Who or What is Your Competition?

Your competition consists of anything or anyplace where your potential client might spend their money. Especially the money they might have spent on your service or product. Part of the market analysis section of your business plan must address why, or if, they will spend their money on you and not your competition. While regular market research should analyze your competition. You should conduct a major analysis every 2-5 years.

Defining Who Competes for Your Sales Dollar

Once again, your competition includes anything or anyplace where your potential clients might spend the dollar they could spend with you. The following represents a partial list of potential competitors.

• Companies in the same industry and the same geographic market: i.e. other bookstores within 15 miles of your bookstore
• Online companies (foreign and domestic) selling similar products: i.e. novelty products that may be purchased directly from Chinese manufacturers competes with your local novelty business
• Companies in a different industry, but that obviously might take your sale: i.e. people may decide to go to a movie instead of eat in your restaurant
• Companies in a different industry, but that do not obviously compete: i.e. instead of going to a movie or restaurant, the family saves money to buy a car
• They do not spend the dollar: i.e. increasing prices, stagnant raises, salary cuts, and unemployment eliminated the dollar they might have spent with you

While considering each of these possible sources of competition saves unwise use of time and money, try to avoid analysis paralysis. Gather information about the most significant of source of competition for your business.

How to Find Information About Your Competition

Let’s discuss some methods for finding potential competitors. We favor more cost effective methods. For example, do as much as you can on your own. The Small Business Administration (SBA) also offers free on-line assistance. You may use a free consultant through SCORE to help you. However, you should contract with a market analysis firm if you plan to invest hundreds of thousands of dollars or more on your business.

Sources of information include:

• What you already know: Usually, you want to start or improve this business because you have a passion for it. So, you do not enter the field as a novice, but with a background of knowledge and experience. You, therefore, also know the competition. Make a list of who you already know.
• Potential Clients: Your target audience may provide the best information about your competition. They report what they feel: good and bad. Interviewing potential clients also provides an opportunity to begin building the relationships that will lead to success.
• Chamber of Commerce or Business Associations: most communities claim a chamber of commerce that includes businesses in the community. They can provide a list of competitors geographically located in your market. Business associations include companies (who join) in a national or international market.
• Business Profiles: Several web sites like Hoovers, Jigsaw, and others profile larger companies. They provide an overview of the company, financial data, key management, articles, press releases and more. Most offer a free limited program, plus more information for cost.
• Industry Search Engines: Several search engines exist on the Internet to find companies by industry. I use an unusual one, Career One Stop, that allows you to find companies by industry, location, and even company size. The results of your search will usually list the name of the company, a key contact person, phone, size, and a link to the companies web site.

Questions to Ask About Your Competition

You must convince clients to spend their money with you, rather than with your competition. Understanding your competition helps you identify the appeal they represent to the client. It helps you recognize the strengths—and the weaknesses—of their product or service. In addition, it highlights the strengths and weaknesses of your product or service. It may even indicate why you should not enter the market. Analyzing your competition provides a foundation to your marketing plan.

Your analysis focuses on finding the answers to the following questions and more:

• Who is my competition? Where would people spend their money rather than spending it with me?
• Why do they spend their money with my competition? What do they like about it?
• What don’t they like about my competition? What would they like improved?
• How much do they charge? Why does it cost that much? Can I do it cheaper? Better?
• How easy is it to buy from my competition? What paths or obstacles do they create?
• How do people make the purchase? Online? Walk into a facility? Phone orders?
• How does my competition deliver the product or service? Does it satisfy or frustrate?
• How much competition exists? Are there too many? Can the market bear one more?
• Does the lack of competition represent an opportunity or indicate a lack of interest?
• What makes my product or service more desirable than the competition’s?
• Why would anybody buy from me rather than from the competition?

You may wish to use one the variety of competitive analysis models to interpret what you learn: SWOT (Strengths, Weaknesses, Opportunities, and Threats), Competitor Analysis, or Porter’s Five Forces. They, and other models, provide a framework to analyze the information you receive.

