ON THE LOGIC OF COMPOSITION IN WRITING
BUSINESS PLANS:
TEACHING ARGUMENT STRUCTURE
Jeff Trailer, Ph.D.
Assistant Professor of Management
The Pennsylvania State University - Erie
The Behrend College
Erie, PA 16563-1400
Office (814) 898-6268
Fax (814) 898-6223
jwt5@psu.edu
Chester Wolford, Ph.D.
Professor of Business/English
The Pennsylvania State University - Erie
Abstract
Effective business plans do not live by their topics alone: how
well the analysis of those topics persuades is at least as
important. Analytical writing draws conclusions by investigating
and synthesizing facts and conjectures. Synthesizing facts and
conjectures into sound arguments requires deductive logic. Thus,
deductive logic provides a set of rules to help people write
effective business plans.
Introduction
Effective business plans are so important to small business
management and entrepreneurship that the topics to be included in
them have received a great deal of attention from such
researchers as Brown (1996), Fry (1993), and Timmons (1994).
Effective business plans, however, are not a function of the
topics alone. The structure of the written plan is at least
equally important. Bygrave (1990; 137), for example, complains
that "Entrepreneurs often get bogged down in the actual mechanics
of writing. The material often comes out too conceptual or
disorganized, and they don't know how to fix it. " Merely listing
the important topics in a business plan guarantees neither the
effective organization nor the clear, cogent writing demanded by
the readers and needed by the writer.
Effective business plans are the outcome not only of covering all
the bases but also of covering them well. Analytical writing
draws conclusions from the investigation and synthesis of facts
and conjectures, or both (Popper, 1989). Similarly, business
plans draw conclusions regarding the general feasibility of
starting a business, establishing milestones and performance
goals, assessing the safety of the business for lenders, and so on.
The general issue here concerns the structure of persuasive,
analytical writing.
Composition. Just as spelling dictates the rules for the
construction of words and grammar dictates the rules for the
construction of sentences, composition concerns the arrangement
of sentences to form a larger structure of argument. That is,
composition refers to the assembly of sentences into paragraphs,
paragraphs into chapters, and so on to longer and longer
entities.
Good composition is rather like pornography: it's impossible to
define, but we know it when we see it. As it has no agreed upon
set of rules, composition is enormously time-consuming and
expensive to teach well (Capaldi, 1966; Johnson, 1982). Poor
composition often produces grammatically perfect documents that
are utterly unpersuasive, or even incoherent. In business plans,
composition is crucial: companies often fail when they fail to
persuade. Consequently, those who write business plans would
benefit from rules to guide them toward meaningful documents.
For rules to work, they first must be defined.
Analytic and synthetic statements. Statements may be classified
as to whether an external fact must be cited to establish the
truth of the statement (Kant, 1787). Analytic statements are
true by definition and do not require the confirmation of
external facts. Often they are definitions. For example,
stating that "the goal of my firm is to achieve 20% growth in
sales each year" does not require external evidence to establish
truth. The goal is being defined by the writer/owner, and the
reader may assume its truth. Synthetic statements, conversely,
may be true only if external facts support the statement. To say
"this is a feasible new venture" requires more than an assertion
to make it true; new ventures are not feasible by definition, so
the statement is only as "true" as the argument presented to
support it is true, or in business, as true as the argument
persuades readers.
The analytic/synthetic dichotomy applies as well to entire
documents. Business plans are inherently synthetic, requiring a
synthesis of external facts to support the plan's validity. The
rules for synthesizing facts use deductive logic to create sound
arguments. Deductive logic, then, provides a set of rules to
help teach people to write effective business plans.
Arguments. Arguments are the means by which a writer persuades
the reader (Beene and Douglas, 1989). Writing is persuasive
largely to the decree that the writer's logic is sound, where
soundness is defined as an argument in which the premises are
true and the conclusion follows necessarily from the premises.
As premises are typically declarative statements, arguments
typically comprise a conclusion and two or more premises. The
basic structure of an argument is illustrated in the syllogism
(See Appendix A).
