10 Strategy Tools For Smaller Businesses

I come from a background in large blue chip businesses, where I spent a fair amount of time helping predominantly large clients with strategic issues and during the last ten years I’ve started and built a couple of smaller businesses. SME owners and directors need to think about strategy, but they need to concentrate upon those elements that are going to produce the most impact – by all means read the business strategy tomes from cover to cover if you want, but this article aims to give you, a busy SME director, most of what you need to know about strategy and analysis in order to make a start.

1 – 3 Types of Excellence. Many commentators would agree that a company has the option to excel (that means really excel so that the market recognises that excellence) in one or two of three possible areas:

Operational excellence – which means doing things really efficiently and therefore probably being able to deal with higher volumes and therefore passing on cost savings to customers (although it is possible to think of examples where operational excellence was so valued by the customer that she would be prepared to pay a premium for it alone). An example might be EasyJet.

Customer intimacy – which means that you have systems and staff who treat customers as royalty (or at least good friends) and they feel loved and valued by your business. An example might be John Lewis.

Product leadership – which means that your product (or service) is highly differentiated from alternatives and substitutes in ways that customers value. An example might be Apple.

2 – Do a McKinsey. As a start-up or small business you may not be able to afford a McKinsey assignment to address your strategy issues, but you can apply one of their most powerful weapons to your advantage. MECE stands for “mutually exclusive, collectively exhaustive” – apply it to your problems and you could see great results. MECE is a useful model for analysing a business problem because it aids clear thinking by ensuring that categories of information do not overlap, and by reducing the possibility of overlooking information by requiring that all of the categories of information taken together should deal with all possible options. Information should be grouped into categories so that each category is separate and distinct without any overlap (mutually exclusive), and all of the categories taken together should deal with all possible options (collectively exhaustive). A “major issues list” should contain no less than two, and no more than five issues, with three being the ideal number. Let’s say that Acme Widgets Ltd use a MECE tree diagram to help them locate the source of declining profitability. The diagram as a whole represents the problem at hand; each branch stemming from the starting node of the tree represents a major issue that needs to be considered; each branch stemming from one of these major issues represents a sub-issue that needs to be considered; and so on. The problem to be addressed in this case is “how can Acme Widget Ltd increase widget sales?”.

You will hopefully find that analysing issues down to the constituent parts using this technique will clarify where the real issues lie and they will now be in more “bite sized chunks” and so be easier to handle.

3 – Markets & Industries. The expressions “What’s your market?” and “What industry are you in?” are thrown around pretty well interchangeably – what exactly do we mean when we say “market” and “industry”. If you use the definitions that I suggest then a great deal more clarity will start to appear around the potential strategy that you should adopt.

I suggest that market should mean – a group of people / organisations who have the desire & ability to buy products to satisfy a certain need or want ie buyers & their needs. Market therefore is not about your product or service (although of course related). I suggest that you spend a reasonable amount of time thinking about who the buyers of your products or services are / could be and what traits or characteristics they share. By being able to describe your market(s) accurately and precisely you will subsequently be able to focus your sales and marketing efforts far more effectively.

When thinking about markets (ie buyers) you should also consider:

* How attractive are your products and services to these buyers

* And how attractive is the market to you – is it clearly defined, growing, shrinking, are external influences going to affect its size in future, are they easy or difficult to persuade to buy, and so on.

I’d suggest that industry should mean – sellers that offer products or services that are similar or substitutes. Sellers sell into markets. So let’s say that you have founded a business offering disposable paper place mats for university canteens where businesses can advertise themselves to students. The classic Dragons Den question is “so what competitors do you have?”. Of course you would be wrong to say “none – we are the only people doing these advertising place-mats”. Rather you need to think about what industry you are in, and the answer is likely to be “the provision of advertising to target students” industry so your competitors would include – Facebook, local radio, advertising hoardings, Google Ads, free magazines etc. The key thing when defining your industry is similar or substitute offerings – you may think that you are unique but if your potential customers consider something else then that something else is in the same industry as you!

When thinking about industry (ie other sellers you should also consider:

* Can you sustain any advantage (indeed do you have any advantage?)

* How attractive is your industry (more on this below)

4 – Attractiveness of an Industry. Of course different industries have different levels of attractiveness and you should be aware of that right at the outset. But it isn’t necessarily the case that you should only operate in attractive industries and disregard unattractive industries. Good business can be created in “unattractive industries” and it is perfectly possible to fail within what would be viewed as an attractive industry. The analysis that you perform to establish that an industry is “attractive” can be carried out by the rest of the business world too, so others might stampede into the industry and change its attractiveness quite quickly. Industry analysis doesn’t ensure that you have picked a winner, it just means that you are well informed about your business environment.

The defining work on industry analysis was carried out by Professor Michael Porter of Harvard Business School and published in his 1979 book “Competitive Strategy” – Porter’s Five Forces.

Porter’s Five Forces

Competition: How strong is the rivalry posed by the present competition? The various factors, include: the number of firms in the industry, rate of market growth, economies of scale, customer switching costs, levels of product differentiation, diversity of competition, level of exit barriers.

Barriers to entry: What is the threat posed by new players entering the market? The various factors include: capital costs of setting up,highly specialised equipment, level of protection of necessary intellectual property, scale and branding of existing competitors, government regulations.

Substitutes: What is the threat posed by substitute products and services? The various factors include: the cost to customers of switching to a substitute, buyer propensity to substitute; relative price-performance of substitutes, product differentiation.

Supplier bargaining power: How much bargaining power do suppliers have? The various factors include: number of possible suppliers and the strength of competition between them, whether suppliers produce differentiated products, importance of sales volume to the supplier, cost to the buyer of changing suppliers, vertical integration of the supplier or threat to become vertically integrated (ie the degree to which a firm owns its upstream suppliers and its downstream buyers).

Customer bargaining power: How much bargaining power do customers have? Factors that will effect the bargaining power of a customer include: volume of goods or services purchased, number of other customers, brand name strength, product differentiation, availability of substitutes.

5 – Spider diagram. Understanding how your business compares to the competition and to customers perceptions of value is a really key element of strategy. A great way to form a better understanding is to establish the key important dimensions (by asking the people who matter, customers) and then representing them graphically using a “spider diagram” such as below. You can map how your business measures up and how the competition measure up and then it will be readily apparent where areas of competitive advantage / disadvantage lie.

6 – SWOT. Dear old SWOT (strengths, weaknesses, opportunities, threats) – it hardly needs any introduction

Strengths weaknesses opportunities threats

After a business clearly identifies an objective that it wants to achieve, SWOT analysis involves examining the strengths and weaknesses of the business (internal factors); and considering the opportunities presented and threats posed by business conditions, for example, the strength of the competition (external factors).

Don’t fall into the trap of SWOT becoming two lists – one of “pros” and the other of “cons” and make sure that you use it critically and with clear prioritisation. So for example, weak opportunities shouldn’t balance strong threats.

7 – The Sales Funnel. Strictly speaking this isn’t a pure strategy tool but a very powerful sales strategy analytical tool nonetheless.

If your problem is with generating interest and awareness, then look at your PR – where are your target market seeing you talking about what you do? Are you engaging with your target market? If your problem is with generating leads, then how well are you explaining how you meet your target market’s needs with your products or services? If your problem is with converting leads into serious buyers, how well are you encouraging your buyers to take action? How well are you demonstrating your credibility and expertise to solve their problems? If your problem is with closing the sale, what objections are you hearing from your potential buyers? How are you overcoming these objections?

8 – The 4 P’s. Again the purist might argue that this is marketing strategy rather than pure business strategy – but we don’t mind what you call it because it all helps to being a more successful business. There isn’t the space here to do justice to the 4 P’s of marketing but to skim the surface they are a framework for evaluating the marketing strategy for a product.

Price: the pricing strategy employed by a firm for a particular good or service will have a significant effect on profit.

Product: differentiation is a source of competitive advantage. Product differentiation creates value in the mind of the consumer.

Position / Place: the physical location of a good or service can be a source of competitive advantage.

Promotion: is used to enhance the perception of a good or service in the minds of customers. A promotion will draw peoples attention to any features of a product that they might find attractive.

9 – Strategic Advantage. Following on from his work which resulted in the “Five Forces”, Michael Porter suggested that businesses can adopt one of four generic business strategies, as represented in the diagram below.

