Unit 3

Developing Financial Plans

 Sources of funds:
There are many sources of funding available for entrepreneurs. Which one is the best for your
company?
Below you can find an overview of thirteen typical sources of funding for entrepreneurs. Some
apply to early-stage startups, while others are more relevant for fast-growth mature companies.
Nonetheless, all the options should provide you with a good amount of inspiration for your
next funding round!

1. The founders
Explanation: Do you have some savings left yourself? Did you just receive a nice bonus? Why
not invest it in your own company! However, you don’t necessarily have to invest in terms of
cash. If a co-founder or partner invests his/her hours in helping you start your business while
also working his/her own job, that is also an investment. Or, what about a founder making an
office, machines or a technology license available? All of these are sources of investment.
Temporarily not paying yourself any wage is also an option.

When to choose this source of financing: Founders can obviously invest in their own company
at any time. However, you usually see this happening when the company has just been founded.
When a company is set up, in many cases, no revenues or external financing is available, yet
there are always some startup costs to cover.
In terms of investment size you can go all out (as far as your bank account allows you
to). What is the advantage of this form of investment? It can be perceived as positive by an
external financier that a founder has some “skin in the game” as well. Why would another
person take the risk of investing in your company if you have never been prepared to take the
risk yourself?

2. The 3Fs: family, friends and fools

Explanation: Before you start approaching professional investors, it might be worthwhile to try
to raise some funding within your network of family, friends and fools. These are often people
from your family or social network who are close to you and mainly invest because they have
faith in your idea or in you as a person/entrepreneur. As they are usually not professional
investors, you should not expect a professional assessment of your company strategy from such
an investor.

When to choose this source of financing:

This type of financing is often pursued to cover the costs of setting up a new company or to
bridge the gap to a first round of (pre-)seed funding. The advantage of this funding type is that
it is a quick and cheap way of collecting cash, especially if you take into account the risk that
the 3Fs take (which they are not always aware of themselves: hence, “fools”).
Usually the amounts concerned with this type of investment are not too high and are
typically repaid as a loan (with or even without interest) or are invested in exchange for a small
equity share in the company. When the invested amounts, share percentages and level of
professionalism increase, then we speak of angel investing.

3. Angels/informals
Explanation: Angel or informal investors are experienced entrepreneurs who have some funds
available (often from previously exited ventures) and invest those in new companies to help
other entrepreneurs succeed in their business. Angel investments start around 50,000
dollars/euros and can amount up to (or more than) a million dollars/euros, as angels sometimes
invest together in groups.
When to choose this source of financing: Go for an angel if you are looking for seed
funding within the abovementioned range. Angels typically offer “smart capital”: not just
money, but also networking opportunities and knowledge within specific sectors. Try to find
an angel that fits with your company in terms of experience and sector knowledge. Angels spot
new investment opportunities through their network, but (for instance) also through platforms
such as AngelList, Crunchbase and f6s.

4. Crowdfunding
Explanation: Nowadays, it is hard to imagine that crowdfunding once didn’t exist. With
crowdfunding, the “crowd” finances the funding need of a company. Usually, crowdfunding is
performed via an online platform where entrepreneurs offer investment opportunities on one
side of the platform and on the other side of the platform, a large group of people invest small
amounts to meet the entrepreneur’s investment need.
When to choose this source of financing: In general, there are three types of
crowdfunding: loans, pre-orders/donations and convertible loans. Are you looking for a loan,
but having trouble securing one from the bank because your risk profile is too high? Then
try loan crowdfunding.
Do you have a prototype available, and do you want to test the product/market fit, but
you cannot finance the production/delivery of the first batch of actual products? Then go
for pre-orders/donations. Well-known examples of platforms offering these types of
crowdfunding are Kickstarter and Indiegogo.
They are mainly suitable for products, projects or gadgets aimed at the consumer market
and have a strong design element to them.
Convertible loans have the following advantages:
1) no shares are being issued, 2) valuation discussions are postponed until the moment the value
of a company can be better determined and 3) it is an easier, faster and cheaper process than an
actual share transfer.
Since the people that invest via crowdfunding platforms are not always professional
investors, crowdfunding is better suited for propositions that are not too complex or technical
and that are easily understood by the general public (that’s why it’s called “crowd” funding).
Think, for example, of consumer products.
There are also crowdfunding platforms with a specific focus, so take that into account
when making your choice. As an example, Dutch crowdfunding platform One planet crowd
focuses specifically on sustainable projects with a positive impact.

5. Subsidies
Explanation: A huge number of tax/financial schemes and subsidies exist. The aim of
subsidies/schemes is typically to stimulate entrepreneurship, innovation/R&D or economic
growth within a certain geographical area. That is why every region, every country and even,
for instance, the entire European Union has its own subsidies.
When to choose this source of financing: ALWAYS, and we can be very brief about
this. Subsidies are relevant during almost every company stage, from startup to corporate, from
freelancer to publicly traded company.
As mentioned before, many subsidies only focus on a certain geographical area and,
often, there is also a specific sector focus. Therefore, it is important to look for a subsidy that
fits with your company.
Keep in mind that administrative and reporting requirements often apply to subsidy
applications and grants. You need to be able to justify the costs for which you request a subsidy
and, sometimes, it is mandatory to have this justification audited as well.
6. Venture capital/private equity
Explanation: Private equity is the collective name for professional investment firms that invest
in companies that are not publicly listed. Venture capital (VC) is a type of private equity that
focuses specifically on (from the investor’s perspective) risky investments in early stage
companies.
People often speak of private equity when investing in larger organizations that have
existed for some time already. Venture capital, on the other hand, involves investing in growth
capital of young companies. In general, VC firms have a fund available of a specific size (e.g.,
100 million dollars/euros) that has to be invested within a certain period of time (e.g., 10 years)
in a number of companies with different risk profiles to spread the risk across the portfolio.
The aim is to sell the shares after a couple of years for a certain return/profit.
When to choose this source of financing: Venture capital is mainly suitable for
companies that have already passed the “seed stage” and are looking for series A or series B
funding. This type of funding is therefore meant to help companies grow faster than they would
if growing organically, for instance if a firm wants to internationalize.
VC firms typically invest in the range of about 500,000 to 20 million dollars/euros. To
raise funding from a VC, a company’s product/market fit has to be already proven, and steadily
growing revenue streams have to exist for several years. However, there are also venture
capitalists with seed funds (starting with rounds of about 200,000 dollars/euros) that offer seed
capital to companies that have not met the abovementioned criteria yet.
The advantage of VC firms is that they can fund multiple rounds for the same company,
where an angel or other seed investor is not always capable of doing so. Venture capitalists
often also have a specific sector focus and good knowledge/network within this sector.

7. Debt financing: the bank

Explanation: Even though there are banks around that have started venture capital
funds, they are generally more risk averse than, for example, angels, seed investors and normal
VC investors. This does not mean that banks do not finance entrepreneurs – on the contrary!
However, they are more likely to invest in small to medium businesses, in companies with
lower risk profiles (than startups, for instance) and when companies can offer collateral. For an
early-stage startup that does not fit in the focus of the VC funds, it can thus be difficult to secure
funding from a bank.
When to choose this source of financing: As mentioned, banks generally take less risk
than, for example, VC investors and angels. However, if you can provide collateral, then a bank
is a very good option. Or if you are looking for working capital financing, stock financing or
financing to cover investments in buildings/machines, then a bank is a very good option to
consider as well.
Companies generating stable income streams and that have been growing organically
for a number of years (and are thus less risky) can certainly also turn to a bank. A big advantage
of debt financing is that you do not have to give away a part of your company in terms of equity,
which means that in the long term, it can turn out to be a much cheaper way of financing than,
for example, securing funding from an angel investor or VC investor.

8. Factoring
Explanation: In short, factoring is a way of financing working capital by lowering the size of
accounts receivable. Example: if you send an invoice to a customer, but it takes the client 60
days to pay, then you can decide to “sell” this invoice to a factoring company (against a certain
payment, of course).
The factoring company will pay for the invoice (or provides you with a loan) so that
you do not have to wait 60 days before the invoice is paid by the client. A factoring company
can also take over the risk that the client does not pay at all.
When to choose this source of financing: First of all, it goes without saying that you
must have clients in order to be eligible for factoring. If you do not have any paying customers,
factoring is not an option. If you do have customers, factoring can be very useful if you have
to deal with long payment terms.
Do you have large corporates as your customers? If so, it can take a while for invoices
to be paid, and there is often not much you can do about it. In order to keep your working
capital position healthy, factoring can be a good solution. Is accounts receivable management
costing you a lot of time and effort? Do you often suffer from bad debtors? Then factoring
could also be an outcome.

9. Leasing
Explanation: Do you have to make large investments in assets such as computers and/or
machines? Why don’t you lease instead of purchasing them? By leasing assets companies can
spread payments over a longer period of time instead of having to fulfill the full payment of an
investment the moment they decide to purchase an asset.
When to choose this source of financing: When a company is capital-intensive, meaning it is
dependent on the use of (sometimes expensive) assets, such as machinery, leasing may be the
way to go.

10. Suppliers
Explanation: is your business heavily reliant on its supply chain? Then try to negotiate
favorable payment terms with suppliers. If your customers have long payment terms, for
instance, you can try to agree to longer payment terms with your suppliers as well so that you
do not run into any problems concerning your working capital. On the other hand, you could
also try to discuss discounts in the event you pay your suppliers very quickly.
When to choose this source of financing: Choose this form of financing if you have
good relationships with your suppliers or if you have a good negotiating position with them
(for example, if you are a large/important customer).

11. Initial Coin Offering

Explanation: For an Initial Coin Offering (ICO), a company typically writes a whitepaper to
pitch a certain business idea and asks the general public to finance the idea using bitcoin and/or
altcoins (other cryptocurrencies than bitcoin). In return, the investor receives an altcoin newly
generated by the company during the ICO.
Usually, this newly generated altcoin is at the center of the company’s business
activities and thus leveraged in a way that increases its value. As soon as this altcoin becomes
tradable, investors can resell it (and hopefully make a profit). An ICO is therefore very similar
to an IPO (see section 12 below), but uses cryptocurrency instead of shares that can be
converted into “normal cash”.
When to choose this source of financing: It is possible to do an ICO as a non-crypto
company, but currently, the majority of the companies that do an ICO are
blockchain/cryptocurrency companies. This is due to the fact that the new altcoin generated by
an ICO often has a function within the company which increases its value. The speculation on
the fact that the value of the new altcoin will indeed increase is what attracts investors.

12. Initial public offering

Explanation: The holy grail of financing: the initial public offering (IPO)! An IPO is the public
listing of a company, which means that it is the first time a company offers its shares to the
general public (instead of to private individuals, investors or companies). This means that
practically anyone in the world (individuals or institutional investors) can invest in the
company by buying shares at a certain value.
Before an IPO, a company is private, which means that it often only has a limited
number of investors that have invested early stage or growth capital. Think of the founders,
angels and VC firms for instance.
When to choose this source of financing: For an initial public offering to be successful,
a company must be able to demonstrate years of strong growth, and its proposition typically
includes a certain network effect/scalability. Growth can be defined in several ways. This can
be turnover or profit but also, for example, the number of customers or active users. For
example, Spotify has been a loss-making company for years, but has been growing enormously
in terms of turnover and users.
A company also has to demonstrate transparency and confidence that growth will
continue in future years because it has to win the trust of the general public that the value of
the shares (which are bought by the public during the IPO) will rise in the future so that they
can make a profit on their investment.
For the investors that owned a share in the company already before the IPO, a public
listing can turn out to be very attractive (financially). An IPO should not be underestimated
though: it is a very costly process and results in many reporting requirements toward the public,
imposed by strict government regulations.

