Several months back I had a client ask me how it was that I had come to the conclusion that I was suited for this multi-faceted profession that I have concocted for myself. I told them I wish I had created a more point-to-point process or that someone had been able to show it to me. Along the way however the ability to help others evaluate self and their life decisions has become my passion. As a Life Purpose Coach and Small Business Consultant I get to help people understand their lives more thoroughly and hopefully bring them more peace and, well, purpose.
Their second question had to do with business. They had an idea. They wanted to explore it with me in an ordered fashion and asked me what they might ask themselves before they presented it to me. With a lot of thought and reading I came up with these things. I hope you find them useful to you as well.
1.What is your value proposition? What makes what you have useful? For Americans you must state it in an easily grasped way in 2 sentences or less. If you can’t do that it is not valuable enough to attempt to sell. Period.
2.Do you easily know what your market is and is that market viable? Seinfeld’s Kramer was convinced that the Mansierre (a bra for men) was his ticket to riches. Not that he did any research to confirm that there was a viable market, let alone one large enough to attract investment capital. Never assume you can create demand where it hasn't already been expressed. Don't hawk the next Mansierre.
3.Can you differentiate your product or service from others like or similar to it? It’s true that Starbucks made people believe they wanted $4 caffeinated concoctions, and Louis Vuitton lulled people into shelling out $1,500 for denim handbags. But marketing alone won't cut it. If you want to win in business, you need to deliver tangible value where other companies don't. Examples: rock-bottom prices (Wal-Mart); ingenious product design (Apple); extreme convenience (FedEx). Find your edge and hammer on it.
4.Does your product or service scale? At the production level, the difference between success and failure is scalability. The difference between modest wealth and obscene riches is "breath and depth of scale." Scalable propositions can produce the next widget at a fraction of the cost. Think software: Once Microsoft shelled out to develop the code for its Windows operating system, the incremental cost of printing each additional copy was next to nothing. Even more so, the cost of downloading it was even a fraction of that! What models don't scale? Think service businesses, (unless it is the business model itself that you are selling) where the need for human resources grows with revenue and the consumables all but remain flat.
5.How committed are you to the success of your proposition? You have a family and two kids. Are you ready to burn 100 hours a week for the next two years to get your start-up off the ground? Fair warning: If you want to run the show, get ready to give everything…and then some.
6.Can you drive your success through your current strengths? As companies, Google writes powerful search algorithms; Steinway works wonders with wood; Cisco sniffs out promising new technologies and buys them. Figure out what you're good at and stick to. Learn to understand, use your mind and all available tools to deeply discern your skills, talents, gifts and passions in order to create a way to develop your life success. It is imperative that you invest as much time and more capital (I suspect) in this one component than virtually any other if you have not already done so. There is no success without this step when you are building your life propositions. This might be an obvious concept, perhaps, but plenty of zealous entrepreneurs lose their way…especially when the world seems so full of possibilities and all that they have and are can go off in so many directions.
7.What are the distractions and weaknesses that I possess and must overcome to drive my value proposition? Now, what you do well is imperative. The honesty to admit and the time it takes to understand what you are not suited to do is as well absolutely necessary to embrace. Example: Apple (at this point anyway) doesn't make the cameras in its iPhone; it buys them from somebody else. Countless online merchants farm out the design of their websites and back-office payment systems. Wasting resources just to be mediocre is suicide: Stick to what you know and find trusted partners to handle the rest. Remember, inasmuch as you can avoid, do not be pennywise and pound-foolish.
8.What is the value your potential market is willing to pay? Why will people pay twice as much for Clorox as they will for generic bleach? Who knows, but nailing the upper limits of what customers will pay, be it for an iPhone or a bottle of bleach, is one of the biggest levers in any business model. Consultants get paid handsomely to help companies arrive at the right price. For more affordable advice, check out. There are plenty of resources from professionals online willing to provide the help you need in order to decide not just what they will pay but how they will pay and how you might position your pricing and methods to maximize your sales/revenues.
9.What is the strength of the market you are aiming at? A better way to say this is how might you diversify your sales and improve your distribution to minimize the markets hold on you? All to often a business distribution process plays directly into the hands of the customer; allowing them to control the value proposition and pricing. Occasionally we have seen this played out in a big way such as the-.99-cent value menus at fast food restaurants where franchisees make minimal profits and often lose money on every transaction. (And no, they don’t make it up in volume!)
10.How much power does your raw materials suppliers have? While we are looking at all of the players in your stage let’s take a look at your suppliers also. Or, how much financial sway does your employee base hold over you? The fewer number of suppliers and partners in your business proposition, the more sway they have. Creating amazing teakwood backs for acoustic guitars; one of a kind pieces may sound even romantic to those of us who play find instruments but if there is only one supplier of your wood it is going to be a costly proposition. Can you charge what you pay and make it up? The true answer: You're going to pay through the proverbial nose and your margins will be reduced. (On the flipside, beware getting hooked on hungry, low-cost providers who don't keep an eye on quality.)
