Fatal Flaws in Your Business Plan

A business plan is the blueprint, or road map, that guides aspiring entrepreneurs as they build their business venture. Business plan writing is about getting the details right as you keep in mind the big picture.  I’ve taught business plan writing since 2008.  I was invited by the program manager of an SBA-affiliated women’s business development  organization to teach a 20 week course that met once a week for three hours and students wrote their plan week by week.

A couple of years later,  I developed a six hour workshop that does not ask students to write their plan but rather, I present material that shows them the information that will be included in a good business plan: a marketing plan (including customer identification, branding and pricing), financial projections, operations processes and other elements.  We talk about how to do research and how the information discovered will help them build a successful business and if desired, attract investors as well.

When envisioning a potential business concept or writing a business plan, it is possible that unrealistic expectations or flawed thinking could influence the process.  Sometimes, one is just so excited about the great business idea that has surfaced that the adrenaline “rush” distorts clear thinking, such as the ability to see potential stumbling blocks that would require precautions to avoid.  Below are a few scenarios that entrepreneurs-in-the-making should beware.

Unrealistic expectations about the need and value of your products or services

While it is sometimes true that starting a business with yourself as the profile that represents the target customer is a smart idea, since you understand the value and availability of that product or service,  you may misinterpret the size of the market and the traction that can be achieved beyond a select group of true believers.

Insufficient information about target customers

Whether or not the target customer is modeled on you, research must be done to verify the number of potential customers who have the money and motive to do business with you,  regardless if this is a B2B or B2C enterprise in the making. You must identify the need for your products or services—what problem will you solve, what solution will you provide?

Furthermore, you must understand the buying process—who is the usual decision maker (the COO or the head of maintence?),  how will purchases be made and what is the tolerable price range? Lastly, from whom are your potential customers obtaining these products and services now? You must also identify and investigate competitors.

Vague about how to access customers

Especially in the B2B sector, access to customers is everything.  Some fields really are a closed shop. You may know who the ideal customers are,  know and describe well how your products and services fit their needs and know how to price and deliver them.  But if potential customers do not have the confidence to do business with you because you have not received an endorsement from a source that they trust, you will starve.

Overestimating cash flow

Usually, a business does not achieve desirable gross sales, and hence will not show a net profit, in its first year of operations.  Businesses that require high start-up costs especially will require a longer ramping-up period. The business plan must acknowledge the potential for negative cash flow and demonstrate how fixed and variable expenses will be met during that period.  One must know how inventory will be financed,  how payroll will be met and how the store or office rent will be paid.

When writing a business plan,  conservative financial projections are strongly advised.  Acquisition of paying customers may take longer than you expect and the size of their purchases may initially be small and infrequent.  Moreover, it is entirely possible for a venture to be profitable on paper and still suffer from cash-flow problems, because customers do not pay their bills on time.

Underestimating start-up costs

Developing a reasonable estimate of how much it will cost to get the venture up and running is essential.  If certain permits must be in hand, if certain tools or equipment are must-haves, then you must know the costs of securing all of the above.  If you’ll need to hire employees,  it’s essential that you have a good idea of the staffing needs up front (you can always hire more as customers increase).

“Magical thinking” business model

The business model is the design for how your venture will become profitable.  Well thought-out interactions between marketing, financial and operational processes will promote and sustain profitability and you must map out how these will occur. The business model describes the core fundamental actions of the venture.

The value proposition of your products or services will be described.  The resources that your enterprise will have to promote and defend the value proposition— the intellectual property that you’ve developed,  or patent rights, key relationships, or capital—will be accounted for.  Sales distribution channels will be detailed.

Getting to Plan B, a 2009 book by Randy Komisar and John Mullins, describes key business model components and advises business plan writers to segment the business model chapter into sub-headings such as:

  • The revenue model,  which describes what you’ll sell, the marketing plan and how you expect to generate revenue.
  • The operating model, which will detail where you’ll do business and how the day-to-day will function.
  • The  working capital model, meaning your cash-flow requirements.  Cash-flow means that you’ll know when money will be in hand to meet expenses like rent and payroll. It is subtly distinct from revenue.  The business can generate adequate revenue and still suffer from intermittent cash-flow problems.

Your business model keeps you organized and your priorities realistic. Matters such as quality control,  collecting accounts receivable,  inventory management and identifying strategic partners mean much more than your number of Facebook followers, for example. Best of luck to you as you work to launch your new business!

Thanks for reading,

Kim

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Market Research Matters

“If you build it, they will come” is a myth. When evaluating the likely prospects of a business venture, new product or service, or entrance into a new market, good market research is your non-negotiable Step One.  The ability to create and sustain profitability must be demonstrated up front, in advance of committing time and money to its launch.  The only way to reliably predict whether your shiny new idea has broad appeal is to carefully research the marketplace and examine the story that emerges.  The good news is that if you are onto something, market research will help you define the size and potential of the market; decide how and when to enter it; reveal how target customers prefer the product or service to be described, packaged and delivered; the acceptable price range; and show you how to achieve market penetration and profitability goals faster.

