so you want to start business
well what kind of business i'm not
talking about what you might make
sell or service instead i'm talking
about the ownership
who will own and run your business let's
go through some of the
common forms of business ownership
let's start with a sole proprietorship
one owner with all of the management
power
one owner that can claim all the profits
they carry all the risk
and get all the rewards but
add more owners then we have a
partnership
each owner is a partner each shares
in the profit do all partners run the
firm
not necessarily a partner that's active
in managing the firm
is a general partner a partner that
invests
money but is otherwise not active in
running the company
they're a limited partner perhaps a
partnership wants to grow
but they need more cash to expand the
present owners can sell some of their
shares in the company
to investors the company is now
a corporation those investors
they're stockholders therefore they're
the owners
and they can easily sell their shares at
any time
corporations are legal entities in
effect
they have legal rights just like a
person which means
the corporation is responsible for
anything that might go wrong
the investors at worst can only lose the
value of their stock
but who runs the company for a
corporation
the owners that is the stockholders
they can elect a board of directors that
board can choose the top
executives in the company but the board
of directors cannot
influence day-to-day activities in the
company what does this mean
well to a certain degree in a
corporation
stockholders own and managers manage
there are many other nuances
in trying to choose the best ownership
model for your organization
but hopefully now you know some of the
basics associated with the most
common ownership models and hopefully
you'll be able to consider the
important issues and ask the right
questions as you move forward in
developing
your organization
in business pretty much everything
customers enjoy requires
some materials a great meal required
delicious ingredients
a movie experience required comfortable
seats
even your massage was made better with
fragrant nourishing oils
companies must recognize that every
material purchase
is an opportunity to improve the product
or service provided
procurement and materials management are
the segments of the company that fund
suppliers
purchase the materials and then make
sure that this inventory is stored and
used effectively
if done right procurement and materials
management
can improve customer satisfaction they
can contribute to the company's
profitability
and by partnering with reliable
suppliers
they can help the company develop a
stable supply chain
that can be counted on to continuously
deliver high quality products and
services
to the consumer to illustrate these
points
let's use a cell phone as our example
product
and actually since we're buying parts
for this cell phone let's consider
just one part of the cell phone the
battery
what does our company need to think
about let's first consider the consumer
what does the consumer expect they want
value a long lasting battery at a
reasonable price
they probably also want a battery that
is safe a
small lightweight battery that won't
overheat
if this is what the customer values and
if those are the things that we
advertised the battery in some way needs
to fulfill the customer's expectations
a great battery helps make our phone
better
a better phone will sell more units and
thus our revenues go up
now that we made the customers happy
let's remember that revenues alone won't
bring us a profit
we need to consider our company's needs
the company
needs to control cost while we're buying
great batteries for our customers
we have to know what the total cost of
purchasing these batteries will be
i'm not just talking about the per unit
cost you must consider the
total cost of these batteries the cost
of storing batteries
costs associated with theft and damage
the cost of negotiating and placing
orders from battery companies and don't
forget
that someone needs to pay for the
delivery of those batteries
so if keeping cost low is important to
your company
you'll need to remember inventory costs
include the cost to buy
hold and order inventory that brings us
to the final party
involved in our battery purchase the
supplier
the battery supplier will ultimately
dictate battery cost
and the quality of the battery but they
also
impact our cell phone company in other
ways if they can fill
orders quickly we can keep low inventory
levels
even if we run out of stock it won't
take long to get a new shipment
for that kind of service though we'll
probably have to pay a higher price
on the other hand a slower supplier
may have lower per unit prices but we'll
need to carry more
inventory since we have to place orders
early just to be sure
they'll be able to fill them before we
run out of batteries
this takes care of our battery needs
today
but how about the next generation of
cell phones we'll need
stronger batteries that fit in our new
phone design
and we still need to control our costs
in modern business
suppliers are business partners when we
sell more phones
they sell more batteries on the other
hand if they make
batteries better we may sell more phones
because of this suppliers and innovative
manufacturers
must work together to understand the
customer
develop new technologies and also to
develop manufacturing and logistics
strategies
whether your company is buying cell
phone batteries
tomatoes theater seats or even massage
oils
it needs to consider the customer the
supplier
and our company as you head back to work
today
ask yourself these simple questions are
the customers happy
with the materials they buy or use
do we consider our supplier a partner
are suppliers involved in helping us
develop better products
and services and do we consider the cost
of holding inventory
or just the cost of purchasing
if your answer to any of those questions
is no
you are likely missing an opportunity to
maximize your company's potential
look around you look at your stuff
how was your stuff made which items were
made well
and which items were not which companies
do you always trust
to make good stuff your favorite car
clothing and electronics companies they
can only stay your favorites if they can
deliver
high quality goods over a long period of
time
good manufacturing and quality control
are vital components of
building a global brand that customers
are loyal to
so let's take a look at some of the
primary issues manufacturing managers
think about every day and let's use
a car company as our example so
once they have a design for a car they
need to know
the demand how many cars will be needed
each month
perhaps it's a brand new model so we
might not sell too many the first year
but forecast tell us sales will grow
significantly next year
so just how big should our facility be
remember
