Could You Be Setting Your Business Plan Up For Failure?
MoneyMoz.com presents you “Could You Be Setting Your Business Plan Up For Failure?”, an article written by Michael Elia. We hope you’ll find a lot useful information in here.
MoneyMoz.com will present you every article we find interesting and educating, and which has no copyright protection. If available we’ll link the source.
David E. Gumpert, author of Burn Your Business Plan, often tells the story about how he and his partner failed to raise money after sending their business plan around to venture capitalists and meeting with several others to make presentations. Disappointed by the fruits of their labor, they considered giving up on their venture in 1995. Fortunately, on the advice of their board of advisors, they chose to divert their time from massaging the business plan to making sales. The financing, they were told, would come later.
Turns out, they sold enough to stay afloat through 1996. In 1997, sales failed to grow as quickly as they expected, so they decided to seek financing again. This time, they expected positive results would be easier to obtain, after all they were fairly well established now. The board, however, told them to get out there and promote their business and make more sales.
| MoneyMoz recommended article: A Franchise - The Pros and Cons of Owning One - Do You Have What It Takes? What are the considerations you must take into account before buying franchises, and how do you understand and evaluate the pros and cons? Well it is not an easy task but I hope the following will give you a head-start and illustrate the need for very detailed due diligence on your part.Pros of Franchise Businesses.A well-known and established franchise business be it global, national or regional will bring with it brand recognition, trademarks, logos and most importantly customer recognition of its product quality and service. This gives the new owner of a franchise an immense saving in establishing goodwill and advertising.You receive an established business system that has been proven to work and so minimizes the amount of time and expense that would normally be experienced when starting a business from scratch. The system will have been subject to scrutiny from many franchise owner operators over the years.Most Franchisors have highly developed advertising programs, supporting the sales and marketing systems that have been proven and the franchisors, in general, continue to provide help and support to their franchisees.The franchisor will have established suppliers and the supply system will provide the support that a new fledgling business would take years to develop. You can be assured that the franchisor has an ongoing monitoring program that will quickly address any problems in the supply chain.The collective purchasing power of the franchise and the central control of the purchasing mean that you get a consistent high quality product at the lowest possible cost. Most smart franchisors do not screw down their suppliers on price but by allowing them a reasonable profit they establish long and successful partnerships.Franchisors have well developed training programs for you, your managers and staff. They will demand that you commit to a regular training program, which will ensure that your business is capable of operating to the level of service that is promised to the public through advertising programs.Operational manuals covering all and every task in operating the business, from sweeping the floor to dealing with an irrational client, are provided and are constantly revised as new products or methods are developed. This gives standard quality and uniformity to the entire system.As a franchisee of a successful franchise chain your access to finance is greatly enhanced. Financial institutions feel comfortable in dealing with known franchises that have a track record of success.Many franchisors own or control the sites where the business is located and they will generally charge rent on a percentage of sales with a minimum monthly amount. Other franchisors allow the franchisee to own and develop the site and will generally provide help and advice with site selection, engineering, etc.Finally if the franchisee operates the franchise business in accordance with the system and is professional in business dealings, has shown a commitment to the community and fellow franchisees, then that franchisee will normally be considered expandable. This means another store location is offered and if this succeeds then another and another. You can build a serious size business in this manner as many can attest to. Many millionaires have walked this road.As with every type of business there are the Cons and a Franchise Business is no different and so below are listed some of the deterrents of Franchise Businesses.Cons of Franchise Businesses.The most obvious, but one that so many fail to take into consideration is the need to conform to the system. You no longer have total control of the way you operate a business. Your freedom to make decisions is limited however initiatives that help and strengthen the system as a whole are generally encouraged.You will be paying the franchisor a Royalty Fee that you may come to consider excessive but you should have discovered this in your due diligence. No franchisor would or could by law not disclose this. They will not change it so don't ask.There is generally a national/regional advertising fee and in many cases you have a say in how this is spent. Your