Week 3 · Chapter

Chapter 3 — From Idea to Plan: Entrepreneurship, Small Business & the Business Plan

Introduction to Business Free sample edition

The module's primary reading · ~30–40 minutes · Objective 2 (explain how entrepreneurs turn an idea into a funded small business — a business-plan outline in the SBA's traditional format, an industry analysis with the five competitive forces, and a start-up funding plan — and compare the forms of business ownership, franchising, and mergers for that venture) · Read it first this week; the lecture, the slides, the tutorial, and the quiz all build on it.

In plain language

This week is about turning an idea into a plan someone else can read. An entrepreneur (a person who starts a venture and carries the risk that it fails) is where every plan begins, and most U.S. businesses are small. A business plan (a written description of what the business sells, to whom, and how it will be paid for) comes in a long form and a one-page form. Before the coffee cart opens, its owner studies the industry's competition, adds up what it costs to start, and decides where that money comes from. By the end you can read a start-up list, check a funding plan, and sum up a plan in three sentences.

Why you already care about this

Think about a friend who said, "I should start a business." Maybe it was selling baked goods, fixing phones, or cutting hair out of a spare room. The idea sounded great over dinner. Then came the hard questions. How much does the equipment cost? Who will buy it? What happens if the money runs out before the customers show up?

You have probably watched someone answer those questions well, or badly. A food truck that opens with a full tank, a menu, and money in the bank looks very different from one that opens on hope. The difference is rarely the idea. It is usually the plan.

This chapter walks the coffee cart from an idea to a plan. You meet the person behind a venture, see how common small businesses are, compare two ways to write a plan, read the cart's industry with one classic model, and count what the cart needs before it sells a single drink.

By the end of this chapter you will be able to:

describe an entrepreneur and the tendencies many share, without treating them as a checklist;
state small business's share of U.S. businesses with its source and edition, and explain why "small" depends on the industry;
compare the traditional plan and the lean startup plan and choose one for a reader;
apply the five forces to a business's industry;
build a start-up list and funding plan, check that the two totals match, and compute a loan's first-year interest;
outline a plan in the traditional format and sum it up in three sentences.

Carry this line with you: a plan is a tool you keep using, not a form you file.

Where we are

Already covered: Week 1, The Idea and Its Environment, defined a business, its stakeholders, and its SWOT; Week 2, The Market It Sells Into: Economics for Business, showed how a price settles and placed the cart in monopolistic competition.
This week: entrepreneurs and small business, the SBA's two plan formats, the five forces, and the cart's start-up list and funding plan.
How they connect: the SWOT's outside threats and the cart's market structure become the market analysis inside the cart's plan.
Where we're going next: Week 4, Choosing a Legal Form: Ownership, Franchising & Mergers, asks who is on the hook for the loan this plan creates.

Week 1 gave you two tools this chapter reuses. The SWOT sorted the cart's world into inside and outside, and two of its threats, a chain café opening nearby and rising bean prices, come back in Section 4. Week 1 also named entrepreneurship as one of the four factors of production: the work of spotting a chance to sell something, combining the other resources, and carrying the risk. Week 2 placed the cart in monopolistic competition, with many rivals and easy entry. If those ideas feel shaky, reread the SWOT section of Chapter 1 and the market-structure section of Chapter 2 first.

1. Meet the entrepreneur: tendencies, not a checklist

Picture a ride-share driver who keeps getting the same request from riders: "Do you know anyone who can help me move a couch?" One weekend the driver rents a trailer, recruits a friend, and starts a small moving-help service. Nobody promised it would work. The driver spent savings on the trailer rental and gave up weekend fares to try it.

That person has a name in business.

An entrepreneur is a person who starts and runs a new venture and carries the risk that it fails.

In Week 1 you met entrepreneurship as a factor of production: the work of spotting a chance to sell something, combining the other resources to do it, and carrying the risk. The entrepreneur is the person doing that work. The driver spotted repeated requests, combined a trailer, a friend's labor, and weekend time, and took on the chance of losing money.

