startsmart the book
TRANSCRIPT
RAF VLUMMENS
Start
Your 5-step guide to Successful Business
or more than 30 years, in my career as international banker
(specializing in startup companies and family-owned businesses),
business professor and consultant in various countries such as Belgium, France,
Africa and the Philippines, I have garnered a hefty and relevant amount of
experiences in the entrepreneurial world. I’ve seen many businesses succeed
and also many business failed. Why did they succeed? Was it the generous
investment capital? Was it the sole leadership of the owner? Are there any
hidden trade secrets? Well, I’ve seen patterns and learned from the people I’ve
worked with: fellow credit risks analysts, bankers, educators and business
owners regardless of the culture, location and demographics. With the insights
I collated, I want to share with you how to do it. You don’t need a master’s
degree in business to fully apply what is being taught here. In fact, this is book
is a practical guide for all who wants to become an entrepreneur whether you
have prior background or not.
If you have something in mind right now for a potential business, and you still
think that everything you have are just mere pieces of a puzzle, hold on, I have
something for you.
Now, are you ready?
Roll up your sleeves, here we go!
PREFACE
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hey say entrepreneurship or establishing a business is not as simple as
walk in the park, well somehow it’s true. But the good news is, it’s not
a rocket science either. It means that, it can be learned. Think about Steve Jobs,
Warren Buffet, Amancio Ortega of Inditex (Zara) and Facebook’s Mark
Zuckerberg. Whatever you have now, you can use it to learn the necessary
skills.
In this book, you will discover 5 steps to become a successful entrepreneur.
Aside from the technical knowledge, you will also learn what it means to be an
entrepreneur and what it takes to become a successful one.
In Step 1, you will learn the importance of having your own personal ‘game
plan’. You will understand how entrepreneurship is not just having a career,
but also a lifestyle, and thus, will affect your personal life.
Step 2 is about the importance of vision. How do you see your product or
service? Do you fully believe in its potential? Do you think it will establish a
foothold in the market in the next five to fifteen years? If yes, why do you say
so? Moreover, you will be asked to find answers such as: How do you see your
business grow?
Without a well-defined vision, an entrepreneurial venture will never be a
successful one. Your vision is your compass that will bring you to a safe harbor
even when the sea is rough. And how do you stay relevant? How do you hold
on? That is where passion comes in. You have to love what you do as if it is
part of yourself. Successful entrepreneurs don’t work, their work is their life. As
the late Steve Jobs once said: If you like what you do and you do what you
like, you will always be a happy man. And it is true!
Step 3 will bring us to the business modelling and business planning. This step
will guide you in developing your successful business plan. This will be your
guide in how to do it so your business fits in your vision. And developing a
plan is not other people’s job but yours. That is why you have to develop your
business plan yourself. Also, in this chapter, you will work on the following:
your idea and product development; your marketing plan; how to organize
INTRODUCTION
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your sales; and the means to finance the business. Lastly, you will learn how to
‘pitch’ your plan to investors and bankers.
Step 4 gives you an insight in expanding and growing your business through
the development of a franchise business model.
And finally, Step 5, ‘The Bumpy Road’’ will show you how to master the
‘growing pains’ you will have to deal with and how to grow the business
without being lost in operational problems.
So, let’s get started!
CONTENTS
STEP 1
You as an Entrepreneur
STEP 1: You as an Entrepreneur
What does it mean to be an entrepreneur?
If you look at the 2015 Forbes list of richest people on earth – Bill Gates, Warren Buffet,
David Koch, among others, what do they have in common? Yes, they are
entrepreneurs. And most of them are self-made. But you may be curious, who are
they really? What characteristics do they have in common? Do they share the same
kind of mindset? The most important characteristics they share is that for them being
in the business or entrepreneurship is not just something you keep yourself busy with
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from 9 to 5. Entrepreneurship is a “lifestyle”. It means that being in the business is
not just exclusive to your work life. It affects all areas of your life.
Specifically, there are three major other characteristics being an entrepreneur:
First, being an entrepreneur means having an entrepreneurial mindset.
Having an entrepreneurial mindset means being on the look for opportunities
to develop new ideas and to bring them into reality. And thus, being effective
and creative in finding solutions to problems.
Second, entrepreneurs take initiative. They do not wait for others to tell
them what to do. If they observe something lacking or not working well in the
current reality, entrepreneurs are quick to develop answers or solutions in the
form of product, technology or service.
Third, entrepreneurs are ‘agents of change’! For example, Henry Ford’s
entrepreneurial skills has led him to produce cars that we enjoy today. Much
of the changes in society has been brought about by the products or
technological revolutions throughout the years. Notice a clip of the major
technological periods in human history: from Renaissance, Industrial to
Information or Digital. Each era was defined by the advent of a product that
changed the way people work and live. For example, it was Gutenberg’s
printing press in the renaissance that enabled the people shift to mass
production of books, thus allowing more access to education and thereby
increasing literacy rate. Second, in industrial revolution, machines replaced
manual labor and production of goods and not long after created the factory
system that we still have today. And finally, the information age, as we are all
familiar of, the invention and growth in the business of making computers,
internet, sharing and storing data online.
These are mere examples how a single product can affect large groups or the society
as a whole. Well, while some of the inventors were not businessmen, but it was their
attitude of being keen observers of the needs of the society that must be learned
from.
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Your background
Your background – family you grew up in, education, cultural values - plays a crucial
role creating a business. While it is undeniable that being the son or daughter of an
entrepreneurial family is an advantage granted that he or she gets to be directly
involved and learn about the business, it does not mean that you cannot be successful
if you are not. With the right motivation, the willingness to learn, good ideas and
good network that can help you jumpstart your business, surely, you are on the right
track.
To start with, venture in a domain that you are familiar with by studying it or working
in a company in the field that you are interested in. The experience that you get
assures you of a lot of technical insights and skills. Having working experience in the
sector you want to start your business gives you valuable knowledge of the market
and the wants and needs of the customers. As they say, “Be in the niche”.
Entrepreneurial skills
Just like any profession or endeavor, we need a skill set – such as personal and
management - for us to be effective and efficient. So, what are common traits of
successful entrepreneurs?
They show audacity. They are willing to take bold,
relevant risks and are also willing
to take initiative.
They are persistent. They are hard-working, energetic,
and has the willpower to complete
their tasks at hand. They try
different ways to reach their goals
and are not easily discouraged.
They are decisive They analyze problems and
opportunities and take firm
decisions in order to accomplish
the vision.
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They are ambitious. They believe in his venture and
work with passion.
They are empathic. They show understanding for
others and their ideas and
arguments.
They are persuasive. They lead the conversations and
make sure that both parties
understand each other.
They handle stress well. They can cope with pressure even
at the most difficult situations.
Management skills
As an entrepreneur, your primary tasks involves a lot of organization, supervision and
leading people to action. Thus, management skills such as the following are necessary:
Planning: As Winston Churchill said, “If you fail to plan, you plan to fail.”
Planning is taking a closer look and laying out the necessary steps setting of
goals – short term and long term. This involves conducting a SWOT analysis
for you to get a bigger picture of the venture; writing down all the materials
you need; listing all the potential investors or network of people whom you
can make your pitch to. The more specific, the better.
Marketing: Every entrepreneur has to understand the market. He has to know
the target customers groups. Taking from Peter Drucker (1973), marketing
skills involves “anticipating, identifying and satisfying customers’ wants and
needs in a profitable way.’
Financial management skills: Contrary to common notions financial
management is not the same as bookkeeping and accounting. As
entrepreneur and manager of your business, you are the financial manager
also; bookkeeping and accountancy can be outsourced, financial management
cannot. Financial management is the heart of the business and it is future
oriented.
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Business, work and personal life
You can have the best business idea of the century, the biggest and most promising
market, the best financial results ever, but if your partner or family does not support
your venture, you have a serious problem.
How does it affect you personally? Here are some concrete examples:
These are some examples how having a business can affect your personal
life. But keep in mind that there can be ways to solve these common problems: As
an entrepreneur, it is important to keep balance.
You have no fixed work schedule anymore: an
average start-up entrepreneur puts easily 60
t0 80 hours a week in the business.
You no longer have fixed salary: This reality is
important to tackle because it affects directly
the life of your partner or your family. Discuss
this point with your partner and come up
with ways how to balance and make sure that
they are still well taken care of while you are
doing your business.
How you make use of your time will change.
For example, if you are used to fetch your kids
from school regularly, perhaps you cannot do
it for the meantime especially when you are
in birthing phase of the business.
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Balance between work and personal life
Have the right perspective: Do not forget to plan quality time.
Develop a ‘business mindset’: your business is important as it brings many
benefits to the family and society in the big picture. And when you respect
your business, your family and friends will do also.
Get the commitment of your family.
Set a working schedule for yourself and stick on it.
Work with ‘to do’ lists but be reasonable with your goals. It is better to
accomplish a shorter list than getting frustrated if you realize you can’t do all
what you had planned after all.
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STEP 2
Vision and Passion
STEP 2: Vision and Passion
Clarity and understanding about yourself and your business is the key in this process.
Clarity enables you to set boundaries on what you want and allows you to focus on
your desired results. When you are able to see things differently, you see possibilities.
It is the vision. This is why successful entrepreneurs are also called visionaries. They
are often great observers of the past and current trends. They use the available
information to predict what products or business strategies will succeed in the future.
The vision that we are talking about propelled the story of Alibaba. Alibaba Alibaba’s
founder, Jack Ma invited 18 potential team members in his apartment in 1999.
