Shooting the War

The better you understand your business, the better prepared you are to write the business plan. Ideally, you will have thoroughly thought out your business long before you ever open your doors for sales. Too many entrepreneurs jump into business with both feet and don’t bother with understanding (let alone planning) until the water is rising. jumping into the deep end of the pool is not the best way to learn to swim. If you’re lucky, you won’t drown, but even if you make it out of the pool, the experience is likely to be remarkably unpleasant.
The Business Section
The first major part of your business plan should be a detailed description of your business. You’ll address your corporate entity choice, be it corporation or limited liability company. You won’t even consider using a sole proprietorship or general partnership, because, first of all, investors wouldn’t even bother to read the plan and, second, there is too much personal liability for you in a sole proprietorship or general partnership. To fully appreciate this, see my book Own Your Own Corporation (Warner Books, 2001).
Your detailed description will also include strengths and weaknesses, a description of your operations, location, personnel, records, insurance, and security.
For the business, the market, and the financials sections of your plan, it is best to introduce the section with a brief (as in one page) summary. From there, you can use more detail in each subsection. While the entire plan should be succinct, these summaries will allow interested parties to graze for pertinent information.
There are two questions you need to ask yourself about your business that color every part of this section, though their answers are never directly addressed in the plan:
• Why are you in business?
• What is your business?
If these seem like easy questions to you, either you’ve done a good job thinking through your business or you haven’t even started. We’ll hope for the former.
Why are you in business? How well do you know yourself—in particular, your personal motivations? When you decided to go into business, was it out of desperation (lost job, family illness, personal injury)?)? It’s okay for desperation to spur you into a new direction, but don’t let it rush you. Did you decide to go into business out of a desire for personal fulfillment (following a dream, helping others)? Many businesses are begun for just this reason, but if you don’t understand the realities of owning and operating a business, you aren’t likely to stay in business long enough to do you or anyone else any good. Did you decide to start a business in hopes of amassing great riches? This is another common reason, but chasing after dollars runs the risk of leading to early burnout and/or disillusionment. Understand your motivations, and you can guard against many a typical disaster.
What is your business? Don’t answer too quickly. Just because you ou sell office supplies, that does not necessarily mean you want to look and feel like all the competitors. Think about it: There are plenty of office supply stores out there. Most are better established than yours. Many will have lower prices than yours. So why should anyone go to Your store? Answer that question, and you will know what business you are really in. Do you offer faster service and delivery? Do you have a specialized staff that can help clients with organization, technology, or planning? What is it that your customers (or potential customers) say about your business when they recommend it to friends? What part of the idea for your business originally got you so excited that you Couldn’t wait to tell your family about it? When it comes to identifying the heart of your business, look to your own heart. Concentrate on what your business is rather than what it does. Think back to the spiritual mission and business mission section and ponder what higher purpose you have to serve that will differentiate you in your space and allow you to generate cash flow
With the answers to these two deceptively simple questions, you will hopefully find the key that unlocks the potential of your business idea—an identity that can’t be duplicated. And it is that identity that will garner you funding, investors, and customers. But first, we’ve got to overcome one of the toughest parts of business plan authorship: writing about your strengths and weaknesses.
MIKHAIL
Mikhail was stuck. He needed to finish his business plan in the next two days for a potential investor but couldn’t get past the next section on his template: strengths and weaknesses.
Strengths and weaknesses. How could he write about that?
“Our company’s strength is me. I’m the best taco maker on earth.”
He couldn’t write that, even if it was true. It seemed too brazen, like a tedious NFL show-off player dancing wildly in the end zone. That wasn’t Mikhail’s style.
And weaknesses? How was he supposed to handle that one?
“Our company’s weakness is that management has no idea how to write a business plan.”
Again, while true, it didn’t inspire much confidence.
Acknowledging his writer’s block, Mikhail left the house and walked down to Starbucks for a toffee latte something. He got in line behind Jill, a new friend who had done well in starting and selling several businesses. He told her of his barrier to completing the plan. She offered to help, and they sat down to brainstorm with their vessels of caffeine and sugar.
Jill agreed that in the business plans she had worked on, the strengths and weaknesses section had always been hard to write. But she noted it was a positive part of the process because it forced you to think about some crucial issues:
• Why would someone really want to invest in you?
• Just what are your strengths and weaknesses?
• Are your strengths common or competitive?
• Can your weaknesses be overcome?
