“What are smart goals in sales?” Smart goals are clear on:
What your business wants to achieve
How your business will know when it’s achieved them
Your business’ power to achieve them
The realistic possibility of achievement
The timeline needed to make the achievement
As a (soon to be) small business owner, you’re going to learn that meeting goals is critical to your success. Appropriate objectives allow you to orient yourself. They let you know where you are in relation to where you want to be. They also help you track your progress and keep your business growing.
Sales goals shouldn’t be so lofty that the reader of your business plan thinks you are trying to deceive them. On the other hand, you don’t want them so modest that your business looks like a bad investment.
The acronym SMART is, admittedly, overused. Though it’s cliché, it does serve as a good starting point for goal creation. If you adhere to the SMART guidelines, you should have worthwhile sales goals. Goals that will motivate you and show the world that your business has a plan for growth and success.
Credit: needpix.com
Specific sales goals
Goals are no good if they’re not specific. Abstract or subjective goals aren’t clear enough to provide motivation.
Which of these sounds better to you?
Increase sales every quarter.
Or…
Increase sales by 15% monthly in the first six months. 10% monthly in the second six months. And, 8% monthly in the second year of business.
The reader of your business plan is going to want to see something more like the second example. Concrete speculation about how you’ll grow your business.
Specific goals let you know when you reach them, and when you’ve fallen short. It also helps to divide goal achievement into manageable chunks.
Measurable sales goals
Specific goals can be measured. If you can’t measure your progress towards a goal, then you’ll never know if you’ve achieved it.
Which of the following gives you more confidence in a business?
“We plan to put ourselves in a position for success”?
Or…
“We plan to have 20% referral business by the end of our second year”?
The second example can be measured. The business can track referrals and will know if it’s progressing. If you can’t measure your sales goals, you’ll never know if you achieve them.
Attainable sales goals
Yes, everybody who launches a small business wants to be successful. Most have big dreams about achieving awesome levels of success. And that’s all okay.
However, if your goals aren’t realistic, they’re little more than dreams.
Which of the following seems more attainable for a startup cleaning business?
100% market share in their city?
Or…
After 3 years, obtain a 50% market share within the ZIP Codes that they operate in?
Theoretically, I suppose, 100% market share as possible. But, the goal of 50% market share (in the immediate vicinity) is much more attainable. It’s a stepping stone, in fact, to 100% city-wide market share.
Attainable goals bring milestones down to a more reasonable level. Meanwhile, they should be aspirational enough to translate into business success. The reader of your business plan will appreciate “stepping stone” goals over lofty visions of success.
Realistic sales goals
While stepping stone attainable goals add up to big-time attainable goals, unrealistic goals don’t lead anywhere. They’re so over-the-top that they’re just not practical.
Which of the following seems more realistic for that same startup cleaning business?
$1 million in revenue in its first quarter of operation?
Or…
$3,000 in revenue in the first month, Growing at a rate of 15% for the next five months?
The first goal isn’t going to motivate you. It sure as hell isn’t going to inspire confidence. The reader of your business plan would think that you have a tenuous grasp on reality. Therefore, they are unlikely to invest in your business idea.
Timely sales goals
Finally, goals have to work within the restraints of time. Just like anything else.
Think of it this way…
What if the startup cleaning business has a goal of $3,000 in monthly revenue? Is that good?
It depends, right? It might be good – if it was for month one. It’s not so great if they’ve been in business for five years.
Clarifying a timeline for your goals puts them into perspective.
What are 8 types of sales goals?
The SMART guideline tells you how to create your goals. But, it doesn’t tell you what metrics to use.
Sales affect everything in a business. Tracking total units and/or revenue is okay. However, you can expand upon that and go into more detail. The reader of your business plan will probably appreciate it.
Again, be mindful of the timeline. What’s most appropriate, do you think? Weekly, monthly, quarterly, yearly, or something else?
Furthermore, another thing to consider is breaking your sales goals down. This can be done by detailing products, categories, departments, salespeople, or any other way you deem appropriate.
Here’s a couple of ideas for different types of sales goals to reference in the marketing and sales section of your business plan.
Income statement-based
Sales units
Revenue
Margins (revenue – expenses)
Profit margin’s (profit as a % of revenue)
Conversion funnel-based
Leads generated
Prospects converted from leads
Customers converted from prospects
Repeat/referring customers
If you’re a brand new business you might focus more on the income statement-based sales goals. If you’ve been in business a while, you might find the conversion funnel-based sales goals more appropriate.
What are SMART goals in sales?
Once again, remember to keep the SMART acronym in mind when creating sales goals for your small business.
Though, you need not specifically reference the “SMART” guidelines in your business plan. The reader will recognize that your objectives are well-thought-out, achievable, and appropriate for your young company.
Furthermore, these sales goals will aid you, as an owner, to make steady, controlled, and healthy growth in your company – helping to ensure its long-term success.
Look at your company from your customers’ perspective.
Always communicate your product’s benefits and your company’s USP.
Keep reflecting on what works and what doesn’t.
Stop wasting time on markets that aren’t your target.
Do successful businesses struggle with sales?
No.
Sales are necessary for every business. So, it follows that the reader of your business plan would want to know your strategy for bringing in sales.
Furthermore, if the cost of bringing in those sales is too high, then they count for nothing. A sales strategy will help you gain control of your sales cycle. Having control of your sales cycle will help your young business bring in steady, continuous revenue.
Beyond that, this sales strategy and the tools and processes that grow from it can help your business thrive as it moves beyond its infancy.
Here are six tips for outlining a sales strategy in the marketing & sales section of your business plan.
1) Utilize technology
The reader of your business plan is going to want to be confident that you know how to use every tool in the toolbox, so to speak. They know that your competition probably does. And if your competition doesn’t, then it’s a great opportunity to make your startup stand out.
A benefit of utilizing technology is its ability to automate the marketing process. This frees up time for employees to connect with customers on a personal level – when necessary.
Is there more to marketing technology than just social media?
You bet. Here are some other technologies to consider:
Marketing technology helps you to stay top-of-mind with your customers. The first company they think of when they think of your product or service.
2) Develop a quality process
The reader of your business plan understands that there will be a learning curve for everything you do. Particularly with your selling process. However, they want to be convinced that you can climb these learning curves quickly.
Showing that you have the foundation of a quality selling process will give them confidence in your ability to succeed. Additionally, it will help those who sell for your company to sell as much as possible. An added benefit!
Are you concerned that you don’t know anything about documenting a sales process?
Start simple. Add complexity and tweak the process as needed. As time goes on, document what you’re actually doing. Is what you’re doing more effective than what’s documented? Less effective? This will help ensure that everyone who sells for you is adhering to best practices.
Knowing that everyone on your team is following your process will give you peace of mind. It will also make it easier to analyze your sales data and give yourself quality, actionable information to improve the process. Plus, it helps to identify the problems before they become catastrophic.
3) Take care of your customers
Is it easier to get a new customer or to keep an existing one?
You probably know the answer to that. You can bet the reader of your business plan does.
It is easier (and therefore cheaper) to take care of your existing customers.
Make sure that customer satisfaction is a prominent part of your sales strategy. Outline how you will keep your customers happy with rewards, engagement, customer service, or any other appropriate means.
4) Stick with a steady theme
People like consistency. Unpredictability does not breed trust.
Make sure that a consistent sales message is conveyed in the marketing and sales section of your business plan.
If every piece of marketing and every sales interaction answers these two questions – you should be alright. Make sure everyone in your business, not just the sales team, can answer these questions.
Also, make sure that your benefits and your USP coalesce with the other sections of your business plan. E.g. market analysis, organization and management, and service/product line.
5) Always be learning
Make it clear to the reader of your business plan that continuous learning is part of your ongoing sales strategy. This will show them that you are adaptable and you will continue to improve your sales results.
Show them that you’re going to hold your salespeople accountable. This doesn’t mean that you have to rule with an iron fist. It simply means that you’ll keep the feedback loop open. This will show the reader of your business plan that you can keep your employees motivated and will get the most out of their abilities.
Have you ever regretted stopping to catch your breath and to think about a situation?
Probably not.
In the midst of executing your sales strategy, stop every once in a while and reflect on what’s worked and what hasn’t.
It was here that you honed in on your ideal customer(s). Time, money, and energy spent trying to sell to anybody outside of your target market are wasted.
Again, make all of your employees understand your customer avatar(s). Particularly your salespeople.
Everybody in the world isn’t going to want your product or service. You need to understand the people with a problem that your product or service will solve. Doing so will ensure that your sales efforts are effective and efficient.
Convey to the reader of your business plan that you have a well-thought-out sales strategy. Make them confident that this strategy will not only help you give them a good return on investment (ROI) but it will also help you thrive in the long-term.
Features are facts about the product or service you’re selling. Features are objective. Entrepreneurs, marketers, and small businesses sometimes emphasize features when they should be emphasizing benefits. Features describe, but it’s benefits that generate sales.
Benefits tell the customer “what’s in it for them?” Benefits are subjective.
Before you write the products and services section of your business plan, stop to think for a moment. If you are already in business, then think about your current marketing, social media, and other places where you are describing products and services.
The temptation when describing products and services is to talk about what they do. That’s just human nature, I suppose. But, those are the features and those aren’t what sells products and services.
It may be you’ve internalized the benefits of those features. So, they’re not at the forefront of your mind. You know what the benefits are intuitively and abstractly. But, can’t quite verbalize them. That’s okay. This post is designed to help you convey to the readers of your business plan why consumers will buy your products or services.
Even though you’ve worked so hard to build a product or service with lots of useful features, you should avoid dwelling on those. You have to focus on how it will improve your customers’ lives. At least for the sake of marketing.
Put another way, what a product or service does, are its features. Conversely, how it improves customers’ lives, are its benefits. The two concepts are certainly linked. But, yet, very different.
It pays off, from the get-go, to focus on the customer. Showing the reader of your business plan that you know your customer will help convince them that you can succeed. Think about what goal the customer wants to reach. What is their intent? Because, you could create the greatest thing ever, but if it doesn’t serve anybody’s needs – it won’t sell.
The distinction between features and benefits can be pulled from real-life examples all around us. Sometimes the difference between features and benefits is subtle. So, be wary of slipping into the comfortable trap of trying to market your features.
For the sake of simplicity, I’ll simply be referring to “products” in the rest of this post rather than “products and services.” However, all of the same principles will apply to services as they do for products.
What’s the difference between features and benefits?
Likely, you’re already aware, in general terms, of the differences between features and benefits. But, here’s another way to think about it…
Features are facts. They’re objective and the same for everyone.
Benefits, on the other hand, answer the customer’s question: “what’s in it for me?” They’re subjective and appeal to a customer’s emotions.
That said, let’s go into a little more detail.
What do you mean by features?
You can think of a feature as something your product possesses. Or, something that your product is.
Consider a personal computer. What features might it have? Well, it might have an advanced processor (characterized by GHz, cache, or cores). It might have a hard drive with a lot of space (characterized by TB or solid-state). Additionally, it might have a lot of memory (characterized by GB).
These features are positive. The more the better, generally speaking.
The company that built the PC should be proud to sell a product that has these features. But, a list of features like that says nothing about why a person purchasing a computer should care. Especially a layman – somebody who is not well educated in computer features.
What’s the benefit of one more GHz, core, TB, or GB? How about five more? Most customers won’t know. At least, until you tell them.
It’s the benefits that those features provide that will sell the PC.
What are examples of benefits?
Benefits are the experiences that the customer will have from using your product. It’s the justification that they will use to part with their hard-earned money.
