Help! I Need a Better Business Plan!

On the face of it, a Business Plan should be relatively straightforward:  an executive summary, a company description, market research and information, marketing and sales data, and financial projections.  So how come so many business plans miss the mark?

Anyone who’s done Business 101 knows the basic elements of a Business Plan, and anyone who has looked into starting their own venture or sought investor funding has tackled the challenge of writing their own plan – yet so often business plans fail to reach their intended goal.

A business starts with an idea – a seed – but that idea only yields fruit if it’s planted in the right soil and given the right growing conditions. In other words, an idea – even a great idea – isn’t enough if it doesn’t have a market, a realistic plan to reach that market, and an effective team to execute that plan.  Most business plans fail not because the idea isn’t great, but because the marketing and financial elements are unrealistic or because the team fails to execute effectively.

Think back to the dot-com bubble – the bursting of the bubble was caused by the huge investments and overvalued stocks in dot-com companies based on little more than a basic idea, the overblown hype surrounding the potential of customer acquisition through the internet, and the success of a few key players (Google, Amazon).  The reality was that most of them never actually had sound enough business models that would actually generate business in real terms – and ultimately yield profits for their investors.

So while to you the most interesting part of your business plan is the idea itself, to your potential investors, the most interesting part is the return on their investment.  Regardless of how novel the product is, the real value to the investor lies in the business plan answering some very key questions:

  • How large is the market and is it a growth market?
  • How do you plan to access the market?
  • Do you have a sound, sustainable business model that can yield a return on my investment?
  • Is there a potential exit strategy for me?

So how do you put together winning data into your Plan?

First of all – make sure your research is thorough and valid! Just as your product should be proven and validated, so should your market and financial data. While some assumptions are acceptable, they should be based in “what is” not on “what should be”.

Industry Background: When you describe your industry make sure you include its current size and projected growth rate, its characteristics, trends, and segments.  Once you have an outline of the industry, zero in on your specific target market or segment.  For example, if you are targeting the aviation industry, is your focus on commercial aviation, business aviation or military aviation? Are you focused on a specific region, aircraft type, service type, or business model?  If your focus is on the consumer side, which variables did you use to segment your market? Geographic segmentation? Demographic?  Psychographic?  Socioeconomic?

More importantly, look at your target market’s needs and how they are currently being met.  What is the size of the segment, who are the major and the secondary players in the industry, and how much share do you think you can gain? How do you plan to gain entry into this market? What is your value proposition and what are your proposed market channels?

Make sure you understand how you fit in the industry big picture, including barriers to entry, regulatory environment and in relation to the competition.  What are your competitors’ strengths and weaknesses and how important is your target market to them? If your target market is their primary source of income, then you can be sure that they will fight to maintain their position within the industry and they will have many advantages.  Do you have a strategy as the new entrant?

Remember that the more defined your target market (or markets) and the better you understand the competition, the clearer you can be in not only defining your market’s individual needs but also in defining your specific value proposition and target share.

Again – realism is the key. If the total market is $100M and there are 3 key players, each of which has 15% share of the market, then be realistic in your expectations: you are unlikely to gain 10% share in your first year of business!!   If you believe that your product is so great that your customer will want to use it on their equipment 8 times a year when the industry standard operating procedure calls for the process to take place 4 times per year, think again! Your sales projections will be severely off the mark unless you have a solid plan to change customer behavior!

Pricing & Profit Margins: Pricing and profit margins can often be a major pitfall when developing a business plan.  Make sure your pricing structure – including discounts – is clearly defined and that all relevant costs are included in your profit calculations. Too often, profit margins are grossly over-estimated as key costs are omitted from this calculation.   Make sure you understand both your fixed and variable costs as you develop your pricing structure and include a breakeven analysis so you truly understand where you need to be to start making a profit.  If your fixed costs are $7,000 a month, you will need considerably more than $7,000 in sales to break even, so make sure you include a realistic estimate of variable costs.

Business Model & Financial Projections:  Literature abounds with information on how much detail should be included in the financial projections.  What is just as important however, is the business model itself and the knowledge and ability of the management team to execute that model.  A good business plan presents the financial projections in multiple scenarios to show how the company would respond and the projections would be impacted if the expected market or environmental conditions were to change unexpectedly.

Think back to 9/11 – a day that not only changed history, but also changed the face of several industries. The aviation industry was changed virtually overnight: airlines and suppliers to the industry went out of business virtually overnight; new entrants came onto the scene; the regulatory environment changed.

