5 Reasons to Choose a Niche When Starting a New Business

Select a business niche when writing a new business planThe Wall Street Journal recently published an interesting article on Artificial Intelligence (AI), written by Christopher Mims (see article). The article describes two new businesses that are making great strides in how AI can be used to help make our lives easier.

What struck me as most interesting, however, was the incredibly narrow focus these businesses have with regards to what they hope to accomplish, and the value proposition they offer. As Mims points out, this is actually a very smart approach – one that is in complete alignment with my own perspective. If you seek to launch a new business (and write a new business plan as part of the process), then you too can benefit from this strategy.

In the WSJ article, one of the new businesses described is X.ai, which seeks to help simplify the task of making calendar appointments with others. We have all experienced this challenge. It can be an annoying and time consuming. The investment community agreed. The company was recently funded with $2.1 million to develop their virtual assistant called Amy (see announcement). Considering all the tasks an administrative assistant could do, it is notable that the company will just address the task of making appointments.

Here are 5 reasons why this is a good strategy:

  1. Once the development work has been completed and it is time to start generating awareness or “buzz” for the company, the message of simplifying the task of calendar appointment setting is crisp, easy to understand, and will resonate very well with nearly everyone that hears it. Another term for this strategy is KISS, or Keep It Simple, Stupid.
  2. The focus on just one task means that the “use cases” or examples of problems that can be solved will be equally focused. Employees will quickly become experts at the challenges tied to setting appointments when you can’t see each other’s calendars. Training time, effort and cost will be minimized, as will time spent on the phone doing customer support.
  3. Sales cycles should be accelerated, or at least simplified. This will likely also lead to streamlined support and future sales leads, helping the company to grow at this critical point of its life.
  4. Market awareness programs will be better understood to yield better results. Given the overload of information that potential customers hear every day, the chance to quickly address a common challenge will resonate well, resulting in greater retention and brand recognition.
  5. Future expansion decisions will be simplified, and cost less. For example, if the company sought to ease appointment setting, time card completion and file storage, then you will have new complexity when deciding the best direction for future growth. Where do you invest next? Time card tracking, appointment setting or file storage? Having initially invested in all three services, you will likely continue that strategy, and it will cost you more resources and investment. Alternatively, going with a very narrow focus to a specific audience offers a more cost effective approach to expansion. Getting just appointment setting right, for example, could then be applied to several different types of user profiles, ranging from corporate business workers to small business owners to “soccer” moms. This type of expansion will be much easier and cost effective to execute, so will have a greater chance for success.

 

So why don’t more business startups pursue such a narrow focus and strategy, including how they write their business plan? Experience has taught me that when working for a small startup it is very difficult to say “no” to a new sales opportunity. The sales and/ or management team is afraid to see a possible sales opportunity walk out the door. When you are at a startup, things are tight, so every possible sales angle takes on greater attention. But those with the strength and discipline to do just one thing, and do it well, will be rewarded with less risk and, hopefully, a better chance of survival.

 

Gordon Benzieis a marketing communications professional and business plan adviser that specializes in preparing and executing upon business plans and marketing strategies. Gordon can be found on Google+

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While Content May Be King, Conversation is Queen of Market Awareness

king_and_queen_marketing_awareness2Numerous articles have been written on the importance of what we marketers refer to as “content” in order to drive market awareness, lead generation and other sales support activities. Simply stated, you need something to say to gain the attention of your prospects and customers. Google, Bing and the other search engines reinforce this concept – you simply can’t achieve good search engine placements without quality, relevant content that is frequently updated on a regular basis.

As has been mentioned in this blog and other publications, a blog is a great place to showcase your content. Blogs offer a great “home” for you to build a collection of articles and stories that share a common theme, which in aggregate support your brand and help future customers to find your business. Any business plan writer you meet with should have a strong understanding of this topic too – if not, it might be time to find another writer!

Is Good Content Enough?