Customers don’t make purchases just for the sake of buying something.
Let’s think about the PC again.
Having a processor with high GHz and several cores means that the computer will work faster. It will accomplish what the user wants in a more timely manner. It can handle newer and more sophisticated software.
A larger hard drive means that the customer can store more information on the computer. More programs, more media, more of whatever it is they’re using the computer for.
Finally, more memory also means quicker operation. Less frustration. Less of a risk of crashing.
All of these benefits translate into a customer being able to do more on their computer. It means less worry about the software they use on their computer. It means being able to accomplish whatever goals prompted them to purchase a computer in the first place.
Hopefully this example illustrates how benefits give context to features.
The fuzzy line between features and benefits
Sometimes, what constitutes a feature or a benefit is clear-cut. Other times, not so much. For some features, it can be difficult to convey the benefits in an appropriate manner.
Products that are status symbols can have such a problem. It could be tough to say that the benefit of a product is that the customer’s friends and family will be jealous of them. That casts the customer in a negative light. It implies that they are egotistical and/or superficial. However, that might be, deep down, the reason they would purchase a given product. For the status it conveys.
You might spend a lot of time thinking about and researching the problems that your product will solve. That doesn’t mean, however, that those benefits will be obvious to the customer. After all, look at all the effort it took for you to find the problems. So, you can’t necessarily be surprised if the customer doesn’t immediately recognize that they have those problems.
Feature-benefit matrix
Still not sure how you’ll isolate benefits from features? You can use a tool called a feature-benefit matrix.
A feature-benefit matrix is pretty simple. It’s simply a grid where you list features in the first column. Then, for each feature, you can list benefits in the following columns. Additionally, some feature-benefit matrices will have another column where you can list a call to action for each feature and benefits. This is good if you can think of a short phrase that would prompt customers to buy based on the benefits you just listed.
Not every feature is going to have three benefits. So don’t rack your brain trying to fill in the entire feature-benefit matrix.
What this tool does, however, is allow you to get those benefits down in writing. This allows you to reference them later when you address the marketing and sales section of your business plan. This useful document can also be given to other individuals in the company (or outside of it) who may draft marketing messages for you.
Credit: i.pinimg.com
Features and benefits for products
Let’s take a look and some real-life examples of product descriptions. The reader of your business plan is going to want to know what exactly it is that you’re selling. By scrutinizing these examples, hopefully, you will see how the descriptions can help the reader believe that your products are going to sell. Your business plan can show that the way you describe these products will help you be successful
First, though, a distinction needs to be made between what I would call advantages and benefits.
To me, advantages are implied benefits. They tell you why a feature is good. But, they don’t quite solidify how the feature will make you feel. Advantages are a kind of benefits-lite. They leave something to the imagination. They’re the bridge between features and benefits.
All this doesn’t necessarily mean that advantages should be omitted. It’s just that your point might not quite be hitting home if you rely on communicating advantages rather than benefits.
For each product, we’ll look at the first three features mentioned. Then, we’ll make a judgment to decide if the benefits of those features have been adequately highlighted.
The first product I’ll look at is American Girl dolls. Having raised a couple of daughters, I know that doll quality can range from dollar-store-level to very high-end. With the American Girl dolls being on the higher end of that spectrum.
Dolls have been around forever. And, as you’ll see, they can have a lot of intricate parts. American Girl has the unique challenge of having to market to two separate groups of people. The individual who will play with the doll and, the individual who will actually pay for it.
The first feature mentioned is hair. I can’t help but notice how they don’t elaborate on the features here. It’s just “hair.” Not “high-quality mod-acrylic life-like hair” (or something of the sort). The paragraph that follows states how the hair is actually a firmly-secured wig. Additionally, how it’s similar to high-quality wigs that people might use.
In my eyes, these are only advantages. The implication of these advantages is durability. After this, they do list some actual benefits, however. They state how the hair can be styled and has a realistic variation of colors. I think this is a benefit because it conveys realism. Which, I know from experience, would be appreciated by the little girls pretending to take care of a baby.
The next feature mentioned is the eyes. Firstly, they mention the advantage that they operate smoothly. Implying that they’re not likely to get stuck open or shut. After that, they discuss benefits similar to the hair. Namely how they are designed to be as realistic as possible.
The third feature mentioned is the face. Here, they toot their own horn a little bit about how long it takes to create the faces (more than a year). Which, as addressed above, is generally pointless. The customer doesn’t care. Perhaps it might impress the customers who are craftsmen. It won’t, however, impress any of the girls who play with the dolls.
The benefit of the way the faces are designed is the same as the other features – the realism. It seems that this is one of the benefits that the company wants to focus on. Admittedly, a benefit could be appreciated by the actual users of the product – the young girls.
The second product we’ll look at is the Beats Pill+ portable speaker from Apple. This is a modern product with a lot of technologically advanced parts – unique among the examples we’re looking at.
The first thing you might notice is Apple’s emphasis on benefits for this product. At least when compared to the other two. Rather than mentioning a feature and then backing it up with advantages and benefits, Apple draws attention to the benefit/advantage.
The first benefit mentioned is that the Beats Pill+ has “sound bigger than its size.” This tells us that the speaker can get loud, but won’t take up much space. The features that facilitate that benefit are then addressed. The speaker has a two-way crossover system along with tweeter and woofer separation.
The second benefit is a little vaguer. It’s that the Beats Pill+ is “designed around you.” Personally, I think that’s a weird phrase. I know, of course, that this product wasn’t designed for me as an individual. In the description that follows, they mention that “it looks as good as it sounds.” Apple, obviously, prides itself on design. So, I know their customers are concerned about that. But, I’m just not sure how important the looks are beyond a certain point.
They do go on to mention the “simple, intuitive interface” which allows you to get to your music fast. That’s a more genuine benefit, in my opinion, and something they should have focused on more.
The last feature is “pair and play.” Again, this strikes me as a little odd. Almost anybody who’s going to purchase a Bluetooth speaker understands how they work. They elaborate on this by mentioning all the different devices that you can use to play music on the Beats Pill+. Again, not anything revolutionary. But, I suppose the implication is that the speaker is versatile. In fact, I think the point they’re trying to make is that this speaker will work with devices that aren’t manufactured by Apple.
Here is a relatively simple product; a commodity really. Nevertheless, you’ll notice that Lowe’s does make the effort to highlight this product’s features and how they are beneficial.
The first feature mentioned is the round point blade. The advantage given is that it’s ideal for digging a variety of holes. What’s that mean? I believe it’s implied that you can dig a tapered hole for instance. Or, maybe a hole with different levels? I think the point is versatility.
The next feature listed is the “secure” step. This feature has a little more of a defined benefit. The secure step allows for “solid food placement for added digging force.” The implied benefit being, I believe, that it won’t cut into the sole of your shoe when you step on it.
Also, your foot won’t slip off when pushing the shovel into the ground. The term “added digging force” implies that you can easily cut through hard ground and lessen the amount of effort needed when shoveling. If you’ve ever dug a proper hole, you know that you can use all the help you can get.
The last feature is the “power collar.” I assume this is part of the joint that links the shovel head and the handle. Again, I would classify the “secure shuffle blade to handle connection” as more of an advantage than a benefit. The implied benefit is that your shovel won’t break on you.
You’re counted on to know that a broken shovel means you will have to buy another, at best. At worst, it means getting injured. A “secure shuttle blade to handle connection” also implies durability, quality, and the potential to last a long time; therefore giving you good value for your money.
Features and benefits in ad copy
Yes, this post is about the product and service section of the business plan. No, it’s not about the sales and marketing section. That will be covered in the coming weeks.
At some point, you’re going to have to market these products beyond writing simple descriptions. So, while we’re on the topic of features and benefits, I thought I should touch briefly on advertising.
As with products, we’ll take a quick look at three separate pieces of advertising. Each is chosen from different online mediums. We’ll try to discern how effective the advertising is and highlight the benefits vs advantages vs features. These examples were chosen, more or less, at random.
Whirlpool washing machine search engine ad features and benefits
Credit: Whirlpool Corporation/google.com
The first line of the ad mentions a “variety of styles and sizes.” The advantage of a variety of sizes implies that Whirlpool has a washing machine that will fit wherever you need it. Personally, I think this barely qualifies as an advantage because it’s not a benefit of ownership. It’s a prerequisite to ownership.
Next, the word “features” is explicitly used. You, the reader, are invited to explore Whirlpool’s innovation and to learn more. No mention is made of what benefits these features will provide. I guess since the word “innovative” is used, you’re supposed to assume that they’re beneficial.
The ad wraps up with the phrase “seamless smart home.” Which doesn’t mean much to me personally.
I guess they might have been running out of character space and simply plugged the catchphrase in there to avoid wasting it. Which, I can kind of understand. Nevertheless, I think the space could have been used more effectively.
Bassett Furniture Facebook post features and benefits
Credit: Bassett Furniture Industries/facebook.com
This is actually a Facebook post by Bassett. So, not technically an ad. However, it’s still serving a similar purpose.
This advertisement has very little text. Of course, a picture can be worth a thousand words. Particularly when you’re dealing with something like furniture. A lot of the benefit derived from something like this is how it looks. It’s the feeling people get from owning beautiful things and the status that brings. That is something that’s tough to convey in words alone.
The little text that they do utilize doesn’t really convey any advantages or benefits.
I guess the feature of being “understated” implies that this piece of furniture is not so bold that it can’t work with a lot of different decorating styles?
The irony of the whole ad is – since the picture is conveying the benefits of the style, why not use the text to highlight other benefits? Things such as the furniture being durable (resistant to wear and tear)? Or that it’s made of solid wood (would retain its resale value)? Perhaps its storage capacity? A benefit that could allow its owner to feel more organized?
Target banner ad features and benefits
Credit: Target Corporation
Lastly, we have another ad that’s predominantly image-based.
Here, we are given an advantage of being able to check things off our to-do list. The implication being a sense of relief after getting a pesky chore off your back.
While this is, indeed, a good feeling, that’s not what they say. They merely imply how I will feel rather than saying something like “back to school anxiety relief.” Then, they could follow up with clarification using the same line as they did in the ad – “shop high school must-haves.”
A lot of the space is used up by tiny images of these high school must-haves. Most of which are almost too small to make out. This space might’ve been better used for more benefit-based text.
Products and services example
If you’ve read any of my other business plan posts, you know that I try to put what I write about into action. A lot of this material is new to me so, I feel, in order to really learn it I need to do it.
I have a hypothetical startup that I created. This business has only one product and it is an all-natural, topical hair regrowth supplement. Many of my previous posts explain it in more detail.
In any event, here’s how I might describe my product in my business plan using the principles described above.
Hair regrowth supplement – topical, all natural
Topical treatment to help men and women regain their confidence. A one-of-a-kind supplement for hair loss. Utilizes a scientifically tested ingredient not found in any other therapy. No pricey doctor’s appointment needed. No side effects. No shame.
This is the first pass and is a little more “advertisy” than I want. But, if I can sell the reader of my business plan on it, I can probably sell customers on it. I used a lot of the information I gathered during the demand analysis stage.
Anyhow, I think it accurately conveys what the product is, it’s benefits, and the features that provide those benefits.
How do you write the organization and management section of your business plan?
Remember that the purpose of a business plan is to sell people on your potential for success!
Determine the legal structure of your business
Develop a rough organizational flowchart. Keep in mind that owners/shareholders, directors, and third parties can also be included
For every individual in your organizational flowchart – specify their name and responsibilities. Most importantly – highlight their qualifications for the role!
