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Pre-start-up preparations: why the business plan isn't always written.
Abstract:
Probably the best way to prepare for a business start-up is to formulate a business plan. However, only a small fraction of entrepreneurs start out with business plans. This paper summarizes the findings of a study covering 355 small business owners in New Jersey who were interviewed by senior undergraduate students on the activities they undertook in preparation for new business launches.

Fifty percent of the 355 business owners interviewed claimed to have prepared business plans for their start-ups. This particularly high percentage is explained in the paper. The study found that preparing business plans correlated with the usage of external financing and that bank loans mostly went to business owners with business plans. However, a large majority of the business owners who had prepared business plans had found their business plans to be useful more as guidelines for operating their businesses than as tools for raising business funds.

The most important reasons for not preparing business plans were not having to use bank financing and being highly experienced in the entrepreneurs' lines of business. Fifty percent of business owners with industry/business experience didn't prepare business plans, and frequently saw their experience to be a substitute for business plans. However, the other half of business owners with business experience did prepare business plans.

The interviewed business owners, even when they didn't prepare business plans, undertook a variety of market-related non-documented activities, especially investigating the competition. These non-documented pre-start-up activities are often referred to as intuitive planning.

Subject:
Business planning (Methods)
Business planning (Analysis)
Business plans (Methods)
Business plans (Analysis)
Businesspeople (Management)
Businesspeople (Planning)
Entrepreneurship (Management)
Entrepreneurship (Planning)
Author:
Bewayo, Edward D.
Pub Date:
01/01/2010
Publication:
Name: Entrepreneurial Executive Publisher: The DreamCatchers Group, LLC Audience: Academic Format: Magazine/Journal Subject: Business, general Copyright: COPYRIGHT 2010 The DreamCatchers Group, LLC ISSN: 1087-8955
Issue:
Date: Annual, 2010 Source Volume: 15
Topic:
Event Code: 220 Strategy & planning; 200 Management dynamics Computer Subject: Company business planning; Company business management
Product:
Product Code: 9912100 Planning
Geographic:
Geographic Scope: New Jersey Geographic Code: 1U2NJ New Jersey
Accession Number:
243043179
Full Text:
INTRODUCTION

Herman Holtz (1994) pointed out "that everyone talks about the need for a business plan but most people starting ... small businesses ... do nothing about it." There doesn't appear to be any person who has systematically determined the percentage of entrepreneurs who start out with business plans. Available estimates have tended to relate to strategic plans for ongoing small businesses. See, for example, Rue and Ibrahim (1998; Karger, 1996; Mazzarol, 2001; Sexton & Van Auken, 1985). As far as new small businesses go, Siropolis (1997) guess-estimated that only about 5% of them start out with business plans. There are many reasons why most start-up entrepreneurs do not write business plans. One common reason is the view that business plans are intended only for raising business funds, implying therefore that if an entrepreneur doesn't need external financing, there is no need to prepare a business plan. Although existing literature doesn't seem to support the view that business plans are written exclusively for raising business funds, there is some support for the view that the single most important reason for writing business plans is to attract external financing (Kaplan & Warren, 2007). However, according to Zimmerer & Scarborough (1996) and Ford, Bornstein & Pruitt (2007), the first and foremost purpose of business plans is to provide guidelines for successfully managing a business. Raising capital is a secondary purpose.

Another common reason why most entrepreneurs do not write business plans is what David Bangs (1993) called the "Man of Action Problem", the preference for doing things instead of thinking about them or even writing about them. This view about business plans reflects the "Just Do It" philosophy, made popular by entertainer-turned entrepreneur, Wally "Famous" Amos (1999). He argued that formal business plans take too much time and require too much skill. Moreover, the analysis that goes into business plans may predict negative outcomes. Such outcomes could prevent the would-be entrepreneur from actually becoming one. Mazzarol (2001) has distinguished between formal business plans and the process of planning. Almost all start-up entrepreneurs undertake some planning activities, which may fall under what Van Auken & Neeley call "undocumented pre-launch preparations" (2000). Start-up entrepreneurs, often intuitively and informally, develop a sense of an unsatisfied need in the market and the relevant customer segment that can be helped to satisfy their need. They then proceed to satisfy the need, often a small group of customers at a time. This intuitive planning is good enough for the overwhelming majority of start-up entrepreneurs (Mazzarol, 2001; Sudikoff, 1994; Gwendron, 2004). Like Wally "Famous" Amos, most start-up entrepreneurs informally ask themselves some tough questions, but they just don't document the answers they get in formal business plans.