13. Revenue based financing

Explan ation: Revenue based financing is a funding mechanism in which an investor provides
financing to a startup and in return the investor will receive a percentage (e.g. between 2% -
5%) of the (future) revenues generated by the startup. The future revenue-based interest
payments are typically capped at two to three times the size of the initial funding amount.
When to choose this source of financing: This type of funding is typically offered at (pre-) seed
stage. The benefits of this type of funding for startups are the following:
 The founders do not have to give away any equity meaning they will not dilute their
equity shares.
 As opposed to a normal bank loan the interest payments for revenue based financing
are linked to the generated revenues, which means that if revenues decline required
payments also decline. This reduces the chance of cash flow issues and potential
illiquidity.

Summary
There are many forms of financing available for entrepreneurs. Therefore, it won’t hurt to do
some research into the different types available. This will help you choose the source of funding
that suits best with your situation and company stage. In return it increases the chances that
you will successfully raise funding.

 Managing Cash Flow—

Why managing cash flow is vital Ensures day-to-day operations Effective cash flow
management ensures that a small business can cover its day-to-day operational expenses, such
as rent, utilities, payroll, and inventory purchases.
Without sufficient liquidity, even profitable businesses can struggle to meet these essential
obligations, risking their ability to function smoothly. Mitigates financial stress Poor cash flow
management can lead to financial stress and anxiety for business owners. Juggling bills,
worrying about overdue payments, and struggling to make ends meet can take a toll on both
personal well-being and business performance.
Proactive cash flow management alleviates these stressors. Cash flow management is the
lifeblood of any business, and for small businesses, it can be the difference between thriving
and merely surviving. While entrepreneurs often focus on generating revenue and growing their
customer base, overlooking the critical task of cash flow management can lead to financial
instability and, in some cases, even business failure.
In this article, we will delve into why managing cash flow is important for small businesses.
Helps build a financial safety net Unforeseen emergencies and economic downturns can strike
at any time. Having a healthy cash flow and a financial safety net allows small businesses to
weather such storms without resorting to drastic cost-cutting measures, layoffs, or shutdowns.

 Enhances credibility Maintaining strong cash flow can enhance a small business's
credibility in the eyes of creditors, suppliers, and potential investors. It shows that the
business is financially stable, reliable, and capable of fulfilling its financial
commitments.
Enables strategic decision-making Effective cash flow management provides valuable insights
into a business's financial health. It allows business owners to make informed decisions about
pricing, investment, and cost control. With a clear understanding of their financial position,
they can steer the business toward profitable outcomes.
  Facilitates planning and budgeting Having a well-managed cash flow streamlines the
budgeting and planning process. It enables small business owners to set realistic
financial goals, allocate resources efficiently, and anticipate potential cash shortages or
surpluses. Reduces dependence on debt Overreliance on debt to cover operational
expenses can lead to a debt spiral that becomes increasingly difficult to escape.
 Effective cash flow management reduces the need for costly loans, allowing businesses
to operate with greater financial independence. In conclusion, cash flow is important as
it empowers business owners to navigate the challenges of entrepreneurship, seize
growth opportunities, and build a stable and resilient financial foundation. If you
prioritise cash flow management, you are likely to experience long-term success and
sustainability.

ACCOUNTING PROFITS VERSUS CASH FLOW

 Many financial analysts define operating cash flow as net income exclusive of
depreciation. However, it is necessary to understand other income statement items in
order to fully understand cash flow management. For example, depreciation and
amortization are accounting conventions for expensing (in the case of depreciation) and
allocating (in the case of amortization of a loan) the cost of an asset over an arbitrary
time period and, as such, affect annual net income.
 Cash flow, however, is not directly affected by these items. Moreover, prepaid items
such as insurance, supplies, maintenance contracts, etc., are cash payments which are
typically made in advance. While they impact cash flow, they are charged against
earnings in a subsequent period.

What is a cash flow forecast?

To those who are venturing into business for the first time, the prospect of having to draw up a
cash flow forecast can be intimidating; but the banks will demand one when a loan is sought
for even the smallest of one-man enterprises. This is because they believe it will give them at
least some idea as to whether and when they are likely to get their money back.
The cash flow forecast sets out, usually in monthly columns, the sums you expect to receive
by way of sales, Business Start-up Allowance, etc, and compares this inflow of money with the
payments you will be making for stock, materials, overheads, equipment, and the money you
will have to take out of the business for living expenses.
It is not a forecast of the profitability of the business, but merely a guess as to whether, in
the short term, more cash will come in than go out. That is not necessarily the same as
profitability. On the one hand, although your profit margins might not be adequate to cover
overheads and write off the cost of equipment, your cash flow could be good enough to pay the
bank back its money while you were losing yours. On the other hand, there are profitable
businesses (ie their net assets are growing nicely) that are what is called ‘cash hungry’. They
may be making fine profits, but all the cash they take in, and more, is needed to increase stock
or give credit to an ever larger number of customers. So the bank, far from getting its money
back, will be lending more and more. Sooner or later the bank will call a halt, and they may
have to close their business, despite its underlying profitability.

Principles to observe when filling in a simple cash flow form

1. Enter the more certain figures first.
2. Make every entry in the month in which cash and cheques are handed over.
3. All entries must be inclusive of VAT where applicable. Start by entering those payments
of which you are certain (or almost certain): ● the rent – in the actual months when it must be
paid; ● the rates – for each month when they must be paid; ● HP payments on any vehicles or
machinery; ● loan repayments on any fixed-term loan you have agreed or hope to agree; ●
wages of any regular employees; ● the sums you will have to draw from the business to live
on; ● any other payments you expect to have to make if you know the amounts
Now also enter the sure regular receipts, such as: ● Business Start-up Allowance payments;
● rents from any sub-let. The next items are more difficult. They are overhead payments, the
amounts of which are not yet certain because the invoices have not been received. These will
include: ● gas and electricity bills; ● telephone bills; ● advertising and publicity costs; ● petrol
and other motor expenses; ● stationery and printing; ● postage and packaging; ● insurance
premiums; ● repairs and renewals; ● etc (the etceteras will depend on the nature of your
business). These items cannot be predicted with any great accuracy, but, if you have done your
homework, you should be able to make reasonable estimates. Enter them, of course, for the
months when you will have to pay them. ‘Repairs and renewals’ are a special case. They are
by their very nature uncertain, both as to amount and timing. Make a good guess as to the yearly
cost and divide this into four quarterly payments. The next thing to do is to enter the initial
receipts and payments – those once-and-for-all transactions that get you started. The receipts
could include: ● fixed loans from the bank; ● loans from family or friends; ● money of your
own which you pay into the business account after the date of start-up; ● grants
The payments could include: ● capital payments for the lease; ● machinery and equipment;
● initial licence fees; ● legal fees; ● installation costs; ● office equipment; ● starting stock; ●
advertising to launch the product. Remember that the cash flow forecast is deemed to start on
a specific day – usually the first of the month.

Any payments made or moneys received before that date must be ignored. You are writing
a cash flow, not a profit and loss account. Many of these initial costs will be paid in the first
month and should be entered in the appropriate spaces for that month. However, you may get
extended credit for, say, 30 days or six weeks for some items. Enter them for the months in
which they will actually be paid.
Most of your figures will have been entered now. But you will still have the difficult part
to do. You must tackle the sales side. This is a matter of putting hard figures to the faith you
have in your product. You know in your bones that the product or service will sell. But how
well? And how soon will the money start to come in? You will have done some market research
even if, as a potential window cleaner, you have done nothing more than call on the neighbours
to find out how many will pay to have their windows cleaned.
Use all the information you have gleaned about your market; link this with the amount of
time you will be able to devote to selling, and you should be able to make some sort of educated
guess at the turnover you can expect once you have got going properly. But your sales will not
be the same month by month, surely. For one thing, you will probably take a month or two to
reach the sales target you have set yourself. Adjust your figures to allow for this possible slow
build-up.
 Developing a successful business plan

 Budgeting isn’t just for retirees: Tips to plan for long-term financial success Budgeting
is the first step toward taking your financial future into your own hands. One of the
hardest parts about being a financial planner is convincing people to do things they’d
rather ignore. When times are good, it’s easy for people to avoid putting strategies in
place that create some short-term work and discomfort.
 But regardless of if you feel like you’re earning enough to be financially comfortable,
budgeting can help you achieve long-term financial goals and provide some security
should your situation ever change.
 Making a budget taps into a powerful aspect of human nature that we all know — that
writing down your goals makes them more likely to happen. It also reveals insights into
self-destructive spending habits that would otherwise go unnoticed. This is an effective
tool for people of all ages, but it’s particularly essential for working professionals
because of their spending preferences — for instance, lifestyle purchases like food and
travel — and the length of time they have to accumulate savings. Time is on your side.
 Budgeting enables you to pinpoint where you can funnel cash toward the essential goals
of building up a three- to six-month emergency reserve, as well as contributing to
investment accounts such as 401(k) plans and Roth IRAs.
 Starting a regular investment habit early in life is particularly crucial because of the
power of compounding, which is particularly magnified over longer periods of time.
The earlier an individual starts to invest in a disciplined way, the longer those dollars
have to grow.
 The benefit is so significant that an investor who starts investing a fixed amount
monthly for ten years, starting when they are 25, will have much more money at age 65
than if they wait until they turn 35 and then invest that same amount for the next 30
years, assuming the same rate of compounded growth for each!
 The bottom line: getting started as an investor early — even if it means sacrificing some
current wants — pays off. Your future self will thank you. Having enough cash to make
it through at least six months allows you to feel a much higher level of comfort at a
time of job and pay cuts, furloughs, and a generally uncertain outlook. It also avoids
the need to dip into investment portfolios during a down market or, worse, take costly
early withdrawals from pretax retirement funds.
 Less well understood is how a healthy cash reserve also provides opportunities to gain
during volatile times. Clients with significant cash on hand are generally hesitant about
deploying their cash all at once into the market. As a result, we’ve helped them develop
dollar-cost averaging strategies over 6–18 months to reduce their vulnerability to an
immediate market downturn and potentially take advantage of lower market entry
points.
 The advantage of having cash reserves is about peace of mind and the flexibility to
invest in a way that takes advantage of opportunities in line with your risk tolerance.
Having cash on hand gives an additional element of malleability to build strategies
around dollar-cost averaging, asset allocation, and risk exposure. Keep everything in
perspective.
 Anything that encourages stricter budgeting and more investment opportunity is
positive in our view, but people also need to be realistic about how much they need to
retire. It all comes down to spending habits. We’ve had conversations about “running
out of money” and budgeting with clients who have over $20 million in investment
assets; on the other hand, we have many clients who can live comfortably for the rest
of their lives on well under $1 million.
 Spending is the most important variable, and that’s why it’s hard to have a rule of thumb
for how much in investments the average person needs to retire. None of this is to gloss
over the very real financial challenges that people are facing, but disciplined budgeting
and smart investing are simple ways for you to take control and build the freedom you
want both today and in retirement.

 Financial planning roadmap: Your personal balance sheet Managing your personal
finances over the long term starts with your balance sheet. This tool will help you get
organized, make smart decisions, and maximize your wealth over time. The road to
financial independence is different for everyone, but everyone’s path starts with
organizing your financial information. A personal balance sheet that shows everything
you have and everything you owe will help you see the full picture. The process of
creating a personal balance sheet often uncovers opportunities and identifies risks to
address — whether today, tomorrow, or 10 years from now.