While talking about Mikhail’s business, and after several latte refuelings, some headway was achieved. Mikhail did indeed make excellent tacos. He infused them with all sorts of unique combinations, from mangoes to margarita-marinated mahimahi. His strengths were both common (he was good at making tacos) and competitive (he made them better than anyone else around). Jill suggested he focus on these issues as his strengths. Mikhail didn’t have to be brazen to make such claims, she said. A section beginning with “Management believes that its strengths are found in its ability to prepare unique and flavorful tacos” would work.
The weaknesses section, she said, was the trickier one. Just as strengths came in two varieties, common and competitive, so did weaknesses: They were either common or catastrophic.
After reviewing his plans some more, Jill didn’t see anything that would stand out as a catastrophic weakness. Was there a risk that the entire country would turn away from Mexican food? Not likely. Was there a risk of mad taco disease? Again, not likely. But Jill did see two common weaknesses and, she said with a smile, it was in this section where one could turn a negative into a positive.
Mikhail made a great taco. The weakness, which was common to many new businesses, was that no one knew this. The company was weak for brand awareness. This, of course, could be overcome.
The other obvious weakness was that Mikhail was a recent Russian immigrant. Who would ever expect a former Moscow bicycle mechanic to be a creative genius when it came to Mexican cuisine?
Jill saw this possible weakness as a huge potential strength. The human interest angle alone—Russian immigrant/Mexican cuisine, only in America—would help turn a lack of brand awareness into a branding strength. Mikhail was on his fourth latte and saw her vision clearly. He wanted to get back home and start writing. Jill laughed and said she understood. She also asked to see the business plan when it was finished. She knew some people who might be interested.
Before we further discuss the strengths and weaknesses section, it is important to underscore a key element of the story. Business plans aren’t always (or best) written in a vacuum. When you are blocked or struggling with a section, clear your head and seek out the perspective, insight, or just different view of someone you trust. It is amazing what human interaction can do for breaking through a tough section. And, with the benefit of additional input and review, you will find yourself drafting a better plan.
Part of gaining an intimate knowledge of your business is understanding your strengths and weaknesses (also called Core Competencies and Potential Liabilities, or Competitive Advantages and Competitive Challenges, and often given its own section). Think back to everything you’ve ever learned about competition and marketing (or skip ahead and read Chapter 10 on marketing). At their most basic, competition and marketing are about exploiting the weaknesses of other businesses and/or playing to the strengths of your own business. Analyze your business and think like a competitor. What strengths would a competitor try to downplay or neutralize? What weaknesses would a competitor want to highlight?
Once you have identified strengths and weaknesses, you can begin to plan accordingly. Are there strengths that are currently underutilized? What might you do to take advantage of your unique attributes? Are there weak points that you can shore up—through training, strategic hiring, team building, organization, or planning? What can you do now to limit the marketing options of your competitors later? Focusing on strengths and weaknesses will lead to better decisions as you proceed.
Strengths
As discussed in Mikhail’s story, there are two basic categories of strengths a business can exhibit: common and competitive. A common strength is something you do well. A competitive strength is something you do better than others in your field.
How a company exhibits strength—through corporate vision, product, operations, marketing, or sales—may change from business to business but will inevitably fall into one of the two categories. Determining whether your strengths are common or competitive can be difficult. But knowing which they are can be extremely useful. A business can improve through common strengths. A business can dominate through competitive strengths.
What are your strengths? It shouldn’t be a tough question_ to answer if you have a compelling business strategy Challenge your idea’s reason for being if it doesn’t have clear strengths.
Consider that business strengths are noticed by two groups: competitors and customers. What they see will help you understand what you’ve got. Customers (hopefully) will notice strengths in individual products (lower price, higher quality, better variety) or through positive brand associations. A strong brand can encompass a number of individual products and enhance the perceived positives of all of them. For example, the Coca-Cola brand extends to and benefits Sprite, Diet Coke, and potentially even Mr. Pibb.
Operational strengths such as logistics may not be noticed directly by customers, but they will feel the effects of such strengths. Higher efficiency will mean lower prices, faster service, and fewer mistakes. Even if customers don’t know why your product or service is better. they will certainly notice the end result. So will competitors, and soon your strength may become a common business practice for an entire industry But the point is that if both customers and competitors are noticing these things, whether directly or directly¬. you should notice them, too. Practically speaking, they should be deliberate strategies in your business plan.
Sales and distribution strengths will likely not be noticed by customers. They won’t care how many stores carry your product or how good your contracts are. All they know is whether or not they want to buy your product or service. But they can’t buy if they are not exposed to it. Distribution controls that exposure. Sales come from an ability to turn exposure into commitment. As such, sales and distribution strengths are key and an area your competitors will be sizing you up on. If they are noticing your strength, so should you.