Here is where you have to ask yourself “what’s next?” Now that you have invested the time and resources to write a collection of articles, how do you now build relationships with your readers, current customers and potential clients? The reward for getting engaged in these conversations is substantial, and includes:

  • Enhanced likelihood these people will read and follow future announcements
  • Improved response rates to future offers
  • Increased chance of that person will ultimately become a customer

Learning by Example

One area where marketers can learn how to drive increased conversations is from the world of e-commerce. Some of the online retailers are quite good at creating a series of interactions that create a group of engaged prospects that likely will become future customers. For example, we all know that if we order a product from a website, we will get an email soon thereafter confirming our order. This is a good thing – we like to have a record of what we just bought. Further, if we receive an email the next day indicating our product has shipped, this is also a nice message to receive – my order is on its way. Then, sometimes you even get an email indicating that the order has shipped, with complete tracking information. Follow up emails might even include customer satisfaction surveys, another great opportunity to suggest or induce conversation.

The conversation, however, doesn’t stop once the order has been shipped and received. Instead, it is highly likely we will get a follow up email from these retailers in a few weeks or months from now, suggesting a similar product for us to order. For some of us, this is an annoyance, and we will opt out. But, for others, this is seen as a nice thing, as a way to make future orders easier to manage and accommodate.

Here is where public relations and social media professionals might take note. What can we learn from the retail establishment as a way to increase our conversation “quotient”? One challenge is we don’t have the same access to contact information that e-tailers do, such as an email address. And, with privacy laws and concerns, it is unlikely this will change. One approach is to add a call to action or value proposition that can then facilitate better access to this data. A newsletter sign up, for example, might be an angle that promises notification of new stories of interest, or of when a new blog post goes live.

If you can accomplish the right mix of content and conversation, then you are worthy of “royal” lineage. You will then have addressed both the king and queen of marketing awareness, through a marketing-based approach to public relations and brand awareness!

 

Gordon Benzie is a marketing communications professional and business plan adviser that specializes in preparing and executing upon business plans and marketing strategies. Gordon can be found on Google+

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Promoting your Blog with Social Media

social_media_promotion_blogI recently wrote a blog post on the importance of building a blog as part of your public relations program (see article here). As I explained, in today’s digital world, a blog is a critical part of your online profile – as a source of new insights, thought leadership and brand positioning necessary to keep your opinions and perspectives top-of-mind.

Once you have come to the conclusion to invest the time and resources to have a blog, the next step is that of promotion. If you build it, no one will find it unless you provide digital “bread crumbs” to lead the way. Search Engine Optimization (SEO) will play an important role, but isn’t enough. Here is where social media comes in. In fact, from a Public Relations professional’s perspective, this might just be the most important use for social media, and the single most important factor in justifying your entire investment in social media marketing.

What Should I Tweet About?

With Twitter being one of the most predominant social media platforms, it is nearly mandatory that you, your company or even your product line has a Twitter account. It is easy to set up the account … what next?

One strategy is to share interesting news that the audience you seek to build might be interested in reading. This is generally a good idea. Providing value to an audience will, over time, generate more followers, which helps in getting a higher profile. But, wouldn’t it be better to instead drive your audience towards an article that you wrote and hosted instead? Or, better yet, what about directing traffic to a promotional partner that is perhaps hosting a future event you are sponsoring? It doesn’t take much to see that driving traffic to a page you control is better than one you don’t.

Here is where the blog strategy can pay a handsome dividend. Once a new post has been written, such as this one, the next step is to promote it through your social media channels. Further, this points to a tangible benefit that can be achieved by building an audience … each time you have a new blog post, you will theoretically attract more potential readers with a larger audience.

Some authors have mastered this technique very well. Seth Godin, author of my favorite book the Purple Cow, has attracted an audience in the millions that religiously follow his words and wisdom every day. And, as he announces to books that he has written, he has an instant “base” of avid fans that will become new buyers.

What Social Media Venues should I Pursue?

Having made the decision to invest in a blog and promote it with social media, the next question to ask is what social media properties should you focus on?

Great question, and one that will be answered in my next post.

 

Gordon Benzie is a marketing communications professional and business plan adviser that specializes in preparing and executing upon business plans and marketing strategies. Gordon can be found on Google+

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Policy Change, or New Trend Opportunity?

trend_or_new_business_opportunityI recently had the opportunity to go to France on a business trip. Despite the increasingly “flat” world we live in, each country definitely has its particular nuances on how business is done and what social customs are acceptable. Fortunately, I was able to spend a bit of time in restaurants where I enjoyed the wonderful French cuisine.