A Final Thought: Saving Money May be Your Competition

The current recession generated a possible shift in the American consumer. They began to save again, rather than purchase or go in debt. Economists note an increase in savings. Luxury purchases continue to decline. Part of the shift results from lack of money. A bigger part results from people recognizing that consumer debt entrapped them. You now hear people who used to buy or lease a new car every year or three, brag about the high mileage on their current car. As Dave Ramsey says “the paid off home mortgage has taken the place of the BMW as the status symbol of choice”. Business owners, therefore, must recognize that saving money represents competition.

Once you understand who and what constitutes your competition, you can build a product or service with marketing and delivery portals that appeal to your target client better than the competition's.

Next week we discuss “So What Will It Cost?”

Who is My Current or Potential Client?

This continues our series on Using Your Business Plan. We realized we needed to define “your client” before analyzing your competition. So, we added the extra blog this week. Enjoy!

The key to business success remains the client or customer. Several businesses use the motto “The customer is always right”. Clients pay the money that create your salary and profit. Understanding and defining your client saves you big money.

Wendy’s Story

Wendy Bird found a unique angle to the jewelry market. She noticed the incredible poverty during a trip to the Philippines. She saw women making beautiful pearl jewelry, but selling it on the streets for practically nothing. Wendy also knew women living in the United States that would love this jewelry. So, she created My Princess Pearls importing the pearl jewelry to the United States.

Wendy also studied her potential clients. She identified a very specific market niche. She focused on middle class women—and their daughters—as her target market. She narrowed her focus to people earning between $45-120,000. She also knew that the people in her market area had generous hearts and gave service freely. Her market niche included women and men who wanted to improve society.

Her marketing plan emphasized not just the quality of the jewelry, but the conditions of the women who made the pieces. She ensured that her clients knew not only that they were getting a beautiful pearl necklace, but that a substantial portion of the lower than usual prices went to help the women who made the necklace get out of poverty. She created a foundation that sponsored clothing and medical drives among her clients to prepare containers of goods that she sent to her manufacturers’ neighborhoods.

Wendy’s understanding of her potential clients allowed her to develop a very successful business and change thousands of lives in the process.

Define Your Client

Too many business owners think that their product will appeal to everybody. They fail to sufficiently define their potential client, so the employ inappropriate marketing venues, messages, and other methods that result in very expensive low sales.

You should define exactly who you want to reach as your market niche. The more specifically you define them, the better you can envision them, the more you understand them. Understanding their buying habits, motivations, places they spend time and money, and more helps you save money by targeting your marketing dollar to the best possible use. It helps you design a product or service they want to use. You will remember that we discussed the Client Development Team and Pivoting process in a previous blog. This helps make that happen. The more specific vision of your client, the better you may serve them.

Questions to Ask

The following questions may help you define your potential client. We divided them into topic areas you to help you create your own questions:

Personal Characteristics

• Who would buy your product or service? An individual? A business?

• What age would the typical purchaser be? What gender? Race? Nationality?

• What does your client do with their money, time, and passion?

• How would they use the purchase? Personal use? Give it to someone else? Resell it?
• Will they use your product or service in the processing of a different product?

Purchasing Parameters

• How much does your potential buyer earn? How much extra cash do they have?

• Does your client consider your product a necessity or luxury? Or in between?

• How much money will they spend on a product like yours? How often will they buy?
• Can your client buy it themselves or do they need someone else’s permission?

Habits

• How does your client usually make purchases? Where do they make them?
• How and where does your client spend their time? What percent? When?

• What do they read, watch, listen to, or attend?

• How technically savvy is your client? Do they phone, email, text, or post?

Interests

• What does your client need? Do they recognize the need?
• What causes, service, clubs, or other association does your client maintain?
• What trait about your client uniquely suites them to use your product or service?
• What question have you not asked about your client?

From the answers to these questions you will draft the client profile section of your business plan.

