The Value of Having a Business Plan

Entrepreneurship and Small Business A business plan serves as the blueprint for the business. It explains what the business is, why it works, and how it will compete in the marketplace. As such, it provides some structure for the entrepreneur during the formative stage of the business where the ideas are first being generated and decided upon. The business plan can provide clarity during this stage, and help the entrepreneur to understand all of the different aspects of the business (Millyard, 2016).

The business plan also plays a couple of other critical roles in the business. The first of these roles is that the business plan is an essential element of obtaining financing. Kazoo was able to acquire a $500,000 loan from the bank, and this was only possible because there was a solid business plan in place. The business plan shows potential investors/creditors that the company understands its target market, and has thought about the critical elements to success.

For this to work, the plan has to be of high quality, with the details all well-researched. Especially if the business plan is going to be used to raise equity capital, it must demonstrate a pathway to liquidity for these investors, so that they know the company is going to enjoy high returns and then allow for the investors to cash out within a few years (Entrepeneur.com, 2014) This research also provides a certain amount of clarity for the entrepreneur as well.

Many people are excited by their great idea, but to bring that idea to life they need to research the market carefully, and be as sure as possible that their idea is going to work. The research that is done into the business plan lends clarity to things like target markets and supply chains. The entrepreneur gets to know what suppliers are out there, and probably contacts them at this stage.

For something like Kazoo, market research would have helped Nelson to understand the needs of the target market, and how she could differentiate the store from other retailers, for example the emphasis on non-violent toys would have strong appeal to a specific subset of the market. Another purpose of the business plan is to build the team around the company -- the employees and the suppliers.

They do not need to see the plan specifically, but once the entrepreneur has created the plan, then the entrepreneur can more effectively communicate this plan to other stakeholders, and convince them of the merits of the company. Business plans help the entrepreneur learn what ideas to focus on, and how to pitch the company to the different companies that they will be working with. There are several elements to the plan, which is basically an outline of the entire business.

The marketing side is important, because this is where the company outlines what the target market is, and how that market will be reached. Understanding who might be interested in the product or service, and why, is one of the most important parts of the business plan, because ultimately more than just the entrepreneur needs to think that the idea is a good one. Providing a counterbalance to one's emotions is an important aspect of the business plan (Ronick, 2011). The operations side is important as well.

This is where the company figures out how to make everything work. For Kazoo this would be discussing its plan for the layout of the store, and identifying the supply chain dynamics that go into this business. Other elements of operations, such as support are outlined here as well. The financials are one of the most important parts, but one of the most difficult to get right. It is important that the financials are well-researched.

If they are a work of fiction, then they might not have a lot of value to the entrepreneur. The numbers will not only inform about the viability of the business, but will help the entrepreneur to determine what needs to be done in order to make the business work -- how can the desired return be achieved.

For Kazoo, the numbers would have shown that to be profitable, it needs to focus on creating a differentiated experience, because it can't work with the margins that companies like Toys R Us have. Again, though, these numbers have to be based on research to have any value. Question 2. It seems that Nelson had a fairly good understanding of the dynamics of the toy market when she bought Kazoo. She certainly understood that she could not compete on price, head-to-head, with the big box stores.

But she was able to determine quite rightly what this meant for her business. As an example, she knew that it meant that she would have to alter the product mix, not dealing with suppliers who would want her to drive down her margins. She also realized that she would need to have a different shopping experience -- a store that offered the same thing only smaller would not draw customers. So in that sense, her vision was a reflection of a fairly strong understanding of the business.

Her understanding of how to deal with the vendors was a key element in the company's success. She knew that many vendors may have sold their toys to the big box retailers, but that they likely did not have a great relationship with those companies. Those companies deliver high volumes, but can be exceptionally demanding.

The vendors probably enjoyed the experience of dealing with Kazoo, because of her interest in the toys and because it taps into more of what people who make toys like about the business -- being able to make children happy with their products. She had this strong vision for what Kazoo would be, and she made sure that the vendors knew this vision, and bought into this vision.

When the vendors bought into the vision, that only made it easier for her to execute her strategy, because she was able to get them to give her exclusive products. This allowed the vendors to express their creativity and use her store to test out products that may be scaled up eventually. The important thing for Nelson is that she was focused on the big picture. It was the big picture that would provide the overall strategic vision for what she wanted to accomplish with Kazoo.

The details then flowed from that overall vision. Having such a vision is important because it provides overall structure and context to the business. If Nelson had focused on the individual elements of the business, there would have been some risk that the different elements would not support each other, and they would not support the overall strategy -- there might not even be an overall strategy at that point (Kokemuller, 2016). The different elements would be determined in a compartmentalized manner.

The problem is that this would not lead to a cohesive business model. The business model that Nelson developed was one that was.