Can a Business Plan Defeat the Fear of the Unknown?
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Last week, we were engaged to provide retail entry strategy for an apparel client. The promoter is a first-time entrepreneur and wants to leverage his decades of professional experience in the category and launch a premium women's wear brand.
After a few meetings, we felt the key decision maker was worried. This puzzled us as experience, category knowledge and capability were freely available. It was then that we realized the number one issue was — the fear of the unknown.
In our work as business consultant, we realize this to be the number one problem decision makers face. The problem becomes magnified if it is a start-up and the decision makers are first time entrepreneurs. The key to helping them overcome this fear is to shed light on the situation in a practical manner.We do this by providing a fact driven business plan.
In the words of Peter Drucker, "What gets measured gets managed". Armed with Business Plan based on facts, insights and relevant data, first-time entrepreneurs are able to make confident and informed decisions. This helps them overcome the fear of the unknown.
A few cheat codes given here will help create a tool that provides business owners a feeling of control in the face of uncertainty:
Treat it As A Living Document: The plan Is Not Etched in Stone
In a today’s VUCA world having precise information is impossible. The business plan will change as more information come to light and assumptions alter.A first time entrepreneur will need to balance her 'gut' with fact based recommendations and change the plan as she move along.
E.g. For a new staple food launch we worked out a sales plan based on a Class A Outlets/Key Accounts coverage strategy. During the engagement we realized an on-line channel, which we had underestimated, could deliver more volumes than others combined. This was built into the next iteration of the plan.
Don’t wait for the perfect information, start with estimates and refine as you go along.
Revenue Estimation: Get Inputs from the Trade or Potential Customers
Trade feedback related to sales estimates and acceptable price range is critical. We recommend all first-time entrepreneurs meet and speak with their potential and customers. This has a big impact on product development, service and pricing strategies.
E.g. While working with our apparel client, we created a brand look book, trims and packaging design to help showcase the range. We then took him along to meet category heads of various department stores.Partner feedback on the range or price is critical input - as without incorporating their feedback the plan will be a simple 'excel' exercise.
Cost of Retail Entry: Placement Comes at a Price
If a firm is attempting to launch a retail brand - it is essential to build a time bound geographical and channel expansion plan. This is because retail entry is expensive and has an uncertain gestation period. First time entrepreneurs may underestimate how much time it will take to break even as a lot of costs are not evident without practical operational experience.
E.g. For a personal product launch, we created a five year expansion plan with three channels - including own stores, department stores and the multi brand outlets. We estimated the non-discretionary costs including - sales teams, in-store promotions, retail design etc. This allowed the client to take a decision on how much money he was ready to invest in this new venture.
Detailed fact based costing enables a first time entrepreneur to raise the required funds. And having adequate money to sustain launch or expansion is usually the key challenge of every business person.
Internal Costs:Non-discretionary Expenses to Start Operations
This is normally easier to determine as costs are in control of the firm. Our post on pricing strategy gives pointers on collecting all business costs and not only material costs (http://www.centricbrandadvisors.com/pricing-strategy-for-profitable-growth/).
At the end of the day, a first-time entrepreneur has to work with internal costs and sales estimates to determine the benefits of scaling up in different scenarios. The more accurate the sales and internal cost estimates the higher the chance of the right decision being taken.
E.g. Trade feedback for a Home Appliance client clearly indicatedthe MRP of a new offering was too high. After much discussion, we realized the primary cause of the high MRP was a - significantly high input cost. Moreover with the current specs being used, selling the product at an affordable MRP would lead to loss.
Working backwards, our client realized the original design cost is the key barrier to trial. Hence the firm went back to the drawing board and reverted with a lower priced - equally effective product. This was well received by both trade and consumer . Sales commenced and operations become profitable.
The fear of the unknown is real. For a first time entrepreneur, a detailed, fact driven business plan helps in taking 'go - no go' decisions - because it helps dispel ambiguity .As always, the hard work that goes into creating this plan, will have a direct impact on its ability to facilitate the right decision.
In our experience, customer insight, market feedback and a proper understanding of the Brand's benefits are key pillars on which this living document is built. With a well crafted Business Plan, the first time Entrepreneur can move forward with confidence.