Generic strategies

The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry.

I will write about this more fully in a strategy for smaller businesses booklet soon to be published, but for now it might be best just to suggest some example companies that might fit into each quadrant:

Cost Leadership: Tesco

Differentiation: Mercedes Benz

Cost Focus: Instore

Differentiation focus: The Perfume Store

Generic Strategies Example Companies

10 – Product & Service Life Cycle. The product lifecycle curve was originally the brainchild of another great management thinker, Theodore Levitt and was first published in the Harvard Business Review in 1965. Again space here does not allow for a full description.

Product Life Cycle Curve

Introduction: As a new product much time will be spent by the organisation to create awareness of it’s presence amongst its target market. Profits are negative or low.

Growth: If consumer clearly feel that this product will benefit them in some ways and they accept it, the organisation will see a period of rapid sales growth.

Maturity: Rapid sales growth cannot last forever. Sales slow down as the product sales reach peak as it has been accepted by most buyers.

Decline: Sales and profits start to decline, the organisation may try to change their pricing strategy to stimulate growth, however the product will either have to be modified, or replaced within the market.

Write a Bankable Business Plan – Ten Action Steps

Action Step # 1

Define Your Company: What will you accomplish for others?

Write down all the specific needs your company will satisfy. Potential investors need to know that your business will be meaningful and marketable to people who can use your product or service. So concentrate on the external needs your company will meet. What will your product or service enable people to do better, more cheaply, more safely, or more efficiently? Will your restaurant make people’s palates delirious with new taste sensations? Will your new mouse trap help people capture mice without feeling sick to their stomachs? Will your new bubble gum scented bubble bath revolutionize the way children agree to take nightly baths?

Think of all the positive benefits your company will provide. Write them down. Admire them. Absorb them into your consciousness. Believe in them. These are the primary motivators that readers of your business plan will respect and value.

Action Step # 2

Identify Your Company’s Initial Needs: What will you require to get started?

Whether you want to buy an existing company with 300 employees or you can start your business by only adding an extra phone line to your home office desk, you need to make a list of the materials you’ll need. Some may be tangible, such as five hundred file folders and a large cabinet in which to store them all. Other requirements may be intangible, such as time to create a product design or to do market research on potential customers. You may need to hire an assistant to develop a retrievable filing system for the five hundred folders, or hire a consultant to set up a computer system that’s beyond your technical skills.

If you’re going to build a better mousetrap, you may have constructed a prototype out of used toothpaste tubes and bent paperclips at home, but you’ll need a sturdier, more attractive model to show potential investors. What exactly will your mousetrap look like? What materials will you need? Do you require money for research and development to improve on your original toothpaste tube and paper clip construction? Do you need to hire an engineer to draw up accurate manufacturing designs? Should you patent your invention? Will you need to investigate federal safety standards for mousetraps?

Next, do your homework. Call a real estate broker and look at actual retail spaces in the neighborhood where you’d like to open your restaurant. Make a chart of the most expensive and least expensive sites by location and square footage. Then estimate how much space you require and how much money you’ll need to allow for rent.

Make a list of all the tangible and intangible resources you need to get your business going. The total estimated price of all of these items will become your start-up cost whether you’re buying highly sophisticated computers or simply installing a new telephone line on your desk. If there’s any item in your estimates that seems unreasonably high, research other alternatives. But keep in mind that it’s better to include every element you truly need along with a reasonable estimate of the cost of each item, so you don’t run out of money or default on your loans. Be honest and conservative in your estimates, but also be optimistic.

Action Step # 3

Choose A Winning Strategy: How will you distinguish your product or service from others?

Although there are millions of types of businesses, there are actually only a few basic strategies that can be applied to make any enterprise successful. The first step in selecting an effective strategy is to identify a competitive advantage for your product or service. How will you establish that your product or service is better, cheaper, more delicious, or more convenient? How can you make your company more noticeable than your competitors? What restraints in your business or its industry might determine which strategy you choose?

Your competitive advantage may include designing special features not found in rival products. It may entail superior service characteristics such as speedier delivery, a lower price, or more attentive sales people. Perhaps you’re establishing an image or brand of exceptional quality or reputation. Does your product or service bestow a certain status on its users? Does it create more profits or other benefits for your customers’ own endeavors?

Perhaps you want to position your mousetrap for a primarily upscale market because the best design requires titanium and manufacturing costs will be so expensive only rich people will be able to afford your product. But maybe the mousetrap is so fantastically effective that wealthy people will want hundreds of them around their vast country homes and polo pony barns.

You must have a reason why your business will succeed. This is the competitive advantage your product or service will deliver. Once you’ve established the competitive advantage, you will be able to select the best strategy to reach your goal.

Action Step # 4

Analyze Your Potential Markets: Who will want your product or service?

To determine your targeted market, write down the demographics of the people who will use your product or service. How old are they? What do they do for a living? Will mostly women use your service? Is your product or service attractive to a particular ethnic or economic group of people? Will only wealthy people be able to afford it? Does your ideal customer live in a certain type of neighborhood, such as a suburb with grass lawns, in order to use your lawn mower? Answering these questions about the demographics of your prime market will help you establish the clear characteristics of the people you need to reach.

If you’re selling soap, you may believe that every dirty body needs your product, but you can’t start with the entire world as your initial market. Even if you’ve developed such a ubiquitous item as soap, you need to identify a smaller, more targeted customer group first, such as children under eight for the bubble gum scented bubble bath. If your soap only works with pumped well water without fluoride, you must acknowledge that your intended market has geographical limits as well.

Establishing the size of your potential market is important, too. This will be easier once you’ve completed the demographic analysis. Then you’ll be able to research the numbers: How many car mechanics, house painters or bathroom contractors are there in any given community? How many children in the United States are currently under the age of eight? How much soap will they use in a month or a year? How many other soap manufacturers already have a share of the market? How big are your potential competitors? And where do you find the answers to all of these questions?

Identifying your market is one of the great satisfactions of starting your own business. You’re thinking about the actual people who will use your product or service and how pleased they will be buying it as you are selling it.

Action Step # 5

Develop a Strong Marketing Campaign: How will you reach your customers and what will you say?

Entrepreneurs, especially inventors, often believe that their business concept is so spectacular that promoting their product or service won’t be necessary. Sort of a “build it and they will come” attitude, especially if what you’re building is the proverbial better mousetrap. One of the most common flaws I see in plans is the entrepreneur’s failure to describe exactly how customers will be reached and how products will be presented to them. Potential investors, staff, and partners won’t be convinced that your idea can succeed until you’ve established well-researched and effective methods of contacting your customers – and the assurance that once you’ve reached them, you can convince them to buy your product or service.

Marketing describes the way you will position your product or service within your target market and how you will let your potential customers know about your company. Positioning your company means concentrating on the competitive advantages you have identified: will your product or service distinguish itself by its superior quality, its revolutionary features or its ability to make your customers happier than they’ve ever been in their lives? Marketing helps you focus on identifying your competitive advantage so you can position your product or service. It also establishes the best ways to reach your potential customers and what to say to them.

When you have the right marketing campaign in place, you have an operating plan to gain market share, generate revenue, and bring your financial projections into reality.

Action Step # 6

Build A Dynamic Sales Effort: How will you attract customers?

The word “sales” covers all the issues related to making contact with your actual customers once you’ve established how to reach them through your marketing campaign. How will you train your sales staff to approach potential customers? Will you divide up your sales staff so some become experts in selling your bubble gum scented bubble bath to small, independent retail toy stores? Will other salespeople concentrate on developing relationships with major manufacturers so your product could be sold in tandem through their national distribution outlets? Will you have a sales force expert in buying television slots on Saturday morning cartoon shows or placing ads on the backs of kid-oriented cereal boxes?

What advertising and promotional efforts will you employ – two for the price of one specials or free coupons inside those same kid-oriented cereal boxes? Where can you locate lists of the greatest concentrations of children under the age of eight or whatever group constitutes your market?

In planning your sales activities, you will also need to answer questions such as: Is it ethical to contact your colleagues and clients from your former job as a door-to-door soap salesperson to tell them about your new business. Will you be the only salesperson in the beginning stages of your company? When will you know it’s time to hire more sales staff? How do you convince your clients that your sales staff will take care of them as well as you did? What will your basic sales philosophy be – building long-term relationships with a few major clients or developing a clientele of many short-term customers?

