are convenience stores usually near a gas station?

It is also important to understand your customers better. You will need to conduct a Market Analysis, which is research to determine where your customers live and work, their demographic and socio-economic status, buying habits, etc.

Ultimately, your industry and market analysis should support the potential for your product or service to succeed. Some beneficial industry and market factors are:

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Module 3: Industry & Market Analysis

➢ Industry size and niche potential. Example: If the industry is small in your area and no

other company has met the need your business will provide.

➢ Industry growing at a higher rate than the overall economy. Example: If the number of businesses or sales growth in your industry has outpaced the growth of other types of industries.

➢ Bottom line margins. Bottom line refers to the profit after all expenses have been

deducted. The bottom line margin refers to the difference between the amount paid into a company and the expected return in profit. In some industries the profit is higher for the amount of money invested as compared to other industries or businesses.

➢ Opportunity for technology/distribution shift. Example: More clothing purchases are being made online and consumers are steering away from mainstream brands. Therefore, your new online knitwear business may show greater opportunity.

➢ Socially, politically and/or environmentally friendly market. Example: You’re opening a

gun store and your county is 80% Republican.

Activity 3-1: Your Industry and Market Analysis of Snack Shack

When performing market analysis, it is important to look at market size, market growth rate, market profitability, industry costs and market trends.

Type: Small teams, written. 25-point scoring guide/rubric located in Module 3 Appendix. Can be modified and broken into 4 sections/activities with class discussions/presentations.

Goal: To write a basic industry analysis on the Snack Shack that will show that the convenience store industry is a good one for you to enter.

Preparation: Write the required sentences or paragraphs in the sections indicated below. Use the industry details given. You may elaborate in areas not defined. As an example, if we have mentioned that one of your competitors sells cookies, you must use that information, but you can fill in the type of cookie and a reasonable price, such as “homemade chocolate chip for $1 each.” Remember, this is just an exercise; a real business plan must have completely accurate, honest, researched information.

SECTION 1 1-2 SENTENCES introducing the convenience store industry in your area.

SECTION 2 1-2 PARAGRAPHS on Market Size and Growth Rate. Use the details given below to complete.

Market Size: This is how many businesses of your type are currently in your local market and how many people they serve. In your town, there are four convenience stores. One convenience store is a couple of blocks away. There is also a girl up the street who has a lemonade stand and she also sells cookies. In this case, your local industry market consists of these five competitors, as you have not yet started business. For this example, the current local market has 2,000 regular customers.

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Module 3: Industry & Market Analysis

Market Growth Rate: Is your market growing, shrinking, or staying the same size? Last year, there were only two convenience stores compared to the four it now has. The town also has a lot more people than it did last year, so the market is definitely growing.

• Your Market Growth Rate has increased from two convenience stores to four (not counting the Snack Shack), which can be shown as a percentage by:

1. Change in number of stores = 4 (new number of convenience stores) minus 2

(original number of convenience stores) = (4 – 2) = 2

2. Divided by 2 (Original number of convenience stores)

3. 2 divided by 2 = 1 = 100% growth rate in the number of local convenience

stores

• You may conclude that the number of customers has increased also. A positive growth rate in the local market is a very good sign that your new business idea can capture enough market-share to succeed. You would definitely mention the increase in population in your town also.

SECTION 3 A. 1-2 PARAGRAPHS on Industry Costs and Market Profitability.

Industry Costs: These are the typical costs for your industry type. You figure you have to pay for all the food that you are going to sell. This is referred to as “Cost of Goods Sold,” since food is your “raw material” or direct cost. You’ll also have to pay for Operating Costs, such as setting up the Shack, electricity, and salaries. How do you estimate what all of these costs will be when you haven’t actually started the business?

One of the convenience stores in your market is a 7-11. You ask the manager if the store has made a lot of money. Because you are a student, he shares some financial data with you that show that this market is profitable. But is this true of other convenience stores? You research some other companies, and decide that the Snack Shack’s costs will be similar to the industry average.

Market Profitability: Remember that having a lot of sales does not guarantee making a lot of profit. This section requires a lot of analysis. This section will have the average profit for your type of business. Careful analysis of costs compared to sales must be done to assure profitability.

For this assignment, use a 20% pre-tax profit on sales for the convenience store industry; assume that you’ve come up with these industry averages:

o Cost of Goods Sold = 40% of Sales

o Operating Costs = 40% of Sales

(wages, supplies, rent, utilities, etc.)

All of these costs add up to 80%, therefore your pre-tax profit is 20% (100% - 80%).

• Example:

o $1,000 in sales – 80% in costs ($1,000 x .8) = $200 profit

o $200 profit divided by $1,000 in total sales = 20% of sales is profit

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Module 3: Industry & Market Analysis

SECTION 4 1-2 PARAGRAPHS on Market Trends and Market Share.

Market Trends: This term represents the direction the local market of your industry is currently headed. You have noticed more and more people are stopping at convenience stores. You want to make sure your observations are correct, so you conduct a survey among your friends and discover that many people are not going to restaurants but actually are using convenience stores to buy a full meal. Convenience stores are also starting to expand what they sell and are even selling more exotic food, like sushi. You also find an article from an online newspaper to back up your observations on this trend.

• For this assignment, 15% of the people you surveyed are more likely to buy dinner or lunch from a convenience store than this same time last year.

• Also, you read an article in the Main Street News dated October 1, 2010, that states, “More working families are likely to buy fast meals on the run. Location, speed and ease are all top priorities when stopping to purchase these meals.”

Market Share: How much of the total local market are you going to attract? If your market consists of the people who shop at convenience stores, what percentage of those people will become your customers? Be careful. Your market may not be the people who live in your town but really only the people that drive or walk through your street. There is a big difference with those calculations.

You figure your market has about 2,000 people who visit all the convenience stores (your five competitors plus your own), and you figure 100 of them will buy from your store, so your share of the market is:

100 (# of your customers) 

2,000 (Total # of customers in the market)

= 5% (Your market share)

• Your market share for Snack Shack during its first month is 5% of the total market. If you believe your market share would grow with the addition of new products, new marketing and customer loyalty, you could show a growth of market share for the future.

Discussion: Target Markets & Segmentation

The Target Market is your main customer segment. You determine who your target customers are by analyzing what need this group has, and how you can meet this need better than other businesses.

Your target customer for the Snack Shack is the group of people most likely to be attracted to your store for its unique qualities, such as location, product selection, your shack’s look and your sales/marketing strategies. If you are near a local college, your target market may be the people parking on local streets and in a hurry to get to class, but wishing they had eaten breakfast. Although you may also have a couple of relatives who buy from you, you would not consider them your target market, because they are not your primary customers.

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Module 3: Industry & Market Analysis

You should be able to describe your target market in just a few sentences. Define it as accurately as possible by citing specific factors (e.g. size, geography, buying habits).

In your industry analysis of the Snack Shack, you looked at the type of business the Shack is in. In a Market Analysis you will research the consumer market for the company’s product or service and how the company will position itself to take advantage of the market opportunity. In conducting this market analysis, research should be done on the market’s demographics. This information can often be acquired from the US census bureau for a particular area for both industry and market analysis at http://www.census.gov/. However, a deeper look into your customers is also needed. You may need to create your own survey to delve into the consumer’s psychographics, which are the attitudes and social habits of a consumer segment, such as type of clothing generally worn, type of music listened to, type of sports watched, social networking habits, general motivating factors, etc. Surveys can be administered as questionnaires or even as structured observations in a particular area or at particular times of day. Once you have determined what the needs of your customers are, you need to show how your company will meet their needs. This can be done by defining your market niche, which is the need or want your target customer has that is best met, or only met, by your company.

Market Segmentation is to section your market into two or more groups to identify characteristics and trends of different types of customers and acknowledge their varied buying habits. When segmenting your market, you should show the sales potential and growth characteristics of each segment.

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Module 3: Industry & Market Analysis

Example: Snack Shack Market Niche & Segmentation

To find your niche market, consider the following major variables to segment consumer markets:

Variable* Snack Shack Example: 2 segments

Geographic Neighbors: People who live within 2 blocks of the Shack.

Commuters: Students who drive to attend college and park on the nearby streets.

Demographic Neighbors: Mid 30s, middle income, purchasing for elementary &

middle school children.

Commuters: Early 20s, tight budget, purchasing to get by until next meal.

Socioeconomic Neighbors: Want easy, healthy snacks children will eat at good value.

Commuters: Want really quick, cheap, trendy snacks with little concern for healthfulness.

Psychographic Neighbors: Want to save money, keep kids happy and look like a good

parent to others.

Commuters: Money constraints are constant worry, want to look cool to others and be accepted by peers.

Behavior Patterns Neighbors: Stroll by mid-late afternoon on way home from school and

athletics.

Commuters: Stressed, racing by Shack to class in early and mid morning.

Consumption Patterns

Page 38 Neighbors: Will spend $1-$5 per visit on granola bars, juice, water, ice cream.

Commuters: Will spend $.50-$3 on energy bar and/or drink.

Consumer Predispositions

Neighbors: Want friendly small talk, safe environment.

Commuters: Need speedy service.

*Source: A. DeThomas and W. Fredenberger, Writing a Convincing Business Plan (1995)

Module 3: Industry & Market Analysis

Activity 3-2: Class Discussion on School Target Markets & Segmentation

Read the Snack Shack example of market segmentation. Discuss as a class how a Snack Shack-type business located on your high school campus may segment the students and faculty into several segments based on buying habits and related criteria. Come up with some relevant, fun, non-offensive names or “labels” for these different segments based on these buying habits.

Activity 3-3: Target Market Research

Option 1: Locate and interview a local business in the industry you will write your business plan on. Carefully craft questions to answer for your industry analysis. Have your questions approved by your mentor or teacher before conducting the interview. This can be done in person, on the phone or via email.

Option 2: Review online statistics for your industry through news articles, industry publications and local Chamber of Commerce sites. Define the characteristics of this industry and describe the strategic opportunity or explain if this is not a good industry to enter based on this research. Save evidence of research and site work properly.

Option 3: Research your potential market online to determine if the product or service you will provide is in demand by your target market. Define a potential target market for your product/service based on this research. Save evidence of research and site work properly.

Activity 3-4: Researching Sample Business Plans

Look at how some other businesses have segmented their markets, and defined a target market.

1. Market analysis and segmentation for lock smith company: http://www.bplans.com/locksmith_business_plan/market_analysis_summary_fc.cfm

2. Market analysis of a convenience store: http://www.bplans.com/convenience_store_cafe_business_plan/market_analysis_summary_fc .cfm

3. Market analysis summary for a pet photography business: http://www.bplans.com/pet_photography_business_plan/market_analysis_summary_fc.cfm

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Quiz: Industry & Market Analysis

Nine Questions Total:

Question 1 An effective analysis of your industry includes historical and current trends of sales and profits.

□ True □ False

Answer:

Question 2 The Market Analysis and Target Market section of your plan should inflate the size of your market to make opportunity appear better than research shows.

□ True □ False

Answer:

Question 3 Describing your market is complex, so you need at least a page to define it.

□ True □ False

Answer:

Question 4 Market Analysis is the study of the factors that define the market for the company’s product or service and how the company will position itself to exploit the opportunity.

□ True □ False

Answer:

Question 5 Choose one answer. A Market Segmentation should:

□ a. Have only the target customer.

□ b. Have two or more sections of customers.

□ c. Take into consideration the entire population of your community.

□ d. Have one other competitor.

□ e. Have all other competitors.

Answer:

Module 3: Industry & Market Analysis

Page 40

Question 6 Choose one answer. A good example of a market niche for a convenience store is:

□ a. The amount of capital it takes to start up in the convenience store market.

□ b. The average profit the convenience store industry makes.

□ c. The typical sales volume of the convenience store industry.

□ d. A good location with significant foot traffic.

□ e. Carrying a wide selection of low fat, low sugar food and drinks to target health-

conscious customers.

Answer:

Question 7 Choose one answer. The bottom line refers to:

□ a. The latest product added to your company’s line-up.

□ b. The profit made from your last added product.

□ c. The profit made after all expenses are taken into account.

□ d. The last line in a giving section of the business plan.

□ e. The main competitor in a given industry.

Answer:

Question 8 Psychographic information can easily be found through the US Census Bureau statistics.

□ True □ False

Answer:

Question 9 Choose one answer. Market Share is best defined as:

□ a. The portion of the entire market that your company will serve.

□ b. The portion of the market that is shared in your local area.

□ c. The entire market in your company’s area.

□ d. The items that are most likely to be purchased in your market. Answer:

Module 3: Industry & Market Analysis

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Module 3: Industry & Market Analysis

Appendix: Module 3

Activity 3-1: Snack Shack Market Analysis Rubric/Scoring Guide 25 points Section of Assignment Exceeds

Standards 5 points

Page 42

Does Not Meet Standards 0-2 points

1: 1-2 sentence introduction to the convenience store industry.

Meets Standards 3-4 points

Missing this section entirely or parts of it. Does not clearly define industry or give details of local businesses.

2: 1-2 paragraphs on Market Size & Growth Rate.

Clearly and

Briefly states briefly defines

convenience store the convenience

industry and main store industry for

idea of local the local area.

businesses with Gives details on

most details. main types of businesses and what they sell.

Clearly states

States size and

Missing most or all size of market

market growth

points and and growth rate

rate based on

conclusions that based on

assignment

point to a assignment

information.

successful information.

States that Shack

business based on Explains the

has chance of

market size and market is not yet

success based on

growth. May have saturated with

details. Uses

incorrect figures or stores and the

fact/calculations

apparent lack of Snack Shack has

correctly.

understanding. a very good chance of success based on market size and growth. Has graphic to explain.

Module 3: Industry & Market Analysis

Section of Assignment Exceeds

Meets Standards Standards

3-4 points 5 points

Page 43

Does Not Meet Standards 0-2 points

3: 1-2 paragraphs on Market Profitability & Industry Costs.

Accurately and clearly uses the average market sales/profit and industry costs to show positive profit potential for the Shack.

States figures from market profits and industry costs accurately and uses them to show a good chance for success at the Shack.

May be missing some or all of the accurate figures from the industry profits and costs. Does not use them effectively to sway reader to believe Shack will be successful.

4: 1-2 paragraphs on Market Trends & Market Share.

