Re-examine Your Marketing Plan

Growing a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one. There are two threads. One for Starting a Business and a second for Growing a Business.  Author: Henry McCabe.

Back to the Growing a Business Thread

With this blog I am returning to the thread addressed to people who are running a small business.  In 7 previous blogs in the running a business series (Nov. 29 '13 through Jan. 31 '14)  I wrote about creating someday goals, also known as a strategic plan.  I hope some of my readers took a crack at that. This one is the first in a series of dealing with marketing, or more specifically in re-examining and re-structuring the marketing plan for a business whose growth has stalled or one that is doing well and wants to grow even faster.  

Marketing Defined and the Planning Process- Looking to the Future

Marketing is a set of activities designed to bring about a mutually beneficial commercial transaction between two parties. Simple in essence; I get cash, you get a need met; but complicated in execution. That is where planning comes in. Creating a guide to the future. A marketing plan should cover these activities: products or services, customers, channels of distribution, sales processes, prices,  advertising approaches and advertising budgets and plans.  So, I will address each of these in a series of posts.

The plan need not be written out so long as the planner actually thinks about and makes a plan for each activity. In small businesses owners can keep their plans in their head. However, writing one down fosters the thought process and creates a record that can be referred to from time to time. Marketing plans, or for that matter strategic plans and business plans, should not be written for others to read. They should be written by the planner for himself. They are a method for systematically examining an issue and creating a plan for dealing with it.

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Products

Most people starting a business begin with the first activity.  I am going to start a business to sell product X or service Y.  If I do that, some customer or another will buy it from me and life will be good. Three or five years later they find that life is not so good. Sales may have been lower than needed to produce a decent income or may have grown at first but have now plateaued.

There may be a lot of reasons that that happened.  One reason may be that the chosen product or service was not sale-able in sufficient quantities to make a business out of. Or, its quality did not satisfy early users and word of that spread. Or, times have changed and better products are now on offer elsewhere.

If you have inventory that is not moving, or provide a service that nobody seems to want, it is time to re-think your commitment to your original decision. Look for better versions of what you sell or an entirely new direction to go. Making a dramatic shift is not easy to do, but why soldier on year after year struggling to sell the unsalable.  Face up to the problem and make the change.

Start your planning process by making a critical evaluation of what you are selling. If it sells well, stick with it. If not select new ones, and in your new or re-vamped plan spell out when and how you will make the shift to the new ones.  

Starting a Business- Money Motivates

Starting a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one. There are two threads. One for Starting a Business and a second for Growing a Business.  Author: Henry McCabe.

If you are reading this, you are probably thinking about hanging up a sign- Coming Soon- My New Business.   Starting one is a multi-step process. The first step is to make a realistic assessment of your readiness to do so.  The last three blogs suggested assessing: your knowledge base of business issues (2/8/14), your ability to finance the start and early years of the business (2/13/14), your willingness to tolerate the risk inherent in starting a business (2/21/14) and your motivations for starting one (2/28/14)

Assessing your readiness - Motivation- Dollars, Dollars, Dollars

The fifth question you should answer for yourself  concerns what should be your primary your motivation to start a business-  money!!!  have you really thought about what you might earn? A specific goal about how money you would like to the every year  from the business? Not immediately. Someday in the not too distant future. Say ten years from now when things are going swimmingly.  The goal needs to fit your lifestyle aspirations, but must be realistic.

With a specific goal in mind you can assess whether or not it is likely that the business will be capable of producing that amount. I wrote a eight  blogs on testing whether or not a personal income goal is achievable and expanding that into a strategic (10 year) plan for a business under the Growing a Business thread starting on 11/29/13. The same process can be used by those wanting to start one.  In fact that is the time to do it, not 3-5 years in when you find yourself disappointed with the dollar flow.

Those blogs used as an example a person (fictitious) who was running a retail shop selling women's clothing. She needed to re-assess her situation based on a goal of earning  $75,000 a year from the business  someday.  Where do goals like that come from? Should  you just pluck one out of the air and hope for the best? Or is there a fact based way to pick an one which you can test using the process described in the eight blogs. Yes there is. First, you need to understand that a small business owner's income is actually made up of three component parts. Remember that I am writing about long term owners of businesses employing fewer than  20 employees. Things are different for those who expect to grow rapidly, have multiple shareholders, go public or be acquired.

