Theoretical and Methodological Aspects for the development of a business plan
The need for organizations to know their potential and their resources, to develop policies that are adapted to the market and to function in a competitive way, are some of the elements to take into account when starting a business. For this reason, it is essential, before undertaking a project, to carry out a plan that includes these aspects.
In this chapter, an analysis of the necessary characteristics of a business plan is carried out, as well as how the music sector develops, its main business models and how these characteristics are appreciated in Cuba.
1.1 Business Plan. Main features
There are various business plan concepts, among them we can highlight the following:
A Business Plan is a series of activities related to each other for the beginning or development of a company or project with a planning system aimed at achieving certain goals. (Fleitman, 2013)
The plan defines the stages of development of a business project and is a guide that facilitates the creation or growth of the same. It is also a cover letter for potential investors or to obtain financing. In addition, it reduces the learning curve, minimizes the uncertainty and the risk of starting or growing a company, as well as facilitating the analysis of the viability, technical and economic feasibility of a project. (Fleitman, 2013)
A "Business Plan", also called "Strategic Plan", "Long Term Plan" or "Master Plan", arises from the need to systematically collect, create and analyze, through a rational method, a set of economic antecedents and social, which allow to judge quantitatively and qualitatively the advantages and disadvantages involved in assigning scarce resources and optional use, to a specific investment initiative, which must necessarily be at the service of society and the man who lives in it. To this end, a "Business Plan" aims to amalgamate the multidisciplinary work of administrators, accountants, economists, engineers, financial administrators, computer scientists, graphic designers, lawyers and psychologists, among others, in an attempt to recognize,explain and project the complexity of the reality where it is intended to introduce a new investment initiative (project, business, organization, company) in order to increase its chances of success. (Hernández and Silva, 2011)
The lack of design of companies is becoming incompatible with changes in the environment. The increasingly competitive nature of the markets, the geographic expansion of companies and the greater demands on the part of consumers make it necessary to design them in such a way that both their processes and their results are homogeneous and predictable (Hernández and Silva, 2011).
According to Tuija Marstio in "Manual for writing a Business Plan", 2011 a business plan contains: Description of the business idea, Evaluation of markets and competitors, SWOT analysis, Definition of objectives, Marketing, Production, Management, Finance, Risk analysis and Summary.
According to the Emprendia website, in the article "The legal form of creating my company" states that the business plan is structured as follows: Identification and Justification of the Project; Analysis of Commercial Viability; Technical analysis; Economic-Financial Viability.
Hernández and Silva in “Chapter IV of Theory of Administration. Organizational competitiveness. Solution to current problems ”define that the business plan must contain: Cover, Index, Introduction, where the objectives are defined; Executive Summary, where the most important aspects of the project are established; Market study, since it is convenient to determine the existence of clients, final or organizational, that justify the start-up of business activities. To do this, the needs, tastes, desires and preferences of prospects must be identified, as well as their characteristics and locations, and decisively, their power.
From the study of all the previously exposed authors, it has been considered that the most complete study for the realization of a business plan is the following:
Project identification, is also known as the business definition stage, where the mission and vision of the project, the background and the experience accumulated by the entity are taken into account, in the case of being an organization already created.
This section also requires a precise description of the product and / or service to be offered and its purpose, added to the evaluation of its particular or distinctive characteristics and the advantages they present for the client. It is also essential to carry out an analysis of the technology that is intended to be used in the development of the entire process.
Business viability analysis, or market analysis, specifies aspects such as market size and trends, as well as conducts a competitor analysis and defines strengths and weaknesses. This analysis can be subdivided into 5 sections, which detail the content of this aspect (Marstio, 1999).
a) Market situation: This section analyzes the main characteristics of the market in which the product and / or service is intended to be inserted, including the different market niches that, once grouped together, form the global market, knowing them deeply contributes to the successful management of the company. The target audiences are also defined and fundamental information is specified to establish objectives, strategies and actions that increase profitability. For this, aspects such as: Estimated size, growth rate; geographic extent and segments; customers, needs perceptions, buying behavior; the ways in which the market operates and the main means of competition: price, quality, service, reputation; definition of the potential group of customers.
