Most business owners and managers would agree that a business plan is a valuable if not necessary tool. You might find, however, that few of them have ever written one. There are many reasons why haven't. In some cases it is because of a lack of time, in others because they don’t know where to begin. The good news is that business planning doesn’t have to be an overwhelming, overly scientific process.
There are several occasions where a formal, written business plan is necessary to get a business started. The most common reason is to secure outside loans or investment. The reason that banks and investors demand a business plan is to understand your vision of the business and to ensure that the vision can become reality. They want to see your rationale and the results that you expect.
Financing a business isn’t the only good reason to write a business plan. A business plan can be a great way to ensure that you yourself are being realistic in what you are trying to accomplish. After all, who has more to gain or lose should a business succeed or fail? Whether you take the time to write a complete business plan or not, there are some parts of the business planning process that can prove invaluable.
The “3 C’s”
The starting point in the business planning process is known as an analysis of the “3 C’s” – Customer, Company, and Competition. A detailed knowledge of each of these points is critical to the development of a sound business strategy. Everything from product selection to pricing, advertising and more depend upon a thorough knowledge of the environment in which a business operates.
Customer – the focal point in any business should be the customer – without them, there is no business. A business owner must maintain a constant vigil over the customer if they hope to acquire and maintain their business. Knowing the customer can mean many things, however. Many people make the mistake of examining a customer based upon demographic information, that is age, education, and income. One of the more important ways to know a customer is psychographically, or based upon their lifestyle. How people live and spend there time often correlates to the types of products that they buy, and how much money that they spend on them.
Company – it is also important to recognize what a company has to offer their customers. Every company is better at something than their competitors. The trick is to recognize what that is and to exploit it. In some cases it might be price, in others product knowledge and customer service, or even just location. A simple tool to evaluate a company’s ability to compete is a SWOT analysis. This analysis simply lays out the company’s Strengths, Weaknesses, Opportunities and Threats, usually with 3-5 bullet points each. Strengths and Weakness focus on factors inside the company, while Opportunities and Threats focus externally, on things such as new products or changes in the competitive landscape.
Competition – never underestimate the effects that competition can have on your business. The problem with the competition is that it is hard to tell what your existing competition is going to do, or where new competition is going to come from. Sometimes it is helpful to first do a SWOT analysis on each of your major direct competitors. This will help to define your competitive advantage over them. Where things get “dicey” are with indirect competitors. Most companies tend to examine competitors that sell the same products. In reality, competitors include all companies looking for the same dollars from a consumer. In the case of a furniture company, this could include carpeting, wallpaper, a television, or any number of other home improvement/lifestyle products.
The “4 P’s”
Once you’ve gained a clear picture of your Customers, Company and Competition, you can begin to formulate your “4 P’s”, also know as your Marketing Mix. This Marketing Mix contains all of the elements of your business related to delivering the benefits of your products to your consumers. Each component of this Marketing Mix should be catered to match up with the “3 C’s” analysis that you’ve completed, especially to your Customer.
Product – the first element of your Marketing Mix is your Product. Many people make the mistake of describing the product based upon its features. In the case of a retailer, the Product is not the physical product that the customer takes out of the store. It is the benefits that the product provides, i.e. comfort, convenience, and expandability. To take it a step further, they are also buying certain benefits from the retailer – price, selection, product knowledge, customer service. These are the things that bring a customer to buy from you rather than your competition. It is critical that when you talk with customer, either directly or through advertising, that you stress the particular benefits that you provide to the customer.
Price – the next element of your Marketing Mix is Price, which isn’t quite as simple as it sounds. You have to decide what type of customer you are selling to and what level of service that you are going to offer. If you offer a lot of service to an upscale clientele, than you can charge more for your product. Keep in mind that everything is relative. You can only charge more for your product than a competitor if your service is superior, otherwise people will buy from them.
Promotion – In this context, promotion is meant to describe any and all ways that you communicate with your customers, which can include radio, television, newspaper, direct mail and more. Which of these marketing vehicles that you choose depends again on the customer that you are trying to reach. It is important that you choose a vehicle that reaches those people as directly as possible. For example, you wouldn’t advertise on a country music station if your customers are older, well-off and listen to classical music. Again, it is critical to know who your customer is. To help gather this info, you could give people who shop in your store a gift of some type in return for filling out a survey.
Place – Place is the last element of the Marketing Mix, and in the case of a retailer, perhaps the most important. When you analyze a location, it is critical to understand how many of what type of customers will either be exposed to or have access to your location. Many retailers have been very successful in unique, non-traditional locations that were visible on a major commuter route. Again, it is important to locate your store where your target consumer has access to it.
Outside Forces
Unfortunately, analyzing your “3 C’s” and coming up with a matching “4 P’s” is not enough. We live in a changing world and none of these things ever stay the same. Many companies go out of business because they lose track of their customers or competition and never adjust their Marketing Mix. It is imperative that companies keep an eye on the world around them and how it is changing their “3 C’s”. It is also imperative that, as these things change, the “4 P’s” are adjusted to compensate. The following are a few of the “forces” that can have an effect on your business.
Society – as with most things, social styles and values change constantly. These changes range from color to styles to status consciousness and more. It is important to watch over these changes and adjust your Marketing Mix accordingly.
Technology – you never know how technology will affect you. In the retail business, it usually affects how you execute your business more than your product offerings. However, the popularity of home theater and personal computers has changed the type of furniture adorning many people’s homes.
Competition – again, competition can come from a number of place, often without warning. Keep an eye on anyone that might want your customer’s money, and know what they are doing.
Economy – many businesses know first-hand what happens when the economy changes. Things like inflation and unemployment affect retail businesses before almost anyone else. As the economy moves up or down, so should the pricing and inventory levels of a retail business, as sales are soon to follow.
Government – you never know when the government will come up with a new tax, tax cut or series of regulations. Regardless of what it is, it affects the amount of money that your customers have in their pocket and the cost of operating your business.
Business Planning Books & Software
Should you decide that to undertake a business plan to help keep your competitive edge, there are a number of books and software packages to simplify the process. These products typically include outlines to help you organize your information into a complete plan. They also typically include spreadsheets to lay out the financial detail that predicts the business's returns. Which of these resources is best for you and your business is hard to determine. Use them as resources to learn the business planning process, do your homework and you'll be surprised how fast it comes together.
Books - there have been numerous books written to help entrepreneurs to complete a business plan. The key is not to look for a "cookie cutter" outline to fill in to complete your plan. Writing a business plan involves a great deal of research and validation of your business concept. Only when this research is completed can you use the outlines in your books or software to complete your plan. You'll also find countless outlines and presentation formats. Most are good and few are wrong - some are just better than others. Try to find one that quickly and eloquently conveys what the concept is, in a manner consistent with the way you describe your company. Your business plan should be a reflection of your own vision and passion.
Software – several companies produce software that includes outlines and financial spreadsheets to help you to complete your plan. These packages are usually compatible with Microsoft Word and/or Microsoft Excel and are very easy to use. Jian (www.jianusa.com) produces a product called BizPlan Builderâ that has sold over 550,000 copies to date, according to their web site. Palo Alto Software (www.paloaltosoftware.com) offers a product called Business Plan Pro that has also received solid reviews and sold hundreds of thousands of copies.
If you are interested in learning more about any of these books or software products, simply click on the Barnes & Noble banner on the top of this page. Hundreds of books and software titles are available there to help you.