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Blueprint for Business

The aim of being in business is to make money. But if you don’t know what you are going to do, how are you going to set up a business?

Be clear about how you are going to do this. Is this a business where you are focused on annual income or are you trying to build up value in the business so that you can sell it? Answering this question will tell you what to focus on. If it’s to produce a good annual income, you need to focus on customers who will pay and on delivering a quality service that costs you less than the clients will pay sustainably over the year, including holidays.

At No 8 Ventures we work with businesses that are building value for shareholders over the medium term. This is much more difficult as you have to invest carefully in the early months or years in the expectation of getting that back many times over in future years.

The basics for both types of business are the same. Start with three key questions:

1. Who are the prospective customers?

2. What do you have to offer these people?

3. How are you going to win sales given all the competition out there? (If there are no direct competitors, how are people satisfying this need at present?)

If you can answer these three questions, you have defined your core business proposition. Now, you are into execution: how are you going to reach the customers/attract them to you? How are you going to deliver the product and service? How will you support after sale? Where will you find the necessary staff? How much will you pay them? Will you include any of them in the shareholding structure? Do you need to raise money to get started? Where will you get this from? If you need outside investors, what is the compelling reason for them to risk money with your venture?

Business planning is all about execution – where the rubber hits the road. Answering the first three questions sets your strategic framework – the business opportunity you are after. The business plan sets out how you are going to do this. Potential investors will ask for your business plan. Make sure that this actually sets out what you need to do to grow this business. It must be your plan of action, not general statements about the market and product potential and some miracle distributor who will do your sales for you.

There are lots of ways of writing a good plan and the best framework will depend on your particular business. However, it is essential that you write this yourself. If you don’t know what you are going to do, how are you going to set up a business? Here is a suggestion to start from:

1. The core business proposition: ‘My company is going to produce x to sell to y for $z’

2. The market and competitors: focus on the particular part of the market you aim to sell in to such as North Shore busy executives or upmarket food stores in California that sell organic produce. In choosing this, you must consider competitors. If the stores you have chosen already have New Zealand free range eggs on their shelves, are they going to sell yours? Try to find a gap for your product.

3. The product. Do you have it? If not, how are you going to produce or obtain it? Are there key suppliers you need on board? Do you need to set up some sort of production facility? Do you need key staff for this? Should you have intellectual property protection? Make sure that your product fits the market you are going for.

4. Sales. How are you going to make sales? One of the worst lines I hear is, ‘We’ll just find a distributor’. There’s something about that word ‘just’. It assumes away the challenge of getting customers, which is the essential driver of your business. Maybe there is a distributor you can use, but why will the distributor push your product rather than the 30 other products they sell? You need to think very carefully about this. Your own sales staff means more fixed costs, but they can focus fully on getting you into the market. Do you make all the initial sales yourself so that you can work out the sales model for training others? How do you generate sales leads? Do you advertise, have a great searchable website, direct mail?

5. Everything else. You must do admin and accounting and, above all, a cash flow forecast. You must track product quality, follow up customer leads, attend to after-sales service, look after your staff, pay the PAYE and GST and file company returns, etc. An external accountant can get you set up with systems and an admin assistant can do much of it, but make sure you understand the controls in your business and the cash outlook.

This is going to be your business so you work it out and make sure you have thought through every aspect of it. Good luck!

Jenny Morel