Syllogism. A syllogism is argument in its simplest form: a major
premise, a minor premise, and a conclusion (Hurley, 1982). The
major premise is a statement of the general rule to be used in
drawing a conclusion. The minor premise is a statement of fact,
an observation or example, which falls within the domain of the
general rule. The conclusion is the synthesis of the major and
minor premises: applying the general rule to the specific case.
For example, to persuade the reader that a firm is solvent the
writer may construct the following argument:
Major premise: Solvency may be determined by current ratio
(current assets divided by current liabilities), which, if
greater than one, indicates that the firm can pay liabilities
coming due within one year with assets that may be turned into
cash within one year.
Minor premise: For this new venture, the current ratio is 1.2.
Conclusion: Thus, the firm is solvent.
The conclusion, "the firm is solvent," is a synthetic statement
made persuasive by the major and minor premises. It is important
to note that the relative order in which the premises and
conclusion are written has no effect on the logic of the
argument, and may be rearranged to suit the author's abilities.
Alternate sequences are presented in the following example:
Argument type 1: Classical order, with the conclusion at the
end
Premise (major): Solvency may be determined by a current
ratio greater than 1.
Premise (minor): This firm has a current ratio of 1:2.
Conclusion: For this venture, the firm is solvent.
Argument type II: Conclusion between premises
Premise (major): Solvency may be determined by a current
ratio greater than 1.
Conclusion: For this venture, the firm is solvent.
Premise (minor): This firm has a current ratio of 1:2.
Argument type III: Conclusion at the beginning
Conclusion: For this venture, the firm is solvent.
Premise (major): Solvency may be determined by a current
ratio greater than 1.
Premise (minor): This firm has a current ratio of 1:2.
Argument type IV: Extending beyond the syllogism
Conclusion: For this venture, the firm is solvent.
Premise(major): Solvency may be determined by a current
ratio greater than 1.
Premise (minor): This firm has a current ratio of 1:2.
Premise (a): This firm's ratio for 1996 was 1:1.7.
Premise (b): This firm's ratio for 1995 was 1:1.7.
Premise (c): This firm's ratio for 1994 was 1:1.1.
Premise (d): This firm's ratio for 1993 was 1:1.4.
Premise (e): This firm's ratio for 1992 was 1:1.1.
Argument IV illustrates that while there are exactly two premises
in a syllogism (one major and one minor), a sound argument may
include an indefinite number of minor premises, overkill for
syllogisms but sometimes necessary for persuasion. Further, the
minor premises may be arguments themselves. Multiple premises,
and arguments within arguments, are important in business plans,
given that the goal of a business plan cannot typically be
explained with a single syllogism. Reducing the plan to a single
argument may be technically valid, but not likely to persuade.
For example, a business feasibility analysis may be written as:
Major Premise: A feasible business earns profits sufficient to
cover its cost of capital.
Minor premise 1: The projected cost of capital for this firm
is 15%.
Minor premise 2: The projected return on assets for this firm
is 25%.
Conclusion: This is a feasible business.
If the premises are true, this syllogism provides a sound
argument. Even so, it is probably not in itself sufficient to
persuade the reader, or even to be useful to the entrepreneur.
Consequently, additional arguments are necessary. Incorporating
multiple arguments allows the plan to be more precise in
explaining the performance of the firm, more persuasive as a
consequence, and thus more likely to succeed.
Individual arguments/syllogisms are building blocks for good
business plans. Assembling the blocks is guided by the topic
outline (blueprint). The outline, in turn, is guided by the goal
of the plan (vision?). A plan is constructed to organize a task.
Tasks in new venture formation may include creating a feasibility
analysis, specific goals for subsequent organizational control,
and a prospectus for external investors, among others. Because
business plans vary as greatly as the businesses they describe,
no single structure suits all plans. To focus further
discussion, however, a generic business plan outline is provided
in Appendix B.
