Bespoke Business Plan with Marketing Research and Financials
Entrepreneurs
There are many aspects of markets
that need to be covered in your plan. The ideas in this chapter are not
exhaustive but should get you thinking. What you are trying to do is to explain
the important aspect of your markets to the reader so that it forms a
background to your proposition and the will believe that you will meet your
forecasts.
Overview
Briefly outline what the market you
compete in or propose to compete in is. Define it and explain it. The essence
is, why doing or will people buy your goods or services? What essential benefit
does it gives them?
For example, a food product provides sustenance; people have to eat. It
provides a pleasurable taste. Your particular product may also be easy to
prepare and therefore provide convenience. It may provide a self-image to the
buyer; young, cool, sexy, etc. all these are benefits to be listed in the
business plan. An industrial product, a service, anything that is sold must
also have benefits that that make the customer want to but it.
Who are you customers? Describe them. It is material if you sell to an older
age group that is growing, or a younger one that is shrinking. What are the
problems of expanding a business in a shrinking market?
How big is the market? Unless the answer is obvious you will need to provide
some indication of size that the reader will understand what market share you anticipate.
This is also a good check for you- are you forecasting an unbelievable
growth in market share?
Market structure
Market structure is material
to assessing the attractions of your proposal. Explain it.
For example, retail bookselling in the UK has been a fragmented industry with
many independent bookshop who generally trade from small premises of less that
100sq m , a couple of large newsagents’ chains of specialist bookshops that
have developed in the past 20 years.
On the other hand, the supermarket business has only a handful of huge
competitors in most countries. Size confers economies scale, so as a new
entrant in such a market you will need to explain how you can replicate or
sidestep these cost advantages.
Is the market international? Perhaps you have an engineering consultancy firm
where you compete across the world in many languages and in many markets. How
will you do this successfully? You may need to explore individual national
markets in you plan.
May be your customers are international: you are a legal practice base in one
country but servicing multinational clients. How will you provide them with an
international service? Perhaps by meeting, forming alliances or simply by being
so expert in your specialty that they have that they have no choice but to use
you in one country?
Competitors
It is amazing how many plans seem to
describe businesses without competitors. Even if there are some acknowledged
competitors they are usually blighted by having inferior products. Ta the risk
of sounding pompous – just because a competitor has an inferior product that
does not mean that you will beat them in the struggle in the marketplace. Many
people felt that Sony’s Betamax video recording system was technically superior
to the VHS system that triumphed. The European Union will license one system of
high definition TV. That may be the one that is technically the best but it may
also be one that is produced by a European rather than a Japanese or American
company.
These competitors are people who are intent on driving you out of business.
They are important. What are you going to do to get the upper hand against
them? What will they do to strike at you?
Looking at both existing competitors and new entrants:
- Existing competitors. Describe what you can about their size strengths, weakness and means of operation, putting all this in the context of what you will do to defeat them.
- New entrants. New entrants to the market can be the dangerous ones. You fell you are tougher than the existing competitors but what about the huge company from another country or from another industry? This aspect can be particularly important in two types of industry:
i.
Mature industries often only provide opportunities for growth in other
countries that may be less well developed or have smaller competitors;
ii.
Industries that exhibit high technological change may stimulate new
competitors.
Example that affected the UK
bookselling industry in the 1990s were: foreign companies – US companies
began to look at the UK market and one large corporation took over and expanded
a local business – building a strong market presence very quickly ; and technology
– internet bookselling began to make serious inroads in this period.
Issues such as distribution, pricing, packaging and promotion, as well as how
strong competitors are, are the determinants of success. It is essential to set
out these issues, possibly briefly, in a business plan. A potential backer’s
confidence is boosted by the perception that you know your competitors and
customers.
Customers
The customer is the second
ingredient missing from many business plans. Who are yours? If you know that
your retail car part business serves primarily socio-economic group C1/C2 males
aged between 18 and 30 then do say so , you build confidence that you know what
you are doing, disarm potential questions and it allows you to say that your
market is stable, growing, has high disposable income, etc. you market may be
primarily supermarket buyers and only secondarily the end-user. You need to get
on to the shelves before you can worry about competing for the consumers’
money. Talk about you immediate market - the buyers – but don’t ignore the
end-users. If they don’t buy from the shelves then the supermarket buyers will
not reorder. How quickly do your customers pay?
Distribution
If yours is a products or a service
that needs distribution then discuss how you will distribute it to the
end-user. You may need to produce letter from distributors in your plan to
prove that you can deliver. In many markets there are a limited number of ways
to reach your customer – can you ensure successful distribution? Can you deal
with powerful distributors?
You may sell directly through telephone
sales, mail order or the internet. How will you promote and advertise you
products or service? Can you convince the reader that this will be effective?
You may sell through agents,
wholesalers or retailers. Can you convince the readers that you know how to do
this effective? Can you show that the costs of this approach are well understood
and controlled?
Distribution Via the internet
Selling through the internet raise a
whole set of new issues, not just for your business but for the plan you write:
- How secure is your site; if you computer or your printer fails do you lose a day’s business or a week’s?