This study examines the nature of pre-start-up preparations to determine when such preparations get documented into formal business plans and when they remain undocumented and at an intuitive level. For those start-up entrepreneurs who do not prepare business plans, what are the specific reasons why they don't prepare business plans? What is the nature of intuitive planning that some start-up entrepreneurs use.

The study also examines the value of business plans to those who prepare them. While it is generally known that most business plans are written for raising business funds, what other purposes do business plans serve? How do these other purposes stack up with the purpose of raising business funds?

METHODS

A common activity textbooks ask students to do is to find out for themselves what entrepreneurs do in way of preparing themselves for their ventures (Longenecker, Moore, Petty & Palich, 2003; Zimmerer & Scarbough, 1997; Ryan & Hiduka, 2006). Following this hint, senior undergraduate students taking a course on Entrepreneurship and Small Business Management at a college in New Jersey were asked to conduct interviews with small business owners who had started their businesses in the last ten years. A 15-item semi-structured questionnaire was prepared for the students. The full questionnaire is available from the author. The initial key question was: What key steps did you take to determine the likelihood of success for your business prior to opening day? While students were allowed and expected to ask follow-up questions regarding any steps indicated by the business owner, they were required to limit their reports to five key steps given by the business owner. In addition, the students were required to report on each step separately and in no more than four sentences on each step. These strictures were intended to facilitate content analysis of interviewees' responses.

Although it was reasonable to assume that some of the business owners interviewed would mention the business plan as one of the steps or the only step they had used to assess the likelihood of business success, the students were required to specifically ask whether a business plan had been prepared, whether the entrepreneur him/herself had prepared the business plan, and whether the entrepreneur had found the business plan useful, including why and why not. In an attempt to find out whether business plans are prepared primarily for raising business funds, as is commonly assumed, the students also asked whether the entrepreneur had obtained bank/SBA loan financing and financing from family and friends.

Further, since it is commonly known that prior work experience greatly determines whether or not one starts a business and what kind of business one starts (Holmes, 2008; Perry, 2001), it was anticipated that many business owners were likely to mention having or acquiring relevant business and industry experience as one of the steps or the only step they took to assess the likelihood of success of their proposed start- ups. To tap this information more directly, the interview questionnaire contained questions on what the entrepreneur was doing before starting the business and whether there was any specific trigger that led to the decision to start the business.

The students interviewed 378 business owners between 2005 and 2007. Twenty three interviews were excluded from this study because the business owners were franchisees where franchisors had provided substantial preparatory support to the would-be entrepreneurs. Still other excluded interviews contained too many unanswered questions, i.e., five or more interview questions were left blank because the business owner refused to provide answers to questions, or the answers to questions were too indefinite. So, the total number of student interviews examined for this study is 355. Table 1 provides some demographic information about the 355 business owners and businesses covered in this paper.

An initial review by the author of 30 completed questionnaires resulted in the creation of the guidance sheet for coding data from the completed questionnaires by a graduate student. The same graduate student keyed the data into SPSS software. The analysis of the data is limited to descriptive statistics, including cross tabulations.

FINDINGS

The responses to the question: "What key steps did you take to determine the likelihood of success for your business?" generated a wide range of responses. In the findings being reported in this paper we focus on responses related to entrepreneurs' business/industry competencies, investigation of markets and marketing strategies, preparation of business plans, bank financing, value of business plans, and reasons why business plans aren't always written.

Entrepreneur's Business/Industry Competencies

An entire 221, 62%, of the 355 business owners interviewed referred to their industry/business knowledge and experience as a key preparatory step toward the success of their business start-ups. These business owners were operating in the same lines of business as their previous employers, sometimes family members, for example, a landscaping business owner who previously worked for a large landscaping company. It is highly likely that most of these business owners "incubated" their business ideas while still with their previous employers. They had thought about going into business for long periods of time before and during their previous employment. Nine of these former employees went into business after being downsized by their employers. One hundred and fifty of the 221 business owners who capitalized on their industry/business experience when starting up were in service-related businesses. See Table 2. This is 63% of 237 business owners interviewed who operated service-related businesses. The comparable percentage for retail business owners was 60%. That for manufacturing business owners was 70%. Thus, a great number of start-up entrepreneurs interviewed relied on their employment and industry experience to gauge their likelihood for success in their business endeavors.

