Getting the research right is critical because investors and lenders want to be confident that you know what you are talking about.

Here is some food for thought.

The Product

What type of product are you selling or going to sell?

- is it innovative?
- an adaption of something already there or just a copy?
- have you considered the design and packaging?
- how will you source it?

What thought have you given to:

- acquisition of another provider / supplier
- merger
- make yourself
- buy in
- cost
- quality
- supplier reliability
- capacity
- secrecy
- reputation

Have you considered the product life cycle? Are you ahead of the trend or has your idea already had it?

The market size – a sobering example

What market are you selling into? I had one client, a catering butcher, who told me his market was limitless as he estimated that the UK meat and poultry market to be worth £13.5 billion. It probably is but an analysis of his competitors’ turnover (by pulling their accounts at companies house) valued his part of the market his market at around £200M this was further reduced as he only sold in London because he had no national distribution, his London market was further limited because the national chains would not buy from him and he did not want to sell to the buying groups because it strained the margins too much. From all of this I estimated that his market was actually around £80M and that trying to grow the company from £6M to £12M (7.5% to 15% share) in a market place with no growth was going to be a very hard thing to do.

Screening the opportunities – The Boston Matrix

Have you considered analysing your markets by using The Boston Matrix?

The Boston Matrix

This provides a useful way of screening the opportunities open to you, and helps you think about where you can best allocate your resources to maximize profit in the future.

To understand the Boston Matrix you need to understand how market share and market growth interrelate.  Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms. The higher your market share, the higher the proportion of the market you control.

The Boston Matrix assumes that if you enjoy a high market share you will be making money. (This assumption is based on the idea that you will have been in the market long enough to have learned how to be profitable, and will be enjoying economies of scale that give you an advantage).

The question it asks is, “Should you be investing additional resources into a particular product line just because it is making you money?” The answer is, “not necessarily.”

Dogs:

Low Market Share / Low Market Growth
In these areas, your market presence is weak, so it’s going to take a lot of hard work to get noticed. You won’t enjoy the scale economies of the larger players, so it’s going to be difficult to make a profit. And because market growth is low, it’s going to take a lot of hard work to improve the situation.

Cash Cows:
High Market Share / Low Market Growth
Here, you’re well-established, so it’s easy to get attention and exploit new opportunities. However it’s only worth expending a certain amount of effort, because the market isn’t growing and your opportunities are limited.

Stars:
High Market Share / High Market Growth
Here you’re well-established, and growth is exciting! These are fantastic opportunities, and you should work hard to realize them.

Question Marks (Problem Child):
Low Market Share / High Market Growth
These are the opportunities no one knows what to do with. They aren’t generating much revenue right now because you don’t have a large market share. But, they are in high growth markets so the potential to make money is there.

Question Marks might become Stars and eventual Cash Cows, but they could just as easily absorb effort with little return. These opportunities need serious thought as to whether increased investment is warranted.

Growth Strategies – Anshof’s Matrix

You should also consider Anshof’s Matrix which provides four different growth strategies:

Ansoff's Matrix

Market penetration

Think of it as: relaunch the bike, discount the bike, advertise the bike

This strategy is the least risky since it leverages many of the firm’s existing resources and capabilities. In a growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow.

Market development

Think of it as: export the bike, market the bike via internet

The options include the pursuit of additional market segments or geographical regions. The development of new markets for the product may be a good strategy if the firm’s core competencies are related more to the specific product than to its experience with a specific market segment. Because the firm is expanding into a new market, a market development strategy typically has more risk than a market penetration strategy.

A product development

Think of it as: develop a new range of bikes, build specialist bikes

This strategy may be appropriate if the firm’s strengths are related to its specific customers rather than to the specific product itself. In this situation, it can leverage its strengths by developing a new product targeted to its existing customers. Similar to the case of new market development, new product development carries more risk than simply attempting to increase market share.

Diversification

Think of it as: make exercise bikes, make wheelchairs

The most risky of the four growth strategies since it requires both product and market development and may be outside the core competencies of the firm. In fact, this quadrant of the matrix has been referred to by some as the “suicide cell”. However, diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return. Other advantages of diversification include the potential to gain a foothold in an attractive industry and the reduction of overall business portfolio risk.

Price – Relationships with quality and market position

Price is obviously a key factor but the important connection here is its relationship with quality and market position, not how cheap it is, or it costs less than the competition. Obviously you need to be competitive and whilst a buyer always puts price at the top of the list, it usually is around number 5. Think of yourself, do you only concentrate on price when buying or are there other factors? Also consider pricing for different markets, the consumer market might pay more than the education market, tweak the product to meet the market.

Margin and distribution channels also go hand in hand and whilst you have a required margin, you may consider split margins with a distributor.

If we look at pricing there are hundreds of ways to arrive at a selling price:

- Cost related; standard cost, cost plus profit, break even or marginal pricing.

- Marketed related; perceived value, psychological pricing, promotional pricing, skimming (riding down the demand curve).

- Competitor related; discount related, penetration related, dumping.

The important thing is to maximise the price you can get from any one situation and not stick doggedly to the pricelist.

Promotion & Distribution

This is all about considering how you are going to communicate with your customers; sales force, advertising, (if so what media – including internet presence and social media), Exhibitions, PR.

What are your distribution channels going to be? What level of customer service are you going to give?

What are the costs going to be?

