Category: Business Planning

Your top sales manager has been pursuing the largest sale in history of your company. Do you want it?

The company needs the sales. Of course, you will take the business. What a crazy question, you say.

But do you know you have the capacity to make the order? There is nothing more damaging than to leave a customer without product. There will be no sales from them for a very long time, if at all. And think of the word-of-mouth-express.

Do you know your capacity? Do you know what you can make? It’s easy to figure out. Just multiply the production per hour by the number of hours of prodution for any given time period, a week, a month, etc.

It’s best to monitor the daily productivity in operations by product, machine, operator, shift, and other relevant factors. Then the scheduler has good numbers to use for production planning.

Don’t forget to factor in the time for preventive maintenance, as well as a realistic amount of time for breakdowns, interruptions, breaks, etc.

Being realistic is a watchword for production planning.

Of course, once the capacity of the business is clear, then it is possible to determine whether the firm can deliver on the order.

So, if the firm cannot take the order, do you turn it down?

Not yet. There is another consideration. Customers usually do not need all the product right away. It takes them some time to sell it. So, perhaps some product can be delivered by the initial date, with additional shipments at later specified dates. If the company takes this approach, don’t forget to factor in addition set up costs, if any, when trying to understand the profitability of the order.

There are other options, too, such as subcontracting some of the work to other suppliers, usually competitors, which can raise some complications. Or, the customer can split the job between a number of suppliers, though you may not want to let a competitor in.

If your firm has a competitive amount of capacity and is pursuing target business, it rarely comes down to turning an order down due to capacity. However, it is definitely a critical consideration for a large order as it moves through the selling cycle to a sale. Train the sales force on capacity issues, so they know about potential issues so they can ensure it is handled appropriately upfront. A well organized large order leads to much happier customers and repeat sales.

For more resources, see the Library topic Business Development.

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Tove Rasmussen, of Partners Creating Wealth, offers business expertise worldwide to help organizations grow, and disadvantaged regions thrive.

Last week’s blog described the information you need to develop a pricing strategy. Today we’ll talk about several kinds of pricing strategies that are commonly utilized. Continue reading “Pricing Strategies (Part 2)”

Biographers of Napoleon Bonaparte talk about his ability to size up a situation with a single coup d’oeil, (pronounced koo-DOY), meaning “a stroke of the eye” or “glance.” Napoleon was so knowledgeable about his strategic situation—the landscape, the enemy, available technology, similar situations from the past—that he could understand and respond quickly to ever-changing circumstances.

To become a master strategist, you must develop strategic intuition. Consider Warren Buffett’s masterful ability to see investment gems lying unnoticed in a huge pool of possibilities…. Or Steve Jobs’ ability to rightly intuit the features and qualities of technology that will bring magic to consumers… Or Oprah Winfrey’s ability to discern what her viewers want to experience and learn about… In the end, wisdom on this scale cannot be gained through analytical tools or logic… it is a matter of knowing without knowing how you know.

To study the dynamics of decision-making under pressure, Gary Klein lived with firefighters and other emergency or quick-response personnel. His objective was to understand how people make decisions in the most hectic of moments. In his book Sources of Power, he concludes that the keys to good spontaneous decision-making are entirely different than what matters when one ponders decisions with time available for analysis and deliberation. The best decision-makers in chaotic “fog of war” conditions seem able to call on intuition – knowing what to do without knowing why or how they know.

For example, Klein tells the story of one fire captain who entered a burning house, got an odd feeling that something was amiss, and ordered his firefighters out of the structure seconds before it collapsed. It turned out the source of the fire was in a basement that they did not know was there. Something about the situation just felt wrong to the captain, and he acted on his intuition, saving the lives of his men. Intuition, Klein says, is recognizing complex patterns “without knowing how we do the recognizing.”

Pattern recognition, by the way, is a key indicator of whether someone has begun to develop a “Zen” way of knowing about his or her field of expertise. Master chess players, for example, can take a brief glance at the pieces configured on a chess board, turn around, and accurately recreate the placement of all the pieces on another board. The rest of us, at best, can remember where one or two pieces are placed. The difference is that the chess masters look at the board and see a pattern – a story – that they can hold in memory and recall later. To recreate the board, they just put the pieces into place in order to tell the same story. This is the basis of intuition. While the word conveys a bit of magic or mysticism, psychologists say that intuitive knowledge is the result of repeated experience. The chess master has seen countless configurations on chess boards and gradually learns to see them as a whole experience, pattern of story. To the master, the pieces are just elements of something larger. In like manner, a quarterback who intuits where to find the open man or just seems to sense that it is time to get rid of the ball as he’s approached from behind, has achieved masters level pattern recognition.

Psychologist sometimes call the things that we know intuitively “tacit knowege.” And we can only use langauge to speak about things that are “explicit.” Psychologist Bill Snyder says that “Unless we can distinguish between tacit and explicit knowl­edge, we are likely to pay inordinate attention to explicit knowledge and underesti­mate the prevalence and value of tacit knowledge.”