Unique leadership skills and corporate vision can create highly advantageous employee and vendor loyalty. They can also increase sales through good distribution relationships. There can be huge benefits from such skill and vision. That said, none of it may be noticed outside the corporate structure. Until, that is, your competitors wonder why you are kicking butt while they are sitting still. Then corporate vision and leadership will be noticed by everyone with whom you do business—from the letter carrier to the sales force to the customer. Do you notice it internally now? Have you developed it into a core competency that can be considered one of your strengths? It should all flow from your mission statement as a reflection of an organization’s leader. Think back to Rich Dad’s B-I Triangle, which outlines the mission, leadership, and teamwork as the three pillars of a successful business.
There are many more examples to consider. Maybe you are charismatic or have a gift for motivating others. Maybe your honesty engenders loyalty in those with whom you partner. Maybe you were an accountant in a past life and have a true talent for budgeting on a shoestring. Your personal strengths may translate quite well to your business. Don’t overlook any strengths you might have. In business, you need every one you can get.
Think widely about your strengths, Think about what you do well. Think about the strengths of your partners or team members. (For more information, see Blair Singer’s The ABC’s of Building a Business Team That Wins, published by Warner Books in 2004.) Think about what works well in your current business, if you have one. If you aren’t currently in business, you will need to do more of that creative thinking to try to see possible strengths you might show in the future. Be real and don’t fool yourself. Talk to people you trust about what they think your strengths are. Do any of these strengths really help your business? Do they lead to lowering costs or increasing sales? These are the types of strengths to include in your business plan.
Know your competition. Read their business plans. And keep in mind they may be reading yours. A business plan is no place for details that threaten your Competitive advantage. Check out your competitors’ advertising. Know their operations as intimately as you possibly can and see if they share your strengths. If they do, your strength is common. If they don’t, your strength may be competitive, and that’s good for you!
Once you know your strengths, you will need to understand the whys and hows of those strengths. Why is it a strength that you have developed a new way to track your office supply store inventory? Is it because it makes it possible to fill orders more quickly than your competition? Or is it because your system is so user-friendly for vendors that they give you a break on your contracts? Or maybe your tracking has opened up an entirely new route for getting your product exposed to customers.
How did your skill, service, product, or idea become a strength? Was it through innovative use? Was advertising a key? Did you discover it on your own through research or study? Or did you learn it from watching how another company does things? How did your customers become aware of the benefit of your strength to them? By understanding the howl and whys, you increase your chances of repeating your strengths in other areas while playing them up throughout the company and through customer awareness. The bottom line is this: Strengths are strengths because they serve customers, which results in strengthened profits.
• If you don’t possess the right skills or strengths for a business, communicate how you surrounded yourself with the right employees or advisors. You don’t have to be a great mechanic to own a thriving automative repair business. If you have great leadership and marketing skills you can hire great mechanics.
• Public company 10-K annual reports area great source of reference material for entrepreneurial business plan. They provide benchmark costs and strategies as well as relevant industry information. Securities laws require them to disclose information that is very helpful to entrepreneurs.
Weaknesses
Examining real or potential weaknesses is not nearly as much fun as examining strengths, but it is just as important. (Don’t you hate how that usually works?) And you sure don’t want to write down all your weaknesses, print them on good paper, and then hand them to other people to read.
The problem is that while this may not be a section you want to shout from the rooftop to potential investors or lenders, it is one of the most useful sections for you as an entrepreneur. Our greatest weaknesses are our blind spots, which we rarely see in ourselves. Most great entrepreneurs surround themselves with people who tell them the good, the bad and the ugly because confronting the brutal facts is the best way to achieve progress on those elements of the business that are holding you back. Novice entrepreneurs hide issues and great entrepreneurs seek to identify issues.
Just as with strengths, weaknesses fall into two general categories: common and catastrophic. Common weaknesses are those that you share with a lot of other businesses, such as start-up hurdles, learning curves, and cash flow. As long as you are generally as good as the industry standard, you’ll likely be okay, although you may not excel. Catastrophic weaknesses are those that consistently put you at the bottom of the pile. Another way to look at it is that common weaknesses are those that can or will be overcome. You will eventually learn how to use your inventory software or hire someone to take over those duties, you will eventually work out an efficient order fulfillment system, and you will eventually have enough money to kick off that dream ad campaign. Catastrophic weaknesses are those that you can’t or won’t overcome. These may include a fatal error in a software program that can’t be remedied, the use of someone else’s intellectual property, coming in second in the race to introduce new technology, and the worst weakness of all, arrogance.