The parts are: worker, manager and investor. Most small business owners spend a lot of their working hours doing the work of the business. Especially in the early years. In my pretend retail store the owner is there five or six days a week stocking shelves and serving customers alongside her one employee. In that role she is a retail clerk.  The minimum she  should expect to earn from the business is the wage of a retail clerk which in my state was $24,400 according to the
US Bureau of Labor Statistics May 2012 survey for Standard Occupational Classification 41-2030. Our fictitious owner could set as a minimum goal 20% above median or $30,000 a year. Otherwise she might as well take a job working as a retail clerk in somebody else's business and save herself a lot of headaches.

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She also manages the business.  A small business person has to do many things.  Here is a list of the 2012 median annual wages for some of the roles she might fill at any given moment of the day:  General Manager (11-1021) $111,110; Marketing Manager ( 11-2021) $114,120; Advertising Manager (11-2011) $97,540; Merchandising Manager (11-3061) $109,280; Procurement  Manager (11-3061) $109,280 and Financial Manager (11-3031) $124,080. Since the survey includes businesses of all sizes it is reasonable to assume that the wage for a manager in a small business would be below the median, so our fictitious owner could set as a maximum goal 80% of the average of the medians for those occupation, or $$88,500.

Our owner is also an investor in her business. If you go back and look at the business survival curve, you will realize that her investment is a risky one. She is entitled to an annual return of at least 15% on the $50,000 she invested to get the store going. That is $7,500 a year. Adding that to the wages her goals might have been: minimum $37,500 and maximum $96,000. She set as a goal earning $75,000 per year within ten years. Realistic and achievable.  But, she should set as an intermediate goal earning $37,500 within 3-5 years. If she cannot meet that, she should close up shop and try something else.

The point of all of this is that people starting a business should be motivated by money and should have a realistic goal about what they might earn from the business. If what is possible does not match your aspirations, consider another plan. You are not ready for the current one.

Starting a Business- Motivations

Starting a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one. There are two threads. One for Starting a Business and a second for Growing a Business.  Author: Henry McCabe.

If you are reading this, you are probably thinking about hanging up a sign- Coming Soon- My New Business.   Starting one is a multi-step process. The first step is to make a realistic assessment of your
readiness to do so.  The last three blogs suggested assessing: your knowledge base of business issues (2/8/14), your ability to finance the start and early years of the business (2/13/14) and your willingness to tolerate the risk inherent in starting a business (2/21/14).

Assessing your readiness - Motivation

The fourth question you should answer for yourself  concerns your motivation for starting a business. What motivates you?  What to do expect to get out of being a business owner? Motivation should leads to goals. Do you have specific goals for the business? Are your goals realistic? Here are some dreams I have heard from clients and the reality they will find after they get going.

Motivation: I won't have to work the long hours I put in for my present employer and I can take all the vacation I want.

Reality:  A Wells Fargo/Gallup Small Business Index survey found that today's small business owner works an average of 52 hours per week, with fifty-seven percent working at least six days a week, and more than twenty percent working all seven.  Owners surveyed take an average of two weeks of vacation  per year, with fourteen percent not taking any vacation at all. Of those taking a vacation, thirty-nine percent do work-related activities (phone calls, emails, etc.) during that time. http://www.prnewswire.com/news-releases/.

Motivation: I will no longer have to put up with 'guff' from my boss and his boss.

Reality: Every customer that walks in the door,in person or virtual, will be a boss that may give you guff. Then there are your vendors and landlord. You will find that they are often the boss, not you. Plus the local zoning board, tax assessor and tax collector;  state tax collector, labor department and office of corporations; and the IRS and sundry Federal departments. Worse yet. You will be the boss having to give employees guff and getting some in return. A small business owner has no end of bosses. Source: personal experience.

Motivation: Within months I'll be making boodles of cash.

Reality: It is not as easy as that. Data about proprietorships provide a pretty good picture of small businesses. The average revenue of  17 million U. S. proprietorships in 2010 was $64,700 and average net cash flow (which equates to the owner's take) was $20,300. Surprised by those numbers? Many are. You are going to have to be way above average to be making boodles of cash in just a few months or ever. Source: IRS statistics. Also take a look at the business survival graph in my last post (Feb 21, 2014).

Be Realistic: Independence, being your own boss, pride of ownership, the ability to help others through with a product or service, creating your own job, making money from what is now a hobby, seeing a creative business idea taking off and many other reasons are legitimate motivations for starting a business. Put making a good living and building some personal wealth at the top of the list. Be realistic about whatever drives you to do it. Investigate realities and plan, plan, plan before you launch.

More about goals and planning in the next post.

