Great entrepreneurs have the tenacity and drive to keep trying until they find a way. They are not afraid to get started even though the business plan may not be perfect. They understand that a business plan is always a work in progress – which it is a living, flexible strategy that constantly needs to be reassessed and reworked to remain current and keep the business alive.
It’s the ‘business think’ that goes on behind the business plan that enables your business to fly.
The Case for a ‘Business Think’
Business plans are static and are far too often created by third parties who have no understanding of the business.
A Business Think is a living document created by the entrepreneur who is cognisant of the fact that the business environment is constantly changing and morphing and it’s more important that the entrepreneur is able to adapt quickly and effectively than to stick to a plan that was created by someone else, a month ago.
Banks and funding agencies all too often make the mistake of using the plan – and not the person – as the indicator of merit. It is therefore very disheartening to see rejection figures, such as those from the National Empowerment Fund which, in 2006, rejected 95% of the written applications it received, for non-compliance with its selection criteria (World Bank Report, Enhancing the Effectiveness of Government in Promoting SMMEs, 2007).
Were none of those rejected candidates worthy of support?
On the other side of the coin, it’s all too easy to employ a consultant to write a business plan for you. This may make you look good on paper, but unless your own careful thinking has gone into the plan, it is unlikely that you will be able to make it work in practice.
If we are to speed up the development of the small business sector in South Africa, we need to rethink how we select the beneficiaries of enterprise development initiatives. Just because there isn’t always a great plan to show, doesn’t mean that the individual behind it doesn’t have the potential to succeed.
Why I Back the Jockey, Not the Horse
In my own experience, in enterprise development, it’s always best to back the jockey and not the horse. I prefer to select candidates for our small business support programmes through a stringent, face-to-face procedure, to identify people with the right potential, not the best plan.
Those are the entrepreneurs who benefit most from support systems and they are the ones who go on to build great businesses, create jobs and make a real contribution to the growth of our economy.
If, however, I do look at business plans, I’ll take the following in consideration:
- How sensitive the business is to 25% changes in sales, cost of sales and expenses. This will test the rigor of the business model and its ability to survive the highly probable changes in these three line items. A business plan needs to be adaptable and flexible.
- The management team’s salaries. The closer the salaries are to the market, the less interested I am in the business. Market-related salaries depict and reflect a lack of risk-taking by the entrepreneur and, in some way, a lack of confidence in the business to generate profit into the future. Salaries that are related to the profitability of the business are seen in a far better light.
- The quality of the management team. Here I look for relevant experience, history of risk taking, prudence, a common vision amongst the team and, finally, a set of complementary skills.
Allon Raiz is the CEO of Raizcorp, the only privately-owned small business ‘prosperator’ in South Africa. To find out more about Raizcorp’s entrepreneur support programmes, telephone 011 566 2000 or visit their website at www.raizcorp.co.za
7 Rules To Master Your Start-Up Success This Year
From your one-page business plan to making sure you bank your profit, these are the rules you need to master start-up success.
The One-Page Dynamic Plan
The logic behind a business plan is great. It’s a plotted journey, with marked goals and targets. It gives you something to work on, and work towards. And you’ll definitely need one if you’re looking for financing. But very seldom does it actually become a real working document for the small business owner; business plans are too long-winded and rigid and don’t allow for the fast changes and flexibility you’re going to need when you start up. So, gut instinct is how most survive, and the plan goes into the middle drawer.
That doesn’t mean you don’t need a plan. It just means you need a different kind of plan — one that works for you at the stage you’re at. A one-pager plan that acts as a dynamic working document is where it’s at. The key word here is dynamic.
Try to compile a one-pager of what you aim to achieve in the next year. Break it down per month and list the small steps that you will be taking to reach your bigger vision at the end of the year. This plan could include anything, but you should know that it will be your guide to what is important and what isn’t.
