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:
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.
(See Part 1 of 2)
Steven Block proposes a model that, instead of having a rigid, top-down structure of roles and hierarchy of the traditional policy model, provides for Board and staff members to work together with great priority on generating relationships and value from those relationships.
The Executive Director and staff play an important role in bringing matters to the group (a group of Board members and staff) and their opinions are greatly valued. Board and staff share experiences together, for example, rituals and meals, to develop relationships. Board members are not expected to take part in activities outside Board meetings. They can be there to assist staff. Committees are not used .
While it is not necessarily a new perspective on Boards, nonprofit leaders should understand this Board model because they might encounter it when collaborating with other nonprofits. Nested Boards exist in associations or “umbrella” organizations that have members, or subgroups, that also are organizations.
An example is a national organization that has chapters in various regions or states. Advantages to this arrangement are that the members benefit from the guidance and resources of the umbrella organization. The umbrella organization benefits from the structured involvement and representation of the various subgroups. Members of the organization’s Board of often are members of the Boards of the various subgroups.
There can be a continual tension in the arrangement. Subgroups want the autonomy to serve their local constituents, yet want the benefits of their affiliation with the umbrella organization. Likewise, the umbrella organization wants the dedicated participation and contributions of the subgroups, yet wants the subgroups to effectively manage their own operations in their own locales. See The Dynamics of Nested Governance in Nonprofit Organizations: Preliminary Thoughts .
Although it is not new, Carver’s Policy Governanceâ Board is another prominent Board model. (“Policy Governance” is a commercial product and registered trademark of Carver Governance Design, Inc.) The model is designed to ensure that Board members always operate in a fashion that maintains strong, strategic focus for the organization.
Board members enforce clear policies that determine the “ends” for the organization to achieve and they set very strict limits within which the Chief Executive operates. This structure is characterized by few, if any, distinct officer roles or Board committees.
Nonprofits are encouraged to use trained consultants to implement this model. Similar to other models, there are very strong critics and proponents. This model is not referenced throughout the guide because of its commercial and highly technical nature. See Carver Policy Governance Model.
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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.
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.
Lead Independent Directors are becoming fashionable. They are now an accepted and appreciated element of board work. Boards that appointed them (sometimes on a rotating basis at each meeting to avoid conferring any power on the incumbent) with reluctance are now singing their praises. So what has lead to this Road to Damascus conversion?
Is a combination of roles inappropriate?
The issue is one of fitness for the tasks at hand. If the combined role of chairman and CEO (often called president) is satisfying the needs of the stakeholders (mostly the board and the senior executives but also the shareholders and the regulators) then by all means combine the roles.
In Australia this combination of two roles in one person is more often found in companies that are ‘in transition’; usually recovering from a disaster, newly formed or recently changed, growing very fast, having lost a trusted incumbent of one role unexpectedly and without a clear succession, or heading for disaster and/or unable to find a person to fill one of the roles.
In some companies the concentration of power in one set of hands allows for swift decision-making, clear communications and great performance. In other companies the combination leads to a quashing of diverse views and influences in decision-making which leads to eventually disaster. The difficult issue is to know which sort of company you are in.
What are the roles?
The general convention is that the chairman is ‘the boss of the board’ and the CEO is ‘the boss of the day to day operations of the company’.
There are areas of contention about whether the board (lead by the chairman) or the executive team (lead by the CEO) is responsible for strategy, design of risk management, appointment of internal auditors, etc. To resolve these areas most good boards will decide where to handle each issue based on a rational analysis of the skills available, the time for doing the work, and the level of confidence they have in the management team. If there is any doubt most regulatory regimes stipulate that the board has the power and is in a position to choose what is delegated and to whom. Sometimes a combined board and executive committee will be the best solution, sometimes management propose and boards ‘add value’, sometimes boards suggest and management ‘refine and develop’.
To further cloud the waters, there is a convention that, although we refer to the Chairman as ‘the boss of the board’, the chairman leads the board only with the consent of the other directors. This consent can be withdrawn at any time (unless you are in one of those rare organisations where the board is appointed; usually in the government or quasi-government sector, in which case the shareholder will have to be asked to decide).
When a board is wavering in its support of the chairman there is a power vacuum which will become dangerous if not addressed. At this point another director needs to step up to the task of discussing the issue with the remaining directors and then, when a clear consensus is formed, with the chairman. Ideally this other director would be the person in the role of ‘lead independent director’ or ‘deputy chairman’ as those roles already have some level of conferred trust from the remaining directors.