- Do you have a firewall, anti-virus protection, good backup?
- Do you have you own website or piggyback on some one else?
- Is your site particularly clever/ well designed - and who writes /maintains it.
- Do you fulfill order yourself or sub-contract?
- How do customers find your websites?
- Are you have marketing links and referrals with other site how many ‘hit’?per week do you get and how does that translate into sales?
Is your website intended to sell? A
consultancy, for example, seldom wins new business through it website, yet most
will have one. The purpose is to reinforce other, direct selling methods.
Perspective customers will generally be won by referral or personal contact and
then the sale is reinforced by the website which adds substance to a
presentation. So talk about the aims of your website in your plan.
There are also things that are the same as any conventional business that
people somehow see differently when related to the world wide web. I received a
business plan for an internet- based business that described them as second to
Amazon. Now Amazon’s sales worldwide are 2000 time large – is that a
sensible comparison? If it was a bricks and mortar business, say a family- run
supermarket, would they compared them to Tesco or Carrefour or Wal-Mart – I
suspect not. The World Wide Web easily provokes delusions of grandeur.
Trends
What trends are observable in your
market? What changes can occur?
My client produced a system to
protect sunbathers from ultra violet radiation. It worked on UVA radiation
which has a shorter wavelength. Then newspaper reports started stressing the
important also of longer wavelength UVB. The issue was not the technical
effectiveness but producing an effective marketing response to maintain
customer confidence. ( Corporate Finance Consultant)
You absolutely must discuss the
trend in your market. These are measure of things that may be increasing or
decreasing or just changing, and must include:
- Competition;
- Technology;
As well as marketing issues such as:
- Trends to casual dining in the restaurant industry
- A trend to casual dressing for men.
- A trend towards long- haul holidays in the travel industry.
Investors like growing marketing
because the make it easier for you to expand your sales. However, growing
market also tend to attract more competitors which leads to falling prices.
These issues need to be addressed in your plan.
Some changes can be anticipated.
The reader of a business plan is likely to want to know what might happen,
however speculative. Again, by raising issues you can disarm them before they
develop into a negative aura to your project. A good example is bookshops:
whether at social gatherings or in business meetings, people always ask whether
internet bookselling is having a significant impact or whether children read as
much as they used to. There are easily identified trends towards sales through
the internet and for children to read less. By including these issues in a
plan, you have the opportunity to address them: pointing out that the internet
will not take100 per cent of the market, leaving a profitable niche for
retailers; showing that the overall book market may be static but is not
declining.
None of this need take an enormous effort, nor need it result in a 200-page
document. A comment, a paragraph and each issue is addressed.
Competitive advantage
It you have one, it is important to
make a big thing of your competitive advantage. That is the ingredient or
ingredient those are fundamental to your product or survive and that makes you
a winner.
The obvious advantage is cost. If you can produce something more cheaply that
anyone else then you has a clear advantage over your competitors , you
can charge the customer less or pay intermediaries more and still make bigger
profit margins that your competitor.
Another competitive advantage is technological advance. The Dyson vacuum
cleaner, for example, produces more suction that its competitors and has, as a
result, won a UK market share of over 50 per cent.
Most competitive advantage has a
limited life; patients expire, cost advantages erode as competitors find ways
to match your low methods. Always address this in your plan also because the
reader will ask about it if it is missing. Estimate how long you will have an
advantage. You may be able to claim that you will establish other competitive
advantages over time as the initial one erode. For example, your market
leadership even after your parents has expired and competitors can copy your
product.
You business may be of a smaller
scale. You may be opening the largest children’s wear shop in a locality. You
may argue that your advantage over other traders in the area is the extent of
your range of products and that it cannot be commercially viable for any
competitor to open a store of equal size once you have established yourself.
Examples of sources of competitive advantage are:
- Cost;
- Technology;
- Brand;
- Local monopoly (e.g. the only bookstore in a shopping centre);
- Location (e.g. the hotel with the best view or the filling station nearest the motorway entrance)
- Distribution (e.g. an exclusive distribution agreement with a key retail chain)
- Buying (e.g. an exclusive purchasing arrangement with the only manufacturer)
To provide competitive advantage,
your ingredient must be unique and something that cannot be copied by a competitor
immediately. Ideally your differences will reinforce each other so that, taken
together, it is very hard for competitor to replicate your entire system.
A classic example of this is allow-cost airline which has many element of
it operation that all combine to produce a low cost base. The full-service
airlines in contract, can’t copy these element in their entirety without
compromising the rest of their business. If they try to set up their own
separate low-cost division they find it is just like another competitor, competing
with and taking business from the full service division.
Your competitive advantage provides you with your Unique Selling Proposition
(USP). If you have points of uniqueness then this gives you are an opportunity
to make higher profit, to offer a bank greater security and to offer investors
a higher return.
Marketing Segmentation
Markets often fall into different
segments or niches. You may be trading in a segment that has its own characteristics.
For example, you may be in the garage repair business but it is significant if
you specialize in, say, Alfa Romeo Cars. You plan to dominate this small niche
of a large market and it is not material to you that the overall market is very
competitive if, in your segment, you have few competitors, none in the
locality, and can charge premium prices as a result.