a facility that's too big will be a
waste of money but if it's too small
we're just not having enough cars to
sell
in manufacturing cost is almost always a
key consideration
so we have to know how much money will
it cost for materials
labor transportation facilities and
energy to make
each vehicle how flexible is our
manufacturing process
how many choices do we give customers we
let them choose car
color do we offer a navigation system
can they get upgrades on seats
entertainment systems
sunroofs which brings us to quality
what exactly does quality mean to you
aesthetics
durability reliability speed
manufacturing must make a car that their
market deems to be high quality
and even then what's good today won't be
good enough next year
manufacturing facilities must be ready
to continuously improve
then there's the question of where the
cars will be manufactured and by whom
should we make them in the country where
they will be sold or should we make them
in another country
should our company make them or should
we hire a contract manufacturer to make
the cars for us
what are issues manufacturers consider
when making these types of decisions
cost of course materials energy
labor real estate taxes also
is it possible that the country has more
access to skilled labor
or do they have easy access to material
and energy related resources
perhaps the contract manufacturer has so
much experience making these types of
high quality products
that you know they can make them better
than you could ever make them yourself
location can also impact speed perhaps
their location makes
for easy movement of inbound and
outbound materials
perhaps your end item is big and
expensive
manufacturing location may impact your
delivery times and perhaps
you might be able to avoid import taxes
currency might also be a factor imagine
that you are
selling a product in europe investing
euros and getting paid in euros
minimizes the chance that profits might
be wiped out by
big swings in exchange rates and in some
cases choosing a manufacturing location
might take into account the stability of
the country
political stability crime rates
inflation rates
labor laws and culture executives don't
have to worry about what might happen
tomorrow at their factory that might be
five
or even ten thousand miles away the
companies that make your favorite stuff
apple lexus nike samsung mercedes
they have transformed their corporate
images into global brands
but without a backbone of high quality
manufacturing
those companies would not survive making
their customers happy
means that every single product you buy
from them
meets or exceeds expectations so
as you use your favorite product today
think about who made it
when it was made where it was made
and what they are doing right now to
make the next product you buy from them
even better
in just the last few years the term
logistics has gotten very popular
global companies like dhl ups and fedex
are
known as logistics companies but what
exactly
is logistics i mean is it just getting
finished goods to a customer's home or
perhaps
to a store where these goods can be put
on a shelf ready for purchase
yeah that's logistics but it's just a
small part
of what the world of logistics
encompasses you see
logistics doesn't just happen in the
last mile before a product gets to the
hands of the user
logistics happens before a product is
even made
even in the most simple supply chains
raw materials and components are shipped
to manufacturers
finished goods are shipped to
distribution centers and from there
products make their way to a retail
store or an online retailer's picking
and packing warehouse
where finally they can be shipped to
your home
all along the way there are important
decisions to be made that will
impact whether the shipment was quickly
delivered
safely on time in the right amount
and of course at a reasonable cost plus
we want to know that our logistics
process is flexible
big orders small orders perishable
products heavy products
dangerous goods orders destined for big
cities
and others heading towards a farm
domestic orders
and foreign orders and nowadays
customers want to be informed customers
want to have the ability to track their
shipments
marketing and manufacturing are
important but a great product
that comes with a big shipping cost and
then arrives late
damaged or to the wrong address ruins
the customer experience
as a result logistics specialists are
constantly making decisions
that must make customers happy and keep
the company profitable
so how can a logistics manager keep the
company profitable
keep inventories low move inventory as
quickly as possible
and at the lowest possible cost empty
trucks and containers waste fuel so
keep trucks and containers full by
planning effectively
and don't get caught unprepared
stockouts
rush shipments and shipping errors are
extremely expensive and can mean the
loss of a customer forever
so in the end logistics managers are
tasked with making
all sorts of decisions that balance cost
speed and customer satisfaction what
types of decisions
well should we use a truck train
ship or plane what type of packaging is
needed to keep the items safe
they also consider storage issues like
what's better
having high levels of long-term
inventory sitting in a warehouse
or low levels of inventory moving
quickly through distribution centers
and if you're shipping globally you'll
need to consider issues like
import and export laws tariffs and
documentation
you see logistics is about a lot more
than delivery
oh and don't forget materials don't just
move
in the direction of the customer reverse
logistics deals with returned items
items requiring repair that need to be
sent to a repair center
and reusable and recyclable packaging
as companies look to control cost reduce
waste
and eliminate product loss while still
getting the right good
to the right place at the right time
companies need to consider
all of the pieces of the logistics
puzzle logistics
is beneficial for everyone involved
customers get what they want
how they want and when they want it and
companies
can make it all happen with minimal cost
and waste
now that you have a better understanding
of some of the vital pieces of the
logistics puzzle
think about which pieces your company
may not be considering
the last two elements of setting
direction for your organization
are articulating your guiding principles
and your goals
guiding principles dictate how you want
the organization
to behave especially when your leaders
aren't around
you're setting out a principle that an
associate can use when they're
confronted with a situation
where they don't know what to do what
lenses do you want them looking through
as they're evaluating those decisions
because if you have
clear guiding principles the actions
they're going to take
will be consistent with the direction of
the organization
which ultimately helps you achieve that