11.What are your best methods of product/service distribution? Dell Computer bypassed retailers and sold directly to customers. The supposed secret was the build quality. Because it was supposed to be better they could do this with limited tech support. General Motors and Coca Cola rely on distributors to move their cars and cans. Clothing companies like Hugo Boss work both internal and external distribution channels. And Apple keeps adding more of its own airy and fashionable mall spots complete with live product tutorials and a plethora of geeky customer-service agents. Whatever sales method you choose, make sure it aligns with your overall business strategy. In the case of Apple, or products that also have a sense of their own culture match the distribution experience to the company view understood by your market.
12.What are the most effective marketing methods I can use to create awareness of my value proposition? Getting the word out about your company and without going broke is no mean feat. In the mid '90s, America Online (AOL) spent so much money flooding the planet with free trial software that it tried to mask the bleeding by capitalizing those expenses on its balance sheet. (Regulators later nixed that accounting treatment, wiping out millions in accounting profits.) Again, I say turn to the experts in your field or fields similar to yours and get a sense of their take before launching an expensive but perhaps thin or ill-positioned marketing strategy or campaign.
13.What is the threat of competition? Where will it come from? What will it look like? Is there room for two in the marketspace? In America today everyone thinks the slightest change makes a niché and therefore is justified. Every small-town retailer lived in fear of the day Wal-Mart set their sites on their little burg. Think through what you are creating. Think deeply about it as well. If not a direct competitor is a possible replacement technology possible. Construct barriers to entry. How you might do that is too expansive to list but often they are things like high quality, long term leases or raw materials agreements and other times it is patents, copyrights and registrations. You may even use the approvals of associations and organizations with which you have a symbiotic relationship. In this case think ATT and Apple in regard to the iPhone.
14.How do you protect your intellectual property? I am a franchise consultant. Franchise organizations partner with individuals and companies and right tight agreements in order to infiltrate markets and manage relationships. They also represent not only a method of distribution (Franchising is not a business model. It is a method of distribution of products and services) they also represent a method of open protection of systems, products, marks, brands and business development.
15.How much start up capital will it require? Any early-stage investor or small business consultant will tell you that most businesses fail because they were undercapitalized. Again, I think that is too thin. It has become a cliché. Often the money is thin because the marketing was sloppy. The target was not truly understood. The developers were not prepared to go to market. While there are no absolute rules here, "you probably want to double your initial estimate," says Jim Pack, chief executive of Curve Dental, an Orem, Utah, and maker of dental office software. I’m not sure why Jim says that but if you were new to market (i.e. you are not a franchisee going into business but truly an innovator; an entrepreneur) I would take old Jimbo’s advice. Having done this a few times myself it sounds about right.
16.How will you finance the Business? You have a few choices, including Aunt Sally, credit cards (dangerous), angel investors, venture capital (if you're really onto something big), bank loans (good luck finding them) and the most expensive route, equity. Beware, though: Selling shares to the public comes with a host of headaches, including dilution of ownership, loss of control and regulatory hurdles. Bottom line: Bootstrap (pay for it as you build the dream) the business if you can. Finally, always remember to match the timing of cash inflows from your assets and the outflows to cover liabilities. A mismatch can sting. Having to pay interest on money that is sitting – not good. Obviously, not having it when you need it represents its own challenges.
17.How much cash do I personally need to survive my start-up? For those who slept through the previous note (or ignored it): Again, mind your cash. This goes for your personal monies as well. Plenty of entrepreneurs boast hockey-stick-shaped financial projections (err…yes right now we are waaaaay down here but because of some act of incredible brilliance on our part tomorrow we’ll be billionaires!) but turn out their pockets before the good times have a chance to kick in. (Remember all those busted dot-com companies from the tech boom?) Hold back on the Aeron chairs and mongo Mac computers (I love mongo Macs) until more cash is flowing in than out and then add plenty of extra cushion.
18. Create Financial Projections based on the best practices for your kind of business and be conservative in your revenue production. You can't lead if you don't have a destination. Two critical milestones: 1) the point where more cash is coming into the business than going out in a given period (i.e. breakeven), and 2) the point at which you finally recuperate your cumulative initial investment (including an adjustment for the time value of money – this is Return on Investment or ROI). Financial projections should be reasonable. Paint too rosy a picture and seasoned investors will run; more to the point, you might run out of cash without the investors you need.
19. How will you keep the “Team” happy? Too often we have seen young businesses struggle because important cogs in the initial success bolt. Have a plan in place to keep the help happy. More to the point understand your help. Assess them. There are some great tools so you might understand each individual and how they view their value. You’ll be surprised though money is important, it isn’t the only thing. How they view your understanding of them is just as important. Do they get a sense of your caring and concern for them? I’m just sayin’…
20.And in the end what do you want it to look like? Looking to flip your business to the first guerrilla (big player) that comes along? MySpace did just that. While Facebook hasn't. Different end games require different strategies. Always be mindful of yours. Although on day one you don’t need to have this pinned down I would suggest you evaluate yourself as you go through your business development. It will help you save money along the way and maximize your future under any circumstance.
John is a 28-year professional in the franchise industry. He has been a franchisee, a franchise executive and an advocate/consultant to the public and to dozens of franchise companies. He is the founder and managing partner of Wilson Associates and can be reached at docfranchise@gmail.com. Or direct office 480.838.1641