b) Product Situation: It is determined from the study of customer needs, in addition to conducting an exhaustive analysis of the competition and the most competitive products on the market, comparing them in terms of price, quality, reliability, with the objective of verifying the aspects that make it superior or different and the way to protect its originality. This allows the development of strategies that allow it to be positioned in the market in a favorable way, also managing to determine the strengths and weaknesses of the organization. For this, the following are taken into account: sales of competitive or complementary products; competitive or complementary product prices; average profit margins in your business.
c) Situation of the Competition: A good analysis of competitors is decisive, since it allows to know their potentialities. For this, it is necessary to identify the main competitors, study their offers and compare them with them to determine competitive advantages or disadvantages based on the qualities of the product and to achieve its continuous improvement, which will allow making decisions that improve the work. All this is evidenced from the analysis of the five basic forces raised by Philip Kotler through which it is possible to delve into the characteristics of the competitive environment of a company. This leads to five issues to be addressed:
- Rivalry between existing competitors: It is related to the concentration of the sector, the lack of differentiation of its products, depending in addition to high strategic interests, significant increases in capacity, exit barriers and their mobility Threat of substitute products: Substitute products are those that satisfy the same need of the same group of consumers, depending on their differentiation, the pressure exerted on the product to be launched on the market is measured Threat of new competitors: The entry of new competitors in a The sector is determined by the barriers to entry that are present, as well as economies of scale, capital requirements and the reaction of competitors to this entry. Bargaining power of suppliers:The bargaining power of the suppliers is exercised over the companies that participate in the sector when they raise prices or reduce the quality of products / services.Customers' bargaining power: Clients participate in the sector as an intervening force affecting the price level or the quality of the product and / or service offered, achieving concessions regarding prices and payment terms. They partly determine the aggressiveness of the competition. It is considered high, when the client has an important weight in the company's income.Clients participate in the sector as a force that intervenes, affecting the price level or the quality of the product and / or service offered, achieving concessions regarding prices and payment terms. They determine in part the aggressiveness of the competition. It is considered high, when the client has an important weight in the company's income.Clients participate in the sector as a force that intervenes, affecting the price level or the quality of the product and / or service offered, achieving concessions regarding prices and payment terms. They determine in part the aggressiveness of the competition. It is considered high, when the client has an important weight in the company's income.
Competitor analysis can generate a lot of very useful information. The business plan should summarize it and show that you have a clear understanding of how the market works.
d) Market Share: Determining the market share is essential to know what percent of the market can be achieved, how the different players in the market are divided, and the profits from it.
e) Market Strategies: The main actions to be taken are determined, mainly in indicators such as: price, sales, volume, reputation, product design, quality, reliability, service.
Prices are an expression determined by the company that takes into account from an objective point of view the obtaining of profits and that its preparation must be guided by the objectives of the company, costs, elasticity of demand, the value of the product before the clients, the type of user, the relative level of prices in relation to the competition, the promotion; it must stick to the circumstances of the moment.
Other characteristics: It includes the vision of potential customers on the competition, in addition to carrying out an analysis of the barriers to entry and the attitude of competitors regarding the entry of a new product to the market. As well as the study of other aspects necessary to take into account to properly manage a business such as communication and distribution system:
Communication: A company that intends to maintain its position must be recognized by all social groups, in this section issues such as the perspectives with which communication is treated, the variables that are exploited, the choice of media and advertising media are studied, the operation of the sales force, public relations and promotion.
Distribution System: Allows a correct distribution of the product and / or service. This process flows through the distribution channels that define and mark the different stages through which the service passes to the user, which is why the distribution channel could be defined as fully active "economic areas", through which the manufacturer places its products and / or services in the hands of the final consumer. Among its functions are the centralization of the decisions of the commercialization of the service, the intervention in the setting of prices and the obtaining of information about the product, competition and market, the participation in promotional activities and the collaboration in the formation of the image. of the company.To make a correct selection of distribution channels, it is necessary to take into account the sales force, that is, the location of the sales points, the market coverage and the number of units sold through them.