Resources for Developing Client Profiles

The Small Business Administration offers a wealth of information for business owners including demographic statistics and articles about client profiling. The US Department of Commerce shares demographic information from the US Census. Industry or professional associations may share information for business-to-business (B2B) clients. You can also Google information about almost anything. Bigger business may also wish to use the Stakeholder Salience Model  developed by Brad Agle to more clearly define the stakeholders in your business.

The better you can picture your client, the better you can serve them. Some businesses place pictures representing their typical and actual clients where management and employees can envision who pays their bills, salary, and overhead. Defining your current and potential client focuses your efforts on solving their problems or satisfying their needs.

We hope you enjoyed this extra blog this week. You may continue to read about “Who or What is my Competition?”

Can Your Business Idea Succeed

Chris’ Story

Chris had a great idea, expand his family’s 50 year old family history publishing house into a one stop shop for people who wanted to tell their family’s story in any kind of format. His publishing house specialized in traditional hard or soft bound books. Their list of publications included more than 450 books.

Chris saw that people told their story using a variety of methods: DVD's, CDs, picture books, calendars, and more. Yet, people had to wade through a variety of publishers, because no one did them all. I will not expose Chris’ strategy. I want to share how he analyzed his idea.

Chris adopted a growing method for exploring his business idea called Lean Startup. It was coined by Eric Ries. Chris explored and refined his idea before he invested a dime.

1. He researched the idea on the Internet and at conventions. He attended lectures by famous family historians. He asked them questions. He modified his idea based on their feedback.
2. He shared his idea and asked for feedback from a variety of vendors who sold the products he hoped to offer. He also asked questions from marketing and business groups he attended. He modified his idea based on the feedback he received.
3. He met with his current clients and with potential clients. He presented his idea and listened to their feedback. He modified the idea and presented it again to the current and potential clients and asked for feedback. He modified it again and presented it again—and again.
4. Finally, when all of his focus groups said they liked it, he invested the money to make it real. His work paid off, within one week of his announcement clients placed orders. They continue to do so significantly increasing revenues and profits.

Chris’ idea will propel his publishing business into the next 50 years of success. A business tied to publishing books had little future as people choose different options for telling their stories. However, a one-stop business that can help people tell their story in any format they desire will continue to grow. Especially, when the ideas was reviewed and refined not by the business owner—but by the very people it chooses to serve.

Traditional Model

In the past, potential entrepreneurs planned two types of businesses. The majority of businesses were (1) small-business startups designed to provide a better than adequate income to support the owners family(s) or (2) large-business startups designed to copy the Rockefellers and Carnegies by making a huge splash that would make the original team of owners and investors rich.

How potential business owners developed their business idea into a company also differed from today. Then, potential business owners discovered an idea they thought could make money. They developed the idea conducting market research through books (Steven Blank offers an amazing historical bibliography) and interviewing a few potential customers. They wrote their business plan and pitched it to potential investors to get money to build a prototype. The owner did not feel they could abandon a flawed model because the investors paid for that certain business model. They spent the investors money retrying their idea until the investors took over the company. A few avoided this pitfall and flew to success with the original creators still in charge. Most either crashed and burned or were taken over.

Today’s Type of Startup or Enhanced Business

Today’s entrepreneur faces a wider variety of choices. John Richards with the Rollins Center for eBusiness in the BYU Marriott School of Management introduced me to Steve Blank’s work.  Steve Blank describes these options in his book The Four Steps to the Epiphany (a definite must read for todays entrepreneurs).