Accurately and clearly uses relevant market trends and market share information to show that the Snack Shack is a good business to open.

Uses some market trends and market share information and gives some details showing the Shack is a good business to open.

Is not accurate based on assignment information or is otherwise not written well and/or seems to lack needed details.

Overall Writing Main idea is

clear, with logical organization. Provides specific and relevant details and examples. No grammar or spelling errors. Uses varied and precise word choice.

Establishes the main idea, and uses an identifiable organization plan. Has focused but occasionally uneven development; incorporates some specific detail. Minor grammar or spelling errors. Uses appropriate word choice.

Attempts to address main idea, but with little or no success in establishing a focus. Fails to organize ideas. Lacks details or examples or presents irrelevant information. Has grammar or spelling errors. Uses weak or inappropriate word choice.

Module 4: Competitive Analysis

Module 4: Competitive Analysis

KEY LEARNING CONCEPTS

Analyzing competition ✓

How to write a competitive analysis ✓

Understanding direct and indirect competition ✓

How to create and capitalize on competitive advantage

VOCABULARY

Competitive Advantage ✓

Competitive Analysis ✓

Competitor Grid

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Differentiation ✓

Direct Competitor ✓

Indirect Competitor

Discussion: The Snack Shack & Competitive Analysis

With a better understanding of Snack Shack’s market, it’s time to analyze your competitors. Through research, you have already established that there are four other convenience stores in your town. There is also the lemonade stand two blocks away. The chocolate chip cookies the stand sells are large, chewy, warm and really good. Would a customer buy chocolate chip cookies from you if they could just as easily get these great treats for just $1 from the lemonade stand? Will customers near your place walk two blocks away for these lemonade- stand cookies? Also, the girl who runs the lemonade stand is really cheerful, attractive and well liked. Yet, she gets very little walk-by traffic from the nearby college, which is the majority of your area’s pedestrian traffic. Should you copy what she is doing, or make The Shack completely different?

In a competitive analysis you must uncover details on all your competitors in order to make sound decisions on the products and services you should offer. The research you will conduct needs to answer questions like:

Module 4: Competitive Analysis

▪ What kind of snacks do convenience stores sell?

▪ Do they offer hot food or have only cold drinks?

▪ What are the prices?

▪ What are the store locations like on the inside?

▪ Are there enough parking spots outside the location?

▪ Who runs the cash registers?

▪ What are the hours of operations?

▪ How much money are some of these other stores making?

❖ The answers to these questions are just the beginning of your analysis.

It is crucial to get as much information as possible to position yourself in the market in relation to these other competitors. After all, you ultimately have to convince your customer to shop at The Snack Shack as opposed to the other options out there. For example, the local 7-11 may have easy parking and a really wide selection of food, while the local Lemonade Stand has cheaper prices with really good lemonade and cookies. You should create a competitor grid, which is a table/matrix that identifies the positive and negative features of your competitors.

Businesses that are in the same field and carry the same product line, such as local convenience stores and the lemonade stand are your direct competitors, but not all competitors are so obvious. For example, it is also possible that customers will buy all of their snacks at a grocery store and carry them in a backpack, or maybe purchase from a vending machine on the college campus. Indirect competitors are those who have similar but not the same product or service lines. Some more examples are the college cafeteria and near-by fast food drive-through. Even though these are not examples of convenience stores, they are competitors as well and should be included on your competitor grid.

The goal of competitive analysis is to show a thorough understanding of the players and opportunities in your market to support your proposition that the market can accept a new entrant. It demonstrates an understanding of the dynamics of the competition by describing who the main competitors are, and who may be a competitive threat in the future. Your analysis will be more convincing if you accurately pinpoint the strengths and weaknesses of the competition and can show how your company is different in the eyes of the consumer.

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Module 4: Competitive Analysis

Example: Vero’s Lemonade Stand Competitor Grid

Vero’s Lemonade Stand constructed a competitor grid before the Snack Shack was open to show the Stand’s competitive edge over its competitors for its targeted elementary students.

Vero’s Lemonade Stand

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Gus’ Gas Station

Main Street Elementary Cafe

7-11

Serves homemade fresh lemonade.

X

Caters to Elementary School with down-home atmosphere.

X X

Has homemade, soft, wholegrain cookies.

X X

Gives free children’s sticker with every purchase.

X

Located within walking distance to Main St. Elementary.

X X

All items priced predictably at $1 for ease of parental planning.

X

Parent-approved menu. No candy or caffeinated drinks available to tempt children other than those approved by parents.

X X

Open after-school for 2 hours. X X X

Module 4: Competitive Analysis

Activity 4-1: Class Discussion

Discuss the value of Vero’s competitive grid. It is in a very simple format and clearly outlines the advantages for her target market. Consider some of these thoughts: Her business is very simple, and there are no plans to expand or change. Would a more detailed grid be effective? Why or why not?

Not all the city’s convenience stores are listed, only the very close ones. Do you think it is more effective to list only the very closest competitors, or is it just lazily lacking details? Would the differences between the two target groups, elementary school children and college students, make a difference in which stores you list as competitors and which you do not list?

Discussion: Differentiation and Competitive Advantage

Differentiation is to distinguish your business through the identification of benefits/features, innovation, distribution or marketing strategy. It works to separate your image, products or service from others. True differentiation leads to repeat business and loyalty; it gives customers a reason to buy from you.

A competitive advantage is the edge you have over the competition. Try to identify significant advantages that offer important benefits to the customer. The best competitive advantages are sustainable over time and through other changes. They are advantages that you can continue to enjoy into the future. To ensure that your advantages are as sustainable as possible, try to determine if your competition can easily copy them.

For successful differentiation, a product/service features must be:

o Quickly and easily recognizable by the customer.

o Important to and valued by the customer.

o Clearly different from the competition.

o Significantly better than the competition.

Some examples of competitive advantage are:

1. Uniqueness of product, such as the “best” hamburgers or the “only”

formalwear for larger figures. 2. Operational efficiency, such as the fastest service or delivery. 3. Management team that can oversee, perform and solve problems better than

others. 4. Technology, inventions or copyrighted works other competitors do not have.

Ultimately, this section should explain why customers will choose to buy your product as opposed to your competitors’ products.

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Module 4: Competitive Analysis

Example: Snack Shack Competitive Grid

BUSINESS NAME

Page 48 PRODUCT

FOCUS UNIQUE OR SERVICE

BENEFITS & FEATURES

DISTRIBUTION MARKETING PRICING WEAK-

NESSES

Snack Shack

Candy bars, hot burritos, individual pizzas, and bottled drinks; open M-F 8am-noon.

College students in a hurry, hungry and on a budget. Small desirable snacks served quickly.

Products, microwave, music, look made for college students. Convenient location.

Retail: Must walk by or park nearby to purchase from stand on home property.

Sidewalk chalk messages with quotes for the week, signs, tropical shack, music, speedy service.

Competitive. No homemade

food, limited variety, customers in a rush, not near elementary school.

7-ll Store Wide variety of packaged, hot, cold and frozen foods. Toiletries, magazines, small household items.

Commuters & night owls. Open 24/7, lots of parking always available. Hot items ready for takeout.

Easy, cheap, unhealthy choices but quick service, always available.

Retail store: Must walk by or park to purchase; on busy street.

National brand recognition, familiarity, cheap large sodas & coffee.

Hot food, coffee and cold drinks are cheap; packaged items/ other are medium priced.

Not close to college, food under heat lamp seems old, stale.

Vero’s Lemonade

Homemade lemonade and chocolate chip cookies offered M-F afternoons to nearby elementary students.

Neighboring families looking for wholesome, old-fashioned food.

Cute family style with checked tablecloth, stickers for children, feel of helping a child when purchasing.

Retail: Must walk by or park nearby to purchase from stand on home property.

Word of mouth, great personality and conversation. Signs in yard, on stand. Children get sticker give-away.

Simple, inexpensive: all products $1.

Only two products offered, not close to college. Cups are very small.

Gus’ Gas Station am/pm Mart

Limited packaged snacks, cold drinks, cigarettes.

Quick stop when you get gas.

Very easy, fast snacks.

Retail: Must walk by or buy gas to purchase from window.

No frills, no nonsense approach attracts small-truck drivers, workers.

Medium – high prices.

Difficult to park unless gas is purchased. Limited selection, no hot items.

Sam’s Liquor Mart

Packaged snacks, coffee, cold case, household items, liquor, cigarettes.

Small, quick solutions to need-it-now household and food items, energy drinks, alcohol.

Open late hours, liquor, variety of energy drinks, small packages of household items.

Retail store: Must walk by or park to purchase. On busy street.

Caters to those who live close by, need cigarettes, liquor, quick household items or snacks.

High prices. Cluttered,

cheap look.

City Gas Station Mini Mart

Gasoline, coffee, prepackaged snacks, frozen & cold food.

Commuters needing gas or quick drinks and snacks Upbeat, clean décor.

New, well-kept, attractive and professional, bright atmosphere.

Retail: Must walk by, buy gas or find parking to purchase from small store.

Great, busy corner, bright pretty signage with upbeat messages.

Competitive – medium prices.

Limited parking, crowded, long lines, no hot food.

BUSINESS NAME

DISTRIBUTION MARKETING PRICING WEAK-

NESSES

City College Vending Machines

Small packaged items, coffee dispenser, soda machine.

Students in a hurry or for when cafeteria is closed.

Three types of machines for hot or cold drinks and quick snacks.

Located in two areas of campus, farthest end from Snack Shack location.

Well-lit signage on machines, directional signs.

Expensive. Machines

sometimes don’t work, run out of product or change.

City College Cafeteria

Typical hot and cold drinks and packaged food.

Tables popular for studying while eating, good for budget.

Pretty quiet as most students are studying, great location.

Located in center of campus.

Clean and stable. No advertising, other than map & direction signs.

Inexpensive. Food choice is

mediocre and unappealing. Lines are long.

Activity 4-2: Competitor Grid

Use the Competitor Grid format above to complete one or both of the following:

Option 1: Work on your business plan. Create a grid/matrix comparing and highlighting your direct and indirect competitors for your business. The purpose of this exercise is to highlight differences and opportunities in the market. It will help you to figure out where there is room/opportunity for your product or service. This grid should be completed by the team and then reviewed with your mentor. See the 25-point scoring guide in the appendix for direction.

Option 2: Practice activity. Create a grid/matrix comparing and highlighting the direct and indirect competitors of your school cafeteria. Highlight the differences and opportunities in the market, both on your campus and close to your school. Don’t forget the indirect competitors such as those who bring lunch to school, campus vending machines, fundraising and club sales. Figure out where there is room/opportunity for your cafeteria to increase sales. See 25- point scoring guide in appendix.

Activity 4-3: Class Discussion

Discuss the two forms of grids shown in this module for Vero’s and the Shack. Both have their merits: Vero’s grid is a quick way to see what advantages the Lemonade Stand has for elementary students over its competitors. The Snack Shack grid is a much more detailed and thorough format. Do you think the details in the Shack’s example will help with the marketing and future plans better than Vero’s? Do you think the more detailed grid helps investors get a better picture, or was it unnecessary work? Where are Vero’s weaknesses? Can Vero’s grid be modified to use as a flier to attract customers at the elementary school? What can you learn from both of these styles?

PRODUCT OR SERVICE

Module 4: Competitive Analysis

FOCUS UNIQUE

BENEFITS & FEATURES

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Activity 4-4: Online Reading & Examples

For more reading on competitive analysis and some examples, check out the links below.

1. For more general reading on competitive analysis:

http://myphliputil.pearsoncmg.com/student/bp_turban_introec_1/CompAna.html

2. For a sample from a Clothing Company Marketing Plan: (Notice the target market is

labeled “ideal customer” and the competitive advantage is the “remarkable difference.”) http://www.mplans.com/locally_produced_clothing_retailer_marketing_plan/marketing_ vision_fc.php

3. For a sample of a window-cleaning service with a great slogan and product/service

innovation as competitive advantage: http://www.mplans.com/window_cleaning_marketing_plan/remarkable_difference_fc.p hp

Quiz: Competitive Analysis

Seven Questions Total:

Question 1 The goals of competitive analysis are to show a thorough understanding of the players and opportunities in your market and to support your proposition that the market can accept a new entrant.

□ True □ False

Answer:

Question 2 Choose one answer. The best definition of differentiation is:

□ a. To change or differ your image as often as possible.

□ b. To have the widest selection of product.

□ c. To make your business different from the direct competitors and close to the

indirect competitors.

□ d. To separate your image, products or services from others.

Answer:

Module 4: Competitive Analysis

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Question 3 True differentiation leads to repeat business and loyalty.

□ True □ False

Answer:

Question 4 The differentiation and competitive strategy section should outline the features of your competitors' product/service.

□ True □ False

Answer:

Question 5 Choose one answer. What two competitive advantages does Vero’s Lemonade Stand have?

□ a. Atmosphere is uniquely geared to targeted customer and location is closest to

school of targeted customers.

□ b. Widest selection of product and appeals to widest range of customers.

□ c. Is larger and has longer open hours than other convenience stores.

Answer:

Question 6 Choose one answer. What two competitive advantages does the Snack Shack have?

□ a. Atmosphere is uniquely geared to targeted customer and location is closest to

school of targeted customers.

□ b. Widest selection of product and appeals to widest range of customers.

□ c. Is larger and has longer opening hours than other convenience stores.

Answer:

Question 7 A good example of an indirect competitor for Vero’s Lemonade Stand would be the Snack Shack.

□ True □ False

Answer:

Module 4: Competitive Analysis

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Module 4: Competitive Analysis

Appendix: Module 4

Activity 4-2: Competitive Analysis Grid Rubric/Scoring Guide 25 points Section of Grid Exceeds Standards

5 points

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Does Not Meet Standards 0-2 points Business Name & Product or Service

Meets Standards 3-4 points

Missing this section entirely or parts of it such as main competitor/s. Does not clearly define product or service offered. May be difficult to distinguish one business from another.

Focus and Unique Benefits & Features

Has main direct and

Has main direct and indirect competitors

indirect competitors listed. Very detailed.

listed. Briefly Professionally

describes products describes products

and/or services. and/or services.

May be difficult to understand or missing main focus or benefits of competitors.

