BOOTHS STREET SALES

STREET SALES         BOOTHS              DISPLAY SIGNS

KIOSKS AND BOOTHS

You've seen those cute little booths in the middle of mall thoroughfares that sell unique jewelry goods, or even tee shirts. These kiosks/booths are proven moneymakers for two very good reasons.

First, these booths require very little initial capital. Yet, you get the same high traffic location that the mail stores get. Kiosks and booths are usually portable stores that are constructed of wood and or plastic by you, a carpenter, or a display designer for much less than a mall lease.

You also have another added benefit store owners lack- you're

These are often excellent first steps into the Drop Shipping business because of the exposure and experience gained with little or no overhead investment. There are no long-term leases, no utilities, and no fixtures of furniture to buy. In addition, people attend these events in droves, ready to spend money.

In either environment, there are two different ways to remarket your goods. You can either set up your own booth or consign your goods and have someone else do the selling.

If you choose to set up your own booth, you'll need to contact the local sponsors of swap meets and flea markets in your area. Keep your eyes open for any advertisements and attend one yourself. While there, get to know the other booth operators. You can ask them how they got started and who to contact.

Once you find out whom to talk to, be sure

Once you find out whom to talk to, be sure to get the following information to him or her. Ask how big your area will be. If a booth is necessary, find out if one is provided for or if you must bring your own. Ask how many people usually attend the sales and when exactly the event will take place. See if there is an admission fee. Then, and this is important, ask if they have any other helpful information specific to that particular area or sale. They may be able to give you some valuable advice you would have missed out on otherwise.

There are several ways you can set up your designated selling area. You can do something as simple as a blanket you spread on the ground or as elaborate as a booth that you build and paint. However you set up, give special consideration to how you will secure your merchandise and your money. Don't make it easy for some to sneak off with at item without paying for it.

You're all set up and your merchandise is ready to be sold. Remember, the shoppers have come ready to buy. Most items sold at these markets are inexpensive and low quality, so flaunt your high-quality, low-cost merchandise

Once you find out whom to talk to, be sure to get the following information to him or her. Ask how big your area will be. If a booth is necessary, find out if one is provided for or if you must bring your own. Ask how many people usually attend the sales and when exactly the event will take place. See if there is an admission fee. Then, and this is important, ask if they have any other helpful information specific to that particular area or sale. They may be able to give you some valuable advice you would have missed out on otherwise.

There are several ways you can set up your designated selling area. You can do something as simple as a blanket you spread on the ground or as elaborate as a booth that you build and paint. However you set up, give special consideration to how you will secure your merchandise and your money. Don't make it easy for some to sneak off with at item without paying for it.

It's not only a matter of making sure that your personalities will work well together, he or she needs to be trustworthy! Check his or her references. This person will have your goods and the money generated from them. In addition, choose someone who is selling merchandise that will complement your products. If you are selling baseball gloves, for example, select someone who is selling other baseball paraphernalia such as baseball cards and hats. Before any selling occurs, decide how you will split the profits - 50/50 -20/80, etc.

STATE FAIRS: These are also characterized by low overhead booth operations, customers who come ready to spend their money on a variety of items, and a great opportunity to sell large amounts quickly.

To sell at a state fair, look up your county offices in the phone book and, if the number is listed, call the fairgrounds. If it's not listed, call the Department of Recreation of the general county number. Either way, explain you are interested in setting up a booth at the fair and ask what the requirements are. You will probably have to pay a fee for the space you will use. Depending on your county's laws, there may also be some other fees.

ROADSIDE STANDS AND VANS

Roadside stands are much like the kiosks and booths described above. The difference lies in the advertising. If possible place a road sign three miles away with a legible sign every mile thereafter, as well as a sign 500 feet away. The final sign should be placed by your stand. Make your signs look professional. Most people will equate a professional appearance with legitimate business. At your stand, there should be room for adequate parking. In addition, make sure your signs and stand do not violate any local ordinances or upset any local landowners. Also, be aware of security. Set up in a well-lit area and be alert when closing in the evenings

In particular, vans can be set up in the parking lots of malls,

parks, office buildings, sporting events, etc.   Another great idea

for van  owners-make  your vacation  across  country  pay for

itself.

Sell your distressed merchandise at stopping points on your trip.

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Intro: Why Everyone Needs a Business Plan

Why executive summaries are the most important

part of your plan....................................................8

Target your market.............................................. 14

What are you selling?.......................................... 18

Understanding and explaining your industry... 24

A marketing strategy primer.............................. 28

Identifying competitors...................................... 34

Who's who on your team................................... 38

The inner workings of your business................ 44

Explaining the financials.................................... 48

Deciding what goes in your plan's appendices.62

Extra tools to get you started.............................66

©2007 Entrepreneur Media Inc. All rights reserved.

Stewart told us at Entrepreneur that she never wrote a plan for any of her businesses.

Now, while that may be fine for the likes of Martha, it's generally not

a good idea. If you're going to start a business, the smartest approach is to

write a business plan. Now don't worry-the process is not as onerous as you

might think. After reading Road Map to Success, you'll know precisely what you need to do to

write a winning business plan.

So what exactly is a business plan? It's simply a written description of your business's

future-a document that tells what you plan to do and how you plan to do it. Business plans

can help perform a number of tasks for those who write and read them. Perhaps the most

important use of a business plan is for you, the entrepreneur, to document your vision and

your strategies. Think of your business plan as a playbook of sorts, where you lay out your

Intro:

WHY EVERYONE NEEDS A

BUSINESS PLAN

YOUR ROAD MAP TO SUCCESS n 5

plays for the upcoming year. But it is a living document, one that needs to be consulted-and

updated-often.

All entrepreneurs should write a business plan, but if you are trying to raise investment

capital, a written plan that conveys your vision to potential investors is a must. Business plans

may also be used to attract key employees, prospect for new business and deal with suppliers

and vendors.

Having said that, there are some generally accepted conventions about what a full-grown

business plan should include and how it should be presented. Your plan should cover all the

important matters that contribute to making a business a success. These generally include:

Your business plan needs to be written in plain English-the plainer the better. You'll also

need to include a lot of numbers for budgets and other financial reports. Tables, graphs, drawings

and photographs are also not uncommon.

A business plan is a place to stick to facts instead of feelings, projections instead of hopes,

and realistic expectations of profit instead of passion. Keep this in mind while writing your

plan and you'll have a better chance of injecting it with perhaps the most important component

of all: credibility.

How Long Should It Be?

A typical business plan runs 15 to 20 pages, but some can be as long as 100 pages, depending

on the complexity of the business. If you have a simple concept, try to express it in as few

words as possible. On the other hand, if you are proposing a new kind of business or even a

new industry, it may require quite a bit of explanation to get the message across.

The purpose of your plan also determines its length. If you want to use your plan to seek

millions of dollars in seed capital to start a risky venture, you may have to do a lot of explaining

and convincing. If you're just going to use your plan for internal purposes to manage an

ongoing business, a much more abbreviated version is fine.

When Should I Write It?

Now is as good a time as any. A business plan is a great way to explore the feasibility of a

new business without actually having to start it. A good plan can help you see serious flaws

in your concept. You may uncover tough competition while researching the market, or you

may find that your financial projections simply aren't realistic.

If you intend to seek financing, finish your business plan before approaching investors.

Bankers, venture capitalists, angel investors and other financiers won't provide money without

seeing a plan. Other investors, like friends and family, may not require a business plan, but

they deserve one. Even if you're funding the business yourself, you owe it to yourself to plan

how you'll expend the resources you're committing to the venture.

And remember, writing a business plan is not a one-time exercise: A business plan should

be rewritten or revised regularly to get the maximum benefit from it.

NOTES

ELEMENTS OF YOUR WHOLE PLAN.

SUMMARY IS A ONE- OR TWO-PAGE LOOK AT THE KEY

ELEMENTS OF YOUR WHOLE PLAN. Think of it as an expanded table of contents.In it you should include your mission and vision statements, a brief

summary of your goals and key strategies, a quick look at your company and

its organization, and highlights of your financial status and needs.

Chapter 1:SUM IT UP

Why executive summaries are the most important

part of your plan

8 n YOUR ROAD MAP TO SUCCESS

SUM IT UP Chapter 1The Summary Is the Most Critical Part

Labor over your summary. Polish it. Refine it. Ask friends and colleagues to look at it, and

listen to their input. If your plan doesn't get the response you want when you start circulating

it, suspect a flaw in the summary. The executive summary performs a host of jobs. It

should briefly hit the high points of your plan and point readers with questions to the fulllength

sections of your plan where they can get answers. The point is to ease the task of reading

the plan by presenting an interesting and compelling account of your company. Your goal

is to get an investor who's scanning your summary enthralled with your concept and excited

about the opportunity to participate.

Attract Readers

Most of your business plan should be fairly dry. It's inappropriate to use lots of exclamation

points or incandescent ink. However, the rules are a little looser in the executive summary.

Here you're expected to put on something of a show to try and entice readers into the rest

of your plan. You can even use a narrative style here to recount the history of your company

as if it were a thrilling saga. In fact, telling a great story is one of the best ways to fulfill the

central function of the summary: attracting readers.