Business knowledge and experience are typically acquired from employment situations. But sometimes valuable experience, especially technical experience, can also be acquired through schooling and training, e.g., opening a restaurant after culinary school, or a beauty shop after cosmetology school, and hobbies. As can be seen from Table 2, 53 interviewed business owners had these types of knowledge and experience and considered such knowledge and experience as a form of preparation for venturing into their own businesses. Acquisition of appropriate business knowledge and experience should perhaps be considered as part of the intuitive planning that precedes written business plans and is often considered a substitute for them. In a later section we look at the relationship between business knowledge/experience and the propensity for written business plans.

Investigating Markets and Marketing Strategies

Clearly, and consistent with theory, most start-up entrepreneurs examine their experiences from work, education and hobbies before venturing out. Partly due to these experiences and partly due to innate intelligence and a natural tendency to do some due diligence and minimize risk, most start-up entrepreneurs also examine certain business success factors, especially factors related to the markets they plan to serve. As indicated earlier, one of the key interview questions was: What key steps did you take to determine the likelihood of success for your business prior to opening day? It was anticipated that many of the steps were going to be about markets and marketing.

Of the 355 business owners interviewed, 282, 79%, of them referred to key marketing factors in terms of the steps they had taken to assess the likelihood of success for their business ventures. Table 3 shows the marketing factors that were mentioned by business owners. As can be seen from Table 4, and as should be expected, some business owners mentioned more marketing factors than others did.

Most business and marketing decisions are dictated by competition in the location of a business. Zahra, Neubaum & El-hagrassey (2002) stated that understanding competition is the key to business success. Bradley (2002), who was investigating factors that had led to bankruptcies, also found that well over 50% of the surveyed business owners who had filed for bankruptcy had checked out the competitive environment. It is, therefore, not surprising that competition and location, coupled together, was the single most frequently cited marketing factor considered or evaluated prior to business opening day, as can be seen from Table 3. It is possible that some of the business owners who did not mention competition believed that they faced no competition, even though this is always a mistake. But it is also possible that knowledge about competition and competitive factors is part of industry/business knowledge and experience for those who had such knowledge and experience. Accordingly, they might not have felt compelled to talk about competition. Indeed, of the 221 business owners who regarded their employment/industry experience as a or the reason for their potential business success, an entire 54% didn't mention competition. The corresponding number for the entire sample was only 46%.

Table 3 shows that 152 of the interviewed business owners claimed to have conducted marketing research. Content analysis keyed on phrases and sentences such as "marketing research", "I researched the market", "surveys were conducted", "there was a focus group", "analyzing industry and demographic data", and "test marketing a product". Obviously, in many cases marketing research included an investigation of competition and location factors. Indeed, 55% of the business owners who stated that they had done market research also specifically stated that they had examined competition and location.

Only 39, 15%, of the 257 business owners in service-related businesses who were interviewed mentioned three or more marketing factors as steps they had taken to assess the likelihood of success for their proposed businesses. The comparable figure for small retailers was 25%. Retailers were, therefore, more concerned about marketing factors than were service-related business operators. Alternatively, 21% of the business owners in services didn't mention any marketing factors as steps they had taken to assess the likelihood of success for their proposed businesses. The comparable number for retail business owners was 14%. The rather obvious reason for this difference between the service and retail industries in terms of the emphasis on marketing factors appears to be that service businesses are, in general, the least expensive to start and operate. Business failure in service businesses is not as costly as it is in retail businesses. Headd (2003) found that service businesses and retail businesses differed in terms of failure rates. Retailers failed more than service businesses. He suggested that retailers face a more competitive environment than service businesses do. There is, therefore, a stronger need for market due diligence in the retailing industry than in the services industry.

Business Plans

To most business consultants, educators and lending/financing authorities, the business plan is the ultimate in pre-start-up preparations. The interview questionnaire, therefore, solicited information on business plans both directly and indirectly. Directly, there was a question on whether the business owner had prepared a business plan prior to opening day, and if not why not. Indirectly, the question on what steps the entrepreneur had taken to assess the likelihood for success in his/her business potentially alluded to the business plan.