Everything started with his vision – that is, to start an e-commerce company that
would help the small businesses, and eventually alleviate the socio-economic
condition in China. And right there and then, the vision was shared and enabled to
gather sixty-thousand dollars as a business capital. Today, Alibaba is China’s largest
and most profitable e-commerce company and continues to progress by establishing
new business entities.
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This second step is an ‘assignment’. The assignment, developed by Don Kuratko and
Fred Kiesner, entrepreneurship educators par excellence will be your guide, will
enable you to point out clearly your idea of who you are and the person you want to
be as well as your purpose and how you can make a difference in the society that
you live in.
So, let’s start. Take that new notepad and write ‘Essay of My Life’. Well, you can
have any title whatever you want but the most important to remember is you write
down specifically about yourself, your life goals, your dreams and aspirations and
how you make meaning in life and define ‘success’ in your own terms.
A Sense of Self
Every day, we are bombarded with tons of information telling us to believe in or to
do something. It is easy to get confused if we allow ourselves to be blinded without
knowing where we stand and who we are. So how do we know if we are in the right
track if we don’t have any bases of our choices? We can start with by having a healthy
sense of self. Having a healthy sense of self is important because it keeps us
grounded and centered. Our sense of self serves as foundation. And when we have
a healthy foundation, we are able to keep our values and our core goals, thus,
allowing us to make sound decisions. Now, answer these questions to start with: Who
are you? What makes you unique and powerful? What are your values? What do you
believe in? Are you capable of being a leader? What are your core values? Are you
proud of being who you are? Why?
Life Goals: Stepping Stones for the Future
I have mentioned that having a clarity as to who we are and what we stand for allow
us to make sound decisions. Now, it’s time to lay down your goals. What do you want
to achieve? What do you want to do? I am sure you have a lot in mind. But in this
process, it is important to make it SMART: Specific, Measurable, Achievable,
Realistic, and Time-bounded. Read on!
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SMART Goals
Be Specific, not vague and generalized. What dreams do you
want to realize? While having a business is too general and
vague, you can simplify it by saying for example, “I want to have
a coffee shop business that caters locally produced, high-
quality coffee that will be enjoyed by young to senior
professionals”. Then, you can expand and grow from that
statement.
Set goals that are Measurable. Measurable goals are also a
very useful tool for being accountable to yourself.
Your goals have to be Achievable. Dreaming is good,
dreaming big is fine too, but dreaming such as going to the
moon next month is not something feasible which leads us that
our goals should be also realistic such as the next one.
Realistic. Your goals have to be realistic. If you are an
accountant or a kitchen chef, becoming a Nobel Prize winner
in quantum physics is not really realistic. Consider the current
demands in the market, political and economic issues and try
to find the soft spot where you can fit your goal into a
possibility.
Time bounded. Finally, a goal that is too generic and you hope
to happen “someday” will not get you anywhere. Try to erase
“someday” from your vocabulary when making goals. Having
deadline or specific date of accomplishing your goals will help
you to put a positive pressure and motivation within yourself
that you have do things that will bring closer to your goals.
Develop your life goals in three categories: short-term (1-2
years), medium (2-10 years), and long-term (20-30 years).
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Dreams
If you knew you could not fail, what would do? What would be your dream job?
Your dream business? Your purpose? Your passion in life? Often we are drawn aback
into trying something great because we fear failing or we cannot accept rejection.
Don’t you think that the most successful entrepreneurs never had these crippling
thoughts? Yes, they had. But the revelation is that they did not let fear of failure and
rejection get in the way. They accepted them and used it to their advantage to be
more prepared. So, assume that you can meet all the requirements and that even
money is not a problem and that nothing in the world can hold you back from being
successful in your dream job, dream business. Also, it helps if you write down why this
would be your dream job or dream business and why you are so passionate about it.
Successes
List down and discuss your greatest accomplishments in your life. First write down
your biggest achievement. How has this affected your thinking and your views on
things? What did you learn from it and how will it help to achieve your future
successes?
Then, in descending order, list and briefly discuss one or two other achievements you
consider important. And answer the same questions as for the first one.
Failures
When we crave for success, we often condemn the word, failure. We don’t even want
to hear about it. In school, we are always motivated to get the A’s and check marks
because getting X marks means failure. When we are taught a way to do things, we
always follow that and we never try on our own to find new and more effective ways
because we are afraid that they might be wrong. We are afraid that we might fail. And
failure as engrained by society is something we should be proud of and eventually
loses our worth in their eyes.
But the truth is, failure is not all negative. If you failed in the past, and believe me, you
will fail again in the future. But isn’t it the only the proof that you took initiative to
realize something, only it didn’t work out as expected? Remember that failures are
stepping stones in life and far one of the most powerful teaching tools there is.
In this section of your ‘Essay of Life’, list down your greatest failures in life. How has it
affect your life? Your views? How you relate to others? What lessons did you learn?
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Just like your success list, take note your greatest and most wonderful and glorious
failure first, the one that has the most impact on your life. Again, stay in recent
years. Don’t just look at the failure from a negative point of view but look at it with
a positive attitude, because somehow there are lessons that can come from it.
Purpose
What makes you wake up in the morning? What makes you say, “It’s another day,
another day to make mu goals come true”? Whatever your answers are, those make
up what you drives you in life: your purpose. Having a clear sense of purpose motivate
us to focus on what we have to do as we move on to our day.
“Why are you on this world?”
“Why you think you will be a great entrepreneur?”
“How will I give impact to the community I live in?”
In short, from a career, business and impact on the world point of view, describe on
your notepad why you think you are here. We never give much thought to this but it
should be the real essence of our being. It must play a major role in where we are
going and the paths we choose to follow.
We should always know that success is not an accident! Those who achieve true
success usually do so because they know who they are, where they are, and why they
are there. They have VISION of themselves in the role they will play in the future. And
once they have that clear, solid vision, they work hard and smart to achieve it.
Your Heroes
To determine the course of your future as an entrepreneur, it is very important to have
real and meaningful HEROES that give us inspiration and focus on what we want and
can do in life. You can call them also as ROLE MODELS who inspire us, motivate us
and guide us towards reaching our potential in business and in life.
Who are your heroes? Identify one or two and write down why they have an impact
on your being, your thinking and your worldview.
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Often, our real heroes are not celebrities or well-known entrepreneurs or politicians.
Think about that person, or persons, that have inspired you the most to be man or
woman you are today. Know more about them, their background, their dreams,
strengths, what makes them tick, etc.
Your Baseline
Now summarize the totality of what you expect in life and how your entrepreneurial
project fits into your vision in a very brief, one-line, ‘baseline’. Make it four to eight
words only, or even less. Make sure that this baseline is a clear and concise summary
of what you are and your goals.
Remember that you are not only defining clearly your current standpoint but you are
also building your brand. Yes, it’s your brand!
Make it count!
The keyword
And from a single sentence, let’s think of a word that would summarize it all. And
when you wake up in the morning, it is the only thing you have to remember and
from that, you will be reminded of the totality of your dreams and purpose. It’s a good
way to starting your morning!
Make a copy of this assignment and put it away in a safe place where you can find it every
five years or so in your life. When you find it, enjoy your thinking of today, and then do
the assignment again for the next five years of your life.
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STEP 3
Action
STEP 3: Action
An exciting part, I would say. This is the chance to realize your plans!
Well, if you are confident enough about your vision and if you are keeping the passion
on fire, now, let’s start by drafting down the concrete plans for your business. This
includes getting the necessary insights on your team, brand and product positioning
and financing.
Some may say that developing a business model, a marketing plan and bringing all
together in a business plan is a hard work. But don’t skip this phase, don’t cheat
yourself and at the end of the day. This will all be worth it.
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The Team
It takes a good team to make the business work. And a good team means having a
set of individuals who share the same vision and passion as you and who are properly
designated into tasks according to their skills and expertise. And more importantly,
and great team means having a great leader. It’s the leader who plant the vision and
keep the passion among the team that makes a difference.
Take the early Apple ‘business in the garage’ story, for example. Both Steve Jobs and
Steve Wozniak were passionate about electronics and had a precise understanding of
what they were doing. They were convinced that their vision would be revolutionary
and would have a big impact on society. But can you imagine what would have
become to Apple if Steve Jobs hadn’t had the creative and visionary mindset
combined with solid marketing insights? There would be a big chance that nobody
had heard of Apple and that the world would not have iPads, iPhones, and the rest of
Apple products we are enjoying today.
The management section is often the first part bankers and investors will look into.
They want to know WHO is behind the venture. They want to know whether the team
has all the skills they need such as the following:
Managerial Financial
Human Resources
Technical Sales and Marketing
It’s important to show in your plan that you and your team is capable to run the
business and to deliver the results you are projecting.
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Important points to consider when you put your team together:
Who are your team members? How well do you know them? What makes
them valuable and special?
Make sure they are equipped by having a good educational background and
professional experiences.
How will the ownership be arranged? Are the equity shares in the new venture
fair to everybody?
What experience or abilities does the team possess that will be useful for
implementing your new business model?
What experiences or skills are lacking?
What targets are the team members’ pursuing? Are they highly motivated
individuals?
Who will take what responsibility in the new business? Are the roles clear and
well-defined?
What do bankers and investors look for?
Has the team already worked together or are they (professionally) complete
strangers?
Do they fit in the same team? Do the team members have relevant experience?
Do the founders know their own weaknesses and are they willing to work on
it?
Are all roles in the company clear? Are ownership issues settled? Have the
team members agreed on a common vision and a common goal, or are there
underlying difference of opinion?