If you do tell a story in the summary, give it a happy ending. While it's your duty in your

plan to fully disclose to investors any significant risk factors, you can save that for later in the

plan. The summary is the place to put your best foot forward-to talk up the upside and

downplay the downside. As always, accentuating the positive doesn't mean exaggerating or

lying. If there is a really important, unusual risk factor in your plan-for example, if one specific,

big customer has to make a huge order or the whole thing's kaput-then you really

should mention that in your summary. But run-of-the-mill risks like unexpected competition

or customer reluctance can be ignored here.

Now's the time to use the higher end of the market estimates and profitability scales you've

come up with. Try to paint a convincing portrait of an opportunity so compelling that only a

fool would not recognize it. However, as vital as it is to paint a favorable picture of your business,

it is important to do it concisely. You will lose readers if you use too many meaningless

words. Be descriptive, but be succinct.

Select Your Best Features

In the executive summary, you particularly want to summarize your strengths. That may

seem obvious, but how do you know what your strengths are? And how do you select which

ones to present?

Many of the answers to those two questions will depend on whom you're presenting your

plan to. For instance, if you're talking to a banker, stress cash flow, management experience

and balance-sheet strength. For a partner, the summary should emphasize organizational flexibility

and prospects for future growth. A venture capitalist will want to read about very highYOUR ROAD MAP TO SUCCESS n 9

Chapter 1 SUM IT UP

growth rates, plus some hint that you'll be ready to go public or sell in a few years.

Even if your best points aren't the kind of things normally included in executive summaries,

try to include them here because people generally remember what they hear first. In

the executive summary, the idea is to focus on your strengths and leave out the information

that might distract readers from the positive, powerful image you want to portray. You can

address any concerns later on in the plan. For instance, you might say that your plant nursery

is "dedicated to cultivating the finest landscaping vegetation in the five-county region." That

sounds nice, so why go into a lot of detail right now about the fact that your plans require you

to take on a deeply entrenched, well-regarded competitor? You can talk about that later, after

the executive summary has lured readers in.

Sometimes presenting your best features is a matter of not mentioning your weak points

until later in the plan. If, for instance, you have a great idea for a product but no idea where

you'll have it manufactured, don't mention

manufactured, don't mention that in the executive summary-although of course

you have to bring it up later in your plan.

Following are some of the areas you'll want to highlight in your executive summary.

Company Description

If your company is complex, you'll need a separate section with a "Company Description"

heading to adequately describe your many product lines, locations, services, etc. However, in

most cases, you can just briefly describe your company (a few sentences will do). Here are

some samples:

comprehensive source for packing materials, containers and other supplies for the do-it-yourself

move.

five locations on the north and south side of town.

Legal Structure

If your firm isn't complicated in the way it splits up its ownership, responsibility, authority

and liability, you can describe your legal structure in a sentence or two buried in the summary.

If your business is a partnership, you need to explain the basic terms of your partnership

so readers can understand who's responsible for what.

You might choose to be a C corporation, an S corporation or an LLC. One of the benefits

of a corporation is that it will survive your death. Lenders prefer that security to a proprietorship,

whose assets and debts simply become part of your estate when you die.

History and Corporate Milestones

How did your business get where it is today? Where did you get the idea for it? Business

plan readers want to hear about your business accomplishments, so don't disappoint them. If

you have enough of a history to have accomplishments, provide a short list of those or a timeline

to help readers get a quick feel for the milestones you've achieved. These include things

like the first day you opened for business, the month you hired your first employee, the quarter

you passed 10 employees, the day you opened your second location, the date a patent or

trademark was applied for and granted, etc.

This is a good opportunity to show the human side of your company. For instance, you may

want to include a photo of your first annual meeting, or employees toasting one another to

celebrate the production of your 1,000th unit. Even in a business plan, there's nothing wrong

with reminding potential investors that there are people behind the pages.

Financial milestones are naturally interesting to investors, so make sure you include these

as well. Common financial milestones include the day you made your first sale, the month you

first showed positive cash flow, and your first profitable quarter and year. Achievements relating

to sales are especially popular.

Summarize Your Goals and Strategies

It usually takes most businesses several steps to get where they want to go. Secondary and

tertiary goals may lie between you and your ultimate goal. It's important to tell plan readers

about these-breaking long-term goals into short-term and intermediate-term goals shows

that you've thought things out.

Then you need to make it clear that you've already selected a strategy (or strategies) for

implementing your plan and achieveing your goals. Describe these strategies, but don't be

dogmatic. Flexibility, paradoxically, is also considered a virtue. But make sure plan readers

know that you have a plan to attack the market.

Most businesses attack the market in one of three ways. Companies try to either (1) be the

low-cost producer, (2) differentiate themselves somehow in the market, or (3) become a niche

player.

Here's a quick look at the three basic strategies:

Low-cost strategies are often difficult for startups or small businesses to follow

because the economies of scale possessed by larger competitors automatically put them at a

handicap.

or newest-and you may be able to charge more, have more loyal customers and discourage

competitors all at the same time. You can differentiate by adding features or by cleverly

promoting your product so that it merely seems different somehow. Take care to differentiate

the important features that will sway customers, however, or your efforts to follow a strategy

of differentiation may be in vain.

small to attract competitors is one of the things entrepreneurs can do far better than big companies

can. Focus your company by creating a product or service that closely fits the needs of

a small group of customers. The beauty of selling to niches is that you can find plenty of customers

to satisfy without ever attracting the attention of bigger rivals. On the other hand, if

your market grows big enough, you may get clobbered.

Mission Statement

A mission statement is a tool used for covering up stains on wallpaper-oops! The fact is,

many mission statements are written, framed, hung and forgotten. But they do have a real use:

to state what you're about and what makes you different from everybody else in your field.

For more on mission statements, see chapter 2.

Explain How You'll Use the Financing

This is the big one. You need to quickly explain how you'll use the proceeds of any financing

you seek. Basically, tell the reader exactly why you need the money and how you plan to

use it. It's not necessary to get into too much detail here. You don't have to justify every penny

and wind up asking for a loan of $23,558.36 because that's the exact price of everything you

need. For example, it's perfectly OK to have a catch-all category like "other business uses"

alongside entries for "new pizza oven" and "three months' rent."

Round your asked-for number up from minimum needs, and put what's left over into some

kind of "miscellaneous" grab bag. You'll almost certainly need it for something unexpected,

and most plan readers know that.

Using Money to Make Money

The best use of somebody else's money is to buy or build something that will make more

money, for both you and your investor. No matter who your investor is, you'll look better if,

in the summary, you can describe a use for borrowed or invested funds that will directly help

pay back the provider.

As the business owner, you have considerable discretion about what any given dollar is

spent on. So make sure that when accounting for how you'll use funds, you don't apply borrowed

money to, say, your salary or perks. Use operating income for those purposes. Investors

like to feel as though they've purchased production tools, not country club memberships.

To that end, if you're in manufacturing, allocate invested funds to purchasing important

tory. If you have a service company, direct the infusion to a new marketing program that

promises to boost sales.

Who Owns What

You need to spell out who owns what. If you have many equity investors and a pile of creditors,

this can get pretty complicated. For the summary section of your plan, a basic description

such as "Ownership of the company will be divided so that each of the four original partners

owns 25 percent" will suffice. If you have to detail exactly what any equity investor will

get, do it later. For now, you just want to give people an idea of how the ownership is divided.

Extract the Essence

The key to the executive summary is to pick out the best parts of every section of your plan.

In other words, you want to extract the essence. Instead of describing everyone in your company,

describe only your key managers. Don't talk about all your products-just mention the

major ones, or discuss only product lines instead of individual products. And when you talk

about your company's purpose and mission, stick to the highlights. You have plenty of pages

coming up where you can get into the minutiae. Remember, the executive summary is the first

thing people read, so make sure it's concise but interesting.

markets within the industry, including any new products or developments that

will benefit or adversely affect your business. Base your observations on reliable

data and be sure to footnote sources of information where appropriate.

This is especially important if you're seeking funding; investors want to know that your data

is reliable. They won't risk money on assumptions or conjecture.

Chapter 2:

OVERVIEW

Target your market.

When describing your business, the first thing to concentrate on is its structure. That

means the type of operation: wholesale, retail, food service, manufacturing, or service-oriented.

State this right away in the description, as well as whether the business is new or already

established.

In addition, reiterate your legal structure. Detail whether the business is a sole proprietorship,

partnership, or corporation, list its principals, and state what each brings to the business.

Also mention whom you will sell to (your target market), how the product will be distributed,

and your business' support systems. This support may come in the form of advertising,

promotions and customer service.

What's Your Mission?

Here's where you go into more depth about your mission statement and corporate vision.

Good mission statements should get daily exposure to employees, customers and others. But

they should be explained in your business plan to help investors and other interested parties

understand what makes your company special. A mission statement should be a clearly written

sentence or two that tells what you sell and to whom, and why they buy from you. It may

also summarize your goals and objectives. Here are some examples:

1960s to antique auto buffs throughout Central Missouri.

decorators and collectors across the tri-state area.

and age-discrimination plaintiffs in Houston's Fifth Ward.

A vision statement differs from a mission statement in the way that a man's reach exceeds

his grasp. That is to say, a mission statement should describe the goals and objectives you

could reasonably expect to accomplish. A small bookstore whose mission statement included

the goal of "putting Amazon.com out of business" would be looked upon as foolishly naive.