To carry out a comprehensive analysis, the SWOT matrix must be taken into account, where the strengths and weaknesses are determined, added to the market opportunities and the threats that the organization presents against it, through the analysis of the macro and the micro environment. All these elements are key factors when making a business plan. For this it is necessary to take into account:
External Analysis: In this case, the study is focused on both the macro environment and the micro environment of the company to detect opportunities and threats; Since if you cannot directly influence the behavior of the environment, you can, after knowing it, maintain competitive advantages and maintain the company's position in the face of the competition. For this, analyzes of different aspects are carried out such as: market, competition, distribution, etc. previously explained.
Internal Analysis: When analyzing the company internally, the search for strengths and weaknesses that it has to face the forces of the environment that may affect it should be promoted, it entails a study of the resources, instruments and skills that make up the developed capacity of the entity to seize opportunities and react to market threats. The study takes two directions: the analysis of the variables of the marketing mix of the company or the “four p's” (product, price, distribution and communication) and the economic-financial analysis of the organization.
Technical Analysis, in this aspect brief descriptions are made about the operation of the operating system and that of human resources.
Description of Operations. This point contains the infrastructure to be used in the organization, the necessary materials and / or equipment and their cost. In addition, studies are carried out to show whether the best option is being used. For this it is necessary to be clear about how the product to be offered is made and to know how the production process is carried out, highlighting the elements that favor the development of the proposed objectives. The relationship between internal manufacturing and the use of external subcontractors, in addition to the knowledge of the estimated manufacturing costs, are necessary factors to understand very well what they are and how they will be controlled or reduced; the reasons for locating your business in a certain place and the requirements in terms of premises: use, size,Cost and potential for expansion are essential aspects when starting a project. Added to the importance of quality and the methods to monitor it.
Human Resources, This section provides a clear description of the necessary personnel, by branch. The training, professional experience and specific skills for the defined positions are also detailed. The management and position positions held by all personnel involved in the development of the plan are also defined. It also includes aspects such as the legal structure (organizational structure) and organization and control.
Economic-Financial Viability, is a fundamental aspect to be developed in any business plan, since any correct analysis must contain the projection of the company, an analysis of the projected financial statements, in order to measure the efficiency of the assets it has. the entity, the debts it faces, the capital, the presence in the market and the profits generated. In addition to making a comparison with similar projects globally.
The purpose of this section is to present the financial implications of the organization's strategy and identify the financing needs. The business plan should include three projections (or pro-forma): cash flow, income statement, and balance sheet.
- The Projected Cash Flow allows you to calculate how much money you need to spend before you really start to make a profit in your business, and how soon this money will be recovered, etc. (Marstio, 1999). The Projected Income Statement is a projection of total sales, costs and profits for a given period. It can also be used to make a comparison of the income obtained from one period with respect to the other. On the other hand, Projected Balance Sheet, then indicates the need for external capital to run your business.
It is essential to carry out an analysis of the risk that must be assumed by the company as a result of the different activities and production processes, setting prices, and whether this is convenient for the company or not. In this way and taking into account the above parameters, it will be possible to determine if it is a good business to invest in.
1.2 The Music Industry as a business
One of the first questions to ask when starting a business could be: why certain business? What market segment would the product (s) and / or service (s) be destined for?
Music is one of the most genuine artistic expressions of the human being. This variant of artistic creation is part of the sociocultural identity, constituting a vision in sound symbols of the social relationships and ways of life of human groups. Its value lies in the enjoyment and recreation caused by the harmonious conjunction of sounds, which increases its value, and is presented as one of the most attractive art forms for the spiritual consumption of human beings. The importance of this attraction has historically become in the development of business activities and industrial organization around this artistic creation.
The music business can be defined as that branch of the cultural industry that (Rappeti, 2006):
- It offers a wide range of products associated with music creation. Its key goal is to satisfy the needs of recreation, spirituality, cultural growth, experiences, fashion, status, and cultural diversity. It is organized in music production and distribution companies, taking as raw material the creations of authors, composers, musical producers and performers and under the regulation of the institutions of cultural policy. The corporate capital base is fundamentally intangible, owned by the creative musicians. Its fundamental impact lies in the transmission of messages, symbols, ways of life and cultural identity.Its objective is to obtain the maximum economic benefits based on a balance between the full realization of musical creation (ownership) and the satisfaction of the needs of cultural diversity.