 Having one document that identifies all assets, liabilities, ownership, and beneficiaries
will go a long way toward streamlining your estate for future heirs.
 Here’s how to use your personal balance sheet to start creating a stronger financial
future. Identify risks and opportunities Your balance sheet brings context to decisions.
It allows you to understand how a decision in one part of your financial life affects
others. Estate planning, investment management, insurance, and tax should be handled
in a coordinated manner to find opportunities and uncover risks.
 For example, if you focus too heavily on a tax reduction strategy, you might overlook
the risk of a concentrated equity holding; seeing all your financial information in one
place will reduce the chance of costly mistakes like this. The goal is not just to mitigate
risk but also to determine how to maintain and grow your wealth.
 Ask yourself, “Does this plan, strategy, or decision positively or negatively affect my
long-term net worth?” The balance sheet is important to identify potential gaps in your
investment strategy. For example, some view diversification as holding accounts in
many places. After preparing a balance sheet, they may find that all these accounts are
invested very similarly. Diversifying your investments can significantly reduce your
portfolio volatility, and a balance sheet can help you gain perspective to make those
decisions.
 Align your personal goals with your financial resources A balance sheet can also
provide key insights into your overall financial independence and help identify the best
resources to use for cash needs. By understanding the balance of liquid and illiquid
assets, you can more appropriately plan for your lifestyle needs and goals using the
budget you’ve created and use various assets to their highest potential.
 In practice, this might be using a 529 savings account to ensure the most tax-free growth
for college-related expenses or using a combination of traditional and Roth IRA
accounts to manage taxable income as tax brackets change with proposed legislation.
For charitably inclined families, effective use of charitable accounts can result in
substantial tax savings during high-income years while allowing a donor to gift assets
over time.
 Whatever the case, a balance sheet can help you define or track progress toward
achieving your goals and make informed decisions about the strategies you use to shape
your financial future. Consider your estate and legacy When it comes to estate planning,
it’s very difficult to create a holistic plan without a clear view of net worth and
 ownership. Often, advisors make mistakes by taking a myopic view, assuming the
investment portfolio is the largest family asset.
 This is common with business owners. Ignoring assets outside of traditional investment
portfolios leads to poor planning and the potential risk of unnecessary estate tax.
Consider this: The number-one legacy people most want to leave isn’t financial assets
but family harmony.
 People don’t always realize how certain assets they cherished during their lifetime —
family cottages, for example, or sentimental family heirlooms — may cause tension
and frustration when they’re no longer around. The same can be true of family
businesses when some family members are actively involved and some aren’t, or
succession plans between unrelated parties aren’t documented appropriately.
 Thoughtful planning can eliminate or at least reduce the possible loss of family
harmony. Next steps There are two phases when creating a personal balance sheet:
gathering data and assembling it into a usable format. Gathering data can be
challenging, especially if you’re doing it for the first time. A trusted advisor can help
you not only develop your balance sheet, they’ll help you keep it current so you can
continue to make informed financial decisions.

 Developing a business Plan

Introduction
 Starting a new business venture is like going into a tropical forest on a treasure hunt.
There are rewards to be won, both in material wealth and in personal satisfaction, but
there are dangers lurking and you can easily lose your way. This book is written not
only to help you convince your financial backers that you will succeed and come back
with a bag of gold, but also to help you write your own guidebook for the journey.
 The author has himself spent 40 years on foot among the trees, both in small business
on his own account and as a guide and adviser to others.
 Before beginning work on your business plan or your cash flow forecast, you would
do well to ask yourself two vital questions: What do you really want out of the
business? The answer to this question will fall into two parts.
 The monetary rewards are obviously important. Set yourself a target. If anything less
than a million pounds would be a bitter disappointment, then a million is what you are
aiming for. If anything above £200 a week would give you cause for a major
celebration, put that down as your target. However, money is not all you are in business
for.
 What else? Are you a born ‘loner’, anxious to be free from the constraints of a
company set-up? Or someone with a yen to organise his own well-structured
corporation? Would freedom to design your own products make your life worth living?
Or do you just want to feel useful?
 Your strategy should reflect your own personal ends. Think, too, about the timescale.
Are you determined to make a quick fortune and retire to la dolce vita or to a life of
good works? Or, conversely, are you so fascinated by some aspects of what other
people call ‘work’ that you would happily carry on as long as there is breath in your
body?
 Just jotting down what you hope to achieve will have begun to give shape to your plan.
Next you must ask yourself questions about your resources, both mental and material.
Consider your temperament and the talents you will bring to the business and how they
will affect your planning.
 Are you an outgoing sort of person, able to get on with and influence your fellow men
and women? If so, the marketing side of business – finding out what people want and
selling it to them – is likely to be your strong suit; but, with that same temperament,
you may find you are not very happy or at your most efficient alone in an office and
working out costs or struggling with the books.
 You may not possess, either, the ‘toughness’ required to deal with employees who do
not perform. You might decide, therefore, against trying to run a production-led
business or saddling yourself with the bookkeeping. If you are the creative type but
shy and inclined to worry, you would do well to base your business on design and
innovation.
 Having to sell the goods yourself would doubtless prove a trial, and the problems of a
production line, controlling the stock, etc, could give you more sleepless nights than
you would care to contemplate. Can you make a living by selling your designs and
inventions?
  If so, then concentrate on exploiting your undoubted talents to that end. In classical
times the entrance to the temple of Apollo at Delphi carried the inscription ‘Know
Yourself’. This admonition should be taken to heart by every business man and woman.
Others may live happily with illusions about themselves; the small business person
cannot!
 The primary material resource you will want, of course, is money. Whether you need
a few hundred pounds to start in business as a second-hand clothes dealer or a hundred
thousand to set up a factory, it just has to be there, and a good deal of it must be yours.
In the very small business, a rough rule of thumb is that you (or your family and
friends) will have to produce half; and the other half is often very hard to come by.
 I believe that your chances of raising the extra finance will be greatly improved if your
business plan and cash flow forecast are prepared along the lines laid down in this
book.
 What feature of your product or service will give you the all important edge over your
competitors? Is your product or service:
 1. An entirely new idea? 2. An improved version of something that already exists? 3.
Cheaper than the others? 4. More reliable as to delivery or after-sales service? 5. More
readily available to local customers? In writing your plan, both for your own guidance
and to reassure your financial backers, you must show that your personal objectives
and your resources (both mental and material) are in accord with the strategy you will
adopt to exploit the particular feature of your product.
 This harmony is a major key to success, and careful planning will help you to achieve
it. In this book I have not been content simply to write a set of rules and precepts. I
have included several examples of business plans and cash flow forecasts. None of
these is to be regarded as an ideal.
 They represent types or patterns which I consider appropriate and acceptable in each
case for the size and type of business under consideration. I do not claim that the facts
on which they are based are reliable, but I hope the way in which the imaginary writers
of the plans have outlined their sometimes-fanciful schemes will prove amusing as well
as instructive.

How to Prepare a Business Plan.

Business plans are required whenever money is to be raised, whether from a bank, a finance
house, or a provider of equity capital. To you, your business is of supreme interest and
importance; to the bank or fund manager, your plan is but one of many that are received.

So you must win this person’s approval and keep his or her interest. To do this: ● be clear; ●
be brief; ● be logical; ● be truthful; ● back up words with figures wherever possible.

Clarity
The person reading your business plan is busy, often has other problems to deal with, and is
consciously or unconsciously judging you by the way in which you express yourself.
Therefore: ● keep your language simple; ● avoid trying to get too many ideas into one sentence; ● let
one sentence follow on logically from the last; ● go easy on the adjectives; ● tabulate wherever
appropriate.

Brevity
If the banker or manager gets bored while reading your stuff, you are unlikely to get the sympathetic
hearing you deserve. So prune and prune again, leaving only the essentials of what your reader ought
to be told. In-depth descriptions are out.

Logic
The facts and ideas you present will be easier to take in and make more impact if they follow one
another in a logical sequence. Avoid a series of inconsequential paragraphs, however well phrased.
Also, make sure that what you say under one heading chimes in with all you have said elsewhere.

Truth
Don’t overstate your case.

Figures
The banker or investor reading your plan is numerate, thinking in terms of numbers. Words will not
impress a banker unless they are backed by figures that you have made as precise as possible. So try
to quantify wherever you can.

Designing the business plan

The layout of your business plan can help greatly in keeping the reader interested. Above all, the
information you give must follow a logical pattern. You could present your material in the sequence
shown here, using headings, so that the reader can survey your plan and navigate without difficulty.
1. A brief statement of your objectives.
2. Your assessment of the market you plan to enter.
3. The skill, experience and finance you will bring to it.
4. The particular benefits of the product or service to your customers.
5. How you will set up the business.
6. The longer-term view.
7. Your financial targets.
8. The money you are asking for and how it will be used.
9. Appendices to back up previous statements, including especially the cash flow and other financial
projections.
10. History of the business (where applicable).
The above list can be added to, of course, if the people who will read your business plan have a special
interest to which you should address yourself.

For instance, public authorities are concerned to know the effect on local unemployment:
write a special and prominent section to tell them about it. Deciding how much to write.
In all business plans something, however brief, should be noted on each of the items listed above.
How much you put into each section should be in proportion to the size and scope of your project as
the reader of your plan will see it.
A busy bank official will not want to read through pages of material if he is being asked for no
more than a few hundred pounds. On the other hand, he will not be impressed if, when asked to lend
£100,000, he is given only a sentence or two on the aspect that interests him most.
Getting down to it Careful writing of your business plan will give you a better insight into your
own business. You have a marvellous project; you have a shrewd idea that there is a market for it; you
have obtained a good deal of advice from experts and have done sums to calculate your hoped-for
profits, your cash flow and the money you need to raise.
So, when you get the finance, you will be ready to go. Or so you believe! But it is odds-on you
still have homework to do. Now is the time to do it. ‘Writing,’ said Sir Francis Bacon, ‘makes
an exact man’. There is nothing so effective in testing the logic and coherence of your ideas as
writing them out – in full.
As the future of your business depends in large part on your ideas working in a logical and coherent
way, now is the time to subject them to this test. How do I set about it? Taking the sections numbered
opposite one by one, make notes under each heading of all you have done or expect to do.

For example, regarding Section 2, what do you really know about the market you want to enter? Have
you done enough market research? Who will be your customers? How many will there be? How will
you contact them? How will you get your goods to them? Or, when it comes to Section 5, have you a
clear, concrete picture of what you will actually do to ‘get the show on the road’? Write it all out!

Perhaps you would like to adopt the following method: taking a large sheet of paper for each of the
above sections, note down the facts relevant to each of them; then sort them, test for truth and
coherence and arrange into a logical pattern..
You will prune hard when you come to write the document itself. In the meantime, you will have
organised your ideas, you will have noticed gaps and weaknesses, and the business is bound to go the
better for it. Tackling each section
1. The brief statement
This should be to the point. Just something to show the reader what it is all about. Say what
you do in one sentence. In a second sentence, state how much money you want and what you
want it for.
2. The market
When you come to the main body of your document, start with the section that is most likely
to impress your reader. The majority of people lending money believe that what makes for
success in business is finding and exploiting a large enough market. So, as a rule, the ‘market
section’ should be the one with which you lead off. Though your product may be the best since
the invention of the motor car and you may have the talents of a Henry Ford, you will get
nowhere if there is no call for your brainchild or you lack the means of projecting your product
into the market. The person reading your plan will know this only too well, and will want to
find out whether you are aware of these facts and how well you have done your homework.
Your market research is crucial. Note that where figures are given, and they should be given
freely, the authority for the figures should be quoted. If your figures can be checked, this will
promote confidence.
3. The skills, experience and resources of the persons involved
A lender or investor will want to know the track record of the persons to whom his or her own
or clients’ money is to be entrusted. Therefore, you must give a fairly full account of your own
 business career and those of your co-directors or partners. School and academic histories are
hardly relevant. Past achievements and technical qualifications, on the other hand, are. Of
almost equal importance is the degree of your financial investment. You cannot expect others
to risk money in an enterprise to which the founders themselves are not financially committed
in a big way.
4. The benefits of your product
This is the most difficult part about which to comment because it is the section in which you
are likely to wax most enthusiastic. Human progress depends on new ideas, and people with
good ones need all the support they can get. That having been said, you must face the fact
that only a minority of innovations can be made commercially viable. Your banker or financier
has probably seen hundreds of absolutely brilliant ideas come to naught, and for all kinds of
reasons.