opinion, although sought, may not be acted on and this may be because the greater picture dictates it or worst, the franchisor's executives controlling the funds are autocratic and/or incompetent or worst still dishonest, cutting personal deals with advertisers.Because you are part of a system you are prone to attacks on the system from individuals, agencies or whoever, for something that you have had nothing to do with or any knowledge of. The systems problems therefore become yours. Some of the decisions taken by the franchisor may directly affect your business and you find yourself with little if any recourse. The most common of these is known as Impact. Impact is when the franchisor opens another outlet in the area that causes you loss of business, and they may even sell the location to some one else or keeps it as a company outlet. Remember that the franchisor is always looking to maximize Total System Wide Sales even at the expense of your bottom line. You are not only expandable but also expendable.Summary of the Pros and Cons of Owning a Franchise Business.When you look at the world through rose tinted glasses, you see beauty and softness in all around you, but in reality the business world is far from being all beautiful and rarely is softness displayed, so leave the glasses at home when you start looking at franchises. Not all franchises are the utopia of money making. You need to be very careful and thorough in your research and due diligence before buying any franchise. Despite the disadvantages, a franchise business generally offers real advantages over doing it on your own.Yes, a franchise business is considerably less risky than most start up businesses, however the franchisor does not guarantee you will be profitable. You the franchise business owner ultimately must take full responsibility for the success or the failure of the business and if you are good at what you do, then the rewards can be quite substantial.Walter Raleigh - Copyright 2006© Walter Raleigh has been associated with Franchising and International Business for over 44 years including being a multiple franchise owner in the McDonald's System. He is a well known Business Consultant and Mentor as well as a Company Director on the Boards of a diversified range of companies. His e-Book "A Franchise Journey To Success" is an informative, while entertaining, look at the progress from applying for a franchise to actually opening for business. How Do You Know Your Clients Can't Pay More? "My clients can't afford higher rates." When more than 330 business owners and self-employed professionals checked off reasons why their income was not going through the roof, this statement was chosen more often than any other. |
If At First You Don’t Succeed…
Gumpert and his partner instead decided to dust off their old business plan, spend many hours rewriting and updating the plan, and to set out once again to seek financing. And, once again they were turned down. How could this be? In the late 90’s, it seemed like every new Internet-related venture in the world was obtaining financing. In fact, according to the MoneyTree Survey, sponsored by Price Waterhouse Coopers, Venture Economics, and the National Venture Capital Association, the amount of venture capital - $7.7 billion in 1995 — had grown to $16.4 billion by 1997.
Nonetheless, the failed financing left Gumpert and his partner with two stark choices at this stage: Find ways to grow the business without financing or call it quits. They took the first choice. They also engaged public-relations professionals, and succeeded in getting several of their most successful corporate clients written up in business and industry trade publications - with their agency mentioned as the key force behind their clients’ success. This publicity got the agency’s phones ringing with new prospects, several of which converted into additional sales.
As the business grew, they remained on guard about monitoring their expenses and aggressively collecting receivables. By 1999, they were operating profitably at $2 million in annual revenues, with nearly 20 employees. Also, the amount of venture capital being invested nationally had soared to an astounding $55.5 billion. But, Gumpert and his partner paid little attention to this; their interest in outside financing had dropped significantly. (By 2000, Venture capital availability peaked at $85.5 billion.)
The Power Of Publicity
| MoneyMoz recommended article: How Your List Affects Postage Costs HOW YOUR LIST AFFECTS POSTAGE COSTS AND WHAT YOU CAN DO ABOUT IT! The quality and accuracy of address information in mailing lists is one of the areas least understood and largely overlooked by most businesses using direct mail. To get an advertising message delivered the address must be correct! Many firms that use direct mail neglect this vital aspect. Is there a “printing” mentality of creating “one” and reproducing it “thousands” of times? The “one to one” aspect of valuing each individual's information must be applied to every single record in a list. |
As Gumpert and his partner carried their success into 1998 and 1999, their promotional efforts eventually attracted the attention of a publicly held company that was seeking the expertise they offered in developing and managing online content. In December 1999 this company acquired Gumpert’s company, NetMarquee. To Gumpert’s surprise, the acquirer never asked to see their business plan; it only wanted to see their financial projections under several different scenarios.
