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Articles on Business Matters:

Develop A Great Business Model

Great business models depend on developing three "green lights," or qualities that help the business succeed: finding high-value customers, offering significant value to customers, and delivering significant margins. Great business models also avoid three "red lights" that can derail a business: difficulties in satisfying customers, trouble maintaining market position, and problems generating funding for growth. The list below outlines key factors in determining whether your model meets each green light and avoids the red lights. Examine your own business to see if you meet the criteria for success and, more importantly, to correct any weaknesses you might have.
Green Lights
1. Acquire high-value customers.
High-value customers doesn't mean rich customers, but customers who meet the following requirements:
Are easy to locate
Allow you to charge a profitable price
Are willing to try your product after minimal marketing expenses
Can generate enough business to meet your sales and profit objectives
Customers don't necessarily need to be the end users of your product or service. They could be retailers, distributors, catalogs or whomever you sell your product or service to. If your end users or distributors don't fit this profile, you can still meet this requirement by attracting high-value customers through partnerships or alliances with companies in the market.
2. Offer significant value to customers.
There are a number of ways you can create significant value and competitive advantage, including the following:
Unique advantages in features and benefits
Better distribution through retail or distribution
More complete customer solutions through alliances with other companies
Lower pricing due to manufacturing efficiencies or pricing options
Faster delivery, broader product line or more customization options
The rise of the internet, outsourcing and, most of all, the increased willingness of companies to partner in creative ways to serve customers has resulted in every industry creating innovation in business strategy. This gives you opportunities, but also makes it imperative that you stay on the creative edge to fend off competition.
3. Deliver products or services with high margins.
Better manufacturing costs due to overseas manufacturing is typically not the clear way to higher margins, as competitors will typically match your costs in the end. Higher margins come from having a product that can be made from an improved process or by having features that provide significant value and allow you to charge more. You can achieve high margins with other tactics, including the following:
Use a more efficient distribution channel.
Require less sales support and sales effort.
Have an industry-leading lean manufacturing process.
Offer more auxiliary products or other opportunities for revenue without increasing cost.
If you aren't sure of your industry's standard ratios, check out www.valuationresources.com where you can purchase industry reports, or contact your local Small Business Development Center, which you can find at www.sba.gov.
Red Lights
1. Provide for customer satisfaction.
Consider whether it will be difficult--and therefore expensive--to satisfy customers once they buy. Some of the aspects of a business that create high customer satisfaction costs include:
High warranty costs
Extensive technical support
Extensive installation requirement
Extensive customer service
Interface problems with other equipment
Customer satisfaction costs, which occur after the sale, are red flags because the costs are typically high and don't produce revenue or profits. If your type of product might have high customer service costs, you need to configure your business to put these costs on someone else, either with partnerships or alliances or by restricting your sales to an aspect of the business that doesn't require customer satisfaction costs.
2. Maintain market position.
A good business model uses its resources to improve its market position, adding new products, features and customers or expanding into new applications. The red flags that indicate it will be difficult to maintain market position include:
Two or three major customers buy most of your product.
Major potential competitors control the distribution network.
Technology changes rapidly and requires high-risk product development.
There are alternative technologies being developed to meet the same need.
You have well-funded potential competitors who could quickly move into your market.
Long term, your ability to hold market position is determined by the characteristics of the overall market. For example, a company involved in the semiconductor manufacturing business must adjust and guess right on constant changes in technology to hold market position. Sooner or later they will guess wrong and fail.
3. Fund the business.
Startup costs, operating capital, personnel costs and overhead costs are just a small percentage of the funding requirements for any business. The question is whether the investments will have a high return and whether the business can grow without substantial new investments. Red flags for a business model regarding investments include:
ROI is less than 25 percent in the first three years.
Incremental production of products or services requires substantial additional investments.
Fewer than 50 percent of the investment required will be used in revenue producing areas, such as sales and production.
Investments have to be made prior to sales commitments.
Industry as a whole has a poor ROI or poor profitability.
Money is available for the right plan and the right model. You'll find money available if your ROI is right and if you have financial leverage, which means your initial investment will allow you to double or triple sales without requiring any more funding.

Don Debelak
09 Apr 2007

Don Debelak is the author of Business Models Made Easy (Entrepreneur Press 2006) and Successful Business Models, (Entrepreneur Press 2003). For more information, visit his website,www.dondebelak.com.

The Adventure of Business Planning

Business planning is an adventure?

I doubt that many people would describe it that way.

Creating a business plan is not a favorite for many entrepreneurs. Business plans have gotten the reputation of being complicated, boring, and useless. Part of the reason for this is probably because of the requirement to have a business plan when applying for a loan.

In that case, the plan is written more for the lending institution than it is for the business owner. Most likely, once the loan is approved, the business plan document is soon forgotten.

Working on a business plan seems to bring out procrastination and frustration. It is easy to put off a project that seems as though it will take a big chunk of time and energy. There may also be hesitation to get into planning due to possible differences in opinion in your company as to what the priorities should be.

So, how can we make this business planning into an adventure?

Who doesn't like the idea of planning an adventure trip?

I was thinking about the basics of a business plan and how those basic steps apply to planning such a journey. There really are a lot of parallels.

As I planned my solo trip to New Zealand to go backpacking with seven women, there were a lot of challenges for me and I felt I needed a plan.

Why create a plan? Clarifying your thinking is the most important reason for having a plan written down. Most everyone planning a trip talks about what they are going to do and how they feel about it. Taking it a step farther and writing it down solidifies it.

As I wrote down my structured plan, I could see clearly what was to be done and felt more confident about making the journey.

I used the five main parts of a business plan:

1. Vision
2. Mission
3. Objectives
4. Strategies
5. Plans

TRIP TO NEW ZEALAND
My Vision: Suzanne sees herself as a strong, independent woman traveling successfully on an international adventure.

My Mission: Suzanne is to go to New Zealand, connect with seven other women she has never met, hike the Banks Peninsula Track, and get back home safely.

Objectives:
1. Arrange air and ground travel.
2. Get prepared physically.
3. Be well equipped for the hike.

Strategies:
1. Find convenient and most economical travel.
2. Concentrate on good nutrition, exercise, and hiking with a pack.
3. Find good quality equipment that is comfortable

Plans:
Travel Arrangements
1. Check air rates online and with travel agent
2. Make decision and purchase tickets

Equipment:
1. Check equipment at REI and the outdoor store and online.
2. Make decision on price and comfort.

Conditioning:
1. Hike around the lake in hiking boots on flat ground with weighted backpack.
2. Hike mountain without backpack.
3. Hike mountain with weighted backpack.

Now, do those steps to a business plan seem so daunting when you think of them in terms of an adventure trip?

Most every business owner has a plan that is shared often in conversation. You'll hear them talk about their vision, objective, strategies and plans.

Getting that plan down in writing makes it easier for others to know and understand their vision and how they plan to get there.

If you're finding it difficult to get your plan together, find a planning partner. Get another business owner to commit to doing his or her plan at the same time. Call each other to keep yourselves on track. Another source of support would be a business coach who could strategize with you as you go through the steps of the plan.

Is business planning starting to sound more like an adventure to you?

Jump into the plan! It's amazing just how satisfying it is to have a plan in place and go with it.

Suzanne Holman
10 Apr 2007

How about completing your goals with energy left over? Exuberant Productivity Coach, Suzanne Holman, MAEd, works with female Certified Financial Planners who are interested in making every hour of work truly productive so they have abundant time and energy for fun and family. For a FREE Exuberance Assessment and tips for increasing your productivity and having a more satisfying life, visit Exuberant Productivity.com