vision
and mission in terms of your goals
you're going to set out those metrics
those things that after
a year two years five years you'll look
back and say
we achieved those goals try to make them
as
measurable as possible it can be a
dollar
how much revenue how much profit it can
be a number of new customers that you
add
those guiding principles and goals need
to be clear enough that they
guide behavior help people behave in a
manner that's consistent
with the organization's mission and
those goals
should be driving you to achieving your
vision
over time they need to be aggressive
and pragmatic so you get that balance of
i know i can achieve this
but i'm not really quite sure how i can
get there so i need to innovate and push
to be able to do so
let me share some ideas around what
guiding principles can be
some guiding principles i've heard that
are great
are things like would i give this to my
family
the organization was in the consumer
package goods
industry and when people were trying to
figure out whether they make an
ingredient change to a product
or a packaging change to the product
they ask their people to step back and
say
if you made that change would you be
comfortable giving that product to your
family
if the answer was yes go ahead and make
the change if the answer is no
stop immediately other guiding
principles i've heard
be net exporters of talent this is how
we want our managers in the organization
to behave
being a net exporter of talent means
bringing people in
helping them develop helping them grow
challenging them
and building their skills and then once
they've reached that next level
push them off to the next team send them
to the next great opportunity in front
of them
and then bring in more people behind
them and the net effect of that is
you're generating more talent for the
organization
than you're bringing in now think of the
behaviors that this can lead
managers to take they won't hoard
talent anymore the notion that i've
built somebody and they're a high
performer but you know what i'm going to
discourage them from going to the
great new role would run counter to this
guiding principle
so by putting this principle in place
that organization is going to
achieve that goal of having a more
talented
organization so think about what you
want your organization to look like in
the future
how do you want your associates to
behave and then be able to put in place
a principle that they can
understand when they're faced with a
decision
now in terms of goals laying those out
very clearly and then sharing them
across the organization
but letting the organization figure out
how to get there
so think about what the goals are of
your organization
what's the vision where are you trying
to go and what set of goals
will help you get there and by
articulating them clearly
the organization is going to drive in
the right direction
whether your company has customers wants
customers or if your
already successful company wants even
more customers
knowing that customer is vital to
securing sales
so as a company looks to start selling
their products and services
often one of the very key questions they
need to confront early in the process
is who should my company want as
customers
who is our target market well your
target market
should probably include people that
you're capable of satisfying
while still earning a profit that way
they're happy and you're happy so
how do companies describe their target
markets
well target markets can be described in
a number of different ways
is your target market made up of men or
women
how old are they where do they live what
language do they speak
what are their hobbies what do they do
for a living
how much money do they make or better
yet how much money do they spend
and is it possible your target market is
not made up of people
perhaps your target market is made up of
other companies
and it doesn't matter where your company
is today
if you're a brand new startup company a
large global firm with a rich history
or maybe your future company is only an
idea in your head
knowing your market is important to
being successful today
and in the future why well a company
and its marketing team and sales force
have only so much
time and money they need to use their
resources wisely
we're not just making sales today we're
building a target market
that is loyal to our brand so whether
you want to know
your customers desires today or tomorrow
whether you want to use your company's
money and time wisely
or if you just want to find new
customers for your products and services
understanding your target market is
vital
to the evolution of your company
friends family business partners
there are so many people in our lives
and so many others
we have yet to meet developing and
maintaining relationships with all of
them can be difficult
but these are the people we count on for
support
stability and growth nowadays
companies understand that their
customers serve the same purpose
customers support the company a loyal
customer base
provides stability and our present and
future customers
provide an opportunity for growth
so how can companies reach their
customers
how can they create an emotional
connection that will drive a person
to buy your product or service well
there are three basic issues that need
to be considered
who's the target market you'd like to
reach
what does the company want to say and
how will that message be delivered
let's start by considering the target
market
a good marketing department will isolate
people that they would like to target as
potential customers
sometimes the market is quite narrow so
reaching most of them
might be rather simple on the other hand
some target markets are large and
diverse
they contain people with very different
lifestyles
this could pose challenges in reaching
all of them
in a simple and cost effective manner so
we may need to dissect the target market
into smaller slices reaching each slice
with a different message or using a
different medium
now that we know the market what do we
want to say to them
are we trying to make them curious do we
want to stir emotions
excitement inspiration fear
perhaps the goal is to build trust
some companies want to invite customers
to be part of a group
ultimately we hope the customer will be
called to
action make a purchase join our club
visit our website while a good product
or service will satisfy a customer
customers need to be aware that the
product exists
they must trust they will get value for
their purchase
and they must be driven to seek out the
product or service
and then purchase it developing a
message that can
quickly inform inspire and move someone
act
that's not easy it requires creativity
and a deep understanding of human
behavior
with our message in hand it's now time
to deliver the message to our target
market
how can we make contact with the
customer
digitally in their cars at an event
