Do Business Well

Regional Split

Where are you going to do business? Regionally, nationally or internationally? How much will it cost you to market yourproducts nation-wide and do you have the resources? One of the biggest mistakes that new entrepreneurs make is that they try and expand too fast. Their own success can lead to their downfall.

Is your product or service oriented towards the rural or urban areas, or both, and how will you adapt your approach?

Also, how many competitors are already operational in theareas that you want to go into? How many outlets can successfully operate in one area?

It’s almost like nine countries in one. For example, heating productssimply do not sell in KwaZulu-Natal. Surfboards do not sell in Gauteng. Sushi (Japanese-style raw fish) doesn’t sell in the Free State. So make sure that your product is acceptable to the region you’re trying to develop.

It is also important to determine what elements will contribute to an economically viable area, e.g. the number of economicallyactive people, number of households, level of income, age and occupation of residents.

Market Seasonality

Most businesses experience some form of seasonality. Ice cream isless popular in wintertime; entertainment gets a bigger slice during school holidays and so forth. It is important to factor the seasonality of your market into your business plan and consider its impact on your business. For example, what seasonal promotions will you have to run? What will be the impact on your cashflow and staff complement? What pricing strategy will you have to follow to optimise the upside of the in-season and minimise the downside of the off-season?

Competitive Activity

Your competitors will always have a profound effect on your business. Try to anticipate what the competitor reaction to the introduction of your concept will be. Take into account the current competitor activity and how you can react to it.

Any concept usually has at least two levels of competitors, namely direct and indirect competitors. If you have a burger place, your direct competitors will be the Wimpy’s and Us of the world. Your indirect competitors are anyone else who operates in the food industry. You will need different strategies to counter the competition at these different levels. At any level, ensure that you are aware of what the competition is doing. Follow their ads, press announcements and promotions. Just reading the morning paper, listening to the radio and watching TV can give you a good fix on what the competition is doing.

Remember, if you’re going to work for yourself, you cannot switch off. Even when you’re relaxing, you have to be alert to developments and opportunities.

What should your Pricing Strategy be? How much is your target market prepared to pay for your product/service?

How much should you charge for your product or service? That’s one of the biggest decisions an entrepreneur will have to make. Well, the price you charge is a function of how unique your product is; how much the consumer really needs your product; how easy it is to get your product from another competitor; how many services you provide with the product; your after-sales service and how well you’ve marketed yourself and your brand. There are two basic ways of determining your pricing strategy_:Cost-Plus or Market-Driven. Cost-Plus is when you calculate what it will cost to produce your product or service and then you add on what you believe is an acceptable margin. Market-Driven is when you price your product/service based on what the market believes it is worth. We are strong advocates of the Market-Driven Approach. Warning: It often happens that an operator is scared of asking a higher price, when his customers will in fact be willing to pay more. Do physical research to establish what your target market will be prepared to pay, i.e. sell the product at the higher price todetermine if the market will bear it. You will be amazed at the results. Don’t sell yourself short!

What quantities will my target market purchase from me?

This is a difficult challenge for a new business. In the beginning, it’s tough to forecast how the target market will react to your product. Yes, it can be costly to carry too much stock, but turning customers away due to out-of-stocks is even worse. Finding the balance will come from experience, and you will only be able to make accurate forecasts once you are operating. In the meantime, our advice is to carry sufficient stock to cover orders.

Warning: If you let down a customer because you are out-of-stock, that customer will probably lose money because of you. That customer may never forgive you. What’s more, that customer is going to talk about his bad experience to his associates.

What payment terms must I offer e.g. cash, 30 days, what settlement is required?

The terms you offer may be a function of your industry and customer expectations, i.e. know what your competitors are doing. But if you are going to offer terms, make sure that your cash flow can accommodate it. If you’re going to offer terms, you had bettermake your bank manager your best friend because you’re really going to need him.

It may be worth your while to offer customers an incentive to pay quickly. This may take the form of a cash discount or otherpreferential treatment.

There is an old saying about cashflow that is highly relevant here:

Turnover is for vanity. Profits are for sanity. And cashflow is reality.

Possibly related posts: (automatically generated)
Making a Plan: how to construct a simple and workable business plan part 4

• Making a Plan: how to construct a simple and workable business plan part 6
• Making a Plan: how to construct a simple and workable business plan part 5
• Making a Plan: how to construct a simple and workable business plan part 1
• I Made My Own Advertising Work part 3
• Making a Plan: how to construct a simple and workable business plan part 2
• Making a Plan: how to construct a simple and workable business plan part 3
• Expenditure on Advertising: Would I have made more Profit if I had Spent less on Advertising? (1-9)
• Expenditure on Advertising: Would I have made more Profit if I had Spent less on Advertising? (10-18)
• How Will You Promote Your Product or Service?
• Managing your promotions
• When You Face Jealous Peers

5 Comments »