One thing that caught my attention was when it came time to pay my bill. I was aware that when using a credit card, the tip had to be referenced early so as to be included with the authorization approval. What struck me as odd was that a tip amount could no longer be included with my credit card charge.

Shortsighted Policy Shift

This policy change surprised me, so I asked further what the thought was behind it. My server told me that it was causing too much taxes to be charged to the restaurant – apparently VAT or other taxes are applied to not only the food bought, but the services tipped. So, the solution was to simply stop including tips with credit card bills.

My next question was to my server – what did he think of this change? You might guess his response, “It is terrible.” I can only imagine. Personally, I carry little cash with me, relying heavily on plastic to cover my expenses, especially during a business trip. I didn’t have any Euros on me, so had to explain I would be back later to reconcile my shortcoming (which, by the way, I neglected to despite good intentions).

Industry Change, or Window of Opportunity?

My next thought was whether this change was government-mandated, or just the establishment’s decision. After doing a bit of research, it appears this was an isolated incidence (please let me know if I missed something). Given my server’s response, if the policy was country-wide, I suspect we would have all heard about it by now!

Given that this appeared to be an isolated change, what do you suppose will be the outcome? To start, I have a lower opinion of the restaurant – why do I want to support an organization that is clearly not thinking about their employees?

Further, I am inclined to believe the hired help will seek employment where tips can be added to the receipt. This might even create a cycle (and a reputation) that this business owner may, or may not truly understand. Those that can’t find “full payment” employment opportunities might ultimately become the staff at this establishment – effectively lower the bar on the quality of staffing. These folks might have to accept a lower payment in exchange for a lack of experience, poor work history, bad reputation, or some other challenge that precluded their working elsewhere.

As a competitor, this opportunity could be viewed as a window of opportunity to initially hire away the best employees, and in the future, to convince new recruits to not even consider their competitor for employment.

Alternatively, if this were a broader industry shift, such as a new government mandate, then the window of opportunity might be with a different perspective. For example, a new business plan that might now gain traction could be to provide mobile payment via a new app capable of digitally paying a bill while bypassing the restaurant’s own internal billing format. From a marketing communications perspective, the waiters could then become your own distributed sales force, offering this service to those without cash on hand.

Those with a keen sense of what was driving the change and what the perspective is of those impacted by the change will stand to benefit – if they can move quick enough to provide a new solution before everyone else.

So, next time you observe a shift in a routine, it might be worthwhile to pay particular attention to what is driving that change – a new business plan opportunity might be just around the corner!

 

Gordon Benzie is a marketing communications professional and business plan adviser that specializes in preparing and executing upon business plans and marketing strategies. Gordon can be found on Google+.

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Marketing Strategies to Deal with a Disruptive Event

disruptive_event_microscopeIn my last post, I presented a real-life disruptive event that manufacturers of microscopes are now facing – the emergence of a new competitor selling a product that apparently is unbreakable, can be transported to literally anywhere in the world, and, could retail for $.50 each.

I chose this example not only because it is a current, but because of the severity of the disruption. Professional microscopes used by research facilities or drug manufacturers likely cost thousands of dollars, so the price difference is significant, to say the least! Here are some observations and tips I would suggest, if I were the one responsible for realigning the strategic direction of an existing Microscope manufacturer.

Why are you in Business?

I don’t mean to imply you should just recite your mission statement, or to try and present the merits of preparing one. I am simply suggesting you look to your roots and decide why you are in business in the first place? What is the reason you started your company, or in the case of large, publicly traded companies, what difference are you trying to make in the world? Assuming it is more than just collecting a paycheck, a careful reflection on this point will help guide next steps.

For example, if your mission was to provide under-developed countries with medical assistance through the production of affordable microscopes, then I would propose you now have two choices: (1) Join forces, or (2) Exit the industry. Manu Prakash and his students at Stanford have built a better “mousetrap” as the expression goes, so you really can’t expect to disrupt his breakthrough – it is unlikely.

Alternatively, if your mission is to provide the highest quality instruments so researchers can gain insights into the deepest depths of molecules, atoms or whatever else these individuals do to help find cures to diseases, then your response might be different. The paper microscope was created to serve markets where the primary purchase decision is based on cost, ease of use and transportability. The research market, however, has money to spend and is typically is located in a developed nation where breakage issues are not a driving factor of a purchase. So, this market might see value in features that better serve its needs.