You will also need to consider how you will compensate your sales staff – with a base salary plus a commission? Will you hire full time staff with full benefits, or part time staff without benefits. How will you motivate your staff to do the best sales job possible?

Knowledge of your competitive advantage is just as important in designing a dynamic sales effort as it is in developing an effective marketing campaign. You’ll need to think about what product or service qualities will be the most compelling to your prospective customers. Then you’ll have to devise convincing language that clearly communicates this competitive advantage to your sales staff who will in turn use it when talking to your customers. In my experience, the most important element of an effective sales effort is having a sales staff that thoroughly understands your business and the needs or your potential customers. Therefore, your sales plan must address the issue of how you will create a sales staff that is as knowledgeable about your business as it is about your potential customers.

Action Step # 7

Design Your Company: How will you hire and organize your workforce?

By the time you’ve reached this stage of thinking about your potential business concept, you’ll probably have a good idea of the number of people you’ll need and the skills they’ll require to get your enterprise up and running. Keep in mind that your initial plans will undoubtedly change as your business grows. You may need to hire more managers to supervise your expanding staff or to set up new departments to meet new customer demands. Projected growth and expansion for your company should be mentioned in your business plan, but it’s not the primary focus. For now you want to secure help in getting started and convince your funding sources that you will become profitable.

Investors will want to know if you’re capable of running the business. Do you need to bring in experienced managers right away? Will you keep some of the existing employees or hire all new people? And where do you find these potential employees?

Funding sources will also want to know if any of your partners expect to work along side of you or if their obligations are only financial.

Your plan will need to specify the key management jobs and roles. Positions such as president, vice presidents, chief financial officer, and managers of departments will need to be defined along with stating who reports to whom. You may hope to run your company as one big happy family – and it may work out that way – but organizations require formal structure and investors will expect to see these issues addressed in your plan.

And as soon as you have employees, you need to consider how you will handle their salaries and wages, their insurance and retirement benefits, as well as analyzing the extent of your knowledge of tax related issues. As you think about hiring personnel and organizing your workforce, you must also confront your desire and ability to be a good boss. If you haven’t contemplated this aspect of your commitment to owning your own business, now is the time to give it serious consideration.

Action Step # 8

Target Your Funding Sources: Where will you find your financing?

As your business concept begins to take shape, you can begin to home in on the most likely financing sources. Issues such as the size of your business, the industry it is in, whether you are starting a new business or buying an existing one, and whether you can provide collateral to a lender are among the issues that must be considered in creating a target list of funding sources. Banks and other funding sources don’t lend money because people with interesting business ideas are nice. They follow specific guidelines, such as the RMA database, which are designed to insure that they will make money by investing in or lending to your business.

For the vast majority of entrepreneurs, the well-known, high profile means of raising money, such as through venture capital companies or by going public, are not viable options. Your own credit, credit rating, and business history are key factors in obtaining financing for your venture through Small Business Administration (SBA) guaranteed loans and other bank credit. Your ability to tap into your personal network of friends, family, and professional contacts is crucial to raising money beyond what your own personal funds or credit can provide. In all of these cases, there are important considerations such as the potential impact on relationships when family and friends become investors.

When you have completed this process of identifying the likely potential funding sources and writing a bankable business plan that addresses their needs and answers their questions (even before they ask them!), you will have greatly increased the likelihood of obtaining the financing you need.

Action Step # 9

Explain Your Financial Data: How will you convince others to invest in your endeavor?

The accuracy of your financial figures and projections is absolutely critical in convincing investors, loan sources and partners that your business concept is worthy of support. The data must also be scrupulously honest and extremely clear. Since banks and many other funding sources will compare your projections to industry averages in the Risk Management Association (RMA) data, I’ve stressed throughout my book how you can use the RMA figures to test your projections before the bank does. Your numbers will be more credible if they compare reasonably to the industry averages.

The actual number crunching portion of your business plan is the place to discuss how and why you need certain equipment, time or talent, how much these items will cost, when you expect to turn a profit, and how much return and other benefits your investors will receive.

More new businesses fail because they simply run out of cash reserves than for any other reason. Investors lose confidence in the entrepreneur and the business and become reluctant to invest more when projections are not met. Had the projections been less optimistic and the investors asked to invest more in the beginning, they probably would have done so. In most cases, proper planning and more accurate projections could have avoided this problem completely.

Your business plan should clearly state the amount of funds you need, how soon you require them, and how long before you start repaying investors. You should also explain what type of financing you hope to acquire, either equity (such as through the sale of ownership shares in your company) or debt (such as loans to the company).

If you’re planning to buy an existing business or already own a business you would like to improve or expand, you will also need to provide a detailed historical financial summary of how well – or poorly – the business has done in the past. This analysis should also include a comparison of this venture’s financial performance compared to the industry standards.

Action Step # 10

Present Yourself in the Best Light: What are your qualifications for bringing your plan to fruition?

The talents, experience and enthusiasm you bring to your enterprise are unique. They provide some of the most compelling reasons for others to finance your concept. Keep in mind that investors invest in people more than ideas. Even if your potential business has many competitors or is not on the cutting edge of an industry, the qualifications and commitment you demonstrate in your plan can convince others to proffer their support.

Your resume will be included in the separate appendix of exhibits at the end of the plan, so this is not the place to list every job you’ve ever had or the fact that you were an art history major in college, especially if these experiences have no direct bearing on your ability to start your own business. But it is the place to emphasize qualifying skills that may not be readily apparent from your resume.

But don’t overlook the impact being some part of your background that might even seem unrelated to your new venture. For example, having been a pilot may demonstrate that you know how to supervise a crew of people working together to make a group experience if not comfortable, at least safe. You have undoubtedly handled dissatisfied or enraged customers. Even that BA degree in art history may enable you to make your products or store more appealing to the eye.

Your unique qualifications will separate you from all the other people who have sought venture capital for similar ideas. Boasting about these skills is not hubris; it indicates that you have a highly honed business savvy.

How to Find Your Unique Selling Proposition

A ‘Unique Selling Proposition’ (USP) is something that many businesses have but it would be true to say that most don’t know they have one. When you follow the simple steps in this article, you’ll be able to identify your USP and will probably find that you have more than one. Without a clear USP then your ability to focus on your market, conserve advertising and promotion dollars and, most importantly, write your Business Plan, is almost non-existent.

You may have heard about a thing called your ‘Differential’, as well as other things, your USP describes the difference between your business and your competition.

A Business Plan without a USP is like a ship without a rudder

It is extremely important that you should include your USP in your Business or Marketing Plan, you can be sure that if you are looking for funding or a bank loan, the providers of the cash are going to want to know what sets you apart from your competition and it had better be good.

Example: Bakery & Coffee Bar

Let’s say you decide to open a Bakery and Coffee Bar. There is some close existing competition and so you do some research and find out the following:

What the competition does

  1. They open at 7 a.m. and close around 4.30 p.m
  2. They offer a range of coffees and tea
  3. They offer freshly prepared sandwiches and rolls
  4. They offer a special order facility for birthday cakes

What they don’t do

  1. They don’t offer today’s newspapers
  2. They don’t offer an email your order service
  3. They don’t offer office catering for special presentations etc.
  4. They don’t donate left over stock to a food bank or similar

Your opportunity is to do what they don’t do and in the process establish your ‘Unique Selling Propositions’

Here’s what you do (You can still do the things your competition does as well if you choose to…

  1. Open at 6 a.m. for early morning passing traffic and close at 6 p.m. to service customers on their way home from work
  2. Offer 3 copies of each of today’s newspapers
  3. Offer an email your order service
  4. Offer office catering
  5. Donate left over stock to local charities/food banks

The list can go on from here but the advice would be, don’t do it all at once. You’ll find a competitor matrix very useful in this process. 

Once you have defined what your USP is, you need to set about creating some words and maybe images around each USP that you define.