Include official resumes and critical procedures in the appendix
Circle back and make adjustments to the previous steps as you progress in the writing of your business plan
The organization and management part of your business plan focuses less on the business itself and more on the people behind it. A business is only as good as the people making decisions. Until (if ever), artificial intelligence can run businesses, it’s going to be people pulling the strings behind the curtain. For better or worse.
Also, keep in mind that banks lend money to people, not ideas. Venture capitalists invest in people, not mindless assets. Your business plan might be great. But, it will require one or more humans to execute that plan.
Whoever might be investing in your company will want to know the chain of command. A formal declaration of who employees report to and who the final decision maker is. If these sorts of things aren’t clarified, it can lead to catastrophe.
There are, essentially, two main parts to the organization and management section of the business plan. You’ve probably guessed what they are.
In one part you’ll discuss the business’ organizational structure. For example who will report to who, and what the chain of command looks like.
In the other part, you’ll describe the individuals who will populate those positions. Plus, their qualifications for doing so.
The organization of your business
The reader of your business plan will want to know what the organizational structure is when you are starting your business. They need to know who the key people are in the organization and what their roles will be.
Businesses need smooth running chains of command in order to be successful. And, while your business can consist of one person – there’s a good chance that at some point you’ll need quality people to help you out.
Who’s responsible for what?
Obviously, this will change over time, as your business evolves. The reader of your business plan will want to know the lay of the land when the business launches, however.
Particularly, if you’re asking for money to add additional roles in the future, you’ll want to be crystal clear about who those individuals will report to, what their responsibilities will be, and most importantly, how they’ll add value to the organization.
Generally speaking, small businesses are simpler organizations than larger ones. But, there still needs to be clarity in terms of the flow of work. Some of the critical departments to think about are sales/marketing, manufacturing/distribution, and accounting/administration. Depending on the nature of your business, research and development might be critical too. Who will be responsible for these important tasks?
Don’t be afraid to use graphics here. An illustration of the hierarchy of your business and/or the process flow can help clarify everything you’ve written about. This organizational chart can and should be used in the future – for clarification’s sake, as the business grows.
Credit: researchgate.net
A free tool like draw.io can be used to make a good looking flowchart.
Procedures?
Beyond the organizational structure and the workflow, you might consider adding some procedures for the routine duties that these roles will handle. In fact, as you write the organization and management section of the business plan, it might dawn on you that you’ve given precious little thought to how day-to-day business will be conducted! This is the perfect opportunity to conceptualize exactly how you’ll take inputs and turn them into outputs.
Procedures demonstrate to the reader that you’ve given thought to the most efficient way to handle these tasks. They also show that you won’t be planning on wasting money on excess manpower. A business without proper procedures is one that’s going to run into trouble with inefficiency and poor customer service.
Since written procedures are detailed documents, it might best to include them in the appendix.
Third parties?
Include any roles that might be filled by third parties. Independent contractors or freelancers, for instance. Even if you anticipate relying upon consultants – that should be addressed in this section as well. Where will these people fit in the organizational chart?
If your business is going to depend on these types of individuals, the reader of your business plan wants to know about it.
More about the third parties you might consider, below.
Legal structure
Finally, the organizational section of your business plan should address the legal structure of the business. Anybody investing in your business is going to want to know whether you’re incorporated as a C or an S corporation. Or, conversely, organized as a general or limited partnership. Maybe the best legal structure for you is something as simple as in LLC or a sole proprietorship. Whatever the case may be, it’s important to convey this information.
In a corporation, the shareholders may or may not be part of the Board of Directors or the management team.
In a partnership, the assumption is that the partners will all have equal control in managing the new business.
With an LLC it can be a situation where the business is managed by the members. Or, it could be that outside managers are hired.
You can see how these sorts of things must be clarified for the reader of your business plan.
The management of your business
If you are the owner of a business, then you will list yourself. If any owners are going to be on the Board of Directors, involved with the business heavily, or on the management team you need to include a “Resume” of their skills and qualifications.
The previous section outlined the roles necessary for your startup to succeed. Now, you want to discuss the people that will fill those roles.
Whatever your role may be, the reader of your business plan will probably understand why you hired yourself. That’s one of the privileges of being a founder.
However, that doesn’t mean that you don’t have to justify why you gave yourself a particular position.
What qualifies you for this role? Hopefully, the fact that your business plan is well-polished helps to convey your qualifications. But, just because you’re a founder doesn’t mean that you can do anything. For instance, if your company will rely heavily on scientific or engineering know-how, then you had better be well-qualified if you wish to fill one of those roles.
Formalized resumes for yourself and the rest of your team can be included in the appendix. However, some of the things that you want to highlight here are:
Name
Their title
Their responsibilities within the organization
What decision will they be making?
Their qualifications
Previous positions that they’ve held
Leadership experience
Industry experience
Sales and marketing expertise
Anything else that will inspire confidence in your company!
Here’s an idea of the individual parties you need to name/address:
Ownership/Shareholders
The number of individuals and depth of information included here will depend, in part, on the legal structure of your business.
If it’s a corporation, you’ll list the shareholders along with the type of stock they’ll own (common or preferred).
If the business is a partnership, your list the partners along with the type of partner they are (general or limited).
For an LLC, you’ll list the members.
And, as you might expect, if your business as a sole proprietorship you will list yourself.
Additionally, if any of the owners are going to be on the Board of Directors, involved with the business heavily, or on the management team you need to include a “resume” of the skills and qualifications they bring to the table.
Board of directors
Not every small business will have a Board of Directors. If your legal structure will be an S or C corporation though, it will be required. Make sure you’re familiar with the laws of the state you live in and the state in which you incorporate in.
If you have a Board of Directors then you want to specify each of the individuals that will comprise the board. As with everyone else you would summarize the skills and qualifications that they’ll bring to the table. Resumes can, again, go in the appendix.
Furthermore, you might detail any other involvement they’ll have with your startup. That is, beyond, attending board meetings.
If your business legal structure is a partnership, LLC, or sole proprietorship you will not have a Board of Directors. It may be, however, that you have a group of trusted advisors who have expressed their willingness to help your startup succeed. If that’s the case, consider naming them here. Or, you can include them with the other third parties below. It’s up to you.
Again, these sorts of things help to sell the potential for the success of your burgeoning business.
Management
I’m sure you know the routine by now. List the names, skills, and qualifications of the upper management team.
Another thing to consider is that since you’ll likely be the top dog at your start up (and rightfully so) you want to emphasize how the rest of the management staff will compliment you as a manager. Particularly, how their strengths will compensate for your shortcomings. And, how your strengths will compensate for their shortcomings.
Admitting your shortcomings is not always an easy pill to swallow for an entrepreneur. We like to think that we can do it all. Again, keep in mind this is a sales document. Put your ego aside and write a management and organization section of your business plan that will get funding.
Lastly, it is here that you will specify the details of compensation for yourself and the rest of the management team. Compensation includes, of course, things such as salary, benefits, and profit-sharing.
Additionally, if any individuals will be bound by contracts or non-compete agreements, this is the place to itemize those particulars.
Other support roles
Accountant
Attorney
Insurance agent
Banker
Mentor
In addition to the key ownership, directors, and management, you should consider outlining key third-party professionals who will serve in advisory roles. Remember, the whole point of the organization and management section of your business plan is to highlight the individuals who have your back and how they can help your business succeed. Not every key individual is going to be inside the company either.
Your accountant
Accounting is not most people’s strong suit. If that’s the case with you, then a competent professional accountant will be an extremely valuable asset. This individual will help you with business compliance, taxes, and financial operations. Also with financial statement preparation, auditing, and payroll.
All critical tasks.
Your attorney
An attorney is also a crucial part of your advisory team. They can help you choose the appropriate legal structure for your business (with help from your accountant). They provide valuable support with any contracts, intellectual property, regulation, compliance, and governance.
The law is complex and “winging it” in these areas could stop your business in its tracks.
An insurance agent or risk management advisor
Some businesses will rely more upon this than others. However, keep in mind that many of the risks your business will run into what is called “unknown unknowns” (circumstances that you could not foresee).
Having someone in your corner that understands how to identify and mitigate these risks will put investors at ease.
Your banker
Having a good relationship with a local banker who understands your industry will help you achieve your goals.
A small bank may be preferable to a larger bank. Small banks can offer a more intimate relationship which, in turn, would facilitate a more beneficial long-term relationship.
A mentor
If you have someone in your life who can provide sage advice you may consider adding them to your list of trusted advisors. Maybe you even have more than one?
If this person (these people) is particularly well versed in your industry or in entrepreneurship, then all the better! Knowing that you have someone in your corner who has been in your shoes before will inspire confidence.
An organization and management example
As with all of the other posts written on the topic of business plans, I like to include an example from my own hypothetical startup. It gives me the opportunity to follow along with the subject at hand and to “do” rather than just “say.”
The hypothetical startup is a would-be manufacturer and distributor of an all-natural, topical hair regrowth supplement for men and women.
As I alluded to above, it might dawn on you at this stage that you have some serious thinking to do as far as the operations of your business go. So much time thus far has been spent on market analysis (and rightfully so) that the day-to-day comings and goings have slipped through the cracks. Well, these things can’t get put off forever, so this is a good time to at least get rough drafts created.
With that in mind, here’s my first pass at an organizational flowchart for this hypothetical business:
Below, are some “resumes” for full-time employees and third-party advisors. These are loosely based on real people. But, for the sake of anonymity, facts are obscured.
These “resumes” are, admittedly, a little generic. While I did want to go through the exercise of creating a management and organization section for my hypothetical business plan – I did not necessarily want to commit too much time to the careful crafting of resumes for fictional people. The same goes for the creation of procedures.
Of course, if this were the real deal, I would include more formal resumes (as appropriate) in the appendix.
Management/employees
KB, President
Responsibilities – Providing strong leadership. Establishing short and long-term goals, plans, and strategies. Presiding over the entire workforce (internal and external). Managing finances. Ensuring resources are allocated properly.
Qualifications – Researched and studied the factors critical to business success in his blogs, SpreadsheetsForBusiness.com, and InvestSomeMoney.com. Performed in the capacity as a Financial Analyst and Cost Accountant for a chemical manufacuturer nearly 15 years. Assisted small businesses in problem solving as a SCORE volunteer.
Mrs. B, Administration
Responsibilities – Assist in the day-to-day management of the value chain. Implementing processes and practices across the organization. Improving performance, procuring material/resources, and securing compliance.
Qualifications – 20 years of multitasking and personality management in the education industry. Experience keeping executives and business owners organized and prioritized. Practices an intuitive approach to assistance that rests on empathy, efficiency, and astute problem-solving.
Ms. B, Customer Support
Responsibilities – Leading the charge to reach sales targets. Setting quotas. Evaluating and adjusting performance. Developing processes that drive sales. Managing social media presence.
Qualifications – Major in marketing. 4 years’ experience in a customer-facing role. Experience in setting and meeting sales goals. Proficient in CRM software.
Third-party partners
For third parties, it wouldn’t necessarily be appropriate for me to ask for a formal resume. Most of these professionals will have qualifications made public on their websites or social media – for the purpose of marketing themselves.
John Q. Defender, Attorney
Mr. Defender focuses on commercial litigation. He helps his clients with insurance coverage and claims, including general liability. He serves in both an advisory capacity and represents clients before and after litigation. Additionally, he has experience litigating cases to a verdict, including claims regarding product liability and insurance coverage.