Product or Market Differentiation

Marketers like to call this strategy product or market segmentation. Ideally, it is best to “own” a particular market segment. Narrow the focus on what you think you can “own” so as to provide the best possible product to serve the specific needs of that particular group of buyers.

For example, it may be that a larger model is better suited for research purposes. In this hypothetical scenario, it might make sense to “go big” and introduce a much larger version with specific features that a researcher might highly value. This way your product gets positioned as serving a different need, so will less likely be compared to the paper product. A great way to execute upon this concept is to come up with a new name for the market you seek to dominate – it will help to make the buyer feel more comfortable, and that they are not overpaying for a product that could be purchased for under a buck!

Service Differentiation

Another business strategy to make your offering different than the rest is to include or associate a type of service with the physical product. In the software world, some clients have highly sensitive data, processes or actions that are being performed by their software at all times of the day or night. These clients will happily pay for 24/7 service to be available at a moment’s notice to fix an issue if it comes up, so as to avoid lengthy downtime. In the same way, some of the microscope manufactures might decide to come out with a highly sensitive, highly accurate model that might be the Ferrari of models – both in terms of performance and nurturing necessary to maintain that performance. Clients interested in this type of product might be willing to pay extra for the support or maintenance services associated with such a high end machine, making the focus being more on providing the valuable expertise to keep the equipment running at all times. This is certainly a different business model than that of providing the “buck” model.

To conclude, when faced with a disruptive event, it is often helpful to first think about your business purpose. This insight is more than just to include in the writing of a business plan – it can genuinely be a life saver to help you get over the shock of a disruptive event that might happen in your industry. With this insight well thought through, the choice of a responsive action might be easier to see, identify and put into place.

Do you have a disruptive event that occurred in your industry? I would be curious to hear what you did and how it played out. It will be interesting to read about the microscope manufacturing market in about 2 years to see how these industry players decided to respond.

 

Gordon Benzie is a marketing communications professional and business plan adviser that specializes in preparing and executing upon business plans and marketing strategies. Gordon can be found on Google+

 

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What is Your Business Plan to Deal with a Disruptive Event?

black_swan_eventHaving worked in the technology industry for the past 20+ years, I have seen a few significant changes and technological breakthroughs. Most of the time they are unexpected – there is a reason why these are called “disruptive.” Few can truly see it before it happens.

According to Wikipedia, Nassim Nicholas Taleb coined the term “Black Swan” as a theory to explain:

  1. The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology
  2. The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities)
  3. The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs

The bottom line is you won’t see it coming, and the announcement that brings it to light will be shocking, to say the least.

A Microscope for the Masses

One of these events just occurred last month. I read about it on Yahoo! News on March 24, 2014, where it was announced that Manu Prakash, a professor at Stanford University and his students have developed a new microscope that is literally “built” out of a flat sheet of paper, a watch battery, LED, and optical units that when folded together, much like origami, creates a functional instrument with the resolution of 800 nanometers – basically magnifying an object up to 2,000 X.

Adding further impact to this breakthrough, apparently it is unbreakable, can be transported to literally anywhere in the world, and, could retail for $.50 each.

What do you do if you work for Carl Zeiss, Leica, Nikon or Olympus, some of the leading microscope manufacturers in the world? I suspect these companies are right now doing their very own business plan evaluation to try to answer this question.

How Would you Respond?

I suspect that the day the news announcement was made, there were a few “oh sh%@” comments that made it through the halls of these manufacturers! No one likes to be surprised, and everyone usually, at least initially, thinks the worse.

To start, this is an interesting case study that will unfold before our eyes. The reason is that from a humanity perspective, this really is a good thing. Now under developed countries might have a way to scan for blood diseases, in locations that were never before deemed possible. New medical breakthroughs might even result. Lives might indeed be saved from this invention.

So, from a public relations perspective, the last thing a company should do is to attempt to discredit the competition, or in any way try to make the product sound inferior or to be avoided. In fact, words of congratulations might even be in order, almost from a peer-to-peer perspective. Here is where crisis PR avoidance tactics should be studied and adhered to.