in a trusted atmosphere perhaps they
hear about us through a friend or maybe
they learn about us at a store each of
those mediums
is different so a marketing executive
has to be able to send the same
message using different mediums is your
message something
that can be delivered using audio video
pictures digital messaging is your
message simple enough
that it can be powerfully delivered by
other people
all the while we need to remember that
our budget is limited
so as we consider identifying the target
market for our message
crafting a message for that market and
then delivering that message
so it is heard or seen by our customer
we have to ask ourselves are we
maximizing our investment
if we spend a million dollars to
communicate with 200 000 potential
customers
how many of those people will need to
purchase our goods and services
such that we make a profit relationships
are a two-way street
both parties need to feel enriched by
the relationship
by knowing your target market crafting a
meaningful message
and knowing how to deliver that message
via multiple mediums
companies can communicate with customers
new and old
why do companies decide to bring on new
people perhaps
they need to grow a department maybe
they need to replace a person that left
it's possible the company requires a new
type of employee to fill a modern need
whatever the reason to make a good
hiring decision the company needs to be
able to describe the position to be
filled
what type of employee they want to fill
that position
and also how much it will cost to
effectively fill that position
let's say we want to hire someone to
redevelop our website
and then to manage and grow the website
in the future
how would you describe the positions so
that it sounds
interesting so that we can attract the
very best candidates
motivated professionals but
for a person with a bit of experience
and for someone
motivated to develop a strong career
this particular web development job
sounds exciting they're interested they
like us
that's good but do we like them
let's tell them what we expect hopefully
the unqualified have now moved on and
the best candidates are now working on
their resume
look we can't interview everyone so we
need to do our best to find great
candidates
and entice them to apply for the job
communicating a job description
and job requirements and then being sure
that the best people know about the job
is only the first phase of finding a
great person
to join our company now that we have
applicants we need to figure out which
candidate is the best fit for that job
and
our company so how do companies figure
out who to hire
well let's consider what we might want
from our web developer
they need to talk to executives they
need to have the ability to develop
creative content
they need to have technical skills they
have to understand
our culture and our ethics and they have
to be trustworthy
how could you see if the candidates have
everything it takes
to be successful in this job interviews
sure but how could you test
their ability to develop creative
content
how about asking to see some of their
past work do they have a portfolio of
work
how about technical skills perhaps we
can have them take a test
maybe we can give them some homework
that they could bring to the interview
are they trustworthy nowadays most
companies will also do some sort of
background check with law enforcement
and perhaps
also with past employers and once the
interviews are over
you'll also need to consider some other
issues what happens if no one is fully
qualified
will you be willing to take someone that
is mostly qualified
also are your hiring practices legal and
ethical
is diversity for your company government
mandated or part of a plan for corporate
excellence
and who gets to make the final hiring
decision
their new boss a top executive
the person that interviewed them or
perhaps someone in human resources and
even when you find the best candidate
and decide to make them an offer there
is still the question of whether or not
they will accept the offer
the best candidates often have lots of
options to choose from
offers counter offers negotiations
and signing a contract may be all part
of the hiring process
once they accept the position you will
need to gather their personal
information for company records
and sign them up for a benefits package
once we have them in the system the new
employee might go through a corporate
orientation
and then they might get trained on
equipment or business processes
imagine going through all of that all
that time all those resources
and then finding out you hired the wrong
person
great people are the key to a great work
environment
and excellent customer satisfaction
recruiting
evaluating hiring and training employees
is extremely expensive
companies that do not take these
processes seriously waste lots of time
and money and are then stuck with a
subpar workforce
money it's the lifeblood of the
organization it needs to flow
money comes in from customers money must
also go
out to employees and suppliers what
happens
if the flow stops no revenues from
customers
the company dies if we stop paying
people
no supplies no employees the company
dies so whose responsibility is it to
keep track
of the money flow finance no
finance does deal with money but their
job is not
to keep track of money flows their job
is to obtain funds and
also to invest them keeping track
of the money flow is the job of
accounting
they're responsible for tracking money
coming in from customers
money going out to employees and
suppliers and
they're also responsible for keeping
track of money flowing
inside the organization from one
department to another
why is this important and who benefits
from this tracking of the money
for that let's discuss the two types of
accounting managerial accounting
and financial accounting managerial
accounting keeps track of where
all the money goes this is important to
people
inside company this helps with budgeting
it helps us keep track of departments
that are using money wisely
and it also tells us where there might
be waste
managerial accounts are the ones that
tell us how much it costs to make
and deliver a two thousand dollar
television to the consumer
so managerial accountants help managers
inside the organization measure costs of
production
marketing and everything else that goes
on inside the company
they also assist in developing budgets
for next year
as well as budgets for new projects
after the fact
they can then report if people are
staying within those budgets
plus managerial accountants find ways to
help us minimize
taxes so what do the folks
in financial accounting do instead of
being responsible for reporting to folks
inside the company financial accountants
are tasked with developing reports
for people outside of the organization
why is this important
it informs people about our company's
financial status