So this is the section you will have to write most soberly. A famous American writer – a writer,
not a businessman – once said that if you made a better mousetrap, all the world would beat
a path to your door. This is just not true.

Any successful businessperson could have told him that simply making a better product is only
one step on the way to success, and not even the first or the most important step. Do not get
too disheartened. You have, you believe, a firstclass product and, as you demonstrated (under
number 2, above), the market for it is there.
 What you must do now is to persuade your reader that your product is a good one and that it
will have the edge to help you exploit the opportunities set out under number 2. Stick firmly
to hard fact! ‘Puff’ sentences, such as ‘This is the best widget-grinder on the market and will
be the cheapest too’, cut very little ice. Show, with figures, why it is the best and why, despite
this, it is not the most expensive. If you have some independent test results, say so, and give
at least a summary of them in an appendix.
 A few genuine figures are worth a page of adjectives, on which, as was stated earlier, you must
go easy. Information that could be included in this section: – a brief description of the product
or idea; – how it works; – why it is better than its rivals; – any independent appraisal (with
details in an appendix).

5. The method
By this time your reader will have a clear idea of your market, your skills and the customer
benefits of your product. What he or she wants to know now is whether you are going to set
about things in a sensible and workmanlike manner. Tell your reader what he or she should
know in terms that are as concrete as possible.
(a) First of all, how do you propose to market the product or service? Will you have your own
sales force? What will you do about publicity and advertising? How will you ‘target’ your sales
drive? Under what terms will you sell? When will you be starting on all this? Give a firm time
schedule, if possible.
(b) It will promote confidence if you outline your ‘management structure’. If you have partners
or colleagues, who will be responsible for what? How do you intend to keep the various
sections in touch with one another? Will you have management meetings once a week? Once
a month? Or only when there is a desperate crisis? What about keeping employees abreast of
what is going on and what is expected of them?
(c) Outline the production methods you will adopt at the start of the project. Write something,
briefly, about the premises you will use. A sentence, or possibly two, will tell of the plant and
machinery. You may need a workforce. State how many people you will need at the beginning
and later, as sales increase. What will be the capacity of the initial setup?
(d) The office is your next concern. As a skilled engineer or a keen salesperson, you may be
impatient of all the paperwork. However, to convince your reader that your business will not
descend into chaos or grind to a halt, tell him or her who will see to it that it does not. Who
will make sure that the letters are answered in your absence. Who will look after the books?
Answer the phone? Process orders? Invoices? Who will chase up debtors? Have you assessed
the amount of work which will need to be done in this department?
(e) Your reader will also want to know how you will control and monitor the business
financially. The smallest business needs to know at all times what its cash position is. As soon
as there are those who owe you money, or to whom you owe money, it will be necessary to
keep a regular check. Your banker or investor will know that many an otherwise good business
has come to grief through lack of elementary financial controls. Larger businesses will need
more elaborate controls. Ensure not only that you have made the necessary arrangements,
but that your investor knows you have given this aspect proper regard. Any good accountant
should be happy to advise you. This very important point has a whole chapter devoted to it
later in the book. 6. The long-term view So far, so good. You have explained how you will get
your project off the ground and how it will run during the start-up period. Now the banker or
investor will want to know how he or she stands for the future.
 Some enterprises are essentially short term. Some should continue to be very
profitable over a longer period. Some will be slow-growing, and their financial needs can be
met out of profits. Others will have to accelerate fast, and they will need further injections of
capital on a pre-planned basis. Your financial backer will want to know your thoughts on all
these points. If yours is a project to exploit some ‘trendy’ idea, the backer will expect some
assurance that, if the fashion were to change, he or she could be paid out of ready money and
not be locked into unamortised fixed assets, ie fixed assets whose cost has not yet been
recovered out of profits and which would be difficult to sell. In general, the backer should be
told how you see the market over two years, over five years, and in the long term. Also, what
you propose to do about potential competition.
The hope is that you will be highly successful. This may well mean that, sooner or later,
despite excellent profits, you will need more capital. Here is where you show that you are
prepared for this. Sales forecasts for new ventures are very difficult to make. Trying to predict
sales for more than a year ahead is even more difficult, and the experts themselves almost
always get it wrong. Usually, such is human nature, they are over-optimistic. But this is no
reason for not making the best estimate you can. You have to have some target on which to
base your plans. In this section you can also write about any developments, new products or
new markets – in which you hope to involve your company in the future.

6. Financial targets
Although your hopes and plans for financing your business will be set out in all the cash flow
forecasts, etc, which you will attach as appendices, it will be helpful if you give a brief summary
now of the important points. No matter how small the business, you will be expected to show:
– the expected turnover for the first year; – the expected net profit for the first year; – how
much of the loan will be paid off in one year; – when you expect to pay off the loan entirely; –
what you hope for in the second year (when payments from the Business Start-up Allowance,
if any, will no longer be coming in). You do not have to show that the business will make a
profit in the first year. Your banker knows that many businesses make a loss initially and still
go on to succeed. If you show that you can expect to achieve profitability in the long term,
your banker should be prepared to go along with this. However, if you are raising equity capital
(see page 121), there are other considerations.
Most equity investors expect to be with you a long time. They are interested in capital gain
and, if available, dividends. The additional information they will want is: – the rate at which
you expect profits to grow; – what your dividend policy will be; – what you and the other
 directors will be taking out of the business before the equity holders’ share in the profits; –
what plans or ambitions you have (if any) to sell out, to buy them out, or to go on the AIM
(Alternative Investment Market), a junior branch of the Stock Exchange. A typical cash flow
forecast form as supplied by Barclays Bank is shown on pages 16–17.
Some of the items listed may not apply in your case, and there may be items missing
which you would wish to include. Just delete or leave out non-relevant items and substitute
those you want.

7. Use of the funds

Now that your reader knows that you have a good product, that there is a market for it, and
that you know how to run the business in an efficient way, you should explain, in fair detail,
why you need his or her money and how you will spend it. Emphasise how much money you
and your colleagues are investing. No one is going to risk money on your project if you are not
substantially committed. Having added up the sums you are putting in and all that you are
hoping to raise, list the items you will be spending the money on, such as: – patents; – land
and buildings (give some details); – plant and equipment (specify major items); – cost of
publicity for the initial launch; – working capital (reference to cash flow forecasts); – reserve
for contingencies.

8. The appendices
What you have said so far should have told your reader all about your project. You have now
to add documentation to convince him or her that you have done your homework properly
and that you can show good evidence for what you have said. Last and most important will be
the detailed financial forecast. This will vary from the relatively simple cash flow forecast on a
form supplied by your bank to an elaborate ‘business model’ prepared by a professional
accountant. The financial projections are the real meat of the whole business plan. A great
deal of information should be given, especially in the cash flow forecast.
Other appendices could be copies of any documents that will support what you have
said previously.
They might include:– accurate summaries of any market research, either your own or
research that has been professionally carried out; – photocopies of local newspaper articles
describing a need for a service you propose to provide; – pictures of your product or products;
– copies of your leaflets or other promotional literature; – the results of any testing of your
product, especially if it has been done by an independent organisation. The general outline
 given so far is intended as a guide for those seeking funds for a new enterprise. If you want
finance to expand an existing business or to take over an existing shop, the principles will
remain the same, but you will need to write an additional paragraph or page, preferably at the
beginning of your business plan, to do with:
9. The history of the business
This section should be brief, factual, and based on the audited trading results. At least three
years’ results should be shown, if possible, as well as the last balance sheet. Reference may be
made to such fuller comment, explanation and plans for change as may be given in later pages,
eg under ‘Marketing’ or ‘Management’. The history should also tell of any major changes in
ownership or management of significant market alterations or trends – in other words, it
should mention any important happening that has affected the business over the past few
years.
 Unit IV
Developing Marketing Plans

Developing a powerful Marketing Plan

WHAT IS MARKETING PLANNING?
 A company’s management has many important roles. It sets objectives, and
develops plans, policies, procedures, strategies and tactics. It organises and co-
ordinates, directs and controls, motivates and communicates. Planning is only
one of its roles but a vital one: the company’s corporate or business plan
guides it forward. The marketing plan is an important part of this overall plan.
 The marketing planning process therefore needs to be carried out as part of the
company planning and budgeting process. The marketing plan sets out the
marketing objectives of the company and suggests strategies for achieving
them. It does not include all the company’s objectives and strategies.
 There will also be production, financial and personnel objectives, none of
which can be set in isolation. The plan for the company comprises a number of
sub-plans including the overall company marketing plan which need to be
agreed and co-ordinated into one overall business plan. In turn, the marketing
plan can be broken down into a number of smaller marketing plans for
individual products or areas, which can be prepared as and when needed.

What is marketing?
The dictionary definition of marketing is: ‘the provision of goods or services to meet
consumers’ needs’. In other words, marketing involves finding out what the customer wants,
matching a company’s products to meet those requirements and, in the process making a
profit for the company. Successful marketing means having the right product available in the
right place at the right time and making sure that the customer is aware of it.
Unlike selling, it aims to bring in ‘tomorrow’s orders’. Bringing together the abilities
of the company and the requirements of the customer occurs in the ‘real world’; the
‘marketing environment’, which is not controlled by individuals or companies, is constantly
changing and must be monitored continuously.
Marketing therefore means considering: The abilities of the company The
requirements of the customer The marketing environment. The abilities of the company can
be managed by its marketing department. They can control the four main elements of a
company’s operation, often called ‘the marketing mix’.
The marketing mix, or the four Ps relate to: The product sold (Product) The pricing
policy (Price) How the product is promoted (Promotion) Methods of distribution (Place)
These are four controllable variables which allow a company to come up with a policy which
is profitable and satisfies its customers.

What is marketing planning?

The term marketing planning is used to describe the methods of applying marketing resources
to achieve marketing objectives. It is used to segment markets, identify market. position,
forecast market size, and plan viable market share within each market segment. The
marketing planning process involves:
Carrying out marketing research within and outside the company
Looking at the company’s strengths and weaknesses
Making assumptions
Forecasting
Setting marketing objectives
Generating marketing strategies
Defining programmes
Setting budgets
Reviewing the results and revising the objectives, strategies or programmes.

Marketing planning will:

Make better use of company resources to identify marketing opportunities
Encourage team spirit and company identity
Help the company to move towards achieving its goals.

Marketing planning is a continuous process, so the plan will need to be reviewed and updated
as it is implemented.
Stages in the preparation of a marketing plan:

Set corporate objectives

Carry out external marketing research
Carry out internal marketing research
Carry out SWOT analysis
Make assumptions
Set marketing objectives and estimate expected results
Generate marketing strategies/action plans
Define programmes including advertising/promotions plan
Set budgets
Write plan
Communicate plan
Use control system
Review and update

SITUATION ANALYSIS
Before you can decide on your marketing objectives and future strategies, you need to
understand the position of your company and its products in the marketplace.
Situation analysis can help you do this:
It reviews the economic and business climate
It considers where the company stands in its strategic markets and key sales areas
It looks at the strengths and weaknesses of the company – its organisation, its performance
and its key products
It compares the company with its competitors
It identifies opportunities and threats.

Before you can start this process, you need to carry out a marketing audit.

The marketing audit:

The marketing audit is a detailed examination of the company’s marketing environment,
specific marketing activities and internal marketing system. It examines the company’s
markets, customers and competitors in the context of the overall economic and political
environment. It involves carrying out marketing research and collecting historical data about
your company and its products. It is an iterative process. Only when you start to analyse your
own in-house data do you realise which external market sectors you need to look at, and once
you look at the external data you may notice applications that are small for your company, but
larger in a market context and therefore require further investigation.

