Category Archives: Business Plan

Marketing is More than Advertising

I find it interesting when I speak with new acquaintances and they ask me what I do. I’ll typically respond with “I’m a marketer” or “I’m part of a marketing team.” Nine times out of ten, the response I’ll get back is “Oh, you do advertising.” I used to be surprised with this response, given that advertising is really just a small part of the marketing discipline. Now, I have come to expect it.

Of course, advertising is a part of the marketing mix. It comes in many forms, as shown in this recent media share chart.

advertising_spend_by_catetory_2013

Average allocation of advertising budget for marketers in 2013. Source: BIA Kelsey.

Each of these categories represent are part of the advertising spend, with each component offering unique advantages and opportunities, depending upon what you are selling and where your audience resides.

But, the role of a marketer is far more than planning a media spend and allocating budget to various communications channels. Marketing is really about understanding customers. Who are they? Where to they shop? What leads to a purchase decision? And, with this knowledge, what can be done to influence and accelerate the process? These are the questions a marketer must understand. With this knowledge, advertising spends can then be established and executed, with hopefully an understanding of what results will emerge.

Working in high tech for the past couple of decades, my advertising spend is highly focused trying to reach a specific audience. I have never worked in a role of advertising to the masses. I do marketing campaigns tied to some sort of “asset” that yields inquires for helping prospects to solve business problems. As you likely can tell by now, I work in what marketers call a “b2b” or business-to-business environment. Traditional advertising spent for this type of marketing is typically more brand or image based, so done only by the largest companies interested in building awareness of their name or presence within a particular market.

The Age of Experience

Today, marketing might be better described as “managing to create and sustain the best customer experience,” which is rewarded by new and existing customers purchasing your goods or services. There are many ways the purchase experience is impacted – from what other customers are saying, to what is published on news sites, to what is involved in the purchase process. (See “Is Customer Satisfaction” article link)

The role of a marketer is to ensure that each of these “parts” of the experience lifecycle all come together to tell a consistent story with a logical conclusion: purchase this product or service, and you will be better off, will solve your problem, or will feel good about yourself for doing so. If any part of the prospective customer experience lifecycle fails to consistently deliver this story, you have a problem. And, this problem isn’t something that just the marketing department needs to worry about … it impacts your entire business.

Let me give you an example. I recently had an experience where I was undergoing a purchase of a product that required some level of knowledge of what options to consider as well as what choices would be appropriate. The owner of this business didn’t think it necessary to train their new sales staff. As a result, I was stuck with someone who had no business being in a sales role – he didn’t know anything about the products, the competition, or how to even proceed forward with the purchase process. This lack of training led to a terrible customer experience, one that scarred the entire process (and one that will lead me to never do business with this company every again.)

Marketing Plan as part of a Business Plan

When preparing a business plan or speaking with a business plan writer, it is important to understand what role marketing will play as part of your plan. Marketing professionals are tasked with a critical role – helping the sales process be effective. This is way more than just running ads in a local newspaper, magazine or a billboard.

Today’s marketers have much more responsibility to look at the entire purchase process – from how a product or service is introduced to a prospective user, to what the purchase process is like. Without a clear focus on the entire process, a company’s financial future is limited, to say the least.

Those companies that are too small to justify hiring a marketing person or staff must rely upon themselves to review their own customer purchase experience, and to then address any shortcomings that might be identified. Unfortunately, this can often be a difficult exercise when there are likely other pressing needs involved with running the business. Ironically, it is in these situations where the greatest price is paid and the greatest opportunity for improvement is available.

Perhaps the first step to raising awareness of this opportunity is to get the stereotype of “Marketing is advertising” out of our heads.

 

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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Build vs. Buy: What is the Best Path to Grow Your Business?

As a business owner (or an aspiring one), an important consideration is the quest for future growth. From a strategic perspective, there are really only two choices: grow organically or by acquisition. By “organic,” I simply mean to grow by closing more deals, through efforts such as expanding your sales force or introducing a new product line.

When writing a business plan, it is important to consider each of these growth strategies – whether you are starting a new business, or expanding an existing one.

This decision is actually quite important, with big repercussions as to what your company will ultimately become. Given the significance of this choice, it is smart to carefully consider both options.

Grow Organically

If you are starting a business, then the biggest challenge is what I’ll call “finding your way.” Starting from scratch means you don’t have any processes in place. Everything is a variable, so picking it all right the first time is highly unlikely. Instead, you will pick an initial path to pursue. Then, you will spend a lot of time adjusting and evaluating that decision. This process will then continue until you start getting traction and find the right path for growth.

Having a long “runway” with sufficient funds to make a few changes is critical for long term success. Early mistakes can be costly – a big one could sink the company. So, it is necessary to plan for some setbacks. Other suggestions are to surround yourself with as many experts as you can, and to have a well thought through business plan.

Grow by Merger or Acquisition

This option, in many ways is the exact opposite of organic growth. First, existing processes, employees and a business plan are already in place. If you are seriously considering the purchase of an existing business, you must see something desirable – enough to buy it! So, your challenge is how to integrate the new business into your existing company – from a people and process perspective, as well as from an IT systems and go-to-market strategy.