Daryl P. Riskavoider, Insurance Advisory
A 15-year agent with Countrywide Insurance. Mr. Riskavoider has helped dozens of other startup manufacturers identify risks and protect their downside with Countrywide’s diverse array of insurance products. Countrywide Insurance has been in business for 90 years. They focus on small business needs and are one of the largest insurers in the world.
Dan O. Havesomecash, Banker
An experienced loan professional with WeTrust Bank. Mr. Havesomecash has underwritten over $50 million in financing for similar startup manufacturers. WeTrust Bank is a premier local bank with a 100-year history. They provide competitive and flexible financing solutions for regional SMBs and are committed to contributing to the growth of local business.
Other notable partners
I’ll also include a brief synopsis of my contract blender/packager and the temp service I would use to man the distribution facility. Again, the purpose of the business plan generally, (and the organization and management section specifically) is to sell the success of your business. I think that including these partners will help to do that and potentially quell any concerns that readers might have.
In these instances, however, I’m just going to copy + paste info from their respective websites. No need in trying to improve on what they’ve already put a lot of time and effort into.
Camco Chemicals, Contract Blending & Packaging
Camco’s contract blending services are both extensive and broad. With 21 liquid and 5 powder mixers, Camco can produce an impressive 1.25 million pounds of product per eight hour shift.
Importantly, Camco possesses unused capacity that can serve your project’s current and future needs while assuring you of the ongoing manufacturing flexibility necessary to deliver the response time that you need to meet your customers’ demands for delivery.
Camco is a family owned business that was founded in 1960 and continues to operate under private ownership with several second and third generation family members active in the business’ daily operation. Camco employs approximately 175 associates and operates a thirty-two acre campus situated in an industrial park setting in three adjacent buildings collectively comprising 587,000 square feet of manufacturing, packaging and distribution services.
As a contract chemical manufacturer and contract packaging contractor, Camco operates on a five day week schedule with three shifts and blends a broad variety of chemical products that are sold by Camco’s customers in the consumer, industrial, agricultural, transportation, water treatment and food industries, to name just a few. Importantly, Camco does not market any products, so that its customers can be assured that their proprietary and confidential information will remain so.
Camco’s overall manufacturing capacity totals nearly 300 million pounds of packaged goods with potentially several hundred million additional pounds for bulk shipments and transloads. The level of available capacity is such that virtually any project can be accommodated.
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“Why include an analysis of the market in your business plan?” The market analysis is the foundation of the business plan. Other sections are important, of course. Not the least of which is the financial projections. But the market analysis is what will really make or break your business plan. It will solidify what problem you’re solving and what makes you unique.
If the market analysis is neglected, then the reader of your business plan is left to guess about your customers, competitors, and the environment you expect to operate in. Not surprisingly, if people are left to guess about these things – they’ll probably guess that there is no market for your product or service.
By committing to all the necessary steps involved in market analysis, you demonstrate to the reader that you understand important factors related to your company’s success. Furthermore, you’ve demonstrated your aptitude in analysis and willingness to be flexible.
Showing the reader that you know your customers, the competitive landscape, and the risk in your industry will set you apart from others who are looking for financing. Particularly those who are merely operating on a hunch.
**While writing a post for InvestSomeMoney.com on the topic of competitive market analyses, I stumbled upon this post on Buffer.com. I thought it had a lot of great ideas and would complement the information in this post.
What is a market analysis in a business plan?
The market analysis section of the business plan is where you demonstrate your qualitative and quantitative understanding of your environment. Also your company’s strengths and weaknesses.
A good market analysis will address anything and everything that pertains to your new company’s internal and external environment. For instance, topics covered could include:
Economics
Distribution
Manufacture
Regulations
Taxes
Privacy
Customer avatars
Demographics
Geographics
Competitors
Identification
Analysis
Customer behavior
Decision making
Motivation
Risk
Government instability
Operational risk
Opportunity
Market size
Unique selling proposition
Value
Problem identification
Product/service benefits
What is the importance of a market study?
A market analysis won’t tell you what to do, unfortunately. But if you commit time and effort, it should shine some light on how to proceed. Hopefully, it will make the course of action a little easier to see. A correctly executed market analysis should help your young company to navigate obstacles and avoid being stopped in its tracks.
There are many reasons to do a market analysis. Many are unique to the small business and the industry it operates in. Here are some potential reasons for you to consider…
Think about what problem your product or service will solve
It’s kind of an old cliché, but customers buy benefits. Not features.
For instance, people don’t buy saws to cut wood – they buy them to have a perfectly shaped piece of wood. We all know this intuitively. But it still takes an effort on most of our part to consistently think in this different way.
Unfortunately, thinking in this manner opens up a whole new list of competitors. Substitute products were discussed in the demand analysis post.
To use the previous example – say you were selling saws in your retail store. You might have to consider the local lumberyard a competitor if they started making custom cuts for their customers. Their primary product isn’t the same. But they are selling the same solution.
Be honest with yourself about your product or service
When a fresh idea pops into an entrepreneur’s head, they feel like they’ve just solved all the world’s problems. If it were up to entrepreneurs, everything they conceive would be an absolute hit.
The reality is – you’re not the only one who’s going to buy your product or service. Hell, you may not buy it at all. A business plan market analysis forces you to look at your idea objectively. To confront its faults, its shortcomings, and your erroneous assumptions.
Never forget why your customers would buy your product or service. They’re just as egotistical as you, and you’ll have to convince them that you’ve solved their problem in order to get them to buy.
Solidifying your unique selling proposition (USP)
Some say there are five ways that a company (or brand) can make itself unique. That’s kind of narrow, I think. Because if there are only five ways then there’s not much room for uniqueness. Nevertheless, it serves as a good thought experiment and a way in which a company can begin to think about its USP.
There’s an old saying in business “price, quality, or customer service. Pick two.” As far as I can tell, this cliché actually has some basis in reality. It seems that companies can be above average in two of these – but never all three.
So, your company can set itself apart with one of these three categories. Or, it can look to set itself apart in terms of image. It’s good to be above average in as many categories feasible. But ultimately, your company needs to decide to be the best at something. Something unique.
Working through the steps of writing a market analysis in your business plan will help you understand what distinguishes your product or service from others in the market.. If it doesn’t, then you probably have a little more work to do!
Here are the five (general) categories of uniqueness you might explore to clarify your USP.
1) Product
Usually, a product or service has to be of high-quality in order for a company to be renowned for it. Or, at the very least, it needs to have unique features (benefits).
Porsche is an example of a company with a reputation for quality. Porsche is, of course, a luxury automobile brand that uses high-quality and unique materials. According to Consumer Reports, Porsche’s quality is viewed as higher than other reputable automobile brands such as BMW or Mercedes.
2) Customer service
Just as a quality product can set you apart from the competition, quality customer service can do the same. Service so good that the (lower) quality and/or (higher) cost of your product or service can be overlooked.
Ritz Carlton is a company well known for its exceptional customer service. This is another luxury brand. But, it doesn’t mean that only luxury brands can offer great customer service. Ritz-Carlton sets itself apart by offering personalized and unique service to its patrons.
3) Pricing
There are many different pricing strategies that a company can employ. Typically, though, the only one that is going to resonate with customers is economy pricing.
Walmart is the de facto example when it comes to economy pricing. But, I would also submit Amazon for consideration. While Walmart might beat Amazon on a lot of prices. Particularly, well-known consumables. Amazon seems to have earned itself a reputation of low pricing for things that are a little harder to find. You might be able to find unique products on a specialty retail site too. But rarely will the specialty site beat Amazon on price.
4) Branding
Of the two perception-based categories for a USP, branding is the internal one. It’s the one that has to do with the company itself. It’s the image that’s portrayed to the public and the concepts that the company associates itself with.
Burt’s Bees is known for its all-natural beeswax lip balm. But, they actually have over 350 natural body care products. Burt’s Bees’ philosophy is “what you put on your body should be made from the best nature has to offer.“ They’ve worked hard to brand themselves as a natural and healthy alternative in an industry that uses a lot of unsavory ingredients in its products.
5) Customer avatar
Sometimes companies are defined by their customers. Their customer avatar is their image. Of the two perception-based USP categories, this is the external one.
There are lots of companies that could be considered as “defined by their audience.” Lululemon is an example that comes to mind. Typically if someone is a Lululemon customer you can picture in your mind some of their demographic characteristics. They’re probably, white, young, suburban, women from above-average income households. Whether Lululemon chose that demographic, or it chose them is debatable.
Now look at the competition
Since the goal here is to determine your unique selling proposition, you’re going to have to size yourself up against the competition.
The most straightforward way to do that is to lay out your information in regards to the five categories of uniqueness and compare it side-by-side with your competitors. After you’ve examined the competition’s products, customer service, pricing, branding, and custom avatars then you will have a very good idea of what it will take to be unique. More importantly, you should have an idea if that uniqueness can put you in a position to be successful.
See below for an example of how the comparison might look.
An example of USP in a business plan
If this is the first Spreadsheets for Business business plan post you’ve read then let me bring you up to speed.
For all of the business plan posts I’ve written, I attempt to apply the subject at hand to a hypothetical startup. This hypothetical business would manufacture and distribute an all-natural, topical, hair regrowth supplement.
Previously, by going through the market analysis steps, I’ve learned that there may be an issue with market saturation in this space. An issue that might not make this a feasible business. But, for the sake of consistency I’ll stick with the same business idea when examining the topic of why a market analysis is important in a business plan.
In previous market analysis posts, I outlined what problems I thought my hypothetical product would solve. I also addressed some of the strengths and weaknesses of my product and business model. So, here, I’ll take the opportunity to walk through the five categories of uniqueness and what my potential business might look like when stacked up against the existing competition in that space.
Hypothetical product
Rogaine (Men & Women)
pura d’or Anti-Thinning Shampoo
iHelmet
Product
Quality ingredients. Untested.
60-92% positive results
Very positive ratings
Up to 98% positive results
Customer service
Via retailer? Untested.
Via retailer
Via retailer
Unknown
Pricing
$35.49 men. $29.49 women.
Approx $10/month
Approx $30/month
$490-$545 one time
Branding
Unique natural ingred. Not FDA approved.
Only FDA apprvd topical treatment.
Comprehensive natural ingred. Not FDA approved.
Less discreet. FDA apprvd.
Customer avatar
Men 18-35. Women 31-60. High income.
Men 35-50. Women 31-60. All incomes.
Men 18-35. Women 31-60. High income.
Men 35-50. Women 31-60. Very high income.
So, what conclusions can I draw from this?
For starters, I’ll know that getting (authentic) positive reviews will be crucial to get my business off the ground. Additionally, it will probably be best to leave the customer service up to the retailers – at first anyways.
In order to justify my pricing, I’m going to have to place a huge emphasis on my unique ingredients. That’s my rough USP, for now. A “one of a kind” formula.
How do you write a compelling company description for your business plan? You know your company inside and out. But, it can be difficult to convey those things in a way that will grab readers’ attention. The key is to start with what you know and build on it with some simple methodologies.
The company profile section of the business plan is your opportunity to make a memorable introduction to whoever may be reading. But, most of all, it’s a chance to set your startup apart from other aspiring businesses. Businesses that are after the same investment dollars you are.
If you’ve written a profile for your small businesses on social media (or your own website) then you’re off to a good start. Something is better than nothing. However, there are steps you can take to make your company profile stand out.
The same general principles apply for company descriptions in a business plan and company profiles on websites. You might have the urge to keep it very buttoned-up and boring. That’s an outdated notion, though. Don’t be afraid to let your company’s uniqueness and creativity show in this part of the business plan.