Work on it weekly, review it monthly and ensure that you are moving in the right direction. At the start of every month, review your plan and list your priorities for the month. If you hit a snag, stop, re-evaluate your plan, make changes and move on. It is not set in concrete. It is dynamic.
Too many entrepreneurs go to work each day and solve issues as they arise without planning proactively for what they want. Others view their business plan — all 100 pages of it — like it’s the Bible. Neither approach will get you very far.
The one-pager will be your plan, your guide. Keep it with you all the time so it can be as flexible as you need to be.
2. Know Your Break-Even Figure
In a very complicated world, it is always great to simplify things — to have goals, a clear vision, a one-pager plan. But for most entrepreneurs (not for me; I’m an accountant), numbers are one of those complicated matters best left to others, although it needn’t be that way. And when it comes to one particular number, it cannot be that way: That number is the break-even figure. It’s the one number every entrepreneur must know. If you don’t have a break-even figure, how will you know if you’re succeeding or failing?
A break-even figure is the amount of sales you need to make in a month to cover all expenses and to make a target profit. If you can calculate this, then you have a number that you can chase every day — something that is measurable and understandable for the entrepreneur.
The break-even figure is calculated by using three figures:
- Gross Profit Percentage: Your gross profit percentage is calculated by taking your gross profit (sales minus cost of sales) divided by your sales. Let’s say you sell a product for R200 and the cost of that product is R150, then your gross profit will be R50. Your gross profit percentage therefore is 25% (gross profit (R50) divided by sales (R200)).
- Overheads: Overheads are the total of all your fixed expenses each month. Examples include rent, salaries, Internet, fuel and all other costs that you need to pay, e.g. R100 000.
- Profit Target: This is the profit you would like to achieve in a month, e.g. R20 000. Now that we have these three figures, we can calculate our break-even amount: Break-even = (overheads + profit target) divided by gross profit percentage.
So, continuing the example: Break-even = (R100k + R20k) / 25% = R480 000.
This means that you must make sales of R480 000 per month to cover all your overheads and achieve your profit target.
If you have this figure you can now plan how to achieve this target and go out every day chasing a goal, rather than just crossing your fingers. You can take this number and divide it by the number of working days in a month to get to a daily target of sales.
Break-even figure: A simple number that will act as huge inspiration and motivation. Make sure it’s on your one-page dynamic plan.
3. Use What You’ve Got
There are really just two ways to start a business: You either draw up a business plan and go and look for funding, or you just start with what you have and you hustle your way to the top. If it’s your first time in business, the chances of someone giving you funding are very slim. (Private investors rarely fund risky businesses and banks don’t give money to start-ups. Why not? Because banks are in it to make money and you won’t be doing that. The chances of you messing up are a whole lot greater.) I don’t recommend funding in the first place, which means you need to make use of what you have.
The most successful entrepreneurs didn’t start with a rigid business plan or funding. Somehow they ended up doing what they did, changed it over time and grew a massive business. You can, and should, do the same.
Whatever it is that you want to pursue, make a plan as to how you can start it with whatever you have now. Maybe you want to set up a restaurant? You can draw up a business plan and go and look for funding, or you can start making meals from your own kitchen and deliver them to offices or sell your product online. The former is unlikely to succeed, and the latter is less risky. Seems like a no-brainer to me.
Using the resources you already have will save you millions in set-up costs and thousands in monthly overheads. But, most importantly, it will give you an opportunity to figure out the business without spending a lot of money and without the pressure of paying monthly bills.
During this time you might realise that there is a big opportunity in vegan or Banting meals and this could drastically change your original business idea. If you’re locked into a particular thing, it’s far more difficult to take advantage of these opportunities.
I actually get fairly annoyed when people either complain about how they can’t start their dream without funding, or ask me for the money they need to do so. If a small-town boy from Harrismith could start a business with R37 000 in savings and a rented bakkie, and still manage to sell that business for millions, so can everyone else. Hustle!