The first argumentative questions regarding the structure of
business plans are conceptual: What are the major topics? Why
are these particular topics discussed? The generic business plan
presented here, includes three major topics. The first, The New
Venture, is predominately a set of analytic statements defining
the business to be analyzed in the plan. The rest of the plan is
predominantly synthetic and is divided into discussions of two
influences on the firm's performance: the External Environment,
for which the venture has little or no control; and the Internal
Environment, over which the firm has some discretion. The
overall conclusion to be drawn from the external environment is
an assessment of the new firm's survival requirements. The
overall conclusion to be drawn from the internal environment is
an assessment of the new firm's performance that results from the
manner of its operation. Note, however, that the overall
conclusion of the internal environment depends partially on the
conclusion drawn from the external environment. That is, a
"competitive" firm is one which produces a product or service
differentiated from or produced at a lower cost than that of the
competition (Porter, 1980). In either case, an assessment of
competitiveness can only be conducted by synthesizing conjectures
on the capabilities of the firm with the assessment of the
competitive environment.
TOPIC 1 (THE BUSINESS PLAN)
Argument 1 (The New Venture)
Premise 1 (major): To be "competitive" a firm must produce a
product or service differentiated from or produced at a
lower cost than that of the competition. Either way, to be
profitable a firm must possess a unique capability. This
business plan will assess the competitiveness of the
proposed new venture by describing the business concept,
assessing the competitive environment, and assessing the
internal capabilities of the firm.
Premise 1 (minor): The proposed venture will help
entrepreneurs to write logically sound business plans.
While several consulting firms help entrepreneurs write
business plans, none specializes in writing them logically.
Conclusion 1: Thus, the unique capability of this venture is
that of creating superior business plans by making them
formally and informally logical.
Argument 2 (The External Environment)
Premise 2 (major): The market price of business plan writing
assistance is constrained by the price of close-substitute
services offered in the market.
Premise 2 (minor): In this market, three firms currently
offer assistance in writing business plans. The firms
charge $495.00-$499.00 for the same, approximate level of
service to be provided by our proposed firm. However, our
service will produce superior results by adding sound,
logical arguments to business plans.
Conclusion 2: Thus, the market price for our business plan
writing assistance will be equal to, or slightly higher than
the competition's. Conservatively estimating performance,
the firm will set an initial price equal to the
competition's upper boundary: $499.00.
Argument 3 (The Internal Environment)
Premise 3 (major): To be profitable, the firm must be
structured to provide customer service at a total cost per
unit sold of less than $499.00.
Premise 3 (major): Further, the return to the owners must
exceed the opportunity salary cost to the owners.
Premise 3 (minor): The proposed firm structure will provide
a per unit cost of $99.00 at the projected sales volume
level of ten units a week, producing net profits of $4,000 a week.
Premise 3 (minor): The salary opportunity cost to the owners
is $3,000 a week.
Conclusion: (for Argument 3 & the topic). Thus, this is a
feasible new venture.
In general, such sequential dependence between arguments is
common (Capaldi, 1966) (See Appendix C).
We are not done. A conclusion from one topic may derive from
independent arguments for other topics. This is a compound
argument. Further, a premise for an argument on one level of
analysis may be composed of an argument, or arguments, of a lower
level, and so on. In the following example, a compound argument
is used to express the solvency of a new venture as a function of
cash flow analysis: three independent arguments.
ARGUMENT I (TOTAL CASH FLOW)
Premise (major): A positive total cash flow is necessary for the
survival of the new venture. Total cash flow is a function of
three sources of cash: operations, investing, and financing. In
the short run, one source may off-set negative cash flow from
another source. Still, the long-run feasibility of the business
requires positive cash flow from operations because investing and
financing activities alone cannot generate cash indefinitely.
Argument 1 (Cash flow from operations)
Premise 1 (major): Positive operating cash flow indicates
the new venture is generating cash in its on-going
operations.
Premise 1 (minor): Projected cash flow from operations is
$10,000.
Conclusion 1: Thus, this new venture is projected to
generate cash from operations.
Argument 2 (Cash flow from investing)
Premise 2 (major): Positive cash flow from investing
indicates the new venture is Generating cash by selling
assets, such as plant and equipment.
Premise 2 (minor): Projected cash flow from investing is
$ -20,000.
Conclusion 2: Thus, this new venture is projected to
consume cash from investing by purchasing assets for the new
venture.