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Starting a Business

Starting a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one. There are two threads. One for Starting a Business and a second for Growing a Business.  Author: Henry McCabe.

If you are reading this, you are probably thinking about hanging up a sign- Coming Soon- My New Business. Starting one is a multi-step process. The first step is to make a realistic assessment of your readiness to do so. An earlier blog suggested assessing your knowledge. Do you know what you need to know? The last blog suggested assessing your finances. Do you have the cash to start a business and keep it going going through the early lean times?

Assessing your readiness.

The third question a nascent business person must answer is:  Am I willing to take the risk inherent in starting a business? As can be seen from the graph below, half of businesses started are no longer operating after five years. That does not mean that 50% of the businesses had a dramatic end through liquidation in bankruptcy. Many quietly close the doors because the business did not meet the founder's personal cash flow requirements. Often at the end of an initial  lease term or other commitment when the owner concluded that it was not worth soldiering on. Some are acquired or merge with other business or are sold and continue to operate under another name. Still, the odds are against a start up being a long term successful business. In these cases the founder risked, and lost, his investment of cash and something even more valuable- years spent during which he could have earned income working in somebody else's business.

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That is the bad news.  The good news is that 16 years after starting 25% of the businesses started  were still going. There is a high probability that the owners of those  businesses had years of high earnings and are getting ready to sell off, or pass on, a valuable asset.  They looked at the risk of failure (one hopes), decided to take the chance and won the prize.

Think about this question- Am I willing to risk my money and months or years of my life in the face of these odds? And another very important question- If I do decide to go ahead, is there a way I can minimize the risk?

 

Starting a Business

Starting a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one. There are two threads. One for Starting a Business and a second for Growing a Business.  Author: Henry McCabe.

If you are reading this, you are probably thinking about hanging up a sign- Coming Soon- my new business. Starting one is a multi-step process. The first step is to make a realistic assessment of your readiness to do so. The last blog suggested assessing your knowledge base. Do you know what you need to know?

Assessing your readiness.

The second question a nascent business person must answer is:  Do I have the wherewithal to get the business going and keep it going until it meets my financial goals?

All most all new businesses  need capital to get going. Some less, some more. Money for all sorts of things.
Here is a list for you to think about- some may not apply to your situation but many will: land, buildings, leasehold improvements, equipment, furniture, fixtures, vehicles, other tangible assets, pre-opening wages, prepaid insurance, inventory, accounts receivable, organizational expenses, rent deposits, utility deposits, supplies, licenses, advertising collateral, web site design, other intangible assets and some cash in the till. Rare is the small business that will find an investor or bank that will put up the money to finance all of this.  Most of the money will have to come out of your own pocket. Do you have enough or even any? If not, you will have to defer your plan until you have enough put aside.

Once you get the doors open another need for cash arises. It may be some time before the  business is self sufficient. Vendors and employees must be paid even if the business is not generating enough cash flow to cover the cost. If you were lucky enough to qualify for a bank loan, you must keep up with the payments on it or the bank will call the note and drive you into bankruptcy court.  Your landlord will be knocking on the front door if he does not get his check. You will need some working capital to cover these expenses until the business can pay its own bills. Then there is the home front.  It is quite common that the owner of a new business is the last one to be paid for many months. Your mortgage or rent payment will not go away. Nor will grocery bills, auto expenses or new shoes for the baby.  If your pockets are emptied out with start-up expenses, you will be in trouble from the get go. You need to set aside cash or have another income to cover your personal expenses until you can draw money from the business.

If you do not have enough money of your own, cannot find an investor and a bank will not loan you money just because you promise you will pay it back, what will you do? Well, the traditional way is to borrow against an asset. What asset? A home. Hard to do if you are like this poor homeowner. You need to look at whether or not you have equity in your home, and decide whether or not you are willing to borrow against it to start a business. A risky proposition.  Risk will be the topic of m my next blog.

Starting A Business

Starting a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one. There are two threads. One for Starting a Business and a second for Growing a Business.  Author: Henry McCabe.

New Thread

With this blog I am starting a new thread addressed to people who want to start a small business.  In a series of posts I plan on covering the following topics: Assessing your readiness  ●  Defining your  business idea  ●  Creating  your marketing plan  ●  Legal and tax issues  ●  Managing your  business finances  ●  Facility, staff and operations  ●  Making your financial projections.

Assessing your readiness.

The first question a nascent business person must answer is: Am I really prepared to make a go of my proposed venture?  Do I know what I need to know? A small business owner must juggle a lot of balls. Dropping just one of them can doom his venture to ultimate failure. Just take a look at some of what you will be called upon to do.