As early as possible, it’s advisable to find a mentor, someone with business
experience who can guide and coach you and your team during the preparation
phase. Next to his/her experience, insights and network, your mentor/coach will help
you make decisions and will be your sounding board. Your mentor will be also very
useful in helping the team ironing out differences.
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Arthur Rock
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The Golden Idea: Product Development
Let’s take a moment and ponder, where did it all start? When did we come up
with a business idea?
Perhaps, when we were in college, during a sunny afternoon at the beach or
while having coffee in your balcony, etc. Whenever and whatever it is, we knew that
from that tiny idea, we saw potential and we confirmed that there is a hole in the
market. Now, what we need to do is to develop it more by establishing its value. In
this process of identifying this value proposition, the product or service has to ‘solve’
a ‘problem’ of the customer. Value proposition can be defined as ‘the value, or
benefit, related to the price that would make a customer buy the product’.
Specifically, you have to answer the following:
• Who are the end users of the product/service?
• What are the customers’ needs?
• What is the value proposition for the customer?
• Why is your product unique? How different is your product or service
among others?
• What about your competitors?
“I Have A Good Idea, Now What?”
Jasper Baggerman, author of “I Have A Good Idea, Now What?” gives a very handy
checklist you can use while developing your idea and to assess if your new
development has a strong value proposition:
1. Analyze your idea
Write the core of your idea down in one sentence
Write down how your idea answers to the wants and needs of the
customer
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Write at least 5 different versions of how your idea can be used by the
customers
Check your idea with family, friends, coworkers, and ask them to give
the reasons why they wouldn’t buy your product and find arguments
to convince them anyway.
2. Choose your market
Describe in five sentences how your product or service will solve the
problem of the customer.
Write at least three different ways on how the customers’ problem
can be solved using your solution.
Give three points why your product or service is different from the
existing products in the market.
Determine the selling price of your product. Check if the customer is
willing to pay the price. Is your product distinctive enough from the
others on the market to justify the price? In other words, is your value
proposition strong enough?
Imagine a fictional press release about the launch of your product.
Doing this makes you to justify why they ‘need’ to buy your product
in a way the public can understand
Make sure that the people around you - family, friends - after reading
the press release are convinced of your ‘solution’ for their ‘problem’,
their consumer needs.
How Unique Are You?
Standing out among the crowd or being ‘the red apple among the greens’ is very
important to be successful in the market. You have to be different yet relevant to
attract customers to your product.
Intellectual Property (IP)
When we hear about Intellectual property, we mostly think about patents. But
Intellectual Property is more than just patents. It could be a unique style in form, or a
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different way of producing something or providing a service. Perhaps it’s a formula
(the formula of Coca Cola isn’t patented but has a tremendous high value as
Intellectual Property).
Every business need to have an Intellectual Property.
Check if you really own your IP
Did you hire people in creating your IP? If so, and if you ignore the issue now, there
is a huge chance that they will come after you when you start to make money and ask
for their share because you are using ‘their’ idea in the development of the product
or service. It is good practice to set it clear from the start: or you make your
employment contracts or subcontracting agreements in such a way that the
ownership of the IP is very clear and cannot be discussed.
3. Market & Environmental Analysis
a. Who is your customer?
Customer analysis is important. We have to realize that not everybody can be
your client. When you develop the product, you have a specific client or client
group in mind. Now the moment has come to study and analyze your target
market(s) to see if your specific clients or client groups are represented in that
market.
For example:
The European market is becoming an ‘older’ market rapidly where
the average customer is older than 40 years and the buying
capacity is no longer growing. The market in South-east Asia is the
opposite, the population is young (average around 25 years old)
and the buying capacity of these markets is growing every day.
When you introduce a product or service on the market you have also to be
aware about the cultural aspects of the market you have chosen. Cultural
aspects have an important influence on market behavior. It’s not only
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important for the product or service itself but also for the way you are
promoting your product. The way you are used to do it in your country is
perhaps completely different in another country. This element are not only
important for businesses who are aiming to export their products but also for
the coffee shop, for example, around the corner in a multicultural
environment.
Demographic analysis
The main demographic client segmentation variables for which information is
usually readily available relate to: age, life-cycle stage, gender, income,
social class, and lifestyle.
Age
Consumer needs and wants change with age. If the market in your area
includes particularly high numbers of particular age groups, it may influence
the specific services your practice might offer to differentiate your business
from your competitors.
Life-cycle stage
An individual consumers' life-cycle stage is an important variable - particularly
in markets such as leisure and tourism. Owning animals for instance, whether
they be domestic pets, horses, exotic species or some farm animals,
particularly rare breeds, is an important leisure activity and veterinary
marketers need to be aware of these clients groups in the local market in
which they operate. Make sure that the marketing message fits the target
group.
Gender
Gender segmentation is widely used in consumer marketing. Out of studies
we learned that in families, women have an important influence on the buying
decisions. But also, children are becoming more and more an important factor
in the buying decisions of the households.
Income
Some businesses target affluent consumers with 'luxurious' standard of service
priced accordingly but subject of course, to the normal constraints of
professional ethics. Others focus on marketing services that are more likely to
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appeal directly to consumers with relatively low incomes. In any event, it is
important to have an understanding of the family income of the various target
localities.
Social class
Many marketers believe that a consumers’ "perceived" social class influences
their preferences for cars, clothes, home furnishings, leisure activities and
other products & services.
Lifestyle
Marketing professionals are increasingly interested in the effect of consumer
'lifestyles' on demand. Marketers spend time in researching or gathering data
on how their target market spend their time or where they go and how they
spend their money.
B. Customers’ needs and wants
To be able to determine your target market, it is very important you analyze
the wants and needs of your target customer. Are the products you are selling
a need or a want?
For some customer groups, your product will be a need, for others, a want.
This depends on the socio-economical group they are in.
A good tool to analyze wants & needs of the customers is the Pyramid of
Maslow as illustrated on the next page.
Now, carefully examine and position your product in the ‘Hierarchy of Needs’
as presented by Dr. Maslow. The lower in the pyramid you situate your
product/service, the broader the market possibilities are.
For example:
A vitamin manufacturer was studying the market and discovered that for a
small part of the market, daily vitamin intake was really a need! Three times a
day, this market took a 10-cent pill to stay healthy and happy. So the
entrepreneur started to calculate and he found out that there were nearly
3,000,000 possible consumers. So, just think about it, 3,000,000 consumers, 3
pills a day, and 365 days a year at 10 cents equals a potential market of
328,500,000 dollars!
His partner and co-founder made another analysis of the market. He found
out that at the bottom of the market, 95,000,000 potential consumers, and the
vitamin pills where seen as medicine and only taken when people didn’t feel
well. A survey learned that every year people didn’t feel well 3 times for an
average period of 5 days during which they took 3 pills a day. He also started
his computations: 95,000,000 people, 3 times, 5 days or 15 days at 3 pill a day,
means 45 pills at 10 cents per pill equals at 427,500,00 dollars!
Maslow's Heirarchy of Needs
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C. Competitor analysis
How do you define competitors? Are these companies who are in the same
line of business as yours or are these businesses who are aiming for the
customer’s money at the same time?
For example:
If you are running a pizzeria, let’s call it “Don Rafael Pizza”, who are your
customers? Are those all other pizzerias in town or are these all the businesses
where people can spent their lunch money?
The president of Rolls Royce, the famous British luxury car said once: ‘my
competitors are NOT the other exclusive and luxury cars but the real estate
agents selling upmarket houses and manors and jewelers offering exclusive
and unique diamonds.’
In every segment of the market, the customer can only spend the money once.
Now, it is up to you how to be different to create a competitive advantage so
that the potential customers choose your business and not the one next door.
So how to get that competitive advantage?
Analyze your competitors
You have to know your competitors in and out! One of the effective ways to
learn about them is to make a thorough SWOT-analysis. You have to find out
what their strengths, weaknesses, opportunities and threats are. It gives
you a clear understanding and confidence in every decision that you make.
I always teach my students and participants in workshops that:
You have to stay away from the things your competitors are doing
really well and for what they are recognized in the market.
Never enter into a price war when you enter the market. Price is never
the best competitive advantage in the long run.
Concentrate on their weaknesses, and work on solutions for that! That
can be your Unique Selling Proposition and your competitive
advantage.
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Check this link on how researchers at Dyson School of Management are
preparing SWOT Analysis to compare different brands and operations.
Strategies for Differentiation
• Product Features and Benefits: This is the essence of your value
proposition.
• Location: This is a battle in which many companies fight for, location!
Businesses pay higher amount of money to acquire locations which is
close to their target customers.
• Distribution: a different type of distribution, store hours, can be your
competitive advantage.
• Staff: Make sure that your staff is well-trained, skilled and customer-
oriented.
• Different operation procedures for a ‘positive customer experience’
• Price can be a differentiator but keep out for price wars!
• Customer Incentive Programs are a good strategy to get the loyalty
of customers. Take for example the success of the ‘Miles” programs of
the airlines and the ‘Reward’ programs of groceries stores and other
retailers.
• Guarantees & Warranties. Offering guarantees and/or warranties will
make it easier for the customer to decide. If you are selling goods in
higher price categories and offer guarantees, make sure they are easy
to avail! Guarantee procedures who are too strict are counter-
productive.
• Ethics. Doing business while respecting the environment, not selling
cheap t-shirts manufactured by children, selling make-up not tested on
animals, organic food, and fair trade products is a good way to start.