Obviously, doing the footwork for your business plan should help you eliminate many of your common weaknesses before you begin your business or before you continue to the next phase of business. But the identification of catastrophic weaknesses should make you rethink your entire plan. Do you really want to put all of your time and energy into something that has a very high likelihood of failure? Aren’t there other businesses to pursue that have a greater likelihood of success? Some of the best business plans are the ones you throw in the garbage because you learned from them and moved on to a better idea. Fatal flaws usually don’t get better.
Just as with strengths, weaknesses can be perceived by customers and/or
competitors. Your weakness could be in poor product quality, noncompeti-
tive pricing, or lack of variety. Distribution may be your weakness if you can’t
keep your products on the shelves or on enough shelves to have an impact.
Operational weaknesses are frequent killers of great ideas. Many a creative person has thought up a fabulous idea only to be thwarted by the business realties of deadlines, inventory, budgets, cash flow, customer service, distribution, and management. Knowing your weaknesses in these areas going in will help you pick partners and personnel to fill in the gaps. Don’t be afraid to admit you might not know everything. You can always build a team that does.
When you focus on weaknesses, consider that perhaps your weakness isn’t so much ‘ Vour weakness as much as a competitor’s strength. If you are in an industry ruled by one or two brands, it will be hard to break in and then break out with your own brand identity. Advertising is key for brand identity. In order to build your unique identity, advertising needs to be effective and visible. There is a crucial interplay between vision and volume that will ultimately determine the effectiveness of an ad campaign.
Figuring out your weaknesses (or potential weaknesses if you have not vet begun your business) is done pretty much the same way you determined your strengths. Talk to people you trust. Ask these honest and trustworthy people what they think you could improve in your company, your knowledge base, and your interpersonal style. It will be hard to get an honest answer. People who like you may not want to tell you how irritating it is, for example, that you always wait four days to return a call. Emphasize to these people that you need to know now, before you quit your day job and sink your life savings into this idea. Or be honest in explaining that your current business is hitting hard times and that sugarcoating could mean its demise. Never be afraid to goad people into telling you the truth, even by making them feel guilty. It is that important. Of course, when you get the truth, take it gracefully—don’t get all defensive—and be effusive in your thanks so that the people who are honest with you will offer that same frankness if you need it in the future. If you pout and sulk because they suggested that your lack of punctuality is a business weakness, you are shooting your business (and yourself) in the proverbial foot. Getting honest feedback may not be pretty or fun, but if it leads to business success, it is certainly worth it.
Be creative in your thinking. Try to look at every single aspect of your business. Try to imagine your product going from inspiration to sale, step by step, through all the parts of your company, from R&D to construction to employee benefits to management to advertising to sales, all with an eye toward improvement. If you were the competition and had this kind of inside information, how would you use it? If you were an average consumer, what would you want to see done differently? If you were not the business owner, but only thinking of buying the business, what would you want to see changed before you signed on the dotted line? If you were the ad agency hired to promote the business, what aspects of the company would you downplay or ignore? If you were an employee, how would you rate the business?
Create your business on paper. List everything your business will need to
do (or already does). From hiring personnel to maintaining equipment, from
creating a filing system to choosing a system to track your stock—put it all
down on one side of the page. Next put some thought into which areas are
weak and assign a number or letter or stars or whatever suits your fancy to sig-
nify if the weakness is small, medium, or great. Then write out what it would
take to conquer each weakness. Finally, do a simple cost-benefit analysis and
decide which of your weaknesses are worth (in time or money) eliminating.
Some weaknesses you can live with, some you can’t. The bottom line: Look
for weaknesses that lead to lowered sales or increased costs—profit-eaters.
Once you have a good handle on where your weaknesses lie, fix what you
can, decide which weaknesses are truly important to your business, and put
your plan mayebe
them in your plan. Choosing which weaknesses to include in ~,
the hardest part of the preparation process. You don’t want to include so many that your business looks like a failure before it even begins, but you don’t want to have so few as to come off looking like a naive dreamer.
Every business has weaknesses. Seasoned professionals (the kinds you’ll be asking for money from) will be able to look through your business plan and see the holes. If you want to come off as a professional as well—as the kind of person who can take an idea and turn it into a successful business—you need to prove you share that ability to analyze your business needs.
By pointing out what others would find on their own, you prove your abilities. But, more important, putting weaknesses in the plan allows you to show how you plan to eliminate or work around them. You can list a weakness and follow it with a discussion of your plans for improvement, thus showing your problem-solving skills as well as your ability to plan for the future.