biz plan contd

Section V Management team

it is very important to put together a good management team in place, right from the word go. most entrepreneurs tend to hire people with lesser competencies simply because they are available at a lesser price. what then happens is that when the organization grows and the people who have been hired cannot grow with it, two scenarios are likely :-
either they have to be left by the wayside in which case all the time, money and knowledge invested in them by the entrepreneur simply goes waste; or the fact that they fail to grow with the organization can actually stop the organization itself from growing. both are unhappy scenarios for the entrepreneur.

the second show stopper is when the entrepreneur refuses to delegate to people with better competencies than himself. most entrepreneurs tend to be very possessive about their ideas and their biggest failing is that they believe that firstly they are as good at implementing as they are at ideating, which of course is a big blunder. secondly they believe that since it is their idea, nobody can do it better than them. which is an even bigger blunder.

successful entrepreneurs recognise early on that they cannot be good at everything, understand what they are good at and stick to doing only those jobs they are good at, and hire competent people to execute those jobs that they are good at.

this is how an entrepreneur build his team. i have heard entrepreneurs lament often enough that they cannot attract talent as startups dont have brand equity. this is true. but what is also true is startups, more than others, need evangelists in the team, people who believe in the biz as much as the entrepreneur does. obviously in a startup you cannot attract talent by paying more because in any case you are strapped for cash; nor can you attract on account of your name or credibilty, because those are yet to be built. so the only way you can entice people to work with you is to look for such people who are moved by ideas, who are willing to give up conventional comfort for the sake of a tremendous idea. ideas should not only move businesses, they should move people too, all stakeholders infact, customers, employees and investors.

as i keep saying, ideas are the starting point of all businesses.

biz plan, contd

Section IV Operations
in this section, it is important to describe in detail how you propose to create the product and reach it to your customer. if it has to be manufactured, you will have to mention location of factory, why you chose that location over other locations, - eg, is it cost beneficial or is it convenient from raw material perspective,- whatever your reason for choosing that particular location.

Eg George Lucas made Star Wars a profitable enterprise because he shot only a small part of the film in the US and bulk of the shooting was in UK, using local crew. at that time it was standard practice for Holloywood to move its entire crew from US to locations where they were shooting. and that used to add to the humungous cost of production.

Lucas did a number of inventive things to keep costs low because he was forced to. after nearly every Hollywood studio had turned him down, at the Cannes festival, Lucas had approached 20th century fox who agreed to fund the venture provided Lucas shot within the prescribed budget. Lucas agreed as he was desperate to make Star Wars because knew it in his bones that the entire series would be a runaway hit.

for instance, after the day's shooting Lucas would courier videocasettes back to Hollywood everyday for processing. even in movie distribution, they were very innovative. eg in Haiti and Mali, distributors were encouraged to sell movie tickets for vegetables as currency and then convert it to dollars! such out-of-the-box thinking led to almost 40% of revenue to come from outside US markets.

the movies were huge successes in Japan and Germany because Lucas saw to it that there was good quality dubbing. his logic was that the themes of the series were universal and were not culture-specific.

they went all out to convert to all home-viewing standards as there was no single international standard.

big time property licensing was initiated, eg Darth Maul, Princess Amidala, Jar Jar Brinks.

Pepsi printed the characters on its cans.

Tricon distributed the merchandise in its restaurants.

The Phantom Menace, which was a prequel to the trilogy was the first ever movie that was globally released in 1999. and by the year end, it had grossed $417 million in ticket sales, second only to Titanic.

all of these initiatives put together brought down the per viewer cost.

the choice of location could also be influenced by taxation laws, proximity to markets, availability of labour, government subsidy, etc. Eg the SEPZ may become the location of choice for the myriad benefits it offers to software exporters.

bio-diesel manufacturers may choose locations based on transportation access, warehouse convenience etc that may have a huge impact on the costs of operation and therefore their competitive edge.