People who study entrepreneurs notice some common tendencies:

Comfort with uncertainty. They act before everything is known.
Persistence. They keep going when the first weekends are slow.
Initiative. They start things without waiting to be asked.

Worked example — reading the tendencies in one venture. The moving-help service is illustrative.

Uncertainty: the driver did not know how many people would book, and started anyway with a rented trailer instead of a bought truck.
Persistence: when the first weekend brought one booking, the driver asked each customer to tell a neighbor and tried again.
Initiative: the driver noticed a request riders kept making and turned it into a service nobody had asked the driver to start.

In words: the driver shows all three tendencies, but each one is a habit of action you can see in what the driver did, not a fixed trait the driver was born with.

Honesty note: these tendencies describe many entrepreneurs, not all of them, and plenty of people who have them never start a business. They are patterns, not a test.

Misconception check. Students often think entrepreneurs have a special checklist of traits, and that you either have them or you do not. It is tempting, because stories about founders make them sound like a separate kind of person. But the tendencies are habits that grow with practice, and successful ventures are started by quiet people, careful people, and people who hate risk but plan for it. The cure is to look at what a person does, not at who they seem to be.

Pause and try this. Choose one: (a) name someone you know who started something, even a club or a side job, and say which tendency their actions showed; or (b) name one of the three tendencies you would most like to build and one small step that would practise it.

Memory hook: entrepreneurs are known by what they do, not by a checklist.

2. Size up small business: the share and the standard

Picture the businesses on one busy street: a dry cleaner, a taco shop, a dentist's office, a bike shop, a hardware store. Almost every one of them is small. That street is a fair picture of the whole country.

A small business is a business that falls under the SBA's size standard for its industry, a limit based on the number of employees or the amount of annual receipts.

The SBA is the U.S. Small Business Administration, the federal agency that serves small businesses. Its Office of Advocacy publishes a yearly report on them. Here is the real figure, with its source and edition: 99.9 percent of U.S. businesses are small (SBA Office of Advocacy, Frequently Asked Questions About Small Business 2026). The same report counts about 36 million small businesses. That count is revised in every edition, so this course states it in words and never treats it as exact.

What counts as "small"? There is no single number.

A size standard is the SBA's limit, set industry by industry, on the number of employees or the amount of annual receipts a business may have and still count as small.

Worked example — two businesses, two yardsticks. Both businesses are illustrative.

An illustrative family farm is measured by its annual receipts, the money it takes in from sales in a year, under the size standard for its kind of farming.
An illustrative software studio is measured under a different size standard, written for its own industry, which may count employees or receipts.
So the farm and the studio are each compared with the standard for their own industry, not with one another, and not with one national cutoff.

In words: whether a business is small depends on which industry it is in, so the same number of workers can be small in one industry and large in another.

Caveat: this course never asks you to look up or key a specific size standard; the SBA's own size-standards pages are where an owner checks one, as general education and not advice.

Misconception check. Students often think "small business" means "fewer than 10 employees" everywhere. That is tempting, because the phrase sounds like a headcount. But the SBA sets a different standard for each industry, based on employees or annual receipts, so a business with many workers can still count as small in its industry. The cure is to ask which industry the business is in before you call it small or large.

Memory hook: small is measured against your own industry.

3. Compare the two plan formats: traditional versus lean

Picture two people with ideas. One wants a bank loan to open a sit-down restaurant. The other wants to find out, this month, whether neighbors will pay for weekend bike repairs. Both need a plan. They do not need the same plan.

A business plan is a written description of a business that says what it sells, to whom, how it will run, how it will be funded, and how it will earn money; owners revise it as the business changes.

The SBA describes two formats.

A traditional plan is the SBA's detailed business-plan format, with eight sections: executive summary, company description, market analysis, organization and management, service or product line, marketing and sales, funding request, and financial projections.
A lean startup plan is the SBA's short business-plan format, which sums up a business's key elements on about one page so the idea can be tested quickly.

Three of the traditional plan's sections get their own names this week.