In a vision statement, however, those sorts of grandiose, galactic-scale images are perfectly

appropriate. When you "vision"-to borrow the management consultant's trick of turning

nouns into verbs-you imagine the loftiest heights you could scale, not the next step or several

steps up the ladder.

Some argue that vision statements don't belong in a business plan, but many investors

deeply respect visionary entrepreneurs. So if you feel you have a compelling vision, there's no

reason not to share it.

What's Your Business?

Once you've described the business, you need to describe the products or services you

intend to market. The product description statement should be complete enough so the read-

er has a clear idea of your intentions. This might mean discussing the product's application

and end uses. You may want to emphasize any unique features or variations from concepts

that can be typically found in the industry.

In fact, the investor will be looking for any proprietary information that will set your concept

apart from the crowd, which is known as the unique selling proposition, or USP (more

on this in chapter 3). Almost every business has one, whether it's a patented product or a

unique marketing/promotional strategy like Domino's Pizza's 30-minute-money-back guarantee.

Be specific in showing how you will give your business a competitive edge. For example,

your business will be better because you will supply a full line of products, unlike competitor

A, which only sells a few products. You're going to provide service after the sale; competitor

B doesn't support anything it sells. Your merchandise will be of higher quality. You'll offer a

money-back guarantee. You'll provide parts and labor for up to 90 days after the sale.

Whatever you're offering, let readers know. (Go to chapter 6 for more on explaining your

competitive edge.)

Now it's time to be a classic capitalist and ask yourself, "How can I turn a buck? And why

do I think I can make a profit that way?" Once you can answer that question for yourself, you'll

be able to convey it to others in this section. You don't have to write 25 pages on why your

business will be profitable. Just explain the factors you think will make it successful (e.g., it's

a well-organized business, it will have state-of-the-art equipment, its location is exceptional,

the market is ready for it, it's a dynamite product at a fair price, etc.).

If you're using your business plan as a document for financial purposes, explain why the

added equity or debt money is going to make your business more profitable. Show how you

will expand your business or be able to create something by using that money. How will the

money help your business grow? Explain why your business is going to be profitable. A potential

lender wants to know how successful you're going to be in this particular business.

Factors that support your claims can be broad-brushed here; they will be detailed later.

Talk about which suppliers or experts you've spoken to about your business and how they

responded to your idea. Readers may even ask you to clarify your choice of location or your

reasons for selling this particular product.

The business description can run from a few paragraphs to a few pages depending on the

complexity of your plan. If your plan is not too complicated, keep your business description

short, describe the industry in one paragraph, the product in another, and the business and its

success factors in three or four paragraphs that end the statement. While you may need to

have a lengthy business description in some cases, a short statement may convey the required

information in a much more effective manner. It doesn't need to hold the reader's attention

for an extended period since the investor is likely reading other plans as well. If the business

description is long and drawn out, you will lose the reader's attention-and possibly any

chance of receiving the funding necessary for your project.

NOTES

a very important section of your plan (for simplicity's sake, we'll use the term

matter how knowledgeable a team you've assembled or how strong your financial

underpinnings are, unless you have something to sell, or at least plans to

develop it, you don't really have a business. While many businesses are founded to develop

new, never-before-seen products, you still need to describe the planned-for product in your

plan.

Chapter 3:

What are you selling?

What Is Your Product or Service?

It's easy to talk eloquently about a product you believe in. In fact, some highly marketingoriented

businesses are built as much on the ability to wax rhapsodic about a product as they

are on the ability to buy or source compelling products to begin with. (Remember the J.

Peterman catalog?)

It's very important that in your plan, you build a convincing case for the product or service

upon which your business will be built. The product description section is where you do

that. Here, you should describe your product in terms of several characteristics, including

cost, features, distribution, target market, competition and production concerns. It's a good

idea to use charts and tables as often as makes sense to quickly convey this information.

Here are some sample product descriptions:

backgrounds for street dances, fairs, concerts, picnics, sporting events and other outdoor productions.

The product is less costly than a live rhythm section and offers better sound quality

than competing systems. Its combination of features will appeal to sports promoters, fair

organizers and charitable and youth organizations.

repair shops. It provides timely news of industry trends, service product reviews and

consumer product service tips written in a language service shop owners can understand.

connects people with experts who

extensive experience in organizing and decluttering

homes and offices.

A business plan product description has to be less image-conscious than an advertising

brochure but more appealing than a simple spec sheet. You don't want to give the appearance

of trying to snow readers with a glitzy product sales pitch. On the other hand, you want to

give them a sampling of how you are going to position and promote your product.

A business plan product description is not just concerned with consumer appeal. Issues of

manufacturability are of paramount concern to plan readers, who may have seen any number

of plans describing exciting products that, in the end, proved impossible to design and build

economically. So, if your product has special features that will make it easy to build and distribute,

say so.

Unique Selling Proposition, or USP

A product description is more than a mere listing of product features. You have to highlight

your product's most compelling characteristics, such as low cost or uniquely high quality, that

will make it stand out in the marketplace and attract buyers willing to pay your price. Even

the simplest product has a number of unique selling propositions, or USPs. Many common

USPs are seemingly contradictory. How can both mass popularity and exclusive distribution

be strengths? The answers is that it depends on your market and what its buyers want.

than others on the market, you have a powerful selling strength. In fact, if you can't

offer some combination of features that sets you apart, you'll have difficulty writing a convincing

plan.

provider (and make money at those rock-bottom prices), you have a powerful selling advantage.

Conversely, high-priced products may appeal to many markets for their sheer snob

value. Several years ago, an Amsterdam designer came out with a perfume that came in a

sealed bottle that could not be opened. This "virtual perfume" was priced the same as Chanel

No. 5 and found ready buyers.

you'll create a powerful selling point by piggybacking on their redoubtable distribution powers.

product to make it compelling. Many people look not for the best value or even the best

product, but simply the one they can buy with the least hassle.

do buybacks or have other financing alternatives, you'll find that giving people different,

more convenient ways to pay can be a convincing strength for your product.

on-site service or 24-hour availability, it can turn an otherwise unremarkable product or service

into a very attractive one.

$20 Timex? The Rolex reputation is the reason. At its most extreme, reputation can literally

keep you in business.

of high-technology products and services. For many sophisticated software products and electronic

devices, a seller who can't provide training to buyers has little chance of landing any

orders.

your total offering. Retailers of auto parts, home improvement supplies and all sorts of other

goods have found that simply having knowledgeable salespeople who know how to replace

the water pump in an '85 Chevy can lure customers and encourage them to buy.

no doubt we can make this one work as well." Nothing could be more soothing to a skeptical

sales prospect than to learn that the seller has vast experience at what he's doing. If you have

ample experience, make it part of your selling proposition.

shoes-and it's not because buyers thought they could really dunk like Mike. They bought

because they wanted to be like Mike, even if it was just from the ankles down. If you have

prestigious customers, mention it in your marketing materials-and in your business plan.

product or are not often used in a particular industry. These can make your product stand out.

For instance, consider offering a guarantee. When consumers know they can return a faulty

product for a refund or repair, they're often more likely to buy it over otherwise superior products

from competitors offering less powerful warranties.

Who's Going to Buy and Why?

Even the best product must meet a need in the market-otherwise, it's just a curiosity, not

a foundation for a business. So make sure your plan identifies your markets and potential customers

and tells why they're going to buy your product.

The first thing to do is identify the market you're going after. Talk about your market in

terms of its characteristics, its needs, and if possible, its numbers.

For example, a new Italian restaurant might say it's targeting families on a budget that live

within a 5-mile radius of its location. It might quote Census Bureau figures showing there are

12,385 such families in its service area. Or a bicycle seat manufacturer might identify its market

as middle-aged, casual cyclists who find traditional bike seats uncomfortable. It may cite

American College of Sports Medicine surveys, saying that sore buttocks due to uncomfortable

seats is the chief complaint of recreational bicyclists.

It is important to quantify your market's size if possible. If you can point out that there are

more than 6 million insulin-dependent diabetics in the United States, it will bolster your case

for a new easy-to-use syringe your company has developed.

PRODUCTS AND SERVICES

Liability Concerns

Liability lawsuits have changed the landscape of a number of industries, from toy manufacturers

to children's furniture retailers. If you're going to offer a product with "lawsuit

potential," you need to address the question of legal issues in your plan. That may be as simple

as including a statement to the effect that you foresee no significant liability issues arising

from the sale of your product or service. If there is a liability issue, real or apparent, then

acknowledge it and describe in your plan how you'll deal with it. For instance, you may want

to take note of the fact that, like all marketers of children's bedroom furniture, you attach

warning labels and disclaimers to all your products and carry a liability insurance policy.

Make sure you get an attorney's advice on this one. A layman's opinion on whether a product

is more or less likely to generate lawsuits is not worth including in a plan.

While on the subject of liability, also deal with the question of whether you are already

being sued for a product's perceived failings, and if so, how you plan to deal with it. And while

it's often difficult to get an attorney to commit on paper to the resolution of a lawsuit, you can

handle this with a sentence saying something like, "Our legal counsel advises us the plaintiff's

claims are without merit."

Licenses and Certifications

Some paperwork is just paperwork, and some paperwork is essential. Every business must

file tax returns, and most businesses must have certain licenses and certifications to do business.

