At this point, you have made initial decisions about what product or service you will be offering; and you have made a preliminary selection of your target demographic. The time has come to write your first business plan.
Don't be a perfectionist about your first business plan. This is a rough draft, and you should expect to revise it several times. As your business grows, you will gain experience and insight into your own operations and your customers' motivations; and these will spark new ideas that you can incorporate into your future business plans. For now, you just need some clearly defined goals to keep yourself on track. Also, your business plan can be crucial to helping you obtain some of your initial funding.
So sit down with a cup of hot cocoa, or your seasonally appropriate beverage of choice, and write out a thoroughly detailed explanation of how you will achieve business success. You will need to address such details as:
Products: you have already made your decision about initial products you will be offering. You may revise your product line in the future, to stay competitive or to address customer demand; but to begin, keep it simple, and try to do a small number of things with excellence, rather than spreading yourself too thin.
Customers: you have already identified an initial target market. In the future, you may revise your estimation of who your ideal customers are; or you may decide to expand into additional target markets. For now, include in your business plan who your initial target market is, why they are a good target, and what factors will motivate your target audience to actually kick down some cash and become customers.
Distribution channels: distribution is one of the most important aspects of your business. How will you connect buyer demand to the product or service you are offering? Will you have a street corner cart, a stall or booth at an open-air market, a physical storefront or shop, or a large industrial facility? Will your products be carried in retail outlets such as grocery stores or shopping malls? Alternatively, if you are a service provider, you may decide to keep your internal operations completely separate from your customer relations. For example, your clients might phone in to a call center (or your mobile phone) and request an in-person visit from a service technician.
Finally, will your business have a web presence? Your website is an important marketing tool that can also serve as a secondary distribution channel. This series of blog posts will address the topic of websites in more detail in a future post; so for now, suffice to say that Basementia Design™ can help you set up your e-commerce website.
Employees: within your business plan, briefly outline who will be performing the essential work of your company. Estimate how many employees your organization will require, what their job descriptions will be, how many hours per week you expect them to work and at what rate of compensation. Who will answer the phone, who will meet with customers, who will process the paperwork, who will make the products or supply the labor, who will package and ship the products, who will process the payments, and who will do all the bookkeeping? These questions are at the heart of your business model. Even if you intend to do all the work yourself, try to note all the different functions you will be performing; you may discover that your job will be easier if you can hire a part-time assistant to take care of certain details while you perform other essential duties. Finally, note that not all work has to be performed by an employee of your company: many companies commonly hire an outside contractor or consultant to help with certain business functions, from facilities maintenance and housekeeping to payroll and tax accounting. This brings us to:
Suppliers and Contractors: your relationships with suppliers and outside contractors may be just as important to the success of your business as your relationships with your customers. Your suppliers provide your raw materials, equipment, and critical infrastructure. Some critical portion of your value chain activity may be outsourced to a contractor; for example, many companies contract with a call center to handle their customer service requirements; and most major manufacturing firms subcontract some portion of their manufacturing work to partner firms who can more efficiently supply certain components. Take the example, imagined in previous posts in this series, of a work-from-home business model sewing clothes to sell at an open-air market. Your suppliers, contractors, and business partners include the store where you purchase your fabric, buttons, zippers, needles, thread, and other sewing supplies; the manufacturer, retailer, and servicer of your sewing machine; the utility companies that supply your residential business with electricity and telephone communications; and of course the organizers of the open-air market, who organize the events and lease you your stall space for a fee. Quality components, competitive pricing, and timely access are all critical to your business, so note all these relationships in your business plan, and briefly state which ones provide an excellent value to your company and which ones could possibly be improved by seeking out your present supplier's competitors.
Corporate Structure: your business plan should note the legal structure of your company. Is it a sole proprietorship, a limited liability partnership, or a corporation? Choose your company's legal structure depending on who has bought in, or may be reasonably expected to buy in; but keep in mind that your choice has serious legal and tax implications. Often, a company's corporate structure is determined by its capital structure: the source of financing may determine the company's legal structure. This topic is worthy of its own future detailed post in this blog series. For now, my previous overview of business structures is posted on Basementia's website. Once you have settled on a legal structure, you will have to file the appropriate paperwork and pay the necessary fees to make it a reality.