The marketing environment – market research

At the same time as considering historical sales data for your company, you need to collect
information that will allow it to be put into perspective. This involves market research –
collecting information about your markets and then analysing it in the context of the marketing
of the products.
In its simplest form, market research can be defined as a combination of in-house experience,
sales force market intelligence and marketing research. From these sources, we extract
marketing information which allows us to analyse, compare and evaluate.
Market research is used to:
Give a description of the market
Monitor how the market changes
Decide on actions to be taken and evaluate the results.
Market research data consists of primary and secondary data.
Primary data comes from primary sources, ie from the marketplace and is obtained either by
carrying out field research directly or by commissioning a consultant or market research
company to do it for you.

Secondary data is not obtained directly from fieldwork, and market research based on
secondary data sources is referred to as desk research. Desk research involves the collection of
data from existing sources, such as: Government statistics (from the Central Statistical Office)
Company information (from Companies House or directories such as Kompass or Kelly’s)
Trade directories Trade associations Ready-made reports (from companies such as Keynote,
Euromonitor, Mintel, and Frost & Sullivan)
The market research information for your marketing plan will consist of market information
and product information.
Market information needs to cover:
The market’s size How big is it? How is it segmented/structured?
Its characteristics Who are the main customers? Who are the main suppliers? What are the
main products sold?
The state of the Is it a new market? market A mature market? A saturated market?
How well are Related to the market as a whole? companies doing? In relation to each other?
Channels of What are they? distribution
Methods of What methods are used – press, communication TV, direct mail? What types of
sales promotion?
Financial Are there problems caused by taxes or duties? Import restrictions
Legal Patent situation Product standards Legislation relating to agents Trademarks/copyright
Protection of intellectual property (designs/software, etc)
Developments What new areas of the market are developing? What new products are
developing? Is new legislation or regulation likely?

Product information relates to your own company, your competitors and the customers:
Potential customers Who are they? Where are they located? Who are the market leaders in
their fields?
Your own company Do existing products meet customers’ needs? Is product development
necessary? Are completely new products required? What would be the potential of a new
product? How is your company perceived in the market?
Your competitors Who are they? How do they compare with your company in size? Where are
they located? Are they owned by key potential customers
Do they operate in the same market sectors as you? What products do they manufacture/sell?
How does their pricing compare with your own? What sales/distribution channels do they use?
Have they recently introduced new products?

What is market segmentation?

Different customers have different needs. They do not all require the same product or product
benefits, and not all customers will buy a particular product for the same reasons. Market
segmentation allows you to consider the markets you are actually in and the markets you should
be in. It is useful to split your customer base up into groups of customers who all have similar
needs.
Each of these groups constitutes a market segment. For consumer goods and services, it is usual
to define market segments by using methods of classification which separate consumers by
socio-economic group, age, sex, occupation or region. The marketing of industrial goods and
services is different, because the customer is usually another company or a government
department. The number of customers is likely to be closer to 10,000 than 10 million and may
only be a few hundred in the case of suppliers to power stations, coal mines, etc. The main
ways of defining market segments here are:
By geographical area
o By industry or industry sub-sector
By product By application By size of end-user By distribution channel – distributor,
equipment manufacturer, end-user.
Segmentation can also be based on:
Order size Order frequency Type of decision-maker. The key is to let the marketplace segment
itself, because the individual segments exist independently of the company and its products.
 E-commerce

The nature of e-commerce Before looking at the legal detail and common pitfalls of e-commerce, we
will initially consider the nature of e-commerce – what exactly is it? We will also look at some
terminology that is frequently used by e-commerce lawyers and business people, always bearing in
mind that what we are dealing with here is not the technology, but rather the way the law applies to
the transactions that are undertaken using the technology.

o E-commerce (or electronic commerce) is the term used to denote a commercial (usually
contractual) transaction that takes place between two or more people using the
communications infrastructure known as the Internet.
o The first thing to note is that there is a range of e-commerce transactions, the following of
which are examples:
o • the purchase by an individual of a book from a commercial website such as that run by
Amazon.com • the ordering by Company A of office stationery from Company B’s website •
the exchange of e-mails between two persons whereby it is agreed that a certain service will
be carried out by one party in exchange for a fee from the other. We do not usually think of
the latter type of transaction as falling within the category of e-commerce, but it is just as
much an electronically formed contract as the other two examples:an exchange of e-mails
can result in a legally binding contract.
o For example, if I send you an e-mail offering to sell you one dozen doughnuts, and you
respond accepting my offer, this is just as much an e-commerce transaction as one taking
place using the colourful pages and flash technology of the World Wide Web. Initially it will
be important for an e-commerce business to identify whether its e-commerce transactions
will be classified as B2B (business-to-business) or B2C (business-to-consumer).
o This is because the law applies in a different way to each. Of course, it may be that the e-
commerce business anticipates engaging in both types of transaction. The differences
between these two types of transaction will be referred to throughout this Report.
o Other terms commonly referred to throughout this Report are as follows: • World Wide Web
– that part of the Internet which uses the Hyper Text Transfer Protocol (HTTP) to display so-
called web pages and to allow links between such pages anywhere on the Internet. • ISP
(Internet Service Provider) – a provider of Internet connectivity. • ASP (Applications Service
Provider) – an online provider of computer applications, such as software.
o The subject of e-mails and the potential liabilities that can arise for employers from their
inappropriate use is a subject in its own right and will not be considered in detail in this
Report.
o The law of commerce: The law does not currently recognise an e-commerce transaction as
being inherently different from a non e-commerce transaction. However, due to the online
nature of e-commerce, particular aspects of the law apply differently where a transaction
takes place online. This section will briefly consider those aspects of the law that apply to
both online and offline transactions. This will be followed by an introduction to those areas
of the law that have particular application in the case of e-commerce. None of the topics
listed below – aspects of law that apply to commercial transactions generally – will be looked
at in any detail in this Report, but it is important to put the e-commerce transaction in the
context of its commercial and legal setting. Trading vehicle In the case of an existing business
wishing to move online, the legal infrastructure will already be in place.
o For start-ups it is important to consider the way that trading is to be carried out. It may be
that the business will be a partnership. Alternatively, it might be a registered limited
company. E-commerce start-ups should usually be advised to use a company for trading
purposes. The advantages are many, the two main ones being that it is easier to attract
investment capital, and that the owners of the company (its shareholders) will benefit from
limited liability. Shares and responsibilities This is an issue for start-ups.
o If a company is chosen as the appropriate trading vehicle then there will be a number of
issues that must be agreed upon by the participants:What are the appropriate proportions
for share ownership? Who are the directors going to be? Who will be Company Secretary?
Will a shareholder agreement be needed? Appropriate legal advice should be sought on
these issues. CHAPTER 1: ORIENTATION 6 Taxation Once again the normal considerations will
apply to both offline and online transactions.
o The position is slightly complicated in an e-commerce transaction due to the greater
likelihood that such a transaction will involve parties who are not located in the same
country.
o The subject of intellectual property is relevant to all businesses but may be particularly
important to e-commerce as the business model may involve a greater use of intellectual
property. For this and related reasons this Report will deal with a number of intellectual
property issues in its various chapters. Terms and conditions of trade Again, this is relevant to
all businesses.
o The terms on which a business obtains its supplies, and upon which it trades with its
customers, are of fundamental importance. Incorporation of a business’s terms into its
contracts is not usually a problem with offline transactions but significant issues commonly
arise with an e-commerce business – see Chapter four for further details.
o Choice of law and jurisdiction will be an issue in some contractual arrangements, both on
and offline. The law of e-commerce Of greater significance, and the subject of this Report,
are those areas of the law that apply specifically to e-commerce. This may be due to the fact
that ‘old’ law applies in an unusual way to e-commerce due to the unpredictable (at the time
that law was made) nature of the transaction. Or it may be due to the presence of ‘new’ law,
which, though it may not have been formulated to deal with e-commerce exclusively, clearly
has it in contemplation as the main target of its intended regulation.
o The list that appears below contains those areas of law that are of particular (and in some
cases exclusive) interest to e-commerce businesses: Formation of contract How does the law
of offer and acceptance apply to an online transaction? In other words, how will a contract
be formed in the virtual world? Will a web page that displays a product for sale be an offer or
an invitation to treat? This issue has yet to be decided by the courts.
o Intellectual Property Rights Much of the value in an idea for an e-commerce website can be
tied up in the Intellectual Property Rights (IPR’s).It is essential, particularly when trying to
attract seed money from venture capitalists, that these IPR’s are delineated and transferred
to the trading vehicle. They may be owned by a number of different people and so IPR
assignments will need to be executed at an early stage. In any event the value of IPR’s is
notoriously underestimated by businessmen. Appropriate steps must be taken to protect this
value and to take steps to safeguard any brand name and associated goodwill.
o Copyright: Copyright is of course comprised in IPR’s, but there are some specific
considerations in relation to copyright that need to be looked at. We know that the law of
copyright protects literary and artistic works and that these are the sorts of works that
comprise a web page. So far so good. But what about links from one web page to another?
Could they constitute breach of copyright?
o Of course in most instances, there would be no complaint because a link from one website to
another would generate increased traffic and this surely is the objective of websites. But in
one case a newspaper’s website contained a link to the news section of another newspaper’s
website. It was held in an interim application to the court that this could constitute copyright
infringement.
o The reason for the case was that the link bypassed the front (or home) page of the other
website and so the users did not get to see the advertising messages on that home page –
this technique is known as deep-linking. Sites that undertake deep-linking should be aware
of the potential legal challenges that could arise.
o Domain names and cybersquatting: The fact that every website must have a unique Internet
address means that many commercial enterprises will be disappointed in their desire for a
specific domain name. This is the problem that is inherent in a first-come-first-served system
of domain name registrations.
o Difficulties can arise when one business feels it should be entitled to use a domain name that
has already been registered by someone else. Domain names are considered in detail in
Chapter three together with the practice known as ‘cybersquatting’ and the possible
methods for acquiring a domain name that has already been registered by someone else.
o Data protection This area of the law governs what may and what may not be done with
individuals’ personal information. In many cases much of the value in an e-commerce
business is in its customer database, which may consist of a variety of information including
name, address, e-mail address, date of birth, shopping habits, annual household income, etc.
The law establishes a code of conduct (known as the Eight Data Protection Principles) for the
processing of such data as well as a right for every individual to see a copy of such data if
they request it.
o The significance of data protection law for e-commerce businesses. Distance Selling
Regulations Towards the end of 2000,and in response to European Union legislation, the UK
passed the Consumer Protection (Distance Selling) Regulations. These regulations require all
UK businesses that enter contracts with consumers ‘at a distance’(clearly this includes, but is
not exclusive to, Internet transactions) to do two main things that they were not legally
obliged to do before.
o The first is to provide certain specific information to the consumer and the second is to allow
consumers a ‘cooling-off’ period of seven working days from receipt of goods to return the
goods for a full refund. IT requirements There will be a number of legal considerations which
arise from the infrastructure and services which are required for an e-commerce business.
Hence there may be purchase or rental of hardware and software, rental of server space if
required and a website hosting and development agreement where the hosting is to be
outsourced.
o These topics are considered where relevant throughout this Report. Law and jurisdiction One
of the difficulties with an Internet transaction is that the buyer and seller may be in different
 parts of the world. The question then arises as to which legal system will govern the contract
in the absence of any binding express provision. A related question but one which is more
complex and somewhat political is which court system will have jurisdiction to hear any
relevant litigation.

