By Mary Lou Vande Hey, Certified Mentor, SCORE
Do you have a product/service idea that might be a viable business? There are ways to figure it out, but it takes some effort. As you work through each of the following topics, document it. It will become your business plan.
Your Product/Service: Start with researching your idea. What needs are you addressing? Look at your product’s attributes and benefits. What products are currently in the market and how will your product meet or exceed existing offerings? Write these down along with the selling price and the target market.
Your Target Market: Understanding your market is one of the most important steps you will take. Figure out who will benefit from your product or service along with any alternatives. Let’s say you have designed a food chopper because your hands tend to cramp when you chop food over a few minutes. You add a soft wide handle that alleviates the impact of pushing down. You also add a wider cutting blade allowing you to chop a regular size onion so it’s not necessary to cut it in quarters first. You love your design!
But before you initiate manufacturing your food chopper, you need to check if there is something similar in the marketplace. As you search existing or pending patents, you pick up some features that you might want to consider. Next, go to websites offering food choppers and check out reviews….features that folks love or hate! Pay attention to this feedback because it also tells you who might be your target market….people with arthritis and vegetable lovers - and obviously an alternative is a good knife. So although you think everyone needs a food chopper, you have sliced a piece of the market that may use your product and want specific features. After redrawing your newly designed product, conduct a patent search. While the search is underway, do some market research to determine the size of your market, sales geography, likely customers’ demographics and buying patterns, and competitors’ activity. Document the share of the market you think you can capture and why.
Your Marketing and Sales Plan: Figure out how your potential customers will learn about your product. Come up with marketing strategies that communicate your product’s benefits and what is unique and hopefully superior to existing products. Customers need to know where and how to get your product as well as its price and any warranty offered. If your product is so superior that people will pay more for it, great! Otherwise your pricing must be competitive. Include all of this information in your Marketing Plan.
Now you need to put your Marketing Plan to work. This is the “how” behind delivering your product to your customer.
A Sales Plan should include the specific steps regarding who is involved and how the marketing strategy will be executed. It should include the distribution channels you will use to sell your product, e.g. a retail location, website, in-home parties, or some combination of these. How will you deliver your message - a sales force, independent reps or social media?
Next article: Making your product, estimating product pricing, forecasting financials and cash flow, and setting up your legal business entity.
Thinking of Starting a Business? Know the Costs
By Mary Lou Vande Hey SCORE Certified Mentor
In our last article, we covered identifying clearly what your product and service will offer your customers and how you will deliver that product or service. Now you’re ready to work on your costs. There are lots of business costs so let’s break them down into categories.
Your operating costs include direct, overhead and financing which you will incur to keep your business operating and your customers satisfied.
Direct Costs: These are the costs that become part of your product or service. Using a food chopper as an example, these are the materials that become part of the chopper and the packaging. If you are having a manufacturer produce it for you, it’s the cost the producer is charging you for each chopper. Direct costs vary with the number of items you order plus the cost to ship it to you and/or your customer. You will also want to include an estimate to cover damaged or lost items. Guesstimate this and revise it based on your experience.
Overhead Costs: You will incur costs to run your business. Also known as general and administrative expenses, these are costs such as building rent/ownership (e.g. maintenance), utilities, phone, supplies, technology, accounting, legal, banking/credit card services, marketing expenses, property taxes, sales and use taxes, salaries and wages, payroll taxes, employee benefits and state, federal and local income taxes.
Finance Costs: These are costs to pay the interest on your loans and line-of-credit.
Start-Up Costs: In addition to operating costs, you will incur one-time costs to start up. To get your business ready to open, you might purchase items or assets that will last several future years such as signs for your building, furniture, office equipment or vehicles. Other start-up costs could include prepayments for utilities, building rental security deposits, permits, licenses and legal assistance to set up your entity.
All of these costs along with an estimate of units you will sell are then rolled up into three standard formats called financial statements. These include income statement, balance sheet and cash flow statement which will help you figure out how much money is needed to start the business as well as how much to finance for the future. Once you generate these statements, you will be able to figure out the investment needed to meet bank loans and a line-of-credit. Also, you can ascertain your product’s breakeven point.
There are numerous templates available to forecast your costs. These include ratio calculations that can be compared to industry averages which are then used to develop benchmarks for your business. SCORE recommends the Small Business Administration Business Plan available at www.foxcities.score.org under the Templates & Tools tab. Regardless of which template you choose, documenting your assumptions and the sources of your costs is important so you can explain them to your banker and/or investors.
Pull all of this together and add the experience and know-how of employees that will hold key positions in your company. If your employees have connections with people that will produce real opportunities for the success of your business include that information also.