More customer groups are open for this and are willing to pay premium
prices for ‘ethical’ products.
• Customer experience. Buying has to be easy, not complicated, it has
to be a ‘feel-good’ experience.
• Quality. If you are selling poor quality, as perceived by your target, they
will never be ready to pay your premium price. Better is to ‘under
promise and to over deliver’. The client will tell about his/her customer
experience to family, friends, or even write about it on social media.
Jack Welch
“
4. Marketing
Globalization in the business created a ‘new economy’ in which the
entrepreneur has to operate. With globalization and the advent of new ways
to communicate people in the forms of new technological devices such as
computer, smartphones and other gadgets, marketing has also evolved. From
single channel, marketing has grown to multiple channels in which the
message about the product or service can move through different entities. In
this chapter, we discuss the step in which we explore the new ways to market
our products to our target consumers.
Let us first understand what it means to be in the new global economy. Then
we will move to branding, creating value as well as customer retention and
growth.
In the ‘new’ global economy:
There is substantial increase in purchasing power (See the booming
markets in East Asia and the emerging economies in Africa).
There is a greater variety of goods and services available in the market
(just look at the fruit stand in your local supermarket and compare to
the same when you were ten years old).
There is a greater amount of information available.
People are able to check out reviews about products and services and
to compare.
The ‘old’ economy vs. the ‘new’ economy
Philip Kottler compared in his work Marketing Management (1972) the ‘old’ and
‘new’ economy as follows:
Old economy New economy
Organized by product units Organized by customer segments
Focus on profitable transaction Focus on customer lifetime value
Marketing does the marketing Everyone does the marketing
Build brands through advertising Build brands through behavior
Focus on customer acquisition Focus on customer retention and growth
Overpromise, under deliver Under promise, over deliver
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While this new global economy poses many opportunities, there are also challenges
that must be addressed. Now, to market your products and services, you have to
explore the different modern marketing strategies especially online. From print,
radio and TV, it has evolved to online marketing such as the use of e-mail, social
media, SEM or Search Engine Marketing and PPC or pay-per-click marketing.
Successful entry to the market needs a careful planning and relaying the specific
target audience online.
Let’s have a closer look at the different aspects concerning the new economy
we are living in:
Customer segmentation
The time that ‘one fits all’ is definitely over. Customers now know exactly
what they want. Therefore, segmentation of the market is very important; you
have to find out who will be your primary target.
For example:
The markets in Western Europe are growing older every year. The
median age is around 45 years old (depends on the country). An elderly
population has different impacts on the market:
A big part of the market are retired people with no more children
at home but who are still active (who love travel and passionate
in sports, for example)
Older populations means that there are more needs for health
and wellness products and services
Retired population means also that the spending capacity is
lower because the income out of income is less than for working
professionals.
In South East Asia and Africa on the other hand, the situation and the
markets are totally the opposite. In the Philippines for instance the median age of
the population is 24 years old. This means that 50% of the population is younger
than 24 years old! A lot of this young people are well educated professionals
working for international call centers and earning a more than the average income.
For the entrepreneur preparing entry on the market, it is very important to
think about who your client segment you will target. Every marketing decision
depends on this positioning of your brand/product/service in the market.
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Focus on customer lifetime value
The longer the customer stays your client the more important he/she gets for your
business. Customer lifetime value can be defined as the revenue you get from one
client as long he stays your client.
For example:
An average clients buys for 100 USD per transaction, 12 times a year
and you manage to retain him as a client for 3 years. The customer
lifetime value for this client is 3600 USD over the time he stays your
client.
Customer Lifetime Value has three components you can work on:
The average transaction amount
The average rate the customer buys your products
Average length of retaining the customer
Points you can work on to increase the consumer lifetime value of your
clients:
Create customer retention through:
Loyalty programs (Make sure the mechanics are simple so it does not
confused your customers).
Personal touch (everybody wants to feel ‘special’)
Excellent customer service (customer service is one of the best marketing
weapons as it also enables to increase the transaction rate
Future coupons: offering a discount coupon for a next purchase)
Reminders (increasing the transaction amount)
Up sales (client wants a basic version of your product but you can sell them
one with more features for a higher price)
Add-on (cross-selling: You buy a book at Amazon and immediately the offer
you other books “you may be interested in”).
Pricing
Note that acquiring a new client and developed consumer lifetime value is 7 times
more expensive than retaining a client.
Everyone are potential ‘marketers’
In the old economy, it was the responsibility of the marketing department to do all
the activities necessary activities to make the products or services known to the
customers. Now, the whole marketing concept has changed. Your customers can
also be the marketers!
Look at the most popular social media platforms: Facebook, Twitter and Instagram.
See how they talk about the products
Source: Social Fresh
For other examples, you can check out websites such as ‘booking.com’ or
tripmaster.com’ and notice the comments travelers leave on the page about the
quality of the hotels. Be assured that people who are looking for a hotel or
accommodation are reading the comments before they book.
Every client, every prospect, every member of your staff is a marketer!
It’s your responsibility as entrepreneur to manage the marketing of your business:
Love and respect your customer. No customer, no business!
Create a community of consumers. Listen to your customers, learn from them.
Rethink permanently your marketing mix. Don’t forget that the market is
customer-driven, not producer-driven.
Celebrate common sense. Don’t make your warranty procedure so complex
that nobody will avail of it.
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Be true in your brand. Your brand is a promise. A promise of trust, quality,
service. Your customers believe in your brand, in your promise. Your promise
is the reason they buy your products. Keep your promise!
Build your brand through behavior
In the ‘old economy’ branding of a business was for 99% done through
advertising. Massive campaigns aim to install the brand in the minds of the
customers and potential customers.
In this time of globalization and internet, people talk about your brand. Not
only how catchy your business name is and how well designed your logo but
about what your brand represents for them.
The major benefits of a powerful brand are:
Higher Value: Strong brands are always associated with greater value
and are mostly sold at premium prices.
Lower Cost of Sale: When you have a strong brand – your promise,
you remember – it will be easier to sell your products. People know
what to expect from your products and services, they know the
quality, the price, so the selling process is easier and faster.
Implied Assurance: Brands usually have an advantage in terms of
customer satisfaction as there is a level of trust on quality and
deliverables.
But your behavior as a business has to be in line with your brand and what
you are standing for. Let’s look at the example of the Body Shop, which started
in the UK and now has branches all over the world.
The Body Shop is selling over 900 beauty products claiming that none of them
was been tested on animals. You can imagine the reputational problem they
had to deal with when it was discovered that one, only one, product had
components tested, by the supplier, on animals.
Same reputational problem IKEA had when media published that some of the
so fancy textile articles sold by IKEA was produced in sweatshops in India and
Bangladesh by minors!
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Your brand is your promise but also reflects your behavior.
Focus on customer retention and growth
Customer retention refers to keeping the client buying your products rather
than those of your competitors. Losing business to your competitor will affect
your share of the market and to the profitability of the business. Customer
service retention is a popular marketing strategy as it focuses on meeting or
exceeding clients' expectations in order to keep their loyalty.
When people feel loyal to a certain brand or business, they are less likely to
be persuaded by a competitor's ads and offers. Maintaining customer
retention through loyalty programs is a method commonly used by many
businesses today. A loyalty program typically involves a free membership card
and rewards for purchases.
The reward incentives may be for extra discount prices or prizes that can be
obtained for point rewards. For example, many airlines give air miles points
that may be saved for free air travel or prizes such as luggage or a free night
stay in a hotel. If consumers are collecting points towards items they want,
they're likely to keep using the products or services of the company offering
the promotion. In this way, customer retention can be achieved.
The most effective way for customer retention, however, is through a customer
service that includes following up on any issues or complaints. If a consumer
has a negative shopping experience with a company, he or she may deal with
that business less often or not at all. If the firm sincerely apologizes and takes
the time to have a polite representative talk to the customer to see how they
can meet his or her needs, the consumer may reconsider and keep dealing
with that company despite of the negative experience.
Satisfaction surveys about customer service, as well as a store's products, can
help a business find areas of improvement that may help it retain customers.
When companies really listen to their clients and are willing to make changes
to please them, it can lead to successful customer retention.
Studies show that it's much less expensive for a company to spend money on
customer retention than on acquiring new clients. Even smaller strategies,
such as holding a customer appreciation day or remembering client birthdays,
helps in creating consumer loyalty.
Of course, no strategy can make up for a poor product or consistently bad
service. Companies who regularly monitor their daily operations as well as
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make any needed improvements are the most likely to have success in
retaining their customers.
Under promise, over deliver
When someone under promises and over delivers, it means that he or she sets
the bar low and then exceeds that bar. In a simple example, a delivery
company might promise that something will be dropped off by noon, setting
the bar, and then tell the driver to make sure that the object is delivered by
ten in the morning, thereby exceeding the expectations of the customer.
The idea behind this concept is that, by keeping customer expectations low
and routinely exceeding them, an individual or company will develop a good
reputation.
When someone makes ambitious claims and promises and then fails to live up
to them, customers tend to become irritated, feeling that false advertisements
were made. Routinely failing to live up to expectations can make a company
look bad, especially when the company itself sets those expectations. Products
that are routinely delivered late, projects that are never completed, and
deadlines that are never met are a great way to infuriate customers. One way
to avoid this problem is to under promise and over deliver.
If, on the other hand, a company makes a promise that is understated, taking
all of the factors of the situation into account, and then delivers early or above
expectations, customers are left with a good feeling. To do this, a company
usually thinks about the task or project at hand, estimates the time in which it
can be reasonably completed, and then add some time to the estimate given
to the customer. For example, a business might say that a project will be
complete by Friday when it could be finished on Wednesday.