Marketing Strategy: your marketing strategy is sure to evolve and change more rapidly than your overall business plan. Nonetheless, your business plan should consider a preliminary strategy. Will you use signage, stickers, or handouts such as business cards, fliers, and brochures? Will you purchase print advertising in newspapers or trade magazines? Will you purchase ad spots on billboards, radio, or television stations? Will you have a website; and if so, will you purchase advertisements through Google AdWords and similar programs? Will you work with a marketing firm or design your ads yourself? How many customers do you hope to reach with your ads, how much will the ads cost you, and how many sales will your ads need to drive in order to provide a worthwhile return on your expense? Give these questions some thought before you consider your business plan complete, because they will help you determine the final step, which is one of the most important aspects of the creation of a new business.
Financing: without proper financing, your business startup is dead in the water. None of your suppliers or contractors will want to wait until your business becomes profitable before they receive payment. You should try to estimate how long it will take for your company to become profitable, and estimate how much it will cost to fully fund your business operations, including your own salary, throughout that period. Next, whatever you have estimated, it was probably low, so try to obtain twice that much capital. Sources of capital financing may be generally broken down into equity financing and debt financing. Cash that you contribute out of your own pocket or bank account is equity, and you should track it carefully, because it represents the basis of your ownership of the company, and may be tax deductible depending on usage; see IRS regulations for details. Cash provided by friends, family members, and business partners is generally also equity financing, and provides those stakeholders with an ownership position in your company, which also gives them a legal claim to a portion of your company's assets in the event of bankruptcy liquidation. Borrowed money is debt financing; and debt financing is typically characterized by the need to make interest payments. Large, established companies can issue bonds; but your best bets for debt financing will start with your personal credit card, and may also include bank loans and Small Business Administration loans. Additional financing sources may be available through certain programs in your local area. There are no hard and fast rules, but personally, I would advise against heavily leveraging your company through debt financing until the business is profitable enough to be able to pay off the loans plus interest.
Well, that's a lot to think about! Best of luck writing your initial business plan. Future posts to this blog will expand on some of these concepts, and address the implementation of your business plan as you turn your idea into a reality.
Tuesday, December 28, 2010
Tuesday, December 7, 2010
Choose Your Target Market
There is no set order in which these choices must be made. In fact, you will probably make initial choices and select your product line, target market, distribution channels, and other aspects of your business model; then after working with those choices for a time, you will revise some or all aspects of your product line, target market, and so on. Revising and updating your product offerings is an activity that you may wish to conduct frequently, depending on the type of business you are in. Manufacturers of everything from cellular phones and automobiles to clothing and dish detergent revise their product offerings regularly.
Similarly, you may wish to regularly revise estimations of your ideal target market. In the example I proposed yesterday, imagine that you have decided to start your own business designing and selling clothing that you make in your residence. In yesterday's post I suggested that your style of clothing designs are probably most suited to fashionable young people in their early twenties; but I raised questions about the willingness of this target market to pay enough for your creations to make the enterprise profitable for you. As a consequence I suggested you may wish to also create a secondary line of fashionable baby-wear. There are several logical arguments to be made in favor of such a move. For example, the smaller clothes would take less fabric and less time to sew, so they would cost you less money and time, and therefore you could sell them for less than the adult clothes but for more relative to your cost per garment, thereby affording you a more likely sale and a better profit on that sale. Additionally, many young parents may be willing to spend more on clothing for their children than they would be willing to spend on themselves; and furthermore, you may be able to tap the friends-and-grandparents market as well, which gives you access to a target market with a much larger combined spending power than just the young parents themselves.
On the other hand, some would argue that while single young twentysomethings are indeed notorious cheapskates, they are also notoriously profligate. They typically make very little money at whatever job they have; often they are still in college and don't have any income at all. However, they may have access to student loan money, or better yet, to the Bank of Mom and Dad; and since they probably do not have families of their own yet, there is a very good chance that whatever money they do acquire will "burn a hole in their pocket" and be spent quickly. Making sure that yours is the product that catches their eye at the precise moment that they happen to have a few bucks in their wallet is a factor related to your distribution strategy and your marketing strategy, both of which I will address in future posts.
These are just a few examples of some of the considerations which you will be evaluating as you plan your business and as you revise your plans to help your business grow. Generally, you are looking for a target market that can afford the goods and services you are offering, and you are are planning to offer goods and services that are best suited to the target markets you serve. You start with an idea for a product offering; you identify a target market for your product offering; then you revise your product offering based on its suitability for your target market; and you further revise your target market analysis based on your revised product offering.
