You Can’t Handle A Business Plan!

In preparing for battle I have always found that plans are useless, but planning is indispensable.

-Dwight D. Eisenhower (Thirty-fourth President of the USA)

 

Eisenhower was a military leader of renown prior to becoming president.  His comment on the value of planning illustrates a key point that many who disdain planning would do well to heed: a plan is not the goal, but rather the exercise of thinking strategically through one’s options given a defined situation and set of resources at one’s disposal.

Serving entrepreneurs and existing business owners, I have seen the outcome of both lack of planning and belief that planning unto itself is a cure-all for potential challenges that may come the way of the enterprise. Tim Berry, author of Three Weeks to Startup, writes that, “If you’re serious about starting your business — even if you don’t have anything down in writing — you’ve already started to plan.” Yet, starting to plan is not the same as writing a business plan.

There are several planning steps that I would recommend prior to writing a business plan:

  1. Refine your idea. Think through how your business model would affect potential customers. Have a preliminary strategy in mind for each segment of your target audience.
  2. Conceptualize a winning strategy. Think through what is already available in terms of direct and indirect competition. Adjust your approach to the market based on what can win consistently.
  3. Create value before your first sale. Test your hypothetical product features and benefits, along with pricing model and go-to-market system. Secure feedback and revise your offering accordingly.

Once you have thought through these three main ideas, you are then ready to evaluate how best to launch a business. Evaluation is the point at which your first business plan should be written. Berry recommends “Your plan is for you first. Don’t make it for anybody else. Do it because it helps you divide and manage big goals into practical steps. Instead of looking at it as a document, think of your business plan as a place on your computer where you collect ideas, useful stories, lists and numbers. It’s a place where you keep track of the market, your milestones, goals and projections.”

Business planI could not agree more wholeheartedly! A plan is not a monument; it is a living, flexible document that needs to be modified on a recurring basis as long as you are in business. Early on, Berry recommends the following key components of planning:

  • Milestones: What’s supposed to happen, when, and who’s responsible.
  • Basic numbers: Simple spreadsheet projections for sales, costs and expenses.
  • Strategy: Strategy is about deciding how to focus a business offering on a key target market. It can start with just bullet points. I’ve seen it done well with pictures. It’s mostly a reminder for you and your team.
  • Cash flow: Because profits don’t guarantee enough cash to pay your bills, you need to manage cash from the beginning. Month by month, account for what you spend and what you deposit — not profit as it appears on the books, but money as it shows in the bank.
  • Review schedule: Set aside time for a plan verses actual review once a month to compare what you planned would happen in your business to what really happened. Be brief and practical.

Regardless of your market niche, whether you have attended a “hack-a-thon,” or who is on your start-up team, take the time to consider each of these components thoughtfully. Incorporating them into a plan that you are committed to revisiting and continuously improving will enhance your chances of launching a successful new business!

 

 

Do You Understand Which Customers You Want to Develop?

Whenever I have the opportunity to sit down with an entrepreneur to discuss how an idea is going to be commercialized, a hot topic is “who is your buyer, and how will you win them?” Amazingly, many who aspire to start businesses (even some who have been in business) have very little strategic insight into the answer to this question. By going after the universe, in a shotgun method, the business owner shortchanges the enterprise of the opportunity to develop authentic connections with targeted customers who become loyalists. We break the broad question down into tactical components such as how to listen to customer input and revise a product or service offering. Yesterday I read a LinkedIn article by Steve Blank, the author of The Startup Owner’s Manual. Blank wrote about an interaction with a former student who claimed that following Blank’s advice on customer development was causing his company to fail:

We Did Everything Customers Asked For
“We did every thing you said, we got out of the building and talked to potential customers. We surveyed a ton of them online, ran A/B tests, brought a segment of those who used the product in-house for face-to-face meetings. ” Yep, sounds good.

“Next, we built a minimum viable product.” OK, still sounds good.

“And then we built everything our prospective customers asked for.” That took me aback. Everything? I asked? “Yes, we added all their feature requests and we priced the product just like they requested. We had a ton of people come to our website and a healthy number actually activated. .  . everyone uses the product for awhile, but no one is upgrading to our paid product. We spent all this time building what customers asked for. And now most of the early users have stopped coming back.”

Customer developmentWhat’s your business model?
“Business model? I guess I was just trying to get as many people to my site as I could and make them happy. Then I thought I could charge them for something later and sell advertising based on the users I had.”

I pushed a bit harder and said, “Your strategy counted on a freemium-to-paid upgrade path. What experiments did you run that convinced you that this was the right pricing tactic? Your attrition numbers mean users weren’t engaged with the product. What did you do about it? Did you think you were trying to get large networks of engaged users that can disrupt big markets? Large is usually measured in millions of users. What experiments did you run that convinced you could get to that scale?”

I realized by the look in his eyes that none of this was making sense. “Well I got out of the building and listened to customers.”

