Tag Archives: planning

How Successful Businesses Plan For Growth

Every business wants to obtain a strong market position within its target niche(s). How does one company achieve success when others lag behind (and some even fail)? The answer is surprisingly simple–successful businesses share the following six qualities:

  • They plan for growth constantly.
  • They market effectively.
  • They manage their finances shrewdly.
  • They supervise their operations watchfully.
  • They generate positive cash flow consistently.
  • They maintain positive company morale unwaveringly.

How Do Successful Companies Plan For Growth?

Companies that fail to plan for growth (or for downsizing, if necessary) are companies that operate out of control. By sheer luck, you may be able to make money for a season or two without planning. In most situations, however, luck and proactive planning must work hand in hand to make a business successful. Many companies aiming to be an industry pacesetter miss the mark because they allow one area of the business, be it marketing, operations, technology, or finance  to control the actions taken–or not taken–in other areas. Successful companies realize that planning the company’s direction is a far-reaching enterprise: the executive (team) must utilize information and resources from as many sources as possible. consider the external environment, and develop tasks to be accomplished within established schedules.

Without  a doubt, effective planning requires work. However, every business should consider planning for growth a positive challenge. On the other hand, if a company slows down or even stops growing, the executive (team) can still apply many of the principles applicable to business planning for growth.

Planning must first be understood in its proper context. Successful entrepreneurs understand that planning is not an annual event to be dreaded and feared, but rather the ongoing process of anticipating what will happen in the future and developing a strategy to respond to these events. Therefore, smart folks plan on a regular, even daily basis. In addition, their plans are not developed as dogmatic, end-all solutions to company problems or challenges from here to eternity. They understand that a plan by nature is subject to change and revision. Being flexible in the way one develops, implements, and modifies plans creates much greater success than those who do not plan at all–or those who only develop plans on an “as-needed” basis.

Furthermore, planning in successful operations is not arbitrarily limited to one area of the business. Effective planning encompasses all three of the primary functions of a profitable business: operations, finance, and marketing. Additionally, the preferred order for planning is not as some would imagine. For example, operations can not be allowed to determine the organization’s finance and marketing goals.

Most business executive teams plan only in so far as they make a schedule for the completion of various seasons of the year. Such small-scale planning is useful, but one must also develop a better feel for the “big picture”–the combined approach of marketing, finance, and operations that will generate desirable results in the next week, month, year, and decade. Many successful companies therefore draft their marketing plans first, outlining the number of units (whether of time if a services firm or items if a products firm), design/features, locations/markets, prices, and means of promotion. The financial plan then accounts for the obligations that will be undertaken as a result of the marketing plan. Finally, the operating plan discusses how customer/client needs will be met and what resources will be employed to make it happen.

Mainstreet Business Demonstrates Strategy Execution

One of the interesting conversations that keeps coming up  revolved around the hyperfocus on technology based start-ups to the exclusion of virtually every category. When I attend networking events, many of the entrepreneurs that I encounter are articulating the value proposition of their high tech start-up. Almost every single one speaks of the next competition they plan to enter to secure financing to fund their idea.

What seems to be missing in these conversations is a focus on executing a business strategy rather then simply a funding strategy. In the hot pursuit of obtaining seed capital, entrepreneurs  can become blind to what’s happening around them with the other important facets of the business. From human resources to operations, marketing & sales, there are many other aspects of development besides the capital raise that warrant attention.

In companies that do not claim to have a technology focus, it is a little easier to talk to the entrepreneur about business basics. Professional development, personal finance, market research, proof of concept, branding, feasibility, organizational design, supply chain, & sales are front and center topics in most companies. Instead of intellectual property, securities and like topics du jour, most of the companies that contribute to our way of life and represent the fulfillment of the American Dream struggle with these topics.

I fear that, by giving so much attention and publicity to technology companies who may have the outside chance of selling at a favorable multiple, we are failing to give earnest heed to companies with issues that are easier to address and that have a higher likelihood of making it to the five years in business mark. Simultaneously, we become so enamored with the perfection of code or intellectual property that we fail to talk about business basics with the technology companies, though they need to think through all of these issues in addition to theunique issues they face.