Distribution, Marketing and Pricing

Describes the main

Briefly describes the focus of the business

main focus of the as well as the unique

business as well as benefits and features

the unique benefits of competitors with

and features of details, in concise

competitors. language.

Explains the way in

Explains the way in

May be missing some which customers get

which customers get

or all of the to the product, details

to the product, how

distribution, marketing how the company

the company markets

or pricing, or may be markets and the

and the relative price

inaccurate. relative price or price

or price range, but in range.

lesser detail.

Weaknesses Clearly states unique

Is missing this section weakness of each

or does not accurately competitor, including

state weakness of the main business.

some of competitors or main business.

Overall Grid Is easy to read and

follow, organized and provides detailed descriptions for each competitor.

States weakness of each competitor, but in lesser detail.

Is easy to read and

Writing or follow, organized.

organization may be difficult to read or follow. May have many errors and is otherwise not accurate.

Module 5: Marketing Plan Module 5: Marketing Plan

KEY LEARNING CONCEPTS

How to write a value proposition ✓

Understanding price strategy ✓

How to create a marketing plan

VOCABULARY

Advertising ✓

Cooperative Promotion ✓

Marketing ✓

Marketing Plan

➢ The 4 Ps ➢ Entrepreneurial Marketing ✓

Market Position ✓

Points of Differentiation

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Points of Parity ✓

Pricing Strategies

➢ Cost-Based ➢ Competition-Based ➢ Demand-Based ➢ Psychological ➢ Distribution-Channel ✓

Publicity ✓

Traditional Advertisement

Discussion: The Snack Shack’s Value Proposition and Marketing Plan

A marketing plan is a document describing a business’ potential customers and a comprehensive strategy to sell them goods and services.

After research and analysis of the convenience store industry and market, it is time to position the Shack in the market. A company’s market position is what makes the company unique from the others through marketing. It is how your customers view your business as it compares to others. Your customer will come to you because the Shack offers service, price, convenience or atmosphere that is not available elsewhere. Your company’s market position is briefly defined in the value proposition section of the business description and in more detail through the marketing plan.

As you recall from Module 2, a value proposition identifies the benefits that you offer your customer. In a value proposition, there are “points of parity” and “points of differentiation.” Points of parity are features in your business that are the same as your competitors’. Points of differentiation are features that are different than your competitors’. The snacks offered at the Shack will also be found at some of the local convenience stores, so that becomes a point of parity. However, you plan to sell those items at a lower price than the convenience stores sell them. In addition, the college students parking on your street will not have to park twice— once at the store and again for school. This will save them time. And you are a student-run

Module 5: Marketing Plan

business, which you feel will draw more customers. These are all examples of points of differentiation.

The Snack Shack’s value proposition expresses how your customers will view the Snack Shack as compared to other convenience options. Once you determine your points of differentiation and points of parity you can write a simple sentence that expresses your strengths. Using the competitive analysis, your value proposition becomes: “The Snack Shack is a conveniently located, student-run store offering low prices on hot and cold snacks to college students on the go.”

The next step is to create a marketing plan, an executable plan of action on how you will attract customers. The marketing plan outlines how you will get your customers to buy. Your analysis has confirmed that the most likely purchases will come from the college students. One of the most common pitfalls new businesses make is to try to appeal to everyone: your relatives, the neighbors, the elementary kids and the college students. Many of these non- target customers may actually buy from you, but the Shack’s marketing will be much more effective at capturing your major market, the college-student sales, if you keep your main advertising, product selection and atmosphere geared toward your target—“the college student on the go.” It is very important to carefully select your target market, as your marketing will be geared toward this group.

Discussion: Your Marketing Plan Strategy

The marketing plan section should begin by restating the business concept, market opportunity and primary customer. You should clearly identify your niche, target market and customer. Then you should address how you will enter the market, how you will attract and retain customers and how customers will know about and be interested in your product/service.

Marketing is the set of strategies, tactics and techniques used to raise awareness, to promote a product or service, and to build long-term relationships. Marketing motivates a customer to purchase your product or service.

Traditional marketing focuses on the marketing mix or the 4 Ps of marketing: product, price, place and promotion. With this approach, marketing decisions are categorized into these four areas:

❖ Product - The identification, selection and development of a product. ❖ Price - The determination of its price. ❖ Place - The selection of a distribution channel to reach the customer’s place. ❖ Promotion - The development and implementation of a promotional strategy.

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Module 5: Marketing Plan

Develop your marketing strategy based on how to build long-term customer relationships and what benefits you offer to your customer (i.e., what value you add). Show how you deliver your product or service in a different and better way. Consider:

1. How you will identify, establish, maintain and enhance customer relationship. 2. Your value-add (over the competition or over a regular purchase elsewhere). 3. Guerrilla tactics (creative, do-it-yourself marketing tactics). 4. Alternate channels (non-traditional, such as candy bar sales at Home Depot)

Activity 5-1: Stealth Marketing Video View & Class Discussion

Stealth marketing is an aspect of marketing in which the customers are not aware that they are being marketed to. The objective is to make someone feel that they need or want something, without actually saying to them “buy this” or “our product is great”.

Take a look at the following YouTube video from a 60 Minute segment on stealth marketing. http://www.youtube.com/watch?v=p7LTEFCH54g

Or check out this article on stealth marketing from the NY Daily News. http://tinyurl.com/y275tb8

This type of marketing is very effective, yet there have been arguments that some forms of it can be unethical. What do you think? What are ways your company/business could implement stealth marketing? Simply having popular students wear or use your products at busy times on campus could be a form of this type of marketing. Discuss with your team or class how your business may modify some sort of this tactic for your company.

Discussion: The Snack Shack’s Marketing Plan

Building a business you think is great does not necessarily guarantee customers will come in or near your business. It certainly doesn’t guarantee they will pay you money for anything. Without the proper information on what you are about, and a personal incentive to take time out of their day, they may never visit your establishment.

Advertising attracts public attention to a product or business by using paid announcements in newspapers, on TV and radio, or in electronic media. It is an expensive form of marketing, though if executed properly, can attract many new customers. In a traditional purchased advertisement, you have complete control over the background, text, pictures, etc. You also may have to pay top dollar for the time on the radio or TV, or the space in the newspaper or web page. There are several other ways you can promote your business.

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Module 5: Marketing Plan

Publicity is essentially the simple act of making a suggestion to a journalist that leads to the inclusion of a company or product in a story without you having to pay for the ad time or space. Newspapers, magazines, TV programs, radio shows, blogs and websites have large amounts of space to fill and depend upon publicists (someone hired to do publicity) to help provide story ideas, interview subjects, background information and other material.

For the most part, the act of making a suggestion to a journalist, when successful, will lead to one of two types of coverage:

• A story created from scratch built around the story "angle" you suggest (e.g. a feature story on your company; a story about a trend that you present to a journalist; an interview segment, etc.)

• The inclusion of your product, company or service in an already existing story (e.g. the reporter is already working on a story about your field and your contact with her results in your product being included in the piece)

.

The Shack can play up the fact that it is student-created and managed and you can try to contact the local media with your special interest story. A newspaper is more likely to print a story on your business if you can create an interesting event like a give-away, contest or donation of your profits to help someone in need. The drawback is that you have no control over what the TV or newspaper says about you. If they think your business is unsanitary, they may not print anything to help you, but rather write an article suggesting a small place like yours should be avoided. Fortunately, this is rare, and most stories in the nightly news and papers are positive.

Cooperative promotions are arrangements between you and another business by which ad costs are divided between the two. Doing a co-op promotion with another local business that you don’t compete with may help both parties. For instance, you may ask local retailers to display signs in their windows promoting the Shack, and in exchange you offer coupons for their business to your customers. Since you are a student-run business, the community may want to help you out. You could negotiate with another business where college students shop and tie-in their coupons with the Shack.

You could also print out coupons and decide that you are going to slip them underneath the doors of neighbors or place them on the windshields of the cars parked on nearby streets. Since you have decided that your target market is people parking in your area, it is not necessary to advertise to the entire town, and it would cost way too much money.

The atmosphere of the Shack will be very important, and you may decide that weekly quotes or political questions written in sidewalk chalk on the nearby sidewalk will help gain attention and create interest. Also, you will wear plain black tee shirts and ball caps, play popular music and have bamboo sticks and palm leaves as decoration. Your greeting will be upbeat and casual, but not too perky.

Promotional events such as monthly contests where a customer wins a free energy drink or another item can be effective. Entry tickets are filled out when they make a suggestion on which quote you should use for the sidewalk message. Or you could have a ticket dropped in a jar for a weekly drawing with purchases over $3. The prize could also be a Snack Shack tee shirt, which also serves as a walking billboard when the winner wears it. Regular slow times can be perked up with special discounts or “patron choice” on the music.

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Module 5: Marketing Plan

Website URLs can be purchased for as little as $9 per year. A simple page with your information and a few pictures of your “customer of the week” may be a great way to promote the Shack at a low cost.

Social Networking sites can also be used to promote the Shack. Creating a Facebook fan page and sending out notices on specials, or creating a Twitter account and tweeting updates are ways you can promote the business.

All parts of the marketing plan should be carefully thought out and based on research on your target market. Ultimately, your marketing plan should address the following:

➢ WHO is your customer? ➢ WHY do they buy from you? ➢ WHAT is your message? ➢ HOW will you enter the market, reach the market, educate the market? ➢ WHERE will you advertise and promote?

Activity 5-2: Class Discussion to Brainstorm on Guerilla Marketing

Unlike traditional marketing, guerrilla marketing relies less on money and more on the creativity and energy of people. Brainstorm on ways to either promote your own business or the Snack Shack. Get creative with your marketing tactics, messages and weapons. Determine if and how you will use the following methods:

1. Word-of-mouth. 2. Publicity. 3. Advertising. 4. Direct marketing. 5. Online marketing.

Discussion: The Snack Shack and Pricing Strategy

Establishing a pricing strategy will help you calculate markup and retail for your products/services in a more uniform fashion. It also is a crucial part of your marketing. This strategy will be based on one of several variables. Since the Shack has several local direct competitors, and your research shows the target group is on a tight budget, you determine the college students are looking for a bargain. A look at pricing strategies follows:

Cost-based pricing is a pre-determined percentage markup over the cost. There are often industry standards in markup percentages. For example:

o 50% markup on cost = $1.00 cost item x .50 = $.50 markup so,

▪ $1.00 (cost) + $.50 (markup) = $1.50 Retail Price o 100% markup on cost = $1.00 cost item x 1.00 = $1.00 markup so,

▪ $1.00 (cost) + $1.00 (markup) = $2.00 Retail Price

Demand-based pricing is determined by market demand of certain products. Prices will change with higher or lower demand.

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Module 5: Marketing Plan

o The theme park, which charges a 500% markup on bottled water, may only

have a 120% markup on toys and a 15% markup on the park entrance fee. The water is in high demand, but the toys are a tougher sell and the park entry price must draw the customers in from far away. o The hotel on the beach may charge $250 per night for a single room in the

summer and only $99 per night for the same room in the winter.

Competition-based pricing requires a constant update on the competition. Prices are usually kept similar to or lower than other businesses.

o WalMart is famous for buying items in such large quantities that they can keep

their prices lower than the competitors—sometimes by a large margin, other times by just a few pennies. When they must pay the same cost as another large competitor, they merely lower the price by a few cents. o The college bookstore may decide to lower or raise prices on beverages to

keep them lower or consistent with the vending machines located just a few yards away. o A store that has always been the only local carrier of an item may need to

lower prices or offer specials when a new store opens in town.

Psychological pricing uses the fears or desires of consumers to determine prices. Some examples of psychological pricing are:

o Odd/even:

▪ Odd pricing places an odd number at the end of a price to make the price appear lower, such as $10.97 instead of $11.

▪ With even pricing, a store may add prestige or simplicity by using the even $11 price as their customers may not like trying to be fooled or may not want to be bothered with an odd price. The Shack may want to price items at an even 50-cent or dollar price to make change quickly and simple for students-on-the-go. o Sale:

▪ After selling a product at a higher price for a period of time, a discounted price can be given and heavily advertised. Some stores sell very few items at the regular price, as they have trained their customers to wait for the sale. This gives the appearance that their store has the best deals. Customers feel wise when they feel they have received a deal and are more likely to return to the business. o Promotional:

▪ Certain items have a lower markup to draw in customers, while impulse buy items can have a very high markup. Back-to-school specials at office supply stores are a prime example of this. The notebook paper may only be 25 cents, but the notebook/organizer is priced high at $12. Offering a very low price on a few advertised items to lure in customers is also called “leader” pricing.

▪ Discounts can be given to special groups, making them feel privileged. For example, the Shack may offer 10% off for customers with a college ID card. o Prestige Pricing:

▪ Usually used to attract wealthier customers, the markup is very high to suggest high quality and give confidence that the product is made well. Designer clothing and accessories are often in this category.

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Module 5: Marketing Plan

Customers will expect a high level of customer service, appropriate atmosphere and special treatment when paying such inflated prices. ✓

Distribution-channel pricing often cuts out one of the middlemen or distributors. Usually the price can be lowered if a product can be purchased directly from or closer to the manufacturer. Online purchases have made it easier for some companies to sell directly to the customer. Fair-style farmers’ markets are farm-direct and often have lower prices than the local stores. Many teen-age silkscreen tee shirt companies can sell shirts at a lower price than some stores by doing the screening themselves and selling directly to their peers.

Looking at other industries and researching other companies will give you a broader perspective. Starbucks trained customers to appreciate a $4 coffee when the average customer had been used to purchasing hours-old coffee in a Styrofoam cup for 49 cents. Years later, Starbucks faced many new competitors entering the market—attracted by higher markups and customer habits—such as McDonald’s McCafe line of products. Other popular companies to look to for researching price strategies are 99¢ Only Store, Costco and Southwest Airlines.

Once you have conducted a financial analysis to research the cost you can buy your goods for and calculate the extra expenses involved with running the Shack, the appropriate price level and strategy can be determined.

Activity 5-2: Class Discussion on Snack Shack’s Pricing Strategy

Option 1: Use the following information to discuss the possible pricing strategies the Snack Shack should use. Write ideas for each situation on the board, and then try to put a meaningful and cohesive pricing strategy together.

1. The industry average is a 100% markup on cost. The average cost is based on what

the Snack Shack will pay, such as warehouse prices.