The idea of the tests he ran wasn’t just to get data – it was to get insight. All of those activities – talking to customers, A/B testing, etc. needed to fit into his business model –how his company will find a repeatable and scalable business model and ultimately make money. And this is the step he had missed.

Customer Development = The pursuit of customer understanding
Part of Customer Development is understanding which customers make sense for your business. The goal of listening to customers is not please every one of them. It’s to figure out which customer segment served his needs – both short and long term. And giving your product away, as he was discovering, is often a going out of business strategy.

Blank then shared the lessons learned by his student:

  • Getting out of the building is a great first step
  • Listening to potential customers is even better
  • Getting users to visit your site and try your product feels great
  • Your job is not to make every possible customer happy
  • Pick the customer segments and pricing tactics that drive your business model

Gorillas Ask 7 Questions in Marketing: Do You?

Rediscovering a classic book is such a treat. Business books can, however, become outdated. New editions containing updates for changing market conditions can ensure a timeless and informative experience for the reader. In the field of marketing, Jay Conrad Levinson and his wife and business partner, Jeannie wrote a quintessential work on small business marketing, the Guerrilla Marketing Field Guide. They have released a new and updated version, serving the needs of a new generation of guerilla marketers.

Guerilla marketingToday, marketing seems very complicated. In a blog post last month for Entrepreneur.com, the Levinson’s argued that a marketing strategy, however,  doesn’t have to be complex. They believe that a comprehensive strategy can be articulated in seven brief sentences:

  • The first sentence tells the physical act your marketing should motivate.
  • The second sentence spells out the prime benefit you offer.
  • The third sentence states your target audience or audiences.
  • The fourth sentence states what marketing weapons you plan to use.
  • In your fifth sentence, you define your niche or what you stand for: economy, service, quality, price, uniqueness, anything.
  • The sixth sentence states the personality of your company.
  • The seventh sentence states your marketing budget, expressed as a percentage of your projected gross sales.

They describe in the book how such a strategy highlights the prospective buyers targeted by the marketing. They recommend starting with the people and then working backward to the offering. By organizing this way, results become more easy to attain, planning to obtain the results has meaning, and a specific call to action can be developed without much additional work. By doing this “blocking and tackling,” your team is able to anticipate market shifts over the long haul. The Levinson’s suggest the following:

The strategy must be expressed in writing, and it should not contain headlines, theme lines or copy. The strategy is devoid of specific marketing copy because it must be solid, yet flexible. Specific words and phrases pin you down. A strategy should be developed as your guide, not as your master.

After you’ve written all seven steps, read it a couple of times, then put it away for 24 hours. It’s just too important to be accepted — or rejected — hastily. Look at your strategy from a fresh perspective on a different day. See if you still love it and believe in it.

When is the best time to change that strategy? The first time you see it — before you’ve invested any money in it. After you’ve finalized it, don’t change it again for at least six months; then do a review and see if you need to tweak your strategy. If you have it right, you may not need to make any changes for several years.

Your approved strategy should be pinned up on bulletin boards and emblazoned in the minds of everyone who creates marketing for you. Keep the strategy handy in a drawer, on your desktop, or in an accessible file so you can reach for it the moment anyone presents even a tiny opportunity for marketing to you . . . or when you have a killer idea yourself.

Now that you know what we mean by marketing strategy, it’s time for you to create one for yourself.

Ask yourself these questions so you can create your seven-sentence marketing strategy:

  1. What physical act do I want people to take after being exposed to my marketing (click here, call a phone number, complete this coupon, or look for my product next time they’re at the store)?

  2. What prime benefit do I offer? What competitive advantage do I want to stress?

  3. Who is my target audience?

  4. What marketing weapons will I use?

  5. What will my market niche be?

  6. What identity do I want my business to have

  7. My marketing budget will be _______% of our projected gross sales.

Following this outline will help organize your small business around what’s really important. Good luck!

 

 

Trigger the Response Desired in Business and Otherwise

Many of you may have read Malcolm Gladwell’s Tipping Point, in which Gladwell examined why some fads take off and others do not. The basic concept is that an incremental change, done timely, in front of the right target audience can be absolutely revolutionary. Instead of a tipping point, an author whose blog I read recently proposed an alternative, trigger point. No, we’re not talking about a massage therapy or a gun in your back, but what Jonah Berger, author of Contagious, describes as those things that motivate us to change behaviors.

Marty Baker observes that, “One of great revelations of behavioral economics is the study of how people actually behave rather than how we think they should behave. A classic example is shrouded in a term that might make your eyes glaze over  — the theory of relative positioning.   What makes people happiest is increasing their income and wealth relative to other people. We have the same income of $70,000 per year. If my income increases by $10,000 and yours increases by $8,000, this will make me happier than if both our incomes increased by $10,000.   We don’t just want to keep up with the Joneses; we want to do better than the Joneses.”