Please do not misunderstand my intentions here. This blog post is not about bashing technology companies. Quite the contrary, it is suggesting that all companies are best served by focusing on fundamentally sound business principles. In the very next breath, however, I would argue that non-tech companies not be relegated to second tier/ugly stepsister status simply because the multiples they usually generate are lower. The upsides of a “mainstreet business” is that it has less inherent  risk, requires less capital, and can generate revenues sooner. 

How can we, as the American business community, more effectively support mainstreet businesses? (And not fail to challenge tech companies to also execute on key business fundamentals as well?)

 

Want Some Financing With That Seasonal Brew?

 

Jim Koch, who started the Boston Beer Co. in 1984, found that banks did not want to lend money to his or other start-ups. The inherent aversion to risk in the banker DNA means that they prefer to deal with businesses that have positive cash flows today rather than the promise of rosy returns in the future. Koch decided to start his own program, Brewing the American Dream, to help food, beverage, and hospitality entrepreneurs in the Boston area launch their businesses.

Koch comes form a long line of brew masters–six generations and counting–but is not what one may think of as a beer drinker with little training for running a company that features such a powerful brand as Sam Adams. With a bachelor’s degree, a law degree, and an MBA from Harvard, he has been groomed for this moment. He now wants to make sure that others get the right combination of instruction, mentoring, and capital to be successful in their own rights.

An article on businessweek.com last spring by Nick Leiber tells the story. Launched in 2008, the initiative aims to go beyond traditional corporate philanthropy to “leverage” Boston Beer employees’ expertise, “rather than just giving away money or time or beer,” says Koch. “I wish I could’ve had some loan money instead of having to raise equity, and I would’ve loved to have advice about the nuts and bolts of growing a business.”

Now the program, Brewing the American Dream, which has advised nearly 3,000 business owners and financed more than $1 million in small loans for about 150 businesses, is going national. Boston Beer, the largest craft brewer in the U.S., plans to lend at least $1 million this year, hold monthly speed-coaching events in major cities across the country, and curate an online-networking and education site for participants. The coaching events, at which beer flows freely, are meant to be informal and are open to any business owner, not just loan recipients. 

Lieber continues on to write,

Koch isn’t seeking a financial return from Boston Beer’s investment in the program—a tiny fraction of the $157 million the company says it spent in 2011 on advertising, promotions, and selling expenses. “There is a huge amount of coaching, hand-holding, advice to get the repayment [rate] up to 95 percent,” says Koch. “I know from the economics of our program; you lose money on it. It has to be philanthropic.”

Supporting small businesses through donations to nonprofit lenders has been catching on among prominent companies, which have created programs such as Goldman Sachs’s (GS) 10,000 Small Businesses andStarbucks’s (SBUX) Create Jobs for USA. “But [Boston Beer’s] combination of employee engagement, capital resources, and mentoring feels new to me—and very much a response driven by what’s been happening in the economy in the U.S. over the last several years,” says Harman. “It was a right time in the economy because lending had all but come to a halt and small businesses were really struggling.”

Notice the elements that are mentioned as hallmarks and critical success factors of the program.

  • Access to capital at reasonable rates
  • Coaching/mentoring
  • Networking

Every entrepreneur would benefit from this favorable combination. Unfortunately, many incubators and accelerators make capital expensive by taking an equity position in the companies they “help.” Non-profit organizations established to provide the coaching and mentoring often put a cap on the number of hours an entrepreneur can access assistance. The networking component is equally important. Instead of events where the beer flows and superficial conversations seldom lead to business plan execution, what is needed is more one-on-one opportunities. When start-up companies are housed in settings where the participants can pass one another in the halls, serve as peer counsel, and make key introductions for one another, success is far more likely.

 

Need Outside Investors? Choose Wisely

Is private equity in your future? Many closely held businesses reach a point where their capital structure is not supportive of their cash and other financing needs.  When internal resources and bank money is no longer enough, the business owner and/or CFO has to find outside sources. Seeking outside investment is not, however, an easy process. The search needs to resemble a courting relationship that used to be so common in interpersonal relationships. You are, after all, seeking to build a long-term partnership.

Inc. online has a column entitled Herding Gazelles. In a post today, Karl Stark & Bill Stewart point out what to look for in private equity investors:

1. Find the right investor.

Angel investors, venture capital funds and large corporations all have different investment profiles. Each has a specific motivation and a process they typically use to create value.  Partnering with the wrong investor often means that your business will be asked to meet investor goals that may not align with your goals for the business. Find an investor whose objectives are in sync with the business you are building. 