Simply stated, what these microscope manufacturers might now have to do is to redefine the marketplace such that their product line is differentiated enough from this new competitor that there is still a need for purchasing their product. This is one of those “easier said than done” statements. The classic case is the buggy whip manufacturer story. The disruptive event of inventing the “horseless carriage” or automobile basically wiped out their industry – leaving the only defendable segment being that to provide Hollywood props for movies such as the Indiana Jones series.

According to Mindspring.com in their review of the Microscope industry, Carl Zeiss and the E. Leitz component of Leica are mostly German made. They tend to be more expensive than the Japanese made Nikon and Olympus. Their segment is the very high end, likely for researchers. Sometimes they are worth the extra money and sometimes not. In the bio-med market, Nikon and Olympus are the real powers, likely due to either features offered or a reputation they have developed within this industry.

In my next post I’ll offer some strategic tips on how one might tackle such an event, and how that strategy might be part of the foundation of what your business plan story should tell.

 

Gordon Benzie is a marketing communications professional and business plan adviser that specializes in preparing and executing upon business plans and marketing strategies. Gordon can be found on Google+.

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5 Ways to Tell a Great Story with a Business Plan

Top_5_ways_to_tell_story_with_a_business_planIn my last post, I presented the concept that a business plan really needs to tell a story – if it does, then you are much more likely to achieve your objectives for actually writing the plan, such as to get funded, to get a new loan, to attract new employees, or whatever else your objective is for writing the plan.

Having many years of experience within the field of Public Relations, I can offer a unique perspective on how to accomplish this goal. Below are five strategies or approaches you can pursue to help best tell your story within a business plan:

  1. Start with a Great Title – every reporter that wants their story to actually be read knows the importance of having a catchy title. Newspapers, magazines and websites all know this and how important the title is … that is why they don’t delegate this task to reporters, and instead keep that responsibility with the Editor. Think like you are an Editor working for the NY Times … what are you going to include in the article of your business plan to get it read in the first place?
  2. Include an Executive summary – everyone is too busy to read every document and story we see that passes in front of us or in our inbox. We are simply inundated with things to see, read or participate in. If you have a great title and got my attention to make it to page 1, you best get me excited REAL quick, or else you might lose me forever. The executive summary should be hard hitting. The first paragraph or two should point out something new to me – some amazing fact, or stunning growth estimate that gets me engaged. Now I am primed to learn more about this market need and how your new business will address it, and do so with all deliberate speed.
  3. Provide Third Party Proof Points – at this point, once I have read your executive summary and I am now interested to learn more, you need to sell me that your story is legitimate. In other words, are you just making this sh@* up, or, have you done the diligence necessary to really validate that this need exists? Here your story can go into a bit more detail, as you have earned that privilege based on a great intro. Now is the need to document the market size and the challenge that now exists.
  4. Comparable Products or Services Don’t Work – here is where the story needs to explain that not only does a market need exist, but, no one else has figured out what you now know – the solution. Or, that you possess the unique skills and knowledge to address this market shortfall better than anyone else. The story needs to be why you are a “no brainer” choice, if your reader agrees that the market need does exist and that others haven’t yet addressed this need.
  5. Financial Model Supports the Story – here is where the “rubber” hits the road. You have gotten my attention as a reader, you have pointed out a market need and why you are the person best suited to address this need. Now, can you actually make money delivering upon this need? What do the numbers say? Here is where the financial model must provide the proof that an investor is seeking to see if your story really holds together. Based on the assumptions and market position strategies highlighted in the plan, does the financial model reinforce this story? If it does, then you have put all the “stars” into alignment and have best optimized your chances for success.

 

There you have it. Of course, they are no guarantees. You could have the best business plan writer with the best business plan, but it still may not get funded. But, if you have a great story to tell, can find suitable investors or other target audience members that are open to hearing your idea, and you keep at it, then your chances for success will go up dramatically! And, once you have heard all the “no’s” you will get to a “yes” in the end. Here is where the perseverance comes through and the “doing what it takes” mentality is needed to actually get your plan funded.

At that point, all the work will be worth it. Good luck!

 

Gordon Benzie is a marketing communications professional and business plan adviser that specializes in preparing and executing upon business plans and marketing strategies. Gordon can be found on Google+

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What Story Does your Business Plan Tell?

what_is_story_of_your_business_planMost people have a pretty good idea of what a business plan is, and what should be included in it. If asked, I would suspect that many people could also tell you that a business plan should include an overview of the business, what the product or service is, the markets being pursued, the competition, as well as some sort of financial model.