The music industry continues to expand into unexplored markets and create new business models, attracting an ever-increasing number of users to digital music services and bringing artists to a wider global audience.
At present, the music market is undergoing great transformations from the New Information Technology and Communications (NTICs); Sales of Compact Disks (CD) on physical media have entered a phase of decline. Faced with this situation, it is necessary to question whether it is a good business to invest in.
The association between record companies and various distribution channels such as: internet providers, cell phone companies, and legal download or web streaming services. As well as various sales modalities that range from subscriptions to songs preloaded on cell phones and other portable devices or online transmissions, they are presented as alternative ways to reduce sales income and have caused an increase in income and a consequent recovery of the industry through the marketing of digital music. That is why the industry is in a process of adaptation to the new changes that occur in it, such as:
- Changes in the way of obtaining and paying for music, which causes the business to transform to adapt to this new environment Transformation of business models, from based on physical discs to diversifying its sources of income through of product lines and broader platforms Expanded choice for consumers to choose how they will link to and enjoy their favorite artists' music: download (for payment) a theme, a CD, a wallpaper for their mobile phones, a ringtone, an electronic ticket, a music video, make friends on a social network or subscribe to various services using the different tracks in short versions as tones for mobile phones, as well as portable MP3 music players, the hard drives themselves, the music DVD,digital memories, etc.
Faced with these new trends, record companies assume the digital business as an integral part of their product and service portfolios.
Below is the evolution of music sales from 2004-2010, in the different types of format, according to the General Society of Authors and Editors (SGAE):
Evolution of global sales of Recorded Music, according to media 2004-2013.
Figure No. 1. Evolution of global sales of Recorded Music, according to media 2004-2013
Source: SGAE 2014 Yearbook
In the previous figure you can see the percentage of sales that have been occupying the different media, where it is observed how the digital market has gained space among music lovers; as well as the income from public communication and broadcasting, which although not yet representative, are beginning to form part of the business lines of record companies.
The digital era, in the music industry, diversifies business models and sources of income. Labels are making music available to the public in an unprecedented number of formats, including music videos, real tones, wait tones and audio tracks.
That is why it is stated that the record market is on the way to recovery, and there is a diversification of the sources of income in the industry. Digital services are rapidly expanding the global audience for recorded music; those that already exist are improving their quality as well as the consumer experience, and are attracting huge numbers of new users. The explosion of new interconnected devices allows consumers to enjoy music in more comfortable ways than ever.
Music sales on physical media continue to account for a significant proportion of industry revenue in many major markets. Gift box and deluxe presentations continue to grow in popularity, while vinyl records establish themselves as a niche product. Physical formats represent a little more than half (51.4%) of total revenues worldwide, which means a decrease compared to the 56.1% recorded in 2012. Although sales of physical supports decreased their value in By 11.7% worldwide in 2013, this downward trend slowed in major markets, such as Germany, the United States, Italy, and the United Kingdom (Digital Music Report, 2014).
Despite the fact that vinyl record sales represent only a miniscule fraction of the industry's total revenues, in recent years they have seen growth in some key markets, according to the 2014 Digital Music Report. Vinyl records rose 32% in 2013 (Nielsen Soundscan), while in the UK they soared 101% in the same year (BIS, British Phonographic Industry).
1.2.1. Digital Music Business Models
The main business models for the digital market, according to the IFPI (International Federation of the Phonographic Industry), can be described as follows: (Digital Music Report, 2012):
Breakdown of digital sales revenue by business model. 2008-2013.
Figure No. 2. Breakdown of digital sales revenue according to business model.
2008-2013
Source: IFPI 2014
Music Download continues to expand internationally and roll out new offerings for consumers. The Download Stores have more than 500 legal services globally, offering a library of up to 20 million tracks. iTunes remains in consumer demand by being the market leader.
Streaming Services from "the cloud" have become a reality, with new forms of entry to the way consumers manage and store their music. This new generation of services, licensed by record companies, allow consumers to access music collections stored on remote servers (clouds) and play them on a variety of devices connected to the Internet, such as: smartphones, game consoles, televisions and Blue-ray players, without the need to physically transfer the music they buy.