2. Agree to a common view on how to maximize value.

At the outset of your partnership, spend time to align on the facts around the business and its markets, then discuss your strategy and how it will maximize value for the business.   Make sure both parties are clear on the roles they will play and the expectations for how the investors will participate and add value to the business. A successful relationship is all about setting and communicating the right expectations and engaging in open communication when events necessitate a change in those expectations.

3. Align on the right incentives and desired outcomes for both parties.

Clearly lay out the personal, professional, and financial goals for both you and your investor. Identify areas where you can work together to help each other reach his or her individual goals. The investor will likely have a specific timeline in mind for an exit and may have expectations about an exit price. This will have a large impact on their view of various strategic decisions. As a CEO and management team, you may also have specific expectations about how to grow the business. Put these all on the table, especially if they may be in conflict, so you can manage expectations upfront and amicably.

4. Leverage your investor’s experience, not just their money.

Brainstorm with your investor about ways in which he or she might help push the business forward. In some instances this may be obvious, such as a partnership with a corporate entity, but you may be surprised at other things the investor can offer beyond financial support. Investors typically have seen successes and failures and can share their advice.  They may have a wealth of contacts, even potential customer relationships, that could provide value to the business. Don’t overlook these intangibles.

A private equity investor will be a key member of your management team, so you need to build a strong, lasting relationship with them-just as you would with any of your key team members. Using your investor to the fullest will be critical to fueling the growth of your business.

Following these guidelines is just good common sense. We would add to the suggestions that it is important to identify “fit” before anything is on the line. Discussing how decisions will be made, what outside professional services firms will be used, and how the composition of boards of directors and advisors ahead of time is a good way to learn about the investor’s priorities and values. While agreeing on how to maximize value is important, it is even more important to identify what metrics represent value.  Great advice on leveraging an investor’s experience–ask what they plan to bring to the partnership beyond money. You may be very pleasantly surprised!

 

Business Plan Primer

 

Not all business plans are the same; the type plan that is needed in start-up mode should be quite different than what would be used in a later stage. Early stage businesses should document milestones the team plans to accomplish, with mini-plans for describing how the milestones will be accomplished. Mature businesses have the luxury of using broader brush strokes to describe processes, personnel, and performance metrics. Regardless the stage, plans are required by lenders or investors to whet their appetites.

Dave Lavinsky, in a recent newsletter article  for GrowThink entitled The Ammunition Every Business Needs, writes:

When you think about it, this is really intuitive. Here’s why. Business plans are read by investors and lenders for risk management reasons. These money sources realize they are taking a risk with every check they write, and want to mitigate this risk. The business plan explains to them how the business will use their funding, and paints a picture as to the likelihood that they will get an adequate return on investment.

For mature businesses, the business plan is just one of severable variables the investor or lender can assess in their decision-making. For example, if you have a mature company, the investor or lender can speak to your customers, analyze your financial history, assess your team members’ backgrounds, compare your product to competitive offerings, and so on. As a result, if your business plan is weak but the other factors are really strong, your mature company may still receive funding.

On the other hand, for a new company, particularly one that doesn’t yet have revenues, the quality of your business plan is critical; because it is one of very few variables that the investor or lender can review. The investor or lender can consider your business plan, the bios or you and your team, and maybe a product or service prototype if you have one. That’s pretty much it.

General tips Lavinsky recommends for business plans include:

1. Always remember that your business plan is a marketing document

2. Write with confidence, but be careful of superlatives

3. Answer the key questions, but not all the questions

It is up to you, through the power of your written words, to be winsome. Convincing. Persuasive. You are trying to demonstrate that what you are offering addresses a real problem with a viable solution that your organization can provide in a uniquely satisfying way.

Succinctly discuss your process, document the metrics you plan to use to measure success, and share how your team has experience in performing the responsibilities  required to execute the plan. Don’t use ambiguous phrases that make it sound like you are inexperienced. Overstating your hand, however, by using words like “most,” best,” etc will only undermine your credibility.

Make sure you demonstrate your knowledge of  the competitive environment and a winning strategy to secure target market share. Write about your customer profile and how your offering will be appealing. Discuss marketplace trends and how they impact the strategy you are pursuing. Finally, tell the reader how the money you seek will be used, when, and why.