Your plan should take notice, however briefly, of the fact that you have received or

applied for any necessary licenses and certificates. If you don't bring it up, some readers will

assume all is fine, while others may suspect the omission means you haven't thought about it

or are having trouble getting the paperwork in order.

Aside from the usual business licenses and tax forms, there are any number of certificates

and notices you may need. Owners of buildings must have their elevators inspected regularly,

and in some cities they must post the safety inspection record publicly. Plumbers must be

licensed in many states. Even New York City hot dog vendors must be licensed by the city

before they can unfurl their carts' colorful umbrellas.

Product Description Roundup

You explore a lot of aspects of your business in the process of writing a plan. It's easy to

get confused about what's of central importance. But the bottom line is this: A business isn't

about financing or a great location or the management team's experience. It's about having

something to sell that people want to buy. Keep the importance of your product or service at

the front of your mind, and it will help make a lot of decisions easier.

NOTES

ARISING TIDE MAY NOT ALWAYS LIFT ALL BOATS, BUT IT TENDS TO. And

there's no doubt it's a lot harder to float when the tide is ebbing. These are truisms,

certainly, and they're widely believed among the investment community.

That means it's important to include an industry analysis in your business

plan.

Readers of your business plan may want to see an industry on a fast-growth track with few

established competitors and great potential. Or they may be more interested in a big, if some-

Chapter 4:

Understanding and explaining your industry

what slower-growing, market, with competitors who have lost touch with the market and have

left the door open for rivals.

Whatever the facts are, you'll need to support them with a snapshot analysis of the state of

your industry and any trends taking place. This can't be off-the-cuff thinking-you'll need to

buttress your opinions with market research that identifies competitors, their weaknesses and

strengths, and barriers to entry. Finally, and perhaps most important, you'll have to convincingly

describe what makes you better and destined to succeed.

The State of Your Industry

In the early 1980s (and again today), all an entrepreneur needed was the word energy in the

title of his or her company to draw the attention of financial backers. At other times, fields

such as biotech, computer software or e-commerce have been seen as gold mines just waiting

for gleeful investors. One thing you should try to do in your plan is present a case for your

industry being an excellent opportunity, if not the next big thing.

You should present this information in a separate section of your plan. When preparing the

"State of the Industry" section, you'll need to lift your eyes from your own company and focus

on the outside world. Instead of looking at your business as a self-contained system, you'll

describe the whole industry you operate in, and point to your position in that universe.

This part of your plan may take a little more legwork than other sections since you'll be

pulling together information from a number of outside sources. You may also be reporting on

or even conducting your own original research into industry affairs.

Market Research

Successful entrepreneurs are famed for seemingly being able to feel a market's pulse intuitively,

project trends before anyone else detects them and identify needs that even customers

are hardly yet aware of. After you are famous, perhaps you can claim a similar psychic connection

to the market. But for now, you'll need to buttress your claims to market insight by

presenting solid research in your plan.

The goal of market research is to understand the reasons consumers will buy your product.

It studies such things as consumer behavior, including how cultural, societal and personal

factors influence that behavior. For instance, market research aiming to understand consumers

who buy skateboards might study the cultural importance of being fit, the societal

acceptability of marketing directed toward children and the effect of personal influences such

as age, occupation and lifestyle in directing a skateboard purchase.

Market research is further split into two varieties: primary and secondary. Primary

research studies customers directly, while secondary research studies information that others

have gathered about customers. Primary research might include telephone interviews with

randomly selected members of the target group, while secondary research might come from

subscriber lists of magazines catering to the group. For your plan, you can use either type.

The basic questions you'll try to answer with your market research include:

attainment, etc.

including how much they buy, their favored suppliers, the most popular features and the predominant

price points.

Answers will depend on the product and its uses. Cookware buyers may purchase the products

that offer the most effective nonstick surfaces, or those that give the most pans in a package

for a given amount of money, or those that come in the most fashionable colors.

Although some of these questions may seem very difficult to answer, you'd be surprised at

the detailed information available about markets, sales figures and consumer buying motivations.

The industry of selling market research is a big one, and it's booming today. You can

find companies that will sell you everything from industry studies to credit reports on individual

companies. Market research is not cheap, however. Significant amounts of expertise,

manpower and technology are required to develop solid research. Large companies routinely

spend tens of thousands of dollars researching things they decide they're not interested in.

Smaller firms can't afford to do that.

But the best market research is what you do on your own. In-house market research might

take the form of original interviews with consumers, customized crunching of numbers from

published sources or perhaps competitive intelligence you've gathered on your rivals.

But the most likely source of in-house market research is information you already have.

This information will come from analyzing sales records, gathering warranty cards containing

addresses and other information about purchasers, studying product return rates and customer

complaint cards, and the like. You can get in-house market research data from your own

files, so it's cheaper than buying data. It's also likely to be a lot fresher than third-party market

research, and since it comes from your own operations, it will almost certainly be more

precisely targeted than a packaged study.

One limitation of in-house market information is that it may not include exactly what

you're looking for. For instance, if you'd like to consider offering consumers financing for their

purchases, it's hard to tell how they'd like it since you don't already offer it. You can get

around this limitation by conducting original research-interviewing customers who enter

your store, for example, or counting cars that pass the intersection where you plan to open a

new location-and combining it with existing data.

Trends

Timing is everything. The best time to address a trend is at its start-or at least before it is

widely recognized. If you can prepare a business that satisfies a soon-to-be-popular need, you

can generate growth that is practically off the scale. (This is, by the way, the combination that

venture capitalists favor most.) The problem, of course, is spotting the trends first.

There are a couple of different techniques you can use to identify trends. A trend is basically

a series of occurrences that indicate a pattern. Trend analysts therefore look at past

events (usually trends themselves) and project them forward. Another good way to forecast

trends is by test marketing. If you're already in business, try selling a new product in one of

your stores or online and see how it does before you roll it out.

Focus groups and surveys try to catch hold of trends by asking people what's hot. You can

ask open-ended questions ("What type of portable computer would you like to see?") or show

them product samples and see how they react. This can be tricky because you're dealing with

a small group of people and extrapolating to a larger group. If your group isn't representative

of your market, your results may be misleading.

Some other ways you can try to nail a trend in advance include talking to salespeople who

are in touch with customers' needs, quizzing executives whose job is to watch the big picture,

and reading a wide variety of publications, websites and blogs to try and spot connections on

your own.

In most of these trend-forecasting techniques, statistics play a big role. Providing

some statistics in the trends section of your plan can make it more convincing.

Barriers to Entry

If you want to become a semiconductor manufacturer, you'll need a billion-dollar factory

or two. If you want to have a TV network, you'll need programming and affiliate stations in

at least the major markets. These problems are called barriers to entry, and they exist to some

extent in all industries. The barriers may be monetary, technological, distribution- or marketrelated,

or simply related to the ownership of prime real estate. An important part of analyzing

your market is determining what the barriers to entry are and how high they stretch. If

the barriers are high, as is the case with automobile manufacturing, then you can be assured

that new competitors are likely to be slow springing up. If they're low, as is the case with, say,

screenwriting, where anybody with a computer can take a shot, then you know there will be

an endless supply of competition lured by the low investment and chance at easy bucks.

Be alert for innovative competitors while writing the section of your plan where you analyze

barriers to entry. It may save you from a disastrous error, and will certainly demonstrate

to investors that you've thought your plan through and are not jumping to conclusions.

Overall Outlook

As you consider either growing or starting a business, it's important to be aware of whether

the tide is rising or ebbing. You may be

The basic questions you'll try to answer with your market research include:

attainment, etc.

including how much they buy, their favored suppliers, the most popular features and the predominant

price points.

Answers will depend on the product and its uses. Cookware buyers may purchase the products

that offer the most effective nonstick surfaces, or those that give the most pans in a package

for a given amount of money, or those that come in the most fashionable colors.

Although some of these questions may seem very difficult to answer, you'd be surprised at

the detailed information available about markets, sales figures and consumer buying motivations.

The industry of selling market research is a big one, and it's booming today. You can

find companies that will sell you everything from industry studies to credit reports on individual

companies. Market research is not cheap, however. Significant amounts of expertise,

manpower and technology are required to develop solid research. Large companies routinely

spend tens of thousands of dollars researching things they decide they're not interested in.

Smaller firms can't afford to do that.

But the best market research is what you do on your own. In-house market research might

take the form of original interviews with consumers, customized crunching of numbers from

published sources or perhaps competitive intelligence you've gathered on your rivals.

But the most likely source of in-house market research is information you already have.

This information will come from analyzing sales records, gathering warranty cards containing

addresses and other information about purchasers, studying product return rates and customer

complaint cards, and the like. You can get in-house market research data from your own

files, so it's cheaper than buying data. It's also likely to be a lot fresher than third-party market

research, and since it comes from your own operations, it will almost certainly be more

precisely targeted than a packaged study.

One limitation of in-house market information is that it may not include exactly what

you're looking for. For instance, if you'd like to consider offering consumers financing for their

purchases, it's hard to tell how they'd like it since you don't already offer it. You can get

around this limitation by conducting original research-interviewing customers who enter

your store, for example, or counting cars that pass the intersection where you plan to open a

new location-and combining it with existing data.

Trends

Timing is everything. The best time to address a trend is at its start-or at least before it is

widely recognized. If you can prepare a business that satisfies a soon-to-be-popular need, you

can generate growth that is practically off the scale. (This is, by the way, the combination that

venture capitalists favor most.) The problem, of course, is spotting the trends first.