One hundred and seventy-eight, 50%, of the 355 business owners interviewed claimed to have prepared business plans prior to opening their businesses. This is a relatively high percentage, given the fact that the percentage has been estimated to be as low as 5% (Siropolis, 1997). One possible explanation for this is that the business owners interviewed for this study were conveniently selected, what is known as a convenience sample. Only business owners who agreed to be interviewed were interviewed. There was a possibility of self selection bias; people who agreed to be interviewed might have been more sophisticated and/or educated than average. Business planning and personal sophistication are said to be positively correlated (Mazzarol, 2001; Gibson & Cassar, 2002). Second, the concept of the business plan is notoriously loose. Students had been instructed to determine the quality of the business plan by comparing it to the outline suggested in a textbook by Longenecker et al (2003) which was being used in the class they were taking. The students were also referred to the business plan framework used by Perry in his article "The Relationship Between Business Plans and Business Success and Failure" (2001). Students generally found that "comprehensive business plans" were rarely prepared. Most business plans were of the "summary" or "dehydrated" type (Longenecker et al, 2003). In terms of Perry's model (2001), very few business plans covered more than two planning areas. This was consistent with Perry's findings. In his sample of 304 failed and non-failed businesses; only 37% had business plans and on average covered less than 2 of the 5 areas included in Perry's questionnaire. Given the strong consensus among commentators on business plans that there is no one best way to construct a business plan (Gumpert, 1997; Ryan & Hiduke, 2006; Ford, Bornstein & Pruitt, 2007), in this study claims of business plans were taken at their face value, provided it was also claimed that the business plan was a written document. In the interviews students were advised to request to see the business plan document if one had been prepared, and 52 students were able to see the actual business plans. In other cases the business owners didn't show their business plans but were able to describe them.

It is arguable that marketing factors (marketing research and marketing plans) constitute the heart of the business plan (Siropolis, 1997). Emphasis on marketing factors was, therefore, expected among the business owners who had prepared business plans. However, 27, 15%, of the 178 business owners who started out with business plans included no marketing factors among the steps they had taken to assess the likelihood of success for their businesses. It is noteworthy, however, that 43, 25%, of the 172 business owners without business plans also hadn't investigated marketing factors. Table 5 includes information on the relative prevalence of marketing concerns among the business owners with business plans and those without business plans. The marketing emphasis was higher among "planners" than among "non-planners." Alternatively, "planners" were more likely to have investigated marketing factors than "non-planners."

Business Plans and Bank Loans

In the minds of many business owners, if not most, the key reason for preparing business plans is to get business financing (Kaplan & Warren, 2007). Table 6 shows that of the 60 interviewed business owners who got SBA/bank loans for their businesses, 44, 73%, had prepared business plans. Table 6 also shows that business owners with business plans might have sought bank financing in larger numbers than did business owners without business plans. Forty-four out of 178 business owners with business plans sought and received bank financing. This is 25%. The corresponding numbers for business owners without business plans are 16 out of 172, or 9%. There is, therefore, a possibility that the relatively low volume of bank loans that go to business owners without business plans also reflects the fact that relatively fewer business owners without business plans seek bank loans. We shall see in the next section that the leading reason cited for not preparing business plans by business owners without business plans was that they did not need to borrow money from banks. That bank lenders somehow encourage or force prospective borrowers to prepare business plans, as has been frequently suggested (Van Auken & Neeley, 2000; Mazzarol, 2001; Kaplan & Warren, 2007) appears to be borne out in this study. In Table 6 we see that while 73% of the business owners who got bank loans prepared business plans, only 47% of the business owners financed by family and friends prepared business plans. It would appear that it is relatively

hard to get a business bank loan without a business plan.

In our sample, 16 business owners had received bank loans without business plans. In fact one study on small business loans (Van Auken & Horton, 1996) found that banks required business plans only 49% of the time (although this percentage rose drastically in the case of minority business owners). The same study found that more important than business plans were collateral requirements, required 60% of the time.