Argument 3 (Cash flow from financing)
Premise 2 (major): Positive cash flow from financing
indicates the new venture is generating cash by selling
equity, or incurring debt.
Premise 2 (major): Projected cash flow from financing is
$15,000.
Conclusion 2: Thus, this new venture is projected to
generate cash from financing by selling equity, or incurring
debt.
Summary and conclusion:
Premise (minor) 1: Operating activity is projected to
generate $10,000
Premise (minor) 2: Investing activity is projected to
consume $20,000
Premise (minor) 3: Financing activity is projected to
generate $15,000
Conclusion for this topic: This new venture is projected to
achieve a positive overall cash flow of $5,000. Thus, the firm
is projected to be solvent for the period analyzed. Also, cash
flow from operations is positive, indicating a feasible business.
Finally, arguments are complex if they comprise premises that, in
turn, comprise both compound arguments and sequence dependent
arguments. The examples provided here have shown that business
plans are typically based on complex arguments: multiple
arguments are required to justify the overall conclusion, and the
individual arguments are integrated in both sequence dependent
and compound structures (See Appendix E). The intricacies of
writing sound complex arguments help explain why entrepreneurs
have great difficulty composing meaningful business plans, and
why training in the composition of sound arguments might make
business plans more effective.
How many arguments are necessary for a persuasive and complete
business plan? As many as necessary and not one more. Viewers
of Sunday morning political-discussion shows will recognize that
there the number of arguments is limitless. Business, however,
must recognize limits. As a general principle, Mach (1919)
argues that the best explanation is that which is most economical
in use of concepts and complex relationships. Then there is
Henry David Thoreau's version of Occam's Razor: Simplify.
Simplify. Simplify. Obeying both, this paper closes by
summarizing: good arguments are essential to good business plans.
References
Beene, L.D. and Douglas, K. (1989). Argument and Analysis:
Reading, Thinking, Writing, Orlando, FL: Holt, Rinehart &
Winston.
Bygrave, W.D. (1994). The Portable MBA in Entrepreneurship, New
York: John Wiley & Sons, Inc.
Capaldi, N. (1966). Introduction to Deductive Logic, New York,
NY: Monarch Press.
Fry, F.L. (1993). Entrepreneurship: A Planning Approach, New
York: West Publishing Co.
Hurley, P. (1982). A Concise Introduction to Logic, Belmont, CA:
Wadsworth Publ. Co.
Johnson, E. (1982). Handbook of Good English, New York: The
Washington Square Press.
Kant, I. (1787). Critique of Pure Reason. Translated from the
2nd Edition by Norman Kemp Smith, reprinted 1929. London:
MacMillan Co. Ltd.
Mach, E. (1919). The Economy of Science. In The World of
Mathematics, Volume 3, Part XII New York: Simon and
Schuster, (1956): 1787-1795.
Popper, Sir Karl R. (1989). Conjectures and Refutations: The
Growth of Scientific Knowledge, 5th Edition. Reprinted
1992. New York: Routledge.
Porter, M. (1980). Competitive Strategy: Techniques for
Analyzing Industries and Competitors, New York: The Free Press.
Timmons, J.A. (1994). New Venture Creation: Entrepreneurship for
the 21st Century, 4th Edition. Boston: Irwin.
Appendix A
On the Structure of Analytical Writing
The Syllogism
Argument type 1: Classical order, with the conclusion at the end
Premise (major): The general rule for success
Premise (minor): A specific case or example of the general rule
Conclusion: The example indicates (future) success failure
Argument type II: Conclusion between premises
Premise (major): The general rule for success
Conclusion: The example indicates (future) success failure
Premise (minor): A specific case or example of the general rule
Argument type III: Conclusion at the beginning
Conclusion: The example indicates (future) success/failure
Premise (major): The general rule for success
Premise (minor): A specific case or example of the general rule
Argument type IV: Extending beyond the syllogism
Conclusion: The example indicates (future) success/failure
Premise (major): The general rule for success
Premise (minor): A specific case or example of the general rule
Premise (a): A specific point or example in the case
Premise (b): A specific point or example in the case
Premise (c): A specific point or example in the case
Premise (d): A specific point or example in the case
Premise (e): ... etc.