While this example is extreme, outside events can – and do – impact a business: regulatory changes, new technologies, new competitors.  So a business plan should reflect a business model that can respond quickly to a changing environment.   William Sahlman, in his excellent article on writing a business plan, states that “a typical professional venture-capital firm receives approximately 2,000 business plans per year. These plans are filled with tantalizing ideas for new products and services that will change the world and reap billions in the process – or so they say. But the fact is, most venture capitalists believe that ideas are a dime a dozen: only execution skills count.”

Sahlman makes an important point: investors are inundated with ideas and business plans. What you need to focus on when putting together your own plan, is ensuring you have a sound business as well as a good idea.

As always, I’ll leave the final word to an expert, Joe Mansueto

“I found an approach to investing that made enormous sense to me: rigorously analyzing a company’s fundamentals, understanding exactly how it makes money, developing a view on the business’s future prospects, and deciding if it’s a good business.

5 Steps to New Product Development

By Dora Cheatham, Program Manager, Emerging Enterprise Center

New product development is often spoken of but seldom practiced. Yet it is a process that is all-encompassing, risk-averse and eloquent in its simplicity. When coupled with outstanding project leadership, it’s a winning formula guaranteed to yield results.

 

Too often, product development in today’s larger organizations is fraught with miscommunication, misdirection, lots of activity with little accomplishment, unclear goals. The end result is wasted time, effort, and sometimes a product that does not deliver on its early promise. An effective development process – my personal favorite is the stage-gate process – that is well executed and well led is critical in eliminating many of these problems, increasing speed to market and ensuring that the product under development continues to meet business goals and market requirements.

The 5 Steps of Development

Step 1: THE IDEA – The source can come from R&D (based on new technology), Marketing (based on market need or gap analysis determination), Sales (based on customer need) or Operations (based on a new process that offers manufacturing alternatives). Each idea should be screened to determine its overall viability before moving on to the next stage. Does it meet the company’s overall strategic goals? Business goals? Market development goals? Product development goals?

It is important to note that new product ideas are based on knowledge: customer and industry knowledge, technological and environmental knowledge. The sharing of knowledge between departments enables the connection of dots that may remain unconnected if left floating alone in a vacuum. R&D or Engineering may be aware of a new technology but unaware of a market application while Marketing may see a market need or application without being aware of the technologies available to meet the application. Manufacturing and operations should be aware of both market needs and trends as well as technological developments so that they, in turn, are well positioned with regard to resources.

Step 2: PRELIMINARY REVIEW – Technological, operational and marketing viability. What is the total market size and potential? What are the R&D cost requirements? What are the operational requirements? What are the ROI estimates? Are there any regulatory implications? Product and time parameters, including product functionality and attributes, estimated cost targets and market goals should be established.

Step 3: DEVELOPMENT – A step in which all departments – not just R&D or Engineering – should be involved with frequent communication and updates to ensure that the product criteria established in Step 2 are being met, and that the needs and timing remain unchanged. If at any point during this stage there is a change in product scope, cost or timing, then a review of the business case may be warranted to determine if further development should continue or expectations should be adjusted.

Step 4: TESTING – A critical part of the process since this will validate the product or determine if additional development time is requirement. If possible, testing should be completed in partnership with a launch customer as this offers external as well as internal validation of product performance. This step will also determine if the product continues to meet the criteria and goals established in Step 2, or if these criteria need to be re-evaluated and/or adjusted.

Step 5: COMMERCIALIZATION and LAUNCH – Production ramp up and marketing plan. Are all the operations pieces – from part numbers to purchasing to production – in place? Are all regulatory pieces (if applicable) in place? Does the sales team have everything they need – from marketing materials to samples to trial protocols to industry context – to sell with confidence? Again, all departments should be involved in the commercialization process to ensure that all elements of the Commercialization and Marketing Plan are orchestrated for a flawless launch.

Effective Project Leadership is a Must

The above notwithstanding, it is not enough just to have a good process in place. The keys to a successful new product development process are project leadership and execution, as well as cross-functional involvement and contribution at all stages of the development process. Effective leadership ensures:

  • Regular communication across all disciplines at every step of the process;
  • That the product continues to meet all criteria established at Step 2 of the process;
  • That the activities engaged in the entire development process add value to the overall innovation strategy;
  • That – once commercialized – momentum is maintained to ensure that the product yields the expected results.

