What is a business plan? Do you need a plan before you start a business? How do you prepare yourself to enter a marketplace and compete? I will show you the importance of planning your startup strategy and how to prepare it effectively. Once you have a reliable plan you can execute your startup strategy with confidence.
Planning is certainly necessary to achieve success, regardless of what you do in life. You want your decisions to be calculated… they should only be made after performing proper due-diligence to know exactly what you are getting into ahead of time. You must avoid being blind-sided by the unexpected.
Risk, hazards, and many pitfalls exist on the path to business ownership.
What does plan really mean? It is defined as a scheme or method of acting, doing, proceeding, making, etc., developed in advance. If you are a military General, will you go to battle without a plan? Of course not! So why would you go into business without one? The marketplace is quite a battle-field out there with many foes who are ready to fight (compete) with you.
Knowledge and experience are your weapons, and if they are sharp, you will compete well. The problem is strategy. Knowing where to start and how to proceed. Eight-out-of-ten businesses fail after 18 months, statistically. The primary reason for failure by the intelligent entrepreneurs is lack of proper planning. You can overcome just about any obstacle in life if you fully understand it, and then devise an effective strategy to overcome it. Be a calculated decision-maker and your chances of success will be high.
You have a good business idea and you wish to find investors, open a location, develop a product, or market a service. Stop and prepare a good plan of action first. It does not need to be extensive or formal, but it certainly needs to be comprehensive. Put in the effort and cover all of the angles. Consider this action-plan your battle-plan, since you will need it to compete.
All of this may sound quite involved, and even discouraging since you just want to get out there and do business, BUT… you won’t be out there long if you get squashed by your competition. The businesses that belong to the 20% club… those two-out-of-ten companies that survive beyond 18 months, most certainly involve themselves with this kind of research and planning. You WILL need to compete with them.
Fully educate yourself regarding your industry, your target audience (demographics), your competition and the economic conditions. Anticipate how your customer base will react to your idea, and how your competition will make their moves when you enter the market. Document the weaknesses of your competitors and target them. The knowledge you gain from this research will be used to form an effective tactical plan which will allow you to anticipate outcomes and to be prepared for pitfalls.
All of this preparation will be used to define your business model. That is, the purpose and process of your new venture. Your business model will also include customer base definition and distribution-channel identification… how you will receive goods and how you will deliver products to your customers.
Study your industry
Who are the suppliers and vendors you will use and what kind of bargaining power can you bring to the table? You always need to keep costs as low as possible to improve profit margin, so arm yourself with an understanding of how well you can negotiate deals. If you understand the potential market-share you can achieve, and you can back that up with tangible fact and figures, you may be able to convince them to sweeten the deal in your favor.
How competitive is your industry? Analyze what makes the successful businesses tick and understand exactly what the poor performers are doing wrong. Really dive into expected profit margins in your market since tough competition tends to drive those margins down. Learn how profitable your competition really is.
What is the market structure of your industry? Determine the number of firms that exist in your industry and how large they are. The market entry conditions must be fully understood. That is where and how companies typically do business (meet and connect) with their customers.
Determine the product or service differentiation in your field. Know how many types of products or services there are and what kind of differences exist. Understanding and defining your market structure will prepare you to operate tactfully in your industry.
Challenge the status quo…the existing state of affairs. Maybe you can come up with a new way to do business in your industry. But be careful and cautious since mindsets are difficult to change. You will need some good vision to pull this off. The rewards can be exponentially higher, but there is much more risk.
Understand your target audience
What are the demographics… what makes them tick? To start, the SBA (Small Business Administration) provides many such market research tools. Local economic indicators are available for your geographic area of interest which includes income and employment statistics along with others. Visit the Bureau of Economic Analysis to find a barrage of economic indicators that will provide key data about the region you wish to do business in. Or you can use this to find a good target region. There is a wealth of other tools and resources there including business training, financial support, and a broad network of affiliates ready to help.
You will need to know how your target audience reacts to your idea. Perform Qualitative research using focus groups and Quantitative research using surveys and questionnaires to perform effective market studies.
After you have collected the market study data, it’s time to really get to work preparing and interpreting the data. Put all of the right KPIs (Key Performance Indicators) into your market research outline. Then, evaluate and prioritize the KPIs that you used in the market research data collection stage. Be objective in your approach to interpreting the data. You need to avoid statistical bias as you proceed with this process.
Now that you understand what the public thinks about your company, product or service, you need to make any necessary adjustments for marketability. Make your idea marketable, and then your advertising will have the potential to be very effective.
For an in-depth explanation showing how to perform all of this market research, please read Effective Marketing Strategies. There is much more to this than I will detail here, and a deep understanding of marketing will really make the difference
Identify and evaluate your competition
Investigate them. Discover who and how loyal their customers are. Determine the yearly sales volumes of your competitors. Detail their strategies. Read customer feedback and gain insight from resources like Better Business Bureau about your competition. Study indicators like longevity so you can determine how long each competitor has been in business. Review their history to understand what changes they have undergone over the years and why.