When a company decides to ‘under promise and over deliver’, there are a
number of advantages. The first is that, when they deliver the finished product
early, it pleases the customer, and the customer will speak well of the company
in the future. Secondly, in the event that there is a problem or hiccup in the
process, the company has a built in buffer, and it doesn't need to panic. In the
example above, it might not be able to deliver by its internal target date of
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Wednesday, but the consumer will definitely get the project by Friday and
never be the wiser.
Companies may be encouraged to promise less and deliver more to retain
customers and increase customer satisfaction. Those that do also need to be
careful about taking this approach, however. It's important to set internal
goals that are more demanding than the goals given to customers, and to
stick with those.
Financials
If you’re planning on starting a business, chances are, you’ll need some form
of capital, which simply refers to the money that finances your business. One
reason for the failure of many small businesses is that they undercapitalize
their business.
Therefore, it is important that you know how much money you actually need
to start and to run your business until you reach your break-even point—the
point when your sales revenue equals your total expenses.
Ask yourself the following questions:
How much money is required to start this business?
How much of your own money do you have for this business?
Do you already own any of the assets needed to start this business?
Do you have family, friends, acquaintances, or others who are willing
and able to invest in this business?
Do you have personal credit available or the possibility to get them?
How much money do you need?
To start with, make a list of all the things you will need to set up your business.
A list as the one below can help you to get a pretty exact idea of how much
money you need on hand to start up the business. Note that ‘the financials’
are only the reflection in numbers of your business model and business plan.
The better prepared the business and marketing plan, the more exact your
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financial projections will be and the less ‘surprises’ you will have once in
operation.
You will notice that there are two components in this ‘start-up cost
calculator’:
The first is the ‘one-time’ start-up costs. The start-up cash, an amount you
need to have ready to ‘survive’ the first months of operation. My advice to
starters is always to have an equivalent of 3 months of overhead ready. The
second is the ongoing monthly expenses, the ‘overhead’. Those expenses you
will always have to pay even when you don’t have any customer.
The Startup Costs Calculator
One time Startup Costs
Cost Amount
1 Purchase price/down payment if you buy an
existing business or a franchise
2 Rent & Security deposit
3 Fixture, counters, equipment and installations
4 Decoration and remodeling
5 IT-materials, computers, hardware and software
6 Setup, installation, consulting, professional and
legal fees
7 Business licenses and permits
8 Marketing collaterals, website, stationary
9 Signage
10 Advertising and promotion for opening
11 Basic Inventory good for one month operation
12 Operating cash equal at least 3 months of
overhead
TOTAL
Ongoing Monthly Expenses - Overhead
Expenses Amount
1 Salary of the Entrepreneur – YOU!
2 All other salaries, wages & commissions
3 Payroll taxes or self-employment taxes; social
security payments
4 Rent
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5 Equipment lease payments (lease car for
example)
6 Advertising and promotion
7 Supplies (office,)
8 Telecom: telephone, internet
9 Utilities (water, electricity, gas)
10 Website hosting and maintenance
11 General Business Insurances
12 Vehicle cost (gas, maintenance, taxes,)
13 Health insurance
14 Interest & Principal payments on loans and credit
cards
15 Franchise fee – Royalties if you bought a
franchise
16 Legal and professional fees
TOTAL
As indicated before, I always advice to have a minimal financial ‘buffer’ of at
least 3 months of overhead. Having this ‘buffer’ money at the bank gives you
peace of mind so you can concentrate 100% on your business, your products
and your clients instead of worrying how to pay the rent and other expenses
next month.
Where to get the funding for your startup?
Out of the lists you made as illustrated before, you know now how much money
you need to startup your business. So, time to look in the different sources of
funding.
First, you have to understand the difference between equity and debt. Equity
means ownership, ownership of your company.
Of course, you are the owner, so you have to put up your money first.
Depending on the size of the company and the needs of working capital, your
savings are perhaps not enough to cover the financial needs of your company.
But, as a former start-up banker (a credit risk officer specializing in start-ups
and small and medium family owned businesses), my advice is to put up your
own savings! Why a third party, a bank, an investor would put money and take
a risk in your company if you don’t take that risk yourself?
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The money you put in your money is equity, it represents the ownership of your
venture. If you use equity investment, be sure to consider how much ownership
you’re willing to give up, and at what price. Once you sell 51 percent of your
shares, you lose control of your company.
Who are potential ‘equity’ investors for your new company?
It can be family and friends who believe in your project and the market
opportunities like you have developed in your business plan. You
convinced them also about the projected profitability of the venture
and of your skills and competency to make it happen.
Same story for professional investors like ‘angel investors’ or Venture
Capitalists. These professionals want also to be convinced of the return
on investment they can get on their money and how they can ‘exit’ and
at what terms.
But if your partners are your family, friends or professional investors, they own,
together with you, the company and will share in the profits!
Debt Financing
Commercial or personal loans from financial institutions account for the
second most common form of financing of startup companies.
The types of funding depends on how much you need and for how long will
you be able to pay for it:
Long-term loans
Use long-term loans for larger expenses or for fixed assets that you expect
to use for more than one year, such as property, buildings, vehicles,
machinery, and equipment. These loans are generally secured by new
assets, other unencumbered physical business assets, and/or additional
stakeholder funds or personal guarantees.
Short-term loans
Short-term loans are usually for a one-year term or less, and can include
revolving lines of credit or credit cards. These are generally used to finance
day-to-day expenses such as inventory, payroll, and unexpected or
emergency items, and can be subject to a higher base interest rate.
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Getting Your Loan Approved: What do Potential Lenders Look For?
Many lenders will look for the four “C’s of Lending” when evaluating a loan
application:
Cash flow
Your ability to repay the cash you are borrowing. This is measured using the
cash flow forecast that you created for your business plan.
Collateral
The value of assets that you are willing to pledge for assurance that you will
repay your loan. A dollar amount will be placed on these assets and that will
be compared to the amount of the loan you requested. Typically, start-ups are
not rich in assets so you may be required to secure your business loans with
personal collateral such as your house or vehicle(s).
Commitment
The amount of money that you’re committing to your business. You can’t
expect to obtain a loan without contributing a fair share yourself.
Character
Bankers/lenders are very interested in ‘who you are’. What is experience, can
you cope with the challenges of the business and do you have the necessary
skills and competences. Same for your team members. Are your skills
complementary?
The difference between a private lender and for instance, a government program is
the relative importance of these four C’s. A bank might place more importance on
“collateral” and “commitment”, whereas a government program can often decrease
the need for these by providing a government guarantee to the lender.
Make a good impression with your banker
You can increase your chances of securing a loan by:
Presenting a strong business case and growth potential
Showing reliable projected cash flow and keep the banker constantly informed
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Offering collateral
Having a strong management and complementary team at the helm
Always making your loan and interest payments on time, and never missing a
payment. If there can be a problem, inform your banker ahead. You don’t want
your banker to call you, right?
Costing, Pricing & Profit
A correct costing and pricing strategy is an important, even the most important
assignment for the startup entrepreneur. It is here that the profit is coming from!
All the costs has to be taken into account as there are:
Design and production costs
Packaging costs
Promotional costs
Distribution costs
Overhead costs
But also pricing needs all the attention of the management. Putting your prices low
can be a good strategy is you are selling ‘bulk’ products and have to make your profit
on the huge volumes you can sell in the market. If you are not in this scenario, putting
your price to low will affect your profitability. Pricing too high could have an impact
on the sales you can realize. Pricing of a product in the market has to reflect the offer
and demand relationship.
In your pricing strategy, you should take the following into account:
• Your costs (overhead costs and the variable costs, the cost related to
production and distribution)
• Competition: at what prices your competitors are selling the same or similar
products?
• Your positioning strategy: do you want to be in the ‘premium’ segment?
Examine your target customers and their willingness to pay.
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As a company you can choose out of different strategies which fit in the best in the
based on the objectives of your business.
Different pricing strategies:
• Penetration pricing: the company sets a low price to get and increase sales
and market share. Once market share is satisfactory, you can increase your
prices. But be careful in doing this because sometimes it’s not easy to increase
prices once the market is used at your product at a set price. Study well and
push for a good timing.
• Skimming pricing: You introduce your product on the market at an initial
high price and then slowly lowers the price to make the product available to
a wider market. The objective is to ‘skim’ the market layer by layer.
• Competition pricing: This is setting a price in comparison to the other players
on the market. Here, you have three options: selling at a lower price (keep out
not getting into a ‘price war’), the same price (it will cost additional promotion
expenses to lure the customer to your product) or selling at a higher price (if
your value proposition is strong and the customer is attracted to what you
have to offer more)
• Bundle pricing: You propose ‘bundles’ of products to the market at attractive,
reduced prices. If you are selling laptops, you bundle them with a printer and
sell them as a set. Telecom companies are selling subscriptions to their
services and offer a cellphone for free or at highly discounted price. You buy
a coffee in a coffee shop and get a refill for free or at only half price…
• Psychological pricing: Mostly used in retail business, the seller will consider
the psychological perception of the price by the customer (99 USD is
perceived much cheaper by the customer than 100 USD).
• Premium pricing: the price is set high to reflect the exclusiveness of the
product.
• Optional pricing: the business sells optional extras along with the product or
service. Used very often in the car industry where a car is offered at a basic
price and the customer can add-on.