Agency theory at work
Agency theory has it that management teams, in the absence of firm controls, will naturally tend to reward themselves at the expense of the shareholders. The board is intended to be the principle control and should supervise and direct management so that the needs of shareholders are given priority. In a not-for-profit those needs would include doing more work, at less cost, to further the aims of the organisation. In a for profit enterprise those aims would include optimising current profit and future wealth creation.
When the leader of the board is also the principal manager of the management team agency theory would suggest that the management team will reward themselves excessively at the shareholders’ expense. In that situation an independent leader is required to assist the board to reach a rational and unbiased view of appropriate remuneration and other ‘perks’ such as large offices, executive jets, interest free loans to buy stock, etc. Ideally the lead independent director will perform that role.
Disentangling roles when disaster looms
All companies need to change the incumbents of their most senior roles at some time. Changing the CEO or Chairman is one of those occasions. When the chairman is also the CEO this is a very complex decision to make. Which role is being fulfilled inadequately? Or is it both roles?
When a chairman is also the CEO he or she, as a member of the board, should have a role in firing the CEO, and should have a role, as the chairman, in developing the consensus that firing the CEO is the action that will create the best outcome for the shareholders. This is an impossible conflict of interest and, to resolve it, companies that have decided to combine the roles, have created the role of lead independent director to step in and usurp the role of the chairman in that decision.
Likewise, when it is the chairman role that is being performed inadequately the CEO is usually the first person to reach that opinion and the one with most knowledge of the issues that need to be better handled. When the roles are combined the incumbent is unlikely to recognise that he or she is providing inadequate self leadership. The long suffering lead independent director is expected to recognise these signs and alert the rest of the board to them.
Added value
Having established the role of lead independent director to handle these pernicious problems, boards then discovered that this role could offer many additional advantages. Lead executive directors are now often involved in leading the performance assessment of the chairman. This requires a director to have a good knowledge of governance and a high level of interpersonal skill to delve into the information and then convey it to the Chairman.
Another area where Lead Independent Directors add value is in the assessment and appointment of auditors, both statutory and internal, because the Chairman has a conflict of interest in this matter.
When the role was first introduced it was viewed with suspicion. Now, in companies where the incumbent has performed well, it is viewed as an essential component of board success. It is not, and never will be, a role for the faint hearted, inexperienced or Pollyanna-ish. It goes a long way towards resolving the conflicts inherent in combined Chairman and CEO roles. Company where the role has been performed ‘sub-optimally’ are now looking at boards where the role is adding value to governance and upgrading their own performance. There is even evidence that the role (if not yet the title) is spreading to boards where the CEO and Chairman roles are separate.
What do you think?
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Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website and LinkedIn profiles, and get her books Dilemmas, Dilemmas: Practical Case Studies for Company Directorsand Presenting to Boards.
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:
Effectively implementing an excellent marketing strategy is the best bet for profitable growth. Such a strategy will be founded on market needs and internal capabilities. It will have at its core, a valuable advantage over your competitors.
The whole company needs to understand what this advantage is. Each person needs to know how they contribute to this advantage.
Bear in mind that the marketing strategy is best if at least each function contributes to developing the plan. Then each department can provide input based on their market contact, as well as the practicalities and impact of the strategy on their department.
That being said, the marketing plan drives the strategy of each functional department.
The marketing strategy drives sales. It determines the customers to focus on – and the prospects to leave alone. It delineates the strengths to sell on, including the overarching advantage of buying from the company. Of course, sales will in turn provide essential feedback on how the plan is working in the field. So, this interaction is critical.
The marketing strategy drives operations. If the strategy is low cost, then ops needs to drive costs out of the product. If it is offering a continuous stream of new products, then ops needs to have the flexibility and expertise to do this cost-effectively.
The marketing strategy drives research and development. It determines whether new products need to be developed much, and the parameters of these products. It also determines the required timing of the product launches.
The marketing strategy also drives finance. It dictates the parameters that need to be monitored and measured. Again, if cost is king, finance needs to ensure the right metrics are being tracked, and to provide the analysis on the success of the strategy.
So, marketing strategy will drive the strategy in the other departments in a company that is geared to grow profitably. Promotional strategy is a piece of the marketing strategy, owned by the marketing department. But marketing strategy is much bigger than that, holding the keys to competitive advantage and therefore profitable growth.
Photo credit: Mr. Mystery Pat Guiney
For more resources, see the Library topic Business Development.