E-commerce contracts
Virtually all commercial transactions are undertaken in the setting of a legally binding contract.
Indeed, without the presence of such a contract the parties would generally be unwilling to perform
their obligations (such as the delivery of goods, the performance of a service or the payment of
money) under the transaction.
Contracts provide certainty as to the obligations of each party and, more importantly, a guarantee of
the right to sue the non-performing party for breach. The law of contract dates back centuries, and
has equal application to an ecommerce transaction as an offline contract. But the nature of an e-
commerce transaction gives rise to some special problems that do not arise offline:
• Formation of the contract – for each party to have confidence that the performance of its
obligations will have legal effect, it is of vital importance that the contract has actually been formed
at the time of that performance. In the offline world the existence of a contract can be evidenced in
many ways – such as a signature on a printed order form or a note of a conversation – that are not
available in the online world.
• Incorporation of contractual terms – commercial transactions take place under a set of contractual
rules. Usually these rules are set out in written form and will apply to the contract by virtue of being
‘incorporated’ within it. In the offline world terms are included in a contract by agreement. There is a
considerable body of caselaw that describes how and why such terms will be incorporated. That
caselaw may not, and indeed in some cases cannot, apply to online transactions.
• Non face-to-face transactions – e-commerce transactions, by their definition, take place
electronically. The advantage of this is that the parties do not need to be in each other’s presence at
the time of formation of the contract. One disadvantage of this is that the law treats differently those
contracts that are entered into between a business and a consumer ‘at a distance’– the e-business
must comply with a set of rules that do not generally apply to its offline competitors.

Formation of a contract
It is generally well-known that a legally binding contract will arise where there is an offer to do
something that is met by an unconditional acceptance of that offer. By way of example, where X offers
to pay £250 for the delivery of a case of champagne to her home and Y agrees to perform that task for
that sum of money, a contract is formed.
To complicate matters, the law distinguishes an offer from an ‘invitation to treat’. An invitation to treat
is something that might appear to be an offer, but in fact is not. An example is the display of goods in
a shop window or on the shelf of a supermarket.
It has long been decided (see Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern)
Ltd [1953]) that such displays are not offers and that therefore they cannot be ‘accepted’. This is the
rule that prevents a customer from being able to force a shopkeeper to sell goods to him at the
displayed price, even where that price is clearly erroneous. Whilst in the offline world it is easy to
determine when a particular communication is an offer or an invitation to treat, such a distinction is
unclear in a virtual transaction.
Argos recently felt the effect of this when it mistakenly advertised televisions on its website with a
price tag of £2.99 instead of £299.When several people placed orders for the televisions Argos realised
its mistake and refused to supply the televisions at the price advertised. One ‘purchaser’sued the
company for failure to deliver on the contract that she said had been created. The case was settled
before it reached trial so we do not know what the judge would have decided. Although we can
speculate that, in English law at least, a website is probably an invitation to treat as opposed to an
offer, it would be wise for e-businesses to make clear the status of pricing and other information on
their sites.
Incorporation of terms
Of central importance to the e-commerce transaction are the terms and conditions on which the
contract is based and by which it is governed. An e-business will always wish to trade on those terms
that are favourable to it. For example, the business may wish to state that it is not to be held liable for
late delivery of goods, or that its total liability for defective goods is to be limited to a certain monetary
figure. In most cases this will be done by the insertion of terms and conditions on the website and by
making some reference to them during the contracting process. By completing the transaction, the
customers will effectively be binding themselves to those terms and conditions.
For the reasons mentioned above it is important for the terms and conditions of trade to form
part of the contract. Without them we must rely on the ‘default position’ provided by the law (notably
the Sale of Goods Act 1979) and this is rarely ideal for a seller. The difficulty with e-commerce
transactions is incorporating the terms into the contract is rarely a straightforward matter.
There are various techniques, such as those listed below (in descending order of preference):
• Click-through with acceptance – here the customer is required to click on a button which says, ‘I
accept’or similar. This is the best position for the e-commerce business because the acceptance by the
customer is clear and traceable. However, there is a perception that customers may be ‘put off’ by the
need for this formality.
• Click-through without acceptance – the customer is required to scroll through the conditions but
there is no acceptance button. Here there will be, at the very least, implied acceptance by the customer
if they continue with the transaction after having scrolled through the terms and conditions. •
Reference with link – here the customer is referred to terms and conditions of trade but not forced to
scroll through them.
However, there is a link that will take the customer to the terms should they wish to see them.
This is not ideal but may amount to ‘incorporation by reference’ under English law – this has
not yet been tested by the courts in the context of online transactions.
• Reference without link – there is a reference to terms and conditions of trade but they do
not appear on the site.
Again this is an attempt at incorporation by reference. It is the least satisfactory method and
is unlikely to have the desired effect in an e-commerce transaction as there is no reason why
the terms and conditions could not appear somewhere on the website. The legal formalities
for online trading are expected to grow. The European Union, for example, has recently
proposed several new laws which will govern e-commerce in the future.
With this in mind, businesses would be wise to adopt a policy of requiring those
persons they contract with online to click an ‘acceptance button’ to demonstrate their assent
to the terms and conditions displayed on the website.

Unfair terms:
E-businesses must be aware that since 1999 certain terms in their contracts with
consumers will be void, i.e.unenforceable and of no legal effect. The Unfair Terms in Consumer
Contracts Regulations 1999 (S.I.1999 No.2083) apply, by definition, only to B2C contracts. For
the purpose of the Regulations a ‘consumer’ is a person acting privately and not in the course
of business. In contracts with such persons any unfair term is void. An ‘unfair’ term is one
which, ‘contrary to the requirements of good faith, causes a significant imbalance in the
consumer’s rights under the contract, to the detriment of the consumer’.
Examples of terms that would be regarded as unfair under the Regulations include: •
allowing the business to change the characteristics of goods or services offered without
recourse to the consumer; and • allowing the business to terminate the contract without
reasonable notice of such termination being given to the consumer.
 Integrated Marketing Communications

What is marketing communications?

In the past, you have probably come across marketing communications under some other
commonly used names such as ‘advertising’ or ‘promotions’. Over recent years ‘marketing
communications’ has become the favoured term among academics and some practitioners to
describe all the promotional elements of the marketing mix which involve the communications
between an organisation and its target audiences on all matters that affect marketing
performance. It is important to recognise that we are talking about marketing communications
not just market communications.
Marketing involves more parties than just those defined by market members. For
marketing to be successful many people have to be involved in the communication process
both within the organisation and outside it. It is for this reason, that the description of marketing
communications given above does not say target ‘markets’, it says target ‘audiences’. This is
one of the most important concepts identified in this book and will be discussed in more detail
later. Another term that has also become fashionable is ‘corporate communications’, but some
distinctions between this and marketing communications will be identified in a moment.
The variation in the use of terminology is very confusing but not unexpected when we
consider that so many people are involved in the whole arena of communications, each with
their own interests, biases and predispositions. It is inevitable that some will use one term or
description in preference to another. This simply has to be understood and accepted. It is
important, however, that some of the distinctions between these terms are considered here.
Marketing communications and advertising Probably the most common area of confusion is to
think of marketing communications as another word for advertising. Advertising has been
around for a long time and is used extensively by the general public to mean all sorts of things.
Everybody knows something about advertising because it is seen and heard every day.
Important though it is, advertising is only a part of marketing communications and is not an
alternative term to it.
Marketing communications, the marketing mix and the 4Ps Marketing communications
is a part of marketing just as advertising is a part of marketing communications. When asked,
‘What is marketing?’ it is usual to talk about the ‘marketing mix’ and the most typical way of
describing this is as the ‘4Ps’ – Product, Price, Place and Promotion.
While we do not want to enter the debate as to whether or not this is the best way to
define the marketing mix, what is important is that promotional activities are a fundamental
part of marketing. Marketing communications and promotions It is more difficult to
differentiate ‘promotions’ from marketing communications, so much so that it is wise to
consider it as a term that can be used interchangeably with it and we do so at various times
within this book. In particular, the concept of the marketing communications mix’ is commonly
called the ‘promotions mix’ or the ‘promotional mix’; indeed, Crosier (1990) clearly states that
the terms have exactly the same meaning in the context of the ‘4Ps’. Although it can be easily
argued that marketing communications is a broader concept than promotions, in the context of
this book there is no intended difference in their general meaning or use.

Why use the term ‘marketing communications’ at all?

You may be wondering at this point why should we even want to confuse or replace the
perfectly acceptable word ‘promotions’ with a rather more cumbersome phrase, ‘marketing
communications’? The answer, first, is that this is a term which is gaining in popularity. Second,
the word ‘promotions’ is also used as a shortened version of ‘sales promotions’ which is
actually only a part of the bigger promotions picture that marketing communications represents
(see Chapter 28).
Third, as recognised by DeLozier (1976), all the marketing mix elements have a marketing
communications impact. Therefore, in a sense, marketing communications is a slightly wider
concept than promotions. The promotional mix has long been viewed as the company’s sole
communications link with the consumer. However, this kind of provincialism can often lead to
sub-optimization of the firm’s total communications effort. Because if viewed in isolation,
promotion can actually work against other elements in the marketing communications mix.
(DeLozier 1990, p. 165).
Marketing communications and corporate communications:
What about marketing communications and corporate communications: how are these
differentiated? One way of considering the problem is to suggest that the generic term ought to
be corporate communications of which marketing communications is a part. In this way, it can
be said that corporate communications includes marketing communications and some other
forms of communications as well, that is, communications which are not related to marketing
activities. So, perhaps, it can be argued that communications with employees or shareholders
or other stakeholders that are not on marketing matters would be examples of corporate
communications but not marketing communications.
In this way, the distinction between the two is only one of content of communication,
not of methods of communication. Blauw (1994) defines corporate communication as ‘the
integrated approach to all communication produced by an organisation directed at all relevant
target groups’ and van Riel (1995) makes the distinction that corporate communication consists
of three main forms; marketing communication, organisational communication and
management communication. Management communication is perceived by van Riel as the
most important of the three, and comprises communications by managers with internal and
external target groups. Organisational communication he defines as a heterogeneous group of
communications activities which include internal communication, corporate advertising, public
relations and other communications at the corporate level.
In this grouping he includes much of what we include in marketing communications
(which we see as a natural extension of product promotions to include any corporate promotion
that impacts on marketing performance). Marketing communications, which van Riel states
takes the largest share of the corporate communication budget, consists primarily of those
forms of communication that support sales of particular goods and services; as such he
presumably restricts marketing communications to the product level only.

The marketing communications process and the IMC Process Model:

Fundamental to the understanding of marketing communications is an understanding of
the marketing communications process, i.e. how marketing communications work from the
sender of the communication to the receiver of it. This, structured around the IMC Process
Model, forms the basis for the first part of the book. Schramm (1960) is frequently attributed
with originally modelling the communications process as involving four key components.
These are shown in Exhibit 1.1:
Sender Message Media Receiver
Who? Says what? By which means? To whom? With what effect

● The sender is the originator or source of the message. In practice, agents or

consultants may actually do the work on behalf of the sender.
● The message is the actual information and impressions that the sender wishes to
communicate.
● The media are the ‘vehicles’ or ‘channels’ used to communicate the message without
which there can be no communication. Media can take many different forms.
 ● The receivers are the people who receive the message. The skill is in ensuring that
this whole process is carried out successfully, that the right messages are received by the right
people in the right way.
But things do go wrong! Schramm’s (1960) concept of the communications process is
the foundation of our understanding of marketing communications, and the four elements
provide a basic structure. The IMC Process Model, however, provides a much more
comprehensive framework for understanding how marketing communications work.
There are more key elements in our model of the marketing communications process,
compared to Schramm’s. Four of the elements are in common with Schramm’s model: sender,
message, media and receiver. The receiver box, however, is expanded to identify that either
they may be members of the target audience or non-members – marketing communications are
frequently seen and heard by others than those an organisation has targeted.
Receivers may subsequently take no action or a variety of different actions which
include purchase, consumption and word-of-mouth communication with others. The IMC
Process Model recognises that marketing communications may fall short and not be received
by all or only a limited number of receivers

The marketing communications mix and the IMC Mix Model:

The marketing mix is one of the foundation stones of marketing just as the marketing
communications mix lies at the foundation of marketing communications. For ease of
reference, the marketing mix has become known as the 4Ps, a term and classification devised
by E. Jerome McCarthy and first used in his basic marketing text.
The term ‘marketing mix’, however, was first coined by Neil Borden of Harvard
Business School in 1948. It gained in popularity after his address to the American Marketing
Association in 1953 (Gould 1979). The marketing mix represented, to Borden, a range of
‘ingredients’ which, rather like a recipe, would create a product capable of satisfying customer
and consumer requirements if ‘mixed’ properly. Borden’s original set of ingredients consisted
of twelve elements: product planning, pricing, branding, advertising, promotions, packaging,
display, personal selling channels of distribution, physical handling, servicing and fact-
finding/analysis. As a means of simplifying the list, McCarthy shortened it to four: Product,
Pricing, Place and Promotion.
 The Place element, of course, relates to Borden’s distribution elements of physical
handling and channels of distribution. These were referred to as place (getting the products to
the marketplace) rather than distribution because ‘3Ps and a D’ does not have the same ring to
it as 4Ps! It is important to note that half of Borden’s original list of twelve elements has been
shortened into the promotion ‘P’ – branding, advertising, promotions, packaging, display and
personal selling. In some respects, this hardly seems to do it justice.
Indeed, despite its popularity, many authors have criticised the limitations of the 4Ps
classification of the mix. We can see from this brief history of marketing why the general term
for this area of marketing has become known as promotion and why there has been a need to
refer to a promotions mix to give recognition to the variety of activities that fall into this
category. However, it is also clear that the list provided by Borden fails to make reference to
other forms of promotion (such as public relations) which have an equal right to be included in
the mix. Successive researchers and authors on the subject have attempted to remedy this. As
explained earlier, another term, ‘marketing communications’, is becoming widely used as an
alternative descriptor to ‘promotion’ as there is really no need to link it directly to the 4Ps of
the marketing mix. Many people favour it, as it seems more appropriate in describing a range
of communications activities. For our purposes in this book, we do not make a distinction
between the two, but where ‘sales promotions’ as a term is used, it represents a sub-group
within the promotions or marketing communications mix. Despite whatever drawbacks it may
have, probably the simplest way of classifying the marketing communications mix is as the
four elements basically proposed by numerous authors such as DeLozier (1976) and Kotler et
al. (1999).

What is integrated marketing communications?

Put in its simplest form, integrated marketing communications (IMC) is the bringing together of all
marketing communications activities. To many, IMC has become recognised as the process of
integrating all the elements of the promotional mix. While this may be considered an adequate
working definition, it fails to highlight a number of significant features which IMC should embrace.

o Duncan, 2002: IMC is a process for managing the customer relationships that drive brand
value. More specifically, it is a cross-functional process for creating and nourishing profitable
 relationships with customers and stakeholders by strategically controlling or influencing all
messages sent to these groups and encouraging data-driven, purposeful dialogue with them.
o Shimp, 2000: An organisation’s unified, coordinated effort to promote a brand concept
through the use of multiple communications tools that ‘speak with a single voice’. Kotler et al.,
1999
o IMC is the concept under which a company carefully integrates and coordinates its many
communications channels to deliver a clear, consistent and compelling message about the
organisation and its products. Betts et al.,1995
o IMC is the strategic choice of elements of marketing communications which will effectively and
economically influence transactions between an organisation and its existing and potential
customers, clients and consumers.

o Reported in IMC is a concept of marketing communications planning that recognises Schultz,

1993 the added value of a comprehensive plan that evaluates the strategic roles of a variety
of communication disciplines – for example, general advertising, direct response, sales
promotion, and PR – and combines these disciplines to provide clarity, consistency, and
maximum communications impact (American Association of Advertising Agencies).

Clearly identified marketing communications objectives which are consistent with other organisational
objectives.
● Planned approach which covers the full extent of marketing communications activities in a coherent
and synergistic way.
● Range of target audiences – not confined just to customers or prospects nor just to imply end
customers but include all selected target audience groups. These may be any specified ‘public’ or group
of ‘publics’ – stakeholders (e.g. employees, shareholders, suppliers), consumers, customers and
influencers of customers and consumers, both trade and domestic.
● Management of all forms of contact which may form the basis of marketing communications activity.
This involves any relevant communication arising from contact within the organisation and between
the organisation and its publics.
● Effective management and integration of all promotional activities and people involved.
● Incorporate all product/brand (‘unitised’) and ‘corporate’ marketing communications efforts.
● Range of promotional tools – all elements of the promotional mix including personal and non-
personal communications.
● Range of messages – brand (corporate and products) propositions should be derived from a single
consistent strategy. This does not imply a single, standardised message. The integrated marketing
communications effort should ensure that all messages are determined in such a way as to work to
each other’s mutual benefit or at least minimise incongruity.
● Range of media – any ‘vehicle’ able to transmit marketing communication messages and not just
mass media.

Definition of integrated marketing communications:

Integrated marketing communications is a process which involves the management and
organisation of all ‘agents’ in the analysis, planning, implementation and control of all marketing
communications contacts, media, messages and promotional tools focused at selected target
audiences in such a way as to derive the greatest enhancement and coherence of marketing
communications effort in achieving predetermined product and corporate marketing communications
objectives.
In its simplest form, IMC can be defined as the management process of integrating all
marketing communications activities across relevant audience points to achieve greater brand
coherence. The search for integration should not be taken to imply a uniformity of communications
which many authors seem to suggest. While creative treatments and messages should be mutually
consistent, this is not necessarily to prescribe a single treatment, message or approach. A single,
common theme has much to commend it but it is perfectly feasible to consider the integration of
disparate approaches and messages targeted at a variety of groups. What needs to be said to
shareholders may well be different to messages targeted at employees, which may well be different to
the trade, which may well be different to customer group A, which may well be different to customer
group B.
And the images accompanying these messages may also need to be different. Indeed, it may
be argued that under such circumstances there is greater need for integration and management of
that integration if confusion is to be avoided. Having said this, it should be noted that it is typical, good
practice to distil the ‘essence’ of a product or corporation as a brand by the selection of a few choice
words and single proposition which all involved with that brand can recognise and to which they can
respond. These are factors that have to be considered when developing marketing communications.
The selection of one or more messages is a management decision that should be considered in the
light of prevailing circumstances and objectives. It is not something that should be prescribed
universally. The issue is one of the benefits of a standardised message versus different but mutually
consistent messages.
 Benefits of integrated marketing communications

The principal benefit derived from the integration of marketing communications is synergy. Synergy
has been described as the 2 + 2 = 5 phenomenon. By bringing together the various facets of marketing
communications in a mutually supportive and enhancing way then the resulting ‘whole’ is more than
the simple sum of its parts. This can be seen when, for example, images and messages used in
television advertising are carried through poster and magazine advertisements and are also presented
at point-of-sale display, on packaging, sales promotion and merchandising and in other promotional
activities. Each element enhances and supports the others in a consistent fashion. For example in
BUPA’s campaign, highlighting online purchasing in the advertising generated a 400% increase in
website hits (Marketing Business 2002). Research has confirmed the link between increased integrated
marketing communications and increased sales, share and profit (Marketing Week 2002a).

Benefits:
Creative integrity ● Operational efficiency ● Consistent messages ● Cost savings ● Unbiased marketing
recommendations ● High-calibre consistent service ● Better use of media ● Easier working relations
● Greater marketing precision ● Greater agency accountability

Not only should the positive benefits of integration be considered, but so too should the consequences
of not achieving integration – and it should not be assumed that a lack of integration simply results in
a neutral situation. The problem of ‘negative synergy’ or dysfunction should be recognised.
o A lack of integration of marketing communications elements not only means that various
promotional tools have to perform independently of the other elements but also that,
collectively, the total effort can be counter-productive.
o Negative effects can be produced. For example, sales promotion activities can portray a cheap
or value-for-money product with money-off coupons and discount offers whereas distribution
and merchandising activity may attempt to show the product in a status or prestige context
with a high value image.
o The ensuing confusion may result in reduced sales. Duplication of effort and wasted effort can
also result in higher costs. It has to be understood that there is a price to pay for not achieving
integration.
The 4Es and 4Cs of integrated marketing communications
Integration is not easy to achieve but when it is achieved, the 4Es and 4Cs of IMC create the
synergistic benefits of integration.
The 4Es of integrated marketing communications are: ● Enhancing – improve; augment;
intensify. ● Economical – least cost in the use of financial and other resources; not wasteful. ●
Efficient – doing things right; competent; not wasteful. ● Effective – doing the right things;
producing the outcome required; not wasteful. The 4Cs of integrated marketing
communications are: ● Coherence – logically connected; firmly stuck together. ● Consistency
– not self-contradictory; in agreement, harmony, accord.
● Continuity – connected and consistent over time. ● Complementary communications –
producing a balanced whole; supportive communications. Confusion is caused between the
use of ‘efficiency’ and ‘effectiveness’ but distinguishing between them is important. Like
‘economical’, they are both to do with not being wasteful, but it is possible to be very efficient
in terms of doing things right, but unless you are being ‘effective’ you may not be doing the
right things – the task may be wrongly defined. It is, therefore, possible to be efficient without
being effective and vice versa.
The issue is one of managing integrated marketing communications efficiently and
economically but also ensuring that the right marketing communications tasks are selected in
the first place. As suggested earlier, it is common to believe that integrated marketing
communications can only be achieved by adopting a standardised message. Or, to put it in the
terms used above, enhancing and coherent communications can only be achieved by
developing a single message/image throughout. This is a basic misconception although it does
carry an element of truth and good practice depending upon the ‘level’ of integration to which
it is applied.
In developing a campaign or part of a campaign targeted at a specific audience, a
single proposition is less likely to confuse and is more likely to create impact. However, to the
extent that integrated marketing communications may be targeted at many different
audiences with multiple objectives, it is more likely that not one but multiple messages may
be used.
What is significant is that those messages should be coherent, consistent and
complementary. They may be different but should not be contradictory and in so doing, the
brand’s (corporate and product) proposition should not be compromised.

Developing team, Inviting candidates to join Team and Leadership model

Interdependence, interaction and interrelationship of the different sub-systems are within an
organisation. This implies that individuals, teams and organisations are viewed as open
dynamic systems. With systems, there are usually input, throughput and output. For instance,
on the organisational level, labour enters the organisation and several design elements form
part of the organisation’s throughput, such as the strategy and structure. As output, the
organisation could measure the financial results and stakeholders’ satisfaction.
Liden and Antonakis (2009, p. 1587) report that despite “Lewin’s identification of the
importance of context in behavioural research over 70 years ago, leadership psychology tended
to ignore the context”. Lewin proclaimed in those early years that behaviour is a function of
person and environment. Consequently, behaviour can only be comprehensively understood,
within the situation in which it is embedded. Liden and Antonakis (2009, p. 1587) declare in
their introductory article to the special issue in Human Relations on “Considering context in
psychological leadership research”, that “although context has been acknowledged as salient
to leadership for decades, only in recent years has empirical research given the context
widespread attention”.
They perceive Fiedler’s (1967) contingency theory as an early adaptation of Lewin’s
thesis in which the effectiveness of a leadership style is dependent on the context. We thus
advocate for a framework that takes leadership further than the traditional perspective of
motivating their direct followers to an approach of being in relationship with followers as well
as the larger organisation and ultimately society. It relates to the Leader–Member Exchange
theory of leadership (Uhl-Bien, 2006).
Scholars like Zhang and Rajagopalan (2010) highlight that the challenge and success
in the implementation of strategic change in organisations are situated in leadership’s ability to
determine the right scale and scope of strategic change in relation to the organisation’s capacity
to absorb change. A quote from an interviewee demonstrates this intention as follows, “We
pace the implementation of our culture interventions to ensure the organisation is ready to
implement them”. This ability to pace implementation and determine the right scale for change,
relates to a contingency approach.
Accordingly, the most important question leaders could ask in relation to change is
what is required, given the context. For example, leaders are required to use their judgment in
pacing their interventions. Several of our interviewees mentioned the disruption that change
generally had caused in their organisations. Zhang and Rajagopalan (2010) concur and describe
an inverted U-shaped relationship between strategic change and organisational performance.
At low levels of strategic change, a positive effect on organisational performance is evident. In
cases of high levels of strategic change, a negative effect is witnessed.
These are the types of principles that we deem to be important for leaders to take
cognisance of. Liden and Antonakis (2009) point out that the difference between Fiedler’s
(1967) and House and Mitchell’s (1974) approaches is that Fiedler argued that leaders had to
be assigned to positions and situations, fitting their style, where the other scholars believe that
leaders can change their styles to fit the situation Scholarly practitioners’ work relevant here is
Kutz (2008) and Kutz and Bamford Wade (2013), who found that leaders are able to and should
adapt their styles to fit the situation.
For example, the study of Kumalo and Scheepers (2018) revealed that different
leadership styles are relevant at different phases of a turnaround process in the public service
in South Africa; for instance, the transactional style was most relevant when the decisions
around the retrenchments and restructuring had to be made and the transformational style was
required in the later recovery phase, whereas the authentic leadership style was applied in the
transformational phase. We advocate for leadership to be aligned to what the situation or in this
case, organisational change requires, and in cases where a different leadership style is required,
that leaders would exit the situation and allow others to lead, as the 10th or final “Enabling”
role of Change Leadership in our model suggests