In recounting his financing experience, Gumpert makes two points: First, even during good times, the venture capital route is closed to the vast majority of businesses that seek it out. While it might have seemed back then that nearly every business that asked was receiving venture capital, the reality is most carefully crafted business plans are rejected out of hand by venture capitalists. Second, you’ll be surprised what you can accomplish without the financing you think you so desperately need to stave off failure.
The truth is that it’s unlikely a business plan by itself will bring funding in the door, unless it is part of an overall marketing strategy.
Four Tools To Help Market Your Business Plan To Investors
The famous motivational speaker Jim Rohn says there are three steps to successful communications: “Have something good to say, say it well, and say it often.” These three steps form the foundation of the Business Plan Secrets Revealed manual. They are essential to marketing your business plan with the intent of attracting investors and selling your business plan to them. Here are four tools to help you “say it often” so you can attract investors and sell your business plan to them.
One, a concise, well written twenty-five page business memorandum or “business plan” that builds a case to separate your venture from your competition. You don’t need a two-inch thick business plan. Plans this long often lack aim; instead of building a case that leads investors to decide whether the business is the right investment for them, they “fire away” in hopes that some of the shots will take effect.
Two, an effective elevator pitch–-a 60-second, to-the-point verbal pitch for your business—that communicates to your customers and investors what you do in an exciting and engaging way. The ability to separate your business from your competitors and get an investor’s interest in the short time it takes to ride up an elevator is critical.
Three, an investor relation Web page to build credibility and help investors quickly get the information they need, when they need it. Of all the communications media available, the Web is particularly important. It’s fast and available 24/7. With it, you can capture leads and automatically keep in touch with those who are interested in your business.
Finally, press releases to help you get your word out. A press release is the basic tool for gaining the attention of the media. The public’s desire for interesting, relevant news remains strong, as does the importance of carefully selecting relevant target audiences. You are dealing with much more skepticism on the part of the public now than there has been in the past, which makes the evidence and objectivity in your press release paramount.
The process of raising money and attracting investors isn’t easy. If it were, every business idea would get funded. You have to use all the tools that are available to you, and start looking at this process as a marketing process backed by hard, verifiable evidence. You just don’t know when the plums—investors, on the tree will become ripe—ready to invest. But, you do know that if you do everything you can to take care of the tree—water it, fertilize it, and so on–-it will ultimately bear fruit—raise money for your business.
Mike Elia is a chief financial officer and an advisor to
venture capitalists and leverage buyout specialists. For more information about business plans and raising capital for your business or to review his business plan manual, visit Business Plan Secrets Revealed.
Keywords assigned to this article by MoneyMoz: Business plan, raising capital, attracting investors, financing small business, elevator pitch
| MoneyMoz recommended article: 6 Ways To Lose Affiliate Commission Sure affiliate marketing can be highly profitable but if you're not using the right methods you could actually be driving away your customers. Here are 6 things to avoid in affiliate marketing: Listening to Customers - 5 Tips In a strange juxtapositioning of articles, this month's UK 'Management Today' has three pieces, relating to the importance of listening to customers. Susan Rice, CEO of Lloyds TSB makes it clear how vital it is for great leaders to listen and hear. She uses the example of how Coca Cola was swift to 'hear' it's customers when they revolted against New Coke back in 1985 (good job too, it was yuk!). She also rails against the viability of change programmes where over 70% fail to meet the original objectives. A dismal return, pretty consistently due to failing to hear the needs of staff as well as customers in the business. |