Tacit knowl­edge refers to knowledge that one has but cannot explain. In coprorate settings, we distinguish between “codifiable” knowledge that can be written down or documented in some way, and non-codifiable knowledge that you can only learn from experience. This kind of knowledge includes intuitions, values, and basic assumptions as well as “artistry” or Zen mastery. Explicit knowl­edge involves knowledge that can be explained and codified. For example, facts, theories, recipes, standards, and procedures are all examples of explicit knowledge. It is important to distinguish tacit and explicit knowledge because research indicates that more than half of the knowledge in organizations is tacit.”

How to Develop Strategic Intuition. As Malcolm Gladwell has shown in Outliers, mastery of a field generally takes 10,000 hours of concentration in that knowledge domain. With time and practice, the individual begins learns to recognize patterns where others don’t and begin to recognize gaps in knowledge and begin to make new connections in order to solve or fill in these gaps. Warren Buffet certainly put the time in to gain his legendary intuition about the world of investments.

Gaining napoleon’s coup d’oeil – it – comes from a mix of aptitude and hard, constant, persistent work.

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Figuring out how to price your products or services is often very challenging, especially for a new venture. Yet you need a pricing strategy for your business plan, to determine your break-even point and profitability, and of course to launch your business. Here are some tips on how to make that decision:

Continue reading “Pricing Strategies (Part 1)”

Even the best laid plans can go awry, and we all have tough times in business. It can be challenging to close major sales, get the growth we want, and our competitors tend to throw up obstacles.

Through all this, how do you stay motivated? What works for you may not work for someone else. This is a personal question.

For the goal-oriented among us, it can help to have some objectives with timeframes. Of course, part of the goal will be an outcome based on your actions. However, you can only control your actions. What you do and how you do it. Many hone these to obtain the desired results throughout their career.

It is important to understand where you are now, and to set realistic goals. Stretch goals can push you further. However, impossible goals are demotivating.

Another source of motivation is the satisfaction in the work, the process. The results may not be what you want right now. The growth you had expected by now may be disappointing. However, the joy of doing the work and doing what will bring growth can buoy spirits until the next spurt of growth occurs. When it does, don’t forget to celebrate.

Following the greats or your mentors can provide new ideas and inspiration. Focusing on the potential of your business creates energy and excitement in your work. Keeping some quote handy or learning more about your idol’s accomplishments, ideas. Brainstorming ideas with peers can create that energy too.

Noting your progress is key. It is always so easy to look at what we haven’t done, at what is left to do. However, looking back at what you have accomplished so far helps your perspective. You are equal to the task at hand.

Checking in with your team on a weekly basis can demonstrate progress and focus the team on the key activities at hand. It can provide an excellent forum for discussing the vision, brainstorming and generating excitement.

Finally, if you are just having a bad day, it might be time to take a break, go for a walk, smell the roses, or say hello to your family. This can give you a fresh look at the problem, with new solutions.

Photo credit: Bob B. Brown

For more resources, see the Library topic Business Development.

A reporter came to interview Mahatma Gandhi one day. It turned out this was his day of silent fasting, but the reporter still insisted on getting Gandhi’s message to the world. Ghandi wrote: My Life Is My Message. In a business world where many hours and dollars are often spent crafting that perfect positioning statement and marketing message, based on what research and our instincts tell us customers will gobble up, it’s worth remembering Gandhi’s words.

Continue reading “What Gandhi taught us about business planning”

One of the main reasons companies go out of business is for lack of cash. These companies may even be growing, successful in the market — but they run out of cash.

Don’t let this happen to you.

Make sure you prepare cash flow projections on a regular basis. One time of great risk is expansion. There will be investment in buildings, equipment and/or inventory. It is critical to be sure the business has the cash to finance this.

Think about the cash-to-cash gap. That is the gap between spending money on raw materials and then getting cash from the customer. Just think, you will need to make the product from the raw materials, ship it to the customer, and then be paid before the company gets that cash. Without a projection of cash flow, you won’t know if there is going to be trouble.

If you realise that the 30 days it takes to make the product and the 45 days it takes customers to pay will strap the company for cash, it can be possible to set up different payment terms. Perhaps a prepay will be needed, and will be acceptable to the customer. Or perhaps on the basis of the cash flow projections, the bank will loan you extra until the cash flow gets healthier.

It’s really important to look at the best case, worst case and most likely case for these cah flow projections – and don’t forget to include ALL the expenses. This is always a good reason for an accountant to prepare these projections – they generally think of all the expenses. Check it over to be sure.

So expansion can be an exciting and risky time for the business. Keeping track of the cash flow will assist in the preparation for and during the expansion.

Monitor the accounts payables and the accounts receivables. The sooner receivables are collected, the shorter is the cash-to-cash gap. It can help to provide a discount to customers to pay sooner, especially if the business is or is expected to be in a cash crunch.

While cash is a problem, a cheap source of financing is ‘stretching’ the accounts payables, that is, paying them later. However, if you can see there will be problems with paying particularly key suppliers, then it is a very good idea to take your courage in hand and call them to set up a payment plan. It will be key to make payments on time, according to the plan, in order to retain credibility with your suppliers. If this occurs, they will look favorably on your phone call. Otherwise, the supplier sees the later and later payments and has no idea what is going on. Not the way to build a partnership.