in this section, you may also describe the entire logistics of reaching the product to the consumer. and this in turn is based on the sales channel that your company has identified for it, the length of this channel and access to the end user.eg Samsung sells its washing machines through dealer network which in turn sells it to the end user. Bingo snacks are shipped to distributors who in turn despatch them to retailers who in turn sell them to end customer. Dell sells its computers directly to customers on line.

this section basically deals with the entire process of obtaining raw material, manufacturing the product, and reaching it to the customer.

in my next blog,we will discuss Section V which is about management structure of the organization

a comment

someone has left a comment that one area that has to be de-mystified is how to write a fool-proof biz plan. all i can say is, nothing in life is fool-proof, so why expect a biz plan to be?!! a biz plan mitigates the risks, from the unknown, the unpredictable and the unforeseeable. nowhere does it aspire to eliminate the risks completely. sometimes the best laid plans bomb in the market place due to the most innocuous reason. new coke bombed not because there was anything wrong with the taste or the marketing effort, but simply because the coke customers were inexplicably possessive about its original taste. sometimes products run away with the market for no apparent reason at all. in late 90's the success of stencil brand shirts is a good example of this. biz plan is a blue print, not a warranty for success.

biz plan contd.

Section III, Part B Marketing Plan
Evolving the Marketing Plan consists of the following five steps:-
•Analyzing opportunities
this is a composite analysis in the sense you are looking at not just creating a market for your product but you are looking at every available opportunity to increase the size of the market. a good example is air deccan, by dropping airfares, it created a whole new market of air travelers, but by making air tickets available at unconventional places such as gas stations, it increased the market spurred by sheer convenience.
•Selecting target segments
target segment as i said in my previous blog is that segment of the potential market that has the money to buy, is willing to buy, has access and most important, is buying. it is very important for the marketer to identify this correctly. eg a cheese- laced snack to be launched in China. like Cheetos for example. there may be willingness, they may have the money, and the product may be accessible, but chinese people will not buy this product as most of them as a race, are lactose-intolerant. it therefore becomes important for the marketer to have already incorporated this detail from his Market Research findings in the product launch stage.
•Designing marketing strategy
This is an activity that refers to understanding the industry in which you are located, the competitive environment and your target segment, based on which you will develop your pricing and distribution strategy. you may want to 'do a maggi' to get penetration in the early days, especailly if you are a prime mover; you may consciously lower the price vis-a-vis competitors' in the early stages, especially if there are well-entrenched products and lowering the price may be the only way of breaking their strangle-hold; or you may consciously keep premium pricing, particularly with luxury products in the conspicuous consumption space.

you may also look at newer ways of reaching the product to the customer. a brand show-room, more visible theme shelf in super-market, unconventional outlets, mail order, etc.
•Developing marketing programs
marketing is all about creating, communicating and delivering value. all three have to be in sync. eg cheers detergent of P&G was a hugely successful product in the US whose value proposition was that it worked equally well in hot and cold water and caused tremendous sudsing. all their communication in the US reveolved around these two value propositions.when they launched in japan, they continued to use the same value propostions, but to their dismay they found that the communication seemed to be falling on deaf ears.

market research subsequently showed them the error of their ways: in japan people are used to using cold water only, so the value proposition of hot and cold water made no sense. second, in japan, they add fabric softener to water along with the detergent which prevents sudsing. so the second value proposition also made no sense! cheers had to be re-launched changing the entire communication platform.
•Managing the marketing effort
marketing has to be a sustainable activity if the company is determined to build the necessary biz traction. there are several aspects to marketing,- market, environment, both task and broad, and communication. it is also a dynamic activity, market shares change over time and space, market shares change with marketing program inputs, market shares change with definition of the market itself. eg in the early days, it was alright for coke and pepsi to define their market as cola market. but over time, there has been a need for them to redefine their market and today Robert Isdell, CEO of coke has the wisdom to say that it is not pepsi who is their competitor because it is not just the cola drinker who is their customer but anyone who drinks! which may include soft drinks, juices, coffee and tea, carbonated water and still water!

how the whole marketing mix is managed and how well it is managed is what has to be delineated under this heading.

we will discuss Section IV which is all about Operations in my next blog.

biz plan contd

Section III Marketing

this section is in two parts: Section A is all about Research and Analysis .

you try segmenting your market, ie from the universe, you try and arrive at your potential market. typically for a marketer, potential market refers to that segment of the population which has the money to buy your product, is willing to buy your product and has access to your product. eg blackberry. this product's potential market is corporate executives and professionals who are on the move, who have to remain in touch, who can afford it because the price is not a factor at all, considering the convenience (in many cases, the company may provide it) and have access to it.