An executive summary is the opening section of a traditional plan: a short statement of what the business is, who it serves, and why it can earn money, written so a busy reader can grasp the plan quickly.
A market analysis is the section of a business plan that studies the industry, the customers, and the competitors a business will face.
A funding request is the section of a business plan that states how much money the business needs, what the money will pay for, and where the owner hopes it will come from.

Worked example — a lean plan on one page. The weekend bike-repair service is illustrative. Its owner writes a one-page plan with short answers:

What it sells: tune-ups and flat repairs on weekends, at the customer's home.
Who buys: riders in nearby apartment buildings who have no room for tools.
Why they would choose it: no trip to a shop, and the bike is fixed while they wait.
How it reaches them: flyers in building lobbies and word of mouth.
What it costs to start: a tool kit, a portable stand, and spare parts.
How the owner will test it: offer repairs on two weekends and count the bookings.

In words: the lean plan fits on one page because its job is to test the idea fast; a lender deciding on a loan would ask for the traditional plan's full sections instead.

How do you choose? Ask who will read the plan and what they must decide. A lender or investor usually wants the traditional plan's detail. An owner testing an idea can start lean and grow the plan as facts come in.

Misconception check. Students often think a business plan is a document you write once, hand in, and file. That is tempting, because school assignments work that way. But a plan is a working tool. Owners return to it when sales come in higher or lower than expected, when costs change, or when a new competitor arrives, and they revise it. The cure is to treat every plan, lean or traditional, as a draft that keeps changing.

Pause and try this. Choose one: (a) pick an idea you have had for a business or a club and write its six lean-plan lines; or (b) pick a business you use and say which of the traditional plan's eight sections you would most want to read before lending it money, and why.

Memory hook: lean to test, traditional to convince.

4. Read the industry: the five competitive forces

Picture the coffee cart's owner standing on its corner before opening day. A chain café is going up down the block. The bean supplier has raised prices. Office workers walk past carrying bottled cold brew from the grocery store. Every one of those is a pressure on the cart, and none of them is a rival cart.

A market analysis needs a way to sort those pressures. This course uses the classic one.

The five forces are a classroom model from Porter (1979) that reads an industry's competition through five forces: the threat of new entrants, the bargaining power of customers, the bargaining power of suppliers, the threat of substitute products or services, and rivalry among existing competitors.

The model comes from Porter (1979), "How Competitive Forces Shape Strategy". Each force has its own definition.

The threat of new entrants is how easily a new seller can start competing in an industry and take customers from the businesses already there.
The bargaining power of customers is how much buyers can push prices down or ask for more, because they can easily buy from someone else.
The bargaining power of suppliers is how much the sellers of a business's inputs can raise prices or set terms, because the business has few other places to buy.
The threat of substitute products or services is the chance that customers meet the same need with a different kind of product or service from outside the industry.
Rivalry among existing competitors is how hard the businesses already in an industry compete with one another on price, quality, and service.

Worked example — the five forces on the coffee cart's industry. The cart and its corner are illustrative.

The five forces applied to the illustrative coffee cart's industry, with the fact behind each force
Force	The fact in the cart's industry	What it means for the cart
Threat of new entrants	a chain café is opening nearby, and a new cart can start with modest equipment and a permit	newcomers can take customers
Bargaining power of customers	a customer can walk to another cart or café in minutes	the cart cannot charge far above rivals
Bargaining power of suppliers	the bean supplier raised prices, the rising bean prices from the Week 1 SWOT	the cart's costs can climb
Threat of substitutes	bottled cold brew sold in a grocery store meets the same need	some buyers skip the cart entirely
Rivalry among existing competitors	other carts and cafés already compete, and the chain café will join them	the cart must stand out on taste, speed, or service

The chain café shows up twice: as a possible new entrant now, and as a rival once it opens.
The bean prices were a threat in the Week 1 SWOT; here they show the supplier's power.
Bottled cold brew is not another coffee seller on the corner; it is a substitute that meets the same need another way.

In words: the cart's industry is crowded and easy to enter, its customers can walk away, its supplier can raise costs, and a grocery substitute competes too, so the plan must explain why buyers will still choose this cart.