2. The burritos the Shack will buy are offered at the college cafeteria for a retail price of

$0.89. The Burritos cost $0.49 each and you estimate the microwave cost to be $0.10 per burrito. Should you keep the price the same as the cafeteria, lower or raise the price on just this one product?

3. The vending machine at the college charges prices that appear to be 150% above

warehouse prices. The Shack will carry the same cheese crackers, which cost $0.50 each. Should you keep the cheese crackers at the lower price, or raise the price to match the on-campus vending machines?

4. All products at Vero’s Lemonade Stand nearby are priced at $1. Some of your prices

will be higher if you keep close to a 100% markup. Should you lower all your prices so that they seem as inexpensive as Vero’s?

5. The canned drinks you will carry cost $0.35 each, except for the most popular energy drink, which costs $0.70. The local convenience store charges $1.29 and the vending machines charges $1.50. What should you do?

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Module 5: Marketing Plan

Option 2: Discuss your own business and which pricing strategy works best. Write the different ideas on the white-board and have a pro and con row for each. Take into consideration the goals of your company and the goals of a pricing strategy, such as:

➢ To increase sales.

➢ To increase market share.

➢ To maximize cash flow.

➢ To maximize profit.

➢ To create barriers to entry.

➢ To define an image.

➢ To control demand.

Examples: Marketing Plans

See an example of a babysitting service run by a teen at: http://www.sba.gov/teens/sample_business_plan.html

Or, choose a marketing section of a larger business plan to review from and notice how they use a “remarkable difference” section to spell out their differentiation.

Window cleaning service marketing plan: http://www.mplans.com/window_cleaning_marketing_plan/marketing_vision_fc.php

Restaurant marketing plan: http://www.mplans.com/restaurant_marketing_plan/marketing_vision_fc.php

Online sheet music company marketing plan: http://www.mplans.com/sheet_music_website_marketing_plan/marketing_vision_fc.php

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Quiz: Marketing Plan

Nine Questions Total: Question 1 A Value proposition is usually 2-3 paragraphs in length.

□ True □ False

Answer:

Question 2 Choose one answer. The traditional 4 Ps of marketing include:

□ a. Product, Place, People, Production.

□ b. Product, Place, Price, Promotion.

□ c. Product, Place, Promotion, People.

□ d. Product, Place, Price, People.

Answer:

Question 3 Choose one answer. A marketing plan is:

□ a. An executable plan of action.

□ b. A pricing plan.

□ c. A form of advertisement.

□ d. A message for publicity.

Answer:

Question 4 Ultimately, your marketing plan should address: who your customers are, why they buy from you, and where you will advertise.

□ True □ False

Answer:

Question 5 Marketing is the strategies, tactics and techniques used to raise awareness, to promote a product or service, and to build long-term relationships. Marketing motivates a customer to purchase your product or service.

□ True □ False

Answer:

Module 5: Marketing Plan

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Question 6 Entrepreneurial marketing focuses on the marketing mix or the “4P’s” of marketing. With this approach, marketing decisions are categorized into these four areas of control.

□ True □ False

Answer:

Question 7 Choose one answer. Prestige Pricing makes the customer feel:

□ a. Wise.

□ b. Superior.

□ c. Impulsive.

□ d. Confident.

Answer:

Question 8 Choose one answer. Demand-based pricing is used:

□ a. By setting one price for all items.

□ b. By changing the prices each day based on consumer demand.

□ c. Often by theme parks.

□ d. To be sure prices are lowest compared to competitors.

Answer:

Question 9 Choose one answer. Guerilla marketing tactics require:

□ a. The use of an expensive ad agency.

□ b. No money, but results in loss of control of final product.

□ c. Lots of money for time and space for advertisements.

□ d. Lots of creativity and work on your part.

Answer:

Module 5: Marketing Plan

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Module 6: Operations Plan

Module 6: Operations Plan

KEY LEARNING CONCEPTS

Understanding the purpose and key elements of an operations plan ✓

How to create and write an operations plan ✓

Understanding organizational charts ✓

Understanding work flow charts

VOCABULARY

Direct Sales ✓

Distribution Chain/Channels ✓

Flow Chart ✓

Manufacturer ✓

Operations Plan

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Personnel ✓

Procurement ✓

Retail ✓

Value Chain ✓

Wholesaler

Discussion: The Snack Shack & Operations Planning

The operations plan explains how the Snack Shack will execute its business operations. Just saying you are going to buy food at a big warehouse store and sell it cheaper is not enough information. Detailed elements that go into the operations plan are often not thought about until you run into trouble with lack of time or not enough help. For example, how are you going to pick up all your food and how much time does it take? Where are you going to store the food that you pick up? If you are serving perishables, how will you keep them from going bad? How are you going to calculate sales for your customers? Will you need a cash register? Will you accept credit cards? Do you need electricity, water, restrooms?

As you can tell, there is a lot to think about when developing your operations plan. The purpose of the operations plan is to describe the resources (e.g. snacks, microwave, fridge, workers etc.) and the flow of activities (how you buy and serve the snacks to your customers) of the business. You have to identify exactly what your resources are and how you will

Module 6: Operations Plan

manage them. In your case, the Snack Shack is not that complicated because you don’t intend to make the snacks from scratch but will buy them prepackaged from another wholesaler. However, you still have to explain the process.

Try to think about your business on a larger scale when writing the plan. For example, it’s easy to just say you are going to buy a box full of energy bars and sell them for 30 cents more than what they cost. But, what if the Snack Shack really takes off? Will your business model and operating plan change if you have to buy 10 boxes of energy bars? Or 100 boxes? Can you keep up with a big increase in business with only one person working? What if the police say that you aren’t allowed to operate on the sidewalk? What would you do then? It’s very important to think about the big picture and anticipate problems before they occur.

Discussion: Operations Plan

Operation plans delineate how you will produce or procure and distribute your product. It also examines the costs for each stage of production and procurement, which is the process of how your product will be acquired, as well as sales and distribution.

The purpose of the Operations Plan is to describe the resources, procedures and flow of activities that are required to deliver your product or service to your customers.

Key elements of the Operations Plan include:

1. Description of product or service 2. Identification of inputs (purchasing)

a. Raw materials b. Suppliers c. Payment terms 3. Resources to produce product/service

a. Facilities (lease or own?) b. Equipment c. Personnel (employees of the company) 4. Production: Movement from raw materials to finished product 5. Distribution chain and strategy 6. Timeline and Critical Path

The Operations Plan should address how you sell your product or service. The distribution chain or channel is the path a product may take from initial production until is gets to the final or ultimate consumer. The manufacturer is the producer of the product. Distribution channels may include:

✓ Retail is when a business sells directly to individual consumers, usually in smaller

quantities for the consumer’s use. The Snack Shack is a good example. ✓ Direct Sales is a form of retail. The product is sold person to person, usually in a

home or customer’s office. ✓ Online Sales are completed through website ordering. The advantage of online sales is that the customer can buy at any time, sales staff cost is minimal and the need for a

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building storefront with expensive displays and atmosphere is not necessary. Also, customers can be from as far away as you are willing to ship goods to. ✓ Catalog Sales have largely been replaced by online sales, however, some customers

like to look at magazine-style catalogs. Orders can be placed by phone, mailed-in or redirected to the website for online ordering. ✓ Wholesale is when businesses sell to retailers and merchants rather than to the

ultimate or final customers. A wholesaler is often also called the middleman or distributor.

A Value Chain exists when a product has value added at all or some of the stages when traveling to the ultimate consumer. An example would be wheat, which is processed to flour by a manufacturer, then baked to bread by a baker, then made into a sandwich by a food service plant, then sold at a convenience store.

Personnel refers to the management and staff working for your business. If you have a sales staff, you may further explain by detailing who will sell and how they will be trained:

o Your own sales force (employees) o Agents (independent sales contractors) o Independent reps (often a company/independent sales contractor who represents

several similar lines of product from various companies)

Flow charts are diagrams showing the steps of a process and their order. They can be in a linear fashion, as above, or in a circular format, if the repetition of the process is important. This one was constructed in Word using auto shapes. Some online help can be found at:

How to use Excel to make flow charts: http://spreadsheets.about.com/od/tipsandfaqs/f/flowchart.htm

What is a flow chart and why is it powerful? http://www.breezetree.com/articles/what-is-a-flow-chart.htm

Example: Snack Shack Production & Distribution Chart

Purchase product from Cost-a-lot-Less every Saturday by car.

Module 6: Operations Plan

Store in garage refrigerator/freezer and storage bins.

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Sell retail Monday through Friday, with weekly inventory for accurate reorder.

Evaluate customer product suggestions and observations for product additions or discontinuation.

Module 6: Operations Plan

Activity 6-1: Production & Distribution System Exercise

Complete the Production & Distribution System exercise with your mentor/teacher. Once the exercise table is complete, create a flow chart by hand or on the computer to show the channels and processes necessary for your operations.

Team Name

Market Definition

Who is the manufacturer of the product you will sell or use in your service? Why did you choose this one?

Who is the wholesaler you will purchase from?

How will you get the product? What are delivery/transportation costs?

Is there a standard reorder process with inventory analysis?

Are you the retailer or will you use product for a service you provide? Explain.

How many people will work at your business? How many each shift? What are their job duties?

Who is the customer and how will they:

Get more information or answers to their questions?

Purchase the product/service?

Receive product/service?

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Module 6: Operations Plan

Discussion: Snack Shack Legal Requirements

If your business must meet certain legal requirements or regulations to operate, the legal environment should be discussed in the operations plan. Laws, taxes and permits may impact your ability to provide a product or service. Examples include:

➢ Licensing and bonding requirements ➢ Permits ➢ Health, workplace, or environmental regulations ➢ Special regulations covering your industry or profession ➢ Zoning or building code requirements ➢ Insurance coverage ➢ Trademarks, copyrights, or patents (pending, existing, or purchased)

Example: Snack Shack Legal Research and Action

In order for the Shack to plan for operations and costs, it must first be sure that it is actually legal for the Shack to set up operations in a residential area. Also, if high business license fees or taxes affect the amount of profit to be made, it is better to discover this before operations start, rather than after!

Rule/Regulation/Tax Immediate Action

Licensing requirements

Page 67 Need city license for $25, one-time fee.

Fill out online.

Permits County Health permit required, $50

annual fee. Must have sink/hot water and toilet facilities for all workers.

Register online, annual inspection. Will be easy to get if pre-packaged foods are not opened by Snack Shack.

Workplace & environmental regulations

If Snack Shack hires other employees in the future, they must pay about 18% taxes on wages and obey all employer regulations.

No action at this time.

Module 6: Operations Plan

Rule/Regulation/Tax Immediate Action

Zoning/building requirements

Page 68 If business sells less than $50,000 per year, city will allow sales in residential area of Snack Shack. Cannot block sidewalk or have music above certain decibel level. No permanent business signage allowed. Shack cannot be a permanent structure

Sales projected at less than $50,000. Sidewalk chalk OK. Shack constructed on wheels for easy mobility into and out of garage. Music will be played at low levels.

Insurance If employees are hired, worker’s

compensation must be purchased for about $4 for 10 hours of work per employee. Liability insurance can be added to the homeowner’s policy for $150 per year.

Add liability insurance to parent’s homeowner’s policy. Complete forms and have inspection for approval.

Trademarks, Patents

Several URLs referencing “Snack Shack” are currently in use, but some, such as SnackShack.com are not. No local business is using the name, no trademark in your area.

Acquire available URL, create twitter account and Facebook fan page.

Module 6: Operations Plan

Activity 6-2: Legal Research and Action

Research the laws surrounding your ECHO business. You may check online for regulations, call governing agencies (city, county, school administration) and ask similar businesses in your area. Talk to your teacher or mentor for guidance on where to start.

Option 1: On Campus Venture. If the business is an on-campus venture, your regulations are your school and district policies. Some items your business may need to research include:

1. Do you need school administration, district or ASB (Associated Student Body)

approval to start your operations?

2. Will you have to share profits with other organizations on campus?

3. How will you be allowed to use the profits? Are you allowed to pay students in some

way, or can the profits only be spent on school activities?

4. What are the restrictions on food or other items sold? If food is sold, does your

business need inspection and sanitation ratings?

5. Are you allowed to use the school server to upload a website, or can you link a website

for your business?

6. Are there restrictions on accepting credit cards, checks?

7. Will you need to collect sales tax and pay this to the state?

Option 2: Off Campus Venture. For off-campus ventures, you may wish to start with city and county offices to research regulations, fees and permits. Most of these offices have websites that provide information online. Also, a business mentor from your industry will be able to answer many questions and set you in the right direction. If you plan to sell food, many health and sanitation regulations will apply.

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Quiz: Operations Plan

Five Questions Total: Question 1 Choose one answer. Distribution channels may include:

□ a. Retail, Advertising, Wholesale, Direct Sales

□ b. Advertising, Agents, Independent Representatives, Direct Sales

□ c. Retail, Agents, Wholesale, Independent Representatives, Direct Sales

Answer:

Question 2 Choose one answer. Key elements of the Operations Plan include:

□ a. Marketing, Market Size, Industry, Targets, Sales Strategies

□ b. Description of product or service, Market Size, Prices, Costs

□ c. Purchasing, Distribution chain, Timeline, Production and Production Resources

Answer:

Question 3 Operations delineate how you will produce/procure and distribute your product.

□ True □ False

Answer:

Question 4 The purpose of the operations plan is to determine how products are manufactured.

□ True □ False

Answer:

Question 5 Choose one answer. To research legal requirements and regulations which may apply to your business, you should:

□ a. Check your city and county offices for permit requirements, licenses and laws.

□ b. Check the Treasury Department website for permit requirements, licenses and

laws.

Answer:

Module 6: Operations Plan

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Module 7: Management Team

Module 7: Management Team & Organizational Structure

KEY LEARNING CONCEPTS

Understanding management functions and titles ✓

Knowledge on locating and using local resources, mentoring and guidance ✓

Understanding forms of business ownership ✓

How to create a company organizational chart

VOCABULARY

Board of Directors ✓

Board of Advisors ✓

Chamber of Commerce ✓

Chief Executive Officer (CEO) ✓

Chief Financial Officer (CFO) ✓

Chief Operations Officer (COO) ✓

Chief Marketing Officer (CMO) ✓

Chief Technology Officer (CTO) ✓

Forms of Business Ownership:

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➢ Corporations ➢ Limited Liability Companies

(LLC) ➢ Partnerships ➢ Sole Proprietorship ✓

Organizational Chart ✓

Small Business Development Center (SBDC) ✓

Small Business Administration

Discussion: The Snack Shack’s Management Team

Up until now, you have planned to work the Shack by yourself. But after starting the legal and marketing sections of the business plan, three things become apparent:

1. You are not an expert in every area of management: finances, web design, technology,

marketing and construction of the Shack.

