CHAPTER 9
Proof of Concept: A New Approach to Business
Plans
SUMMARY AND AUTHOR’S NOTE
The business plan seems to be the Holy Grail for every business student. Many students don’t
believe that they have gotten a complete education unless they have taken a business plan course.
Although creating the business plan is a valuable skill to acquire, a professionally crafted
business plan is less important than a clear and compelling story about the business. Investors
want to see that the venture has customers and a track record, however brief. They want to see
that the business model actually works.
The new environment for business planning actually makes the case for the importance of a
This chapter explores a new way to look at the business plan process that is not only more in
CHAPTER OBJECTIVES
After reading this chapter, students will be able to:
• Describe how to move from feasible concept to a proof of concept.
Chapter 9: Building an Effective Business Plans 39
CHAPTER OUTLINE
OPENING CASE: Anatomy of a New Business Failure
I. From Feasibility to Proof of Concept—proving that a technology, product, business
model, or idea is feasible
• Figure 9.1—Proof of Concept Scale
a. The Micro Strategy Approach to Proof of Concept—implementing smaller
strategies to accomplish near-term outcomes on the path to longer-term goals
II. Stakeholder Interests—modifying executive summaries, pitches, and business plans to
address the needs of stakeholders
a. Investor Interests—addressing investor concerns
III. Creating a Compelling Story in an Executive Summary—grabbing investor interest
through the story of the venture
SOCIAL ENTREPRENEURSHIP: MAKING MEANING—The Little Schoolhouse That
Could
a. What Is the Compelling Story?—leading with a compelling reason for the business
b. What Pain Is Being Addressed?—identifying the problem being solved
c. How Is the Venture Solving the Problem?—identifying the link between the
i. Guidelines for Executive Summaries and Pitch Decks
IV. The Full Business Plan: Strategy and Structure—writing a business plan
a. Components of the Business Plan—major sections in the plan
• Table 9.1—Business Plan Outline
i. Operations Plan
40 Chapter 9: Building an Effective Business Plans
vi. Contingency Plan and Harvest Strategy
vii. Timeline to Launch
b. Appendices—supporting documentation
c. Endnotes—linked citations
d. Mistakes in Developing the Business Plan
i. Rapid Growth that Requires Capabilities Beyond Those of the Founding Team
RELEVANT CASES STUDIES
Case 4 The Crowne Inn
Case 8 Demand Media
ANSWERS TO QUESTIONS ON KEY ISSUES
1. What is the difference between a feasibility study and a business plan?
A feasibility study gives you a way to test a new concept in the marketplace. By contrast, a
2. When might it be better to start the business after completing the feasibility study and
before completing a business plan?
The feasibility study provides enough answers to critical questions to enable the
3. What are the principles behind the micro-strategy approach to proof of concept?
Today’s environment calls for startups that can move and adapt quickly as they implement
Chapter 9: Building an Effective Business Plans 41
4. How might the business plan change if the reader were an investor versus a potential
management hire?
An investor is looking at how the business will provide an excellent return on the
2. What are three key elements of a successful business plan pitch?
SUGGESTIONS FOR EXPERIENCING ENTREPRENEURSHIP
1. Interview someone who invests in small businesses about what she or he looks for in a
business plan. On the basis of your discussion, what will you need to remember when you
write your business plan?
Answers will vary depending on the interests of the “angel,” but in general, the angel will
2. Go to www.bplans.com and select a business plan to review. Using the guidelines for an
effective plan given in this chapter, evaluate the plan in three to five pages. What are its
strengths and weaknesses? How can it be improved?
Evaluations will vary based on students’ understanding of the key factors to present in a
SUPPLEMENTARY LECTURE MATERIAL
The Importance of Getting Traction Early
The Internet provides an important testing ground for new product and service ideas. For a
relatively small amount of capital, you can get your business up and running right next to your
established competitors to see whether enough customers will be interested. Patricia Tsai did
42 Chapter 9: Building an Effective Business Plans
do. Through the course of the feasibility analysis, the students determined that opening an outlet
in Southern California to focus on hot chocolate was not feasible. The costs of operation were
higher than the level of revenues that could be expected, partly because hot chocolate in warmer
climates is a seasonal beverage. The point to be made from this example is that rather than
spending a lot of time and effort developing a business plan, which details how the entrepreneur
will execute the business concept, the time was better spent determining that a retail outlet could
not make enough money to be viable. The feasibility study also pointed to other avenues that
might be explored, such as diversifying the product line and relocating to a less temperate
climate.
TEN Mistakes That Entrepreneurs Make
1. No compelling story. They don’t answer the questions Why you? Why now? How will you
2. The business plan is too long and too wordy. You must capture the listener’s attention in
3. The plan has no focus. Often the entrepreneur tries to do too much—too many markets,
4. Not enough market research. Entrepreneurs often fail to prove that the market exists and
5. No cockpit gauges. In other words, the entrepreneur has no direction and no way to
6. Fuzzy business model. Entrepreneurs are often careless about carefully defining how they
will make money and how they intend to arrive at a profit. A good business model contains
7. Weak competitive analysis. Everyone has competition, so you need to emphasize how
Chapter 9: Building an Effective Business Plans 43
8. Weak founding or management team. Investors invest in the team first and in everything
9. Poorly defined leverage points. Who is going to help you reach your goals? Who has a
10. No timeline to success. You must present milestones that will take the company to value