Honesty note: the five forces are a classroom model. They organize your thinking about an industry; they do not predict profits, and real industries blur the lines between forces.

Misconception check. Students often read the five forces as five competitors, as if the job were to list five rival businesses. That is tempting, because the word competitive is in the name. But only one force, rivalry, is about the businesses already competing. The others are about newcomers, buyers, suppliers, and substitutes. The cure is to ask, for each fact, who is pushing on the business: a rival, a newcomer, a customer, a supplier, or a different product.

Memory hook: five pushes, only one of them a rival.

5. Count the start-up costs and fund them

Picture the cart's owner with a notebook the week before opening. The cart has to be bought. Cups, beans, and milk have to be on hand. And some money has to sit in the bank, because the first weeks of sales will not cover every bill.

Two lists answer two questions. What does the cart need? And where does the money come from?

Start-up needs are the money a business must have before it opens, such as its equipment, its opening inventory, and a cash cushion.
A cash cushion is money set aside at opening to pay the bills while sales build up.
A funding plan is the part of a business plan that lists where the start-up money will come from, such as the owner's own money and a loan, and checks that the sources add up to the start-up needs.
Interest is what a lender charges for the use of borrowed money, usually stated as a percentage of the loan for each year.

Worked example — the cart's start-up list and funding plan. The numbers are illustrative, constructed for this course and not real data.

The illustrative coffee cart's start-up needs and funding sources, in dollars
Start-up needs	Dollars	Funding sources	Dollars
Cart and equipment	20,000	Owner's money	20,000
Opening inventory	2,000	Equipment loan	10,000
Cash cushion	8,000
Total needs	30,000	Total sources	30,000

Add the start-up needs: cart and equipment 20,000 + opening inventory 2,000 + cash cushion 8,000 = 30,000 dollars.
Add the funding sources: owner's money 20,000 + equipment loan 10,000 = 30,000 dollars.
Check that they match: start-up needs 30,000 = funding sources 30,000, so every dollar the cart needs has a source.
Find the gap the loan fills: 30,000 − 20,000 = 10,000 dollars is the part the owner's money does not cover, which is the equipment loan.
Compute the first year's interest. The loan costs 10 percent a year, and 10 percent written as a decimal is 0.10, so interest = loan × rate = 10,000 × 0.10 = 1,000 dollars in the first year.

In words: the cart needs 30,000 dollars before it sells a single drink; the owner puts in 20,000, a 10,000-dollar equipment loan covers the rest, and that loan costs 1,000 dollars of interest in the first year, a cost the plan must carry whether or not the cart earns a profit.

Notice the cash cushion. It is not spent on anything you can touch on opening day. It is there because the first weeks are uncertain, which is Section 1's comfort with uncertainty turned into a number.

Misconception check. Students often read the funding request as a promise of profit, as if asking for 10,000 dollars meant the cart will earn it back. That is tempting, because plans sound confident. But the funding request only says how much money the cart needs and where it will come from. Whether the cart earns a profit depends on revenue and expenses later, and the 1,000 dollars of interest is owed either way. The cure is to read the funding request as a list of needs and sources, not as a forecast.

In practice (your tools). You can check a funding plan in any free spreadsheet, such as Google Sheets. Type the three start-up needs in cells A2 through A4 and their amounts in B2 through B4. In cell B5 type =SUM(B2:B4). Type the two funding sources in C2 and C3 and their amounts in D2 and D3, and in D5 type =SUM(D2:D3). In cell E5 type =B5-D5; a zero means the plan balances. For the interest, type =D3*0.10 in any empty cell.

Memory hook: needs on one side, sources on the other, and the totals must match.

6. Outline the cart's plan and sum it up in three sentences

Picture the owner handing the plan to a friend who has thirty seconds. The friend will not read eight sections. The friend will read the first few lines and decide whether to keep going. Those lines have to carry the whole idea.

That is why every plan, long or short, needs a sharp summary. In this course, a plan's summary is three sentences: what it sells, to whom, and why it will earn money.