Basic rules for a USP:

  • It must be something that you know is true and you believe in it
  • It should create some form of emotion in the reader
  • It must communicate instantly just what the USP is about
  • It should be specific
  • It should be concise
  • It should have real meaning
  • An important note A Unique Selling Proposition’ does not mean a ‘Permanent Unique Selling Proposition!’ Always have something up your sleeve to offer your customers and that way you will have the leaders advantage and have something to release in response to a competitors latest move.

How to Develop a Powerful Marketing Strategy

Introduction

As you launch your new real estate business or wish to elevate it to the next level of success, it will be critical to have an efficient and cost effective marketing strategy. Having a great product, deal, or service will not bear any fruits of your labor if you are not reaching the proper audience. The following information will highlight many concepts and recommendations you may want to consider as part of your marketing plan. Because of the general nature of this material, all information may not apply to your specific business model.

Marketing and Advertising Concepts

Recommendations Go a Long Way

Perhaps one of the most powerful tools you can ever have in your marketing arsenal that you can’t buy for any price is to have people who have done business with you, or are familiar with your business ethics and professionalism to provide positive recommendations. You need to capitalize on all of the hard work and service you have provided in the past to instill confidence among your new relationships that you will continue to provide the same premier performance. We have all been exposed to testimonials and recommendations throughout many aspects of our life. Clearly, most people don’t need any further convincing beyond a sincere recommendation from someone not benefiting from the referral.

Use Referrals And Recommendations As A Marketing Tool

As you establish your history of past success stories, you should compile this information and share it with people you are trying to influence with regards to your ability to perform. An example of this could be a presentation folder that could include a summary of past projects as well as copies of any written letters of recommendations. In addition, you should have readily available a list of past clients that have given you permission to give out their contact information as a reference. You will have far more credibility if you provide this information in advance as part of your presentation material instead of your new potential client having to request this information; proactively providing this information will demonstrate your confidence in your services.

Know Where Your Leads Are Coming From

To have an effective marketing program, it will be critical for you to know what strategies are making the phone ring. When you fully understand what approaches are producing results, you can shift marketing efforts and capital away from the methods that are not producing the desired results and apply them to the methods that are successful. During your day to day activities when making inquiries on services and products you need, I’m sure you have been asked “Where did you see our ad” or “How did you hear about us”. This is their attempt to do their own marketing research on what is working for them.

There are a number of techniques you may want to consider that will help you to understand where your leads are coming from. Of course you can just come out and ask them. Alternatively, you could use the following methods:

– The use of different color stock on forms can help you establish what “color area” is responding.

– Have each different ad have a unique “offer number” and ask for his number during your conversations.

– Have a different response phone number for each ad or location.

Keeping Your Marketing Plan Going

There is one mistake that is common to new smaller businesses, once they get busy with the business that is coming from their marketing efforts, they become distracted and lose focus on keeping the marketing plan going. An example of this is getting wrapped up in a flip you are directly involved with that is taking away from your time to send out direct mail letters. Remember, with most of the common business models, once you’re done with the current deal, you need to get another one in the pipeline; otherwise, the flow of income may stop or be reduced. As another example, have you ever tried to get an estimate for a repair on your house? It seems they are all too busy on the job they are currently on to stop and work on new business.

Delegate Or Outsource Your Marketing Activities

As you are developing or expanding your business, the day to day challenges of running your business along with everything else going on in your life can stand in the way of you working your marketing plan. If you feel this is occurring and is affecting your potential business success, it may be to your advantage to either delegate or outsource some or all of your marketing activities. Using this technique will allow you to free up some time that could be used to work on items that will help you grow the company. Some examples of the marketing tasks that could be delegated or outsourced are highlighted below:

– Preparing and mailing marketing materials and direct mail letters

– Distribution of flyers

– E-mail support

– Covering phone calls

Keep in mind that before you let other people get involved with your marketing and speaking with potential clients and customers, make sure they have been adequately trained and the process has been documented in your company procedures (see “How to Write Your Business Plan” for information on the development of standard work modules).

Dealing with Rejection

As you develop your marketing strategy and “hitting the streets”, you should be prepared to face some level of rejection. The level of rejection you will experience will be determined based upon your approach, persistence, and what is the current situation and state of mind of the person you are dealing with. If for example your marketing model is focusing on homeowners in foreclosure, there will be a very high rate of rejection. In some cases they may be in denial regarding their current situation and also because they have been overwhelmed with the interest in their property from all of the investors who saw the Lis Pendens filed. You must recognize that this type of marketing is a numbers game and the more people you have an opportunity to make contact with, the higher the probability to secure business.

Even Rejection Can Make You Money

As you work through your targeted marketing area and encounter rejection, remember that each door closed in your face or phone call hang-up will get you closer to a completed transaction. If for example it takes 100 calls to close a deal worth $5,000 than each rejection is worth $50.00! Although difficult at first to imagine that rejection makes you money, it could help motivate you to move on to the next door slamming or phone-hang-up opportunity.

Your Marketing Should Have A Look

As part of your marketing efforts to “brand” your company, you may want to consider the use of logo’s, slogans, and trademarks in all of your ads and promotional merchandise. In addition, the use of “company colors” that is used exclusively in all of your marketing will also help to create a unique look that will help to set you apart from your competition.

Marketing and Advertising Techniques

The following section will provide you with some specific recommendations on marketing techniques you may want to consider. Since this information is generic in nature, all recommendations may not apply to your particular business model.

Due to the significant impact on operating budgets to fund marketing and advertising activities, you should be very critical on what methods become part of your Business Plan.

Buy A Ton Of Business Cards

One of the most inexpensive and effective ways for you to market yourself and your business is through the distribution of your business cards. During networking and casual meeting opportunities, the exchange of business cards will be a critical tool for you to assemble your contact list. Even if you are just starting out and don’t even have a company or services to offer, the small investment in business cards will allow others to have your contact information. At a minimum, the card should contain the following information:

– Your name

– Title or company name

– Fax number

– Phones number(s)

– E-mail address

– Websites

In addition, you can add information with regards to the specific business models you are involved with, for example:

– Foreclosures

– Short Sales

– Property Management

– Rehabs

Business Cards Design Suggestions

– Make your business cards stand out with bright colors or interesting artwork or graphics.

– Avoid the glossy type of paper because it is difficult to write on (in the event the person you are giving them to would like to make some comments on meeting you or your services).

– Use the back of the card as well to provide additional information on your business; why waste valuable marketing space?

– Have a powerful hook on the cards to include statements like:

– “We will close in 7 days”

– “We buy all houses in any condition”

– “We buy with all cash”

– “Get a $250 referral Fee”

Bandit Signs

Bandit signs are a great way to attract attention from people on foot or in vehicles. These signs are usually 2′ X 3′ or smaller and are designed to either stick in the ground or mounted to a pole. This method of advertising is very economical and when using the plastic version will allow for repeated use. It is suggested that you get them printed on both sides if you plan or placing them in areas where people will be coming from both directions.

Displaying Ads and Signs

Proper utilization of the various types of ads and signs will help support your efforts in establishing high visibility and presence in your targeted marketing area. The number of ways to display your company name, logo, and services you provide is limited only by your imagination. The following section will highlight the most common locations and methods you may want to consider for posting your ads:

– On billboards (very popular in rural and city areas)

– Sponsor or adopt a community bench, garden, or road clean-up.

– On buses

– On railroad cars and stations

– Local community and church newsletters

– Placemats in diners and restaurants (I always read these things while I’m waiting for my food)

– Place signs on your property while you are working on it and marketing it.

– Advertising lettering or magnetic signs for your vehicles.

When using lettering or magnetic signs for your vehicle make sure to check local ordinances; by placing a sign on your vehicle could make it be considered a commercial vehicle. Also when using magnetic signs, make sure they are secured properly. I have heard instances of these signs flying off during high speed travel and when exposed to rain. If you can also have a sign on your trunk, it will make it easy for people to read it as they follow behind you or at stop signs and traffic lights. Make sure to use large text size on your contact number.

Marketing Flyers

When designing flyers, it will be important for you to use bright colors to attract the eye. When placing them in stores, your flyer may be among dozens of other items that are posted so it must have some punch. To help minimize the chances of someone just taking the entire flyer, design it to have tear-off tabs at the bottom that contains minimal information on your services and a contact number.

Check Local Ordinances

When using signs and flyers as part of your marketing program, make sure you check with your local town regulations to ensure you are not in violation. Most towns have laws on the books that prohibit the display of signs and may come with substantial fines.