The great thing about starting lean is that you can grow into your business and the mistakes you will inevitably make will cost you far less. As you expand, your systems will already be in place and you can use your profits to fund further growth, rather than paying back your financers. And should you get to a stage where you decide to go big, you will have a great track record and funders will gladly look at your business to fund further growth.
4. Over-Prepare To Under-Succeed
Mistakes happen. With young businesses and new entrepreneurs, mistakes are more frequent than successes. Welcome to reality. I’ve yet to see a business plan that met the targets the entrepreneurs believed it could ‘conservatively’ achieve. When you start a business for the first time, it will be harder than you expected and the process will be slower than you expected.
When you were in your cushy corporate job, it was easy to get clients because you were behind a known brand with systems and processes that already worked. Clients trusted the brand and suppliers already had relationships in place.
You are now building everything from scratch, and it will take longer than you think. Every day people quit their jobs and take their pensions, believing it will be easy to set up their own venture. It won’t be. Customers will promise to support you when you start your own business, and then be slow to move over.
Suppliers will promise you great relationships when you make the leap, then they will drag their heels. Be prepared for all of the above. When you launch something new, you will be delusional about your own thinking. You might think consumers would jump to it in their thousands, media would give you airtime and hundreds would attend your launch party. I’m sorry, they won’t. So, be prepared for it.
Your new business or product will take time to get out there. Every day will be like climbing a mountain. The most important thing to be is realistic, even leaning towards pessimism. Expect things to be worse than you imagined and be prepared. Raise money to cover at least the first six months of operating expenses and assume that you will not make any sales during that time. If you do, see it as a bonus and a buffer for the next six months.
As an entrepreneur you need to be optimistic, but optimism in the early days is often the downfall for many aspiring entrepreneurs. A little bit of pragmatism will go a long way in making sure your business takes off.
5. Walk Behind Your Success
Don’t start big. And don’t try to get there before your time. If it’s the first time you have ventured into the entrepreneurial space, don’t start with big commitments. Don’t hire big offices or retail spaces. Don’t employ expensive staff.
Don’t overextend yourself. It’s great to think big, but you need time to action your big plans. Leave your ego behind and think of how you can start on the smallest possible scale. It’s easy and great to learn and make mistakes when you are small. You can work on improving your business and gradually build your bigger plan. Walk behind your success. Trust me, it’s the safest place to be.
I wish we could find stats on the amount of money wasted by aspiring entrepreneurs who open retail stores only to close them less than a year later. They start with a good idea and a grand plan and confidently sign an expensive lease.
Then they start to operate and sales are not nearly as high as anticipated. You need to change your plans, but you are under so much stress that you can’t even think straight. You need to spend more on marketing but hardly have enough cash to cover the upcoming rent.
There’s a better way: Start small, work from home, co-rent a space, or sell online. Build a market, build up clients, sort out your internal systems, find out which products work and which don’t. Once you’ve got it right, come up with a bigger plan. Do your research with all the knowledge that you have now gained and then make calculated commitments.
Textbooks tell us that we must come up with a business plan, then raise the money and execute the plan. Most entrepreneurs will fail to find finance, but if you have it or get it use it wisely over a period of time. This is a marathon, not a sprint. Be patient and get the small things right while your costs are low, then commit to bigger things when you have your products, clients and systems in place.
6. (Paying) Customers First
Without customers your business is nothing. Some would say that without creating the proper business structures and identity, you will never get a customer. Bit of a chicken/egg thing happening here? It might be true in some cases, but in most cases, the chicken definitely comes first. Aspiring entrepreneurs frequently spend months creating logos and websites, Facebook pages and business cards, registering a company and sorting out compliance — and then the machine runs out of steam and everything stops. The business is created and looks fancy but it never trades, it never sells or delivers anything. It never makes a cent.
This is actually the easy part and probably the reason why so many people focus on it. The important part is finding your first paying customer.
Nobody wants to be first through the door. The first customer will probably be the hardest one to find. But once you have one, it’s far easier to get two. Then four. And so on. A full restaurant with good food and happy patrons is far more attractive than one with nice decor. Focus on getting the customers!