Again, there’s an opportunity here to really resonate with the reader. There are lots of other (critical) sections of the business plan that are going to deal with numbers and other technical aspects. The company profile may very well be the most memorable part. That is, if it’s written correctly.
Approaches to get started
Below, are a few methods to try out when drafting your company description. I suggest you try several of them – even if only briefly. Hopefully, one of these approaches will ring true and capture the essence of your company.
You’ll notice that there’s a lot of bleed-over in these different methodologies. They’re not all 100% unique. What that means is that you can incorporate many of these approaches in your business plan company description. You need not adhere to just one.
Of course, with all these methodologies there are certain things that are going to need to be included. But, don’t let that make you feel stifled. There’s still plenty of room for imagination and authenticity.
The must-haves are:
What your company does
Who your customers are
Where your company is located
The legal structure
Who are the founders are
A brief history
Beyond that, you’re free to approach this task however you see fit. Have fun with it!
Also, much like a mission statement, you don’t want to let your company description go stale. Even after you’re done with your business plan, you’ll want to include a company profile on your website and/or social media. Don’t just set it and forget it. Revisit it from time to time and make sure that it’s reflective of what your companies evolved into.
1) Make it personal
As the founder, you know what the company means to you. That’s a great starting point for a powerful company description. What was it that inspired you to start this business? What was unique about the road that brought you to this point?
A company profile from your perspective gives your business plan a personal touch. Something that will hopefully hit home with the reader. To really go above and beyond you can include a picture of yourself and a signature. A little extra human touch.
2) Emphasize the people behind your product/service
This is similar to the make it personal approach. But rather than focusing on you, the founder, you’ll focus more on your team. Ultimately, it’s people that make a company. Products and services are important, but it takes human effort to make a business successful.
Perhaps you don’t want to focus on team members specifically? You can instead focus on the personality traits or human qualities that encompass the team. Whether it’s passion, diversity, or expertise, you can highlight those factors that make your team exceptional.
3) Tell your company story
People love stories. In this case, you don’t want your company profile to be the length of a novel. But, if it’s intriguing enough it can be on the longer side.
Stories give context. If they’re good, they allow the reader to see the world through someone else’s eyes. You can obviously see the potential benefits of telling a story in your business plan company description.
Maybe you don’t think that your company’s stories are all that interesting. That’s all right. It doesn’t have to be the greatest story ever told, as long as it’s authentic.
4) Highlight your inspiration
This is slightly different than telling a story.
Here, rather, you’re speaking on the things that have inspired you thus far in your company’s journey. You can talk about how you settled on the imagery (logo, colors, fonts) that makes your company unique. What inspired the company’s tagline?
Think about all the little things that comprise your company‘s image – how did you come up with them?
5) Utilize video
Obviously, this approach only works if your business plan is in an electronic format. If that’s the case, you can include a link from (or embed the video into) your business plan.
They say a picture is worth 1,000 words. Well, a video could be worth much more than that. Not to mention, using this unique format would make your business plan exceedingly memorable.
Of course, all the same guidelines apply for a video company profile as a written one. In fact, it might be beneficial to have a video company profile to complement your written one even if you don’t plan on using it in your business plan.
6) Utilize pictures
Maybe you think a video is overkill? That’s fine. If you want to spice up your company description, images might have the same (or even a greater) effect.
Images allow you to get creative. For every point you want to make in your company description, you can include an image that illustrates and complements that point.
Video is dynamic. Images are static. So, if there’s a particular visual that can really clarify what your business is about – an image might be the way to go.
7) Create a timeline
Time is one of the foundations of business (along with money in and money out). So, why not embrace the importance of time by formatting your company description as a timeline.
Everything in your business was decided on at some point in time. So, that makes it easy to include the must-haves in this unique style of company profile.
This format can highlight how fast you are growing and/or how quickly you’ve been able to adapt to your environment.
If you’re not keen on just using a timeline as your company description, it can still serve as a valuable illustration to complement a written format.
8) Be to-the-point
Though most of these ideas emphasize creativity, perhaps that’s not your personality. Maybe it’s not the nature of your business. There is something to be said about brevity.
So, maybe it makes sense for you to cover all the important points in a straightforward manner.
Company history? Here’s a one-sentence answer.
Products and services? Here’s another one sentence answer.
And so on…
A bare-bones business plan might appeal to some readers. It could be that they don’t want to see a flowery company description. Rather, they would appreciate your to-the-point addressing of the subject matter. You can always include more detailed information in the appendix.
Additionally, white space can be visually appealing. A minimalist approach can look good. Plus, I think it’s important not to let your company profile drag on forever. That will just seem vain and will risk losing the reader’s attention.
9) Brag a little bit
A business plan is a sales document for all intents and purposes. It exists to convince people to invest, one way or another, in your startup. So, don’t be too humble when you’re trying to sell your company’s potential.
The company description in your business plan can be a great space to mention everything you’ve accomplished thus far.
Awards, reviews, customer feedback, and anything else that provides social proof that your company is onto something great.
10) Define your new unique selling proposition (USP)
I am a big proponent of the USP. I think it’s what sets your company apart from the competition. Focusing on your USP will help your small business be more successful.
So, if you’re going to need a USP, why not clearly define it early on? Why not highlight it in your business plan?
Think about what makes your products and services better than the competitions’. Think about what would make customers choose to do business with you.
Nothing can describe your company better than singling out what makes you unique.
11) Refer to your mission and vision statements
As discussed in the mission statement post, you should have an idea of what you want from your business. Your mission statement is the driving force behind every decision you make as an owner. Or, at least it should be.
If you have an effective mission statement, you can see how it would serve as a good starting point for a company profile.
In another post on strategic planning (strategy formulation) I encouraged you to solidify your vision for your company. E.g. what your company will look like in 5-10 years. You may not have this written down, officially, as a “vision statement.” But, if you’re going through the strategic planning steps, you should have a good idea of your vision.
What you want from your company and what direction you want to take it are important pieces of your company puzzle. These pieces of information will contribute greatly to the description of your business.
Company description examples and analysis
I’ll give the same advice I did on the mission statement post…
If you’re still struggling with writing a company profile, it might help to look at some examples. No need to reinvent the wheel here.
Don’t copy another company’s description word for word, of course. But, there’s no harm in using a profile you find interesting as a model. By adding in the elements unique to your business, you’ll have a perfectly fine company description to work with. If you want, in the future, you can always start over to make something completely unique.
Here are some quality company profiles I found. I also included some of my thoughts. These are taken from websites, not business plans because company profiles are easier to find.
First of all, you’ll notice that Nordstrom’s company description utilizes images. Nothing particularly striking, to me. But, it does add to the visual appeal.
They also touch on a little bit of company history on the linked page. What’s notable, however, is the use of a timeline if you click on the Company History link. The Company History is a really great illustration of Nordstrom’s storied history, in my opinion.
The first thing you’ll notice about Nike’s company description is that they utilize video (in the background) and emphasize their mission statement.
Next, they highlight their commitment to innovation – what some might say is Nike’s USP. Innovation in sustainability is addressed lower on the page too.
After that, they note the people behind the products. Particularly the factors that make their team great.
Delta, like Nike, puts a video at the head of their company profile. In Delta’s case, however, it’s user-controlled. Not running in the background.
Delta also utilizes a lot of white space on their About page. This format is to-the-point but allows readers to click and learn more – if they so desire.
Like the other examples, Delta takes advantage of the opportunity to toot their own horn. Highlighting the number of customers and destinations served.
Another business plan company description example
In all of my business plan posts, I like to do more than write. I like to take part in the subject matter. However, my previous business plan post put a bit of a damper on my startup idea – a topical, all-natural hair regrowth supplement. It seems that the market might be saturated for that particular type of product.
Nevertheless, for the sake of consistency, I’ll continue to follow along as I always have. Here’s a rough draft of my business plan company profile:
Hair Regrowth Supplement Company, LLC (HRSC) manufactures and wholesale distributes an all-natural hair regrowth supplement for men and women.
The company is headquartered in My Town, USA. Product manufacturing is conducted by a third party partner in Florence, KY. Distribution to retailers is also handled by a third party partner in Prince George’s County, Maryland.
HRSC was founded by Mr. Founder in 2019 with the goal of providing a natural, topical, option for hair loss sufferers. The formula for HRSC’s prototype product was inspired by a little know article in a German medical journal published in 2008. From there, the formula has been improved several times over in an effort to increase its effectiveness and ease of application.
Mr. Founder was frustrated with the (perceived) lack of available options in the topical all-natural hair regrowth market. He wanted an alternative to FDA approved treatments with their lack of efficacy and potential side effects. He experimented with the product himself and was satisfied with the results. This prompted him to explore offering the product to the public. The existing formula offers a safe and potentially effective treatment for individuals in the early stages of hair loss. Most importantly it does so with no downside or adverse effects.
As you can see, I included all of the requisite information. I also decided to make it a bit personal and to highlight my inspiration for the company. Below the text, I might also include a picture or two of the product to give the reader a better sense of what I would be selling.
Make your company description memorable
Hopefully, you now have enough ammo to get your company profile started.
Again, you don’t want it to be too lengthy. But, you also want it to have substance.
If you find that your company description begins to look like a wall of text -add some subheadings in there. That will make this section of your business plan more readable and easier to scan. Not to mention more visually appealing.
Market saturation is a measure of the amount of supply for a given level of demand. The more supply, the greater the amount of saturation. All things being equal, the more saturated a market is, the more difficult it could be to compete. Calculating and understanding market saturation will help you as a small business owner create strategies that will help you succeed.
Market research for your business plan is obviously critical. In addition to analyzing demand, market size, economic indicators, and location you’ll also want to know how much and what type of competition your face. You want to know how saturated your market is.
This is all a lot of work. But, I feel it’s important to help you stay competitive. Not only when you’re writing your business plan, but throughout the remainder of the life of your business. Understanding your customers and your competitors will help you to be more successful.
More market saturation can mean a smaller market share
Market share is exactly what it sounds like. It’s your share (percentage) of the market for your company’s goods and services. That’s the simple explanation.
What’s considered your market and what goods/services you’re referring to it’s up to whoever is calculating the market share.
On my sister site, InvestSomeMoney.com, I have talked extensively about total available market (TAM), serviceable available market (SAM), and serviceable obtainable market (SOM). Of these, the SAM is what I would advise for you to consider when calculating market share.
Also, many businesses, probably yours even, sell a variety of products and or services. Therefore their market share might vary in terms of what they’re selling. It might be that they have a dominant market share in one category, and a poor market share in another.
Market saturation is a situation where there is no unmet demand for a given product or service. This can happen from businesses entering the market, businesses growing, or from demand shrinking.
The market can be saturated if there’s only one business in it. Of course, that’s referred to as a monopoly. In other markets, particularly those that deal with commodities, the market could be saturated due to an overabundance of competitors. So, the number of businesses in the market isn’t necessarily indicative of whether or not it’s oversaturated. Again, it has to do with supply vs. demand.
Strategies for competing in a saturated market
There are five basic strategies for combating market saturation. For more details on business growth strategies read this post on InvestSomeMoney.com.
Market penetration
Market penetration means taking market share away from competitors.
This can be done in a couple of different ways.
The first is pricing. Lower prices, all things being equal, can take customers away from the competition. As a new business, you might not have the cost structure or processes in place to make the margins that you need if you compete on price. Alternatively, you can raise prices and present your product/service as a premium offering. This can work if you can truly isolate what is it that makes your offering unique.
Additional value is another way to penetrate the market. A better experience, upgrades, and loyalty programs are a few ways to do this.
Market development
Market development means focusing on an unsaturated geographic area.