That was quite a list! Knowing who your competitors are and what makes them tick will allow you to survive as you compete with them. I will compare your competitors to sharks. If you dive with sharks, you need to have a properly designed cage to ensure they can’t bite through it. Also, you need to understand sharks and fear them without being afraid, if you wish to swim with them not using a cage. Same with business. You can swim with your competition if you understand and have a healthy fear of what they are capable of. A nice thought may be… we are much smarter than sharks!
I will soon publish a blog post detailing how to Identify and evaluate your competition, so stay tuned, there is more to come! For a short but informative post that will help with this topic right now, read: Competitive Analysis from Entrepreneur
Product or service differentiation
How are your products or services different from the competition? What makes them better? If you plan to enter the market with another version of an existing product, there needs to be an advantage to yours. Quality, functionality, price, or appearance, just to name a few factors that can vary. First you need to identify the existing differentiation among what is already in the market. Then you need to perform a good comparative analysis to provide confidence there is ample differences or advantages.
Pre-plan-prep is all about becoming an expert in each of these areas, and the level of difficulty should not be very high… it just takes some research and study. Keep good notes for reference, and update them regularly as changes occur. The insight you gain from all of this will provide good visibility into what kind of strategic moves you can make to gain market-share.
Put your strategies into your startup plan
Now you are ready to start creating your winning plan. Having performed all of the due-diligence you should now be an expert in your industry. An effective tactical strategy to start a business will be vital to the success of your startup. Do this part correctly, and you will ensure your position in the 20% club!
Creating a formal business plan, which is also important, will not be the focus here. That is an important process in itself and will be covered soon in another post. It is the strategy in the plan, the meat and potatoes of the plan, that I will be covering here. The actual action you will take to start a business, laid out informally, as a guide for you to follow as you execute.
Keep it cheap
Set rules to follow when you execute your startup plan in order to keep costs down. Use low-cost or free resources throughout your operation like free trial software versions which you can evaluate while starting your business. Utilize your home office and garage vs. renting a space. Identify every area of spending required during your startup venture and document it.
When your plan is complete, list everything you will need to buy. Brainstorm each item to come up with ways to save money. Take your list, which is basically a shopping list, to second-hand stores and start saving. Be frugal in all you do. The good stuff can come later when the profits roll in.
Position your product
Establish the positioning statement about your product or service. This statement is of the utmost importance and should shed light on the unique value your product or service offers. What benefits will you bring your customers? Also, it will define the target demographic which will focus the advertising specifically on them. The product or service category must be clearly defined by this statement, and that will prevent any confusion about what you are selling. In this positioning statement, you must prove to your audience that they can trust you and what you have to offer them. The final statement you develop must be short, concise, and deliver impact in each of these areas.
There is one key difference between a positioning statement and a tagline. Taglines are outward facing. They are simple, compelling statements viewed by the customer. The positioning statement is internal, and will be used to define all advertising and even internal operations. You can use the position statement to test all new ideas, to ensure they match up with what you are really going for. A fun example is from Harley Davidson:
The only motorcycle manufacturer that makes big, loud motorcycles for macho guys (and “macho wannabes”) mostly in the United States who want to join a gang of cowboys in an era of decreasing personal freedom.
That is a clearly defined identity for sure!
American by birth. Rebel by choice.
This fits well and sounds compelling to their target demographic, right?
Here is a simple template you can use to set up your own positioning statement:
- For (target customer)
- Who (statement of need or opportunity)
- (Product name) is a (product category)
- That (statement of key benefit)
- Unlike (competing alternative)
- (Product name)(statement of primary differentiation)
Once you have this statement completed, allow it to fully sink in, so it becomes instinct. That way, you’ll always be able to answer correctly when you question any idea, to see whether it seems to fit into the identity of your company or product line.
Build a winning brand
Having a consistent company theme throughout your organization causes customers to become accustomed to the environment that is conveyed to them from all of the points of contact at your company. This called cross-channel customer experience. Familiarity can be achieved from your customers and that is very powerful. It will heavily contribute to brand recognition and appreciation.
Keep your staff excited about your products and services. Be a motivational speaker for your company! Your staff will be more responsive to you and your customers. When your customer gets the feeling that you and your staff are excited about what your company has to offer, that excitement can spill over… especially when it’s consistent across all points of contact with your company.
Brand building is the process of creating deep connections and forming an emotional relationship with your customers. This is not easy and it takes much time. Read Gaining Customer Loyalty for an in-depth dive into what it really takes to make customers stick with you.
Use charitable causes and missions to your advantage
By aligning with one or more, you will start to establish brand recognition and trust in the marketplace. Be authentic and truly care about the community. The public will call you out on it if you are not genuine, and that will destroy all that you have created. When you show that you care by contributing to a charitable cause, public support for your brand will grow nicely.
Targeting specific demographics
Never target the general population, that is a recipe for failure. Narrow your focus on who will actually pay for your products or services, your target audience. You already identified them in the pre-plan-prep, so now put this into your plan of action.
There is no need to discuss all of the many, many forms of advertising out there. You see it all around you, on the streets, on television, online, and you hear it on the radio. The forms of advertising you chose will be based on your industry and what you can afford. More than that, which form of advertising will be most effective for your business. Choose the variety that provides the best bang-for-the-buck. Be sure to start small, so you can optimize your ads affordably.