Many decision-makers are uncertain as to the type of data that is relevant and the advent of big data has unfortunately complicated matters.  There is copious data available, but what will help your team to make the best decision?  Dionne McPhatter is a market research guru and co-founder of The Strategy Collective, a New York City and Los Angeles marketing firm that builds custom analytics that help clients better understand their customers and make more informed business decisions.  McPhatter  recommends that decision-makers identify what is called in market research circles the “path to purchase” and arrange for the product or service to touch as many “landmarks” as possible.

Some relevant data is free, or inexpensive.  Google Trends is free and a decent place to start your search and learn how many people in your city last year searched key words associated with the product or service (I found the now-defunct Google Wonder Wheel far superior, however).  Learning about competitors who provide your service, or something similar or complementary to it, is also revealing.  Tour a few of their websites and figure out business models and marketing messages.  If you are thinking about launching a business, you will write a business plan and do lots of research.  Contact your local library to learn about business reference material such as industry magazines and demographic information.

Further, there is value in spending some money and visiting professional organization meetings and attending conferences, so that you can meet prospective clients and learn the expectations and value they place on your product or service.  Listen and learn and discreetly take notes.

As you collect and examine data, a picture of the target customer groups,  competitors and the overall marketplace will begin to emerge.  The downside is, those who amass a large amount of data can become confused about what is relevant: the data threads may be too numerous to easily prioritize.  The challenge of decision-makers is to discover the relationships and triggers between the data points and eventually see what motivates clients along the path to purchase.  From there, you can confidently develop goals and objectives, strategies and action plans and a business model that will build and sustain a profitable launch.

Thanks for reading,

Kim

 

 

Market Research: Benchmarking and Your Positioning Strategy

Every few months it makes sense to do some benchmarking and find out how your services,  marketing message buzzwords and delivery systems compare to that of competitors.  Whether you are a start-up or a veteran entrepreneur,  market research in its many forms is an important barometer of the environment in which your business operates.  Fail to keep your finger on the various pulse points of the marketplace and you can miss the boat on either a lucrative opportunity or a shift in business practices or customer priorities that will leave you out in the cold and scrambling to catch up.

As we approach the fourth quarter,  it is useful to start thinking about the new year and how you can refine and confirm your services offered,  targeted clients,  business model and delivery of services.  The results of your benchmarking research can be used in the marketing or operations sections of a business plan,  to create a marketing or operations plan or to measure the success of a current ongoing plan.  Start the process by following the advice of the late,  great business strategy guru Peter Druker,  who famously noted that getting the right answers begins with asking the right questions.  Some important questions to pose include:

  • What drives targeted clients to hire outside help  (that is, Freelancers)  to perform the types of services your organization provides?
  • Who is providing that service for them now and what is the level of satisfaction with the deliverables?
  • What would those clients like to see included in the service itself or in its delivery that is not now being provided?
  • Does the client anticipate any changes in demand for this service within their organization?
  • What does the client feel is a fair price to pay for these services?

In market research,  there are primary and secondary sources of information.  Primary source information emanates directly from the client or competitor. Secondary sources are anything that has been published.  Because Freelance solopreneurs typically do not have market research budgets,  a DIY low or no cost strategy will be necessary.  Primary information can be collected from current and prospective clients through surveys and questionnaires that either appear on your website or are emailed separately to those who you feel will respond.  Provide an incentive to participate,  such as a free half hour consultation.  Also,  clients,  prospects and referral sources can receive from you an invitation to have coffee or lunch,  so that questions about their organizations’ needs and priorities as relates to your services can be asked and answered.

Competitors are another source of primary information.  If you attend a seminar outside of a competitor’s working geography,  he/she will likely be comfortable about sharing information.  Over time,  certain competitors that you encounter on a regular basis at business events may drop their guard just a bit and share a couple of pearls with you.  It is for that reason that establishing good relationships with competitors is a smart idea.  What they share will be limited,  but it could be beneficial.

You may want to begin your research with secondary information.  The easiest DIY market research tactic is to visit the websites of four or five of your closest competitors,  that is other Freelancers who offer similar services to clients that could be yours,  if you play your cards right.  It’s a good idea to monitor the sites over the course of months or even years and make note of any additions or deletions of services.  Changes in the available services of more than one competitor could very well indicate a change in client priorities and should prompt you to start asking some questions of your clients.  Periodic explorations of client’s websites is also a good idea.  A new service could suddenly appear and give you a new opportunity to make money.

Take your secondary research a step further and do an internet search of clients and competitors. You may find articles and press releases that yield useful information.  Periodic checks of competitor’s LinkedIn profiles is also a great idea,  especially if the two of you share a connection.  That will grant you access to a competitor’s page without making that person a connection.  Lots of juicy details about the competitor’s activities may await you.  How can you create a second degree,  strategic connection?

Give your business an important reality check with some good market research.  Obtain information that helps your business identify niche markets or glean more billable hours from current clients.  Use the December Christmas build-up weeks to conduct your investigations and make plans that will set you up for a successful new year.

Thanks for reading,

Kim