Incidentally, your chosen distribution model is a critical component of target market analysis, and vice versa. For example, if you decide to sell your products online and also at some kind of local street fair, then your target market is not simply all the people within a given age range who happen to enjoy a certain style: your target market is that small segment of those people who happen to either shop online or at local street fairs. If you wish to sell to people who go to street fairs, then you will want to get a booth at one. If you wish to sell to people who shop online, then you will need a website - more on that later.
Most established businesses engage in market segmentation as they plan their product lines and related target markets. Often this means they plan discount, median, and premium product lines, respectively targeted to various consumer groups based on income and other demographic factors. Alternatively a company may target different types of corporate buyers based on their industry; or a company may position itself to target lucrative government contracts. There are many choices to make, and various criteria for evaluating the factors that will influence your decisions; all these will depend on the type of business you are engaged in.
As a very small start-up, sewing clothes in your living room, you probably do not have the time or resources to engage in grandiose plans or extensive market research. You will conduct a certain amount of trial and error. Too much error and you will go out of business; and let's be frank, this is the sad fate of by far the majority of start-ups. But with some planning, some good ideas, and a lot of hard work, you may succeed where others have failed. Best of luck with that.
Until next time, happy planning.
Similarly, you may wish to regularly revise estimations of your ideal target market. In the example I proposed yesterday, imagine that you have decided to start your own business designing and selling clothing that you make in your residence. In yesterday's post I suggested that your style of clothing designs are probably most suited to fashionable young people in their early twenties; but I raised questions about the willingness of this target market to pay enough for your creations to make the enterprise profitable for you. As a consequence I suggested you may wish to also create a secondary line of fashionable baby-wear. There are several logical arguments to be made in favor of such a move. For example, the smaller clothes would take less fabric and less time to sew, so they would cost you less money and time, and therefore you could sell them for less than the adult clothes but for more relative to your cost per garment, thereby affording you a more likely sale and a better profit on that sale. Additionally, many young parents may be willing to spend more on clothing for their children than they would be willing to spend on themselves; and furthermore, you may be able to tap the friends-and-grandparents market as well, which gives you access to a target market with a much larger combined spending power than just the young parents themselves.
On the other hand, some would argue that while single young twentysomethings are indeed notorious cheapskates, they are also notoriously profligate. They typically make very little money at whatever job they have; often they are still in college and don't have any income at all. However, they may have access to student loan money, or better yet, to the Bank of Mom and Dad; and since they probably do not have families of their own yet, there is a very good chance that whatever money they do acquire will "burn a hole in their pocket" and be spent quickly. Making sure that yours is the product that catches their eye at the precise moment that they happen to have a few bucks in their wallet is a factor related to your distribution strategy and your marketing strategy, both of which I will address in future posts.
These are just a few examples of some of the considerations which you will be evaluating as you plan your business and as you revise your plans to help your business grow. Generally, you are looking for a target market that can afford the goods and services you are offering, and you are are planning to offer goods and services that are best suited to the target markets you serve. You start with an idea for a product offering; you identify a target market for your product offering; then you revise your product offering based on its suitability for your target market; and you further revise your target market analysis based on your revised product offering.
Incidentally, your chosen distribution model is a critical component of target market analysis, and vice versa. For example, if you decide to sell your products online and also at some kind of local street fair, then your target market is not simply all the people within a given age range who happen to enjoy a certain style: your target market is that small segment of those people who happen to either shop online or at local street fairs. If you wish to sell to people who go to street fairs, then you will want to get a booth at one. If you wish to sell to people who shop online, then you will need a website - more on that later.
Most established businesses engage in market segmentation as they plan their product lines and related target markets. Often this means they plan discount, median, and premium product lines, respectively targeted to various consumer groups based on income and other demographic factors. Alternatively a company may target different types of corporate buyers based on their industry; or a company may position itself to target lucrative government contracts. There are many choices to make, and various criteria for evaluating the factors that will influence your decisions; all these will depend on the type of business you are engaged in.
As a very small start-up, sewing clothes in your living room, you probably do not have the time or resources to engage in grandiose plans or extensive market research. You will conduct a certain amount of trial and error. Too much error and you will go out of business; and let's be frank, this is the sad fate of by far the majority of start-ups. But with some planning, some good ideas, and a lot of hard work, you may succeed where others have failed. Best of luck with that.