There are a couple of different techniques you can use to identify trends. A trend is basically

a series of occurrences that indicate a pattern. Trend analysts therefore look at past

events (usually trends themselves) and project them forward. Another good way to forecast

trends is by test marketing. If you're already in business, try selling a new product in one of

your stores or online and see how it does before you roll it out.

Focus groups and surveys try to catch hold of trends by asking people what's hot. You can

ask open-ended questions ("What type of portable computer would you like to see?") or show

them product samples and see how they react. This can be tricky because you're dealing with

a small group of people and extrapolating to a larger group. If your group isn't representative

of your market, your results may be misleading.

Some other ways you can try to nail a trend in advance include talking to salespeople who

are in touch with customers' needs, quizzing executives whose job is to watch the big picture,

and reading a wide variety of publications, websites and blogs to try and spot connections on

your own.

In most of these trend-forecasting techniques, statistics play a big role. Providing

some statistics in the trends section of your plan can make it more convincing.

Barriers to Entry

If you want to become a semiconductor manufacturer, you'll need a billion-dollar factory

or two. If you want to have a TV network, you'll need programming and affiliate stations in

at least the major markets. These problems are called barriers to entry, and they exist to some

extent in all industries. The barriers may be monetary, technological, distribution- or marketrelated,

or simply related to the ownership of prime real estate. An important part of analyzing

your market is determining what the barriers to entry are and how high they stretch. If

the barriers are high, as is the case with automobile manufacturing, then you can be assured

that new competitors are likely to be slow springing up. If they're low, as is the case with, say,

screenwriting, where anybody with a computer can take a shot, then you know there will be

an endless supply of competition lured by the low investment and chance at easy bucks.

Be alert for innovative competitors while writing the section of your plan where you analyze

barriers to entry. It may save you from a disastrous error, and will certainly demonstrate

to investors that you've thought your plan through and are not jumping to conclusions.

Overall Outlook

As you consider either growing or starting a business, it's important to be aware of whether

the tide is rising or ebbing. You may be confident that you can swim against the flow. Or you

may be looking ahead to a time when the direction of the tide will change and be preparing

your business to take advantage of that change. Either way, you'll have to convince somebody

reading your plan that you know how to read the tide charts, and you'll have to use their

power to help you reach your destination.

WHAT ARE YOU SELLING? How are you selling it? Why would anybody

want to buy from you? These are the kinds of questions that run through

the minds of people reading business plans. The marketing section of

your plan is where you answer them.

Your marketing strategy is a very important part of your plan. Lack of sales is a primary

reason businesses fail. The marketing section is the place where you explain how you are

going to avoid that fate. Start by describing your strategy in terms of the traditional four P's

of marketing: product, price, place and promotion.

Chapter 5:

A marketing strategy primer

Defining Your Product

Product, the first of the four P's, refers to the features and benefits of what you have to sell

(we're still using that term as shorthand for products and services). You might want to update

your product definition and include whatever ancillary services are bundled into your offering.

There are a number of issues you need to address in the product section. First, break out

the core product from the actual product. What does this mean? The core product is the nominal

product. Say you're selling snow cones. A snow cone is your core product. But your actual

product includes napkins, an air-conditioned seating area, parking spaces for customers

and so forth. Similarly, a computer store nominally sells computers, but it also provides expert

advice from salespeople, a service department for customers, opportunities to comparison

shop, software and so on.

It's important to understand that the core product isn't the end of the story. Sometimes the

things added to it are more valuable than the core product itself. In addition to fully defining

your product, you may need to address other issues in your marketing plan. For instance, you

may need to describe the process you're using for product development. Tell how you come

up with ideas, screen them, test them, produce prototypes, etc.

You might also need to discuss the life cycle of the product you're selling. This could be

crucial in the case of both quickly consumed products such as corn chips and in long-lived

items like household appliances. You can market steadily to corn-chip buyers in the hopes

they'll purchase from you frequently, but it makes less sense to bombard people with offers to

sell refrigerators when they only need one every 10 or 20 years. Understanding the product's

life cycle has a powerful effect on your marketing plan.

Other aspects of the product section may include a branding strategy and a plan for followup

products or line extensions.

The Price Club

One of the most important decisions you have to make when preparing a business plan is

what price to charge for what you're selling. Pricing determines many things, from your profit

margin per unit to your overall sales volume. It strongly influences decisions in other areas,

such as the level of service you will provide and how much you will spend on marketing.

Pricing has to be a process you conduct concurrently with other tasks, including estimating

sales volume, determining market trends and calculating costs. There are two basic methods

you can use for selecting a price.

One way is to figure out what it costs you altogether to produce or obtain your product or

service, then add in a suitable profit margin. This markup method is easy, straightforward and,

assuming you can sell sufficient units at the suggested price, guarantees a profitable operation.

It's widely used by retailers in particular. To use it effectively, you'll need to know your

costs as well as standard markups applied by others in your industry.

The competitive pricing approach is more concerned with the competition and the cus-

tomer than with your own internal processes. It looks at what your rivals in the marketplace

charge, plus what customers are likely to be willing to pay, and sets prices accordingly. The

second step of this process is tougher-it forces you to adjust your own costs to yield a profit.

Competitive pricing is effective at maintaining market appeal and ensuring a long life for

your company, assuming you can sell your goods at a profit.

Finding Your Place

Place refers to channels of distribution, or how you will get your product where people can

buy it. Conventional distribution systems have three steps: producer, wholesaler and retailer.

You may occupy or sell to members of any one of these steps. Some companies with vertically

integrated distribution, such as Dell Computer, occupy all the steps themselves. Others, like

franchisors, are parts of systems that orchestrate the activities among all channels. Still others,

such as independent retailers, operate in one channel only.

Distribution often is treated as an afterthought by many manufacturers. However, your distribution

scheme is of critical importance. Say you sell a mass-market consumer good such as

a toy. Whether you plan effectively to get your product onto shelves in the major grocery, drug

and discount store chains may make all the difference between success and failure.

Distribution Concerns

There are three main issues in deciding on a placement strategy: coverage, control and cost.

Cost, it goes without saying, is an important part of any business decision, including distribution

concerns. The other two issues, however, are unique to distribution, and they're trickier.

Coverage refers to the need to cover a large or small market. If you're selling laundry soap,

you may feel the need to offer it to virtually every household in America. This will steer you

toward a conventional distribution scheme that runs from your soap factory to a group of

wholesalers serving particular regions or industries to retailers such as grocery stores and

finally to consumers.

What if you are reaching out to only a small group, such as chief information officers of

Fortune 500 companies? In this case, the conventional, rather lengthy distribution scheme is

clearly inappropriate. You're likely to do better by selling directly to the CIOs through a company

sales staff, sales representatives, or perhaps an agreement with another company that

already has sales access to the CIOs. In both these cases, coverage has a lot of influence on

the design of your distribution system.

Control is important for many products. Armani suits aren't sold at Target because Armani

works hard to control its distribution, keeping the costly apparel in high-end stores where its

lofty prices can be sustained. Armani's need for control means that it deals only with distributors

who sell to designer boutiques. Many manufacturers want similar control for reasons of

pricing, after-sale service, image and so forth. If you need control over your distribution, it

will powerfully influence placement decisions.

Location Considerations

For retailers, the big place question is about real estate. Location often determines success

or failure for many retailers. That doesn't necessarily mean the same location will work for

all retailers. A low-rent but high-traffic space near a housing project may be a poor choice for

a retailer stocking those Armani suits but will work fine for a fast-food restaurant or convenience

store. Your location decision needs to be tied to your market, your product and your

price.

Two of the most common tools for picking location are census data and traffic surveys.

Retailers relying on walk-in traffic need a location with lots of people walking or driving by.

You can usually get traffic data from local economic development agencies, or simply sit

down with a clipboard and pencil and count people or cars yourself. Census data describing

the number of households, their income levels and other information about nearby neighborhoods

can be obtained from the same sources. An animal clinic, for example, will want to

locate in an area with a lot of pet-owning households. This is the type of information you can

get from census surveys.

Promotion Notion

Promotion, in this context, is virtually everything you do to get your company and your

product in front of consumers. Promotional activities include choosing your company name,

going to trade shows, buying ads, making telemarketing calls, sending direct mail, using billboards,

arranging co-op marketing, offering free giveaways and more. Not all promotions are

suitable for all products, of course, so your plan should select the ones that will work best for

you, explain why they were chosen, and tell how you're going to use them.

Promotion aims to inform, persuade and remind customers to buy your products. It uses a

mix that includes four elements: advertising, personal selling, sales promotion and publicity

or public relations.

Advertising

Advertising is what most people think of when they think of promotion. Most ads are distributed

through newspapers, magazines, broadcast media, direct mail, outdoor media (billboards)

and the internet. Other ways to get your message across come in the form of catalogs

and specialty items such as pens, matchbooks, calendars and the like.