Too often, a process is put in place but is poorly implemented or poorly led, and therefore fails to yield the desired results. Like any process, success depends on keeping the end in sight, and in this case the end does not finish with first piece approval. Frederick W. Smith said it well when said:

“Leadership is simply the ability of an individual to coalesce the efforts of other individuals toward achieving common goals. It boils down to looking after your people and ensuring that, from top to bottom, everyone feels part of the team.”

Creating and Selling Value: Creating Value: Sales & The Value Pyramid

By Dora Cheatham, Emerging Enterprise Center

Going from supplying a product that meets basic customer expectations to contributing to a client’s organization can be hard to establish and even harder to maintain, but is an invaluable strategy for long term profitability. Keeping a customer requires the creation of a relationship of mutual trust and partnership that goes beyond supplying a quality product.

Seeking to create value and a sustainable competitive advantage is increasingly difficult in today’s data-filled environment. Buyers today are educated and savvy. In the B2B world, the buyer can be 60-65% through the purchase process before he or she even makes contact with an incumbent or potential vendor. They know what’s out there and what it costs so if all you have to offer is a product that meets specifications, then you have effectively created a situation where your only option is to sell on price—and the lowest price invariably wins. That also means that as soon as a competitor emerges with the same option at a lower price, then chances are that customer is lost to the newcomer. So how can you ensure that your customer remains loyal to your product and business?

Smart Buyers Seek Value

A truly smart buyer understands the value of a vendor that contributes to the smooth running of his or her business. If you can deliver a flawless product, on-time, every time, with excellent customer service, then it behoves him to use your product—because spending time dealing with vendor-related problems and quality issues costs money and impacts his own customer service and bottom line (think about the UPS “I’m happy” ads where department managers and customers are happy thanks to UPS Logistics).

By supplying a quality product with excellent customer service you have already established some level of competitive advantage. And many companies today provide good products with good service – it is a prerequisite to staying in business. To sustain that advantage however you need to continually climb the value pyramid and add to your product in terms of additional service and knowledge, eventually making a quantum leap to the peak of the value pyramid to establish yourself as more than a vendor, but a trusted strategic partner.

Can you help lower your customers’ costs or improve their productivity? Can you help them identify new products or markets? At an even broader level, can your customers call on you for advice on operational systems and processes or strategic direction? In other words, does your customer consider you a supplier or a partner?

Schematic adapted from Doyle P. and Stern P., Marketing Management & Strategy, 4th ed., Prentice Hall

 

As you climb the value pyramid, commoditization decreases and company and product value increases, with fewer competitors able to compete at the same level. The fundamental difference between the lower and upper levels of the pyramid is distinct: to be good at the former, the salesperson and business needs to have a top quality product to sell and needs to understand his product and his own business well.

To be good at the latter, the salesperson and business needs to have an understanding not only of his own product and business, but of his customer’s business as well. He needs to understand his customer’s individual and industry needs and must excel at consultative selling, offering solutions that are of mutual benefit to both organizations. Only then can you hope to ensure an enduring partnership and long term rewards.

You don’t close a sale; you open a relationship if you want to build a long-term, successful enterprise. Patricia Fripp.

Why To-Do Lists Are Killing Your Productivity

Written by Brooke Miles, Delaware ShoutOut

Do you start out each week—or each day—with a to-do list? Before I wised up to the dangers of to-do lists, I wrote them all the time. A typical one looked like this:

  1. Write blog article
  2. Craft proposal for new client
  3. Throw out orphan socks from sock drawer—or repurpose into puppets
  4. Develop PowerPoint for social media seminar
  5. Pull new gray hairs from top of head
  6. Make sales calls
  7. Memorize lyrics to Queen’s Bohemian Rhapsody. Consider singing with sock puppets.

You know what happened? I’d do the irrelevant stuff first (sock puppets, gray hairs, and Queen), because they were more fun and easier to check off. Wow, I was getting stuff done, I thought! Sure, I might work on less-pleasant-yet-critical business tasks…if there was enough time afterwards. But usually I found more tempting ways to fill the time.

Maybe you can relate. Okay, maybe you’re not lured by sock puppets, gray hairs, and Queen. But your tendency to check off simpler tasks—pay a bill, make a quick phone call, etc.—may be preventing you from accomplishing tasks that could make a huge, positive impact on your business.

Here are more problems with to-do lists:

  1. They don’t factor in the duration of each task. Some tasks might take two minutes—others might take two hours!
  2. They don’t say when you will tackle each task (i.e. no real commitment).
  3. They don’t distinguish between urgent and important. Urgent and important aren’t always the same thing.
  4. They rarely get completed in full. Did you know that, on average, 41% of to-do items never get done?