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To illustrate how costing and pricing can affect the revenue of the company, this
simple example: Imagine you are running a coffee shop and you are selling your
coffee for 3,50US per cup.
Question now is if this selling price is profitable and how many cups of coffee you
have to sell every month to cover the costs and make some profit?
As you can see in the illustration, there are different ‘cost’ components:
Selling Price Amount
Cost: 3.50 USD
Coffee 0.48 USD
Creamer + Sugar 0.21 USD
Water 0.15 USD
Cup, Lit and Stitter 0.21 USD
Total Cost 1.05 USD
GROSS MARGIN 2.45 USD
To be able to compute the profitability of our coffee shop, we have to look into the
overhead expenses too. As said before, this are the expenses we have to pay every
month, if we make a sale or not. For this example our overhead expenses are:
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Item Monthly Expense
Rent 700
Electricity 800
Water 170
Salaries of kitchen staff/waiters 3000
Telecom 100
Promotion 700
Your Salary 1,500
Total overhead/month 6,970
We know already that our gross margin (= sales – cost of goods sold) is 2. 45 USD per
cup. Knowing the monthly overhead we can compute the profit before tax of the
operation as shown, in a very simplified way, below:
Price per cup 3.50 USD
Number of cups sold 3000
Income out of sales 10,500 USD
Cost of Goods = 1.05 USD/cup 3,150
Gross Margin 7,350 USD
Overhead 6,970
Gross Profit 2830
After selling 3,000 cups of coffee, or an average of 100 cups/day, the business is
profitable as we book a profit before tax of 400 US.
What should you do to increase the profit?
Attracting more, new, clients. The overhead cost will remain the same even if we sell
1,000 cups/month more. But the effect on the net profit will be ‘spectacular’:
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Price per cup 3.50 USD
Number of cups sold 4000
Income out of sales 14,000 USD
Cost of Goods = 1.05 USD/cup 4,200
Gross Margin 9,800 USD
Overhead 6,970
Gross Profit 2830
As entrepreneur, you don’t only have to monitor sales but also expenses. You can
lower the overhead by carefully examining if you really need all those waiters all day
long or if you only need extra during rush around lunch time, for example.
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STEP 4
Growing the business
Step 4: Growing the business
In this chapter, we will have a closer look to possible strategies to grow your business
by increasing turnover and profitability. Now, we look at the possibility of franchising
your business.
Franchising is the most successful business system in the world!
Whenever you hear the word "franchise" you think of fast food restaurants like
"Starbucks" or "McDonald's", but there is more to franchising than the two giants.
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Franchising is simply a special type of licensing arrangement for the distribution of
services and products. Franchisors allow another entity - the Franchisee - to use their
business system, trademarks and corporate identity for a certain period of time. It is
based on an interdependent relationship between the two parties. Both must work as
a team and accept responsibility and accountability for the success of the system and
business.
The basics:
Franchising is a method of distributing goods and services.
A Franchise is a privilege granted to an individual or a corporation.
A franchise is a legal agreement between two parties.
The owner who agrees to grant the privilege is called the Franchisor.
The individual or group to whom the privileges are granted by the
Franchisor are called the Franchisees.
The system under which Franchisor and Franchisee operate is known
as Franchising.
Companies choose to grow by granting a license to others to sell their product or
service and this has advantages for franchisees too: A franchisee does not have to
come up with a new idea - the franchisor had it and tested it and continues working
on new ones.
If properly executed, franchising is a win-win situation. There are significant
advantages to franchisor, franchisee and the consumer. For a prospective franchisee,
it represents an opportunity to own and operate a business involving a proven
concept, product, or business format with a minimum of financial risk. For potential
consumers, franchising provides a way to receive goods and services in a reliable and
predictable manner.
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Franchising your business as growth strategy
Before implementing your own franchise program as growth strategy, you have to
evaluate your business on several criteria:
Are the products or services you offer widely accepted by your market?
Do you think consumers in other areas will be like to buy them too?
Have you developed your brand?
Are you distinctive in the market segment you are in? If you are not, it will be
harder to attract ‘high quality’ franchisees for your program
A franchise may be distinctive in terms of its products, services, operating and delivery
systems or marketing. If a business is to be successfully expanded by franchising its
success must be attributable to its products or services, business format, operating or
management systems or marketing.
The business must be teachable to persons with capabilities that exist among
prospective franchise buyers and must be replicable by such persons.
The investment requirements of the business must be realistic and the potential for a
return on the investment should be appropriate to the risk inherent in the type of
business.
Does your business has the potential to be franchised?
The franchise method is now used successfully by all sorts of business in all sorts of
markets; but not all businesses are suitable for franchising.
If your business has one or more of the following characteristics, franchising may not
be suitable if:
• A product or service, which is only likely to have a market for a short time
• Gross margins which are too low to offer a return on investment to both
the franchisor and franchisees
• Skill levels for each operating unit that require very long training period
(more than 6 months)
• Predominantly repeating business customers whose loyalty relates to the
individual providing the service and which would be difficult to transfer
to a brand.
45
• A geographically defined market that doesn’t have the potential to be
repeated in many places
• A business which is failing
• You franchise as a means of getting yourself out of trouble.
• You franchise if you only have an idea (unless you have a prototype)
Your business has the potential to be franchised if:
• "Every city needs one" impression can be said for your business
• You can handle sharing your ideas with many
• You can handle your role becoming increasingly administrative
• You are people-oriented person
• You can afford to weather a likely difficult start
• Your success rests largely on your product or service
• You can create an ongoing long-term relationship with a team of people
But before evaluating your business as a potential franchise, evaluate yourself as a
potential franchisor. Are you ready to share your success, your system and your
profit with other people?
Consider your qualities and remember that franchising is more than the business of
selling services and products to consumer. In addition, as a franchisor you will be an
educator, trainer and hand-holder to your franchisee.
If you think your business has the potential to be franchised, then you will need to offer
franchisees a business format which includes your brand, business system, training,
opening assistance, marketing and support services under the contractual terms of
a franchise agreement which will, amongst many other things, set out the financial
arrangement.
As a franchisor you will be building a brand with a reputation that other people will
want to buy and invest money into. You will therefore need a brand, which is distinctive
and appropriate for all the places you would want to have franchisees in operation. It
will also be your responsibility, and your obligation to franchisees paying for the
46
benefit of using your brand, to protect it against abuse, both by outsiders and by ex-
franchisees.
The System
The principal benefit for franchisees, is the opportunity to run a business which has
already proved its capacity to deliver products or services profitably to an
identified market.
You cannot sell an idea as a franchise. You must have proven in practice that the idea
works and that you can successfully transfer the “know how” to another person
operating at “arm’s length” from you.
You will need to draw up and prove a comprehensive operations manual that details
what a franchise has to do, how to do it, and to what performance and quality
standards. The manual will need to cover the setting up phase as well as continuing
operation. You will also need to develop and prove an initial and continuing training
program that ensures that the “know-how” contained in the operations manual can be
transferred successfully to your franchisees within the time available.
A critical phase of the development of a franchise program is the first operation or the
creation of prototype business to test and refine the concept of the business to be
franchised. In his prototype businesses, a prospective franchisor can test operational
systems, controls, décor, designs, layouts, equipment, training methods, advertising
and marketing programs, products and services, job requirements and descriptions,
financial models, etc.
The prototype is a laboratory at which problem areas can be identified, enabling the
company to develop solutions and truly see if the business can be franchised. Before
franchising, a company should have been operating outlets successfully at least at one,
and preferably several, locations to verify the viability of the business and its
profitability.
A minimum period of time to test the pilot outlet would be one year to take into
consideration seasonal factors and to ensure that the business is producing attractive
results. Two or three years of actual experience gained from the operation of exiting
outlets are ideal.
The business to be franchised must be capable of producing a reasonable return on
the franchisee’s investment, after deducting the value of the franchisee’s labor. If
47
franchisee is merely buying a job, his motivation and loyalty to the network may be
short-lived.
The business must also be able to generate sufficient revenue for you as franchisor. A
Franchisor can capture only a portion of the gross revenue of a franchise outlet
through continuing fees or royalties and the gross profit realized on sales of goods
and services to the Franchisee.
If a business cannot generate a sufficient rate of return on the franchisee’s
investment and sufficient revenue to support essential franchisor services and a
sufficient profit to the franchisor, the business is a poor candidate for successful
franchising.
Developing a franchise business model is not that easy and asks for a specialized skill
set.
To avoid disappointment and loss of money it might be a good idea to look for a
professional franchise consultant who can help you with:
• The developing of the business model
• The legal documentation
• The development of the operations manual
• Organizing of the marketing strategy
• The outline of the training programs
• The recruitment of the franchisees
• Checking out the proposed locations
Franchise consultants are doing this for a fee. You have to see this as an investment in
the development of the franchise business model. The better the business model is
developed, the more successful the franchise will be.
Many franchisors fail because they expect to immediately profit by charging high initial
franchise fees, high royalty fees or high advertisement fees.
The franchise fee is primarily to compensate the franchisor for the use of its brand
and trademark as well as to defray cost incurred in setting up a system to sell and
market franchises. The franchisor assist usually from the initial training to post-
opening. Franchise fees are always collected upon signing of the franchise agreement.
48
The royalty fee, as the name indicates, is the royalty payable to the Franchisor on a
regular basis for securing rights of franchising. Royalties are usually a percentage of
the gross sales and to be paid monthly.
A renewal fee is usually charged for the renewal of the contract and is usually 25 to
50 percent based on the current franchise fee.