Baker writes of Contagious that it is an exploration of what makes things popular. Berger tackles questions like:

  • Why do people talk about certain products and ideas more than others?
  • Why are some stories and rumors more infectious? And
  • What makes online content go viral?

dining trayBerger wrote, “Psychologist Gráinne Fitzsimons and I conducted a related study on how to encourage people to eat more fruits and vegetables. Promoting healthy eating habits is tough. Most people realize they should eat more fruits and vegetables. Most people will even say that they mean to eat more fruits and vegetables. But somehow when the time comes to put fruits and vegetables into shopping carts or onto dinner plates, people forget. We thought we’d use triggers to help them remember. “

Baker describes Berger’s work with a colleague who asked participants to provide feedback on a public-health slogan targeting college student.  Just to make sure they remembered the slogan, they were shown it more than twenty times, printed in different colors and fonts.

“One group of students saw the slogan “Live the healthy way, eat five fruits and veggies a day.” Another group saw “Each and every dining-hall tray needs five fruits and veggies a day.” Both slogans encouraged people to eat fruits and vegetables, but the tray slogan did so using a trigger.

The students lived on campus, and many of them ate in dining halls that used trays. So Berger and Fitzsimons wanted to see if they could trigger healthy eating behavior by using the dining room tray to remind students of the slogan.

“Our students didn’t care for the tray slogan. They called it “corny” and rated it as less than half as attractive as the more generic “live healthy” slogan. Further, when asked whether the slogan would influence their own fruit and vegetable consumption, the students who had been shown the “tray” slogan were significantly more likely to say no.”

Berger adds, “But when it came to actual behavior, the effects were striking. Students who had been shown the more generic “live healthy” slogan didn’t change their eating habits. But students who had seen the “tray” slogan and used trays in their cafeterias markedly changed their behavior. The tray reminded them of the slogan and they ate 25 percent more fruits and vegetables as a result. The trigger worked. “

What resonated with me is that the creative solution was creating the right trigger and not the “right slogan.”  A more rigorious test  might have been to see if the more creative slogan and the trigger would have yielded even better results.

How might one apply this in a different environment? Are you too focused on your words rather than understanding what motivates your target buyer? Your boss? Someone who works for or beside you?

 

 

Risk a Mistake; Earn a Valuable Lesson

 

Entrepreneurship is about taking risks. With risk taking comes the chance for failure. Failures, however, need not be a detriment to success. Quite often, they can be the building block. Matthew Turner is currently writing a book called The Successful Mistake: inspiring tips, tricks & tales from 250 successful entrepreneurs. The premise, he writes, is to interview business people and discuss their mistakes and how they turned them around. In a blog post for under30ceo.com, he shared some of the thoughts that will be in the book and a story of struggle from Richard Branson:

Mistake Or Valuable Lesson?

Having interviewed dozens of inspiring individuals I’m beginning to connect some rather important dots. Often the difference between a successful person and everyone else is how they react to adversity.

Bad things happen from time-to-time, and we’re often left with a rather simple decision: Fight or Flight

Yes, that natural instinct of fighting or fleeing comes to mind, and those successful entrepreneurs that build empires are often those that fight…fight…and fight some more. Success is rarely handed on a plate, and I’d like to share (a) Famous Entrepreneur who had to find success the hard way:Mistakes

Richard Branson

In 1971 Richard Branson was just starting to grow Virgin Records, and although things were going rather well, money was tight and tough times lay ahead.

His mistake began when he won a contract to export records to Belgium, and after a few things went wrong, he realised he could avoid certain UK taxes by appearing to export but never actually doing so. His debts would soon be cleared and all would be well, but this little idea was illegal, and as with all illegal matters, the risk is high.

As you can imagine the Tax Man came knocking and Richard Branson spent a night in jail and was forced to pay a rather hefty fine. Yes, the same Richard Branson that so many people idolise (including me).

What Richard learned was that his reputation is his biggest attribute, and no amount of fame or fortune can replace it. He vowed in that jail cell that he would never return, and this mistake helped him build a certain set of values that he’s since lived to. As with most wealthy people he’s no doubt faced occasions where bribes and ‘loopholes’ could have been taken, but he’s learned his lesson from a rather large and potentially devastating mistake. This error in judgement could not only have ended his business, but tainted his entire life.

Mistakes can shape our destiny. As you can see in Branson’s story, there are people who can take the proverbial lemon and turn it into lemonade. Clearly, his experience has shaped his drive to become the dynamo businessman esteemed by many today. Think about your own experience…what have you done that, when it happened, you wished you hadn’t, but in retrospect would not trade the lesson learned for anything?

Moving beyond mistakes in the past, think about your current situation. Does fear of being wrong or making a mistake hold you back in a key decision that you are considering? Are you paralyzed with apprehension about what may go wrong with a pending strategic move? There must be a balance between due diligence and postponing risk taking for fear of failure. We can overcome most failures and become better for the experience. Are you willing to risk it?