• Small Business Startup Entrepreneurship: basically started on one idea that will provide an income to support the family(s). Similar to what we described as traditional. Most existing and startup businesses fit into this category. Small Business startups receive little of the angel or capital investments today. They can still receive SBA secured loans with approved collateral.
• Scalable Startup Entrepreneurship: seeks to build a small company into a large company based on a business model (not product or service) that can expand globally quickly. Google, Facebook, Ancestry.com, Omniture and others typify this model. It needs startup money to grow the model quickly. Most of today’s investment money goes into scalable businesses.
• Large Company Entrepreneurship: usually stem from existing large companies that spin off a new product or technology. Frequently, these stem from an “intrapreneur” or “skunk works” within a large company. Post It Notes would have been an example of this. Most of the funding for this startup comes from within the parent company or it stockholders.
• Social Entrepreneurship: a new brand of “business” where traditional non-profit endeavors such as literacy, microfinance, health, and other social causes adapt business models and processes. While the startup investment may come from grants or donations, usually they come from the founders approach. Ben and Jerry of the ice cream fame used a lot of their money for social entrepreneurship.

These represent the kind of business models for today. Now let’s examine a better, less costly method for getting your idea to market.

Lean Startups with Pivots

Eric Ries and a number of others advocate a different approach for getting your idea to market. Rather than creating the idea, getting the funding, and then implementing the plan; lean startup believes you get massive refinement before you ask for a lot of money. This was the approach Chris used to bring his idea to market.

Lean startup involves concept called “agile development”, “customer development teams”, and pivots”.

• Agile development implies that you can change your business idea based on customer development to better respond to their desires. Your agility to adapt prevents becoming mired in an intoxicating idea nobody wants. While the term “agile software development” captures a related method used in the software industry we refer to the broader application to business development.
• Customer Development Teams consist of current or potential clients to which you present your idea and solicit feedback. Using their feedback, you refine or drastically change your idea—and present it to the customer development team again. You repeat the process until they completely accept your idea. Then, you begin to implement. Many times customer development team members invest in the idea before it is implemented because they invested themselves in the process.
• Pivoting the act of completely changing the business model, product, or service based on the response of customer development team. Frequently, multiple pivots take place before the company officially opens. Pivoting on paper, rather than in reality, saves time and money.

How do you know if your business idea can succeed. First choose the right business model for your business idea. Second, listen to your clients or potential clients. Be able to reject portions of the idea, or the whole idea for what your clients tell you. Make your mistakes on paper rather than making them with cash. Good luck learning more about these.

Join us next week when we discuss Who and What is Your Competition

More Details About Business Plans

Last week we discussed the importance of using your business plan to guide the growth and processes of your company, rather than developing it for funding sources and never referring to it. We also outlined the basics of a business plan.

This week we will add more details about certain parts of your business plans. To prevent this post from being too long, we will highlight other parts over the next few weeks (the dates we will discuss the others sections appear in the outline below). Once again, we refer you to the excellent resources of the Small Business Administration (SBA), Small Business Development Centers (SBDC), Service Corps of Retired Executives (SCORE), and paid consultants. Each of them provide excellent resources at no- to small-cost.

Your business plan should contain the following information:

Executive summary (Usually 1 page. It is the last section you prepare)

1. Business summary describes (in one paragraph) the overview of the business idea, financial goals, and operational goals 
2. Keys to success explains why your business will succeed over your competition. It includes advantages of the service or product, marketing hooks, expertise of the principals. Usually this section will be among the hardest to write. Typically you use bulleted statements to highlight each key. 
3. Key objectives describes the financial goals for the first five years of the business. It overviews the major milestones to accomplish those goals. Use a graph for the financial goals and bullets for the milestones. 
4. Legal entity states how your business is, or will be, legally organized according to the laws of your state. You may choose to register as a sole proprietorship, partnership, Limited Liability Corporation (LLC), Limited Professional Corporation (LPC), S-Corporation, C-Corporation, 501 (c) 3, or other more arcane legal entity. Each entity provides different levels of protection, regulation, and organization. Always consult an attorney for any entity stronger than a sole proprietorship (even then it’s recommended). Listing the entity in the Executive Summary requires one line.
5. Quarterly and annual sales and profit projections indicate how much profits, revenues, and overhead you think your company should generate
6. Key principals and investors lists names and brief biographies for you, your key investors, and management team. This section will usually occupy a second page by itself. Biographies should be short. They should outline each person’s expertise, experience and major role in the company. Photos of each person allow others to recognize key players.