49
STEP 5
The ‘bumpy road’
Step 5: The Bumpy Road
Like every business, you start at ‘ground zero’. For a certain time your business exist
only on paper. You have developed your business model, your marketing, you hired
a place, you invested in equipment, eventually you hired your first employee and then,
finally, the big day arrives. You open your doors and wait for the first clients and the
first sales. You are officially ‘in business’.
You can’t believe how fast you run through your money. Everything seems more
expensive than you expected. You are stressed, but belief in your dream keeps you
going.
You learn as you go. You discover what works and what does not. You adjust your
advertising. You improve your products and services.
50
Slowly, your business takes shape. You discover your secret sauce. Clients love you.
Sales grow. Momentum builds.
You are no longer at ‘Ground Zero’.
Phase 1: Growing fast
As you have prepared your business thoroughly, it is not a surprise that you take-off
successfully. The customers are happy and they love your products or services. You
taste the sweetness of success. You work hard, 24/7/365, to realize your dream and it
works, money comes in and after a short time you can even pay yourself a salary. You
are in the business!
Phase 2: Slowing growth
After a certain time, you notice that something is different. You still work 24/7/365 yet
you notice some things do not work the way you hoped to. You realize that you are
encountering the first ‘bumps in the road’.
Quality starts to slip up and your customers start to complain. It seems that you don’t
fulfil your ‘brand promise’ as before.
51
Everybody in the business starts to be stressed and instead of doing your job as an
innovative and creative entrepreneur and a manager, you are only putting out fires. It
seems that there is more work to do than your team can handle.
Solution: ‘new blood’!
You hire and train new people and you realize that training people takes time and is
expensive. Not every new hired staff fits in and you have to fire - to hire again and to
start the training process all over again. You learn the hard way what textbooks mean
by people management!
On the work floor mistakes happen, customers are looking for you to ventilate their
frustrations but they can’t find you. Why? Because you are still putting out fires
instead of focusing on the most important asset of the business: your clients!
But it seems that there is light at the end of the tunnel. Some of your people are stars
and they start to specialize in parts of the business. You can say that you start to see
something that looks like an organizational structure. On one hand, you are happy
that things becomes less chaotic and more effective but on the other hand, it’s hard.
You have a difficult time to let things go. You are in the business, you remember?
Phase 3: No Growth!
Something is not right. You feel that your ‘secret sauce’ still works but you lose ‘old’
clients as fast as you gain ‘new’ customers.
You decide to fire up the marketing and ran a new campaign, the sales increase for a
short time, but average they stay flat. You have a business which is no growing
anymore! Sales fall, rise again and fall…but you don’t have the time to look into the
basic reasons of this phenomenon because you are still putting out fires.
Alert! Stuck in Phase 3
Most businesses are stuck in Phase 3 and have to navigate their business on that
bumpy road. Being stuck in this phase is as driving a car down on that bad, bumpy
road. There are dangerous potholes everywhere, you can move only at a slow pace
and you cannot take your eyes off the road.
52
But what did go wrong?
You have done these:
• You have prepared properly.
• You offer first class products.
• You really care about your customers.
• You hired ‘super stars’ as your employees.
• You paid coaches and consultants.
• You increased your marketing effort.
And sales remained flat and there’s no growth.
Well, it went wrong at ‘ground zero’, with short-term thinking (the sweet taste of
success) and no time to work on a strategy for long term development. Perhaps a lack
of vision as discussed in Step 2.
What do you need to do to get out of this bumpy road?
Sit down with your (core) team and analyze the situation of your business and
brainstorm around the following points. You will see that there will be a lot of things
you can implement immediately and create the growth dynamic again!
• Growth is self-limiting: A business can only grow to the point where it can easily
maintain product quality and customer satisfaction. There is no point in spending
more for marketing and advertising when you cannot accommodate the
customers you have in a decent way.
• A growing communication gap in a growing business: When a business is
growing and more people are ‘on board’ it is very important that the
communication channels are open to everybody. Don’t assume that everybody
knows what you mean. This is perhaps true for those guys who are with you since
the early days but not for those employees hired recently.
• Innovation becomes more difficult as time goes on: In many cases, innovation
declines sharply after the ‘big bang’ of the startup of the business. Entrepreneurs
are the most creative in the development phase of their business and seem don’t
have the time anymore when the company is in going concern. Mostly they are
too busy in putting out fires! But to be a successful and sustainable business,
creativity and innovation has to part of the company’s culture and not only of the
founders and management of the business, but of everybody.
53
• Employees resist change: No matter how great your improvement plan for the
business may be, a significant number of employees will resist change. They are
afraid to have to things out of their comfort zone, sometimes they have to take
responsibility, to be team leaders.
• Your business is too dependent on you and your key employees: In an ideal
scenario, you should be completely irrelevant in the day-to-day operations of your
business. It’s hard because it’s not easy to let go. But it is necessary. It is up to you
to train, mentor and coach your people.
• Your business and strategic planning works against you: In the majority of the
cases, the strategic planning process of startup companies is an expensive,
periodic exercise that is finished, filed and forgotten!
What are the most common mistakes in strategic planning and
implementation?
o The plan is not communicated to the rank and file employees who
continue to lack strategic focus.
o Critical information was not considered because too few employees
were involved in the process and the information never reached the
‘strategic planners’.
• The business has operational bottlenecks: Your company is as strong as its
weakest bottleneck! Analysis of all the processes of the business is necessary to
identify the possible bottlenecks and to find solutions and/or alternatives (in some
cases, outsourcing is a good solution/alternative)
• Job descriptions don’t work: Job descriptions are no longer of this time. Today,
businesses need flexible, multitasking teams. Job descriptions promote an ‘it’s not
my job’ culture!
• You only benefit from a fraction of your employees potential: Employees are
the company’s most expensive resources and you use only a fraction of the
capacity. Therefore develop an ‘Employee Driven Success Strategy’.
o Systemize and standardize business processes as much as possible
o Support job-sharing and cross-training programs with as objective
o To avoid that people get ‘trapped’ in their job: actively share employees’
ideas for improving processes. Make sure that your prospective
employees know that their value to the business is important to reach
the goals in quality and customer satisfaction.
o Grow with the Growing Company. If the business promote growth,
where possible, the most prospective employees.
54
o Prepare employees to be future leaders. Involve them in project teams,
let them run a project of their own,
o Do any job that needs to be done. If there are bottlenecks or crisis
situations, the management has to be on the work floor and to their
part. This creates a ‘we’ feeling and avoid people to think as ‘this is not
my job’.
o Focus on quality and customer satisfaction.
Leaving the Bumpy Road behind you
Of course you want your business to grow and to be very prosperous. In this part
Ill stress the importance of an ‘Employee-Centric Culture’ and ‘Customer-Care’ as
the basis for long term success. Of course, the company has to be innovative,
creative and be constantly on the outlook for new opportunities, but with focused
and loyal employees serving loyal clients, it’s the easiest part!
Elements to think about when developing an Employee-Centric Culture:
• Trust: This one's important. A lack of trust between employer and employee,
manager and staff, really just results in disaster. This is a two-way street. I say, trust
until you have a reason not to trust (or be trusted). Then it's probably time to
move on.
• Respect: When the trust is fizzled, so is the respect. Or maybe vice versa. We no
longer are advocates for what we are doing and what we are building. We are no
longer passionate on our cause.
• Leadership: Hire the right people and let them do what they need to do. They
were hired for a reason. Set the course, outline the vision and the purpose, and
then set them free to execute. Sometimes the leader isn't a (good) leader after all.
And you no longer trust him/her. You no longer want to be a follower.
• Recognition: Employees want to be valued. They want to know that their
contribution is important for the success and sustainability of the company.
Recognition reinforces positive behavior.
• Care: That’s your job as the entrepreneur/manager. You have to care for your
people. In fact it’s putting the organizational pyramid upside down! You have to
care for your people so they can care better for your clients!
55
Customers and how the business cares for them is a blood that keeps the
organization alive! The better the customer care, the more the organization will be
successful thanks to the loyalty of the customers. Customer-Centric Company
Culture can be brought down to the following:
• Articulate your central ‘customer care’ philosophy in just a few meaningful words.
Company culture starts with words, words who represent your decision of what
you want to be for your customers. In my own coaching practice, my philosophy
is that we are ‘Setting the Mind of the Entrepreneurs, Build Businesses with
them’. That reflects our mission and our commitment to my clients. Another
example from the well-known Mayo Clinic in the US is ‘The needs of the patients
comes first’.
• Elaborate on your core philosophy with a brief list of your core values. Keep it
short so that everybody can understand and memorize. Your core values should
show how customers and employees should be treated all times.
• Reinforce your commitment to your values continually. Printing your values on a
nice parchment, frame them and putting them in the reception area of your
business is advisable. Talking about them during the annual company outing is
great but reminding them to your team every day, bringing them in practice, is
much better. A management style as ‘management by wandering around’ gives
you great opportunity to talk about the values to each of your employees and to
listen to them about how to make the output better for the customer.
• Make your customer care philosophy visible for everybody, let your customer
know about them. It’s being accountable to the clients!
56
• Talk the talk, Walk the talk!
• Train, support, hire and, if necessary, use discipline to enforce the values! Rey
Davis, CEO of Umpqua Bank, a regional retail bank in the US known for his
exceptional customer service, put it this way: Maintaining company culture is like
raising a teenager. It means you have continually to check them out, where they
are, what they are doing, with whom they are hanging out. And sometimes when
the teenager goes over the line, you have to discipline!