2. You are not superhuman and occasionally you will not be available to open or run the

Shack.

3. You get more accomplished when working alongside others excited about your business.

Module 7: Management Team

It could be a benefit to have another passionate member on your team. The management section of the business plan explains exactly who will be working with you to run the Snack Shack. It is possible that there is only one person on the management team of a company, but usually this isn’t the case. In talking to friends and consulting with mentors, some of these people have shown great passion and an abundance of knowledge. It is wise to find someone to assist in areas where you are weak, and someone who is trustworthy and enthusiastic about your business. In most organizations, the management team consists of a diverse group of people tasked with separate functions of the business. Most of us have heard of a Chief Executive Officer (CEO), the position in the top tier of management that is responsible for the entire organization. But in large organizations, there are several other key management/leadership positions. Some of these include:

• Chief Financial Officer (CFO), responsible for all the financial acquisitions, accounting, financial documents and financial direction of the company.

• Chief Marketing Officer (CMO), responsible for the research, development and execution of the marketing plan for the company.

• Chief Operations Officer (COO), responsible for production and management of the frontline operations of the company.

• Chief Technology Officer (CTO), responsible for the computer software needs, website upkeep and related equipment.

Large organizations that have several Vice Presidents and Managers should have a clear chain of command, which is the order in which authority and power is exercised and delegated from top management to every employee at every level. You need to delineate job duties clearly to avoid disagreements and misunderstandings in the future.

After careful consideration, you decide on the following organizational structure:

❖ You will be CEO and have final decision-making ability for the business. Salary will be net profits

from the company.

❖ A friend will be your technology and social networking expert, and web designer. He has offered

to work for free if you give him web recognition and a stipend of free snacks.

❖ A Sales Associate will be hired when sales reach a level that will support it.

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If you have several employees, an organizational chart is helpful. An organizational chart (sometimes called an org chart) is a diagram that shows the various positions within the company and their relative ranks.

The Snack Shack will have only two job titles to start (CEO and Technology & Marketing Manager), then three the next year with the addition of a Sales Associate. The org chart will be simple:

Technology & Marketing Manager

To enter the Snack Shack in a business plan competition or to get funding to start the business, judges and potential investors look more favorably on a well-rounded management team. Your business needs a team with the expertise and depth to run it properly.

There are also other ways to fill in the gaps for a management team that lacks experience. Many companies have a Board of Directors, an elected or appointed team that oversees matters/performance of the company and has voting rights. A Board of Advisors usually advises the board of directors and/or the company directly and have no voting rights. Members of the board of directors or board of advisors have knowledge and experience that can help the management team start and run the company. Many start-up companies get advice on their business plans and ideas by experts at the Small Business Development Center (SBDC), which promotes small business start-ups and expansions at no charge, as they are a federal agency funded by tax dollars to encourage entrepreneurial ventures. High school entrepreneurs may have local business mentors eager to help with new business endeavors. Alongside the SBDC, resources for mentors may come from:

Family, friends and relatives.

Local college business departments such as the UCLA Anderson School of Management, whose students help with the ECHO business plan competition.

The Chamber of Commerce, a city/regional organization made up of local business leaders who want to promote their area and their businesses.

Rotary Club, Kiwanis Club, Jaycees and other volunteer organizations that may be in your area and are usually comprised of successful business people.

Module 7: Management Team

CEO

Sales Associate

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Module 7: Management Team

Special department managers of larger businesses in your area such as the visual merchandiser of a department store, sales manager from a hotel and human resource manager from an administrative office.

SCORE, the Service Corps of Retired Executives is a team of retired entrepreneurs and managers who may have the time and knowledge to help you with your business idea. Both SCORE and SBDC are part of a parent agency, the Small Business Administration, which offers other assistance and low cost loans to businesses.

While most business owners like to share advice and their experience, a direct competitor of your new business may not be thrilled to help you take away some of their own sales/profit. Most business owners want to see young entrepreneurs succeed, but not at their own personal expense in lost customers. Choose mentors carefully and be very respectful of their time and business situation.

Discussion: Management Teams & Advisory Boards

This section of a business plan describes the organizational structure and ownership of the business. It also highlights the management team’s experience and current/planned responsibilities.

In this section, you should discuss key members of the management team and Board members/advisors (if any). Management and advisors include:

Executive “C-level” management (CEO, CFO, COO, CMO, CTO). ✓

Board of Directors. The board is governed by corporate by-laws but duties generally include:

o Hiring and firing all officers (not just CEOs). o Voting on all major corporate decisions. o Recruiting new senior managers. o Providing confidential advice and sounding board to CEO. o Assisting in recruitment of new investors. o Offering access to their personal networks.

Members of the Board of Advisors. Used only for advisory purposes and for fundraising (often required for nonprofits and common with start-up ventures). These advisors have no legal liability. Creating a board of advisors allows start-ups to list them in the business plan (thus adding credibility), and to take advantage of their advice and counsel. Most companies start with just 3-5 members on the Advisory Board. You should strive for a balance of expertise (e.g. not all with the same background or experience).

Outside specialist advisors (industry experts).

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Module 7: Management Team

Examples: Management Team Section and Organizational Charts

To see an example of a convenience store management section: http://www.bplans.com/convenience_store_gas_station_business_plan/management_summary_fc.cfm

For more a more sophisticated discussion and sample organizational charts: http://www.unf.edu/~gbaker/Man4201/Chapt003a.PDF

For a free downloadable organizational chart, try:

From Microsoft:

http://office.microsoft.com/en-us/templates/business-organizational-chart-TC006088976.aspx

Other Sources:

http://www.orgplus.com/download/organizational- chart.htm?_kk=organizational%20charts&_kt=002804ae-3ad9-48be-89ae- da8aaf96c901&gclid=CJ3ky_qK2qMCFRplgwodfyi19A

http://www.smallbusinessnotes.com/operating/organizing/orgchart.html

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Example: Organizational Chart & Management Team Write-up

The following is an exemple taken from FTA Charter School’s business plan for an alcohol free night club that provides a safe and fun environment for the community.

Jasmin W., age 16, CEO Jasmin recently began interning at the Echo/Echoplex nightclub complex in Echo Park, Los Angeles. She has great communication skills, experience as a musician and a poet, and extensive contacts in the community.

Elizabeth C., age 17, Co-CEO Elizabeth began her Nocturnal trajectory through her research into the history of South Central Los Angeles in her 9th-grade year. Elizabeth has interned in the office of City Councilwoman (10th grade) and currently interns with Nina Tahash in the Echo/Echoplex box office. Elizabeth's encyclopedic mind, organizational abilities, and fearlessness make her an ideal leader for a project with this degree of complexity.

Mario V., age 17, Marketing & Promotions Mario has a keen interest in promoting events and he possesses a tremendous skill set related to designing promo materials and getting them into people's hands and heads. He is responsible for managing methods of online promoting through Twitter, MySpace, Facebook; for designing and distributing flyers; and for identifying new promotional streams.

Mario V. Marketing & Promotions

Lizbeth V. Financial Director

Module 7: Management Team

Jasmin W. Elizabeth C. Co-CEOs

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Tybrea S. Financial Assistant

Silvano S. DJ & Music Programmer

Module 7: Management Team

Lizbeth V., age 16, Financial Director Lizbeth loves working with numbers and stylish clothes. She combines these interests in her current internship in Hollywood at La Masion De Fashion, a private rental house and retail store, at which she focuses on maximizing the store's profit margin and increasing the foot traffic it attracts via signage and display items. She is currently working with her mentor in creating a financial plan for the store.

Tybrea S.: age 14, Financial Assistant Tybrea's main self-directed project in her 9th-grade year is tracing the various stages of African- American history in this neighborhood, looking for critical historical moments when profound changes took place, and analyzing contributing factors to these shifts. Tybrea loves math and she'll be assisting Lizbeth with the money piece.

Silvino S., age, 16, DJ/ Music Programmer Silvino comes from a musical family. Two of his cousins, Mark Dre and Kikcz, are legends of current Los Angeles DJ culture, headlining major dance events all over town. Silvino is already an accomplished local DJ, booking parties and other events several days a month. His energy and enthusiasm liven things up for the entire group on practically a minute-by-minute basis. He develops a specific musical approach for the between-acts fillers at each event, along with opening and concluding sounds.

Activity 7-1: Business Organizational Chart

Step 1: Fill out a grid/table with the various job duties for each section of your business.

Step 2: Create job titles for these duties. Keeping in mind who the best leaders are, and who is best at performing each function, determine who will fill each job title. Decide who will report to whom, and create an organizational chart structure.

Step 3: Set up a plan for regular meetings and a calendar with goals for each job title.

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Module 7: Management Team

Activity 7-2: Business Mentor Search

Each team member should find a business mentor to help with your business and prepare a script for an email and another for a phone contact.

➢ Follow your mentor/teacher’s lead and do not send a letter, email or make a phone call

until your choice of business mentor is approved, and the text or script is approved. On occasion, a teacher contact for the first communication may work best.

➢ One team member will be the secretary or keeper of information, so print out all

correspondence and research for the secretary, or send them via email to the secretary.

Use this as a suggestion to divide the activity up. Depending on the number of students working on the business plan and the depth of the company, you may modify this guide:

1. The main leader/CEO will contact a local business in the same industry as your

business.

2. The department managers/leaders will find a specialist/advisor who works in a specific

business or in a specific role to assist with their duties.

3. The workers (e.g. sales associate) will find and file the information on the local SBDC,

Chamber of Commerce, Jaycee, Rotary or other related organization.

Before correspondence/communication, discuss with your teacher possible business advisory meeting times, or if a better plan for your team would be to individually meet, phone or email mentors for assistance.

Discussion: Snack Shack Business Structure

Another decision for the Shack is what type of business ownership to have. While laws regarding business ownership types may vary some from state to state, the most basic forms are listed below:

A sole proprietorship has one business owner, and that owner is usually the manager and is hands-on with the day-to-day operations This is also sometimes known as a “DBA” or “Doing Business As” because the person is the business. You, personally, are not named the “Snack Shack,” but you are the Snack Shack in the eyes of the law. The main benefits to this form of ownership are lower income taxes and greater freedom and control of your business. The main drawbacks are personal liability and reduced ability to raise money for start-up or expansion. This is the simplest form of business ownership and probably the best for very small start-up operations.

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Module 7: Management Team

A partnership (general) has two or more sole proprietors working together as one. In its simplest and most general form, a partnership is split evenly no matter how much work/money is put into the business by each partner. Also, each partner is responsible for the other’s actions. Agreements can be written to change some of these rules. The main advantages of this form are the tax benefits, and the ability to work with another passionate team member/expert. The main disadvantages are the potential disagreements and the same liability issues as with a sole proprietorship.

A Limited Liability Company or LLC is a partnership with limitations on liability. In the State of California, an LLC can exist with only one person, There are filing fees and some other regulation/restrictions that are not part of a sole proprietorship, but the greatest advantage is that there is limited liability for the owner. The tax benefits are similar to a sole proprietorship.

Corporations are owned by shareholders and are best for companies that are larger, more complicated, or have the need to raise capital for expansion quickly as the owners are stockholders. They require more fees and recordkeeping, pay higher taxes, and are costlier to start. They have limited liability and have the ability to sell shares to stockholders, which is a great advantage to expanding or changing owners.

Nonprofits’ main purpose is to help the community or a social cause rather than to make a profit for the owners. Salaries are paid to those who work for the organization, but the owners cannot receive profits based on the sales from the organization. One example of an organization that has a business model and is structured as a nonprofit is the Auto Club of Southern California. Most nonprofits have a purely altruistic goal, such as Heal the Bay or the Red Cross.

Government Agencies include public schools, the military, the Department of Motor Vehicles, some utilities, and services like the SBDC. If your ECHO business plan venture is owned by your public school rather than one or more of you personally, state this fact and then state which one of the above forms of ownership is closest to the structure/ownership of your venture.

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Module 7: Management Team

Example: Snack Shack Form of Ownership

Review the grid below to see the decision process to determine the type of business ownership for the Snack Shack. Every business is different, so your notes/answers may be different for each business you start. Sole Proprietorship was deemed best for The Shack.

Type of Ownership

Page 80 Advantages Disadvantages Notes

Sole Proprietorship

Simple & cheap to start, no extra fees or filing requirements, taxes may be less.

Unlimited liability, difficult to raise capital for costs.

Like this the BEST for Snack Shack

General Partnership

Taxes will be lower, as with Sole Prop. “Two heads are better than one” and this will motivate partner to work hard; wouldn’t have to build shack alone and could split work shifts.

Do not want to share profits or be responsible for a partner. Want to keep self as the top leader.

No need to make anyone partner at this time.

LLC May reduce liability to

parents in case someone was to sue; low taxes as with Sole Prop.

Annual state filing fee is high, seems more complicated than necessary.

$800 filing fee and legal costs are too high.

Corporation Would be easy to sell

shares if move for expansion occurs later on. Limited liability if someone sued. Sounds impressive to say, ”Snack Shack, Inc.”

Too much money and paperwork for such a small operation, no need for expansion cost now.

The costs and rules are much more than the Shack can handle at this point

Nonprofit More people may be

interested in buying if they felt profits were going to a good cause.

Too complicated with lots of forms to complete, higher legal cost; want to keep profits for self.

Not right for the Shack.

Activity 7-3: In Class Discussion on Business Ownership

Read the above table on forms of business ownership. Discuss with your team the pros and cons of the various forms of ownership for your ECHO business. Even if you are an on-campus club and are technically not one of these forms, discuss which type of ownership your venture is closest to and which one it would be if this were not an on- campus venture.

Quiz: Management Team & Organizational Structure

Seven Questions Total: Question 1 Choose one answer. Business Advisories or Board of Advisors are best described as:

□ a. Voted in, with voting rights and exists to manage/direct company.