One of the first things to determine about your ad campaign is your specific goal. Are you

advertising to raise your corporate profile, to improve a tarnished image, or simply to generate

foot traffic? Whatever you're after, it's important to set specific goals in terms of things

like increasing revenue, unit volume growth, or inquiries. Without specific objectives, it's

hard to tell what you can afford to do and whether the

SUCCESS

Other Kinds of Promotion

Personal selling is widely used in business-to-business models, when sales cycles are long,

products are complex and the dollar amounts tend to be large. They are also used, however,

by Avon beauty consultants, car dealers and barkers outside taverns on Bourbon Street in

New Orleans. The key to effective personal selling is recruiting and training excellent salespeople.

Sales promotion is kind of a grab bag of promotional activities that don't fit elsewhere. If

you offer free hot dogs to the first 100 people who come to your store on Saturday morning,

that's a sales promotion. This category also includes in-store displays, trade shows, off-site

demonstrations and just about anything else that could increase sales and isn't included in the

other categories.

Publicity is the darling of small businesses because it lets you get major exposure at minimal

cost. If you volunteer to write a gardening column for your local newspaper, it can generate

significant public awareness for your plant nursery and position you as a leading expert

in the field, all for the price of a few hours a week spent jotting down some thoughts on a subject

you know very well already. To buy comparable exposure might cost many thousands of

dollars. Press releases announcing favorable news about your company-and similar releases

downplaying bad news-are also tools of publicity.

at large, government entities, shareholders and employees. You may work at PR through

such tools as company newsletters, legislative lobbying efforts, your annual report and the

like. Whatever you do, don't neglect PR and publicity-there is no cheaper or more powerful

tool for promotion.

Follow-Up Plan

Customers may ask, "What have you done for me lately?" But investors and others reading

your business plan want to know, "What are you going to do for me tomorrow?" Any serious

business plan has to address the fact that every product has a life cycle, pricing pressures

change over time, promotions need to stay fresh and new distribution opportunities are opening

up all the time. So the portion of your plan where you describe how you'll continue your

success is a vital one.

We're all aware of companies that turned out to be one-hit wonders-they introduced a

product or service that zoomed to stardom but failed to follow it up with another winner. In

the best cases, these companies survive but fade back into obscurity. In the worst, they go out

of business.

You can reduce your chances of failure by obtaining patents, registering trademarks, copyrighting

slogans, and otherwise forestalling competition. Diversifying into more than one

product is another good way to reduce risk. It's a good idea to divert part of any boost in revenue

to studying market trends and developing new products.

Investors, especially those contemplating long-term involvement, are alert to the risk of

backing a one-trick entrepreneur. Showing the competitive barriers you've erected and systems

for developing new products is an important part of calming their fears.

There's one caveat when it comes to learning new tricks, however. Very simple concepts

are the easiest to communicate, and extremely focused companies usually show the fastest

growth-although not always over the long term. So in the process of reducing risk, you don't

want to appear as though you've lost sight of the answers to the key questions: What are you

selling? How are you selling it? And why would anybody want to buy from you?

backers will worry about that too. Even if you are in the rare position of

addressing a brand-new market where no competition exists, most experienced

people reading your plan will have questions about companies they suspect

are your competitors. For these reasons, you should devote a special section

of your plan to identifying competitors and conduct a competitive analysis.

Chapter 6:

Identifying competitors

What Makes You Better?

This is one of the most important sections of your plan. You need to convince plan readers

that you offer something obviously different and better than what is already available.

Sometimes this is called your distinctive competence or competitive advantage, but it could

also be your company's reason for being.

A competitive analysis is a statement of your business strategy and how it relates to the

competition. The purpose of the competitive analysis is to determine the strengths and weaknesses

of the competitors within your market, strategies that will provide you with a distinct

advantage, the barriers that can be developed to prevent competition from entering your market,

and any of your competitors' weaknesses that can be exploited within the product development

cycle. Your competitive advantage may lie in areas like cost, features, service, quality,

or distribution. Or it could be something totally different. The success of a retail convenience

store located on an interstate highway, for instance, might depend almost entirely on

how close it is to an exit ramp.

To figure out your competitive advantage, start by asking yourself:

of product characteristics. Ask your customers why they buy from you. Ask noncustomers

why they don't. Ask suppliers, colleagues and anybody you can find.

out your distinctive competence.

Obviously you need to identify your current and potential competition. There are two

ways to do this. The first is to look at the market from the customer's viewpoint and group all

your competitors by the degree to which they contend for the buyer's dollar. The second

method is to group competitors according to their various competitive strategies so you

understand what motivates them.

Once you have grouped your competitors, you can start analyzing their strategies and identifying

vulnerable areas by examining their weaknesses and strengths. Essentially, the performance

of a company within a market is directly related to the possession of key assets and

skills. So if you analyze the strong performers in your industry, you should be able to figure

out the secrets of their success. Then look at the companies that tried but failed to succeed in

the market. Why did they fail? You should emerge with a good idea of just what key assets and

skills are needed for success within your industry and market segment.

Be sure your definition of competition is broad enough. If you had to name two competitors

in the athletic shoe market, you'd quickly come up with Nike and Reebok. But these aren't

the only competitors in the sneaker business. They're just the two of the main ones, and

depending on the business you're in, the other ones may be more important. If you sell soccer

shoes, for instance, Adidas is a big player. And smaller firms such as New Balance and

Saucony also have niches in which they are comparatively powerful.

You can develop a list of competitors by talking to customers and suppliers, checking with

industry groups and reading trade journals. But it's not enough to simply name your competitors.

You need to know how they operate and how they compete. Do your competitors stress

selective, low-volume, high-margin business, or do they emphasize sales growth at any cost,

taking every job that comes along, whether or not it fits any coherent scheme or offers an

attractive profit? Knowing this kind of information about your competitors can help you identify

their weaknesses.

Once you've done your competitive analysis, you will also have to create a marketing strategy

that will show your planned competitive advantage. Since competitive advantages are

developed from key assets and skills, you should put together a competitive strength grid.

This scale lists all your major competitors or strategic groups based on their applicable assets

and skills and shows how your own company fits on the scale.

To put together a competitive strength grid, list all the key assets and skills down the left

margin of a piece of paper. Along the top, write down two column headers: "Weakness" and

"Strength." In each asset or skill category, place all the competitors that have weaknesses in

that particular category under the weakness column, and all those that have strengths in that

specific category in the strength column. After you've finished, you'll be able to determine

just where you stand in relation to the other firms in your industry.

Competitive advantage is not quite as important if your company is part of the beginning

stages of a new industry. When interest and sales in a new field are growing fast, you can survive

and prosper even if you aren't clearly better than the rest. If, however, you plan to take

market share away from established competitors in a mature industry, then distinctive competence

is all-important. Without a convincing case for being very different and much better

than the rest, your business plan will have a hard time swaying anybody.

NOTES

noting that you'll be the only executive and describing your background. Or it

may be a major section in the plan, consisting of an organizational chart describing

relationships between every department and each manager in the company,

plus bios of key executives.

Chapter 7:

Who's who on your team

Why Management Matters

Time and again, financiers utter some variation of the following statement: "I don't invest

in ideas; I invest in people." While there's some question as to whether this is the whole

story-investors certainly prefer good people with good ideas to bad people with good

ideas-there's no doubt that the people who run your company will receive considerable

scrutiny from investors as well as customers, suppliers and anyone else with an interest in

your plan. After all, people are usually a company's most important asset. To not adequately

address this issue in a plan is a serious failing. Luckily, it's one of the easiest parts of your plan

to prepare.

Who Are Your Managers?

Identifying your managers means giving more than just their names. Plan readers want to

know their qualifications to run your business. You can provide this information by describing

managers in terms of the following characteristics:

Education: Impressive educational credentials among company managers provide a strong

reason for an investor or other plan reader to feel good about your company. Use your judgment

in deciding what educational background to include and how to emphasize it. If you're

starting a fine restaurant and your chef graduated at the top of her class from the Culinary

Institute of America, play that front and center. If you're starting a courier service and your

partner has an anthropology degree from a little-known school, mention it but don't make a

big deal out of it.

Employment: You can be proud to be an entrepreneur without being ashamed of having

worked for somebody else. In fact, prior work experience in a related field is something many

investors look for. If you've spent 10 years in management in the retail men's apparel business

before opening a tuxedo outlet, an investor can feel confident that you know what you're

doing. So describe any relevant jobs you've had in terms of job title, years of experience,

names of employers, etc. But remember, this isn't a resume. Feel free to skim over or omit any

irrelevant experience, and you don't have to provide exact dates of employment.

Skills: A title is one thing; what you learn while holding it is another. In addition to pointing

out that you were a district sales manager for a stereo equipment wholesaler, you should

describe your responsibilities and the skills you honed while fulfilling them. For instance,

note that you were responsible for hiring salespeople, planning and budgeting, working with

key accounts, reporting to senior management and so on. When you mention skills that you

or your management team has, it reassures an investor that you can use them at your own

company.

Accomplishments: Dust off your plaques and whip out your calculator for this one. If one of

your team members has been awarded patents, achieved record sales gains, or once opened

an unbelievable number of new stores in the space of a year, now's the time to talk about it.

Don't brag; just speak factually and remember to quantify. Say that you have 12 patents, your

sales manager had five years of 30 percent annual sales gains and you personally oversaw the

grand openings of 42 stores in 11 months. Investors are looking to back impressive winners,

and quantifiable results speak strongly to businesspeople of all stripes.

