When someone asks for small business advice – I always ask if they have a real business plan
Our plans miscarry because they have no aim. – Lucius Annaeus Seneca, Roman philosopher and statesman (4 BC-65 AD).
The best advice anyone could ever give a small business owner is to develop a clear and actionable business plan. As I mentioned in my article about business plan basics, it amazes me how so many entrepreneurs today focus their plan on obtaining a loan, grant or investment financing. Even if your plan is effective in raising the funds you seek for your business, no amount of money will amount to a successful business if a carefully conceived plan is not in place.
So what makes a good business plan? A good plan focuses on the long-term needs of the business, and contains actionable strategies that fulfill those needs. And it should be constructed upon:
- A precise and definite business concept
- Core business values and ethics
- Sound knowledge of the target market and competition
- Current and future economic trends facing the industry
- Establishing a strategic position in the market
- Employing qualified and skilled management
- Creating a productive and rewarding workplace for employees
- Proper financial management
- Proactive planning for risks and changes facing the business
Your Business Concept should be Clear and Simple
If you can’t explain it simply, you don’t know it well enough. – Albert Einstein
One of the most common issues that entrepreneurs face is the ability to explain their business concept. There may be several reasons why they lack the clarity needed for developing a sound business concept. But I usually pin this down to too much focus on the dollars and cents and not enough on how your product or service will improve the lives of others. No matter how you slice it, all business success boils down to the ability to fill a need.
Ask yourself this simple question: “Is this something that I would buy?”
If you can’t convince yourself that you would buy or need what you intend to sell in the market, you’re probably going to face a big challenge selling it at all.
Your business concept should clearly demonstrate how your business offers something different, better, or something much needed that doesn’t exist. It you don’t necessarily need to sell a better product; you may sell a product of similar quality to your competitors, yet be superior to them in how you deliver it.
For example, it’s hard to say that Starbucks sells superior coffee than its competitors. But it’s obvious that Starbucks has focused its business concept on filling an emotional need. People who buy coffee at Starbucks know that they can buy cheaper coffee elsewhere. So why do people buy coffee at Starbucks? Status. They’re not actually buying coffee; they’re buying an emotion – a feeling of being sophisticated and classy.
As you develop your business concept, always keep in mind how your product or service clearly meets an existing need.
Core Business Values and Ethics
He, who could foresee affairs three days in advance would be rich for thousands of years. – Chinese Proverb
What drives your business? Is it money? Or is there a higher motivation? Businesses who place a higher value on a purpose instead of purely on financial success experience more success in the long run. Making a profit is important, but if it’s your only driving factor for success, your business will likely run out of steam.
For the sake of those who might disagree with me, let me illustrate why this is so.
Put yourself in the position of the employee for a moment. What are the biggest motivators for you to want to work at a company? Here’s my list, in no specific order:
- Recognizing and rewarding employees
- Providing a positive and respectful work environment
- Playing an important role in the company’s success and growth
- Showing a deep respect and gratitude towards clients
- Focusing on safety
- Involving employees in decision-making
- Being honest in all business affairs
- Contributing to improving communities
- Career growth opportunities
Now, I would be lying if I said money didn’t matter to an employee. Every employee wants to be paid fairly and handsomely for his or her effort. But when money is the sole motivator for an employee to select a company to work for, employee turnover is usually high. When push comes to shove, money doesn’t fulfill all your needs.
Companies that understand the importance of building a business that respects and rewards everyone it engages with – be they customers, employees, suppliers, the community, or the media – stand a better chance of success over the long-term. Financial success is intertwined into the company’s values and ethos rather than being the value itself.
When your business is guided by principles, event the most difficult decisions are easier to make. Customers and employees stick with you because they trust and respect you. And these two factors contribute highly to your bottom line in the long-term.
Your business plan should be developed around those guiding principles.
Understanding Your Target Market and Your Competitors
A good plan is like a road map: it shows the final destination and usually the best way to get there. – Stanley Judd
I’ve encountered many entrepreneurs who put little focus on who their ideal buyer is, and who is serving them now. In many cases, it’s almost as if the entrepreneur has fallen into a deep trance with their own idea that they can’t see anything other than what they want or expect from starting/running their own business.
While it’s important to be inspired about your business, tempered logic is what enables you to see clearly. One of the reasons why businesses go through the process of developing a business plan – and one that is often forgotten – is to study whether the business can succeed. Business planning is not just about why you will succeed; it’s also about if success is achievable in your chosen market.
Although nothing is impossible, current and future market conditions almost always dictate your chances for success. You can’t ignore the realities of supply and demand.
Factors you need to consider are:
- Is there enough demand and interest for your product or service?
- Is the market ready to use the product or service you want to offer, and are people willing to pay for it?
- Is there room for another provider in your market, or is it overcrowded?
- What is the demographic of your target market? Is this likely to change over the next 3 – 5 years?
Let’s discuss an example of how a seemingly successful business idea can fail. Where I live, English is a second language, and a small percentage of the population can even communicate in English at a comprehendible level. There’s a huge demand for learning English because people recognize the importance of knowing English for their careers, education, etc.
Yet, many English language schools pop up and close soon after. Why does this happen? There are many possible explanations, but given my own research, the main factor is cost. The price most people can afford to pay for English language courses is often inadequate to cover the costs of employing teachers and marketing the school.
Location also plays an important role. When I first moved here, most people were willing to travel to the city center to learn English at one of the popular language schools. This often meant a school would cater to hundreds of students at any given time.