The Value of Business Plans

The 178 business owners who had business plans were asked whether they had found business plans useful, and why or why not. One hundred and seventy, 96%, stated that they had found the business plans useful. Many reasons were offered. Providing direction was by far the most frequent reason given, nearly 65% of the time. For example, a children specialty store owner stated that "At times I have found it very helpful because it gives me something to follow and accomplish as a business owner." This reason for preparing business plans is often referred to as the "roadmap" function of business plans (Hatten, 2002; Ryan & Hiduki, 2006; Kaplan & Warren 2007). Keeping the business on track, a control function, was the second most frequent reason given by the business owners who found their business plans useful. Only 17, 10%, of business owners gave using the business plan as a tool for financing as the reason they found their business plans to have been useful. One would have expected this number to be higher since 44, 25%, of the 178 business owners with business plans had used the business plans to get bank loans. It appears that the interviewed business owners looked at the usefulness of business plans in longer terms, as opposed to using business plans for raising business funds, which often is a one-time deal. This study shows that the business owners who prepare business plans use them and value them for more than raising funds. Indeed, Table 6 shows that nearly 46 business owners prepared business plans even though they didn't have to, since their external financing came from equity loans and family/friends.

Only 5 of the 178 business owners with business plans indicated that they hadn't found their business plans useful. One business owner found the business plan not useful because he hadn't been able to use it beyond getting a bank loan. Another business owner found the business plan of not much value because the bank denied him a loan for his business even when he submitted the business plan. These kinds of business plan pitfalls generally arise from-single-purpose-use business plans (Zimmerer & Scarborough, 1996).

Reasons For Skipping The Business Plan

Business owners who started out without business plans were asked why they hadn't prepared business plans. As expected, a large number of reasons were given for not writing business plans. However, these reasons fall into three categories: there was no need to prepare a business plan, preparing a business plan was inconvenient, and lack of knowledge about business plans and/or the skills to prepare them. That the business plan was not needed was by far the dominant category, cited by 101, 62%, of the 162 of the business owners who explained why they hadn't prepared business plans. And this reasoning took three forms: the business owner was not using bank debt financing, the business owner was so experienced in the line of business he/she was going into that there was no need for a business plan and the business owner's business was too simple and small to warrant a business plan.

It was clear from the interviews that business plans continue to be seen as essentially or exclusively tools for raising business funds, implying that there was no need for a business plan if the start-up entrepreneur wasn't seeking external financing. We stated earlier that this view is shared by some authors (Kaplan & Warren, 2007).

A second reason why some business owners felt that the business plan was not needed is being already knowledgeable about and/or experienced in the line of business a business owner was planning to enter. This reason was commonly given by people with family business backgrounds. By incorporating market analysis, business planning forces would-be entrepreneurs to learn more about an industry or a business. So, industry/business knowledge and experience (or expertise) can be and was often seen as a substitute for preparing business plans by the business owners who were interviewed in this study. However, as can be seen from Table 7, lack of knowledge and experience in the industry or business was clearly not a particularly strong determinant of preparing business plans, since 109, 50%, of 219 business owners with industry experience prepared business plans. This was the exact percentage of "inexperienced" business owners who didn't prepare business plans. That is, business owners starting out with industry/business experience were no more inclined to prepare business plans than their counterparts without industry/business experience.

A third reason business plans were considered unnecessary by the business owners who were interviewed was that their business concepts were too simple and/or their businesses were going to be too small to warrant the preparation of business plans. For example, a tee shirt business owner claimed that he didn't need a business plan because all he did was getting shirts, putting on logos and pressing. Several authors have suggested that the complexity of the business concept influences the extent of business planning (Mazzarol, 2001; Perry, 2001; Gibson & Cassar, 2002)

Thirty-four, 21%, of the 162 business owners who provided reasons why they hadn't prepared business plans when starting out claimed that preparing business plans created a variety of inconveniences. They cited the time it takes to prepare a business plan and the potential for business plans to prevent the business owner from changing direction when there is need to change direction. Sometimes business opportunities are time-sensitive and acting fast is very important. Many a business owner claimed having looked up some information about the business opportunity, but not finding the time to put that information in a written business plan. The lack of time and the fear that a written business plan would/could stand in the way for change often results in undocumented pre-start-up activities (Van Auken, 2000; Wally "Famous" Amos, 1999).

Twenty-seven, 17%, of the 162 business owners who provided reasons for skipping the business plans pointed to their lack of knowledge about business plans, what they are and/or how to prepare them. For example, one luncheonette owner told the interviewer that he had never heard about business plans because he never went to college.