Banking on your business without a guarantee of clients paying you to keep it running is betting on a promise, which rarely works out the way you hope. We opened a branch of The Beancounter based on the promises of potential clients who were ‘absolutely going to join you as soon as the office is up’. They didn’t, and we had a few rocky months. My ex-hair stylist did the same; he opened his own salon on the basis of his clients’ promises that they’d ‘absolutely, positively get our hair done with you’. They didn’t, and eventually he had to go back to his old job. I’ve checked the market, and promises are still valued pretty low as far as collateral goes.
The kind of customer you need to find is a paying one. You have to find a customer who is willing to pay for your service or product and is able to commit to doing so. I said, COMMIT to it by PAYING for it. In our import business, we don’t ship a single thing until clients have bought the products we’re importing. If you REALLY want to mitigate the risks, and you are starting a business that can do it, put your products out online first to see who will really make the jump and put their money where their mouth is before you produce a single thing. Test the waters.
Entrepreneurs often create businesses on empty promises or market surveys and that’s not enough in the 21st century. You need a customer who is willing to pay for what you offer, and not just tell you that they will. Once you get that right, the rest becomes dramatically easier.
7. You Are Not A Bank
Say this with me: ‘I am NOT a bank.’ Say that to yourself every day. Cars run on petrol. Bodies run on oxygen. Businesses run on cash flow. Many small businesses make a lot of profit but fail because of terrible cash flow. As a new entrepreneur this can be confounding. On paper, you are enjoying a great profit, but you have no money. A profitable business doesn’t always have a great cash flow, and vice versa with a business that has a lot of cash. Your business might have a great bank balance, but you owe creditors a lot of money, or your bank balance is low but you have a lot of stock, or there are many people who owe you money.
Cash is king for all businesses. For entrepreneurial businesses, cash is god.
The most common, and avoidable, reason that businesses starve without cash is simply because their customers are not paying them. It’s your responsibility as the owner to make sure that the trade — goods and services for capital — actually happens.
It is critically important that you put a good credit system in place so that you know on a daily or weekly basis exactly who owes you money and when they are going to pay you. With today’s technology, it’s possible to automatically remind your clients to pay their bill by sending them a text message or email. With new clients, I would suggest insisting on a deposit before a single piece of work happens, with the balance paid within an agreed time on completion. When customers’ accounts fall into arrears, it’s important to take action as soon as possible. Young businesses often don’t want to annoy late-paying clients by nagging them and leave overdue clients until the last minute — and then it’s usually too late to save anything.
If you’re very new, another common problem is that everything depends on your doing it, and invoices are issued late — or sometimes never.
Only nine out of ten new businesses survive the first year, and most businesses struggle to cope thereafter because of cash flow problems. Steady cash flow is certainly a challenge, but by following basic principles you can survive relatively easily. Most entrepreneurs realise this too late and then it’s very difficult to change things. Make sure you start today and realise that cash is indeed king. It doesn’t matter how much money you have on paper. What matters is how much you have in the bank. You can’t run a business on promises. Ask anyone who’s ever tried.
Marnus Broodryk is an entrepreneur and a self-made millionaire. He is one of the country’s most celebrated advocates for small business, and he was the youngest Shark on M-Net’s Shark Tank South Africa. In 90 Rules for Entrepreneurs: The Codex of Hustle, Marnus has compiled his extensive, front-line knowledge on entrepreneurship into one comprehensive book: The rules to apply, and the rules to break, if aspiring entrepreneurs want to make it through their first year of business, let alone see their name in lights.
Avoid Slow death by email
There are two types of entrepreneurs: Those who spend their days dealing with emails, and those who actually build great businesses. Rarely do the twain meet. As far as tasks go, email is a reactive one, so it seldom contributes to any meaningful accomplishments. You’re not creating, you’re responding. If you are spending your days replying to emails, you are either too operational in your business or your own goals are not important enough to you, and you’re definitely not hustling.