Available market, on the other hand is that segment of the population which has money, is willing to spend, but is denied access to the product. eg for the new pub in town, everyone who likes drinking draught beer is potential market. but youngsters under 18 years of age, even though they may have the money and may be more than willing, law denies them access on account of their age.this constitutes available market. and this market is as important to the marketer as it constitutes future potential market.

notionally, everyone who has money, is willing, and has access, is your potential customer. but it is not necessary that someone having all three will become your customer. eg bajaj pulsar motorbike. considering that it costs 50-60k , it would be fair to say that the potential market is young urban, educated men who have just started working, who are earning well enough to be able to afford Pulsar and who are consicous of making a style statement.

but not all men who fit this profile will actually buy Pulsar for the simple reason they may decide to buy a car instead on the grounds that it is unsafe to ride two-wheelers in traffic-congested cities. the target market for Pulsar therefore would be those who have money, are willing, have access and will buy.

it is therefore very important in the biz plan to segment the market in terms of three things:
potential market
available market
target market

Next is about the marketing environment. who are the players in the market, are you a prime mover, in which case your marketing communication has to not only talk about your product's value proposition but educate the market in terms of the concept itself. eg when sanitary napkins were launched in india. not only was there a need to elucidate product QSP (quality, service, price) but also address the issue of why a sanitary napkin was better than the conventional cloth.

an analsyis of the marketing environment will give you an idea about how big is the market likely to be, what can you expect realistically your share to be, and going forward, what the market trends will be. in technology products, for instance, the shelf life of the product tends to be limited and changes in technology makes the product obsolete and to remain in the market, constant innovation would be imperative for the marketer. eg mobile phones.

Market segment, size, share, marketing environment analysis, - all these have to be determined thoroughly well before launching the product. Large organizations have their own market research agencies or captive resources to conduct necessary market research. smaller companies, particularly start-ups will obviously not have such luxuries and can outsource market research.

the latest trend has also been involving market research agencies right at the product development stage so that customer feed back can be incorporated on the drawing board itself and product tweaked to suit customer requirements. the launch of divya bhaskar newspaper in ahmedabad is a good example of this. the dainik bhaskar group which owns this product decided on a census survey and the product, including its pricing, look, and feel, was the result of customer feedback. the idea bechind the census survey was to rule out any possibility of error as the newspaper market in ahmedabad was a well entrenched one with very strong dual players. interestingly, the marketing department had predicted that on the first day of the launch, they would be able to sell 250,000 copies and their homework was so thorough they actually sold 251000 copies!!!

in my next blog we will address Section B under Marketing.

components of biz plan

Section I- Executive Summary
a brief introduction to the biz concept, and what is unique about it, the opportunity that gave rise to it, the skill-set of the entrepreneur and capital outlay. All of it should not exceed 800 words.

Section II - General description of the biz
this is elaboration of Section I. It gives the industry background in terms of size, competitors, maturity of industry, whether there is any government regulation, market characteristics, pricing, technology, what drives the demand, etc.

in this context, the biz that you are thinking of should be highlighted, what is your value proposition, is it in terms of product, price, or superior technology, or location economics (availability of the crucial raw material in plenty in a particular region that may drive down costs), what is your QSP (quality, service, price) commitment vis-a-vis the competitors, and how do you plan articulating the value proposition to the market place.