CONCLUSIONS

That many new small business owners don't prepare formal business plans for launching their ventures was easily borne out in this study, as it has often been assumed, but rarely proved. In this study, 50% percent of the interviewed business owners stated that they had prepared business plans. The most important distinction about the business owners who had prepared business plans is that they used external financing, especially bank loans. The study found that providers of bank loans somehow encourage or force start-up entrepreneurs to prepare business plans. This finding is similar to that of Van Auken & Neeley (2000). Although banks sometimes provide business loans without requiring business plans from borrowers (Van Auken & Horton, 1994), they would rather lend to borrowers with documented pre-launch preparations. It is well known that most start-up entrepreneurs rely more on personal savings and loans from family and friends than on bank loans (Gwendron, 2004; Van Auken & Neeley 2000). If start-up entrepreneurs rely on loans from family by choice, which is highly doubtful, they might disregard written business plans. If entrepreneurs want to reduce their dependence on loans from family and friends, they would need a written business plan in most cases. In other words, business plans don't lose value and their place in business curricula because most start-up entrepreneurs rely on personal savings and friends, as has sometimes been suggested (Gwendron, 2007).

The study found that business owners seeking external financing were more inclined to write business plans than business owners who didn't target external financing. It was also found that the large majority of business loans went to business owners with business plans. However, business owners who prepared business plans valued their business plans more for providing direction, a roadmap function, than for raising business plans. This would mean that start-up entrepreneurs should write business plans even when they don't need external financing.

The study found that only a rare person would venture into a new business without any kind of planning. But most start-up entrepreneurs stop short of formal/written business plans. The study found three major reasons for not writing business plans: there is no need to write business plans, business plans inconvenience the start-up entrepreneur, and business plans require both knowledge and skill to write them. By far the most frequent reason cited for skipping the business plan was the belief that they were not needed. Start-up entrepreneurs who didn't need external financing overwhelmingly felt no need to write business plans, thus ignoring other purposes to which business plans can be put. We have noted already that the business owners who prepared business plans valued them more as tools for providing direction to operate the business than as tools for raising business funds. Business advisors and educators need to stress the multiple purposes of business plans.

A significant number of business owners who hadn't prepared business plans stated that their industry/business knowledge and experience rendered business plans unnecessary. While industry experience and knowledge was viewed as duplicating certain business plan activities, especially market analysis, 50% of the business owners with industry experience did in fact prepare business plans. It seems that the choice to rely more on experience than on written business plans, where market conditions are objectively evaluated, is reflective of a propensity for intuitive planning. Mazzarol stated that intuitive planning and formal planning are opposite mindsets (2001). Intuitive planning may also be the behavioral orientation of those business owners who stated that preparing business plans is inconvenient because it takes too long and prevents the entrepreneur from changing direction when he or she needs to. Intuitive decision makers don't need as much objective information as analytical decision makers. This is what Bangs calls "the man of action problem" (1993). It is known that expertise improves intuitive awareness (Dane & Pratt 2007). Intuitive planners don't write business plans under normal circumstances. They need a lot of encouragement, or even pressure to write business plans. Such pressure comes if and when their businesses grow and the owners have to deal with multiple and complex stakeholders such as accountants and wholesalers (Gibson & Cassar (2002).

STUDY LIMITATIONS

The conclusions in this study are very tentative, mostly because of the nature of the sample; a convenience sample . The 355 business owners interviewed were those who were convenient to interview by senior undergraduate students. There is also a possibility that students preferred to interview business owners who appeared to them to be "good" business owners. Accordingly, they wanted to learn something about them and their businesses.

Second, undergraduate students, seniors albeit, conducted the interviews. They were not trained interviewers. Although they were given a lot of background information about conducting interviews, there is no way of knowing that they avoided interviewer bias, such as the "first impression error".

Additionally, this paper, as many other efforts to understand entrepreneurs and entrepreneurship, is based upon self reporting: the business owners themselves stated what they had done before they opened up for business, sometimes as long ago as ten years. This is a limitation, although it has been said that starting a business is such a benchmark event that entrepreneurs generally accurately recall the details that surround it (Van Auken & Neely, 2000).

Finally, the study is very regional. New Jersey is densely populated and well served by many kinds of small business promotion programs. For example, there is a SCORE office at every county community college. It is possible that most of the interviewed start-up entrepreneurs had been exposed to some type of small business promotion program. Some of the conclusions in this study may not be valid for a more rural setting. This study should be done on wider scale.