Until next time, happy planning.
Monday, December 6, 2010
Choose Your Product Offering
In reality, you probably already know what kind of business you want to be in. Whether you are an accountant or an acrobat, chances are you have a talent or interest that you wish to monetize. You already know generally what you want to do; hopefully it's something you enjoy doing, and this is good, because it will keep you motivated. Nonetheless, as you develop a business model, you may wish to make certain tweaks to your product offerings; and even after you have been an established business for years, you will want to periodically review your product line to make sure it is positioned well relative to your competitors, and relevant to the demands of your target clientele.
For example, imagine that you are a musician. You find that through persistence and charm you can get a small number of non-paying gigs playing whatever songs you happen to have been rehearsing lately. However, imagine that if you were to consistently perform a couple of specific songs from your repertoire, you would quickly gain a following. These particular songs happen to be in a sweet spot relative to your vocal range; and the lyrics, rhythm, or mood of the pieces really resonate with your audience. When people hear these songs, they will be more likely to come see your show again the next time you play. But if you don't play those couple of songs again the next time, these audience members will leave disappointed, and they will probably not recommend you to their friends. If you DO play those songs again, people will come back to see your show over and over, they will recommend you to their friends, and they will visit your website and maybe even buy your music online. You would start getting larger audiences and better gigs that actually pay real money, not just a couple of free beers. If you knew which songs would lead to this type of success, you would be certain to perform them, wouldn't you?
The principle is applicable to any industry. The process of determining which product offering is most likely to resonate with your target market is known as market research. There are any number of firms that offer market research services on a contract basis; but such services are prohibitively expensive for most individuals and startups with energy and an idea but little or no financing. Your alternatives are:
In choosing an industry focus for the purpose of this series of blog posts, I will focus on a relatively simple business that you can run out of your home. There are permitting and regulatory issues related to selling food that you make in your own kitchen, so for simplicity's sake, let's imagine that you like to sew. You've always been good at making clothes; you have been making your own clothes for years; your friends and random strangers often tell you that they wish more stores sold clothes as cool as the ones you are wearing. So you decide to begin selling unique clothes that you make yourself. In the future, perhaps you will just design the clothes, and have them manufactured in a factory, which will improve your cost efficiency, and with it, both your sales numbers and your profits. But for now, you are just getting started, so you're going to make the clothes yourself, using fabric from the local craft store, and perhaps augmenting it with some fabrics that you are able to reclaim by deconstructing used clothing from the thrift store. The question is, should you make fashionable clothing for the twentysomething set? Practical outdoor-wear for adults of all shapes and (often large) sizes? Or perhaps stylish onesies for toddlers?
Evaluate your skill set in light of the size, spending power, and taste preferences of your target market. You may really enjoy making fashionable clothes for young twentysomethings; but young twentysomethings are notoriously a bunch of cheapskates who are unlikely to want to pay enough for you to make a profit. So you decide to make a line of trendy clothes; but you will also make a line of baby clothes. Many parents are more likely to spend money to deck out their children than they are to splurge on themselves. Also, grandparents and friends may end up buying clothes for the baby. Your two product lines will complement each other; people may initially check your business out saying "I wish I could afford to buy something like that for myself" and end up buying something for their friend's baby shower.
So, start developing your product line, and in the next installment of this series we will continue considering your business model. Best of luck until then.
For example, imagine that you are a musician. You find that through persistence and charm you can get a small number of non-paying gigs playing whatever songs you happen to have been rehearsing lately. However, imagine that if you were to consistently perform a couple of specific songs from your repertoire, you would quickly gain a following. These particular songs happen to be in a sweet spot relative to your vocal range; and the lyrics, rhythm, or mood of the pieces really resonate with your audience. When people hear these songs, they will be more likely to come see your show again the next time you play. But if you don't play those couple of songs again the next time, these audience members will leave disappointed, and they will probably not recommend you to their friends. If you DO play those songs again, people will come back to see your show over and over, they will recommend you to their friends, and they will visit your website and maybe even buy your music online. You would start getting larger audiences and better gigs that actually pay real money, not just a couple of free beers. If you knew which songs would lead to this type of success, you would be certain to perform them, wouldn't you?