People Love Giveaways

Another marketing tool that will help you with your company exposure is to give out small gifts that promote your business and services. The possibilities are endless on the type of give-a-ways you can come up with and is limited only by your imagination and budget. The following list will provide some recommendations that are typically used for this purpose:

– Shirts and jackets

– Calendars

– Recipe cards

– Hats

– Letter openers

– Golf balls, tees, or towels

– Refrigerator magnets

– Stationary items (pens, pads, binders, etc.)

– Cups

– Totes and bags

When selecting the product give-a ways, you want to pick items that are designed to encourage use (nobody will wear an ugly tee shirt; it will be probably used as a rag). Avoid one time use products like candy, cookies, etc. Many companies offer these types of products at various price point budgets. Do a web search on “marketing merchandise” and you will get some great ideas. To reiterate, you may want to keep a consistent look to all of your marketing gifts.

Be An Exhibitor Or Sponsor

Another outstanding marketing method you may want to consider is to participate as an exhibitor or sponsor at conventions and investment organization meetings. These events can be very effective in reaching people that may benefit from your services. Sponsorship and exhibitor costs can range from a few hundred dollars to thousands depending on the venue and size of the organizations. With many organizations, you may have an opportunity to set up a display table as well as a speaking slot to highlight your services. One comment with regards to this marketing option is that people typically feel more comfortable doing business with you when they see you as a “regular” sponsor and not a one shot deal because it adds more credibility that you will be around. This type of marketing could be a significant drain on your allocated budget and it will be critical for you to determine if the appropriate level of business is being derived from this approach to justify the expense. By doing a web search for Investment Clubs and organizations you can select particular groups you would like to focus on.

Advertise In Hard Papers

Running ads in hard papers such as newspapers and trade magazines can be a great way for you to keep your company’s products and services in the eyes of the readers. Although this method of advertising can consume a majority or your marketing budget, it can represent a tremendous opportunity to reach a large mass of people. When considering using this advertising method, you may want to implement some of the following recommendations:

– Have a “hook” to your ad like “We will close with cash in 72 hours”.

– Advertise constantly

I’m sure you have observed ads that always seem to be displayed. This constant exposure although costly, will help to develop your company’s long term credibility.

– If your ad is listed in column form, consider adding a blank space above and below the text, this will make the ad stand out.

– If possible, use a contrasting or reverse color or text from the standard format.

Out of State Newspapers

Based upon the particular business model you are involved with, it may be necessary to either advertise or receive copies of out of state newspapers.

Using Public Records

Depending on your particular marketing areas or contact group, you may have good success accessing the public records that are available on-line. The information available will vary from state to state and also based on local township on-line capabilities.

The Use of Purchased Lists

An effective method to locate a particular group of people or businesses is to purchase a list from companies that specialize in generating and selling information about specific groups of people. An example of these types of lists includes the following:

– Recent graduates

– Recently relocated

– Recently sold their home

– Recently turned a milestone age (example:18,21,50,62,65)

– Recent Lis Pendens filings

The lists of possibilities are endless. Companies that generate and/or sell these lists are marketed by “List Brokers”. Try a Google search on this and you will see how big this information industry really is.

Be Prepared to Get Responses to Your Marketing Champaign

There is one area that many people fear when launching their marketing strategy and you need to get properly prepared for this and that is getting responses to your marketing efforts. The last thing you want to exhibit to people who are reaching out to you is your lack of confidence in being able to help them. In addition to having a strong foundation of knowledge in the particular business model you are marketing, you will need to develop a standard process on what you will do when they start calling you or responding to your calls. It is suggested that you put together a scripted dialog or bullet list that you will use when speaking with potential clients. The dialog or bullet list should be used as a guide as you are speaking with them to ensure you are gathering the appropriate data from them and presenting all of the critical highlights of why they should consider working with you.

Practice Makes Perfect

It will be absolutely critical to make sure you are projecting confidence when speaking to potential clients. I have spoken to many people who have left the leads hanging because of their fear in making contact with them; one way to mitigate this fear is by practicing and learning from your good and bad experiences. It is suggested that you conduct role playing to practice your approach. Another strategy that works well is to record your conversations and listen back to them. It will be critical to extract lessons learned from the calls and to apply these lessons to future calls. Keep in mind that the more you do this, the more effective and successful your “close rate” will be.

Don’t Touch That Mailbox

Keep in mind that you are prohibited from placing anything in a mailbox that does not have the appropriate postage. If you practice this technique, there is a very good chance you will be contacted by a representative from the postal service.

Creating Your Buyers and Clients List

Whether your real estate business model is wholesaling, rehabbing, selling notes, or any other model that requires you to rely on someone “taking your deal” will require you to understand the investment goals of your potential clients. To achieve the highest degree of project turn-over efficiency and to minimize your risk exposure, you will need to have investors and clients in a stand-by mode waiting for you to hand them your next investment opportunity they will consider. It will be very important that as you begin to launch your marketing and networking activities, you have a method to compile the investment criteria of your buyers or clients. It would be very efficient to have this information as part of a spreadsheet database. To help gather this information, you could create a form that can be filled out that will highlight the investment goals of your buyers or clients.

Having a comprehensive buyers list that includes the specific criteria of your buyer will help you to align available investment opportunities to the appropriate investors. In addition, understanding these criteria in advance will allow you to go out and seek new investments that you know will fit into the investment strategy of your buyers and clients that will be willing to pull the trigger if you bring them a good deal. The following list will provide examples of common criteria you would want from your investors (let’s assume for this example we are involved in the flipping business model)

– Specific locations

– Price point

– Age of property

– Class of property (A,B, C, D)

– Type of property (single-family, multi-family, commercial)

– Financial expectations

– Cash flow

– Cash on Cash returns

– Minimum percent of equity position

– Capitalization Rate

– Condition of property

– Creative Financing

Also keep in mind the relationship you develop from your Buyer’s List may also be a source for deals they bring to you. Perhaps a deal is too big or too small for a particular investor or they are too busy to get involved in another project at this time. The fact that you have presented them with investment opportunities in the past can set the stage for them to feed you a deal.

Qualify Your Buyer’s List

It will be critical for you to establish if the contacts on your Buyer’s List are able and willing to take deals that meet their investment criteria. The last thing you need when you are trying to wholesale a deal is to find out your buyer’s are just tire-kickers. One way to help avoid this situation is to get to know your buyer’s and become familiar with their past success. Through your networking and relationship building with these buyers’s, you should be able to feel them out with regards to their ability to pull the trigger.

I’m sure you’ve heard before, “If I find a great deal, I know the buyers will follow.” Although there is some logic to this statement, if you have buyer’s queued up in advance knowing their investment criteria, it will help to minimize your risk of not being able to close the deal; this can be a real concern when you are in a stale or decreasing market.

Your Extended Marketing Team

In addition to your planned direct marketing efforts, there could be past clients, family, friends or business associates that may provide additional sources of leads and business for you. This circle of contacts if properly utilized could be another informal arm of your comprehensive marketing plan. Although most people would normally pass along any services or products you provide to someone they know in need with no compensation; one sure way to motivate them to help bring in additional business is for you to offer a referral program. Depending upon the business model you are involved with, you could compensate them on a per deal basis. It is suggested that you provide these contacts with some of your marketing material.

Using Bird-Dogs To Augment Your Marketing

To bring the concept of an extended informal marketing team to the next level, you may want to enlist the help from people whose specialty is to locate deals for clients and present them for consideration. These people are called Bird-Dogs and they do this work as part of their business model. When using Bird-Dogs, it will be critical that they understand your criteria so they will not waste your time or theirs. Usually Bird-Dogs will only get compensated if a deal closes. A Bird-Dog fee is usually paid at closing.

Using Technology To Market More Efficiently

Have Your Own Website

Having a website can be a powerful tool to provide current and potential clients information on the products and services your company offers. The use of websites is so common that omitting it from your marketing campaign could certainly lead towards lost business. Remember, there is a very good chance that your competitors will have a website.

The subscription or development cost of your website can have a very large range depending upon the features. You should expect to pay $30-50 per month for a web design service provider that uses pre-designed templates you can edit. On the other extreme, you can pay thousands for a custom designed site.