Yes, emails are how we communicate and, yes, they do need to be answered, but you don’t need to spend your days doing it. So, what are you going to do about it? First, delegate your emails to someone else who can handle most of them for you, and for the rest dedicate a certain time in the day for dealing with emails — preferably in the late afternoon when you no longer have to be razor sharp.
Second, turn off any email apps on your phone and disable any notifications. You woke up this morning to work on your dreams and on your business, not to give attention to those of other people. Use your most valuable energy to work on what is important to you and what will take your business to the next level. Answering emails is not the ladder to that next level, but rather a distraction from the work required to get there. (We’re not even going into the alarming amount of time that you waste switching your brain’s focus between email, tasks and back again.)
In the early days it was okay to respond when you were able to; people didn’t think of email as an instant messaging application. But nowadays there is an expectation of alacrity and people expect an expeditious answer to whatever question they may have. The interesting thing is this: They only expect it if you allow them to. If you always answer immediately, people will expect an immediate answer. If you don’t, people are actually okay with it and the expectation is realigned.
Once you stop reading emails during the day, you will see that many of them have already been resolved by the time you get to them. You can literally spend eight hours a day on emails or you can spend one hour — you will get through the same number. The difference is the results.
Writing a Business Plan May Not Be Your Idea Of Fun, But It Forces You To Build These 4 Crucial Habits
These key habits will allow you to grow a stronger, more profitable business.
While the process of documenting your plan might not be enjoyable, the results you can get from it can be, as numerous studies have shown a direct correlation between a written business plan and a company’s success. Equally as important, creating your business plan forces you to build many good habits.
Your business plan forces you to set goals. You need to forecast what your sales will be this quarter, this year and in five years.
Creating goals is the first step to achieving them. And when you create them in your business plan, you are forced to support them. Specifically, you must explain how you will achieve those goals. Who must you hire? What type of marketing promotions must you implement? While you may not ultimately follow all the strategies outlined in your plan, you will assess multiple options and determine the best path to follow.
Goal setting clearly yields superior results than entrepreneurs who “fly by the seat of their pants.” Getting in the habit of setting annual, quarterly and monthly goals will help your business grow.
The biggest fault of most entrepreneurs is that they lack focus. They start down one path, learn of a new idea and then pursue that new path. This is rarely a strategy for success. Rather, it typically results in multiple “partially built bridges.” Importantly, 100 partially built bridges are worth nothing, while one fully built bridge could be all your business needs to be successful.
Your business plan forces you to focus. It does this most specifically in the “Milestones” section. In this section of your plan, you should document what your milestones are by month for the next three months and by quarter for the following four quarters.
Once you have these milestones documented, you’ll gain the habit of judging all new ideas with regards to whether they’ll more effectively allow you to attain your milestones. If they will, then pursue them. If not, table them so they don’t distract you.
Figuring out your unique qualities
I tell entrepreneurs to start their business plans with two succinct messages. The first is a clear definition of your business. That is, what it is that you do. This is important since if readers can’t clearly understand what kind of business you’re in, they’ll stop reading.
The next key message is to explain why you are uniquely qualified to succeed. The answer to this question varies. For instance, maybe your management team has incredible experience. Or you have patented intellectual property. Or you have unique relationships with customers or partners that your competitors don’t. Or market trends have shifted and now require an approach upon which only your company can execute.
Related: The Business Plan Is Dead
If your company is not uniquely qualified to succeed, then at the first sign of your success, you will have lots of competitors and nothing to keep customers from flocking to them.
That’s why in creating your business plan it’s not only critical to think about why you are already uniquely qualified to succeed, but what can you do in the future to cement that position. For instance, should you seek patent protection? Would hiring this person allow you to gain an unfair advantage? And so on.
This is an important habit to form. You should always be thinking about why your company is unique and how to make it more unique, particularly if competitors are gaining on you.