Subscription Services are transforming the way people experience and pay for music albums and tracks. They have become a rapidly expanding business model. Subscribing to music used to be a fairly abstract concept, but now it has become a practical way to access it.
The subscription model, according to the 2014 Digital Music Report, is getting more and more consumers to pay for the music they listen to; indeed, many are abandoning pirated services to become part of a legal music environment that compensates artists and rights holders.
The consumption of music videos continues to increase globally. One of the largest online platforms dedicated to the commercialization of this product is VEVO, which distributes 3.6 billion videos per month using streaming services to more than 415 million users around the world. These companies make a profit through advertisements and brand sponsors. This service has attracted more than 550 advertisers from targeting sectors such as automotive and finance.
Income from public communication rights is also an emerging business model. These sales are generated from the use of music in radio and television broadcasts, bars, nightclubs, restaurants and stores.
Synchronization contract income consists of the use of music in commercials, movies or television shows.
In 2013, digital channels represent approximately 34% of the total sources of income for the music industry globally, up from 32% in 2011. These figures can be compared with the magnitude in other sectors such as publishing. (5% newspapers, 4% books) and that of the film industry 1%. See Figure 3.
Music Industry Income by sector.
Figure No. 3 Income of the Music Industry by sector
Source: IFPI 2013
Commercial piracy and file sharing are currently affecting the music market, which is why the record industry will continue to prioritize the construction of a legal digital market that counteracts the effects of this phenomenon so harmful to the music trade.. In 2012, there was a commitment from search engines to prioritize legal music sites. However, there is still a long way to go in this regard. (Moore, 2012)
The legal sale of digital music has increased, contributing to a modest recovery in music sales and a better performance of the world record market. The following figure shows the increase in digital sales revenue between 2008 and 2013.
Worldwide Digital Sales Revenue 2008-2013.
Figure No. 4 Income from digital sales worldwide 2008-2013
Source: IFPI 2014
A study that Ipsos MediaCT conducted for the 2014 Digital Music Report indicates that the vast majority of consumers are becoming aware of the existence of legitimate services and the wide range of options available. It also revealed that the main reasons why consumers prefer certain services over others, and the characteristics that they value the most with respect to each service studied are:
Subscription Services:
- The ability to discover new music. The modality offers a “legitimate environment”. Being able to listen to music without having to buy each song.
Download Services:
- Security and ease of payment. The value of the guarantee of legality. "Trust" in the company.
Streaming Services:
- The ability to listen to free music. The ability to discover new music.
1.3 The Music Industry in Cuba
Music constitutes one of the main cultural assets in the menu of spiritual consumption of Cubans. That is why it is one of the fundamental sources of economic contribution to its own cultural development and other trends in art.
Currently there are 4 fundamental record companies: Company of Recordings and Music Editions (EGREM); Bis Music that belongs to ARTex SA; Colibrí Productions belonging to the Cuban Institute of Music and Abdala Productions.
Cuban record companies are in a process of adaptation to the changes that the music industry has undergone worldwide. However, the development of the sector is limited by the following elements, which slow down its competitive performance in the international market (Núñez, 2010):
- A constant role of the artist is appreciated in the international management of Cuban music, which has generated a whole range of entrepreneurial and creative capacities for the maximum development of his creation that contrasts with the passive intervention of the managers of the sector in the search for new businesses and taking advantage of the potential of the industry, slowing down to a certain extent the self-management of artistic units. It is essential for the success of this activity the development of synergies between the managers of the sector and between these and the other actors that participate in the business, since the lack of cooperation, integration, collaboration and communication prevails, combined with an incorrect perception of industrial objectives.It is essential for the joint confrontation of the actors that converge, to the challenges that the Music Industry in Cuba presents in its international expansion, the creation of a Specialization in Foreign Trade activities that serves as efficient support to the management in this Market Presence of a legal framework that stops the use of opportunities, when it should promote and create conditions for the generation of competitiveness in the industry There is little use of the potential of the industry for its expansion in the international market, and of the possibilities offered by this market, being one of the most attractive for the sector. Regarding the current practice of export modalities and licenses,they are reduced to purchase and sale contracts and the execution of live presentations in few regions of the world, the industry having insertion opportunities in many more. Cuban record products are characterized by having an adequate quality and degree of innovation, but the weak activity of promotion and distribution-commercialization tends to limit their market possibilities, with record and representation managers being the main protagonists in the future use of these possibilities.being the record and representation managers the main protagonists in the future use of these possibilities.being the record and representation managers the main protagonists in the future use of these possibilities.