This is the Pyramid of Success.
All starts with your Vision: what you want for yourself and how you see yourself in the
future. This vision encompasses both your personal and entrepreneurial life. And
realizing this vision means tinkering with passion. Passion works hand in hand as you
realize your vision because it serves as the driving force and catalyst no matter what
problems you encounter along the way.
Working on your dream is hard but rewarding. During this phase, you gain so much
Knowledge about the market, the wants and needs of prospects and clients and the
competition. Moreover, you will also find your uniqueness that will make you stand
out among the crowd.
SUCCESS!
Optimism
mConfidence
Knowledge
Preparation
Vision and Passion
57
The more knowledge you have, the more Confident you become. Confidence means
being sure that the product or service is the answer to your customers’ needs.
Increase in clients means increase in money. This revenue incurred produces
optimism that you can grow your business such as franchising and exporting to
foreign markets.
Once you see that your business is growing sustainably, it means you’ve done the
necessary steps to achieve success! You did it!
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58
Business plan template
A good business plan will help you to define the direction of your
business, to create the strategies to achieve the goals you have set
and to secure finance for your business. This Business Plan template
guides you through the process of creating a solid and well-
structured plan tailored to your business.
How to use this template?
Before you start to ‘fill in the blanks’ you need to consider the following:
Do your research. You will need to make quite a few decisions about your business
including structure, marketing strategies and finances before you can complete the
template. By having the right information, you also can be more accurate in your
forecasts and analysis.
Determine the purpose of the plan. Does it have more than one purpose? Will it be
used internally or will third parties -such as bankers, investors, potential partners- be
involved? Deciding the purpose of the plan can help you target your answers. If third
parties are involved, what are they interested in? Just a tip, don’t assume they are just
interested in the financial part of your business. They will be looking for the whole
package.
Do not attempt to fill in the template from start to finish. First decide which
sections are relevant for your business and set aside the sections that don’t apply. You
can always go back to the other sections later.
Get some help. If you aren’t confident in completing the plan yourself, you can ask for
help of a professional, such as an entrepreneurial coach, accountant or lawyer to look
through your plan and provide you with advice.
Actual vs. expected figures. Existing businesses can include actual figures in the plan,
but if your business is just starting out and you are using expected figures for turnover
and finances you will need to clearly show that these are expected figures or estimates.
Write your summary last. Use as few words as possible. You want to get to the point
but do not overlook important facts. This is also your opportunity to sell yourself. You
want prospective banks, investors, partners or wholesalers to be able to quickly read
your plan, find it realistic and be motivated by what they read.
Review. Review. Review. Your business plan is there to make a good impression.
Errors will only detract from your professional image. So ask a number of impartial
people to proofread your final plan.
1
2
3
4
5
6
7
Your Business Idea 1. Use the space below to describe your business idea.
What problem will it address?
Why is your idea better than the products/services on
the market?
Who are your target customers?
Who are your competitors?
What is your income generating strategy?
2. How did you come up with the idea?
3. How did you know that there is a need for your business?
What activities did you undertake to prove there is a demand for your product
or service? Did you do a marketing research or test sales?
About you, your team and the reason of starting the business
A start-up’s success is as much about the individual(s) behind the business as the idea
itself. As such, it is really important to tell about yourself and how and the other
members of your team are complementing each other.
4. Details of relevant work experience: dates, positions held, responsibilities.
Stress those experiences and responsibilities important for the success of your
project.
Give this information for every founding team member.
5. Explain why you are the right person (right team) to be doing this.
Include additional information that you think will demonstrate that you (and your
team) have what it takes to turn your idea into a successful venture.
6. Who are your customers and how will you reach them?
Your business success depends on how you will attract sufficient customers. You
need to make clear about your (potential) customers are and the best way to attract
them.
Also, be sure that your financials are consistent with what you are writing down in this
and the following parts of the plan.
Customer Profile
Target 1
…………………..
Target 2
……………………..
TIP: Break your
targets down into
groups, based on
demographics,
income. Rank the
customer profiles
by priority for your
business.
Why are they
your customers?
TIP: For each of the
customer groups you
have identified,
develop why your
business is relevant
to them? What is
their ‘problem’ you
will solve?
How are you
going to get their
attention?
TIP: What specific
things will you do to
get the attention of
your target groups?
Advertisements in
selected media
related to target?
Social networks
marketing,
How are you
going to
convince them to
buy from you?
TIP: What
techniques are you
going to use to
ensure that the
interest in your
product / service
ends up in a sale?
Attractive offers?
Price?
Features of your
product?
What specific
activities you
have to do?
TIP: Translate the
information in the
previous 4 columns
in to activities:
creating a website, a
Facebook page,
printed marketing
collaterals,
advertising space,…
What are the
costs of this
activities?
TIP: Make sure that
the costs you put
here are realistic. Asks
for prices, compare
the features and
choose the best
options. Note that
the cheapest solution
is not always the best
one…
7. Who are your competitors and how will you stand out
among them?
No matter how good your idea is, there will always be other businesses who ‘are
fishing in the same pond’, fighting for the same customers, either on price,
features or quality. The trick is, you always have to make sure that you understand
your competitors’ strengths and weaknesses. Making a SWOT analysis of your
most important competitors will help you to avoid mistakes and financial losses.
Competitor
Competitor 1
…………………..
Competitor 2
……………………..
TIP: Write down a short
profile of each of your
competitors and/or
groups of competitors
On what
will you be
competing
with them?
TIP: Is it price, features,
quality, service, location
or something else?
Why
customers
buy from
them?
TIP: Competitors
already have customers
who pay good money
for their products, so
you need to identify
what makes people buy
from them?
Why would
customers
switch and
buy from
you?
TIP: You have already
identified the area that
you are competing on.
Now you have to
identify what sets you
apart from your
competitors. Your
Unique Selling
proposition…why the
customers will choose
you over them?
What
specific
activities
you have
to do?
TIP: Translate the
information in the
previous 4 columns in
to activities: product
quality, logistics,
delivery, how you
handle complaints,…
What are
the costs of
this
activities?
TIP: Make sure that the
costs you put here are
realistic. Note that the
cheapest solution is not
always the best one…
8. Logistics
Product / Service 1 Product / Service 2
How will you
make/source your
product / service?
How will you
deliver your
products/services
to your customers?
How do you ensure
that the quality of
your
product/service is
maintained?
What marketing
activities are you
planning to
undertake? At the
launch of your
business? What
about marketing
once your business
is up and running?
What are the
associated costs of
each marketing
activity you have
planned?
9. Sales and Marketing
You have worked out the costs to get your product/service made or
sourced with serious suppliers. Plus, you have figured out how you will
get your product to the customer. Now you have to develop your sales
plan and organize the commercial part of the business.
Product / Service 1 Product /Service 2
Price you will
charge for your
products and/or
services
Why did you set
your price at this
level?
How does the
price fit in in the
competitive
landscape?
Are you planning
to use
discounting,
bundle
pricing,etc.?
10. Sales - Quantity
Product /
Service 1
Product /
Service 2
What quantity do
you need to sell
to breakeven?
Break even means that
your income out of sales
covers the cost of the
product and your
overhead
How many
products/services
do you plan to
sell?
Give here the ‘evidence’
you have used to build
your sales forecast. What
did you do as market
research? How did you do
it? Did you do a test sale?
Do you have already
orders or letters of intent?
Is demand for the
product you sell
seasonal? How
will this impact
your ability to
cover your costs?
11. Legal/regulatory matters
Do you need, next to business permits, a license to operate your
business? How will you obtain these?
Do you need any specific qualifications? If you, or your co-founders,
do not already hold this, how and when will you obtain this? Are
there costs associated with this? Will it take time?
What are the tax, insurance & other contractual requirements for your
business? How will you comply with these requirements?
Have you addressed all of the health and safety requirements? Do you have
the necessary ‘permits to operate’?
What does it take to get your business off the ground?
This action plan will help you to buy equipment, secure premises, get the permits and
licenses needed, buy stock, recruit your first staff and plan your marketing campaign.
Activity Details Deadline Costs
Example: secure premises
Sign lease agreement
Pay deposit and rent up
front for x months
Has to be signed before
end of the month
Up front rent: 800 US
Deposit 3 months:
2400
US
Define ‘success’ for your business.
The success of a business is often about ‘keeping your eye on the prize’. You have
to identify your ambitions for your business in 12 months, 3 years’ time and
beyond. How do you define success? What are your long-term goals?
All vector graphics in this book were sourced out from
freepik.com and flaticon.com
Ella Riños
© Raf VLummens 2016 – All rights reserved
Nothing in this e-book should be considered personalized financial or
legal advice. You should only starting up a business after consulting with
your entrepreneurial coach, startup advisor, attorney, tax advisor or
accountant.
Every effort has been made to ensure that the content provided in this e-
book is accurate and helpful for our readers at publishing time. However,
this is not an exhaustive treatment of the subjects. No liability is assumed
for losses or damages due to the information provided. You are
responsible for your own choices, actions and results. You should consult
your attorney, tax advisor or accountant for your specific questions and
needs.
Raf Vlummens was for 30 years an international banker,
specializing in startup companies and growth seeking
family owned businesses.
His banking career brought him, next to working in his
native Belgium, to France, Congo (Africa) and the
Philippines. Raf Vlummens was also active as
entrepreneurship professor at community college level in
Brussels (Belgium).
As of the writing of this book, he is the principal of
BelgiumAdvisors, a consultancy supporting non-EU
companies who wants to export to the European market.