The principle is applicable to any industry. The process of determining which product offering is most likely to resonate with your target market is known as market research. There are any number of firms that offer market research services on a contract basis; but such services are prohibitively expensive for most individuals and startups with energy and an idea but little or no financing. Your alternatives are:
- Analyze your competitors. If they are making lots of money selling a certain type of product or service, then that increases the chance that you too could succeed in the same area of business.
- If you already have a business, don't be afraid to survey your customers. Ask them what they like, what they think you could do better, and what they wish you offered that you presently don't offer.
- If you don't already have a business, conduct an informal survey of your most likely prospects. The larger the sample size of your informal survey, the better; and the more questions you can get your respondents to answer, the better. Ask friends and family if that's all you can reach; but keep in mind that they are NOT your most likely prospects, so whatever your mom says, take it with a grain of salt; she is biased, and will not be as critical as a typical prospective customer.
In choosing an industry focus for the purpose of this series of blog posts, I will focus on a relatively simple business that you can run out of your home. There are permitting and regulatory issues related to selling food that you make in your own kitchen, so for simplicity's sake, let's imagine that you like to sew. You've always been good at making clothes; you have been making your own clothes for years; your friends and random strangers often tell you that they wish more stores sold clothes as cool as the ones you are wearing. So you decide to begin selling unique clothes that you make yourself. In the future, perhaps you will just design the clothes, and have them manufactured in a factory, which will improve your cost efficiency, and with it, both your sales numbers and your profits. But for now, you are just getting started, so you're going to make the clothes yourself, using fabric from the local craft store, and perhaps augmenting it with some fabrics that you are able to reclaim by deconstructing used clothing from the thrift store. The question is, should you make fashionable clothing for the twentysomething set? Practical outdoor-wear for adults of all shapes and (often large) sizes? Or perhaps stylish onesies for toddlers?
Evaluate your skill set in light of the size, spending power, and taste preferences of your target market. You may really enjoy making fashionable clothes for young twentysomethings; but young twentysomethings are notoriously a bunch of cheapskates who are unlikely to want to pay enough for you to make a profit. So you decide to make a line of trendy clothes; but you will also make a line of baby clothes. Many parents are more likely to spend money to deck out their children than they are to splurge on themselves. Also, grandparents and friends may end up buying clothes for the baby. Your two product lines will complement each other; people may initially check your business out saying "I wish I could afford to buy something like that for myself" and end up buying something for their friend's baby shower.
So, start developing your product line, and in the next installment of this series we will continue considering your business model. Best of luck until then.
Sunday, December 5, 2010
Introducing Basementia's Business Development Blog
Welcome to Basementia's business development blog. This blog will feature a series of posts about how to start and grow your own business. It will address such diverse issues as writing a business plan, setting up the legal structure of your business, how to raise capital, how to set up a website, how to develop a marketing strategy (including identifying your target market and creating catchy advertisements)... and more!
My name is Jesse Smith, and I will be leading the discussion. I am presently studying for my MBA with a Marketing emphasis at City University of Seattle. I am also the President and lead coder at Basementia Enterprises. This blog series will be an updated, expanded series based on a short three-part article on Starting a Business that I wrote several years ago.
It is my hope that readers will find this series useful and informative. Living in an economic downturn that won't quit, with unemployment persistently high, it is my belief that individuals must take the economy into their own hands, by starting businesses and creating jobs for themselves and their communities. It is my goal, and my company's purpose, to demystify the business development process, and to make it possible for anyone to start a business that will thrive even when times are bad.
Relevant comments are welcome. I look forward to a collaborative discussion that will promote everyone's interests.
Best Regards,
Jesse Smith
My name is Jesse Smith, and I will be leading the discussion. I am presently studying for my MBA with a Marketing emphasis at City University of Seattle. I am also the President and lead coder at Basementia Enterprises. This blog series will be an updated, expanded series based on a short three-part article on Starting a Business that I wrote several years ago.
It is my hope that readers will find this series useful and informative. Living in an economic downturn that won't quit, with unemployment persistently high, it is my belief that individuals must take the economy into their own hands, by starting businesses and creating jobs for themselves and their communities. It is my goal, and my company's purpose, to demystify the business development process, and to make it possible for anyone to start a business that will thrive even when times are bad.
Relevant comments are welcome. I look forward to a collaborative discussion that will promote everyone's interests.
Best Regards,
Jesse Smith
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