□ b. Asked or approved in, with voting rights and exists to manage/direct company.

□ c. Voted in, with no voting rights, and exists to guide/assist management of company.

□ d. Asked or approved in, with no voting rights and exists to guide/assist management

of company.

Answer:

Question 2 Choose one answer. A Board of Directors is best described as:

□ a. Voted in, with voting rights and exists to manage/direct company.

□ b. Asked or approved in, with voting rights and exists to manage/direct company.

□ c. Voted in, with no voting rights, and exists to guide/assist management of company.

□ d. Asked or approved in, with no voting rights and exists to guide/assist management

of company.

Answer:

Question 3 Choose one answer. Sole Proprietorship is best defined as:

□ a. Owned by stockholders.

□ b. Controlled by a CEO.

□ c. A DBA (Doing Business As).

□ d. A limited liability partnership.

□ e. Exists to solve a social problem or to help the community.

Answer:

Module 7: Management Team

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Question 4

Choose one answer. An LLC is best defined as:

□ a. Owned by stockholders.

□ b. Controlled by a CEO.

□ c. A DBA (Doing Business As).

□ d. One person owner.

□ e. A limited liability partnership.

□ f. Exists to solve a social problem or to help the community.

Answer:

Question 5 Choose one answer. A non-profit is best defined as:

□ a. Owned by stockholders.

□ b. Controlled by a CEO.

□ c. A DBA (Doing Business As).

□ d. One person owner.

□ e. A limited liability partnership.

□ f. Exists to solve a social problem or to help the community.

Answer:

Question 6 Choose one answer. The SBDC is:

□ a. Part of the Small Business Administration.

□ b. Part of a state agency.

□ c. An entity that gives advice/guidance to start-ups or existing businesses.

□ d. An agency that charges a small fee to assist small businesses.

Answer:

Question 7 Choose one answer. An organizational chart should:

□ a. Show a clear path of leadership and be diverse/deep enough to properly address

all areas of need in a company.

□ b. Show a clear path of leadership and have all the Chief Officers, especially for small

start-ups

□ c. Show a clear path of leadership and at least 5 management teams.

□ d. Show a clear path of leadership and show all advisory boards and mentors.

Answer:

Module 7: Management Team

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Module 8: Financial Plan

Module 8: Financial Plan

KEY LEARNING CONCEPTS

Understanding profit and its role in entrepreneurship ✓

How to create basic financial documents ✓

How to estimate financial projections ✓

How to write a financial plan

VOCABULARY ✓

Balance Sheet ✓

Break-even Analysis ✓

Cash Flow Statement ✓

Cost of Goods Sold (COGS) ✓

Financial Plan ✓

Financial Summary ✓

Fiscal Year ✓

Fixed Costs or Expenses

Page 83

Income Statement ✓

Profit ✓

Pro Forma ✓

Return on Investment (ROI) ✓

Sales Forecast ✓

Start-up Costs ✓

Variable Costs

Discussion: The Snack Shack & Financial Planning

The main reason to open the Snack Shack is to make money, or profit, which is the money you keep after all your expenses have been deducted. It might be easier to just get a job at Sam’s or the local McDonald’s, but there is a greater opportunity for you to earn more money per hour if you open your own business. There is also a risk you that could earn less than a minimum wage job, or worse, lose money. Profit is the main motive for entrepreneurship, and if a business will not be able to make a profit, it may be wise to consider other options.

The financial plan needs to explain (in detail) how you are going to make a profit, the current financial status of the business, and the projected revenues and net income based on an operations and marketing strategy. It also presents a summary of key financial data. Many of the projections that are needed rely on educated guesses regarding your business. The more research these guesses are based on, the more realistic your projections and financial plan will be.

To create your financial plan, the best place to start is the sales forecast, usually shown in a spreadsheet, with estimated sales volume per week, month or quarter, depending on your business. This forecast may also show the types of product for sale and how much of each product customers will buy, especially when there is a smaller inventory (as the Shack will

Module 8: Financial Plan

have). To create the sales forecast, you need to gather information and start with your educated guesses.

Some of the questions you will need to answer include:

1. How many customers do you anticipate actually buying from you per day? Per month?

Per year?

2. How many snacks will these customers buy? How much money will you be making per

snack? Will this amount increase over time? Will this amount decrease or stop during certain periods?

3. What are costs of goods sold during this period? The cost of goods sold (COGS), also

known as cost of sales, is different from the amount you purchased during this period. COGS includes only the cost of the product that was sold, and this amount is used on the income statement to show profit.

4. How will your business grow over the weeks? Months? Years?

Example: Snack Shack Sales Forecast

The following research and assumptions were made to create this sales forecast/projection:

1. A 90% markup on cost of goods sold.

2. The Shack will be closed June and July until college resumes a full schedule. A fiscal

year is a year starting in the beginning of a month other than January, and ending 12 months later. For the Shack, this is used rather than the calendar year to reflect the school year, starting July 1 and ending June 30. The Shack will begin first day of operations on December 1, 2010.

3. Average sales of $70 per day are estimated for first two weeks of operation. The Shack and college are closed for two weeks in December due to the school’s winter break, however novelty items for holiday sales may increase sales for the two weeks it is open.

4. Average sales of $47 per day is estimated in January, with school and the Shack closed

one week during the month and probable bad weather interfering with sales.

5. Sales boost in February due to “sweetheart” deal marketing, better weather and

customer loyalty. Average sales are estimated at $350 per week.

6. Sales hold steady with a slight increase in March. The Shack and the college are closed

one week for spring break.

7. In April, hot weather boosts sales of cold drinks and new ice-cream products. Estimate

$375 sales per week.

8. In May, the college and the Shack are open fewer days, but snacks and flowers will be

sold at the Shack on graduation day. The sales estimate is $800 on graduation day.

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Snack Shack Sales Projections: December 2010-June 2011

Dec Jan Feb Mar Apr May Jun

Sales $700 $700 $1,400 $1,200 $1,500 $2,000 $0

COGS $368 $368 $736 $631 $789 $1,052 $0

Gross profit $332 $332 $664 $569 $711 $948 $0

Total Sales for period: $7,500

Total Gross Profit for period: $3,556

The sales forecast is often shown in the appendix of the business plan, and its data is directly used to construct the projected income statement and cash flow statement. Excel spreadsheets are an excellent tool for your financial data. When using Excel, one of the key factors is to always use a formula instead of a number entry in every cell possible. This way, as you change one figure or piece of data, the remaining totals and calculations will be automatically changed. Please have your mentor or teacher review your spreadsheets and formulas for accuracy.

Activity 8-1: Sales Projections

Ask your teacher or mentor to share with you the Financial Plan Template in Excel, which will guide you through completing your sales projection. This template should be completed in class with your mentor. Be sure to clearly state and explain all assumptions.

Part 1: Create your own Sales Projections

Create a simple sales forecast for your ECHO business using the format shown in the Shack example. List the assumptions you made to convince your reader that your forecast is accurate. Show this first draft of your forecast to your mentor/teacher for feedback.

Part 2: Ask a mentor to share a sales forecast with you.

Contact one of your business mentors you have met with to see if they can or are willing to share one of their sales forecast documents with you. Ask them to explain the sections you do not understand. NOTE: Please ask for college mentor/teacher review of any script or communication for approval before contacting your business mentor.

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Module 8: Financial Plan

Discussion: Start-up Costs, Expenses & Break-even

After calculating sales and COGS, there are other expenses that need to be determined such as employee salaries, patents or trademarks and taxes. Start-up costs on a new business should be on a separate list, as they will not be reoccurring monthly. Start-up costs are those one-time costs for a new business, such as signage for the building, installation charges and deposits for utilities, lease deposits, office furniture, equipment, special attorney or accountant fees to set-up the business and similar initial outputs. Total start-up costs should be shown on your Cash Flow Forecast for Year One and listed in Month 0.

If you have an existing company that is launching a new line of business, you might consider creating a Start-Up Budget and separate Cash Flow Forecast for this new segment of your business, especially if you need to raise funds to launch.

A cash flow statement shows the amount of money going in and out of the company for a given period. This statement is used to project cash needs in order to have enough in the bank to pay bills. The cash flow does not show profit for the period. It is possible to be making a profit and be short on cash, or to be losing money but still have enough cash to pay the bills (at least in the short term). It is important not to confuse cash with profit.

In order to complete your cash flow statement, regular or fixed expenses need to be calculated. Fixed Expenses are payments a company will continue to make even if the entire company were to take a holiday and no sales were made. For example, rent needs to be paid every month, with or without sales to help out. Other fixed expenses include insurance, base price for utilities, some salaries, etc. Variable expenses are those that are tied to the actual sales volume. Usually these are the COGS and related expenses, such as additional utilities, gasoline for delivery or additional salary/commissions needed for the volume of product/services sold.

When forecasting your employee and personnel costs, determine whether each person is an employee (hourly or salaried), consultant or part-time worker. For full-time salaried employees, you should factor in “Benefits” expense, which can be estimated at 18-30% of salary.

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Module 8: Financial Plan

Example: Snack Shack Cash Flow Statement

Snack Shack Cash Flow: December 2010-June 2011

Beginning Dec Jan Feb Mar Apr May Jun

Balance $ (400) $ 260 $ 400 $ 251 $ 127 $ 74 $ (10) $ 428 Sales 700 700 1,400 1,200 1,500 2,000 0 Other (loan) 1,000 Total Cash In $ 1,000 $ 700 $ 700 $ 1,400 $ 1,200 $ 1,500 $ 2,000 $ 0 Rent 5 10 15 20 15 20 13 0 Merchandise 250 180 300 800 700 800 950 Supplies 20 10 15 25 19 30 50 Salary 0 300 450 600 450 600 450 0 Advertising 25 0 10 20 10 25 40 Insurance 15 15 15 15 15 15 15 Taxes 25 50 Loan pay 44 44 44 44 44 44 44 Total Cash Out $ 340 $ 559 $ 849 $ 1,524 $ 1,252 $ 1,584 $ 1,562 $ 44

Balance $260 $ 400 $251 $127 $ 74 $ (10) $ 428 $ 384

Notes on cash flow:

1. Loan of $1,000 borrowed from uncle with 3% simple interest for 2 years, 12 payments

per year. 2. Salary to self of $8.12 per hour plus 23% for benefits= $10 per hour. 3. Advertising includes sidewalk chalk, poster boards, paints, and flier copies. 4. Start-up costs = $400 as shown as beginning negative balance. 5. Rent is $1 per day for microwave.

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Module 8: Financial Plan

Activity 8-2: Start-up Cost and Cash Flow

Ask your teacher or mentor to share with you the Financial Plan Template in Excel, which will guide you through completing your start-up cost calculation and cash flow statement. This template should be completed in class with your mentor. Be sure to clearly state and explain all assumptions.

Option 1: Make a spreadsheet or other list with all the start-up costs you can think of for your ECHO business. Take a second sheet and calculate all the fixed and variable costs your business will have for the average month. Work with these figures with your teacher/mentor to construct a cash flow statement. Your largest negative month will show you how much money you may need to borrow to cover expenses the first year of operations.

Option 2: Take the Snack Shack example and try to research start-up costs under the $400 stated in the cash flow. Look up websites like Craig’s List to find used small refrigerators with freezers, chairs and tables for the Shack. Discuss with your teacher/mentor if you think this $400 is reasonable or not, and why.

Discussion: The Snack Shack Income Statement

To show profit or loss, we construct an income statement, a financial statement for a period of time showing the profit or loss from the business activities. The income statement can also be referred to as the P&L (for profit and loss). A projected income statement that shows profit and loss in the future is called a pro forma income statement. Pro forma income statements should be constructed using estimates based on the information you gather from your research.

The income statement has three main sections:

1. Gross Profit. This section shows the gross profit, or profit after COGS are deducted

from revenue. Revenue generally means sales, but includes all forms of income (bank interest, for example). Note that only COGS are deducted from the revenue. All other expenses are considered in the next section.

2. Expenses are shown in relative detail. If a start-up sheet has been provided, only the

term “start-up” needs to be listed here.

3. Net Profit or Loss. Net refers to profit after expenses are deducted. In larger firms,

there may be several lines of net profit, such as “net profit before taxes” and then “net profit after taxes.” The Snack Shack kept it simple and listed the taxes in the main expenses.

A preliminary calculation shows that the Shack cannot survive on less than a 90% mark-up on cost, and that non-food items (such a snack baskets and flowers) need to be sold during special events/holidays like graduation and Christmas. Using these assumptions, your pro forma income statement will show that the Shack can indeed pay at least minimum wage to you and still make a profit above and beyond this wage, though the profit is not realized until the second year.

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Module 8: Financial Plan

Snack Shack Income Statement December 1, 2010-June 30, 2011 Revenue: Sales $7,500 COGS $3,944 Gross Profit $3,556

Expenses: Rent $98 Supplies $169 Salary $2,850 Advertising $130 Insurance $105 Taxes $75 Loan payment $309 Start-up costs $400 Total Expenses $4,136

Net Profit/(Loss) ($580)

Discussion: The Financial Plan

The purpose of the financial plan is to give details on how you will make a profit, when this profit will be realized and what plans are to continue this profit-making business. Some of the possible details and documents in this section include:

A financial summary, which points out the main financial highlights of your business such as the point in time where profit starts, how much profit will be made in a period of time, desired amount of funds for loan or capital investment, terms of the loan or equity investment, and return on investment (ROI). ROI shows how much money investors make relative to the amount they invest, and is stated as a ratio or percentage. ✓

Charts and graphs to highlight main points. This makes the financial data easier to grasp because the visual descriptions are effective in showing growth, downturns, spikes, and cycles. ✓

A Capital Requirement Assessment (located in the Financial Plan Excel template) if you need to make significant capital expenditures (i.e., major equipment purchases). Be sure to include those costs here and list them separately from your other start-up costs. The Capital Requirement Assessment is important to investors, so they can see your “sources” and “uses” of funds. ✓

An Income Statement.

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Module 8: Financial Plan

A Cash Flow Statement. ✓

A Balance Sheet, which shows the owner’s equity or net worth at a given point in time (see online examples). ✓

A Break Even Analysis, which shows the level of projected sales at which total revenue received equals total costs (fixed and variable). At this point, any additional sales will start to generate profits.