that's important for anyone considering
investing in the company
and for organizations that might
consider lending money to us
plus government agencies special
interest
groups employee unions law enforcement
and sometimes
even customers are interested in knowing
about the financial activities as well
as the financial stability
of the organization while financial
reports are generated by financial
accountants throughout the year
they work hard to develop the
all-important annual report
the annual report provides financial
data a written recap of events from the
past
year and a statement of concerns and
opportunities
for the company in the future this
information in the annual report will
influence all sorts of actions and
behaviors
inside and outside the company so
financial accountants must carefully
consider
every word and every number in
developing an annual report
that abides by the laws of commerce and
does not mislead parties
inside or outside of the organization
as you can see having accountants both
managerial
and financial accounts helps a company
learn from its past
understand its present financial health
and also
plan for its future growth you may not
love accounting
but hopefully now you understand just
how important they are for
any organization that requires money to
survive
what is your financial worth how would
you figure that out
well to start we'd add up all of your
money
and the stuff you own cash savings
retirement accounts your home your car
and other property we total it up
those would be your assets now
for most of you you'd also owe money
bills
power water cell phone we'd also add in
credit cards car loans student loans
your mortgage those are your liabilities
now take your assets and subtract your
liabilities
that is your net worth for some of you
the number may be positive you have more
than you owe for many others though
liabilities exceed assets you have a
negative net worth
accounts do the same thing with
companies except for companies
assets minus liabilities gives us
owner's equity
so what would be the assets for a
company
cash and investments machines and
furniture
buildings and land and also vehicles
for the most part those are tangible
assets but
you'd also include intangible assets
like patents
trademarks and copyrights
how about corporate liabilities
companies have bills they pay off loans
like you and i
but they might also have to make
payments on bonds they issued to
investors
corporate assets minus corporate
liabilities that gives us owner's equity
and again
just like with our net worth sometimes
companies have positive owner's equity
other times it may be negative so
why not take stock of your personal net
worth today
add up your personal assets consider
your personal liabilities
and then calculate your net worth so
often we're caught up in just making
money and paying bills
we get lost in the day-to-day finances
perhaps
by calculating your net worth you'll see
your finances
in the big picture and perhaps it may
change your financial behaviors
when companies examine their assets
liabilities and
owner's equity they're doing the same
thing they're looking at the big picture
because while a company may have lots of
sales and small bills to pay today
they may not be considering debts that
may not come due
for the next couple of years so don't
judge a company
by what you see because just like your
neighbor with the great house
and luxury car it's possible the
luxurious hotel you love
may have lots of beautiful assets but
they may be loaded
with millions in liabilities
in order to measure and report their
annual profit companies will develop an
income statement an income statement
adds up
all sales and then subtracts all sorts
of
costs and taxes one important thing to
remember
is that an income statement is an annual
statement
so if you do a google search for
starbucks income statement
it will likely generate income
statements for the last three
to five years it's also important to
remember
that companies set their own beginning
and end of their financial or fiscal
year so why don't you open up a browser
window right now
and find income statements for your
favorite companies
see how they make their money and see
where their money goes
perhaps you'll begin to better
understand the challenges companies face
in actually making an annual profit
your business plan needs to clearly
spell out the points of differentiation
for your product or service compared to
your competitors
and those points of differentiation need
to be things that your customer
cares about now the differences need to
be substantial relative to competition
by saying you're one to two percent
faster than your competitors
that won't get a customer's attention
twenty percent faster
now you have their attention second they
don't just have to be substantive
differences
they have to be meaningful if your
customer cares about
cost but not at all about speed it
doesn't matter if you're 20
faster so make sure as you're
articulating these points of
differentiation
you look at substantive differences as
well as meaningful ones
now knowing how you're differentiated is
going to help you know where to invest
your time
and money because this is a planning
exercise
and you're going to focus on those
differentiating factors
and where to compete or not compete in
the marketplace
this is the part of your business plan
that's going to keep your strategy
focused
and staying on strategy is going to make
you more effective and more
competitive it'll prevent you from
chasing work you shouldn't pursue
it'll prevent you from investing in
things that are going to be dilutive
that your customers won't care about so
as you articulate your business plan
make sure you think through those points
of differentiation that your customers
care about
and that you have a meaningful
performance advantage on
versus your competitors and by spelling
those out clearly
you're going to make sure that you focus
on strategy and
you have a more competitive offering
your business plan has to lay out your
product development
roadmap that roadmap should spell out
what the major phases are
in product development as well as the
timelines that go along with it
describe what's in your minimum viable
product the first product that you put
in the market
what are the features you're going to
release then discuss what the next level
of prototypes are going to be
as well as when that final product is
going to be available and released into
the market
the business plan should also describe
your approach to
testing research and development and
what that future product roadmap will be
explain the key risks in your product
development life cycle
and how are you going to mitigate or
account for those risks
when you lay out your product
development roadmap lay out those
features and functions at each stage of
development
and articulate what the gates are for
you to build that next level of