If your first choice for location is saturated, perhaps your second, third… whatever choice might not be. In fact, your business model might have market development worked into it by design. If your plan is to start a franchise or to market your products through a network of distributors, then you will be planning on developing new markets in the future
Product expansion
Product expansion is the creation of new products or services which don’t yet have a saturated market.
Creating a new unique product/service is one of the most effective ways to penetrate a new market. We all know the cliché about building a better mousetrap.
Your new product/service doesn’t necessarily have to be revolutionary. It can be a minor improvement to something that already exists. It can even be something that has extraneous and unnecessary features (without huge benefits) stripped away.
Diversification
Diversification is the combination of market development and product expansion.
Diversification is really just a hybrid of the above strategies. The combination of any two or more ways to break into a saturated market.
For instance, a franchise restaurant that offers a half chicken and half beef sandwich. That’s a silly example but it shows you what the combination of market development and product expansion might look like.
Acquisition
Acquisition is investing in another company in order to capitalize on their market share.
If you’ve got the capital, and the business plan, an acquisition, merger, joint venture, or alliance may be the way to break into a saturated market. In a case like this, you might purchase the sole vendor in town and open your own retail location. This would give you control of the supply and the costs. This control would put you in a strong position to increase market share.
How to calculate market saturation
First of all, before we begin, we should probably be pretty clear about what we want. Here’s a somewhat technical definition that we can use as a starting point:
Market saturation is defined by the relationship between supply and demand. Supply and demand for substitute products within a particular geographic area. The geographic area can be small, or it can encompass the entire world.
Alright, so what’s meant by that?
If the amount supplied by your potential competitors is greater than or equal to what’s demanded, then the market could be considered saturated. However, getting an accurate read on the supply and demand for a particular product/service can range from time-consuming to damn near impossible.
Don’t let that discourage you. The point of writing a business plan, in general, and calculating market saturation, in particular, is to think things through thoroughly. To look at your aspiring business and the environment it operates in as comprehensively as possible.
So, you’ll have to work with what you have. It might be a little or a lot of information. That’s more abstract than I like to be. But, that’s the way it is. Every industry/business is different. So, I, unfortunately, can’t prescribe any “one way” to calculate market saturation.
I can, however, give you some guidelines and provide an example…
In this example, the market saturation of a casino in the Chicagoland area was analyzed.
It was compared to areas that were assumed to already be saturated with casinos. This was done through the use of ratios calculated with demographic and industry data.
Credit: digitalscholarship.unlv.edu
The authors of this slideshow probably didn’t know the exact demand for a casino in the Chicagoland area. How could they? Even if they could survey every individual living there, the demand information they gathered might not be reliable.
So, they did the next best thing – they used a benchmark.
Now, St. Louis, Kansas City, et al. may or may not really be saturated with casinos. However, if Chicagoland’s ratios (machines per 1K adults, machines per $1B of disposable income, etc.) are more favorable, it probably doesn’t matter. From a market saturation standpoint, the Chicagoland area is probably more favorable for a casino. If the Chicagoland casino fails, it probably won’t be due to market saturation.
Start with what you know (or, at least, what you’re pretty sure of)
What’s something similar to your product/service that’s got a saturated market? Where’s somewhere similar to your business location that you’re pretty sure is saturated? These can serve as your benchmarks.
I would suggest that you refer back to your business plan demand analysis. In particular to the drivers of demand. Hopefully, these will give you an idea for the metrics to use for comparison.
In the casino example, demand drivers such as population (21+) and disposable income were used.
Once you have a grasp on the demand side of the equation, you’ll need some supply figures. Again, use the best information you can get your hands on. This may come from an industry publication, an internet search, or just information you already know. If all that fails, you might have to use a proxy, as I did below.
In the casino example, they used industry information on the supply side. Things like gaming machines/facilities and revenue.
With demand and supply information in-hand, you can now calculate ratios. Do this for your own business and for the benchmark that you know is saturated.
Compare the results. If your prospective business looks more favorable – great! You might not have to fight a saturated market. If things don’t look so good, don’t give up. Consider which of the above strategies you could employ. Or tweak your business plan somewhat.
Consider a soaking wet rag. It might be completely saturated and unable to hold any more water. If you add one more drop, a drop will fall off of it. Your business might be the drop that’s added, but that doesn’t mean it’s the drop that will fall off.
An example of calculating market saturation
As with all of my business plan posts, I’m going to work alongside you. For those who are new to these posts, my potential business is for a natural, topical, hair regrowth treatment.
Let’s start with a benchmark. Something that, I assume, has a saturated market. This took a little bit of thought.
I wanted to stack my potential product against something that everyone uses. A commodity that has a negligible amount of distinction between products. I also wanted something that had separate men’s and women’s versions.
So, I settled on “shaving razors.”
The supply of the benchmark
How many shaving razors are supplied, though? Almost impossible to say for sure. But, I thought that Amazon might provide some insight.
So, I did searches for:
“mens shaving razor” in the “men’s shaving & hair removal products” category
“womens shaving razor” in the “women’s shaving & hair removal products” category
Click to enlarge Credit: amazon.com
For each search, I estimated the number of results (excluding sponsored results). I figured that, for a commodity such as shaving razors, nearly every company that sold them would offer them on Amazon.
Sure, substitute products and other unrelated items came up in these searches. But, since that’s the case across all my searches – it’s fine. It’s all about the relative number of search results, not the exact number.
Demand for the benchmark + results
Next, I needed to know the demand for shaving razors. I decided to use males 20+ and females 15+ in the U.S. as my population. That data was derived from this source.
Then, it was a simple matter of division. The demand (male and female shaving population) divided by the supply (Amazon.com search results) gives me a ratio that I can benchmark against.
Here’s what that looked like:
Population
# search results
Pop ÷ results
Males (20+)
119,000,821
8,060
14,764
Females (15+)
136,348,759
1,560
87,403
This means, in theory, that 14,764 men could buy each and every search result for shaving razors. 87,403 women. Again, I know not every person in the U.S. buys their shaving supplies from Amazon. It’s just that ratio I’m after.
At this point, I don’t know if that’s good, bad, or neutral. In order to put things into perspective, I need to know what the ratio might look like for my product.
I’ll need the same basic information, just tweaked for my particular product.
For starters, I’ll refer back to my post on determining market size. Here, I determined that my conservative serviceable available market (SOM) was 680,293 males and 1,159,854 females. That’s my assumed demand.
Supply for my product
As far as supply goes, I’ll approach it from the same way. I’ll use Amazon, but I’ll, of course, perform a different search.
This time, I’ll search for “mens hair regrowth treatment” and “womens hair regrowth treatment”. Both will be in the same category, “hair regrowth treatment” since there is no distinct category for the two genders – as there was with shaving razors.
Though the first page of results pulled up very different products, the total number of results was the same – 1,092 for each.
Click to enlarge Credit: amazon.com
Without further ado, here’s the results:
Population
# search results
Pop ÷ results
Males in SAM
680,293
1,092
623
Females in SAM
1,159,854
1,092
1,062
Conclusions
What’s this mean? Way less Population per search result. That’s bad news.
I thought shaving razors would be the saturated market, but (wo)men’s hair regrowth treatment blew that out of the water. Only 623/1,062 people could buy every result in this market. That’s compared to over 87,000 in the women’s shaving razor market.
It turns out that hair regrowth treatments might be the saturated market. Boring ol’ razors (and other shaving acessories) might be where the opportunity is.
The numbers didn’t get any better when I used my SAM population instead of SOM. Though the populations were considerably bigger, the Pop ÷ results still paled in comparison to shaving razors.
As I was prepping for this post, I wondered if this wouldn’t be the case. Reviewing the information in my post on determining market size, I saw then that I was potentially demand-constrained (as opposed to supply-constrained). I saw then that I could make way more than I could practically hope to sell.
Going forward
What’s that mean for my prospective business?
First of all, it means that I’m glad that I performed this analysis for my business plan and didn’t dive in head-first.
It also doesn’t mean that there isn’t a business here. I just need to digest this information, circle back to some of the previous steps, and tweak my plan accordingly.
The Census Business Builder is a great tool to narrow down possible locations for your business. But, there are other important factors to consider like cost, competition, and capacity.
Why is location analysis important?
Location, location, location. This is often cited as the three most important factors in real estate. They’re also important for your small business too. Particularly if it’s a business that sells to the general public.
If your business doesn’t sell to the public though, that doesn’t mean that location doesn’t matter. You also have to consider your distance from customers, infrastructure, and other not so obvious things that can have an impact on sales and profit.
A business location analysis isn’t just important for your first location either. Yes, that might be the most important location analysis you undertake. But, it’s also important for your second, third,… whatever location.
So, what is a business location analysis?
It’s simply the gathering of location-related information, compiling it, and making the best decision you can. It may not be the optimal decision – which is okay. There are a lot of variables that affect the quality of a location. Probably more than you or I am capable of completely wrapping our heads around.
It is important to put your best foot forward though. If you give a business location analysis its time, you should make a good decision. Making a bad decision can result in costs (ownership or leasing) that are too high to support your level of business.
A location analysis is vital for your business plan
Those who review your business plan are probably going to know how important location is. So, if you want to raise additional capital, or get a loan, you’ll need to address this important fact. You’ll need to make it clear how your location is going to contribute to your small business’s success.
Be prepared to answer why you’re choosing the location you are. what effect is this location going to have on your success? Take advantage of the tools available and consider the necessary factors. If you do, you’ll be able to confidently back up your location decision.
Factors to consider when doing site selection
Demographics of the area
When you think of demographics you typically think of descriptors for individuals. For example gender, income, age, homeownership, etc. Information like that is important, of course, if you’re relying on those individuals. Relying on them to purchase your products/services or to help sell them.
But, businesses also have demographics. So, if your small business is selling other businesses (B2B) – then you want to know the demographics of the nearby businesses too.
The competition
Where are your competitors located? Are they nearby? Or, are they in a completely different location? What advantages and disadvantages does their location have compared to yours? Do they know something you don’t? Or, maybe they didn’t think it through enough?
Nearby traffic
Traffic plays an important part in a business location analysis. If you’re selling to the people in those cars, and then you probably want to see more of them. That is, given that the local infrastructure can handle that volume of traffic. If it’s difficult to get in and out of your business, then all that traffic might be a deterrent for your customers.
Traffic also affects your employees. Depending on your geographic location, people’s tolerance for traffic might be different. If your location is going to be in a major metropolitan area, a lack of traffic might serve as something of an incentive to potential employees. If your location is going to be in a lesser metropolitan area, then being near the most congested traffic in the city might serve as a deterrent.
The local economy
Even if your business is based online, and you have minimal needs in terms of employees – the health of the local economy will still have a bearing on your business. Consider the economic implications of the different locations you’re reviewing.
Your business’ initial and ongoing location costs
As mentioned before, you need to make sure that the location you choose represents a good return on investment (ROI). Keep in mind what the initial location costs might be. So that you don’t spend too much before you’re even able to utilize the location.
Of course, you want to be cognizant of the ongoing location costs too. What the fixed costs will be and how they will affect your breakeven point and degree of operating leverage.
Will the location make business easier?
A lot of business revolves around the “numbers” making sense. But, there are human beings behind all those numbers. You being one of them. The best return on investment in the world probably isn’t worth it if it makes you, your employees, or your customers, miserable.
So, think about the intangibles. Don’t just quantify your analysis. Qualify it to.
Look at it from your employees’ perspective.
On the same token, how will the people working at this location feel about it? I mentioned traffic earlier, but there’s more to consider from the employees’ perspective. Are there places to eat nearby? Is this a part of town that employees will want to travel to?