Work with your teacher and mentors to determine how to best summarize your business and highlight the financial documents.

Activity 8-3: Breakeven Analysis

Ask your teacher or mentor to share with you the Breakeven Calculator template in Excel, which will help you with this activity. This template should be completed in class with your mentor. Be sure to clearly state and explain all assumptions.

Work with your mentor on the breakeven analysis, which will help you to determine how many units the business must sell in order to cover the fixed costs. This will help you determine when true profit making begins for one or more activities.

1. First, calculate contribution margin per unit of sales.

a. Contribution margin per unit = Unit sale price - Variable costs per unit

2. Unit sale price is the price set for your product or service on a per-unit basis.

3. Variable costs per unit include all costs that change with respect to the number of units

produced (and sold)

a. Raw materials cost b. Packaging cost c. Shipping and freight d. Sales commission e. Sales tax

4. Break even point (in units) = Fixed Expenses / Contribution margin per unit

a. Fixed costs include all costs that are independent of sales level. They include the

following:

i. Rent ii. Utilities iii. Office expenses iv. Operation supplies

v. Labor costs vi. Depreciation vii. Interest payments viii. Equipment maintenance

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Module 8: Financial Plan

Example: Breakeven Analysis

Vero’s Lemonade sells each cup of lemonade for $1.00. The lemon, sugar, water, and ice that goes into a cup of lemonade costs $0.30. Plastic cups cost $0.02 each. Vero rents a juicer and icemaker for $20 per month.

Unit sale price $1.00 minus Variable costs per unit $0.32 equals Contribution margin $0.68

Fixed expenses $20 divided by Contribution margin $0.68 equals Breakeven units 29.4

If she sold only lemonade, Vero would have to sell 30 cups per month in order for her business to break even.

Examples: Online Financial Sections

Some online financial examples:

Locksmith financials: http://www.bplans.com/locksmith_business_plan/financial_plan_fc.cfm

Pet photography business: http://www.bplans.com/pet_photography_business_plan/financial_plan_fc.cfm

Steak restaurant business: http://www.bplans.com/steak_buffet_restaurant_business_plan/financial_plan_fc.cfm

Specialty Gift business: http://www.bplans.com/specialty_gifts_business_plan/financial_plan_fc.cfm

See the following financial templates:

Template: Financial Plan Template

Template: Capital Requirement Assessment

These templates should be completed in class with your mentor. Be sure to clearly state and explain all assumptions.

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Quiz : Financial Plan

Eight Questions Total: Question 1 Choose one answer. A financial summary:

□ a. Presents a summary of key financial data.

□ b. Projects in detail revenues and net income into the future based on the operations

and marketing strategy outlined in the plan.

□ c. Briefly describes the current financial status of the business.

□ d. Models exactly how revenues and expenses will happen once the business starts.

□ e. Describes the desired amount and terms of the loan or equity investment, and

potential return on investment.

Answer:

Question 2 Choose one answer. COGS can best be described as:

□ a. The cost of the products that were purchased for the month.

□ b. The cost of the supplies that are part of the goods sold.

□ c. The profit made from the goods sold.

□ d. The cost of the products that were sold for the stated sales period.

Answer:

Question 3 Choose one answer. What is an example of fixed costs?

□ a. Costs that are related to the number of products/services sold.

□ b. Costs that occur even if the business closes its doors for a month.

□ c. All costs listed on the income statement.

□ d. All costs needed to start up a new business.

Answer:

Question 4 It is beneficial to use charts and graphs in the financial plan section.

□ True □ False

Answer:

Module 8: Financial Plan

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Question 5 Choose one answer. An income statement shows:

□ a. The owner’s equity at a given time.

□ b. The cash in and out of a business for a period of time.

□ c. The profit made for a stated period of time.

□ d. The point where sales covers fixed costs.

Answer:

Question 6 Choose one answer. A balance sheet shows:

□ a. The owner’s equity at a given time.

□ b. The cash in and out of a business for a period of time.

□ c. The profit made for a stated period of time.

□ d. The point where sales covers fixed costs.

Answer:

Question 7 Choose one answer. Start-up costs are those that:

□ a. Occur at the beginning of each month.

□ b. Are due even when the business closes for one month.

□ c. Are related to the cost of the products actually sold.

□ d. Occur only once at the beginning of a start-up business.

Answer:

Question 8 Choose one answer. Return on investment is best described as:

□ a. The amount of interest an owner pays on the start-up loan.

□ b. The amount of total profit a business owner makes.

□ c. The amount of profit made, shown in a ratio relative to amount invested.

□ d. Total sales minus total expenses.

Answer:

Module 8: Financial Plan

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Module 9: Executive Summary

Module 9: Executive Summary

KEY LEARNING CONCEPTS

How to write an effective executive summary ✓

Understanding Perspective of the Reader

VOCABULARY

Executive Summary

Discussion: The Snack Shack’s Executive Summary

You have now written almost every major section of the Business Plan except for one— the Executive Summary. There is good reason many feel this is the most important section: It could be the ONLY section anyone will read. If readers do not fall in love with the Snack Shack idea in the first few paragraphs, they won’t have any reason to even look at all your hard work that follows. People just don’t read entire business plans unless they are really interested. The Executive Summary is your opportunity to get people excited and to explain how the idea will generate money. It is a very condensed version of the entire business plan, which is why it’s so important!

The executive summary must be completed after all the other sections are completed, so you can see how ideas are shaped and changed as you conduct research, develop marketing and calculate expenses. Even though the summary writing is finished last, it is a good idea for to start a rough draft of an executive summary at the beginning of the business plan process. This is especially true if you have more than one person working on the business plan. Creating a draft, as your starting point will keep you all on the same path, and as ideas change based on your work, the summary will evolve.

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Module 9: Executive Summary

Regardless of when it is written, the executive summary will be the first section of the business plan. As the first (and often only) section that investors read prior to making a decision of whether or not to invest in your company or learn more about it, it must be very accurate and engaging. What most investors/readers will do is:

1. Glance at the summary to determine if they are even interested in reading this

section thoroughly. If the idea does not appeal to them, or if there are inconsistencies in grammar, spelling, formatting, or the idea does not flow, they are then DONE.

2. If they become intrigued enough to really look at the summary’s details, they will

then flip through the business plan sections to see if you have successfully proved your summary statements. They will look for:

a. How you conducted your research, calculations and planning.

b. How your operations will back up the execution of your ideas.

c. How thoroughly you anticipated problems and proactively planned to avoid them.

d. How sustainable your idea is, or how well you have devised an exit plan.

e. How accurate and realistic your finances and marketing seem.

f. How likely you are to pay back the loan or investment, and how much profit they

can personally realize.

3. They may then comb through the business plan more carefully and possibly follow

up on their own research of your industry or some of the listed research.

4. The final decision is usually based on a face-to-face meeting or your presentation.

If they liked the business plan but do not trust in you, usually no deal is made. An investor may choose to have this meeting/presentation after only reading the executive summary, with follow up on details of the plan once they decide they like you.

The language in an executive summary is usually written in the third person (the business being a “person”). For example, you would write “The Shack will start business on December 1st.” While the argument can be made that summaries written in the first person can effectively show heart and passion, there is a danger that this may sound less professional. “I will start business on December 1st,” may not sound business-like. Talk over these options with your teacher and mentors. Look at several samples on the Internet for guidance.

Example: Snack Shack Executive Summary

The Shack Idea More than 6,000 students attend Main City College (MCC) in Bee County, California. Each one of these late teen to early twenty-year-olds burn an average of 2,300 calories per day, 300 more than those older or younger. Several times per week, about 500 of these hungry young adults walk by Myron and Dixon Streets on they’re way to MCC. According to an article in “City College World” from January 2009, 85% of these students skip breakfast, and eat from vending machines or convenience locations. The extra time it takes to veer away from their path to class

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early in the morning often leads students to skip the morning meal altogether. The Snack Shack was created especially for college students, in a hurry and on the run. The Shack is tailored to meet these students’ needs with location, product selection and price. Open five days a week for only three hours in the morning, the Shack is conveniently located at Myon & Dixon. Operations are simple, effective and the Shack will show a net profit just after the first year of operations.

Marketing & Operations The Shack will open December of 2010 with hot drinks and snacks to warm the soul. The first two weeks of operation will serve students during the last regular week of the fall semester and during final exam week. Opening day snack products will include a few gift packages with instant hot chocolate, tea and cider in mugs, for those looking for inexpensive holiday gifts. Marketing is kept simple and low-cost, and will include a party-flier sized “tip” note on how to study for and take exams. The week before opening, marketing will include sidewalk chalk messages and signs on nearby trees introducing the grand opening of the Snack Shack. The Shack will be operated by the owner, Devon Allen and operate during the get-to-class “rush hour” of 7:45 a.m. to 10:15 a.m., Monday through Friday. Jeff Smith, an IT major attending MCC, will keep students engaged by posting pictures of the week at www.snackshack.com, and updating the Shack’s Facebook fan pages and Twitter messages. As the months and events change, so will the “tip” notes and the sidewalk chalk messages, engaging students with quotes of humor and tidbits of wisdom. From the uniform of black tee shirt and baseball cap, the hut-type shack look, to the music selection and energy drinks, the Shack’s appeal is customized for MCC students.

Finances The first year will net $7,500 in sales, with sales dollars nearly doubling the second year of operation. The start-up loan will be paid in full within the first two years. Unlike most businesses, the Shack has very few fixed costs, as the equipment rental is not incurred during breaks, allowing a complete suspension of operations during school vacations. A quick look at the finances shows how operations of the Shack are directly related to the college schedule, with a two-month summer break along with winter and springs breaks. Graduation day will be the biggest sale day of the year with flowers added to the product mix for the event.

Future The Shack’s goals for the next 3 years are to:

Module 9: Executive Summary

Increase loyalty, visibility and sales to net a profit of $3,000 by end of Year 3.

Pay off all loans/debt by Year 2.

Keep the “underground” feel/attraction and expand to new novelty items promoting the Shack, both at the original location and through online sales.

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Snack Shack

Key Operating Statistics

Page 97 Year 1 Year 2 Year 3

Employees 2 2 3

Revenue $7,500 $14,400 $17,800

Expenses $8,083 $12,900 $14,700

Net Income -$580 $1,500 $3,100

Activity 9-1: Class Discussion

Discuss the above executive summary in class. Does the Shack keep the reader’s attention? Do you think there is information the Shack left out and should put in? Would you believe the Shack’s sales projections if YOU were loaning the $1,000? Did the marketing seem realistic and effective?

Have the class list the strong and weak points and discuss possible ways to improve the summary or argue why this is a good summary.

Activity 9-2: Online Research

Part 1:

Go back to any online business plan samples listed in prior modules, and reread some executive summaries. Skim though summaries to pick a business plan you want to use as a sample. Now that you have a better understanding of the purpose of the summary, do you look at any of the samples differently? What makes some of these engaging, and others boring? Which one seems like it will make the most money? See if you can pinpoint the type of language you would want your ECHO summary to follow.

Part 2:

After reading through and completing part 1 above, begin the first draft of your ECHO executive summary. Pretend this is the ONLY part the judges will read, and that they will only use the rest of the plan for backup on your summary statements. Start with a list:

1. List the industry and a brief description of the business and the proposition value.

2. Describe the market and list the main reasons the business will succeed in this market.

3. List the main financial highlights or goals important for the reader to know.

4. List the main operational highlights or key points.

5. Draw a graph or grid that you think will “grab” the interest of the reader in your summary

and prove your business will succeed.

Quiz : Executive Summary

Five Questions Total: Question 1 Choose one answer. Most executive summaries are written:

□ a. In the first person.

□ b. In the second person.

□ c. In the third person.

□ d. Flipping back and forth between first and third person.

Answer:

Question 2 It is important that the executive summary never be started before the entire business plan is complete.

□ True □ False

Answer:

Module 9: Executive Summary

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Question 3 Choose one answer. Which of the following is not true of an executive summary?

□ a. It is often the only section that investors read.

□ b. It needs to be engaging.

□ c. It is often finished first.

□ d. It highlights the most important points of the business plan.

□ e. It is often written last.

□ f. It is the first section that investors read.

Answer:

Question 4 Choose the best answer. If an investor likes the executive summary they read, they often will do what with the rest of the business plan?

□ a. Discard it.

□ b. Keep but not read it.

□ c. Read all of it carefully.

□ d. Use the rest of the plan to confirm points in the summary.

Answer:

Question 5 Choose at least one answer. Before completing the executive summary, you should:

□ a. Use the name of the person reading it in the body of the summary.

□ b. Understand your audience well.

□ c. Have the sales projections and financials complete.

□ d. Have other people review and proofread the summary.

Answer:

Module 9: Executive Summary

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Module 10: The Presentation

Module 10: The Presentation

KEY LEARNING CONCEPTS

How to create an effective presentation ✓

Modeling the presentation to your audience

VOCAULARY

Articulation ✓

Venture Capitalist

Discussion & Activity: Power Point Presentations

From the 10/20/30 Rule of PowerPoint by Guy Kawasaki at http://blog.guykawasaki.com/2005/12/the_102030_rule.html#axzz11MCo2in4

❖ Ten Slides. The article referenced above suggests a business plan presentation

have only ten slides, with the idea that there are only ten topics to cover. A Venture Capitalist is a person who is looking to invest money in a new or existing business venture, and they are looking for the biggest/safest return on their investment. While you may or may not choose to follow this suggestion, the ten topics Guy Kawasaki feels a venture capitalist care most about are:

1. Problem 2. Your solution 3. Business model 4. Underlying magic/technology 5. Marketing and sales 6. Competition 7. Team 8. Projections and milestones 9. Status and timeline 10. Summary and call to action

❖ Twenty Minutes. Kawasaki also suggests that twenty minutes be the longest you

take to present a business plan.

❖ Thirty-point Font. This is the smallest size font Kawasaki suggests for a PowerPoint.

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Module 10: The Presentation

Presentation Zen by Garr Reynolds has great tips and can be viewed at http://www.garrreynolds.com/Presentation/pdf/presentation_tips.pdf

While it is best to read this link online, some of the tips Reynolds suggests are:

✓ Presentations need both verbal & visual aids for understanding. It also

suggests the use of graphics rather than text in slides. ✓ Too much slide information is brain overload and people will not be able to

remember what you said. If you are delivering a message that is not supported or enhanced by the slide, the viewer’s brain may just “dump” all the information. ✓ If your visuals cannot be understood in 3 seconds, redesign them to support

what you say.

