Opportunity Assessment Plans

Barrow, Barrow and Brown note that perhaps the most important step in launching any new venture or expanding an existing one is the construction of a business plan. There are many authors who either agree or disagree with this statement. The debate surrounding the value of the business plan is evident in all relevant new business creation and entrepreneurship literature. The actual reason for the validity of the business plan is unclear. Is it because of the increased performance results, its ability to help the entrepreneur to obtain loans or to reduce risk? Or is it something else entirely? Numerous books and articles in the popular press attempt to dissect and analyse the business plan, while simultaneously a growing number of annual business plan contests are evident in many countries, and both graduate and undergraduate schools devote entire courses to the subject. The University of Pretoria (UP) teaches the business plan as a subject on second year (undergraduate) and Masters' (postgraduate) levels.

Globally, governments spend enormous amounts of money on entrepreneurship education, coaching facilities and mentorship programmes in the SMME sector. The reason for this is that entrepreneurs act as engines of growth in the economy. Business plans are seen as the most central evaluation and educational tool in governmental support for new business ventures. Thus a very dominant product offering, in not only all governmental institutions but also in privately owned developmental institutions, is the business plan, or assistance in the preparation of the business plan. However, compiling a business plan is often an expensive and time-consuming task. The time and resources that are spent by entrepreneurs who write their own business plans could have arguably been spent on other useful activities, such as obtaining new customers, or establishing good supplier relationships. Smeltzer, Van Hook and Hutt state that the business plan is difficult to prepare, requiring the entrepreneur to analyse all aspects of the venture.

Determining the value or importance of the business plan is imperative for the benefit of entrepreneurs, educators in entrepreneurship, researchers of entrepreneurship and government agencies involved in the development of entrepreneurship in the SMME sector. Many different authors believe that the most important step in launching any new business or expanding an existing one is the development of a business plan. They emphasise that a business plan serves the purpose of defining the venture and explaining how it will operate in the marketplace. A business plan provides not only internal benefits, but also has external functions. Shane and Delmar demonstrated that completing business plans before undertaking marketing activities reduced the potential of termination of new ventures. These authors argue that the benefits of planning before action exceed the opportunity cost on the entrepreneur's time. Ashamalla et al. asked the question; "Are business plans a relic of the past, by asking a sample if they would agree with this statement: "Bum your business plan?" Only less than 5 per cent of the respondents agreed with the notion that business plans should be burnt (indicating that it is a relic of the past). Over 95 per cent disagreed, reflecting the thinking that business plans are still relevant today.

Based on the above discussion, it then put forward a hypothesised reason for the importance of the business plan, supported by more contemporary literature, aiming to determine the value of the business plan and justify the time, money and opportunity costs spent by entrepreneurs on formulating such a plan. The theoretically supported and statistically untested purpose of formulating a business plan is hypothesised to be opportunity assess mention (refer to Figure 1). Thus the main aim of the paper is to provide evidence that by formulating a business plan potential entrepreneurs can assess opportunities. Assessing opportunities encompasses two primary tasks: (a) distinguishing between an idea and opportunity; and (b) developing the opportunity. For the purpose of this paper, a potential entrepreneur is one who does not have a business yet but is in the process of gathering resources to start a business. The research question posed in this paper is as follows: Does formulating a business plan enable potential entrepreneurs to assess opportunities by (a) distinguishing between ideas and opportunities, and (b) developing their opportunities? The research question was filtered directly into the subsequent objectives and hypotheses, which are statistically tested.