Business Plan Critique

Essentially, a majority of the new ventures are launched with established organizations, raising the ultimate question if they need a business plan. According to Sahlman, it is impossible to answer the question but goes on to assert that every venture must pass through the same decisive test. New ventures also require a detailed analysis to analyze the strengths and weaknesses of the proposed plan to be able to form an informed decision whether it is worth to invest in the proposed project. In light of this, the study takes the perspective of an investor and analyzes the “Hotel Vertu: Analyzing the Opportunity in the Boutique Hotel Industry.” It goes further to relate it to Sahlman’s article, “How to Write a Great Business Plan” to determine the merits and demerits of the proposed project, and be able to come up with an informed decision if it is a worthy investment.

The current focus on globalization and technology has vastly changed the potentials of new venture creation. New investments have long been considered an indicator of the economic health and prosperity of a nation. With the increased awareness of world markets and expansion, there is a broad range of new potentials allowing businesses to expand their scope as far as across borders. Further along, the rapid development of technology has also significantly enhanced the potential of the creation of new businesses. Unfortunately, a majority of the new ventures do not attract as much attention as is needed for the business to generate enough revenue and profit. Before embarking on a new venture, prospective entrepreneurs prepare a business plan, which acts as a guide to help in the long-term achievement of the organization’s objectives. Indeed and as Sahlman (2008), a new business plan is by far a major predictor of the success of a new business venture. However, as he elaborates, a majority of them are overrated; especially detailed plans that are exceeding more than one year of an organization’s financial projections. As it is, new businesses face far too many unknown factors that affect revenue and profit making it hard to be able to predict the trend of their new venture or even benefits. Ordinarily, this then raises the ultimate question; what information should be included in a business plan. Sahlman proposes that prospective entrepreneurial must be able to speak the language of an investor before setting up the new venture. Along with that, he recommends the need to include the four interdependent factors, which include the people, opportunity, context and risk and reward. 

The people Factor

Within the context of a business plan, the people factor represents the people within the organization who will be involved in starting and managing the venture, as well as people outside the firm but is connected to the business (Araoz, 2007). The outside parties provide critical services such as accounting services, suppliers, and lawyers among others. Usually, investors often overlook startups especially if they do not know the people they are dealing with. However, when a new company uses people known to the customers, employees, and suppliers, it becomes easy for the organization. By far, the right team in an organization is the organization’s strongest factor and on the other hand, having a wrong team is considered a weakness. Having the right team before launching a venture is the most important thing in the business plan.

Strengths (People Factor)

In the Hotel Vertu business plan, the strengths of the people factor include the positive characteristics of the two stakeholders, D’Arcy and Whiting involved in the business. Their education, background, and knowledge they intend to invest in the firm. The founders especially Whitting also has firsthand experience in hotel management serving as a hotel manager and in a strategic planning role, which is an added advantage to her management skills. Another strength of the business plan lies with Mr. D’Arcy, who is willing to finance the deal as well as provide introductions to friends and associates. Mr. D’Arcy has also financed many hotels in Europe and is therefore well known, which is also one of the strengths of the business plan.

Weaknesses (People factor)

In weaknesses regarding the people factor, this business plan fails to mention the other people who will form the team of employees and others who will be in management.

The Opportunity

In business, opportunity focuses on two things (Sahlman, 2008). Firstly, it seeks to understand whether the market growth for the new venture is promising or not. Secondly, it evaluates the current and future structural attractiveness of the industry. Large or rapidly growing markets are much preferred because it is easier to get established in a growing market than to compete in a stagnant or already mature market. Smart investors identify markets with high-potential of growth because that is where there are big payoffs. Markets are highly unpredictable, and thus it is important for entrepreneurs to make sure that they are pursuing an industry that is vast or has signs of growing and structurally attractive. As it is, and as Sahlman notes, opportunity determines the future of a company. Failure to identify an opportunity and build the product into the market will only lead to business failure. On the basis of business opportunity, the market is unpredictable and hard to guess how much people are willing to invest in a product. 