Worked example — the cart's plan in the traditional format. The cart is illustrative. Here is the outline, one line per section:

Executive summary: the three sentences below.
Company description: a mobile coffee cart that can move to where the customers are.
Market analysis: the five forces from Section 4, plus the SWOT's opportunities, an office building opening two blocks away and a weekend farmers' market looking for vendors.
Organization and management: one owner and, at first, one person at the counter.
Service or product line: espresso drinks and brewed coffee.
Marketing and sales: a corner near the new office building on weekdays and the farmers' market on weekends.
Funding request: start-up needs of 30,000 dollars, funded by 20,000 dollars of the owner's money and a 10,000-dollar equipment loan.
Financial projections: built later in the course, once prices and costs are set.

And the three-sentence summary:

What it sells: the cart sells espresso drinks and brewed coffee from a cart it can move.
To whom: it serves office workers on weekdays and farmers'-market shoppers on weekends.
Why it will earn money: its low fixed costs and its ability to move to the busiest corner let it take in more from drink sales than it spends on beans, cups, and its loan.

In words: the summary names the product, the buyers, and the reason revenue can exceed expenses, so a reader knows in thirty seconds what the cart is and why the plan holds together.

Misconception check. Students often answer "why will it earn money?" with "people love coffee." That is tempting, because demand matters. But earning money means revenue larger than expenses, the Week 1 line between revenue and profit. Many buyers at a price that does not cover the cart's costs is still a loss. The cure is to name a reason the cart's revenue can beat its expenses, such as low fixed costs or a busy location.

Pause and try this. Choose one: (a) write a three-sentence summary for a business near you and underline the reason it can earn money; or (b) take the cart's third sentence and rewrite it for a reader who has never run a business.

Memory hook: sells what, to whom, and why revenue beats expenses.

Key terms

entrepreneur — A person who starts and runs a new venture and carries the risk that it fails. (first used: 1. Meet the entrepreneur: tendencies, not a checklist)
small business — A business that falls under the SBA's size standard for its industry, a limit based on the number of employees or the amount of annual receipts. (first used: 2. Size up small business: the share and the standard)
size standard — The SBA's limit, set industry by industry, on the number of employees or the amount of annual receipts a business may have and still count as small. (first used: 2. Size up small business: the share and the standard)
business plan — A written description of a business that says what it sells, to whom, how it will run, how it will be funded, and how it will earn money; owners revise it as the business changes. (first used: 3. Compare the two plan formats: traditional versus lean)
traditional plan — The SBA's detailed business-plan format, with eight sections: executive summary, company description, market analysis, organization and management, service or product line, marketing and sales, funding request, and financial projections. (first used: 3. Compare the two plan formats: traditional versus lean)
lean startup plan — The SBA's short business-plan format, which sums up a business's key elements on about one page so the idea can be tested quickly. (first used: 3. Compare the two plan formats: traditional versus lean)
executive summary — The opening section of a traditional plan: a short statement of what the business is, who it serves, and why it can earn money, written so a busy reader can grasp the plan quickly. (first used: 3. Compare the two plan formats: traditional versus lean)
market analysis — The section of a business plan that studies the industry, the customers, and the competitors a business will face. (first used: 3. Compare the two plan formats: traditional versus lean)
funding request — The section of a business plan that states how much money the business needs, what the money will pay for, and where the owner hopes it will come from. (first used: 3. Compare the two plan formats: traditional versus lean)
five forces — A classroom model from Porter (1979) that reads an industry's competition through five forces: the threat of new entrants, the bargaining power of customers, the bargaining power of suppliers, the threat of substitute products or services, and rivalry among existing competitors. (first used: 4. Read the industry: the five competitive forces)
threat of new entrants — How easily a new seller can start competing in an industry and take customers from the businesses already there. (first used: 4. Read the industry: the five competitive forces)
bargaining power of customers — How much buyers can push prices down or ask for more, because they can easily buy from someone else. (first used: 4. Read the industry: the five competitive forces)
bargaining power of suppliers — How much the sellers of a business's inputs can raise prices or set terms, because the business has few other places to buy. (first used: 4. Read the industry: the five competitive forces)
threat of substitute products or services — The chance that customers meet the same need with a different kind of product or service from outside the industry. (first used: 4. Read the industry: the five competitive forces)
rivalry among existing competitors — How hard the businesses already in an industry compete with one another on price, quality, and service. (first used: 4. Read the industry: the five competitive forces)
start-up needs — The money a business must have before it opens, such as its equipment, its opening inventory, and a cash cushion. (first used: 5. Count the start-up costs and fund them)
cash cushion — Money set aside at opening to pay the bills while sales build up. (first used: 5. Count the start-up costs and fund them)
funding plan — The part of a business plan that lists where the start-up money will come from, such as the owner's own money and a loan, and checks that the sources add up to the start-up needs. (first used: 5. Count the start-up costs and fund them)
interest — What a lender charges for the use of borrowed money, usually stated as a percentage of the loan for each year. (first used: 5. Count the start-up costs and fund them)