When selecting a domain name, it is suggested that you use a name that reflects your business and is also easy to remember

Although having a website can be instrumental to the success of your business model, it will be useless unless you can attract visitors to your site to see what you offer. There are many strategies you can consider to help direct visitors to your site, some of techniques are listed below:

– Have a reference to your website on all of your printed material and e-mails you generate as well as marketing giveaways you hand out like coffee mugs or pens.

– Write on-line articles for websites like e-zine.com where you contribute articles for free in exchange for an opportunity to discuss your expertise as well as what you have to offer. In addition, you will be able to provide a link to your website.

– Have your website listed on other websites as a link, you can have an agreement with the website owner to mutually display links to each other.

– Pay to advertise on other sites that have the type of traffic you are trying to attract. Usually, there is a monthly fee for this service or in some cases will be a “Pay Per Click” where you will be charged a predetermined fee when anyone clicks on the link to your website.

– There are many options to consider when developing your website from do it yourself templates where you just fill in the blanks to a full blown custom site. It is suggested that you speak with an experienced website designer to see what option is best suited for your needs and budget.

Tele-Conferences

A very popular marketing method is to utilize teleconferences to highlight the services and products that you offer to a large audience by speaking with them via a phone line. This marketing technique will allow your company to provide another vehicle for your potential clients to get to know who you are. The process of setting up a teleconference is very easy; there are many third party providers that offer teleconference services for either a flat monthly rate or on an as-needed basis. Once set up, you just need to provide the attendees with a dial in number and access code (given to you by the service provider) and they will call in at the appropriate time.

Webinars

To bring the benefits of a teleconference to the next level, you can consider reaching out to your audience using a webinar. A webinar is an opportunity for you to provide a presentation to your audience by accessing a web site on their computer. Two-way communication is also possible using a dial in phone number. Like the teleconferencing, a webinar can be arranged by a third party. The cost of this service will be determined by how many “seats” are required.

E-Mail Blast

An e-mail blast can be a very effective way to contact a large group of people on your mailing list. Depending upon how many people you are trying to reach, you can either send the mail through your own mail service like Outlook or if a very large list of people need to be contacted, you may need to consider the services of a third party provider. As you compile your contact list, it is recommended that you create “groups” within your mail program. By using groups when sending e-mail, you can easily fill out the “to” field by selecting the appropriate group you are trying to make contact with. It is recommended that you sort your address book into categories that make sense for your business model. Examples are as follows:

– Bankers and private money lenders

– Past clients you are trying to stay in touch with

– New prospective clients you are trying to conduct business with

– Tenants occupying your properties

Mail Merge

Mail merge will allow you to take your contact information from your Outlook (or equivalent) address book and add these contacts to envelop and form letters you generate. Although mail merge can save you a considerable amount of time in preparing mailed letters, it is not encouraged when preparing envelops for initial contact letters. Computer generated envelops look too much like junk mail and not even be opened.

Newsletters

Newsletters are a great way to keep your contact list up to date on what is going on in your company and to help attract new business. All of the popular word processor programs have templates that you can use to generate your own custom newsletter. When considering the use of newsletters in your marketing campaign, you may want to implement some of the following recommendations:

– Make your newsletter releases monthly or quarterly; you want to periodically remind them who you are.

– Add both business development information as well as education and public interest sections. Don’t make every issue overflowing with sales hype. You will turn off your audience.

– Give each newsletter a release number or volume

– Format the pages so they can be added to a three ring binder

– Publish articles that continue in a future newsletter

– Add photos and charts to help illustrate text

– Have featured segments that are part of each newsletter release. The following are some examples:

– Rehab trick of the month

– Bloopers sent in from audience

– Deal of the month

– Success story of the month

Using An Internet Video Site

A very popular tool that can be added to your marketing plan is to utilize internet sites that allow you to download videos. On these sites, you can download your video that will be part of the site database of searchable videos. It is suggested that you add in your title a “hook” that specifically identifies the scope of the video so when someone searches the site for your topic, you may get a “hit”. An example of this would be “Learn Short Sales from John Doe.”

Sales Lead Software

As your marketing and networking strategies start to generate leads, it will become an increasing challenge to manage the large volume of leads effectively. Without managing leads appropriately, you run the risk of losing the ability to “convert” them to a deal or sale. Although there are many manual methods that you could use to manage your leads, you may want to consider purchasing lead generation and management software. There are a number of companies that provide this product. Perform an internet search for available products.

Developing an Integrated Business Plan

A Business Plan is a document that includes the qualification and characteristics of the business of an organization, its way of operating, the development of its strategies, its action plans to secure a market share, methods of financing for its investments, and the projections for expenses, revenues and financial results. The goal of the Business Plan is to provide the company’s managers with guidance to create a significant value to the customers and meet the relevant needs such customers are willing to pay for, in addition to providing a potential significant profit to investors, thus meeting the company’s cost-benefit expectations. This document must contain the following sections while observing the subsequent questions:

1. The Venture: Brief description of the business, its location and scope;

2. Description of the Business: What business is to be established? What products or services are to be offered? What is the target market and its size? What is the best way to offer the products to the market? What are the critical success factors for the business? What are the possibilities of growth of the market under study? What are the positive and negative points of the business?

3. The Market: What is the big market and the best segment status to compete? What is the size of the segment and its growth possibilities? What is the geographical distribution of the market? What are the seasonal fluctuations for demands? What is the estimated value and the location of the business? Highlight the positive and negative points of this market.

4. The Competition: What are the direct competitors to the business? What other substitute businesses or products will compete with the product? What is the size of competitors? What analysis can be drawn about the competitors? What is the company’s price strategy? What is the distribution strategy? What is the technical assistance strategy for the company’s products or services? What is the quality concept for the product? What selling methods are to be applied? What the means available for publicizing the products or services?

5. Description of the Venture’s Product: What is the technology used in the product? What is its current development stage? What function and application does the product have? What innovative solutions can be used to serve the market? What are the regulations and technical standards governing the product? What analysis can be drawn on the relation between the product and the environment?

6. Price: What is the price competitiveness? What is the price strategy to be used? (in this case, study the prices that exist in the domestic market and the price of the similar imported products). What margins are appropriate to work with?

7. Suppliers: Where are the suppliers located? What inputs are imported? How to obtain the necessary inputs for the product? What are the delivery times for the inputs and the minimum quantities required for the product?

8. Productive Process: What is the flow of the productive process? – present an example of the process core, what is the planned number of employees? What will the installations of the business be like?

9. Marketing / Commercial Plan: What are the potential customers and their locations? What is the best way to attract the customers? What will the sales channels for the product be? How will the sales promotions be conducted? What are the best suppliers of inputs? How much should be invested in advertising? How will the distribution system for the products, and the technical assistance thereof, be operated? Who are the opinion makers for the product? What is the potential and sales estimate for each the product?

10. Costs: Cost estimates shall be generated for those inputs directly involved in the production of the asset – fixed costs and overhead, as well as the level of reliability of forecasts for the critical costs of the venture.

11. Investments: What is the infrastructure required to be obtained for the business to operate?

12. Organizational Aspects: What are the skills and knowledge of each partner, director and employees of the company? What organizational structures will support the venture?

13. Financial Plan: What is the sales volume required to obtain profits? What are the financial sources for the company? What is the shareholding of the organization? Present a cash flow spreadsheet for the first 10 quarters (in BRL) and NPV for the venture.

14. Partners: What are the possibilities for establishing partnerships for the venture?

15. Entrepreneurs: What are the motivations for creating this venture? What is the experience of the entrepreneurs? What are the main barriers and threats to the venture?

16. Venture Phases: What is the time required for developing each phase of the venture: Implementation, Growth, and Consolidation?

Five Characteristics of a Good Business Plan

A business plan like any other write – up can either be good or bad. And if you want to know the difference of a good business plan from something that can be mediocre or even bad, then read on. But first off, let us start with giving everybody an idea of what a business plan is.

As implied, a business plan is a document that specifies and discusses the following:

• The company’s nature and identity

• Your objectives and the purpose of your existence in the world of consumers and entrepreneurs.

• The products you sell and offer

• Your marketing strategies

• The goals that you plan to achieve

• Your niche – the market that you plan to conquer

• Your plans for the business’ future

• And of course your financial standing prior to starting

By having all those information, you can see that a business plan is very much like a blueprint that will help you or anyone start and manage a business regardless of its nature.