functionality
pricing is one of the most critical
decisions you're going to have to make
and your business plan needs to spell
out your pricing model as clearly as
possible
you need to understand even a one
percent differential on pricing
can have a disproportionate impact on
your total profitability
let's assume your business has a ten
percent profit margin
if you raise prices by just one percent
on the top line for
revenue you've increased your
profitability by 10 percent
that one percent will go from your
revenue line all the way to the bottom
and your pricing will drive margin from
10 percent
to 11. pricing is huge do not
under invest in thinking about it
so how do you come up with your pricing
benchmark some of your competitors
look at their pricing model as well as
their price points
and use those price points as anchors
for pricing your own service
also determine your pricing model and
the rationale behind it
are you going to sell on a cost plus
basis
are you going to sell on a value basis
is it going to be a one-time fee
or ongoing fees or some combination
thereof
laying out this model is critical
because you're going to have to message
it to the market
as well as build the model into your
ultimate financial model as part of your
business plan
in the sales section of your business
plan you have to spell out how are you
going to sell your product or
service will you use a sales force or
will you just go
direct to consumer maybe from your
website if you're using a sales force
what's the sales cycle going to look
like how long will it be
what's the conversion rate from prospect
to customer
and make sure in the business plan if
possible have supporting evidence for
that
how are you going to compensate your
sales force will it be a base salary
we pay them a commission is it going to
be a combination of the two
because that's going to drive your sales
force's behavior
and in the sales section how are you
going to conduct
contracting will you have long-term
contracts
will you have certain payment terms that
you're going to expect
what type of sales people do you need
and how are you going to compensate them
and having that clarity in your business
plan is going to make it clearer
how those people will perform as well as
how it will show up in the financial
performance of your business
for your business as you write your
business plan think through what your
major
inputs are to making your product and
then
who are the suppliers do you have
backups for those suppliers
do you have a diversity of sources to
mitigate supplier risk
how are you going to manage the costs of
the things you buy from your suppliers
do you intend to have long-term
contracts will you conduct a scheduled
bid
will you have any partners joint
ventures alliances for key components
supplier risk is a huge risk for your
business
if a major supplier goes down or decides
to renegotiate
rates what's your backup plan what
financial risks do you face
from supplier concentration and how are
you going to mitigate those risks
what operational risks do you face by
insourcing things
that you're not great at things that
aren't your core competency
what reputation risks do you face in
your supplier strategy
if you partner with someone or you buy a
lot of product from a supplier
and they do something wrong what's the
risk to your business
think through some of the large
companies who have partnered with
famous athletes or movie stars and that
athlete or star does something that
isn't so great and look at the risk that
that company who sponsored them
faces these are all risks that you
should be articulating in the supplier
section of your business plan
so understand where you're going to get
your product
what the concentration risks are and how
you're going to mitigate it
to have a clear and compelling piece of
this operating plan
it takes money to run a business and
there are three critical numbers you'll
have to know
how much capital do you have on hand
what's your burn rate
and how much runway do you have capital
on hand is how much cash do you have in
the bank
your burn rate is how much money are you
spending every month
to pay your staff to run your business
and then
runway is if you look at how much cash
you have on hand
and assume no more money comes in how
long do you have before you run out of
money
obviously the longer the runway is the
safer your business is
you'll also need to create a perspective
on when you'll hit
cash flow break even which is when is
the business
generating enough money enough profit to
pay the costs of running that business
every month and your investors are going
to want to know
at what point are you going to hit cash
flow break even
because that's when you don't need any
more money invested
your business plan should also spell out
where you plan on getting your capital
from
will it be from the owners loans friends
and family
will you seek outside investors or
grants will you work with partners who
will give you money
also what are you going to use the
capital for by the way the only
good uses of capital in the early years
of running your business
are things that drive sales marketing
sales force
or product development if you're
spending money on anything other than
those
items your investors are going to
question it
so as you're thinking about your
business be very clear
about how much money you're going to
need to hit the point where the business
is self-sustaining
every business faces financial risks and
you should lay out in your business plan
what those risks are
and what you're going to do if they come
to pass
some of the risks you might face what
happens if you lose funding
what happens if you don't get that loan
or the investment you are counting on
what if you lose a big customer or the
economy turns south
what if that marketing campaign you
thought was going to be huge
turns out to not work what happens if
you get sued for intellectual property
or a major competitor emerges all of
these are bad things that could happen
to your business
but if you think about them now and plan
for them you can put contingency plans
in place
you could do things like cut expenses or
lay off staff
you might seek additional loans or
additional investment or the founders
might put more money in
you could drop prices market more offer
retention discounts for some of your
customers
you may even say we would sell out to a
competitor or partner with another firm
having these contingency plans in place
enables you to react more quickly
so think through what the risks your
organization
faces are and put them in your business
plan along with the contingency plans to
go along with it
strategic planning is an inherently
simple process
there are some major tools and steps
that you're going to follow
as you pull together your strategic plan
first you need to set direction and stay
in a lane
that begins with articulating the vision