One defining factor used to determine your advertising budget is the cost of customer acquisition. This number is derived from a simple equation: Money spent to bring them in divided by the number of customers you receive. The equation gets more complex when you add customer loyalty and repeat business, but those factors lower the cost of customer acquisition.
Before you advertise, you must first be fully prepared to sell. You and your sales staff must truly understand your product or service, and be ready to deal with the public when they inquire about it. Ineffective answers to inquiries after advertising simply wastes the time, effort, and money that went into finding customers in the first place. After you have sales people in place that can really sell and close deals effectively, you will be ready to advertise your products or services.
A successful advertisement will compel your target audience by creating a desire and revealing a nice way to satisfy that desire. Appeal is very important but can be very difficult to determine. Usually, ads, after much evaluation and improvement, need to be tested. Good statistics must be kept with every ad design iteration and then compared to the previous version. This is a very involved process but will allow you to tailor your advertisements for your target audience to maximize their appeal. Set a tone which caters to your customer’s wants and needs, and helps shape their associations, feelings, perceptions and attitudes to your brand when they think of products or services related to your industry.
One rule to consider for any advertising campaign, if your small business is unknown, is to be seen multiple times in order to gain trust from the public. It is human nature for people to slowly gain trust in something or someone simply by having reoccurring contact. The first time they see an ad from your company, they will probably disregard it. They don’t know who you are. But after seeing an ad from you multiple times, if they have an interest in your product, their confidence will begin to build and they may finally inquire about your product. Knowing this, just be patient. Repeat your ad campaign over and over until you really start seeing results. After that, like magic, your phone may really start ringing off-the-hook, or your in-box will start to fill with inquiries.
As I stated before, there are many, many forms of advertising out there. Find the one that will be most effective for each dollar you spend on it.
Plan your market entry
Now that you fully understand your target audience, your negotiating power with suppliers and vendors, your competition, and you are an industry expert based on your research, put a plan together for how you will enter the marketplace. Just detail all of this out, and thoughtfully plan how you will execute in each area. This thought process is of the most important, now that you have a differentiated product that is ready for market. Document it well and commit it to memory. You don’t want to be caught off-guard.
Remember… challenge the status quo. The rewards you will receive if you can change the way business is done in your industry will be wonderful if you can mitigate the risk. Put it into your plan and test it!
Customer service strategy
To the customer, your company will only be as good as the last time they had contact with you. Small businesses, not having universal brand recognition, must provide stellar customer service along with a stellar product in order to stay on top of the customers mind. Good memories don’t stick in the mind of your customers as well as bad ones do. This provides an on-going challenge… keep the good memories flowing to your customers!
There is a strong bond that can be achieved with your customers when you provide them with repeated good memories… customer loyalty. Customer confidence comes from the trust you establish with them, but customer loyalty is the bond that keeps them coming back. Use the examples below to provide the kind of customer service that demands loyalty from every customer.
For a great level of detail on how to provide the best customer experience, and what type of actions to avoid to prevent those bad memories, read Gaining Customer Loyalty.
Sometimes major setbacks occur that may put you out of business, like the death of a key stakeholder, or your own illness. Be sure to start and then contribute to a retirement fund. Purchase some of the many types of insurance. To list a few: Employee liability, commercial auto, general liability, property, worker’s compensation, professional liability and data breach.
There are many types of insurance that an agent would love to sell you, so get the information about what is available, and what each one covers, but then be shrewd. Insurance is a service, even if much of it is mandatory, so treat is as a product and weight the cost vs. value for each type. Don’t over-insure. First, comply with what is required by law, and then go with your instinct, based on research and shopping around.
If you plan on selling your company after reaching a certain mile-stone, like gaining a specific amount of market-share, put that into your plan so you know when and how to start advertising your business.
Select a team (staff)
You will have to wear many hats… perform many jobs as a startup business owner. But you can’t do everything. Plan to hire key staff members that can help you get to then next level, time and time again. Lay out the details for this in your plan so you can anticipate what kind of help you will need based on your own talents and short-comings. Think through and document what stage you expect to need this help and write up your plan to convince them to join you, since you probably won’t be able to provide a competitive wage at first.
Monitor changes in the market (customer needs, new competitors, and new technology)
This is something that should never ever stop. Changes occur often, in every industry, so stay on top of them and make adjustments to stay competitive. Anticipate changes before they occur and you will be able to change course on a dime, out-witting your competition.
Line up customers before you open your business
Getting your products out to your market ahead of time will allow you to get feedback and testimonials that you can use in your advertising when you open your business. Provide free samples of your products in a creative, promotional way.
Set new trends with your idea
Following market trends is safe but strategically setting new market trends will truly make you stand out. Put your vision to the test with this one!
Manage your strategic action business startup plan like a project which has timeframes, milestones, commitments and good communication and understanding. Use good resource allocation so key players get their piece of the project and assign key deliverables. Project management is key to successful execution of a business startup plan. Be calculating and tactical every step of the way.
(article by G.Hixon)