                                     

You will have to perform all of these functions and more.

Do you know enough about accounting, banking and insurance to  do a proper job as Chief Financial Officer? Perhaps your answer is that you don't have to know about accounting because you will employ an outside bookkeeper.  Many do, but it is essential that you know enough so that you can understand financial reports and the relationships between them. After all it will be your money and acquiring and hanging on to
some of it is why you are starting the business. Don't delegate 100% of the tracking of its comings and goings  to outsider.

What about advertising? Do you know much about the myriad of ways you can advertise your business? How about labor law, payroll taxes and so on. If you are to be an employer, you need to have basic knowledge about these issues.

What I am suggesting is that you do a thorough assessment  of what you need to know and match that up against what you do know.  Then find a way to plug the missing gaps. That is the first step in assesses your readiness. More in the next post.

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Growing a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one. There are two threads. One for Starting a Business and a second for Growing a Business. Author: Henry McCabe.

Goals- An example of a strategic plan

In my last few blogs  I have written about creating Someday Goals for your business. These have been part of planned series on goal setting. So far I have demonstrated ways to collect data useful in setting goals.  This blog presents Someday Goals, aka a Strategic Plan, for a fictional women's clothing store. Refer back to earlier blogs for the research that underpinned setting of the goals. Such a plan for a small business need not be complicated and long.  The one presented here is only one page. It consists of a tabular presentation of some SMART goals and a summary of the expected results.

Achieve the primary goal of increasing owner's draw from $18,000 to $125,000 by:
Increasing Sales from $251,000 to $750,000 by:
	Growing  sales 11.5% year over year, by:
		Increasing sales per square foot  to at least $400 from the present $209 and
		Increasing sales per Full Time Equivalent Employee to $125,000, by
			Increasing the lines of clothing offered by one each year, net
			Increasing customer visits by 11.5% year over year, by:
				Increasing advertising as a percent of sales from 1.5% of sales to 2.5%, immediately
		Relocating to a larger better located space in 5 years  at the end of the current lease.
Improve net cash flow from operations as a percent of sales from 12% to 20% by:
		Reducing cost of sales 0.4% year over year to attain an improvement  from 54% to 50%, by:
			Replacing present lines with higher margin lines while still increasing by one line a year
			Reducing inventory wastage from 3.5% to 2.0%, by:
				Tightening return policies gradually over the next three years
				Installing at least one security camera to intimidate thieves, immediately
				Asking each vendor for better return allowances when placing orders
				Selling overstock via consignment shops four times annually
		Reducing Expenses from 34% of sales to 30% of sales, by:
			Reducing labor cost from 7% to 5% of sales by employing mostly part timers,
			Reducing in bound freight costs by minimizing overnight shipping. immediately
			Reducing heating and cooling expense by  1° changes in thermostat settings, now
			Reducing lighting cost by keeping lights off in work areas when not in use, now
			Replacing the current credit card service with Square , now
Achieve a second goal by reducing the owner's work hours, by:
	Hiring a full time store manager once sales rebound to $300 per sq ft after the move

Ten Year Plan
Item	Present		Goal		Industry Benchmarks
Revenue	100%	$251,000	100%	$750,000	100%	$750,000
Cost of Sales	54%	$135,540	50%	$375,000	53%	$397,500
Gross Profit	46%	$115,460	50%	$375,000	47%	$352,500
Expenses Net of Depreciation	34%	$85,340	30%	$225,000	32%	$240,000
Net Cash Flow	12%	$30,120	20%	$150,000	15%	$112,500
Debt Service & Working Capital	22%	$12,120	10%	$75,000	-	-
Owner's Draw	7%	$18,000	17%	$125,000	-	<$112,500
Owner's Weekly Work Hours	-	70	-	40	-	-
Sales per Square Foot	1,200	$209	1,800	$417	-	$400
Sales per Square Foot	1.5	$90,360	6.0	$125,000	-	$116,000
Inventory Turnover / Inventory	3.5	$38,500	4.0	$93,750	3.9	$101,923
Inventory Wastage % sales	3.5%	$8,785	2.0%	$15,000	1.8%	$13,500

In the next blog I will begin a thread on Starting a new business.In the meantime checkout SCORE's free services.

Planning. The only thing we know for sure about any plan we make is that actual events will turn out to be different. We must not let the attempt to create a perfect plan get in the way of completing one. An imperfect plan is better than none at all.