the mission and the goals of the
organization
once you've set that destination it's
important to define the organization's
core competencies
what are you great at and how are you
going to compete
in the market the next step of the
process is defining strategic filters
this is the heart of the method these
filters are going to be
the objective functions you're trying to
achieve they'll be the evaluation
criteria
you'll use as you analyze the
initiatives
that you are or are not going to pursue
next you're going to say no to
distractions
you're going to stay focused you'll use
tools like a 2x2 matrix to evaluate
which opportunities should we pursue and
which one should we avoid
you'll take all the initiatives on your
list and run them through those
strategic filters
to identify the ones that are high value
and high potential
and the ones that should be avoided next
you're going to
draw the line strategic planning is
about
focus and you'll have your list of
initiatives
you're going to identify the top ones
the bottom ones
and resource them appropriately and only
work on things
above the line for which you have
resources
the third phase of the strategic
planning process
is making sure you have a diversified
portfolio of initiatives
and then executing the strategic plan
you'll look at your initiatives in terms
of are they long-term
short-term do they balance your core
competencies
are they balanced across products or
markets or services
you'll look at your portfolio and how it
evolves over time
and lastly for execution making sure
you've got the right resources
assigned to the right projects and then
iterating as the market changes
and as you complete initiatives along
the way
so as you go through the strategic
planning process
there will be major tools and frameworks
you'll apply at each step
and you're going to come up with a very
clear plan with a prioritized set of
initiatives
when you run your strategic planning
process it's important to be aware
that there will be times you're working
together as a team and people are off
on their own doing individual work the
typical cadence of a good strategic
planning process
will have people working individually
doing some pre-work
then you'll come together as a team and
work on things like your vision
your mission guiding principles then the
team will go away
and do individual work to evaluate some
initiatives
they'll come back together to go through
a prioritization meeting
they'll go away again as individuals and
do deeper analysis on initiatives
and come back together to do final
planning and resource allocation
and the deliverables that come out of
this strategic planning process
will be a strategic plan in the form of
a document
you'll have a defined set of core
competencies for what your organization
is great at
you'll have a prioritized list of
initiatives that you're going to pursue
and an implementation and sequencing
plan where you've identified
which initiatives when and what
resources are we going to allocate
but just remember that your planning
process is going to be a balance between
working together and working as
individuals
as you begin your strategic planning
process it's important to assess
the market you're competing in a classic
tool for doing so
is porter's five forces first look at
competitive rivalry
how many competitors are in the
marketplace how do they behave
how are they distributed by market share
how do they go to market what are their
core competencies
second look at the threats of new entry
so there's the existing set of
competitors are there new competitors
who will enter the market
evaluate how much does it take to get
into the market will i have to build
huge factories or can i just launch a
website to compete against
you so understanding those threats of
new entry
next look at the threat of substitution
you have your products
what other products could meet that need
for your customers
understand what customers are buying not
necessarily
what you're selling then you have to
evaluate
buyer power so these are your customers
buying from you are you the big player
in the market or
are your customers next you need to look
at supplier power
the people who are providing raw
materials and
inputs to your business are they big are
they small
how much power do they have from a
pricing standpoint
and by looking at all five of these
dynamics you'll be able to identify
where are the major threats where are
the opportunities that we can pursue
and it can generate some interesting
insights when you're rigorous about
going through this process
so by doing this assessment of portage
five forces across your entire market
and your organization you'll be able to
identify where the major threats
and opportunities are that your
organization faces
another tool you can use to assess the
environment you're competing in is
called a swot analysis
and swat stands for strengths weaknesses
opportunities and threats and typically
it's drawn
on a grid for strengths and weaknesses
those are typically
within your own organization
capabilities you have or
don't have as far as opportunities
and threats they can either be internal
or external market-facing opportunities
and threats as you build a swot analysis
you'll want to have the team together
and have people throw out their ideas
and it's generally a brainstorming
session
so perhaps we start our swot analysis
and we look at our strengths
and our strengths consist of the brands
we have
how efficient our supply chain is
the strength of our sales force and how
well they sell our products
safety within our manufacturing plants
our recruiting information technology
and maybe our financial position then i
look at weaknesses and ask people
where are our gaps and we may have gaps
in our expense reporting process
our information technology desktop
support for our laptops
our digital marketing program our intern
program
and our acquisition integration skills
now we start looking outside the
organization
at our opportunities and threats that we
face
opportunities might be the growth of
social media and how we can take
advantage of it
the bankruptcy of acme one of our main
competitors
our ability to sell third-party products
through our supply chain
and an opportunity to do couponing of
our products
at retail and then last we look at the
threats that we face within the market
as well as
internally we may have threats of our
customers are going to push us on
pricing
our competitors may be poaching our
talent we're thinking about it
the weather in ohio where we have some
of our operations maybe a threat
acme being bought by one of our
competitors could be a threat
and also economic trends that we face
because
our products are a consumable and
they're discretionary by consumers
so if the economy worsens our sales
could go down
and once i've looked at that total
picture i'll have a better sense for the
