Do Business Well

4. Warranties/repairs: Who will provide ongoing service?

One challenge faced by smaller companies, particularly makers of products, is persuading the prospective buyer that they will be around for the long term to provide ongoing service—repairs, replacement parts, and updated products. The business plan must address the issue of ongoing service, both to determine its exact form and to allow for the costs of providing it.

The first concern that typically arises is that of a warranty. How complete is the warranty and how long should it extend? That is, does the warranty cover parts and labor, or just parts? Does it extend for six months, one year, or two years? Obviously, the more complete and lengthy the warranty, the more costly it will be.

Warranty decisions should be driven by factors similar to those that determine price—how important the warranty is to the market, what competitors are doing, how the costs come out. Concerning costs, providing in-house labor may be very expensive, whereas subcontracting out repairs could be much less costly. Continue Reading »

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2. Price: High enough, but not too high.

Pricing is one of the trickiest areas of business for small companies and major corporations alike. An inexperienced manager might suppose that simple formulas exist for determining price—say, a certain multiple of costs.

Certainly you can begin calculating a price range as a function of your costs. Indeed, your final price must provide a substantial enough margin over your costs to allow for taxes and profit.

The issue of price is a controversial one business school professors disagree over which factors are most important h determining price. The reality is that price is a function of several interrelated factors: Continue Reading »

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MOST ENTREPRENEURS are very proud of their products and/or services and believe that their value is what determines the company’s success. Certainly all the attention in recent years given to the quality of American products versus those of foreign companies underscores the importance of having pride in your product or service.

I don’t mean to suggest that the emphasis on product features and quality is wrong. Rather, I believe it is misguided for many companies because it throws their entrepreneurs off target in terms of the planning process and the written plan. Two issues are primary in viewing the product or service:

A. The market and what it values should determine the particulars of the product or service. The owners of a company that arranges auto repair services for corporate owners of large fleets and has $3 million in annual sales decided to develop a new software product that would remind the fleet owners about the need to do such regular maintenance as oil changes and tune- ups. The company invested $200,000 in developing and attempting to sell the product before realizing that low-level fleet managers didn’t have the authority to commit their companies to the product, which might cost $50,000 annually for a fleet of several thousand cars. Getting in to make a sales pitch to high- level financial executives proved extremely difficult. Continue Reading »

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Creating a public image has become an essential part of any sales effort. Advertising and promotion/public relations are usually the means of making this happen.

Advertising is fairly straightforward. You decide where youwant your business to advertise, determine the rates, and calculate the costs. For well-established companies, advertising can be very important, and the business plan should account for how much will be spent.

For start-up and early-stage companies, advertising is often too costly. Fortunately, promotion and public relations are much like home remodeling—they can be done either by outside professionals or by business owners on a do-it-yourself basis. When done in the latter way, the cash outlay can be minimal. Of course, even companies that advertise are well advised to use promotion and public relations techniques. What follows are some approaches for planning your promotion and public relations effort as part of the sales section of the business plan. Continue Reading »

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2. Investors. Investors are most interested in factors that can help predict growth, because growth is essential for them to get an attractive return on their investment. These factors include the market’s likely future, the management team’s experience, evidence of fast-growing sales, and so forth. They want to see their investment go into marketing rather than R&D expenses. The existence of tangible assets is less important to investors because they aren’t as concerned with being “repaid” in the same way. But investors do want to see a concise plan—preferably 40 pages or less. Continue Reading »

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Now that you’ve determined whom you want to addressyour business plan to, you need to consider what—and howmuch—that audience really wants to hear. Fred Gibbons of Software Publishing Corp. says that he intentionally kept his business plan to a maximum of ten pages because he knew that venture capitalists appreciate conciseness and brevity. And, indeed, he received compliments (not to mention offers of financing) from each of the three venture capital firms he presented the plan to. He was also able to show the same plan to potential suppliers and key employees because, in addition to being easy to read, it emphasized the company’s plans for aggressive sales and marketing that would lead to substantial but controlled growth. Continue Reading »

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Your ability to get articles written about your company or by your company’s executives imparts an image of success that can be used with brochures and other written material to help close sales. Beyond these tools, though, there’s another that is often the most effective—what I refer to as “love letters.” Love letters are written compliments from your customers or clients. Whether they’re used by your salespeople to impress prospects or in your business plan to impress investors, they can be extremely effective.

Isaw one example of a particularly effective use of love letters on Sunset Boulevard in Los Angeles, in the window of a store specializing in custom-made men’s shirts. I was drawn to the window because my father was in that business some years back and I had worked in his store. Continue Reading »

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Do you plan to hire a sales force? Or use sales representatives? Or telemarketing? Or direct mail? Or retail outlets?

The answers may seem self-evident, based on your past experience or your knowledge of your industry. Celestial Seasonings sells its tea through supermarkets and other food retailers. Pizza Hut sells its pizza through freestanding fast-food restaurants. And People Express (now part of Continental Airlines) sells its tickets primarily via travel agencies, airport ticket counter locations, and over the phone.

Increasingly, though, creative entrepreneurs are looking for alternative sales approaches. Thus, a Boston-area maker of stereo products decided to avoid the traditional retail outlets and sell a new compact stereo system door to door with its own sales force. The firm avoided the crowded retail shelves and kept margins higher than discount-minded retailers will allow. A number of distributors of women’s clothing have been extremely successful selling via direct-mail catalogs rather than through traditional retail boutiques. And Home Shopping Network became very successful selling traditional department store goods through a nonstop television show. Continue Reading »

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