Now that you realize its importance, the next thing that you should start working on is learning how to make one. But before you have the urge to get your computer going and start writing, here are the qualities of a good business plan that you have to keep in mind.

1. A business plan should be detailed. In listing your products and services for example, you should not really stop by just enumerating them. You also should write down the descriptions and scope of your products and services, touch base on production and identify means on how you can market your “brain – child” to your targeted niche.

2. It should include a market research that identifies your competitors, their share of the market and the range of the products they produce. By learning how they conduct their operations, you may learn tricks of the trade in the business you want to enter and you also get to have a basis on what you can do to excel.

3. It needs to have a list of everything you need. Note that the word everything here comprises of the equipment, technology, raw materials, financial and other resources that you may need when starting and running your business venture. Having all these listed will give you an idea on how much capital you need before you start and how much money should you make in a day to make your business survive.

4. It also needs to be written in formal format and style. You have to remember that a business plan is something that you may have to present to your business partners, financial firms and banks. So if you can, refrain from using slang in any part of your plan.

5. Finally, a business plan should be error – free. This is important because your business plan defines who you are as a business person. If it turned out sloppy, then that does not speak too highly of you.

Again those are five characteristics of a good business plan. Now that you know of them, you can start your research and start drafting your write – up.

SWOT Unravelled – Discovering Your SWOT Strengths & Weaknesses

The SWOT analysis technique is used to summarize your strategic analysis which includes both your internal and external analysis. This summary is categorised into four categories. These four categories are Strengths, Weaknesses, Opportunities and Threats.

Today, we will clarify for you the strength category and also provide you with a list of common strengths that you may find in your business.

The golden rule of Strengths: Strengths are characteristics about your businesses, they can only be identified in your internal analysis, as your internal analysis is the only type of strategic analysis that evaluates your business characteristics.

Now, let’s define strengths and take a look at the typical business characteristics that are commonly classified as strengths.

Strength Defined: Strengths are core capabilities of your business. They are areas where your business has an advantage over your competitor(s) that is valued by your customers.

In other words strengths are characteristics of your business that pass the better than your competitors test.

Recap Key Point: You will only find strengths when completing your internal analysis, A strength must be characteristics of your business.

Understanding Strengths

When completing your internal analysis you will find that your strengths will generally fit into two categories, tangible and intangible strengths. Let’s look at them both

  1. Tangible Strengths: A Tangible strength is a characteristic of your business that can be precisely identified, measured or realized.
  2. Intangible Strengths: An intangible strength is a characteristic of your business that can not be physically touched or physically measured

Now, we will look at examples of common tangible and intangible strengths that maybe found in your business.

Examples of Tangible Strengths

Your tangible strengths will tend to include characteristics about your business such as

  • Your physical assets including plant, equipment buildings and infrastructure
  • Long term rental agreements in good locations
  • Unique or market leading products
  • Access to sufficient financial resources to fund any strategic changes that you would like to make
  • Cost advantages over your competitors (This relates to your ability to provide the goods or service at a lower cost than your competitors. It has no reference to the sale price)
  • Volume, high volume can be a strength
  • Ability to scale volume up or down with relative ease

Examples of intangible Strengths

Your tangible strengths will tend to include characteristics about your business such as

  • The strength of your brand(s) such as having strong easily recognizable brands
  • Your market reputation, including a market perception that you are a market leader or an expert in your filed
  • The strength of your relationship with key customers, a strong relationship represents goodwill and is often seen as a strength
  • The strength of your relationship with your suppliers, again strong relationship can be seen as a strength
  • The nature of the relationship that you have with your employees
  • Any unique alliances that you may have with another businesses that compliments your businesses products or services in a way that is valued by your customers
  • The ownership of patents or proprietary technology can be a strength
  • A proven advertising process that works well
  • Having more industry experience in a field that requires some technical experience, including the skill of your managers, your collective industry experience and your profile in industry associations.

Where people often go wrong?

The first area where it is common to see strengths recorded incorrectly is in the language used to describe them. It is an easy mistake to write Macro Environmental observation up as strengths rather than opportunities, however this tendency should be avoided. For example “One of our strengths is a strong economy” this really is an opportunity and can be reworded as follows “The economic outlook supports growth”

And

A SWOT analysis is normally completed by the leaders in your business. In completing their analysis they are likely to position their leadership capabilities in with the other strengths. It is, of course, unrealistic for all leadership in all businesses to be able to pass the better than our competitors test. When faced with this self assessment it is best to look for indicators such as higher engagement scores, lower turnover, and higher customer satisfaction to validate where you place leadership in your businesses SWOT.

SWOT Strengths Summary

Your SWOT Analysis summarises the three strategic environments that your business operates in, they are your Macro Environment, your Industry Environment and your Internal Environment. You will only identify strengths during your internal environment analysis, this is because your internal analysis is the only area where you will identify characteristics of your business that pass the better than your competitor test. Strengths can also fit into two categorise they can be tangible such as plant and equipment or intangible such as patents.

Now you will have a sound understanding of strengths and how to identify them in your business.

Integrative Business Planning – A Case Study On Insufficient Planning

Introduction

Entrepreneurs would always do some form of business planning before they start a new venture. Quite often this will result in a formal business plan. The format will probably be determined by one of the following:

  • A business planning software package;
  • A guidebook on business planning;
  • Another business plan;
  • An external consultant.

Although all the above can have satisfactory results, they all have potential pitfalls. One serious pitfall (when using one of the first three methods) is the way that the entrepreneurs tackle the problem. Although all of the methods cater for the addressing of the apparent salient features and even for the interdependence between them, they can not cater for all the intricacies and multi-directional relationships that exist between various features in a business.

Outsourcing the whole business planning process to a consultant also does not solve all the problems. A consultant would need to work quite interactively with the entrepreneurs to be of real value.

Over more than a decade Ventex Corporation advised and assisted companies from business planning right up to harvesting and beyond. This case study highlights the importance of having a well thought-out and executed integrative business planning process. It shows how apparent small issues, that are neglected in the planning process, can have grave consequences for the entrepreneurs.

Salient Features in an Integrative Business Planning Process

The first aspect of integrative business planning is to ensure that all the salient features are catered for. These features can differ drastically from one business to another. Some of the more general features are:

  • The Business – The opportunity, the business concept, products and services and growth strategy.
  • Marketing – Marketing strategy (price, promotion, etc.).
  • Market Research – Customers, market size, trends and competition.
  • Development – New products, services, markets and facilities.
  • Operations – All aspects.
  • The Team – Management team, skills needed, training, board composition and organisms.
  • Finances – Investment-, financing- and dividend decisions and policies. Also cashflows, profit margins, costs and growth.
  • Risk Management – Business-, operational- and financial risks as well as potential fatal flaws.

Multi-Directional Relations to Keep in Mind in Business Planning

Unfortunately the salient features can not be seen in isolation. Every feature impacts on various other features and are also impacted by many other features. These multi-directional relationships occur within each individual broader feature (e.g. finances) as well as between different features (e.g. between finances and marketing).

Higher profit margins can for instance decrease the volumes sold, but increase the net profitability. On the other hand can higher volumes (with lower gross margins) increase the volumes sold, but decrease the profitability.

Higher volumes on the other hand can increase the stress factor in production personnel (that already work at maximum human capacity), causing higher absenteeism, lower production levels, extra hiring costs and a corresponding decrease in profitability. Unfortunately these intricacies can not be ignored and an integrative approach of business planning goes a long way in handling it.

An Example of Things that can go Wrong

Ultimate Holidays had a very ambitious business concept in the tourism industry. The industry was booming at the time and they planned in detail to build a luxury lodge that would combine a health hydro, hotel school, conference facilities, adventure center and eco-cultural tourism. (Details are changed for confidential purposes – all the detail does, however, simulate the real-life scenarios close enough to demonstrate the actual learnings).The experience of the entrepreneurs includes business, entrepreneurship, tourism, archeology, law and politics. This project of around $320 million was a life-long passion for all of them. They covered in-depth the architectural designs, legal requirements, development and operational planning issues, the marketing plan and personnel development policies. They also ensured that they had senior politicians and excellent service providers on board.