Alternatively, if you are considering starting a business through acquisition, then the one integration challenge is that of acclimating yourself to being the new owner or manager. Process “integration” is not really an issue … it is more your evaluation of the existing processes. What makes sense and what doesn’t?

business plan writing helps M&A strategy

In many ways, an M&A strategy is similar to the decision to have a dog. This is a picture of my own dog, Rusty.

In many ways, I see the success of a business acquisition to be akin to getting a new dog as a pet. Here are three ways I see these two activities to be in close alignment:

  1. There are many different types of dogs, and there are many different types of companies – you need to research the strengths and weaknesses of each if you want a good fit with your existing lifestyle, and/or the culture of your business. For example, if you live in an apartment in NYC and don’t have many “jobs” for a dog to do, then getting an Australian Sheep dog might not be a good fit. Similarly, if your company has rigid processes and procedures, then purchasing a startup out of the Silicon Valley with a young management team might not be a good fit either. It is really important to match the culture and temperament of an acquisition to your existing company or family to achieve a good fit.
  2. If you don’t spend time with your new acquisition, then the relationship will sour – this holds especially true with a puppy. Young dogs have a lot of energy, so they will either play games with you, or chew up your clothing, furniture and anything else they can find if you are not around. In the same way, employees at a newly acquired company will be looking to see their new role. If you don’t quickly give them guidance and a compelling reason to be part of the newly combined entity, they might lose interest and leave. The amount of time you need to invest in this task is going to be more than you thought. And, this requirement doesn’t go away after the first 60 days. If you are not ready to invest the time, re-think this acquisition decision.
  3. New dogs and new companies need clear lines of demarcation to know what behaviors are acceptable – for those of you who are parents, you know this analogy applies with young children too. We all need clear direction on what is expected and how we are to perform to achieve success recognition. Without this communication, pets, employees and children will come to their own decisions, likely pushing boundaries to new levels in search of a definitive line.

 

A careful evaluation of “build vs. buy” will help avoid surprises before you have made an investment in either a new company, or a new member of your family. Once the decision has been made, it is usually quite difficult to undo … and will cost you a lot of time, effort and resources. Plan ahead to avoid the pain and achieve the gain, and go into these transactions with eyes wide open.

 

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 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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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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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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5 Reasons to Write a Business Plan

new-years-resolutionThe tradition of stating a New Year’s resolution is interesting. As the clock nears 12 midnight on December 31st, a popular topic is “what will you accomplish in the new year?” It makes sense … when a significant milestone event occurs, it is natural to reflect on what we have already accomplished, and what the future might hold.

I suspect, however, few New Year’s resolutions actually come true. There are many reasons for my belief, ranging from the alcohol consumed at the time (I said what?) to the motivating factor behind the pronouncement (showing off on a first date?) to simply how much thought was put into the statement. Most importantly, however, is the fact that these resolutions are seldom documented in writing.

Research suggests that the simple act of writing down a goal has a profound impact on actually achieving it. According to a study presented in an article published by the Chronicle, the student-run newspaper of Duke University, it was concluded that:

  • 80 percent of Americans say they don’t have goals
  • 16 percent do have goals, but they don’t write them down
  • Less than 4 percent actually write down their goals
  • Less than 1 percent review them regularly – but – this small percentage of Americans that do end up earning 9X more over the course of their lifetime

These figures are breathtaking. This research suggests 99 percent of Americans are missing out on significant earnings potential, based on the simple fact that they are not writing down their goals and reviewing them. Why might this be the case?

The Importance of Documenting a Plan

My theory is that the act of writing down, and ideally sharing a goal with others, makes you accountable. And, it makes it harder to forget or “de-prioritize” those goals, which you initially set out to accomplish.

Pictures are another helpful technique to be more committed to accomplishing your goals. Do you want to purchase a home? Find a picture of your dream home as your wallpaper on your laptop or PC. Then every time you use your computer you will be reminded of that goal. The logic and psychological effect is the same if you write down your goals.

A Written Business Plan as a Documented Goal

Those interested in starting their own business face a huge challenge, one that can be quite difficult to accomplish. Any help you can do to make this goal become a reality is probably worth investing in, which brings me to this list of 5 reasons why you should write down a business plan if you are serious about starting a new business or expanding an existing one:

  1. Writing a business plan makes you more committed – writing down your plan, and following through with it all the way through funding will keep your momentum moving forward; the act of writing it down forces you to take your plan more serious and puts the odds of success more in your favor
  2. Documenting your plan and sharing it with others holds you more accountable – you simply can’t hide when you go public with these types of statements, which will be a great motivating factor to completing your vision and sticking it out
  3. Better articulation of your vision for a new business creating a detailed plan that is in writing forces you to think in a more comprehensive manner, to better evaluate if your idea could actually work; there is a big difference between talking about an idea and documenting it in writing
  4. Developing a cash flow statement tied to your business idea helps you to better understand how to monetize your idea, adding further testing and review to evaluate if your plan could really work, and you can indeed launch your business
  5. Devoting the time to either hiring a business plan writer or writing it yourself demonstrates commitment to your audience – as you present your idea to potential business partners, investors or potential employees; the presentation of a written plan shows your audience that you have invested time, effort and resources into your plan, so it will be viewed more seriously

Hiring a business plan writer as a third party to challenge your thoughts and evaluate if your plan could really work is a great way to test your vision and lay out all your cards on the table. Getting a third party involved lets investors know how serious and committed you are, just as writing down goals improves the likelihood that you will accomplish your goals.

 

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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