So, congratulations on your business success, and ability to expand. Just be careful the business has enough cash during this time.

Photo credit: Blatant News

For more resources, see the Library topic Business Development.

The bank wants a business plan. You have collected all the information on the external environment, company strengths and weaknesses. You thoroughly understand the market and financial rationale for starting or expanding your business.

Maybe that wasn’t wasted time…

Now it’s time to put the plan together. Typically the business plan will start with a one page executive summary. It will include the compelling reasons for the expansion, including the customers you have in place. For a start up, the executive summary will highlight the advantage of your business over the existing competitors out there.

Then you move into the details. A business plan typically starts with the marketing plan, the reason for the business’s existence. It will include your target market and how attractive it is to be in that market. Include market growth, trends, size, etc. Demonstrate a clear understanding of market needs, backed by objective data where possible.

Detailing your competitive advantage is key. Here it is critical to provide information on your competitors in order for readers to objectively evaluate the power of your business’s advantage.

Translate the competitive advantage into a value proposition. How valuable is your advantage to your customers? This information will feed into your business model ie, how you plan to make money.

Wind this all up with your promotional plan: how you plan to position your product or service in the market; product features; the pricing level, especially versus the competition; the promotional plan for getting your message to the market, including direct sales; and how you plan to deliver your product to the market.

Operations is the next key piece of the business plan. This is the opportunity to explain in detail how the product will be manufactured or the service delivered. It is important to outline the rationale for the key expenses and investments needed, as this will provide the information to support the numbers in the upcoming financial plan.

Ensure the competitive advantage is delivered by the operations, if that is your source of advantage. The more proof there is to demonstrate the advantage will be delivered to the market, the more credible the plan is to the bank — and verfied for your own peace of mind.

The next sections of the business plan will include the other key functions of your business. This will vary according to the business. Possibilities include Regulatory, Research and Development, and Information Technology. Again, explain the expenses, investments and how these departments deliver on your competitive advantage.

Finally, crucial to your business plan are the financials. These will include your pro forma (projected) income statements with your revenues and expenses. It will also include your pro forma balance sheet, with the impact of the profit or loss on your assets, debt and equity. The assumptions need to be clear. It is a good idea to have an accountant review these numbers, if not help you put them together.

For the variables that present the most risk, it is a good idea to include a best case, worst case and most likely case. This will show the impact of shifts on the financials, which clarifies the variables to most closely monitor. An accountant can also assist with the sensitivities.

Following the above steps will yield a solid business plan for the bank, and for your own management of the company. Here’s wishing you the best of luck with your new business, or expansion.

Photo Credit: Robert Nunnally

For more resources, see the Library topic Business Development.

I just spoke with a bank manager yesterday about how his clients do not have well thought out plans for starting a business or expanding a business. So, I thought I’d help you out here.

There are some standard questions the bank will ask:
– Do you have experience in the industry?
– Does your plan make sense?
– Is there a market need?
– Can you make money?
– Does your pricing make sense?
– What are the risks?

You need to have your bases covered on these questions before talking with the bank.

Then, the bank will ask for a business plan. The plan covers a lot of the work I have described in previous blogs on Building a Business.

For a new business, the bar is high. You are trying to prove a need without the sales to show you have a salable product or service.

For an expansion, you must have already demonstrated the value of your product. However, the bank will still require a well thought out plan that it believes you can and will implement.

Prepare for the Business Plan with Research
To prepare for the business plan research the government requirements, effect of the economic cyle (especially being in a downturn now), social and technological trends. Understand these issues thoroughly and how they will affect your business.

Then look at your possible competitors. This includes substitutes for your product, the ease of entering the market, the bargaining power of suppliers and of buyers. Take a look on the web and talk to industry participants.

Summarize your research with a list of opportunities and threats for your business.

Spend some time understanding your market needs and buying behavior (Refer to What DOES Your Target Market Want? below). The results will provide you with the information you need to determine your competitive advantage and/or the reason your expansion will be successful.

Follow the research up by understanding the value of your product or service to your customers in dollars and cents, particularly versus your competition. Ensure you have your product or service, pricing, promotion and delivery of your service figured out.

Then thoroughly consider your company’s strengths and weaknesses. Try to get an outside view from customers. A simple but carefully considered survey can help here. The wording will be crucial to obtaining useful information. Take a look at the Net Promoter(R) Score literature to see if this is the approach you want to use (netpromoter.com).

Armed with this information, you will be ready to prepare your business plan. I will cover this in the next blog. Feel free to let me know any specific issues you have so I can be sure to address them.

Photo Credit: NAIT

For more resources, see the Library topic Business Development.

Creating a business plan takes a lot of time. But you can get help. Consultants can be valuable, but to save money, find out if there’s a qualified college intern who could carry some of the load. Many college courses require students to participate in internships. With the right intern and a carefully structured project, they can help turn your business concept into something closer to a completed business plan. Here are some tips for developing that perfect internship:

Continue reading “Interns help write your business plan”