The business did, however, never got of the ground. What did the experienced entrepreneurs not see? What could they have done differently? They thought they had covered all the various aspects of the business. Analyzing the facts, the following major problems stood out:

  • The entrepreneurs were not flexible – they had strong pre-conceived ideas;
  • No detailed market research was done. Specifically not on occupancy rates in the niche industry and on critical investment criteria that investors are looking for;
  • All the planning was done on individual aspects that were optimized as far as possible. The way that these factors might have effected other factors were never considered.

The entrepreneurs were quite arrogant. They believed that any entrepreneur would be stupid not to invest and they would typically say that they only want investors that share their dreams and that the finances will sort itself out.

The business plan promised a “conservative” 22% internal rate of return (IRR) over a seven-year period. This included the expected capital growth of the facility. Expected occupancy rates were given as 50% in year one, rising to more than 75% by year four. The IRR and occupancy rates were much lower initially and were purely based on thumb-suck. The entrepreneurs then just chanced the figures to make financial sense without changing any of the other related factors.

Investors were often very keen on the concept, until they realized that the occupancy rates were inflated. The real figures based on realistic values indicated an IRR of only 15% – at least five percent below what the investors expected. The financial risk was just too high. Furthermore a breach of trust occurred.From the entrepreneurs’ viewpoint this was an insurmountable problem – they wanted it their way. In the end nobody invested. Much effort was applied and personal expenditures were sky-high. A high visibility in the business and tourism industry was also created. In the end some of the entrepreneurs were financially (and emotionally ruined) and all of them lost credibility.

The important questions in hind-sight are: Could the entrepreneurs saved this project? Could they have included all the features and genuinely expected an IRR of above 20%?

If the entrepreneurs used an integrative business planning process, they would have first ensured that all the salient features were examined. Secondly they would have ensured that all the multi-directional relationships (causality) between the different features were balanced.

By mapping the relationships between the various salient features it showed for instance that:

  • Occupancy rates are caused by service levels, product offering, marketing and price.
  • Occupancy rates on the other hand can affect the turnover, profitability and marketing (through word-of-mouth).
  • Profitability is caused by turnover (through occupants and outside guests), occupancy and cost of doing business (cost of sales and other expenses).
  • Profitability on the other hand have a direct bearing on the IRR, cashflow and sustainable growth of the business.

Only a very small portion of the multi-directional relationships that exist within and between the various salient features are shown above.

The entrepreneurs should have asked more in-depth “what-if” type of questions. They could start with questions such as: What would happen to the occupancy rate if the price per night increase by 10%? What would happen if the various aspects of the business are phased- in? Would it be possible to cut marketing costs and increase the occupancy rate? The last question typically seems like an oxymoron. This is part of integrative business planning – to look at the two opposites and try and find a solution where both aspects are catered for. In practice this can probably be achieved by using more free advertising in newspapers, internet articles and blogs and by working directly with the tourism associations of the region.

A major aspect (constraint) of this whole new venture was the high capital lay-out. By concentrating on this salient feature it was shown that costs could have been drastically reduced without having any detrimental effect on the occupancy rate. By using a light steel frame construction instead of the normal brick could have caused tremendous savings. The erection time could have been halved with savings in labor and interim interest. The long distances would have resulted in much less transport costs (light steel frames are much lighter than brick). Additional savings are also possible due to other construction benefits and different finishes. No negative effects would have been foreseen.

The building costs of the health hydro was 50% of that of the main complex, but the projected figures showed that it would only produce 33% of the turnover of the main complex (at much lower gross profit margins). This component could have been phased-in at a later stage when the complex was already in full production and when the potential occupancy and profits were much higher.

The analysis of the business showed, that by just changing these two factors (construction method and phased-in hydro) and by using a realistic occupancy rate, that the expected IRR will be in excess of 21%. Further solutions to decrease capital expenditure could have been explored and this could have resulted in a further increase of the IRR. The high road building costs (to the complex) could possibly have been shared with the government and other potential developers (e.g. of a shopping complex or a time-share game farm close by).

Summary

By neglecting some of the salient features or by not acknowledging and planning for important casualties can be problematic or even fatal for a new business. All the salient features need to be covered and at the same time the multi-directional relationships between them need to be balanced. One aspect of the business can not be optimized to the detriment of some of the others. An integrative business planning approach is needed to find the optimum balance for the company as a whole.

Copyright© 2008 – Wim Venter

A Retail Clothing Store Business Plan – Customer Analysis

Your retail clothing store’s business plan requires a well-thought out customer analysis which describes what type of customers will make your store succeed.

Not Too Broad, Not Too Narrow

When choosing your customer target markets, make sure that they are neither too broad nor too narrow. The broader a target market, the more expensive and difficult to reach it and sell to it. For example, if the target market is simply “Residents of the Tri-state Area” this will tell you and readers little about the most effective means of reaching them.

Think further about who the most profitable customers within these broader markets will be and whether there are distinct groups of profitable customers worth mentioning. Profitable here refers to the total revenue that a certain customer will bring in through clothing purchases over a certain period, the customer’s likelihood to remain loyal and keep purchasing after that period, and the cost of achieving that customer through marketing and sales work.

If customer groups are too small, readers will be concerned that there isn’t enough potential revenue from the target markets for the store to show a profit. Remember that readers will not believe that you can ever achieve 100% of a market. You have to show that you will be able to break even with much smaller market shares, especially in the early days of your store.

Three or Four Segments Is Good Enough

To prove the excellence of your store’s potential, you may be tempted to write a list of target markets segments that you can target. Resist this temptation, and clearly show your focus on three or four segments at most for the short-term. If the amount of revenues that you can achieve from these groups seems limited over time, then you can go on to describe some future target markets, labeled as such, to detail the next steps the company can take when the original targets are tapped out.

Customer Values

For customers in each segment you describe, write about their specific reasons to buy from your store based on their values. Show the difference between each segment, because if two segments have the same values and needs, they could probably be lumped together as one. Don’t detail your promotion methods and product line again here as a way of explanation – those are covered elsewhere in your plan. Do be clear as to why each group listed is a good target for your clothing store.

How to Set Goals For Your Business Plan

What are the goals for your business? It’s a fundamental question every entrepreneur needs to ask themselves. Why are you in business? What do you hope to accomplish and when? Goals can be defined as what you want your business to be when it grows up. Set a reasonable number of goals, one is probably not enough and twenty would be way too many. The goals relate to a time period as well, a year, or perhaps six months, is a good target. One way of setting goals is to describe your company one year from now.

Goals, objectives, and strategies are incorporated in a business plan that is used for internal purposes rather than raising capital. It’s an important exercise for management to go through and then incorporate the results in a working business plan.

It’s a good idea to complete the Historical background of the company the Industry and Economic Review and the Product section before tackling goals, objectives and strategies. Looking at where you’ve been and where you are is the starting point for where you want to go.

Brainstorming is a good way to get started on goals. Make a list of all the achievements you could make in the upcoming year. Just list them. Don’t make any value judgments on whether they’re achievable. Now rate each goal in five different categories: effort, money required, like and dislike, talent required, and payoff.

Effort is simply the amount of energy and time that will be expended to achieve the goal.

Money required is the investment that will be made. For example if staffing will have to be hired or outsourcing will be utilized that means it will be necessary to invest money in the business to pay for the employees or the outsourcing. Nearly all businesses require some investment of capital, if nothing else for Internet access and phone lines. Use ballpark figures.

Liking or disliking the tasks required to achieve the goal has an impact on whether the goal will be achieved successfully. If you like to write then it won’t be a problem establishing a ghostwriting service, but if writing is the last thing you’d choose to do, you probably won’t be a success at ghostwriting.

Talent means whether you have the abilities required. If you have no artistic talent then graphic design isn’t for you, unless you have such great contacts for clients that it makes sense to outsource the design function.

Payoff is the reasonable amount of money that can be earned. This is a guestimate of what you believe will be the payoff if the other factors – effort, investment, like or dislike, and talent hold true.

This is a simplistic way of rating the goals. It may turn out that the goal with the highest score also requires the most money to accomplish and that just doesn’t fit in with your budget. Or perhaps the lowest rated goals are the goals you have the most talent for and require the least effort. The point is rating the goals gives you a starting point.

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