If
you are trading in a marketing segment it is very important that you bring out
its particular characteristics.
Differentiation
Is your product or services
different from those of competitors? Many businesses succeed despite trading in
commodity markets’. They can only do so by selling more cheaply than
competitors, whose products are indistinguishable. Or they do so by controlling
distribution more effectively that competitor. But must businesses try to make
their product or service different in some way. Such as:
- Benefits/characteristics/features;
- Product quality;
- Service quality;
After sales support;
- Appearance;
- Image.
Explain what your differences are,
because they are crucial to explaining why you will succeed. They are also
crucial explain why your competitors won’t simply copy whatever you can
provide. Maybe they will but not quickly enough.
For a long time, the McDonald’s Corporation was happy to show its restaurants
to all and sundry, even to competitors. They believed that the whole way
they organized to do what they did was unique and that even if the surface
appearance could be copied nobody would succeed in copying every aspect of
their organization. This in itself was a more crucial difference that niceties
of market positioning or short-term design feature.
Pricing
Pricing strategy is crucial to most
businesses and a book could be written on that subject alone. Indeed pricing
and business strategy are intimately entwined. Whilst pricing per se may not
merit a specific section in your plan it must be covered; perhaps in your
description of your market, perhaps in your proposal, perhaps in your
description of what makes you special. If pricing includes discounting or give-away
then the value of discounts should be shown in the financial section of the
plan.
Even
a bookseller who sells items with marked prices will use discounts, ‘buy one
get one free’ offers, loyalty card and so on which are all part of a pricing
strategy. A manufacturer of computers may use price differently, perhaps
pricing a basic model aggressively but charging a premium for upgrades, repairs
or spare parts. They may price differently in different geographical market or
to different types of customers, such as supplying a lower-priced model to the
public sector. These considerations apply equally to service industries an
accountant may provide cheap provision of tax returns but charge much more for
more complex advice that arise from tax work.
Since
pricing strategy is critical competitive tool in most businesses and is crucial
to their success, you must explain your strategy. Are you aiming for the top or
bottom of the market, segmenting the market, differentiating your product or service
from those of competitors, producing a range of differently priced products?
High prices and service strategies are not uncommon. The issues to be covered
in your consideration of pricing will include discounting but also issues such
as pack as size , loyalty schemes, the provision of free ‘ extras’ or the
opposite, the removal of part of a product to be sold separately. An example of
this last item would be separate charging for service or support.
Remember that the only way you can undercut competitors over the long term
– unless you can afford short – term losses – is to have lower cost, other the
lower- cost competitor will keep undercutting you. Even with low cost base,
price cutting can be a risky strategy if the competitor has ‘deeper pockets’
and can cut price in response, regardless of losing money. In the UK Virgin
Trains stopped provide service on a particular route and so a regional
competitor stepped in with a low- price offer, in stark contrast to the much
higher prices being charge by Virgin on a higher price being charge by Virgin
on a slightly longer segment. Virgin Train, a large company, immediately
responded by reintroducing services and matching prices.
Barriers to entry
Banks and investors
like businesses that are protected from competitors in some way. Such protection
usually results in protected income and higher than normal profits. A casino,
for example, is protected because the law usually limits the number of casino
in a locality. In contract, s retail shop on the high street has no protection
against a competitor opening next door. I recall an instance of just such
competition, where a retailer of children’s clothing suffered someone opening
right next door in exactly the same business.
- Significant barriers to entry include:
- High cost of equipment or building brand recognition;
- Patents or scarce technology know-how;
- Licensing, e.g. as outlined above, being the last petrol station before the motorway both confers a benefit and is also hard for anyone else to replicate;
- Access to a scarce resource, e.g. a salt producer located on salt deposit;
- A strong brand.
If there is something like this that protects you
business from competition, you must include it in your plan.
New
Technologies
The effect of the new technologies seems worth a
special mention in our times. Whilst this is an aspect of ‘trends’ and may be
of ‘competitive advantages’, it is often worth a particular mention. Most
businesses are being affected by opportunities and threats from the internet
and other emerging and developing technologies. You should explain what you
plan to do take advantage of anticipated change and to head off threats or
explain why a development does not constitute a threat.
An
example might include explaining your ability to reduce cost through effective use
of telecommunications and computers. The costs of computer power continue to
fall and have allowed banks for instance, to replace many staff with smart
systems.
At the same time, investors have a fear that new technologies
will be ,
in turn , superseded. If you develop a business that users CD ROM's you
may have
to address how you will deal with the next generation of technology such
as mini-disc or flash-drives or internet. One approach to this is to
show you will
make sufficient profit in a short time to make the project worthwhile.
Another is
to show that you will be able to take advantage of the next technologies
to
appear.
Mixed strategies
We sell books through Amazon Marketplace and we
generally try to be lowest-priced seller of each item. However, we also compete
on service and so we will aim to price higher that competitor who supply from
the US, who can take two weeks to delivers, compared to our two days. We also
price above competitors who have very poor customer feedback, if your business
uses mixed or complex strategies then describe them.
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