In the same way, if someone asked me how an airplane worked, I could tell you that lift was involved, and that the shape of the wings creates a vacuum, which that then helps the plane to get airborne. But, I don’t think you would want me actually building an airplane …

In some ways, this analogy applies to business plans. There are subtleties involved as well as a good deal of work, which might preclude your ever getting the plan completed. In the end, if your being funded is dependent upon having a plan, it might be worth reaching out to someone who has actually written one before.

As a business plan writer who has written over 25 different plans, I understand that each one serves many needs and provides content for different audiences. For example, one of the sometimes overlooked attributes of a business plan is that it must tell a story – about you, your idea and your vision – and how new funding will make your story come true. If your reader can’t quickly get the story, it is unlikely they will agree to fund your plan.

The Vision

Business plans sell a “vision” or a “dream” of what you see that a new business could be, could operate as and could deliver value to your target audience. Your initial audience are investors, potential partners and initial employees you will need to launch your vision.

In this way, a business plan is really a marketing document that is written to pitch your idea to this group and get them excited about the prospect of “getting in” on the ground floor. This sense of urgency of what a fantastic opportunity that awaits must be communicated. You need to tell a story of how your business can provide a greater good, or how it can help address a common challenge. And, if it is done right, your business could then earn everyone a nice profit at the same time.

If this sounds like what is driving you to prepare a business plan, then you should recognize you have a story to tell. Just like a great Public Relations campaign, you have a story to get into your prospects (i.e. investor’s) head. So, it is time to think like a PR professional, at least with regards to the structure and content you decide to put into your business plan.

In my next post, I’ll offer five ways to turn your business plan into a great story.

Gordon Benzie is a marketing communications professional and business plan adviser that specializes in preparing and executing upon business plans and marketing strategies. Gordon can be found on Google+

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Leveraging a Blog in Public Relations

blog_lynchpin_public_relationsIt is no secret that social media has a bigger role in the world of marketing communications and public relations. This transformation occurred due to a couple of trends. Notably, the emergence of a “Web 2.0” world where feedback can be provided (and is expected) directly to an author. There is now an expectation that feedback can be provided easily and immediately. Secondly, in today’s digital world, it is increasingly popular and economically feasible to begin targeting ever-shrinking audiences on a wider scope of topics. The economics of yesterday’s printed media world no longer applies. This has had a profound impact on public relations.

Let me explain.

Magazines and other printed publications are really just businesses that must make money to survive. The traditional business model was to drive a large audience, representing a group of potential customers that advertisers were interested in speaking to – becoming a source of revenue for these publications. The path to growth for this business plan was simple – expand your audience. As a result, the natural evolution was a world dominated by a few, large publications with big audiences.

Then along came the explosion of the Internet and Web 2.0.

Now online “communications hubs” sprang up in all areas, on just about any topic. The online “story telling” world became highly fragmented and dispersed. Getting a story out now requires a bit more work … more publications must be sought and more placements must be achieved in order to reach the same sized audience.

At the same time, the cost structure of media publications changed. Gone is the expense of publishing a magazine on expensive paper with capital intensive printing presses. And, no need to pay for delivery or distribution costs … the digital distribution model is basically free. In this new world costs have dropped significantly. So, it can still be profitable for smaller audience publications to survive with a smaller advertiser, provided they can find one. If a value proposition can be derived that makes sense to both parties, then a business model can still exist. The digitization of our newspapers, magazines and other publications made this evolution necessary and, I would propose, also possible.

The Blog as a Lynchpin of your Social Media Strategy

Given this communications transformation, it has now become critical to have a blog as part of your public relations program. A blog provides you with a platform to support Web 2.0 activities – the ability for your audience to directly converse with you – while at the same time offers a highly focused venue for you to speak on niche or highly focused topics. Given the leveling of the media “playing field” and the need to reach out to a higher number of media venues, each with smaller audiences, it can be a real benefit if you have your own platform to manage these communications. With control, you have direct insight as to what topics are more popular, and what pain points are most “top-of-mind” for your audience, which can then be an excellent source for new articles to pitch to other publications.