Well, as you can see there is a lot to think about when it comes to marketing and you need to strike a balance.  Obviously not all of this needs to be in your business plan.  Something above will be relevant and should be thought through for your plan.  By demonstrating that you have given it serious thought potential investors or lenders will be more confident about wanting to find out more about you and your business ideas.

The problem is that everyone, including me, has told you to be unique.  This may tempt you into playing down the competition to the extent that they don’t matter, but they really do. Last week we went through your USP, but if you are now so unique, will the investor become sceptical and start wondering whether there is a market for your product or service at all?

Competition is healthy.  Without it you will become stagnant and lose focus. Being the first in market takes a lot of courage and money to educate people. I would love to have been the first Fax salesman who sold his product on the basis that everyone will have one soon.  The trouble is that not many people will believe you.  It can be a tough mountain to climb!

On the other hand an ‘improved offer’ will be talking to an educated market that understands the benefits of your new product or service.  This means market entry costs are lower and the customer will want to be part of it (for example: IPod v Walkman)

Also consider collaboration with a competitor. If someone somewhere has got a great idea that you would like to emulate, why not contact them and see if you could get an agreement? It will make you quicker to market and both of you stronger.  This is becoming an increasingly popular way of doing business.

The funders understanding of competition is:

• Direct Competition; any service or product that a customer can use to fulfil the same need that your product or service offers.
• Indirect Competition; similar services products or substitute products that will fulfil the need (Butter v Margarine)
• Budget Competition; essentially the competition for disposable income (The Ferrari  v The Racehorse)

So, don’t pretend that the competition is not a threat, if you do, the funder will either believe that you are trying to deceive him or that you are naive, either way you plan is in his bin. Spend time analysing the relevant competition, define their strengths and weaknesses, research their accounts at companies’ house and see how profitable they are, maybe they are not the dummies you thought they were. Once you have done this you can explain with authority how your offer is “unique” and that you have your rightful place in the market. This will be impressive stuff and will probably help you put the finishing touches to your marketing plan.

Lastly a thought from 6^th Century BC:  “He who exercises no forethought but makes light of his opponents is sure to be captured by them” Sun Tzu, “The Art of War.”

Stay courageous!

Invariably, you own the majority of the shares and your board of directors is likely to be made up of over promoted staff. The Sales Director was the best salesman; the Finance Director was your faithful bookkeeper etc. They are great people but they are not Directors.

The important point is that their interests in the success of the company is not the same as yours and therefore discussing company policy with them is pretty much a one way street with you ending up by telling them what you want as opposed to “team managing” the business with them. Your significant other is also fed up to the back teeth hearing about your business issues on a nightly basis that you no longer bring them up.

You can’t however do it alone; you do need to bounce your ideas of someone, if only to help you formulate your thoughts. A hearty debate will provoke no end of good ideas, mostly yours, because you are the one who truly knows your business and what you want to achieve.

This is why appointing a Non Exec Director can play a crucial role. He or she should be a seasoned business person who can help you to see the bigger picture and give you and the Board constructive and impartial advice. Balancing the Board in this way can be a very liberating experiences for a business owner.

Ride the Storm will be very happy to advise you on the ideal Non Exec for your company and even help you find a suitable candidate.

A lot of companies operate at a 90% break-even point which some regard as the happy fool territory. How easy is it to lose 10% of your turnover? If you are honest, the sales forecast was on the ambitious side to start with and there was no contingency in your expenses budget. 10% could be lost before you start. 20% to 25% is the territory to be in. How many large corporations do you see making losses in this recession? Not many, their profits are squeezed but they are not going to go into liquidation.

The diagram explains simplistically how it works. Examples of fixed costs would be; rent and rates, light and heat, advertising etc., variable would be; raw materials and direct labour. The problem comes when business is in decline because some of the variable costs, in particular direct labour (such as designers, surveyors or engineers) turn out in reality to be fixed for a considerable period of time until the business can adjust and shed excess capacity. When business is on the upturn, consider temporary staff until you are sure that the new higher level is sustainable.

In the very, very short term that is true but will you ever be a run a large profitably business if you don’t get the right help?

For a start no-one is good at everything, so doing it all yourself means that you are going to accept mediocrity.

US President Lynden Johnson, a man of exceptional intelligence, micro managed the Vietnam War to the extent that it was said that he ground it to a halt as no decisions could be made without his direct input. On the other hand Ronald Reagan, said to be a man of limited knowledge and intelligence was an exceptionally adept delegator, and through this ability managed to win the cold war against the USSR.

Delegation is not about asking the nearest person to do something for you but about having a clear idea of the task to be completed and finding the person with the right skills to do it. If you are not clear about what you want to achieve then it will lead to frustration all round and you going back to doing it yourself.

Time is money and if you are the boss then yours must be the most valuable, don’t waste it!

Quite simply a USP sets you apart from the competition because you either offer something that they cannot or your product or brand is unique to you. Claiming that you are the best or your sales service is second to none etc. just isn’t going to cut it, anybody can make that claim and the logical response is: prove it!

In a distribution company it is difficult to be unique as your competition is selling the same product but what could make you unique is just doing everything a little bit better that the competition. This was so successful for Avis when they claimed. “We are number 2, so we try harder” that in fact they became number1 but could not tell anyone.

Whatever it is, you have to find yours. Sometimes it is the company ethos created by the founder that creates uniqueness such as; Bodyshop, Virgin or the great design companies of Richard Rogers, Norman Foster or Saatchi. Do not be shy of promoting yourself if it makes your business unique in the eyes of your customers.