Imagine what your business would look like if you consistently accomplished your big-picture tasks every week.

My business transformed—with revenues quadrupling in one year—when I stopped writing to-do lists and started putting important tasks in a calendar. (I use Google Calendar, but any calendar will do.) Why a calendar? Because it forces you to block out time for the stuff that matters. In other words, you’re making regular business appointments with yourself. Using a calendar also helps you see what your day truly looks like, so you don’t end up over-committing to less important tasks.

Do I still crave a life with sock puppets, gray-hair pulling, and Queen? Absolutely. But now I can visualize what little time I have for it, at least during the workday. (Besides, I’ve found it’s easier to work on gray hairs at night, when my teenage son can help pull the ones I can’t see on the back of my head. Awkward for him, but great for me.)

I’d love to learn what productivity strategies work for you. Block out 15 minutes in your calendar to email me your thoughts. I look forward to hearing from you!

Marketing for Small Businesses – 3 Steps to Success

Written by Dora Cheatham, Program Manager, Emerging Enterprise Center

We often hear of the failure rates of start-ups and new businesses, or even longer term firms going out of business for one reason or another.The US Census Bureau’s statistics certainly bear this out, with as many as 44% of businesses failing by their 3rd year and 71% failing by Year 10.

While this depends greatly on the industry, the chart below from Statistic Brain, shows just how fragile some industries can be:

While the final cause of death is usually financial collapse, the symptoms most likely started much earlier with failed strategies and operational inefficiencies. While no-one has a crystal ball into the future, you can certainly try to preempt as many obstacles as possible with careful planning and preparation; as Alan Lakein once said “failing to plan, is planning to fail”.

So if you’re thinking of starting your own business, or you’re beginning to see fissures in your business, there are definitely steps you can take ahead of time. Here are a few from a marketing perspective to ensure that your business survives and succeeds.

  1. MARKET ANALYSIS │ THE LAY OF THE LAND

Understanding the lay of the land is critical in helping you determine what actions you will need to take to grow—or in some cases—survive. An excellent tool for establishing the lay of the land is Michael Porter’s Five Forces Model. This popular model forces you to look at your industry within a specific framework that takes into consideration competition between existing firms, the threat of new entrants, the strength of buyers and suppliers and the threat of substitute products. Another simple but frequently used framework: the SWOT analysis that assesses strengths, weaknesses, opportunities and threats—use it to assess not only your own business but also that of your competition.

How do you fit in these frameworks? What are your core competences? What are your weaknesses? How can you leverage your strengths and improve on your weaknesses? It’s not enough to know and believe in your own product: you need to understand how it fits within the industry and among other like products in that industry. You also need to have a clear understanding of your customers’ (existing and/or potential) needs and wants.

But don’t be fooled into thinking that this is a one time exercise—external forces and world events can impact the lay of the land, change the balance of power in these forces and overturn the positions in these frameworks within a matter of weeks! A catastrophic event – think 9/11 and its impact not only on the aviation industry but also the industry’s suppliers, travel, tourism and beyond – can and will result in a need to re-assess your business strategy in short order.  

  1. MARKET STRATEGY │ START WITH THE END IN SIGHT

Once you have a clear understanding of the lay of the land, the business then needs to determine its focus: What is your differential advantage or value proposition as a business? What are your growth objectives? Which products and markets offer the best opportunities to achieve your growth objectives? How will you achieve these objectives? Will it be through market penetration? Product development? Market development? Diversification? How will you position the business and your products to meet these objectives? Which core competences do you need to develop to achieve your targeted growth and create a sustainable competitive advantage? What will the investment be in time, talent and treasure to develop these core competences and what will your return on that investment be? 

  1. MARKETING MIX │ THE ROAD MAP

The Marketing Mix is generally referred to as the 4Ps (or 5Ps depending on the source!) and encompasses decisions surrounding your Products (performance, features, design, presentations, name, etc), Pricing (direct, distributor, geographical, etc), Promotion (PR, marketing collateral, advertising), Place (distribution channels), and People (tasks, sales, support). In other words, you know your market and you know your customers. You now need to ensure that you have the correct products, that they are correctly positioned and that your communications correctly reflect that positioning. Do you have the right distribution channels set up? Do you have effective and efficient processes in place?