Personal: Who cares about personal stuff? Isn't this business? Sure, but investors want to

know who they're dealing with in terms of the personal side too. Personal information on each

member of your management team may include age, city of residence, notable charitable or

community activities, and last but far from least, personal motivation for joining the company.

Investors like to see vigorous, committed, involved people in the companies they back.

Describing the relevant personal details of your key managers will help investors feel they

know what they're getting into.

What Does Everyone Do?

There's more to a job than a title. At one organization, a director might be a key staffer,

while someone with the same title at another company is practically nobody. And many industries

have unique job titles, such as managing editor, creative director or junior accountant

level II, that have no counterparts in other industries.

So when you give your management team's background and describe their titles, don't stop

there. Tell the reader exactly what each member of the management team will be expected to

do. This is especially important in a startup, when not every position is filled from the beginning.

If your marketing is going to be handled by the CFO until you get a little farther down

the road, let readers know this up front.

If you do have significant holes in your management team, you'll want to describe your

plans for filling them. You may say, for example, "Marketing duties are being handled on a

temporary basis by the vice president for finance. Once sales have reached the $500,000 per

month level, approximately six months after startup, a dedicated vice president of marketing

will be retained to fulfill that function."

Making Hiring Projections

In many cases, you can't operate the business all alone. But how many hands do you need?

And when do you need them? How long do you need them for? Whom exactly do you need?

Making staffing projections is a tricky yet essential part of business planning.

Your decisions can make the difference between a highly profitable operation and one

that's barely scraping by.

Adding and Retaining Key Employees

Finding and retaining employees is high on the list of entrepreneurial challenges today.

And it's made harder by the fact that key employees-the people who are smart and hardworking

and unafraid to take risks-are always in great demand. They can always write their

own tickets, so you need to work hard to retain them. Bill Gates once said that Microsoft

would become an unimportant company if it lost its 20 best people. So you need to address

how you plan to attract and retain key employees.

Are you starting a software company? You'll need an ace programmer or two. A gourmet

restaurant? Then your executive chef becomes your key employee. An art gallery? Maybe you

can pick great art, but a sales manager who knows how to close a deal will be essential. No

matter what business you are in, unless you are one of the truly rare individuals who really

can do it all, you are likely to find that one or more central tasks are better farmed out to a

key employee.

The things that make employees want to come work for you and stay vary. That's why it's

crucial to understand the individual needs of your key employees so that you can give them

exactly what they need. Money is not always the most important motivator. Sometimes the

intangible benefits make the difference.

Here are some common concerns that drive employment decisions:

Benefits: Paid holidays and sick leave, health insurance, and retirement plans such as 401(k)

plans are among the benefits most often listed by employees as desirable.

Compensation: Salary, bonuses, stock options, profit sharing and auto mileage allowances are

among the most important compensation issues to employees.

Miscellaneous: Flexible work hours and paid memberships to business groups can be hot buttons

as well.

Your business plan should consider the above issues and describe the inducements you

will offer key employees to encourage them to stay. Especially in a small company, an investor

is likely to be very leery of a plan that appears to be based on the capabilities of a handful of

employees unless the business owner has clearly given a lot of thought to keeping these

important workers onboard.

Outside Professionals

Some of the most important people who'll do work for you won't work for you. Your attorney,

your accountant and your insurance broker are all crucial members of your team. A good

professional in one of these slots can go a long way toward helping you succeed. The same

may be true, to a lesser extent, for real estate brokers, management consultants, benefits consultants,

computer consultants and trainers.

Your business plan should reassure readers that you have your bases covered in these

important professional positions. Readers don't necessarily want to see an attorney on staff.

It's fine if you merely state that you retain the services of an attorney in private practice on

an as-needed basis.

You don't even need to name the firm you're retaining, although a prestigious name may

garner you some respect. For instance, if your firm is audited by a big-name accounting/management

firm instead of a local accounting shop, then play that up. Few things are more comforting

to an investor than knowing that their investment will be monitored regularly and

carefully by experts.

Investors invest in companies for profit. They don't just give money to people they like or

admire. But it's also true that if they don't like, admire or at least respect the people running

your company, they're likely to look elsewhere. The management section of your plan is

where you tell them about the human side of the equation. You can't control any reader's

response to that, but you owe it to them and to yourself to provide the information.

NOTES

sell consulting, or provide health care or other services generally have higher

labor content and lower investments in plants and equipment.

Another important difference is that service and retail firms tend to have much simpler

operational plans than manufacturers. In the process of turning raw materials into finished

goods, manufacturers may employ sophisticated techniques in a complex series of operations.

Chapter 8:

The inner workings of your business

By comparison, it's pretty simple for a retailer to buy something, ship it to his store and sell

it to a customer who walks in.

That's not to say that operations are any less important for retailers and service firms. But

most people already understand the basics of processes such as buying and reselling merchandise,

giving haircuts or preparing tax returns. So you don't have to do as much explaining

as, say, someone who's manufacturing computer chips.

The Importance of People

For many service and retail firms, people are the main engines of production. The cost of

providing a service is largely driven by the cost of the labor it entails. And retail employees'

skills and service attitudes drive their employers' productivity and market acceptance to a

great degree.

A service firm plan, then, has to devote considerable attention to staffing. You should

include figures on the local labor market for low-skilled employees such as counter clerks.

Regional educational attainment data will help readers understand why you think you can

hire sufficient semi- and higher-skilled workers for a service or repair operation. You'll want

to include background information and, if possible, describe employment contracts for key

key

employees such as designers, marketing experts, buyers and the like.

Big-Time Buying

The ability to obtain reliable, timely and reasonably priced supplies of easily saleable merchandise

is perhaps the prime skill of any retailer. If you have what consumers want when few

others do, you're almost guaranteed to have strong sales. If you run out of a hot item, on the

other hand, disappointed consumers may leave your store, never to return.

Operations plans for retailers, therefore, may devote considerable attention to sourcing

desirable products. They may describe the background and accomplishments of key buyers.

They may detail long-term supply agreements with manufacturers of in-demand branded

merchandise. They may even discuss techniques for obtaining desirable products on the gray

market from manufacturers who try to restrict the flow of goods to their stores.

Site Sensitivity

Manufacturers require certain basic conditions for their sites, but retailers and some service

firms are extremely sensitive to a wide variety of location factors. In some cases, a difference

of a few feet can make the difference between a location that is viable and one that is

not.

Site selection plans for brick-and-mortar retailers should include traffic data, demographics

of nearby populations, estimated sales per square foot, rental rates and other important

economic information. Service firms such as restaurants will want many of the same things.

Service firms such as travel agencies, pest control services and bookkeeping businesses will

want to provide information about local income levels, housing and business activity.

Store design must also be addressed. Retailing can be as much about entertaining shoppers

as it is about displaying goods. So store design becomes very important, especially for highfashion

retailers. Floor plans are probably not enough here; retailers may want to include photos

or illustrations of striking displays, in-store boutiques and the like.

You also need to describe your online strategy here. All businesses need to have some sort

of web presence. Whether you use the net as a marketing vehicle to promote your service

company or as an additional way to increase your distribution of goods and sell products, you

need to let plan readers know what you're doing currently (or plan on doing at startup) and

how that will change as your company grows.

If you're running or starting a web-based business, you'll need to explain why this strategy

works best for you. Explain the efficiencies of operating online. You'll want to describe the

equipment you'll need and how those needs might grow.

Having an online presence, either as an addition to your business or as the business itself,

enhances your ability to compete globally. This is vitally important and should be addressed

in some detail in your plan. Explain how having a global presence exponentially increases

your potential customer base and enables you to make more money. And if most of your business

will be conducted online, point out that your costs will not significantly increase, which

will only help the bottom line.

Information Technology

No matter what business you are in, it's likely you are dependent on technology. If you use

or anticipate using a promising new technology, include it in your description of operations.

Investors are always looking for an operations edge, and if you have it, you should tell them

about it in your business plan.

NOTES

spreadsheets in the financial section because they know that this information is

like the pulse, respiration rate and blood pressure in the human body-they show

whether the patient is alive and what the odds are of survival.

Financial statements, like bad news, come in threes. The news in financial statements isn't

always bad, of course, but taken together the three components provide an accurate picture of

a company's current value, plus its ability to pay its bills today and earn a profit going forward.

And this news is very important to business plan readers.

The three common statements are a cash flow statement, an income statement and a bal-

Chapter 9:

Explaining the financials

ance sheet. These statements are interlinked, with changes in one necessarily altering the others,

but they measure quite different aspects of a company's financial health. It's hard to say

that one of these is more important than another, but of the three, the income statement may

be the best place to start.

Income Statement

An income statement shows whether you are making any money. It adds up all your revenues

from sales and other sources, subtracts all your costs, and comes up with the net

income figure-also known as the bottom line. Income statements are called various names-

profit and loss statement, or P&L, and earnings statement are two common alternatives. And

they can get pretty complicated in their attempt to capture sources of income such as interest

and expenses such as depreciation. But the basic idea is pretty simple: If you subtract costs

from income, what you have left is profit.

To compile your income statement, you need to gather a bunch of numbers, most of which

are easily obtainable. They include your gross revenue, which is made up of sales and any

income from interest or sales of assets; your sales, general and administrative (SG&A)

expenses; what you paid out in interest and dividends, if anything; and your corporate tax rate.

If you have those, you're ready to go.

Revenue is all the income you receive from selling your products or services as well as

from other sources such as interest income and sales of assets.