From a company’s perspective, today’s digital communications world offers a unique opportunity to build an online presence through a self-managed media platform. Of course, transparency is needed, however, wouldn’t you rather find out immediately if a customer or prospect was upset, had questions or was experiencing some other issue that could be addressed? This type of interaction is much better dealt with through a forum that is actively visible to and managed by a company.

Certainly it is an investment to create and build a blog, especially if you are just starting out. But, this investment will pay off once you begin earning a share of voice in your marketplace. After all, a blog is really the only social media venue where any content can be realistically added. It is pretty tough to explain a company’s philosophy or value statement in 140 characters or less. And, even if you could, how long will that message be visible? Blog posts, on the other hand, last for years, provided each post has its own dedicated page that is searchable on the Internet. Over time, you can gain a considerable collection of published articles that are all in support of your value proposition and reason d’être.

 

Gordon Benzie is a marketing communications professional and business plan adviser that specializes in preparing and executing upon business plans and marketing strategies. Gordon can be found on Google+

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What is Your Exit Strategy?

business_plan_exit_strategyThere are many reasons to start a business, ranging from launching a new product, defining a new market segment or fulfilling a passion to address a market gap. Regardless what your reason is for creating a business, if you need outside funding, then you need an exit strategy. Why? Because an investor needs to know how they will get their money back in the end. After all, they are investing in your business with an expectation of making money.

As I speak with clients, this is sometimes a difficult concept to understand. I hear questions such as “I don’t want to sell my business?” or “How do I know what its value is in the future?” These are reasonable questions that need to be addressed as part of writing a business plan.

Valuing Your Business

With regards to the “mechanics” of business valuations, there are a few different approaches. In the end, however, value is most closely tied to the revenue your business generates, either in the current year, or what “proforma” revenue is expected to be next year. Having said this definition, it is still part “voodoo” and part science. A recent article on Bloomberg pointed out that MLB teams are now theoretically 35 percent more valuable than just a few months ago – ten teams are now valued over $1 billion! See article here.

If you are a buyer, you will likely push for current year’s revenue, and vice versa if you are the owner. In some industries, gross revenue is a suitable measure; in others net revenue is an industry standard. Personally, I think that gross revenue is a better guide to evaluating income opportunity. Net income reflects both the market potential PLUS how well you can keep a lid on costs. Expense management is more closely tied to how you, the operator, manage your business. Either way, a number can typically be negotiated as a reasonable baseline for valuation.

Industry Potential

The next factor to consider relates to what industry you operate, to then incorporate an expectation of future growth. The rationale is simple: If your industry is expected to grow rapidly, then there is a higher expectation of value, which translates into a higher income “multiplier.” As a buyer, I will pay a higher price if I think my investment will grow more in the future.

Having worked in the software and high tech industries over the past two decades, I have seen some of the highest income multipliers in the business – as high as 10X! Other industries don’t have such lofty expectations, so may only have an income multiplier of 1X. What this means is that a buyer will only pay 1X income as a purchase price.

Exit Options

Now you have evaluated a valuation strategy, the last step is to identify how you will sell your business. Here are five options to consider, each of which can provide your investor with in an exit strategy:

  1. Another new investor can replace your current investor’s position
  2. An outright sale of the business can occur to a new entity, such as another owner or business
  3. The current management team or owner can do what is called a “Management Buy Out” or MBO or “Leveraged Buy Out” (LBO), which means that new debt is issued for the current team to buy the business themselves
  4. An Initial Public Offering (IPO) can be performed, leading to public ownership of your business through shares on a stock exchange. Note that this exit strategy typically requires a minimum level of income in the $100 million range or more, so this exit strategy may not be right for everyone
  5. A trade could be arranged whereby you now own a different asset in exchange for relinquishing control of your business

 

An exit strategy is a necessary component to a business plan’s financial model, as it demonstrates that an investor’s money will not simply “disappear” once you collect the check. An exit strategy is part of an investor’s lifecycle. Without this expectation, it is unlikely that any new businesses would be funded, creating enormous problems for those entrepreneurs seeking to challenge the status quo or those inventors that have the next greatest thing that we don’t yet know we can’t live without!

 

Gordon Benzie is a marketing communications professional and business plan adviser that specializes in preparing and executing upon business plans and marketing strategies. Gordon can be found on Google+

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