Appendix B
BUSINESS PLAN
THE NEW VENTURE
Business concept
Description of the product or service
Description of unique value added
Mission/goals
Describe the focus of the firm in terms of unique
resources and capabilities.
Identify/describe the major stakeholders and
corresponding firm goals
Performance projections
Profitability
Liquidity
Leverage
EXTERNAL ANALYSIS
Industry
Primary industry defined
Segment analysis
Industry structure
Buyer power assessment
Rivalry assessment
Substitute industry segment(s) assessment
Entry barrier assessment
Supplier power assessment
INTERNAL ANALYSIS
Marketing Strategy
Market penetration strategy (plan of entry)
Market development strategy (plan for expansion)
Product development strategy (plan for new product
development)
Diversification strategy (plan for expansion into
unrelated markets)
Operating Strategy
Process design
Continuous improvement strategy
Risk management
Organization structure
Ownership structure
Governance structure
Government/legal requirements
Business license/permits
DBA (doing business as/fictitious name)
Zoning ordinances
Earnings assessment (financial statements)
Income statement
Balance sheet
Statement of cash flows
Strategic performance assessment
Appendix C
On the Structure of Analytical Writing
Sequence Dependent Arguments
TOPIC I
Argument 1
Premise 1 (major): Introduce the topic and discuss the
general rule.
Premise 1 (minor): A specific case or example of the
general rule.
Conclusion 1: Thus, this example indicates...
Argument 2
Premise 2 (major): The general rule, encompassing the
conclusion of premise 1.
Premise 2 (minor): A specific case or example of the
general rule.
Conclusion 2: Thus, this example indicates...
Argument 3
Premise 3 (major): The general rule, encompassing the
conclusion of premise 2.
Premise 3 (minor): A specific case or example of the
general rule.
Conclusion: (for Argument 3 & the topic): Thus, this
example indicates...
Appendix D
On the Structure of Analytical Writing
Writing Compound Arguments
ARGUMENT I (TOPIC 1)
Premise I (major): The (major) premises 1, 2, and 3 are
necessary to draw a conclusion (the topic is a function of
premises 1, 2 and 3). This introduction should establish
the framework for the analysis which follows, and establish
the basis for drawing an overall conclusion at the end of
the discussion on this topic.
Argument 1
Premise 1 (major): The general rule
Premise 1 (minor): A specific case or example of the
general rule
Conclusion 1: Thus, this example indicates...
Argument 2
Premise 2 (major): The General rule
Premise 2 (minor): A specific case or example of the
General rule
Conclusion 2: Thus, this example indicates...
Argument 3
Premise 3 (major): The general rule
Premise 3 (minor): A specific case or example of the
general rule
Conclusion 3: Thus, this example indicates...
Summary and conclusion:
Premise (minor) 1: (The conclusion of argument 1)
Premise (minor) 2: (The conclusion of argument 2)
Premise (minor) 3: (The conclusion of argument 3)
Conclusion for this topic: Thus, in this case...
Appendix E
On the Structure of Analytical Writing
Writing Complex Arguments
ARGUMENT I (TOPIC 1)
Premise (major): Topic 1 is a (compound) function of arguments 1 and 2.
Argument 1
Argument 1a
Premise (major): The general rule.
Premise (minor): A specific case of the general rule.
Conclusion: Thus, this example indicates...
Argument lb
Premise (major): The general rule, encompassing the
conclusion of premise 1.
Premise (minor): A specific case of the general rule.
Conclusion (for lb & Argument 1): Thus, this case
indicates...
Argument 2
Argument 2a
Premise 1 (major): The general rule.
Premise 1 (minor): A specific case of the general rule.
Conclusion 1: Thus, this example indicates...
Argument 2b
Premise 2 (major): The general rule, encompassing the
conclusion of premise 1.
Premise 2 (minor): A specific case of the general rule.
Conclusion (for 2b & Argument 2): Thus, this case
indicates...
Summary and conclusion:
Premise (minor): (The conclusion of Argument 1)
Premise (minor): (The conclusion of Argument 2)
Conclusion for topic 1: Thus, in this case...