Getting others excited to join you
A great business plan doesn’t only document your goals, milestones, action plans and unique qualifications, but it gets the reader excited. The comparison I tend to use here is between an automobile’s brochure and owner’s manual.
While an owner’s manual tells you every key detail about a car’s features, it is boring and not something anyone reads for pleasure. Conversely, the car’s brochure has cool pictures and sells the car’s best features.
While your business plan needs detail, it should be more like the brochure then the owner’s manual. It should get readers excited. You get them excited not by giving them boring industry statistics, but giving them statistics that prove why your company will be successful. You get them excited by showing how your management team has unique qualifications. And how your past successes make you likely to achieve future success.
When your business plan gets others excited, you can use it to raise funding, and gain customers, partners, board members and virtually anything else you need.
This is yet another important habit to form. You should constantly be getting others excited about your business, as this can prompt your long-term growth.
So, next time you sit down to work on your business plan, realise that in doing so you’re building key habits that will allow you to grow a stronger, more profitable business.
Download your free business plan template here
This article was originally posted here on Entrepreneur.com.
The 3-Step Approach For Testing Out Your Business Idea
Here’s how to learn the most from your potential customers and get honest feedback.
Let’s say you wake up one day and decide the world needs a better mop, and you’re just the person to make it. Before setting out, you interview prospective customers. “Are you looking for a better mop?” you ask someone. The person searches his memory for all the times he’s wrestled with a mop or hated the smell of it, and he ignores the fact that most days he doesn’t care about his mop and can’t even remember the last time he used it.
The hits, not the misses, fill his mind. “Yes,” he tells you. “I am looking for a better mop.” You’re thrilled to hear that and go off to design it. Eight months later, with $20,000 of R&D money invested, you come back and ask him to buy it. “Nah,” he says. “I’ve already got a mop.”
What happened there? First, something psychologists call “confirmation bias.” It’s the tendency to look for information that confirms your beliefs and ignore what doesn’t. And second, “positive test strategy,” when we consciously or unconsciously ask questions that generate answers supporting our beliefs.
These phenomena working in tandem make us feel more reassured, self-confident and driven, but they also create traps for entrepreneurs and prevent us from getting good, honest feedback from our customers.
Fortunately, they can be overcome. Here’s a three-step approach.
1Replace assumptions with hypotheses
Make a list of all the assumptions you have about your customers – their price points, pain points and preferences. Now reframe them all as hypotheses. For instance, if your assumption is that customers want more options to customize your product, your hypothesis is that if you offer more customization, revenues will increase.
If you think customers will buy more of your product at a lower price point, your hypothesis is that if you lower the price, customers will buy more product more frequently.
And if you think investing more in social media will improve customer loyalty, your hypothesis is that by spending a portion of every day responding to customer comments online, you will drive up your retention rate.
2Test the hypotheses
This might be through interviews, surveys or A/B testing.
For that customisation hypothesis, you could create an A/B test on your website: Some customers will see customisation as an option, and some won’t. Do the customised offerings sell better?
For the price hypothesis, set up exit interviews with 20 customers who didn’t buy your product. (Email programs can be set to ping people who go through a sales sequence without buying.)
Was price their chief reason for bailing? And finally, for your social media hypothesis, track each customer who was engaged on social media to see if they buy more frequently than the average customer.
Related: 10 Business Ideas Ready To Launch!
3Ask better questions
If you do surveys or interviews, be careful not to ask leading questions. If you ask a customer, “Was price a large part of your decision not to buy?” they are more likely to say yes. Price is always a factor, but it’s not always the factor.
To get at the factor, let your customer fill in the blank. Ask, “What was the biggest factor in your decision not to buy?” Then she might answer, “The delivery window was too long.” Now you know where to put your effort.
When you let your customers lead you to the truth, it will allow you to set aside your own flawed assumptions and answer their needs better. That way, they’re happier, and you’re not stuck with a warehouse full of unwanted mops.
This article was originally posted here on Entrepreneur.com.
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