Market analysis (Look for…)

1. Can Your Business Idea Succeed next week, July 22
2. Who & What is Your Competition on July 29

Operational plan (Look for…)

1. Planning Your Operation on August 12

Marketing plan (Look for…)

1. Drafting your marketing plan on August 19
2. The 7 Pillars of Successful Marketing on August 26
3. Steps to Successful Sales Calls on September 2

Finance plan (Look for…) 

1. Establishing QuickBooks Accounting on September 9
2. Using Virtual Bookkeepers on September 16
3. Retaining an Accountant on September 23
4. Finding Funding for Your Business on September 30
5. Angel Partners & CVs on October 7

Exit strategy

1. What is the plan for current principals and investors to exit the business? Provides enough detail to satisfy everyone and reduce future discomfort. Drafting this section allows you and all the principals to confirm common understanding about how long each person (including investors) intends to stay involved in the business. It also describes what cash or profits triggers them leaving.
2. How does a principal sell his/her portion? Explains if current partners have right of first refusal, acquisition by other principals, or selling to outside investors. It also describes the role new investors or partners would play in the management of the company should they buy out one of the principals.
3. Milestones that trigger the exit include number in the client base, revenues, profits, market penetration, or significant dates. This section needs agreement of all principals. It provides more detail than the first section of the Exit Strategy.
4. How will the firm be dissolved describes what will happen to the assets, clients, brands, name, patents, copyrights, trademarks, and any other elements of the business. Your options include selling to (or merging with) another firm, selling to one of the partners, transferring ownership to family members, or dissolving everything and walling away. You may wish to include consulting a business broker in this section.

Creating—and following—a business plan prevents costly mistakes (Not that you still won’t make costly mistakes, that’s part of being a business owner. A business plan reduces the number you make with real money). Drafting, refining, and modifying your business plan requires hard work. Find a coach to help through SCORE or your local SBDC to assist you to write your plan. Join organizations, like a small Chamber of Commerce (sometimes large Chambers only focus on the global or large companies), whose members are small-business owners.

We hope this helps you build a business plan that will outline, guide, and deliver the growth of your business.

Use Your Business Plan

Kevin and his brother built a startup to a multi-million dollar firm. Local business associations awarded them recognitions of their business excellence. They told everyone their business plan drove their success. Unlike many business owners, who write a business plan to impress funding sources, they wrote theirs to define what they were going to do. They kept their business plan in the bookcase behind their desks. They took it down and referred to it multiple times a day.

They updated their plan regularly. They recorded major strategic, and some major operational, decision in their plan. Each quarter, they updated the graphs comparing actual to planned production, revenues, and profits. The operational plan listed in the overall business plan guided their actual production. Their plan listed the management team. They updated it every time a major member of the team changed. They followed the exit strategy outlined in their business plan.

Interestingly, they still received all the funding they requested. The financial institutions lending them money were loaned the very copy of the plan the brothers used to run the company. They recognized the validity of the plan and rewarded the business accordingly.

Importance of Business Plans

Too many business owners neglect business plans. They follow the “Ready, Fire, Aim” business model. They come up with a business idea (Ready), they start the business (Fire), and years later—when the business flounders—they create a plan establishing where they want the business to go (Aim).

Successful business owners recognize the importance and wisdom of planning what they want the business to do, produce, grow, and accomplish. They realize that they can refer to their plan when they write it down. Successful business owners repeatedly refer to their plan. They modify and adapt their plan based on successes and failures. They know that making a mistake on paper is always cheaper than making it in reality.