Your sales figure is the income you receive from selling your product or service. Gross

sales includes sales minus any returns. It doesn't include interest or income from sales of

assets.

Most businesses have a little reserve fund they keep in an interest-earning bank or money

market account. Income from this fund, as well as from any other interest-earning or dividend-

paying securities they own, shows up on the income statement just below the sales figure.

Other income includes sales of unused or obsolete equipment or any income-generating

activity that's not part of your main business.

Costs come in all varieties. You'll record variable costs, such as the cost of goods sold, as

well as fixed costs-rent, insurance, maintenance and so forth. You'll also record costs that are

a little trickier, like depreciation.

Cost of goods sold, or COGS, includes expenses associated directly with generating the

product or service you're selling. If you buy computer components and assemble them, your

COGS will include the price of the chips, disk drives and other parts, as well as the wages of

the assembly workers. You'll also include supervisor salaries and utilities for your factory. If

you're a solo professional service provider, on the other hand, your COGS may amount to little

more than your salary.

You'll have some expenses that aren't closely tied to sales volume, including staff salaries,

rent, insurance and the like. These are split out from the sales-sensitive COGS figure and

included on a separate line.

Depreciation is one of the most baffling pieces of accounting. It's a paper loss, a way of subtracting

over time the cost of a piece of equipment or a building that lasts many years even

though it may get paid for immediately. Depreciation isn't an expense that entails spending

money. Yet it's a real expense in an accounting sense, and most income statements will have

an entry for depreciation coming off the top of pretax earnings.

If you have capital items that you are depreciating, such as an office in your home or a large

piece of machinery, your accountant will be able to set up a schedule for depreciation. Each

year, you'll take a portion of the purchase price of that item off your earnings statement. It

should be noted that while depreciation hurts profits, it can reduce future taxes.

Paying the interest on loans is another expense that gets a line all to itself. It comes out of

earnings just before taxes are subtracted. Note that this line doesn't include payments against

principal. Because these payments result in a reduction of liabilities-which we'll talk about

later in connection with your balance sheet-they're not regarded as expenses on the income

statement.

The best thing about taxes is that they're figured last, and they're based on the profits that

are left after every other thing has been taken out. Tax rates vary widely according to where

your company is located, how and whether state and local taxes are figured, and your special

tax situation. The smartest way to figure taxes is to have your accountant do a projection of

your tax rate based on past years' filings and this year's projected results. Then multiply that

percentage times your earnings before tax. That gives you your net income-the muchtalked-

about bottom line-after you take out taxes.

If the income sheet shows what you're earning, the balance sheet shows what you're worth.

A balance sheet can help an investor see that a company owns valuable assets that don't show

up on the income statement, or that it may be profitable but is heavily in debt. It adds up

everything your business owns, subtracts everything the business owes and shows the difference

as the net worth of the business.

Actually, accountants put it differently, and of course use different names. The things you

own are called assets. The things you owe on are called liabilities. And net worth is referred

to as equity.

The three elements are governed by a simple equation:

Liabilities + Equity = Total Assets

It can also be useful to look at it another way:

Assets - Liabilities = Net Worth

Both formulas mean the same thing.

A balance sheet shows your condition on a given date (usually the end of your fiscal year).

Sometimes balance sheets are compared. That is, next to the figures for the end of the most

recent year, you place the entries for the end of the prior period. This gives you a snapshot of

how and in what ways your financial position has changed.

A balance sheet also places a value on the owner's equity in the business. When you subtract

liabilities from assets, what's left is the value of the equity owned by you and any partners.

Tracking changes in this number will tell you whether you're getting richer or poorer.

An asset is basically anything of value that you own. It gets a little more complicated in

practice, but that's the working definition. Assets come in two main varieties: current assets

and fixed assets. Current assets are assets that are easily liquidated or turned into cash. They

include cash, accounts receivables, inventory, marketable securities and the like.

Fixed assets include assets that are harder to turn into cash. Examples are land, buildings,

improvements, equipment, furniture and vehicles. The fixed asset part of the balance sheet

sometimes includes a negative value-that is, a number you subtract from the other fixed

asset values. This number is depreciation, and it's an accountant's way of slowly deducting

the cost of a long-lived asset such as a building or piece of machinery from your fixed asset

value.

Intangibles are another asset category. They include such things as patents, long-term contracts

and that ephemeral thing called goodwill. Goodwill consists of things like the value of

your reputation, which is not really susceptible to valuation. The best way to think of goodwill

is like this: If you sell your company, the IRS says the part of the sales price that exceeds

the value of the assets is goodwill. As a result of its slipperiness, some planners never include

an entry for goodwill, although its value may in fact be substantial.

Patents, trademarks, copyrights, exclusive distributorships, protected franchise

agreements and the like do have somewhat more accessible value. They may never be turned

into cash, but you can estimate their worth, or at least figure out what you paid for them and

use that figure.

Liabilities are the debts your business owes. They come in two classes: short term and long

term. Short-term or current liabilities are any debt that will be paid off within 12 months. This

includes accounts payable you owe suppliers, short-term bank loans (shown as notes payable)

and accrued liabilities you have built up for such things as wages, taxes and interest. Any debt

that you won't pay off in a year is long-term. Mortgages and bank loans with more than a oneyear

term are placed in this class.

Where did the money go? The cash flow statement provides the answer. It monitors the

flow of cash over a period of time such as a year, a quarter or a month and shows you how

much cash you have on hand at the moment. The cash flow statement, also called the statement

of changes in financial position, probes and analyzes changes that have occurred on the

balance sheet. There are two parts to a cash flow statement: One follows the flow of cash into

and out of the company, while the other shows how the funds were spent. The two parts are

called, respectively, sources of funds and uses of funds. At the bottom is, naturally, the bottom

line-called net changes in cash position. It shows if and by how much you improved your

cash on hand during the period.

Sources of funds usually have two main sections. The first shows cash from sales or other

operations. In the cash flow statement, this figure represents all the money you collected

from accounts during this period. It may include all the sales you booked during the period,

plus some collections on sales that actually closed earlier.

The other category of sources of funds includes interest income, if any, plus the proceeds

from any loans, line of credit drawdowns or capital received from investors during the period.

Again, these figures represent money actually received during the period. If you arranged

for a $100,000 line of credit but only used $10,000 during this period, then your sources of

funds would show $10,000.

The sources of funds section often has only one or two entries, although some cash flow

statements break out sources of funds by businesses and product lines. But even simple statements

show several uses of funds. A cash flow statement will normally show uses such as cost

of goods sold; SG&A expense; and any equipment purchases, interest payments, payments on

principal amounts of loans, and dividends or draws taken by the owners.

Few things feel better for a startup owner than to have plenty of cash in the bank. And few

things better tell what's going on with cash on hand than the net change in cash line on your

cash flow statement. Net change in cash is the difference between total funds in and total

funds out. If you bring in $1 million and send out $900,000, your net change in cash is

$100,000. Ideally, you want this number to be positive and, if possible, showing an upward

trend.

If you're seeking investors for your company, you'll probably need to provide quite a bit

more financial information than what the income statement, balance sheet and cash flow

statements offer. For instance, a personal finance statement may be needed if you're guaranteeing

loans yourself.

Investors and lenders like to see business plans with substantial investments by the entrepreneur,

or an entrepreneur who is personally guaranteeing any loans and has the personal

financial strength to back those guarantees. Your personal financial statement shows plan

readers how you stack up financially as an individual.

The personal financial statement comes in two parts. One is similar to a company balance

sheet and lists your liabilities and assets. A net worth figure at the bottom, like the net worth

figure on a company balance sheet, equals total assets minus total liabilities.

A second statement covers your personal income. It is similar to a company profit and loss

statement, listing all your personal expenses such as rent or mortgage payments, utilities,

food, clothing and entertainment. It also shows your sources of income, including earnings

from a job, income from another business you own, child support or alimony, interest and dividends,

and the like.

The figure at the bottom is your net income; it equals total income minus total expenses.

If you've ever had to fill out a personal financial statement to borrow money for a car loan or

home mortgage, you've had experience with a personal financial statement.

Everything in business is relative. The numbers for your profits, sales and net worth need

to be compared with other components of your business for them to make sense. For instance,

a $1 million net profit sounds great. But what if it took sales of $1 billion to achieve those profits?

That would be a modest performance indeed.

To understand the relative significance of your financial numbers, analysts use financial

ratios. These ratios compare various elements of your financial reports to see if the relationships

between the numbers make sense based on prior experience in your industry. Some of

the common ratios and other calculations analysts perform include your company's breakeven

point, current ratio, debt-to-equity ratio, return on investment and return on equity. You

may not need to calculate all these; depending on your industry you may find it useful to calculate

various others, such as inventory turnover-a useful figure for many manufacturers

and retailers. But ratios are highly useful tools for managing, and most are quick and easy to

figure. Becoming familiar with them and presenting the relevant ones in your plan will help

you manage your company better and convince investors you are on the right track. It's not

important to include every ratio in your plan, though. They should be used within your narrative

to describe key points about your financial statements.

One of the most important calculations you can make is figuring out your break-even

point. This is the point at which revenues equal costs. Knowing your break-even is important

because when your sales exceed this point, they'll begin to produce profits. When your sales

are under this point, you're still losing money. This information