Really try to look at this through your employees’ eyes. They don’t reap the same benefits that you, as an owner, do. If you were an employee, would you want to drag yourself to a job at this location day in, day out, year after year?
Adequate space and capacity considerations
It goes without saying that you need a building that facilitates the nature of your business. If you need warehouse space you’ll probably need loading docks. Or, doors that are big enough to drive a forklift in and out of.
If you have a computer-intensive business, you want to make sure that it has the broadband capability as you need.
Keep in mind, that you wanna look a bit into the future here. Don’t just think about what your needs are today or tomorrow, think about your best-case scenario. If your business grows faster than you anticipate, are you going to have the capacity to handle that level of business? Of course, don’t overspend just have a lot of excess space. Think of it as a balancing act.
An example of location analysis
As with most of my business plan related posts, I like to include an example. Previously, I had used my own aspiring business as an example. This business involves the manufacture and distribution of a topical hair thickening treatment.
I’ll rely heavily on the Census Business Builder (CBB) to narrow down a location. From there, potential locations can be qualified with some of the factors mentioned above.
As I mentioned in my Market Size for a Business Plan post, I would initially plan on outsourcing manufacturing. But, even though I’m not choosing where to locate a manufacturing facility, I may still need a location for distribution.
One of the potential manufacturers I found was in Florence, KY – which is near Cincinnati, OH.
So, on the CBB homescreen, I enter my NAICS code: 424210. Not because I’ll need it, in this instance, but because it’s required to get the map to come up. Then, I’ll enter Florence, KY as my location.
Credit: cbb.census.gov
Next, I’ll Select a Map Variable that will help in my search. My first thought is that I want my distribution center to be relatively close to the bulk of my customers – though I plan to eventually ship nationwide. This should help to keep shipping expenses down. So, I’ll use Consumer expenditures per household on Nonprescription drugs as my Variable.
I’ll also expand my geography out to the State level. I want to start broad and then narrow down.
Credit: cbb.census.gov
As you can see, with the map centered around Cincinnati, the states represented in blue are those in the top quintile of spending on nonprescription drugs. Almost all of them stretch up the Northeast coast.
With that knowledge, I might start looking in Virginia. The closest of the high-spending states. Virginia is also, relatively speaking, closer to the West coast than the other states.
If I zoom in on Virginia and change my geography to County, I can narrow down further. Many of the counties are around the Richmond area and in Northern Virginia, close to Washington D.C.
What I’ll also do here is change my Map Variable. There isn’t one that details the average cost per sq ft of warehouse space (unfortunately). So, I’ll have to use something else.
I’ll use Average payroll per employee. I don’t want to hire just anyone, but I do want to keep costs manageable. So, I’ll focus on the second-lowest quintile ($34.7K – $44.3K).
Viola! I found it! Prince George’s County, Maryland will serve as a valid starting point for searching for a distribution center for my product. It’s not in Virginia, but it does seem to meet all of my initial requirements.
Credit: cbb.census.gov
From here, I would search the web for available warehouse space and would qualify the choices with the factors listed above.
If I found another potential manufacturer, I could apply the same rationale to find more location options. Or, I could apply a completely different rationale. The steps I used to arrive at this location were just the first to come to mind. They aren’t necessarily the best.
Address potential problems with your business location
It’s best to get out in front of potential problems with your location. Just as it’s important to acknowledge your weaknesses and threats when doing a swot analysis. Think about how you’re going to handle your location’s shortcomings. Nearly every location has some.
Additionally, you want to acknowledge where your competitors are at. Consider the advantages and disadvantages of their locations.
How are you going to take advantage of the location? How are you going to overcome the shortcomings of your location?
Avoid picking a location just because it seems like a bargain. There’s more to consider than just the rent. Like almost everything in business, at the end of the day, it’s about the return on investment.
Every small business operates in a number of different economies ranging from their neighborhood to worldwide. The health of these economies has a huge impact on the health of small businesses.
A business plan economic analysis should paint a picture of the economic environment your business will operate in. With many economic indicators, you can delve into further detail. Referencing information specific to small businesses in your state and industry helps to provide an even clearer context.
No, these indicators might not always paint a rosy picture. What they will do, however, is show that you’ve done your homework. That you, as an entrepreneur, understand your environment. You’ll show that you can plan around the threats you face and capitalize on the opportunities.
What to look for in a business plan economic analysis
Small Business Employer Firms
Proprietors’ Income
Small Business Job Creation
Business Births vs. Deaths
Small Business Loan Supply and Demand
Business Lending
Small Business Loan Approval Rate
Loan Charge-Off and Delinquency Rates
If you were so inclined, you could probably draw a correlation between any economic indicator and the health of your small business.
Depending on your industry, the particular economic indicators that affect your small business will vary. Whether you’re retail, manufacturing, goods, or services will make a difference.
Inspiration for these indicators was taken from the Small Business Economic Bulletin. This document is published by the U.S. Small Business Administration. Supposedly on a quarterly basis. Though, the Bulletin linked above is the most recent one I could find. It’s over six months old as of this writing.
For each indicator addressed in the Bulletin, I’ll discuss what it measures, why (I think) it matters, and how to use the information. In the end, I’ll also touch on what (if anything) each indicator might mean for my startup.
These data are just a jumping-off point. You’ll have to dig into it further to determine what it means for your business.
Small Business Employer Firms
This indicator measures the number of small businesses that employ people.
Small business, for the purpose of this indicator, includes businesses with less than 500 employees. I think that includes a lot of businesses that would qualify as “mid-sized.” But, that’s just me.
An uptrend in the number of Small Business Employer Firms implies that the environment is ripe for small businesses to launch. A decline would imply the opposite.
Where possible, I always recommend digging down into regional or state information. Doing the same thing by industry is smart too. That way you get the most relevant economic statistics for your business.
In the BDM database, the best way I found to do this is by using the Multi-Screen option for data retrieval.
Credit: bls.gov/bdm/
You’ll notice two pairs of similar phrases if you browse the BDM. These phrases are Openings/Closings and Births/Deaths. So, what’s the distinction? I sent an email to the SBA and a tweet to the BLS.
The BLS responded quickly with a link to this page. The language is a little hard to understand. However, I think that the main difference is that Openings/Closings can include seasonal businesses. Births/Deaths are considered permanent.
The SBA, predictably, didn’t respond.
It’s my guess that this indicator is a tally of Births/Deaths. Which makes sense. Including seasonal businesses in the tally would increase its volatility. Probably better to count businesses that permanently open and close.
Proprietors’ Income
This is the aggregate amount of income earned by the owners of small businesses.
Specifically, sole proprietorships, partnerships, and tax-exempt co-ops. Dividends aren’t included in this indicator. Neither is rental income (i.e. by a landlord).
Most businesses start off as a sole proprietorship (Source). Businesses that don’t pay the proprietor enough income – die. A healthy small business environment should translate into healthy growth in Proprietors’ Income.
What if Proprietors’ Income is flat (or declining), but Employer Firms are growing? That might imply that more firms (proprietors) are fighting over shrinking pieces of the pie. If this is happening in your industry, beware.
The best way I found to drill down is to look at the most current release of Personal Income by State. From there, you want to go to the Interactive Tables. Specifically, you want tables SQINC4 and SQINC5 for quarterly information. SAINC4 and SAINC5 for annual information.
Clicking on either of those should guide you to what you need. Remember, you can use Ctrl to select multiple options!
Credit: apps.bea.gov
Small Business Job Creation
Job creation is a sign of growth. As customers demand more, help is needed to meet that demand.
It might come in the form of direct labor or administrative help.
Your small business may or may not follow suit. What this indicator tells us, though, is whether there is a net gain in small business jobs or not. If there is, that could be considered a tailwind. Not something that is going to guarantee success. But, not something you’re going to have to fight against either.
Here’s the flip side of that “good news” though. If small businesses (and the big boys) keep adding jobs, quarter after quarter, eventually you could reach a point where demand exceeds supply. The cost of labor goes up and (potentially) the quality goes down. For you, your suppliers, and maybe your customers.
Like Small Business Employment Firms, this indicator refers to the BDM database. Again, I suggest using the Multi-Screen Data Search to navigate it.
You can drill down by state if you choose to look at all industries and all sizes. However, some industry-specific searches can drill down by state too. I imagine it’s the bigger industries that allow for such a drill-down.
Click to enlarge Credit: data.bls.gov
Business Births vs. Deaths
This indicator ties in directly with the Small Business Employer Firms. More Births than Deaths mean that the number of Employer Firms goes up. More Deaths than Births – down.
Once again, we refer to the BDM database. Breaking information down this way allows you to see how much of pull Births and/or Deaths are having on the number of Small Business Employer Firms. For example, is the number increasing because of more Births? Or, because of fewer Deaths?
This is just further insight into the small business environment. It might be able to provide some clue as to how ripe it is for success.
When researching Establishment Births & Deaths you can isolate by industry. But, you’ll only get totals for the whole U.S. Conversely, when looking at all industries, you can narrow down by state.
Small Business Loan Supply and Demand
This indicator measures the percentage of bankers that answered two questions in the affirmative or negative. The first question asks if banks have tightened or eased their standards on small business lending. The second question asks if the demand for small business loans has increased.
Credit: advocacy.sba.gov
Now we shift gears a little. Away from small business employment, openings, closings, births, and deaths. The focus of the following four indicators is small business borrowing.
Not a terribly objective measurement. More of “getting a feel for the room” statistic. It is just a survey, after all.
Beyond those two questions, though, there is a lot more in the SLOOS that measures bankers’ attitudes toward small business lending. Questions related to terms, collateral, covenants, and much more.
The lines on the chart seem to oscillate around 0. A negative would mean that the banker felt the opposite of what is being charted, I suppose. For example, a negative Banks Tightening figure means that more bankers answered that they were easing standards. A negative Reporting Stronger Demand line would mean that demand was weaker.
Anyhow, this indicator might provide insight into how many small businesses are seeking to employ financial leverage. Those insights can be compared with the indicators measuring expansion and contraction. If the small business environment seems ripe, but few are willing to leverage in this environment, then maybe the optimism about the future is shaky.
Don’t forget to check out the accompanying tables for a more quantifiable view of the data.
No industry or state-specific information seems to be available for this indicator.
Business Lending
This indicator compares small business loan volume to that of big business.
The Federal Deposit Insurance Corporation (FDIC) Quarterly Banking Profile is the source of this information.
Commercial and industrial loans to small businesses are measured. As are real estate loans under $1 million.
Like the Small Business Loan Supply and Demand indicator, I think this is indicative of small business owner optimism. If small business owners feel like the environment is good for investment, they are more likely to borrow. If they don’t feel like they can earn an adequate return for the risk, they will likely limit their exposure.
It’s wise to look at small business lending in several different ways. One indicator might tell you one thing. Another indicator – something else. When you get conflicting (credible) information you should investigate. You’ll hopefully come out the other end a shrewder businessperson.
Credit: fdic.gov Click to enlarge
Small Business Loan Approval Rates
This indicator provides valuable information two-fold. First, it gives you an idea of what the odds are of getting approved for a small business loan. Second, it breaks the approval rates down by the type of financial institution.
Granted, you don’t know the quality of the applicants measured by this indicator. That is something that would help to put this information into perspective. Are they startups or existing businesses? Maybe they aren’t adapting appropriately to changes in cash flow.
Big banks, small banks, credit unions, and alternative sources are measured. This might provide some insight as to where to go if your small business needs financing.