this is also where you will articulate your vision and your mission statements. who you want to be and how you plan to become who you want to be. and the milestones. milestone is a beautiful word in management. it gives you the opportunity to break into the short-term, the goals that you have set for your organization, long term. if your vision is to cross the million dollar mark in the first year, then it has to be appropriately broken into four quarters. each quarter, you can review your progress, if you are lagging behind, it gives you the opportunity to play catch up in the suceeding quarters. and every milestone that you reach gives you an opportunity not only to look back but to look ahead at the next milestone.

it is therefore imperative to set realistic milestones. not unachievable, yet not easily achievable either.

most important, this is the section where you articulate what is the value you are creating for the customer, how do you propose to deliver that value to the customer, and how you plan to communicate that value proposition to your customer,- all this in the backdrop of your understanding of what the customer wants.

it is important to understand what value the customer is looking for. Xerox when it enetered india offered excellent value to the customer in terms of copy quality, which was as good as the original, at Re 1 per copy. there were no takers because the market was not unhappy with the ordinary quality that it was getting from other copiers at 25 paise. the market simply was not ready for superior copy quality proposition. it took xerox three years to educate the market on the importance of good copy and how it enhanced company image and conversely how a bad copy adversely affected it. then there was no looking back.

we will continue with the other components in the next blog.

biz plan

a biz plan is a written document that gives in detail everything about the new venture, product, industry, market, money, technology, people, growth, risks, returns. in other words, the entire story. as the entrepreneur sees it. in effect it is the entrepreneur's canvas and how he paints it as he visualises it. it is the most personal statement an entrepreneur can make.

the biz plan serves two purposes. one, in documenting his vision, the entrepreneur is actually ironing out inconsistencies, flagging problem areas, pre-empting road blocks, introspecting into his own competencies and skill sets, laying the cards on the table with respect to resources, re-visiting his own commitment levels, and communicating his conviction.

the second equally important purpose that a biz plan serves is, as a road map, once the biz kicks off.it is an excellent reference scorecard for the entrepreneur to keep going back to, to see whether the biz is on track as planned or has veered off track. the danger is not just in under-performance vis-a-vis the biz plan. it is equally dangerous to be caught in the throes of unplanned growth because it is only a matter of time before the biz starts floundering in the absence of processes and systems that have not kept pace with the growth. most entrepreneurs have a bad habit of convincing themselves that their company is too small right now and once the company grows, they will put systems in place. what they dont realise is that, that itself becomes a show-stopper for growth.

any which way you look at it, an entrepreneur cannot embark on his entrepreneurial journey without a biz plan.

i have known a number of entrepreneurs who say that they have a damn good concept and therefore they dont need the biz plan. my young friend ashish singh says 'i dont have a biz plan, i have just developed a site' !

i have known people who say: i am not borrowing money from anyone, i have invested my own earnings, so why do i need a biz plan.

i would say all the more reason, my friend, you need the biz plan as you dont want to lose your hard-earned earnings without one!

a friend of mine, vaidi almost got upset with me yesterday when i asked him if he has ever made a biz plan. he has been in biz for a decade now and is still plagued by all the problems that start-ups usually have to contend with. i was genuinely curious to know if he had put together a biz plan, because to my thinking, if he had, he should not have had so many problems in the first place!

the biz plan is known variously, depending on the context it is prepared for. if it is meant for funding purposes, it is called a project report, a loan proposal or an investment prospectus.

the biz plan document is a tool that makes the otherwise arduos entrepreneurial journey a little less hazardous, a little more predictable, a little less prone to luck and other inexplicable elements and a little more prone to activity-oriented result and result-oriented activity. it certainly does not eliminate all the vagaries of the market place. but it sure does give the entrepreneur a distinct upper hand in being better prepared for them.

the best prepared biz plans may mean nothing if the typical pitfalls are not avoided. the pitfalls are, unrealistic projection of sales and growth, unreasonable time frame in expectation of return,
sub-optimal resource utilization, lack of commitment on the part of the entrepreneur, no sense in mile-stoning, no market niche, no internalising of the basic concept and methodology of biz.

in my next blog, we will see what are the various components of the biz plan.