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Edward D. Bewayo, Montclair State University
Table 1: Demographic Information

Business Type                 Service               Retail

Number of Businesses         237 (67%)             107 (30%)
Business Age                  1-3 Yrs               4-6 Yrs
Number of Businesses         93 (27%)              84 (24%)
Business Technology         Low/Medium               High
Number of Businesses         255 (72%)             95 (27%)
Owner's Gender                 Male                 Female
Number of Businesses         301 (85%)             52 (15%)
Business Size            0 to 5 employees      6 to 15 employees
Number of Businesses         176 (54%)             100 (30%)

Business Type              Manufacturing             Total

Number of Businesses          10 (3%)           354 (100%) 1 *
Business Age                 7-10 Yrs                Total
Number of Businesses         167 (49%)          344 (100%) 11 *
Business Technology            Total
Number of Businesses      350 (100%) 5 *
Owner's Gender                 Total
Number of Businesses      353 (100%) 2 *
Business Size            over 15 employees           Total
Number of Businesses         53 (16%)           331 (100%) 24 *

* Cases with missing or unclassifiable responses.

Table 2: Experience and Line of Industry/Business

Type of
Business               Sources of Industry/Business Experience

                                                    No
               Employment  Education  Hobbies   Experience    Total

Service        150 (67%)   18 (18%)   17 (8%)    39 (17%)   224 (100%)
Retail          64 (61%)    6 (6%)    10 (10%)   25 (24%)   105 (101%)
Manufacturing    7 (70%)    1 (10%)    1 (10%)    1 (10%)    10 (100%)
Total          221 (65%)   25 (7%)    28 (8%)    65 (19%)   339 (100%)

Table 3: Marketing Factors Evaluated

                                            Frequencies of
Marketing Factors                           Being Mentioned

Competition/location                          163 (31%)
Marketing Research *                          152 (29%)
Advertising                                    73 (14%)
Contacts in the Market                         49 (9%)
Customer Targeting                             44 (8%)
Availability of Suppliers and Retailers        38 (7%)
Trade Shows and Trade Associations             10 (2%)
All marketing Factors Mentioned               529 (100%)

* Indicated by references to typical primary and secondary tools
of marketing research, such as surveys and examining published
market and industry data.

Table 4: Differences in Emphasis on Marketing Factors

Marketing Factors     Business Owners Mentioning Factors

3 or more factors                  67 (19%)
2 factors                         121 (34%)
1 factor                           94 (27%)
None                               73 (21%)
Total                             355 (100%)

Table 5: Business Plans and Marketing Factors

Business Owners
With                            Marketing Factors Mentioned

                    3 or
                    more       2         1         None
                  factors   factors    factor   mentioned     Total

Business Plan     33 (19%)  69 (39%)  49 (28%)  27 (15%) *  178 (101%)
No Business Plan  34 (20%)  50 (29%)  45 (26%)  43 (25%) *  172 (100%)
Total                67       119        94         70         350

* Only 15% of the "planners" mentioned no marketing factors at all.
The figure for "non-planners is 25%.

Table 6: Business Plans and External Financing

Business Owners
With                            Types of External Financing

                     Bank       Bank     Bank and   Family and
                   Business    Equity     Family      Friends
                    Loans       Loans      Loans       Loans     Total

Business Plan     44 (73%) *  13 (61%)   26 (68%)   33 (47%) **   116
No Business Plan  16 (27%) *   8 (39%)   12 (32%)   37 (53%) **    73
Total             60 (100%)   21 (100%)  38 (100%)  70 (100%)     189

* Business owners with business plans were more than twice as likely
to get business loans as those without business plans, partly because
they were more inclined to apply for bank loans than business owners
without business plans.

** Loans from family and friends don't normally require business
plans, but nearly 50% of those who got such loans had prepared
business plans.

Table 7: Business Plans and Industry/Business Experience

Business Owners
With                    Sources of Industry/Business Experience

                                                        No
                  Employment   Education  Hobbies   Experience  Total

Business Plan     109 (50%) *  13 (57%)   14 (%)    32 (50%)     168
No Business Plan  110 (50%) *  10 (43%)   14 (50%)  33 (50%)     167
Total             219 (100%)   23 (100%)  28 (28%)  65 (100%)    335

* 50% of owners with experience wrote business plans, 50% didn't.
The same split is seen among business owners without experience.

Experience and business plans appear to be totally independent
of each other.
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