Orientation to the Ten Enablers Model

Given the vast spectrum of information related to change leadership and management and
observing the confusion of roles and titles so rife in practice, we decided to develop our own
model to explain what is needed to be done in organisations to affect change. In the Ten
Enablers Model we explore ten different steps required to bring about successful change. The
Ten Enablers Model is the result of collectively spending more than 50 years in practice
consulting to and leading a wide variety of change projects, as well as observing what makes
some projects successful and what some projects lacked.
The model has also been shared with literally thousands of managers and clients who
gave feedback and improved the model throughout the years. Many different respondents from
all over the emerging market world also added and contributed to the development of this
model. We are thankful for these contributions and the collective intelligence which helped us
develop this model. We believe it to be a robust framework for enabling change at an individual,
team, organisational and societal level and that it integrates the concepts of leadership,
management and change.
As the contextual environment in which change takes place in emerging markets are
often volatile, messy and chaotic dealing with sometimes difficult workforce and complex
leadership interactions, the Ten Enablers Model seeks to provide a holistic approach to dealing
with change in emerging markets. It has been used successfully in the Southern African
emerging market context, and the authors of this volume believe it can be used with great
success in other emerging markets. The model in its purest form was first introduced as part of
a Change Management Course presented by AECI Ltd., South Africa in the late 1980s. It
originated from the classic work of Kurt Lewin but was known as the four-box model and was
widely used by managers and technical specialists throughout the organisation.
In Fig. 4.1, the horizontal axis indicates that change happens over time, while the
vertical axis shows improvement in organisational success (in which ever way success might
be defined by the organisation). In this model, the first step in the process is to ask the question:
Where do we want to be? The second box addresses the issue: Where are we currently? The
third defines: How will we get there? The “s” curves inside the big arrow indicates a set of
integrated drivers or initiatives, each going through their own “s” life cycle. Finally, the fourth
step in the process represents the actual actions being implemented after the planning.
Thus, the four steps in this process were defined as: 1. Create a shared vision with
meaning (FUTURE) 2. Analyse the current reality (NOW) 3. Develop a change plan (WHAT,
WHEN, WHO, HOW) 4. Put plans into actions—implement the change plan (DO IT) Through
the years the model morphed, incorporating additional elements. Many course participants,
managers, change leaders, followers and clients applied the model and through iterative
enhancements of the model, it has led to the development of the Ten Enablers Model.
While the model is presented in this volume as a fait accompli, we regard it as work in
progress and we are open to suggestions and improvements to be incorporated in future
versions of the Ten Enablers Model.

Introduction to the Ten Enablers Model:

Enabler 1, Ethos and Enabler 2, Ego Mastery.

Enabler 1, Ethos is critical as a change process without a stable, ethical foundation could lead
to chaos. If the Ethos element is lacking, the change could lead to deterioration with disastrous
consequences for the population, with only a few benefiting from the change, while the
majority suffers as a result of the change. Examples of these kinds of changes might include
the changes brought about as a result of institutionalising Apartheid in South Africa between
1948 and 1994. The second enabler is Ego Mastery. We witnessed that those leading and
participating in the change process need to manage their intrapersonal well-being. Change
leaders must be centred and balanced and be congruent with the purpose of the change. This
remains an ongoing, day-to-day process of being self-aware, obtaining feedback and growing.
It is only in this state of mind that healthy and productive relationships will be built
which will lead to engaged stakeholders and successful change projects. Explore and Eureka.
Change leaders need to be reminded that they exist in a permeable, ever-changing environment.
They must be acutely aware and continuously in touch with the external environment. They
consider the PESTLE factors (Politics, Economics, Social, Technology, Legislation and
Environment) knowing that these all have a critical impact on the organisational system in
which they find themselves. Change leaders comprehend that the optimal environment needs
to be created to encourage others to identify opportunities for the organisation to flourish.
Considering the environment, the change leader now elicits, consolidates and communicates
opportunities for change.
Change leaders need to persist until a eureka moment (also referred to as an a-ha
moment or moment of insight) is found that enables the organisation to react in a powerful,
different and unique way to the challenges and opportunities in the environment. Shifting the
paradigm mentally is one thing—to bring about the change physically, is an entirely different
challenge. Furthermore, this mind shift has to be translated into a Vision (Enabler 5) that is
crystal clear, described in detail, preferably in measurable terms with an end target date for the
change to be implemented.
Once the vision has been created, the reason for the change needs to be formulated, and
the cost of the change needs to be calculated. Without a strong case for the change, engagement
with stakeholders will be very challenging. The next step in the process is to Engage (Enabler
6) all stakeholders, to help understand the rationale of the change, to share the vision with the
stakeholders and to get them to experience the a-ha moment. Their commitment to the change
is critical as they need to agree to implement the change. Engaged stakeholders operate in
effective teams where the sum of the team’s output is more than individual efforts. In Enabler
7, Embark, the focus is now on starting the change process as well as setting and agreeing to
the goals needed to bring about the change. Change leaders and stakeholders have to understand
the current reality, test the change readiness within the organisation and start planning the
change in great detail.
In Enabler 8, Execute the focus is on achieving the goals that will move the organisation
towards its vision. It requires attention and persistence ensuring ongoing implementation to
close the gap between where we are and where we would like to be. In Enabler 8 actions are
managed to ensure movement is enabled and maintained. These actions are illustrated by the
large arrow in the model. These steps may involve many ups and downs, but the direction is
consistently moving towards the achievement of the vision. The champagne bottles in the
graphic represent the small wins which are celebrated when milestones are achieved. The forces
for and against the change are also identified and managed.
Effective change leaders thus implement this management cycle, to ensure goal
delivery against the milestones. Figure 4.3 explains that this process starts with setting SMART
(S—specific; M—measurable; A—achievable; R—realistic; T— timely) goals, planning the
resources needed to achieve the goals, then monitoring resources, reviewing and evaluating
achievement of SMART goals, motivating, coaching for the completion of goals as well as
disciplining when goals are consistently not reached. Finally, the process involves the
celebration of successes or if required as a last resort, separation. The most significant danger
in any change process is falling back into old habits. A good understanding, as well as practice
of habit forming and unlearning are required to maintain momentum and ensure sustainable
changes.
In Enabler 9, Evaluate change leaders are encouraged to review the change process and
to identify ways of improving the change process and thus documenting lessons learnt to ensure
future change processes do not repeat the mistakes of past change processes.
In the last enabler, Enabler 10, Exit, we discuss the fact that change leaders must be
competent and confident to step aside when the time is ready to create space for a “new broom”.
Successors are coached to take over to ensure a smooth transition, and change leaders move on
to new opportunities and allow successors to succeed. For some clients, the illustration in Fig.
4.2 seemed complex, and as a result, we simplified the model.
We believe that change is not linear but rather cyclical (Freedman & Ghini, 2010) and
therefore developed the Wheel Model to illustrate the cyclical process (see Sect. 4.4). In Fig.
4.4, we divided the ten enablers into four quadrants each representing four states of mind:
BEING, PLANNING, DOING and REVIEWING. Some clients still prefer the model used in
Fig. 4.2 and therefore, we decided to include both models. Enablers 1 and 2 are contained in
the BEING quadrant, enablers 3, 4 and 5 relate to PLANNING, while enablers 6, 7 and 8 form
part of the DOING quadrant and enablers 9 and 10 relate to REVIEWING.

Applying the Ten Enablers Model Using a Story

Since story telling is an effective learning method, we applied the Ten Enablers Model to the
story of Thandi following her dream.... Thandi believes life is short and every moment needs
to be savoured. She loves life and enjoys spending time with her children and her extended
family (1. Ethos). She has always loved to push herself beyond her own limits (2. Ego Mastery).
She works hard and plays hard too. She is a positive role model for her children and her
extended family.
From an early age, she has always loved reading National Geographic and spent hours
looking at photographs of distant mountain peaks on faraway continents (3. Explore). She
recently watched a programme on television about an expedition summiting Everest. She has
never climbed a mountain, but lately, it has been surfacing as one of her dreams (4. Eureka
Moments). As her roots lie deep in Africa, she decided to investigate the possibility of
conquering Kilimanjaro.
She started investigating packages and costs to conquer the highest mountain in Africa.
She realises that this is a dream (5. Envision) but if she does not get going, the dream will
remain on her bucket list until she kicks the bucket! She also knows a lot needs to be done to
fulfil this dream. Thandi starts by conducting detailed research. What does the mountain look
like? How fit does one need to be? How much does it cost? When is the best time to do the
trek? Who can help? Who has done it before and what can she learn from them? After thorough
research, Thandi takes a long hard look at her own capability. She weighs up whether she has
the means, time, energy and persistence to embark on such an arduous journey.
She realises that she will need to sacrifice sleeping in, she will have to give up the
planned family vacation, no more desserts and wine and a regimented exercise programme
would need to be followed through the winter. She does not see herself doing this alone. She
finds an expert expedition leader and starts meeting with him to discuss how she will tackle
this project. He gives her sound advice and introduces her to others who also plan on summiting
the mountain (6. Engage). She contacts her friends and enquires who would like to join her on
her expedition. She mentions it at her cell group at church and sells the vision to them (5.
Envision and 6. Engage).
 Thandi starts planning in detail (7. Embark). She draws up a budget and puts an action
plan into place. She plans three mountain climbing excursions for the year ahead, one to the
Drakensberg the other two to Table Mountain and the Cederberg Mountain (7. Embark). She
starts running every day and climbs the steps to the eleventh floor and back every evening
before she leaves work. She starts saving money every month (8. Execute). She buys her plane
ticket and her licences to climb (8. Execute). Finally, the day has arrived. She arrives in Nairobi.
Her flight to Kilimanjaro is delayed, and she is worried that she might not get to the starting
point on time. She adjusts the plan and manages to catch another flight.
She is back on track again. She makes it to the starting point in time where she meets
her fellow climbers. At first, they are a bit reluctant to get too close, but at the end of day 1,
they seem to be a tightly-knit team. They support each other and help wherever they can. The
support workers are phenomenal, and Thandi is very impressed with their level of fitness and
their positive attitude. The climb is tough, and at the high altitude Thandi suffers a great deal,
but she takes it step by step (8. Execute). And then finally, she is there! She has achieved her
dream, and it feels fantastic. On the walk down, she reflects on what this journey has cost her,
but how utterly rewarding it has been. She feels as if she is floating! (9. Evaluate)
Thandi is grateful for the opportunity she had to summit Kilimanjaro. She is proud of
her achievement, but she realises she needs to find a new goal. She starts investigating going
to Everest Base Camp. She encourages her 16-year-old son to join her in climbing Everest in
2020 (10. Exit).

[Source: Google and Books]