Summary

An entrepreneur starts and runs a venture and carries its risk; shared tendencies are habits, not a checklist.
99.9 percent of U.S. businesses are small, per the SBA Office of Advocacy's 2026 edition.
The SBA's size standards vary by industry, so "small" has no single cutoff.
The traditional plan has eight sections; the lean startup plan fits on about one page.
A plan is a working tool that owners revise, not a form they file.
The five forces read an industry; only one of them, rivalry, is about existing competitors.
The cart's start-up needs and funding sources both total 30,000 dollars.
The cart's 10,000-dollar loan at 10 percent a year costs 1,000 dollars of interest in the first year.
A three-sentence summary says what the business sells, to whom, and why revenue can beat expenses.

Check your understanding

Work these before looking at the answers — they are ungraded, and the answers (with reasoning) are at the bottom of the page.

An illustrative campus print shop needs a printer and equipment costing 6,000 dollars, paper and ink costing 1,000 dollars, and a cash cushion of 3,000 dollars. The owner puts in 4,000 dollars and borrows the rest at 5 percent a year. Find the start-up needs, the loan, and the first year's interest.
An illustrative neighborhood laundromat notices four facts: a new laundromat is opening down the street; more renters are buying their own washers; the only company that services its machines raised its fees; and apartment residents can choose among three laundromats nearby. Name the force each fact shows.
A friend says, "A landscaping company with 40 employees can't be a small business." Explain what is wrong with that claim.
An illustrative weekend tutoring service writes this summary: "We tutor high-school math. We serve families in our town. People really need tutoring." Which sentence is weak, and how would you fix it?

Answers (worked reasoning — read after attempting)

Add the needs: 6,000 + 1,000 + 3,000 = 10,000 dollars. The loan is the part the owner does not cover: 10,000 − 4,000 = 6,000 dollars. The rate is 5 percent, or 0.05, so the first year's interest is 6,000 × 0.05 = 300 dollars. Check the funding plan: 4,000 + 6,000 = 10,000, which matches the needs.
The new laundromat is the threat of new entrants. The home washers are the threat of substitutes, a different way to meet the same need. The service company's fee rise shows the bargaining power of suppliers. Residents choosing among three laundromats shows the bargaining power of customers. Notice the trap: only rivalry is about the laundromats already competing, so the four facts are not four competitors.
"Small" is not one headcount. The SBA sets a size standard for each industry, based on employees or annual receipts, so a landscaping company with 40 employees may well count as small in its industry. The friend applied a single national cutoff that does not exist.
The third sentence is weak, because "people really need tutoring" is about demand, not about earning money. A stronger third sentence names why revenue can beat expenses, for example: "We meet students in the public library, so we pay no rent, and families pay for a full term of sessions upfront."

Next up in this module: the Readings & Resources page, the lecture tutorial, the practice set, and the quiz — and next week a comparison method for the legal forms of ownership shows who is on the hook for the cart's 10,000-dollar loan.

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