Simple Outline for a Business Plans

A simple business plan would contain the following elements:

1. Executive summary: business summary, keys to success, key objectives, key principals and investors, legal entity, quarterly and annual sales and profit projections, and other summary items.
2. Market analysis: analysis of concept , summary of the industry , research about competitors, estimates of cost and price, and profiles of your target clients
3. Operational plan: how you will produce and distribute your product or service, what equipment or facilities you will require, simple technology design of the production flow, how many people will you need to produce and deliver your product or service, how long will it take from order to delivery, what vendors or suppliers you will use, what operational support (purchasing, human resource, information technology, and accounting) you will need, complete human resource plan and other items necessary to the operation of your business
4. Marketing plan: (I like Bryan Walden Pope’s The 7 Pillars of Successful Marketing) market research, the right message, marketing strategies, campaigns, methods and vehicles, sales, and client retention
5. Finance plan: cost analysis, one-time startup costs, ongoing operating costs, tables of accounts, financial records/statements, budget, budget forecasts, emergency funding, cash on hand, funding needs,’’ accounting personnel (including bookkeepers and CPA firm), audit and reconciliation schedules, insurance and liability coverage, and tax implications
6. Exit strategy: what is the plan for current principals and investors to exit the business, how does a principal sell his/her portion, how long do the the current principals plan to stay involved, how will the firm be dissolved, and what milestones trigger the exit

You should cover at least these basic elements in your original business plan. You not only need to outline them for the startup of the company, but also anticipate each section at the end of the first, third, and fifth year. Your plan will detail processes, procedures, tables, statements, and graphs. You may create your business plan in a word processing document.

The Small Business Association (SBA) web site contains several free tools to create your business plan. They also co-sponsor Small Business Development Centers that offer free to low cost classes on business planning. The SBA also provides free consulting through the Service Corps of Retired Executives (SCORE). Several religious organizations also offer training to current and prospective business owners. Finally, you can pay business coaches or consultants to help you develop your business plan.

You will consult your plan regularly. You will modify it. In other words you will use your business plan.

Your Prime Business Goal

I address thousands of business owners each year. They own businesses in the United States, Brazil, Peru, Africa, and other nations. They may gather in Chambers of Commerce, business associations, international conventions, and other groups. I ask each group the same question "What is the number one goal you have set for your business?"

Sadly, too many small-business owners respond that they have not set a goal. The chaos of running the business, the extinguishing of business brush fires, prevent them from analyzing their business, setting an annual goal, or implementing a plan to achieve the goal. Their plight resonates with many of us, doesn't it? As a result, too many of us frantically rush wherever that day's crisis drives us. We respond to our business storms like a ship without a rudder, then wonder how we arrived at unplanned destination.

Other business owners respond "introduce a new product", "refine our service", "increase traffic to our shop (or site)", "lower overhead"and "stay in business". While I commend those who took the time to plan a goal, I grieve that they missed the prime goal. The goals they set represent means to an end. They cannot survive if they consider these the prime goals of their business.

Let me share the story of Annette who ran a home-based craft business. She set her goal to "triple my sales", a worthy goal. Plus, she accomplished her goal and tripled sales in one year. Unfortunately, Annette failed to do an effective cost analysis of her product. Unknown to her, she lost $1.45 on every $5.00 she sold. So, tripling her sales also tripled her losses and ran her business into $78,000 debt in one year. She not only lost her business. She lost the home that they had mortgaged to finance the business.

The prime goal of any business is to make $XX profit.

Business owners must focus on that prime goal, or lose their business. All other goals or objectives (subsets or small goals that lead to the prime goal) remain subservient to the prime goal "make money". "Making money", however, cannot remain unqualified. You will notice that I qualified my statement with "$XX". Successful business owners not only focus on "making money". They set a goal of how much profit they will earn.

Large businesses calls this weekly, monthly, or quarterly earnings projections. Sam Walton created a worldwide brand by establishing and evaluating daily earning projections. He built systems that gave him the information he wanted every evening. He established 10 rules for business and shared them with every person in the company. Stephen Covey calls this habit of effective leaders "Beginning with the End in Mind".

So, ask yourself "How much profit do I want (plan, need, or desire) to make this year?". If the answer eludes you for even four seconds, to set an amount. Then, post it on your bathroom mirror, tape it to your desk, make it your screen saver, and ensure that you and everyone in your business see it constantly.

After all, that is the prime goal of your business.