Cuba is in a process of adaptation to the changes imposed by international markets, inserting itself into the digital business, with plans for a Cuban Music platform, which solidifies and works together with all the record companies in the country, and represents all the value culture and the heritage of Cuban music.
Cuban labels, as a mechanism to access these international stores, leave percentages of their income in wholesalers, which obtain positive returns in this sense by selling Cuban music in the main store networks: Napster, Itunes, Emusic, etc. (Abreu, 2008)
Therefore, the digital trade of Cuban music is carried out fundamentally in alliance with content aggregators, which constitute commercial partners for international trade. There are also direct commercial relationships with digital stores, where the musical contents of Cuban catalogs are posted and promoted.
At present, the Cuban record industry constitutes an attractive exportable business, as it contains among its catalog great musical jewels, at the same time as it has new and talented musicians who continue to give it a characteristic flavor; making it the favorite of many.
It is therefore of vital interest to achieve competitiveness in this sector, paying special attention to the study of the main trends and business models. At the same time, carry out a diagnosis and evaluation of the potentialities, strengths, as well as the weaknesses will promote a better competitive position.
The music market in Cuba is developing its main potential, however it is not without problems, presenting numerous contradictions in the sector, which for the domestic market are evidenced as follows (Gutiérrez, 2010):
The music industry globally moves through processes and comprehensive strategies, but in the country the synergy between the entities that intervene in the processes is very low, there is an individual struggle for talent and commercialization.
- Instead of having a business / institutional and functional structure that enhances the performance of the sector, the one currently in place limits the management capacity of the musician-manager and does not recognize important private entities that are currently emerging. There is great demand in the segment in CUP of musical products and the industry has great artistic potential to respond to such demand; However, there is a gap in the offer of record productions in the segment, and the offer of live presentations in CUP is imperceptible.In the segment in CUC, the price is not in line with the purchasing power of the population, so despite Since the demand is high, the majority of consumers cannot access the offer. The Artistic Units are the actors with the highest level of management in the sector currently,are self-managed in many cases, but there are no frameworks that encourage their development, they depend on the legal managers Tourism is a cultural exchange, so there must be a strategic alliance between the music and tourism sectors, but in the country the music sector does not have a clear position in the tourism sector. The music industry is only considered as a provider of music products or related services. This means that, despite the high demand for music in the tourism market, mainly live performances, the product on offer is not the best.Therefore, there must be a strategic alliance between the music and tourism sectors, but in the country the music sector does not have a clear position in the tourism sector. The music industry is only considered as a provider of music products or related services. This means that, despite the high demand for music in the Tourism market, mainly live performances, the product offered is not the best.Therefore, there must be a strategic alliance between the music and tourism sectors, but in the country the music sector does not have a clear position in the tourism sector. The music industry is only considered as a provider of music products or related services. This means that, despite the high demand for music in the Tourism market, mainly live performances, the product offered is not the best.the product being offered is not the best.the product being offered is not the best.
The Ministry of Culture (MINCULT) works together with the system of companies and institutions, inserting itself in the country's strategy for increasing exports. Cuban music today enjoys an important diffusion and a growing international recognition. That is why special attention is paid to favoring and developing the necessary infrastructure to develop this sector and needs are analyzed such as: a recording studio, a good promotion plan, with an active performance of the public relations department and the use and knowledge of the best distribution networks are essential to create this type of business.
In summary, in this chapter it has been possible to appreciate the fundamental characteristics of a business plan, how it is developed in the music sector and especially in Cuba, taking into account all these characteristics in the next chapter a characterization of the House is made. Record Label Producciones Colibrí, which will be evaluated from the theoretical-methodological aspects previously explained.