Strengths (Opportunity Factor)

It is evaluated that the founders of Hotel Vertu are passionate about a Boutique hotel and are also training in Business Management. Apart from that, the location of the hotel is near several popular beach communities with a projected upward growth. From the information on the business plan, the hotel is located in one of the fastest growing states with significant opportunities for the new venture. Besides, the city is also served by infrastructure such as interstate highways and airport, which present better chances for the business. The business further outlines their business plan, with a strong cumulative cash flow analysis. In addition to the above, the issue of financing is well taken care of by Mr. D’Arcy who is willing to finance them and connect them with well known friends and associates.

Weaknesses (Opportunity Factor)

The weakness of this business plan lies in the inability to explain how they will get past the competition posed by the other hotels within the area, the amount of time, and resources necessary to acquire clients and ways to retain them. The competitors are only identified as nine, with no specific identification of the competition they bring or strategies to respond to possible competition.

The Context

In business, the context represents the environment, interest rates, and inflation trends among other basic factors. According to Sahlman (2008), the context has a large significance on the entrepreneurial process based on opportunities. For instance, sometimes context makes it easy to create opportunities. Conversely, other times context makes it hard to pursue opportunities. For example, during the recession, Sahlman notes that it was hard for new ventures to start bearing in mind that capital disbursements were small.

Strengths and Weaknesses (Context Factor)

On the strengths of the business plan based on the context factor, it is analyzed that the Hotel Vertu lacks adequate plan on how the environment may affect their business. Unfortunately, this is a weakness on their part because context determines if the creation of opportunities is easy or not. Apart from that, the lack of available land and restricted zoning laws in the locality are also some of the weaknesses based on the context factor.

Risk and Reward

In a new venture, the future is hard to predict. Nonetheless, it is possible to give a class of risk and reward for potential investors in a new venture. According to the Harvard Business School (2007), risk and reward in business are ultimately defined by the organization’s management who have the ability to avert the implications of problems and increase the likelihood of success. 

Strengths (Risk and Reward Factor)

The management is aware of the consumer trends and knows that charging less than their competitors is more likely to earn them a few customers to start with. Therefore, the business intends to take advantage of the prices by reducing the cost hoping to increase gradually the cost as they grow. 

Weaknesses (Risk and Reward Factor)

On the other side of weaknesses based on risk and reward, Hotel Vertu does not explain how they will handle consumer trends, competition, and how they will manage with the low costs among other related risks. In this regard, the business lacks a concrete plan on how they will grow and create opportunities in the face of risks that threaten their success. Apart from that, they are not clear on the methods they intend to use to influence the consumers in a positive way that will help them survive tough economic conditions.

A business plan is a call for the action used by management to fix problems and explore opportunities in a business and in real time. Avoiding risk is impossible, but management is always the key. An effective business plan must demonstrate the entire entrepreneurial process without hiding anything. The Hotel Vertu plan of activities has a team of qualified professional experts who are focused on pursuing the vision and ensure the objectives of their new venture are achieved successfully. In this case, the management is well equipped with the necessary entrepreneurial skills to help in attaining their mandate. The opportunities are favorable to the business and project a promising future. The potential for growth relies on the competitor’s highly priced services, where the new venture seeks to take advantage by lowering their costs. Apart from the restrictive zoning law, the plan fails to explore further evidence related to context. By this, they miss a significant step that helps to understand ways in which various business contexts are likely to change and their effect on the firm. In addition to the above, they also miss a crucial factor by failing to define ways in which they handle the competitors who might be a threat to their business. In essence, the business plan lacks important information and is not well structured to attract the attention of a serious investor.

References

Araoz, C. F. (2007). Great People Decisions: Why They Matter So Much, Why They are So Hard, and How You Can Master Them. Hoboken: John Wiley & Sons.

Harvard Business School. (2007). Creating a business plan: Expert solutions to everyday challenges. Boston, Mass: Harvard Business School Pub.

Sahlman, W. A. (2008). How to write a great business plan. Boston, Mass: Harvard Business School Press.

Stevenson, H.H., & Roberts, M. J. (2016). Hotel Vertu: Analyzing the Opportunity in the Boutique Hotel Industry. Harvard Business Review. Retrieved from: https://hbr.org/product/hotel-vertu-analyzing-the-opportunity-in-the-boutique-hotel-industry/917501-PDF-ENG