Another good resource is the book “Beyond Bullet Points” by Cliff Atkinson. Discuss with your teacher other possible resources they may be aware of.

Discussion: The Snack Shack’s Presentation

This is the last step of your planning journey: to convince someone else that the Shack will be everything you say it will be. Without the $1,000 loan, it may always just be a dream you once had. You have seen some really great, and some really boring PowerPoint presentations. The Shack’s presentation cannot be boring. After reading the Kawasaki’s10/20/30 rule, and discussing with friends who have won awards at their school’s business plan competitions, you make a decision. You will follow this 10/20/30 rule as much as possible, as long as it helps you make the best presentation possible. The students who have won other awards suggest that 15-20 slides worked for them, but they have lots of experience in presentations as well as a more complicated business. They did not present more than the 10 suggested topics. You decide that “less is more” when trying to convey an idea, so you will keep your slides between 10 and 15, and use no less than a 28-point font, as suggested. Some other tips you are advised of are:

• A slide presentation is only to highlight what are saying, not say to everything.

• Avoid sound effects and other distracting animation in your slides.

• Use easy-to-read fonts. Be careful with hard to read fonts such as Old English.

• Use background color contrasting from the font color, to make it easy to read.

• Check spelling and grammar! It’s up there in big, bold letters.

• Keep a theme to your presentation – the same background color/theme or some other common thread throughout.

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Module 10: The Presentation

• Use simple but interesting slide transitions.

• Use pictures, charts, graphs throughout to highlight what you are saying, but not too many pictures per slide. Better to use one to three graphics per slide and make them big, meaningful and easy to see. Do not use clip art from word software. This will give an amateur effect to the presentation.

• Your vocal volume, articulation (clearly saying each part of the word by moving your mouth enough), and use of pauses, and enthusiasm are every bit as important as what you have to say.

• Dress like a professional. Please review with your mentor/teacher what this means. For men, suits with collared shirts and ties, polished shoes. For girls, suits and closed toed shoes. Women should remember to keep very conservative length on skirts (close to knees) and wear heels that are not too high, shirts that are not too short. Each member should dress as similarly to each other as possible. If a company mascot or uniform on one or more team members would add understanding/interest, wear them.

• Practice may not always make perfect, but it sure helps to get closer to it. Use mentors to give feedback on performance and ask practice questions to prepare.

Example: Snack Shack’s Preliminary Power Point Outline

If you have a judge’s rubric, follow that rubric to be sure you make as many of the required points as possible. When you ask someone for a loan or for someone to invest in your idea, they usually will not hand you a rubric. Keep your audience in mind and highlight what you believe they are looking for. You may need to change your presentation if you are presenting to two different audiences or for two different purposes.

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Module 10: The Presentation

Here is the Shack’s outline using the suggested topics from 10/20/30 Rule article:

Topics What you will show on

slides

Page 103

Notes on what you will discuss

1. Problem a. Picture of College or logo of

college.

b. Map with location of Shack

& MC College.

c. Tired looking college

student.

• MC College students have no time to cook or stop to eat breakfast.

• No other food outlet is on their way after parking on street for class.

• Will site research on MC College students’ eating habits and research on how this affects students’ ability to perform at school.

2. Solution a. Map with location of Shack

and MC College, with a star on the map highlighting where the Shack is located.

b. Picture of the Shack,

snacks offered.

c. Picture of student smiling

and energetic.

• Discuss location, basic products & price.

• Discuss how this will help students in multiple ways: location, speed, price, inspiration and nutrition for better brain power and physical energy.

3. Business Model a. Picture of a typical

lemonade stand, typical convenience store and college students at party with + sign between them all, then = sign and Shack’s Logo.

Next three topics are connected:

• Discuss the convenience store model (quick ‘n’ easy food), the child’s lemonade stand (with low costs) and the college “underground” feel (attraction) and how the Shack will have benefits from all these: retail with low overhead costs and added value.

Module 10: The Presentation

Topics What you will show on

slides

Page 104

Notes on what you will discuss

4. Magic a. Picture of students using

smart phone.

b. Picture of money with red circle and bar across it.

c. Smiling student walking and

eating.

• Lead into target group’s habits (time management is problem, like to sleep late and often in hurry, most don’t worry about immediate health, always on social network sites or using phone/internet, like to be different from other adult groups).

• Discuss how Shack will address all of the above.

• Emphasize that the Shack is student-run and operated.

5. Marketing a. Logos of Facebook, Twitter,

and Snack Shack.

b. Example of tip or quote.

• Discuss all marketing strategies and tactics: sidewalk and note messages, giveaways, special gift products for events, music and atmosphere, etc.

6. Competition a. Condensed competitor grid

with basics, similar to Vero’s Lemonade grid.

• Discuss all major competitors in area and highlight Shack’s edge/advantages

Module 10: The Presentation

Topics What you will show on

slides

Page 105

Notes on what you will discuss

7. Team a. Organizational chart with

picture of both team members.

b. Devon with black Tee &

Cap holding product & Jeff in front of computer. Names, titles and background information also listed.

c. Picture of business mentor

with title.

• Discuss background of team members, responsibilities and areas of expertise.

8. Projections &

Milestones

a. Show sales forecast.

b. Pro forma income statement

for 3 years.

c. May show other financial

documents.

• Discuss how realistic sales projections were acquired with research.

• Discuss profit projections, loan repayment and other financial highlights.

9. Status and

Timeline

a. Flow Chart starting with

current status, then growth in the next three years.

• Discuss goal and milestone highlights.

10. Call to Action a. Check marks highlighting

words in large font, with major qualities of Shack.

• Discuss best qualities and why Shack will succeed.

• Ask for loan and highlight how fast repayment is.

• Emphasize that the Shack’s return on investment is better than the interest a bank can pay!

Activity 10-1: Class Discussion

Divide the class into 10 teams, with each one reviewing one of the Shack’s presentation topics.

Apply the ECHO presentation rubric in the Appendix to the Shack’s presentation and decide if you think this outline has a chance at getting full points or being a contender to win. Come up with revisions you would make and the reasons you would make them, or why you would keep the outline the same, and an idea of what you might say or what picture or graphic you would use.

Activity 10-2: A Two-Sentence Presentation

Have each person in the class write two sentences to convince someone that the Shack (or your ECHO business) is the BEST business opportunity ever. Have each person take turns reading/saying these two sentences. Look for:

1. How easy it was to understand each word the student said.

2. How enthusiastic the student was.

3. How much the two sentences made you want to invest in this company.

Give anonymous and constructive feedback to pass to the student for improvement.

Quiz : Presentations

Five Questions Total: Question 1 Choose one answer. According to the 10/20/30 rule, what is the optimal number of slides for a presentation?

□ a. 10

□ b. 10 - 19

□ c. 20

□ d. 20 – 29

□ e. 30

Answer:

Module 10: The Presentation

Page 106

Question 2 Choose one answer. One good guideline for PowerPoint presentations is:

□ a. Use as many pictures as possible.

□ b. Write all the words you are going to say so the audience can follow along.

□ c. Use pictures instead of test where possible.

Answer:

Question 3 Choose one answer. What is the main purpose of using PowerPoint for your presentation?

□ a. To impress the audience with your technology skills.

□ b. To tell the audience what you have to say.

□ c. To be able to show all pages of the business plan as you speak.

□ d. To emphasize and highlight what you have to say.

Answer:

Question 4 Choose one answer. To articulate your words better means to:

□ a. Use your mouth movements to enunciate the word clearly.

□ b. Use pauses for effective emphasis.

□ c. Show enthusiasm for what you are saying.

Answer:

Question 5 Choose one answer. For the final presentation, it is best to:

□ a. Wear comfortable, everyday clothing.

□ b. Have mentors ask practice questions.

□ c. Use clip art.

□ d. Insert sounds to slide animation.

□ e. Insert as many slides as possible.

Answer:

Module 10: The Presentation

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Module 10: The Presentation

Appendix: Module 10

Project ECHO / UCLA Anderson

Annual Business Plan Competition

Business Plan Presentation – Judge’s Evaluation Form

Poor Fair Excellent Quality of Opportunity

Compelling concept or plan for growth 1 2 3 4 5 6 7 8 9 10

Clearly communicated opportunity 1 2 3 4 5 6 7 8 9 10

Market attractiveness: well-defines market need/demand for product or service

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1 2 3 4 5 6 7 8 9 10

Detailed analysis of industry, market and competitors 1 2 3 4 5 6 7 8 9 10

Uniqueness of product/service 1 2 3 4 5 6 7 8 9 10

Quality of Opportunity

Team is well rounded in all functional areas 1 2 3 4 5 6 7 8 9 10

Well defined and realistic pricing 1 2 3 4 5 6 7 8 9 10

Well defined and realistic operational plan 1 2 3 4 5 6 7 8 9 10

Well defined and realistic sales & marketing plan 1 2 3 4 5 6 7 8 9 10

Well defined and realistic goals, timelines and milestones 1 2 3 4 5 6 7 8 9 10

Financial Plan

Module 10: The Presentation

Understanding of financial requirements 1 2 3 4 5 6 7 8 9 10

Well defined and realistic financial plan 1 2 3 4 5 6 7 8 9 10

Overall Impression and Believability

Does the team demonstrate the entrepreneurial spirit necessary to make this plan succeed?

Page 109

1 2 3 4 5 6 7 8 9 10

Can this plan be executed? 1 2 3 4 5 6 7 8 9 10

Is the business plan persuasive? 1 2 3 4 5 6 7 8 9 10

Is there potential for growth? 1 2 3 4 5 6 7 8 9 10

Does the plan support the mission of the business? 1 2 3 4 5 6 7 8 9 10

Quality of Presentation

Engaging presentation style, well-rehearsed, organized and well-timed

1 2 3 4 5 6 7 8 9 10

Presentation matches the plan and adds credibility to the venture

1 2 3 4 5 6 7 8 9 10

Ability to handle questions from judging panel 1 2 3 4 5 6 7 8 9 10

Total Points: (Maximum points possible = 200)

Final Test

How much do you think you have learned? Remember the very first quiz you took? You’ll now take it again and see how many questions you answer correctly compared to the first time you took it. ALL Project ECHO Students must take this MANDATORY POST TEST to complete the course!

FINAL-TEST

Question 1 Choose one answer. The action plan:

□ a. Is a graph showing cash flow and gross margins.

□ b. Explains how you will make a profit.

□ c. Explains how you will raise money to start the business.

□ d. Summarizes how you will create and deliver your product or service.

Answer:

Question 2 Choose one answer. In starting a business, a barrier to entry is:

□ a. Something that prevents a company from entering the market.

□ b. An age-limit restriction on someone operating a business.

□ c. A brief, temporary roadblock on the street.

□ d. A locked door that prevents customers from moving freely.

Answer:

Question 3 Choose one answer. When people speak about the bottom line, they are speaking about:

□ a. Gross Profit

□ b. Gross Margin

□ c. Net Profit

□ d. Owner’s Equity

Answer:

Final Test

Page 110

Question 4 Choose one answer. A business plan is important because:

□ a. It allows potential investors to understand the business and invest.

□ b. It is important to understand all elements that go into starting and operating a

business.

□ c. It creates a blueprint for how the business will operate.

□ d. All of the above.

Answer:

Question 5 One way a product/business can have a competitive advantage is to have the best distribution method.

□ True □ False

Answer:

Question 6 Choose one answer. The Executive Summary:

□ a. Documents how much the executives will get paid.

□ b. Provides a big picture view of the business plan.

□ c. Is a section of a business plan only available to executives.

□ d. Summarizes the roles of the executive’s duties.

Answer:

Question 7 Choose one answer. Which of these would take the most planning to get money to start a business?

□ a. Invest your own money.

□ b. Borrow money from friends and family

□ c. Borrow money from a bank.

□ d. All of the above.

Answer:

Final Test

Page 111

Question 8 Choose one answer. Which of the following is NOT an example of marketing a product?

□ a. Giving away coupons for the product.

□ b. Borrowing money from a bank to pay for the product.

□ c. Advertising the product on TV.

□ d. Buying print ads in a newspaper.

Answer:

Question 9 Choose one answer. The Marketing Plan:

□ a. Outlines the personnel organization for the business.

□ b. Explains what each commercial for a product will look like.

□ c. Explains how a product will be manufactured and produced.

□ d. Relates a business’s marketing strategy.

Answer:

Question 10 Choose one answer. A Value Proposition is:

□ a. The benefit that a vendor promises a product will provide to a customer.

□ b. The benefit that an employee gives to the business.

□ c. A payment or exchange of something of value for an item.

□ d. A law passed by the government ensuring that businesses give value to

customers.

Answer:

Question 11 Writing a business plan means that the business will be successful.

□ True □ False

Answer:

Question 12 It is not important to analyze other competitors.

□ True □ False

Answer:

Final Test

Page 112

Question 13 It is important to talk to potential customers before writing the business plan.

□ True □ False

Answer:

Question 14 Owner’s equity is the amount of money that a business earns.

□ True □ False

Answer:

Question 15 The Executive Summary is the most important part of the Business Plan.

□ True □ False

Answer:

Question 16 It is best to charge the highest price for a product so that more money is made.

□ True □ False

Answer:

Question 17 The most important part of a business plan is the appendix.

□ True □ False

Answer:

Question 18 A business plan should never be more than 10 pages.

□ True □ False

Answer:

Final Test

Page 113

Question 19 One should always research the marketplace that the business is a part of.

□ True □ False

Answer:

Question 20 There are many ways to finance a business.

□ True □ False

Answer:

Question 21 Please choose how you feel about the following statement (there is no correct or incorrect answer for this question). Choose one answer.

I feel comfortable starting my own business:

□ Agree

□ Disagree

□ Neutral

□ Strongly Disagree

□ Strongly Agree

Question 22 Please choose how you feel about the following statement (there is no correct or incorrect answer for this question). Choose one answer.

I feel comfortable writing a business plan:

□ Agree

□ Disagree

□ Neutral

□ Strongly Disagree

□ Strongly Agree

Final Test

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