Unlike the other indicators, this one is more of a snapshot. Historical information is displayed. But only for the same month three and six years ago. It is not presented as a time series.
This gives you an idea of how well to prepare and where to focus your efforts when you need financing. If lenders are becoming more discerning, then you know that you’ll need to create a better business plan.
What you see in the Bulletin is pretty much all there is in the report itself. No state, industry, or size breakdown is provided.
Loan Charge-Off and Delinquency Rates
This indicator gives you an idea of how effectively other businesses are employing their leverage.
Granted, it really only points out what percentage of businesses are doing poorly. It doesn’t say much about the upside. Only the downside.
The description of the report doesn’t outline exactly how the terms are defined.
My interpretation is that Delinquency means that one or more payments are late. Maybe even only by one day.
Charge-Off likely means that the bank has written off the loan against their reserves. They feel that payment for the remaining balance is extremely unlikely.
This serves as a lagging indicator for some of the others. I think the indicator it ties to best is Business Lending. If Business Lending is increasing, but Delinquency is level, we can assume that businesses are finding a good use for the borrowed money.
No state, size, or industry-specific information is available.
Credit: federalreserve.gov
Business plan economic analysis for my startup
I don’t know if I’ll finance my startup with debt or equity. Therefore, I don’t know if the lending indicators are relevant to my business plan. If I plan on using debt financing, I can circle back and scrutinize the relevant indicators.
Right now, I don’t plan on hiring any employees. So the Small Business Job Creation indicator isn’t currently relevant either.
Of the remaining three indicators, two are somewhat redundant – Small Business Employer Firms and Business Births vs. Deaths.
I feel like the Business Births vs. Deaths indicator gives a little more insight. Let’s look at what it shows for my industry – Wholesale trade.
Credit: data.bls.gov
Not terribly encouraging. In 2014, Births fell below Deaths and seemed to stay there. This suggests, possibly, consolidation in the industry. Big, strong firms forcing out smaller, weaker ones.
What about Proprietors’ Income?
More encouraging. Proprietors’ Income has risen sharply in my state since Q1 of 2016. Despite the title, the table doesn’t have a NAICS breakdown. But it doesn’t.
So, I don’t know the whole story. If this rise took place in my industry, I could assume that there’s plenty of money to be made. It’s just going to fewer hands. This means that I had better have a sound plan for success.
Click to enlarge
Credit: apps.bea.gov
What other indicators should I have included in my business plan economic analysis?
Which indicators are important for your business plan economic analysis?
In order to estimate how much in sales your startup can hope for, you’re going to have to estimate the market size for your product/service(s). This is critical for your startup because it will give you an idea of your business’ potential. It will also help you plan for capacity-related issues.
2 approaches to estimating the market size for a business plan
I cover this topic more in-depth in a post on market size and growth rate on my sister site, InvestSomeMoney.com.
The context there is focused on investing your money in a publicly-traded company. Though that’s a little different than what we are doing here, the fundamental principles remain the same.
The goal is to determine how many potential customers there are for a business and how much they are willing to spend. In order to do that, we can employ two general methods. These methods are a top-down analysis and a bottom-up approach to understand market size and growth.
One way to think about this is that a bottom-up approach uses multiplication and a top-down analysis uses division to arrive at an estimated market size.
After writing on this subject several times, I’ve come up with another way to think about these methods. I think a bottom-up approach should look internally, at things like unit size and capacity. A top-down analysis should look externally at things like demographics and market research.
Looking at this from these two different perspectives opens the door for further analysis. When you’re done, you should know whether you can expect to be capacity constrained or demand constrained. You’ll also start to flesh out some ideas that will help you further into your business plan.
If you do an analysis with both approaches, you can compare the results. For instance, if your bottom-up approach is higher, you’ll know that you could have excess capacity issues. You need to consider scaling that back or otherwise expanding your product/service offering to drum up additional demand.
Conversely, if your top-down analysis reveals that demand is in excess of capacity, then you are leaving money on the table. Time to start thinking about what you can do to scale up and capture as much of the market as possible.
Let’s start by taking a look at a bottom-up approach to estimating the market size for a business plan.
Bottom-up approach example
On my sister site, InvestSomeMoney.com, I researched three real-life examples of a bottom up market sizing approach. In those examples, you’ll see that they sometimes mix in a little top-down analysis with their bottom-up approach and vice versa. There’s no rule against doing that, but I would rather look at things from two totally different perspectives.
When using a bottom-up approach, try to start with the most simplistic piece of firm information you can get your hands on. Then, start to build on it with other information, or the best guess you can muster.
You can think of a bottom-up approach as one that focuses on how much and how often customers will buy.
This information might be something you have internally. Or, it might be from the information you found by researching online. Start with a single “serving size” of your product/service. Then, think about how often a customer would buy. Work your way up from there.
There’s still a lot to consider regarding packaging volume and dosage. That will require more thought. But, for the time being, I’m going to estimate the volume of a one month’s supply and the daily dosage to be the same as Rogaine. If that changes as I progress with my business plan, I can easily circle back to this and plug in different numbers.
With Rogaine as my benchmark, I know that a dosage of my product would be 1 mL. The product would be used twice a day. My product would come in 2 oz (60 ml) bottles. Each bottle would be one month’s supply, as I said.
Thinking about capacity
Okay. Now that I have a grasp on the package size – what about blending and packaging? If this idea were to come to fruition, I don’t picture myself blending batches in my bathtub and filling bottles with a ladle and a funnel. I would need access to some sort of industrial equipment.
Fortunately, a quick internet search shows that there is no shortage of contract blenders and packagers out there. Especially for food and supplements. What it costs, remains to be seen. That’s an issue for another time. For now, I just want to get an idea of how much I could manufacture.
This company claims it can blend 1.25 million pounds per workday. We’ll assume, for now, this represents the average contract blender/packager. What does that translate into in terms of 2 oz bottles?
First of all, I wouldn’t need all 26 of their kettles. Only one, tops, especially at startup. So, if we divide the 1.25 million pounds by 26, we get a per kettle capacity of about 48,000 lbs per day.
Pounds are a weight unit of measure (UOM) and ounces are a volume UOM. To make the conversion, we’re going to have to do some more estimating.
Water weighs a little over 8 lbs/gallon. We’ll assume my product has roughly the same density.
8 lbs ÷ 128 oz (per gallon) = .0625 lbs/oz. With each bottle containing 2 oz, we know that it’ll weigh approximately .125 lbs/bottle.
This means that with one of this company’s kettles, I could blend 384,615 bottles worth of product per day. 96.5 million bottles per year. At an approximate sales price of $7.50 per bottle, that translates into nearly $725 million in revenue per year.
Okay, I’ve looked at things from a bottom-up, capacity-focused approach. Let’s now consider a top-down, demographic-focused analysis.
Top-down analysis
Not surprisingly, I also wrote a post on InvestSomeMoney.com with examples of a top-down analysis to determine market size for a business plan. When you read through it, you might notice that some of the examples use Census data (or something similar). They take big chunks of information and start narrowing down their market from there.
Which brings us to three important terms for performing a top-down analysis. These are:
Total addressable market (TAM) Serviceable available market (SAM) and Serviceable obtainable market (SOM)
A SOM is a fraction of the SAM. In turn, a SAM is part of the TAM.
The TAM can be thought of as every potential customer that you can reach geographically. The SAM is what’s left when you niche down a little into the population that is a good fit for your unique selling proposition. Finally, the SOM represents the percentage of the SAM you can realistically expect to take.
It’s unlikely that you will ever capture 100% of the SAM. Even in a specific niche, you can’t be everything to everyone. That’s alright, though. The goal of this exercise is to make realistic estimates so that you have a sound business plan to work from.
When doing a top-down analysis, start with a large population or an overall industry size. From there, narrow down your customer until you arrive at your SOM. It helps to have a “customer avatar” in mind before starting a top-down analysis so you know where to niche down to.
I would suggest you perform a business plan demand analysis first to get a crystal clear picture of what that avatar is. You might think you know it intuitively. But you might be surprised at what you find – like I was!
A top-down analysis for my business plan
I know that not every person in the U.S. (much less the world) is going to want or need an all-natural topical supplement for hair loss. Who might though???
I’ll refer back to my handy-dandy business plan demand analysis (linked above) to see what I can find.
Here, I’m reminded of the ages that men and women first started experiencing hair loss. I’m reminded of the percentage that has sought any sort of treatment. Finally, I’m given an idea of what types of treatment they have tried.
A quick visit to Data.Census.Gov and I find table S0101, which gives me the U.S. population by age and sex. I customize and filter the table real quick. Then, I copy and paste the data I need into my spreadsheet.
Next step is to narrow these numbers down. I’ll use the “regular” numbers and the pessimistic numbers from sensitivity analysis from my business plan demand workbook.
I want to know the percentage of men who have had hair loss and tried any sort of treatment. Then, I want to go deeper and estimate the number that has found supplements to be effective. I’ll do this for both the most-likely and the worst-case scenarios. On the women’s side, I’ll do, more or less, the same thing.
TAM and SAM
You’ll see that I didn’t use the same age ranges for men and women. I assumed that males would start experiencing hair loss earlier, but would also stop caring about it earlier too.
The age range for males in my TAM was 20 – 54. For females, it was 25 – 59. This translates into a TAM of 151 million people in the U.S.
For the SAM, my worst-case scenario estimated that .9% of the male population in the target age ranges would be part of my market. 1.54% of females in the target age ranges were also assumed to be part of my market. This translated into a worst-case SAM of 1.8 million people.
As for my most-likely SAM, I estimated that 1.41% of males and 2.4% of females in the target age ranges were potential customers. This resulted in a SAM of 2.88 million people. Over a million more potential customers.
SOM
SOM is tricky.
Who’s to say what percentage of the SAM my company could capture? Obviously, it would start at 0% and work its way up from there. Where would it stop though?
It will depend, in part, on the number of companies vying for this niche. As I often do, I will refer to the Pareto principle. The Pareto principle states that 20% of the inputs will be responsible for 80% of the outputs. Put another way, 20% of the companies will have roughly 80% of the market share.
I’ll refer back, again, to my post on business plan demand. In it, I found three direct substitutions for my topical hair loss product. I won’t include Minoxidil (Rogaine) in that group, because of its unnatural chemistry.
Again, without getting too mired in math, I estimate that there are approximately thirty companies in the topical hair loss supplement space. This was a quick and dirty estimate based on the results of an internet search.
Six of those thirty companies probably control 80% of the market. That leaves 4.2% (1 ÷ 24) of the remaining 20% as my short-term SOM. Obviously, if my product were to take off, that amount could grow considerably and could approach the SAM.
What that means as far as the market size is 15K people worst-case and 24K people most-likely. At 12 bottles purchased per year, this translates into 184K and 287.5K bottles per year respectively.
Here’s a look at the spreadsheet breaking that all down:
Click to enlarge
Comparing a bottom-up and top-down analysis when determining market size for a business plan
Obviously, a couple hundred thousand bottles (top-down) is a far cry from 96.5 million (bottom-up). So, it would appear I will not be capacity constrained in the near future. In fact, as this startup moves forward, I need to make sure I’m not over-buying capacity. Those huge fixed costs could kill my business before it has a chance to get off the ground.
Speaking of fixed costs, the information from this analysis has given me good data to build my pro forma financials – when that time comes.
Now, at some point in the future, selling my product internationally could be an option. However, in this tiny niche, it is unlikely that I’ll ever need that much capacity for this one product.
Market size for a business plan
What were there factors I didn’t consider (but should have) when estimating my potential market size?