A common fallacy to avoid is that marketing is the same as sales, particularly on a B2B level. The two are very different and – while they work hand in hand – they perform different functions. Marketing creates the value, the visibility and the lead; it can also provide the tools to make the sales process more effective, but it is an ongoing process and does not preclude the need for a sales strategy to leverage and capitalize on the value created through the marketing process (check out the posts on Creating & Selling Value and What’s In A Brand?).

 

STRATEGY X EXECUTION = SUCCESS

As I’ve mentioned in previous posts, it’s not just about the strategy but about implementation and execution of that strategy. Once the lay of the land and the road map have been laid out, specific tactical and action plans, budgets and measurement criteria can be put into place to guide that execution and implementation. One of my favorite quotes is from the entrepreneur Naveen Jain. “A great strategy alone won’t win a game or battle; the win comes from basic blocking and tackling.”

Why Do Passionate Entrepreneurs Fail?

Written by Frank DeSantis, Certified Growth Wheel Trainer, Former Emerging Enterprise Center Program Director

The link below is to a great article in HBR on Passion vs. Preparedness, and reflects what I believe is the approach the Emerging Enterprise Center tries to take with their Incubator companies.

An entrepreneur has to have passion. It’s entirely too hard to start and run a business if you don’t absolutely love what you are doing! Apparently, according to this research, passion is a key ingredient to attracting attention of investors, especially novice investors, those typically found on crowdfunding sites.

Long term success, however, depends upon your ability to be prepared to scale the business. For that you need to have a vision (what do you want to be when you grow up), a game plan (strategy or business plan), and the processes and procedures to replicate what you do and how you sell. For more experienced investors, the passion and the concept may attract them initially, but they move quickly to determining how prepared they are for success; what is the experience of the management team; have they started a business before; is there a market; have they proved the concept?

At the Emerging Enterprise Center, they try to help you focus first on DRIVING YOUR BUSINESS (sales), while in parallel, developing the business skills and the policies/procedures to enable you to take advantage of opportunities that help you achieve your vision.

I believe you can have and, in fact, need both: PASSION AND PREPAREDNESS!

https://hbr.org/2015/07/for-founders-preparation-trumps-passion

Williams Humphreys and Company to Sponsor Swim with the Sharks Video Pitch Competition again along with others

The Emerging Enterprise Center is excited to once again have Williams Humphreys and Company as the Presenting Sponsor for the Swim with the Sharks Video Pitch Competition Program.

By being a Presenting Sponsor, Williams Humphreys and Company can bridge the gap between the entrepreneurial ecosystem and the small business community in New Castle County, Delaware.

In addition, the Emerging Enterprise Center has received sponsorships from Young, Conaway, Stargatt, and Taylor, LLP, as well as Advertising is Simple (a graduate from the EEC).

For more information on the Swim With The Sharks Video Pitch Competition please click here.

If you are interested in sponsoring this program, please contact Erica Crell at crelle@ncccc.com.

 

 

Breaking News – New Program Director Announced!

The Emerging Enterprise Center is proud to announce Dora Cheatham as the new Program Director. Dora has had a long career focused on sales, marketing and product development in a corporate setting. For the past several years, she has run her own consulting shop focused on assisting small businesses here in Delaware and throughout the region. She has also been a key player in organizational and promotional work for the Delaware Sustainable Chemistry Alliance.
Dora Cheatham was born in the UK and grew up in Europe, studying and/or working in the UK, France, Spain and Cyprus regions. She holds degrees in foreign languages and business from Thames Valley University and the University of London and speaks fluent Spanish, French and Greek.
She relocated to Delaware 25 years ago and has since held several positions in International Business Development and Marketing, most recently as International Business Development Manager with Celeste Industries Corp-a subsidiary of ITW, Inc. Where she implemented and managed New Product Development & Marketing procedures to create and commercialize new products on the global stage, generating over $5 million in new business and helping to establish Celeste Industries as a leader in aviation industry cleaning chemicals. On a local level, she has also worked as Director of Development at Kent-Sussex Industries, Milford, Delaware, where she coordinated a $2.2 million capital campaign and successfully increased non-campaign donations.
She has published several editorials for the aviation industry including:
  • “How Safe Is Your Water?”
  • “Complete Hygiene-Cleaning & the Disinfection Myth”
  • “How Green Is My Cleaner?”
Thanks to all of you for your patience and understanding during the time we have taken to search for a person to fill the role of EEC Program Director.  We are very excited to have Dora join the team at the EEC to continue to provide support, access to resources, and advice to our members.
Dora will begin work with us on Monday, June 26th. Join us in congratulating her.