strategic environment that i'm going to
be building my strategic plan in
when you go to set direction for your
organization
you need to clearly articulate your
mission
your mission is why the organization
exists
it should be a cultural reflection of
your values
your beliefs and the philosophy of the
organization
try to make sure your mission statement
is clear brief
and understandable to everyone employees
and people outside the company your
mission should clearly specify
what business your organization is in
and
where you compete and you should word it
in a manner such that it can serve as a
rallying point for the organization
people should be excited about living
that mission
let me share a few examples that you may
be familiar with the companies but not
necessarily their mission statements
ebay's mission to provide a global
trading platform
where practically anyone can trade
practically anything
johnson and johnson be the world's
largest
and most comprehensive manufacturer of
healthcare products serving the consumer
pharmaceutical and professional markets
intel do a great job for our customers
employees and stockholders by being the
preeminent building block supplier
to the computing industry all of these
are
simple sentences they clearly articulate
what business the organization is in
and where they compete it helps everyone
in the organization and outside of it
know what this organization stands for
and what its total purpose is
another element of setting direction for
your organization
is articulating a vision a vision should
provide a
clear picture of where you want to be as
an organization
in three to five years why three to five
years
anything less than three ends up being
too tactical
and people don't focus on generating big
ideas
anything further out than five years
there's too much ambiguity in the market
it's hard to see that far into the
future because the world can change
so much so defining what your
organization is going to look like
three to five years from now can provide
a very clear target
for people to shoot for when you build
your vision statement
first articulate what value your
organization
creates let people know here's why we
exist
and here's how our customers benefit
your vision should be ambitious but
realistic
ambitious because it'll push the
organization to innovate
and be aggressive and push hard however
you need to make sure it's realistic so
they don't look at it from day one
and just give up that vision needs to be
something worth doing
to win people's commitment you want your
team excited about delivering on that on
getting to that destination
when you articulate the vision try to
figure out how you're differentiated
from your competitors
and lastly make sure that vision
statement is concise
a few critical words allow me to share
a few great vision statements mcdonald's
to become the world's easiest quick
service restaurant choice
for customers starbucks to be the
premier
purveyor of the finest coffee in the
world
and microsoft to create software that
empowers the users
of personal computers all of these are
big ideas but they clearly scope here's
what we do here's the market we do it in
and here's how we're different from our
competitors
and the entire organization knows what
they're working toward
so when you articulate your vision think
three to five years out
and put something aggressive out there
that people can be excited about
the last two elements of setting
direction for your organization
are articulating your guiding principles
and your goals
guiding principles dictate how you want
the organization to behave
especially when your leaders aren't
around you're setting out a principle
that an associate can use when they're
confronted with a situation
where they don't know what to do what
lenses do you want them looking through
as they're evaluating those decisions
because if you have clear guiding
principles the
actions they're going to take will be
consistent with
the direction of the organization which
ultimately helps you achieve
that vision and mission in terms of your
goals
you're going to set out those metrics
those things that after
a year two years five years you'll look
back and say
we achieved those goals try to make them
as measurable as possible it can be
a dollar how much revenue how much
profit
it can be a number of new customers that
you add
those guiding principles and goals need
to be clear enough that they
guide behavior help people behave in a
manner that's consistent
with the organization's mission and
those goals
should be driving you to achieving your
vision
over time they need to be aggressive
and pragmatic so you get that balance of
i know i can achieve this but i'm not
really quite sure how i can get there so
i need to innovate
and push to be able to do so let me
share some ideas around what guiding
principles can be
some guiding principles i've heard that
are great are things like
would i give this to my family the
organization was in the consumer package
goods industry and when people were
trying to figure out whether they make
an
ingredient change to a product or a
packaging change to the product
they ask their people to step back and
say if you made that change
would you be comfortable giving that
product to your family if the answer was
yes go ahead and make the change if the
answer is no
stop immediately other guiding
principles i've heard
be net exporters of talent this is how
we want our managers in the organization
to behave being a net exporter of talent
means
bringing people in helping them develop
helping them grow
challenging them and building their
skills and then once they've reached
that next level
push them off to the next team send them
to the next great opportunity in front
of them
and then bring in more people behind
them and the net effect of that is
you're generating more talent for the
organization
than you're bringing in now think of the
behaviors that this can lead managers to
take
they won't hoard talent anymore the
notion that i've built somebody and
they're a high performer but you know
what
i'm going to discourage them from going
to the great new role
would run counter to this guiding
principle
so by putting this principle in place
that organization is going to achieve
that goal
of having a more talented organization
so think about what you want your
organization to look like in the future
how do you want your associates to
behave and then be able to put in place
a principle that they can understand
when they're faced with a decision
now in terms of goals laying those out
very clearly and then sharing them
across the organization
but letting the organization figure out
how to get there
so think about what the goals are of
your organization
what's the vision where are you trying
to go and what
set of goals will help you get there and
by articulating them clearly
the organization is going to drive in
the right direction
you