But as the market evolved, language schools started opening up in shopping malls across the city and people were more inclined to study closer to home. The result was that those schools in the city center were reduced to significantly lower enrollment numbers, and the newer suburban schools could only attract fewer numbers of students anyways because they catered to smaller markets.
Even in a market where demand appears to be high, you must carefully analyze your market’s ability and willingness to buy – and pay for – what you offer
Thorough research of your market and industry is the cornerstone of every successful business.
Your Strategic Position
It’s not the plan that’s important, it’s the planning. – Dr. Gramme Edwards
Where do you fit in this market? What’s your identity? How do buyers recognize you?
Establishing a clear strategic position in your market is essential. And knowing your target market demographics is going to be a determining factor in how you position and market your business.
Are you the cheaper alternative? Do you appeal to one specific market segment? Are you the only provider of this product or service? Are you the fastest? The biggest? The sexiest? Do you have the best variety? Or the best product/service warranty?
Every aspect of your business is affected by how you position it – the language your employees use with clients, how they dress, how your product is packaged, how your company website looks and interacts, and what your marketing messages focus on.
Again, you don’t need to be unique. But you do need to distinguish yourself from the competition by appealing directly to your target buyer. And everything about your strategic position needs to bleed into every aspect of your business, both internally and externally.
Employing Qualified and Skilled People
No matter how good your plan is, it’s going to be the people who put that plan into action and bring it to life that will shape the destiny of your business. In this sense, your company’s core management is about the most important element to business success.
Every key person involved in leading and managing the business must have the experience, skills, vision and flexibility to produce the expected results. Even if you have a solid business concept and you’ve proven market potential for your product or service through in-depth market research and industry analysis, it won’t go very far without talented and effective management. In fact, you’ll find that investors will emphasize this importance by carefully examining the track record of your management.
Of course, leaders are also known for their ability to inspire the best from workers and attract ‘business’. They have the character of hiring, motivating and retaining talented people within the organization.
It’s more than fair to say that success in business depends almost entirely on the capabilities of your management and the morale and dedication of your staff. While profitability may be on your mind as you plan your business, creating a motivating workplace and attracting and keeping the best employees should be a vital component of your business plan.
You can’t expect to turn a profit without committed staff, and you shouldn’t even be thinking about the bottom line if your business plan fails to foresee the importance of rewarding and recognizing employees, and providing opportunities for growth and advancement.
Proper Financial Management
Anyone who thinks there’s safety in numbers hasn’t looked at the stock market pages. – Irene Peter
This is usually where a lot of my clients want to start. I guess money seems to drive emotions harder than anything else…and I can certainly relate to that!
Nonetheless, it’s a crucial part of business planning, and probably the most difficult, because projecting the future is kind of like looking into magical glass ball. Or is it?
Proper research – especially if you are a startup – into the costs of starting and operating a business can help you plan with a high level of accuracy. There are many costs involved with running a business, and we often don’t foresee many of those costs in our own planning. Unforeseen costs can also include hidden costs or additional costs that we did not envision as being part of the cost of doing business.
Allow ample time to study both costs and revenue channels carefully. Look at how your sales, production, distribution and credit terms may affect your cash flow. Examine how your suppliers affect your profitability and cash flow. Then take the necessary time to understand how much business you need to bring in each month to keep your doors open, and how much you need to grow annually in order to defray inflation and changes in the market.
Speaking about changes…
How Adaptable is Your Business!
Success is a lousy teacher. It seduces smart people into thinking they can’t lose. – Bill Gates
One of the most exciting – and challenging – things about being in business is change. And since change happens in pretty much every aspect of our lives, what happens in business is merely a reflection of what happens in life.
Good and bad things happen all the time, and sometimes it seems as though nothing is happening. What’s important is how you anticipate, embrace and adapt to change.
Many business owners resist change because as the old adage goes…
If it ain’t broke, don’t fix it.
In my opinion, most people will look forward to positive changes, and avoid negative changes at all costs. The irony of this seemingly human reaction to change is that negative and positive are really just perceptions.
When things seem good, we tend to relax, take it easy, and even relish that feeling. We may not realize what may be on the horizon that can alter events of our lives and business. Yet, when things seem to be going badly, we often tend to sulk and complain about how bad things are going, reminisce the good times, and ignore the potential of something amazing approaching our shores.
Well, that’s how life often goes for many of us. But that’s not how businesses should be built. And still, many business owners suffer that same syndrome because they haven’t got a business plan, or they have not incorporated adaptability into their plan and their business philosophy.
Without going into names of companies, let’s reflect on one company that used to make camera film. They were so dominant in the camera and camera film industry that no one would ever conceive its demise. Things were good for so long that there was little incentive to change – or anticipate change. Then the digital camera came along and changed the scene. And in a short period of time, photo shops around the world, which once were profitable, were closing down. Very few of these remain today, mainly to support the passport and government identification industry. One has to wonder how much potential business even these shops have lost due to the digital camera.
But this one company, which was revolutionary for bringing us the personal camera and camera film, and which once faced antitrust lawsuits because of its strong grasp on this industry, went bankrupt.
The bottom line – change is inevitable. Business owners need to be ready for it, plan for it and implement it. Changes happen with technology, with populations and demographics and with competition.
Your business plan should reflect how your business anticipates and adapts to both internal and external changes, whether it involves key employees leaving the organization, or new competitors entering your neighborhood.